Note 6 — Loans

The Board of Directors and management review and approve the Bank’s loan policy and procedures on a regular basis to reflect issues such as regulatory and organizational structure changes, strategic planning revisions, concentrations of credit, loan delinquencies and nonperforming loans, problem loans, and policy adjustments.

Real estate loans are loans secured by liens or interest in real estate, to provide purchase, construction, and refinance on real estate properties. Commercial and industrial loans consist of commercial term loans, commercial lines of credit, and Small Business Administration (“SBA”) loans. Consumer loans consist of auto loans, credit cards, personal loans, and home equity lines of credit. We maintain management loan review and monitoring departments that review and monitor pass graded loans as well as problem loans to prevent further deterioration.

Concentrations of Credit: The majority of the Bank’s loan portfolio consists of commercial real estate and commercial and industrial loans. The Bank has been diversifying and monitoring commercial real estate loans based on property types, tightening underwriting standards, and portfolio liquidity and management, and has not exceeded certain specified limits set forth in the Bank’s loan policy.

 

Loans Receivable

Loans receivable consisted of the following as of the dates indicated:

 

		December 31, 2014												December 31, 2013
		Non-PCI Loans				PCI Loans				Total
		(In thousands)
Real estate loans:
Commercial property (1)
Retail		$	675,072			$	8,535			$	683,607			$	543,619
Hotel/motel			454,499				7,682				462,181				322,927
Gas station			362,240				7,745				369,985				292,557
Other			842,126				5,796				847,922				731,617
Construction			9,517				—				9,517				—
Residential property			120,932				14,371				135,303				79,078
Total real estate loans			2,464,386				44,129				2,508,515				1,969,798
Commercial and industrial loans:
Commercial term			116,073				327				116,400				124,391
Commercial lines of credit			93,860				—				93,860				71,042
International loans			38,929				—				38,929				36,353
Total commercial and industrial loans			248,862				327				249,189				231,786
Consumer loans			27,512				45				27,557				32,505
Total gross loans			2,740,760				44,501				2,785,261				2,234,089
Allowance for loans losses			(51,640	)			(1,026	)			(52,666	)			(57,555	)
Deferred loan costs			3,237				—				3,237				964
Loans receivable, net		$	2,692,357			$	43,475			$	2,735,832			$	2,177,498

 

(1)	Includes owner-occupied property loans of $1.12 billion and $957.3 million as of December 31, 2014 and 2013, respectively.

Accrued interest on loans receivable was $6.4 million and $5.4 million at December 31, 2014 and 2013, respectively. At December 31, 2014 and 2013, loans receivable totaling $840.0 million and $568.7 million, respectively, were pledged to secure advances from the FHLB and the FRB’s discount window.

 

The following table details the information on the sales and reclassifications of loans receivable to loans held for sale (excluding PCI loans) by portfolio segment for the years ended December 31, 2014 and 2013:

 

		Real Estate				Commercial and Industrial				Consumer				Total Non-PCI
		(In thousands)
December 31, 2014
Balance at beginning of period		$	—			$	—			$	—			$	—
Origination of loans held for sale			38,379				9,606				—				47,985
Sales of loans held for sale			(34,994	)			(7,418	)			—				(42,412	)
Principal payoffs and amortization			(62	)			(60	)			—				(122	)
Balance at end of period		$	3,323			$	2,128			$	—			$	5,451
December 31, 2013
Balance at beginning of period		$	7,977			$	329			$	—			$	8,306
Origination of loans held for sale			77,295				5,732				—				83,027
Reclassification from loans receivable to loans held for sale			7,594				416				—				8,010
Reclassification from loans held for sale to loans receivable			(2,118	)			(416	)			—				(2,534	)
Sales of loans held for sale			(90,706	)			(6,048	)			—				(96,754	)
Principal payoffs and amortization			(42	)			(13	)			—				(55	)
Balance at end of period		$	—			$	—			$	—			$	—

For the year ended December 31, 2014, there was no reclassification of loans receivable as loans held for sale, and loans held for sale of $42.4 million were sold. For the year ended December 31, 2013, loans receivable of $8.0 million were reclassified as loans held for sale, and loans held for sale of $96.8 million were sold.

Allowance for Loan Losses and Allowance for Off-Balance Sheet Items

Activity in the allowance for loan losses and allowance for off-balance sheet items was as follows for the periods indicated:

 

		As of and for the Year Ended December 31,
		2014
		Non-PCI Loans				PCI Loans				Total				2013				2012
		(In thousands)
Allowance for loan losses:
Balance at beginning of period		$	57,555			$	—			$	57,555			$	63,305			$	89,936
Charge-offs			(6,992	)			—				(6,992	)			(11,862	)			(38,227	)
Recoveries on loans previously charged off			8,361				—				8,361				5,536				4,439
Net loan recoveries (charge-offs)			1,369				—				1,369				(6,326	)			(33,788	)
(Negative provision) provision charged to operating expense			(7,284	)			1,026				(6,258	)			576				7,157
Balance at end of period		$	51,640			$	1,026			$	52,666			$	57,555			$	63,305
Allowance for off-balance sheet items:
Balance at beginning of period		$	1,248			$	—			$	1,248			$	1,824			$	2,981
Provision (negative provision) charged to operating expense			118				—				118				(576	)			(1,157	)
Balance at end of period		$	1,366			$	—			$	1,366			$	1,248			$	1,824

The allowance for off-balance sheet items is maintained at a level believed to be sufficient to absorb probable losses related to these unfunded credit facilities. The determination of the allowance adequacy 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 December 31, 2014 and 2013, the allowance for off-balance sheet items amounted $1.4 million and $1.2 million, respectively. Net adjustments to the allowance for off-balance sheet items are included in the provision for credit losses.

 

The following table details the information on the allowance for loan losses by portfolio segment for the years ended December 31, 2014 and 2013:

 

		Real Estate				Commercial and Industrial				Consumer				Unallocated				Total
		(In thousands)
December 31, 2014
Allowance for loan losses on Non-PCI loans:
Beginning balance		$	43,550			$	11,287			$	1,427			$	1,291			$	57,555
Charge-offs			(3,009	)			(3,881	)			(102	)			—				(6,992	)
Recoveries on loans previously charged off			4,348				3,801				212				—				8,361
(Negative provision) provision			(3,695	)			(2,065	)			(1,317	)			(207	)			(7,284	)
Ending balance		$	41,194			$	9,142			$	220			$	1,084			$	51,640
Ending balance: individually evaluated for impairment		$	2,517			$	2,729			$	—			$	—			$	5,246
Ending balance: collectively evaluated for impairment		$	38,677			$	6,413			$	220			$	1,084			$	46,394
Non-PCI loans receivable:
Ending balance		$	2,464,386			$	248,862			$	27,512			$	—			$	2,740,760
Ending balance: individually evaluated for impairment		$	32,497			$	11,626			$	1,742			$	—			$	45,865
Ending balance: collectively evaluated for impairment		$	2,431,889			$	237,236			$	25,770			$	—			$	2,694,895
Allowance for loan losses on PCI loans:
Beginning balance		$	—			$	—			$	—			$	—			$	—
Provision			895				131				—				—				1,026
Ending balance: acquired with deteriorated credit quality		$	895			$	131			$	—			$	—			$	1,026
PCI loans receivable:
Ending balance: acquired with deteriorated credit quality		$	44,129			$	327			$	45			$	—			$	44,501
December 31, 2013
Allowance for loan losses on Non-PCI loans:
Beginning balance		$	49,472			$	10,636			$	2,280			$	917			$	63,305
Charge-offs			(4,614	)			(6,981	)			(267	)			—				(11,862	)
Recoveries on loans previously charged off			2,934				2,433				169				—				5,536
Provision (negative provision)			(4,242	)			5,199				(755	)			374				576
Ending balance		$	43,550			$	11,287			$	1,427			$	1,291			$	57,555
Ending balance: individually evaluated for impairment		$	2,048			$	4,136			$	284			$	—			$	6,468
Ending balance: collectively evaluated for impairment		$	41,502			$	7,151			$	1,143			$	1,291			$	51,087
Non-PCI loans receivable:
Ending balance		$	1,969,798			$	231,786			$	32,505			$	—			$	2,234,089
Ending balance: individually evaluated for impairment		$	35,961			$	15,536			$	1,569			$	—			$	53,066
Ending balance: collectively evaluated for impairment		$	1,933,837			$	216,250			$	30,936			$	—			$	2,181,023

Credit Quality Indicators

As part of the on-going monitoring of the credit quality of our loan portfolio, we utilize an internal loan grading system to identify credit risk and assign an appropriate grade (from (0) to (8)) for each and every loan in our loan portfolio. A third-party loan review is required on an annual basis. Additional adjustments are made when determined to be necessary. The loan grade definitions are as follows:

Pass and Pass-Watch: Pass and Pass-Watch loans, grades (0-4), are in compliance 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 grading system. It consists of all performing loans with no identified 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 of the debt and result in a Substandard classification. Loans 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, 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 classified as Loss, grade (8), is considered uncollectible and of such little value that their continuance as active bank assets is not warranted. This classification does not mean that the loan 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 classified as Loss will be charged off in a timely manner.

As of December 31, 2014 and 2013, pass/pass-watch, special mention and classified (substandard and doubtful) loans (excluding PCI loans), disaggregated by loan class, were as follows:

 

		Pass/Pass-Watch				Special Mention				Classified				Total
		(In thousands)
December 31, 2014
Real estate loans:
Commercial property
Retail		$	654,360			$	18,013			$	2,699			$	675,072
Hotel/motel			397,437				46,365				10,697				454,499
Gas station			345,775				8,899				7,566				362,240
Other			822,037				9,543				10,546				842,126
Construction			9,517				—				—				9,517
Residential property			118,688				66				2,178				120,932
Commercial and industrial loans:
Commercial term			106,326				1,225				8,522				116,073
Commercial lines of credit			92,312				993				555				93,860
International loans			36,121				252				2,556				38,929
Consumer loans			25,313				131				2,068				27,512
Total Non-PCI loans		$	2,607,886			$	85,487			$	47,387			$	2,740,760
December 31, 2013
Real estate loans:
Commercial property
Retail		$	531,014			$	5,309			$	7,296			$	543,619
Hotel/motel			308,483				1,796				12,648				322,927
Gas station			279,636				3,104				9,817				292,557
Other			690,481				8,524				32,612				731,617
Residential property			77,422				—				1,656				79,078
Commercial and industrial loans:
Commercial term			107,712				2,007				14,672				124,391
Commercial lines of credit			69,823				—				1,219				71,042
International loans			35,777				576				—				36,353
Consumer loans			30,044				163				2,298				32,505
Total Non-PCI loans		$	2,130,392			$	21,479			$	82,218			$	2,234,089

 

The following is an aging analysis of gross loans (excluding PCI loans), 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				Accruing 90 Days or More Past Due
		(In thousands)
December 31, 2014
Real estate loans:
Commercial property
Retail		$	1,554			$	281			$	1,920			$	3,755			$	671,317			$	675,072			$	—
Hotel/motel			1,531				2,340				433				4,304				450,195				454,499				—
Gas station			2,991				1,113				353				4,457				357,783				362,240				—
Other			1,674				2,156				1,142				4,972				837,154				842,126				—
Construction			—				—				—				—				9,517				9,517				—
Residential property			167				—				687				854				120,078				120,932				—
Commercial and industrial loans:
Commercial term			1,107				490				2,847				4,444				111,629				116,073				—
Commercial lines of credit			—				—				227				227				93,633				93,860				—
International loans			200				—				—				200				38,729				38,929				—
Consumer loans			489				349				248				1,086				26,426				27,512				—
Total Non-PCI loans		$	9,713			$	6,729			$	7,857			$	24,299			$	2,716,461			$	2,740,760			$	—
December 31, 2013
Real estate loans:
Commercial property
Retail		$	202			$	426			$	2,196			$	2,824			$	540,794			$	543,618			$	—
Hotel/motel			1,087				—				1,532				2,619				320,308				322,927				—
Gas station			141				410				153				704				291,853				292,557				—
Other			423				2,036				839				3,298				728,320				731,618				—
Residential property			—				122				279				401				78,677				79,078				—
Commercial and industrial loans:
Commercial term			1,443				886				3,269				5,598				118,793				124,391				—
Commercial lines of credit			—				150				250				400				70,642				71,042				—
International loans			—				—				—				—				36,353				36,353				—
Consumer loans			311				42				77				430				32,075				32,505				—
Total Non-PCI loans		$	3,607			$	4,072			$	8,595			$	16,274			$	2,217,815			$	2,234,089			$	—

Impaired Loans

Loans are considered impaired when nonaccrual and principal or interest payments have been contractually past due for 90 days or more, unless the loan is both well-collateralized and in the process of collection; or they are classified as TDR loans to offer terms not typically granted by the Bank; or when current information or events make it unlikely to collect in full according to the contractual terms of the loan agreements; or 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 impairment in accordance with applicable GAAP. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical 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. If the measure of the impaired loan is less than the recorded investment in the loan, the deficiency will be charged off against the allowance for loan losses or, alternatively, a specific allocation will be established. Additionally, loans that are considered impaired are specifically excluded from the quarterly migration analysis when determining the amount of the allowance for loan 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 table provides information on impaired loans (excluding PCI loans), disaggregated by loan class, as of the dates indicated:

 

		Recorded Investment				Unpaid Principal Balance				With No Related Allowance Recorded				With an Allowance Recorded				Related Allowance				Average Recorded Investment				Interest Income Recognized
										(In thousands)
December 31, 2014
Real estate loans:
Commercial property
Retail		$	4,436			$	4,546			$	1,938			$	2,498			$	220			$	5,373			$	251
Hotel/motel			5,835				6,426				4,581				1,254				1,828				4,583				398
Gas station			8,974				9,594				8,526				448				150				11,281				787
Other			10,125				11,591				8,890				1,235				319				10,579				885
Residential property			3,127				3,268				3,127				—				—				2,924				115
Commercial and industrial loans:
Commercial term			7,614				8,133				2,999				4,615				2,443				9,458				566
Commercial lines of credit			466				575				466				—				—				1,205				66
International loans			3,546				3,546				2,628				918				286				1,736				33
Consumer loans			1,742				1,907				1,742				—				—				1,651				59
Total Non-PCI loans		$	45,865			$	49,586			$	34,897			$	10,968			$	5,246			$	48,790			$	3,160
December 31, 2013
Real estate loans:
Commercial property
Retail		$	6,244			$	6,332			$	3,767			$	2,477			$	305			$	4,342			$	166
Hotel/motel			6,200				6,940				4,668				1,532				1,183				5,125				530
Gas station			9,389				9,884				8,592				797				209				8,939				756
Other			11,451				12,882				9,555				1,896				351				10,014				1,047
Residential property			2,678				2,773				2,678				—				—				2,941				117
Commercial and industrial loans:
Commercial term			13,834				14,308				2,929				10,905				3,806				13,083				968
Commercial lines of credit			614				686				173				441				252				1,008				54
International loans			1,087				1,087				286				801				78				1,284				—
Consumer loans			1,569				1,671				644				925				284				1,612				71
Total Non-PCI loans		$	53,066			$	56,563			$	33,292			$	19,774			$	6,468			$	48,348			$	3,709
December 31, 2012
Real estate loans:
Commercial property
Retail		$	5,438			$	5,919			$	4,948			$	490			$	94			$	5,186			$	309
Hotel/motel			6,056				6,790				1,943				4,113				1,115				5,384				566
Gas station			8,844				9,239				4,079				4,765				413				9,807				768
Other			12,690				15,487				7,801				4,889				1,141				13,172				1,348
Construction			—				—				—				—				—				6,012				209
Residential property			3,265				3,308				1,866				1,399				94				3,268				164
Commercial and industrial loans:
Commercial term			15,278				17,403				6,896				8,382				2,529				15,010				1,039
Commercial lines of credit			1,521				1,704				848				673				230				1,688				65
Consumer loans			1,652				1,711				449				1,203				615				1,205				73
Total Non-PCI loans		$	54,744			$	61,561			$	28,830			$	25,914			$	6,231			$	60,732			$	4,541

The following is a summary of interest foregone on impaired loans (excluding PCI loans) for the periods indicated:

 

		Year Ended December 31,
		2014				2013				2012
		(In thousands)
Interest income that would have been recognized had impaired loans performed in accordance with their original terms		$	4,468			$	4,451			$	5,887
Less: Interest income recognized on impaired loans			(3,160	)			(3,708	)			(4,541	)
Interest foregone on impaired loans		$	1,308			$	743			$	1,346

There were no commitments to lend additional funds to borrowers whose loans are included above.

 

Nonaccrual Loans

Loans 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 loan is adequately collateralized and in the process of collection. However, in certain instances, we may place a particular loan on nonaccrual status earlier, depending upon the individual circumstances surrounding the loan’s delinquency. When a loan 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 may be restored to accrual status when principal and interest payments become current and full repayment is expected.

The following table details nonaccrual loans (excluding PCI loans), disaggregated by loan class, as of the dates indicated:

 

		As of December 31,
		2014				2013
		(In thousands)
Real estate loans:
Commercial property
Retail		$	2,160			$	2,946
Hotel/motel			3,835				5,200
Gas station			3,478				2,492
Other			4,961				4,808
Residential property			1,588				1,365
Commercial and industrial loans:
Commercial term			7,052				7,146
Commercial lines of credit			466				423
Consumer loans			1,742				1,497
Total nonaccrual Non-PCI loans		$	25,282			$	25,877

The following table details nonperforming assets (excluding PCI loans) as of the dates indicated:

 

		As of December 31,
		2014				2013
		(In thousands)
Nonaccrual Non-PCI loans		$	25,282			$	25,877
Loans 90 days or more past due and still accruing			—				—
Total nonperforming Non-PCI loans			25,282				25,877
Other real estate owned			15,790				756
Total nonperforming assets		$	41,072			$	26,633

As of December 31, 2014, OREOs consisted of twenty seven properties with a combined carrying value of $15.8 million. Of the $15.8 million, $15.3 million were OREOs as loans acquired in the CBI acquisition that were foreclosed subsequent to the acquisition date. As of December 31, 2013, there were three OREOs with a combined carrying value of $756,000 and a valuation adjustment of $56,000.

Troubled Debt Restructuring

In April 2011, the FASB issued ASU 2011-02, “A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring,” which clarifies the guidance for evaluating whether a restructuring constitutes a TDR. This guidance is effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. For the purposes of measuring impairment of loans that are newly considered impaired, the guidance should be applied prospectively for the first interim or annual period beginning on or after June 15, 2011.

 

As a result of the amendments in ASU 2011-02, we reassessed all restructurings that occurred on or after the beginning of the annual period and identified certain receivables as TDRs. Upon identifying those receivables as TDRs, we considered them impaired and applied the impairment measurement guidance prospectively for those receivables newly identified as impaired.

The following table details TDRs (excluding PCI loans), disaggregated by concession type and by loan type, as of December 31, 2014, 2013 and 2012:

 

		Nonaccrual TDRs																				Accrual TDRs
		Deferral of Principal				Deferral of Principal and Interest				Reduction of Principal and Interest				Extension of Maturity				Total				Deferral of Principal				Deferral of Principal and Interest				Reduction of Principal and Interest				Extension of Maturity				Total
		(In thousands)
December 31, 2014
Real estate loans:
Commercial property
Retail		$	—			$	—			$	—			$	2,032			$	2,032			$	306			$	—			$	—			$	—			$	306
Hotel/motel			1,115				(53	)			—				—				1,062				1,807				—				—				—				1,807
Gas station			1,075				—				—				—				1,075				2,335				—				—				—				2,335
Other			943				1,498				433				24				2,898				2,343				—				782				1,372				4,497
Residential property			742				—				—				—				742				—				—				—				308				308
Commercial and industrial loans:
Commercial term			14				(1	)			2,556				1,481				4,050				57				226				567				1,358				2,208
Commercial lines of credit			227				—				126				113				466				2,156				—				—				—				2,156
International loans			—				—				—				—				—				—				—				200				—				200
Consumer loans			—				—				131				—				131				—				—				—				—				—
Total Non-PCI loans		$	4,116			$	1,444			$	3,246			$	3,650			$	12,456			$	9,004			$	226			$	1,549			$	3,038			$	13,817
December 31, 2013
Real estate loans:
Commercial property
Retail		$	—			$	—			$	—			$	750			$	750			$	—			$	—			$	—			$	474			$	474
Hotel/motel			1,272				758				—				—				2,030				1,000				—				—				—				1,000
Gas station			1,291				—				729				—				2,020				365				—				—				2,609				2,974
Other			403				1,279				555				—				2,237				2,956				—				1,253				2,027				6,236
Residential property			795				—				—				—				795				—				—				—				—				—
Commercial and industrial loans:
Commercial term			25				206				1,449				851				2,531				1,203				—				2,286				3,817				7,306
Commercial lines of credit			—				—				—				173				173				—				—				191				—				191
International loans			—				—				—				—				—				—				—				1,087				—				1,087
Consumer loans			—				—				—				—				—				—				—				149				—				149
Total Non-PCI loans		$	3,786			$	2,243			$	2,733			$	1,774			$	10,536			$	5,524			$	—			$	4,966			$	8,927			$	19,417
December 31, 2012
Real estate loans:
Commercial property
Retail		$	2,018			$	—			$	—			$	1,079			$	3,097			$	357			$	—			$	—			$	665			$	1,022
Hotel/motel			1,340				931				—				—				2,271				2,287				—				—				—				2,287
Gas station			1,348				—				—				—				1,348				372				—				—				2,666				3,038
Other			442				1,681				521				—				2,644				2,684				—				448				1,391				4,523
Residential property			827				—				—				—				827				—				572				—				—				572
Commercial and industrial loans:
Commercial term			—				676				5,387				1,415				7,478				1,088				—				1,190				3,260				5,538
Commercial lines of credit			673				—				188				243				1,104				—				—				—				—				—
Total Non-PCI loans		$	6,648			$	3,288			$	6,096			$	2,737			$	18,769			$	6,788			$	572			$	1,638			$	7,982			$	16,980

As of December 31, 2014, 2013 and 2012, total TDRs, excluding loans held for sale, were $26.3 million, $30.0 million and $35.7 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 six months or less. 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 December 31, 2014, 2013 and 2012, TDRs, excluding loans held for sale, were subjected to specific impairment analysis, and $2.9 million, $2.8 million and $3.6 million, respectively, of reserves relating to these loans were included in the allowance for loan losses.

The following table details TDRs (excluding PCI loans), disaggregated by loan class, for the years ended December 31, 2014, 2013 and 2012:

 

		December 31, 2014												December 31, 2013												December 31, 2012
		Number of Loans				Pre- Modification Outstanding Recorded Investment				Post- Modification Outstanding Recorded Investment				Number of Loans				Pre- Modification Outstanding Recorded Investment				Post- Modification Outstanding Recorded Investment				Number of Loans				Pre- Modification Outstanding Recorded Investment				Post- Modification Outstanding Recorded Investment
														(In thousands, except number of loans)
Real estate loans:
Commercial property
Retail (1)			2			$	2,205			$	2,032				—			$	—			$	—				3			$	1,068			$	1,023
Hotel/motel (2)			1				832				821				1				1,000				1,000				3				2,402				2,305
Gas station (3)			1				2,040				1,979				3				903				819				2				1,839				1,720
Other (4)			3				1,422				1,352				4				1,853				1,796				6				4,386				4,176
Residential property (5)			1				317				308				—				—				—				—				—				—
Commercial and industrial loans:
Commercial term (6)			5				721				629				20				4,068				3,534				44				6,423				5,634
Commercial lines of credit (7)			3				2,366				2,509				2				220				191				1				202				188
International loans (8)			1				480				200				2				1,584				1,087				—				—				—
Consumer loans (9)			—				—				—				1				149				149				—				—				—
Total Non-PCI loans			17			$	10,383			$	9,830				33			$	9,777			$	8,576				59			$	16,320			$	15,046

 

(1)	Includes modifications of $2.0 million through payment deferrals for the year ended December 31, 2014, and modifications of $357,000 through a payment deferral and $665,000 through extensions of maturity for the year ended December 31, 2012.

(2)

Includes a modification of $821,000 through a payment deferral for the year ended December 31, 2014, a modification of $1.0 million through a payment deferral for the year ended December 31, 2013, and modifications of $2.3 million through payment deferrals and $18,000 through a reduction of principal or accrued interest for the year ended December 31, 2012.

(3)

Includes a modification of $2.0 million through a payment deferral for the year ended December 31, 2014, modifications of $90,000 through a payment deferral and $729,000 through reductions of principal or accrued interest for the year ended December 31, 2013, and modifications of $1.7 million through payment deferrals for the year ended December 31, 2012.

(4)

Includes modifications of $943,000 through a payment deferral, $385,000 through a reduction of principal or accrued interest and $24,000 through an extension of maturity for the year ended December 31, 2014, modifications of $365,000 through a payment deferral, $785,000 through reductions of principal or accrued interest and $645,000 through an extension of maturity for the year ended December 31, 2013, and modifications of $2.3 million through payments deferrals, $520,000 through reductions of principal or accrued interest and $1.4 million through an extension of maturities for the year ended December 31, 2012.

(5)	Includes a modification of $308,000 through an extension of maturity for the year ended December 31, 2014.

(6)

Includes modifications of $184,000 through reductions of principal or accrued interest and $445,000 through extensions of maturity for the year ended December 31, 2014, modifications of $386,000 through payment deferrals, $733,000 through reductions of principal or accrued interest and $2.5 million through extensions of maturity for the year ended December 31, 2013, and modifications of $1.0 million through payment deferrals, $968,000 through reductions of principal or accrued interest and $3.6 million through extensions of maturity for the year ended December 31, 2012.

(7)

Includes modifications of $2.4 million through payment deferrals and $126,000 through a reduction of principal or accrued interest for the year ended December 31, 2014, modifications of $191,000 through reductions of principal or accrued interest for the year ended December 31, 2013, and a modification of $188,000 through a reduction of principal or accrued interest for the year ended December 31, 2012.

(8)	Includes modifications of $200,000 through a reduction of principal or accrued interest for the year ended December 31, 2014, and modifications of $1.1 million through reductions of principal or accrued interest for the year ended December 31, 2013.

(9)	Includes a modification of $149,000 through a reduction of principal or accrued interest for the year ended December 31, 2012.

During the year ended December 31, 2014, we restructured monthly payments on 17 loans, with a net carrying value of $9.8 million as of December 31, 2014, through temporary payment structure modifications or re-amortization. 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.

 

The following table details TDRs (excluding PCI loans) that defaulted subsequent to the modifications occurring within the previous twelve months, disaggregated by loan class, for years ended December 31, 2014, 2013 and 2012, respectively:

 

		For the Year Ended
		December 31, 2014								December 31, 2013								December 31, 2012
		Number of Loans				Recorded Investment				Number of Loans				Recorded Investment				Number of Loans				Recorded Investment
		(In thousands, except number of loans)
Real estate loans:
Commercial property
Retail			1			$	1,856				—			$	—				—			$	—
Gas station			—				—				1				90				—				—
Other			3				1,352				1				125				—				—
Commercial and industrial loans:
Commercial term			—				—				2				123				11				719
Commercial lines of credit			2				353				—				—				1				188
Total Non-PCI loans			6			$	3,561				4			$	338				12			$	907

Purchased Credit Impaired Loans

As part of the acquisition of CBI, the Company purchased loans for which there was, at acquisition, evidence of deterioration of credit quality subsequent to origination and it was probable, at acquisition, that all contractually required payments would not be collected. The following table summarizes the changes in carrying value of PCI loans during the year ended December 31, 2014:

 

		Carrying				Accretable
		Amount				Yield
		(In thousands)
Balance at January 1, 2014		$	—			$	—
Additions from CBI acquisition at August 31, 2014			65,346				(10,856	)
Accretion			1,448				1,448
Payments received			(17,803	)			—
Disposal/transfers to OREO			(4,490	)			—
Increase in expected cash flows, net			—				(1,617	)
Provision for credit losses			(1,026	)			—
Balance at December 31, 2014		$	43,475			$	(11,025	)

As of December 31, 2014, pass/pass-watch, special mention and classified (substandard and doubtful) PCI loans, disaggregated by loan class, were as follows:

 

		As of December 31, 2014
																		Allowance				Total
		Pass/Pass-Watch				Special Mention				Classified				Total				Amount				PCI Loans
		(In thousands)
Real estate loans:
Commercial property
Retail		$	1,207			$	219			$	7,109			$	8,535			$	401			$	8,134
Hotel/motel			—				—				7,682				7,682				99				7,583
Gas station			—				1,242				6,503				7,745				302				7,443
Other			—				—				5,796				5,796				65				5,731
Residential property			—				—				14,371				14,371				28				14,343
Commercial and industrial loans:
Commercial term			—				—				327				327				131				196
Consumer loans			—				—				45				45				—				45
Total PCI loans		$	1,207			$	1,461			$	41,833			$	44,501			$	1,026			$	43,475

Loans accounted for as PCI are generally considered accruing and performing loans as the accretable discount is accreted to interest income over the estimated life of the loan when cash flows are reasonably estimable. Accordingly, PCI loans that are contractually past due are still considered to be accruing and performing loans. If the timing and amount of future cash flows is not reasonably estimable, the loans are classified as nonaccrual loans and interest income is not recognized until the timing and amount of future cash flows can be reasonably estimated. As of December 31, 2014, we had no PCI loans on nonaccrual status and included in the delinquency table below.

 

The following table presents a summary of the borrowers’ underlying payment status of PCI loans 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				Allowance Amount				Total PCI Loans
		(In thousands)
December 31, 2014
Real estate loans:
Commercial property
Retail		$	93			$	287			$	3,815			$	4,195			$	4,340			$	8,535			$	401			$	8,134
Hotel/motel			312				—				2,490				2,802				4,880				7,682				99				7,583
Gas station			1,139				1,053				3,178				5,370				2,375				7,745				302				7,443
Other			—				—				5,235				5,235				561				5,796				65				5,731
Residential property			—				—				13,594				13,594				777				14,371				28				14,343
Commercial and industrial loans:
Commercial term			30				—				135				165				162				327				131				196
Consumer loans			—				17				28				45				—				45				—				45
Total PCI loans		$	1,574			$	1,357			$	28,475			$	31,406			$	13,095			$	44,501			$	1,026			$	43,475

Servicing Assets & Liabilities

The changes in servicing assets and liabilities for the years ended December 31, 2014 and 2013 were as follows:

 

		As of December 31,
		2014				2013
		(In thousands)
Servicing assets:
Balance at beginning of period		$	6,833			$	5,542
Additions from CBI acquisition			7,497				—
Addition related to sale of SBA loans			1,332				2,754
Amortization			(1,889	)			(1,463	)
Balance at end of period		$	13,773			$	6,833
Servicing liabilities:
Balance at beginning of period		$	106			$	120
Additions from CBI acquisition			6,039				—
Amortization			(174	)			(14	)
Balance at end of period		$	5,971			$	106

At December 31, 2014 and 2013, we serviced loans sold to unaffiliated parties in the amounts of $500.9 million and $350.0 million, respectively. These represented loans that have been sold for which the Bank continues to provide servicing. These loans are maintained off balance sheet and are not included in the loans receivable balance. All of the loans being serviced were SBA loans.

FDIC Loss Sharing Asset & Liability

The FDIC loss sharing asset related to the assumption of Single Family and Commercial Shared-Loss Agreement (“SLAs”) between CBI and the FDIC arising from the CBI’s acquisition of Mutual Bank. The loss sharing asset was measured at its fair value as of August 31, 2014 in conjunction with the acquisition of CBI. During the third quarter of 2014, the Bank submitted losses in excess of the stated reimbursement threshold of $611.0 million, increasing the reimbursable percentage to 95 from 80. The three-year recovery period on the Commercial Share-Loss Portfolio commenced on October 1, 2014. During this period, 95 percent of any recoveries of previously charged-off and reimbursed Commercial SLA loans need to be reimbursed to the FDIC, less any reasonable recovery costs incurred. As of December 31, 2014, the FDIC loss sharing liability was related to $2.1 million net payables to the FDIC, consisting of $3.3 million of the FDIC recoveries partially offset by $1.2 million of reimbursable expense owed to the Bank. Of the $2.1 million net payable to the FDIC, $102,000 was related to the Single Family SLA Portfolio.