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Loans Receivable and Allowance for Loan Losses
 6 Months Ended
Jun. 30, 2014
Receivables [Abstract]  
Loans Receivable and Allowance for Loan Losses
Loans Receivable and Allowance for Loan Losses
The following is a summary of loans receivable by major category:
 
June 30, 2014
 
December 31, 2013
 
(In thousands)
Loan portfolio composition
 
 
 
Real estate loans:
 
 
 
Residential
$
10,019

 
$
10,039

Commercial & industrial
4,089,242

 
3,821,163

Construction
85,037

 
72,856

Total real estate loans
4,184,298

 
3,904,058

Commercial business
929,143

 
949,093

Trade finance
141,053

 
124,685

Consumer and other
93,822

 
98,507

Total loans outstanding
5,348,316

 
5,076,343

Less: deferred loan fees
(1,259
)
 
(2,167
)
Loans receivable
5,347,057

 
5,074,176

Less: allowance for loan losses
(66,870
)
 
(67,320
)
Loans receivable, net of allowance for loan losses
$
5,280,187

 
$
5,006,856


The loan portfolio is made up of four segments: real estate loans, commercial business, trade finance and consumer and other. These segments are further segregated between loans accounted for under the amortized cost method ("Legacy Loans") and acquired loans that were originally recorded at fair value with no carryover of the related pre-acquisition allowance for loan losses ("Acquired Loans"). Acquired Loans are further segregated between Acquired Credit Impaired Loans (loans with credit deterioration on the acquisition date and accounted for under ASC 310-30, or "ACILs") and Acquired Performing Loans (loans that were pass graded on the acquisition date and the fair value adjustment is amortized over the contractual life under ASC 310-20, or "APLs").

The following table presents changes in the accretable discount on the ACILs for the three and six months ended June 30, 2014 and 2013:
 
Three Months Ended June 30,

Six Months Ended June 30,

2014

2013

2014

2013

(In thousands)
Balance at beginning of period
$
32,583


$
23,410


$
47,398


$
18,651

Additions due to acquisitions during the period
—


—


—


4,945

Accretion
(4,197
)

(3,586
)

(9,064
)

(7,032
)
Changes in expected cash flows
(102
)

17,266


(10,050
)

20,526

Balance at end of period
$
28,284


$
37,090


$
28,284


$
37,090



On the acquisition date, the amount by which the undiscounted expected cash flows exceed the estimated fair value of the ACILs is the “accretable yield.” The accretable yield is then measured at each financial reporting date and represents the difference between the remaining undiscounted expected cash flows and the current carrying value of the loans. The accretable yield will change from period to period due to the following: 1) estimates of the remaining life of acquired loans will affect the amount of future interest income; 2) indices for variable rates of interest on ACILs may change; and 3) estimates of the amount of the contractual principal and interest that will not be collected (nonaccretable difference) may change. The following tables detail the activity in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2014 and 2013:
 
 
 
 
Legacy
 
Acquired
 
Total
 
Real Estate
 
Commercial Business
 
Trade Finance
 
Consumer and Other
 
Real Estate
 
Commercial Business
 
Trade Finance
 
Consumer and Other
 
 
(In thousands)
Three Months Ended June 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
38,586

 
$
16,208

 
$
2,944

 
$
467

 
$
6,838

 
$
593

 
$
—

 
$
63

 
$
65,699

Provision (credit) for loan losses
1,066

 
(336
)
 
1,624

 
(69
)
 
622

 
88

 
—

 
1

 
2,996

Loans charged off
(726
)
 
(1,794
)
 
—

 
(18
)
 
(188
)
 
(45
)
 
—

 
—

 
(2,771
)
Recoveries of charge offs
132

 
581

 
—

 
211

 
17

 
3

 
—

 
2

 
946

Balance, end of period
$
39,058

 
$
14,659

 
$
4,568

 
$
591

 
$
7,289

 
$
639

 
$
—

 
$
66

 
$
66,870

Six Months Ended June 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
40,068

 
$
16,796

 
$
2,653

 
$
461

 
$
6,482

 
$
796

 
$
—

 
$
64

 
$
67,320

Provision (credit) for loan losses
(348
)
 
2,211

 
1,972

 
(62
)
 
1,073

 
1,099

 
—

 
77

 
6,022

Loans charged off
(813
)
 
(5,519
)
 
(57
)
 
(19
)
 
(283
)
 
(1,265
)
 
—

 
(78
)
 
(8,034
)
Recoveries of charge offs
151

 
1,171

 
—

 
211

 
17

 
9

 
—

 
3

 
1,562

Balance, end of period
$
39,058

 
$
14,659

 
$
4,568

 
$
591

 
$
7,289

 
$
639

 
$
—

 
$
66

 
$
66,870


 
 
 
 
Legacy
 
Acquired
 
Total
 
Real Estate
 
Commercial Business
 
Trade Finance
 
Consumer and Other
 
Real Estate
 
Commercial Business
 
Trade Finance
 
Consumer and Other
 
 
(In thousands)
Three Months Ended June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
43,709

 
$
16,522

 
$
1,698

 
$
538

 
$
9,889

 
$
809

 
$
—

 
$
103

 
$
73,268

Provision (credit) for loan losses
(1,057
)
 
1,043

 
637

 
(20
)
 
(233
)
 
484

 
—

 
(54
)
 
800

Loans charged off
(777
)
 
(1,413
)
 
—

 
(2
)
 
(24
)
 
(684
)
 
—

 
—

 
(2,900
)
Recoveries of charge offs
57

 
368

 
—

 
12

 
—

 
45

 
—

 
25

 
507

Balance, end of period
$
41,932

 
$
16,520

 
$
2,335

 
$
528

 
$
9,632

 
$
654

 
$
—

 
$
74

 
$
71,675

Six Months Ended June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
41,505

 
$
16,490

 
$
2,349

 
$
658

 
$
4,718

 
$
1,115

 
$
3

 
$
103

 
$
66,941

Provision (credit) for loan losses
2,012

 
1,082

 
12

 
(149
)
 
5,087

 
295

 
(3
)
 
(30
)
 
8,306

Loans charged off
(1,682
)
 
(1,596
)
 
(26
)
 
(9
)
 
(175
)
 
(808
)
 
—

 
(33
)
 
(4,329
)
Recoveries of charge offs
97

 
544

 
—

 
28

 
2

 
52

 
—

 
34

 
757

Balance, end of period
$
41,932

 
$
16,520

 
$
2,335

 
$
528

 
$
9,632

 
$
654

 
$
—

 
$
74

 
$
71,675


The following tables disaggregate the allowance for loan losses and the loans outstanding by impairment methodology at June 30, 2014 and December 31, 2013:
 
June 30, 2014
 
Legacy
 
Acquired
 
Total
 
Real Estate
 
Commercial Business
 
Trade Finance
 
Consumer and Other
 
Real Estate
 
Commercial Business
 
Trade Finance
 
Consumer and Other
 
 
(In thousands)
Allowance for loan losses:
Individually evaluated for impairment
$
3,394

 
$
3,225

 
$
2,298

 
$
—

 
$
431

 
$
393

 
$
—

 
$
—

 
$
9,741

Collectively evaluated for impairment
35,664

 
11,434

 
2,270

 
591

 
978

 
246

 
—

 
66

 
51,249

ACILs
—

 
—

 
—

 
—

 
5,880

 
—

 
—

 
—

 
5,880

Total
$
39,058

 
$
14,659

 
$
4,568

 
$
591

 
$
7,289

 
$
639

 
$
—

 
$
66

 
$
66,870

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
53,937

 
$
37,546

 
$
8,985

 
$
516

 
$
19,365

 
$
2,867

 
$
—

 
$
942

 
$
124,158

Collectively evaluated for impairment
3,470,699

 
793,559

 
128,930

 
35,723

 
507,900

 
56,393

 
—

 
28,506

 
5,021,710

ACILs
—

 
—

 
—

 
—

 
132,397

 
38,778

 
3,138

 
28,135

 
202,448

Total
$
3,524,636

 
$
831,105

 
$
137,915

 
$
36,239

 
$
659,662

 
$
98,038

 
$
3,138

 
$
57,583

 
$
5,348,316


 
December 31, 2013
 
Legacy
 
Acquired
 
Total
 
Real Estate
 
Commercial Business
 
Trade Finance
 
Consumer and Other
 
Real Estate
 
Commercial Business
 
Trade Finance
 
Consumer and Other
 
 
(In thousands)
Allowance for loan losses:
Individually evaluated for impairment
$
5,578

 
$
5,183

 
$
159

 
$
32

 
$
1,092

 
$
622

 
$
—

 
$
—

 
$
12,666

Collectively evaluated for impairment
34,490

 
11,613

 
2,494

 
429

 
612

 
174

 
—

 
64

 
49,876

ACILs
—

 
—

 
—

 
—

 
4,778

 
—

 
—

 
—

 
4,778

Total
$
40,068

 
$
16,796

 
$
2,653

 
$
461

 
$
6,482

 
$
796

 
$
—

 
$
64

 
$
67,320

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
49,177

 
$
37,314

 
$
5,692

 
$
535

 
$
19,992

 
$
2,792

 
$
—

 
$
767

 
$
116,269

Collectively evaluated for impairment
3,076,924

 
778,350

 
117,249

 
32,421

 
613,696

 
84,325

 
—

 
31,802

 
4,734,767

ACILs
—

 
—

 
—

 
—

 
144,269

 
46,312

 
1,744

 
32,982

 
225,307

Total
$
3,126,101

 
$
815,664

 
$
122,941

 
$
32,956

 
$
777,957

 
$
133,429

 
$
1,744

 
$
65,551

 
$
5,076,343


As of June 30, 2014 and December 31, 2013, the liability for unfunded commitments was $1.5 million and $885 thousand, respectively. For the three months ended June 30, 2014 and 2013, the recognized provision for credit losses related to unfunded commitments was $547 thousand and $0, respectively. For the six months ended June 30, 2014 and 2013, the recognized provision for credit losses related to unfunded commitments was $588 thousand and $0, respectively.
The recorded investment in individually impaired loans was as follows:
 
June 30, 2014
 
December 31, 2013
 
(In thousands)
With allocated allowance
 
 
 
Without charge off
$
70,372

 
$
85,920

With charge off
2,134

 
851

With no allocated allowance
 
 
 
Without charge off
43,342

 
23,160

With charge off
8,310

 
6,338

Allowance on impaired loans
(9,741
)
 
(12,666
)
Impaired loans, net of allowance
$
114,417

 
$
103,603


The following tables detail impaired loans (Legacy and APLs that became impaired subsequent to being acquired) as of June 30, 2014 and December 31, 2013 and for the three and six months ended June 30, 2014 and 2013 and for the year ended December 31, 2013. Loans with no related allowance for loan losses are believed by management to have adequate collateral securing their carrying value.
 
 
 
As of June 30, 2014
 
For the Six Months Ended June 30, 2014
 
For the Three Months Ended June 30, 2014
Total Impaired Loans
 
Recorded Investment*
 
Unpaid Contractual Principal Balance
 
Related
Allowance
 
Average Recorded Investment*
 
Interest Income Recognized during Impairment
 
Average Recorded Investment*
 
Interest Income Recognized during Impairment
 
 
(In thousands)
With related allowance:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate—residential
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Real estate—commercial
 
 
 
 
 
 
 

 

 

 

Retail
 
4,063

 
4,227

 
484

 
5,238

 
46

 
4,198

 
27

Hotel & motel
 
11,651

 
11,651

 
1,901

 
11,771

 
266

 
11,696

 
133

Gas station & car wash
 
2,100

 
2,273

 
439

 
2,774

 
38

 
2,589

 
19

Mixed use
 
1,285

 
1,295

 
162

 
1,049

 
20

 
1,109

 
10

Industrial & warehouse
 
6,936

 
6,936

 
53

 
9,104

 
151

 
7,456

 
76

Other
 
7,785

 
7,810

 
786

 
9,353

 
166

 
8,898

 
82

Real estate—construction
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Commercial business
 
30,087

 
32,184

 
3,618

 
30,875

 
594

 
28,981

 
310

Trade finance
 
8,599

 
15,786

 
2,298

 
6,526

 
99

 
6,990

 
51

Consumer and other
 
—

 
—

 
—

 
178

 
—

 
—

 
—

 
 
$
72,506

 
$
82,162

 
$
9,741

 
$
76,868

 
$
1,380

 
$
71,917

 
$
708

With no related allowance:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate—residential
 

 

 

 

 

 
$
—

 

Real estate—commercial
 
 
 
 
 
 
 

 

 

 

Retail
 
8,358

 
11,904

 
—

 
6,875

 
124

 
8,300

 
62

Hotel & motel
 
6,438

 
11,380

 
—

 
6,480

 
—

 
6,468

 
—

Gas station & car wash
 
4,961

 
8,384

 
—

 
4,820

 
—

 
4,808

 
—

Mixed use
 
1,286

 
1,374

 
—

 
1,143

 
—

 
1,292

 
—

Industrial & warehouse
 
9,334

 
12,889

 
—

 
7,528

 
160

 
9,389

 
83

Other
 
7,517

 
10,087

 
—

 
4,401

 
56

 
5,828

 
30

Real estate—construction
 
1,588

 
1,588

 
—

 
1,606

 
42

 
1,596

 
21

Commercial business
 
10,326

 
11,005

 
—

 
9,345

 
138

 
11,296

 
75

Trade finance
 
386

 
468

 
—

 
453

 
—

 
634

 
—

Consumer and other
 
1,458

 
1,534

 
—

 
1,234

 
15

 
1,468

 
8

 
 
$
51,652

 
$
70,613

 
$
—

 
$
43,885

 
$
535

 
$
51,079

 
$
279

Total
 
$
124,158

 
$
152,775

 
$
9,741

 
$
120,753

 
$
1,915

 
$
122,996

 
$
987


*
Unpaid contractual principal balance less charge offs, interest applied to principal and purchase discounts.
 
 
For the Six Months Ended June 30, 2013
 
For the Three Months Ended June 30, 2013
Total Impaired Loans
 
Average Recorded Investment*
 
Interest Income Recognized during Impairment
 
Average Recorded Investment*
 
Interest Income Recognized during Impairment
 
 
 
With related allowance:
 
 
 
 
 
 
 
 
Real estate—residential
 
$
—

 
$
—

 
$
—

 
$
—

Real estate—commercial
 
 
 
 
 
 
 
 
Retail
 
7,529

 
116

 
8,556

 
73

Hotel & motel
 
11,077

 
275

 
12,120

 
138

Gas station & car wash
 
1,711

 
53

 
1,621

 
27

Mixed use
 
1,223

 
23

 
1,385

 
10

Industrial & warehouse
 
8,880

 
127

 
12,283

 
62

Other
 
11,041

 
110

 
8,469

 
55

Real estate—construction
 
—

 
—

 
—

 
—

Commercial business
 
24,529

 
550

 
23,617

 
270

Trade finance
 
4,675

 
—

 
3,913

 
—

Consumer and other
 
221

 
11

 
303

 
6

 
 
$
70,886

 
$
1,265

 
$
72,267

 
$
641

With no related allowance:
 
 
 
 
 
 
 
 
Real estate—residential
 
$
—

 
$
—

 
$
—

 
$
—

Real estate—commercial
 
 
 
 
 
 
 
 
Retail
 
3,063

 
—

 
3,336

 
—

Hotel & motel
 
6,114

 
—

 
6,065

 
—

Gas station & car wash
 
3,085

 
—

 
3,762

 
—

Mixed use
 
593

 
—

 
441

 
—

Industrial & warehouse
 
4,684

 
5

 
4,830

 
3

Other
 
3,531

 
16

 
4,111

 
8

Real estate—construction
 
1,690

 
45

 
1,680

 
22

Commercial business
 
1,877

 
—

 
2,356

 
—

Trade finance
 
—

 
—

 
—

 
—

Consumer and other
 
1,266

 
10

 
1,259

 
5

 
 
$
25,903

 
$
76

 
$
27,840

 
$
38

Total
 
$
96,789

 
$
1,341

 
$
100,107

 
$
679

*
Unpaid contractual principal balance less charge offs, interest applied to principal and purchase discounts.

 
 
As of June 30, 2014
 
For the Six Months Ended June 30, 2014
 
For the Three Months Ended June 30, 2014
Impaired APLs
 
Recorded Investment*
 
Unpaid
Contractual Principal
Balance
 
Related
Allowance
 
Average
Recorded Investment*
 
Interest Income Recognized during Impairment
 
Average Recorded Investment*
 
Interest Income Recognized during Impairment
 
 
(In thousands)
With related allowance:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate—residential
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Real estate—commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Retail
 
297

 
294

 
2

 
264

 
—

 
201

 
—

Hotel & motel
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Gas station & car wash
 
1,802

 
1,974

 
409

 
1,791

 
30

 
2,289

 
15

Mixed use
 
354

 
348

 
2

 
118

 
—

 
177

 
—

Industrial & warehouse
 
—

 
—

 
—

 
1,709

 
—

 
—

 
—

Other
 
388

 
407

 
17

 
1,054

 
4

 
899

 
2

Real estate—construction
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Commercial business
 
783

 
1,342

 
393

 
1,240

 
4

 
868

 
3

Trade finance
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Consumer and other
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
 
$
3,624

 
$
4,365

 
$
823

 
$
6,176

 
$
38

 
$
4,434

 
$
20

With no related allowance:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate—residential
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Real estate—commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Retail
 
1,570

 
3,585

 
—

 
1,549

 
15

 
1,702

 
7

Hotel & motel
 
6,317

 
8,674

 
—

 
6,379

 
—

 
6,347

 
—

Gas station & car wash
 
935

 
1,241

 
—

 
1,029

 
—

 
736

 
—

Mixed use
 
455

 
465

 
—

 
307

 
—

 
460

 
—

Industrial & warehouse
 
1,418

 
1,604

 
—

 
3,281

 
5

 
3,981

 
2

Other
 
5,830

 
6,713

 
—

 
3,396

 
20

 
4,526

 
12

Real estate—construction
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Commercial business
 
2,084

 
2,264

 
—

 
1,505

 
10

 
1,853

 
7

Trade finance
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Consumer and ther
 
942

 
1,018

 
—

 
887

 
4

 
947

 
2

 
 
$
19,551

 
$
25,564

 
$
—

 
$
18,333

 
$
54

 
$
20,552

 
$
30

Total
 
$
23,175

 
$
29,929

 
$
823

 
$
24,509

 
$
92

 
$
24,986

 
$
50



*
Unpaid contractual principal balance less charge offs, interest applied to principal and purchase discounts.



 
 
For the Six Months Ended June 30, 2013
 
For the Three Months Ended June 30, 2013
Impaired APLs
 
Average
Recorded Investment*
 
Interest Income Recognized during Impairment
 
Average Recorded Investment*
 
Interest Income Recognized during Impairment
 
 
With related allowance:
 
 
 
 
 
 
 
 
Real estate—residential
 
$
—

 
$
—

 
$
—

 
$
—

Real estate—commercial
 
 
 
 
 
 
 
 
Retail
 
1,546

 
27

 
1,676

 
13

Hotel & motel
 
—

 
—

 
—

 
—

Gas station & car wash
 
270

 
30

 
405

 
16

Mixed use
 
—

 
—

 
—

 
—

Industrial & warehouse
 
7,095

 
—

 
10,227

 
—

Other
 
2,525

 
5

 
1,652

 
2

Real estate—construction
 
—

 
—

 
—

 
—

Commercial business
 
3,112

 
3

 
3,181

 
2

Trade finance
 
—

 
—

 
—

 
—

Consumer and other
 
—

 
—

 
—

 
—

 
 
$
14,548

 
$
65

 
$
17,141

 
$
33

With no related allowance:
 
 
 
 
 
 
 
 
Real estate—residential
 
$
—

 
$
—

 
$
—

 
$
—

Real estate—commercial
 
 
 
 
 
 
 
 
Retail
 
577

 
—

 
466

 
—

Hotel & motel
 
5,929

 
—

 
5,899

 
—

Gas station & car wash
 
1,132

 
—

 
1,311

 
—

Mixed use
 
—

 
—

 
—

 
—

Industrial & warehouse
 
3,324

 
5

 
3,391

 
3

Other
 
1,397

 
16

 
1,692

 
8

Real estate—construction
 
—

 
—

 
—

 
—

Commercial business
 
189

 
—

 
109

 
—

Trade finance
 
—

 
—

 
—

 
—

Consumer and other
 
786

 
—

 
779

 
—

 
 
$
13,334

 
$
21

 
$
13,647

 
$
11

Total
 
$
27,882

 
$
86

 
$
30,788

 
$
44


*
Unpaid contractual principal balance less charge offs, interest applied to principal and purchase discounts.






 
 
As of December 31, 2013
 
For the Year Ended
December 31, 2013
Total Impaired Loans
 
Recorded Investment*
 
Unpaid
Contractual Principal
Balance
 
Related
Allowance
 
Average
Recorded Investment*
 
Interest Income Recognized during Impairment
 
 
(In thousands)
With related allowance:
 
 
 
 
 
 
 
 
 
 
Real estate—residential
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Real estate—commercial
 
 
 
 
 
 
 
 
 
 
Retail
 
7,318

 
7,451

 
827

 
7,783

 
181

Hotel & motel
 
11,920

 
12,744

 
2,841

 
11,432

 
550

Gas station & car wash
 
3,145

 
3,236

 
519

 
2,090

 
117

Mixed use
 
930

 
953

 
212

 
1,108

 
43

Industrial & warehouse
 
12,398

 
12,470

 
810

 
9,496

 
323

Other
 
10,262

 
10,351

 
1,461

 
9,826

 
405

Real estate—construction
 
—

 
—

 
—

 
—

 
—

Commercial business
 
34,663

 
36,472

 
5,805

 
27,010

 
1,572

Trade finance
 
5,600

 
5,628

 
159

 
5,313

 
41

Consumer and other
 
535

 
535

 
32

 
348

 
23

 
 
$
86,771

 
$
89,840

 
$
12,666

 
$
74,406

 
$
3,255

With no related allowance:
 
 
 
 
 
 
 
 
 
 
Real estate—residential
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Real estate—commercial
 
 
 
 
 
 
 
 
 
 
Retail
 
4,025

 
6,591

 
—

 
3,428

 
45

Hotel & motel
 
6,502

 
10,498

 
—

 
6,304

 
—

Gas station & car wash
 
4,845

 
8,273

 
—

 
3,803

 
139

Mixed use
 
845

 
912

 
—

 
697

 
—

Industrial & warehouse
 
3,806

 
7,204

 
—

 
3,958

 
10

Other
 
1,548

 
3,647

 
—

 
3,043

 
—

Real estate—construction
 
1,625

 
1,625

 
—

 
1,670

 
89

Commercial business
 
5,443

 
8,437

 
—

 
2,770

 
25

Trade finance
 
92

 
7,279

 
—

 
18

 
—

Consumer and other
 
767

 
831

 
—

 
1,067

 
—

 
 
$
29,498

 
$
55,297

 
$
—

 
$
26,758

 
$
308

Total
 
$
116,269

 
$
145,137

 
$
12,666

 
$
101,164

 
$
3,563


*
Unpaid contractual principal balance less charge offs, interest applied to principal and purchase discounts.




 
 
As of December 31, 2013
 
For the Year Ended
December 31, 2013
Impaired APLs
 
Recorded Investment*
 
Unpaid Contractual Principal Balance
 
Related Allowance
 
Average Recorded Investment*
 
Interest Income Recognized during Impairment
 
 
(In thousands)
With related allowance:
 
 
 
 
 
 
 
 
 
 
Real estate—residential
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Real estate—commercial
 
 
 
 
 
 
 
 
 
 
Retail
 
391

 
397

 
15

 
1,084

 
14

Hotel & motel
 
—

 
—

 
—

 
—

 
—

Gas station & car wash
 
794

 
885

 
341

 
485

 
—

Mixed use
 
—

 
—

 
—

 
—

 
—

Industrial & warehouse
 
5,128

 
5,200

 
612

 
6,323

 
—

Other
 
1,362

 
1,412

 
124

 
1,819

 
43

Real estate—construction
 
—

 
—

 
—

 
—

 
—

Commercial business
 
1,984

 
3,354

 
622

 
2,827

 
5

Trade finance
 
—

 
—

 
—

 
—

 
—

Consumer and other
 
—

 
—

 
—

 
—

 
—

 
 
$
9,659

 
$
11,248

 
$
1,714

 
$
12,538

 
$
62

With no related allowance:
 
 
 
 
 
 
 
 
 
 
Real estate—residential
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Real estate—commercial
 
 
 

 
 
 
 
 
 
Retail
 
1,244

 
2,216

 
—

 
953

 
14

Hotel & motel
 
6,441

 
8,676

 
—

 
6,169

 
—

Gas station & car wash
 
1,614

 
2,109

 
—

 
1,366

 
62

Mixed use
 
—

 
—

 
—

 
—

 
—

Industrial & warehouse
 
1,883

 
3,446

 
—

 
2,482

 
10

Other
 
1,135

 
1,547

 
—

 
1,600

 
—

Real estate—construction
 
—

 
—

 
—

 
—

 
—

Commercial business
 
808

 
948

 
—

 
291

 
—

Trade finance
 
—

 
—

 
—

 
—

 
—

Consumer and other
 
767

 
831

 
—

 
779

 
—

 
 
$
13,892

 
$
19,773

 
$
—

 
$
13,640

 
$
86

Total
 
$
23,551

 
$
31,021

 
$
1,714

 
$
26,178

 
$
148


*
Unpaid contractual principal balance less charge offs, interest applied to principal and purchase discounts.


Generally, loans are placed on nonaccrual status if principal or interest payments become 90 days past due and/or management deems the collectibility of the principal and/or interest to be in question, as well as when required by regulatory requirements. Loans to a customer whose financial condition has deteriorated are considered for nonaccrual status whether or not the loan is 90 days or more past due. Generally, payments received on nonaccrual loans are recorded as principal reductions. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
The following tables present the aging of past due loans as of June 30, 2014 and December 31, 2013 by class of loans:
 
As of June 30, 2014
 
Past Due and Accruing
 
 
 
 
 
30-59 Days Past Due
 
60-89 Days Past Due
 
90 or More Days Past Due
 
Total
 
Nonaccrual Loans (2)
 
Total Delinquent Loans
 
(In thousands)
Legacy Loans:
 
Real estate—residential
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Real estate—commercial
 
 
 
 
 
 
 
 
 
 
 
Retail
1,170

 
—

 
—

 
1,170

 
3,917

 
5,087

Hotel & motel
284

 
—

 
—

 
284

 
121

 
405

Gas station & car wash
—

 
—

 
—

 
—

 
4,026

 
4,026

Mixed use
—

 
—

 
—

 
—

 
966

 
966

Industrial & warehouse
211

 
—

 
—

 
211

 
2,020

 
2,231

Other
10

 
—

 
—

 
10

 
529

 
539

Real estate—construction
—

 
—

 
—

 
—

 
—

 
—

Commercial business
1,428

 
182

 
—

 
1,610

 
7,409

 
9,019

Trade finance
30

 
—

 
—

 
30

 
3,985

 
4,015

Consumer and other
37

 
28

 
—

 
65

 
—

 
65

     Subtotal
$
3,170

 
$
210

 
$
—

 
$
3,380

 
$
22,973

 
$
26,353

Acquired Loans: (1)
 
 
 
 
 
 
 
 
 
 
 
Real estate—residential
$
—

 
$
—

 

 
$
—

 
$
—

 
$
—

Real estate—commercial
 
 
 
 
 
 
 
 
 
 
 
Retail
62

 
73

 
—

 
135

 
1,268

 
1,403

Hotel & motel
—

 
—

 
—

 
—

 
6,317

 
6,317

Gas station & car wash
—

 
—

 
—

 
—

 
1,691

 
1,691

Mixed use
5,652

 
—

 
—

 
5,652

 
809

 
6,461

Industrial & warehouse
—

 
—

 
—

 
—

 
1,301

 
1,301

Other
—

 
264

 
—

 
264

 
4,850

 
5,114

Real estate—construction
—

 
—

 
—

 
—

 
—

 
—

Commercial business
684

 
176

 
—

 
860

 
2,159

 
3,019

Trade finance
—

 
—

 
—

 
—

 
—

 
—

Consumer and other
5

 
127

 
—

 
132

 
1,283

 
1,415

     Subtotal
$
6,403

 
$
640

 
$
—

 
$
7,043

 
$
19,678

 
$
26,721

TOTAL
$
9,573

 
$
850

 
$
—

 
$
10,423

 
$
42,651

 
$
53,074

(1) 
The Acquired Loans exclude ACILs.
(2) 
Nonaccrual loans exclude the guaranteed portion of delinquent SBA loans that are in liquidation totaling $30.0 million.

 
As of December 31, 2013
 
Past Due and Accruing
 
 
 
 
 
30-59 Days Past Due
 
60-89 Days Past Due
 
90 or More Days Past Due
 
Total
 
Nonaccrual Loans (2)
 
Total Delinquent Loans
 
(In Thousands)
Legacy Loans:
 
Real estate—residential
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Real estate—commercial
 
 
 
 
 
 
 
 
 
 
 
Retail
122

 
—

 
—

 
122

 
4,363

 
4,485

Hotel & motel
—

 
—

 
—

 
—

 
121

 
121

Gas station & car wash
1,038

 
—

 
—

 
1,038

 
2,228

 
3,266

Mixed use
—

 
—

 
—

 
—

 
974

 
974

Industrial & warehouse
215

 
—

 
—

 
215

 
1,923

 
2,138

Other
—

 
—

 
—

 
—

 
1,398

 
1,398

Real estate—construction
—

 
—

 
—

 
—

 
—

 
—

Commercial business
780

 
244

 
—

 
1,024

 
6,402

 
7,426

Trade finance
—

 
—

 
—

 
—

 
1,031

 
1,031

Consumer and other
54

 
22

 
—

 
76

 
—

 
76

     Subtotal
$
2,209

 
$
266

 
$
—

 
$
2,475

 
$
18,440

 
$
20,915

Acquired Loans: (1)
 
 
 
 
 
 
 
 
 
 
 
Real estate—residential
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Real estate—commercial
 
 
 
 
 
 
 
 
 
 
 
Retail
2,024

 
—

 
—

 
2,024

 
1,030

 
3,054

Hotel & motel
—

 
—

 
—

 
—

 
6,441

 
6,441

Gas station & car wash
1,068

 
—

 
—

 
1,068

 
1,339

 
2,407

Mixed use
576

 
—

 
—

 
576

 
—

 
576

Industrial & warehouse
121

 
—

 
—

 
121

 
6,890

 
7,011

Other
516

 
1,729

 
—

 
2,245

 
1,376

 
3,621

Real estate—construction
—

 
—

 
—

 
—

 
—

 
—

Commercial business
524

 
703

 
5

 
1,232

 
2,708

 
3,940

Trade finance
—

 
—

 
—

 
—

 
—

 
—

Consumer and other
284

 
74

 
—

 
358

 
930

 
1,288

     Subtotal
$
5,113

 
$
2,506

 
$
5

 
$
7,624

 
$
20,714

 
$
28,338

TOTAL
$
7,322

 
$
2,772

 
$
5

 
$
10,099

 
$
39,154

 
$
49,253

(1) 
The Acquired Loans exclude ACILs.
(2) Nonaccrual loans exclude guaranteed portion of delinquent SBA loans that are in liquidation totaling $27.5 million.

Loans accounted for under ASC 310-30 are generally considered accruing and performing loans and the accretable discount is accreted to interest income over the estimated life of the loan when cash flows are reasonably estimable. Accordingly, ACILs that are contractually past due are still considered to be accruing and performing loans. The loans may be classified as nonaccrual if the timing and amount of future cash flows is not reasonably estimable.
We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt, including, but not limited to, current financial information, historical payment experience, credit documentation, public information, and current economic trends. We analyze loans individually by classifying the loans as to credit risk. This analysis includes all non-homogeneous loans. This analysis is performed at least on a quarterly basis. We use the following definitions for risk ratings:
•
Pass: Loans that meet a preponderance or more of the Company's underwriting criteria and evidence an acceptable level of risk.
•
Special Mention: Loans that have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
•
Substandard: Loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
•
Doubtful/Loss: Loans that have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
The following tables present the risk rating for Legacy Loans and Acquired Loans as of June 30, 2014 and December 31, 2013 by class of loans:
 
As of June 30, 2014
 
Pass
 
Special
Mention
 
Substandard
 
Doubtful/Loss
 
Total
 
(In thousands)
Legacy Loans:
 
 
 
Real estate—residential
$
8,804

 
$
—

 
$
—

 
$
—

 
$
8,804

Real estate—commercial
 
 
 
 
 
 
 
 
 
Retail
984,293

 
2,554

 
13,461

 
—

 
1,000,308

Hotel & motel
671,921

 
116

 
5,970

 
—

 
678,007

Gas station & car wash
493,778

 
—

 
10,481

 
—

 
504,259

Mixed use
271,096

 
356

 
2,284

 
—

 
273,736

Industrial & warehouse
308,406

 
3,144

 
12,125

 
—

 
323,675

Other
632,297

 
6,929

 
11,584

 
—

 
650,810

Real estate—construction
83,449

 
—

 
1,588

 
—

 
85,037

Commercial business
769,907

 
18,676

 
41,294

 
1,228

 
831,105

Trade finance
101,017

 
23,844

 
13,054

 
—

 
137,915

Consumer and other
35,683

 
40

 
516

 
—

 
36,239

Subtotal
$
4,360,651

 
$
55,659

 
$
112,357

 
$
1,228

 
$
4,529,895

Acquired Loans:
 
 
 
 
 
 
 
 
 
Real estate—residential
$
807

 
$
295

 
$
113

 
$
—

 
$
1,215

Real estate—commercial
 
 
 
 
 
 
 
 
 
Retail
184,448

 
10,009

 
27,815

 
—

 
222,272

Hotel & motel
102,853

 
7,100

 
14,203

 
—

 
124,156

Gas station & car wash
28,600

 
346

 
11,100

 
251

 
40,297

Mixed use
32,090

 
1,463

 
4,032

 
—

 
37,585

Industrial & warehouse
79,351

 
1,460

 
16,781

 
—

 
97,592

Other
113,330

 
5,756

 
16,885

 
574

 
136,545

Real estate—construction
—

 
—

 
—

 
—

 
—

Commercial business
63,976

 
8,329

 
24,194

 
1,539

 
98,038

Trade finance
3,138

 
—

 
—

 
—

 
3,138

Consumer and other
44,344

 
2,053

 
9,495

 
1,691

 
57,583

Subtotal
$
652,937

 
$
36,811

 
$
124,618

 
$
4,055

 
$
818,421

Total
$
5,013,588

 
$
92,470

 
$
236,975

 
$
5,283

 
$
5,348,316


 
 
As of December 31, 2013
 
Pass
 
Special
Mention
 
Substandard
 
Doubtful/Loss
 
Total
 
(In thousands)
Legacy Loans:
 
 
 
Real estate—residential
$
8,070

 
$
—

 
$
—

 
$
—

 
$
8,070

Real estate—commercial
 
 
 
 
 
 
 
 
 
Retail
842,815

 
858

 
14,365

 
—

 
858,038

Hotel & motel
568,263

 
1,841

 
13,661

 
—

 
583,765

Gas station & car wash
455,205

 
—

 
10,854

 
—

 
466,059

Mixed use
259,788

 
360

 
3,324

 
—

 
263,472

Industrial & warehouse
251,993

 
4,116

 
12,056

 
—

 
268,165

Other
589,895

 
3,928

 
11,493

 
359

 
605,675

Real estate—construction
71,231

 
—

 
1,626

 
—

 
72,857

Commercial business
759,956

 
12,756

 
42,952

 
—

 
815,664

Trade finance
91,055

 
22,589

 
9,297

 
—

 
122,941

Consumer and other
32,389

 
32

 
535

 
—

 
32,956

Subtotal
$
3,930,660

 
$
46,480

 
$
120,163

 
$
359

 
$
4,097,662

Acquired Loans:
 
 
 
Real estate—residential
$
1,066

 
$
284

 
$
619

 
$
—

 
$
1,969

Real estate—commercial
 
 
 
 
 
 
 
 
 
Retail
237,325

 
9,319

 
28,128

 
94

 
274,866

Hotel & motel
109,138

 
7,134

 
14,836

 
179

 
131,287

Gas station & car wash
35,356

 
1,621

 
14,440

 
245

 
51,662

Mixed use
32,992

 
1,467

 
5,316

 
—

 
39,775

Industrial & warehouse
92,570

 
3,525

 
19,720

 
—

 
115,815

Other
133,752

 
6,698

 
21,573

 
560

 
162,583

Real estate—construction
—

 
—

 
—

 
—

 
—

Commercial business
94,854

 
10,266

 
26,245

 
2,064

 
133,429

Trade finance
1,744

 
—

 
—

 
—

 
1,744

Consumer and other
51,036

 
2,695

 
7,460

 
4,360

 
65,551

Subtotal
$
789,833

 
$
43,009

 
$
138,337

 
$
7,502

 
$
978,681

Total
$
4,720,493

 
$
89,489

 
$
258,500

 
$
7,861

 
$
5,076,343

 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Reclassification to held for sale
(In thousands)
Real estate - Commercial
$
—

 
$
—

 
$
34

 
$
—

Real estate - Construction
—

 
—

 
—

 
—

Commercial Business
—

 
—

 
—

 
—

     Total
$
—

 
$
—

 
$
34

 
$
—




The adequacy of the allowance for loan losses is determined by management based upon an evaluation and review of the credit quality of the loan portfolio, consideration of historical loan loss experience, relevant internal and external factors that affect the collection of a loan, and other pertinent factors.
Migration analysis is a formula methodology derived from the Bank's actual historical net charge off experience for each loan class (type) pool and risk grade. The migration analysis is centered on the Bank's internal credit risk rating system. Management's internal loan review and external contracted credit review examinations are used to determine and validate loan risk grades. This credit review system takes into consideration factors such as: borrower's background and experience; historical and current financial condition; credit history and payment performance; economic conditions and their impact on various industries; type, fair value and volatility of the fair value of collateral; lien position; and the financial strength of any guarantors.
A general loan loss allowance is provided on loans not specifically identified as impaired (“non-impaired loans”). The Bank's general loan loss allowance has two components: quantitative and qualitative risk factors. The quantitative risk factors are based on a migration analysis methodology described above. The loans are classified by class and risk grade and the historical loss migration is tracked for the various classes. Loss experience is quantified for a specified period and then weighted to place more significance on the most recent loss history. That loss experience is then applied to the stratified portfolio at each quarter end. For ACILs, a general loan loss allowance is provided to the extent that there has been credit deterioration since the date of acquisition. 
Additionally, in order to systematically quantify the credit risk impact of other trends and changes within the loan portfolio, the Bank utilizes qualitative adjustments to the Migration Analysis within established parameters. The parameters for making adjustments are established under a Credit Risk Matrix that provides seven possible scenarios for each of the factors below. The matrix allows for up to three positive (Major, Moderate, and Minor), three negative (Major, Moderate, and Minor), and one neutral credit risk scenarios within each factor for each loan type pool. However, if information exists to warrant adjustment to the Migration Analysis, changes are made in accordance with the established parameters supported by narrative and/or statistical analysis. The Credit Risk Matrix and the nine possible scenarios enable the Bank to qualitatively adjust the Loss Migration Ratio by as much as 50 basis points in either direction (positive or negative) for each loan type pool. This matrix considers the following nine factors, which are patterned after the guidelines provided under the FFIEC Interagency Policy Statement on the Allowance for Loan and Lease Losses:
•
Changes in lending policies and procedures, including underwriting standards and collection, charge off, and recovery practices;
•
Changes in national and local economic and business conditions and developments, including the condition of various market segments;
•
Changes in the nature and volume of the loan portfolio;
•
Changes in the experience, ability and depth of lending management and staff;
•
Changes in the trends of the volume and severity of past due loans, Classified Loans, nonaccrual loans, troubled debt restructurings and other loan modifications;
•
Changes in the quality of our loan review system and the degree of oversight by the Directors;
•
Changes in the value of underlying collateral for collateral-dependent loans;
•
The existence and effect of any concentrations of credit and changes in the level of such concentrations; and
•
The effect of external factors, such as competition and legal and regulatory requirements, on the level of estimated losses in our loan portfolio.
The Company also establishes specific loss allowances for loans that have identified potential credit risk conditions or circumstances related to a specific individual credit. The specific allowance amounts are determined by a method prescribed by FASB ASC 310-10-35-22, Measurement of Impairment. The loans identified as impaired will be accounted for in accordance with one of the three acceptable valuation methods: 1) the present value of 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. For the collateral dependent impaired loans, management obtains a new appraisal to determine the amount of impairment as of the date that the loan became impaired. The appraisals are based on an “as is” valuation. To ensure that appraised values remain current, management either obtains updated appraisals every twelve months from a qualified independent appraiser or an internal evaluation of the collateral is performed by qualified personnel. If the third party market data indicates that the value of the collateral property has declined since the most recent valuation date, management adjusts the value of the property downward to reflect current market conditions. If the fair value of the collateral is less than the recorded amount of the loan, management recognizes impairment by creating or adjusting an existing valuation allowance with a corresponding charge to the provision for loan losses. If an impaired loan is expected to be collected through liquidation of the underlying collateral, the loan is deemed to be collateral dependent and the amount of impairment is charged off against the allowance for loan losses.
The Bank considers a loan to be impaired when it is probable that not all amounts due (principal and interest) will be collectible in accordance with the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. The significance of payment delays and payment shortfalls is determined on a case-by-case basis by taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal and interest owed.
For commercial business loans, real estate loans and certain consumer loans, management bases the measurement of loan impairment on the present value of the expected future cash flows, discounted at the loan's effective interest rate or on the fair value of the loan's collateral if the loan is collateral dependent. Management evaluates most consumer loans for impairment on a collective basis because these loans generally have smaller balances and are homogeneous in the underwriting of terms and conditions and in the type of collateral.
For ACILs, the allowance for loan losses is based upon expected cash flows for these loans. To the extent that a deterioration in borrower credit quality results in a decrease in expected cash flows subsequent to the acquisition of the loans, an allowance for loan losses would be established based on an estimate of future credit losses over the remaining life of the loans.
The following table presents loans by portfolio segment and impairment method at June 30, 2014 and December 31, 2013:
 
 
As of June 30, 2014
 
Real Estate—
Residential
 
Real Estate—
Commercial
 
Real Estate—
Construction
 
Commercial
Business
 
Trade
Finance
 
Consumer
and Other
 
Total
 
(In thousands)
Impaired loans (gross carrying value)
$
—

 
$
71,714

 
$
1,588

 
$
40,413

 
$
8,985

 
$
1,458

 
$
124,158

Specific allowance
$
—

 
$
3,825

 
$
—

 
$
3,618

 
$
2,298

 
$
—

 
$
9,741

Loss coverage ratio
0.0
%
 
5.3
%
 
0.0
%
 
9.0
%
 
25.6
%
 
0.0
%
 
7.8
%
Non-impaired loans
$
10,019

 
$
4,017,528

 
$
83,449

 
$
888,730

 
$
132,068

 
$
92,364

 
$
5,224,158

General allowance
$
25

 
$
42,096

 
$
401

 
$
11,680

 
$
2,270

 
$
657

 
$
57,129

Loss coverage ratio
0.2
%
 
1.0
%
 
0.5
%
 
1.3
%
 
1.7
%
 
0.7
%
 
1.1
%
Total loans
$
10,019

 
$
4,089,242

 
$
85,037

 
$
929,143

 
$
141,053

 
$
93,822

 
$
5,348,316

Total allowance for loan losses
$
25

 
$
45,921

 
$
401

 
$
15,298

 
$
4,568

 
$
657

 
$
66,870

Loss coverage ratio
0.2
%
 
1.1
%
 
0.5
%
 
1.6
%
 
3.2
%
 
0.7
%
 
1.3
%

 
As of December 31, 2013
 
Real Estate—
Residential
 
Real Estate—
Commercial
 
Real Estate—
Construction
 
Commercial
Business
 
Trade
Finance
 
Consumer
and Other
 
Total
 
(In thousands)
Impaired loans (gross carrying value)
$
—

 
$
67,544

 
$
1,625

 
$
40,106

 
$
5,692

 
$
1,302

 
$
116,269

Specific allowance
$
—

 
$
6,670

 
$
—

 
$
5,805

 
$
159

 
$
32

 
$
12,666

Loss coverage ratio
0.0
%
 
9.9
%
 
0.0
%
 
14.5
%
 
2.8
%
 
2.5
%
 
10.9
%
Non-impaired loans
$
10,039

 
$
3,753,619

 
$
71,231

 
$
908,987

 
$
118,993

 
$
97,205

 
$
4,960,074

General allowance
$
25

 
$
39,227

 
$
628

 
$
11,787

 
$
2,494

 
$
493

 
$
54,654

Loss coverage ratio
0.2
%
 
1.0
%
 
0.9
%
 
1.3
%
 
2.1
%
 
0.5
%
 
1.1
%
Total loans
$
10,039

 
$
3,821,163

 
$
72,856

 
$
949,093

 
$
124,685

 
$
98,507

 
$
5,076,343

Total allowance for loan losses
$
25

 
$
45,897

 
$
628

 
$
17,592

 
$
2,653

 
$
525

 
$
67,320

Loss coverage ratio
0.2
%
 
1.2
%
 
0.9
%
 
1.9
%
 
2.1
%
 
0.5
%
 
1.3
%

Under certain circumstances, the Bank provides borrowers relief through loan modifications. These modifications are either temporary in nature (“temporary modifications”) or are more substantive. At June 30, 2014, total modified loans were $65.6 million, compared to $58.9 million at December 31, 2013. The temporary modifications generally consist of interest only payments for a three to six month period, whereby principal payments are deferred. At the end of the modification period, the remaining principal balance is re-amortized based on the original maturity date. Loans subject to temporary modifications are generally downgraded to Special Mention or Substandard. At the end of the modification period, the loan either 1) returns to the original contractual terms; 2) is further modified and accounted for as a troubled debt restructuring in accordance with ASC 310-10-35; or 3) is disposed of through foreclosure or liquidation.
 
Troubled Debt Restructurings (“TDRs”) of loans are defined by ASC 310-40, “Troubled Debt Restructurings by Creditors” and ASC 470-60, “Troubled Debt Restructurings by Debtors” and evaluated for impairment in accordance with ASC 310-10-35. The concessions may be granted in various forms, including reduction in the stated interest rate, reduction in the amount of principal amortization, forgiveness of a portion of a loan balance or accrued interest, or extension of the maturity date. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed on the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Bank's internal underwriting policy.
A summary of TDRs on accrual and nonaccrual status by type of concession as of June 30, 2014 and December 31, 2013 is presented below:
 
As of June 30, 2014
 
TDRs on Accrual
 
TDRs on Nonaccrual
 
Total
 
Real Estate—
Commercial
 
Commercial
Business
 
Other
 
Total
 
Real Estate—
Commercial
 
Commercial
Business
 
Other
 
Total
 
 
(In thousands)
Payment concession
$
12,449

 
$
674

 
$
—

 
$
13,123

 
$
4,073

 
$
583

 
$
756

 
$
5,412

 
$
18,535

Maturity / Amortization concession
1,800

 
10,153

 
703

 
12,656

 
2,339

 
3,609

 
1,185

 
7,133

 
19,789

Rate concession
13,399

 
4,728

 
—

 
18,127

 
8,990

 
80

 
—

 
9,070

 
27,197

Principal forgiveness
—

 
—

 
—

 
—

 
—

 
42

 
—

 
42

 
42

 
$
27,648

 
$
15,555

 
$
703

 
$
43,906

 
$
15,402

 
$
4,314

 
$
1,941

 
$
21,657

 
$
65,563


 
As of December 31, 2013
 
TDRs on Accrual
 
TDRs on Nonaccrual
 
Total
 
Real Estate—
Commercial
 
Commercial
Business
 
Other
 
Total
 
Real Estate—
Commercial
 
Commercial
Business
 
Other
 
Total
 
 
(In thousands)
Payment concession
$
7,437

 
$
1,057

 
$
—

 
$
8,494

 
$
9,489

 
$
1,279

 
$
767

 
$
11,535

 
$
20,029

Maturity / Amortization concession
765

 
6,565

 
535

 
7,865

 
1,653

 
3,656

 
—

 
5,309

 
13,174

Rate concession
13,055

 
4,490

 
—

 
17,545

 
8,107

 
—

 
—

 
8,107

 
25,652

Principal forgiveness
—

 
—

 
—

 
—

 
—

 
49

 
—

 
49

 
49

 
$
21,257

 
$
12,112

 
$
535

 
$
33,904

 
$
19,249

 
$
4,984

 
$
767

 
$
25,000

 
$
58,904


TDRs on accrual status are comprised of loans that were accruing at the time of restructuring and for which the Bank anticipates full repayment of both principal and interest under the restructured terms. TDRs that are on nonaccrual status can be returned to accrual status after a period of sustained performance, generally determined to be six months of timely payments as modified.  Sustained performance includes the periods prior to the modification if the prior performance met or exceeded the modified terms.  TDRs on accrual status at June 30, 2014 were comprised of 19 commercial real estate loans totaling $27.6 million, 30 commercial business loans totaling $15.6 million, and 3 consumer loans totaling $703 thousand. TDRs on accrual status at December 31, 2013 were comprised of 15 commercial real estate loans totaling $21.3 million, 28 commercial business loans totaling $12.1 million and 2 consumer loans totaling $535 thousand.  The Company expects that the TDRs on accrual status as of June 30, 2014, which were all performing in accordance with their restructured terms, to continue to comply with the restructured terms because of the reduced principal or interest payments on these loans.  TDRs that were restructured at market interest rates and had sustained performance as agreed under the modified loan terms may be reclassified as non-TDRs after each year end but are reserved for under ASC 310-10.
 
The Company has allocated $5.3 million and $6.6 million of specific reserves to TDRs as of June 30, 2014 and December 31, 2013, respectively. 
The following table presents loans by class modified as TDRs that occurred during the three and six months ended June 30, 2014:
 
Three Months Ended June 30, 2014
 
Six Months Ended June 30, 2014
 
Number of
Loans 
 
Pre-
Modification
 
Post-
Modification 
 
Number of
Loans 
 
Pre-
Modification
 
Post-
Modification 
 
(Dollars in thousand)
Legacy Loans:
 
 
 
 
 
 
 
 
 
 
 
Real estate—commercial
 
 
 

 
 

 
 
 
 
 
 
Retail
1

 
$
523

 
$
514

 
1

 
$
523

 
$
514

Hotel & motel
—

 
—

 
—

 
—

 
—

 
—

Gas station & car wash
—

 
—

 
—

 
—

 
—

 
—

Mixed use
—

 
—

 
—

 
—

 
—

 
—

Industrial & warehouse
—

 
—

 
—

 
1

 
756

 
809

Other
—

 
—

 
—

 
1

 
240

 
238

Real estate - construction
—

 
—

 
—

 
—

 
—

 
—

Commercial business
3

 
2,542

 
2,107

 
7

 
5,892

 
5,875

Trade finance
—

 
—

 
—

 
1

 
92

 
800

Consumer and other
—

 
—

 
—

 
—

 
—

 
—

Subtotal
4

 
$
3,065

 
$
2,621

 
11

 
$
7,503

 
$
8,236

Acquired Loans:
 
 
 
 
 
 
 
 
 
 
 
Real estate—commercial
 
 
 

 
 

 
 
 
 
 
 
Retail
2

 
$
1,075

 
$
1,062

 
2

 
$
1,075

 
$
1,062

Hotel & motel
—

 
—

 
—

 
—

 
—

 
—

Gas station & car wash
1

 
794

 
756

 
1

 
794

 
756

Mixed use
—

 
—

 
—

 
—

 
—

 
—

Industrial & warehouse
—

 
—

 
—

 
—

 
—

 
—

Other
—

 
—

 
—

 
1

 
1,023

 
1,001

Real estate—construction
—

 
—

 
—

 
—

 
—

 
—

Commercial business
1

 
29

 
27

 
5

 
346

 
124

Trade finance
—

 
—

 
—

 
—

 
—

 
—

Consumer and other
—

 
$
—

 
$
—

 
1

 
$
195

 
$
187

Subtotal
4

 
$
1,898

 
$
1,845

 
10

 
$
3,433

 
$
3,130

 
8

 
$
4,963

 
$
4,466

 
21

 
$
10,936

 
$
11,366


The specific reserves for the TDRs that occurred during the three and six months ended June 30, 2014 totaled $914 thousand and $1,857 thousand, respectively, and there were $0 thousand and $18 thousand in charge offs for the three and six months ended June 30, 2014, respectively.
The following table presents loans by class for TDRs that have been modified within the previous twelve months and have subsequently had a payment default during the three and six months ended June 30, 2014:


 
Three Months Ended
June 30, 2014
 
Six Months Ended
June 30, 2014
 
Number of Loans
 
Balance
 
Number of
Loans
 
 
Balance
 
 
(Dollars In thousands)
Legacy Loans:
 
 
 
 
 
 
 
Real estate—commercial
 
 
 
 
 
 
 
Retail
—

 
$
—

 
—

 
$
—

Gas station & car wash
—

 
—

 
—

 
—

Industrial & warehouse
—

 
—

 
—

 
—

Other
—

 
—

 
—

 
—

Commercial business
—

 
—

 
1

 
—

Subtotal
—

 
$
—

 
1

 
$
—

Acquired Loans:
 
 
 
 
 
 
 
Real estate—commercial
 

 
 

 
 
 
 
Retail
1

 
$
4

 
2

 
$
216

Gas station & car wash
—

 
—

 
—

 
—

Hotel & motel
—

 
—

 
—

 
—

Industrial & warehouse
—

 
—

 
—

 
—

Other
—

 
—

 
—

 
—

Commercial business
3

 
112

 
3

 
112

Subtotal
4

 
$
116

 
5

 
$
328

 
4

 
$
116

 
6

 
$
328


A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. As of June 30, 2014, the specific reserves totaled $34 thousand and $34 thousand for the TDRs that had payment defaults during the three and six months ended June 30, 2014, respectively. The total charge offs for the TDRs that had payment defaults during the three and six months ended June 30, 2014 were $45 thousand and $525 thousand.

There were four Acquired Loans that defaulted during the three months ended June 30, 2014 which were modified as follows: three Commercial Business loans totaling $112 thousand were modified through payment concessions and one Real Estate Commercial loan totaling $4 thousand was modified through payment concession.
There was one Commercial Business Legacy Loan that defaulted and was charged off during the six months ended June 30, 2014. The loan was modified through a maturity/amortization concession.
There were five Acquired Loans that defaulted during the six months ended June 30, 2014 that were modified as follows: two Real Estate Commercial loan totaling $216 thousand were modified through payment concessions and three Commercial Business loans totaling $112 thousand were modified through payment concessions.

Covered Assets
On April 16, 2010, the Department of Financial Institutions closed Innovative Bank, California, and appointed the FDIC as its receiver. On the same date, the Bank assumed the banking operations of Innovative Bank from the FDIC under a purchase and assumption agreement and two related loss sharing agreements with the FDIC.
Covered nonperforming assets totaled $2.0 million and $826 thousand at June 30, 2014 and December 31, 2013, respectively. These covered nonperforming assets are subject to the loss sharing agreements with the FDIC. The covered nonperforming assets at June 30, 2014 and December 31, 2013 were as follows:
 
June 30, 2014
 
December 31, 2013
 
(In thousands)
Covered loans on nonaccrual status
$
1,610

 
$
236

Covered OREO
352

 
590

     Total covered nonperforming assets
$
1,962

 
$
826

 
 
 
 
Acquired covered loans
$
49,149

 
$
55,088


Related Party Loans
In the ordinary course of business, the Company enters into loan transactions with certain of its directors or associates of such directors (“Related Parties”). The loans to Related Parties are on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with unrelated parties. In management’s opinion, these transactions did not involve more than normal credit risk or present other unfavorable features. All loans to Related Parties were current as of June 30, 2014 and December 31, 2013, and the outstanding principal balance as of June 30, 2014 and December 31, 2013 was $3.5 million and $3.9 million, respectively.