LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES

6 Months Ended

Jun. 30, 2017

LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES

The following table presents the balances in the Company’s loans and leases portfolio as of the dates indicated:



	Non-Traditional Mortgages (NTM)		Traditional Loans		Total NTM and Traditional Loans		PCI Loans		Total Loans and Leases Receivable
	($ in thousands)
June 30, 2017
Commercial:
Commercial and industrial	$	—	$	1,560,264	$	1,560,264	$	652	$	1,560,916
Commercial real estate	—		715,650		715,650		1,121		716,771
Multi-family	—		1,545,888		1,545,888		—		1,545,888
SBA	—		74,726		74,726		2,528		77,254
Construction	—		156,246		156,246		—		156,246
Lease financing	—		173		173		—		173
Consumer:
Single family residential mortgage	686,998		1,009,041		1,696,039		—		1,696,039
Green Loans (HELOC) - first liens	82,497		—		82,497		—		82,497
Green Loans (HELOC) - second liens	3,542		—		3,542		—		3,542
Other consumer	—		117,011		117,011		—		117,011
Total loans and leases	$	773,037	$	5,178,999	$	5,952,036	$	4,301	$	5,956,337
Allowance for loan and lease losses									(42,385		)
Loans and leases receivable, net									$	5,913,952
December 31, 2016
Commercial:
Commercial and industrial	$	—	$	1,518,200	$	1,518,200	$	4,760	$	1,522,960
Commercial real estate	—		728,777		728,777		1,182		729,959
Multi-family	—		1,365,262		1,365,262		—		1,365,262
SBA	—		71,168		71,168		2,672		73,840
Construction	—		125,100		125,100		—		125,100
Lease financing	—		379		379		—		379
Consumer:
Single family residential mortgage	794,120		1,091,829		1,885,949		133,212		2,019,161
Green Loans (HELOC) - first liens	87,469		—		87,469		—		87,469
Green Loans (HELOC) - second liens	3,559		—		3,559		—		3,559
Other consumer	—		107,063		107,063		—		107,063
Total loans and leases	$	885,148	$	5,007,778	$	5,892,926	$	141,826	$	6,034,752
Allowance for loan and lease losses									(40,444		)
Loans and leases receivable, net									$	5,994,308

Non-Traditional Mortgage Loans

The Company’s NTM portfolio is comprised of three interest only products: Green Account Loans (Green Loans), fixed or adjustable rate hybrid interest only mortgage (Interest Only) loans and a small number of additional loans with the potential for negative amortization. As of June 30, 2017 and December 31, 2016, the NTM loans totaled $773.0 million, or 13.0 percent of total loans and leases, and $885.1 million, or 14.7 percent of total loans and leases, respectively. The total NTM portfolio decreased by $112.1 million, or 12.7 percent, during the six months ended June 30, 2017.

The following table presents the composition of the NTM portfolio as of the dates indicated:



	June 30, 2017						December 31, 2016
	Count	Amount			Percent		Count	Amount			Percent
	($ in thousands)
Green Loans (HELOC) - first liens	102	$	82,497		10.7	%	107	$	87,469		9.9	%
Interest-only - first liens	432	683,246			88.3	%	522	784,364			88.6	%
Negative amortization	11	3,752			0.5	%	22	9,756			1.1	%
Total NTM - first liens	545	769,495			99.5	%	651	881,589			99.6	%
Green Loans (HELOC) - second liens	12	3,542			0.5	%	12	3,559			0.4	%
Total NTM - second liens	12	3,542			0.5	%	12	3,559			0.4	%
Total NTM loans	557	$	773,037		100.0	%	663	$	885,148		100.0	%
Total loans and leases		$	5,956,337					$	6,034,752
% of NTM to total loans and leases		13.0		%				14.7		%

Green Loans

Green Loans are SFR first and second mortgage lines of credit with a linked checking account that allows all types of deposits and withdrawals to be performed. The loans are generally interest only with a 15-year balloon payment due at maturity. At June 30, 2017 and December 31, 2016, Green Loans totaled $86.0 million and $91.0 million, respectively. At June 30, 2017 and December 31, 2016, none of the Green Loans were non-performing. As a result of their unique payment feature, Green Loans possess higher credit risk due to the potential for negative amortization; however, management believes the risk is mitigated through the Company’s loan terms and underwriting standards, including its policies on loan-to-value (LTV) ratios and the Company’s contractual ability to curtail loans when the value of the underlying collateral declines. The Company discontinued origination of the Green Loan products in 2011.

Interest Only Loans

Interest only loans are primarily SFR first mortgage loans with payment features that allow interest only payments in initial periods before converting to a fully amortizing loan. At June 30, 2017 and December 31, 2016, interest only loans totaled $683.2 million and $784.4 million, respectively. As of June 30, 2017 and December 31, 2016, $0 and $467 thousand of the interest only loans were non-performing, respectively.

Loans with the Potential for Negative Amortization

Negative amortization loans other than Green Loans totaled $3.8 million and $9.8 million at June 30, 2017 and December 31, 2016, respectively. The Company discontinued origination of negative amortization loans in 2007. At June 30, 2017 and December 31, 2016, none of the loans that had the potential for negative amortization were non-performing. These loans pose a potentially higher credit risk because of the lack of principal amortization and potential for negative amortization; however, management believes the risk is mitigated through the loan terms and underwriting standards, including the Company’s policies on LTV ratios.

Risk Management of Non-Traditional Mortgages

The Company has determined that significant performance indicators for NTMs are LTV ratios and Fair Isaac Corporation (FICO) scores. Accordingly, the Company manages credit risk in the NTM portfolio through periodic review of the loan portfolio that includes refreshing FICO scores on the Green Loans and other home equity lines of credit (HELOCs), as needed in conjunction with portfolio management, and ordering third party automated valuation models (AVMs). The loan review is designed to provide a method of identifying borrowers who may be experiencing financial difficulty before they actually fail to make a loan payment. Upon receipt of the updated FICO scores, an exception report is run to identify loans with a decrease in FICO score of 10 percent or more and/or a resulting FICO score of 620 or less. The loans are then further analyzed to determine if the risk rating should be downgraded, which will increase the reserves the Company will establish for potential losses. A report of the periodic loan review is published and regularly monitored.

As these loans are revolving lines of credit, the Company, based on the loan agreement and loan covenants of the particular loan, as well as applicable rules and regulations, could suspend the borrowing privileges or reduce the credit limit at any time the Company reasonably believes that the borrower will be unable to fulfill their repayment obligations under the agreement or certain other conditions are met. In many cases, the decrease in FICO score is the first indication that the borrower may have difficulty in making their future payment obligations.

The Company proactively manages the NTM portfolio by performing detailed analyses on the portfolio. The Company’s Internal Asset Review Committee (IARC) conducts meetings on at least a quarterly basis to review the loans classified as special mention, substandard, or doubtful and determines whether a suspension or reduction in credit limit is warranted. If a line has been suspended and the borrower would like to have their credit privileges reinstated, they would need to provide updated financials showing their ability to meet their payment obligations.

On the interest only loans, the Company projects future payment changes to determine if there will be a material increase in the required payment and then monitors the loans for possible delinquency. Individual loans are monitored for possible downgrading of risk rating.

NTM Performance Indicators

The following table presents the Company’s NTM Green Loans first lien portfolio at June 30, 2017 by FICO scores that were obtained during the quarter ended June 30, 2017, comparing to the FICO scores for those same loans that were obtained during the quarter ended December 31, 2016:



	June 30, 2017
	By FICO Scores Obtained During the Quarter Ended June 30, 2017					By FICO Scores Obtained During the Quarter Ended December 31, 2016					Change
	Count	Amount		Percent		Count	Amount		Percent		Count		Amount			Percent
	($ in thousands)
FICO Score
800+	13	$	8,737	10.6	%	16	$	9,258	11.2	%	(3	)	$	(521	)	(0.6	)%
700-799	56	41,588		50.4	%	50	38,702		46.9	%	6		2,886			3.5	%
600-699	24	23,343		28.3	%	28	27,330		33.1	%	(4	)	(3,987		)	(4.8	)%
<600	2	3,422		4.1	%	1	1,800		2.2	%	1		1,622			1.9	%
No FICO	7	5,407		6.6	%	7	5,407		6.6	%	—		—			—	%
Totals	102	$	82,497	100.0	%	102	$	82,497	100.0	%	—		$	—		—	%

Loan-to-Value Ratio

LTV ratio represents estimated current loan to value ratio, determined by dividing current unpaid principal balance by latest estimated property value received per the Company policy. The table below presents the Company’s SFR NTM first lien portfolio by LTV ratios as of the dates indicated:



	Green					Interest Only					Negative Amortization					Total
	Count	Amount		Percent		Count	Amount		Percent		Count	Amount		Percent		Count	Amount		Percent
	($ in thousands)
June 30, 2017
< 61%	55	$	45,809	55.5	%	185	$	330,235	48.3	%	8	$	2,688	71.6	%	248	$	378,732	49.2	%
61-80%	39	30,942		37.5	%	230	327,107		47.9	%	3	1,064		28.4	%	272	359,113		46.7	%
81-100%	8	5,746		7.0	%	17	25,904		3.8	%	—	—		—	%	25	31,650		4.1	%
> 100%	—	—		—	%	—	—		—	%	—	—		—	%	—	—		—	%
Total	102	$	82,497	100.0	%	432	$	683,246	100.0	%	11	$	3,752	100.0	%	545	$	769,495	100.0	%
December 31, 2016
< 61%	45	$	39,105	44.7	%	196	$	336,744	42.9	%	16	$	7,043	72.2	%	257	$	382,892	43.4	%
61-80%	52	41,732		47.7	%	306	434,269		55.4	%	6	2,713		27.8	%	364	478,714		54.3	%
81-100%	10	6,632		7.6	%	8	8,828		1.1	%	—	—		—	%	18	15,460		1.8	%
> 100%	—	—		—	%	12	4,523		0.6	%	—	—		—	%	12	4,523		0.5	%
Total	107	$	87,469	100.0	%	522	$	784,364	100.0	%	22	$	9,756	100.0	%	651	$	881,589	100.0	%

Allowance for Loan and Lease Losses

The Company has established credit risk management processes that include regular management review of the loan and lease portfolio to identify problem loans and leases. During the ordinary course of business, management becomes aware of borrowers and lessees that may not be able to meet the contractual requirements of the loan and lease agreements. Such loans and leases are subject to increased monitoring. Consideration is given to placing the loan or lease on non-accrual status, assessing the need for additional ALLL, and partial or full charge-off. The Company maintains the ALLL at a level that is considered adequate to cover the estimated and known inherent risks in the loan and lease portfolio.

The Company also maintains a separate reserve for unfunded loan commitments at a level that is considered adequate to cover the estimated and known inherent risks. The probability of usage of the unfunded loan commitments and credit risk factors determined based on outstanding loan balance of the same customer or outstanding loans that share similar credit risk exposure are used to determine the adequacy of the reserve. At June 30, 2017 and December 31, 2016, the reserve for unfunded loan commitments was $4.0 million and $2.4 million, respectively.

The credit risk monitoring system is designed to identify impaired and potential problem loans, and to permit periodic evaluation of impairment and the adequacy of the allowance for credit losses in a timely manner. In addition, the Board of Directors of the Bank has adopted a credit policy that includes a credit review and control system which it believes should be effective in ensuring that the Company maintains an adequate allowance for loan and lease losses. The Board of Directors also provides oversight and guidance for management’s allowance evaluation process. During the three months ended March 31, 2017, the Company, as part of its continuous evaluation of the ALLL methodology and assumptions, determined it appropriate to change from a rolling 28-quarter look-back period to a pegged 36-quarter look-back period. The Company believes that an extended period of observed credit loss stability warranted the review of a longer historical period that captured a full credit cycle. Accordingly, as of June 30, 2017, the Company's look-back-period was extended to 37-quarters. During the three months ended June 30, 2017, the Company further enhanced the methodology of measuring qualitative reserves and updated loan segmentation. These updates were designed to be more systematic, transparent, and repeatable. These updates did not have a material impact.

The determination of the amount of the ALLL and the provision for loan and lease losses is based on management’s current judgment about the credit quality of the loan and lease portfolio and considers known relevant internal and external factors that affect collectability when determining the appropriate level for the ALLL. Additions to the ALLL are made by charges to the provision for loan and lease losses. Identified credit exposures that are determined to be uncollectible are charged off against the ALLL. Recoveries of previously charged off amounts, if any, are credited to the ALLL.

The following table presents a summary of activity in the ALLL for the periods indicated:



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
	(In thousands)
Balance at beginning of period	$	42,736		$	35,845		$	40,444		$	35,533
Loans and leases charged off	(2,898		)	(772		)	(3,255		)	(874		)
Recoveries of loans and leases previously charged off	44			641			110			734
Provision for loan and lease losses	2,503			1,769			5,086			2,090
Balance at end of period	$	42,385		$	37,483		$	42,385		$	37,483

The following table presents the activity and balance in the ALLL and the recorded investment, excluding accrued interest, in loans and leases based on the impairment methodology as of or for the three and six months ended June 30, 2017:



	Commercial and Industrial			Commercial Real Estate			Multi- family			SBA			Construction			Lease Financing			Single Family Residential Mortgage			Other Consumer			Total
	(In thousands)
ALLL:
Balance at March 31, 2017	$	10,888		$	4,543		$	11,029		$	1,146		$	3,018		$	5		$	11,240		$	867		$	42,736
Charge-offs	(132		)	(113		)	—			(293		)	(29		)	—			(2,331		)	—			(2,898		)
Recoveries	—			—			—			31			—			10			—			3			44
Provision	(261		)	696			(343		)	200			(15		)	(12		)	2,100			138			2,503
Balance at June 30, 2017	$	10,495		$	5,126		$	10,686		$	1,084		$	2,974		$	3		$	11,009		$	1,008		$	42,385
Balance at December 31, 2016	$	7,584		$	5,467		$	11,376		$	939		$	2,015		$	6		$	12,075		$	982		$	40,444
Charge-offs	(382		)	(113		)	—			(293		)	(29		)	—			(2,412		)	(26		)	(3,255		)
Recoveries	—			—			—			74			—			29			1			6			110
Provision	3,293			(228		)	(690		)	364			988			(32		)	1,345			46			5,086
Balance at June 30, 2017	$	10,495		$	5,126		$	10,686		$	1,084		$	2,974		$	3		$	11,009		$	1,008		$	42,385
Individually evaluated for impairment	$	—		$	—		$	—		$	—		$	—		$	—		$	424		$	—		$	424
Collectively evaluated for impairment	10,495			5,121			10,686			1,065			2,974			3			10,585			1,008			41,937
Acquired with deteriorated credit quality	—			5			—			19			—			—			—			—			24
Total ending ALLL balance	$	10,495		$	5,126		$	10,686		$	1,084		$	2,974		$	3		$	11,009		$	1,008		$	42,385
Loans:
Individually evaluated for impairment	$	—		$	—		$	—		$	—		$	—		$	—		$	9,971		$	873		$	10,844
Collectively evaluated for impairment	1,560,264			715,650			1,545,888			74,726			156,246			173			1,768,565			119,680			5,941,192
Acquired with deteriorated credit quality	652			1,121			—			2,528			—			—			—			—			4,301
Total ending loan balances	$	1,560,916		$	716,771		$	1,545,888		$	77,254		$	156,246		$	173		$	1,778,536		$	120,553		$	5,956,337



	Commercial and Industrial			Commercial Real Estate			Multi- family		SBA			Construction		Lease Financing			Single Family Residential Mortgage			Other Consumer			Total
	(In thousands)
ALLL:
Balance at March 31, 2016	$	6,046		$	3,969		$	6,484	$	906		$	1,520	$	2,610		$	13,270		$	1,040		$	35,845
Charge-offs	(137		)	—			—		—			—		(479		)	(149		)	(7		)	(772		)
Recoveries	—			371			—		245			—		24			—			1			641
Provision	2,095			(786		)	430		(454		)	157		385			22			(80		)	1,769
Balance at June 30, 2016	$	8,004		$	3,554		$	6,914	$	697		$	1,677	$	2,540		$	13,143		$	954		$	37,483
Balance at December 31, 2015	$	5,850		$	4,252		$	6,012	$	683		$	1,530	$	2,195		$	13,854		$	1,157		$	35,533
Charge-offs	(137		)	—			—		—			—		(581		)	(149		)	(7		)	(874		)
Recoveries	—			371			—		276			—		85			—			2			734
Provision	2,291			(1,069		)	902		(262		)	147		841			(562		)	(198		)	2,090
Balance at June 30, 2016	$	8,004		$	3,554		$	6,914	$	697		$	1,677	$	2,540		$	13,143		$	954		$	37,483
Individually evaluated for impairment	$	—		$	—		$	—	$	—		$	—	$	—		$	1,346		$	—		$	1,346
Collectively evaluated for impairment	7,947			3,543			6,914		678			1,677		2,540			11,780			954			36,033
Acquired with deteriorated credit quality	57			11			—		19			—		—			17			—			104
Total ending ALLL balance	$	8,004		$	3,554		$	6,914	$	697		$	1,677	$	2,540		$	13,143		$	954		$	37,483
Loans:
Individually evaluated for impairment	$	3,470		$	271		$	—	$	—		$	—	$	—		$	34,813		$	294		$	38,848
Collectively evaluated for impairment	1,298,486			721,510			1,147,597		62,634			86,852		228,663			1,780,366			119,915			5,446,023
Acquired with deteriorated credit quality	4,910			3,326			—		2,843			—		—			740,165			—			751,244
Total ending loan balances	$	1,306,866		$	725,107		$	1,147,597	$	65,477		$	86,852	$	228,663		$	2,555,344		$	120,209		$	6,236,115

The following table presents loans and leases individually evaluated for impairment by class of loans and leases as of the dates indicated. The recorded investment, excluding accrued interest, presents customer balances net of any partial charge-offs recognized on the loans and leases and net of any deferred fees and costs and any purchase premium or discount.



	June 30, 2017						December 31, 2016
	Unpaid Principal Balance		Recorded Investment		ALLL		Unpaid Principal Balance		Recorded Investment		ALLL
	(In thousands)
With no related ALLL recorded:
Commercial:
Commercial and industrial	$	—	$	—	$	—	$	2,478	$	2,429	$	—
Consumer:
Single family residential mortgage	6,525		6,550		—		8,865		8,887		—
Other consumer	873		873		—		294		294		—
With an ALLL recorded:
Consumer:
Single family residential mortgage	3,402		3,421		424		1,772		1,742		243
Total	$	10,800	$	10,844	$	424	$	13,409	$	13,352	$	243

The following table presents information on impaired loans and leases, disaggregated by class, for the periods indicated:



	Three Months Ended						Six Months Ended
	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
	(In thousands)
June 30, 2017
Commercial:
Construction	$	—	$	—	$	—	$	764	$	—	$	—
Consumer:
Single family residential mortgage	9,985		42		46		10,520		85		89
Other consumer	878		2		2		884		4		3
Total	$	10,863	$	44	$	48	$	12,168	$	89	$	92
June 30, 2016
Commercial:
Commercial and industrial	$	3,500	$	55	$	55	$	4,048	$	118	$	143
Commercial real estate	285		14		14		295		24		24
Consumer:
Single family residential mortgage	34,963		309		298		34,644		595		563
Other consumer	294		2		3		294		4		5
Total	$	39,042	$	380	$	370	$	39,281	$	741	$	735

Nonaccrual Loans and Leases

The following table presents nonaccrual loans and leases, and loans past due 90 days or more and still accruing as of the dates indicated:



	June 30, 2017						December 31, 2016
	NTM Loans		Traditional Loans and Leases		Total		NTM Loans		Traditional Loans and Leases		Total
	(In thousands)
Loans past due 90 days or more and still accruing	$	—	$	—	$	—	$	—	$	—	$	—
Nonaccrual loans and leases:
The Company maintains specific allowances for these loans of $31 at June 30, 2017 and $0 at December 31, 2016	—		9,064		9,064		467		14,475		14,942

The following table presents the composition of nonaccrual loans and leases as of the dates indicated:



	June 30, 2017						December 31, 2016
	NTM Loans		Traditional Loans and Leases		Total		NTM Loans		Traditional Loans and Leases		Total
	(In thousands)
Commercial:
Commercial and industrial	$	—	$	1,207	$	1,207	$	—	$	3,544	$	3,544
SBA	—		603		603		—		619		619
Lease financing	—		65		65		—		109		109
Consumer:
Single family residential mortgage	—		6,387		6,387		467		9,820		10,287
Other consumer	—		802		802		—		383		383
Total nonaccrual loans and leases	$	—	$	9,064	$	9,064	$	467	$	14,475	$	14,942

Loans in Process of Foreclosure

At June 30, 2017 and December 31, 2016, SFR mortgage loans of $0 and $2.2 million, respectively, were in the process of foreclosure.

Past Due Loans and Leases

The following table presents the aging of the recorded investment in past due loans and leases as of June 30, 2017, excluding accrued interest receivable (which is not considered to be material), by class of loans and leases:



	June 30, 2017
	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 89 Days Past Due		Total Past Due		Current		Total
	(In thousands)
NTM loans:
Single family residential mortgage	$	661	$	—	$	—	$	661	$	686,337	$	686,998
Green Loans (HELOC) - first liens	498		—		—		498		81,999		82,497
Green Loans (HELOC) - second liens	—		—		—		—		3,542		3,542
Total NTM loans	1,159		—		—		1,159		771,878		773,037
Traditional loans and leases:
Commercial:
Commercial and industrial	1,810		7,711		686		10,207		1,550,057		1,560,264
Commercial real estate	—		—		—		—		715,650		715,650
Multi-family	—		—		—		—		1,545,888		1,545,888
SBA	—		559		493		1,052		73,674		74,726
Construction	—		—		—		—		156,246		156,246
Lease financing	—		—		65		65		108		173
Consumer:
Single family residential mortgage	10,165		—		5,262		15,427		993,614		1,009,041
Other consumer	1,788		113		2		1,903		115,108		117,011
Total traditional loans and leases	13,763		8,383		6,508		28,654		5,150,345		5,178,999
PCI loans:
Commercial:
Commercial and industrial	—		—		147		147		505		652
Commercial real estate	—		—		—		—		1,121		1,121
SBA	297		46		660		1,003		1,525		2,528
Consumer:
Single family residential mortgage	—		—		—		—		—		—
Total PCI loans	297		46		807		1,150		3,151		4,301
Total	$	15,219	$	8,429	$	7,315	$	30,963	$	5,925,374	$	5,956,337

The following table presents the aging of the recorded investment in past due loans and leases as of December 31, 2016, excluding accrued interest receivable (which is not considered to be material), by class of loans and leases:



	December 31, 2016
	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 89 Days Past Due		Total Past Due		Current		Total
	(In thousands)
NTM loans:
Single family residential mortgage	$	4,193	$	—	$	467	$	4,660	$	789,460	$	794,120
Green Loans (HELOC) - first liens	—		—		—		—		87,469		87,469
Green Loans (HELOC) - second liens	—		—		—		—		3,559		3,559
Total NTM loans	4,193		—		467		4,660		880,488		885,148
Traditional loans and leases:
Commercial:
Commercial and industrial	412		463		3,385		4,260		1,513,940		1,518,200
Commercial real estate	—		—		—		—		728,777		728,777
Multi-family	—		—		—		—		1,365,262		1,365,262
SBA	15		2		482		499		70,669		71,168
Construction	1,529		—		—		1,529		123,571		125,100
Lease financing	—		—		109		109		270		379
Consumer:
Single family residential mortgage	11,225		1,345		9,393		21,963		1,069,866		1,091,829
Other consumer	10,023		933		382		11,338		95,725		107,063
Total traditional loans and leases	23,204		2,743		13,751		39,698		4,968,080		5,007,778
PCI loans:
Commercial:
Commercial and industrial	—		—		156		156		4,604		4,760
Commercial real estate	—		—		—		—		1,182		1,182
SBA	300		232		328		860		1,812		2,672
Consumer:
Single family residential mortgage	10,483		4,063		2,093		16,639		116,573		133,212
Total PCI loans	10,783		4,295		2,577		17,655		124,171		141,826
Total	$	38,180	$	7,038	$	16,795	$	62,013	$	5,972,739	$	6,034,752

Troubled Debt Restructurings

A modification of a loan constitutes a troubled debt restructuring (TDR) when the Company, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. The concessions may be granted in various forms, including reduction in the stated interest rate, reduction in the amount of principal amortization, forgiveness of a portion of a loan balance or accrued interest, or extension of the maturity date. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

TDR loans consist of the following as of the dates indicated:



	June 30, 2017						December 31, 2016
	NTM Loans		Traditional Loans		Total		NTM Loans		Traditional Loans		Total
	(In thousands)
Consumer:
Single family residential mortgage	482		2,694		3,176		853		1,440		2,293
Green Loans (HELOC) - first liens	2,234		—		2,234		2,240		—		2,240
Green Loans (HELOC) - second liens	294		—		294		294		—		294
Total	$	3,010	$	2,694	$	5,704	$	3,387	$	1,440	$	4,827

The Company did not have any commitments to lend to customers with outstanding loans that were classified as TDRs as of June 30, 2017 or December 31, 2016.

The following table summarizes the pre-modification and post-modification balances of the new TDRs for the periods indicated:



	Three Months Ended					Six Months Ended
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	($ in thousands)
June 30, 2017
Consumer:
Single family residential mortgage	1	$	1,150	$	1,160	3	$	2,416	$	2,433
Total	1	$	1,150	$	1,160	3	$	2,416	$	2,433
June 30, 2016
Consumer:
Single family residential mortgage	3	$	470	$	470	40	$	9,548	$	9,548
Total	3	$	470	$	470	40	$	9,548	$	9,548

The following table summarizes the TDRs by modification type for the three months ended June 30, 2017 and 2016:



	Three Months Ended
	Modification Type
	Change in Principal Payments and Interest Rates			Change in Principal Payments			Change in Interest Rates			Total
	Count	Amount		Count	Amount		Count	Amount		Count	Amount
	($ in thousands)
June 30, 2017
Consumer:
Single family residential mortgage	1	$	1,160	—	$	—	—	$	—	1	$	1,160
Total	1	$	1,160	—	$	—	—	$	—	1	$	1,160
June 30, 2016
Consumer:
Single family residential mortgage	2	$	401	—	$	—	1	$	69	3	$	470
Total	2	$	401	—	$	—	1	$	69	3	$	470

The following table summarizes the TDRs by modification type for the six months ended June 30, 2017 and 2016:



	Six Months Ended
	Modification Type
	Change in Principal Payments and Interest Rates			Change in Principal Payments			Change in Interest Rates			Total
	Count	Amount		Count	Amount		Count	Amount		Count	Amount
	($ in thousands)
June 30, 2017
Consumer:
Single family residential mortgage	2	$	1,290	1	$	1,143	—	$	—	3	$	2,433
Total	2	$	1,290	1	$	1,143	—	$	—	3	$	2,433
June 30, 2016
Consumer:
Single family residential mortgage	34	$	8,622	4	$	780	2	$	146	40	$	9,548
Total	34	$	8,622	4	$	780	2	$	146	40	$	9,548

For the three and six months ended June 30, 2017, there was no and one loan, respectively, with a principal balance of $0 and $124 thousand, respectively, that was modified as a TDR during the past 12 months that had payment defaults during the period. For the three and six months ended June 30, 2016, there were one and three loans, respectively, with an aggregate principal balance of $110 thousand and $518 thousand, respectively, that were modified as TDRs during the past 12 months that had payment defaults during the period.

Credit Quality Indicators

The Company categorizes loans and leases into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company performs historical loss analysis that is combined with a comprehensive loan or lease to value analysis to analyze the associated risks in the current loan and lease portfolio. The Company analyzes loans and leases individually by classifying the loans and leases as to credit risk. This analysis includes all loans and leases delinquent over 60 days and non-homogeneous loans and leases such as commercial and commercial real estate loans and leases. The Company uses the following definitions for risk ratings:

Pass: Loans and leases classified as pass are in compliance in all respects with the Bank’s credit policy and regulatory requirements, and do not exhibit any potential or defined weakness as defined under “Special Mention”, “Substandard” or “Doubtful”.

Special Mention: Loans and leases classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or lease or of the Company’s credit position at some future date.

Substandard: Loans and leases classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans and leases so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans and leases classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Not-Rated: When accrual of income on a pool of PCI loans with common risk characteristics is appropriate in accordance with ASC 310-30, individual loans in those pools are not risk-rated. The credit criteria evaluated are FICO scores, LTV ratios, delinquency, and actual cash flows versus expected cash flows of the loan pools.

Loans and leases not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans and leases.

The following table presents the risk categories for total loans and leases as of June 30, 2017:



	June 30, 2017
	Pass		Special Mention		Substandard		Doubtful		Not-Rated		Total
	(In thousands)
NTM loans:
Single family residential mortgage	$	686,998	$	—	$	—	$	—	$	—	$	686,998
Green Loans (HELOC) - first liens	82,497		—		—		—		—		82,497
Green Loans (HELOC) - second liens	3,542		—		—		—		—		3,542
Total NTM loans	773,037		—		—		—		—		773,037
Traditional loans and leases:
Commercial:
Commercial and industrial	1,545,120		12,522		2,550		72		—		1,560,264
Commercial real estate	710,187		3,393		2,070		—		—		715,650
Multi-family	1,545,340		548		—		—		—		1,545,888
SBA	72,072		1,004		1,650		—		—		74,726
Construction	156,246		—		—		—		—		156,246
Lease financing	108		—		65		—		—		173
Consumer:
Single family residential mortgage	1,002,654		—		6,387		—		—		1,009,041
Other consumer	116,163		46		802		—		—		117,011
Total traditional loans and leases	5,147,890		17,513		13,524		72		—		5,178,999
PCI loans:
Commercial:
Commercial and industrial	—		—		652		—		—		652
Commercial real estate	1,121		—		—		—		—		1,121
SBA	1,232		—		1,296		—		—		2,528
Consumer:
Single family residential mortgage	—		—		—		—		—		—
Total PCI loans	2,353		—		1,948		—		—		4,301
Total	$	5,923,280	$	17,513	$	15,472	$	72	$	—	$	5,956,337

The following table presents the risk categories for total loans and leases as of December 31, 2016:



	December 31, 2016
	Pass		Special Mention		Substandard		Doubtful		Not-Rated		Total
	(In thousands)
NTM loans:
Single family residential mortgage	$	792,179	$	1,474	$	467	$	—	$	—	$	794,120
Green Loans (HELOC) - first liens	85,460		2,009		—		—		—		87,469
Green Loans (HELOC) - second liens	3,559		—		—		—		—		3,559
Total NTM loans	881,198		3,483		467		—		—		885,148
Traditional loans and leases:
Commercial:
Commercial and industrial	1,508,636		844		8,642		78		—		1,518,200
Commercial real estate	725,861		1,350		1,566		—		—		728,777
Multi-family	1,365,262		—		—		—		—		1,365,262
SBA	70,508		—		660		—		—		71,168
Construction	123,571		1,529		—		—		—		125,100
Lease financing	270		—		109		—		—		379
Consumer:
Single family residential mortgage	1,080,664		950		10,215		—		—		1,091,829
Other consumer	106,632		48		383		—		—		107,063
Total traditional loans and leases	4,981,404		4,721		21,575		78		—		5,007,778
PCI loans:
Commercial:
Commercial and industrial	—		4,056		704		—		—		4,760
Commercial real estate	1,182		—		—		—		—		1,182
SBA	1,268		—		1,404		—		—		2,672
Consumer:
Single family residential mortgage	—		—		—		—		133,212		133,212
Total PCI loans	2,450		4,056		2,108		—		133,212		141,826
Total	$	5,865,052	$	12,260	$	24,150	$	78	$	133,212	$	6,034,752

Purchases, Sales, and Transfers

The following table presents loans and leases purchased, sold and transferred from (to) held-for-sale by portfolio segment, excluding loans held-for-sale, loans and leases acquired in business combinations and PCI loans for the periods indicated:



	Three Months Ended								Six Months Ended
	Purchases		Sales			Transfers from (to) Held-For-Sale			Purchases		Sales			Transfers from (to) Held-For-Sale
	(In thousands)
June 30, 2017
Commercial:
Commercial and industrial	$	—	$	—		$	(3,924	)	$	—	$	—		$	(3,924	)
Commercial real estate	—		—			(1,329		)	—		—			(1,329		)
Multi-family	—		—			—			—		—			(6,583		)
SBA	—		—			(1,865		)	—		—			(1,865		)
Construction	—		—			(1,528		)	—		—			(1,528		)
Consumer:
Single family residential mortgage	—		—			(168,043		)	—		—			(403,747		)
Total	$	—	$	—		$	(176,689	)	$	—	$	—		$	(418,976	)
June 30, 2016
Commercial:
Lease financing	$	34,226	$	(11,840	)	$	—		65,274		(11,840		)	—
Consumer:
Single family residential mortgage	—		—			2,369			—		—			(54,255		)
Total	$	34,226	$	(11,840	)	$	2,369		$	65,274	$	(11,840	)	$	(54,255	)

Purchased Credit Impaired Loans

The Company has acquired loans through business combinations and purchases of loan pools for which there was evidence of deterioration of credit quality subsequent to origination and it was probable, at acquisition, that all contractually required payments would not be collected (referred to as PCI loans). The following table presents the outstanding balance and carrying amount of PCI loans as of the dates indicated:



	June 30, 2017				December 31, 2016
	Outstanding Balance		Carrying Amount		Outstanding Balance		Carrying Amount
	(In thousands)
Commercial:
Commercial and industrial	$	803	$	652	$	5,029	$	4,760
Commercial real estate	1,571		1,121		1,613		1,182
SBA	3,681		2,528		3,771		2,672
Consumer:
Single family residential mortgage	—		—		153,867		133,212
Total	$	6,055	$	4,301	$	164,280	$	141,826

The following table presents a summary of accretable yield, or income expected to be collected, for the periods indicated:



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
	(In thousands)
Balance at beginning of period	$	38,691		$	175,889		$	41,181		$	205,549
New loans purchased	—			23,568			—			23,568
Accretion of income	(1,884		)	(9,772		)	(3,833		)	(19,480		)
Changes in expected cash flows	—			(123		)	(225		)	(18,786		)
Disposals	(34,570		)	(5,484		)	(34,886		)	(6,773		)
Balance at end of period	$	2,237		$	184,078		$	2,237		$	184,078

The following table summarizes purchases and sales of loan pools for the periods indicated:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
	($ in thousands)
Number of purchase transactions	—		1		—		1
Total unpaid principal balance of purchased loans at acquisition	$	—	$	103,799	$	—	$	103,799
Total fair value of purchased loan pools at acquisition	—		90,984		—		91,063
Total unpaid principal balance of purchased PCI loans at acquisition	—		103,799		—		103,799
Total fair value of purchased PCI loans at acquisition	—		90,984		—		91,063
Total unpaid principal balance of sold PCI loans	—		—		—		—
Total fair value of sold PCI loans	—		—		—		—
Gain on sale of PCI loans	—		—		—		—

During the three months ended June 30, 2017, the Company transferred seasoned SFR mortgage loans with an aggregate unpaid principal balance and aggregate carrying value of $168.3 million and $147.9 million, respectively, to loans held-for-sale in order to improve the credit quality of the loan portfolio and provide additional liquidity. The Company transferred these loans at lower of cost or fair value and recorded a fair value adjustment of $1.8 million against its ALLL. At June 30, 2017, the carrying value of these loans was $146.1 million. This transfer included PCI loans with an aggregate unpaid principal balance and aggregate carrying value of $147.5 million and $128.4 million, respectively, and recorded a fair value adjustment of $274 thousand. At June 30, 2017, the carrying value of transferred PCI loans was $128.1 million.

- 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