Note 6. Allowances for Loan Losses

The following tables provide additional information regarding the Company’s allowances for losses on non-covered and covered loans, based upon the method of evaluating loan impairment:


(in thousands)	Mortgage		Other		Total
Allowances for Loan Losses at September 30, 2016:
Loans individually evaluated for impairment	$	—	$	143	$	143
Loans collectively evaluated for impairment		124,724		28,090		152,814
Acquired loans with deteriorated credit quality		11,113		15,995		27,108

Total	$	135,837	$	44,228	$	180,065


(in thousands)	Mortgage		Other		Total
Allowances for Loan Losses at December 31, 2015:
Loans individually evaluated for impairment	$	—	$	—	$	—
Loans collectively evaluated for impairment		122,712		22,484		145,196
Acquired loans with deteriorated credit quality		14,583		18,740		33,323

Total	$	137,295	$	41,224	$	178,519

The following tables provide additional information regarding the methods used to evaluate the Company’s loan portfolio for impairment:


(in thousands)	Mortgage		Other		Total
Loans Receivable at September 30, 2016:
Loans individually evaluated for impairment	$	24,162	$	13,050	$	37,212
Loans collectively evaluated for impairment		35,510,354		1,782,036		37,292,390
Acquired loans with deteriorated credit quality		1,693,416		101,687		1,795,103

Total	$	37,227,932	$	1,896,773	$	39,124,705


(in thousands)	Mortgage		Other		Total
Loans Receivable at December 31, 2015:
Loans individually evaluated for impairment	$	47,480	$	4,474	$	51,954
Loans collectively evaluated for impairment		34,209,870		1,470,321		35,680,191
Acquired loans with deteriorated credit quality		1,924,255		144,178		2,068,433

Total	$	36,181,605	$	1,618,973	$	37,800,578

Allowance for Losses on Non-Covered Loans

The following table summarizes activity in the allowance for losses on non-covered loans for the nine months ended September 30, 2016 and 2015:


	September 30,
	2016									2015
(in thousands)	Mortgage			Other			Total			Mortgage			Other			Total
Balance, beginning of period	$	124,478		$	22,646		$	147,124		$	122,616		$	17,241		$	139,857
Charge-offs		(170	)		(1,155	)		(1,325	)		(935	)		(388	)		(1,323	)
Recoveries		1,251			956			2,207			4,197			4,152			8,349
Transfer from the allowance for losses on covered loans ⁽¹⁾		—			—			—			2,250			166			2,416
Provision for (recovery of) non-covered loan losses		675			6,024			6,699			(6,560	)		3,306			(3,254	)

Balance, end of period	$	126,234		$	28,471		$	154,705		$	121,568		$	24,477		$	146,045

(1)	Represents the allowance associated with $14.2 million of loans acquired in the Desert Hills transaction that were transferred from covered loans to non-covered loans upon expiration of the related FDIC loss sharing agreement.

Please see “Critical Accounting Policies” for additional information regarding the Company’s allowance for losses on non-covered loans.

The following table presents additional information about the Company’s impaired non-covered loans at September 30, 2016:


(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Multi-family	$	10,874	$	13,153	$	—	$	15,611	$	474
Commercial real estate		10,381		16,114		—		11,681		162
One-to-four family		2,908		3,574		—		3,025		76
Acquisition, development, and construction		—		—		—		659		—
Other		6,607		6,895		—		7,695		90

Total impaired loans with no related allowance	$	30,770	$	39,736	$	—	$	38,671	$	802

Impaired loans with an allowance recorded:
Multi-family	$	—	$	—	$	—	$	—	$	—
Commercial real estate		—		—		—		—		—
One-to-four family		—		—		—		—		—
Acquisition, development, and construction		—		—		—		—		—
Other		6,442		6,772		143		1,610		100

Total impaired loans with an allowance recorded	$	6,442	$	6,772	$	143	$	1,610	$	100

Total impaired loans:
Multi-family	$	10,874	$	13,153	$	—	$	15,611	$	474
Commercial real estate		10,381		16,114		—		11,681		162
One-to-four family		2,908		3,574		—		3,025		76
Acquisition, development, and construction		—		—		—		659		—
Other		13,049		13,667		143		9,305		190

Total impaired loans	$	37,212	$	46,508	$	143	$	40,281	$	902

The following table presents additional information about the Company’s impaired non-covered loans at December 31, 2015:


(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Multi-family	$	27,464	$	29,379	$	—	$	30,965	$	1,320
Commercial real estate		13,995		15,480		—		25,066		383
One-to-four family		3,384		8,929		—		2,302		75
Acquisition, development, and construction		2,637		3,035		—		1,086		148
Other		4,474		4,794		—		8,386		118

Total impaired loans	$	51,954	$	61,617	$	—	$	67,805	$	2,044

As indicated in the preceding tables, the Company had no impaired non-covered loans with an allowance recorded at December 31, 2015.

Allowance for Losses on Covered Loans

Covered loans are reported exclusive of the FDIC loss share receivable. The covered loans acquired in the AmTrust Bank and Desert Hills Bank acquisitions are, and will continue to be, reviewed for collectability based on the expectations of cash flows from these loans. Covered loans have been aggregated into pools of loans with common characteristics. In determining the allowance for losses on covered loans, the Company periodically performs an analysis to estimate the expected cash flows for each of the pools of loans. The Company records a provision for (recovery of) losses on covered loans to the extent that the expected cash flows from a loan pool have decreased or increased since the acquisition date.

Accordingly, if there is a decrease in expected cash flows due to an increase in estimated credit losses (as compared to the estimates made at the respective acquisition dates), the decrease in the present value of expected cash flows is recorded as a provision for covered loan losses charged to earnings, and the allowance for covered loan losses is increased. A related credit to non-interest income and an increase in the FDIC loss share receivable are recognized at the same time, and measured based on the applicable loss sharing agreement percentage.

If there is an increase in expected cash flows due to a decrease in estimated credit losses (as compared to the estimates made at the respective acquisition dates), the increase in the present value of expected cash flows is recorded as a recovery of the prior-period impairment charged to earnings, and the allowance for covered loan losses is reduced. A related debit to non-interest income and a decrease in the FDIC loss share receivable are recognized at the same time, and measured based on the applicable loss sharing agreement percentage.

The following table summarizes activity in the allowance for losses on covered loans for the nine months ended September 30, 2016 and 2015:


	September 30,
(in thousands)	2016			2015
Balance, beginning of period	$	31,395		$	45,481
Recovery of losses on covered loans		(6,035	)		(5,433	)
Transfer to the allowance for losses on non-covered loans ⁽¹⁾		—			(2,416	)

Balance, end of period	$	25,360		$	37,632

(1)	Represents the allowance associated with $14.2 million of loans acquired in the Desert Hills Bank transaction that were transferred from covered loans to non-covered loans upon expiration of the related FDIC loss sharing agreement.