Loans Receivable and Allowance for Credit Losses

6 Months Ended

Jun. 30, 2018

Loans and Leases Receivable Disclosure [Abstract]

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 for which 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 June 30, 2018 and December 31, 2017:




($ in thousands)	June 30, 2018									December 31, 2017
($ in thousands)	Non-PCI Loans ⁽¹⁾			PCI Loans ⁽²⁾			Total ⁽¹⁾⁽²⁾			Non-PCI Loans ⁽¹⁾			PCI Loans ⁽²⁾			Total ⁽¹⁾⁽²⁾
Commercial lending:
C&I	$	11,056,225		$	2,794		$	11,059,019		$	10,685,436		$	11,795		$	10,697,231
CRE	8,836,076			218,491			9,054,567			8,659,209			277,688			8,936,897
Multifamily residential	1,988,464			44,058			2,032,522			1,855,128			61,048			1,916,176
Construction and land	623,794			43			623,837			659,326			371			659,697
Total commercial lending	22,504,559			265,386			22,769,945			21,859,099			350,902			22,210,001
Consumer lending:
Single-family residential	5,210,014			106,881			5,316,895			4,528,911			117,378			4,646,289
HELOCs	1,758,093			11,418			1,769,511			1,768,917			14,007			1,782,924
Other consumer	374,028			—			374,028			336,504			—			336,504
Total consumer lending	7,342,135			118,299			7,460,434			6,634,332			131,385			6,765,717
Total loans held-for-investment	$	29,846,694		$	383,685		$	30,230,379		$	28,493,431		$	482,287		$	28,975,718
Allowance for loan losses	(301,511		)	(39		)	(301,550		)	(287,070		)	(58		)	(287,128		)
Loans held-for-investment, net	$	29,545,183		$	383,646		$	29,928,829		$	28,206,361		$	482,229		$	28,688,590


(1)	Includes net deferred loan fees, unearned fees, unamortized premiums and unaccreted discounts of $(40.4) million and $(34.0) million as of June 30, 2018 and December 31, 2017, respectively.


(2)	Includes ASC 310-30 discount of $26.8 million and $35.3 million as of June 30, 2018 and December 31, 2017, respectively.

The commercial lending portfolio includes C&I, CRE, multifamily residential, and construction and land loans. The consumer lending portfolio includes single-family residential, HELOCs and other consumer loans.

The C&I loan portfolio, which is comprised of commercial business and trade finance loans, provides financing to businesses in a wide spectrum of industries. The CRE loan portfolio includes income producing real estate loans that are either owner occupied, or non-owner occupied where 50% or more of the debt service for the loan is provided by rental income. The multifamily residential loan portfolio is largely comprised of loans secured by smaller multifamily properties ranging from 5 to 15 units in the Bank’s primary lending areas. Construction loans mainly provide construction financing for hotels, multifamily and residential condominiums, as well as mixed use (residential and retail) structures.

In the consumer lending portfolio, the Company offers residential loans through a variety of first lien mortgage loan programs. The consumer residential loan portfolio is largely comprised of single-family residential loans and HELOCs that were originated through a reduced documentation loan program, where a substantial down payment is required, resulting in a low loan-to-value ratio at origination, typically 60% or less. The Company is in a first lien position for many of these reduced documentation single-family residential loans and HELOCs. These loans have historically experienced low delinquency and default rates. Other consumer loans are mainly comprised of insurance premium financing loans.

As of June 30, 2018 and December 31, 2017, loans totaling $19.63 billion and $18.88 billion, respectively, were pledged to secure borrowings and to provide additional borrowing capacity from the FRB and the FHLB.

Credit Quality Indicators

All loans are subject to the Company’s internal and external credit review and monitoring. For the commercial lending portfolio, 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 the majority of the consumer lending portfolio, 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 classifies loans 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 loans that have sufficient sources of repayment in order to repay the loan in full in accordance with all terms and conditions. Special Mention loans are loans that have potential weaknesses that warrant closer attention by management. Special Mention is 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 loans that have well-defined weaknesses that may jeopardize the full and timely repayment of the loan. Substandard loans have a distinct possibility of loss, if the deficiencies are not corrected. When management has assessed a potential for loss but a distinct possibility of loss is not recognizable, the loan remains classified as Substandard grade. Doubtful loans have insufficient sources of repayment and a high probability of loss. Loss loans are loans that are 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 ratings for non-PCI loans by portfolio segment as of June 30, 2018 and December 31, 2017:




($ in thousands)	June 30, 2018
($ in thousands)	Pass/Watch		Special Mention		Substandard		Doubtful		Total Non-PCI Loans
Commercial lending:
C&I	$	10,760,675	$	180,741	$	113,518	$	1,291	$	11,056,225
CRE	8,672,374		63,315		100,387		—		8,836,076
Multifamily residential	1,978,241		—		10,223		—		1,988,464
Construction and land	571,921		690		51,183		—		623,794
Total commercial lending	21,983,211		244,746		275,311		1,291		22,504,559
Consumer lending:
Single-family residential	5,193,906		4,063		12,045		—		5,210,014
HELOCs	1,748,719		1,188		8,186		—		1,758,093
Other consumer	371,530		7		2,491		—		374,028
Total consumer lending	7,314,155		5,258		22,722		—		7,342,135
Total	$	29,297,366	$	250,004	$	298,033	$	1,291	$	29,846,694




($ in thousands)	December 31, 2017
($ in thousands)	Pass/Watch		Special Mention		Substandard		Doubtful		Total Non-PCI Loans
Commercial lending:
C&I	$	10,369,516	$	114,769	$	180,269	$	20,882	$	10,685,436
CRE	8,484,635		65,616		108,958		—		8,659,209
Multifamily residential	1,839,958		—		15,170		—		1,855,128
Construction and land	614,441		4,590		40,295		—		659,326
Total commercial lending	21,308,550		184,975		344,692		20,882		21,859,099
Consumer lending:
Single-family residential	4,490,672		16,504		21,735		—		4,528,911
HELOCs	1,744,903		11,900		12,114		—		1,768,917
Other consumer	333,895		111		2,498		—		336,504
Total consumer lending	6,569,470		28,515		36,347		—		6,634,332
Total	$	27,878,020	$	213,490	$	381,039	$	20,882	$	28,493,431

The following tables present the credit risk ratings for PCI loans by portfolio segment as of June 30, 2018 and December 31, 2017:




($ in thousands)	June 30, 2018
($ in thousands)	Pass/Watch		Special Mention		Substandard		Doubtful		Total PCI Loans
Commercial lending:
C&I	$	2,551	$	—	$	243	$	—	$	2,794
CRE	189,307		4,813		24,371		—		218,491
Multifamily residential	41,182		—		2,876		—		44,058
Construction and land	43		—		—		—		43
Total commercial lending	233,083		4,813		27,490		—		265,386
Consumer lending:
Single-family residential	105,219		275		1,387		—		106,881
HELOCs	10,705		209		504		—		11,418
Total consumer lending	115,924		484		1,891		—		118,299
Total ⁽¹⁾	$	349,007	$	5,297	$	29,381	$	—	$	383,685




($ in thousands)	December 31, 2017
($ in thousands)	Pass/Watch		Special Mention		Substandard		Doubtful		Total PCI Loans
Commercial lending:
C&I	$	10,712	$	57	$	1,026	$	—	$	11,795
CRE	238,605		531		38,552		—		277,688
Multifamily residential	56,720		—		4,328		—		61,048
Construction and land	44		—		327		—		371
Total commercial lending	306,081		588		44,233		—		350,902
Consumer lending:
Single-family residential	113,905		1,543		1,930		—		117,378
HELOCs	12,642		—		1,365		—		14,007
Total consumer lending	126,547		1,543		3,295		—		131,385
Total ⁽¹⁾	$	432,628	$	2,131	$	47,528	$	—	$	482,287


(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, unless the loan is well-collateralized or guaranteed by government agencies, and in the process of collection. Non-PCI loans that are less than 90 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 June 30, 2018 and December 31, 2017:




($ in thousands)	June 30, 2018
($ 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
Commercial lending:
C&I	$	86,959	$	6	$	86,965	$	28,491	$	28,606	$	57,097	$	10,912,163	$	11,056,225
CRE	2,913		—		2,913		5,851		19,897		25,748		8,807,415		8,836,076
Multifamily residential	1,378		536		1,914		1,727		—		1,727		1,984,823		1,988,464
Construction and land	—		—		—		—		—		—		623,794		623,794
Total commercial lending	91,250		542		91,792		36,069		48,503		84,572		22,328,195		22,504,559
Consumer lending:
Single-family residential	18,699		4,678		23,377		418		7,207		7,625		5,179,012		5,210,014
HELOCs	6,018		1,188		7,206		1,889		6,246		8,135		1,742,752		1,758,093
Other consumer	20		7		27		—		2,491		2,491		371,510		374,028
Total consumer lending	24,737		5,873		30,610		2,307		15,944		18,251		7,293,274		7,342,135
Total	$	115,987	$	6,415	$	122,402	$	38,376	$	64,447	$	102,823	$	29,621,469	$	29,846,694




($ in thousands)	December 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
Commercial lending:
C&I	$	30,964	$	82	$	31,046	$	27,408	$	41,805	$	69,213	$	10,585,177	$	10,685,436
CRE	3,414		466		3,880		5,430		21,556		26,986		8,628,343		8,659,209
Multifamily residential	4,846		14		4,860		1,418		299		1,717		1,848,551		1,855,128
Construction and land	758		—		758		—		3,973		3,973		654,595		659,326
Total commercial lending	39,982		562		40,544		34,256		67,633		101,889		21,716,666		21,859,099
Consumer lending:
Single-family residential	13,269		5,355		18,624		6		5,917		5,923		4,504,364		4,528,911
HELOCs	4,286		4,186		8,472		89		3,917		4,006		1,756,439		1,768,917
Other consumer	14		23		37		—		2,491		2,491		333,976		336,504
Total consumer lending	17,569		9,564		27,133		95		12,325		12,420		6,594,779		6,634,332
Total	$	57,551	$	10,126	$	67,677	$	34,351	$	79,958	$	114,309	$	28,311,445	$	28,493,431

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 2017 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. Refer to the discussion on PCI loans within this note for additional details on interest income recognition. As of June 30, 2018 and December 31, 2017, PCI loans on nonaccrual status totaled $6.3 million and $5.3 million, respectively.

Loans in Process of Foreclosure

As of June 30, 2018 and December 31, 2017, consumer mortgage loans of $5.6 million and $6.6 million, respectively, were secured by residential real estate properties, for which formal foreclosure proceedings were in process in accordance with local requirements of the applicable jurisdictions. As of June 30, 2018, there were no foreclosed residential real estate properties included in total net OREO of $709 thousand. In comparison, a foreclosed residential real estate property with a carrying amount of $188 thousand was included in total net OREO of $830 thousand as of December 31, 2017.

Troubled Debt Restructurings

Potential troubled debt restructurings (“TDR”s) are individually evaluated and the type of restructuring is selected based on the loan type and the circumstances of the borrower’s financial difficulty. 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 that it would not have otherwise considered.

The following tables present the additions to non-PCI TDRs for the three and six months ended June 30, 2018 and 2017:




($ in thousands)	Loans Modified as TDRs During the Three Months Ended June 30,
	2018								2017
	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⁾
Commercial lending:
C&I	—	$	—	$	—	$	—		6	$	17,039	$	15,673	$	10,010
CRE	1	$	750	$	837	$	—		—	$	—	$	—	$	—
Multifamily residential	—	$	—	$	—	$	—		1	$	3,655	$	3,638	$	107
Consumer lending:
Single-family residential	2	$	405	$	404	$	(26	)	—	$	—	$	—	$	—
HELOCs	2	$	1,546	$	1,536	$	—		—	$	—	$	—	$	—




	Loans Modified as TDRs During the Six Months Ended June 30,
($ in thousands)	2018								2017
($ 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⁾
Commercial lending:
C&I	—	$	—	$	—	$	—		8	$	18,189	$	17,272	$	11,202
CRE	1	$	750	$	837	$	—		1	$	1,527	$	1,494	$	—
Multifamily residential	—	$	—	$	—	$	—		1	$	3,655	$	3,638	$	107
Consumer lending:
Single-family residential	2	$	405	$	404	$	(26	)	—	$	—	$	—	$	—
HELOCs	2	$	1,546	$	1,536	$	—		—	$	—	$	—	$	—


(1)	Includes subsequent payments after modification and reflects the balance as of June 30, 2018 and 2017.


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

The following tables present the non-PCI TDR modifications for the three and six months ended June 30, 2018 and 2017 by modification type:




($ in thousands)	Modification Type During the Three Months Ended June 30,
	2018										2017
	Principal ⁽¹⁾		Principal and Interest ⁽²⁾		Interest Rate Reduction		Other		Total		Principal ⁽¹⁾		Principal and Interest ⁽²⁾		Interest Rate Reduction		Other		Total
Commercial lending:
C&I	$	—	$	—	$	—	$	—	$	—	$	3,388	$	12,285	$	—	$	—	$	15,673
CRE	—		—		837		—		837		—		—		—		—		—
Multifamily residential	—		—		—		—		—		3,638		—		—		—		3,638
Total commercial lending	—		—		837		—		837		7,026		12,285		—		—		19,311
Consumer lending:
Single-family residential	65		—		—		339		404		—		—		—		—		—
HELOCs	1,464		—		—		72		1,536		—		—		—		—		—
Total consumer lending	1,529		—		—		411		1,940		—		—		—		—		—
Total	$	1,529	$	—	$	837	$	411	$	2,777	$	7,026	$	12,285	$	—	$	—	$	19,311




($ in thousands)	Modification Type During the Six Months Ended June 30,
	2018										2017
	Principal ⁽¹⁾		Principal and Interest ⁽²⁾		Interest Rate Reduction		Other		Total		Principal ⁽¹⁾		Principal and Interest ⁽²⁾		Interest Rate Reduction		Other		Total
Commercial lending:
C&I	$	—	$	—	$	—	$	—	$	—	$	3,388	$	13,884	$	—	$	—	$	17,272
CRE	—		—		837		—		837		1,494		—		—		—		1,494
Multifamily residential	—		—		—		—		—		3,638		—		—		—		3,638
Total commercial lending	—		—		837		—		837		8,520		13,884		—		—		22,404
Consumer lending:
Single-family residential	65		—		—		339		404		—		—		—		—		—
HELOCs	1,464		—		—		72		1,536		—		—		—		—		—
Total consumer lending	1,529		—		—		411		1,940		—		—		846		—		—
Total	$	1,529	$	—	$	837	$	411	$	2,777	$	8,520	$	13,884	$	6,722	$	—	$	22,404


(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 be in default. 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 tables present information on loans modified as TDRs within the previous 12 months that have subsequently defaulted during the three and six months ended June 30, 2018 and 2017, and were still in default at the respective period end:




($ in thousands)	Loans Modified as TDRs that Subsequently Defaulted During the Three Months Ended June 30,
	2018			2017
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
Consumer lending:
HELOCs	—	$	—	1	$	48




($ in thousands)	Loans Modified as TDRs that Subsequently Defaulted During the Six Months Ended June 30,
	2018			2017
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
Consumer lending:
HELOCs	—	$	—	1	$	48

The amount of additional funds committed to lend to borrowers whose terms have been modified was $2.9 million and $5.1 million as of June 30, 2018 and December 31, 2017, respectively.

Impaired Loans

The following tables present information on non-PCI impaired loans as of June 30, 2018 and December 31, 2017:




($ in thousands)	June 30, 2018
($ in thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
Commercial lending:
C&I	$	85,975	$	27,397	$	36,257	$	63,654	$	10,920
CRE	38,567		26,677		5,469		32,146		520
Multifamily residential	6,562		2,998		3,104		6,102		99
Total commercial lending	131,104		57,072		44,830		101,902		11,539
Consumer lending:
Single-family residential	17,109		4,037		11,879		15,916		53
HELOCs	9,642		4,493		4,989		9,482		78
Other consumer	2,491		—		2,491		2,491		2,491
Total consumer lending	29,242		8,530		19,359		27,889		2,622
Total non-PCI impaired loans	$	160,346	$	65,602	$	64,189	$	129,791	$	14,161




($ in thousands)	December 31, 2017
($ in thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
Commercial lending:
C&I	$	130,773	$	36,086	$	62,599	$	98,685	$	16,094
CRE	41,248		28,699		6,857		35,556		684
Multifamily residential	11,164		8,019		2,617		10,636		88
Construction and land	4,781		3,973		—		3,973		—
Total commercial lending	187,966		76,777		72,073		148,850		16,866
Consumer lending:
Single-family residential	15,501		—		14,338		14,338		534
HELOCs	5,484		2,287		2,921		5,208		4
Other consumer	2,491		—		2,491		2,491		2,491
Total consumer lending	23,476		2,287		19,750		22,037		3,029
Total non-PCI impaired loans	$	211,442	$	79,064	$	91,823	$	170,887	$	19,895

The following table presents the average recorded investment and interest income recognized on non-PCI impaired loans for the three and six months ended June 30, 2018 and 2017:




($ in thousands)	Three Months Ended June 30,								Six Months Ended June 30,
	2018				2017				2018				2017
	Average Recorded Investment		Recognized Interest Income ⁽¹⁾		Average Recorded Investment		Recognized Interest Income ⁽¹⁾		Average Recorded Investment		Recognized Interest Income ⁽¹⁾		Average Recorded Investment		Recognized Interest Income ⁽¹⁾
Commercial lending:
C&I	$	67,342	$	1,494	$	113,858	$	140	$	67,290	$	2,893	$	119,608	$	362
CRE	32,524		837		37,897		33		32,813		1,666		38,116		80
Multifamily residential	6,161		58		12,720		81		6,203		127		12,771		129
Construction and land	—		—		4,414		—		—		—		4,584		—
Total commercial lending	106,027		2,389		168,889		254		106,306		4,686		175,079		571
Consumer lending:
Single-family residential	15,962		115		16,985		35		16,012		269		17,038		93
HELOCs	9,502		138		4,541		13		9,514		249		4,548		32
Other consumer	2,491		47		—		—		2,491		92		—		—
Total consumer lending	27,955		300		21,526		48		28,017		610		21,586		125
Total non-PCI impaired loans	$	133,982	$	2,689	$	190,415	$	302	$	134,323	$	5,296	$	196,665	$	696


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

Allowance for Credit Losses

The following table presents a summary of activities in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2018 and 2017:




($ in thousands)	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Non-PCI Loans
Allowance for non-PCI loans, beginning of period	$	297,607		$	263,007		$	287,070		$	260,402
Provision for loan losses on non-PCI loans	15,139			10,680			35,072			18,726
Gross charge-offs:
Commercial lending:
C&I	(13,534		)	(5,386		)	(31,979		)	(12,443		)
Construction and land	—			(1		)	—			(149		)
Consumer lending:
Single-family residential	—			(1		)	(1		)	(1		)
Other consumer	(162		)	(3		)	(179		)	(7		)
Total gross charge-offs	(13,696		)	(5,391		)	(32,159		)	(12,600		)
Gross recoveries:
Commercial lending:
C&I	511			7,038			8,198			7,493
CRE	2			423			429			992
Multifamily residential	1,061			128			1,394			695
Construction and land	258			88			693			112
Consumer lending:
Single-family residential	629			243			813			254
HELOCs	—			—			—			24
Other consumer	—			22			1			140
Total gross recoveries	2,461			7,942			11,528			9,710
Net (charge-offs) recoveries	(11,235		)	2,551			(20,631		)	(2,890		)
Allowance for non-PCI loans, end of period	301,511			276,238			301,511			276,238

PCI Loans
Allowance for PCI loans, beginning of period	47			87			58			118
Reversal of loan losses on PCI loans	(8		)	(9		)	(19		)	(40		)
Allowance for PCI loans, end of period	39			78			39			78
Allowance for loan losses	$	301,550		$	276,316		$	301,550		$	276,316

For further information on accounting policies and the methodologies 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 2017 Form 10-K.

The following table presents a summary of activities in the allowance for unfunded credit reserves for the three and six months ended June 30, 2018 and 2017:




($ in thousands)	Three Months Ended June 30,				Six Months Ended June 30,
($ in thousands)	2018		2017		2018		2017
Allowance for unfunded credit reserves, beginning of period	$	13,614	$	15,174	$	13,318	$	16,121
Provision for (reversal of) unfunded credit reserves	405		14		701		(933		)
Allowance for unfunded credit reserves, end of period	$	14,019	$	15,188	$	14,019	$	15,188

The allowance for unfunded credit reserves is maintained at a level management believes to be sufficient to absorb estimated probable losses related to unfunded credit facilities. The allowance for unfunded credit reserves is included in Accrued expenses and other liabilities on the Consolidated Balance Sheet. 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 June 30, 2018 and December 31, 2017:




($ in thousands)	June 30, 2018
	Commercial Lending								Consumer Lending
	C&I		CRE		Multifamily Residential		Construction and Land		Single- Family Residential		HELOCs		Other Consumer		Total
Allowance for loan losses
Individually evaluated for impairment	$	10,920	$	520	$	99	$	—	$	53	$	78	$	2,491	$	14,161
Collectively evaluated for impairment	151,484		44,061		18,387		30,362		33,335		7,199		2,522		287,350
Acquired with deteriorated credit quality	—		39		—		—		—		—		—		39
Total	$	162,404	$	44,620	$	18,486	$	30,362	$	33,388	$	7,277	$	5,013	$	301,550

Recorded investment in loans
Individually evaluated for impairment	$	63,654	$	32,146	$	6,102	$	—	$	15,916	$	9,482	$	2,491	$	129,791
Collectively evaluated for impairment	10,992,571		8,803,930		1,982,362		623,794		5,194,098		1,748,611		371,537		29,716,903
Acquired with deteriorated credit quality ⁽¹⁾	2,794		218,491		44,058		43		106,881		11,418		—		383,685
Total ⁽¹⁾	$	11,059,019	$	9,054,567	$	2,032,522	$	623,837	$	5,316,895	$	1,769,511	$	374,028	$	30,230,379




($ in thousands)	December 31, 2017
	Commercial Lending								Consumer Lending
	C&I		CRE		Multifamily Residential		Construction and Land		Single- Family Residential		HELOCs		Other Consumer		Total
Allowance for loan losses
Individually evaluated for impairment	$	16,094	$	684	$	88	$	—	$	534	$	4	$	2,491	$	19,895
Collectively evaluated for impairment	146,964		40,495		19,021		26,881		25,828		7,350		636		267,175
Acquired with deteriorated credit quality	—		58		—		—		—		—		—		58
Total	$	163,058	$	41,237	$	19,109	$	26,881	$	26,362	$	7,354	$	3,127	$	287,128

Recorded investment in loans
Individually evaluated for impairment	$	98,685	$	35,556	$	10,636	$	3,973	$	14,338	$	5,208	$	2,491	$	170,887
Collectively evaluated for impairment	10,586,751		8,623,653		1,844,492		655,353		4,514,573		1,763,709		334,013		28,322,544
Acquired with deteriorated credit quality ⁽¹⁾	11,795		277,688		61,048		371		117,378		14,007		—		482,287
Total ⁽¹⁾	$	10,697,231	$	8,936,897	$	1,916,176	$	659,697	$	4,646,289	$	1,782,924	$	336,504	$	28,975,718


(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 flows expectation. The cash flows expected over the life of the pools are estimated by an internal cash flows 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. Prepayment speeds 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 collected at acquisition, considering the impact of prepayments, is referred to as the “nonaccretable difference.”

The following table presents the changes in accretable yield for PCI loans for the three and six months ended June 30, 2018 and 2017:




($ in thousands)	Three Months Ended June 30,						Six Months Ended June 30,
($ in thousands)	2018			2017			2018			2017
Accretable yield for PCI loans, beginning of period	$	95,864		$	127,990		$	101,977		$	136,247
Accretion	(11,084		)	(11,082		)	(20,218		)	(21,361		)
Changes in expected cash flows	272			1,717			3,293			3,739
Accretable yield for PCI loans, end of period	$	85,052		$	118,625		$	85,052		$	118,625

Loans Held-for-Sale

At the time of commitment to originate or purchase a loan, the loan is determined to be held-for-investment if it is the Company’s intent to hold the loan to maturity or for the “foreseeable future,” subject to periodic reviews under the Company’s evaluation processes, including asset/liability and credit risk management. When the Company subsequently changes its intent to hold certain loans, the loans are transferred from held-for-investment to held-for-sale at the lower of cost or fair value. As of June 30, 2018, loans held-for-sale of $14.7 million consisted of C&I and single-family residential loans. In comparison, as of December 31, 2017, loans held-for-sale of $85 thousand consisted of single-family residential loans.

Loan Purchases, Sales and Transfers

From time to time, the Company purchases and sells loans in the secondary market. Certain purchased loans are transferred from held-for-investment to held-for-sale, and write-downs to allowance for loan losses are recorded, when appropriate. The following tables present information on the loan purchases into the held-for-investment portfolio, transfers from held-for-investment to held-for-sale, and sales during the three and six months ended June 30, 2018 and 2017:




($ in thousands)	Three Months Ended June 30, 2018
	Commercial Lending								Consumer Lending
	C&I		CRE		Multifamily Residential		Construction and Land		Single-Family Residential		Other Consumer		Total
Loans transferred from held-for-investment to held-for-sale	$	99,449	$	30,415	$	—	$	—	$	—	$	—	$	129,864	⁽¹⁾
Sales	$	140,326	$	30,415	$	—	$	—	$	8,175	$	—	$	178,916	^(2)(3)(4)
Purchases	$	285,615	$	—	$	3,249	$	—	$	20,912	$	—	$	309,776	⁽⁵⁾




($ in thousands)	Three Months Ended June 30, 2017
	Commercial Lending								Consumer Lending
	C&I		CRE		Multifamily Residential		Construction and Land		Single-Family Residential		Other Consumer		Total
Loans transferred from held-for-investment to held-for-sale	$	58,817	$	5,668	$	532	$	687	$	249	$	—	$	65,953	⁽¹⁾
Sales	$	76,441	$	5,668	$	532	$	687	$	5,432	$	—	$	88,760	^(2)(3)(4)
Purchases	$	220,612	$	—	$	714	$	—	$	128	$	—	$	221,454	⁽⁵⁾




($ in thousands)	Six Months Ended June 30, 2018
	Commercial Lending								Consumer Lending
	C&I		CRE		Multifamily Residential		Construction and Land		Single-Family Residential		Other Consumer		Total
Loans transferred from held-for-investment to held-for-sale	$	245,840	$	39,791	$	—	$	—	$	—	$	—	$	285,631	⁽¹⁾
Sales	$	242,691	$	39,791	$	—	$	—	$	10,721	$	—	$	293,203	^(2)(3)(4)
Purchases	$	350,362	$	—	$	3,435	$	—	$	36,025	$	—	$	389,822	⁽⁵⁾




($ in thousands)	Six Months Ended June 30, 2017
	Commercial Lending								Consumer Lending
	C&I		CRE		Multifamily Residential		Construction and Land		Single-Family Residential		Other Consumer		Total
Loans transferred from held-for-investment to held-for-sale	$	324,076	$	18,433	$	532	$	687	$	249	$	—	$	343,977	⁽¹⁾
Sales	$	313,120	$	18,433	$	532	$	687	$	9,742	$	22,191	$	364,705	^(2)(3)(4)
Purchases	$	367,728	$	—	$	840	$	—	$	128	$	—	$	368,696	⁽⁵⁾


(1)	The Company recorded $13.3 million and $13.4 million in write-downs to the allowance for loan losses related to loans transferred from held-for-investment to held-for-sale for the three and six months ended June 30, 2018, respectively, and $117 thousand and $209 thousand for the three and six months ended June 30, 2017, respectively.


(2)	Includes originated loans sold of $103.5 million and $193.2 million for the three and six months ended June 30, 2018, respectively, and $38.3 million and $67.6 million for the three and six months ended June 30, 2017, respectively. Originated loans sold during the three and six months ended June 30, 2018 and 2017 were primarily C&I and CRE loans.


(3)	Includes purchased loans sold in the secondary market of $75.4 million and $100.0 million for the three and six months ended June 30, 2018, respectively, and $50.5 million and $297.1 million for the three and six months ended June 30, 2017, respectively.

(4)

Net gains on sales of loans, excluding the lower of cost or fair value adjustments, were $2.3 million and $3.9 million for the three and six months ended June 30, 2018, respectively, and $1.6 million and $4.4 million for the three and six months ended June 30, 2017, respectively. No lower of cost or fair value adjustments were recorded for the three and six months ended June 30, 2018. In comparison, the Company reversed the lower of cost or fair value adjustment of $8 thousand during the three months ended June 30, 2017 and recorded a lower of cost or fair value adjustment of $61 thousand for the six months ended June 30, 2017. These adjustments were included in Net gains on sales of loans on the Consolidated Statement of Income.


(5)	C&I loan purchases for each of the three and six months ended June 30, 2018 and 2017 were mainly comprised of C&I syndicated loans.

- 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