Note 5 — 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 non-performing 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 functions that review and monitor pass graded loans as well as problem loans to prevent further deterioration.

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. Most of the Bank’s lending activity occurs within Southern California.

Loans Receivable

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

 

		June 30,				December 31,
		2014				2013
		(In thousands)
Real estate loans:
Commercial property (1)
Retail		$	561,654			$	543,619
Hotel/Motel			338,128				322,927
Gas station			283,097				292,557
Other			797,176				731,617
Construction			1,467				—
Residential property			108,561				79,078
Total real estate loans			2,090,083				1,969,798
Commercial and industrial loans:
Commercial term			115,493				124,391
Commercial lines of credit			70,801				71,042
International loans			44,015				36,353
Total commercial and industrial loans			230,309				231,786
Consumer loans			28,843				32,505
Total gross loans			2,349,235				2,234,089
Allowance for loans losses			(51,886	)			(57,555	)
Deferred loan costs			3,461				964
Loans receivable, net		$	2,300,810			$	2,177,498

 

 

(1)	Includes owner-occupied property loans of $962.7 million and $957.3 million as of June 30, 2014 and December 31, 2013, respectively.

Accrued interest on loans receivable was $5.1 million and $5.4 million at June 30, 2014 and December 31, 2013, respectively. At June 30, 2014 and December 31, 2013, loans receivable totaling $921.2 million and $568.7 million, respectively, were pledged to secure advances from the FHLB and the Federal Reserve Bank’s (“FRB”) federal discount window.

 

The following table details the information on the sales and reclassifications of loans receivable to loans held for sale by portfolio segment for the three months ended June 30, 2014 and 2013:

 

		Real Estate				Commercial and Industrial				Consumer				Total
		(In thousands)
June 30, 2014
Balance at beginning of period		$	390			$	—			$	—			$	390
Origination of loans held for sale			8,124				2,091				—				10,215
Sales of loans held for sale			(5,944	)			(815	)			—				(6,759	)
Principal payoffs and amortization			(2	)			(2	)			—				(4	)
Balance at end of period		$	2,568			$	1,274			$	—			$	3,842
June 30, 2013
Balance at beginning of period		$	5,769			$	274			$	—			$	6,043
Origination of loans held for sale			21,752				1,082				—				22,834
Reclassification from loans receivable to loans held for sale			1,066				3,571				—				4,637
Sales of loans held for sale			(25,213	)			(5,743	)			—				(30,956	)
Principal payoffs and amortization			(1	)			(4	)			—				(5	)
Balance at end of period		$	3,373			$	(820	)		$	—			$	2,553

For the three months ended June 30, 2014, there was no reclassification of loans receivable as loans held for sale, and loans held for sale of $6.8 million were sold. For the three months ended June 30, 2013, loans receivable of $4.6 million were reclassified as loans held for sale, and loans held for sale of $31.0 million were sold.

The following table details the information on the sales and reclassifications of loans receivable to loans held for sale by portfolio segment for the six months ended June 30, 2014 and 2013:

 

		Real Estate				Commercial and Industrial				Consumer				Total
		(In thousands)
June 30, 2014
Balance at beginning of period		$	—			$	—			$	—			$	—
Origination of loans held for sale			14,393				2,176				—				16,569
Sales of loans held for sale			(11,818	)			(899	)			—				(12,717	)
Principal payoffs and amortization			(7	)			(3	)			—				(10	)
Balance at end of period		$	2,568			$	1,274			$	—			$	3,842
June 30, 2013
Balance at beginning of period		$	7,977			$	329			$	—			$	8,306
Origination of loans held for sale			43,092				2,886				—				45,978
Reclassification from loans receivable to loans held for sale			4,439				3,571				—				8,010
Sales of loans held for sale			(52,120	)			(7,601	)			—				(59,721	)
Principal payoffs and amortization			(15	)			(5	)			—				(20	)
Balance at end of period		$	3,373			$	(820	)		$	—			$	2,553

For the six months ended June 30, 2014, there was no reclassification of loans receivable as loans held for sale, and loans held for sale of $12.7 million were sold. For the six months ended June 30, 2013, loans receivable of $8.0 million were reclassified as loans held for sale, and loans held for sale of $59.7 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								As of and for the
		Three Months Ended								Six Months Ended
		June 30,				June 30,				June 30,				June 30,
		2014				2013				2014				2013
		(In thousands)
Allowance for loan losses:
Balance at beginning of period		$	56,593			$	61,191			$	57,555			$	63,305
Charge-offs			(2,547	)			(3,490	)			(4,151	)			(6,514	)
Recoveries on loans previously charged off			1,741				1,867				5,992				2,581
Net loan (charge-offs) recoveries			(806	)			(1,623	)			1,841				(3,933	)
(Negative provision) provision charged to operating expense			(3,901	)			308				(7,510	)			504
Balance at end of period		$	51,886			$	59,876			$	51,886			$	59,876
Allowance for off-balance sheet items:
Balance at beginning of period		$	1,557			$	1,628			$	1,248			$	1,822
Provision (negative provision) charged to operating expense			35				(308	)			344				(502	)
Balance at end of period		$	1,592			$	1,320			$	1,592			$	1,320

The allowance for off-balance sheet items is maintained at a level believed to be sufficient to absorb estimated 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 June 30, 2014 and December 31, 2013, the allowance for off-balance sheet items amounted to $1.6 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 three months ended June 30, 2014 and 2013:

 

		Real Estate				Commercial and Industrial				Consumer				Unallocated				Total
		(In thousands)
June 30, 2014
Allowance for loan losses:
Beginning balance		$	44,230			$	10,425			$	633			$	1,305			$	56,593
Charge-offs			(60	)			(2,474	)			(13	)			—				(2,547	)
Recoveries on loans previously charged off			87				1,652				2				—				1,741
(Negative provision) provision			(3,954	)			135				(82	)			—				(3,901	)
Ending balance		$	40,303			$	9,738			$	540			$	1,305			$	51,886
Ending balance: individually evaluated for impairment		$	2,448			$	2,605			$	113			$	—			$	5,166
Ending balance: collectively evaluated for impairment		$	37,855			$	7,133			$	427			$	1,305			$	46,720
Loans receivable:
Ending balance		$	2,090,083			$	230,309			$	28,843			$	—			$	2,349,235
Ending balance: individually evaluated for impairment		$	35,616			$	10,741			$	1,529			$	—			$	47,886
Ending balance: collectively evaluated for impairment		$	2,054,467			$	219,568			$	27,314			$	—			$	2,301,349
June 30, 2013
Allowance for loan losses:
Beginning balance		$	46,328			$	11,064			$	1,795			$	2,004			$	61,191
Charge-offs			(2,289	)			(1,165	)			(36	)			—				(3,490	)
Recoveries on loans previously charged off			1,101				760				6				—				1,867
Provision (negative provision)			1,256				459				119				(1,526	)			308
Ending balance		$	46,396			$	11,118			$	1,884			$	478			$	59,876
Ending balance: individually evaluated for impairment		$	711			$	4,328			$	385			$	—			$	5,424
Ending balance: collectively evaluated for impairment		$	45,685			$	6,790			$	1,499			$	478			$	54,452
Loans receivable:
Ending balance		$	1,964,853			$	187,156			$	35,380			$	—			$	2,187,389
Ending balance: individually evaluated for impairment		$	28,267			$	15,760			$	1,647			$	—			$	45,674
Ending balance: collectively evaluated for impairment		$	1,936,586			$	171,396			$	33,733			$	—			$	2,141,715

 

The following table details the information on the allowance for loan losses by portfolio segment for the six months ended June 30, 2014 and 2013:

 

		Real Estate				Commercial and Industrial				Consumer				Unallocated				Total
		(In thousands)
June 30, 2014
Allowance for loan losses:
Beginning balance		$	43,550			$	11,287			$	1,427			$	1,291			$	57,555
Charge-offs			(1,188	)			(2,896	)			(67	)			—				(4,151	)
Recoveries on loans previously charged off			3,005				2,973				14				—				5,992
(Negative provision) provision			(5,064	)			(1,626	)			(834	)			14				(7,510	)
Ending balance		$	40,303			$	9,738			$	540			$	1,305			$	51,886
Ending balance: individually evaluated for impairment		$	2,448			$	2,605			$	113			$	—			$	5,166
Ending balance: collectively evaluated for impairment		$	37,855			$	7,133			$	427			$	1,305			$	46,720
Loans receivable:
Ending balance		$	2,090,083			$	230,309			$	28,843			$	—			$	2,349,235
Ending balance: individually evaluated for impairment		$	35,616			$	10,741			$	1,529			$	—			$	47,886
Ending balance: collectively evaluated for impairment		$	2,054,467			$	219,568			$	27,314			$	—			$	2,301,349
June 30, 2013
Allowance for loan losses:
Beginning balance		$	49,472			$	10,636			$	2,280			$	917			$	63,305
Charge-offs			(3,575	)			(2,740	)			(199	)			—				(6,514	)
Recoveries on loans previously charged off			1,282				1,244				55				—				2,581
(Negative provision) provision			(783	)			1,978				(251	)			(440	)			504
Ending balance		$	46,396			$	11,118			$	1,885			$	477				59,876
Ending balance: individually evaluated for impairment		$	711			$	4,328			$	385			$	—				5,424
Ending balance: collectively evaluated for impairment		$	45,685			$	6,790			$	1,500			$	477				54,452
Loans receivable:
Ending balance		$	1,964,853			$	187,156			$	35,380			$	—				2,187,389
Ending balance: individually evaluated for impairment		$	28,267			$	15,760			$	1,647			$	—				45,674
Ending balance: collectively evaluated for impairment		$	1,936,586			$	171,396			$	33,733			$	—				2,141,715

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 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 grading system. It incorporates all performing loans 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 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 June 30, 2014 and December 31, 2013, pass/pass-watch (grade 0-4), criticized (grade 5) and classified (grade 6-7) loans, disaggregated by loan class, were as follows:

 

		Pass/Pass-Watch (Grade 0-4)				Criticized (Grade 5)				Classified (Grade 6-7)				Total Loans
		(In thousands)
June 30, 2014
Real estate loans:
Commercial property
Retail		$	549,750			$	6,625			$	5,279			$	561,654
Hotel/Motel			325,745				7,386				4,997				338,128
Gas station			273,300				1,846				7,951				283,097
Other			773,540				10,903				12,733				797,176
Construction			1,467				—				—				1,467
Residential property			106,801				—				1,760				108,561
Commercial and industrial loans:
Commercial term			103,734				1,953				9,806				115,493
Commercial lines of credit			69,070				—				1,731				70,801
International loans			43,764				251				—				44,015
Consumer loans			26,795				148				1,900				28,843
Total gross loans		$	2,273,966			$	29,112			$	46,157			$	2,349,235
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 gross loans		$	2,130,392			$	21,479			$	82,218			$	2,234,089

 

The following is an aging analysis of past due 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 Loans				Accruing 90 Days or More Past Due
		(In thousands)
June 30, 2014
Real estate loans:
Commercial property
Retail		$	820			$	—			$	732			$	1,552			$	560,102			$	561,654			$	—
Hotel/Motel			53				—				2,462				2,515				335,613				338,128				—
Gas station			166				—				3,947				4,113				278,984				283,097				—
Other			356				11				930				1,297				795,879				797,176				—
Construction			—				—				—				—				1,467				1,467				—
Residential property			884				—				113				997				107,564				108,561				—
Commercial and industrial loans:
Commercial term			1,975				587				2,623				5,185				110,308				115,493				—
Commercial lines of credit			140				795				—				935				69,866				70,801				—
International loans			—				—				—				—				44,015				44,015				—
Consumer loans			249				21				46				316				28,527				28,843				—
Total gross loans		$	4,643			$	1,414			$	10,853			$	16,910			$	2,332,325			$	2,349,235			$	—
December 31, 2013
Real estate loans:
Commercial property
Retail		$	202			$	426			$	2,196			$	2,825			$	540,794			$	543,619			$	—
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				3,297				728,320				731,617				—
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 gross loans		$	3,607			$	4,072			$	8,595			$	16,274			$	2,217,815			$	2,234,089			$	—

Impaired Loans

Loans are considered impaired when non-accrual 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 Troubled Debt Restructuring (“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 non-performing. 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, 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
		(In thousands)
June 30, 2014
Real estate loans:
Commercial property
Retail		$	5,198			$	5,427			$	2,665				2,533			$	403
Hotel/Motel			4,627				5,337				4,166				461				1,500
Gas station			12,400				12,905				11,779				621				238
Other			10,569				11,905				8,475				2,094				307
Residential property			2,822				2,942				2,822				—				—
Commercial and industrial loans:
Commercial term			8,952				9,429				2,400				6,552				2,570
Commercial lines of credit			704				799				521				183				3
International loans			1,085				1,085				450				635				32
Consumer loans			1,529				1,664				622				907				113
Total gross loans		$	47,886			$	51,493			$	33,900			$	13,986			$	5,166
December 31, 2013
Real estate loans:
Commercial property
Retail		$	6,244			$	6,332			$	3,767			$	2,477			$	305
Hotel/Motel			6,200				6,940				4,668				1,532				1,183
Gas station			9,389				9,884				8,592				797				209
Other			11,451				12,882				9,555				1,896				351
Residential property			2,678				2,773				2,678				—				—
Commercial and industrial loans:
Commercial term			13,834				14,308				2,929				10,905				3,806
Commercial lines of credit			614				686				173				441				252
International loans			1,087				1,087				286				801				78
Consumer loans			1,569				1,671				644				925				284
Total gross loans		$	53,066			$	56,563			$	33,292			$	19,774			$	6,468

 

The following table provides information on impaired loans, disaggregated by loan class, as of the dates indicated:

 

		Average Recorded Investment for the Three Months Ended				Interest Income Recognized for the Three Months Ended				Average Recorded Investment for the Six Months Ended				Interest Income Recognized for the Six Months Ended
		(In thousands)
June 30, 2014
Real estate loans:
Commercial property
Retail		$	5,286			$	108			$	6,295			$	179
Hotel/Motel			4,712				80				4,121				129
Gas station			12,432				181				10,944				369
Other			10,624				228				11,124				451
Residential property			2,833				30				2,692				57
Commercial and industrial loans:
Commercial term			9,085				140				10,952				317
Commercial lines of credit			713				11				729				25
International loans			1,131				—				1,130				—
Consumer loans			1,535				16				1,547				30
Total gross loans		$	48,351			$	794			$	49,534			$	1,557
June 30, 2013
Real estate loans:
Commercial property
Retail		$	3,098			$	24			$	4,193			$	78
Hotel/Motel			3,944				121				3,940				257
Gas station			8,739				173				8,773				340
Other			9,583				290				9,919				536
Residential property			3,027				31				3,043				59
Commercial and industrial loans:
Commercial term			13,687				263				13,836				501
Commercial lines of credit			1,060				9				1,286				24
International loans			1,330				—				1,414				—
Consumer loans			1,649				15				1,646				27
Total gross loans		$	46,117			$	926			$	48,050			$	1,822

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

 

		Three Months Ended								Six Months Ended
		June 30,				June 30,				June 30,				June 30,
		2014				2013				2014				2013
		(In thousands)
Interest income that would have been recognized had impaired loans performed in accordance with their original terms		$	1,215			$	1,057			$	2,427			$	2,125
Less: Interest income recognized on impaired loans			(794	)			(926	)			(1,557	)			(1,822	)
Interest foregone on impaired loans		$	421			$	131			$	870			$	303

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

 

Non-Accrual Loans

Loans are placed on non-accrual 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 non-accrual status earlier, depending upon the individual circumstances surrounding the loan’s delinquency. When a loan is placed on non-accrual 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. Non-accrual loans may be restored to accrual status when principal and interest payments become current and full repayment is expected.

The following table details non-accrual loans, disaggregated by loan class, as of the dates indicated:

 

		June 30,				December 31,
		2014				2013
		(In thousands)
Real estate loans:
Commercial property
Retail		$	2,802			$	2,946
Hotel/Motel			3,631				5,200
Gas station			5,356				2,492
Other			4,369				4,808
Residential property			1,162				1,365
Commercial and industrial loans:
Commercial term			5,965				7,146
Commercial lines of credit			521				423
Consumer loans			1,575				1,497
Total non-accrual loans		$	25,381			$	25,877

The following table details non-performing assets as of the dates indicated:

 

		June 30,				December 31,
		2014				2013
		(In thousands)
Non-accrual loans		$	25,381			$	25,877
Loans 90 days or more past due and still accruing			—				—
Total non-performing loans			25,381				25,877
Other real estate owned			1,714				756
Total non-performing assets		$	27,095			$	26,633

Loans on non-accrual status, excluding loans held for sale, totaled $25.4 million as of June 30, 2014, compared to $25.9 million as of December 31, 2013, representing a 1.9 percent decrease. Delinquent loans (defined as 30 days or more past due), excluding loans held for sale, were $16.9 million as of June 30, 2014, compared to $16.3 million as of December 31, 2013, representing a 3.9 percent increase.

As of June 30, 2014, other real estate owned (“OREO”) consisted of two properties in California with a combined carrying value of $1.7 million and no valuation adjustment. As of December 31, 2013, there were three OREOs located in Washington and California 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 troubled debt restructurings, disaggregated by concession type and by loan type, as of June 30, 2014 and December 31, 2013:

 

		Non-Accrual 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)
June 30, 2014
Real estate loans:
Commercial property
Retail		$	—			$	—			$	—			$	2,614			$	2,614			$	309			$	—			$	—			$	—			$	309
Hotel/Motel			1,200				738				—				—				1,938				996				—				—				—				996
Gas station			1,138				—				—				—				1,138				363				—				—				—				363
Other			—				1,199				494				62				1,755				3,334				—				798				1,380				5,512
Residential property			769				—				—				—				769				—				—				—				313				313
Commercial and industrial loans:
Commercial term			62				4				1,246				902				2,214				129				227				2,169				2,286				4,811
Commercial lines of credit			238				—				140				143				521				—				—				183				—				183
Consumer loans			—				—				139				—				139				—				—				—				—				—
Total		$	3,407			$	1,941			$	2,019			$	3,721			$	11,088			$	5,131			$	227			$	3,150			$	3,979			$	12,487
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		$	3,786			$	2,243			$	2,733			$	1,774			$	10,536			$	5,524			$	—			$	4,966			$	8,927			$	19,417

As of June 30, 2014 and December 31, 2013, total TDRs, excluding loans held for sale, were $23.6 million and $30.0 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 June 30, 2014 and December 31, 2013, TDRs, excluding loans held for sale, were subjected to specific impairment analysis, and $2.6 million and $2.8 million, respectively, of reserves relating to these loans were included in the allowance for loan losses.

 

The following table details troubled debt restructurings, disaggregated by loan class, for the three months ended June 30, 2014 and 2013:

 

		June 30, 2014												June 30, 2013
		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)			1			$	2,002			$	1,882				—			$	—			$	—
Other (2)			1			$	65			$	62				1			$	148			$	140
Residential property (3)			1				316				313				—				—				—
Commercial and industrial loans:
Commercial term (4)			2				59				53				6				518				498
Commercial lines of credit (5)			1				146				140				—				—				—
Consumer loans (6)			—				—				—				1				149				149
Total			6			$	2,588			$	2,450				8			$	815			$	787

 

(1)	Includes a modification of $1.9 million through an extension of maturity for the three months ended June 30, 2014.

(2)	Includes a modification of $62,000 through an extension of maturity for the three months ended June 30, 2014 and a modification of $140,000 through a reduction of principal or accrued interest for the three months ended June 30, 2013.

(3)	Includes a modification of $313,000 through an extension of maturity for the three months ended June 30, 2014.

(4)

Includes modifications of $41,000 through a payment deferral and $12,000 through a reduction of principal or accrued interest for the three months ended June 30, 2014, and modifications of $42,000 through a reduction of principal or accrued interest and $456,000 through extensions of maturity for the three months ended June 30, 2013.

(5)	Includes a modification of $140,000 through a reduction of principal or accrued interest for the three months ended June 30, 2014.

(6)	Includes a modification of $149,000 through a reduction of principal or accrued interest for the three months ended June 30, 2013.

During the three months ended June 30, 2014, we restructured monthly payments on six loans, with a net carrying value of $2.5 million as of June 30, 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 troubled debt restructurings, disaggregated by loan class, for the six months ended June 30, 2014 and 2013:

 

		June 30, 2014												June 30, 2013
		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)			1			$	2,002			$	1,882				—			$	—			$	—
Other (2)			2				1,011				1,005				1				153				140
Residential property (3)			1				317				313				—				—				—
Commercial and industrial loans:
Commercial term (4)			5				327				287				8				772				699
Commercial lines of credit (5)			2				400				378				—				—				—
International loans (6)			—				—				—				2				1,584				1,280
Consumer loans (7)			—				—				—				1				149				149
Total			11			$	4,057			$	3,865				12			$	2,658			$	2,268

 

(1)	Includes a modification of $1.9 million through an extension of maturity for the six months ended June 30, 2014.

(2)	Includes modifications of $62,000 through an extension of maturity and $943,000 through a payment deferral for the six months ended June 30, 2014, and a modification of $140,000 through a reduction of principal or accrued interest for the six months ended June 30, 2013.

(3)	Includes a modification of $313,000 through an extension of maturity for the six months ended June 30, 2014.

(4)

Includes modifications of $41,000 through a payment deferral, $65,000 through reductions of principal or accrued interest and $181,000 through an extension of maturity for the six months ended June 30, 2014, and modifications of $7,000 through a payment deferral, $42,000 through a reduction of principal or accrued interests and $650,000 through extensions of maturity for the six months ended June 30, 2013.

(5)	Includes modifications of $140,000 through a reduction of principal or accrued interest and $238,000 through a payment deferral for the six months ended June 30, 2014.

(6)	Includes a modification of $1.3 million through reductions of principal or accrued interest for the six months ended June 30, 2013.

(7)	Includes a modification of $149,000 through a reduction of principal or accrued interest for the six months ended June 30, 2013.

During the six months ended June 30, 2014, we restructured monthly payments on eleven loans, with a net carrying value of $3.9 million as of June 30, 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 troubled debt restructurings that defaulted subsequent to the modifications occurring within the previous twelve months, disaggregated by loan class, for the three and six months ended June 30, 2014 and 2013, respectively:

 

		Three Months Ended																Six Months Ended
		June 30, 2014								June 30, 2013								June 30, 2014								June 30, 2013
		Number of Loans				Recorded Investment				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			$	309				—			$	—
Hotel/Motel			—				—				—				—				1				996				—				—
Gas station			—				—				—				—				—				—				1				1,274
Other			—				—				1				140				1				364				1				140
Commercial and industrial loans:
Commercial term			2				212				5				341				2				212				5				341
Commercial lines of credit			1				140				—				—				1				140				—				—
Total			3			$	352				6			$	481				6			$	2,021				7			$	1,755

 

Servicing Assets

The changes in servicing assets for the six months ended June 30, 2014 and 2013 were as follows:

 

		Six Months Ended June 30,
		2014				2013
		(In thousands)
Balance at beginning of period		$	6,833			$	5,542
Additions			413				1,580
Amortization			(891	)			(739	)
Balance at end of period		$	6,355			$	6,383

At June 30, 2014 and 2013, we serviced loans sold to unaffiliated parties in the amounts of $333.0 million and $330.4 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.