LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES

9 Months Ended

Sep. 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)
September 30, 2017
Commercial:
Commercial and industrial	$	—	$	1,602,805	$	1,602,805	$	—	$	1,602,805
Commercial real estate	—		713,120		713,120		—		713,120
Multifamily	—		1,617,890		1,617,890		—		1,617,890
SBA	—		78,604		78,604		—		78,604
Construction	—		176,397		176,397		—		176,397
Lease financing	—		91		91		—		91
Consumer:
Single family residential mortgage	708,099		1,129,922		1,838,021		—		1,838,021
Green Loans (HELOC) - first liens	82,289		—		82,289		—		82,289
Green Loans (HELOC) - second liens	3,558		—		3,558		—		3,558
Other consumer	—		114,122		114,122		—		114,122
Total loans and leases	$	793,946	$	5,432,951	$	6,226,897	$	—	$	6,226,897
Allowance for loan and lease losses									(45,072		)
Loans and leases receivable, net									$	6,181,825
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
Multifamily	—		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

The Company had no PCI loans at September 30, 2017, due mainly to the sale of seasoned SFR mortgage PCI loans during the nine months ended September 30, 2017.

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 September 30, 2017 and December 31, 2016, the NTM loans totaled $793.9 million, or 12.8 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 $91.2 million, or 10.3 percent, during the nine months ended September 30, 2017.

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



	September 30, 2017						December 31, 2016
	Count	Amount			Percent		Count	Amount			Percent
	($ in thousands)
Green Loans (HELOC) - first liens	101	$	82,289		10.4	%	107	$	87,469		9.9	%
Interest-only - first liens	455	704,386			88.7	%	522	784,364			88.6	%
Negative amortization	11	3,713			0.5	%	22	9,756			1.1	%
Total NTM - first liens	567	790,388			99.6	%	651	881,589			99.6	%
Green Loans (HELOC) - second liens	12	3,558			0.4	%	12	3,559			0.4	%
Total NTM - second liens	12	3,558			0.4	%	12	3,559			0.4	%
Total NTM loans	579	$	793,946		100.0	%	663	$	885,148		100.0	%
Total loans and leases		$	6,226,897					$	6,034,752
% of NTM to total loans and leases		12.8		%				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 September 30, 2017 and December 31, 2016, Green Loans totaled $85.8 million and $91.0 million, respectively. At September 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 September 30, 2017 and December 31, 2016, interest only loans totaled $704.4 million and $784.4 million, respectively. As of September 30, 2017 and December 31, 2016, $1.2 million 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 $3.7 million and $9.8 million at September 30, 2017 and December 31, 2016, respectively. The Company discontinued origination of negative amortization loans in 2007. At September 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 September 30, 2017 by FICO scores that were obtained during the quarter ended September 30, 2017, compared to the FICO scores for those same loans that were obtained during the quarter ended December 31, 2016:



	September 30, 2017
	By FICO Scores Obtained During the Quarter Ended September 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+	12	$	8,410	10.2	%	15	$	9,139	11.1	%	(3	)	$	(729	)	(0.9	)%
700-799	58	43,168		52.5	%	50	38,567		46.8	%	8		4,601			5.7	%
600-699	24	22,479		27.3	%	28	27,384		33.3	%	(4	)	(4,905		)	(6.0	)%
<600	3	4,329		5.3	%	1	1,800		2.2	%	2		2,529			3.1	%
No FICO	4	3,903		4.7	%	7	5,399		6.6	%	(3	)	(1,496		)	(1.9	)%
Totals	101	$	82,289	100.0	%	101	$	82,289	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)
September 30, 2017
< 61%	61	$	52,286	63.5	%	211	$	369,261	52.4	%	10	$	3,550	95.6	%	282	$	425,097	53.8	%
61-80%	34	25,498		31.0	%	232	316,462		44.9	%	1	163		4.4	%	267	342,123		43.3	%
81-100%	6	4,505		5.5	%	12	18,663		2.6	%	—	—		—	%	18	23,168		2.9	%
> 100%	—	—		—	%	—	—		—	%	—	—		—	%	—	—		—	%
Total	101	$	82,289	100.0	%	455	$	704,386	99.9	%	11	$	3,713	100.0	%	567	$	790,388	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 loans that share similar credit risk exposure are used to determine the adequacy of the reserve. At September 30, 2017 and December 31, 2016, the reserve for unfunded loan commitments was $4.6 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 cumulative look-back period with a pegged (fixed) starting point (the quarter ended March 31, 2008). 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 and September 30, 2017, the Company's look-back-period was extended to 37-quarters and 38-quarters, respectively. During the second and third quarter of 2017, the Company further enhanced the methodology in the areas of qualitative adjustments and loan segmentation, and performed an annual update of the loss emergence period. These updates were designed to be systematic, transparent, and repeatable. The annual update of the loss emergence period resulted an increase of $1.9 million in the ALLL at September 30, 2017. The updates on qualitative adjustments and loan segmentation 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 September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
	(In thousands)
Balance at beginning of period	$	42,385		$	37,483		$	40,444		$	35,533
Loans and leases charged off	(959		)	(393		)	(4,214		)	(1,267		)
Recoveries of loans and leases previously charged off	85			551			195			1,285
Provision for loan and lease losses	3,561			2,592			8,647			4,682
Balance at end of period	$	45,072		$	40,233		$	45,072		$	40,233

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 nine months ended September 30, 2017:



	Commercial and Industrial			Commercial Real Estate			Multifamily			SBA			Construction			Lease Financing			Single Family Residential Mortgage			Other Consumer			Total
	(In thousands)
ALLL:
Balance at June 30, 2017	$	10,495		$	5,126		$	10,686		$	1,084		$	2,974		$	3		$	11,009		$	1,008		$	42,385
Charge-offs	(571		)	—			—			(58		)	—			—			(78		)	(252		)	(959		)
Recoveries	—			—			—			83			—			—			—			2			85
Provision	2,576			202			588			188			238			(1		)	(564		)	334			3,561
Balance at September 30, 2017	$	12,500		$	5,328		$	11,274		$	1,297		$	3,212		$	2		$	10,367		$	1,092		$	45,072
Balance at December 31, 2016	$	7,584		$	5,467		$	11,376		$	939		$	2,015		$	6		$	12,075		$	982		$	40,444
Charge-offs	(953		)	(113		)	—			(351		)	(29		)	—			(2,490		)	(278		)	(4,214		)
Recoveries	—			—			—			157			—			29			1			8			195
Provision	5,869			(26		)	(102		)	552			1,226			(33		)	781			380			8,647
Balance at September 30, 2017	$	12,500		$	5,328		$	11,274		$	1,297		$	3,212		$	2		$	10,367		$	1,092		$	45,072
Individually evaluated for impairment	$	195		$	—		$	—		$	54		$	—		$	1		$	165		$	—		$	415
Collectively evaluated for impairment	12,305			5,328			11,274			1,243			3,212			1			10,202			1,092			44,657
Acquired with deteriorated credit quality	—			—			—			—			—			—			—			—			—
Total ending ALLL balance	$	12,500		$	5,328		$	11,274		$	1,297		$	3,212		$	2		$	10,367		$	1,092		$	45,072
Loans:
Individually evaluated for impairment	$	497		$	—		$	—		$	377		$	—		$	41		$	14,636		$	364		$	15,915
Collectively evaluated for impairment	1,602,308			713,120			1,617,890			78,227			176,397			50			1,905,674			117,316			6,210,982
Acquired with deteriorated credit quality	—			—			—			—			—			—			—			—			—
Total ending loan balances	$	1,602,805		$	713,120		$	1,617,890		$	78,604		$	176,397		$	91		$	1,920,310		$	117,680		$	6,226,897



	Commercial and Industrial			Commercial Real Estate		Multifamily		SBA			Construction		Lease Financing			Single Family Residential Mortgage			Other Consumer			Total
	(In thousands)
ALLL:
Balance at June 30, 2016	$	8,004		$	3,554	$	6,914	$	697		$	1,677	$	2,540		$	13,143		$	954		$	37,483
Charge-offs	—			—		—		—			—		(393		)	—			—			(393		)
Recoveries	224			—		—		67			—		98			157			5			551
Provision	(2		)	1,472		1,795		144			40		722			(1,573		)	(6		)	2,592
Balance at September 30, 2016	$	8,226		$	5,026	$	8,709	$	908		$	1,717	$	2,967		$	11,727		$	953		$	40,233
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		)	—		—		—			—		(974		)	(149		)	(7		)	(1,267		)
Recoveries	224			371		—		343			—		183			157			7			1,285
Provision	2,289			403		2,697		(118		)	187		1,563			(2,135		)	(204		)	4,682
Balance at September 30, 2016	$	8,226		$	5,026	$	8,709	$	908		$	1,717	$	2,967		$	11,727		$	953		$	40,233
Individually evaluated for impairment	$	—		$	—	$	—	$	—		$	—	$	—		$	665		$	—		$	665
Collectively evaluated for impairment	8,169			5,015		8,709		889			1,717		2,967			11,045			953			39,464
Acquired with deteriorated credit quality	57			11		—		19			—		—			17			—			104
Total ending ALLL balance	$	8,226		$	5,026	$	8,709	$	908		$	1,717	$	2,967		$	11,727		$	953		$	40,233
Loans:
Individually evaluated for impairment	$	3,397		$	—	$	—	$	—		$	—	$	—		$	28,593		$	294		$	32,284
Collectively evaluated for impairment	1,522,848			719,420		1,199,207		64,977			99,086		234,540			1,940,389			113,673			5,894,140
Acquired with deteriorated credit quality	4,796			2,418		—		2,760			—		—			632,393			—			642,367
Total ending loan balances	$	1,531,041		$	721,838	$	1,199,207	$	67,737		$	99,086	$	234,540		$	2,601,375		$	113,967		$	6,568,791

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.



	September 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	$	24	$	23	$	—	$	2,478	$	2,429	$	—
SBA	227		221		—		—		—		—
Consumer:
Single family residential mortgage	12,192		12,288		—		8,865		8,887		—
Other consumer	367		364		—		294		294		—
With an ALLL recorded:
Commercial:
Commercial and industrial	475		474		195		—		—		—
SBA	161		156		54		—		—		—
Lease Financing	41		41		1		—		—		—
Consumer:
Single family residential mortgage	2,337		2,348		165		1,772		1,742		243
Other consumer	—		—		—		—		—		—
Total	$	15,824	$	15,915	$	415	$	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						Nine Months Ended
	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
	(In thousands)
September 30, 2017
Commercial:
Commercial and industrial	$	506	$	—	$	—	$	169	$	—	$	—
SBA	378		—		—		126		—		—
Construction	$	—	$	—	$	—	$	509	$	—	$	—
Lease Financing	53		—		—		18		—		—
Consumer:
Single family residential mortgage	14,673		57		45		11,904		142		134
Other consumer	366		2		3		711		6		6
Total	$	15,976	$	59	$	48	$	13,437	$	148	$	140
September 30, 2016
Commercial:
Commercial and industrial	$	3,434	$	65	$	65	$	3,843	$	183	$	208
Commercial real estate	—		—		—		197		24		24
Consumer:
Single family residential mortgage	28,678		213		221		32,655		808		784
Other consumer	294		2		1		294		6		6
Total	$	32,406	$	280	$	287	$	36,989	$	1,021	$	1,022

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:



	September 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 $251 thousand at September 30, 2017 and $0 at December 31, 2016	1,171		11,104		12,275		467		14,475		14,942

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



	September 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	$	—	$	993	$	993	$	—	$	3,544	$	3,544
SBA	—		1,796		1,796		—		619		619
Lease financing	—		41		41		—		109		109
Consumer:
Single family residential mortgage	1,171		8,090		9,261		467		9,820		10,287
Other consumer	—		184		184		—		383		383
Total nonaccrual loans and leases	$	1,171	$	11,104	$	12,275	$	467	$	14,475	$	14,942

Loans in Process of Foreclosure

At September 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 September 30, 2017, excluding accrued interest receivable (which is not considered to be material), by class of loans and leases:



	September 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	$	—	$	805	$	1,171	$	1,976	$	706,123	$	708,099
Green Loans (HELOC) - first liens	2,464		498		—		2,962		79,327		82,289
Green Loans (HELOC) - second liens	—		698		—		698		2,860		3,558
Total NTM loans	2,464		2,001		1,171		5,636		788,310		793,946
Traditional loans and leases:
Commercial:
Commercial and industrial	1,374		3,659		434		5,467		1,597,338		1,602,805
Commercial real estate	—		—		—		—		713,120		713,120
Multifamily	—		—		—		—		1,617,890		1,617,890
SBA	631		348		1,295		2,274		76,330		78,604
Construction	559		—		—		559		175,838		176,397
Lease financing	—		—		41		41		50		91
Consumer:
Single family residential mortgage	1,949		742		8,090		10,781		1,119,141		1,129,922
Other consumer	6,277		282		119		6,678		107,444		114,122
Total traditional loans and leases	10,790		5,031		9,979		25,800		5,407,151		5,432,951
PCI loans:
Commercial:
Commercial and industrial	—		—		—		—		—		—
Commercial real estate	—		—		—		—		—		—
SBA	—		—		—		—		—		—
Consumer:
Single family residential mortgage	—		—		—		—		—		—
Total PCI loans	—		—		—		—		—		—
Total	$	13,254	$	7,032	$	11,150	$	31,436	$	6,195,461	$	6,226,897

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
Multifamily	—		—		—		—		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:



	September 30, 2017						December 31, 2016
	NTM Loans		Traditional Loans		Total		NTM Loans		Traditional Loans		Total
	(In thousands)
Consumer:
Single family residential mortgage	$	477	$	2,666	$	3,143	$	853	$	1,440	$	2,293
Green Loans (HELOC) - first liens	2,231		—		2,231		2,240		—		2,240
Green Loans (HELOC) - second liens	294		—		294		294		—		294
Total	$	3,002	$	2,666	$	5,668	$	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 September 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					Nine 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)
September 30, 2017
Consumer:
Single family residential mortgage	—	$	—	$	—	3	$	2,416	$	2,433
Total	—	$	—	$	—	3	$	2,416	$	2,433
September 30, 2016
Consumer:
Single family residential mortgage	1	$	522	$	519	41	$	10,070	$	10,067
Total	1	$	522	$	519	41	$	10,070	$	10,067

During the three months ended September 30, 2017, there were no new TDRs. The following table summarizes new TDRs by modification type for the three months ended 2016:



	Three Months Ended
	Modification Type
	Change in Principal Payments and Interest Rates			Change in Principal Payments			Change in Interest Rates			Bankruptcy Discharges		Total
	Count	Amount		Count	Amount		Count	Amount		Count	Amount	Count	Amount
	($ in thousands)
September 30, 2016
Consumer:
Single family residential mortgage	—	$	—	—	$	—	—	$	—	1	519	1	$	519
Total	—	$	—	—	$	—	—	$	—	1	519	1	$	519

The following table summarizes new TDRs by modification type for the nine months ended September 30, 2017 and 2016:



	Nine Months Ended
	Modification Type
	Change in Principal Payments and Interest Rates			Change in Principal Payments			Change in Interest Rates			Bankruptcy Discharges		Total
	Count	Amount		Count	Amount		Count	Amount		Count	Amount	Count	Amount
	($ in thousands)
September 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
September 30, 2016
Consumer:
Single family residential mortgage	34	$	8,622	4	$	780	2	$	146	1	519	41	$	10,067
Total	34	$	8,622	4	$	780	2	$	146	1	519	41	$	10,067

For the three and nine months ended September 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 nine months ended September 30, 2016, there were three and five loans, respectively, with an aggregate principal balance of $789 thousand and $1.1 million, 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 September 30, 2017:



	September 30, 2017
	Pass		Special Mention		Substandard		Doubtful		Not-Rated		Total
	(In thousands)
NTM loans:
Single family residential mortgage	$	706,928	$	—	$	1,171	$	—	$	—	$	708,099
Green Loans (HELOC) - first liens	81,791		498		—		—		—		82,289
Green Loans (HELOC) - second liens	3,558		—		—		—		—		3,558
Total NTM loans	792,277		498		1,171		—		—		793,946
Traditional loans and leases:
Commercial:
Commercial and industrial	1,560,142		39,288		3,375		—		—		1,602,805
Commercial real estate	707,707		3,366		2,047		—		—		713,120
Multifamily	1,617,346		544		—		—		—		1,617,890
SBA	71,889		2,553		4,162		—		—		78,604
Construction	176,397		—		—		—		—		176,397
Lease financing	50		—		41		—		—		91
Consumer:
Single family residential mortgage	1,120,856		—		9,066		—		—		1,129,922
Other consumer	109,366		49		4,707		—		—		114,122
Total traditional loans and leases	5,363,753		45,800		23,398		—		—		5,432,951
PCI loans:
Commercial:
Commercial and industrial	—		—		—		—		—		—
Commercial real estate	—		—		—		—		—		—
SBA	—		—		—		—		—		—
Consumer:
Single family residential mortgage	—		—		—		—		—		—
Total PCI loans	—		—		—		—		—		—
Total	$	6,156,030	$	46,298	$	24,569	$	—	$	—	$	6,226,897

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
Multifamily	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								Nine Months Ended
	Purchases		Sales			Transfers from (to) Held-For-Sale			Purchases		Sales			Transfers from (to) Held-For-Sale
	(In thousands)
September 30, 2017
Commercial:
Commercial and industrial	$	—	$	—		$	—		$	—	$	—		$	(3,924	)
Commercial real estate	—		—			—			—		—			(1,329		)
Multifamily	—		—			—			—		—			(6,583		)
SBA	—		—			—			—		—			(1,865		)
Construction	—		—			—			—		—			(1,528		)
Consumer:
Single family residential mortgage	—		—			42,692			—		—			(361,055		)
Total	$	—	$	—		$	42,692		$	—	$	—		$	(376,284	)
September 30, 2016
Commercial:
Commercial and industrial	$	—	$	—		$	(169	)	$	—	$	—		$	(169	)
Commercial real estate	—		—			(2,228		)	—		—			(2,228		)
Multifamily	—		—			(66,806		)	—		—			(66,806		)
Lease financing	$	23,639	$	(8,985	)	$	—		88,913		(19,741		)	—
Consumer:
Single family residential mortgage	—		(21,039		)	(30,988		)	—		(21,039		)	(85,283		)
Total	$	23,639	$	(30,024	)	$	(100,191	)	$	88,913	$	(40,780	)	$	(154,486	)

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:



	September 30, 2017				December 31, 2016
	Outstanding Balance		Carrying Amount		Outstanding Balance		Carrying Amount
	(In thousands)
Commercial:
Commercial and industrial	$	—	$	—	$	5,029	$	4,760
Commercial real estate	—		—		1,613		1,182
SBA	—		—		3,771		2,672
Consumer:
Single family residential mortgage	—		—		153,867		133,212
Total	$	—	$	—	$	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 September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
	(In thousands)
Balance at beginning of period	$	2,237		$	184,078		$	41,181		$	205,549
New loans purchased	—			—			—			23,568
Accretion of income	—			(9,645		)	(3,833		)	(29,125		)
Changes in expected cash flows	—			(40		)	(225		)	(18,826		)
Disposals	—			(27,693		)	(34,886		)	(34,466		)
Other	(2,237		)	—			(2,237		)	—
Balance at end of period	$	—		$	146,700		$	—		$	146,700

The following table summarizes purchases for the periods indicated:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	($ in thousands)
Number of purchase transactions	—		1		—		1
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	$	—	$	90,984

During the three months ended June 30, 2017, the Company transferred seasoned SFR mortgage PCI loans with an aggregate unpaid principal balance and aggregate carrying value of $147.5 million and $128.4 million, respectively, to loans held-for-sale. The Company transferred these PCI loans at lower of cost or fair value and recorded a fair value adjustment of $274 thousand against its ALLL. During the three months ended September 30, 2017, all of transferred seasoned SFR mortgage PCI loans were sold and the Company recognized a net gain on sale of loans of $3.7 million.

During the three and nine months ended September 30, 2016, the Company sold a portion of PCI loans with unpaid principal balances and carrying values of $98.3 million and $82.4 million, respectively, and recognized a net gain on sale of loans of $4.4 million from the transaction during the three and nine months ended September 30, 2016.

- 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