Loans and reserve for credit losses

The composition of the loan portfolio at June 30, 2014 and December 31, 2013 was as follows (dollars in thousands):



	June 30, 2014					December 31, 2013
	Amount			Percent		Amount			Percent
Originated loans (a):
Commercial real estate:
Owner occupied	$	190,712		18.8	%	$	204,998		20.6	%
Non-owner occupied	365,827			36.0	%	347,014			34.8	%
Total commercial real estate loans	556,539			54.8	%	552,012			55.4	%
Construction	54,320			5.3	%	52,503			5.3	%
Residential real estate	101,975			10.0	%	101,557			10.2	%
Commercial and industrial	269,019			26.5	%	254,170			25.5	%
Consumer	34,805			3.4	%	35,990			3.6	%
Total loans	1,016,658			100.0	%	996,232			100.0	%

Less:
Deferred loan fees	(1,548		)			(1,757		)
Reserve for loan losses	(20,471		)			(20,857		)
Loans, net	$	994,639				$	973,618

Acquired loans (b):
Commercial real estate:
Owner occupied	$	52,267		16.2	%
Non-owner occupied	110,650			34.1	%
Total commercial real estate loans	162,917			50.3	%
Construction	48,127			14.8	%
Residential real estate	83,776			25.8	%
Commercial and industrial	27,093			8.3	%
Consumer	2,757			0.8	%
Total loans	324,670			100.0	%

Less:
Reserve for loan losses	—
Loans, net	$	324,670

Acquired covered loans (c):
Commercial real estate:
Owner occupied	$	13,083		24.4	%
Non-owner occupied	19,644			36.7	%
Total commercial real estate loans	32,727			61.1	%
Construction	2,564			4.8	%
Residential real estate	13,128			24.5	%
Commercial and industrial	4,621			8.6	%
Consumer	560			1.0	%
Total loans	53,600			100.0	%

Less:
Reserve for loan losses	—
Loans, net	$	53,600



Total loans:
Commercial real estate:
Owner occupied	$	256,062		18.3	%
Non-owner occupied	496,121			35.6	%
Total commercial real estate loans	752,183			53.9	%
Construction	105,011			7.5	%
Residential real estate	198,879			14.3	%
Commercial and industrial	300,733			21.6	%
Consumer	38,122			2.7	%
Total loans	1,394,928			100.0	%

Less:
Deferred loan fees	(1,548		)
Reserve for loan losses	(20,471		)
Loans, net	$	1,372,909

(a) Originated loans are loans organically made through the Company's normal and customary origination process
(b) Acquired loans are loans acquired in the acquisition of Home, discussed elsewhere in this report, less acquired covered loans
(c) Acquired covered loans acquired in the acquisition of Home that are covered under FDIC loss share agreements

The following describes the distinction between originated, acquired and covered loan portfolios and certain significant accounting policies relevant to each of these portfolios.

Originated loans

Loans originated for investment are stated at their principal amount outstanding adjusted for partial charge-offs, the reserve for loan losses and net deferred loan fees and costs. Interest income on loans is accrued over the term of the loans. Interest is not accrued on loans where collectability is uncertain. Accrued interest on loans is presented in "Other assets" on the condensed consolidated balance sheet. Loan origination fees and certain direct costs incurred to extend credit are deferred and amortized over the term of the loan as an adjustment to the related loan yield.

Approximately 70.1% of the Bank’s originated loan portfolio at June 30, 2014 consisted of real estate-related loans including construction and development loans, residential mortgage loans, and commercial loans were secured by commercial real estate. At June 30, 2014, approximately 75.7% of the Bank's total portfolio (inclusive of acquired and acquired covered loans) consisted of real estate-related loans as described above. The Bank's results of operations and financial condition are affected by general economic trends and in particular, the strength of the local residential and commercial real estate markets in Central, Southern and Northwest Oregon and the greater Boise/Treasure Valley, Idaho area. Real estate values could be affected by, among other things, a worsening of national and local economic conditions, an increase in foreclosures, a decline in home sale volumes, and an increase in interest rates. Furthermore, the Bank may experience an increase in the number of borrowers who become delinquent, file for protection under bankruptcy laws, or default on their loans or other obligations to the Bank in the event of a sustained downturn in business and economic conditions generally or specifically in the principal markets in which the Bank does business. An increase in the number of delinquencies, bankruptcies, or defaults could result in a higher level of non-performing assets, net charge-offs, and loan loss provision. Management is targeting to reduce commercial real estate ("CRE") concentration over the long term, but real estate-related loans will remain a significant portfolio component due to the nature of the economies, businesses, and markets we serve.

In the normal course of business, the Bank may participate portions of loans to third parties in order to extend the Bank’s lending capability or to mitigate risk. At June 30, 2014 and December 31, 2013, the portion of loans participated to third-parties (which are not included in the accompanying condensed consolidated financial statements) totaled $29.9 million and $11.3 million, respectively.

Acquired loans

Acquired loans are those purchased in the Home acquisition (See Note 2 - "Business Combinations" for further information). These loans were recorded at estimated fair value at the Acquisition Date. The fair value estimates for acquired and acquired covered loans is based on expected prepayments, charge offs and the amount and timing of undiscounted expected principal, interest and other cash flows. The net fair value adjustment to the acquired and acquired covered loans was a reduction of $6.1 million, representing a valuation adjustment for interest rate and credit which will be accreted over the life of the loans (approximately 10 years).

Of the loans acquired on May 16, 2014, $17.7 million or 4.7% were graded substandard. Of that amount $8.3 million or 47.1% of the substandard loans were covered under a loss share agreement with the FDIC. With the amount of classified loans acquired being nominal, all loans acquired are treated in a manner consistent with originated loans for credit risk management and accounting purposes. See further discussion in "Acquired Covered Loans" below.

Acquired covered loans

As of June 30, 2014, $53.6 million or 14.2% of the $378.3 million in acquired and acquired covered loans were covered under loss sharing agreements with the FDIC. The agreements were entered into in September 2009 and September 2010 between the FDIC and Home. The loss sharing agreements expire five years after the date of the FDIC agreements for non-single family covered assets and ten years after the acquisitions date for single-family covered assets. After the expiration of the loss sharing agreements, the Company will not be indemnified for losses and related expenses on covered assets. When the loss sharing agreements expire, the Company's and the Bank's risk-based capital ratios will be reduced. While the agreements are in place, the covered assets receive a 20% risk-weighting. When the agreements expire, the risk-weighting for previously covered assets will most likely increase to 100%, based on current regulatory capital definitions. Nearly all of the assets remaining in the covered asset portfolios are non-single family covered assets. Therefore, most of the covered assets will no longer be indemnified after September 2014 or September 2015. Only $8.3 million of the acquired covered loans were graded substandard. With the amount of classified loans covered under these agreements being nominal, amounts that may be due to or due from the FDIC under loss sharing agreements will be accounted for on a cash basis.

A net loss share payable was recorded at the Acquisition Date which represents the estimated value of reimbursement the Company expects to pay to the FDIC for recoveries net of incurred losses on covered loans. These expected reimbursements are recorded as part of covered loans in the accompanying consolidated balance sheets.

Upon the determination of an incurred loss or recovery the loss share receivable/payable will be changed by the amount due to or due from the FDIC.

Changes in the loss share payable associated with covered loans for the 45-day period from the Home acquisition to June 30, 2014 were as follows:



	45 Days Ended
	June 30, 2014
Balance at May 16, 2014	$	1,035
Charge-off receivable	(2		)
Recovery payable	250
Balance at end of period	$	1,283

Reserve for loan losses

The reserve for loan losses represents management’s estimate of known and inherent losses in the loan portfolio as of the condensed consolidated balance sheet date and is recorded as a reduction to loans. The reserve for loan losses is increased by charges to operating expense through the loan loss provision, and decreased by loans charged-off, net of recoveries. The reserve for loan losses requires complex subjective judgments as a result of the need to make estimates about matters that are uncertain. The reserve for loan losses is maintained at a level currently considered adequate to provide for potential loan losses based on management’s assessment of various factors affecting the loan portfolio.

However the reserve for loan losses is based on estimates and actual losses may vary from the current estimates. These estimates are reviewed periodically, and, as adjustments become necessary, they are reported in earnings in the periods in which they become known. Therefore, management cannot provide assurance that, in any particular period, the Company will not have significant losses in relation to the amount reserved. The level of the reserve for loan losses is also determined after consideration of bank regulatory guidance and recommendations and is subject to review by such regulatory authorities who may require increases or decreases to the reserve based on their evaluation of the information available to them at the time of their examinations of the Bank.

For purposes of assessing the appropriate level of the reserve for loan losses, the Company analyzes loans and commitments to loan, and the amount of reserves allocated to loans and commitments to loan in each of the following reserve categories: pooled reserves, specifically identified reserves for impaired loans, and the unallocated reserve. Also, for purposes of analyzing loan portfolio credit quality and determining the appropriate level of reserve for loan losses, the Company identifies loan portfolio segments and classes based on the nature of the underlying loan collateral.

The decrease in the reserve for loan losses from December 31, 2013 to June 30, 2014 was related to charge-offs during the period. The unallocated reserve for loan losses at June 30, 2014 has increased $0.8 million from the balance at December 31, 2013. Management believes that the amount of unallocated reserve for loan losses is appropriate and will continue to evaluate the amount going forward.

Acquired reserve for loan losses

The fair value estimates for acquired and acquired covered loans is based on expected prepayments, charge offs, and the amount and timing of undiscounted expected principal, interest and other cash flows. The net fair value adjustment to the acquired and acquired covered loans was $6.1 million, representing a valuation adjustment for interest rate and credit quality. The fair value adjustment not accreted at any point in time represents the estimated reserve for loan losses for acquired loans. If the Company determines that this amount is insufficient a provision to the reserve for loan losses will be made.

Covered reserve for loan losses

The reserve for loan losses on covered loans is estimated similarly to acquired loans as described above except any increase to the reserve from a recovery or a decrease in the reserve from a charge-off is partially offset by an increase in the loss share payable (or receivable) for the portion of the losses recoverable and recoveries payable to the FDIC under the loss sharing agreements. No allowance was estimated at quarter-end given management's judgment that purchase discounts adequately address the estimated losses in the acquired loans.

Transactions and allocations in the reserve for loan losses and unfunded loan commitments, by portfolio segment, for the three and six months ended June 30, 2014 and 2013 were as follows (dollars in thousands):



	Commercial real estate			Construction			Residential real estate			Commercial and industrial			Consumer			Unallocated			Total
Three months ended June 30, 2014
Reserve for loan losses
Balance at March 31, 2014	$	8,803		$	602		$	2,227		$	6,840		$	1,243		$	2,007		$	21,722
Loan loss provision (credit)	82			(163		)	(215		)	255			129			(88		)	—
Recoveries	60			289			157			546			67			—			1,119
Loans charged off	(985		)	—			(101		)	(1,026		)	(258		)	—			(2,370		)
Balance at end of period	$	7,960		$	728		$	2,068		$	6,615		$	1,181		$	1,919		$	20,471

Reserve for unfunded lending commitments
Balance at March 31, 2014	$	48		$	268		$	25		$	75		$	24		$	—		$	440
Provision for unfunded loan commitments	—			—			—			—			—			—			—
Balance at end of period	$	48		$	268		$	25		$	75		$	24		$	—		$	440

Reserve for credit losses
Reserve for loan losses	$	7,960		$	728		$	2,068		$	6,615		$	1,181		$	1,919		$	20,471
Reserve for unfunded lending commitments	48			268			25			75			24			—			440
Total reserve for credit losses	$	8,008		$	996		$	2,093		$	6,690		$	1,205		$	1,919		$	20,911



	Commercial real estate			Construction			Residential real estate			Commercial and industrial			Consumer			Unallocated		Total
For the six months ended June 30, 2014
Reserve for loan losses
Balance at December 31, 2013	$	9,565		$	535		$	2,381		$	6,261		$	1,401		$	714	$	20,857
Loan loss provision (credit)	(1,478		)	115			(270		)	237			191			1,205		—
Recoveries	1,001			374			281			1,457			154			—		3,267
Loans charged off	(1,128		)	(296		)	(324		)	(1,340		)	(565		)	—		(3,653		)
Balance at end of period	$	7,960		$	728		$	2,068		$	6,615		$	1,181		$	1,919	$	20,471

Reserve for unfunded lending commitments
Balance at December 31, 2013	$	48		$	268		$	25		$	75		$	24		$	—	$	440
Provision for unfunded loan commitments	—			—			—			—			—			—		—
Balance at end of period	$	48		$	268		$	25		$	75		$	24		$	—	$	440

Reserve for credit losses
Reserve for loan losses	$	7,960		$	728		$	2,068		$	6,615		$	1,181		$	1,919	$	20,471
Reserve for unfunded lending commitments	48			268			25			75			24			—		440
Total reserve for credit losses	$	8,008		$	996		$	2,093		$	6,690		$	1,205		$	1,919	$	20,911



	Commercial real estate			Construction			Residential real estate			Commercial and industrial			Consumer			Unallocated		Total
Three months ended June 30, 2013
Reserve for loan losses
Balance at March 31, 2013	$	11,225		$	1,236		$	3,714		$	5,676		$	2,039		$	658	$	24,548
Loan loss provision (credit)	261			226			(570		)	887			(276		)	472		1,000
Recoveries	37			39			71			834			59			—		1,040
Loans charged off	(811		)	(659		)	(243		)	(2,049		)	(132		)	—		(3,894		)
Balance at end of period	$	10,712		$	842		$	2,972		$	5,348		$	1,690		$	1,130	$	22,694

Reserve for unfunded lending commitments
Balance at March 31, 2013	$	48		$	268		$	25		$	75		$	24		$	—	$	440
Provision for unfunded loan commitments	—			—			—			—			—			—		—
Balance at end of period	$	48		$	268		$	25		$	75		$	24		$	—	$	440

Reserve for credit losses
Reserve for loan losses	$	10,712		$	842		$	2,972		$	5,348		$	1,690		$	1,130	$	22,694
Reserve for unfunded lending commitments	48			268			25			75			24			—		440
Total reserve for credit losses	$	10,760		$	1,110		$	2,997		$	5,423		$	1,714		$	1,130	$	23,134



	Commercial real estate			Construction			Residential real estate			Commercial and industrial			Consumer			Unallocated		Total
For the six months ended June 30, 2013
Reserve for loan losses
Balance at December 31, 2012	$	11,596		$	1,583		$	3,551		$	7,267		$	2,177		$	1,087	$	27,261
Loan loss provision (credit)	(19		)	542			(388		)	1,012			(190		)	43		1,000
Recoveries	215			163			188			1,346			118			—		2,030
Loans charged off	(1,080		)	(1,446		)	(379		)	(4,277		)	(415		)	—		(7,597		)
Balance at end of period	$	10,712		$	842		$	2,972		$	5,348		$	1,690		$	1,130	$	22,694

Reserve for unfunded lending commitments
Balance at December 31, 2012	$	48		$	268		$	25		$	75		$	24		$	—	$	440
Provision for unfunded loan commitments	—			—			—			—			—			—		—
Balance at end of period	$	48		$	268		$	25		$	75		$	24		$	—	$	440

Reserve for credit losses
Reserve for loan losses	$	10,712		$	842		$	2,972		$	5,348		$	1,690		$	1,130	$	22,694
Reserve for unfunded lending commitments	48			268			25			75			24			—		440
Total reserve for credit losses	$	10,760		$	1,110		$	2,997		$	5,423		$	1,714		$	1,130	$	23,134

An individual loan is impaired when, based on current information and events, management believes that it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. The following table presents the reserve for loan losses and the recorded investment in loans by portfolio segment and impairment evaluation method at June 30, 2014 and December 31, 2013 (dollars in thousands):



	Reserve for loan losses						Recorded investment in loans
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
June 30, 2014
Commercial real estate	$	172	$	7,788	$	7,960	$	28,644	$	723,539	$	752,183
Construction	—		728		728		963		104,048		105,011
Residential real estate	—		2,067		2,067		461		198,418		198,879
Commercial and industrial	29		6,587		6,616		3,793		296,940		300,733
Consumer	—		1,181		1,181		—		38,122		38,122
	$	201	$	18,351	18,552		$	33,861	$	1,361,067	$	1,394,928
Unallocated					1,919
					$	20,471

December 31, 2013
Commercial real estate	$	665	$	8,900	$	9,565	$	32,227	$	519,785	$	552,012
Construction	—		535		535		1,987		50,516		52,503
Residential real estate	62		2,319		2,381		430		101,127		101,557
Commercial and industrial	56		6,205		6,261		5,823		248,347		254,170
Consumer	—		1,401		1,401		—		35,990		35,990
	$	783	$	19,360	20,143		$	40,467	$	955,765	$	996,232
Unallocated					714
					$	20,857

The above reserve for loan losses include an unallocated allowance of $1.9 million at June 30, 2014 and $0.7 million at December 31, 2013. The increased unallocated allowance at June 30, 2014 is considered by management to be reasonable and appropriate due to lack of seasoning in the retail/small business “pools” of loans, lack of seasoning with respect to loss expectations for the acquired and acquired covered loan portfolio as well as additional loan commitments that are not yet funded that will require allocation of additional reserves currently unallocated.

The Company uses credit risk ratings, which reflect the Bank’s assessment of a loan’s risk or loss potential, for purposes of assessing the appropriate level of reserve for loan losses. The Bank’s credit risk rating definitions along with applicable borrower characteristics for each credit risk rating are as follows:

Acceptable

The borrower is a reasonable credit risk and demonstrates the ability to repay the loan from normal business operations. Loans are generally made to companies operating in an economy and/or industry that is generally sound. The borrower tends to operate in regional or local markets and has achieved sufficient revenues for the business to be financially viable. The borrowers financial performance has been consistent in normal economic times and has been average or better than average for its industry.

A loan can also be considered Acceptable even though the borrower may have some vulnerability to downturns in the economy due to marginally satisfactory working capital and debt service cushion. Availability of alternate financing sources may be limited or nonexistent. In some cases, the borrower’s management, may have limited depth or continuity but is still considered capable. An adequate primary source of repayment is identified while secondary sources may be illiquid, more speculative, less readily identified, or reliant upon collateral liquidation. Loan agreements will be well defined, including several financial performance covenants and detailed operating covenants. This category also includes commercial loans to individuals with average or better than average capacity to repay.

Pass-Watch

Loans are graded Pass-Watch when temporary situations increase the level of the Bank’s risk associated with the loan, and remain graded Pass-Watch until the situation has been corrected. These situations may involve one or more weaknesses in cash flow, collateral value or indebtedness that could, if not corrected within a reasonable period of time, jeopardize the full repayment of the debt. In general, loans in this category remain adequately protected by the borrower’s net worth and paying capacity, or pledged collateral.

Special Mention

A Special Mention credit has potential weaknesses that may, if not checked or corrected, weaken the loan or leave the Bank inadequately protected at some future date. Loans in this category are deemed by management of the Bank to be currently protected but reflect potential problems that warrant more than the usual management attention but do not justify a Substandard classification.

Substandard

Substandard loans are those inadequately protected by the net worth and paying capacity of the obligor and/or by the value of the pledged collateral, if any. Substandard loans have a high probability of payment default or they have other well-defined weaknesses. They require more intensive supervision and borrowers are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigants.

CRE and construction loans are classified Substandard when well-defined weaknesses are present which jeopardize the orderly liquidation of the loan. Well-defined weaknesses include a project’s lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time, and/or the project’s failure to fulfill economic expectations. These loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

In addition, Substandard loans also include impaired loans. Impaired loans bear the characteristics of Substandard loans as described above, and the Company has determined it does not expect timely payment of all contractually due interest and principal. Impaired loans may be adequately secured by collateral.

During the six months ended June 30, 2014, the Bank reduced loans classified as special mention and substandard in the originated loan portfolio by $14.6 million, while total loans classified as special mention and substandard increased $17.5 million as a result of the loans acquired in the merger. Remediation on the originated portfolio was accomplished through credit upgrades mainly owing to improved obligor cash flows as well as payoffs/paydowns, and/or sales. Work began on the acquired and acquired covered portfolio at Acquisition Date.

The following table presents, by portfolio class, the recorded investment in loans by internally assigned grades at June 30, 2014 and December 31, 2013 (dollars in thousands):



	Loan grades
	Acceptable		Pass-Watch		Special Mention		Substandard		Total
June 30, 2014
Originated loans (a):
Commercial real estate:
Owner occupied	$	152,819	$	9,904	$	5,267	$	22,722	$	190,712
Non-owner occupied	330,458		12,670		15,377		7,322		365,827
Total commercial real estate loans	483,277		22,574		20,644		30,044		556,539
Construction	48,397		2,865		2,655		403		54,320
Residential real estate	99,486		1,504		22		963		101,975
Commercial and industrial	243,323		9,931		11,697		4,068		269,019
Consumer	34,786		—		—		19		34,805



	$	909,269	$	36,874	$	35,018	$	35,497	$	1,016,658

Acquired loans (b):
Commercial real estate:
Owner occupied	$	47,566	$	—	$	4,417	$	284	$	52,267
Non-owner occupied	87,529		9,298		7,286		6,537		110,650
Total commercial real estate loans	135,095		9,298		11,703		6,821		162,917
Construction	46,916		792		—		419		48,127
Residential real estate	81,849		—		—		1,927		83,776
Commercial and industrial	25,885		20		1,091		97		27,093
Consumer	2,676		—		—		81		2,757
	$	292,421	$	10,110	$	12,794	$	9,345	$	324,670

Acquired covered loans (c):
Commercial real estate:
Owner occupied	$	11,295	$	—	$	1,069	$	719	$	13,083
Non-owner occupied	13,778		366		563		4,937		19,644
Total commercial real estate loans	25,073		366		1,632		5,656		32,727
Construction	—		2,512		—		52		2,564
Residential real estate	10,529		546		—		2,053		13,128
Commercial and industrial	4,064		—		—		557		4,621
Consumer	560		—		—		—		560
	$	40,226	$	3,424	$	1,632	$	8,318	$	53,600

Total loans:
Commercial real estate:
Owner occupied	$	211,680	$	9,904	$	10,753	$	23,725	$	256,062
Non-owner occupied	431,765		22,334		23,226		18,796		496,121
Total commercial real estate loans	643,445		32,238		33,979		42,521		752,183
Construction	95,313		6,169		2,655		874		105,011
Residential real estate	191,864		2,050		22		4,943		198,879
Commercial and industrial	273,272		9,951		12,788		4,722		300,733
Consumer	38,022		—		—		100		38,122
	$	1,241,916	$	50,408	$	49,444	$	53,160	$	1,394,928

(a) Originated loans are loans organically made through the Company's normal and customary origination process
(b) Acquired loans are loans acquired in the acquisition of Home, discussed elsewhere in this report, less acquired covered loans
(c) Acquired covered loans acquired in the acquisition of Home that are covered under FDIC loss share agreements

December 31, 2013
Commercial real estate:
Owner occupied	$	147,865	$	19,798	$	14,730	$	22,605	$	204,998
Non-owner occupied	278,854		33,827		24,188		10,145		347,014
Total commercial real estate loans	426,719		53,625		38,918		32,750		552,012
Construction	46,274		2,772		2,131		1,326		52,503



Residential real estate	98,633		1,570		147		1,207		101,557
Commercial and industrial	242,053		3,518		2,694		5,905		254,170
Consumer	35,984		—		—		6		35,990
	$	849,663	$	61,485	$	43,890	$	41,194	$	996,232

The following table presents, by portfolio class, an age analysis of past due loans, including loans placed on non-accrual at June 30, 2014 and December 31, 2013 (dollars in thousands):



	30-89 days past due		90 days or more past due		Total past due		Current		Total loans
June 30, 2014
Originated loans (a):
Commercial real estate:
Owner occupied	$	250	$	2,612	$	2,862	$	187,850	$	190,712
Non-owner occupied	222		332		554		365,273		365,827
Total commercial real estate loans	472		2,944		3,416		553,123		556,539
Construction	—		746		746		53,574		54,320
Residential real estate	326		220		546		101,429		101,975
Commercial and industrial	805		665		1,470		267,549		269,019
Consumer	157		19		176		34,629		34,805
	$	1,760	$	4,594	$	6,354	$	1,010,304	$	1,016,658

Acquired loans (b):
Commercial real estate:
Owner occupied	$	—	$	—	$	—	$	52,267	$	52,267
Non-owner occupied	—		—		—		110,650		110,650
Total commercial real estate loans	—		—		—		162,917		162,917
Construction	—		—		—		48,127		48,127
Residential real estate	1,285		527		1,812		81,964		83,776
Commercial and industrial	4		—		4		27,089		27,093
Consumer	49		—		49		2,708		2,757
	$	1,338	$	527	$	1,865	$	322,805	$	324,670

Acquired covered loans (c):
Commercial real estate:
Owner occupied	$	—	$	84	$	84	$	12,999	$	13,083
Non-owner occupied	—		27		27		19,617		19,644
Total commercial real estate loans	—		111		111		32,616		32,727
Construction	—		—		—		2,564		2,564
Residential real estate	278		—		278		12,850		13,128
Commercial and industrial	—		50		50		4,571		4,621
Consumer	22		—		22		538		560
	$	300	$	161	$	461	$	53,139	$	53,600

Total loans:
Commercial real estate:
Owner occupied	$	250	$	2,696	$	2,946	$	253,116	$	256,062
Non-owner occupied	222		359		581		495,540		496,121



Total commercial real estate loans	472		3,055		3,527		748,656		752,183
Construction	—		746		746		104,265		105,011
Residential real estate	1,889		747		2,636		196,243		198,879
Commercial and industrial	809		715		1,524		299,209		300,733
Consumer	228		19		247		37,875		38,122
	$	3,398	$	5,282	$	8,680	$	1,386,248	$	1,394,928

(a) Originated loans are loans organically made through the Company's normal and customary origination process
(b) Acquired loans are loans acquired in the acquisition of Home, discussed elsewhere in this report, less acquired covered loans
(c) Acquired covered loans acquired in the acquisition of Home that are covered under FDIC loss share agreements

December 31, 2013
Commercial real estate:
Owner occupied	$	959	$	2,905	$	3,864	$	201,134	$	204,998
Non-owner occupied	—		—		—		347,014		347,014
Total commercial real estate loans	959		2,905		3,864		548,148		552,012
Construction	215		119		334		52,169		52,503
Residential real estate	436		163		599		100,958		101,557
Commercial and industrial	597		2,077		2,674		251,496		254,170
Consumer	53		6		59		35,931		35,990
	$	2,260	$	5,270	$	7,530	$	988,702	$	996,232

Loans contractually past due 90 days or more on which the Company continued to accrue interest were $0.8 million and $1.1 million at June 30, 2014 and December 31, 2013, respectively.

The following table presents information related to impaired loans, by portfolio class, at June 30, 2014 and December 31, 2013 (dollars in thousands):



	Impaired loans
	With a related allowance		Without a related allowance		Total recorded balance		Unpaid principal balance		Related allowance
June 30, 2014
Commercial real estate:
Owner occupied	$	1,620	$	4,238	$	5,858	$	8,463	$	153
Non-owner occupied	1,104		21,682		22,786		22,864		19
Total commercial real estate loans	2,724		25,920		28,644		31,327		172
Construction	—		963		963		963		—
Residential real estate	—		461		461		582		—
Commercial and industrial	2,766		1,027		3,793		4,424		29
Consumer	—		—		—		—		—
	$	5,490	$	28,371	$	33,861	$	37,296	$	201

December 31, 2013
Commercial real estate:
Owner occupied	$	2,772	$	6,582	$	9,354	$	12,707	$	652
Non-owner occupied	1,116		21,757		22,873		22,904		13
Total commercial real estate loans	3,888		28,339		32,227		35,611		665
Construction	751		1,236		1,987		2,029		—
Residential real estate	174		256		430		515		62
Commercial and industrial	4,074		1,749		5,823		6,701		56
Consumer	—		—		—		—		—
	$	8,887	$	31,580	$	40,467	$	44,856	$	783

At June 30, 2014 and December 31, 2013, the total recorded balance of impaired loans in the above table included $23.0 million and $33.2 million, respectively, of Troubled Debt Restructuring (“TDR”) loans which were not on non-accrual status.

The following table presents, by portfolio class, the average recorded investment in impaired loans for the three and six months ended June 30, 2014 and 2013 (dollars in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Commercial real estate:
Owner occupied	$	6,120	$	15,179	$	7,198	$	15,447
Non-owner occupied	22,762		28,089		22,799		27,685
Total commercial real estate loans	28,882		43,268		29,997		43,132
Construction	1,351		2,479		1,563		4,897
Residential real estate	443		2,751		439		3,447
Commercial and industrial	4,515		8,043		4,951		8,563
Consumer	—		969		—		1,192
	$	35,191	$	57,510	$	36,950	$	61,231

Interest income recognized for cash payments received on impaired loans for the six months ended June 30, 2014 was insignificant.

Information with respect to the Company’s non-accrual loans, by portfolio class, at June 30, 2014 and December 31, 2013 is as follows (dollars in thousands):



	June 30, 2014		December 31, 2013
Commercial real estate:
Owner occupied	$	4,222	$	4,443
Non-owner occupied	1,431		280
Total commercial real estate loans	5,653		4,723
Construction	495		236
Residential real estate	4,222		399
Commercial and industrial	1,229		1,868
Consumer	81		—
Total non-accrual loans	$	11,680	$	7,226

Accruing loans which are contractually past due 90 days or more:
Commercial real estate:
Owner occupied	$	—	$	—
Non-owner occupied	—		—
Total commercial real estate loans	—		—
Construction	746		—
Residential real estate	—		—
Commercial and industrial	25		1,077
Consumer	19		6
Total accruing loans which are contractually past due 90 days or more	$	790	$	1,083

TDRs

The Company allocated $0.2 million and $0.8 million of specific reserves to customers whose loan terms have been modified in TDRs as of June 30, 2014 and December 31, 2013, respectively. TDRs involve the restructuring of terms to allow customers to mitigate the risk of foreclosure by meeting a lower loan payment requirement based upon their current cash flow. As indicated above, TDRs may also include loans to borrowers experiencing financial distress that renewed at existing contractual rates, but below market rates for comparable credit quality. The Company has been actively utilizing these programs and working with its customers to improve obligor cash flow and related prospect for repayment. Concessions may include, but are not limited to, interest rate reductions, principal forgiveness, deferral of interest payments, extension of the maturity date, and other actions intended to minimize potential losses to the Company. For each commercial loan restructuring, a comprehensive credit underwriting analysis of the borrower’s financial condition and prospects of repayment under the revised terms is performed to assess whether the new structure can be successful and whether cash flows will be sufficient to support the restructured debt. Generally, if the loan is on accrual at the time of restructuring, it will remain on accrual after the restructuring. After six consecutive payments under the restructured terms, a nonaccrual restructured loan is reviewed for possible upgrade to accruing status.

Typically, once a loan is identified as a TDR it will retain that designation until it is paid off, because restructured loans generally are not at market rates following restructuring. Under certain circumstances a TDR may be removed from TDR status if it is determined to no longer be impaired and the loan is at a competitive interest rate. Under such circumstances, allowance allocations for loans removed from TDR status would be based on the historical allocation for the applicable loan grade and loan class.

The following table presents, by portfolio segment, information with respect to the Company’s loans that were modified and recorded as TDRs during the three and six months ended June 30, 2014 and 2013 (dollars in thousands):



	Three months ended June 30,
	2014			2013
	Number of loans	TDR outstanding recorded investment		Number of loans	TDR outstanding recorded investment
Commercial real estate	—	$	—	—	$	—
Construction	—	—		—	—
Residential real estate	—	—		—	—
Commercial and industrial	—	—		1	3
Consumer	—	—		—	—
	—	$	—	1	$	3



	Six months ended June 30,
	2014			2013
	Number of loans	TDR outstanding recorded investment		Number of loans	TDR outstanding recorded investment
Commercial real estate	—	$	—	5	$	27,677
Construction	—	—		—	—
Residential real estate	—	—		—	—
Commercial and industrial	—	—		4	277
Consumer	—	—		—	—
	—	$	—	9	$	27,954

There were no loans modified and recorded as TDRs during the three and six months ended June 30, 2014. During the same period in 2013, TDR activity was primarily the result of remediation to bolster cash flow of stressed loans, and included the restructuring of a large CRE credit in the Bank’s loan portfolio.

At both June 30, 2014 and 2013, the Company had remaining commitments to lend on loans accounted for as TDRs of $0.

The following table presents, by portfolio segment, the post modification recorded investment for TDRs restructured during the three and six months ended June 30, 2013 by the primary type of concession granted. There were no TDRs restructured during the three and six months ended June 30, 2014.



Three Months Ended June 30, 2013	Rate reduction		Term extension		Rate reduction and term extension		Total
Commercial real estate	$	—	$	—	$	—	$	—
Construction	—		—		—		—
Residential real estate	—		—		—		—
Commercial and industrial	—		3		—		3
Consumer	—		—		—		—
	$	—	$	3	$	—	$	3



Six Months Ended June 30, 2013	Rate reduction		Term extension		Rate reduction and term extension		Total
Commercial real estate	$	3,809	$	2,368	$	21,500	$	27,677
Construction	—		—		—		—
Residential real estate	—		—		—		—
Commercial and industrial	174		103		—		277
Consumer	—		—		—		—
	$	3,983	$	2,471	$	21,500	$	27,954

The following table presents, by portfolio segment, the TDRs which had payment defaults during the six months ended June 30, 2014 and 2013 that had been previously restructured within the last twelve months prior to June 30, 2014 and 2013 (dollars in thousands):



	Six months ended June 30,
	2014			2013
	Number of loans	TDRs restructured in the period with a payment default		Number of loans	TDRs restructured in the period with a payment default
Commercial real estate	—	$	—	2	$	3,500
Construction	—	—		—	—
Residential real estate	—	—		—	—
Commercial and industrial loans	—	—		—	—
Consumer loans	—	—		—	—
	—	$	—	2	$	3,500