| LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES | NOTE 9 — LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES The Company’s loan portfolio includes originated and purchased loans. Originated and purchased loans, for which there was no evidence of credit deterioration at their acquisition date, are referred to collectively as non-PCI loans. Purchased credit impaired (“PCI”) loans are accounted for in accordance with ASC Subtopic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality . A purchased loan is deemed to be credit impaired when there is evidence of credit deterioration since its origination and it is probable at the acquisition date that the Company would be unable to collect all contractually required payments. PCI loans consist of loans acquired from the United Commercial Bank (“UCB”) FDIC assisted acquisition on November 6, 2009, the Washington First International Bank (“WFIB”) FDIC assisted acquisition on June 11, 2010 and, to a lesser extent, a small portion of loans acquired from the MetroCorp acquisition on January 17, 2014 . The Company has elected to account for these acquired PCI loans on a pool level basis in accordance with ASC 310-30 at the time of acquisition. Refer to Note 3 — Business Combination to the Consolidated Financial Statements, included in this report, for further details on the MetroCorp acquisition and Note 8 — Covered Assets and FDIC Indemnification Asset to the Consolidated Financial Statements of the Company’s 2014 Form 10-K for additional details related to the UCB and WFIB acquisitions. The following table presents the composition of the Company’s non-PCI and PCI loans as of September 30, 2015 and December 31, 2014 : September 30, 2015 December 31, 2014 ($ in thousands) Non-PCI Loans PCI Loans (1) Total (1) Non-PCI Loans PCI Loans (1) Total (1) CRE: Income Producing $ 6,518,052 $ 570,356 $ 7,088,408 $ 5,568,046 $ 688,013 $ 6,256,059 Construction 429,417 6,780 436,197 319,843 12,444 332,287 Land 178,976 6,423 185,399 214,327 16,840 231,167 Total CRE 7,126,445 583,559 7,710,004 6,102,216 717,297 6,819,513 C&I: Commercial business 7,739,829 61,300 7,801,129 7,097,853 83,336 7,181,189 Trade finance 813,711 4,316 818,027 889,728 6,284 896,012 Total C&I 8,553,540 65,616 8,619,156 7,987,581 89,620 8,077,201 Residential: Single-family 2,807,248 195,560 3,002,808 3,647,262 219,519 3,866,781 Multifamily 1,312,151 180,210 1,492,361 1,184,017 265,891 1,449,908 Total residential 4,119,399 375,770 4,495,169 4,831,279 485,410 5,316,689 Consumer 1,809,519 25,060 1,834,579 1,483,956 29,786 1,513,742 Total loans $ 21,608,903 $ 1,050,005 $ 22,658,908 $ 20,405,032 $ 1,322,113 $ 21,727,145 Unearned fees, premiums, and discounts, net (13,176 ) — (13,176 ) 2,804 — 2,804 Allowance for loan losses (263,889 ) (541 ) (264,430 ) (260,965 ) (714 ) (261,679 ) Loans, net $ 21,331,838 $ 1,049,464 $ 22,381,302 $ 20,146,871 $ 1,321,399 $ 21,468,270 (1) Loans net of ASC 310-30 discount. The Company’s CRE lending activities include loans to finance income-producing properties, construction and land loans. The Company’s 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. The Company also offers 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. The Company’s single-family residential loans are primarily comprised of adjustable rate (“ARM”) first mortgage loans secured by one -to- four unit residential properties. The Company’s ARM single-family residential loan programs generally have a one -year or three -year initial fixed period. The Company’s multifamily residential loans are primarily comprised of variable rate loans that have a six -month or three -year initial fixed period. As of September 30, 2015 and December 31, 2014 , consumer loans were primarily composed of home equity lines of credit (“HELOCs”). All loans originated are subject to the Company’s underwriting guidelines and loan origination standards. Management believes that the Company’s underwriting criteria and procedures adequately consider the unique risks which may come from these products. The Company conducts a variety of quality control procedures and periodic audits, including review of criteria for lending and legal requirements, to ensure it is in compliance with its origination standards. As of September 30, 2015 and December 31, 2014 , loans totaling $15.73 billion and $14.66 billion , respectively, were pledged to secure borrowings and to provide additional borrowing capacity from the FHLB and the Federal Reserve Bank. Credit Quality Indicators All loans are subject to the Company’s internal and external credit review and monitoring. Loans are risk rated based on analysis of the current state of the borrower’s credit quality. The analysis of credit quality includes a review of all repayment sources, the borrower’s current payment performance/delinquency, current financial and liquidity status and all other relevant information. For 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 a seven -grade risk rating system, which can be classified within the following categories: Pass, Watch, Special Mention, Substandard, Doubtful and Loss. The risk ratings reflect the relative strength of the repayment sources. Pass and Watch loans are 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 risks that require monitoring, but full repayments are 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 indicates that 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 the borrowers’ status and likelihood of loan repayment. The following tables present the credit risk rating for non-PCI loans by portfolio segment as of September 30, 2015 and December 31, 2014 : ($ in thousands) Pass/Watch Special Mention Substandard Doubtful Loss Total Non-PCI Loans September 30, 2015 CRE: Income producing $ 6,241,315 $ 52,904 $ 223,833 $ — $ — $ 6,518,052 Construction 425,354 — 4,063 — — 429,417 Land 160,657 — 18,319 — — 178,976 C&I: Commercial business 7,430,295 153,160 156,030 344 — 7,739,829 Trade finance 767,236 17,382 29,093 — — 813,711 Residential: Single-family 2,783,817 4,328 19,103 — — 2,807,248 Multifamily 1,250,706 1,190 60,255 — — 1,312,151 Consumer 1,805,240 1,328 2,951 — — 1,809,519 Total $ 20,864,620 $ 230,292 $ 513,647 $ 344 $ — $ 21,608,903 ($ in thousands) Pass/Watch Special Mention Substandard Doubtful Loss Total Non-PCI Loans December 31, 2014 CRE: Income producing $ 5,243,640 $ 54,673 $ 269,733 $ — $ — $ 5,568,046 Construction 310,259 11 9,573 — — 319,843 Land 185,220 5,701 23,406 — — 214,327 C&I: Commercial business 6,836,914 130,319 130,032 533 55 7,097,853 Trade finance 845,889 13,031 30,808 — — 889,728 Residential: Single-family 3,627,491 3,143 16,628 — — 3,647,262 Multifamily 1,095,982 5,124 82,911 — — 1,184,017 Consumer 1,480,208 1,005 2,743 — — 1,483,956 Total $ 19,625,603 $ 213,007 $ 565,834 $ 533 $ 55 $ 20,405,032 The following tables present the credit risk rating for PCI loans by portfolio segment as of September 30, 2015 and December 31, 2014 : ($ in thousands) Pass/Watch Special Mention Substandard Doubtful Loss Total PCI Loans September 30, 2015 CRE: Income producing $ 454,052 $ 7,005 $ 109,299 $ — $ — $ 570,356 Construction — — 6,780 — — 6,780 Land 4,625 — 1,798 — — 6,423 C&I: Commercial business 54,899 875 5,526 — — 61,300 Trade finance 2,590 — 1,726 — — 4,316 Residential: Single-family 190,136 1,158 4,266 — — 195,560 Multifamily 153,036 — 27,174 — — 180,210 Consumer 24,244 338 478 — — 25,060 Total (1) $ 883,582 $ 9,376 $ 157,047 $ — $ — $ 1,050,005 (1) Loans net of ASC 310-30 discount. ($ in thousands) Pass/Watch Special Mention Substandard Doubtful Loss Total PCI Loans December 31, 2014 CRE: Income producing $ 534,015 $ 9,960 $ 144,038 $ — $ — $ 688,013 Construction 589 1,744 10,111 — — 12,444 Land 7,012 5,391 4,437 — — 16,840 C&I: Commercial business 70,586 1,103 11,647 — — 83,336 Trade finance 4,620 — 1,664 — — 6,284 Residential: Single-family 213,829 374 5,316 — — 219,519 Multifamily 230,049 — 35,842 — — 265,891 Consumer 29,026 116 644 — — 29,786 Total (1) $ 1,089,726 $ 18,688 $ 213,699 $ — $ — $ 1,322,113 (1) Loans net of ASC 310-30 discount. Nonaccrual and Past Due Loans The following tables present the aging analysis on non-PCI loans as of September 30, 2015 and December 31, 2014 : ($ in thousands) Accruing Loans 30-59 Days Past Due Accruing Loans 60-89 Days Past Due Total Accruing Past Due Loans Nonaccrual Loans Less Than 90 Days Past Due Nonaccrual Loans 90 or More Days Past Due Total Nonaccrual Loans Current Accruing Loans Total Non-PCI Loans September 30, 2015 CRE: Income producing $ 12,964 $ 11,770 $ 24,734 $ 10,817 $ 18,822 $ 29,639 $ 6,463,679 $ 6,518,052 Construction — 11 11 14 745 759 428,647 429,417 Land — 9,739 9,739 1,081 615 1,696 167,541 178,976 C&I: Commercial business 29,143 737 29,880 43,574 17,129 60,703 7,649,246 7,739,829 Trade finance — — — — — — 813,711 813,711 Residential: Single-family 7,053 3,491 10,544 99 10,968 11,067 2,785,637 2,807,248 Multifamily 5,107 7,155 12,262 7,922 5,205 13,127 1,286,762 1,312,151 Consumer 691 114 805 161 367 528 1,808,186 1,809,519 Total $ 54,958 $ 33,017 $ 87,975 $ 63,668 $ 53,851 $ 117,519 $ 21,403,409 $ 21,608,903 Unearned fees, premiums and discounts, net (13,176 ) Total recorded investment in non-PCI loans $ 21,595,727 ($ in thousands) Accruing Loans 30-59 Days Past Due Accruing Loans 60-89 Days Past Due Total Accruing Past Due Loans Nonaccrual Loans Less Than 90 Days Past Due Nonaccrual Loans 90 or More Days Past Due Total Nonaccrual Loans Current Accruing Loans Total Non-PCI Loans December 31, 2014 CRE: Income producing $ 14,171 $ 3,593 $ 17,764 $ 19,348 $ 9,165 $ 28,513 $ 5,521,769 $ 5,568,046 Construction — — — 15 6,898 6,913 312,930 319,843 Land — — — 221 2,502 2,723 211,604 214,327 C&I: Commercial business 3,187 4,361 7,548 6,623 21,813 28,436 7,061,869 7,097,853 Trade finance — — — 73 292 365 889,363 889,728 Residential: Single-family 6,381 1,294 7,675 2,861 5,764 8,625 3,630,962 3,647,262 Multifamily 4,425 507 4,932 12,460 8,359 20,819 1,158,266 1,184,017 Consumer 2,154 162 2,316 169 3,699 3,868 1,477,772 1,483,956 Total $ 30,318 $ 9,917 $ 40,235 $ 41,770 $ 58,492 $ 100,262 $ 20,264,535 $ 20,405,032 Unearned fees, premiums and discounts, net 2,804 Total recorded investment in non-PCI loans $ 20,407,836 Non-PCI loans that are 90 or more days past due are generally placed on nonaccrual status. Additionally, non-PCI loans that are not 90 or more days past due but have identified deficiencies are also placed on nonaccrual status. Once a loan is placed on nonaccrual status, interest accrual is discontinued and all unpaid accrued interest is reversed against interest income. Interest payments received on nonaccrual loans are reflected as a reduction of principal and not as interest income. A loan is returned to accrual status when the borrower has demonstrated a satisfactory payment trend subject to management’s assessment of the borrower’s ability to repay the loan. PCI loans are excluded from the above aging analysis table as the Company has elected to account for these loans on a pool level basis in accordance with ASC 310-30 at the time of acquisition. Refer to the discussion of PCI Loans within this note for further details on interest income recognition of PCI loans. As of September 30, 2015 and December 31, 2014 , $47.4 million and $63.4 million of PCI loans, respectively, were on nonaccrual status. Loans in Process of Foreclosure As of September 30, 2015 and December 31, 2014 , the Company had $18.7 million and $16.9 million , respectively, of recorded investment in consumer mortgage loans secured by residential real estate properties, for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdictions, which were not included in OREO. Foreclosed residential real estate properties with a carrying amount of $2.8 million were included in total net OREO of $12.3 million as of September 30, 2015 . In comparison, foreclosed residential real estate properties with a carrying amount of $3.5 million were included in total net OREO of $32.1 million as of December 31, 2014 . 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 balance 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 Company was willing to accept at the time of the restructuring for a new loan with comparable risk, the loan is not impaired based on the terms specified by the restructuring agreement and has demonstrated a period of sustained performance under the modified terms. The Company had $1.8 million and $2.9 million of performing A/B notes as of September 30, 2015 and December 31, 2014 , respectively. 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 Company’s recovery. During the three months ended September 30, 2015 , the Company restructured $4.4 million of C&I loans through principal deferments and extensions and $1.2 million of CRE loans through principal and interest reductions and other modified terms . During the three months ended September 30, 2014 , the Company restructured $1.5 million of residential loans through principal and interest reductions , $504 thousand of consumer loans primarily through other modified terms and $165 thousand of C&I loans primarily through principal and interest reductions, as well as extensions . During the nine months ended September 30, 2015 , the Company restructured $2.1 million of CRE loans primarily through principal and interest deferments and reductions , $35.4 million of C&I loans primarily through principal and interest reductions, extensions, as well as principal deferments , and $279 thousand of residential loans through principal deferments . During the nine months ended September 30, 2014 , the Company restructured $11.2 million residential loans primarily through principal deferments, extensions and other modified terms , $5.2 million of CRE loans primarily through principal and interest reductions , $2.3 million of C&I loans primarily through extensions and principal deferments and $504 thousand of consumer loans primarily through other modified terms . The following tables present the additions to non-PCI TDRs during the three and nine months ended September 30, 2015 and 2014 : Loans Modified as TDRs During the Three Months Ended September 30, 2015 2014 ($ in thousands) Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment (1) Financial Impact (2) Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment (1) Financial Impact (2) CRE: Income producing 1 $ 451 $ 403 $ — — $ — $ — $ — Land 1 $ 2,056 $ 788 $ — — $ — $ — $ — C&I: Commercial business 3 $ 4,596 $ 4,423 $ 1,229 1 $ 54 $ 54 $ 10 Trade finance — $ — $ — $ — 1 $ 190 $ 111 $ 14 Residential: Single-family — $ — $ — $ — 2 $ 1,474 $ 1,473 $ — Consumer — $ — $ — $ — 1 $ 509 $ 504 $ — Loans Modified as TDRs During the Nine Months Ended September 30, 2015 2014 ($ in thousands) Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment (1) Financial Impact (2) Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment (1) Financial Impact (2) CRE: Income producing 2 $ 1,279 $ 1,209 $ — 2 $ 5,318 $ 5,193 $ — Land 2 $ 2,227 $ 881 $ 102 — $ — $ — $ — C&I: Commercial business 16 $ 42,686 $ 35,365 $ 6,726 8 $ 2,940 $ 2,167 $ 1,821 Trade finance — $ — $ — $ — 1 $ 190 $ 111 $ 14 Residential: Single-family 1 $ 281 $ 279 $ 2 9 $ 11,454 $ 8,356 $ — Multifamily — $ — $ — $ — 1 $ 2,513 $ 2,832 $ — Consumer — $ — $ — $ — 1 $ 509 $ 504 $ — (1) Includes subsequent payments after modification and reflects the balance as of September 30, 2015 and 2014 . (2) The financial impact includes charge-offs and specific reserves recorded at the modification date. Subsequent to restructuring, a TDR that becomes delinquent, generally beyond 90 days, is considered to have defaulted. Non-PCI loans that were modified as TDRs within the previous 12 months that have subsequently defaulted during the three and nine months ended September 30, 2015 consisted of one CRE TDR contract with a recorded investment of $2.1 million . Non-PCI loans that were modified as TDRs within the previous 12 months that have subsequently defaulted during the three and nine months ended September 30, 2014 consisted of one C&I TDR contract with a recorded investment of $967 thousand . 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 has met or exceeded the modified terms. A loan will remain on nonaccrual status until the borrower demonstrates a sustained period of performance, generally six consecutive months of payments. TDRs are included in the impaired loan quarterly valuation allowance process. Please refer to the sections below titled Allowance for Credit Losses and Impaired Loans for a 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 nonperforming TDRs, when the restructured loan is deemed to be uncollectible under modified terms and its fair value is 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 reserves of the allowance for loan losses, as appropriate. The amount of additional funds committed to lend to borrowers whose terms have been modified were immaterial as of September 30, 2015 and December 31, 2014 . Impaired Loans The Company’s loans are grouped into heterogeneous and homogeneous (mostly consumer loans) categories. Classified loans in the heterogeneous category are identified and evaluated for impairment on an individual basis. 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 are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as 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 homogeneous consumer loan portfolio which is evaluated collectively for impairment. The Company’s impaired loans predominantly include non-PCI loans held-for-investment on nonaccrual status and any non-PCI loans modified in a TDR, on both accrual and nonaccrual status. The following tables present the non-PCI impaired loans as of September 30, 2015 and December 31, 2014 : ($ in thousands) Unpaid Principal Balance Recorded Investment With No Allowance Recorded Investment With Allowance Total Recorded Investment Related Allowance September 30, 2015 CRE: Income producing $ 49,302 $ 29,352 $ 12,731 $ 42,083 $ 1,322 Construction 805 745 14 759 3 Land 8,439 1,403 989 2,392 94 C&I: Commercial business 85,352 19,760 55,251 75,011 20,368 Trade finance 11,119 — 11,119 11,119 91 Residential: Single-family 19,581 6,322 11,786 18,108 689 Multifamily 26,491 17,699 6,518 24,217 273 Consumer 1,246 — 1,246 1,246 59 Total $ 202,335 $ 75,281 $ 99,654 $ 174,935 $ 22,899 ($ in thousands) Unpaid Principal Balance Recorded Investment With No Allowance Recorded Investment With Allowance Total Recorded Investment Related Allowance December 31, 2014 CRE: Income producing $ 58,900 $ 35,495 $ 15,646 $ 51,141 $ 1,581 Construction 6,913 6,913 — 6,913 — Land 13,291 2,838 5,622 8,460 1,906 C&I: Commercial business 44,569 12,723 25,717 38,440 15,174 Trade finance 12,967 6,431 274 6,705 28 Residential: Single-family 18,908 6,003 11,398 17,401 461 Multifamily 37,649 21,523 12,890 34,413 313 Consumer 1,259 1,151 108 1,259 1 Total $ 194,456 $ 93,077 $ 71,655 $ 164,732 $ 19,464 The following table presents the average recorded investment and the amount of interest income recognized on non-PCI impaired loans for the three and nine months ended September 30, 2015 and 2014 : Three Months Ended Nine Months Ended 2015 2014 2015 2014 ($ in thousands) Average Recorded Investment Recognized Interest Income (1) Average Recognized Interest Income (1) Average Recorded Investment Recognized Interest Income (1) Average Recognized Interest Income (1) CRE: Income producing $ 43,227 $ 130 $ 62,973 $ 273 $ 45,154 $ 393 $ 64,820 $ 940 Construction 759 — 6,888 — 695 — 6,888 — Land 3,957 10 8,581 75 4,796 30 8,676 224 C&I: Commercial business 75,655 161 42,832 207 75,951 489 42,403 619 Trade finance 11,285 50 363 4 11,584 185 383 12 Residential: Single-family 18,192 68 19,668 87 18,338 205 19,372 263 Multifamily 24,338 178 35,547 177 24,546 530 35,610 529 Consumer 1,248 12 1,264 12 1,253 35 1,259 35 Total impaired non-PCI loans $ 178,661 $ 609 $ 178,116 $ 835 $ 182,317 $ 1,867 $ 179,411 $ 2,622 (1) Includes interest recognized on accruing non-PCI TDRs. Interest payments received on nonaccrual non-PCI loans are reflected as a reduction of principal and not as interest income. Allowance for Credit Losses The allowance for credit losses consists of the allowance for loan losses and the allowance for unfunded lending commitments. The Company’s methodology to determine the overall appropriateness of the allowance for credit losses is based on a classification migration model and qualitative considerations. The migration model examines pools of loans having similar characteristics and analyzes their loss rates over a historical period. The Company assigns loss rates 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, the Company utilizes 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. The allowance for loan losses on non-PCI loans consists of specific reserves and general reserves. The Company’s non-PCI loans fall into heterogeneous and homogeneous 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 reserves. General reserves are calculated by utilizing both quantitative and qualitative factors. There are different qualitative risks for the loans in each portfolio segment. The residential and CRE segments’ predominant risk characteristics are the collateral and the geographic locations of the properties collateralizing the loans. The risk is qualitatively assessed based on the total real estate loan concentration 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 are largely comprised of HELOCs for which the predominant risk characteristic is the real estate collateral securing the loans. The Company also maintains an allowance for loan losses on PCI loans when there is deterioration in credit quality subsequent to acquisition. Based on the Company’s estimates of cash flows expected to be collected, the Company establishes an allowance for the PCI loans, with a charge to income through the provision for loan losses. As of September 30, 2015 , the Company has established an allowance of $541 thousand on $1.05 billion of PCI loans. As of December 31, 2014 , an allowance of $714 thousand was established on $1.32 billion of PCI loans. The allowance balances for both periods were allocated mainly to the PCI CRE loan pools. When determined uncollectible, it is the Company’s policy to promptly charge-off the difference in the outstanding loan balance and the fair value of the collateral or the discounted value of expected cash flows. Recoveries are recorded when payment is received on loans that were previously charged-off through the allowance for loan losses. Allocation of a portion of the allowance to one segment of the loan portfolio does not preclude its availability to absorb losses in other segments. The following tables present a summary of the activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2015 and 2014 : Non-PCI Loans ($ in thousands) CRE C&I Residential Consumer Total PCI Loans Total Three Months Ended September 30, 2015 Beginning balance $ 75,496 $ 133,962 $ 40,668 $ 10,491 $ 260,617 $ 612 $ 261,229 Provision for (reversal of) loan losses 2,333 11,221 (4,979 ) (70 ) 8,505 (71 ) 8,434 Charge-offs (135 ) (7,187 ) (35 ) (123 ) (7,480 ) — (7,480 ) Recoveries 83 933 1,158 73 2,247 — 2,247 Net (charge-offs) recoveries (52 ) (6,254 ) 1,123 (50 ) (5,233 ) — (5,233 ) Ending balance $ 77,777 $ 138,929 $ 36,812 $ 10,371 $ 263,889 $ 541 $ 264,430 Non-PCI Loans ($ in thousands) CRE C&I Residential Consumer Total PCI Loans Total Three Months Ended September 30, 2014 Beginning balance $ 60,895 $ 131,057 $ 45,949 $ 11,889 $ 249,790 $ 1,558 $ 251,348 Provision for (reversal of) loan losses 69 16,888 (839 ) 574 16,692 (844 ) 15,848 Charge-offs (1,548 ) (16,027 ) (8 ) (134 ) (17,717 ) — (17,717 ) Recoveries 259 3,342 95 3 3,699 — 3,699 Net (charge-offs) recoveries (1,289 ) (12,685 ) 87 (131 ) (14,018 ) — (14,018 ) Ending balance $ 59,675 $ 135,260 $ 45,197 $ 12,332 $ 252,464 $ 714 $ 253,178 Non-PCI Loans ($ in thousands) CRE C&I Residential Consumer Total PCI Loans Total Nine Months Ended September 30, 2015 Beginning balance $ 72,263 $ 134,598 $ 43,856 $ 10,248 $ 260,965 $ 714 $ 261,679 Provision for (reversal of) loan losses 5,739 13,883 (9,868 ) 305 10,059 (173 ) 9,886 Charge-offs (1,486 ) (16,619 ) (782 ) (586 ) (19,473 ) — (19,473 ) Recoveries 1,261 7,067 3,606 404 12,338 — 12,338 Net (charge-offs) recoveries (225 ) (9,552 ) 2,824 (182 ) (7,135 ) — (7,135 ) Ending balance $ 77,777 $ 138,929 $ 36,812 $ 10,371 $ 263,889 $ 541 $ 264,430 Non-PCI Loans ($ in thousands) CRE C&I Residential Consumer Total PCI Loans Total Nine Months Ended September 30, 2014 Beginning balance $ 70,154 $ 115,184 $ 50,716 $ 11,352 $ 247,406 $ 2,269 $ 249,675 (Reversal of) provision for loan losses (9,354 ) 44,398 (5,462 ) 1,187 30,769 (1,032 ) 29,737 Charge-offs (2,761 ) (28,971 ) (352 ) (217 ) (32,301 ) (523 ) (32,824 ) Recoveries 1,636 4,649 295 10 6,590 — 6,590 Net charge-offs (1,125 ) (24,322 ) (57 ) (207 ) (25,711 ) (523 ) (26,234 ) Ending balance $ 59,675 $ 135,260 $ 45,197 $ 12,332 $ 252,464 $ 714 $ 253,178 The allowance for unfunded lending commitments is maintained at a level believed by management to be sufficient to absorb estimated probable losses related to 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. The allowance for unfunded lending commitments w as included in accrued expense and other liabilities in the accompanying Consolidated Balance Sheets. Refer to Note 12 — Commitments and Contingencies to the Consolidated Financial Statements for additional information related to unfunded lending commitments. The following table presents a summary of the activity in the allowance for unfunded lending commitments for the three and nine months ended September 30, 2015 and 2014 : Three Months Ended September 30, Nine Months Ended September 30, ($ in thousands) 2015 2014 2015 2014 Beginning balance $ 19,741 $ 12,326 $ 12,712 $ 11,282 (Reversal of) provision for unfunded lending commitments (698 ) (623 ) 6,331 421 Charge-offs — 145 — 145 Ending balance $ 19,043 $ 11,558 $ 19,043 $ 11,558 The following tables present the Company’s allowance for loan losses and recorded investments in loans by portfolio segment as of September 30, 2015 and December 31, 2014 and disaggregated on the basis of the Company’s impairment methodology: ($ in thousands) CRE C&I Residential Consumer Total As of September 30, 2015 Allowance for loan losses Individually evaluated for impairment $ 1,419 $ 20,459 $ 962 $ 59 $ 22,899 Collectively evaluated for impairment 76,358 118,470 35,850 10,312 240,990 Acquired with deteriorated credit quality 541 — — — 541 Ending balance $ 78,318 $ 138,929 $ 36,812 $ 10,371 $ 264,430 Recorded investment in loans Individually evaluated for impairment $ 45,234 $ 86,130 $ 4 |
