NOTE 7. LOANS AND LEASES

The Company’s loan and lease portfolio includes originated and purchased loans and leases. Originated loans and leases and purchased loans and leases for which there was no evidence of credit deterioration at their acquisition date and it was probable that we would be able to collect all contractually required payments, are referred to collectively as Non-PCI loans. Purchased loans for which there was, at the acquisition date, evidence of credit deterioration since their origination and it was probable that collection of all contractually required payments was unlikely are referred to as PCI loans.

Non-PCI loans are carried at the principal amount outstanding, net of deferred fees and costs, and in the case of acquired loans, net of purchase discounts and premiums. Deferred fees and costs and purchase discounts and premiums on acquired non-impaired loans 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.

PCI loans are accounted for in accordance with ASC Subtopic 310‑30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality.” For PCI loans, at the time of acquisition we (i) calculate the contractual amount and timing of undiscounted principal and interest payments (the "undiscounted contractual cash flows") and (ii) estimate the amount and timing of undiscounted expected principal and interest payments (the "undiscounted expected cash flows"). The difference between the undiscounted contractual cash flows and the undiscounted expected cash flows is the nonaccretable difference. The difference between the undiscounted cash flows expected to be collected and the estimated fair value of the acquired loans is the accretable yield. The nonaccretable difference represents an estimate of the loss exposure of principal and interest related to the PCI loan portfolios; such amount is subject to change over time based on the performance of such loans. The carrying value of PCI loans is reduced by payments received, both principal and interest, and increased by the portion of the accretable yield recognized as interest income.

The following table summarizes the composition of our loan and lease portfolio as of the dates indicated:



	December 31, 2016									December 31, 2015
	Non-PCI									Non-PCI
	Loans			PCI						Loans			PCI
	and Leases			Loans			Total			and Leases			Loans			Total
	(In thousands)
Real estate mortgage	$	5,635,675		$	92,793		$	5,728,468		$	5,706,903		$	168,725		$	5,875,628
Real estate construction and land	975,032			2,409			977,441			534,307			2,656			536,963
Commercial	8,426,236			12,994			8,439,230			7,977,067			17,415			7,994,482
Consumer	375,149			249			375,398			120,793			299			121,092
Total gross loans and leases	15,412,092			108,445			15,520,537			14,339,070			189,095			14,528,165
Deferred fees, net	(64,562		)	(21		)	(64,583		)	(49,861		)	(50		)	(49,911		)
Total loans and leases, net of deferred fees	15,347,530			108,424			15,455,954			14,289,209			189,045			14,478,254
Allowance for loan and lease losses	(143,755		)	(13,483		)	(157,238		)	(105,534		)	(9,577		)	(115,111		)
Total loans and leases, net	$	15,203,775		$	94,941		$	15,298,716		$	14,183,675		$	179,468		$	14,363,143

Non‑PCI Loans and Leases

The following tables present an aging analysis of our Non‑PCI loans and leases by portfolio segment and class as of the dates indicated:



	December 31, 2016
	30 - 89		90 or More
	Days		Days		Total
	Past Due		Past Due		Past Due		Current		Total
	(In thousands)
Real estate mortgage:
Commercial	$	8,590	$	3,303	$	11,893	$	4,341,740	$	4,353,633
Residential	5,694		1,999		7,693		1,256,630		1,264,323
Total real estate mortgage	14,284		5,302		19,586		5,598,370		5,617,956
Real estate construction and land:
Commercial	—		—		—		578,838		578,838
Residential	364		—		364		383,637		384,001
Total real estate construction and land	364		—		364		962,475		962,839
Commercial:
Cash flow	191		1,821		2,012		3,105,380		3,107,392
Asset-based	1,500		2		1,502		2,607,543		2,609,045
Venture capital	13,589		5,769		19,358		1,963,798		1,983,156
Equipment finance	1,417		3,051		4,468		687,499		691,967
Total commercial	16,697		10,643		27,340		8,364,220		8,391,560
Consumer	224		—		224		374,951		375,175
Total Non-PCI loans and leases	$	31,569	$	15,945	$	47,514	$	15,300,016	$	15,347,530



	December 31, 2015
	30 - 89		90 or More
	Days		Days		Total
	Past Due		Past Due		Past Due		Current		Total
	(In thousands)
Real estate mortgage:
Commercial	$	3,947	$	13,075	$	17,022	$	4,534,936	$	4,551,958
Residential	3,391		905		4,296		1,131,809		1,136,105
Total real estate mortgage	7,338		13,980		21,318		5,666,745		5,688,063
Real estate construction and land:
Commercial	—		—		—		343,360		343,360
Residential	—		—		—		184,360		184,360
Total real estate construction and land	—		—		—		527,720		527,720
Commercial:
Cash flow	2,048		1,427		3,475		3,058,793		3,062,268
Asset-based	1		—		1		2,547,532		2,547,533
Venture capital	250		700		950		1,451,477		1,452,427
Equipment finance	359		94		453		889,896		890,349
Total commercial	2,658		2,221		4,879		7,947,698		7,952,577
Consumer	626		1,307		1,933		118,916		120,849
Total Non-PCI loans and leases	$	10,622	$	17,508	$	28,130	$	14,261,079	$	14,289,209

It is the Company’s policy to discontinue accruing interest when principal or interest payments are past due 90 days or more unless the loan is both well secured and in the process of collection or when, in the opinion of management, there is a reasonable doubt as to the collectability of a loan or lease in the normal course of business. The amount of interest income that would have been recorded on nonaccrual loans and leases at December 31, 2016 and 2015 had such loans and leases been current in accordance with their original terms was $8.0 million and $6.4 million for 2016 and 2015.

The following table presents our nonaccrual and performing Non‑PCI loans and leases by portfolio segment and class as of the dates indicated:



	December 31, 2016						December 31, 2015
	Nonaccrual		Performing		Total		Nonaccrual		Performing		Total
	(In thousands)
Real estate mortgage:
Commercial	$	62,454	$	4,291,179	$	4,353,633	$	52,363	$	4,499,595	$	4,551,958
Residential	6,881		1,257,442		1,264,323		4,914		1,131,191		1,136,105
Total real estate mortgage	69,335		5,548,621		5,617,956		57,277		5,630,786		5,688,063
Real estate construction and land:
Commercial	—		578,838		578,838		—		343,360		343,360
Residential	364		383,637		384,001		372		183,988		184,360
Total real estate construction and land	364		962,475		962,839		372		527,348		527,720
Commercial:
Cash flow	53,908		3,053,484		3,107,392		15,800		3,046,468		3,062,268
Asset-based	2,118		2,606,927		2,609,045		2,505		2,545,028		2,547,533
Venture capital	11,687		1,971,469		1,983,156		124		1,452,303		1,452,427
Equipment finance	32,848		659,119		691,967		51,410		838,939		890,349
Total commercial	100,561		8,290,999		8,391,560		69,839		7,882,738		7,952,577
Consumer	339		374,836		375,175		1,531		119,318		120,849
Total Non-PCI loans and leases	$	170,599	$	15,176,931	$	15,347,530	$	129,019	$	14,160,190	$	14,289,209

At December 31, 2016, nonaccrual loans and leases totaled $170.6 million. Nonaccrual loans and leases included $15.9 million of loans and leases 90 or more days past due, $3.0 million of loans 30 to 89 days past due and $151.7 million of current loans that were placed on nonaccrual status based on management’s judgment regarding their collectability. Nonaccrual loans and leases totaled $129.0 million at December 31, 2015, including $16.8 million of loans and leases 90 or more days past due, $3.6 million of loans 30 to 89 days past due and $108.6 million of current loans that were placed on nonaccrual status based on management’s judgment regarding their collectability.

The following table presents the credit risk rating categories for Non‑PCI loans and leases by portfolio segment and class as of the dates indicated. Nonclassified loans and leases are those with a credit risk rating of either pass or special mention, while classified loans and leases are those with a credit risk rating of either substandard or doubtful.



	December 31, 2016						December 31, 2015
	Classified		Nonclassified		Total		Classified		Nonclassified		Total
	(In thousands)
Real estate mortgage:
Commercial	$	99,641	$	4,253,992	$	4,353,633	$	98,436	$	4,453,522	$	4,551,958
Residential	17,540		1,246,783		1,264,323		12,627		1,123,478		1,136,105
Total real estate mortgage	117,181		5,500,775		5,617,956		111,063		5,577,000		5,688,063
Real estate construction and land:
Commercial	409		578,429		578,838		571		342,789		343,360
Residential	364		383,637		384,001		1,395		182,965		184,360
Total real estate construction and land	773		962,066		962,839		1,966		525,754		527,720
Commercial:
Cash flow	177,661		2,929,731		3,107,392		183,726		2,878,542		3,062,268
Asset-based	28,112		2,580,933		2,609,045		19,340		2,528,193		2,547,533
Venture capital	52,646		1,930,510		1,983,156		19,105		1,433,322		1,452,427
Equipment finance	32,848		659,119		691,967		54,054		836,295		890,349
Total commercial	291,267		8,100,293		8,391,560		276,225		7,676,352		7,952,577
Consumer	424		374,751		375,175		2,500		118,349		120,849
Total Non-PCI loans and leases	$	409,645	$	14,937,885	$	15,347,530	$	391,754	$	13,897,455	$	14,289,209

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 risk rating classifications. Our regulators may require the Company to recognize rating downgrades based on their judgments related to 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.

Non‑PCI nonaccrual loans and leases and performing troubled debt restructured loans are considered impaired for reporting purposes. The following table presents the composition of our impaired loans and leases as of the dates indicated:



	December 31, 2016						December 31, 2015
			Performing		Total				Performing		Total
	Nonaccrual		Troubled		Impaired		Nonaccrual		Troubled		Impaired
	Loans		Debt		Loans		Loans		Debt		Loans
	and		Restructured		and		and		Restructured		and
	Leases		Loans		Leases		Leases		Loans		Leases
	(In thousands)
Real estate mortgage	$	69,335	$	54,750	$	124,085	$	57,277	$	27,133	$	84,410
Real estate construction and land	364		6,893		7,257		372		7,631		8,003
Commercial	100,561		3,157		103,718		69,839		5,221		75,060
Consumer	339		152		491		1,531		197		1,728
Total	$	170,599	$	64,952	$	235,551	$	129,019	$	40,182	$	169,201

Troubled debt restructurings are a result of rate reductions, term extensions, fee concessions and debt forgiveness or a combination thereof. At December 31, 2016 and 2015, we had unfunded commitments related to Non-PCI troubled debt restructured loans of $4.6 million and $8.2 million.

The following tables present information regarding our Non‑PCI impaired loans and leases by portfolio segment and class as of and for the years indicated:



	December 31, 2016						December 31, 2015
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
	(In thousands)
With An Allowance Recorded:
Real estate mortgage:
Commercial	$	63,325	$	65,031	$	6,266	$	17,967	$	19,219	$	777
Residential	8,424		8,612		585		2,278		2,435		681
Real estate construction and land:
Residential	213		213		—		747		747		26
Commercial:
Cash flow	51,272		52,910		12,474		14,072		20,312		7,079
Asset-based	4,395		4,861		2,144		3,901		4,423		2,511
Venture capital	5,821		5,880		3,294		—		—		—
Equipment finance	1,524		4,636		—		11,193		11,894		8,032
Consumer	270		280		170		365		372		157
With No Related Allowance Recorded:
Real estate mortgage:
Commercial	$	44,557	$	51,402	$	—	$	58,678	$	68,333	$	—
Residential	7,779		8,940		—		5,487		11,406		—
Real estate construction and land:
Commercial	6,680		6,680		—		7,256		7,256		—
Residential	364		366		—		—		—		—
Commercial:
Cash flow	2,852		5,939		—		2,825		5,121		—
Asset-based	664		1,652		—		2,729		2,726		—
Venture capital	5,866		8,939		—		124		125		—
Equipment finance	31,324		53,319		—		40,216		44,194		—
Consumer	221		292		—		1,363		1,945		—
Total Non-PCI Loans and Leases With
and Without an Allowance Recorded:
Real estate mortgage	$	124,085	$	133,985	$	6,851	$	84,410	$	101,393	$	1,458
Real estate construction and land	7,257		7,259		—		8,003		8,003		26
Commercial	103,718		138,136		17,912		75,060		88,795		17,622
Consumer	491		572		170		1,728		2,317		157
Total	$	235,551	$	279,952	$	24,933	$	169,201	$	200,508	$	19,263



	Year Ended December 31,
	2016				2015				2014
	Weighted		Interest		Weighted		Interest		Weighted		Interest
	Average		Income		Average		Income		Average		Income
	Balance⁽¹⁾		Recognized		Balance⁽¹⁾		Recognized		Balance⁽¹⁾		Recognized
	(In thousands)
With An Allowance Recorded:
Real estate mortgage:
Commercial	$	26,870	$	898	$	17,833	$	1,130	$	10,670	$	475
Residential	6,521		255		2,143		33		412		1
Real estate construction and land:
Commercial	—		—		—		—		1,027		17
Residential	213		14		747		15		763		15
Commercial:
Cash flow	22,736		10		12,590		32		8,498		21
Asset-based	3,842		134		3,204		56		4,214		27
Venture capital	1,227		—		—		—		—		—
Equipment finance	508		—		8,475		—		3,802		—
Consumer	233		—		355		15		132		8
With No Related Allowance Recorded:
Real estate mortgage:
Commercial	$	41,917	$	1,506	$	28,366	$	345	$	29,405	$	348
Residential	7,254		144		4,643		41		5,223		44
Real estate construction and land:
Commercial	6,680		224		7,053		240		8,642		244
Residential	364		—		—		—		4		—
Commercial:
Cash flow	2,455		4		2,752		89		2,289		99
Asset-based	528		18		1,746		130		6,139		170
Venture capital	2,446		—		124		—		—		—
Equipment finance	30,767		—		30,363		—		2,534		—
Consumer	166		9		1,363		—		3,027		2
Total Non-PCI Loans and Leases With
and Without an Allowance Recorded:
Real estate mortgage	$	82,562	$	2,803	$	52,985	$	1,549	$	45,710	$	868
Real estate construction and land	7,257		238		7,800		255		10,436		276
Commercial	64,509		166		59,254		307		27,476		317
Consumer	399		9		1,718		15		3,159		10
Total	$	154,727	$	3,216	$	121,757	$	2,126	$	86,781	$	1,471

_________________________


(1)	For the loans and leases (excluding PCI loans) reported as impaired at December 31, 2016, 2015 and 2014, amounts were calculated based on the period of time such loans and leases were impaired during the reported period.

The following table presents new and defaulted troubled debt restructurings of Non-PCI loans for the years indicated:



						Troubled Debt Restructurings
	Troubled Debt Restructurings					That Subsequently Defaulted⁽¹⁾
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number	Recorded		Recorded		Number	Recorded
	of Loans	Investment		Investment		of Loans	Investment⁽¹⁾
	(Dollars In thousands)
Year Ended December 31, 2016
Real estate mortgage:
Commercial	12	$	13,833	$	6,099	—	$	—
Residential	10	7,091		6,439		2	5,000
Real estate construction and land:
Commercial	1	1,245		1,245		—	—
Commercial:
Cash flow	14	30,788		30,788		—	—
Asset-based	5	2,158		2,158		2	1,502
Equipment finance	7	44,196		42,572		—	—
Consumer	5	850		142		—	—
Total	54	$	100,161	$	89,443	4	$	6,502	(2)
Year Ended December 31, 2015
Real estate mortgage:
Commercial	21	$	43,536	$	43,012	2	$	2,670
Residential	18	3,128		2,961		1	155
Real estate construction and land:
Commercial	8	23,881		23,881		—	—
Commercial:
Cash flow	25	2,718		2,539		—	—
Asset-based	13	8,400		8,400		—	—
Equipment finance	10	93,868		93,868		—	—
Consumer	2	197		197		—	—
Total	97	$	175,728	$	174,858	3	$	2,825	(3)
Year Ended December 31, 2014
Real estate mortgage:
Commercial	14	$	14,659	$	14,660	1	$	55
Residential	11	4,794		4,794		—	—
Real estate construction and land:
Commercial	4	5,507		4,965		—	—
Commercial:
Cash flow	13	2,717		2,717		1	1,144
Asset-based	22	12,368		6,336		1	390
Equipment finance	1	518		518		—	—
Consumer	7	467		467		—	—
Total	72	$	41,030	$	34,457	3	$	1,589	(4)

_________________________

(1)

The population of defaulted restructured loans for the period indicated includes only those loans restructured during the preceding 12-month period. For example, for the year ended December 31, 2016, the population of defaulted restructured loans includes only those loans restructured after December 31, 2015. The table excludes defaulted troubled restructurings in those classes for which the recorded investment was zero at the end of the period.


(2)	Represents the balance at December 31, 2016, and there were no charge-offs.


(3)	Represents the balance at December 31, 2015, and is net of charge-offs of $96,900.


(4)	Represents the balance at December 31, 2014, and is net of charge-offs of $129,000.

Allowances for Loan and Lease Losses

The following tables present a summary of the activity in the allowance for loan and lease losses on Non‑PCI loans and leases by portfolio segment and PCI loans for the years indicated:



	Year Ended December 31, 2016
				Real Estate
	Real Estate			Construction								Total			Total
	Mortgage			and Land		Commercial			Consumer			Non-PCI			PCI			Total
	(In thousands)
Allowance for Loan
and Lease Losses:
Balance, beginning of year	$	36,654		$	7,137	$	61,082		$	661		$	105,534		$	9,577		$	115,111
Charge-offs	(2,059		)	—		(32,210		)	(823		)	(35,092		)	(862		)	(35,954		)
Recoveries	4,519			673		7,794			116			13,102			39			13,141
Provision (negative provision)	(1,349		)	2,235		57,187			2,138			60,211			4,729			64,940
Balance, end of year	$	37,765		$	10,045	$	93,853		$	2,092		$	143,755		$	13,483		$	157,238

Amount of the allowance
applicable to loans and leases:
Individually evaluated for
impairment	$	6,851		$	—	$	17,912		$	170		$	24,933
Collectively evaluated for
impairment	$	30,914		$	10,045	$	75,941		$	1,922		$	118,822
Acquired loans with
deteriorated credit quality															$	13,483

The ending balance of the
loan and lease portfolio is
composed of loans and leases:
Individually evaluated for
impairment	$	123,348		$	7,257	$	103,431		$	394		$	234,430
Collectively evaluated for
impairment	$	5,494,608		$	955,582	$	8,288,129		$	374,781		$	15,113,100
Acquired loans with
deteriorated credit quality															$	108,424
Ending balance of
loans and leases	$	5,617,956		$	962,839	$	8,391,560		$	375,175		$	15,347,530		$	108,424		$	15,455,954



	Year Ended December 31, 2015
				Real Estate
	Real Estate			Construction								Total			Total
	Mortgage			and Land		Commercial			Consumer			Non-PCI			PCI			Total
	(In thousands)
Allowance for Loan
and Lease Losses:
Balance, beginning of year	$	25,097		$	4,248	$	39,858		$	1,253		$	70,456		$	13,999		$	84,455
Charge-offs	(2,489		)	—		(13,354		)	(156		)	(15,999		)	(1,772		)	(17,771		)
Recoveries	3,582			1,082		3,399			410			8,473			150			8,623
Provision (negative provision)	10,464			1,807		31,179			(846		)	42,604			(2,800		)	39,804
Balance, end of year	$	36,654		$	7,137	$	61,082		$	661		$	105,534		$	9,577		$	115,111

Amount of the allowance
applicable to loans and leases:
Individually evaluated for
impairment	$	1,458		$	26	$	17,622		$	157		$	19,263
Collectively evaluated for
impairment	$	35,196		$	7,111	$	43,460		$	504		$	86,271
Acquired loans with
deteriorated credit quality															$	9,577

The ending balance of the
loan and lease portfolio is
composed of loans and leases:
Individually evaluated for
impairment	$	83,944		$	8,003	$	74,680		$	1,672		$	168,299
Collectively evaluated for
impairment	$	5,604,119		$	519,717	$	7,877,897		$	119,177		$	14,120,910
Acquired loans with
deteriorated credit quality															$	189,045
Ending balance of
loans and leases	$	5,688,063		$	527,720	$	7,952,577		$	120,849		$	14,289,209		$	189,045		$	14,478,254

PCI Loans

The following table reflects the PCI loans by portfolio segment as of the dates indicated:



	December 31,
	2016			2015
	(In thousands)
Real estate mortgage	$	112,982		$	207,170
Real estate construction and land	1,901			2,534
Commercial	19,109			30,658
Consumer	281			302
Total gross PCI loans	134,273			240,664
Discount	(25,849		)	(51,619		)
Total PCI loans, net of discount	108,424			189,045
Allowance for loan losses	(13,483		)	(9,577		)
Total net PCI loans	$	94,941		$	179,468

The following table summarizes the changes in the carrying amount of PCI loans and accretable yield on those loans for the years indicated:



	Carrying			Accretable
	Amount			Yield
	(In thousands)
Balance, December 31, 2013	$	361,003		$	(139,568	)
Addition from the CapitalSource Inc. merger	79,234			(13,728		)
Accretion	57,213			57,213
Payments received	(219,641		)	—
Increase in expected cash flows, net	—			(10,773		)
Provision for credit losses	(1,017		)	—
Balance, December 31, 2014	276,792			(106,856		)
Addition from the Square 1 acquisition	16,455			(2,852		)
Accretion	31,857			31,857
Payments received	(148,436		)	—
Increase in expected cash flows, net	—			(7,785		)
Negative provision for credit losses	2,800			—
Balance, December 31, 2015	179,468			(85,636		)
Accretion	51,907			51,907
Payments received	(131,705		)	—
Increase in expected cash flows, net	—			(22,215		)
Provision for credit losses	(4,729		)	—
Balance, December 31, 2016	$	94,941		$	(55,944	)

The following table presents the credit risk rating categories for PCI loans by portfolio segment as of the dates indicated. Nonclassified loans are those with a credit risk rating of either pass or special mention, while classified loans are those with a credit risk rating of either substandard or doubtful.



	December 31, 2016						December 31, 2015
	Classified		Nonclassified		Total		Classified		Nonclassified		Total
	(In thousands)
Real estate mortgage	$	19,445	$	73,330	$	92,775	$	43,554	$	125,125	$	168,679
Real estate construction and land	1,023		1,385		2,408		1,230		1,423		2,653
Commercial	10,943		2,049		12,992		17,391		23		17,414
Consumer	249		—		249		299		—		299
Total PCI loans	$	31,660	$	76,764	$	108,424	$	62,474	$	126,571	$	189,045