NOTE 8—NON-COVERED LOANS AND ALLOWANCE FOR LOAN LOSSES

The following is a summary of year-end loans receivable, excluding covered loans (“non-covered loans”):

	December 31,
	2013			2012
	(In thousands)
Residential:
Single-family	$	3,192,875		$	2,187,323
Multifamily	992,434			900,708
Total residential	4,185,309			3,088,031
Commercial Real Estate (“CRE”):
Income producing	4,301,030			3,644,035
Construction	140,186			121,589
Land	143,861			129,071
Total CRE	4,585,077			3,894,695
Commercial and Industrial (“C&I”):
Commercial business	4,637,056			3,569,388
Trade finance	723,137			661,877
Total C&I	5,360,193			4,231,265
Consumer:
Student loans	679,220			475,799
Other consumer	868,518			269,083
Total consumer	1,547,738			744,882
Total gross loans receivable, excluding covered loans	15,678,317			11,958,873
Unearned fees, premiums, and discounts, net	(23,672		)	(19,301		)
Allowance for loan losses, excluding covered loans	(241,930		)	(229,382		)
Loans receivable, excluding covered loans, net	$	15,412,715		$	11,710,190

Accrued interest on covered and non-covered loans receivable amounted to $94.5 million and $76.8 million at December 31, 2013 and 2012, respectively.

At December 31, 2013 and 2012, covered and non-covered loans receivable totaling $10.57 billion and $8.88 billion, respectively, were pledged to secure borrowings from the FHLB and the Federal Reserve Bank.

The Bank offers adjustable rate (“ARM”) first mortgage loans secured by one-to-four unit residential properties located in its primary lending areas. The Bank originated $1.62 billion and $735.3 million in new residential single-family loans during 2013 and 2012, respectively.

The Bank also offers ARM residential multifamily loan programs. For the years ended December 31, 2013 and 2012, the Bank originated $247.1 million and $128.4 million, respectively, in multifamily residential loans. The Bank primarily offers ARM multifamily loan programs that have six-month, three-year, or five-year initial fixed periods and ARM single-family loan programs that have one-year or three-year initial fixed periods. The Bank originates single-family residential loans where the underwriting criteria are heavily based on a maximum loan to value ratio (generally of 60%) and no or limited verification or documentation of the borrower’s assets is obtained. The Bank considers all of the single-family and multifamily loans originated to be prime loans and the underwriting criteria include maximum loan-to-value ratios and minimum debt coverage ratios, as applicable. The Bank has single-family loans with interest-only features which represents approximately less than 1% of total single-family loans at both December 31, 2013 and December 31, 2012. Additionally, the Bank owns residential loans that were purchased several years ago that permit different repayment options. For these loans, there is the potential for negative amortization if the borrower so chooses. These residential loans that permit different repayment options represent approximately less than 1% of total residential loans at both December 31, 2013 and December 31, 2012. None of these loans were negatively amortizing as of December 31, 2013 and December 31, 2012.

In addition to residential lending, the Bank’s lending activities also include commercial real estate, commercial and industrial, and consumer lending. Our CRE lending activities include loans to finance income-producing properties and also construction and land loans. Our C&I lending activities include commercial business financing for small and middle-market businesses in a wide spectrum of industries. Included in commercial business loans are loans for working capital, accounts receivable lines, inventory lines, small business administration loans and lease financing. We also offer a variety of international trade finance services and products, including letters of credit, revolving lines of credit, import loans, bankers’ acceptances, working capital lines, domestic purchase financing and pre-export financing. Consumer loans are primarily comprised of fully guaranteed student loans, home equity lines of credit, auto loans and the new insurance premium financing loans.

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

Credit Risk and Concentrations—The Company has a concentration of real estate loans in California. As of December 31, 2013, the Company had $4.59 billion in non-covered commercial real estate loans and $4.19 billion in non-covered residential loans, of which approximately 86% are secured by real properties located in California. Deterioration in the real estate market generally including residential and commercial real estate could result in additional loan charge-offs and provisions for loan losses in the future, which could have a material adverse effect on the Company’s financial condition, net income and capital. In addition, although most of the Company’s trade finance loans relate to trade with Asian countries, the majority of our loans are made to companies domiciled in the United States. A substantial portion of this business involves California based customers engaged in import activities as well as some export activities. We also offer export-import financing to various domestic and foreign customers. Certain trade finance loans may be guaranteed by the Export-Import Bank of the United States or the Export-Import Bank of China.

Purchased Loans—During 2013, the Company purchased loans with an unpaid principal balance of $776.7 million and a carrying amount of $759.3 million. 63% of the purchased loans during the period are student loans, which are mostly guaranteed by the U.S. Department of Education and pose limited credit risk. 36% of the purchased loans are insurance premium financing loans, which are included in the commercial and consumer loan portfolios, as applicable. The remaining 1% are other loans.

Loans Held for Sale—Loans held for sale totaled $205.0 million and $174.3 million as of December 31, 2013 and 2012, respectively. Loans held for sale are recorded at the lower of cost or fair value. Fair value, if lower than cost, is determined based on valuations obtained from market participants or the value of the underlying collateral. As of December 31, 2013, all of these loans were student loans, which are mostly guaranteed by the U.S. Department of Education. During 2013, in total, loans receivable of $97.1 million were reclassified to loans held for sale. Some of these loans were purchased by the Company with the intent to be held for investment; however, subsequent to their purchase, the Company’s intent for these loans changed and they were consequently reclassified to loans held for sale. The remainder of loans were immediately classified as loans held for sale. Proceeds from sales of loans held for sale were $117.3 million in 2013, resulting in net gains on sale of $4.0 million. In comparison, proceeds from sales of loans held for sale were $351.9 million and $652.7 million in 2012 and 2011, respectively, resulting in net gains on sale of $14.6 million and $14.5 million, respectively.

Credit Quality Indicators—Loans are risk rated based on analysis of the current state of the borrower’s credit quality. The analysis of credit quality includes review of all sources of repayment, the borrower’s current payment performance/delinquency, the borrower’s 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. However, the risk ratings remain the overall credit quality indicator for the Company as well as the credit quality indicator utilized for estimating the appropriate allowance for loan losses. The Company utilizes an eight grade risk rating system, where a higher grade represents a higher level of credit risk. The eight grade risk rating system can be generally classified by the following categories: Pass or Watch, Special Mention, Substandard, Doubtful and Loss. The risk ratings reflect the relative strength of the sources of repayment.

Pass or 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. These borrowers may have some credit risk that requires monitoring, but full repayment is expected. Special Mention loans are considered to have potential weaknesses that warrant closer attention by management. Special Mention is considered a transitory grade. If any 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 is presented that indicates 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 due to changes in borrower status and likelihood of loan repayment. The tables below present the non-covered loan portfolio by credit quality indicator as of December 31, 2013 and 2012. As of December 31, 2013, non-covered loans graded Substandard have decreased by $29.3 million, or 6% from December 31, 2012. There were no Doubtful or Loss grade loans as of December 31, 2013 and 2012.

			Special
	Pass/Watch		Mention		Substandard		Total
	(In thousands)
December 31, 2013
Residential:
Single-family	$	3,167,337	$	8,331	$	17,207	$	3,192,875
Multifamily	923,697		1,634		67,103		992,434
CRE:
Income producing	4,032,269		56,752		212,009		4,301,030
Construction	127,138		6,160		6,888		140,186
Land	116,000		9,304		18,557		143,861
C&I:
Commercial business	4,400,847		92,315		143,894		4,637,056
Trade finance	681,345		22,099		19,693		723,137
Consumer:
Student loans	677,094		445		1,681		679,220
Other consumer	865,752		244		2,522		868,518
Total	$	14,991,479	$	197,284	$	489,554	$	15,678,317

			Special
	Pass/Watch		Mention		Substandard		Total
	(In thousands)
December 31, 2012
Residential:
Single-family	$	2,163,918	$	5,131	$	18,274	$	2,187,323
Multifamily	781,552		13,510		105,646		900,708
CRE:
Income producing	3,416,142		42,222		185,671		3,644,035
Construction	63,008		16,885		41,696		121,589
Land	79,085		13,232		36,754		129,071
C&I:
Commercial business	3,380,212		69,687		119,489		3,569,388
Trade finance	632,617		24,778		4,482		661,877
Consumer:
Student loans	475,799		—		—		475,799
Other consumer	261,136		1,115		6,832		269,083
Total	$	11,253,469	$	186,560	$	518,844	$	11,958,873

Nonaccrual and Past Due Loans—Loans are tracked by the number of days borrower payments are past due. The tables below present an aging analysis of nonaccrual loans, past due non-covered loans and loans held for sale, segregated by class of loans, as of December 31, 2013 and 2012:

	Accruing		Accruing		Total		Nonaccrual		Nonaccrual		Total
	Loans		Loans		Accruing		Loans Less		Loans		Nonaccrual		Current
	30-59 Days		60-89 Days		Past Due		Than 90 Days		90 or More		Past Due		Accruing
	Past Due		Past Due		Loans		Past Due		Days Past Due		Loans		Loans		Total
	(In thousands)
December 31, 2013
Residential:
Single-family	$	4,694	$	922	$	5,616	$	—	$	11,218	$	11,218	$	3,176,041	$		3,192,875
Multifamily	8,580		531		9,111		19,661		7,972		27,633		955,690		992,434
CRE:
Income producing	12,746		1,798		14,544		13,924		22,549		36,473		4,250,013		4,301,030
Construction	—		—		—		—		6,888		6,888		133,298		140,186
Land	—		—		—		265		3,223		3,488		140,373		143,861
C&I:
Commercial business	3,428		6,259		9,687		6,437		15,486		21,923		4,605,446		4,637,056
Trade finance	—		—		—		—		909		909		722,228		723,137
Consumer:
Student loans	541		445		986		—		1,681		1,681		676,553		679,220
Other consumer	293		1		294		175		1,263		1,438		866,786		868,518
Loans held for sale	—		—		—		—		—		—		204,970		204,970
Total	$	30,282	$	9,956	$	40,238	$	40,462	$	71,189	$	111,651	$	15,731,398	15,883,287
Unearned fees, premiums and discounts, net															(23,672)
Total recorded investment in non-covered loans and loans held for sale															$	15,859,615

	Accruing		Accruing		Total		Nonaccrual		Nonaccrual		Total
	Loans		Loans		Accruing		Loans Less		Loans		Nonaccrual		Current
	30-59 Days		60-89 Days		Past Due		Than 90 Days		90 or More		Past Due		Accruing
	Past Due		Past Due		Loans		Past Due		Days Past Due		Loans		Loans		Total
	(In thousands)
December 31, 2012
Residential:
Single-family	$	4,820	$	2,244	$	7,064	$	1,301	$	9,809	$	11,110	$	2,169,149	$		2,187,323
Multifamily	7,127		924		8,051		6,788		11,052		17,840		874,817		900,708
CRE:
Income producing	18,118		4,731		22,849		9,485		8,354		17,839		3,603,347		3,644,035
Construction	—		—		—		—		27,039		27,039		94,550		121,589
Land	—		—		—		637		3,984		4,621		124,450		129,071
C&I:
Commercial business	3,293		316		3,609		8,068		14,740		22,808		3,542,971		3,569,388
Trade finance	500		—		500		429		2,003		2,432		658,945		661,877
Consumer:
Student loans	71		—		71		—		—		—		475,728		475,799
Other consumer	485		968		1,453		499		3,921		4,420		263,210		269,083
Loans held for sale	—		—		—		—		—		—		174,317		174,317
Total	$	34,414	$	9,183	$	43,597	$	27,207	$	80,902	$	108,109	$	11,981,484	12,133,190
Unearned fees, premiums and discounts, net															(19,301)
Total recorded investment in non-covered loans and loans held for sale															$	12,113,889

Generally, loans 90 or more days past due are placed on nonaccrual status, at which point interest accrual is discontinued and all unpaid accrued interest is reversed against interest income. Additionally, loans that are not 90 or more days past due but have identified deficiencies, including delinquent TDR loans, are also placed on nonaccrual status. Nonaccrual loans totaled $111.7 million and $108.1 million at December 31, 2013 and 2012, respectively. Loans not 90 or more days past due totaled $40.5 million and $27.2 million as of December 31, 2013 and 2012, respectively, and were included in non-covered nonaccrual loans.

The following is a summary of interest income foregone on nonaccrual loans:

	For the Year Ended December 31,
	2013		2012		2011
			(In thousands)
Interest income that would have been recognized had nonaccrual loans performed in accordance with their original terms	$	7,410	$	7,206	$	9,384
Less: Interest income recognized on nonaccrual loans on a cash basis	(2,319)		(2,269)		(3,519)
Interest income foregone on nonaccrual loans	$	5,091	$	4,937	$	5,865

Troubled debt restructurings — A troubled debt restructuring (“TDR”) is a modification of the terms of a loan when the lender, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower. The concessions may be granted in various forms, including a below-market change in the stated interest rate, reduction in the loan balance or accrued interest, extension of the maturity date with a stated interest rate lower than the current market rate or note splits referred to as A/B notes. In A/B note restructurings, the original note is bifurcated into two notes where the A note represents the portion of the original loan which allows for acceptable loan-to-value and debt coverage on the collateral and is expected to be collected in full and the B note represents the portion of the original loan where there is a shortfall in value and is fully charged-off. The A/B note balance is comprised of the A note balances only. A notes are not disclosed as TDRs in subsequent years after the year of restructuring if the restructuring agreement specifies an interest rate equal to or greater than the rate that the Bank was willing to accept at the time of the restructuring for a new loan with comparable risk and the loan is not impaired based on the terms specified by the restructuring agreement.

TDRs may be designated as performing or nonperforming. A TDR may be designated as performing if the loan has demonstrated sustained performance under the modified terms. The period of sustained performance may include the periods prior to modification if prior performance met or exceeded the modified terms. For nonperforming restructured loans, the loan will remain on nonaccrual status until the borrower demonstrates a sustained period of performance, generally six consecutive months of payments. The Company had $71.8 million and $94.6 million in total performing restructured loans as of December 31, 2013 and 2012, respectively. Nonperforming restructured loans were $11.1 million and $10.0 million at December 31, 2013 and 2012, respectively. Included as TDRs were $4.3 million and $34.8 million of performing A/B notes as of December 31, 2013 and 2012, respectively. All TDRs are included in the balance of impaired loans.

The following table provides information on loans modified as of December 31, 2013 and 2012 that were modified as TDRs during the year ended December 31, 2013 and 2012:

	Loans Modified as TDRs During the
	Year Ended December 31, 2013
		Pre-Modification		Post-Modification
	Number	Outstanding		Outstanding
	of	Recorded		Recorded		Financial
	Contracts	Investment		Investment *(1)*		Impact *(2)*
	(Dollars in thousands)
Residential:
Single-family	—	$	—	$	—	$	—
Multifamily	1	$	1,093	$	1,071	$	—
CRE:
Income producing	6	$	26,021	$	17,456	$	219
Construction	—	$	—	$	—	$	—
Land	—	$	—	$	—	$	—
C&I:
Commercial business	6	$	16,220	$	15,624	$	4,274
Trade finance	—	$	—	$	—	$	—
Consumer:
Student loans	—	$	—	$	—	$	—
Other consumer	1	$	651	$	639	$	—

	Loans Modified as TDRs During the
	Year Ended December 31, 2012
		Pre-Modification		Post-Modification
	Number	Outstanding		Outstanding
	of	Recorded		Recorded		Financial
	Contracts	Investment		Investment *(1)*		Impact *(2)*
	(Dollars in thousands)
Residential:
Single-family	12	$	6,227	$	5,556	$	938
Multifamily	16	$	28,736	$	28,153	$	3,344
CRE:
Income producing	8	$	10,118	$	8,162	$	1,169
Construction	—	$	—	$	—	$	—
Land	3	$	1,610	$	1,059	$	395
C&I:
Commercial business	14	$	5,101	$	4,374	$	560
Trade finance	2	$	2,510	$	579	$	1,506
Consumer:
Student loans	—	$	—	$	—	$	—
Other consumer	1	$	108	$	108	$	—

(1) Includes subsequent payments after modification and reflects the balance as of December 31, 2013 and 2012.

(2) The financial impact includes chargeoffs and specific reserves at modification date.

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 Bank’s recovery. As of December 31, 2013, modifications of residential TDRs, including single and multi-family loans, primarily included A/B note splits, which result in a partial charge-off or loss for the Bank at the modification date. Residential TDRs modified using A/B note splits totaled $1.1 million, as of December 31, 2013. Commercial real estate TDRs, including income producing, construction and land loans, were primarily modified through, A/B note splits, forbearance of payments and principal and/or interest deferment for a total of $17.5 million, as of December 31, 2013. As of December 31, 2013, modifications of commercial and industrial TDRs, including commercial business and trade finance loans, were restructured through extensions and principal and interest reduction with an impact of both a reduction of interest collected over the life of the loan and/or an extended time period for collection of principal and interest, for a total of $15.6 million as of December 31, 2013. Consumer TDRs, including student loans and other consumer loans, were restructured through maturity extensions, for a total of $639 thousand, as of December 31, 2013.

As of December 31, 2012, modifications of residential TDRs, including single and multi-family loans, primarily included principal and/or interest deferments, rate reductions, extensions, other principal adjustments and/or A/B note splits. A/B note splits result in a partial charge-off or loss for the bank at the modification date. Residential TDRs modified using principal and/or interest deferment and/or rate reductions totaled $12.7 million as of December 31, 2012. Residential TDRs modified using extensions, A/B note splits and/or other principal adjustments totaled $21.0 million as of December 31, 2012. Commercial real estate TDRs, including income producing, construction and land loans, were primarily modified through A/B note splits, principal reductions, extensions, and/or non-market interest rate changes with an impact of a partial charge-off or loss for the bank and reduction of interest collected over the life of the loan. Commercial real estate TDRs modified through A/B note splits, principal reductions, extensions and/or non-market interest changes totaled $9.2 million as of December 31, 2012. Commercial and industrial TDRs, including commercial business and trade finance loans, were restructured in various ways, including forbearance payments, principal reductions, principal and/or interest deferment and/or maturity extensions with an impact of both a reduction of interest collected over the life of the loan and/or an extended time period for collection of principal and interest, for a total of $5.0 million as of December 31, 2012. Consumer TDRs, including home equity lines of credit and other consumer loans, were restructured through principal deferments. Consumer TDRs modified through principal deferment totaled $108 thousand as of December 31, 2012.

Performing TDRs at December 31, 2013 were comprised of $17.4 million in residential loans, $37.6 million in commercial real estate loans, $16.7 million in commercial and industrial loans and $108 thousand in consumer loans. Nonperforming TDRs at December 31, 2013 were comprised of $3.6 million in residential loans, $3.4 million in commercial real estate loans, $3.5 million in commercial and industrial loans and $639 thousand in consumer loans. In comparison, performing TDRs at December 31, 2012 were comprised of $43.5 million in residential loans, $47.4 million in commercial real estate loans, $3.6 million in commercial and industrial loans and $108 thousand in consumer loans. Nonperforming TDRs at December 31, 2012 were comprised of $5.1 million in residential loans, $1.9 million in commercial real estate loans and $3.0 million in commercial and industrial loans.

Subsequent to restructuring, a TDR that becomes delinquent, generally beyond 90 days is considered to have defaulted. The following table provides information for loans modified as TDRs within the previous 12 months that have subsequently defaulted as of December 31, 2013 and 2012 for the years ended December 31, 2013 and 2012, respectively.

	Loans Modified as TDRs that Subsequently Defaulted
	During the Year Ended December 31,
	2013			2012
	Number of	Recorded		Number of	Recorded
	Contracts	Investment		Contracts	Investment *(1)*
	(Dollars in thousands)
Residential:
Single-family	—	$	—	2	$	2,830
Multifamily	—	$	—	1	$	378
CRE:
Income producing	—	$	—	1	$	271
Construction	—	$	—	—	$	—
Land	—	$	—	—	$	—
C&I:
Commercial business	1	$	570	2	$	33
Trade finance	—	$	—	—	$	—
Consumer:
Student loans	—	$	—	—	$	—
Other consumer	1	$	639	—	$	—

(1) Included in the year ended December 31, 2012 table is $271 thousand of recorded investment which has been transferred to REO and is not included in the total loans receivable balance as of December 31, 2012.

All TDRs are included in the impaired loan quarterly valuation allowance process. See the sections below Impaired Loans and Allowance for Loan Losses for the complete discussion. All portfolio segments of TDRs are reviewed for necessary specific reserves in the same manner as impaired loans of the same portfolio segment which have not been identified as TDRs. The modification of the terms of each TDR is considered in the current impairment analysis of the respective TDR. For all portfolio segments of delinquent TDRs, when the restructured loan is uncollectible and less than the recorded investment in the loan, the deficiency is charged-off against the allowance for loan losses. If the loan is a performing TDR, the deficiency is included in the specific allowance, as appropriate. As of December 31, 2013 and 2012, the allowance for loan losses associated with TDRs was $13.0 million and $8.7 million for performing TDRs and $836 thousand and $203 thousand for nonperforming TDRs, respectively.

Impaired Loans — A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all scheduled payments of principal or interest due according to the original contractual terms of the loan agreement. Impaired loans include non-covered loans held for investment on nonaccrual status, regardless of the collateral coverage, and loans modified in a TDR.

The Bank’s loans are grouped into heterogeneous and homogeneous (mostly consumer loans) categories. Classified loans (graded Substandard or Doubtful) in the heterogeneous category are selected and evaluated for impairment on an individual basis. The Bank considers loans individually reviewed to be impaired if, based on current information and events, it is probable the Bank will not be able to collect all amounts due according to the original contractual terms of the loan agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as an 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 in the loan and the loan is classified as nonperforming and uncollectible, the deficiency is charged-off against the allowance for loan losses.

At December 31, 2013 and 2012, impaired non-covered loans totaled $183.5 million and $200.5 million, respectively. Impaired non-covered loans as of December 31, 2013 and 2012 are set forth in the following tables. The interest income recognized on impaired loans, excluding performing TDRs, is recognized on a cash basis when received.

			Recorded		Recorded
	Unpaid		Investment		Investment		Total				Average		Interest
	Principal		With No		With		Recorded		Related		Recorded		Income
	Balance		Allowance		Allowance		Investment *(2)*		Allowance		Investment		Recognized *(1)*
	(In thousands)
As of and for the year ended December 31, 2013
Residential:
Single-family	$	15,814	$	13,585	$	1,588	$	15,173	$	207	$	15,322	$	222
Multifamily	43,821		30,899		10,215		41,114		1,339		35,799		543
CRE:
Income producing	73,777		39,745		25,523		65,268		5,976		71,856		872
Construction	6,888		6,888		—		6,888		—		6,888		61
Land	17,390		4,372		7,908		12,280		2,082		12,453		42
C&I:
Commercial business	48,482		10,850		27,487		38,337		13,787		38,294		520
Trade finance	2,771		438		752		1,190		752		1,603		42
Consumer:
Student loans	1,749		1,681		—		1,681		—		1,664		1
Other consumer	1,945		1,546		—		1,546		—		1,561		16
Total	$	212,637	$	110,004	$	73,473	$	183,477	$	24,143	$	185,440	$	2,319

			Recorded		Recorded
	Unpaid		Investment		Investment		Total				Average		Interest
	Principal		With No		With		Recorded		Related		Recorded		Income
	Balance		Allowance		Allowance		Investment *(2)*		Allowance		Investment		Recognized *(1)*
	(In thousands)
As of and for the year ended December 31, 2012
Residential:
Single-family	$	19,318	$	15,610	$	2,598	$	18,208	$	721	$	19,094	$	88
Multifamily	57,464		45,511		8,756		54,267		2,410		54,707		403
CRE:
Income producing	59,574		47,019		7,656		54,675		2,559		57,854		304
Construction	30,815		25,530		1,509		27,039		142		22,696		723
Land	20,317		6,132		8,995		15,127		2,860		17,769		76
C&I:
Commercial business	38,630		20,235		3,835		24,070		2,835		33,343		614
Trade finance	4,124		2,582		—		2,582		—		3,863		48
Consumer:
Student loans	—		—		—		—		—		—		—
Other consumer	4,798		4,528		—		4,528		—		4,631		13
Total	$	235,040	$	167,147	$	33,349	$	200,496	$	11,527	$	213,957	$	2,269

(1) Excludes interest from performing TDRs.

(2) Excludes $17.7 million and $29.6 million of covered non-accrual loans at December 31, 2013 and 2012, respectively, accounted for under ASC 310-10, of which some loans have additional partial balances accounted for under ASC 310-30.

Allowance for Loan Losses

The allowance consists of specific reserves and a general reserve. The Bank’s loans fall into heterogeneous and homogeneous (mostly consumer loans) categories. Impaired loans are subject to specific reserves. Loans in the homogeneous category, as well as non-impaired loans in the heterogeneous category, are evaluated as part of the general reserve. The general reserve is calculated by utilizing both quantitative and qualitative factors. There are different qualitative risks for the loans in each portfolio segment. As of December 31, 2013, the Residential and CRE segments’ predominant risk characteristic is the collateral and the geographic location of the property collateralizing the loan. The risk is qualitatively assessed based on the change in the real estate market in those geographic areas. The C&I segment’s predominant risk characteristics are the global cash flows of the borrowers and guarantors, if any, and economic and market conditions. Consumer loans, excluding the student loan portfolio guaranteed by the U.S. Department of Education, are largely comprised of home equity lines of credit, for which the predominant risk characteristic is the real estate collateral securing the loan.

Our methodology to determine the overall appropriateness of the allowance is based on a classification migration model and qualitative considerations. The migration analysis examines pools of loans having similar characteristics and analyzes their loss rates over a historical period. We utilize historical loss factors derived from trends and losses associated with each pool over a specified period of time. Based on this process, we assign loss factors to each loan grade within each pool of loans. Loss rates derived by the migration model are based predominantly on historical loss trends that may not be entirely indicative of the actual or inherent loss potential. As such, we utilize qualitative and environmental factors as adjusting mechanisms to supplement the historical results of the classification migration model. Qualitative considerations include, but are not limited to, prevailing economic or market conditions, relative risk profiles of various loan segments, volume concentrations, growth trends, delinquency and nonaccrual status, problem loan trends, and geographic concentrations. Qualitative and environmental factors are reflected as percentage adjustments and are added to the historical loss rates derived from the classified asset migration model to determine the appropriate allowance for each loan pool.

Covered Loans— The Company acquired UCB and WFIB in 2009 and 2010, respectively. The majority of the covered loan portfolio accounted for under ASC 310-30, is still performing better than or as expected from the day one valuation. However, the company has experienced some concentrated credit deterioration in certain pools. Thus, during 2013, due to the concentrated credit deterioration beyond the respective acquisition date fair value of these covered loans under ASC 310-30, a provision for credit losses has been recorded through earnings. As of December 31, 2013, there was an allowance of $2.2 million for these loans under ASC 310-30 due to credit deterioration, which resulted from a provision of $2.2 million for the year ended December 31, 2013. This $2.2 million of allowance for loan losses is allocated mainly to the portfolio’s commercial real estate segment.

As of the respective acquisition dates, WFIB’s and UCB’s loan portfolios included unfunded commitments for commercial lines of credit, construction draws and other lending activity. The total commitment outstanding as of the respective acquisition dates is covered under the shared-loss agreements. However, any additional advances on these loans subsequent to acquisition date are not accounted for under ASC 310-30. As additional advances on these commitments have occurred, the Bank has considered these amounts in the allowance for loan losses calculation. As of December 31, 2013 and 2012, $7.7 million, or 3.1%, and $5.2 million, or 2.2%, respectively, of the total allowance is allocated to the allowance for loan losses on covered loans. The covered loans acquired are, and will continue to be, subject to the Bank’s internal and external credit review and monitoring. The $2.2 million allowance for loans under ASC 310-30 discussed above and the $5.5 million in allowance for loans outside the scope of ASC 310-30 amount to $7.7 million or 3.1% of total allowance as of December 31, 2013.

During 2013, the Company recorded $1.4 million of charge-offs on covered loans outside of the scope of ASC 310-30 mainly in the commercial and industrial and commercial real estate loan segment. The resulting provision on covered loans for 2013 was $1.8 million. The charge-offs are within our loan segments as follows: $1.0 million of commercial and industrial loans and $380 thousand of commercial real estate loans. As these loans are covered under loss-sharing agreements with the FDIC, the Company recorded income of $1.1 million or 80% of the charge-off amount of $1.4 million in noninterest income as a net increase in the FDIC receivable, resulting in a net impact to earnings for the year of $287 thousand. In comparison, the Company recorded $6.5 million of charge-offs on several covered loans outside of the scope of ASC 310-30 during 2012. The resulting provision on covered loans for 2012 was $5.0 million. The charge-offs are within our loan segments as follows: $5.0 million of commercial and industrial loans and $1.5 million of commercial real estate loans. The $6.5 million of net charge-offs was mainly related to three specific covered loans. As these loans are covered under loss-sharing agreements with the FDIC, the Company recorded income of $5.2 million or 80% of the charge-off amount of $6.5 million in noninterest income as a net increase in the FDIC receivable, resulting in a net impact to earnings for the year of $1.3 million.

The Company recorded $22.4 million in total loan loss provisions during 2013, as compared to $65.2 million and $95.0 million during 2012 and 2011, respectively. When determined uncollectible, it is the Company’s policy to promptly charge-off the amount of impairment on a loan which represents the difference between the outstanding loan balance and the fair value of the collateral. Recoveries are recorded when payment is received on loans that were previously charged-off through the allowance for loan losses. During 2013, the Company recorded $5.1 million in total net charge-offs in comparison to $48.7 million during 2012. The following table details activity in the allowance for loan losses, for both non-covered and covered loans, by portfolio segment for the year ended December 31, 2013 and 2012. Allocation of a portion of the allowance to one segment of the loan portfolio does not preclude its availability to absorb losses in other segments.


									Covered Loans		Covered Loans
									under ASC 310-10		under ASC 310-30
									Subject to		Subject to
									Allowance for		Allowance for
	Residential		CRE		C&I		Consumer		Loan Losses *(1)*		Loan Losses		Unallocated		Total
	(In thousands)
Year Ended December 31, 2013
Beginning balance	$	49,349	$	69,856	$	105,376	$	4,801	$	5,153	$	—	$	—	$	234,535
Provision for loan losses	1,918		(6,615)		12,821		8,055		1,759		2,269		2,157		22,364
Allowance for unfunded loan commitments and letters of credit	—		—		—		—		—		—		(2,157)		(2,157)
Charge-offs	(3,197)		(3,357)		(7,405)		(2,385)		(1,436)		—		—		(17,780)
Recoveries	2,647		4,793		4,392		881		—		—		—		12,713
Net (charge-offs)/recoveries	(550)		1,436		(3,013)		(1,504)		(1,436)		—		—		(5,067)
Ending balance	$	50,717	$	64,677	$	115,184	$	11,352	$	5,476	$	2,269	$	—	$	249,675
Ending balance allocated to:
Loans individually evaluated for impairment	$	1,546	$	8,058	$	14,539	$	—	$	—	$	—	$	—	$	24,143
Loans collectively evaluated for impairment	49,171		56,619		100,645		11,352		5,476		—		—		223,263
Covered loans acquired with deteriorated credit quality (2)	—		—		—		—		—		2,269		—		2,269
Ending balance	$	50,717	$	64,677	$	115,184	$	11,352	$	5,476	$	2,269	$	—	$	249,675


									Covered Loans		Covered Loans
									under ASC 310-10		under ASC 310-30
									Subject to		Subject to
									Allowance for		Allowance for
	Residential		CRE		C&I		Consumer		Loan Losses *(1)*		Loan Losses		Unallocated		Total
	(In thousands)
Year Ended December 31, 2012
Beginning balance	$	52,180	$	66,457	$	87,020	$	4,219	$	6,647	$	—	$	—	$	216,523
Provision for loan losses	3,255		20,977		35,204		2,295		5,016		—		(1,563)		65,184
Allowance for unfunded loan commitments and letters of credit	—		—		—		—		—		—		1,563		1,563
Charge-offs	(7,700)		(27,060)		(21,818)		(1,824)		(6,510)		—		—		(64,912)
Recoveries	1,614		9,482		4,970		111		—		—		—		16,177
Net charge-offs	(6,086)		(17,578)		(16,848)		(1,713)		(6,510)		—		—		(48,735)
Ending balance	$	49,349	$	69,856	$	105,376	$	4,801	$	5,153	$	—	$	—	$	234,535
Ending balance allocated to:
Loans individually evaluated for impairment	$	3,131	$	5,561	$	2,835	$	—	$	—	$	—	$	—	$	11,527
Loans collectively evaluated for impairment	46,218		64,295		102,541		4,801		5,153		—		—		223,008
Covered loans acquired with deteriorated credit quality (2)	—		—		—		—		—		—		—		—
Ending balance	$	49,349	$	69,856	$	105,376	$	4,801	$	5,153	$	—	$	—	$	234,535

(1) This allowance is related to drawdowns on commitments that were in existence as of the acquisition dates of WFIB and UCB and, therefore, are covered under the shared-loss agreements with the FDIC. Allowance on these subsequent drawdowns is accounted for as part of the allowance for loan losses.

(2) The Company has elected to account for covered loans acquired in the FDIC-assisted acquisitions under ASC 310-30, excluding any additional advances subsequent to acquisition date.

The Company’s recorded investment in total loans receivable as of December 31, 2013 and 2012 related to each balance in the allowance for loan losses by portfolio segment and disaggregated on the basis of the Company’s impairment methodology is as follows:

									Covered Loans		Covered Loans
									under ASC 310-10		under ASC 310-30
									Subject to		Subject to
									Allowance for		Allowance for
	Residential		CRE		C&I		Consumer		Loan Losses		Loan Losses		Total
	(In thousands)
December 31, 2013
Loans individually evaluated for impairment	$	56,287	$	84,436	$	39,527	$	3,227	$	—	$	—	$	183,477
Covered loans individually evaluated for impairment(2)	—		—		—		—		2,824		—		2,824
Loans collectively evaluated for impairment	4,129,022		4,500,641		5,320,666		1,544,511		317,361		—		15,812,201
Covered loans acquired with deteriorated credit quality(1)	681,608		1,140,432		146,538		43,136		—		129,661		2,141,375
Ending balance	$	4,866,917	$	5,725,509	$	5,506,731	$	1,590,874	$	320,185	$	129,661	$	18,139,877

									Covered Loans		Covered Loans
									under ASC 310-10		under ASC 310-30
									Subject to		Subject to
									Allowance for		Allowance for
	Residential		CRE		C&I		Consumer		Loan Losses		Loan Losses		Total
	(In thousands)
December 31, 2012
Loans individually evaluated for impairment	$	72,475	$	96,841	$	26,652	$	4,528	$	—	$	—	$	200,496
Covered loans individually evaluated for impairment(2)	—		—		—		—		5,237		—		5,237
Loans collectively evaluated for impairment	3,015,556		3,797,854		4,204,613		740,354		426,448		—		12,184,825
Covered loans acquired with deteriorated credit quality(1)	976,969		1,727,159		261,622		53,521		—		—		3,019,271
Ending balance	$	4,065,000	$	5,621,854	$	4,492,887	$	798,403	$	431,685	$	—	$	15,409,829

(1) The Company has elected to account for all covered loans acquired in the FDIC-assisted acquisitions under ASC 310-30. The total principal balance is presented and excludes the purchase discount and any additional advances subsequent to acquisition date.

Allowance for Unfunded Loan Commitments, Off-Balance Sheet Credit Exposures and Recourse Provisions—The allowance for unfunded loan commitments, off-balance sheet credit exposures and recourse provisions is maintained at a level believed by management to be sufficient to absorb estimated probable losses related to these unfunded credit facilities. The determination of the adequacy of the allowance is based on periodic evaluations of the unfunded credit facilities including an assessment of the probability of commitment usage, credit risk factors for loans outstanding to these same customers, and the terms and expiration dates of the unfunded credit facilities. As of December 31, 2013 and 2012, the allowance for unfunded loan commitments, off-balance sheet credit exposures, and recourse provisions amounted to $11.3 million and $9.4 million, respectively. The increase to this allowance during the year was reflective of additional reserve allocated for unfunded construction loan commitments. Net adjustments to the allowance for unfunded loan commitments, off-balance sheet credit exposures, and recourse provisions are included in the provision for loan losses.

Loans serviced for others amounted to $1.35 billion and $1.65 billion at December 31, 2013 and 2012, respectively. These represent loans that have either been sold or securitized for which the Bank continues to provide servicing and has limited recourse. The majority of these loans are residential and CRE at December 31, 2013 and 2012. Of the total allowance for unfunded loan commitments, off-balance sheet credit exposures and recourse provisions, $3.2 million and $4.8 million pertain to these loans as of December 31, 2013 and 2012, respectively. These loans are maintained off-balance sheet and are not included in the loans receivable balance.