Loans and Leases | Loans and leases Loans and Leases Receivable, Net Loans and leases receivable consisted of the following as of the dates indicated: June 30, 2018 December 31, 2017 (in thousands) Real estate loans: Commercial property Retail $ 923,661 $ 915,273 Hospitality 786,635 681,325 Other (1) 1,469,765 1,417,273 Total commercial property loans 3,180,061 3,013,871 Construction 61,287 55,190 Residential property 539,861 521,853 Total real estate loans 3,781,209 3,590,914 Commercial and industrial loans: Commercial term 185,756 182,685 Commercial lines of credit 179,872 181,894 International loans 30,894 34,622 Total commercial and industrial loans 396,522 399,201 Leases receivable 350,578 297,284 Consumer loans (2) 13,817 17,059 Loans and leases receivable 4,542,126 4,304,458 Allowance for loan and lease losses (31,818 ) (31,043 ) Loans and leases receivable, net $ 4,510,308 $ 4,273,415 (1) Includes, among other types, mixed-use, apartment, office, industrial, gas stations, faith-based facilities and warehouse; all other property types represent less than one percent of total loans and leases receivable. (2) Consumer loans include home equity lines of credit of $11.5 million and $14.2 million as of June 30, 2018 and December 31, 2017 , respectively. Accrued interest on loans and leases receivable was $10.5 million and $10.2 million at June 30, 2018 and December 31, 2017 , respectively. At June 30, 2018 and December 31, 2017 , loans receivable of $1.1 billion were pledged to secure borrowing facilities from the FHLB. Loans Held for Sale The following is the activity for SBA loans held for sale for the three months ended June 30, 2018 and 2017 : SBA Loans Held for Sale Real Estate Commercial and Industrial Total (in thousands) June 30, 2018 Balance at beginning of period $ 2,151 $ 3,857 $ 6,008 Originations 10,155 8,407 18,562 Sales (9,519 ) (9,585 ) (19,104 ) Principal payoffs and amortization (2 ) (115 ) (117 ) Balance at end of period $ 2,785 $ 2,564 $ 5,349 June 30, 2017 Balance at beginning of period $ 7,789 $ 1,060 $ 8,849 Originations 22,130 12,344 34,474 Sales (21,083 ) (11,271 ) (32,354 ) Principal payoffs and amortization (19 ) (1 ) (20 ) Balance at end of period $ 8,817 $ 2,132 $ 10,949 The following is the activity for SBA loans held for sale for the six months ended June 30, 2018 and 2017 : SBA Loans Held for Sale Real Estate Commercial and Industrial Total (in thousands) June 30, 2018 Balance at beginning of period $ 3,746 $ 2,648 $ 6,394 Originations 20,588 16,779 37,367 Sales (21,547 ) (16,744 ) (38,291 ) Principal payoffs and amortization (2 ) (119 ) (121 ) Balance at end of period $ 2,785 $ 2,564 $ 5,349 June 30, 2017 Balance at beginning of period $ 7,410 $ 1,906 $ 9,316 Originations 34,763 18,904 53,667 Sales (33,337 ) (18,660 ) (51,997 ) Principal payoffs and amortization (19 ) (18 ) (37 ) Balance at end of period $ 8,817 $ 2,132 $ 10,949 Allowance for Loan and Lease Losses Activity in the allowance for loan and lease losses was as follows for the periods indicated: As of and for the Three Months Ended June 30, As of and for the Six Months Ended June 30, 2018 2017 2018 2017 (in thousands) Allowance for loan and lease losses: Balance at beginning of period $ 31,777 $ 33,152 $ 31,043 $ 32,429 Charge-offs (657 ) (665 ) (2,289 ) $ (851 ) Recoveries on loans and leases previously charged off 598 849 2,315 $ 1,838 Net (charge-offs) recoveries (59 ) 184 26 987 Loan and lease loss provision 100 422 749 $ 342 Balance at end of period $ 31,818 $ 33,758 $ 31,818 $ 33,758 Management believes the allowance for loan and lease losses is appropriate to provide for probable losses inherent in the loan and lease portfolio. However, the allowance is an estimate that is inherently uncertain and depends on the outcome of future events. Management’s estimates are based on previous loss experience; size, growth and composition of the loan and lease portfolio; the value of collateral; and current economic conditions. Our lending is concentrated generally in real estate loans, commercial loans and leases and SBA loans to small and middle market businesses primarily in California, Texas, Illinois and New York. The following table details the information on the allowance for loan and lease losses by portfolio segment as of and for the three months ended June 30, 2018 and 2017 : Real Estate Commercial and Industrial Leases Receivable Consumer Unallocated Total (In thousands) As of and for the Three Months Ended June 30, 2018 Allowance for loan and lease losses on loans and leases: Beginning balance $ 17,640 $ 6,890 7,110 $ 125 $ 12 $ 31,777 Charge-offs (40 ) (86 ) (531 ) — — (657 ) Recoveries on loans and leases previously charged off 371 197 29 1 — 598 Loan and lease loss provision (income) (55 ) 119 41 (17 ) 12 100 Ending balance $ 17,916 $ 7,120 $ 6,649 $ 109 $ 24 $ 31,818 Individually evaluated for impairment $ 1,540 $ 578 $ 1,859 $ — $ — $ 3,977 Collectively evaluated for impairment $ 16,376 $ 6,542 $ 4,790 $ 109 $ 24 $ 27,841 Loans and leases receivable: $ 3,781,209 $ 396,522 $ 350,578 $ 13,817 $ — $ 4,542,126 Individually evaluated for impairment $ 18,261 $ 3,000 $ 4,801 $ 877 $ — $ 26,939 Collectively evaluated for impairment $ 3,762,948 $ 393,522 $ 345,777 $ 12,940 $ — $ 4,515,187 Real Estate Commercial and Industrial Leases Receivable Consumer Unallocated Total (In thousands) As of and for the Three Months Ended June 30, 2017 Allowance for loan and lease losses on loans and leases: Beginning balance $ 25,602 $ 5,955 980 $ 130 $ 485 $ 33,152 Charge-offs (38 ) — (627 ) — — (665 ) Recoveries on loans and leases previously charged off 447 367 20 15 — 849 Loan and lease loss provision (income) (2,578 ) 698 1,660 (50 ) 692 422 Ending balance $ 23,433 $ 7,020 $ 2,033 $ 95 $ 1,177 $ 33,758 Individually evaluated for impairment $ 3,638 $ 1,841 $ — $ — $ — $ 5,479 Collectively evaluated for impairment $ 19,795 $ 5,179 $ 2,033 $ 95 $ 1,177 $ 28,279 Loans and leases receivable: $ 3,451,025 $ 347,236 $ 257,525 $ 17,276 $ — $ 4,073,062 Individually evaluated for impairment $ 19,695 $ 5,275 $ — $ 1,224 $ — $ 26,194 Collectively evaluated for impairment $ 3,431,330 $ 341,961 $ 257,525 $ 16,052 $ — $ 4,046,868 The following table details the information on the allowance for loan and lease losses by portfolio segment as of and for the six months ended June 30, 2018 and 2017 : Real Estate Commercial and Industrial Leases Receivable Consumer Unallocated Total (In thousands) As of and for the Six Months Ended June 30, 2018 Allowance for loan and lease losses on loans and leases: Beginning balance $ 17,012 $ 7,400 6,279 $ 122 $ 230 $ 31,043 Charge-offs (1,029 ) (365 ) (895 ) — — (2,289 ) Recoveries on loans and leases previously charged off 1,256 933 124 2 — 2,315 Loan and lease loss provision (income) 677 (848 ) 1,141 (15 ) (206 ) 749 Ending balance $ 17,916 $ 7,120 $ 6,649 $ 109 $ 24 $ 31,818 Individually evaluated for impairment $ 1,540 $ 578 $ 1,859 $ — $ — $ 3,977 Collectively evaluated for impairment $ 16,376 $ 6,542 $ 4,790 $ 109 $ 24 $ 27,841 Loans and leases receivable: $ 3,781,209 $ 396,522 $ 350,578 $ 13,817 $ — $ 4,542,126 Individually evaluated for impairment $ 18,261 $ 3,000 $ 4,801 $ 877 $ — $ 26,939 Collectively evaluated for impairment $ 3,762,948 $ 393,522 $ 345,777 $ 12,940 $ — $ 4,515,187 Real Estate Commercial and Industrial Leases Receivable Consumer Unallocated Total (In thousands) As of and for the Six Months Ended June 30, 2017 Allowance for loan and lease losses on loans and leases: Beginning balance $ 26,134 $ 5,623 307 $ 199 $ 166 $ 32,429 Charge-offs (142 ) (40 ) (669 ) — — (851 ) Recoveries on loans and leases previously charged off 1,159 644 20 15 — 1,838 Loan and lease loss provision (income) (3,718 ) 793 2,375 (119 ) 1,011 342 Ending balance $ 23,433 $ 7,020 $ 2,033 $ 95 $ 1,177 $ 33,758 Individually evaluated for impairment $ 3,638 $ 1,841 $ — $ — $ — $ 5,479 Collectively evaluated for impairment $ 19,795 $ 5,179 $ 2,033 $ 95 $ 1,177 $ 28,279 Loans and leases receivable: $ 3,451,025 $ 347,236 $ 257,525 $ 17,276 $ — $ 4,073,062 Individually evaluated for impairment $ 19,695 $ 5,275 $ — $ 1,224 $ — $ 26,194 Collectively evaluated for impairment $ 3,431,330 $ 341,961 $ 257,525 $ 16,052 $ — $ 4,046,868 Loan and Lease Quality Indicators As part of the on-going monitoring of the credit quality of our loan and lease portfolio, we utilize an internal loan and lease grading system to identify credit risk and assign an appropriate grade, from 0 to 8 , for each loan or lease in our loan and lease portfolio. Third party loan reviews are performed throughout the year. Additional adjustments are made when determined to be necessary. The loan and lease grade definitions are as follows: Pass and Pass-Watch: Pass and pass-watch loans and leases, grades 0-4, are in compliance in all respects with the Bank’s credit policy and regulatory requirements, and do not exhibit any potential or defined weaknesses as defined under Special Mention, Substandard or Doubtful. This category is the strongest level of the Bank’s loan and lease grading system. It incorporates all performing loans and leases with no credit weaknesses. It includes cash and stock/security secured loans or other investment grade loans. Special Mention: A special mention credit, grade 5, has potential weaknesses that deserve management’s close attention. If not corrected, these potential weaknesses may result in deterioration of the repayment prospects of the debt and result in a Substandard classification. Loans and leases that have significant actual, not potential, weaknesses are considered more severely classified. Substandard: A substandard credit, grade 6, has a well-defined weakness that jeopardizes the liquidation of the debt. A credit graded Substandard is not protected by the sound worth and paying capacity of the borrower, or of the value and type of collateral pledged. With a Substandard loan or lease, there is a distinct possibility that the Bank will sustain some loss if the weaknesses or deficiencies are not corrected. Doubtful: A doubtful credit, grade 7, is one that has critical weaknesses that would make the collection or liquidation of the full amount due improbable. However, there may be pending events which may work to strengthen the credit, and therefore the amount or timing of a possible loss cannot be determined at the current time. Loss: A loan or lease classified as loss, grade 8, is considered uncollectible and of such little value that its continuance as an active bank asset is not warranted. This classification does not mean that the loan or lease has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this asset even though partial recovery may be possible in the future. Loans and leases classified as loss are charged off in a timely manner. Under regulatory guidance, loans and leases graded special mention or worse are considered criticized loans and leases, and loans and leases graded substandard or worse are considered classified loans and leases. As of June 30, 2018 and December 31, 2017 , pass/pass-watch, special mention and classified loans and leases, disaggregated by loan class, were as follows: Pass/Pass-Watch Special Mention Classified Total (In thousands) June 30, 2018 Real estate loans: Commercial property Retail $ 918,139 $ 6 $ 5,516 $ 923,661 Hospitality 774,060 1,435 11,140 786,635 Other 1,461,794 1,333 6,638 1,469,765 Construction 61,287 — — 61,287 Residential property 539,715 — 146 539,861 Total real estate loans 3,754,995 2,774 23,440 3,781,209 Commercial and industrial loans: Commercial term 177,209 5,775 2,772 185,756 Commercial lines of credit 139,740 40,132 — 179,872 International loans 30,894 — — 30,894 Total commercial and industrial loans 347,843 45,907 2,772 396,522 Leases receivable 345,777 — 4,801 350,578 Consumer loans 12,804 198 815 13,817 Total loans and leases $ 4,461,419 $ 48,879 $ 31,828 $ 4,542,126 December 31, 2017 Real estate loans: Commercial property Retail $ 909,682 $ 454 $ 5,137 $ 915,273 Hospitality 667,254 4,976 9,095 681,325 Other 1,397,658 11,045 8,570 1,417,273 Construction 55,190 — — 55,190 Residential property 521,261 305 287 521,853 Total real estate loans 3,551,045 16,780 23,089 3,590,914 Commercial and industrial loans: Commercial term 179,835 439 2,411 182,685 Commercial lines of credit 181,462 250 182 181,894 International loans 34,622 — — 34,622 Total commercial and industrial loans 395,919 689 2,593 399,201 Leases receivable 292,832 — 4,452 297,284 Consumer loans 15,995 — 1,064 17,059 Total loans and leases $ 4,255,791 $ 17,469 $ 31,198 $ 4,304,458 The following is an aging analysis of loans and leases, disaggregated by loan class, as of the dates indicated: 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total (in thousands) June 30, 2018 Real estate loans: Commercial property Retail $ 50 $ 300 $ 695 $ 1,045 $ 922,616 $ 923,661 Hospitality 1,381 1,588 820 3,789 782,846 786,635 Other 3,562 100 831 4,493 1,465,272 1,469,765 Construction — — — — 61,287 61,287 Residential property 1,643 — — 1,643 538,218 539,861 Total real estate loans 6,636 1,988 2,346 10,970 3,770,239 3,781,209 Commercial and industrial loans: Commercial term 139 197 363 699 185,057 185,756 Commercial lines of credit — — — — 179,872 179,872 International loans — — — — 30,894 30,894 Total commercial and industrial loans 139 197 363 699 395,823 396,522 Leases receivable 2,302 512 3,401 6,215 344,363 350,578 Consumer loans 100 — — 100 13,717 13,817 Total loans and leases $ 9,177 $ 2,697 $ 6,110 $ 17,984 $ 4,524,142 $ 4,542,126 December 31, 2017 Real estate loans: Commercial property Retail $ 96 $ 15 $ 630 $ 741 $ 914,532 $ 915,273 Hospitality 3,421 168 398 3,987 677,338 681,325 Other 1,245 1,333 563 3,141 1,414,132 1,417,273 Construction — — — — 55,190 55,190 Residential property 609 — — 609 521,244 521,853 Total real estate loans 5,371 1,516 1,591 8,478 3,582,436 3,590,914 Commercial and industrial loans: Commercial term 430 567 829 1,826 180,859 182,685 Commercial lines of credit 250 — 182 432 181,462 181,894 International loans — — — — 34,622 34,622 Total commercial and industrial loans 680 567 1,011 2,258 396,943 399,201 Leases receivable 2,295 944 3,554 6,793 290,491 297,284 Consumer loans — — — — 17,059 17,059 Total loans and leases $ 8,346 $ 3,027 $ 6,156 $ 17,529 $ 4,286,929 $ 4,304,458 Impaired Loans and Leases Loans and leases are considered impaired when the Bank will be unable to collect all interest and principal payments per the contractual terms of the loan and lease agreement, unless the loan is well-collateralized and in the process of collection; they are classified as Troubled Debt Restructurings (“TDRs”) because, due to the financial difficulties of the borrowers, we have granted concessions to the borrowers we would not otherwise consider; when current information or events make it unlikely to collect in full according to the contractual terms of the loan or lease agreements; there is a deterioration in the borrower’s financial condition that raises uncertainty as to timely collection of either principal or interest; or full payment of both interest and principal is in doubt according to the original contractual terms. We evaluate loan and lease impairment in accordance with GAAP. Impaired loans and leases are measured based on the present value of expected future cash flows discounted at the receivable's effective interest rate or, as a practical expedient, at the receivable's observable market price or the fair value of the collateral if the loan or lease is collateral dependent, less estimated costs to sell. If the measure of the impaired loan or lease is less than the recorded investment in the loan or lease, the deficiency is either charged off against the allowance for loan and lease losses or we establish a specific allocation in the allowance for loan and lease losses. Additionally, loans and leases that are considered impaired are specifically excluded from the quarterly migration analysis when determining the amount of the allowance for loan and lease losses required for the period. The allowance for collateral-dependent loans is determined by calculating the difference between the outstanding loan balance and the value of the collateral as determined by recent appraisals. The allowance for collateral-dependent loans varies from loan to loan based on the collateral coverage of the loan at the time of designation as nonperforming. We continue to monitor the collateral coverage, using recent appraisals, on these loans on a quarterly basis and adjust the allowance accordingly. The following tables provide information on impaired loans and leases, disaggregated by loan class, as of the dates indicated: Recorded Unpaid With No With an Related (in thousands) June 30, 2018 Real estate loans: Commercial property Retail $ 1,715 $ 1,747 $ 1,248 $ 467 $ 56 Hospitality 7,313 8,973 3,434 3,879 1,484 Other 7,106 7,709 6,585 521 — Residential property 2,127 2,259 2,127 — — Total real estate loans 18,261 20,688 13,394 4,867 1,540 Commercial and industrial loans 3,000 3,144 785 2,215 578 Leases receivable 4,801 4,882 1,018 3,783 1,859 Consumer loans 877 1,083 775 102 — Total loans and leases $ 26,939 $ 29,797 $ 15,972 $ 10,967 $ 3,977 December 31, 2017 Real estate loans: Commercial property Retail $ 1,403 $ 1,423 $ 1,246 $ 157 $ 1 Hospitality 6,184 7,220 2,144 4,040 1,677 Other 8,513 9,330 7,569 944 394 Residential property 2,563 2,728 824 1,739 21 Total real estate loans 18,663 20,701 11,783 6,880 2,093 Commercial and industrial loans 3,039 3,081 1,068 1,971 441 Leases receivable 4,452 4,626 455 3,997 3,334 Consumer loans 1,029 1,215 919 110 10 Total loans and leases $ 27,183 $ 29,623 $ 14,225 $ 12,958 $ 5,878 Three Months Ended Six Months Ended Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized (in thousands) June 30, 2018 Real estate loans: Commercial property Retail $ 1,728 $ 26 $ 1,568 $ 48 Hospitality 7,667 131 7,886 272 Other 7,562 133 7,702 243 Residential property 2,260 27 2,420 57 Total real estate loans 19,217 317 19,576 620 Commercial and industrial loans 3,063 39 2,989 79 Leases receivable 5,188 12 4,896 22 Consumer loans 1,027 14 1,037 28 Total loans and leases $ 28,495 $ 382 $ 28,498 $ 749 June 30, 2017 Real estate loans: Commercial property Retail $ 1,500 $ 29 $ 1,584 $ 61 Hospitality 6,074 99 6,164 167 Other 9,392 215 9,776 398 Residential property 2,823 28 2,798 61 Total real estate loans 19,789 371 20,322 687 Commercial and industrial loans 5,329 68 4,611 126 Consumer loans 1,226 3 775 6 Total loans and leases $ 26,344 $ 442 $ 25,708 $ 819 The following is a summary of interest foregone on impaired loans and leases for the periods indicated: Three Months Ended Six Months Ended 2018 2017 2018 2017 (in thousands) Interest income that would have been recognized had impaired loans and leases performed in accordance with their original terms $ 678 $ 622 $ 1,332 $ 1,213 Less: Interest income recognized on impaired loans and leases (382 ) (442 ) (749 ) (819 ) Interest foregone on impaired loans and leases $ 296 $ 180 $ 583 $ 394 There were no commitments to lend additional funds to borrowers whose loans are included in the table above. Nonaccrual Loans and Leases and Nonperforming Assets Loans and leases are placed on nonaccrual status when, in the opinion of management, the full timely collection of principal or interest is in doubt. Generally, the accrual of interest is discontinued when principal or interest payments become more than 90 days past due, unless management believes the receivable is adequately collateralized and in the process of collection. However, in certain instances, we may place a particular loan or lease receivable on nonaccrual status earlier, depending upon the individual circumstances surrounding the delinquency. When a receivable is placed on nonaccrual status, previously accrued but unpaid interest is reversed against current income. Subsequent collections of cash are applied as principal reductions when received, except when the ultimate collectability of principal is probable, in which case interest payments are credited to income. Nonaccrual loans and leases may be restored to accrual status when principal and interest payments become current and full repayment is expected. The following table details nonaccrual loans and leases, excluding nonaccrual PCI loans of $1.7 million and $0.9 million as of June 30, 2018 and December 31, 2017, respectively, disaggregated by loan class, as of the dates indicated: June 30, 2018 December 31, 2017 (in thousands) Real estate loans: Commercial property Retail $ 225 $ 224 Hospitality 6,563 5,263 Other 1,184 2,462 Residential property 146 591 Total real estate loans 8,118 8,540 Commercial and industrial loans 2,110 1,892 Leases receivable 4,801 4,452 Consumer loans 775 921 Total nonaccrual loans and leases $ 15,804 $ 15,805 The following table details nonperforming assets as of the dates indicated: June 30, 2018 December 31, 2017 (in thousands) Nonaccrual loans and leases $ 15,804 $ 15,805 Loans and leases 90 days or more past due and still accruing — — Total nonperforming loans and leases 15,804 15,805 Other real estate owned ("OREO") 280 1,946 Total nonperforming assets $ 16,084 $ 17,751 OREO is included in prepaid expenses and other assets in the accompanying Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017. Troubled Debt Restructurings The following table details TDRs as of June 30, 2018 and December 31, 2017 : Nonaccrual TDRs Accrual TDRs Deferral Deferral Reduction Extension Total Deferral Deferral Reduction Extension Total (in thousands) June 30, 2018 Real estate loans $ 1,467 $ 3,642 $ 183 $ — $ 5,292 $ 3,397 $ — $ 1,171 $ 1,023 $ 5,591 Commercial and industrial loans 399 107 715 467 1,688 — 177 443 246 866 Consumer loans 775 — — — 775 — — 102 — 102 Total TDR loans $ 2,641 $ 3,749 $ 898 $ 467 $ 7,755 $ 3,397 $ 177 $ 1,716 $ 1,269 $ 6,559 December 31, 2017 Real estate loans $ 1,935 $ 3,761 $ 64 $ — $ 5,760 $ 3,409 $ — $ 1,387 $ 1,237 $ 6,033 Commercial and industrial loans 131 123 1,173 102 1,529 6 182 503 427 1,118 Consumer loans 811 — — — 811 — — 108 — 108 Total TDR loans $ 2,877 $ 3,884 $ 1,237 $ 102 $ 8,100 $ 3,415 $ 182 $ 1,998 $ 1,664 $ 7,259 As of June 30, 2018 and December 31, 2017 , total TDRs were $14.3 million and $15.4 million , respectively. A debt restructuring is considered a TDR if we grant a concession, that we would not have otherwise considered, to the borrower for economic or legal reasons related to the borrower’s financial difficulties. Loans are considered to be TDRs if they were restructured through payment structure modifications such as reducing the amount of principal and interest due monthly and/or allowing for interest only monthly payments for three months or more. All TDRs are impaired and are individually evaluated for specific impairment using one of these three criteria: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price; or (3) the fair value of the collateral if the loan is collateral dependent. At June 30, 2018 and December 31, 2017 , $2.0 million and $2.2 million , respectively, of allowance relating to these loans were included in the allowance for loan and lease losses. For the restructured loans on accrual status, we determined that, based on the financial capabilities of the borrowers at the time of the loan restructuring and the borrowers’ past performance in the payment of debt service under the previous loan terms, performance and collection under the revised terms are probable. |