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LOANS AND ALLOWANCE FOR LOAN LOSSES
 9 Months Ended
Sep. 30, 2019
Receivables [Abstract]  
LOANS AND ALLOWANCE FOR LOAN LOSSES LOANS AND ALLOWANCE FOR LOAN LOSSES
The following table presents the balances in the Company’s loan portfolios as of the dates indicated:
($ in thousands)
 
September 30,
2019
 
December 31,
2018
Commercial:
 
 
 
 
Commercial and industrial
 
$
1,789,478

 
$
1,944,142

Commercial real estate
 
891,029

 
867,013

Multifamily
 
1,563,757

 
2,241,246

SBA
 
75,359

 
68,741

Construction
 
228,561

 
203,976

Consumer:
 
 
 
 
Single family residential mortgage
 
1,775,953

 
2,305,490

Other consumer
 
59,122

 
70,265

Total loans(1)
 
$
6,383,259

 
$
7,700,873

Allowance for loan losses
 
(62,927
)
 
(62,192
)
Loans receivable, net
 
$
6,320,332

 
$
7,638,681


(1)
Total loans include deferred loan origination costs/(fees) and premiums/(discounts), net of $15.3 million and $17.7 million, respectively, at September 30, 2019 and December 31, 2018.
Non-Traditional Mortgage Loans ("NTM")
The following table presents the composition of the NTM portfolio as of the dates indicated:
 
 
September 30, 2019
 
December 31, 2018
($ in thousands)
 
Count
 
Amount
 
Percent
 
Count
 
Amount
 
Percent
Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
Single family residential mortgage:

 
 
 
 
 
 
 
 
 
 
 
 
Green Loans (HELOC) - first liens(1)
 
76

 
$
59,538

 
9.1
%
 
88

 
$
67,729

 
8.2
%
Interest-only - first liens(2)
 
409

 
588,567

 
90.1
%
 
519

 
753,061

 
91.1
%
Negative amortization(3)
 
9

 
3,062

 
0.5
%
 
11

 
3,528

 
0.4
%
Total NTM - first liens
 
494

 
651,167

 
99.6
%
 
618

 
824,318

 
99.7
%
Other consumer:
 
 
 
 
 
 
 
 
 
 
 
 
Green Loans (HELOC) - second liens(1)
 
7

 
2,308

 
0.4
%
 
10

 
2,413

 
0.3
%
Total NTM - second liens
 
7

 
2,308

 
0.4
%
 
10

 
2,413

 
0.3
%
Total NTM loans
 
501

 
$
653,475

 
100.0
%
 
628

 
$
826,731

 
100.0
%
Total loans receivable
 
 
 
$
6,383,259

 
 
 
 
 
$
7,700,873

 
 
% of total NTM loans to total loans receivable
 
 
 
10.2
%
 
 
 
 
 
10.7
%
 
 

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. These loans are generally interest only for a 15-year term with a balloon payment due at maturity. At September 30, 2019 and December 31, 2018, $286 thousand and $0, respectively, of the Company's Green Loans were non-performing. As a result of their unique payment feature, Green Loans possess higher credit risk; 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 Green Loans 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 September 30, 2019 and December 31, 2018, interest only loans totaled $588.6 million and $753.1 million, respectively. At September 30, 2019 and December 31, 2018, $827 thousand and $0, respectively, of the interest only loans were non-performing.
Loans with the Potential for Negative Amortization
Negative amortization loans totaled $3.1 million and $3.5 million at September 30, 2019 and December 31, 2018, respectively. The Company discontinued origination of negative amortization loans in 2007. At September 30, 2019 and December 31, 2018, 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 credit risk associated with these loans is mitigated through the loan terms and underwriting standards, including the Company’s policies on LTV ratios.
Allowance for Loan Losses
The Company has established credit risk management processes that include regular management review of the loan portfolio to identify problem loans. During the ordinary course of business, management may become aware of borrowers and lessees who may not be able to fulfill the contractual payment requirements of the loan agreements. Such loans 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 principal balance. The Company maintains the ALLL at a level that is considered adequate to cover the estimated incurred losses in the loan 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 are determined based on outstanding loans that share similar credit risk exposure are used to determine the adequacy of the reserve. At September 30, 2019 and December 31, 2018, the reserve for unfunded loan commitments was $4.4 million and $4.6 million, respectively, which are included 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 losses. The Board of Directors also provides oversight and guidance for management’s allowance evaluation process.
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,
($ in thousands)
 
2019
 
2018
 
2019
 
2018
Balance at beginning of period
 
$
59,523

 
$
56,678

 
$
62,192

 
$
49,333

Loans charged off
 
(35,546
)
 
(388
)
 
(39,060
)
 
(15,977
)
Recoveries of loans previously charged off
 
410

 
82

 
730

 
864

Net charge-offs
 
(35,136
)
 
(306
)
 
(38,330
)
 
(15,113
)
Provision for loan losses
 
38,540

 
1,410

 
39,065

 
23,562

Balance at end of period
 
$
62,927

 
$
57,782

 
$
62,927

 
$
57,782


During the three months ended September 30, 2019, the Company recorded a $35.1 million charge-off of a line of credit originated in November 2017 to a borrower purportedly the subject of a fraudulent scheme. In addition, the charge-off increased the loss factor used in our allowance for loan loss for commercial and industrial loans, resulting in an additional loan loss provision of $3.0 million. On October 22, 2019, in connection with this matter, the Bank filed a complaint in U.S. District Court for the Southern District of California (Case CV '19 02031 GPC KSC) seeking to recover its losses and other monetary damages against Chicago Title Insurance Company and Chicago Title Company, asserting claims under RICO, 18 U.S.C § 1962 and for RICO Conspiracy, Fraud, Aiding and Abetting Fraud, Negligent Misrepresentation, Breach of Fiduciary Duty and Negligence. We are actively considering and pursuing available sources of recovery and other potential means of mitigating the loss; however, no assurance can be given that we will be successful in that regard.
During the third quarter of 2019, the Company undertook an extensive collateral review of all commercial lending relationships $5 million and above not secured by real estate, consisting of 53 loans representing $536 million in commitments. The collateral review focused on security and collateral documentation and confirmation of the Bank's collateral interest. The review was performed within the Bank's Internal Audit division and the work was validated by an independent third party. Our review and outside validation have not identified any other instances of apparent fraud for the credits reviewed or concerns over the existence of collateral held by the Bank or on our behalf at third parties; however, there are no assurances that our internal review and third party validation will be sufficient to identify all such issues.
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 $15.0 million line of credit that was originated during the three months ended March 31, 2018. Subsequent to the granting of the line of credit, representations from the borrower in applying for the line of credit were determined by the Bank to be false, and third party bank account statements provided by the borrower to secure the line of
credit were found to be fraudulent. The line of credit was granted after the borrower appeared to have satisfied a pre-condition that the line of credit be fully cash collateralized and secured by a bank account at a third party financial institution pledged to the Bank. As part of the Bank’s credit review and portfolio management process, the line of credit and disbursements were reviewed subsequent to closing and compliance with the borrower’s covenants was monitored. As part of this process, on March 9, 2018, the Bank received information that caused it to believe the existence of the pledged bank account had been misrepresented by the borrower and that the account had previously been closed. The Bank filed an action in Federal court pursuing the borrower and other parties. That action was voluntarily dismissed by the Bank without prejudice, and a substantially similar action was filed in Los Angeles County Superior Court. The Bank is also considering other available sources of collection and other potential means of mitigating the loss; however, no assurance can be given that it will be successful in this regard.
The following table presents the activity and balance in the ALLL and the recorded investment, excluding accrued interest, in loans based on the impairment methodology as of or for the three and nine months ended September 30, 2019:
($ in thousands)
 
Commercial and Industrial
 
Commercial Real Estate
 
Multifamily
 
SBA
 
Construction
 
Lease Financing
 
Single Family Residential Mortgage
 
Other Consumer
 
Total
ALLL:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2019
 
$
21,529

 
$
6,877

 
$
12,625

 
$
3,120

 
$
3,715

 
$
—

 
$
11,072

 
$
585

 
$
59,523

Charge-offs
 
(34,673
)
 
—

 
—

 
(738
)
 
—

 
—

 
(135
)
 
—

 
(35,546
)
Recoveries
 
59

 
—

 
—

 
50

 
—

 
3

 
—

 
298

 
410

Net (charge-offs) recoveries
 
(34,614
)
 
—

 
—

 
(688
)
 
—

 
3

 
(135
)
 
298

 
(35,136
)
Provision (reversal)
 
37,660

 
(298
)
 
(660
)
 
1,686

 
165

 
(3
)
 
342

 
(352
)
 
38,540

Balance at September 30, 2019
 
$
24,575

 
$
6,579

 
$
11,965

 
$
4,118

 
$
3,880

 
$
—

 
$
11,279

 
$
531

 
$
62,927

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
 
$
18,191

 
$
6,674

 
$
17,970

 
$
1,827

 
$
3,461

 
$
—

 
$
13,128

 
$
941

 
$
62,192

Charge-offs
 
(36,788
)
 
—

 
(6
)
 
(1,086
)
 
—

 
—

 
(1,086
)
 
(94
)
 
(39,060
)
Recoveries
 
102

 
—

 
—

 
152

 
—

 
9

 
150

 
317

 
730

Net (charge-offs) recoveries
 
(36,686
)
 
—

 
(6
)
 
(934
)
 
—

 
9

 
(936
)
 
223

 
(38,330
)
Provision (reversal)
 
43,070

 
(95
)
 
(5,999
)
 
3,225

 
419

 
(9
)
 
(913
)
 
(633
)
 
39,065

Balance at September 30, 2019
 
$
24,575

 
$
6,579

 
$
11,965

 
$
4,118

 
$
3,880

 
$
—

 
$
11,279

 
$
531

 
$
62,927

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
 
$
4,614

 
$
—

 
$
—

 
$
2,858

 
$
—

 
$
—

 
$
—

 
$
21

 
$
7,493

Collectively evaluated for impairment
 
19,961

 
6,579

 
11,965

 
1,260

 
3,880

 
—

 
11,279

 
510

 
55,434

Total ending ALLL balance
 
$
24,575

 
$
6,579

 
$
11,965

 
$
4,118

 
$
3,880

 
$
—

 
$
11,279

 
$
531

 
$
62,927

Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
 
$
22,042

 
$
—

 
$
—

 
$
5,696

 
$
2,519

 
$
—

 
$
20,641

 
$
822

 
$
51,720

Collectively evaluated for impairment
 
1,767,436

 
891,029

 
1,563,757

 
69,663

 
226,042

 
—

 
1,755,312

 
58,300

 
6,331,539

Total ending loan balances
 
$
1,789,478

 
$
891,029

 
$
1,563,757

 
$
75,359

 
$
228,561

 
$
—

 
$
1,775,953

 
$
59,122

 
$
6,383,259

The following table presents the activity and balance in the ALLL and the recorded investment, excluding accrued interest, in loans based on the impairment methodology as of or for the three and nine months ended September 30, 2018:
($ in thousands)
 
Commercial and Industrial
 
Commercial Real Estate
 
Multifamily
 
SBA
 
Construction
 
Lease Financing
 
Single Family Residential Mortgage
 
Other Consumer
 
Total
ALLL:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2018
 
$
16,864

 
$
5,732

 
$
14,630

 
$
1,840

 
$
3,419

 
$
—

 
$
13,236

 
$
957

 
$
56,678

Charge-offs
 
(342
)
 
—

 
—

 
—

 
—

 
—

 
(45
)
 
(1
)
 
(388
)
Recoveries
 
61

 
—

 
—

 
8

 
—

 
3

 
—

 
10

 
82

Net (charge-offs) recoveries
 
(281
)
 
—

 
—

 
8

 
—

 
3

 
(45
)
 
9

 
(306
)
Provision (reversal)
 
(40
)
 
280

 
843

 
22

 
(172
)
 
(3
)
 
407

 
73

 
1,410

Balance at September 30, 2018
 
$
16,543

 
$
6,012

 
$
15,473

 
$
1,870

 
$
3,247

 
$
—

 
$
13,598

 
$
1,039

 
$
57,782

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
 
$
14,280

 
$
4,971

 
$
13,265

 
$
1,701

 
$
3,318

 
$
—

 
$
10,996

 
$
802

 
$
49,333

Charge-offs
 
(689
)
 
—

 
(8
)
 
(683
)
 
—

 
—

 
(524
)
 
(14,073
)
 
(15,977
)
Recoveries
 
158

 
—

 
—

 
240

 
—

 
12

 
436

 
18

 
864

Net (charge-offs) recoveries
 
(531
)
 
—

 
(8
)
 
(443
)
 
—

 
12

 
(88
)
 
(14,055
)
 
(15,113
)
Provision (reversal)
 
2,794

 
1,041

 
2,216

 
612

 
(71
)
 
(12
)
 
2,690

 
14,292

 
23,562

Balance at September 30, 2018
 
$
16,543

 
$
6,012

 
$
15,473

 
$
1,870

 
$
3,247

 
$
—

 
$
13,598

 
$
1,039

 
$
57,782

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
 
$
122

 
$
—

 
$
—

 
$
133

 
$
—

 
$
—

 
$
640

 
$
7

 
$
902

Collectively evaluated for impairment
 
16,421

 
6,012

 
15,473

 
1,737

 
3,247

 
—

 
12,958

 
1,032

 
56,880

Total ending ALLL balance
 
$
16,543

 
$
6,012

 
$
15,473

 
$
1,870

 
$
3,247

 
$
—

 
$
13,598

 
$
1,039

 
$
57,782

Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
 
$
5,614

 
$
—

 
$
—

 
$
1,834

 
$
—

 
$
—

 
$
22,364

 
$
739

 
$
30,551

Collectively evaluated for impairment
 
1,667,441

 
823,193

 
2,112,190

 
69,660

 
200,294

 
—

 
2,277,705

 
72,259

 
7,222,742

Total ending loan balances
 
$
1,673,055

 
$
823,193

 
$
2,112,190

 
$
71,494

 
$
200,294

 
$
—

 
$
2,300,069

 
$
72,998

 
$
7,253,293


The following table presents loans individually evaluated for impairment by class of loans 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 net of any deferred fees and costs and any purchase premium or discount.
 
 
September 30, 2019
 
December 31, 2018
($ in thousands)
 
Unpaid Principal Balance
 
Recorded Investment
 
Allowance for Loan Losses
 
Unpaid Principal Balance
 
Recorded Investment
 
Allowance for Loan Losses
With no related ALLL recorded:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
1,749

 
$
1,738

 
$
—

 
$
5,491

 
$
5,455

 
$
—

Commercial real estate
 
—

 
—

 
—

 
—

 
—

 
—

SBA
 
1,387

 
1,321

 
—

 
1,668

 
1,588

 
—

Construction
 
2,519

 
2,519

 
—

 
—

 
—

 
—

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
Single family residential mortgage
 
20,544

 
20,641

 
—

 
12,115

 
12,161

 
—

Other consumer
 
821

 
801

 
—

 
469

 
469

 
—

With an ALLL recorded:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
20,310

 
20,304

 
4,614

 
—

 
—

 
—

SBA
 
4,572

 
4,375

 
2,858

 
823

 
788

 
562

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
Single family residential mortgage
 
—

 
—

 
—

 
5,993

 
6,032

 
161

Other consumer
 
21

 
21

 
21

 
468

 
452

 
106

Total
 
$
51,923

 
$
51,720

 
$
7,493

 
$
27,027

 
$
26,945

 
$
829

The following table presents information on impaired loans, disaggregated by class, for the periods indicated:
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
($ in thousands)
 
Average Recorded Investment
 
Interest Income Recognized
 
Cash Basis Interest Recognized
 
Average Recorded Investment
 
Interest Income Recognized
 
Cash Basis Interest Recognized
September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
22,619

 
$
40

 
$
32

 
$
16,154

 
$
295

 
$
286

Commercial real estate
 
—

 
—

 
—

 
193

 
—

 
—

SBA
 
5,843

 
4

 
4

 
4,328

 
12

 
12

Construction
 
2,519

 
—

 
—

 
2,519

 
—

 
—

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
Single family residential mortgage
 
20,706

 
59

 
53

 
20,374

 
175

 
150

Other consumer
 
827

 
3

 
4

 
950

 
10

 
10

Total
 
$
52,514

 
$
106

 
$
93

 
$
44,518

 
$
492

 
$
458

September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
5,423

 
$
—

 
$
—

 
$
5,552

 
$
4

 
$
4

SBA
 
1,240

 
—

 
—

 
756

 
—

 
—

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
Single family residential mortgage
 
20,908

 
60

 
50

 
20,299

 
175

 
146

Other consumer
 
744

 
3

 
4

 
751

 
9

 
9

Total
 
$
28,315

 
$
63

 
$
54

 
$
27,358

 
$
188

 
$
159


Past Due Loans
The following table presents the aging of the recorded investment in past due loans, excluding accrued interest receivable (which is not considered to be material), by class of loans as of dates indicated:
($ in thousands)
 
30 - 59 Days Past Due
 
60 - 89 Days Past Due
 
Greater than 89 Days Past due
 
Total Past Due
 
Current
 
Total
September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
NTM loans:
 
 
 
 
 
 
 
 
 
 
 
 
Single family residential mortgage
 
$
9,821

 
$
11,112

 
$
827

 
$
21,760

 
$
629,407

 
$
651,167

Other consumer
 
—

 
—

 
—

 
—

 
2,308

 
2,308

Total NTM loans
 
9,821

 
11,112

 
827

 
21,760

 
631,715

 
653,475

Traditional loans:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
776

 
2,890

 
1,577

 
5,243

 
1,784,235

 
1,789,478

Commercial real estate
 
—

 
—

 
—

 
—

 
891,029

 
891,029

Multifamily
 
—

 
—

 
—

 
—

 
1,563,757

 
1,563,757

SBA
 
377

 
230

 
1,762

 
2,369

 
72,990

 
75,359

Construction
 
—

 
—

 
2,519

 
2,519

 
226,042

 
228,561

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
Single family residential mortgage
 
11,999

 
1,370

 
10,318

 
23,687

 
1,101,099

 
1,124,786

Other consumer
 
547

 
—

 
217

 
764

 
56,050

 
56,814

Total traditional loans
 
13,699

 
4,490

 
16,393

 
34,582

 
5,695,202

 
5,729,784

Total
 
$
23,520

 
$
15,602

 
$
17,220

 
$
56,342

 
$
6,326,917

 
$
6,383,259

December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
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:
 
 
 
 
 
 
 
 
 
 
 
 
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

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
 
11,710

 
6,927

 
13,846

 
32,483

 
6,841,659

 
6,874,142

Total
 
$
19,140

 
$
7,544

 
$
13,846

 
$
40,530

 
$
7,660,343

 
$
7,700,873

Non-accrual Loans
The following table presents non-accrual loans as of the dates indicated:
 
September 30, 2019
 
December 31, 2018
($ in thousands)
NTM Loans
 
Traditional Loans
 
Total
 
NTM Loans
 
Traditional Loans
 
Total
Non-accrual loans
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
—

 
$
20,762

 
$
20,762

 
$
—

 
$
5,455

 
$
5,455

Commercial real estate
—

 
—

 
—

 
—

 
—

 
—

SBA
—

 
5,773

 
5,773

 
—

 
2,574

 
2,574

Construction
—

 
2,519

 
2,519

 
—

 
—

 
—

Consumer:
 
 
 
 
 
 
 
 
 
 
 
Single family residential mortgage
1,110

 
14,477

 
15,587

 
—

 
12,929

 
12,929

Other consumer
—

 
528

 
528

 
—

 
627

 
627

Total non-accrual loans
$
1,110

 
$
44,059

 
$
45,169

 
$
—

 
$
21,585

 
$
21,585


At September 30, 2019 and December 31, 2018, zero and $470 thousand of loans were past due 90 days or more and still accruing.
Loans in Process of Foreclosure
At September 30, 2019 and December 31, 2018, consumer mortgage loans of $10.6 million and $5.1 million, respectively, were secured by residential real estate properties for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdiction.
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 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.
TDR loans consisted of the following as of the dates indicated:
 
 
September 30, 2019
 
December 31, 2018
($ in thousands)
 
NTM Loans
 
Traditional Loans
 
Total
 
NTM Loans
 
Traditional Loans
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
—

 
$
15,790

 
$
15,790

 
$
—

 
$
2,276

 
$
2,276

SBA
 
—

 
266

 
266

 
—

 
187

 
187

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
Single family residential mortgage
 
2,646

 
2,408

 
5,054

 
2,668

 
2,596

 
5,264

Other consumer
 
294

 
—

 
294

 
294

 
—

 
294

Total
 
$
2,940

 
$
18,464

 
$
21,404

 
$
2,962

 
$
5,059

 
$
8,021


The Company had commitments to lend to customers with outstanding loans that were classified as TDRs of $135 thousand and zero as of September 30, 2019 or December 31, 2018, respectively. Accruing TDRs were $6.8 million and non-accrual TDRs were $14.6 million at September 30, 2019 compared to accruing TDRs of $5.7 million and non-accrual TDRs of $2.3 million at December 31, 2018. The increase in TDRs during the three months ended September 30, 2019 was primarily due to one commercial and industrial relationship.
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
($ 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
September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial(1)
 
—

 
$
—

 
$
—

 
10

 
$
17,339

 
$
14,692

SBA
 
—

 
—

 
—

 
2

 
3,214

 
869

Consumer:
 
 
 
 
 
 
 
 
 
 
 
 
Single family residential mortgage
 
—

 
—

 
—

 
—

 
—

 
—

Other consumer
 
—

 
$
—

 
$
—

 
—

 
$
—

 
$
—

Total
 
—

 
—

 
—

 
12

 
$
20,553

 
$
15,561

September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
—

 
$
—

 
$
—

 
2

 
$
171

 
$
163

Total
 
—

 
$
—

 
$
—

 
2

 
$
171

 
$
163

(1)
Post-modification outstanding recorded investment reflects a $2.3 million principal repayment by the borrower, which was a condition precedent to the modification.
The Company considers a TDR to be in payment default once it becomes 30 days or more past due following a modification. During the nine months ended September 30, 2019 and 2018, there were no loans that were modified as TDRs during the past 12 months that had subsequent payment defaults during the periods.
The following table summarizes TDRs by modification type for the periods indicated:
 
 
Three Months Ended
 
 
Modification Type
 
 
Change in Principal Payments and Interest Rates
 
Change in Principal Payments
 
Total
($ in thousands)
 
Count
 
Amount
 
Count
 
Amount
 
Count
 
Amount
September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
—

 
$
—

 
—

 
$
—

 
—

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
—

 
$
—

 
—

 
$
—

 
—

 
$
—


 
 
Nine Months Ended
 
 
Modification Type
 
 
Change in Principal Payments and Interest Rates
 
Change in Principal Payments
 
Total
($ in thousands)
 
Count
 
Amount
 
Count
 
Amount
 
Count
 
Amount
September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
10

 
$
14,692

 
—

 
$
—

 
10

 
$
14,692

SBA
 
2

 
$
869

 
—

 
$
—

 
2

 
$
869

Total
 
12

 
$
15,561

 
—

 
$
—

 
12

 
$
15,561

 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
—

 
$
—

 
2

 
$
163

 
2

 
$
163

Total
 
—

 
$
—

 
2

 
$
163

 
2

 
$
163


Credit Quality Indicators
The Company categorizes loans 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 individually by classifying the loans as to credit risk. This analysis includes all loans delinquent over 60 days and non-homogeneous loans such as commercial and commercial real estate loans. The Company uses the following definitions for risk ratings:
Pass: Loans 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 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 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 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 Company will sustain some loss if the deficiencies are not corrected.
Doubtful: Loans 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.
The following table presents the risk categories for total loans as of the dates indicated:
($ in thousands)
 
Pass
 
Special Mention
 
Substandard
 
Doubtful
 
Total
September 30, 2019
 
 
 
 
 
 
 
 
 
 
NTM loans:
 
 
 
 
 
 
 
 
 
 
Single family residential mortgage
 
$
633,950

 
$
5,173

 
$
12,044

 
$
—

 
$
651,167

Other consumer
 
2,308

 
—

 
—

 
—

 
2,308

Total NTM loans
 
636,258

 
5,173

 
12,044

 
—

 
653,475

Traditional loans:
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
1,673,655

 
77,431

 
38,392

 
—

 
1,789,478

Commercial real estate
 
887,232

 
2,520

 
1,277

 
—

 
891,029

Multifamily
 
1,551,231

 
8,428

 
4,098

 
—

 
1,563,757

SBA
 
63,543

 
3,120

 
7,894

 
802

 
75,359

Construction
 
219,056

 
6,986

 
2,519

 
—

 
228,561

Consumer:
 
 
 
 
 
 
 
 
 
 
Single family residential mortgage
 
1,100,990

 
4,291

 
18,988

 
517

 
1,124,786

Other consumer
 
55,947

 
317

 
550

 
—

 
56,814

Total traditional loans
 
5,551,654

 
103,093

 
73,718

 
1,319

 
5,729,784

Total
 
$
6,187,912

 
$
108,266

 
$
85,762

 
$
1,319

 
$
6,383,259

 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
 
 
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:
 
 
 
 
 
 
 
 
 
 
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

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
 
6,729,707

 
65,979

 
77,602

 
854

 
6,874,142

Total
 
$
7,543,176

 
$
76,945

 
$
79,898

 
$
854

 
$
7,700,873


Purchases, Sales, and Transfers
From time to time, the Company purchases and sells loans in the secondary market. Certain loans are transferred from held-for-investment to held-for-sale at the lower of cost or fair value and any reductions in value on transfer are reflected as write-downs to allowance for loan losses. The Company had no purchases of loans, excluding loans held-for-sale, for the three and nine months ended September 30, 2019 and 2018. The following table presents loans transferred from (to) loans held-for-sale by portfolio segment for the periods indicated:
 
 
Three Months Ended
 
Nine Months Ended
($ in thousands)
 
Transfers from Held-For-Sale
 
Transfers (to) Held-For-Sale
 
Transfers from Held-For-Sale
 
Transfers (to) Held-For-Sale
September 30, 2019
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
Commercial real estate
 
$
—

 
$
—

 
$
—

 
$
(573
)
Multifamily
 
—

 
—

 
—

 
(752,087
)
SBA
 
—

 
(559
)
 
—

 
(559
)
Consumer:
 
 
 
 
 
 
 
 
Single family residential mortgage
 
—

 
—

 
—

 
(374,679
)
Total
 
$
—

 
$
(559
)
 
$
—

 
$
(1,127,898
)
September 30, 2018
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
—

 
$
(1,133
)
 
$
—

 
$
(1,133
)
Multifamily
 
—

 
—

 
—

 
(71,449
)
Consumer:
 
 
 
 
 
 
 
 
Single family residential mortgage
 
—

 
(18,886
)
 
—

 
(154,899
)
Other consumer
 
—

 
—

 
—

 
(4,362
)
Total
 
$
—

 
$
(20,019
)
 
$
—

 
$
(231,843
)


Included in transfers to loans held for sale for the nine months ended September 30, 2019 is $573.9 million in multifamily loans from loans held-for-investment related to our completed Freddie Mac multifamily securitization which closed during the third quarter of 2019. The loans included in the securitization had a weighted average coupon of 3.79% and a weighted average term to initial reset of 3.5 years. The related mortgage servicing rights were also sold.

In connection with the securitization, during the second quarter of 2019, the Company entered into interest rate swap agreements with a combined notional value of $543.4 million to offset variability in the fair value of the related loans as a result of changes in market interest rates. During the three and nine months ended September 30, 2019, the Company recognized a gain of $603 thousand and loss of $9.0 million, respectively, related to these swap agreements. The $9.0 million loss on these interest rate swap agreements was due to a decline in interest rates since their execution and was offset by the $8.9 million gross gain realized on the loans sold into the securitization during the third quarter of 2019.

During the three and nine months ended September 30, 2019, the Company sold $144 thousand and $374.8 million, respectively, in single family residential loans, resulting in a (loss) gain of $(150) thousand and $1.6 million, respectively.

During the three and nine months ended September 30, 2019, the Company sold $573.5 million and $751.6 million, respectively, in multifamily residential loans, resulting in a gross gain of $8.9 million and $11.7 million, respectively.