NOTE 9 — NON-COVERED LOANS AND ALLOWANCE FOR LOAN LOSSES

The following is a summary of loans receivable, excluding covered loans (“non-covered loans”) for the periods indicated:

	March 31,			December 31,
	2014			2013
	(In thousands)
Residential:
Single-family	$	3,238,298		$	3,192,875
Multifamily	1,111,188			992,434
Total residential	4,349,486			4,185,309
Commercial Real Estate (“CRE”):
Income producing	5,118,377			4,301,030
Construction	197,628			140,186
Land	203,915			143,861
Total CRE	5,519,920			4,585,077
Commercial and Industrial (“C&I”):
Commercial business	5,533,379			4,637,056
Trade finance	667,704			723,137
Total C&I	6,201,083			5,360,193
Consumer:
Student loans	184,900			679,220
Other consumer	1,053,022			868,518
Total consumer	1,237,922			1,547,738
Total loans receivable, excluding covered loans (1)	17,308,411			15,678,317
Unearned fees, premiums, and discounts, net	(9,349		)	(23,672		)
Allowance for loan losses, excluding covered loans	(245,618		)	(241,930		)
Loans receivable, excluding covered loans, net	$	17,053,444		$	15,412,715

(1) Loans net of ASC 310-30 discount

Accrued interest on covered and non-covered loans receivable amounted to $83.7 million and $94.5 million at March 31, 2014 and December 31, 2013, respectively.

At March 31, 2014 and December 31, 2013, covered and non-covered loans receivable totaling $11.26 billion and $10.57 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 $181.7 million and $263.1 million in new residential single-family loans during the three months ended March 31, 2014 and 2013, respectively.

The Bank also offers ARM residential multifamily loan programs. The Bank originated $95.3 million and $50.3 million in new multifamily residential loans during the three months ended March 31, 2014 and 2013, respectively. 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.

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 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 March 31, 2014, the Company had $5.52 billion in non-covered commercial real estate loans and $4.35 billion in non-covered residential loans, of which approximately 81% 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 the three months ended March 31, 2014, the Company purchased loans with an unpaid principal balance of $61.7 million and a carrying amount of $60.5 million. The purchased loans are student loans which are guaranteed by the U.S. Department of Education.

Acquired Loans — During the three months ended March 31, 2014, the Company acquired $1.19 billion of loans through its acquisition of MetroCorp, as discussed in further detail at Note 3 of the Company’s condensed consolidated financial statements. As of the acquisition date, 94% of these loans are being accounted for under ASC 310-10 and the remaining 6% are being accounted for under ASC 310-30 due to credit impairment.

Loans Held for Sale — Loans held for sale totaled $577.4 million and $205.0 million as of March 31, 2014 and December 31, 2013, 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 March 31, 2014, all of the loans held for sale were student loans, which are guaranteed by the U.S. Department of Education. During the first three months of 2014, net loans receivable of $433.8 million were reclassified to loans held for sale. 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. Proceeds from sales of loans held for sale were $135.8 million in the first three months of 2014, resulting in net gains on sale of $3.5 million. Proceeds from sales of loans held for sale were $6.3 million in the first three months of 2013 with $1 thousand net gains on sale.

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, Watch, Special Mention, Substandard, Doubtful and Loss. The risk ratings reflect the relative strength of the sources of repayment.

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. 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 March 31, 2014 and December 31, 2013. Substandard grade loans were $524.8 million as of March 31, 2014. Doubtful or Loss grade loans were $1.1 million as of March 31, 2014. There were no Doubtful or Loss grade loans as of December 31, 2013.

			Special
	Pass/Watch		Mention		Substandard		Doubtful		Total
	(In thousands)
March 31, 2014
Residential:
Single-family	$	3,214,552	$	7,591	$	16,155	$	—	$	3,238,298
Multifamily	1,048,621		1,295		61,272		—		1,111,188
CRE:
Income producing	4,813,286		81,582		223,509		—		5,118,377
Construction	184,580		6,160		6,888		—		197,628
Land	170,601		6,298		27,016		—		203,915
C&I:
Commercial business	5,264,264		100,897		167,112		1,106		5,533,379
Trade finance	617,185		31,775		18,744		—		667,704
Consumer:
Student loans	183,062		148		1,690		—		184,900
Other consumer	1,050,210		347		2,465		—		1,053,022
Total	$	16,546,361	$	236,093	$	524,851	$	1,106	$	17,308,411

			Special
	Pass/Watch		Mention		Substandard		Doubtful		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

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 March 31, 2014 and December 31, 2013:

	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)
March 31, 2014
Residential:
Single-family	$	7,530	$	3,373	$	10,903	$	3,999	$	10,069	$	14,068	$	3,213,327	$	3,238,298
Multifamily	3,519		2,947		6,466		11,105		11,585		22,690		1,082,032		1,111,188
CRE:
Income producing	25,702		8,280		33,982		23,402		24,354		47,756		5,036,639		5,118,377
Construction	—		—		—		—		6,888		6,888		190,740		197,628
Land	—		2,871		2,871		1,708		9,330		11,038		190,006		203,915
C&I:
Commercial business	3,654		2,906		6,560		4,682		21,777		26,459		5,500,360		5,533,379
Trade finance	—		—		—		500		116		616		667,088		667,704
Consumer:
Student loans	1,215		148		1,363		—		1,690		1,690		181,847		184,900
Other consumer	491		347		838		—		1,321		1,321		1,050,863		1,053,022
Loans held for sale	—		—		—		—		—		—		577,353		577,353
Total	$	42,111	$	20,872	$	62,983	$	45,396	$	87,130	$	132,526	$	17,690,255	17,885,764
Unearned fees, premiums and discounts, net															(9,349		)
Total recorded investment in non-covered loans and loans held for sale															$	17,876,415

	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

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 troubled debt restructurings, are also placed on nonaccrual status. Nonaccrual loans totaled $132.5 million and $111.7 million at March 31, 2014 and December 31, 2013, respectively. Nonaccrual loans not 90 or more days past due totaled $45.4 million and $40.5 million as of March 31, 2014 and December 31, 2013, respectively, and were included in non-covered nonaccrual loans.

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

	For the Three Months Ended
	March 31,
	2014			2013
	(In thousands)
Interest income that would have been recognized had nonaccrual loans performed in accordance with their original terms	$	2,026		$	1,656
Less: Interest income recognized on nonaccrual loans on a cash basis	(769		)	(606		)
Interest income foregone on nonaccrual loans	$	1,257		$	1,050

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 $71.3 million and $71.8 million in total performing restructured loans as of March 31, 2014 and December 31, 2013, respectively. Nonperforming restructured loans were $13.7 million and $11.1 million as of March 31, 2014 and December 31, 2013, respectively. Included as TDRs were $3.4 million and $4.3 million of performing A/B notes as of March 31, 2014 and December 31, 2013, respectively. All TDRs are included in the balance of impaired loans.

The following table provides information on loans modified as of March 31, 2014 that were modified as TDRs during the three months ended March 31, 2014 and 2013:

	Loans Modified as TDRs During the Three Months Ended March 31,
	2014
		Pre-Modification		Post-Modification
	Number	Outstanding		Outstanding
	of	Recorded		Recorded		Financial
	Contracts	Investment		Investment (1)		Impact (2)
	(Dollars in thousands)
Residential:
Single-family	3	$	5,823	$	5,804	$	—
Multifamily	—	$	—	$	—	$	—
CRE:
Income producing	—	$	—	$	—	$	—
Construction	—	$	—	$	—	$	—
Land	—	$	—	$	—	$	—
C&I:
Commercial business	5	$	1,721	$	1,691	$	1,248
Trade finance	—	$	—	$	—	$	—
Consumer:
Student loans	—	$	—	$	—	$	—
Other consumer	—	$	—	$	—	$	—

	Loans Modified as TDRs During the Three Months Ended March 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	—	$	—	$	—	$	—
CRE:
Income producing	—	$	—	$	—	$	—
Construction	—	$	—	$	—	$	—
Land	—	$	—	$	—	$	—
C&I:
Commercial business	1	$	42	$	41	$	—
Trade finance	—	$	—	$	—	$	—
Consumer:
Student loans	—	$	—	$	—	$	—
Other consumer	1	$	651	$	651	$	—

(1) Includes subsequent payments after modification and reflects the balance as of March 31, 2014 and March 31, 2013.

(2) The financial impact includes charge-offs and specific reserves recorded 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 March 31, 2014, residential TDRs, including single and multi-family loans, were restructured through extensions, rate reductions, principal deferments, and other modified terms 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 $5.8 million as of March 31, 2014. As of March 31, 2014, commercial and industrial TDRs, including commercial business and trade finance loans, were restructured through extensions, principal deferment, and other modified terms with an impact on extended time period for collection of principal and interest, for a total of $1.7 million as of March 31, 2014.

As of March 31, 2013, commercial and industrial TDRs, including commercial business and trade finance loans, were restructured through principal and interest reductions 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 $41 thousand as of March 31, 2013. Consumer TDRs, including student loans and other consumer loans, were restructured through maturity extensions, for a total of $651 thousand as of March 31, 2013.

Performing TDRs at March 31, 2014 were comprised of $18.5 million in residential loans, $36.0 million in commercial real estate loans, $16.7 million in commercial and industrial loans and $108 thousand in consumer loans. Performing TDRs at December 31, 2013 were comprised of $37.6 million in commercial real estate loans, $17.4 million in residential loans, $16.7 million in commercial and industrial loans and $108 thousand in consumer loans. Nonperforming TDRs at March 31, 2014 were comprised of $5.7 million in residential loans, $3.3 million in commercial real estate loans, $4.1 million in commercial and industrial loans and $634 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.

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 March 31, 2014 and March 31, 2013 and for the three months ended March 31, 2014 and March 31, 2013.

	Loans Modified as TDRs that Subsequently Defaulted
	During the Three Months Ended March 31,
	2014			2013
	Number of	Recorded		Number of	Recorded
	Contracts	Investment		Contracts	Investment
	(Dollars in thousands)
Residential:
Single-family	—	$	—	2	$	2,830
Multifamily	—	$	—	—	$	—
CRE:
Income producing	1	$	2,730	—	$	—
Construction	—	$	—	—	$	—
Land	—	$	—	—	$	—
C&I:
Commercial business	1	$	570	4	$	817
Trade finance	—	$	—	—	$	—
Consumer:
Student loans	—	$	—	—	$	—
Other consumer	—	$	—	—	$	—

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 March 31, 2014, the allowance for loan losses associated with TDRs was $14.0 million for performing TDRs and $1.2 million for nonperforming TDRs. As of December 31, 2013, the allowance for loan losses associated with TDRs was $13.0 million for performing TDRs and $836 thousand for nonperforming TDRs.

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. 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. Impaired loans exclude the homogenous consumer loan portfolio which is evaluated collectively for impairment. Impaired loans include non-covered loans held for investment on nonaccrual status, regardless of the collateral coverage, and all loans modified in a TDR.

At March 31, 2014 and December 31, 2013, impaired non-covered loans totaled $184.3 million and $183.5 million, respectively. Impaired non-covered loans as of March 31, 2014 and December 31, 2013 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 three months ended March 31, 2014
Residential:
Single-family	$	19,649	$	17,485	$	1,581	$	19,066	$	200	$	17,100	$	21
Multifamily	38,908		18,568		17,521		36,089		1,653		36,370		164
CRE:
Income producing	75,138		39,216		27,314		66,530		6,317		67,153		382
Construction	6,888		6,888		—		6,888		—		6,888		—
Land	17,306		4,291		7,884		12,175		2,058		12,227		21
C&I:
Commercial business	53,884		11,282		30,622		41,904		16,197		43,726		174
Trade finance	877		584		293		877		293		637		3
Consumer:
Other consumer	746		742		—		742		—		744		2
Total	$	213,396	$	99,056	$	85,215	$	184,271	$	26,718	$	184,845	$	767

			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

(1) Excludes interest from performing TDRs.

(2) Excludes $12.8 million and $17.7 million of covered non-accrual loans at March 31, 2014 and December 31, 2013, 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 March 31, 2014, 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, 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 loans.

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 as expected from the day one valuation or better than expected. However, the Company has experienced some concentrated credit deterioration in certain pools. As of March 31, 2014 and December 31, 2013, there was an allowance of $2.2 million for these loans under ASC 310-30 due to credit deterioration. 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, UCB’s and WFIB’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 March 31, 2014 and December 31, 2013, $4.3 million, or 1.7% and $5.5 million, or 2.2%, respectively, of the total allowance is allocated to the allowance for loan losses on covered loans accounted outside the scope of ASC 310-30. 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 $4.3 million in allowance for loans outside the scope of ASC 310-30 amount to $6.5 million or 2.6% of total allowance as of March 31, 2014.

During the three months ended March 31, 2014, the Company recorded $206 thousand of charge-offs on a few covered loans outside of the scope of ASC 310-30 in the commercial and industrial loan segment. As these loans are covered under loss-sharing agreements with the FDIC, the Company recorded income of $165 thousand or 80% of the charge-off amount of $206 thousand in noninterest income as a net increase in the FDIC receivable, resulting in a net impact to earnings for the first three months of 2014 of $41 thousand. In comparison, the Company recorded $132 thousand of charge-offs within our commercial and industrial loan segment on a covered loan outside the scope of ASC 310-30 during the three months ended March 31, 2013. The Company recorded income of $106 thousand or 80% of the charge-off amount of $132 thousand in noninterest income as a net increase in the FDIC receivable, resulting in a net impact to earnings for the first quarter of 2013 of $26 thousand.

The Company recorded $6.9 million in total loan loss provisions for the three months ended March 31, 2014, as compared to $4.3 million for the three months ended March 31, 2013. When determined uncollectible, it is the Company’s policy to promptly charge-off the difference in 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. For the three months ended March 31, 2014, the Company recorded $4.3 million in total net charge-offs in comparison to $672 thousand for the three months ended March 31, 2013. The following tables detail activity in the allowance for loan losses, for both non-covered and covered loans, by portfolio segment for the three months ended March 31, 2014, and the year ended December 31, 2013. 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)
Three months ended March 31, 2014
Beginning balance	$	50,717		$	64,677		$	115,184		$	11,352		$	5,476		$	2,269		$	—		$	249,675
Provision for loan losses	(2,744		)	(2,447		)	13,431			(501		)	(954		)	(67		)	215			6,933
Provision allocation for unfunded loan commitments and letters of credit	—			—			—			—			—			—			(215		)	(215		)
Charge-offs	(282		)	(320		)	(5,325		)	(3		)	(206		)	—			—			(6,136		)
Recoveries	136			829			911			3			—			—			—			1,879
Net (charge-offs)/recoveries	(146		)	509			(4,414		)	—			(206		)	—			—			(4,257		)
Ending balance	$	47,827		$	62,739		$	124,201		$	10,851		$	4,316		$	2,202		$	—		$	252,136
Ending balance allocated to:
Loans individually evaluated for impairment	$	1,853		$	8,375		$	16,490		$	—		$	—		$	—		$	—		$	26,718
Loans collectively evaluated for impairment	45,974			54,364			107,711			10,851			4,316			—			—			223,216
Covered loans acquired with deteriorated credit quality(2)	—			—			—			—			—			2,202			—			2,202
Ending balance	$	47,827		$	62,739		$	124,201		$	10,851		$	4,316		$	2,202		$	—		$	252,136

													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
Provision allocation 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

(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 March 31, 2014 and December 31, 2013 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)
March 31, 2014
Loans individually evaluated for impairment	$	55,155	$	85,593	$	42,781	$	742	$	—	$	—	$	184,271
Covered loans individually evaluated for impairment (2)	—		—		—		—		112		—		112
Loans collectively evaluated for impairment	4,292,913		5,366,973		6,152,534		1,237,180		281,822		—		17,331,422
Covered loans acquired with deteriorated credit quality (1)	639,460		1,043,912		128,730		41,659		—		124,264		1,978,025
MetroCorp loans acquired with deteriorated credit quality	1,417		67,353		5,770		—		—		—		74,540
Ending balance	$	4,988,945	$	6,563,831	$	6,329,815	$	1,279,581	$	281,934	$	124,264	$	19,568,370

									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

(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.

(2)	Excludes $12.8 million and $17.7 million of covered non-accrual loans at March 31, 2014 and December 31, 2013, respectively, accounted for under ASC 310-10, of which some loans have additional partial balances accounted for under ASC 310-30.

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 March 31, 2014 and December 31, 2013, the allowance for unfunded loan commitments, off-balance sheet credit exposures, and recourse provisions amounted to $11.5 million and $11.3 million, respectively. The increase to this allowance during the first quarter 2014 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 $1.27 billion and $1.35 billion at March 31, 2014 and December 31, 2013, respectively. These represent loans that have either been sold or securitized for which the Bank continues to provide servicing or has limited recourse. The majority of these loans are residential and CRE at March 31, 2014 and December 31, 2013. Of the total allowance for unfunded loan commitments, off-balance sheet credit exposures, and recourse provisions, $2.9 million and $3.2 million pertain to these loans as of March 31, 2014 and December 31, 2013, respectively. These loans are maintained off-balance sheet and are not included in the loans receivable balance.