LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

The following table presents loans receivable as of September 30, 2015 and December 31, 2014:



	September 30, 2015			December 31, 2014
(amounts in thousands)
Commercial:
Multi-family	$	2,405,400		$	2,206,403
Commercial and industrial (including owner occupied commercial real estate)	967,958			777,220
Commercial real estate non-owner occupied	912,971			827,940
Construction	89,616			44,642
Total commercial loans	4,375,945			3,856,205
Consumer:
Residential real estate	260,967			285,003
Manufactured housing	116,742			126,731
Other	1,076			1,541
Total consumer loans	378,785			413,275
Total loans receivable not covered under FDIC loss sharing agreements	4,754,730			4,269,480

Commercial:
Multi-family	—			2,002
Commercial and industrial (including owner occupied commercial real estate)	—			8,449
Commercial real estate non-owner occupied	—			11,370
Construction	—			5,076
Total commercial loans	—			26,897
Consumer:
Residential real estate	11,181			12,392
Other	2,668			2,892
Total consumer loans	13,849			15,284
Total loans receivable covered under FDIC loss sharing agreements (1)	13,849			42,181
Total loans receivable	4,768,579			4,311,661
Deferred costs and unamortized premiums, net	523			512
Allowance for loan losses	(33,823		)	(30,932		)
Loans receivable, net of allowance for loan losses	$	4,735,279		$	4,281,241

(1)

Loans that were acquired in two FDIC-assisted transactions and are covered under loss sharing agreements with the FDIC are referred to as “covered” loans throughout these financial statements. The period to submit losses under the FDIC loss sharing agreements for non-single family loans expired in third quarter 2015. The period to submit losses under the FDIC loss sharing agreements for single family loans expires in third quarter 2017.

Non-Covered Loans

The following tables summarize non-covered loans by loan type and performance status as of September 30, 2015 and December 31, 2014:



	September 30, 2015
	30-89 Days Past Due (1)		90 Days Or More Past Due(1)		Total Past Due (1)		Non- Accrual		Current (2)		Purchased- Credit- Impaired Loans (3)		Total Loans (4)
(amounts in thousands)
Multi-family	$	—	$	—	$	—	$	—	$	2,401,727	$	3,673	$	2,405,400
Commercial and industrial	—		—		—		6,381		675,939		1,620		683,940
Commercial real estate - owner occupied	191		—		191		1,851		268,206		13,770		284,018
Commercial real estate - non-owner occupied	1,047		—		1,047		4,478		894,449		12,997		912,971
Construction	—		—		—		—		89,382		234		89,616
Residential real estate	512		—		512		1,232		251,090		8,133		260,967
Manufactured housing (5)	3,196		3,036		6,232		2,653		104,399		3,458		116,742
Other consumer	—		—		—		—		861		215		1,076
Total	$	4,946	$	3,036	$	7,982	$	16,595	$	4,686,053	$	44,100	$	4,754,730
	December 31, 2014
	30-89 Days Past Due (1)		90 Days Or More Past Due(1)		Total Past Due (1)		Non- Accrual		Current (2)		Purchased- Credit- Impaired Loans (3)		Total Loans (4)
(amounts in thousands)
Multi-family	$	—	$	—	$	—	$	—	$	2,203,686	$	2,717	$	2,206,403
Commercial and industrial	366		—		366		2,257		542,667		2,102		547,392
Commercial real estate - owner occupied	—		—		—		2,342		211,453		16,033		229,828
Commercial real estate - non-owner occupied	—		—		—		1,108		816,114		10,718		827,940
Construction	—		—		—		—		44,483		159		44,642
Residential real estate	1,226		—		1,226		849		273,565		9,363		285,003
Manufactured housing (5)	6,324		4,388		10,712		931		111,072		4,016		126,731
Other consumer	—		—		—		—		1,333		208		1,541
Total	$	7,916	$	4,388	$	12,304	$	7,487	$	4,204,373	$	45,316	$	4,269,480


(1)	Includes past due loans that are accruing interest because collection is considered probable.


(2)	Loans where next payment due is less than 30 days from the report date.

(3)

Purchased-credit-impaired loans aggregated into a pool are accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows, and the past due status of the pools, or that of the individual loans within the pools, is not meaningful. Because of the credit impaired nature of the loans, the loans are recorded at a discount reflecting estimated future cash flows and the Bank recognizes interest income on each pool of loans reflecting the estimated yield and passage of time. Such loans are considered to be performing. Purchased-credit-impaired loans that are not in pools accrete interest when the timing and amount of their expected cash flows are reasonably estimable, and are reported as performing loans.


(4)	Amounts exclude deferred costs and fees, unamortized premiums and discounts, and the allowance for loan losses.


(5)	Manufactured housing loans purchased in 2010 are subject to cash reserves held at the Bank that are used to fund past-due payments when the loan becomes 90 days or more delinquent. Subsequent purchases are subject to varying provisions in the event of borrowers’ delinquencies.

Covered Loans

The following tables summarize covered loans by loan type and performance status as of September 30, 2015 and December 31, 2014:



	September 30, 2015
	30-89 Days Past Due (1)		90 Days Or More Past Due (1)		Total Past Due (1)		Non- Accrual		Current (2)		Purchased - Credit Impaired Loans (3)		Total Loans (4)
(amounts in thousands)
Residential real estate	$	—	$	—	$	—	$	1,046	$	9,533	$	602	$	11,181
Other consumer	80		—		80		141		2,423		24		2,668
Total	$	80	$	—	$	80	$	1,187	$	11,956	$	626	$	13,849
	December 31, 2014
	30-89 Days Past Due (1)		90 Days Or More Past Due (1)		Total Past Due (1)		Non- Accrual		Current (2)		Purchased- Credit Impaired Loans (3)		Total Loans (4)
(amounts in thousands)
Commercial and industrial	$	518	$	—	$	518	$	256	$	578	$	1,191	$	2,543
Commercial real estate owner occupied	—		—		—		172		5,734		—		5,906
Commercial real estate non-owner occupied	—		—		—		352		5,932		5,086		11,370
Construction	—		—		—		2,325		—		2,751		5,076
Multi-family	—		—		—		—		373		1,629		2,002
Residential real estate	—		—		—		1,006		10,782		604		12,392
Other consumer	147		—		147		135		2,570		40		2,892
Total	$	665	$	—	$	665	$	4,246	$	25,969	$	11,301	$	42,181


(1)	Includes past due loans that are accruing interest because collection is considered probable.


(2)	Loans where next payment due is less than 30 days from the report date.

(3)


(4)	Amounts exclude deferred costs and fees, unamortized premiums and discounts, and the allowance for loan losses.

Allowance for Loan Losses and the FDIC Loss Sharing Receivable and Clawback Liability

Losses incurred on covered loans are eligible for partial reimbursement by the FDIC. Subsequent to the purchase date, the expected cash flows on the covered loans are subject to evaluation. Decreases in the present value of expected cash flows on the covered loans are recognized by increasing the allowance for loan losses with a related charge to the provision for loan losses. At the same time, the FDIC indemnification asset is increased reflecting an estimated future collection from the FDIC, which is recorded as a reduction to the provision for loan losses. If the expected cash flows on the covered loans increase such that a previously recorded impairment can be reversed, the Bank records a reduction in the allowance for loan losses (with a related credit to the provision for loan losses) accompanied by a reduction in the FDIC receivable balance (with a related charge to the provision for loan losses). Increases in expected cash flows on covered loans and decreases in expected cash flows of the FDIC loss sharing receivable, when there are no previously recorded impairments, are considered together and recognized over the remaining life of the loans as interest income. Decreases in the valuations of other real estate owned covered by the loss sharing agreements are recorded net of the estimated FDIC receivable as an increase to other real estate owned expense (a component of non-interest expense). The FDIC loss sharing receivable balance will be reduced through a charge to the provision for loan losses, with no offsetting reduction to the allowance for loan losses, as the period to submit losses under the FDIC loss sharing arrangements approaches expiration and the estimated losses in the covered loans have not yet emerged or been realized in a final disposition event. The period to submit losses under the FDIC loss sharing arrangements for non-single family loans expired in third quarter 2015. The period to submit losses under the FDIC loss sharing arrangements for single family loans expires in third quarter 2017. The final maturity of the FDIC loss sharing arrangements occurs in third quarter 2020.

As part of the FDIC loss sharing arrangements, the Bank also assumed a liability to be paid within 45 days subsequent to the maturity or termination of the loss sharing arrangements that is contingent upon actual losses incurred over the life of the arrangements relative to expected losses and the consideration paid upon acquisition of the failed institutions ("the Clawback Liability”). Due to cash received on the covered assets in excess of the original cash to be received expectations of the FDIC, the Bank anticipates that it will be required to pay the FDIC at the end of its loss sharing arrangements. As of September 30, 2015, a clawback liability of $2.3 million has been recorded. To the extent actual losses on the covered assets are less than estimated losses, the clawback liability will increase. To the extent actual losses on the covered assets are more than the estimated losses, the clawback liability will decrease.

As of September 30, 2015, the Bank expected to collect $2.5 million from the FDIC for estimated losses and reimbursement of external costs, such as legal fees, real estate taxes and appraisal expenses, and estimated the clawback liability due to the FDIC in 2020 at $2.3 million. The net amount of $0.2 million is presented as the "FDIC loss sharing receivable" in the accompanying consolidated balance sheet.

The following table presents changes in the allowance for loan losses and the FDIC loss sharing receivable, including the effect of the estimated clawback liability for the three months and nine months ended September 30, 2015 and 2014.



	Allowance for Loan Losses
	Three Months Ended September 30,
(amounts in thousands)	2015			2014
Beginning balance	$	37,491		$	28,186
Provision for loan losses (1)	1,989			3,222
Charge-offs	(5,932		)	(792		)
Recoveries	275			467
Ending balance	$	33,823		$	31,083



	FDIC Loss Sharing Receivable/ Clawback Liability
	Three Months Ended September 30,
(amounts in thousands)	2015			2014
Beginning balance	$	(1,455	)	$	8,919
Decreased estimated cash flows from covered loans (2)	(105		)	(1,813		)
Increased estimated cash flows from covered OREO (a)	3,138			—
Other activity, net (b)	61			741
Cash receipts from FDIC	(1,437		)	(1,852		)
Ending balance	$	202		$	5,995

(1) Provision for loan losses	$	1,989		$	3,222
(2) Effect attributable to FDIC loss share arrangements	105			1,813
Net amount reported as provision for loan losses	$	2,094		$	5,035

(a) Recorded as a reduction to Other Real Estate Owned expense (a component of non-interest expense).

(b) Includes external costs, such as legal fees, real estate taxes, and appraisal expenses, which qualify for reimbursement under loss sharing arrangements.



	Allowance for Loan Losses
	Nine Months Ended September 30,
(amounts in thousands)	2015			2014
Beginning balance	$	30,932		$	23,998
Provision for loan losses (1)	10,548			8,853
Charge-offs	(8,880		)	(2,733		)
Recoveries	1,223			965
Ending balance	$	33,823		$	31,083



	FDIC Loss Sharing Receivable/ Clawback Liability
	Nine Months Ended September 30,
(amounts in thousands)	2015			2014
Beginning balance	$	2,320		$	10,046
Decreased estimated cash flows from covered loans (2)	(3,845		)	(3,435		)
Increased estimated cash flows from covered OREO (a)	3,138			—
Other activity, net (b)	529			2,713
Cash receipts from FDIC	(1,940		)	(3,329		)
Ending balance	$	202		$	5,995

(1) Provision for loan losses	$	10,548		$	8,853
(2) Effect attributable to FDIC loss share arrangements	3,845			3,435
Net amount reported as provision for loan losses	$	14,393		$	12,288

(a) Recorded as a reduction to Other Real Estate Owned expense (a component of non-interest expense).

(b) Includes external costs, such as legal fees, real estate taxes, and appraisal expenses, which qualify for reimbursement under loss sharing arrangements.

Loans Individually Evaluated for Impairment — Covered and Non-Covered

The following tables present the recorded investment (net of charge-offs), unpaid principal balance, and related allowance by loan type for loans that are individually evaluated for impairment as of September 30, 2015 and December 31, 2014 and the average recorded investment and interest income recognized for the three and nine months ended September 30, 2015 and 2014. Purchased-credit-impaired loans are considered to be performing and are not included in the tables below.



	September 30, 2015						Three Months Ended September 30, 2015				Nine Months Ended September 30, 2015
	Recorded Investment Net of Charge offs		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
(amounts in thousands)
With no related allowance recorded:
Multi-family	$	405	$	405	$	—	$	203	$	5	$	101	$	5
Commercial and industrial	7,872		7,872		—		7,597		102		9,179		500
Commercial real estate owner occupied	7,474		7,474		—		6,416		44		7,597		229
Commercial real estate non-owner occupied	8,536		8,536		—		7,803		137		6,937		514
Construction	—		—		—		335		—		1,330		—
Other consumer	48		48		—		49		1		35		1
Residential real estate	1,644		1,644		—		1,624		—		1,535		—
With an allowance recorded:
Commercial and industrial	10,385		16,550		4,581		12,640		26		8,420		332
Commercial real estate owner occupied	12		12		2		13		66		200		66
Commercial real estate non-owner occupied	568		568		129		664		4		821		9
Construction	—		—		—		—		—		—		—
Other consumer	93		93		38		93		—		88		—
Residential real estate	403		403		92		474		1		419		1
Total	$	37,440	$	43,605	$	4,842	$	37,911	$	386	$	36,662	$	1,657



	December 31, 2014						Three Months Ended September 30, 2014				Nine Months Ended September 30, 2014
	Recorded Investment Net of Charge offs		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
(amounts in thousands)
With no related allowance recorded:
Commercial and industrial	$	14,600	$	16,122	$	—	$	15,377	$	216	$	13,690	$	520
Commercial real estate owner occupied	12,599		12,744		—		11,818		163		10,774		360
Commercial real estate non-owner occupied	5,602		5,602		—		8,999		125		8,204		274
Construction	2,325		2,325		—		2,325		—		2,438		—
Other consumer	21		21		—		52		—		27		—
Residential real estate	1,455		3,697		—		1,924		—		2,157		19
With an allowance recorded:
Commercial and industrial	1,923		1,923		857		1,888		11		1,770		26
Commercial real estate owner occupied	750		750		95		1,202		2		1,268		3
Commercial real estate non-owner occupied	571		571		170		916		1		966		2
Construction	—		—		—		1,548		—		1,449		—
Other consumer	114		114		32		84		—		74		1
Residential real estate	365		365		188		296		—		273		1
Total	$	40,325	$	44,234	$	1,342	$	46,429	$	518	$	43,090	$	1,206

Troubled Debt Restructurings

At September 30, 2015 and December 31, 2014, there were $10.5 million and $5.0 million, respectively, in loans reported as troubled debt restructurings (“TDRs”). TDRs are reported as impaired loans in the calendar year of their restructuring and are evaluated to determine whether they should be placed on non-accrual status. In subsequent years, a TDR may be returned to accrual status if it satisfies a minimum six-month performance requirement; however, it will remain classified as impaired. Generally, the Bank requires sustained performance for nine months before returning a TDR to accrual status.

Modification of purchased-credit-impaired loans that are accounted for within loan pools in accordance with the accounting standards for purchased-credit-impaired loans do not result in the removal of these loans from the pool even if modifications would otherwise be considered a TDR. Accordingly, as each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows, modifications of loans within such pools are not considered TDRs.

The following is an analysis of loans modified in a troubled debt restructuring by type of concession for the three and nine months ended September 30, 2015 and 2014. There were no modifications that involved forgiveness of debt.



	TDRs in Compliance with Their Modified Terms and Accruing Interest		TDRs in Compliance with Their Modified Terms and Not Accruing Interest		Total
(amounts in thousands)
Three Months Ended September 30, 2015
Extended under forbearance	$	—	$	183	$	183
Interest-rate reductions	437		268		705
Total	$	437	$	451	$	888
Nine Months Ended September 30, 2015
Extended under forbearance	$	—	$	183	$	183
Interest-rate reductions	3,189		2,558		5,747
Total	$	3,189	$	2,741	$	5,930
Three Months Ended September 30, 2014
Extended under forbearance	$	81	$	—	$	81
Interest-rate reductions	—		168		168
Total	$	81	$	168	$	249
Nine Months Ended September 30, 2014
Extended under forbearance	$	448	$	—	$	448
Interest-rate reductions	47		471		518
Total	$	495	$	471	$	966

The following table provides, by loan type, the number of loans modified in troubled debt restructurings and the related recorded investment during the three and nine months ended September 30, 2015 and 2014.



	TDRs in Compliance with Their Modified Terms and Accruing Interest			TDRs in Compliance with Their Modified Terms and Not Accruing Interest
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
(amounts in thousands)
Three Months Ended September 30, 2015
Commercial and industrial	—	$	—	1	$	183
Manufactured housing	14	431		6	268
Residential real estate	1	6		—	—
Total	15	$	437	7	$	451
Nine Months Ended September 30, 2015
Commercial and industrial	—	$	—	2	$	527
Commercial real estate non-owner occupied	—	—		1	209
Manufactured housing	90	2,988		37	2,005
Residential real estate	2	201		—	—
Total	92	$	3,189	40	$	2,741
Three Months Ended September 30, 2014
Manufactured housing	—	$	—	2	$	168
Other consumer	2	81		—	—
Total	2	$	81	2	$	168
Nine Months Ended September 30, 2014
Manufactured housing	1	$	47	7	$	471
Other consumer	9	448		—	—
Total	10	$	495	7	$	471

At September 30, 2015 and December 31, 2014, there were no commitments to lend additional funds to debtors whose terms have been modified in TDRs.

For the three and nine months ended September 30, 2015, the recorded investment of loans determined to be TDRs was $0.9 million and $5.9 million, respectively, both before and after restructuring. During the three month period ended September 30, 2015, six manufactured housing TDR loans defaulted with a recorded investment of $0.3 million, and one commercial and industrial TDR loan defaulted with a recorded investment of $0.2 million. During the nine month period ended September 30, 2015, thirty-seven manufactured housing TDR loans defaulted with a recorded investment of $2.0 million, two commercial and industrial TDR loans defaulted with a recorded investment of $0.5 million, one commercial real estate non-owner-occupied TDR loan defaulted with a recorded investment of $0.2 million.

Loans modified in troubled debt restructurings are evaluated for impairment. The nature and extent of impairment of TDRs, including those which have experienced a subsequent default, is considered in the determination of an appropriate level of allowance for loan losses. There was one specific allowance resulting from TDR modifications during the three months ended September 30, 2015, totaling $0.1 million for one commercial and industrial loan. There were three specific allowances resulting from TDR modifications during the nine months ended September 30, 2015, totaling $0.2 million for two commercial and industrial loans, and $0.1 million for one commercial real estate non-owner-occupied loan. There were no specific allowances resulting from TDR modifications during the three and nine months ended September 30, 2014.

Credit Quality Indicators

Multi-family, commercial and industrial, owner occupied commercial real estate, non-owner occupied commercial real estate, residential real estate, construction, and mortgage warehouse loans are rated based on an internally assigned risk rating system which is assigned at the time of loan origination and reviewed on a periodic, or on an “as needed,” basis. Mortgage warehouse loans are assigned a risk rating at the facility level and are primarily based on the underlying collateral pledged to support the loan. Consumer and manufactured housing loans are evaluated based on the payment activity of the loan and individual loans are not assigned an internal risk rating unless delinquent.

To facilitate the monitoring of credit quality within the multi-family, commercial and industrial, owner occupied commercial real estate, non-owner occupied commercial real estate, and residential real estate classes, and for purposes of analyzing historical loss rates used in the determination of the allowance for loan losses for the respective portfolio class, the Bank utilizes the following categories of risk ratings: pass/satisfactory (includes risk rating 1 through 6), special mention, substandard, doubtful, and loss. The risk rating categories, which are derived from standard regulatory rating definitions, are assigned upon initial approval of credit to borrowers and updated periodically thereafter. Pass/satisfactory ratings, which are assigned to those borrowers who do not have identified potential or well-defined weaknesses and for whom there is a high likelihood of orderly repayment, are updated periodically based on the size and credit characteristics of the borrower. All other categories are updated on a quarterly basis during the month preceding the end of the calendar quarter. While assigning risk ratings involves judgment, the risk-rating process allows management to identify riskier credits in a timely manner and allocate the appropriate resources to manage those loans.

The risk rating grades are defined as follows:

“1” – Pass/Excellent

Loans rated 1 represent a credit extension of the highest quality. The borrower’s historic (at least five years) cash flows manifest extremely large and stable margins of coverage. Balance sheets are conservative, well capitalized, and liquid. After considering debt service for proposed and existing debt, projected cash flows continue to be strong and provide ample coverage. The borrower typically reflects broad geographic and product diversification and has access to alternative financial markets.

“2” – Pass/Superior

Loans rated 2 are those for which the borrower has a strong financial condition, balance sheet, operations, cash flow, debt capacity and coverage with ratios better than industry norms. The borrowers of these loans exhibit a limited leverage position, are virtually immune to local economies in stable growing industries, and management is well respected and the company has ready access to public markets.

“3” – Pass/Strong

Loans rated 3 are those loans for which the borrower has above average financial condition and flexibility; more than satisfactory debt service coverage, balance sheet and operating ratios are consistent with or better than industry peers, have little industry risk, move in diversified markets and are experienced and competent in their industry. These borrowers’ access to capital markets is limited mostly to private sources, often secured, but the borrower typically has access to a wide range of refinancing alternatives.

“4” – Pass/Good

Loans rated 4 have a sound primary and secondary source of repayment. The borrower may have access to alternative sources of financing, but sources are not as widely available as they are to a higher grade borrower. These loans carry a normal level of risk, with very low loss exposure. The borrower has the ability to perform according to the terms of the credit facility. The margins of cash flow coverage are satisfactory but vulnerable to more rapid deterioration than the higher quality loans.

“5” – Satisfactory

Loans rated 5 are extended to borrowers who are determined to be a reasonable credit risk and demonstrate the ability to repay the debt from normal business operations. Risk factors may include reliability of margins and cash flows, liquidity, dependence on a single product or industry, cyclical trends, depth of management, or limited access to alternative financing sources. The borrower’s historical financial information may indicate erratic performance, but current trends are positive and the quality of financial information is adequate, but is not as detailed and sophisticated as information found on higher grade loans. If adverse circumstances arise, the impact on the borrower may be significant.

“6” – Satisfactory/Bankable with Care

Loans rated 6 are those for which the borrower has higher than normal credit risk; however, cash flow and asset values are generally intact. These borrowers may exhibit declining financial characteristics, with increasing leverage and decreasing liquidity and may have limited resources and access to financial alternatives. Signs of weakness in these borrowers may include delinquent taxes, trade slowness and eroding profit margins.

“7” – Special Mention

Loans rated Special Mention are credit facilities that may have potential developing weaknesses and deserve extra attention from the account manager and other management personnel. In the event that potential weaknesses are not corrected or mitigated, deterioration in the ability of the borrower to repay the debt in the future may occur. This grade is not assigned to loans that bear certain peculiar risks normally associated with the type of financing involved, unless circumstances have caused the risk to increase to a level higher than would have been acceptable when the credit was originally approved. Loans where significant actual, not potential, weaknesses or problems are clearly evident are graded in the category below.

“8” – Substandard

Loans are classified Substandard when the loans are inadequately protected by the current sound worth and payment capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the company will sustain some loss if the weaknesses are not corrected.

“9” – Doubtful

The Bank assigns a doubtful rating to loans that have all the attributes of a substandard rating with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors that may work to the advantage of and strengthen the credit quality of the loan, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors may include a proposed merger or acquisition, liquidation proceeding, capital injection, perfecting liens on additional collateral or refinancing plans.

“10” – Loss

The Bank assigns a loss rating to loans considered uncollectible and of such little value that their continuance as an active asset is not warranted. Amounts classified as loss are immediately charged off.

Risk ratings are not established for home equity loans, consumer loans, and installment loans, mainly because these portfolios consist of a larger number of homogeneous loans with smaller balances. Instead, these portfolios are evaluated for risk mainly based upon aggregate payment history through the monitoring of delinquency levels and trends and are classified as performing and non-performing.

The following tables present the credit ratings of the non-covered loan portfolio as of September 30, 2015 and December 31, 2014:



	September 30, 2015
	Multi-family		Commercial and Industrial		Commercial Real Estate Owner Occupied		Commercial Real Estate Non-Owner Occupied		Construction		Residential Real Estate		Manufactured Housing		Other Consumer		Total
(amounts in thousands)
Pass/Satisfactory	$	2,403,599	$	665,484	$	270,857	$	903,357	$	89,616	$	259,299	$	—	$	—	$	4,592,212
Special Mention	405		11,822		9,007		4,626		—		—		—		—		25,860
Substandard	1,396		6,634		4,154		4,988		—		1,668		—		—		18,840
Performing (1)	—		—		—		—		—		—		107,857		1,076		108,933
Non-performing (2)	—		—		—		—		—		—		8,885		—		8,885
Total	$	2,405,400	$	683,940	$	284,018	$	912,971	$	89,616	$	260,967	$	116,742	$	1,076	$	4,754,730



	December 31, 2014
	Multi-family		Commercial and Industrial		Commercial Real Estate Owner Occupied		Commercial Real Estate Non-Owner Occupied		Construction		Residential Real Estate		Manufactured Housing		Other Consumer		Total
(amounts in thousands)
Pass/Satisfactory	$	2,206,403	$	530,468	$	212,326	$	824,279	$	44,642	$	283,240	$	—	$	—	$	4,101,358
Special Mention	—		14,565		12,352		2,322		—		243		—		—		29,482
Substandard	—		2,359		5,150		1,339		—		1,520		—		—		10,368
Performing (1)	—		—		—		—		—		—		115,088		1,541		116,629
Non-performing (2)	—		—		—		—		—		—		11,643		—		11,643
Total	$	2,206,403	$	547,392	$	229,828	$	827,940	$	44,642	$	285,003	$	126,731	$	1,541	$	4,269,480


(1)	Includes consumer and other installment loans not subject to risk ratings.


(2)	Includes loans that are past due and still accruing interest and loans on nonaccrual status.

The following tables present the credit ratings of the covered loan portfolio as of September 30, 2015 and December 31, 2014:



	September 30, 2015
	Commercial and Industrial		Commercial Real Estate Owner Occupied		Commercial Real Estate Non-Owner Occupied		Construction		Multi-family		Residential Real Estate		Other Consumer		Total
(amounts in thousands)
Pass/Satisfactory	$	—	$	—	$	—	$	—	$	—	$	9,733	$	—	$	9,733
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		1,448		—		1,448
Performing (1)	—		—		—		—		—		—		2,447		2,447
Non-performing (2)	—		—		—		—		—		—		221		221
Total	$	—	$	—	$	—	$	—	$	—	$	11,181	$	2,668	$	13,849



	December 31, 2014
	Commercial and Industrial		Commercial Real Estate Owner Occupied		Commercial Real Estate Non-Owner Occupied		Construction		Multi-family		Residential Real Estate		Other Consumer		Total
(amounts in thousands)
Pass/Satisfactory	$	1,322	$	5,030	$	4,959	$	—	$	373	$	10,985	$	—	$	22,669
Special Mention	—		704		4,372		—		—		—		—		5,076
Substandard	1,221		172		2,039		5,076		1,629		1,407		—		11,544
Performing (1)	—		—		—		—		—		—		2,610		2,610
Non-performing (2)	—		—		—		—		—		—		282		282
Total	$	2,543	$	5,906	$	11,370	$	5,076	$	2,002	$	12,392	$	2,892	$	42,181


(1)	Includes consumer and other installment loans not subject to risk ratings.


(2)	Includes loans that are past due and still accruing interest and loans on nonaccrual status.

As of September 30, 2015, the Bank had $2.2 million of residential real estate held in other real estate owned. As of September 30, 2015, the Bank had not initiated foreclosure proceedings on any loans secured by residential real estate.

Allowance for loan losses

During second quarter 2015, the Bank refined its methodology for estimating the general allowance for loan losses. Previously, the general allowance for the portion of the loan portfolio originated after December 31, 2009 ("Post 2009 loan portfolio") was based generally on qualitative factors due to insufficient historical loss data on the portfolio. During second quarter 2015, the Bank began using objectively verifiable industry and peer loss data to estimate probable incurred losses as of the balance sheet date for the Post 2009 loan portfolio until sufficient internal loss history is available. The same methodology was also adopted for the portion of the loan portfolio originated on or before December 31, 2009 ("Legacy loan portfolio") that had no loss history over the past two years.

The changes in the allowance for loan losses for the three and nine months ended September 30, 2015 and 2014 and the loans and allowance for loan losses by loan class based on impairment evaluation method are as follows. The amounts presented for the provision for loan losses below do not include the effect of changes to estimated benefits resulting from the FDIC loss share arrangements for the covered loans.



Three Months Ended September 30, 2015	Multi-family		Commercial and Industrial			Commercial Real Estate Owner Occupied			Commercial Real Estate Non-Owner Occupied			Construction			Residential Real Estate			Manufactured Housing		Other Consumer			Total
(amounts in thousands)
Beginning Balance, July 1, 2015	$	8,734	$	14,062		$	3,651		$	6,310		$	844		$	3,455		$	316	$	119		$	37,491
Charge-offs	—		(5,559		)	(35		)	(82		)	—			(256		)	—		—			(5,932		)
Recoveries	—		248			13			—			8			—			—		6			275
Provision for loan losses	472		1,678			(370		)	(109		)	258			(5		)	70		(5		)	1,989
Ending Balance, September 30, 2015	$	9,206	$	10,429		$	3,259		$	6,119		$	1,110		$	3,194		$	386	$	120		$	33,823
Nine Months Ended September 30, 2015
Beginning Balance, January 1, 2015	$	8,493	$	4,784		$	4,336		$	9,198		$	1,047		$	2,698		$	262	$	114		$	30,932
Charge-offs	—		(6,793		)	(378		)	(327		)	(1,064		)	(282		)	—		(36		)	(8,880		)
Recoveries	—		351			14			—			195			572			—		91			1,223
Provision for loan losses	713		12,087			(713		)	(2,752		)	932			206			124		(49		)	10,548
Ending Balance, September 30, 2015	$	9,206	$	10,429		$	3,259		$	6,119		$	1,110		$	3,194		$	386	$	120		$	33,823
Loans:
Individually evaluated for impairment	$	405	$	18,257		$	7,486		$	9,104		$	—		$	2,047		$	—	$	141		$	37,440
Collectively evaluated for impairment	2,401,322		664,063			262,762			890,870			89,382			261,366			113,284		3,364			4,686,413
Loans acquired with credit deterioration	3,673		1,620			13,770			12,997			234			8,735			3,458		239			44,726
	$	2,405,400	$	683,940		$	284,018		$	912,971		$	89,616		$	272,148		$	116,742	$	3,744		$	4,768,579
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	4,581		$	2		$	129		$	—		$	92		$	—	$	38		$	4,842
Collectively evaluated for impairment	9,206		5,625			1,167			3,700			1,106			2,010			97		28			22,939
Loans acquired with credit deterioration	—		223			2,090			2,290			4			1,092			289		54			6,042
Ending Balance, September 30, 2015	$	9,206	$	10,429		$	3,259		$	6,119		$	1,110		$	3,194		$	386	$	120		$	33,823



Three Months Ended September 30, 2014	Multi-family		Commercial and Industrial			Commercial Real Estate Owner Occupied			Commercial Real Estate Non-Owner Occupied			Construction			Residential Real Estate			Manufactured Housing			Other Consumer			Total
(amounts in thousands)
Beginning Balance, July 1, 2014	$	7,205	$	3,341		$	2,826		$	10,060		$	2,187		$	2,028		$	401		$	138		$	28,186
Charge-offs	—		(91		)	(64		)	(214		)	(284		)	(139		)	—						(792		)
Recoveries	—		67			85			284			4			23			—			4			467
Provision for loan losses	767		1,187			301			1,069			(208		)	217			(80		)	(31		)	3,222
Ending Balance, September 30, 2014	$	7,972	$	4,504		$	3,148		$	11,199		$	1,699		$	2,129		$	321		$	111		$	31,083
Nine Months Ended September 30, 2014
Beginning Balance, January 1, 2014	$	4,227	$	2,674		$	2,517		$	8,961		$	2,385		$	2,490		$	614		$	130		$	23,998
Charge-offs	—		(536		)	(318		)	(1,120		)	(284		)	(442		)	—			(33		)	(2,733		)
Recoveries	—		292			91			304			7			265			—			6			965
Provision for loan losses	3,745		2,074			858			3,054			(409		)	(184		)	(293		)	8			8,853
Ending Balance, September 30, 2014	$	7,972	$	4,504		$	3,148		$	11,199		$	1,699		$	2,129		$	321		$	111		$	31,083
As of December 31, 2014
Loans:
Individually evaluated for impairment	$	—	$	16,523		$	13,349		$	6,173		$	2,325		$	1,820		$	—		$	135		$	40,325
Collectively evaluated for impairment	2,204,059		530,119			206,352			817,333			44,483			285,608			122,715			4,050			4,214,719
Loans acquired with credit deterioration	4,346		3,293			16,033			15,804			2,910			9,967			4,016			248			56,617
	$	2,208,405	$	549,935		$	235,734		$	839,310		$	49,718		$	297,395		$	126,731		$	4,433		$	4,311,661
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	856		$	96		$	170		$	—		$	188		$	—		$	32		$	1,342
Collectively evaluated for impairment	8,493		3,766			1,756			6,580			424			1,436			92			28			22,575
Loans acquired with credit deterioration	—		162			2,484			2,448			623			1,074			170			54			7,015
Ending Balance, December 31, 2014	$	8,493	$	4,784		$	4,336		$	9,198		$	1,047		$	2,698		$	262		$	114		$	30,932

The non-covered manufactured housing portfolio was purchased in August 2010. A portion of the purchase price may be used to reimburse the Bank under the specified terms in the purchase agreement for defaults of the underlying borrower and other specified items. At September 30, 2015 and December 31, 2014, funds available for reimbursement, if necessary, were $1.2 million and $3.0 million, respectively. Each quarter, these funds are evaluated to determine if they would be sufficient to absorb the probable incurred losses within the manufactured housing portfolio.

The changes in accretable yield related to purchased-credit-impaired loans for the three and nine months ended September 30, 2015 and 2014 were as follows:



	Three Months Ended September 30,
	2015			2014
(amounts in thousands)
Accretable yield balance, beginning of period	$	14,302		$	19,691
Accretion to interest income	(551		)	(839		)
Reclassification from nonaccretable difference and disposals, net	10			(378		)
Accretable yield balance, end of period	$	13,761		$	18,474



	Nine Months Ended September 30,
	2015			2014
(amounts in thousands)
Accretable yield balance, beginning of period	$	17,606		$	22,557
Accretion to interest income	(1,790		)	(2,462		)
Reclassification from nonaccretable difference and disposals, net	(2,055		)	(1,621		)
Accretable yield balance, end of period	$	13,761		$	18,474