NON-COVERED LOANS AND ALLOWANCE FOR LOAN LOSSES | 3 Months Ended |
Mar. 31, 2014 |
NON-COVERED LOANS AND ALLOWANCE FOR LOAN LOSSES | ' |
NON-COVERED LOANS AND ALLOWANCE FOR LOAN LOSSES | ' |
NOTE 9 — NON-COVERED LOANS AND ALLOWANCE FOR LOAN LOSSES |
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The following is a summary of loans receivable, excluding covered loans (“non-covered loans”) for the periods indicated: |
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| | 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 | | | | | | | | | | | | | | | | | | | |
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(1) Loans net of ASC 310-30 discount |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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| | | | 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 | | | | | | | | | | |
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| | | | 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 | | | | | | | | | | |
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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: |
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| | 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 | |
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| | 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 | |
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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. |
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The following is a summary of interest income foregone on nonaccrual loans: |
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| | 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 | | | | | | | | | | | | | | | | | | | |
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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. |
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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. |
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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: |
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| | 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 | | — | | $ | — | | $ | — | | $ | — | | | | | | | | | | | | | | |
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| | 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 | | $ | — | | | | | | | | | | | | | | |
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(1) Includes subsequent payments after modification and reflects the balance as of March 31, 2014 and March 31, 2013. |
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(2) The financial impact includes charge-offs and specific reserves recorded at modification date. |
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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. |
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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. |
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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. |
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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. |
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| | 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 | | — | | $ | — | | — | | $ | — | | | | | | | | | | | | | | | |
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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. |
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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. |
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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. |
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| | | | 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 | | | | |
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(1) Excludes interest from performing TDRs. |
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(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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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| | | | | | | | | | 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 | |
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| | | | | | | | | | 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 | |
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(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. |
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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: |
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| | | | | | | | | | 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. | | | | | | | | | | | | | | | | | | | | | | | | |
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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. |
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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. |