Note 6 — Loans

The loan portfolio includes originated and purchased loans. Loans are originated by the Company with the intent to hold them for investment and are stated at the principal amount outstanding, net of unearned income. Unearned income includes deferred unamortized nonrefundable loan fees and direct loan origination costs. Net deferred fees or costs are recognized as an adjustment to interest income over the contractual life of the loans using the effective interest method or taken into income when the related loans are paid off or sold. The amortization of loan fees or costs is discontinued when a loan is placed on nonaccrual status. Interest income is recorded on an accrual basis in accordance with the terms of the respective loan and includes prepayment penalties.

Purchased loans, which are loans we have acquired through our acquisition of other banks, are stated at the principal amount outstanding, net of unearned discounts or unamortized premiums. All loans acquired in our acquisitions are initially measured and recorded at their fair value on the acquisition date. A component of the initial fair value measurement is an estimate of the credit losses over the life of the purchased loans. Purchased loans are also evaluated for impairment as of the acquisition date and are accounted for as “acquired non-impaired” or “purchased credit impaired” loans.

Acquired non-impaired loans are those loans for which there was no evidence of credit deterioration at their acquisition date and it was probable that we would be able to collect all contractually required payments. Acquired non-impaired loans, together with originated loans, are referred to as non-purchased credit impaired (“Non-PCI”) loans. Purchase discount or premium on acquired non-impaired loans is recognized as an adjustment to interest income over the contractual life of such loans using the effective interest method or taken into income when the related loans are paid off or sold.

Purchased credit impaired (“PCI”) loans are accounted for in accordance with ASC Subtopic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality.” A purchased loan is deemed to be credit impaired when there is evidence of credit deterioration since its origination and it is probable at the acquisition date that we would be unable to collect all contractually required payments. We apply PCI loan accounting when we acquire loans deemed to be impaired.

For PCI loans, at the time of acquisition we (i) calculated the contractual amount and timing of undiscounted principal and interest payments (the “undiscounted contractual cash flows”) and (ii) estimated the amount and timing of undiscounted expected principal and interest payments (the “undiscounted expected cash flows”). The difference between the undiscounted contractual cash flows and the undiscounted expected cash flows is the nonaccretable difference. The nonaccretable difference represents an estimate of the loss exposure of principal and interest related to the PCI loan portfolios; such amount is subject to change over time based on the performance of such loans. The carrying value of PCI loans is reduced by payments received, both principal and interest, and increased by the portion of the accretable yield recognized as interest income.

The excess of expected cash flows at acquisition over the initial fair value of acquired impaired loans is referred to as the “accretable yield” and is recorded as interest income over the estimated life of the loans using the effective yield. If estimated cash flows are indeterminable, the recognition of interest income will cease to be recognized.

At acquisition, the Company may aggregate PCI loans into pools having common credit risk characteristics such as product type, geographic location and risk rating. Increases in expected cash flows over those previously estimated increase the accretable yield and are recognized as interest income prospectively. Decreases in the amount and changes in the timing of expected cash flows compared to those previously estimated decrease the accretable yield and usually result in a provision for loan losses and the establishment of an allowance for loan losses. As the accretable yield increases or decreases from changes in cash flow expectations, the offset is a decrease or increase to the nonaccretable difference. The accretable yield is measured at each financial reporting date based on information then currently available and represents the difference between the remaining undiscounted expected cash flows and the current carrying value of the 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, 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.

 

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:

 

		March 31, 2015												December 31, 2014
		Non-PCI Loans				PCI Loans				Total				Non-PCI Loans				PCI Loans				Total
		(In thousands)
Real estate loans:
Commercial property (1)
Retail		$	679,938			$	10,565			$	690,503			$	675,072			$	8,535			$	683,607
Hotel/motel			481,960				11,720				493,680				454,499				7,682				462,181
Gas station			346,798				6,441				353,239				362,240				7,745				369,985
Other			820,707				10,174				830,881				842,126				5,796				847,922
Construction			15,123				—				15,123				9,517				—				9,517
Residential property			154,797				1,716				156,513				120,932				14,371				135,303
Total real estate loans			2,499,323				40,616				2,539,939				2,464,386				44,129				2,508,515
Commercial and industrial loans:
Commercial term			116,252				281				116,533				116,073				327				116,400
Commercial lines of credit			97,761				—				97,761				93,860				—				93,860
International loans			36,338				—				36,338				38,929				—				38,929
Total commercial and industrial loans			250,351				281				250,632				248,862				327				249,189
Consumer loans			25,942				44				25,986				27,512				45				27,557
Total gross loans			2,775,616				40,941				2,816,557				2,740,760				44,501				2,785,261
Allowance for loans losses			(51,515	)			(1,436	)			(52,951	)			(51,640	)			(1,026	)			(52,666	)
Deferred loan costs			3,474				—				3,474				3,237				—				3,237
Loans receivable, net		$	2,727,575			$	39,505			$	2,767,080			$	2,692,357			$	43,475			$	2,735,832

 

(1)	Includes owner-occupied property loans of $1.14 billion and $1.12 billion as of March 31, 2015 and December 31, 2014, respectively.

Accrued interest on loans receivable was $6.2 million and $6.4 million at March 31, 2015 and December 31, 2014, respectively. At March 31, 2015 and December 31, 2014, loans receivable totaling $802.0 million and $840.0 million, respectively, were pledged to secure advances from the FHLB and the FRB’s Federal Reserve 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 three months ended March 31, 2015 and 2014:

 

		Real Estate				Commercial and Industrial				Consumer				Total Non-PCI
		(In thousands)
March 31, 2015
Balance at beginning of period		$	3,323			$	2,128			$	—			$	5,451
Origination of loans held for sale			16,927				6,181				—				23,108
Sales of loans held for sale			(13,014	)			(6,840	)			—				(19,854	)
Principal payoffs and amortization			(10	)			(18	)			—				(28	)
Balance at end of period		$	7,226			$	1,451			$	—			$	8,677
March 31, 2014
Balance at beginning of period		$	—			$	—			$	—			$	—
Origination of loans held for sale			6,269				85				—				6,354
Sales of loans held for sale			(5,874	)			(84	)			—				(5,958	)
Principal payoffs and amortization			(5	)			(1	)			—				(6	)
Balance at end of period		$	390			$	—			$	—			$	390

 

For the three months ended March 31, 2015, there was no reclassification of Non-PCI loans receivable as Non-PCI loans held for sale, and Non-PCI loans held for sale of $19.9 million were sold. In addition, there was no reclassification from Non-PCI loans held for sale to Non-PCI loans receivable for the three months ended March 31, 2015. For the three months ended March 31, 2014, there was no reclassification of Non-PCI loans receivable as Non-PCI loans held for sale, and Non-PCI loans held for sale of $6.0 million were sold. In addition, there was no reclassification from Non-PCI loans held for sale to Non-PCI loans receivable for the three months ended March 31, 2014.

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:

 

		March 31, 2015												March 31 2014
		Non-PCI Loans				PCI Loans				Total
		(In thousands)
Allowance for loan losses:
Balance at beginning of period		$	51,640			$	1,026			$	52,666			$	57,555
Charge-offs			(34	)			(52	)			(86	)			(1,604	)
Recoveries on loans previously charged off			1,692				352				2,044				4,251
Net loan recoveries (charge-offs)			1,658				300				1,958				2,647
(Negative provision) provision charged to operating expense			(1,783	)			110				(1,673	)			(3,609	)
Balance at end of period		$	51,515			$	1,436			$	52,951			$	56,593
Allowance for off-balance sheet items:
Balance at beginning of period		$	1,366			$	—			$	1,366			$	1,248
(Negative provision) provision charged to operating expense			(312	)			—				(312	)			309
Balance at end of period		$	1,054			$	—			$	1,054			$	1,557

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 March 31, 2015 and 2014, the allowance for off-balance sheet items amounted to $1.1 million and $1.6 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 March 31, 2015 and 2014:

 

		Real Estate				Commercial and Industrial				Consumer				Unallocated				Total
		(In thousands)
March 31, 2015
Allowance for loan losses on Non-PCI loans:
Beginning balance		$	41,194			$	9,142			$	220			$	1,084			$	51,640
Charge-offs			—				(34	)			—				—				(34	)
Recoveries on loans previously charged off			32				1,660				—				—				1,692
(Negative provision) provision			1,324				(2,982	)			(35	)			(90	)			(1,783	)
Ending balance		$	42,550			$	7,786			$	185			$	994			$	51,515
Ending balance: individually evaluated for impairment		$	3,386			$	1,913			$	—			$	—			$	5,299
Ending balance: collectively evaluated for impairment		$	39,164			$	5,873			$	185			$	994			$	46,216
Non-PCI loans receivable:
Ending balance		$	2,499,323			$	250,351			$	25,942			$	—			$	2,775,616
Ending balance: individually evaluated for impairment		$	33,537			$	11,570			$	1,823			$	—			$	46,930
Ending balance: collectively evaluated for impairment		$	2,465,786			$	238,781			$	24,119			$	—			$	2,728,686
Allowance for loan losses on PCI loans:
Beginning balance		$	895			$	131			$	—			$	—			$	1,026
Charge-offs			(52	)			—				—				—				(52	)
Recoveries on loans previously charged off			—				352				—				—				352
Provision			475				(365	)			—				—				110
Ending balance: acquired with deteriorated credit quality		$	1,318			$	118			$	—			$	—			$	1,436
PCI loans receivable:
Ending balance: acquired with deteriorated credit quality		$	40,633			$	282			$	44			$	—			$	40,959
March 31, 2014
Allowance for loan losses on Non-PCI loans :
Beginning balance		$	43,550			$	11,287			$	1,427			$	1,291			$	57,555
Charge-offs			(1,128	)			(422	)			(54	)			—				(1,604	)
Recoveries on loans previously charged off			2,918				1,321				12				—				4,251
Provision (negative provision)			(1,110	)			(1,761	)			(752	)			14				(3,609	)
Ending balance		$	44,230			$	10,425			$	633			$	1,305			$	56,593
Ending balance: individually evaluated for impairment		$	1,029			$	3,973			$	117			$	—			$	5,119
Ending balance: collectively evaluated for impairment		$	43,201			$	6,452			$	516			$	1,305			$	51,474
Non-PCI loans receivable:
Ending balance		$	2,027,914			$	219,102			$	29,356			$	—			$	2,276,372
Ending balance: individually evaluated for impairment		$	34,294			$	14,503			$	1,553			$	—			$	50,350
Ending balance: collectively evaluated for impairment		$	1,993,620			$	204,599			$	27,803			$	—			$	2,226,022

 

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.

Under regulatory guidance, loans graded special mention or worse are considered criticized loans and loans graded substandard or worse are considered classified loans.

 

As of March 31, 2015 and December 31, 2014, pass/pass-watch, special mention and classified loans (excluding PCI loans), disaggregated by loan class, were as follows:

 

		Pass/Pass-Watch				Special Mention				Classified				Total
						(In thousands)
March 31, 2015
Real estate loans:
Commercial property
Retail		$	658,292			$	12,141			$	9,505			$	679,938
Hotel/motel			425,710				42,938				13,312				481,960
Gas station			330,319				9,861				6,618				346,798
Other			800,758				9,087				10,862				820,707
Construction			15,123				—				—				15,123
Residential property			152,673				—				2,124				154,797
Commercial and industrial loans:
Commercial term			106,066				1,089				9,097				116,252
Commercial lines of credit			95,482				—				2,279				97,761
International loans			35,987				152				199				36,338
Consumer loans			23,674				121				2,147				25,942
Total Non-PCI loans		$	2,644,084			$	75,389			$	56,143			$	2,775,616
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

 

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)
March 31, 2015
Real estate loans:
Commercial property
Retail		$	1,943			$	6,031			$	2,950			$	10,924			$	669,014			$	679,938			$	—
Hotel/motel			2,659				—				3,421				6,080				475,880				481,960				—
Gas station			580				480				4,088				5,148				341,650				346,798				—
Other			1,770				278				3,544				5,592				815,115				820,707				—
Construction			—				—				—				—				15,123				15,123				—
Residential property			—				—				547				547				154,250				154,797				—
Commercial and industrial loans:
Commercial term			(30	)			87				3,062				3,119				113,133				116,252				—
Commercial lines of credit			1,407				—				819				2,226				95,535				97,761				—
International loans			131				—				—				131				36,207				36,338				—
Consumer loans			—				239				348				587				25,355				25,942				—
Total Non-PCI loans		$	8,460			$	7,115			$	18,779			$	34,354			$	2,741,262			$	2,775,616			$	—
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			$	—

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 Troubled Debt Restructuring (“TDR”) loans because, due to the financial difficulties of the borrowers, we have granted concessions to the borrowers we would not otherwise consider; 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 estimated costs to sell. If the measure of the impaired loan is less than the recorded investment in the loan, the deficiency is either charged off against the allowance for loan losses or we establish a specific allocation in the allowance for loan losses. 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 tables provide 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)
March 31, 2015
Real estate loans:
Commercial property
Retail		$	5,963			$	6,133			$	3,496			$	2,467			$	189			$	5,990			$	72
Hotel/motel			6,228				6,910				4,974				1,254				2,767				6,272				182
Gas station			7,968				8,608				7,527				441				137				7,993				93
Other			10,291				11,896				9,120				1,171				293				10,254				208
Residential property			3,087				3,242				3,087				—				—				3,102				32
Commercial and industrial loans:
Commercial term			8,147				8,716				3,912				4,235				1,881				8,078				99
Commercial lines of credit			2,092				2,210				442				1,650				8				2,439				7
International loans			1,331				1,331				767				563				24				1,360				—
Consumer loans			1,823				2,005				1,823				—				—				1,830				17
Total Non-PCI loans		$	46,930			$	51,051			$	35,148			$	11,781			$	5,299			$	47,318			$	710
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

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

 

		Three Months Ended
		March 31				March 31
		2015				2014
		(In thousands)
Interest income that would have been recognized had impaired loans performed in accordance with their original terms		$	740			$	1,213
Less: Interest income recognized on impaired loans			(710	)			(764	)
Interest foregone on impaired loans		$	30			$	449

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:

 

		March 31				December 31
		2015				2014
		(In thousands)
Real estate loans:
Commercial property
Retail		$	3,988			$	2,160
Hotel/motel			4,431				3,835
Gas station			5,023				3,478
Other			5,548				4,961
Residential property			1,537				1,588
Commercial and industrial loans:
Commercial term			5,867				7,052
Commercial lines of credit			1,041				466
Consumer loans			1,823				1,742
Total nonaccrual Non-PCI loans		$	29,258			$	25,282

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

 

		March 31				December 31
		2015				2014
		(In thousands)
Nonaccrual Non-PCI loans		$	29,258			$	25,282
Loans 90 days or more past due and still accruing			—				—
Total nonperforming Non-PCI loans			29,258				25,282
Other real estate owned			12,114				15,790
Total nonperforming assets		$	41,372			$	41,072

As of March 31, 2015, OREOs consisted of nineteen properties with a combined carrying value of $12.1 million. Of the $12.1 million, $11.8 million were OREOs acquired in the CBI acquisition or were obtained as a result of PCI loan collateral foreclosures subsequent to the acquisition date. As of December 31, 2014, OREOs consisted of twenty-five properties with a combined carrying value of $15.8 million. Of the $15.8 million, $15.3 million were OREOs acquired in the CBI acquisition or were obtained as a result of PCI loan collateral foreclosures subsequent to the acquisition date.

 

Troubled Debt Restructuring

The following table details TDRs (excluding PCI loans), disaggregated by concession type and by loan type, as of March 31, 2015 and December 31, 2014:

 

		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)
March 31, 2015
Real estate loans:
Commercial property
Retail		$	—			$	—			$	—			$	2,003			$	2,003			$	304			$	—			$	—			$	—			$	304
Hotel/motel			1,073				(64	)			—				—				1,009				1,802				—				—				—				1,802
Gas station			3,033				—				—				—				3,033				352				—				—				—				352
Other			932				1,766				407				20				3,125				2,318				—				771				1,373				4,462
Residential property			729				—				—				—				729				—				—				—				306				306
Commercial and industrial loans:
Commercial term			12				(3	)			2,507				1,632				4,148				53				223				481				1,533				2,290
Commercial lines of credit			220				—				124				98				442				1,650				—				—				—				1,650
International loans			—				—				—				—				—				—				—				199				—				199
Consumer loans			—				—				127				—				127				—				—				—				—				—
Total Non-PCI loans		$	5,999			$	1,699			$	3,165			$	3,753			$	14,616			$	6,479			$	223			$	1,451			$	3,212			$	11,365
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

As of March 31, 2015 and December 31, 2014, total TDRs, excluding loans held for sale, were $26.0 million and $26.3 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 March 31, 2015 and December 31, 2014, TDRs, excluding loans held for sale, were subjected to specific impairment analysis, and $2.2 million and $2.9 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 three months ended March 31, 2015 and 2014:

 

		March 31, 2015												March 31, 2014
		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
Other (1)			—			$	—			$	—				1			$	943			$	943
Commercial and industrial loans:
Commercial term (2)			4				543				508				5				829				788
Commercial lines of credit (3)			—				—				—				1				250				242
Total Non-PCI loans			4			$	543			$	508				7			$	2,022			$	1,973

 

(1)	Includes a modification of $943,000 through a payment deferral for the three months ended March 31, 2014.

(2)

Includes modifications of $508,000 through extensions of maturity for the three months ended March 31, 2015, and modifications of $491,000 through a payment deferral, $107,000 through reductions of principal or accrued interest and $190,000 through an extension of maturity for the three months ended March 31, 2014

(3)	Includes a modification of $242,000 through a payment deferral for the three months ended March 31, 2014.

During the three months ended March 31, 2015, we restructured monthly payments on four loans, with a net carrying value of $508,000 as of March 31, 2015, through 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 the three months ended March 31, 2015 and 2014, respectively:

 

		Three Months Ended
		March 31, 2015								March 31, 2014
		Number of Loans				Recorded Investment				Number of Loans				Recorded Investment
		(In thousands, except number of loans)
Real estate loans:
Commercial property
Retail			1			$	1,832				1			$	310
Hotel/motel			—				—				1				1,000
Gas station			1				1,990				1				87
Other			1				379				2				481
Commercial and industrial loans:
Commercial term			—				—				1				53
Commercial lines of credit			1				124				—				—
Consumer loans			—				—				1				149
Total Non-PCI loans			4			$	4,325				7			$	2,080

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 March 31, 2015:

 

		Carrying				Accretable
		Amount				Yield
		(In thousands)
Balance at January 1, 2015		$	43,475			$	(11,025	)
Accretion			843				843
Payments received			(5,425	)			—
Disposal/transfer to OREO			722				—
Changes in expected cash flows, net			—				376
Provision for credit losses			(110	)			—
Balance at March 31, 2015		$	39,505			$	(9,806	)

 

As of March 31, 2015, pass/pass-watch, special mention and classified PCI loans, disaggregated by loan class, were as follows:

 

		Pass/Pass-Watch				Special Mention				Classified				Total				Allowance				Total PCI Loans
										(In thousands)
March 31, 2015
Real estate loans:
Commercial property
Retail		$	1,201			$	168			$	9,196			$	10,565			$	404			$	10,161
Hotel/motel			252				—				11,468				11,720				146				11,574
Gas station			—				178				6,263				6,441				555				5,886
Other			—				—				10,174				10,174				167				10,007
Residential property			—				—				1,716				1,716				46				1,670
Commercial and industrial loans:
Commercial term			—				—				281				281				118				163
Consumer loans			—				—				44				44				—				44
Total PCI loans		$	1,453			$	346			$	39,142			$	40,941			$	1,436			$	39,505
December 31, 2014
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 March 31, 2015 and 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)
March 31, 2015
Real estate loans:
Commercial property
Retail		$	13			$	—			$	6,424			$	6,437			$	4,128			$	10,565			$	404			$	10,161
Hotel/motel			—				—				6,801				6,801				4,919				11,720				146				11,574
Gas station			831				—				3,868				4,699				1,742				6,441				555				5,886
Other			62				—				9,719				9,781				393				10,174				167				10,007
Residential property			—				—				1,056				1,056				660				1,716				46				1,670
Commercial and industrial loans:
Commercial term			—				6				110				116				165				281				118				163
Consumer loans			—				16				28				44				—				44				—				44
Total PCI loans		$	906			$	22			$	28,006			$	28,934			$	12,007			$	40,941			$	1,436			$	39,505
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 and liabilities

The changes in servicing assets for the three months ended March 31, 2015 and 2014 were as follows:

 

		Three Months Ended March 31,
		2015				2014
		(In thousands)
Servicing assets:
Balance at beginning of period		$	13,773			$	6,833
Addition related to sale of SBA loans			617				200
Amortization			(1,069	)			(474	)
Balance at end of period		$	13,321			$	6,559
Servicing liabilities:
Balance at beginning of period		$	5,971			$	33
Amortization			(442	)			(3	)
Balance at end of period		$	5,529			$	30

At March 31, 2015 and 2014, we serviced loans sold to unaffiliated parties in the amounts of $486.1 million and $340.5 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 and 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 until cumulative submitted losses fall below the stated reimbursement threshold. As of March 31, 2015, the FDIC loss sharing liability was related to $543,000 net payables to the FDIC, consisting of $935,000 of FDIC recoveries partially offset by $392,000 of reimbursable expense owed to the Bank. Of the $543,000 net payable to the FDIC, all activity is related to the non Single Family SLA Portfolio.