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Nature of Operations and Summary of Significant Accounting Policies (Policies)
 12 Months Ended
Dec. 31, 2022
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Business Combinations and Other Purchase of Business Transactions We generate our revenue primarily from interest received on loans and leases and, to a lesser extent, from interest received on investment securities, and fees received in connection with deposit services, extending credit and other services offered, including treasury management and investment management services. Our major operating expenses are interest paid by the Bank on deposits and borrowings, compensation, occupancy, and general operating expenses.
Recently issued Accounting Standards
(a) Accounting Standards Adopted in 2022
Effective January 1, 2022, the Company partially adopted ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326),” specifically the amendment related to the vintage disclosures, which requires creditors that are public entities to disclose current-period gross charge-offs by year of origination for financing receivables and net investments in leases within the scope of ASC 326-20, “Financial Instruments – Credit Losses – Measured at Amortized Cost.” The amendment also eliminates the disclosure of gross recoveries by year of origination previously presented in Example 15 in ASC 326-20-50-79, since it is not required under the guidance in ASC 326-20-50-6. The Company updated the vintage table disclosure in Note 5. Loans and Leases to present only current-period gross charge-offs by year of origination. The adoption of this amendment did not have a material impact on the Company’s consolidated financial statements.
Recently Issued Accounting Standards
EffectiveEffect on the Financial Statements
StandardDescriptionDateor Other Significant Matters
ASU 2020-04, "Reference Rate Reform (Topic 848)" and ASU 2021-01, “Reference Rate Reform (Topic 848): Scope)"
This standard provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other agreements affected by the anticipated transition away from LIBOR toward new interest reference rates. For agreements that are modified because of reference rate reform and that meet certain scope guidance: (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered “minor” so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. Additionally, the amendments in ASU 2021-01 clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Specifically, certain provisions in Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. ASU 2020-04 is effective immediately, as of March 12, 2020, and may be applied prospectively to contract modifications made and hedging relationships entered into on or before December 31, 2022. ASU 2021-01 is also effective immediately. Entities may elect to apply the amendments on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to January 7, 2021 and up to December 31, 2022.Effective upon the issuance date of March 12, 2020, and once adopted, will apply to contract modifications made and hedging relationships entered into on or before December 31, 2022.
The Company has established a cross-functional project team and implementation plan to facilitate the LIBOR transition.
As of December 31, 2021, the Company permanently ceased originating any new loans or entering into any transaction that would increase its LIBOR-based exposure. For all new variable-rate and hybrid loans, the Company primarily offers Prime and SOFR as the variable-rate index.
The Company has completed its readiness efforts to identify loans and other financial instruments that are impacted by the discontinuance of LIBOR. The Company has also completed its review for fallback language contained in contracts for LIBOR-based loans and other financial instruments and has amended a substantial portion of those legacy contracts maturing after June 30, 2023 by adding fallback language or to convert the base rate of the contract to a SOFR-based rate or another rate or index offered by the Company. In 2022, Congress passed the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”). The LIBOR Act facilitates the replacement of existing LIBOR based benchmarks with an applicable SOFR rate for outstanding contracts referencing a LIBOR benchmark as of June 30, 2023. We anticipate that the substantial majority of the remaining legacy LIBOR based contracts will transition to a SOFR rate following the AARC’s rate replacement methodology.
The Company will also continue to assess impacts to its operations, financial models, data and technology as part of our transition plan. The Company is currently evaluating the impact of this Update on its consolidated financial statements but does not expect it to have a material impact.
EffectiveEffect on the Financial Statements
StandardDescriptionDateor Other Significant Matters
ASU 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848"
This standard extends the period of time that preparers can utilize the reference rate reform relief guidance provided by ASU 2020-04 and ASU 2020-01. The standard defers the sunset date of this prior guidance from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief guidance in Topic 848. ASU 2022-06 was effective upon issuance date of December 21, 2022.
December 21, 2022
The adoption of this standard did not have a material impact on the Company's consolidated financial statements.
EffectiveEffect on the Financial Statements
StandardDescriptionDateor Other Significant Matters
ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
This standard requires that an entity (acquirer) recognizes and measures contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At acquisition date, an acquirer should account for the related revenue contracts with customers in accordance with Topic 606 as if it had originated the contracts. The acquirer should consider the terms of the acquired contracts, such as timing of payment, identify each performance obligation in the contracts and allocate the total transaction price to each identified performance obligation on a relative standalone selling price basis as of contract inception or contract modification to determine what should be recorded at the acquisition date. The amendments improve comparability by providing consistent recognition and measurement guidance for revenue contracts with customers whether they are acquired and not acquired in a business combination. The amendments should be applied prospectively to business combinations occurring on or after the effective date. Additionally, early adoption is permitted.

January 1, 2023
The Company will apply the amendments prospectively to business combinations occurring on or after the effective date. This standard is not expected to have a material impact on the Company’s consolidated financial statements.
 
Basis of Presentation
(b) Basis of Presentation
The accounting and reporting policies of the Company are in accordance with U.S. generally accepted accounting principles, which we may refer to as U.S. GAAP. In the opinion of management, all significant intercompany accounts and transactions have been eliminated and adjustments, consisting solely of normal recurring accruals and considered necessary for the fair presentation of financial statements have been included.
Use of Estimates Use of EstimatesThe Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period to prepare these consolidated financial statements in conformity with U.S. GAAP. Actual results could differ from those estimates. Material estimates subject to change in the near term include, among other items, the allowance for credit losses (the combination of the allowance for loan and lease losses and the reserve for unfunded loan commitments), the carrying value of goodwill and other intangible assets, and the realization of deferred tax assets. These estimates may be adjusted as more current information becomes available, and any adjustment may be significant.
Cash and Cash Equivalents Cash and Cash EquivalentsFor purposes of the consolidated statements of cash flows, cash and cash equivalents consist of: (1) cash and due from banks, (2) interest‑earning deposits in financial institutions, and (3) securities purchased under resale agreements. Interest‑earning deposits in financial institutions represent mostly cash held at the FRBSF, the majority of which is immediately available.
Investment Securities Investment in Debt Securities
We determine the classification of securities at the time of purchase. If we have the intent and the ability at the time of purchase to hold securities until maturity, they are classified as held‑to‑maturity and stated at amortized cost. Securities to be held for indefinite periods of time, but not necessarily to be held‑to‑maturity or on a long‑term basis, are classified as available‑for‑sale and carried at estimated fair value, with unrealized gains or losses reported as a separate component of stockholders’ equity in accumulated other comprehensive income (loss), net of applicable income taxes. Securities available‑for‑sale include securities that management intends to use as part of its asset/liability management strategy and that may be sold in response to changes in interest rates, prepayment risk, and other related factors. Securities are individually evaluated for appropriate classification when acquired. As a result, similar types of securities may be classified differently depending on factors existing at the time of purchase.
The carrying values of all securities are adjusted for amortization of premiums and accretion of discounts using the interest method. Premiums on callable securities are amortized to the earliest call date. Realized gains or losses on the sale of securities, if any, are determined using the amortized cost of the specific securities sold. Such gains or losses are included in "Gain on sale of securities" on the consolidated statements of earnings (loss).
Available-for-sale debt securities. Debt securities available-for-sale are measured at fair value and are subject to impairment testing. A security is impaired if the fair value of the security is less than its amortized cost basis. When an available-for-sale debt security is considered impaired, the Company must determine if the decline in fair value has resulted from a credit-related loss or other factors and then, (1) recognize an allowance for credit losses by a charge to earnings for the credit-related component (if any) of the decline in fair value, and (2) recognize in other comprehensive income (loss) any non-credit related components (if any) of the fair value decline. If the amount of the amortized cost basis expected to be recovered increases in a future period, the valuation allowance would be reduced, but not more than the amount of the current existing allowance for that security.
Transfer between categories of debt securities. Upon transfer of a debt security from the available-for-sale category to the held-to-maturity category, the security's new amortized cost is reset to fair value, reduced by any previous write-offs but excluding any allowance for credit losses. Any associated unrealized gains or losses on such investments as of the date of transfer become part of the security's amortized cost and are subsequently amortized or accreted into interest income over the remaining life of the securities as effective yield adjustments using the interest method. In addition, the related unrealized gains and losses included in accumulated other comprehensive income on the date of transfer are also subsequently amortized or accreted into interest income over the remaining life of the securities as effective yield adjustments using the interest method. For transfers of securities from the available-for-sale category to the held-to-maturity category, any allowance for credit losses that was previously recorded under the available-for-sale model is reversed and an allowance for credit losses is subsequently recorded under the held-to-maturity debt security model. The reversal and re-establishment of the allowance for credit losses are recorded in the "Provisions for credit losses" on the Company's consolidated statements of earnings (loss).
Held-to-maturity debt securities. Debt securities that the Company has the intent and ability to hold until maturity are classified as held-to-maturity and are carried at amortized cost, net of the allowance for credit losses. Held-to-maturity debt securities are generally placed on nonaccrual status using factors similar to those described for loans. The amortized cost of the Company's held-to-maturity debt securities excludes accrued interest receivable, which is included in "Other assets" on the Company's consolidated balance sheets. The Company has made an accounting policy election not to recognize an allowance for credit losses for accrued interest receivable on held-to-maturity debt securities, as the Company reverses any accrued interest against interest income if a debt security is placed on nonaccrual status. Any cash collected on nonaccrual held-to-maturity securities is applied to reduce the security's amortized cost basis and not as interest income. Generally, the Company returns a held-to-maturity security to accrual status when all delinquent interest and principal become current under the contractual terms of the security, and the collectability of remaining principal and interest is no longer doubtful.
(g) Allowance for Credit Losses on Held-to-Maturity Debt SecuritiesThe allowance for credit losses for held-to-maturity debt securities is recorded at the time of purchase, acquisition, or when the Company designates securities as held-to-maturity, representing the Company's best estimate of current expected credit losses as of the date of the consolidated balance sheets. For each major held-to-maturity debt security type, the allowance for credit losses is estimated collectively for groups of securities with similar risk characteristics. For debt securities that do not share similar risk characteristics, the losses are estimated individually. Debt securities that are either guaranteed or issued by the U.S. government or government agency, are highly rated by major rating agencies, and have a long history of no credit losses, are an example of such securities to which the Company applies a zero credit loss assumption. Any expected credit loss is provided through the allowance for credit losses on held-to-maturity debt securities and deducted from the amortized cost basis of the security, so that the balance sheet reflects the net amount that the Company expects to collect.
Loans and Leases Loans and Leases
Originated loans. Loans are originated by the Company with the intent to hold them for investment and are stated at the principal amount outstanding, net of unearned income. Unearned income includes deferred unamortized nonrefundable loan fees and direct loan origination costs. Net deferred fees or costs are recognized as an adjustment to interest income over the contractual life of the loans primarily using the effective interest method or taken into income when the related loans are paid off or sold. The amortization of loan fees or costs is discontinued when a loan is placed on nonaccrual status. Interest income is recorded on an accrual basis in accordance with the terms of the respective loan.
Purchased loans. Purchased loans are stated at the principal amount outstanding, net of unearned discounts or unamortized premiums. All loans acquired in our acquisitions are initially measured and recorded at their fair value on the acquisition date. A component of the initial fair value measurement is an estimate of the credit losses over the life of the purchased loans. Purchased loans are also evaluated to determine if they have experienced a more-than-insignificant deterioration in credit quality since origination or issuance as of the acquisition date and are classified as either (i) loans purchased without evidence of deteriorated credit quality (“non-PCD loans”), or (ii) loans purchased that have experienced a more-than-insignificant deterioration in credit quality, referred to as purchased credit deteriorated loans ("PCD loans”).
Acquired non‑PCD loans. Acquired non‑PCD loans are those loans for which there was no evidence of a more-than-insignificant credit deterioration at their acquisition date and it was probable that we would be able to collect all contractually required payments. Acquired non‑PCD loans, together with originated loans, are referred to as Non‑PCD loans. Purchase discounts or premiums on acquired non‑PCD loans are recognized as an adjustment to interest income over the contractual life of such loans using the effective interest method or taken into income when the related loans are paid off or sold.
Purchased loans with credit deterioration. An entity records purchased financial assets with credit deterioration ("PCD assets") at the purchase price plus the allowance for credit losses expected at the time of acquisition. This allowance is recognized through a gross-up that increases the amortized cost basis of the asset with no effect on net income. Subsequent changes (favorable and unfavorable) in expected cash flows are recognized immediately in net income by adjusting the related allowance.
Leases to customers. We provide equipment financing to our customers primarily with direct financing and operating leases. For direct financing leases, lease receivables are recorded on the balance sheet under "Gross loans and leases held for investment," but the leased property is not, although we generally retain legal title to the leased property until the end of each lease. Direct financing leases are stated at the net amount of minimum lease payments receivable, plus any unguaranteed residual value, less the amount of unearned income and net acquisition discount at the reporting date. Direct lease origination costs are amortized using the effective interest method over the life of the leases. Leases acquired in an acquisition are initially measured and recorded at their fair value on the acquisition date. Purchase discount or premium on acquired leases is recognized as an adjustment to interest income over the contractual life of the leases using the effective interest method or taken into income when the related leases are paid off. Direct financing leases are subject to our accounting for allowance for loans and leases.
We provide equipment financing through operating leases where we facilitate the purchase of equipment leased to customers. The equipment is shown on our consolidated balance sheets as "Equipment leased to others under operating leases" and is depreciated to its estimated residual value at the end of the lease term, shown as "Leased equipment depreciation" in the consolidated statements of earnings (loss), according to our fixed asset accounting policy. We receive periodic rental income payments under the leases, which are recorded as "Noninterest income" in the consolidated statements of earnings (loss).
Loans and leases held for sale. As part of our management of the loans and leases held in our portfolio, on occasion we will transfer loans from held for investment to held for sale. Upon transfer, any associated allowance for loan and lease loss is charged off and the carrying value of the loan is adjusted to the lower of cost or estimated fair value. The unamortized balance of net deferred fees and costs associated with loans held for sale is not accreted or amortized to interest income until the related loans are sold. Gains or losses on the sale of these loans are recorded as "Noninterest income" in the consolidated statements of earnings.
Delinquent or past due loans and leases. Loans and leases are considered delinquent when principal or interest payments are past due 30 days or more. Delinquent loans may remain on accrual status between 30 days and 89 days past due.
Nonaccrual loans and leases. When we discontinue the accrual of interest on a loan or lease it is designated as nonaccrual. We discontinue the accrual of interest on a loan or lease generally when a borrower's principal or interest payments or a lessee's payments are past due 90 days or when, in the opinion of management, there is a reasonable doubt as to collectability in the normal course of business. Loans with interest or principal payments past due 90 days or leases with payments past due 90 days may be accruing if the loans or leases are concluded to be well-secured and in the process of collection; however, these loans or leases are still reported as nonperforming. When loans or leases are placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Interest on nonaccrual loans or leases is subsequently recognized only to the extent that cash is received and the loan principal balance or lease balance is deemed collectable. Loans or leases are restored to accrual status when the loans or leases become both well‑secured and are in the process of collection.
Individually Evaluated Loans and Leases. Loans and leases that do not share similar risk characteristics with other financial assets are individually evaluated for impairment and excluded from loan pools used within the collective evaluation of estimated credit losses. We defined the following criteria for what constitutes a “default,” which results in a loan no longer sharing similar risk characteristics with other loans, and therefore requires an individual evaluation for expected credit losses. The criteria for default may include any one of the following:
•On nonaccrual status,
•Modified under a TDR,
•Payment delinquency of 90 days or more,
•Partial charge-off recognized,
•Risk rated doubtful or loss, or
•Reasonably expected to be modified under a TDR.
Defaulted loans and leases with outstanding balances over $250,000 are reviewed individually for expected credit loss. Individually evaluated loans are measured at the present value of the expected future cash flows discounted at the loan's initial effective interest rate, unless the loans are collateral dependent, in which case loan impairment is based on the estimated fair value of the underlying collateral. A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The fair value of each loan’s collateral is generally based on estimated market prices from an independently prepared appraisal, which is then adjusted for the cost related to liquidating such collateral. An individually evaluated reserve and/or charge off would be recognized when the present value of expected future cash flows or the fair value of the underlying collateral is below the amortized cost of the loan. If the measured amount of any individually reviewed loan exceeds its amortized cost, further review is required to determine whether a positive allowance should be added (but only up to amounts previously written off) to its amortized cost basis in order to reflect the net amount expected to be collected.
Troubled debt restructurings. A loan is classified as a troubled debt restructuring when we grant a concession to a borrower experiencing financial difficulties that we otherwise would not consider under our normal lending policies. These concessions may include a reduction of the interest rate, principal or accrued interest, extension of the maturity date or other actions intended to minimize potential losses. All modifications of criticized loans are evaluated to determine whether such modifications are troubled debt restructurings as outlined under ASC Subtopic 310‑40, “Troubled Debt Restructurings by Creditors.” Loans restructured with an interest rate equal to or greater than that of a new loan with comparable market risk at the time the loan is modified may be excluded from certain restructured loan disclosures in years subsequent to the restructuring if the loans are in compliance with their modified terms.
Between March 2020 and December 2021, the Company granted various commercial and consumer loan modifications to provide borrowers relief from the economic impacts of COVID-19. In accordance with the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, the Company elected to not apply TDR classification to COVID-19 related loan modifications that met all of the requisite criteria as stipulated in the CARES Act.
A loan that has been placed on nonaccrual status that is subsequently restructured will usually remain on nonaccrual status until the borrower is able to demonstrate repayment performance in compliance with the restructured terms for a sustained period of time, typically for six months. A restructured loan may return to accrual status sooner based on other significant events or circumstances. A loan that has not been placed on nonaccrual status may be restructured and such loan may remain on accrual status after such restructuring. In these circumstances, the borrower has made payments before and after the restructuring. Generally, this restructuring involves maturity extensions, a reduction in the loan interest rate and/or a change to interest‑only payments for a period of time. Loan modifications that qualify as troubled debt restructurings are individually evaluated for expected credit losses based on the present value of expected cash flows discounted at the loan’s original effective interest rate or based on the fair value of the collateral if the loan is collateral-dependent.
Allowance for Credit Losses Allowance for Credit Losses on Loans and Leases Held for Investment
The allowance for loan and lease losses is measured using the current expected credit loss ("CECL") approach for financial instruments measured at amortized cost and other commitments to extend credit. CECL requires the immediate recognition of estimated credit losses expected to occur over the estimated remaining life of the asset. The forward-looking concept of CECL requires loss estimates to consider historical experience, current conditions and reasonable and supportable forecasts.
The allowance for credit losses on loans and leases held for investment is the combination of the allowance for loan and lease losses and the reserve for unfunded loan commitments. The allowance for loan and lease losses is reported as a reduction of the amortized cost basis of loans and leases, while the reserve for unfunded loan commitments is included within "Accrued interest payable and other liabilities" on the consolidated balance sheets. The amortized cost basis of loans and leases does not include accrued interest receivable, which is included in "Other assets" on the consolidated balance sheets. The "Provision for credit losses" on the consolidated statements of earnings (loss) is a combination of the provision for loan and lease losses, the provision for unfunded loan commitments, and the provision for held-to-maturity debt securities.
Under the CECL methodology, expected credit losses reflect losses over the remaining contractual life of an asset, considering the effect of prepayments and available information about the collectability of cash flows, including information about relevant historical experience, current conditions, and reasonable and supportable forecasts of future events and circumstances. Thus, the CECL methodology incorporates a broad range of information in developing credit loss estimates. The resulting allowance for loan and lease losses is deducted from the associated amortized cost basis to reflect the net amount expected to be collected. Subsequent changes in this estimate are recorded through the provision for credit losses and the allowance. The CECL methodology could result in significant changes to both the timing and amounts of provision for credit losses and the allowance as compared to historical periods. Loans and leases that are deemed to be uncollectable are charged off and deducted from the allowance. The provision for credit losses and recoveries on loans and leases previously charged off are added to the allowance.
The allowance for loan and lease losses is comprised of an individually evaluated component for loans and leases that no longer share similar risk characteristics with other loans and leases and a pooled loans component for loans and leases that share similar risk characteristics.
A loan or lease with an outstanding balance greater than $250,000 is individually evaluated for expected credit loss when it is probable that we will be unable to collect all amounts due according to the original contractual terms of the agreement. We select loans and leases for individual assessment on an ongoing basis using certain criteria such as payment performance, borrower reported and forecasted financial results, and other external factors when appropriate. We measure the current expected credit loss of an individually evaluated loan or lease based upon the fair value of the underlying collateral if the loan or lease is collateral-dependent or the present value of cash flows, discounted at the effective interest rate, if the loan or lease is not collateral-dependent. To the extent a loan or lease balance exceeds the estimated collectable value, a reserve or charge-off is recorded depending upon either the certainty of the estimate of loss or the fair value of the loan’s collateral if the loan is collateral-dependent.
Our CECL methodology for the pooled loans component includes both quantitative and qualitative loss factors which are applied to our population of loans and leases and assessed at a pool level. The quantitative CECL model estimates credit losses by applying pool-specific probability of default ("PD") and loss given default ("LGD") rates to the expected exposure at default ("EAD") over the contractual life of loans and leases. The qualitative component considers internal and external risk factors that may not be adequately assessed in the quantitative model.
The loan portfolio is segmented into four loan segments, eight loan classes, and 20 loan pools (excluding Paycheck Protection Program loans, which are fully government guaranteed) based upon loan type that share similar default risk characteristics to calculate quantitative loss factors for each pool. Two of these loan pools have insignificant current balances and/or insignificant historical losses, thus, estimated losses are calculated using historical loss rates from the first quarter of 2009 to the current period rather than econometric regression modeling. For the purchased single-family residential mortgage loans, a third-party model for estimating prepayment, PD, and LGD based on forecasted economic conditions and historical residential mortgage loan performance from 2004 to June 2020 is applied. For the remaining 17 loan pools, we estimate the PD during the reasonable and supportable forecast period using seven econometric regression models developed to correlate macroeconomic variables to historical credit performance (based on quarterly transition matrices for the economic cycle from 2009 to 2019, which include risk rating upgrades/downgrades and defaults).
The loans and unfunded commitments are grouped into nine LGD pools based on portfolio classes that share similar collateral risk characteristics. LGD rates are computed based on the net charge-offs recognized divided by the EAD of defaulted loans starting with the first quarter of 2009 to the current period. The PD and LGD rates are applied to the EAD at the loan or lease level based on contractual scheduled payments and estimated prepayments. We use our actual historical loan prepayment experience from 2009 to the first quarter of 2022, adjusted for forecasted economic conditions, to estimate future prepayments by loan pool. Loans and leases with outstanding balances less than or equal to $250,000, where it is probable that we will be unable to collect all amounts due according to the contractual terms of the agreement, remain in their respective pools and are assigned a 100% probability of default.
For the reasonable and supportable forecast period, future macroeconomic events and circumstances are estimated over a 4-quarter time horizon using an economic forecast that is consistent with management's current expectations for the 17 loan pools. We use economic forecasts from Moody's Analytics in this process. The economic forecast is updated monthly; therefore, the forecast used for each quarter-end calculation is generally released a few weeks prior to quarter-end. If economic conditions as of the balance sheet date change materially, management would consider a qualitative adjustment. The key macroeconomic assumptions used in each of the seven PD regression models include two or three of the following economic indicators: Real GDP, unemployment rates, CRE Price Index, the BBB corporate spread, nominal disposable income, and CPI.
The quantitative CECL model applies the projected rates based on the economic forecasts for the 4-quarter reasonable and supportable forecast horizon to EAD to estimate defaulted loans. During this forecast horizon, prepayment rates during a historical period that exhibits economic conditions most similar to the economic forecast are used to estimate EAD. If no historical period exhibits economic conditions that are similar to the economic forecast, management uses its best estimate of prepayments expected over the reasonable and supportable forecast period which may, in some circumstances, be the average of all historical prepayment experience. Historical LGD rates are applied to estimated defaulted loans to determine estimated credit losses. We then use a 2-quarter reversion period to revert on a straight-line basis from the PD, LGD, and prepayment rates used during the reasonable and supportable forecast period to the Company’s historical PD, LGD, and prepayment experience. Subsequent to the reversion period for the remaining contractual life of loans and leases, the PD, LGD, and prepayment rates are based on historical experience during a full economic cycle. PD regression models and prepayment rates are updated on an annual basis. During the annual model performance assessment for 2021 and 2022, we considered updating the PD models with 2020 data, however, we elected not to include historical data from 2020 to assess the quantitative expected credit losses because we believe 2020 did not represent normal economic behavior considering the changes in macroeconomic variables and the significant levels of government relief programs. As such, we continued to use the most recent and complete economic cycle from 2009 to 2019 to assess quantitative expected credit losses. LGD rates are updated every quarter to reflect current charge-off activity.
The PDs calculated by the quantitative models are highly correlated to our internal risk ratings assigned to each loan and lease. To ensure the accuracy of our credit risk ratings, an independent credit review function assesses the appropriateness of the credit risk ratings assigned to loans and leases on a regular basis. The credit risk ratings assigned to every loan and lease are as follows:
•High Pass: (Risk ratings 1-2) Loans and leases rated as "high pass" exhibit a favorable credit profile and have minimal risk characteristics. Repayment in full is expected, even in adverse economic conditions.
•Pass: (Risk ratings 3-4) Loans and leases rated as "pass" are not adversely classified and collection and repayment in full are expected.
•Special Mention: (Risk rating 5) Loans and leases rated as "special mention" have a potential weakness that requires management's attention. If not addressed, these potential weaknesses may result in further deterioration in the borrower's ability to repay the loan or lease.
•Substandard: (Risk rating 6) Loans and leases rated as "substandard" have a well-defined weakness or weaknesses that jeopardize the collection of the debt. They are characterized by the possibility that we will sustain some loss if the weaknesses are not corrected.
•Doubtful: (Risk rating 7) Loans and leases rated as "doubtful" have all the weaknesses of those rated as "substandard," with the additional trait that the weaknesses make collection or repayment in full highly questionable and improbable.
We may refer to the loans and leases with assigned credit risk ratings of "substandard" and "doubtful" together as "classified" loans and leases. For further information on classified loans and leases, see Note 5. Loans and Leases.
In addition to our internal risk rating process, our federal and state banking regulators, as an integral part of their examination process, periodically review the Company’s loan and lease risk rating classifications. Our regulators may require the Company to recognize rating downgrades based on information available to them at the time of their examinations. Risk rating downgrades generally result in increases in the provisions for credit losses and the allowance for credit losses.
The qualitative portion of the reserve on pooled loans and leases represents management’s judgment of additional considerations to account for internal and external risk factors that are not adequately measured in the quantitative reserve. The qualitative loss factors consider idiosyncratic risk factors, conditions that may not be reflected in quantitatively derived results, or other relevant factors to ensure the allowance for credit losses reflects our best estimate of current expected credit losses. Current and forecasted economic trends and underlying market values for collateral dependent loans are generally considered to be encompassed within the CECL quantitative reserve. An incremental qualitative adjustment may be considered when economic forecasts exhibit higher levels of volatility or uncertainty.
In addition to economic conditions and collateral dependency, the other qualitative criteria we consider when establishing the loss factors include the following:
•Legal and Regulatory - matters that could impact our borrowers’ ability to repay our loans and leases;
•Concentrations - loan and lease portfolio composition and any loan concentrations;
•Lending Policy - current lending policies and the effects of any new policies or policy amendments;
•Nature and Volume - loan and lease production volume and mix;
•Problem Loan Trends - loan and lease portfolio credit performance trends, including a borrower's financial condition, credit rating, and ability to meet loan payment requirements;
•Loan Review - results of independent credit review; and
•Management - changes in management related to credit administration functions.
We estimate the reserve for unfunded loan commitments using the same PD, LGD, and prepayment rates for the quantitative credit losses and qualitative loss factors as used for the allowance for loan and lease losses. The EAD for the reserve for unfunded loan commitments is computed using expected future utilization rates of the unfunded commitments during the contractual life of the commitments based on historical usage by loan pool from 2015 to the first quarter of 2022. The utilization rates are updated on an annual basis.
The CECL methodology requires a significant amount of management judgment in determining the appropriate allowance for credit losses. Most of the steps in the methodology involve judgment and are subjective in nature including, among other things: segmenting the loan and lease portfolio; determining the amount of loss history to consider; selecting predictive econometric regression models that use appropriate macroeconomic variables; determining the methodology to forecast prepayments; selecting the most appropriate economic forecast scenario or weighting of multiple scenarios; determining the length of the reasonable and supportable forecast and reversion periods; estimating expected utilization rates on unfunded loan commitments; and assessing relevant and appropriate qualitative factors. In addition, the CECL methodology is dependent on economic forecasts which are inherently imprecise and will change from period to period. Although the allowance for credit losses is considered appropriate, there can be no assurance that it will be sufficient to absorb future losses.
Management believes the allowance for credit losses is appropriate for the current expected credit losses in our loan and lease portfolio and associated unfunded commitments, and the credit risk ratings and inherent loss rates currently assigned are reasonable and appropriate as of the reporting date. It is possible that others, given the same information, may at any point in time reach different conclusions that could result in a significant impact to the Company's consolidated financial statements.
Land, Premises and Equipment Land, Premises and EquipmentPremises and equipment are stated at cost less accumulated depreciation and amortization. Land is not depreciated. Depreciation and amortization is charged to "Noninterest expense" in the consolidated statements of earnings (loss) using the straight‑line method over the estimated useful lives of the assets. The estimated useful lives of furniture, fixtures and equipment range from 3 to 7 years and for buildings up to 30 years. Leasehold improvements are amortized over their estimated useful lives, or the life of the lease, whichever is shorter.
Foreclosed Assets Foreclosed AssetsForeclosed assets include OREO and repossessed non-real estate assets. Foreclosed assets are initially recorded at the estimated fair value of the property, based on current independent appraisals obtained at the time of acquisition, less estimated costs to sell, including senior obligations such as delinquent property taxes. The excess of the recorded loan balance over the estimated fair value of the property at the time of acquisition less estimated costs to sell is charged to the allowance for loan and lease losses. Any subsequent write‑downs are charged to "Noninterest expense" in the consolidated statements of earnings (loss) and recognized through a foreclosed assets valuation allowance. Subsequent increases in the fair value of the asset less selling costs reduce the foreclosed assets valuation allowance, but not below zero, and are credited to "Noninterest expense." Gains and losses on the sale of foreclosed assets and operating expenses of such assets are included in "Noninterest expense."
Income Taxes Income TaxesIncome taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in earnings in the period that includes the enactment date. Any interest or penalties assessed by the taxing authorities is classified in the financial statements as income tax expense. Deferred tax assets and liabilities of the same jurisdiction, net of valuation allowances, are grouped together and reported net on the consolidated balance sheets.On a periodic basis, the Company evaluates its deferred tax assets to assess whether they are expected to be realized in the future. This determination is based on currently available facts and circumstances, including our current and projected future tax positions, the historical level of our taxable income, and estimates of our future taxable income. In most cases, the realization of deferred tax assets is based on our future profitability. To the extent our deferred tax assets are not considered more likely than not to be realized, we are required to record a valuation allowance on our deferred tax assets by charging earnings. The Company also evaluates existing valuation allowances periodically to determine if sufficient evidence exists to support an increase or reduction in the allowance.
Goodwill and Intangible Assets Goodwill and Other Intangible Assets
Goodwill and other intangible assets arise from the acquisition method of accounting for business combinations. Goodwill generated from business combinations is not subject to amortization and instead is tested for impairment annually at the reporting unit level unless a triggering event occurs thereby requiring an updated assessment. Impairment may be tested by first assessing qualitative factors. If qualitative factors do not indicate impairment, the test is complete. However, if the qualitative factors indicate it is more-likely-than-not that goodwill is impaired, a quantitative test is performed. In accordance with ASC Topic 350, Intangibles – Goodwill and Other, the Company has an unconditional option to bypass the qualitative assessment and proceed directly to the quantitative assessment. If the Company elects to perform a qualitative assessment, there is no requirement for the Company to perform it for every reporting unit and there is no requirement for the qualitative assessment to be performed every period. In each period and for each reporting unit, the Company decides whether it will reduce costs and complexity to perform the optional qualitative assessment or to proceed directly to the quantitative test.
Our regular annual impairment assessment occurs in the fourth quarter. Goodwill represents the excess of the purchase price over the fair value of the net assets and other identifiable intangible assets acquired. Impairment exists when the carrying value of the goodwill exceeds the fair value of the reporting unit. An impairment loss would be recognized in an amount equal to that excess as a charge to "Noninterest expense" in the consolidated statements of earnings (loss).
Intangible assets with estimable useful lives are amortized over such useful lives to their estimated residual values. CDI and CRI are recognized apart from goodwill at the time of acquisition based on market valuations. In preparing such valuations, variables considered included deposit servicing costs, attrition rates, and market discount rates. CDI assets are amortized to expense over their useful lives, which we have estimated to range from 7 to 10 years. CRI assets are amortized to expense over their useful lives, which we have estimated to range from 4 to 7 years. The amortization expense represents the estimated decline in the value of the underlying deposits or customer relationships acquired.
Both CDI and CRI are reviewed for impairment quarterly or earlier if events or changes in circumstances indicate that their carrying values may not be recoverable. If the recoverable amount of either CDI or CRI is determined to be less than its carrying value, we would then measure the amount of impairment based on an estimate of the intangible asset’s fair value at that time. If the fair value is below the carrying value, then the intangible asset is reduced to such fair value; an impairment loss for such amount would be recognized as a charge to "Noninterest expense" in the consolidated statements of earnings (loss).
Stock-based Compensation Stock-Based CompensationThe Company issues stock-based compensation instruments consisting of TRSAs and PRSUs. Compensation expense related to TRSAs is based on the fair value of the underlying stock on the award date and is recognized over the vesting period using the straight‑line method. Forfeitures of stock-based awards are recognized when they occur. Compensation expense related to PRSUs is based on the fair value of the underlying stock on the award date and is amortized over the vesting period using the straight-line method unless it is determined that: (1) attainment of the financial metrics is less than probable, in which case a portion of the amortization is suspended, or (2) attainment of the financial metrics is improbable, in which case a portion of the previously recognized amortization is reversed and also suspended. If it is determined that attainment of a financial measure higher than target is probable, the amortization will increase up to 150% or 200% of the target amortization amount. Annual PRSU expense may vary during the three-year performance period based upon changes in management's estimate of the number of shares that may ultimately vest. In the case where the performance target for the PRSU’s is based on a market condition (such as total shareholder return), the amortization is neither reversed nor suspended if it is subsequently determined that the attainment of the performance target is less than probable or improbable and the employee continues to meet the service requirement of the award.Unvested TRSAs participate with common stock in any dividends declared and paid. Dividends are paid on unvested TRSAs and are charged to equity and the related tax impact is recorded to income tax expense. Dividends paid on forfeited TRSAs are charged to compensation expense.
Earnings Per Share Earnings (Loss) Per ShareIn accordance with ASC Topic 260, “Earnings Per Share,” all outstanding unvested share‑based payment awards that contain rights to nonforfeitable dividends are considered participating securities and are included in the two‑class method of determining basic and diluted earnings (loss) per share. All of our unvested restricted stock participates with our common stockholders in dividends. Accordingly, earnings allocated to unvested restricted stock are deducted from net earnings (loss) to determine that amount of earnings (loss) available to common stockholders. In the two‑class method, the amount of our earnings (loss) available to common stockholders is divided by the weighted average shares outstanding, excluding any unvested restricted stock, for both the basic and diluted earnings (loss) per share.
Business Combinations Business CombinationsBusiness combinations are accounted for under the acquisition method of accounting in accordance with ASC Topic 805, “Business Combinations.” Under the acquisition method, the acquiring entity in a business combination recognizes 100 percent of the acquired assets and assumed liabilities, regardless of the percentage owned, at their estimated fair values as of the date of acquisition. Any excess of the purchase price over the fair value of net assets and other identifiable intangible assets acquired is recorded as goodwill. To the extent the fair value of net assets acquired, including other identifiable assets, exceeds the purchase price, a bargain purchase gain is recognized. Assets acquired and liabilities assumed from contingencies must also be recognized at fair value, if the fair value can be determined during the measurement period. Results of operations of an acquired business are included in the consolidated statements of earnings (loss) from the date of acquisition. Acquisition‑related costs, including conversion and restructuring charges, are expensed as incurred.
Business Segments Business Segments We regularly assess our strategic plans, operations, reporting structures and financial information provided to management to identify our reportable segments. From December 31, 2015 through September 30, 2022, we operated as one segment. Civic, which we acquired on February 1, 2021, has been identified as an operating segment. In the fourth quarter of 2022, Civic met a quantitative threshold which required it to be disclosed as a reportable operating segment. Therefore, we have two reportable segments as of December 31, 2022: Commercial Banking and Civic and a third segment, Other, which is used for inter-segment eliminations. The factors considered in making this determination include the nature of products and offered services, geographic regions in which we operate, the applicable regulatory environment, and the discrete financial information reviewed by our chief decision maker.
Loans and Leases
NOTE 5.  LOANS AND LEASES
Loans and Leases Held for Investment
The following table summarizes the composition of our loans and leases held for investment as of the dates indicated:
December 31,
20222021
(In thousands)
Real estate mortgage$15,272,527 $11,189,278 
Real estate construction and land (1)
4,711,677 3,491,340 
Commercial8,297,182 7,888,068 
Consumer444,630 457,622 
Total gross loans and leases held for investment28,726,016 23,026,308 
Deferred fees, net(116,887)(84,760)
Total loans and leases held for investment, net of deferred fees28,609,129 22,941,548 
Allowance for loan and lease losses(200,732)(200,564)
Total loans and leases held for investment, net (2)
$28,408,397 $22,740,984 
____________________
(1)    Includes land and acquisition and development loans of $153.5 million and $151.8 million at December 31, 2022 and 2021.
(2)    Excludes accrued interest receivable of $124.3 million and $80.3 million at December 31, 2022 and 2021, which is recorded in "Other assets" on the consolidated balance sheets.
The following tables present an aging analysis of our loans and leases held for investment, net of deferred fees, by loan portfolio segment and class as of the dates indicated:
December 31, 2022
30 - 8990 or More
DaysDaysTotal
Past DuePast DuePast DueCurrentTotal
 (In thousands)
Real estate mortgage:
Commercial$1,721 $29,269 $30,990 $3,815,841 $3,846,831 
Residential74,918 30,963 105,881 11,290,900 11,396,781 
Total real estate mortgage76,639 60,232 136,871 15,106,741 15,243,612 
Real estate construction and land:
Commercial— — — 898,592 898,592 
Residential26,810 8,912 35,722 3,704,570 3,740,292 
Total real estate construction and land26,810 8,912 35,722 4,603,162 4,638,884 
Commercial:
Asset-based— 434 434 5,139,775 5,140,209 
Venture capital— — — 2,033,302 2,033,302 
Other commercial461 1,195 1,656 1,106,795 1,108,451 
Total commercial461 1,629 2,090 8,279,872 8,281,962 
Consumer 1,935 149 2,084 442,587 444,671 
Total$105,845 $70,922 $176,767 $28,432,362 $28,609,129 
December 31, 2021
30 - 8990 or More
DaysDaysTotal
Past DuePast DuePast DueCurrentTotal
 (In thousands)
Real estate mortgage:
Commercial$5,307 $2,236 $7,543 $3,754,756 $3,762,299 
Residential40,505 9,666 50,171 7,366,250 7,416,421 
Total real estate mortgage45,812 11,902 57,714 11,121,006 11,178,720 
Real estate construction and land:
Commercial— — — 832,591 832,591 
Residential7,271 2,223 9,494 2,595,042 2,604,536 
Total real estate construction and land7,271 2,223 9,494 3,427,633 3,437,127 
Commercial:
Asset-based— 464 464 4,075,013 4,075,477 
Venture capital— — — 2,320,593 2,320,593 
Other commercial955 3,601 4,556 1,467,425 1,471,981 
Total commercial955 4,065 5,020 7,863,031 7,868,051 
Consumer 1,004 276 1,280 456,370 457,650 
Total $55,042 $18,466 $73,508 $22,868,040 $22,941,548 
The following table presents our nonaccrual and performing loans and leases held for investment, net of deferred fees, by loan portfolio segment and class as of the dates indicated:  
December 31,
 20222021
NonaccrualPerformingTotalNonaccrualPerformingTotal
 (In thousands)
Real estate mortgage:
Commercial$42,509 $3,804,322 $3,846,831 $27,540 $3,734,759 $3,762,299 
Residential45,272 11,351,509 11,396,781 12,292 7,404,129 7,416,421 
Total real estate mortgage87,781 15,155,831 15,243,612 39,832 11,138,888 11,178,720 
Real estate construction and land:
Commercial— 898,592 898,592 — 832,591 832,591 
Residential10,621 3,729,671 3,740,292 4,715 2,599,821 2,604,536 
Total real estate construction and land10,621 4,628,263 4,638,884 4,715 3,432,412 3,437,127 
Commercial:
Asset-based865 5,139,344 5,140,209 1,464 4,074,013 4,075,477 
Venture capital— 2,033,302 2,033,302 2,799 2,317,794 2,320,593 
Other commercial4,345 1,104,106 1,108,451 11,950 1,460,031 1,471,981 
Total commercial5,210 8,276,752 8,281,962 16,213 7,851,838 7,868,051 
Consumer 166 444,505 444,671 414 457,236 457,650 
Total $103,778 $28,505,351 $28,609,129 $61,174 $22,880,374 $22,941,548 
The amount of interest income that would have been recorded on nonaccrual loans and leases at December 31, 2022 and 2021 had such loans and leases been current in accordance with their original terms was $6.3 million and $4.9 million for 2022 and 2021.
At December 31, 2022, nonaccrual loans and leases included $70.9 million of loans and leases 90 or more days past due, $6.8 million of loans 30 to 89 days past due and $26.0 million of current loans that were placed on nonaccrual status based on management’s judgment regarding their collectability. At December 31, 2021, nonaccrual loans and leases included $18.5 million of loans and leases 90 or more days past due, $6.3 million of loans 30 to 89 days past due and $36.4 million of current loans that were placed on nonaccrual status based on management’s judgment regarding their collectability.
As of December 31, 2022, our three largest loan relationships on nonaccrual status had an aggregate carrying value of $30.8 million and represented 30% of total nonaccrual loans and leases.
The following tables present the credit risk rating categories for loans and leases held for investment by loan portfolio segment and class as of the dates indicated. Classified loans and leases are those with a credit risk rating of either substandard or doubtful.
December 31, 2022
ClassifiedSpecial MentionPassTotal
(In thousands)
Real estate mortgage:
Commercial$43,737 $106,493 $3,696,601 $3,846,831 
Residential53,207 82,688 11,260,886 11,396,781 
Total real estate mortgage96,944 189,181 14,957,487 15,243,612 
Real estate construction and land:
Commercial— 91,334 807,258 898,592 
Residential10,961 80,860 3,648,471 3,740,292 
Total real estate construction and land10,961 172,194 4,455,729 4,638,884 
Commercial:
Asset-based865 56,836 5,082,508 5,140,209 
Venture capital2,753 127,907 1,902,642 2,033,302 
Other commercial6,473 13,233 1,088,745 1,108,451 
Total commercial10,091 197,976 8,073,895 8,281,962 
Consumer 275 6,908 437,488 444,671 
Total $118,271 $566,259 $27,924,599 $28,609,129 

December 31, 2021
ClassifiedSpecial MentionPassTotal
(In thousands)
Real estate mortgage:
Commercial$62,206 $191,809 $3,508,284 $3,762,299 
Residential17,700 19,848 7,378,873 7,416,421 
Total real estate mortgage79,906 211,657 10,887,157 11,178,720 
Real estate construction and land:
Commercial— 67,727 764,864 832,591 
Residential4,715 1,720 2,598,101 2,604,536 
Total real estate construction and land4,715 69,447 3,362,965 3,437,127 
Commercial:
Asset-based4,591 78,305 3,992,581 4,075,477 
Venture capital4,794 14,833 2,300,966 2,320,593 
Other commercial21,659 15,528 1,434,794 1,471,981 
Total commercial31,044 108,666 7,728,341 7,868,051 
Consumer 439 1,841 455,370 457,650 
Total $116,104 $391,611 $22,433,833 $22,941,548 
The following table presents our nonaccrual loans and leases by loan portfolio segment and class and by with and without an allowance recorded as of the date indicated and interest income recognized on nonaccrual loans and leases for the year indicated:
At and For the Year Ended
 December 31, 2022December 31, 2021
NonaccrualInterestNonaccrualInterest
RecordedIncomeRecordedIncome
InvestmentRecognizedInvestmentRecognized
 (In thousands)
With An Allowance Recorded:
Real estate mortgage:
Commercial$15,487 $— $70 $— 
Residential6,392 — 3,555 — 
Real estate construction and land:
Commercial— — — — 
Residential1,575 — 616 — 
Commercial:
Asset based431 — 1,000 — 
Venture capital— — 2,799 — 
Other commercial1,116 — 1,081 — 
Consumer166 — 19 — 
With No Related Allowance Recorded:
Real estate mortgage:
Commercial$27,022 $444 $27,470 $596 
Residential38,880 — 8,737 — 
Real estate construction and land:
Commercial— — — — 
Residential9,046 — 4,099 — 
Commercial:
Asset based434 — 464 — 
Venture capital— — — — 
Other commercial3,229 480 10,869 169 
Consumer— — 395 — 
Total Loans and Leases With and
Without an Allowance Recorded:
Real estate mortgage$87,781 $444 $39,832 $596 
Real estate construction and land10,621 — 4,715 — 
Commercial5,210 480 16,213 169 
Consumer166 — 414 — 
Total$103,778 $924 $61,174 $765 
The following tables present our loans held for investment by loan portfolio segment and class, by credit quality indicator (internal risk ratings), and by year of origination (vintage year) as of the date indicated:
Revolving
Converted
Amortized Cost Basis (1)
Term Loans by Origination YearRevolvingto Term
December 31, 202220222021202020192018PriorLoansLoansTotal
(In thousands)
Real Estate Mortgage:
Commercial
Internal risk rating:
1-2 High pass$4,957 $3,791 $7,215 $26,132 $4,690 $35,343 $1,290 $— $83,418 
3-4 Pass537,931 501,576 467,792 322,448 539,701 1,148,386 85,284 10,065 3,613,183 
5 Special mention— — 728 16,394 2,294 87,077 — — 106,493 
6-8 Classified— 559 464 1,310 27,396 14,008 — — 43,737 
Total$542,888 $505,926 $476,199 $366,284 $574,081 $1,284,814 $86,574 $10,065 $3,846,831 
Current YTD period:
Gross charge-offs$— $67 $— $79 $2,258 $326 $— $— $2,730 
Real Estate Mortgage:
Residential
Internal risk rating:
1-2 High pass$— $89,251 $19,945 $58,275 $66,219 $69,805 $1,000 $— $304,495 
3-4 Pass4,401,409 4,193,056 603,065 676,169 447,223 531,579 103,794 96 10,956,391 
5 Special mention9,455 11,841 5,897 16,974 7,112 31,409 — — 82,688 
6-8 Classified16,558 25,590 4,690 — 2,750 3,416 — 203 53,207 
Total$4,427,422 $4,319,738 $633,597 $751,418 $523,304 $636,209 $104,794 $299 $11,396,781 
Current YTD period:
Gross charge-offs$249 $425 $140 $— $— $81 $— $— $895 
Real Estate Construction
and Land: Commercial
Internal risk rating:
1-2 High pass$— $— $— $— $— $— $— $— $— 
3-4 Pass299,538 170,397 74,634 237,294 17,763 7,632 — — 807,258 
5 Special mention— — — — 91,334 — — — 91,334 
6-8 Classified— — — — — — — — — 
Total$299,538 $170,397 $74,634 $237,294 $109,097 $7,632 $— $— $898,592 
Current YTD period:
Gross charge-offs$— $— $— $— $— $— $— $— $— 
____________________
(1)    Amounts with negative balances are loans with zero principal balances and deferred loan origination fees.
Revolving
Converted
Amortized Cost Basis (1)
Term Loans by Origination YearRevolvingto Term
December 31, 202220222021202020192018PriorLoansLoansTotal
(In thousands)
Real Estate Construction
and Land: Residential
Internal risk rating:
1-2 High pass$— $— $— $— $— $— $— $— $— 
3-4 Pass950,144 1,393,485 848,201 282,076 125,806 204 48,555 — 3,648,471 
5 Special mention17,817 13,925 3,963 45,155 — — — — 80,860 
6-8 Classified2,690 7,628 643 — — — — — 10,961 
Total$970,651 $1,415,038 $852,807 $327,231 $125,806 $204 $48,555 $— $3,740,292 
Current YTD period:
Gross charge-offs$— $659 $772 $— $— $— $— $— $1,431 
Commercial: Asset-Based
Internal risk rating:
1-2 High pass$225,140 $209,272 $57,727 $202,063 $121,600 $208,542 $850,031 $— $1,874,375 
3-4 Pass547,675 188,269 52,711 35,811 33,426 40,714 2,239,785 69,742 3,208,133 
5 Special mention— — — 43,409 — 3,505 9,922 — 56,836 
6-8 Classified— — — — — 434 — 431 865 
Total$772,815 $397,541 $110,438 $281,283 $155,026 $253,195 $3,099,738 $70,173 $5,140,209 
Current YTD period:
Gross charge-offs$— $— $— $— $— $— $750 $— $750 
Commercial: Venture
Capital
Internal risk rating:
1-2 High pass
$(40)$— $2,000 $— $134 $3 $216,535 $503 $219,135 
3-4 Pass92,015 136,296 18,075 3,705 1,833 910 1,365,101 65,572 1,683,507 
5 Special mention13,970 40,924 4,483 23,202 — — 40,335 4,993 127,907 
6-8 Classified— 2,753 — — — — — — 2,753 
Total$105,945 $179,973 $24,558 $26,907 $1,967 $913 $1,621,971 $71,068 $2,033,302 
Current YTD period:
Gross charge-offs$— $— $— $— $— $— $940 $— $940 
____________________
(1)    Amounts with negative balances are loans with zero principal balances and deferred loan origination fees.
Revolving
Converted
Amortized Cost Basis (1)
Term Loans by Origination YearRevolvingto Term
December 31, 202220222021202020192018PriorLoansLoansTotal
(In thousands)
Commercial: Other
Commercial
Internal risk rating:
1-2 High pass
$3,591 $10,880 $12 $161 $3 $14 $20,958 $— $35,619 
3-4 Pass84,930 278,208 54,542 41,908 47,771 87,645 454,438 3,684 1,053,126 
5 Special mention7,038 796 184 695 1,526 2,858 47 89 13,233 
6-8 Classified— 806 — 319 (3)2,653 1,600 1,098 6,473 
Total$95,559 $290,690 $54,738 $43,083 $49,297 $93,170 $477,043 $4,871 $1,108,451 
Current YTD period:
Gross charge-offs$— $209 $— $1 $— $2,537 $1,906 $474 $5,127 
Consumer
Internal risk rating:
1-2 High pass$34 $30 $7 $— $1 $— $854 $— $926 
3-4 Pass62,868 226,084 20,798 48,542 31,693 37,838 8,739 — 436,562 
5 Special mention1,252 3,490 464 1,126 278 238 60 — 6,908 
6-8 Classified47 — — 59 79 74 — 16 275 
Total$64,201 $229,604 $21,269 $49,727 $32,051 $38,150 $9,653 $16 $444,671 
Current YTD period:
Gross charge-offs$309 $529 $237 $728 $— $354 $— $7 $2,164 
Total Loans and Leases
Internal risk rating:
1-2 High pass$233,682 $313,224 $86,906 $286,631 $192,647 $313,707 $1,090,668 $503 $2,517,968 
3-4 Pass6,976,510 7,087,371 2,139,818 1,647,953 1,245,216 1,854,908 4,305,696 149,159 25,406,631 
5 Special mention49,532 70,976 15,719 146,955 102,544 125,087 50,364 5,082 566,259 
6-8 Classified19,295 37,336 5,797 1,688 30,222 20,585 1,600 1,748 118,271 
Total$7,279,019 $7,508,907 $2,248,240 $2,083,227 $1,570,629 $2,314,287 $5,448,328 $156,492 $28,609,129 
Current YTD period:
Gross charge-offs$558 $1,889 $1,149 $808 $2,258 $3,298 $3,596 $481 $14,037 
____________________
(1)    Amounts with negative balances are loans with zero principal balances and deferred loan origination fees.
Revolving
Converted
Amortized Cost Basis (1)
Term Loans by Origination YearRevolvingto Term
December 31, 202120212020201920182017PriorLoansLoansTotal
(In thousands)
Real Estate Mortgage:
Commercial
Internal risk rating:
1-2 High pass$561 $9,148 $32,304 $8,289 $6,248 $33,493 $3 $— $90,046 
3-4 Pass499,626 531,989 321,728 578,436 489,727 932,950 51,805 11,977 3,418,238 
5 Special mention— 4,811 63,381 76,372 6,533 40,712 — — 191,809 
6-8 Classified— 488 17,037 5,340 6,278 33,063 — — 62,206 
Total$500,187 $546,436 $434,450 $668,437 $508,786 $1,040,218 $51,808 $11,977 $3,762,299 
Current YTD period:
Gross charge-offs$— $— $189 $168 $344 $264 $— $— $965 
Gross recoveries— — — — (8)(6,073)— — (6,081)
Net $— $— $189 $168 $336 $(5,809)$— $— $(5,116)
Real Estate Mortgage:
Residential
Internal risk rating:
1-2 High pass$95,016 $29,339 $57,874 $47,688 $11,776 $16,703 $28,115 $— $286,511 
3-4 Pass4,405,055 623,207 573,718 616,515 547,531 234,525 91,655 156 7,092,362 
5 Special mention2,871 3,810 13,007 — — — 160 — 19,848 
6-8 Classified5,161 5,217 — 3,323 304 3,424 — 271 17,700 
Total$4,508,103 $661,573 $644,599 $667,526 $559,611 $254,652 $119,930 $427 $7,416,421 
Current YTD period:
Gross charge-offs$28 $80 $— $— $— $55 $— $— $163 
Gross recoveries(28)— — — — (357)— (301)(686)
Net $— $80 $— $— $— $(302)$— $(301)$(523)
Real Estate Construction
and Land: Commercial
Internal risk rating:
1-2 High pass$— $— $— $— $— $— $— $— $— 
3-4 Pass96,108 96,448 386,832 152,444 720 14,122 18,190 — 764,864 
5 Special mention— — — — 67,727 — — — 67,727 
6-8 Classified— — — — — — — — — 
Total$96,108 $96,448 $386,832 $152,444 $68,447 $14,122 $18,190 $— $832,591 
Current YTD period:
Gross charge-offs$— $— $— $775 $— $— $— $— $775 
Gross recoveries— — — — — — — — — 
Net $— $— $— $775 $— $— $— $— $775 
____________________
(1)    Amounts with negative balances are loans with zero principal balances and deferred loan origination fees.
Revolving
Converted
Amortized Cost Basis (1)
Term Loans by Origination YearRevolvingto Term
December 31, 202120212020201920182017PriorLoansLoansTotal
(In thousands)
Real Estate Construction
and Land: Residential
Internal risk rating:
1-2 High pass$— $— $— $— $— $— $— $— $— 
3-4 Pass849,188 672,864 851,127 163,950 17,526 3,970 28,804 10,672 2,598,101 
5 Special mention276 1,185 — — 259 — — — 1,720 
6-8 Classified849 3,278 588 — — — — — 4,715 
Total$850,313 $677,327 $851,715 $163,950 $17,785 $3,970 $28,804 $10,672 $2,604,536 
Current YTD period:
Gross charge-offs$7 $— $— $— $— $— $— $— $7 
Gross recoveries— — — — — — — — — 
Net $7 $— $— $— $— $— $— $— $7 
Commercial: Asset-Based
Internal risk rating:
1-2 High pass$138,836 $72,725 $178,291 $123,947 $71,940 $188,411 $706,656 $50,495 $1,531,301 
3-4 Pass242,209 71,930 59,748 45,375 8,350 34,833 1,992,677 6,158 2,461,280 
5 Special mention— — 48,796 13,138 — — 12,393 3,978 78,305 
6-8 Classified— — — — — 464 4,027 100 4,591 
Total$381,045 $144,655 $286,835 $182,460 $80,290 $223,708 $2,715,753 $60,731 $4,075,477 
Current YTD period:
Gross charge-offs$— $— $— $— $— $— $— $232 $232 
Gross recoveries— — — — — (691)(28)— (719)
Net $— $— $— $— $— $(691)$(28)$232 $(487)
Commercial: Venture
Capital
Internal risk rating:
1-2 High pass
$— $1,999 $— $— $(4)$14 $228,820 $— $230,829 
3-4 Pass229,567 58,283 46,007 7,241 1,614 4,166 1,715,057 8,202 2,070,137 
5 Special mention8,980 2,778 499 — — 2,593 (17)— 14,833 
6-8 Classified500 — — 2,000 — — (6)2,300 4,794 
Total$239,047 $63,060 $46,506 $9,241 $1,610 $6,773 $1,943,854 $10,502 $2,320,593 
Current YTD period:
Gross charge-offs$— $— $— $— $— $620 $— $— $620 
Gross recoveries— — (127)(37)(158)(82)— — (404)
Net $— $— $(127)$(37)$(158)$538 $— $— $216 
____________________
(1)    Amounts with negative balances are loans with zero principal balances and deferred loan origination fees.
Revolving
Converted
Amortized Cost Basis (1)
Term Loans by Origination YearRevolvingto Term
December 31, 202120212020201920182017PriorLoansLoansTotal
(In thousands)
Commercial: Other
Commercial
Internal risk rating:
1-2 High pass$134,825 $22,556 $261 $4 $246 $(50)$18,206 $693 $176,741 
3-4 Pass286,281 73,328 77,487 67,591 46,939 89,408 607,197 9,822 1,258,053 
5 Special mention— 291 1 2,088 115 11,911 1,061 61 15,528 
6-8 Classified53 1 395 (3)223 4,212 15,731 1,047 21,659 
Total$421,159 $96,176 $78,144 $69,680 $47,523 $105,481 $642,195 $11,623 $1,471,981 
Current YTD period:
Gross charge-offs$1,992 $— $122 $47 $139 $797 $985 $2,364 $6,446 
Gross recoveries— — (42)— (268)(4,076)(57)(145)(4,588)
Net $1,992 $— $80 $47 $(129)$(3,279)$928 $2,219 $1,858 
Consumer
Internal risk rating:
1-2 High pass$36 $11 $— $5 $4 $— $646 $— $702 
3-4 Pass261,678 24,195 73,860 35,623 21,707 31,916 5,689 — 454,668 
5 Special mention797 363 496 — 50 135 — — 1,841 
6-8 Classified— 22 123 111 21 143 — 19 439 
Total$262,511 $24,591 $74,479 $35,739 $21,782 $32,194 $6,335 $19 $457,650 
Current YTD period:
Gross charge-offs$— $185 $654 $156 $270 $188 $— $54 $1,507 
Gross recoveries— — — (27)(13)(79)(1)— (120)
Net $— $185 $654 $129 $257 $109 $(1)$54 $1,387 
Total Loans and Leases
Internal risk rating:
1-2 High pass$369,274 $135,778 $268,730 $179,933 $90,210 $238,571 $982,446 $51,188 $2,316,130 
3-4 Pass6,869,712 2,152,244 2,390,507 1,667,175 1,134,114 1,345,890 4,511,074 46,987 20,117,703 
5 Special mention12,924 13,238 126,180 91,598 74,684 55,351 13,597 4,039 391,611 
6-8 Classified6,563 9,006 18,143 10,771 6,826 41,306 19,752 3,737 116,104 
Total$7,258,473 $2,310,266 $2,803,560 $1,949,477 $1,305,834 $1,681,118 $5,526,869 $105,951 $22,941,548 
Current YTD period:
Gross charge-offs$2,027 $265 $965 $1,146 $753 $1,924 $985 $2,650 $10,715 
Gross recoveries(28)— (169)(64)(447)(11,358)(86)(446)(12,598)
Net $1,999 $265 $796 $1,082 $306 $(9,434)$899 $2,204 $(1,883)
______________________
(1)    Amounts with negative balances are loans with zero principal balances and deferred loan origination fees.
TDRs are a result of rate reductions, term extensions, fee concessions, transfers to foreclosed assets, discounted loan payoffs, and debt forgiveness, or a combination thereof. Between March 2020 and December 2021, the Company granted various commercial and consumer loan modifications to provide borrowers relief from the economic impacts of COVID-19. In accordance with the CARES Act, the Company elected to not apply TDR classification to COVID-19 related loan modifications that met all of the requisite criteria as stipulated in the CARES Act. The following table presents our troubled debt restructurings of loans held for investment by loan portfolio segment and class for the years indicated:
Troubled Debt Restructurings
 Troubled Debt Restructurings
That Subsequently Defaulted(1)
Pre-ModificationPost-Modification
NumberOutstandingOutstandingNumber
of RecordedRecordedof Recorded
LoansInvestmentInvestmentLoans
Investment(1)
 (Dollars In thousands)
Year Ended December 31, 2022
Real estate mortgage:
Commercial4 $626 $626 — $— 
Residential18 5,562 1,098 1 97 
Real estate construction and land:
Residential4 3,521 — — — 
Commercial:
Venture capital6 6,262 3,330 — — 
Other commercial23 1,484 1,484 — — 
Consumer 1 18 18 — — 
Total56 $17,473 $6,556 1 $97 
Year Ended December 31, 2021
Real estate mortgage:
Commercial2 $647 $— — $— 
Residential6 802 802 — — 
Real estate construction and land:
Residential1 208 208 — — 
Commercial:
Asset-based2 1,987 1,987 1 464 
Venture capital5 4,502 2,529 — — 
Other commercial40 48,760 30,786 3 2,066 
Consumer 1 20 20 — — 
Total57 $56,926 $36,332 4 $2,530 
Year Ended December 31, 2020
Real estate mortgage:
Commercial12 $17,201 $4,222 1 $412 
Residential9 1,816 1,816 — — 
Commercial:
Asset-based8 17,008 1,741 — — 
Venture capital2 2,047 2,047 — — 
Other commercial37 41,906 27,403 1 92 
Consumer 3 212 212 — — 
Total71 $80,190 $37,441 2 $504 
_________________________
(1)     The population of defaulted TDRs for the period indicated includes only those loans restructured during the preceding 12-month period. For example, for the year ended December 31, 2022, the population of defaulted TDRs includes only those loans restructured after December 31, 2021. The table excludes defaulted TDRs in those classes for which the recorded investment was zero at the end of the period.
At December 31, 2022 and 2021, we had unfunded commitments related to TDRs of $897,000 and $2.0 million.
Leases Receivable
We provide equipment financing to our customers primarily with operating and direct financing leases. For direct financing leases, lease receivables are recorded on the balance sheet but the leased equipment is not, although we generally retain legal title to the leased equipment until the end of each lease. Direct financing leases are stated at the net amount of minimum lease payments receivable, plus any unguaranteed residual value, less the amount of unearned income and net acquisition discount at the reporting date. Direct lease origination costs are amortized using the effective interest method over the life of the leases. Direct financing leases are subject to our accounting for allowance for loan and lease losses. See Note 10. Leases for information regarding operating leases where we are the lessor.
The following table provides the components of leases receivable income for the period indicated:
Year Ended December 31,
202220212020
(In thousands)
Component of leases receivable income:
Interest income on net investments in leases$10,813 $8,976 $8,049 
The following table presents the components of leases receivable as of the date indicated:
December 31,
20222021
(In thousands)
Net Investment in Direct Financing Leases:
Lease payments receivable$232,909 $190,025 
Unguaranteed residual assets23,561 21,487 
Deferred costs and other1,815 1,373 
Aggregate net investment in leases$258,285 $212,885 
The following table presents maturities of leases receivable as of the date indicated:
December 31, 2022
(In thousands)
Year Ending December 31,
2023$69,139 
202468,022 
202549,643 
202634,251 
202721,892 
Thereafter17,998 
Total undiscounted cash flows260,945 
Less: Unearned income(28,036)
Present value of lease payments$232,909 
Allowance for Loan and Lease Losses
The following tables present a summary of the activity in the allowance for loan and lease losses on loans and leases held for investment by loan portfolio segment for the years indicated:
Year Ended December 31, 2022
Real Estate
Real EstateConstruction
Mortgageand LandCommercialConsumerTotal
(In thousands)
Allowance for Loan and Lease Losses:
Balance, beginning of year $98,053 $45,079 $48,718 $8,714 $200,564 
Charge-offs(3,625)(1,431)(6,817)(2,164)(14,037)
Recoveries1,749 177 7,163 116 9,205 
Net (charge-offs) recoveries (1,876)(1,254)346 (2,048)(4,832)
Provision (9,530)9,157 3,785 1,588 5,000 
Balance, end of year$86,647 $52,982 $52,849 $8,254 $200,732 
Ending Allowance by
Evaluation Methodology:
Individually evaluated $3,053 $— $247 $— $3,300 
Collectively evaluated $83,594 $52,982 $52,602 $8,254 $197,432 
Ending Loans and Leases by
Evaluation Methodology:
Individually evaluated $68,571 $27,451 $4,422 $— $100,444 
Collectively evaluated 15,175,041 4,611,433 8,277,540 444,671 28,508,685 
Ending balance$15,243,612 $4,638,884 $8,281,962 $444,671 $28,609,129 
Year Ended December 31, 2021
Real Estate
Real EstateConstruction
Mortgageand LandCommercialConsumerTotal
(In thousands)
Allowance for Loan and Lease Losses:
Balance, beginning of year $138,342 $78,356 $126,403 $5,080 $348,181 
Charge-offs(1,128)(782)(7,298)(1,507)(10,715)
Recoveries6,767 — 5,711 120 12,598 
Net recoveries (charge-offs)5,639 (782)(1,587)(1,387)1,883 
Provision (45,928)(32,495)(76,098)5,021 (149,500)
Balance, end of year$98,053 $45,079 $48,718 $8,714 $200,564 
Ending Allowance by
Evaluation Methodology:
Individually evaluated $161 $— $2,433 $— $2,594 
Collectively evaluated $97,892 $45,079 $46,285 $8,714 $197,970 
Ending Loans and Leases by
Evaluation Methodology:
Individually evaluated $37,030 $10,043 $31,317 $— $78,390 
Collectively evaluated 11,141,690 3,427,084 7,836,734 457,650 22,863,158 
Ending balance$11,178,720 $3,437,127 $7,868,051 $457,650 $22,941,548 
The allowance for loan and lease losses increased by $0.2 million in 2022 due primarily to a provision for loan and lease losses of $5.0 million, offset partially by $4.8 million of net charge-offs. The provision for loan and lease losses in 2022 was driven by growth in loans and leases and a less favorable economic forecast offset partially by a decrease in qualitative reserves. For additional information regarding the calculation of the allowance for loan and lease losses using the CECL methodology, including discussion of forecasts used to estimate the allowance, please see Note 1(j). Nature of Operations and Summary of Significant Accounting Policies - Allowance for Credit Losses on Loans and Leases Held for Investment.
We actively participated in both rounds of the Paycheck Protection Program ("PPP"), under the provisions of the CARES Act during 2020 and 2021, originating $1.65 billion of such loans. As of December 31, 2022, PPP loans totaled $10.2 million, net of deferred fees. The loans have two or five year terms, are fully guaranteed by the SBA, and do not carry an allowance.
A loan is considered collateral-dependent, and is individually evaluated for reserve purposes, when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table summarizes collateral-dependent loans held for investment by collateral type as of the following date:
December 31,
20222021
RealBusiness RealBusiness
PropertyAssetsTotalPropertyAssetsTotal
(In thousands)
Real estate mortgage$80,145 $— $80,145 $30,817 $— $30,817 
Real estate construction and land11,742 — 11,742 10,421 — 10,421 
Commercial— 434 434 — 7,586 7,586 
     Total$91,887 $434 $92,321 $41,238 $7,586 $48,824 
Allowance for Credit Losses
The allowance for credit losses is the combination of the allowance for loan and lease losses and the reserve for unfunded loan commitments. The reserve for unfunded loan commitments is included within "Accrued interest payable and other liabilities" on the consolidated balance sheets.
The following tables present a summary of the activity in the allowance for loan and lease losses and reserve for unfunded loan commitments for the years indicated:
Year Ended December 31, 2022
Allowance for Reserve forTotal
Loan and Unfunded LoanAllowance for
Lease LossesCommitmentsCredit Losses
(In thousands)
Balance, beginning of year $200,564 $73,071 $273,635 
Charge-offs(14,037)— (14,037)
Recoveries9,205 — 9,205 
Net charge-offs(4,832)— (4,832)
Provision 5,000 18,000 23,000 
Balance, end of year$200,732 $91,071 $291,803 
Year Ended December 31, 2021
Allowance for Reserve forTotal
Loan and Unfunded LoanAllowance for
Lease LossesCommitmentsCredit Losses
(In thousands)
Balance, beginning of year$348,181 $85,571 $433,752 
Charge-offs(10,715)— (10,715)
Recoveries12,598 — 12,598 
Net recoveries1,883 — 1,883 
Provision(149,500)(12,500)(162,000)
Balance, end of year $200,564 $73,071 $273,635