Loans Receivable and Allowance for Credit Losses

3 Months Ended

Mar. 31, 2017

Loans and Leases Receivable Disclosure [Abstract]

Loans Receivable and Allowance for Credit Losses

Note 8 — Loans Receivable and Allowance for Credit Losses

The Company’s held-for-investment loan portfolio includes originated and purchased loans. Originated and purchased loans with no evidence of credit deterioration at their acquisition date are referred to collectively as non-PCI loans. PCI loans are loans acquired with evidence of credit deterioration since their origination and it is probable at the acquisition date that the Company would be unable to collect all contractually required payments. PCI loans are accounted for under ASC Subtopic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. The Company has elected to account for PCI loans on a pool level basis under ASC 310-30 at the time of acquisition.

The following table presents the composition of the Company’s non-PCI and PCI loans as of March 31, 2017 and December 31, 2016:




($ in thousands)	March 31, 2017									December 31, 2016
($ in thousands)	Non-PCI Loans ⁽¹⁾			PCI Loans ⁽²⁾			Total ⁽¹⁾⁽²⁾			Non-PCI Loans ⁽¹⁾			PCI Loans ⁽²⁾			Total ⁽¹⁾⁽²⁾
CRE:
Income producing	$	7,964,224		$	337,874		$	8,302,098		$	7,667,661		$	348,448		$	8,016,109
Construction	562,560			—			562,560			551,560			—			551,560
Land	120,885			1,347			122,232			121,276			1,918			123,194
Total CRE	8,647,669			339,221			8,986,890			8,340,497			350,366			8,690,863
C&I:
Commercial business	9,176,747			32,110			9,208,857			8,921,246			38,387			8,959,633
Trade finance	709,215			—			709,215			680,930			—			680,930
Total C&I	9,885,962			32,110			9,918,072			9,602,176			38,387			9,640,563
Residential:
Single-family	3,566,739			133,333			3,700,072			3,370,669			139,110			3,509,779
Multifamily	1,643,167			89,528			1,732,695			1,490,285			95,654			1,585,939
Total residential	5,209,906			222,861			5,432,767			4,860,954			234,764			5,095,718
Consumer	2,106,091			17,472			2,123,563			2,057,067			18,928			2,075,995
Total loans held-for-investment	$	25,849,628		$	611,664		$	26,461,292		$	24,860,694		$	642,445		$	25,503,139
Allowance for loan losses	(263,007		)	(87		)	(263,094		)	(260,402		)	(118		)	(260,520		)
Loans held-for-investment, net	$	25,586,621		$	611,577		$	26,198,198		$	24,600,292		$	642,327		$	25,242,619


(1)	Includes $(4.7) million and $1.2 million as of March 31, 2017 and December 31, 2016, respectively, of net deferred loan fees, unamortized premiums and unaccreted discounts.


(2)	Loans net of ASC 310-30 discount.

CRE loans include income producing real estate, construction and land loans where the interest rates may be fixed, variable or hybrid. Included in CRE loans are owner occupied CRE loans, and also non-owner occupied CRE loans where the borrowers rely on income from tenants to service the loan. Commercial business and trade finance in the C&I segment provide financing to businesses in a wide spectrum of industries.

Residential loans are comprised of single-family and multifamily loans. The Company offers first lien mortgage loans secured by one-to-four unit residential properties located in its primary lending areas. The Company offers a variety of first lien mortgage loan programs, including fixed rate conforming loans and adjustable rate mortgage loans with initial fixed periods of one to five years, which adjust annually thereafter.

Consumer loans are comprised of home equity lines of credit (“HELOCs”), insurance premium financing loans, credit card and auto loans. As of March 31, 2017 and December 31, 2016, the Company’s HELOCs are the largest component of the consumer loan portfolio, and are secured by one-to-four unit residential properties located in its primary lending areas. The HELOCs loan portfolio is largely comprised of loans originated through a reduced documentation loan program, where a substantial down payment is required, resulting in a low loan-to-value ratio, typically 60% or less at origination. The Company is in a first lien position for many of these reduced documentation HELOCs. These loans have historically experienced low delinquency and default rates.

All loans originated are subject to the Company’s underwriting guidelines and loan origination standards. Management believes that the Company’s underwriting criteria and procedures adequately consider the unique risks which may come from these products. The Company conducts a variety of quality control procedures and periodic audits, including review of criteria for lending and legal requirements, to ensure it is in compliance with its origination standards.

As of March 31, 2017 and December 31, 2016, loans totaling $17.16 billion and $16.44 billion, respectively, were pledged to secure borrowings and to provide additional borrowing capacity from the FHLB and the Federal Reserve Bank.

Credit Quality Indicators

All loans are subject to the Company’s internal and external credit review and monitoring. Loans are risk rated based on an analysis of the current state of the borrower’s credit quality. The analysis of credit quality includes a review of all repayment sources, the borrower’s current payment performance/delinquency, current financial and liquidity status and all other relevant information. For single-family residential loans, payment performance/delinquency is the driving indicator for the risk ratings. Risk ratings are the overall credit quality indicator for the Company and the credit quality indicator utilized for estimating the appropriate allowance for loan losses. The Company utilizes a risk rating system, which can be classified within the following categories: Pass, Watch, Special Mention, Substandard, Doubtful and Loss. The risk ratings reflect the relative strength of the repayment sources.

Pass and Watch loans are generally considered to have sufficient sources of repayment in order to repay the loan in full in accordance with all terms and conditions. Special Mention loans are considered to have potential weaknesses that warrant closer attention by management. Special Mention is considered a transitory grade. If potential weaknesses are resolved, the loan is upgraded to a Pass or Watch grade. If negative trends in the borrower’s financial status or other information indicate that the repayment sources may become inadequate, the loan is downgraded to a Substandard grade. Substandard loans are considered to have well-defined weaknesses that jeopardize the full and timely repayment of the loan. Substandard loans have a distinct possibility of loss, if the deficiencies are not corrected. Additionally, when management has assessed a potential for loss but a distinct possibility of loss is not recognizable, the loan is still classified as Substandard. Doubtful loans have insufficient sources of repayment and a high probability of loss. Loss loans are considered to be uncollectible and of such little value that they are no longer considered bankable assets. These internal risk ratings are reviewed routinely and adjusted based on changes in the borrowers’ financial status and the loans’ collectability.

The following tables present the credit risk rating for non-PCI loans by portfolio segment as of March 31, 2017 and December 31, 2016:




	March 31, 2017
($ in thousands)	Pass/Watch		Special Mention		Substandard		Doubtful		Loss		Total Non-PCI Loans
CRE:
Income producing	$	7,800,487	$	23,362	$	140,375	$	—	$	—	$	7,964,224
Construction	530,278		32,282		—		—		—		562,560
Land	109,013		—		11,872		—		—		120,885
C&I:
Commercial business	8,827,318		139,251		185,249		24,929		—		9,176,747
Trade finance	677,654		3,566		27,995		—		—		709,215
Residential:
Single-family	3,533,047		8,693		24,999		—		—		3,566,739
Multifamily	1,619,193		1,284		22,690		—		—		1,643,167
Consumer	2,087,485		6,907		11,699		—		—		2,106,091
Total	$	25,184,475	$	215,345	$	424,879	$	24,929	$	—	$	25,849,628




	December 31, 2016
($ in thousands)	Pass/Watch		Special Mention		Substandard		Doubtful		Loss		Total Non-PCI Loans
CRE:
Income producing	$	7,476,804	$	29,005	$	161,852	$	—	$	—	$	7,667,661
Construction	551,560		—		—		—		—		551,560
Land	107,976		—		13,290		10		—		121,276
C&I:
Commercial business	8,559,674		155,276		201,139		5,157		—		8,921,246
Trade finance	635,027		9,435		36,460		—		8		680,930
Residential:
Single-family	3,341,015		10,179		19,475		—		—		3,370,669
Multifamily	1,462,522		2,268		25,495		—		—		1,490,285
Consumer	2,043,405		6,764		6,898		—		—		2,057,067
Total	$	24,177,983	$	212,927	$	464,609	$	5,167	$	8	$	24,860,694

The following tables present the credit risk rating for PCI loans by portfolio segment as of March 31, 2017 and December 31, 2016:




	March 31, 2017
($ in thousands)	Pass/Watch		Special Mention		Substandard		Total PCI Loans
CRE:
Income producing	$	282,099	$	573	$	55,202	$	337,874
Land	1,012		—		335		1,347
C&I:
Commercial business	27,884		680		3,546		32,110
Residential:
Single-family	130,031		1,522		1,780		133,333
Multifamily	80,510		—		9,018		89,528
Consumer	15,559		374		1,539		17,472
Total ⁽¹⁾	$	537,095	$	3,149	$	71,420	$	611,664




	December 31, 2016
($ in thousands)	Pass/Watch		Special Mention		Substandard		Total PCI Loans
CRE:
Income producing	$	293,529	$	3,239	$	51,680	$	348,448
Land	1,562		—		356		1,918
C&I:
Commercial business	33,885		772		3,730		38,387
Residential:
Single-family	136,245		1,239		1,626		139,110
Multifamily	86,190		—		9,464		95,654
Consumer	17,433		316		1,179		18,928
Total ⁽¹⁾	$	568,844	$	5,566	$	68,035	$	642,445


(1)	Loans net of ASC 310-30 discount.

Nonaccrual and Past Due Loans

Non-PCI loans that are 90 or more days past due are generally placed on nonaccrual status. Additionally, non-PCI loans that are not 90 or more days past due but have identified deficiencies, such as when the full collection of principal or interest becomes uncertain, are also placed on nonaccrual status. The following tables present the aging analysis on non-PCI loans as of March 31, 2017 and December 31, 2016:




	March 31, 2017
($ in thousands)	Accruing Loans 30-59 Days Past Due		Accruing Loans 60-89 Days Past Due		Total Accruing Past Due Loans		Nonaccrual Loans Less Than 90 Days Past Due		Nonaccrual Loans 90 or More Days Past Due		Total Nonaccrual Loans		Current Accruing Loans		Total Non-PCI Loans
CRE:
Income producing	$	3,132	$	—	$	3,132	$	11,596	$	22,120	$	33,716	$	7,927,376	$	7,964,224
Construction	—		—		—		—		—		—		562,560		562,560
Land	—		—		—		47		4,453		4,500		116,385		120,885
C&I:
Commercial business	8,478		5		8,483		47,238		44,855		92,093		9,076,171		9,176,747
Trade finance	—		—		—		—		—		—		709,215		709,215
Residential:
Single-family	2,211		5,246		7,457		—		5,643		5,643		3,553,639		3,566,739
Multifamily	4,801		904		5,705		1,030		1,192		2,222		1,635,240		1,643,167
Consumer	3,352		444		3,796		156		2,825		2,981		2,099,314		2,106,091
Total	$	21,974	$	6,599	$	28,573	$	60,067	$	81,088	$	141,155	$	25,679,900	$	25,849,628




	December 31, 2016
($ in thousands)	Accruing Loans 30-59 Days Past Due		Accruing Loans 60-89 Days Past Due		Total Accruing Past Due Loans		Nonaccrual Loans Less Than 90 Days Past Due		Nonaccrual Loans 90 or More Days Past Due		Total Nonaccrual Loans		Current Accruing Loans		Total Non-PCI Loans
CRE:
Income producing	$	6,233	$	14,080	$	20,313	$	14,872	$	12,035	$	26,907	$	7,620,441	$	7,667,661
Construction	4,994		—		4,994		—		—		—		546,566		551,560
Land	—		—		—		433		4,893		5,326		115,950		121,276
C&I:
Commercial business	45,052		2,279		47,331		60,511		20,737		81,248		8,792,667		8,921,246
Trade finance	—		—		—		8		—		8		680,922		680,930
Residential:
Single-family	9,595		8,076		17,671		—		4,214		4,214		3,348,784		3,370,669
Multifamily	3,951		374		4,325		2,790		194		2,984		1,482,976		1,490,285
Consumer	3,327		3,228		6,555		165		1,965		2,130		2,048,382		2,057,067
Total	$	73,152	$	28,037	$	101,189	$	78,779	$	44,038	$	122,817	$	24,636,688	$	24,860,694

For information on the policy for recording payments received and resuming accrual of interest on non-PCI loans that are placed on nonaccrual status, see Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements of the Company’s 2016 Form 10-K.

PCI loans are excluded from the above aging analysis tables as the Company has elected to account for these loans on a pool level basis under ASC 310-30 at the time of acquisition. Please refer to the discussion on PCI loans within this note for additional details on interest income recognition. As of March 31, 2017 and December 31, 2016, PCI loans on nonaccrual status totaled $12.0 million and $11.7 million, respectively.

Loans in Process of Foreclosure

As of March 31, 2017 and December 31, 2016, the Company had $944 thousand and $3.1 million, respectively, of recorded investment in residential and consumer mortgage loans secured by residential real estate properties, for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdictions, which were not included in OREO. No foreclosed residential real estate properties were included in total net OREO of $3.6 million as of March 31, 2017. In comparison, foreclosed residential real estate properties with a carrying amount of $401 thousand were included in total net OREO of $6.7 million as of December 31, 2016.

Troubled Debt Restructurings (“TDRs”)

Potential TDRs are individually evaluated and the type of restructuring is selected based on the loan type and the circumstances of the borrower’s financial difficulty in order to maximize the Company’s recovery. A TDR is a modification of the terms of a loan when the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower, it would not otherwise consider.

The following table presents the additions to non-PCI TDRs for the three months ended March 31, 2017 and 2016:




	Loans Modified as TDRs During the Three Months Ended March 31,
($ in thousands)	2017							2016
($ in thousands)	Number of Loans	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment ⁽¹⁾		Financial Impact ⁽²⁾		Number of Loans	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment ⁽¹⁾		Financial Impact ⁽²⁾
CRE:
Income producing	1	$	1,526	$	1,505	$	—	2	$	13,775	$	13,758	$	—
Land	2	$	86	$	—	$	—	—	$	—	$	—	$	—
C&I:
Commercial business	2	$	6,448	$	4,914	$	1,273	4	$	21,614	$	18,577	$	97
Trade finance	—	$	—	$	—	$	—	2	$	7,901	$	8,082	$	—
Residential:
Single-family	—	$	—	$	—	$	—	1	$	276	$	272	$	—
Consumer	—	$	—	$	—	$	—	1	$	344	$	345	$	1


(1)	Includes subsequent payments after modification and reflects the balance as of March 31, 2017 and 2016.


(2)	The financial impact includes charge-offs and specific reserves recorded at the modification date.

The following table presents the non-PCI TDR modifications for the three months ended March 31, 2017 and 2016 by modification type:




($ in thousands)	Modification Type During the Three Month Ended March 31,
	2017										2016
	Principal ⁽¹⁾		Principal and Interest ⁽²⁾		Interest Rate Reduction		Other		Total		Principal⁽¹⁾		Principal and Interest ⁽²⁾		Interest Rate Reduction		Other		Total
CRE	$	1,505	$	—	$	—	$	—	$	1,505	$	13,730	$	—	$	—	$	28	$	13,758
C&I	—		4,914		—		—		4,914		19,112		—		3,615		3,932		26,659
Residential	—		—		—		—		—		272		—		—		—		272
Consumer	—		—		—		—		—		345		—		—		—		345
Total	$	1,505	$	4,914	$	—	$	—	$	6,419	$	33,459	$	—	$	3,615	$	3,960	$	41,034


(1)	Includes forbearance payments, term extensions and principal deferments that modify the terms of the loan from principal and interest payments to interest payments only.


(2)	Includes principal and interest deferments or reductions.

Subsequent to restructuring, a TDR that becomes delinquent, generally beyond 90 days, is considered to have defaulted. As TDRs are individually evaluated for impairment under the specific reserve methodology, subsequent defaults do not generally have a significant additional impact on the allowance for loan losses. The following table presents information for loans modified as TDRs within the previous 12 months that have subsequently defaulted during the three months ended March 31, 2017 and 2016, and were still in default at the respective period end:




	Loans Modified as TDRs that Subsequently Defaulted During the Three Months Ended March 31,
	2017			2016
($ in thousands)	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
C&I:
Commercial business	1	$	2,718	4	$	966

The amount of additional funds committed to lend to borrowers whose terms have been modified was $4.0 million and $9.9 million as of March 31, 2017 and December 31, 2016, respectively.

Impaired Loans

The Company’s loans are grouped into heterogeneous and homogeneous (mostly consumer loans) categories. Classified loans in the heterogeneous category are identified and evaluated for impairment on an individual basis. A loan is considered impaired when, based on current information and events, it is probable that the Company will not be able to collect all scheduled payments of principal or interest due in accordance with the original contractual terms. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as expedient, at the loan’s observable market price or the fair value of the collateral, if the loan is collateral dependent, less costs to sell. When the value of an impaired loan is less than the recorded investment and the loan is classified as nonperforming and uncollectible, the deficiency is charged-off against the allowance for loan losses. Impaired loans exclude the homogeneous consumer loan portfolio, which is evaluated collectively for impairment. The Company’s impaired loans include predominantly non-PCI loans held-for-investment on nonaccrual status and any non-PCI loans modified in a TDR, which may be on accrual or nonaccrual status.

The following tables present information on the non-PCI impaired loans as of March 31, 2017 and December 31, 2016:




	March 31, 2017
($ in thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
CRE:
Income producing	$	48,832	$	34,984	$	9,528	$	44,512	$	1,159
Land	5,050		4,453		47		4,500		6
C&I:
Commercial business	182,965		101,963		34,031		135,994		6,218
Trade finance	3,449		3,438		—		3,438		—
Residential:
Single-family	16,132		1,864		13,172		15,036		611
Multifamily	10,132		5,649		3,575		9,224		121
Consumer	4,897		670		3,855		4,525		32
Total	$	271,457	$	153,021	$	64,208	$	217,229	$	8,147




	December 31, 2016
($ in thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
CRE:
Income producing	$	50,718	$	32,507	$	14,001	$	46,508	$	1,263
Land	6,457		5,427		443		5,870		63
C&I:
Commercial business	162,239		78,316		42,137		120,453		10,443
Trade finance	5,227		—		5,166		5,166		34
Residential:
Single-family	15,435		—		14,335		14,335		687
Multifamily	11,181		5,684		4,357		10,041		180
Consumer	4,016		—		3,682		3,682		31
Total	$	255,273	$	121,934	$	84,121	$	206,055	$	12,701

The following table presents the average recorded investment and interest income recognized on non-PCI impaired loans during the three months ended March 31, 2017 and 2016:




($ in thousands)	Three Months Ended March 31,
	2017				2016
	Average Recorded Investment		Recognized Interest Income ⁽¹⁾		Average Recorded Investment		Recognized Interest Income ⁽¹⁾
CRE:
Income producing	$	44,772	$	35	$	71,767	$	391
Land	4,717		—		6,952		9
C&I:
Commercial business	138,931		214		94,505		369
Trade finance	4,283		7		13,737		66
Residential:
Single-family	15,096		22		18,356		65
Multifamily	9,269		38		22,345		77
Consumer	4,533		12		1,638		16
Total non-PCI impaired loans	$	221,601	$	328	$	229,300	$	993


(1)	Includes interest recognized on accruing non-PCI TDRs. Interest payments received on nonaccrual non-PCI loans are reflected as a reduction to principal and not as interest income.

Allowance for Credit Losses

The following tables present a summary of activities in the allowance for loan losses by portfolio segment for the three months ended March 31, 2017 and 2016:




	Three Months Ended March 31, 2017
($ in thousands)	Non-PCI Loans														PCI Loans
($ in thousands)	CRE			C&I			Residential		Consumer			Total			PCI Loans			Total
Beginning balance	$	72,804		$	142,166		$	37,333	$	8,099		$	260,402		$	118		$	260,520
Provision for (reversal of) loan losses	1,639			1,946			3,835		626			8,046			(31		)	8,015
Charge-offs	(148		)	(7,057		)	—		(4		)	(7,209		)	—			(7,209		)
Recoveries	593			455			578		142			1,768			—			1,768
Net recoveries (charge-offs)	445			(6,602		)	578		138			(5,441		)	—			(5,441		)
Ending balance	$	74,888		$	137,510		$	41,746	$	8,863		$	263,007		$	87		$	263,094




	Three Months Ended March 31, 2016
($ in thousands)	Non-PCI Loans															PCI Loans			Total
($ in thousands)	CRE			C&I			Residential			Consumer			Total			PCI Loans			Total
Beginning balance	$	81,191		$	134,597		$	39,292		$	9,520		$	264,600		$	359		$	264,959
Provision for (reversal of) loan losses	1,306			4,654			(5,317		)	(226		)	417			(31		)	386
Charge-offs	(56		)	(5,860		)	(137		)	(1		)	(6,054		)	—			(6,054		)
Recoveries	97			686			97			67			947			—			947
Net recoveries (charge-offs)	41			(5,174		)	(40		)	66			(5,107		)	—			(5,107		)
Ending balance	$	82,538		$	134,077		$	33,935		$	9,360		$	259,910		$	328		$	260,238

For further information on accounting policies and the methodology used to estimate the allowance for credit losses and loan charge-offs, see Note 1 — Summary of Significant Accounting Policies to the Consolidated Financial Statements of the Company’s 2016 Form 10-K.

The following table presents a summary of activities in the allowance for unfunded credit reserves during the three months ended March 31, 2017 and 2016:




($ in thousands)	Three Months Ended March 31,
($ in thousands)	2017			2016
Beginning balance	$	16,121		$	20,360
(Reversal of) provision for unfunded credit reserves	(947		)	1,054
Ending balance	$	15,174		$	21,414

The allowance for unfunded credit reserves is maintained at a level believed by management to be sufficient to absorb estimated probable losses related to unfunded credit facilities. The allowance for unfunded credit reserves is included in Accrued expense and other liabilities on the Consolidated Balance Sheets. See Note 11 — Commitments and Contingencies to the Consolidated Financial Statements for additional information related to unfunded credit reserves.

The following tables present the Company’s allowance for loan losses and recorded investments by portfolio segment and impairment methodology as of March 31, 2017 and December 31, 2016:




	March 31, 2017
($ in thousands)	CRE		C&I		Residential		Consumer		Total
Allowance for loan losses
Individually evaluated for impairment	$	1,165	$	6,218	$	732	$	32	$	8,147
Collectively evaluated for impairment	73,723		131,292		41,014		8,831		254,860
Acquired with deteriorated credit quality	86		—		1		—		87
Ending balance	$	74,974	$	137,510	$	41,747	$	8,863	$	263,094

Recorded investment in loans
Individually evaluated for impairment	$	49,012	$	139,432	$	24,260	$	4,525	$	217,229
Collectively evaluated for impairment	8,598,657		9,746,530		5,185,646		2,101,566		25,632,399
Acquired with deteriorated credit quality ⁽¹⁾	339,221		32,110		222,861		17,472		611,664
Ending balance ⁽¹⁾	$	8,986,890	$	9,918,072	$	5,432,767	$	2,123,563	$	26,461,292




	December 31, 2016
($ in thousands)	CRE		C&I		Residential		Consumer		Total
Allowance for loan losses
Individually evaluated for impairment	$	1,326	$	10,477	$	867	$	31	$	12,701
Collectively evaluated for impairment	71,478		131,689		36,466		8,068		247,701
Acquired with deteriorated credit quality	112		1		5		—		118
Ending balance	$	72,916	$	142,167	$	37,338	$	8,099	$	260,520

Recorded investment in loans
Individually evaluated for impairment	$	52,378	$	125,619	$	24,376	$	3,682	$	206,055
Collectively evaluated for impairment	8,288,119		9,476,557		4,836,578		2,053,385		24,654,639
Acquired with deteriorated credit quality ⁽¹⁾	350,366		38,387		234,764		18,928		642,445
Ending balance ⁽¹⁾	$	8,690,863	$	9,640,563	$	5,095,718	$	2,075,995	$	25,503,139


(1)	Loans net of ASC 310-30 discount.

Purchased Credit Impaired Loans

At the date of acquisition, PCI loans are pooled and accounted for at fair value, which represents the discounted value of the expected cash flows of the loan portfolio. A pool is accounted for as a single asset with a single interest rate, cumulative loss rate and cash flow expectation. The cash flows expected over the life of the pools are estimated by an internal cash flow model that projects cash flows and calculates the carrying values of the pools, book yields, effective interest income and impairment, if any, based on pool level events. Assumptions as to cumulative loss rates, loss curves and prepayment speeds are utilized to calculate the expected cash flows. The amount of expected cash flows over the initial investment in the loan represents the “accretable yield,” which is recognized as interest income on a level yield basis over the life of the loan. Prepayments affect the estimated life of PCI loans, which may change the amount of interest income, and possibly principal, expected to be collected. The excess of total contractual cash flows over the cash flows expected to be received at origination is deemed to be the “nonaccretable difference.”

The following table presents the changes in accretable yield for PCI loans for the three months ended March 31, 2017 and 2016:




($ in thousands)	Three Months Ended March 31,
($ in thousands)	2017			2016
Beginning balance	$	136,247		$	214,907
Accretion	(10,279		)	(22,429		)
Changes in expected cash flows	2,022			(6,487		)
Ending balance	$	127,990		$	185,991

Loans Held-for-Sale

Loans held-for-sale are carried at the lower of cost or fair value. When a determination is made at the time of commitment to originate or purchase loans as held-for-investment, it is the Company’s intent to hold these loans to maturity or for the “foreseeable future,” subject to periodic reviews under the Company’s management evaluation processes, including asset/liability management. When the Company subsequently changes its intent to hold certain loans, the loans are transferred from the loans held-for-investment portfolio to the loans held-for-sale portfolio at the lower of cost or fair value.

As of March 31, 2017, loans held-for-sale amounted to $28.9 million, which were primarily comprised of C&I loans. As of December 31, 2016, loans held-for-sale amounted to $23.1 million, which were comprised primarily of consumer loans. Transfers of loans held-for-investment to loans held-for-sale were $278.0 million during the three months ended March 31, 2017. These loan transfers were comprised of C&I loans. In comparison, $308.7 million of loans held-for-investment were transferred to loans held-for-sale during the three months ended March 31, 2016. These loan transfers were comprised primarily of multifamily residential, C&I and CRE loans. The Company recorded $92 thousand and $1.8 million, respectively, in write-downs to the allowance for loan losses related to loans transferred from loans held-for-investment to loans held-for-sale for the three months ended March 31, 2017 and 2016.

During the three months ended March 31, 2017, the Company sold $29.3 million in originated loans, which were comprised of C&I and single-family residential loans, resulting in net gains of $1.8 million. In comparison, during the three months ended March 31, 2016, the Company sold or securitized $256.2 million in originated loans, which were comprised primarily of multifamily residential, C&I and CRE loans, resulting in net gains of $4.3 million. During the same period, the Company recorded $1.1 million in net gains and $641 thousand in mortgage servicing rights, and retained $160.1 million of the senior tranche of the resulting securities from the securitization of $201.7 million of multifamily residential loans.

From time to time, the Company purchases and sells loans in the secondary market. During the three months ended March 31, 2017, the Company purchased $147.2 million of loans, compared to $239.3 million during the three months ended March 31, 2016. The decrease in the loans purchased for the three months ended March 31, 2017, compared to the same period in prior year, was primarily due to the purchase of single-family residential loans that were made to low-to-moderate income borrowers during the three months ended March 31, 2016, while there was no such purchase during the same period in 2017. Other loan purchases were largely made within the Company’s syndicated loan portfolio. Certain purchased loans were transferred from loans held-for-investment to loans held-for-sale and a write-down to allowance for loan losses was recorded, where appropriate. During the three months ended March 31, 2017, the Company sold $246.6 million of loans in the secondary market at a net gain of $1.0 million. In comparison, the Company sold $53.9 million of loans in the secondary market during the three months ended March 31, 2016 and no gains or losses were recognized from these sales.

For the three months ended March 31, 2017 and 2016, the Company recorded valuation adjustments of $69 thousand and $2.4 million, respectively, in Net gains on sales of loans on the Consolidated Statements of Income to carry the loans held-for-sale portfolio at the lower of cost or fair value.

- 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.

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