LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES

12 Months Ended

Dec. 31, 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:



($ in thousands)	NTM Loans			Traditional Loans and Leases			Total NTM and Traditional Loans and Leases			PCI Loans			Total Loans and Leases Receivable
December 31, 2017
Commercial:
Commercial and industrial	$	—		$	1,701,951		$	1,701,951		$	—		$	1,701,951
Commercial real estate	—			717,415			717,415			—			717,415
Multifamily	—			1,816,141			1,816,141			—			1,816,141
SBA	—			78,699			78,699			—			78,699
Construction	—			182,960			182,960			—			182,960
Lease financing	—			13			13			—			13
Consumer:
Single family residential mortgage	721,158			1,252,294			1,973,452			—			1,973,452
Green Loans (HELOC) - first liens	82,197			—			82,197			—			82,197
Green Loans (HELOC) - second liens	3,578			—			3,578			—			3,578
Other consumer	—			103,001			103,001			—			103,001
Total loans and leases	$	806,933		$	5,852,474		$	6,659,407		$	—		$	6,659,407
Percentage to total loans and leases	12.1		%	87.9		%	100.0		%	—		%	100.0		%
Allowance for loan and lease losses													(49,333		)
Loans and leases receivable, net													$	6,610,074
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
Percentage to total loans and leases	14.7		%	83.0		%	97.7		%	2.3		%	100.0		%
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 Loans, Interest Only loans and a small number of additional loans with the potential for negative amortization. As of December 31, 2017 and 2016, the NTM loans totaled $806.9 million, or 12.1 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 $78.2 million, or 8.8 percent, during the year ended December 31, 2017.

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



	December 31,
	2017						2016
($ in thousands)	Count	Amount			Percent		Count	Amount			Percent
Green Loans (HELOC) - first liens	101	$	82,197		10.2	%	107	$	87,469		9.9	%
Interest only - first liens	468	717,484			88.9	%	522	784,364			88.6	%
Negative amortization	11	3,674			0.5	%	22	9,756			1.1	%
Total NTM - first liens	580	803,355			99.6	%	651	881,589			99.6	%
Green Loans (HELOC) - second liens	12	3,578			0.4	%	12	3,559			0.4	%
Total NTM - second liens	12	3,578			0.4	%	12	3,559			0.4	%
Total NTM loans	592	806,933			100.0	%	663	885,148			100.0	%
Total loans and leases		$	6,659,407					$	6,034,752
Percentage to total loans and leases		12.1		%				14.7		%

Green Loans

Green Loans are single family residential 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 for a 15-year term with a balloon payment due at maturity. At December 31, 2017 and 2016, Green Loans totaled $85.8 million and $91.0 million, respectively. At December 31, 2017 and 2016, none of the Company’s 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 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 single family residential first mortgage loans with payment features that allow interest only payments in initial periods before converting to a fully amortizing loan. At December 31, 2017 and 2016, Interest Only loans totaled $717.5 million and $784.4 million, respectively. At December 31, 2017 and 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 totaled $3.7 million and $9.8 million at December 31, 2017 and 2016, respectively. The Company discontinued origination of negative amortization loans in 2007. At December 31, 2017 and 2016, none of the loans with 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 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 HELOCs, as needed in conjunction with portfolio management, and ordering third party 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 IARC meets at least quarterly 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.

Non-Traditional Mortgage Performance Indicators

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



	December 31, 2017
	By FICO Scores Obtained During the Quarter Ended December 31, 2017					By FICO Scores Obtained During the Quarter Ended December 31, 2016					Change
($ in thousands)	Count	Amount		Percent		Count	Amount		Percent		Count		Amount			Percent
FICO score
800+	12	$	7,737	9.4	%	15	$	9,091	11.1	%	(3	)	$	(1,354	)	(1.7	)%
700-799	57	42,397		51.6	%	50	38,486		46.8	%	7		3,911			4.8	%
600-699	23	23,467		28.5	%	28	27,420		33.3	%	(5	)	(3,953		)	(4.8	)%
<600	5	4,691		5.7	%	1	1,800		2.2	%	4		2,891			3.5	%
No FICO score	4	3,905		4.8	%	7	5,400		6.6	%	(3	)	(1,495		)	(1.8	)%
Total	101	$	82,197	100.0	%	101	$	82,197	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 represents the Company’s single family residential NTM first lien portfolio by LTV ratios as of the dates indicated:



	Green					Interest Only					Negative Amortization					Total
($ in thousands)	Count	Amount		Percent		Count	Amount		Percent		Count	Amount		Percent		Count	Amount		Percent
December 31, 2017
< 61	60	$	51,241	62.3	%	242	$	407,810	56.8	%	9	$	2,826	76.9	%	311	$	461,877	57.5	%
61-80	33	25,072		30.5	%	220	300,500		41.9	%	2	848		23.1	%	255	326,420		40.6	%
81-100	8	5,884		7.2	%	6	9,174		1.3	%	—	—		—	%	14	15,058		1.9	%
> 100	—	—		—	%	—	—		—	%	—	—		—	%	—	—		—	%
Total	101	$	82,197	100.0	%	468	$	717,484	100.0	%	11	$	3,674	100.0	%	580	$	803,355	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 who may not be able to fulfill the contractual payment 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 of the principal balance. The Company maintains the ALLL at a level that is considered adequate to cover the estimated 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 inherent risks. The estimated funding of the 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 December 31, 2017 and 2016, the reserve for unfunded loan commitments was $3.7 million and $2.4 million, respectively.

The credit risk monitoring system is designed to identify impaired and potential problem loans, and to perform 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 that 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 that it was 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 December 31, 2017, the Company's look-back period was extended to 39-quarters. The Company further enhanced the methodology in the areas of qualitative adjustments and loan segmentation during the second quarter of 2017, and performed an annual update of the loss emergence period during the third quarter of 2017. These updates were designed to be systematic, transparent, and repeatable. The annual update of the loss emergence period resulted in 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 following table presents a summary of activity in the ALLL for the periods indicated:



	Year Ended December 31,
($ in thousands)	2017			2016			2015
Balance at beginning of year	$	40,444		$	35,533		$	29,480
Loans and leases charged-off	(5,581		)	(2,618		)	(1,942		)
Recoveries of loans and leases previously charged off	771			2,258			526
Provision for loan and lease losses	13,699			5,271			7,469
Balance at end of year	$	49,333		$	40,444		$	35,533

The following table presents the activity and balance in the ALLL and the recorded investment, excluding accrued interest, in loans and leases by portfolio segment and is based on the impairment method as of or for the year ended December 31, 2017:



($ in thousands)	Commercial and Industrial			Commercial Real Estate			Multifamily		SBA			Construction			Lease Financing			Single Family Residential Mortgage			Other Consumer			Total
ALLL:
Balance at December 31, 2016	$	7,584		$	5,467		$	11,376	$	939		$	2,015		$	6		$	12,075		$	982		$	40,444
Charge-offs	(1,730		)	(113		)	—		(625		)	(29		)	—			(2,806		)	(278		)	(5,581		)
Recoveries	54			—			—		422			—			32			1			262			771
Provision	8,372			(383		)	1,889		965			1,332			(38		)	1,726			(164		)	13,699
Balance at December 31, 2017	$	14,280		$	4,971		$	13,265	$	1,701		$	3,318		$	—		$	10,996		$	802		$	49,333
Individually evaluated for impairment	$	498		$	—		$	—	$	435		$	—		$	—		$	277		$	7		$	1,217
Collectively evaluated for impairment	13,782			4,971			13,265		1,266			3,318			—			10,719			795			48,116
Acquired with deteriorated credit quality	—			—			—		—			—			—			—			—			—
Total ending ALLL	$	14,280		$	4,971		$	13,265	$	1,701		$	3,318		$	—		$	10,996		$	802		$	49,333
Loans and leases:
Individually evaluated for impairment	$	3,582		$	—		$	—	$	944		$	—		$	—		$	14,699		$	4,825		$	24,050
Collectively evaluated for impairment	1,698,369			717,415			1,816,141		77,755			182,960			13			2,040,950			101,754			6,635,357
Acquired with deteriorated credit quality	—			—			—		—			—			—			—			—			—
Total loans and leases	$	1,701,951		$	717,415		$	1,816,141	$	78,699		$	182,960		$	13		$	2,055,649		$	106,579		$	6,659,407



($ in thousands)	Commercial and Industrial			Commercial Real Estate			Multifamily		SBA			Construction		Lease Financing			Single Family Residential Mortgage			Other Consumer			Total
ALLL:
Balance at December 31, 2015	$	5,850		$	4,252		$	6,012	$	683		$	1,530	$	2,195		$	13,854		$	1,157		$	35,533
Charge-offs	(166		)	(414		)	—		—			—		(974		)	(1,057		)	(7		)	(2,618		)
Recoveries	225			807			169		500			—		283			248			26			2,258
Provision	1,675			822			5,195		(244		)	485		(1,498		)	(970		)	(194		)	5,271
Balance at December 31, 2016	$	7,584		$	5,467		$	11,376	$	939		$	2,015	$	6		$	12,075		$	982		$	40,444
Individually evaluated for impairment	$	—		$	—		$	—	$	—		$	—	$	—		$	243		$	—		$	243
Collectively evaluated for impairment	7,584			5,462			11,376		920			2,015		6			11,752			982			40,097
Acquired with deteriorated credit quality	—			5			—		19			—		—			80			—			104
Total ending ALLL	$	7,584		$	5,467		$	11,376	$	939		$	2,015	$	6		$	12,075		$	982		$	40,444
Loans and leases:
Individually evaluated for impairment	$	2,429		$	—		$	—	$	—		$	—	$	—		$	10,629		$	294		$	13,352
Collectively evaluated for impairment	1,515,771			728,777			1,365,262		71,168			125,100		379			1,962,789			110,328			5,879,574
Acquired with deteriorated credit quality	4,760			1,182			—		2,672			—		—			133,212			—			141,826
Total loans and leases	$	1,522,960		$	729,959		$	1,365,262	$	73,840		$	125,100	$	379		$	2,106,630		$	110,622		$	6,034,752

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.



	December 31,
	2017						2016
($ in thousands)	Unpaid Principal Balance		Recorded Investment		Allowance for Loan and Lease Losses		Unpaid Principal Balance		Recorded Investment		Allowance for Loan and Lease Losses
With no related allowance recorded:
Commercial:
Commercial and industrial	$	471	$	453	$	—	$	2,478	$	2,429	$	—
SBA	342		335		—		—		—		—
Consumer:
Single family residential mortgage	7,521		7,553		—		8,865		8,887		—
Other consumer	4,664		4,663		—		294		294		—
With an allowance recorded:
Commercial:
Commercial and industrial	3,146		3,129		498		—		—		—
SBA	635		609		435		—		—		—
Consumer:
Single family residential mortgage	7,090		7,146		277		1,772		1,742		243
Other consumer	157		162		7		—		—		—
Total	$	24,026	$	24,050	$	1,217	$	13,409	$	13,352	$	243

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



	Year Ended December 31,
	2017						2016						2015
($ in thousands)	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
Commercial:
Commercial and industrial	$	1,034	$	—	$	—	$	3,490	$	183	$	208	$	6,750	$	305	$	302
Commercial real estate	—		—		—		148		24		24		353		37		37
Multifamily	—		—		—		—		—		—		395		13		15
SBA	357		—		—		—		—		—		7		2		—
Construction	382		—		—		—		—		—		—		—		—
Lease Financing	19		—		—		—		—		—		—		—		—
Consumer:
Single family residential mortgage	12,611		199		182		27,150		862		835		25,093		869		885
Other consumer	1,757		8		8		294		8		9		424		12		13
Total	$	16,158	$	207	$	190	$	31,081	$	1,077	$	1,076	$	33,022	$	1,238	$	1,252

Past Due Loans and Leases

The following table presents the aging of the recorded investment in past due loans and leases as of December 31, 2017, excluding accrued interest receivable (which is not considered to be material), by class of loans and leases:



	December 31, 2017
($ in thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 89 Days Past due		Total Past Due		Current		Total
NTM loans:
Single family residential mortgage	$	3,353	$	1,587	$	1,171	$	6,111	$	715,047	$	721,158
Green Loans (HELOC) - first liens	5,707		292		—		5,999		76,198		82,197
Green Loans (HELOC) - second liens	—		—		—		—		3,578		3,578
Other consumer	—		—		—		—		—		—
Total NTM loans	9,060		1,879		1,171		12,110		794,823		806,933
Traditional loans and leases:
Commercial:
Commercial and industrial	136		3,595		948		4,679		1,697,272		1,701,951
Commercial real estate	—		—		—		—		717,415		717,415
Multifamily	—		—		—		—		1,816,141		1,816,141
SBA	3,578		—		1,319		4,897		73,802		78,699
Construction	—		—		—		—		182,960		182,960
Lease financing	—		—		—		—		13		13
Consumer:
Single family residential mortgage	6,862		3,370		6,012		16,244		1,236,050		1,252,294
Other consumer	3,194		413		92		3,699		99,302		103,001
Total traditional loans and leases	13,770		7,378		8,371		29,519		5,822,955		5,852,474
PCI loans:
Commercial:
Commercial and industrial	—		—		—		—		—		—
Commercial real estate	—		—		—		—		—		—
SBA	—		—		—		—		—		—
Consumer:
Single family residential mortgage	—		—		—		—		—		—
Total PCI loans	—		—		—		—		—		—
Total loans and leases	$	22,830	$	9,257	$	9,542	$	41,629	$	6,617,778	$	6,659,407

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
($ in thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 89 Days Past due		Total Past Due		Current		Total
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
Other consumer	—		—		—		—		—		—
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 loans and leases	$	38,180	$	7,038	$	16,795	$	62,013	$	5,972,739	$	6,034,752

Non-accrual Loans and Leases

The following table presents the composition of non-accrual loans and leases, excluding PCI loans, as of the dates indicated:



	December 31,
	2017						2016
($ in thousands)	NTM Loans		Traditional Loans and Leases		Total		NTM Loans		Traditional Loans and Leases		Total
Commercial:
Commercial and industrial	$	—	$	3,723	$	3,723	$	—	$	3,544	$	3,544
SBA	—		1,781		1,781		—		619		619
Lease financing	—		—		—		—		109		109
Consumer:
Single family residential mortgage	1,171		8,176		9,347		467		9,820		10,287
Other consumer	—		4,531		4,531		—		383		383
Total	$	1,171	$	18,211	$	19,382	$	467	$	14,475	$	14,942

At December 31, 2017 and 2016, none of loans were past due 90 days or more and still accruing.

Loans in Process of Foreclosure

At December 31, 2017 and 2016, the Company's SFR mortgage loans of $4.3 million and $2.2 million, respectively, were in the process of foreclosure.

Troubled Debt Restructurings

A modification of a loan constitutes a 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 the 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.

Troubled debt restructured loans and leases consist of the following as of the dates indicated:



	December 31,
	2017						2016
($ in thousands)	NTM Loans		Traditional Loans		Total		NTM Loans		Traditional Loans		Total
Commercial:
Commercial and industrial	$	—	$	2,675	$	2,675	$	—	$	—	$	—
Consumer:
Single family residential mortgage	471		2,653		3,124		853		1,440		2,293
Green Loans (HELOC) - first liens	2,228		—		2,228		2,240		—		2,240
Green Loans (HELOC) - second liens	294		—		294		294		—		294
Total	$	2,993	$	5,328	$	8,321	$	3,387	$	1,440	$	4,827

The Company did not have any commitments to lend to customers with outstanding loans that were classified as troubled debt restructurings as of December 31, 2017 and 2016.

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



	Year Ended December 31,
	2017					2016					2015
($ in thousands)	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		Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial:
Commercial and industrial	1	$	2,706	$	2,706	—	—		$	—	$	—	$	—	$	—
Consumer:
Single family residential mortgage	3	$	2,416	$	2,433	42	$	10,278	$	10,273	13		$	4,571	$	4,493
Other consumer	—	—		—		—	—		—		1		261		259
Total	4	$	5,122	$	5,139	42	10,278		$	10,273	$	14	$	4,832	$	4,752

For the years ended December 31, 2017, 2016, and 2015, there were no loans and leases that were modified as TDRs during the past 12 months that had subsequent payment defaults during the periods.

The following table summarizes the TDRs by modification type for the periods indicated:



	Modification Type
	Change in Principal Payments and Interest Rates			Change in Principal Payments			Change in Interest Rates			Chapter 7 Bankruptcy			Other			Total
($ in thousands)	Count	Amount		Count	Amount		Count	Amount		Count	Amount		Count	Amount		Count	Amount
Year ended December 31, 2017
Commercial:
Commercial and industrial	—	$	—	1	$	2,706	—	$	—	—	$	—	—	$	—	1	$	2,706
Consumer:
Single family residential mortgage	2	1,290		1	1,143		—	—		—	—		—	—		3	2,433
Total	2	$	1,290	2	$	3,849	—	$	—	—	$	—	—	$	—	4	$	5,139
Year ended December 31, 2016
Consumer:
Single family residential mortgage	34	$	8,622	4	$	780	2	$	146	1	$	519	1	$	206	42	$	10,273
Total	34	$	8,622	4	$	780	2	$	146	1	$	519	1	$	206	42	$	10,273
Year ended December 31, 2015
Consumer:
Single family residential mortgage	—	$	—	—	$	—	—	$	—	13	$	4,493	—	$	—	13	$	4,493
Other consumer	—	—		—	—		—	—		1	259		—	—		1	259
Total	—	$	—	—	$	—	—	$	—	14	$	4,752	—	$	—	14	$	4,752

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 December 31, 2017:



	December 31, 2017
($ in thousands)	Pass		Special Mention		Substandard		Doubtful		Not-Rated		Total
NTM loans:
Single family residential mortgage	$	719,182	$	805	$	1,171	$	—	$	—	$	721,158
Green Loans (HELOC) - first liens	81,407		790		—		—		—		82,197
Green Loans (HELOC) - second liens	3,578		—		—		—		—		3,578
Other consumer	—		—		—		—		—		—
Total NTM loans	804,167		1,595		1,171		—		—		806,933
Traditional loans and leases:
Commercial:
Commercial and industrial	1,651,628		33,376		16,947		—		—		1,701,951
Commercial real estate	713,131		—		4,284		—		—		717,415
Multifamily	1,815,601		540		—		—		—		1,816,141
SBA	72,417		1,555		4,621		106		—		78,699
Construction	182,960		—		—		—		—		182,960
Lease financing	13		—		—		—		—		13
Consumer:
Single family residential mortgage	1,240,866		2,282		9,146		—		—		1,252,294
Other consumer	98,030		422		4,549		—		—		103,001
Total traditional loans and leases	5,774,646		38,175		39,547		106		—		5,852,474
PCI loans:
Commercial:
Commercial and industrial	—		—		—		—		—		—
Commercial real estate	—		—		—		—		—		—
SBA	—		—		—		—		—		—
Consumer:
Single family residential mortgage	—		—		—		—		—		—
Total PCI loans	—		—		—		—		—		—
Total loans and leases	$	6,578,813	$	39,770	$	40,718	$	106	$	—	$	6,659,407

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



	December 31, 2016
($ in thousands)	Pass		Special Mention		Substandard		Doubtful		Not-Rated		Total
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
Other consumer	—		—		—		—		—		—
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 loans and leases	$	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 and/or sold by portfolio segment, excluding loans held-for-sale, loans and leases acquired in business combinations or sold in sales of branches and business units, and PCI loans for the periods indicated:



	Year Ended December 31,
	2017				2016					2015
($ in thousands)	Purchases		Sales		Purchases		Sales			Purchases		Sales
Commercial:
Multifamily	$	—	$	—	$	—	$	—		$	—	$	(242,580	)
SBA	—		—		—		—			—		(3,599		)
Lease financing	—		—		91,247		(19,741		)	127,043		—
Consumer:
Single family residential mortgage	—		—		—		(149,413		)	49,488		(165,915		)
Total	$	—	$	—	$	91,247	$	(169,154	)	$	176,531	$	(412,094	)

The Company purchased the above loans and leases at a net discount of $0, $0, and $1.4 million for the years ended December 31, 2017, 2016, and 2015, respectively. For the purchased loans and leases disclosed above, the Company did not incur any specific allowances for loan and lease losses during the years ended December 31, 2017, 2016, and 2015. The Company determined that it was probable at acquisition that all contractually required payments would be collected. The sales of loans and leases above exclude the transfer of lease financing totaling $242.7 million in the sale of the Commercial Equipment Finance business unit to Hanmi during the year ended December 31, 2016 and certain loans of $40.2 million sold to AUB as part of the branch sale transaction during the year ended December 31, 2015. See Note 2 for additional information.

The following table presents loans and leases transferred from (to) loans held-for-sale by portfolio segment, excluding loans and leases transferred in connection with sales of branch and business unit, and PCI loans for the periods indicated:



	Year Ended December 31,
	2017					2016					2015
($ in thousands)	Transfers from Held-For-Sale		Transfers to Held-For-Sale			Transfers from Held-For-Sale		Transfers to Held-For-Sale			Transfers from Held-For-Sale		Transfers to Held-For-Sale
Commercial:
Commercial and industrial	$	—	$	(3,924	)	$	—	$	(1,757	)	$	—	$	—
Commercial real estate	—		(1,329		)	—		(2,792		)	3,762		—
Multifamily	—		(6,583		)	—		(81,780		)	—		—
SBA	—		(1,865		)	—		—			—		—
Construction	—		(1,528		)	—		—			—		—
Consumer:
Single family residential mortgage	88,591		(450,625		)	7,115		(105,337		)	479,089		—
Total	$	88,591	$	(465,854	)	$	7,115	$	(191,666	)	$	482,851	$	—

Purchased Credit Impaired Loans

The Company had no PCI loans at December 31, 2017, due mainly to the sale of seasoned SFR mortgage PCI loans during the year ended December 31, 2017. The Company had 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. The following table presents the outstanding balance and carrying amount of PCI loans as of the dates indicated:



	December 31,
	2017				2016
($ in thousands)	Outstanding Balance		Carrying Amount		Outstanding Balance		Carrying Amount
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:



	Year Ended December 31,
($ in thousands)	2017			2016			2015
Balance at beginning of year	$	41,181		$	205,549		$	92,301
New loans or leases purchased	—			23,568			138,046
Accretion of income	(3,833		)	(34,616		)	(23,441		)
Increase (decrease) in expected cash flows	(225		)	(10,650		)	19,852
Disposals	(34,886		)	(142,670		)	(21,209		)
Other	(2,237		)	—			—
Balance at end of year	$	—		$	41,181		$	205,549

The following table presents PCI loans purchased for the periods indicated:



	Year Ended December 31,
($ in thousands)	2017		2016		2015
Consumer:
Single family residential mortgage	—		103,799		571,245
Outstanding unpaid principal balance at acquisition	$	—	$	103,799	$	571,245
Cash flows expected to be collected at acquisitions	$	—	$	114,552	$	667,224
Fair value of acquired loans at acquisition	$	—	$	90,984	$	529,178

During the year ended December 31, 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 charge-off of $274 thousand against its ALLL. All of the 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 year ended December 31, 2017.

During the year ended December 31, 2016, the Company sold PCI loans with an aggregate unpaid principal balance and aggregate carrying value of $606.7 million and $558.0 million, respectively, and recognized a net gain on sale of loans of $19.2 million. During the year ended December 31, 2015, the Company sold PCI loans with an aggregate unpaid principal balance and aggregate carrying value of $52.4 million and $32.5 million, respectively, and recognized a net gain on sale of loans of $9.4 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