LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES

12 Months Ended

Dec. 31, 2018

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 Loans and Leases Receivable
December 31, 2018
Commercial:
Commercial and industrial	$	—		$	1,944,142		$	1,944,142
Commercial real estate	—			867,013			867,013
Multifamily	—			2,241,246			2,241,246
SBA	—			68,741			68,741
Construction	—			203,976			203,976
Lease financing	—			—			—
Consumer:
Single family residential mortgage	824,318			1,481,172			2,305,490
Other consumer	2,413			67,852			70,265
Total loans and leases ⁽¹⁾	$	826,731		$	6,874,142		$	7,700,873
Percentage to total loans and leases	10.7		%	89.3		%	100.0		%
Allowance for loan and lease losses							(62,192		)
Loans and leases receivable, net							$	7,638,681
December 31, 2017
Commercial:
Commercial and industrial	$	—		$	1,701,951		$	1,701,951
Commercial real estate	—			717,415			717,415
Multifamily	—			1,816,141			1,816,141
SBA	—			78,699			78,699
Construction	—			182,960			182,960
Lease financing	—			13			13
Consumer:
Single family residential mortgage	803,355			1,252,294			2,055,649
Other consumer	3,578			103,001			106,579
Total loans and leases ⁽¹⁾	$	806,933		$	5,852,474		$	6,659,407
Percentage to total loans and leases	12.1		%	87.9		%	100.0		%
Allowance for loan and lease losses							(49,333		)
Loans and leases receivable, net							$	6,610,074


(1)	Total loans and leases includes deferred loan origination costs/(fees) and premiums/(discounts), net of $17.7 million and $6.4 million, respectively, at December 31, 2018 and 2017.

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, 2018 and 2017, the NTM loans totaled $826.7 million, or 10.7 percent of total loans and leases, and $806.9 million, or 12.1 percent of total loans and leases, respectively. The total NTM portfolio increased by $19.8 million, or 2.5 percent, during the year ended December 31, 2018.

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



	December 31,
	2018						2017
($ in thousands)	Count	Amount			Percent		Count	Amount			Percent
Green Loans (HELOC) - first liens	88	$	67,729		8.2	%	101	$	82,197		10.2	%
Interest only - first liens	519	753,061			91.1	%	468	717,484			88.9	%
Negative amortization	11	3,528			0.4	%	11	3,674			0.5	%
Total NTM - first liens	618	824,318			99.7	%	580	803,355			99.6	%
Green Loans (HELOC) - second liens	10	2,413			0.3	%	12	3,578			0.4	%
Total NTM - second liens	10	2,413			0.3	%	12	3,578			0.4	%
Total NTM loans	628	$	826,731		100.0	%	592	$	806,933		100.0	%
Total loans and leases		$	7,700,873					$	6,659,407
Percentage to total loans and leases		10.7		%				12.1		%

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, 2018 and 2017, Green Loans totaled $70.1 million and $85.8 million, respectively. At December 31, 2018 and 2017, 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, 2018 and 2017, Interest Only loans totaled $753.1 million and $717.5 million, respectively. At December 31, 2018 and 2017, $0 and $1.2 million of the Interest Only loans were non-performing, respectively.

Loans with the Potential for Negative Amortization

Negative amortization loans totaled $3.5 million and $3.7 million at December 31, 2018 and 2017, respectively. The Company discontinued origination of negative amortization loans in 2007. At December 31, 2018 and 2017, 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, 2018 by FICO scores that were obtained during the quarter ended December 31, 2018, comparing to the FICO scores for those same loans that were obtained during the quarter ended December 31, 2017:



	December 31, 2018
	By FICO Scores Obtained During the Quarter Ended December 31, 2018					By FICO Scores Obtained During the Quarter Ended December 31, 2017					Change
($ in thousands)	Count	Amount		Percent		Count	Amount		Percent		Count		Amount			Percent
FICO score
800+	16	$	10,617	15.7	%	12	$	7,407	10.9	%	4		$	3,210		4.8	%
700-799	50	34,888		51.5	%	44	28,327		41.8	%	6		6,561			9.7	%
600-699	16	14,098		20.8	%	23	23,406		34.6	%	(7	)	(9,308		)	(13.8	)%
<600	3	4,347		6.4	%	5	4,679		6.9	%	(2	)	(332		)	(0.5	)%
No FICO score	3	3,779		5.6	%	4	3,910		5.8	%	(1	)	(131		)	(0.2	)%
Total	88	$	67,729	100.0	%	88	$	67,729	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:



LTV Ratios	Green					Interest Only					Negative Amortization					Total
($ in thousands)	Count	Amount		Percent		Count	Amount		Percent		Count	Amount		Percent		Count	Amount		Percent
December 31, 2018
< 61	69	$	51,827	76.5	%	312	$	495,930	65.9	%	11	$	3,528	100.0	%	392	$	551,285	66.9	%
61-80	17	13,476		19.9	%	201	245,568		32.6	%	—	—		—	%	218	259,044		31.4	%
81-100	2	2,426		3.6	%	5	7,441		1.0	%	—	—		—	%	7	9,867		1.2	%
> 100	—	—		—	%	1	4,122		0.5	%	—	—		—	%	1	4,122		0.5	%
Total	88	$	67,729	100.0	%	519	$	753,061	100.0	%	11	$	3,528	100.0	%	618	$	824,318	100.0	%
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	%

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 incurred loss 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 incurred loss. 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, 2018 and 2017, the reserve for unfunded loan commitments was $4.6 million and $3.7 million, respectively, which are recorded in Accrued Expenses and Other Liabilities on the Consolidated Statements of Financial Condition.

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. The Company’s loan segmentation increased from 11 to 13 segments, with the addition of an Indirect Leverage Lending segment and a Warehouse FixNFlip segment. Management concluded these products represented unique credit and risk characteristics to warrant separate segmentation. Additionally, management enhanced the methodology in the areas of qualitative adjustments, and performed an annual update of the loss emergence period. These updates were designed to be systematic, transparent, and repeatable. None of the updates and enhancements made to the ALLL methodology had a material impact on the reserve at December 31, 2018.

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



	Year Ended December 31,
($ in thousands)	2018			2017			2016
Balance at beginning of year	$	49,333		$	40,444		$	35,533
Loans and leases charged-off	(18,499		)	(5,581		)	(2,618		)
Recoveries of loans and leases previously charged off	1,143			771			2,258
Provision for loan and lease losses	30,215			13,699			5,271
Balance at end of year	$	62,192		$	49,333		$	40,444

During the three months ended March 31, 2018, the Company recorded a charge-off of $13.9 million, which reflected the outstanding balance under a $15.0 million line of credit that was originated during the three months ended March 31, 2018. Subsequent to the granting of the line of credit, representations from the borrower in applying for the line of credit were determined by the Bank to be false, and third party bank account statements provided by the borrower to secure the line of credit were found to be fraudulent. The line of credit was granted after the borrower appeared to have satisfied a pre-condition that the line of credit be fully cash collateralized and secured by a bank account at a third party financial institution pledged to the Bank. As part of the Bank’s credit review and portfolio management process, the line of credit and disbursements were reviewed subsequent to closing and compliance with the borrower’s covenants was monitored. As part of this process, on March 9, 2018, the Bank received information that caused it to believe the existence of the pledged bank account had been misrepresented by the borrower and that the account had previously been closed. The Bank filed an action in federal court pursuing the borrower and other parties and is also considering other available sources of collection and other potential means of mitigating the loss; however, no assurance can be given that it will be successful in this regard. Upon extensive review of the underwriting process for this loan, the Bank determined that this loan was the result of an isolated event of external fraud.

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, 2018:



($ 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, 2017	$	14,280		$	4,971	$	13,265		$	1,701		$	3,318	$	—		$	10,996		$	802		$	49,333
Charge-offs	(1,927		)	—		(14		)	(1,927		)	—		—			(558		)	(14,073		)	(18,499		)
Recoveries	396			—		—			273			—		15			436			23			1,143
Provision	5,442			1,703		4,719			1,780			143		(15		)	2,254			14,189			30,215
Balance at December 31, 2018	$	18,191		$	6,674	$	17,970		$	1,827		$	3,461	$	—		$	13,128		$	941		$	62,192
Individually evaluated for impairment	$	—		$	—	$	—		$	562		$	—	$	—		$	161		$	106		$	829
Collectively evaluated for impairment	18,191			6,674		17,970			1,265			3,461		—			12,967			835			61,363
Total ending ALLL	$	18,191		$	6,674	$	17,970		$	1,827		$	3,461	$	—		$	13,128		$	941		$	62,192
Loans and leases:
Individually evaluated for impairment	$	5,455		$	—	$	—		$	2,376		$	—	$	—		$	18,193		$	921		$	26,945
Collectively evaluated for impairment	1,938,687			867,013		2,241,246			66,365			203,976		—			2,287,297			69,344			7,673,928
Total loans and leases	$	1,944,142		$	867,013	$	2,241,246		$	68,741		$	203,976	$	—		$	2,305,490		$	70,265		$	7,700,873



($ 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
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
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

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.



	December 31,
	2018						2017
($ 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	$	5,491	$	5,455	$	—	$	471	$	453	$	—
SBA	1,668		1,588		—		342		335		—
Consumer:
Single family residential mortgage	12,115		12,161		—		7,521		7,553		—
Other consumer	469		469		—		4,664		4,663		—
With an allowance recorded:
Commercial:
Commercial and industrial	—		—		—		3,146		3,129		498
SBA	823		788		562		635		609		435
Consumer:
Single family residential mortgage	5,993		6,032		161		7,090		7,146		277
Other consumer	468		452		106		157		162		7
Total	$	27,027	$	26,945	$	829	$	24,026	$	24,050	$	1,217

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



	Year Ended December 31,
	2018						2017						2016
($ 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	$	5,380	$	4	$	4	$	1,034	$	—	$	—	$	3,490	$	183	$	208
Commercial real estate	—		—		—		—		—		—		148		24		24
Multifamily	—		—		—		—		—		—		—		—		—
SBA	986		4		3		357		—		—		—		—		—
Construction	—		—		—		382		—		—		—		—		—
Lease Financing	—		—		—		19		—		—		—		—		—
Consumer:
Single family residential mortgage	19,694		236		199		12,611		199		182		27,150		862		835
Other consumer	771		12		11		1,757		8		8		294		8		9
Total	$	26,831	$	256	$	217	$	16,158	$	207	$	190	$	31,081	$	1,077	$	1,076

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, 2018, excluding accrued interest receivable (which is not considered to be material), by class of loans and leases:



	December 31, 2018
($ 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	$	7,430	$	617	$	—	$	8,047	$	816,271	$	824,318
Other consumer	—		—		—		—		2,413		2,413
Total NTM loans	7,430		617		—		8,047		818,684		826,731
Traditional loans and leases:
Commercial:
Commercial and industrial	350		1,596		3,340		5,286		1,938,856		1,944,142
Commercial real estate	—		582		—		582		866,431		867,013
Multifamily	356		—		—		356		2,240,890		2,241,246
SBA	551		77		862		1,490		67,251		68,741
Construction	—		939		—		939		203,037		203,976
Lease financing	—		—		—		—		—		—
Consumer:
Single family residential mortgage	7,321		3,160		9,198		19,679		1,461,493		1,481,172
Other consumer	3,132		573		446		4,151		63,701		67,852
Total traditional loans and leases	11,710		6,927		13,846		32,483		6,841,659		6,874,142
Total loans and leases	$	19,140	$	7,544	$	13,846	$	40,530	$	7,660,343	$	7,700,873

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	$	9,060	$	1,879	$	1,171	$	12,110	$	791,245	$	803,355
Other consumer	—		—		—		—		3,578		3,578
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
Total loans and leases	$	22,830	$	9,257	$	9,542	$	41,629	$	6,617,778	$	6,659,407

Non-accrual Loans and Leases

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



	December 31,
	2018						2017
($ in thousands)	NTM Loans		Traditional Loans and Leases		Total		NTM Loans		Traditional Loans and Leases		Total
Commercial:
Commercial and industrial	$	—	$	5,455	$	5,455	$	—	$	3,723	$	3,723
SBA	—		2,574		2,574		—		1,781		1,781
Consumer:
Single family residential mortgage	—		12,929		12,929		1,171		8,176		9,347
Other consumer	—		627		627		—		4,531		4,531
Total	$	—	$	21,585	$	21,585	$	1,171	$	18,211	$	19,382

At December 31, 2018 and 2017, $470 thousand and $0 of loans were past due 90 days or more and still accruing.

Loans in Process of Foreclosure

At December 31, 2018 and 2017, consumer mortgage loans of $5.1 million and $4.3 million, respectively, were secured by residential real estate properties for which formal foreclosure proceedings were in the process according to local requirements of the applicable jurisdiction.

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 consisted of the following as of the dates indicated:



	December 31,
	2018						2017
($ in thousands)	NTM Loans		Traditional Loans		Total		NTM Loans		Traditional Loans		Total
Commercial:
Commercial and industrial	$	—	$	2,276	$	2,276	$	—	$	2,675	$	2,675
SBA	—		187		187		—		—		—
Consumer:
Single family residential mortgage	2,668		2,596		5,264		2,699		2,653		5,352
Other consumer	294		—		294		294		—		294
Total	$	2,962	$	5,059	$	8,021	$	2,993	$	5,328	$	8,321

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, 2018 and 2017. Accruing TDRs were $5.7 million and non-accrual TDRs were $2.3 million at December 31, 2018 compared to accruing TDRs $5.6 million and non-accrual TDRs of $2.7 million at December 31, 2017.

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



	Year Ended December 31,
	2018					2017					2016
($ 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	2	$	171	$	163	1	$	2,706	$	2,706	—	$	—	$	—
SBA	1	187		187		—	—		—		—	—		—
Consumer:
Single family residential mortgage	—	—		—		3	2,416		2,433		42	10,278		10,273
Total	3	$	358	$	350	4	$	5,122	$	5,139	42	$	10,278	$	10,273

For the years ended December 31, 2018, 2017, and 2016, 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, 2018
Commercial:
Commercial and industrial	—	$	—	2	$	163	—	$	—	—	$	—	—	$	—	2	$	163
SBA	—	—		—	—		—	—		—	—		1	187		1	187
Total	—	$	—	2	$	163	—	$	—	—	$	—	1	$	187	3	$	350
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

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.

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, 2018:



	December 31, 2018
($ in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
NTM loans:
Single family residential mortgage	$	811,056	$	10,966	$	2,296	$	—	$	824,318
Other consumer	2,413		—		—		—		2,413
Total NTM loans	813,469		10,966		2,296		—		826,731
Traditional loans and leases:
Commercial:
Commercial and industrial	1,859,569		41,302		43,271		—		1,944,142
Commercial real estate	851,604		11,376		4,033		—		867,013
Multifamily	2,239,301		—		1,945		—		2,241,246
SBA	53,433		6,114		8,340		854		68,741
Construction	197,851		3,606		2,519		—		203,976
Lease financing	—		—		—		—		—
Consumer:
Single family residential mortgage	1,461,721		2,602		16,849		—		1,481,172
Other consumer	66,228		979		645		—		67,852
Total traditional loans and leases	6,729,707		65,979		77,602		854		6,874,142
Total loans and leases	$	7,543,176	$	76,945	$	79,898	$	854	$	7,700,873

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		Total
NTM loans:
Single family residential mortgage	$	800,589	$	1,595	$	1,171	$	—	$	803,355
Other consumer	3,578		—		—		—		3,578
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
Total loans and leases	$	6,578,813	$	39,770	$	40,718	$	106	$	6,659,407

Purchases and Sales

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,
	2018				2017				2016
($ in thousands)	Purchases		Sales		Purchases		Sales		Purchases		Sales
Commercial:
Lease financing	$	—	$	—	$	—	$	—	$	91,247	$	(19,741	)
Consumer:
Single family residential mortgage	59,481		—		—		—		—		(149,413		)
Total	$	59,481	$	—	$	—	$	—	$	91,247	$	(169,154	)

Loan purchases during the year ended December 31, 2018 were made at a net premium of $2.3 million. 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, 2018, 2017, and 2016. 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 loans totaling $242.7 million in the sale of the Commercial Equipment Finance business unit to Hanmi during the year ended December 31, 2016.

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 branches and business units, and PCI loans for the periods indicated:



	Year Ended December 31,
	2018					2017					2016
($ 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	$	—	$	(1,133	)	$	—	$	(3,924	)	$	—	$	(1,757	)
Commercial real estate	—		—			—		(1,329		)	—		(2,792		)
Multifamily	—		(81,449		)	—		(6,583		)	—		(81,780		)
SBA	—		—			—		(1,865		)	—		—
Construction	—		(434		)	—		(1,528		)	—		—
Consumer:
Single family residential mortgage	—		(289,617		)	88,591		(450,625		)	7,115		(105,337		)
Other consumer	—		(4,362		)	—		—			—		—
Total	$	—	$	(376,995	)	$	88,591	$	(465,854	)	$	7,115	$	(191,666	)

Purchased Credit Impaired Loans

The Company had no PCI loans at December 31, 2018 or 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 a summary of accretable yield, or income expected to be collected for the periods indicated for PCI loans:



	Year Ended December 31,
($ in thousands)	2018		2017			2016
Balance at beginning of year	$	—	$	41,181		$	205,549
New loans or leases purchased	—		—			23,568
Accretion of income	—		(3,833		)	(34,616		)
Decrease in expected cash flows	—		(225		)	(10,650		)
Disposals	—		(34,886		)	(142,670		)
Other	—		(2,237		)	—
Balance at end of year	$	—	$	—		$	41,181

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



	Year Ended December 31,
($ in thousands)	2018		2017		2016
Consumer:
Single family residential mortgage	$	—	$	—	$	103,799
Outstanding unpaid principal balance at acquisition	$	—	$	—	$	103,799
Cash flows expected to be collected at acquisition	$	—	$	—	$	114,552
Fair value of acquired loans at acquisition	$	—	$	—	$	90,984

During the three months ended June 30, 2017, the Company transferred all of its seasoned SFR mortgage loans, which had an aggregate unpaid principal balance and an 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. 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. All of these loans were sold during the

three months ended September 30, 2017. On the date of sale settlement, the aggregate unpaid principal balance and aggregate

carrying value were $165.7 million and $144.2 million, respectively, and the Company recognized a gain on sale of $4.7 million. The Company sold seasoned SFR mortgage loans with an aggregate unpaid principal balance and aggregate carrying value of $766.0 million and $707.4 million respectively, during the year ended December 31, 2016, and the Company recognized a gain on sale of $24.7 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