LOANS AND LEASES

Our 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 included in the carrying amount of loans that are sold.

Prior to January 1, 2018, our loan and lease portfolio consisted of Non-PCI loans and leases and PCI loans. Non-PCI loans and leases were those we originated or those we acquired that were not credit impaired at the dates of acquisition. PCI loans were purchased loans for which there was, at the acquisition date, evidence of credit deterioration since their origination and for which it was probable that collection of all contractually required payments was unlikely. As our gross PCI loan portfolio represented less than 0.4% of total loans as of the end of 2017, beginning in 2018 the PCI loans were accounted for as Non-PCI loans. Accordingly, in the credit quality tables below under "Loans and leases held for investment," amounts related to the 2018 period are for total loans and leases, and amounts related to the 2017 period are for Non-PCI loans and leases.

Loans Held for Sale

In the fourth quarter of 2017, we sold $1.5 billion of cash flow loans and exited our CapitalSource Division origination operations related to general, technology, and healthcare cash flow loans. As of December 31, 2017, $1.0 billion of the loans sold had settled, while $481.1 million were classified as held for sale. In connection with the loan sale and transfer of loans to held for sale, we recognized $2.2 million in charge-offs during the fourth quarter of 2017 to record the loans at the lower of cost or fair value. The loans held for sale at December 31, 2017 settled in the first quarter of 2018 and we recorded a gain of $1.3 million.

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:



	March 31, 2018			December 31, 2017
	Total			Non-PCI						Total
	Loans			Loans			PCI			Loans
	and Leases			and Leases			Loans			and Leases
	(In thousands)
Real estate mortgage	$	7,570,526		$	7,815,355		$	53,658		$	7,869,013
Real estate construction and land	1,699,630			1,611,287			—			1,611,287
Commercial	6,848,576			7,137,978			4,158			7,142,136
Consumer	397,895			409,551			234			409,785
Gross loans and leases held for investment	16,516,627			16,974,171			58,050			17,032,221
Deferred fees, net	(61,342		)	(59,464		)	(14		)	(59,478		)
Loans and leases held for investment,
net of deferred fees	16,455,285			16,914,707			58,036			16,972,743
Allowance for loan and lease losses	(134,275		)	(133,012		)	(6,444		)	(139,456		)
Total loans and leases held for
investment, net	$	16,321,010		$	16,781,695		$	51,592		$	16,833,287

The following tables present an aging analysis of our loans and leases held for investment, net of deferred fees, by portfolio segment and class as of the dates indicated:



	March 31, 2018
	30 - 89		90 or More
	Days		Days		Total
	Past Due		Past Due		Past Due		Current		Total
	(In thousands)
Real estate mortgage:
Commercial	$	26,262	$	6,849	$	33,111	$	4,999,895	$	5,033,006
Residential	1,512		1,976		3,488		2,517,749		2,521,237
Total real estate mortgage	27,774		8,825		36,599		7,517,644		7,554,243
Real estate construction and land:
Commercial	—		—		—		789,892		789,892
Residential	2,605		—		2,605		884,505		887,110
Total real estate construction and land	2,605		—		2,605		1,674,397		1,677,002
Commercial:
Asset-based	—		680		680		2,957,210		2,957,890
Venture capital	737		1,492		2,229		1,918,414		1,920,643
Other commercial	5,133		1,388		6,521		1,941,069		1,947,590
Total commercial	5,870		3,560		9,430		6,816,693		6,826,123
Consumer	1,000		—		1,000		396,917		397,917
Total	$	37,249	$	12,385	$	49,634	$	16,405,651	$	16,455,285



	December 31, 2017
	30 - 89		90 or More
	Days		Days		Total
	Past Due		Past Due		Past Due		Current		Total
	(In thousands)
Real estate mortgage:
Commercial	$	29,070	$	9,107	$	38,177	$	5,323,310	$	5,361,487
Residential	6,999		2,022		9,021		2,428,483		2,437,504
Total real estate mortgage	36,069		11,129		47,198		7,751,793		7,798,991
Real estate construction and land:
Commercial	—		—		—		769,075		769,075
Residential	2,081		—		2,081		820,073		822,154
Total real estate construction and land	2,081		—		2,081		1,589,148		1,591,229
Commercial:
Asset-based	344		690		1,034		2,923,837		2,924,871
Venture capital	6,533		760		7,293		2,115,418		2,122,711
Other commercial	2,846		1,586		4,432		2,062,906		2,067,338
Total commercial	9,723		3,036		12,759		7,102,161		7,114,920
Consumer	562		—		562		409,005		409,567
Total ⁽¹⁾	$	48,435	$	14,165	$	62,600	$	16,852,107	$	16,914,707

________________________


(1)	Excludes loans held for sale carried at lower of cost or fair value and PCI loans.

It is our 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. Interest income on nonaccrual loans is recognized only to the extent cash is received and the principal balance of the loan is deemed collectable.

The following table presents our nonaccrual and performing loans and leases held for investment, net of deferred fees, by portfolio segment and class as of the dates indicated:



	March 31, 2018						December 31, 2017 ⁽¹⁾
	Nonaccrual		Performing		Total		Nonaccrual		Performing		Total
	(In thousands)
Real estate mortgage:
Commercial	$	19,116	$	5,013,890	$	5,033,006	$	65,563	$	5,295,924	$	5,361,487
Residential	5,225		2,516,012		2,521,237		3,350		2,434,154		2,437,504
Total real estate mortgage	24,341		7,529,902		7,554,243		68,913		7,730,078		7,798,991
Real estate construction and land:
Commercial	—		789,892		789,892		—		769,075		769,075
Residential	—		887,110		887,110		—		822,154		822,154
Total real estate construction and land	—		1,677,002		1,677,002		—		1,591,229		1,591,229
Commercial:
Asset-based	32,838		2,925,052		2,957,890		33,553		2,891,318		2,924,871
Venture capital	21,861		1,898,782		1,920,643		29,424		2,093,287		2,122,711
Other commercial	24,434		1,923,156		1,947,590		23,874		2,043,464		2,067,338
Total commercial	79,133		6,746,990		6,826,123		86,851		7,028,069		7,114,920
Consumer	251		397,666		397,917		20		409,547		409,567
Total	$	103,725	$	16,351,560	$	16,455,285	$	155,784	$	16,758,923	$	16,914,707

________________________

(1) Excludes loans held for sale carried at lower of cost or fair value and PCI loans.

At March 31, 2018, nonaccrual loans and leases totaled $103.7 million and included $11.9 million of loans and leases 90 or more days past due, $8.7 million of loans and leases 30 to 89 days past due, and $83.1 million of loans and leases current with respect to contractual payments that were placed on nonaccrual status based on management’s judgment regarding their collectability. Nonaccrual loans and leases totaled $155.8 million at December 31, 2017, including $14.2 million of the loans and leases 90 or more days past due, $3.2 million of loans and leases 30 to 89 days past due, and $138.4 million of current loans and leases that were placed on nonaccrual status based on management’s judgment regarding their collectability.

As of March 31, 2018, our ten largest loan relationships on nonaccrual status had an aggregate carrying value of $68.8 million and represented 66.3% of total nonaccrual loans and leases.

The following table presents the credit risk rating categories for loans and leases held for investment, net of deferred fees, by 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.



	March 31, 2018
	Classified		Special Mention		Pass		Total
	(In thousands)
Real estate mortgage:
Commercial	$	44,635	$	158,496	$	4,829,875	$	5,033,006
Residential	12,436		1,672		2,507,129		2,521,237
Total real estate mortgage	57,071		160,168		7,337,004		7,554,243
Real estate construction and land:
Commercial	453		—		789,439		789,892
Residential	—		30,626		856,484		887,110
Total real estate construction and land	453		30,626		1,645,923		1,677,002
Commercial:
Asset-based	49,913		54,882		2,853,095		2,957,890
Venture capital	31,364		124,303		1,764,976		1,920,643
Other commercial	68,813		43,681		1,835,096		1,947,590
Total commercial	150,090		222,866		6,453,167		6,826,123
Consumer	428		1,456		396,033		397,917
Total	$	208,042	$	415,116	$	15,832,127	$	16,455,285



	December 31, 2017 ⁽¹⁾
	Classified		Special Mention		Pass		Total
	(In thousands)
Real estate mortgage:
Commercial	$	93,795	$	122,488	$	5,145,204	$	5,361,487
Residential	8,425		4,582		2,424,497		2,437,504
Total real estate mortgage	102,220		127,070		7,569,701		7,798,991
Real estate construction and land:
Commercial	—		—		769,075		769,075
Residential	—		619		821,535		822,154
Total real estate construction and land	—		619		1,590,610		1,591,229
Commercial:
Asset-based	51,000		37,256		2,836,615		2,924,871
Venture capital	49,671		114,210		1,958,830		2,122,711
Other commercial	75,251		21,883		1,970,204		2,067,338
Total commercial	175,922		173,349		6,765,649		7,114,920
Consumer	263		1,130		408,174		409,567
Total	$	278,405	$	302,168	$	16,334,134	$	16,914,707

________________________

(1) Excludes loans held for sale carried at lower of cost or fair value and PCI loans.

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 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.

Nonaccrual loans and leases and performing troubled debt restructured loans are considered impaired for reporting purposes. Troubled debt restructurings are a result of rate reductions, term extensions, fee concessions, and debt forgiveness, or a combination thereof.

The following table presents the composition of our impaired loans and leases held for investment, net of deferred fees, by portfolio segment as of the dates indicated:



	March 31, 2018						December 31, 2017 ⁽¹⁾
			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	$	24,341	$	51,031	$	75,372	$	68,913	$	47,560	$	116,473
Real estate construction and land	—		5,670		5,670		—		5,690		5,690
Commercial	79,133		3,349		82,482		86,851		3,488		90,339
Consumer	251		123		374		20		100		120
Total	$	103,725	$	60,173	$	163,898	$	155,784	$	56,838	$	212,622

________________________

(1) Excludes loans held for sale carried at lower of cost or fair value and PCI loans.

The following tables present information regarding our impaired loans and leases held for investment, net of deferred fees, by portfolio segment and class as of and for the dates indicated:



	March 31, 2018						December 31, 2017 ⁽¹⁾
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
Impaired Loans and Leases	Investment		Balance		Allowance		Investment		Balance		Allowance
	(In thousands)
With An Allowance Recorded:
Real estate mortgage:
Commercial	$	13,884	$	14,690	$	576	$	15,750	$	16,548	$	628
Residential	4,295		4,926		512		2,787		2,957		342
Commercial:
Venture capital	17,367		18,312		4,970		16,565		17,203		4,267
Other commercial	18,048		31,672		8,171		20,404		29,951		8,368
Consumer	295		355		16		100		100		16
With No Related Allowance Recorded:
Real estate mortgage:
Commercial	$	48,729	$	63,283			$	93,827	$	105,923
Residential	8,464		10,674				4,109		4,481
Real estate construction and land:
Commercial	5,670		5,670				5,690		5,689
Commercial:
Asset-based	32,838		55,890				33,553		54,911
Venture capital	6,129		29,786				14,534		40,029
Other commercial	8,100		27,819				5,283		9,351
Consumer	79		179				20		93
Total Loans and Leases With
and Without an Allowance Recorded:
Real estate mortgage	$	75,372	$	93,573	$	1,088	$	116,473	$	129,909	$	970
Real estate construction and land	5,670		5,670		—		5,690		5,689		—
Commercial	82,482		163,479		13,141		90,339		151,445		12,635
Consumer	374		534		16		120		193		16
Total	$	163,898	$	263,256	$	14,245	$	212,622	$	287,236	$	13,621

________________________

(1) Excludes loans held for sale carried at lower of cost or fair value and PCI loans.



	Three Months Ended March 31,
	2018				2017
	Weighted		Interest		Weighted		Interest
	Average		Income		Average		Income
Impaired Loans and Leases	Balance⁽¹⁾		Recognized		Balance⁽¹⁾		Recognized
	(In thousands)
With An Allowance Recorded:
Real estate mortgage:
Commercial	$	13,884	$	201	$	14,350	$	206
Residential	4,295		23		3,501		12
Commercial:
Venture capital	14,598		—		4,693		—
Other commercial	16,851		15		44,333		15
Consumer	295		2		187		—
With No Related Allowance Recorded:
Real estate mortgage:
Commercial	$	46,782	$	765	$	92,753	$	560
Residential	8,464		45		5,216		15
Real estate construction and land:
Commercial	5,670		89		6,111		67
Residential	—		—		572		2
Commercial:
Asset-based	32,838		—		30,739		—
Venture capital	4,474		—		2,429		—
Other commercial	7,859		1,147		4,750		30
Consumer	79		—		127		2
Total Loans and Leases With
and Without an Allowance Recorded:
Real estate mortgage	$	73,425	$	1,034	$	115,820	$	793
Real estate construction and land	5,670		89		6,683		69
Commercial	76,620		1,162		86,944		45
Consumer	374		2		314		2
Total	$	156,089	$	2,287	$	209,761	$	909

_________________________


(1)	For loans and leases reported as impaired at March 31, 2018 and 2017, amounts were calculated based on the period of time such loans and leases were impaired during the reported period.

The following table presents our troubled debt restructurings of loans held for investment by portfolio segment and class for the periods indicated:



	Three Months Ended March 31,
	2018					2017
		Pre-		Post-			Pre-		Post-
		Modification		Modification			Modification		Modification
		Outstanding		Outstanding			Outstanding		Outstanding
	Number	Recorded		Recorded		Number	Recorded		Recorded
Troubled Debt Restructurings	of Loans	Investment		Investment		of Loans	Investment		Investment
	(Dollars in thousands)
Real estate mortgage:
Commercial	—	$	—	$	—	1	$	64	$	—
Residential	—	—		—		2	42		42
Commercial:
Venture capital	—	—		—		3	13,065		13,065
Other commercial	2	11,783		11,783		4	719		719
Consumer	—	—		—		1	97		97
Total	2	$	11,783	$	11,783	11	$	13,987	$	13,923

The following table presents troubled debt restructurings of loans held for investment by portfolio segment and class that subsequently defaulted for the periods indicated:



	Three Months Ended March 31,
	2018				2017
Troubled Debt Restructurings	Number	Recorded			Number	Recorded
That Subsequently Defaulted	of Loans	Investment⁽¹⁾			of Loans	Investment⁽¹⁾
	(Dollars in thousands)
Commercial:
Other commercial	1	$	2,250		—	$	—
Consumer	—	—			1	28
Total	1	$	2,250	(2)	1	$	28	(3)

_________________________

(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 12-month period ended March 31, 2018, the population of defaulted restructured loans includes only those loans restructured after March 31, 2017. The table excludes defaulted troubled debt restructurings in those classes for which the recorded investment was zero at the end of the period.


(2)	Represents the balance at March 31, 2018, and there were no charge-offs.


(3)	Represents the balance at March 31, 2017, and there were no charge-offs.

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 portfolio segment for the periods indicated:



	Three Months Ended March 31, 2018
				Real Estate
	Real Estate			Construction
	Mortgage			and Land		Commercial			Consumer			Total
	(In thousands)
Allowance for Loan and Lease Losses:
Balance, beginning of period	$	40,051		$	13,055	$	84,022		$	2,328		$	139,456
Charge-offs	(2,598		)	—		(9,524		)	(31		)	(12,153		)
Recoveries	1,657			9		5,487			45			7,198
Provision (negative provision)	1,048			5,126		(6,205		)	(195		)	(226		)
Balance, end of period	$	40,158		$	18,190	$	73,780		$	2,147		$	134,275

Ending Allowance by
Impairment Methodology:
Individually evaluated for impairment	$	1,088		$	—	$	13,141		$	16		$	14,245
Collectively evaluated for impairment	$	39,070		$	18,190	$	60,639		$	2,131		$	120,030

Ending Loans and Leases by
Impairment Methodology:
Individually evaluated for impairment	$	74,390		$	5,670	$	82,434		$	324		$	162,818
Collectively evaluated for impairment	7,479,853			1,671,332		6,743,689			397,593			16,292,467
Ending balance	$	7,554,243		$	1,677,002	$	6,826,123		$	397,917		$	16,455,285



	Three Months Ended March 31, 2017
				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 period	$	37,765		$	10,045	$	93,853		$	2,092		$	143,755		$	13,483		$	157,238
Charge-offs	(1,544		)	—		(19,285		)	(99		)	(20,928		)	(2,230		)	(23,158		)
Recoveries	230			8		2,448			53			2,739			—			2,739
Provision (negative provision)	(1,083		)	423		25,118			(198		)	24,260			228			24,488
Balance, end of period	$	35,368		$	10,476	$	102,134		$	1,848		$	149,826		$	11,481		$	161,307

Ending Allowance by
Impairment Methodology:
Individually evaluated for
impairment	$	1,070		$	—	$	12,267		$	90		$	13,427
Collectively evaluated for
impairment	$	34,298		$	10,476	$	89,867		$	1,758		$	136,399
Acquired loans with
deteriorated credit quality															$	11,481

Ending Loans and Leases by
Impairment Methodology:
Individually evaluated for
impairment	$	118,275		$	6,683	$	103,221		$	281		$	228,460
Collectively evaluated for
impairment	5,768,694			1,101,553		7,979,457			382,190			15,231,894
Acquired loans with
deteriorated credit quality															$	96,335
Ending balance	$	5,886,969		$	1,108,236	$	8,082,678		$	382,471		$	15,460,354		$	96,335		$	15,556,689

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 condensed consolidated balance sheets. The following tables present a summary of the activity in the allowance for loan and lease losses, reserve for unfunded loan commitments for the periods indicated:



	Three Months Ended March 31, 2018
	Allowance for			Reserve for		Total
	Loan and			Unfunded Loan		Allowance for
	Lease Losses			Commitments		Credit Losses
	(In thousands)
Balance, beginning of period	$	139,456		$	28,635	$	168,091
Charge-offs	(12,153		)	—		(12,153		)
Recoveries	7,198			—		7,198
Net charge-offs	(4,955		)	—		(4,955		)
Provision (negative provision)	(226		)	4,226		4,000
Balance, end of period	$	134,275		$	32,861	$	167,136



	Three Months Ended March 31, 2017
	Non-PCI
	Allowance for			Reserve for					PCI			Total
	Loan and			Unfunded Loan		Allowance for			Allowance for			Allowance for
	Lease Losses			Commitments		Credit Losses			Loan Losses			Credit Losses
	(In thousands)
Balance, beginning of period	$	143,755		$	17,523	$	161,278		$	13,483		$	174,761
Charge-offs	(20,928		)	—		(20,928		)	(2,230		)	(23,158		)
Recoveries	2,739			—		2,739			—			2,739
Net charge-offs	(18,189		)	—		(18,189		)	(2,230		)	(20,419		)
Provision	24,260			240		24,500			228			24,728
Balance, end of period	$	149,826		$	17,763	$	167,589		$	11,481		$	179,070