Loans Receivable and Allowance for Credit Losses

6 Months Ended

Jun. 30, 2017

Loans and Leases Receivable Disclosure [Abstract]

Loans Receivable and Allowance for Credit Losses

Note 8 — Loans Receivable and Allowance for Credit Losses

The Company’s held-for-investment loan portfolio includes originated and purchased loans. Originated and purchased loans with no evidence of credit deterioration at their acquisition date are referred to collectively as non-PCI loans. PCI loans are loans acquired with evidence of credit deterioration since their origination and it is probable at the acquisition date that the Company would be unable to collect all contractually required payments. PCI loans are accounted for under ASC Subtopic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. The Company has elected to account for PCI loans on a pool level basis under ASC 310-30 at the time of acquisition.

The following table presents the composition of the Company’s non-PCI and PCI loans as of June 30, 2017 and December 31, 2016:




($ in thousands)	June 30, 2017									December 31, 2016
($ in thousands)	Non-PCI Loans ⁽¹⁾			PCI Loans ⁽²⁾			Total ⁽¹⁾⁽²⁾			Non-PCI Loans ⁽¹⁾			PCI Loans ⁽²⁾			Total ⁽¹⁾⁽²⁾
CRE:
Income producing	$	8,141,483		$	323,547		$	8,465,030		$	7,667,661		$	348,448		$	8,016,109
Construction	550,781			—			550,781			551,560			—			551,560
Land	108,795			1,243			110,038			121,276			1,918			123,194
Total CRE	8,801,059			324,790			9,125,849			8,340,497			350,366			8,690,863
C&I:
Commercial business	9,403,575			20,661			9,424,236			8,921,246			38,387			8,959,633
Trade finance	763,113			—			763,113			680,930			—			680,930
Total C&I	10,166,688			20,661			10,187,349			9,602,176			38,387			9,640,563
Residential:
Single-family	3,873,803			127,685			4,001,488			3,370,669			139,110			3,509,779
Multifamily	1,696,978			75,763			1,772,741			1,490,285			95,654			1,585,939
Total residential	5,570,781			203,448			5,774,229			4,860,954			234,764			5,095,718
Consumer	2,106,683			16,556			2,123,239			2,057,067			18,928			2,075,995
Total loans held-for-investment	$	26,645,211		$	565,455		$	27,210,666		$	24,860,694		$	642,445		$	25,503,139
Allowance for loan losses	(276,238		)	(78		)	(276,316		)	(260,402		)	(118		)	(260,520		)
Loans held-for-investment, net	$	26,368,973		$	565,377		$	26,934,350		$	24,600,292		$	642,327		$	25,242,619


(1)	Includes $(9.6) million and $1.2 million as of June 30, 2017 and December 31, 2016, respectively, of net deferred loan fees, unamortized premiums and unaccreted discounts.


(2)	Loans net of ASC 310-30 discount.

CRE loans include income producing real estate, construction and land loans where the interest rates may be fixed, variable or hybrid. Included in CRE loans are owner occupied and non-owner occupied loans where the borrowers rely on income from tenants to service the loan. Commercial business and trade finance in the C&I segment provide financing to businesses in a wide spectrum of industries.

Residential loans are comprised of single-family and multifamily loans. The Company offers first lien mortgage loans secured by one-to-four unit residential properties located in its primary lending areas. The Company offers a variety of first lien mortgage loan programs, including fixed rate conforming loans and adjustable rate mortgage loans with initial fixed periods of one to seven years, which adjust annually thereafter.

Consumer loans are comprised of home equity lines of credit (“HELOCs”), insurance premium financing loans, credit card and auto loans. As of June 30, 2017 and December 31, 2016, the Company’s HELOCs were the largest component of the consumer loan portfolio, and were secured by one-to-four unit residential properties located in its primary lending areas. The HELOCs loan portfolio is largely comprised of loans originated through a reduced documentation loan program, where a substantial down payment is required, resulting in a low loan-to-value ratio, typically 60% or less at origination. The Company is in a first lien position for many of these reduced documentation HELOCs. These loans have historically experienced low delinquency and default rates.

All loans originated are subject to the Company’s underwriting guidelines and loan origination standards. Management believes that the Company’s underwriting criteria and procedures adequately consider the unique risks associated with these products. The Company conducts a variety of quality control procedures and periodic audits, including the review of lending and legal requirements to ensure that it is in compliance with these requirements.

As of June 30, 2017 and December 31, 2016, loans totaling $17.59 billion and $16.44 billion, respectively, were pledged to secure borrowings and to provide additional borrowing capacity from the Federal Reserve Bank and the FHLB.

Credit Quality Indicators

All loans are subject to the Company’s internal and external credit review and monitoring. Loans are risk rated based on an analysis of the current state of the borrower’s credit quality. The analysis of credit quality includes a review of all repayment sources, the borrower’s current payment performance/delinquency, current financial and liquidity status and all other relevant information. For single-family residential loans, payment performance/delinquency is the driving indicator for the risk ratings. Risk ratings are the overall credit quality indicator for the Company and the credit quality indicator utilized for estimating the appropriate allowance for loan losses. The Company utilizes a risk rating system, which can be classified within the following categories: Pass, Watch, Special Mention, Substandard, Doubtful and Loss. The risk ratings reflect the relative strength of the repayment sources.

Pass and Watch loans are generally considered to have sufficient sources of repayment in order to repay the loan in full in accordance with all terms and conditions. Special Mention loans are considered to have potential weaknesses that warrant closer attention by management. Special Mention is considered a transitory grade. If potential weaknesses are resolved, the loan is upgraded to a Pass or Watch grade. If negative trends in the borrower’s financial status or other information indicate that the repayment sources may become inadequate, the loan is downgraded to a Substandard grade. Substandard loans are considered to have well-defined weaknesses that jeopardize the full and timely repayment of the loan. Substandard loans have a distinct possibility of loss, if the deficiencies are not corrected. Additionally, when management has assessed a potential for loss but a distinct possibility of loss is not recognizable, the loan is still classified as Substandard. Doubtful loans have insufficient sources of repayment and a high probability of loss. Loss loans are considered to be uncollectible and of such little value that they are no longer considered bankable assets. These internal risk ratings are reviewed routinely and adjusted based on changes in the borrowers’ financial status and the loans’ collectability.

The following tables present the credit risk ratings for non-PCI loans by portfolio segment as of June 30, 2017 and December 31, 2016:




($ in thousands)	June 30, 2017
($ in thousands)	Pass/Watch		Special Mention		Substandard		Doubtful		Loss		Total Non-PCI Loans
CRE:
Income producing	$	8,003,443	$	18,859	$	119,181	$	—	$	—	$	8,141,483
Construction	521,240		20,548		8,993		—		—		550,781
Land	93,691		—		15,104		—		—		108,795
C&I:
Commercial business	9,049,939		160,656		168,139		24,841		—		9,403,575
Trade finance	728,700		21,176		13,237		—		—		763,113
Residential:
Single-family	3,838,847		10,216		24,740		—		—		3,873,803
Multifamily	1,676,251		—		20,727		—		—		1,696,978
Consumer	2,085,524		6,230		14,929		—		—		2,106,683
Total	$	25,997,635	$	237,685	$	385,050	$	24,841	$	—	$	26,645,211




($ in thousands)	December 31, 2016
($ in thousands)	Pass/Watch		Special Mention		Substandard		Doubtful		Loss		Total Non-PCI Loans
CRE:
Income producing	$	7,476,804	$	29,005	$	161,852	$	—	$	—	$	7,667,661
Construction	551,560		—		—		—		—		551,560
Land	107,976		—		13,290		10		—		121,276
C&I:
Commercial business	8,559,674		155,276		201,139		5,157		—		8,921,246
Trade finance	635,027		9,435		36,460		—		8		680,930
Residential:
Single-family	3,341,015		10,179		19,475		—		—		3,370,669
Multifamily	1,462,522		2,268		25,495		—		—		1,490,285
Consumer	2,043,405		6,764		6,898		—		—		2,057,067
Total	$	24,177,983	$	212,927	$	464,609	$	5,167	$	8	$	24,860,694

The following tables present the credit risk ratings for PCI loans by portfolio segment as of June 30, 2017 and December 31, 2016:




($ in thousands)	June 30, 2017
($ in thousands)	Pass/Watch		Special Mention		Substandard		Doubtful		Loss		Total PCI Loans
CRE:
Income producing	$	272,926	$	472	$	50,149	$	—	$	—	$	323,547
Land	914		—		329		—		—		1,243
C&I:
Commercial business	17,312		585		2,764		—		—		20,661
Residential:
Single-family	124,216		1,506		1,963		—		—		127,685
Multifamily	69,657		—		6,106		—		—		75,763
Consumer	14,937		369		1,250		—		—		16,556
Total ⁽¹⁾	$	499,962	$	2,932	$	62,561	$	—	$	—	$	565,455




($ in thousands)	December 31, 2016
($ in thousands)	Pass/Watch		Special Mention		Substandard		Doubtful		Loss		Total PCI Loans
CRE:
Income producing	$	293,529	$	3,239	$	51,680	$	—	$	—	$	348,448
Land	1,562		—		356		—		—		1,918
C&I:
Commercial business	33,885		772		3,730		—		—		38,387
Residential:
Single-family	136,245		1,239		1,626		—		—		139,110
Multifamily	86,190		—		9,464		—		—		95,654
Consumer	17,433		316		1,179		—		—		18,928
Total ⁽¹⁾	$	568,844	$	5,566	$	68,035	$	—	$	—	$	642,445


(1)	Loans net of ASC 310-30 discount.

Nonaccrual and Past Due Loans

Non-PCI loans that are 90 or more days past due are generally placed on nonaccrual status. Additionally, non-PCI loans that are less than 90 days past due but have identified deficiencies, such as when the full collection of principal or interest becomes uncertain, are also placed on nonaccrual status. The following tables present the aging analysis on non-PCI loans as of June 30, 2017 and December 31, 2016:




($ in thousands)	June 30, 2017
($ in thousands)	Accruing Loans 30-59 Days Past Due		Accruing Loans 60-89 Days Past Due		Total Accruing Past Due Loans		Nonaccrual Loans Less Than 90 Days Past Due		Nonaccrual Loans 90 or More Days Past Due		Total Nonaccrual Loans		Current Accruing Loans		Total Non-PCI Loans
CRE:
Income producing	$	4,192	$	1,285	$	5,477	$	5,438	$	20,537	$	25,975	$	8,110,031	$	8,141,483
Construction	—		—		—		—		—		—		550,781		550,781
Land	1,103		—		1,103		21		4,323		4,344		103,348		108,795
C&I:
Commercial business	2,976		9,126		12,102		49,899		37,290		87,189		9,304,284		9,403,575
Trade finance	—		—		—		—		—		—		763,113		763,113
Residential:
Single-family	4,581		3,367		7,948		—		7,624		7,624		3,858,231		3,873,803
Multifamily	3,611		368		3,979		966		1,712		2,678		1,690,321		1,696,978
Consumer	3,747		2,333		6,080		101		2,895		2,996		2,097,607		2,106,683
Total	$	20,210	$	16,479	$	36,689	$	56,425	$	74,381	$	130,806	$	26,477,716	$	26,645,211




($ in thousands)	December 31, 2016
($ in thousands)	Accruing Loans 30-59 Days Past Due		Accruing Loans 60-89 Days Past Due		Total Accruing Past Due Loans		Nonaccrual Loans Less Than 90 Days Past Due		Nonaccrual Loans 90 or More Days Past Due		Total Nonaccrual Loans		Current Accruing Loans		Total Non-PCI Loans
CRE:
Income producing	$	6,233	$	14,080	$	20,313	$	14,872	$	12,035	$	26,907	$	7,620,441	$	7,667,661
Construction	4,994		—		4,994		—		—		—		546,566		551,560
Land	—		—		—		433		4,893		5,326		115,950		121,276
C&I:
Commercial business	45,052		2,279		47,331		60,511		20,737		81,248		8,792,667		8,921,246
Trade finance	—		—		—		8		—		8		680,922		680,930
Residential:
Single-family	9,595		8,076		17,671		—		4,214		4,214		3,348,784		3,370,669
Multifamily	3,951		374		4,325		2,790		194		2,984		1,482,976		1,490,285
Consumer	3,327		3,228		6,555		165		1,965		2,130		2,048,382		2,057,067
Total	$	73,152	$	28,037	$	101,189	$	78,779	$	44,038	$	122,817	$	24,636,688	$	24,860,694

For information on the policy for recording payments received and resuming accrual of interest on non-PCI loans that are placed on nonaccrual status, see Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements of the Company’s 2016 Form 10-K.

PCI loans are excluded from the above aging analysis tables as the Company has elected to account for these loans on a pool level basis under ASC 310-30 at the time of acquisition. Please refer to the discussion on PCI loans within this note for additional details on interest income recognition. As of June 30, 2017 and December 31, 2016, PCI loans on nonaccrual status totaled $5.9 million and $11.7 million, respectively.

Loans in Process of Foreclosure

As of June 30, 2017 and December 31, 2016, the Company had $4.8 million and $3.1 million, respectively, of recorded investment in residential and consumer mortgage loans secured by residential real estate properties, for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdictions, which were not included in OREO. No foreclosed residential real estate properties were included in total net OREO of $2.2 million as of June 30, 2017. In comparison, foreclosed residential real estate properties with a carrying amount of $401 thousand were included in total net OREO of $6.7 million as of December 31, 2016.

Troubled Debt Restructurings (“TDRs”)

Potential TDRs are individually evaluated and the type of restructuring is selected based on the loan type and the circumstances of the borrower’s financial difficulty in order to maximize the Company’s recovery. A TDR is a modification of the terms of a loan when the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that it would not have otherwise considered.

The following tables present the additions to non-PCI TDRs for the three and six months ended June 30, 2017 and 2016:




	Loans Modified as TDRs During the Three Months Ended June 30,
($ in thousands)	2017							2016
($ in thousands)	Number of Loans	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment ⁽¹⁾		Financial Impact ⁽²⁾		Number of Loans	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment ⁽¹⁾		Financial Impact ⁽²⁾
CRE:
Income producing	—	$	—	$	—	$	—	2	$	2,152	$	2,157	$	43
Land	—	$	—	$	—	$	—	1	$	5,522	$	5,279	$	—
C&I:
Commercial business	6	$	17,039	$	15,673	$	10,010	1	$	75	$	81	$	12
Residential:
Single-family	—	$	—	$	—	$	—	1	$	795	$	803	$	—
Multifamily	1	$	3,655	$	3,638	$	107	—	$	—	$	—	$	—




	Loans Modified as TDRs During the Six Months Ended June 30,
($ in thousands)	2017							2016
($ in thousands)	Number of Loans	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment ⁽¹⁾		Financial Impact ⁽²⁾		Number of Loans	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment ⁽¹⁾		Financial Impact ⁽²⁾
CRE:
Income producing	1	$	1,527	$	1,494	$	—	3	$	15,899	$	15,811	$	43
Land	—	$	—	$	—	$	—	1	$	5,522	$	5,279	$	—
C&I:
Commercial business	8	$	18,189	$	17,272	$	11,202	5	$	21,689	$	15,810	$	2,618
Trade finance	—	$	—	$	—	$	—	2	$	7,901	$	9,256	$	—
Residential:
Single-family	—	$	—	$	—	$	—	2	$	1,071	$	1,071	$	—
Multifamily	1	$	3,655	$	3,638	$	106	—	$	—	$	—	$	—
Consumer	—	$	—	$	—	$	—	1	$	344	$	340	$	1


(1)	Includes subsequent payments after modification and reflects the balance as of June 30, 2017 and 2016.


(2)	The financial impact includes charge-offs and specific reserves recorded at the modification date.

The following tables present the non-PCI TDR modifications for the three and six months ended June 30, 2017 and 2016 by modification type:




($ in thousands)	Modification Type During the Three Months Ended June 30,
	2017								2016
	Principal ⁽¹⁾		Principal and Interest ⁽²⁾		Other		Total		Principal⁽¹⁾		Principal and Interest ⁽²⁾		Other		Total
CRE	$	—	$	—	$	—	$	—	$	6,279	$	—	$	1,157	$	7,436
C&I	3,388		12,285		—		15,673		81		—		—		81
Residential	3,638		—		—		3,638		—		803		—		803
Consumer	—		—		—		—		—		—		—		—
Total	$	7,026	$	12,285	$	—	$	19,311	$	6,360	$	803	$	1,157	$	8,320




($ in thousands)	Modification Type During the Six Months Ended June 30,
	2017								2016
	Principal ⁽¹⁾		Principal and Interest ⁽²⁾		Other		Total		Principal⁽¹⁾		Principal and Interest ⁽²⁾		Other		Total
CRE	$	1,494	$	—	$	—	$	1,494	$	19,932	$	—	$	1,158	$	21,090
C&I	3,388		13,884		—		17,272		18,559		1,986		4,521		25,066
Residential	3,638		—		—		3,638		268		803		—		1,071
Consumer	—		—		—		—		340		—		—		340
Total	$	8,520	$	13,884	$	—	$	22,404	$	39,099	$	2,789	$	5,679	$	47,567


(1)	Includes forbearance payments, term extensions and principal deferments that modify the terms of the loan from principal and interest payments to interest payments only.


(2)	Includes principal and interest deferments or reductions.

Subsequent to restructuring, a TDR that becomes delinquent, generally beyond 90 days, is considered to have defaulted. As TDRs are individually evaluated for impairment under the specific reserve methodology, subsequent defaults do not generally have a significant additional impact on the allowance for loan losses. The following tables present information for loans modified as TDRs within the previous 12 months that have subsequently defaulted during the three and six months ended June 30, 2017 and 2016, and were still in default at the respective period end:




($ in thousands)	Loans Modified as TDRs that Subsequently Defaulted During the Three Months Ended June 30,
	2017			2016
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
Consumer	1	$	48	—	$	—




($ in thousands)	Loans Modified as TDRs that Subsequently Defaulted During the Six Months Ended June 30,
	2017			2016
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
C&I:
Commercial business	—	$	—	3	$	575
Consumer	1	$	48	—	$	—

The amount of additional funds committed to lend to borrowers whose terms have been modified was $6.8 million and $9.9 million as of June 30, 2017 and December 31, 2016, respectively.

Impaired Loans

The Company’s loans are grouped into heterogeneous and homogeneous (mostly consumer loans) categories. Classified loans in the heterogeneous category are identified and evaluated for impairment on an individual basis. A loan is considered impaired when, based on current information and events, it is probable that the Company will not be able to collect all scheduled payments of principal or interest due in accordance with the original contractual terms. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as expedient, at the loan’s observable market price or the fair value of the collateral, if the loan is collateral dependent, less costs to sell. When the value of an impaired loan is less than the recorded investment and the loan is classified as nonperforming and uncollectible, the deficiency is charged-off against the allowance for loan losses. Impaired loans exclude the homogeneous consumer loan portfolio, which is evaluated collectively for impairment. The Company’s impaired loans include predominantly non-PCI loans held-for-investment on nonaccrual status and any non-PCI loans modified in a TDR, which may be on accrual or nonaccrual status.

The following tables present information on the non-PCI impaired loans as of June 30, 2017 and December 31, 2016:




($ in thousands)	June 30, 2017
($ in thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
CRE:
Income producing	$	37,672	$	33,059	$	4,598	$	37,657	$	702
Land	4,344		4,323		21		4,344		3
C&I:
Commercial business	106,076		69,274		36,779		106,053		15,580
Trade finance	4,615		—		4,538		4,538		305
Residential:
Single-family	16,956		4,161		12,788		16,949		492
Multifamily	12,657		6,135		6,531		12,666		206
Consumer	4,528		1,308		3,225		4,533		5
Total	$	186,848	$	118,260	$	68,480	$	186,740	$	17,293




($ in thousands)	December 31, 2016
($ in thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
CRE:
Income producing	$	50,718	$	32,507	$	14,001	$	46,508	$	1,263
Land	6,457		5,427		443		5,870		63
C&I:
Commercial business	162,239		78,316		42,137		120,453		10,443
Trade finance	5,227		—		5,166		5,166		34
Residential:
Single-family	15,435		—		14,335		14,335		687
Multifamily	11,181		5,684		4,357		10,041		180
Consumer	4,016		—		3,682		3,682		31
Total	$	255,273	$	121,934	$	84,121	$	206,055	$	12,701

The following table presents the average recorded investment and interest income recognized on non-PCI impaired loans for the three and six months ended June 30, 2017 and 2016:




($ in thousands)	Three Months Ended June 30,								Six Months Ended June 30,
	2017				2016				2017				2016
	Average Recorded Investment		Recognized Interest Income ⁽¹⁾		Average Recorded Investment		Recognized Interest Income ⁽¹⁾		Average Recorded Investment		Recognized Interest Income ⁽¹⁾		Average Recorded Investment		Recognized Interest Income ⁽¹⁾
CRE:
Income producing	$	37,897	$	33	$	78,183	$	404	$	38,116	$	80	$	79,072	$	816
Land	4,414		—		6,747		8		4,584		—		6,912		17
C&I:
Commercial business	109,887		122		100,407		270		115,252		337		100,593		530
Trade finance	3,971		18		12,715		67		4,356		25		13,513		133
Residential:
Single-family	16,985		35		12,735		74		17,038		93		12,818		148
Multifamily	12,720		81		24,858		77		12,771		129		25,067		154
Consumer	4,541		13		1,585		16		4,548		32		1,589		31
Total non-PCI impaired loans	$	190,415	$	302	$	237,230	$	916	$	196,665	$	696	$	239,564	$	1,829


(1)	Includes interest recognized on accruing non-PCI TDRs. Interest payments received on nonaccrual non-PCI loans are reflected as a reduction to principal and not as interest income.

Allowance for Credit Losses

The following tables present a summary of activities in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2017 and 2016:




($ in thousands)	Three Months Ended June 30, 2017
	Non-PCI Loans															PCI Loans			Total
	CRE			C&I			Residential			Consumer			Total			PCI Loans			Total
Beginning balance	$	74,888		$	137,510		$	41,746		$	8,863		$	263,007		$	87		$	263,094
(Reversal of) provision for loan losses	(1,413		)	10,974			1,563			(444		)	10,680			(9		)	10,671
Charge-offs	(1		)	(5,386		)	(1		)	(3		)	(5,391		)	—			(5,391		)
Recoveries	511			7,038			371			22			7,942			—			7,942
Net recoveries	510			1,652			370			19			2,551			—			2,551
Ending balance	$	73,985		$	150,136		$	43,679		$	8,438		$	276,238		$	78		$	276,316




($ in thousands)	Three Months Ended June 30, 2016
	Non-PCI Loans															PCI Loans			Total
	CRE			C&I			Residential			Consumer			Total			PCI Loans			Total
Beginning balance	$	82,538		$	134,077		$	33,935		$	9,360		$	259,910		$	328		$	260,238
(Reversal of) provision for loan losses	(4,439		)	15,347			(2,671		)	(1,017		)	7,220			(71		)	7,149
Charge-offs	(139		)	(2,214		)	—			(3		)	(2,356		)	—			(2,356		)
Recoveries	142			1,217			297			81			1,737			—			1,737
Net recoveries (charge-offs)	3			(997		)	297			78			(619		)	—			(619		)
Ending balance	$	78,102		$	148,427		$	31,561		$	8,421		$	266,511		$	257		$	266,768




($ in thousands)	Six Months Ended June 30, 2017
	Non-PCI Loans															PCI Loans			Total
	CRE			C&I			Residential			Consumer			Total			PCI Loans			Total
Beginning balance	$	72,804		$	142,166		$	37,333		$	8,099		$	260,402		$	118		$	260,520
Provision for (reversal of) loan losses	226			12,920			5,398			182			18,726			(40		)	18,686
Charge-offs	(149		)	(12,443		)	(1		)	(7		)	(12,600		)	—			(12,600		)
Recoveries	1,104			7,493			949			164			9,710			—			9,710
Net recoveries (charge-offs)	955			(4,950		)	948			157			(2,890		)	—			(2,890		)
Ending balance	$	73,985		$	150,136		$	43,679		$	8,438		$	276,238		$	78		$	276,316




($ in thousands)	Six Months Ended June 30, 2016
	Non-PCI Loans															PCI Loans			Total
	CRE			C&I			Residential			Consumer			Total			PCI Loans			Total
Beginning balance	$	81,191		$	134,597		$	39,292		$	9,520		$	264,600		$	359		$	264,959
(Reversal of) provision for loan losses	(3,133		)	20,001			(7,988		)	(1,243		)	7,637			(102		)	7,535
Charge-offs	(195		)	(8,074		)	(137		)	(4		)	(8,410		)	—			(8,410		)
Recoveries	239			1,903			394			148			2,684			—			2,684
Net recoveries (charge-offs)	44			(6,171		)	257			144			(5,726		)	—			(5,726		)
Ending balance	$	78,102		$	148,427		$	31,561		$	8,421		$	266,511		$	257		$	266,768

For further information on accounting policies and the methodologies used to estimate the allowance for credit losses and loan charge-offs, see Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements of the Company’s 2016 Form 10-K.

The following table presents a summary of activities in the allowance for unfunded credit reserves for the three and six months ended June 30, 2017 and 2016:




($ in thousands)	Three Months Ended June 30,					Six Months Ended June 30,
($ in thousands)	2017		2016			2017			2016
Beginning balance	$	15,174	$	21,414		$	16,121		$	20,360
Provision for (reversal of) unfunded credit reserves	14		(1,096		)	(933		)	(42		)
Ending balance	$	15,188	$	20,318		$	15,188		$	20,318

The allowance for unfunded credit reserves is maintained at a level management believes to be sufficient to absorb estimated probable losses related to unfunded credit facilities. The allowance for unfunded credit reserves is included in Accrued expense and other liabilities on the Consolidated Balance Sheets. See Note 11 — Commitments and Contingencies to the Consolidated Financial Statements for additional information related to unfunded credit reserves.

The following tables present the Company’s allowance for loan losses and recorded investments by portfolio segment and impairment methodology as of June 30, 2017 and December 31, 2016:




($ in thousands)	June 30, 2017
($ in thousands)	CRE		C&I		Residential		Consumer		Total
Allowance for loan losses
Individually evaluated for impairment	$	705	$	15,885	$	698	$	5	$	17,293
Collectively evaluated for impairment	73,280		134,251		42,981		8,433		258,945
Acquired with deteriorated credit quality	78		—		—		—		78
Ending balance	$	74,063	$	150,136	$	43,679	$	8,438	$	276,316

Recorded investment in loans
Individually evaluated for impairment	$	42,001	$	110,591	$	29,615	$	4,533	$	186,740
Collectively evaluated for impairment	8,759,058		10,056,097		5,541,166		2,102,150		26,458,471
Acquired with deteriorated credit quality ⁽¹⁾	324,790		20,661		203,448		16,556		565,455
Ending balance ⁽¹⁾	$	9,125,849	$	10,187,349	$	5,774,229	$	2,123,239	$	27,210,666




($ in thousands)	December 31, 2016
($ in thousands)	CRE		C&I		Residential		Consumer		Total
Allowance for loan losses
Individually evaluated for impairment	$	1,326	$	10,477	$	867	$	31	$	12,701
Collectively evaluated for impairment	71,478		131,689		36,466		8,068		247,701
Acquired with deteriorated credit quality	112		1		5		—		118
Ending balance	$	72,916	$	142,167	$	37,338	$	8,099	$	260,520

Recorded investment in loans
Individually evaluated for impairment	$	52,378	$	125,619	$	24,376	$	3,682	$	206,055
Collectively evaluated for impairment	8,288,119		9,476,557		4,836,578		2,053,385		24,654,639
Acquired with deteriorated credit quality ⁽¹⁾	350,366		38,387		234,764		18,928		642,445
Ending balance ⁽¹⁾	$	8,690,863	$	9,640,563	$	5,095,718	$	2,075,995	$	25,503,139


(1)	Loans net of ASC 310-30 discount.

Purchased Credit Impaired Loans

At the date of acquisition, PCI loans are pooled and accounted for at fair value, which represents the discounted value of the expected cash flows of the loan portfolio. A pool is accounted for as a single asset with a single interest rate, cumulative loss rate and cash flow expectation. The cash flows expected over the life of the pools are estimated by an internal cash flow model that projects cash flows and calculates the carrying values of the pools, book yields, effective interest income and impairment, if any, based on pool level events. Assumptions as to cumulative loss rates, loss curves and prepayment speeds are utilized to calculate the expected cash flows. The amount of expected cash flows over the initial investment in the loan represents the “accretable yield,” which is recognized as interest income on a level yield basis over the life of the loan. Prepayments affect the estimated life of PCI loans, which may change the amount of interest income, and possibly principal, expected to be collected. The excess of total contractual cash flows over the cash flows expected to be received at origination is deemed to be the “nonaccretable difference.”

The following table presents the changes in accretable yield for PCI loans for the three and six months ended June 30, 2017 and 2016:




($ in thousands)	Three Months Ended June 30,						Six Months Ended June 30,
($ in thousands)	2017			2016			2017			2016
Beginning balance	$	127,990		$	185,991		$	136,247		$	214,907
Accretion	(11,082		)	(16,254		)	(21,361		)	(38,683		)
Changes in expected cash flows	1,717			(2,960		)	3,739			(9,447		)
Ending balance	$	118,625		$	166,777		$	118,625		$	166,777

Loans Held-for-Sale

Loans held-for-sale are carried at the lower of cost or fair value. When a determination is made at the time of commitment to originate or purchase loans as held-for-investment, it is the Company’s intent to hold these loans to maturity or for the “foreseeable future,” subject to periodic reviews under the Company’s management evaluation processes, including asset/liability management. When the Company subsequently changes its intent to hold certain loans, the loans are transferred from the loans held-for-investment portfolio to the loans held-for-sale portfolio at the lower of cost or fair value.

As of June 30, 2017, loans held-for-sale amounted to $11.6 million, which were primarily comprised of C&I loans. In comparison, as of December 31, 2016, loans held-for-sale amounted to $23.1 million, which were primarily comprised of consumer loans. Transfers of loans held-for-investment to loans held-for-sale were $66.0 million and $344.0 million during the three and six months ended June 30, 2017, respectively. These loan transfers were primarily comprised of C&I loans for both periods. In comparison, $267.1 million and $575.8 million of loans held-for-investment were transferred to loans held-for-sale during the same periods in 2016, respectively. These loan transfers were primarily comprised of multifamily residential, C&I and CRE loans for both periods. The Company recorded $117 thousand and $209 thousand in write-downs to the allowance for loan losses related to loans transferred from loans held-for-investment to loans held-for-sale for the three and six months ended June 30, 2017, respectively. In comparison, the Company recorded $37 thousand and $1.9 million in write-downs to the allowance for loan losses related to loans transferred from loans held-for-investment to loans held-for-sale for the same periods in 2016, respectively.

During the three months ended June 30, 2017 and 2016, the Company sold $38.3 million and $166.0 million, respectively, in originated loans, resulting in net gains of $1.3 million and $2.8 million, respectively. During the three months ended June 30, 2017, originated loans sold were primarily comprised of C&I and single-family residential loans. In comparison, during the same period in 2016, originated loans sold were primarily comprised of CRE, multifamily residential and C&I loans. During the six months ended June 30, 2017, the Company sold $67.6 million in originated loans, which were primarily comprised of C&I and single-family residential loans, resulting in net gains of $3.1 million. In comparison, during the six months ended June 30, 2016, the Company sold $220.5 million and securitized $201.7 million in originated loans, which were primarily comprised of multifamily residential, CRE and C&I loans, resulting in net gains of $7.1 million. The Company recorded $1.1 million in net gains and $641 thousand in mortgage servicing rights, and retained $160.1 million of the senior tranche of the resulting securities, as a result of the securitization of the $201.7 million of multifamily residential loans.

During the three and six months ended June 30, 2017, the Company purchased $221.5 million and $368.7 million loans, respectively, compared to $541.6 million and $780.9 million during the same periods in 2016, respectively. Purchased loans for the three and six months ended June 30, 2017 were primarily comprised of C&I syndication loans, while purchased loans for the same periods in 2016 were primarily comprised of C&I syndication loans and single-family residential loans. The higher loans purchased for the three and six months ended June 30, 2016, primarily included $250.1 million and $322.5 million, respectively, in single-family residential loans purchased for Community Reinvestment Act purposes.

From time to time, the Company purchases and sells loans in the secondary market. Certain purchased loans were transferred from loans held-for-investment to loans held-for-sale and write-downs to allowance for loan losses were recorded, where appropriate. During the three and six months ended June 30, 2017, the Company sold loans of $50.5 million and $297.1 million, respectively, in the secondary market at net gains of $202 thousand and $1.2 million, respectively. In comparison, the Company sold loans of $79.7 million and $133.6 million, respectively, in the secondary market, resulting in net gains of $69 thousand for each of the three and six months ended June 30, 2016.

For the three months ended June 30, 2017, the Company recorded a reversal of valuation adjustment of $8 thousand in Net gains on sales of loans on the Consolidated Statements of Income to carry the loans held-for-sale portfolio at the lower of cost or fair value. In comparison, no such valuation adjustment was recorded for the same period in 2016. For the six months ended June 30, 2017 and 2016, the Company recorded such valuation adjustments of $61 thousand and $2.4 million, respectively, related to the loans held-for-sale portfolio.

- Definition

The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses.

+ References + Details