| Loans Receivable | Loans Receivable The Company originates loans in the ordinary course of business and has also acquired loans through FDIC-assisted and open bank transactions. Loans acquired in a business combination may be further classified as “purchased” loans. Loans purchased with evidence of credit deterioration since origination for which it is probable that not all contractually required payments will be collected are accounted for under FASB Accounting Standards Codification ("ASC") 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality . These loans are identified as “purchased credit impaired” ("PCI") loans. Loans purchased that are not accounted for under FASB ASC 310-30 are accounted for under FASB ASC 310-20, Receivables—Nonrefundable Fees and Other Costs, and are referred to as "non-PCI" loans. Disclosures related to the Company's recorded investment in loans receivable generally exclude accrued interest receivable and net deferred loan origination fees and costs because they are insignificant. (a) Loan Origination/Risk Management The Company categorizes loans in one of the four segments of the total loan portfolio: commercial business, one-to-four family residential, real estate construction and land development and consumer. Within these segments are classes of loans for which management monitors and assesses credit risk in the loan portfolios. The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies, and nonperforming and potential problem loans. The Company also conducts internal loan reviews and validates the credit risk assessment on a periodic basis and presents the results of these reviews to management. The loan review process complements and reinforces the risk identification and assessment decisions made by loan officers and credit personnel, as well as the Company’s policies and procedures. A discussion of the risk characteristics of each loan portfolio segment is as follows: Commercial Business : There are three significant classes of loans in the commercial portfolio segment: commercial and industrial loans, owner-occupied commercial real estate and non-owner occupied commercial real estate. The owner and non-owner occupied commercial real estate are both considered commercial real estate loans. As the commercial and industrial loans carry different risk characteristics than the commercial real estate loans, they are discussed separately below. Commercial and industrial. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may include a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. Commercial real estate. The Company originates commercial real estate loans within its primary market areas. These loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate involves more risk than other classes of loans in that the lending typically involves higher loan principal amounts, and payments on loans secured by real estate properties are dependent on successful operation and management of the properties. Repayment of these loans may be more adversely affected by conditions in the real estate market or the economy. Owner-occupied commercial real estate loans are generally of lower credit risk than non-owner occupied commercial real estate loans as the borrowers' businesses are likely dependent on the properties. One-to-Four Family Residential : The majority of the Company’s one-to-four family residential loans are secured by single-family residences located in its primary market areas. The Company’s underwriting standards require that single-family portfolio loans generally are owner-occupied and do not exceed 80% of the lower of appraised value at origination or cost of the underlying collateral. Terms of maturity typically range from 15 to 30 years. Historically, the Company sold most single-family loans in the secondary market and retained a smaller portion in its loan portfolio. From the second quarter of 2013 until May 1, 2014, the Company only originated single-family loans for its loan portfolio. As a result of the Washington Banking Merger, since May 1, 2014 the Company is originating and selling a majority of its single-family mortgages. Real Estate Construction and Land Development : The Company originates construction loans for one-to-four family residential and for five or more family residential and commercial properties. The one-to-four family residential construction loans generally include construction of custom homes whereby the home buyer is the borrower. The Company also provides financing to builders for the construction of pre-sold homes and, in selected cases, to builders for the construction of speculative residential property. Substantially all construction loans are short-term in nature and priced with variable rates of interest. Construction lending can involve a higher level of risk than other types of lending because funds are advanced partially based upon the value of the project, which is uncertain prior to the project’s completion. Because of the uncertainties inherent in estimating construction costs as well as the market value of a completed project and the effects of governmental regulation of real property, the Company’s estimates with regard to the total funds required to complete a project and the related loan-to-value ratio may vary from actual results. As a result, construction loans often involve the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project and the ability of the borrower to sell or lease the property or refinance the indebtedness. If the Company’s estimate of the value of a project at completion proves to be overstated, it may have inadequate security for repayment of the loan and may incur a loss if the borrower does not repay the loan. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being dependent upon successful completion of the construction project, interest rate changes, government regulation of real property, general economic conditions and the availability of long-term financing. Consumer : The Company originates consumer loans and lines of credit that are both secured and unsecured. The underwriting process for these loans ensures a qualifying primary and secondary source of repayment. Underwriting standards for home equity loans are significantly influenced by statutory requirements, which include, but are not limited to, a maximum loan-to-value percentage of 80% , collection remedies, the number of such loans a borrower can have at one time and documentation requirements. To monitor and manage consumer loan risk, policies and procedures are developed and modified, as needed. The majority of consumer loans are for relatively small amounts disbursed among many individual borrowers which reduces the credit risk for this type of loan. To further reduce the risk, trend reports are reviewed by management on a regular basis. As a result of the Washington Banking Merger, the Company is originating indirect consumer loans. These loans are for new and used automobile and recreational vehicles that are originated indirectly by selected dealers located in the Company's market areas. The Company has limited its purchase of indirect loans primarily to dealerships that are established and well known in their market areas and to applicants that are not classified as sub-prime. Loans receivable at June 30, 2016 and December 31, 2015 consisted of the following portfolio segments and classes: June 30, 2016 December 31, 2015 (In thousands) Commercial business: Commercial and industrial $ 624,200 $ 596,726 Owner-occupied commercial real estate 575,660 572,609 Non-owner occupied commercial real estate 775,646 753,986 Total commercial business 1,975,506 1,923,321 One-to-four family residential 77,274 72,548 Real estate construction and land development: One-to-four family residential 49,519 51,752 Five or more family residential and commercial properties 99,423 55,325 Total real estate construction and land development 148,942 107,077 Consumer 321,495 298,167 Gross loans receivable 2,523,217 2,401,113 Net deferred loan costs 1,384 929 Loans receivable, net 2,524,601 2,402,042 Allowance for loan losses (28,426 ) (29,746 ) Total loans receivable, net $ 2,496,175 $ 2,372,296 (b) Concentrations of Credit Most of the Company’s lending activity occurs within Washington State, and to a lesser extent Oregon. The Company’s primary market areas are concentrated along the I-5 corridor from Whatcom County to Clark County in Washington State and Multnomah County in Oregon, as well as other contiguous markets. The majority of the Company’s loan portfolio consists of, in order of balances at June 30, 2016 , non-owner occupied commercial real estate, owner-occupied commercial real estate and commercial and industrial. As of June 30, 2016 and December 31, 2015 , there were no concentrations of loans related to any single industry in excess of 10% of the Company’s total loans. (c) Credit Quality Indicators As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the risk grade of the loans, (ii) the level of classified loans, (iii) net charge-offs, (iv) nonperforming loans, and (v) the general economic conditions of the United States of America, and specifically the states of Washington and Oregon. The Company utilizes a risk grading matrix to assign a risk grade to each of its loans. Loans are graded on a scale of 1 to 10. A description of the general characteristics of the risk grades is as follows: • Grades 1 to 5: These grades are considered “pass grade” and include loans with negligible to above average but acceptable risk. These borrowers generally have strong to acceptable capital levels and consistent earnings and debt service capacity. Loans with the higher grades within the “pass” category may include borrowers who are experiencing unusual operating difficulties, but have acceptable payment performance to date. Increased monitoring of financials and/or collateral may be appropriate. Loans with this grade show no immediate loss exposure. • Grade 6: This grade includes "Watch" loans and is considered a “pass grade”. The grade is intended to be utilized on a temporary basis for pass grade borrowers where a potentially significant risk-modifying action is anticipated in the near term. • Grade 7: This grade includes “Other Assets Especially Mentioned” (“OAEM”) loans in accordance with regulatory guidelines, and is intended to highlight loans with elevated risks. Loans with this grade show signs of deteriorating profits and capital, and the borrower might not be strong enough to sustain a major setback. The borrower is typically higher than normally leveraged, and outside support might be modest and likely illiquid. The loan is at risk of further decline unless active measures are taken to correct the situation. • Grade 8: This grade includes “Substandard” loans in accordance with regulatory guidelines, which the Company has determined have a high credit risk. These loans also have well-defined weaknesses which make payment default or principal exposure likely, but not yet certain. The borrower may have shown serious negative trends in financial ratios and performance. Such loans may be dependent upon collateral liquidation, a secondary source of repayment or an event outside of the normal course of business. Loans with this grade can be placed on accrual or nonaccrual status based on the Company’s accrual policy. • Grade 9: This grade includes “Doubtful” loans in accordance with regulatory guidelines, and the Company has determined these loans to have excessive credit risk. Such loans are placed on nonaccrual status and may be dependent upon collateral having a value that is difficult to determine or upon some near-term event which lacks certainty. Additionally, these loans generally have a specific valuation allowance or have been partially charged-off for the amount considered uncollectible. • Grade 10: This grade includes “Loss” loans in accordance with regulatory guidelines, and the Company has determined these loans have the highest risk of loss. Such loans are charged-off or charged-down when payment is acknowledged to be uncertain or when the timing or value of payments cannot be determined. “Loss” is not intended to imply that the loan or some portion of it will never be paid, nor does it in any way imply that there has been a forgiveness of debt. Numerical loan grades for loans are established at the origination of the loan. Loan grades are reviewed on a quarterly basis, or more frequently if necessary, by the credit department. The Bank follows the FDIC’s Uniform Retail Credit Classification and Account Management Policy for subsequent classification in the event of payment delinquencies or default. Typically, an individual loan grade will not be changed from the prior period unless there is a specific indication of credit deterioration or improvement. Credit deterioration is evidenced by delinquency, direct communications with the borrower, or other borrower information that becomes known to management. Credit improvements are evidenced by known facts regarding the borrower or the collateral property. The loan grades relate to the likelihood of losses in that the higher the grade, the greater the loss potential. Loans with a pass grade may have some estimated inherent losses, but to a lesser extent than the other loan grades. The OAEM loan grade is transitory in that the Company is waiting on additional information to determine the likelihood and extent of the potential loss. The likelihood of loss for OAEM graded loans, however, is greater than Watch graded loans because there has been measurable credit deterioration. Loans with a Substandard grade are generally loans for which the Company has individually analyzed for potential impairment. For Doubtful and Loss graded loans, the Company is almost certain of the losses, and the outstanding principal balances are generally charged-off to the realizable value. The following tables present the balance of the loans receivable by credit quality indicator as of June 30, 2016 and December 31, 2015 . June 30, 2016 Pass OAEM Substandard Doubtful Total (In thousands) Commercial business: Commercial and industrial $ 585,387 $ 9,289 $ 29,410 $ 114 $ 624,200 Owner-occupied commercial real estate 548,827 5,279 21,298 256 575,660 Non-owner occupied commercial real estate 729,204 16,590 29,852 — 775,646 Total commercial business 1,863,418 31,158 80,560 370 1,975,506 One-to-four family residential 76,204 — 1,070 — 77,274 Real estate construction and land development: One-to-four family residential 42,107 1,260 6,152 — 49,519 Five or more family residential and commercial properties 95,537 — 3,886 — 99,423 Total real estate construction and land development 137,644 1,260 10,038 — 148,942 Consumer 316,041 — 5,454 — 321,495 Gross loans receivable $ 2,393,307 $ 32,418 $ 97,122 $ 370 $ 2,523,217 December 31, 2015 Pass OAEM Substandard Doubtful Total (In thousands) Commercial business: Commercial and industrial $ 563,002 $ 8,093 $ 25,333 $ 298 $ 596,726 Owner-occupied commercial real estate 544,429 11,662 16,260 258 572,609 Non-owner occupied commercial real estate 699,759 23,447 30,780 — 753,986 Total commercial business 1,807,190 43,202 72,373 556 1,923,321 One-to-four family residential 71,457 — 1,091 — 72,548 Real estate construction and land development: One-to-four family residential 44,069 896 6,787 — 51,752 Five or more family residential and commercial properties 50,678 — 4,647 — 55,325 Total real estate construction and land development 94,747 896 11,434 — 107,077 Consumer 291,892 — 6,275 — 298,167 Gross loans receivable $ 2,265,286 $ 44,098 $ 91,173 $ 556 $ 2,401,113 Potential problem loans are loans classified as OAEM or worse that are currently accruing interest and are not considered impaired, but which management is monitoring because the financial information of the borrower causes concern as to their ability to meet their loan repayment terms. Potential problem loans may include PCI loans as these loans continue to accrete loan discounts established at acquisition based on the guidance of FASB ASC 310-30. Potential problem loans as of June 30, 2016 and December 31, 2015 were $101.2 million and $110.4 million , respectively. The balance of potential problem loans guaranteed by a governmental agency, which guarantee reduces the Company's credit exposure, was $675,000 and $1.2 million as of June 30, 2016 and December 31, 2015 , respectively. (d) Nonaccrual Loans Nonaccrual loans, segregated by segments and classes of loans, were as follows as of June 30, 2016 and December 31, 2015 : June 30, 2016 December 31, 2015 (In thousands) Commercial business: Commercial and industrial $ 5,531 $ 5,095 Owner-occupied commercial real estate 3,998 2,027 Non-owner occupied commercial real estate 1,350 — Total commercial business 10,879 7,122 One-to-four family residential 36 38 Real estate construction and land development: One-to-four family residential 2,029 2,414 Five or more family residential and commercial properties — — Total real estate construction and land development 2,029 2,414 Consumer 919 94 Nonaccrual loans $ 13,863 $ 9,668 The Company had $2.2 million and $1.1 million of nonaccrual loans guaranteed by governmental agencies at June 30, 2016 and December 31, 2015 , respectively. PCI loans are not included in the nonaccrual loan table above because these loans are accounted for under FASB ASC 310-30, which provides that accretable yield is calculated based on a loan's expected cash flow even if the loan is not performing under its contractual terms. (e) Past due loans The Company performs an aging analysis of past due loans using the categories of 30-89 days past due and 90 or more days past due. This policy is consistent with regulatory reporting requirements. The balances of past due loans, segregated by segments and classes of loans, as of June 30, 2016 and December 31, 2015 were as follows: June 30, 2016 30-89 Days 90 Days or Greater Total Past Due Current Total (In thousands) Commercial business: Commercial and industrial $ 2,404 $ 1,513 $ 3,917 $ 620,283 $ 624,200 Owner-occupied commercial real estate 1,581 2,390 3,971 571,689 575,660 Non-owner occupied commercial real estate 1,350 — 1,350 774,296 775,646 Total commercial business 5,335 3,903 9,238 1,966,268 1,975,506 One-to-four family residential — — — 77,274 77,274 Real estate construction and land development: One-to-four family residential 14 1,965 1,979 47,540 49,519 Five or more family residential and commercial properties 679 — 679 98,744 99,423 Total real estate construction and land development 693 1,965 2,658 146,284 148,942 Consumer 1,799 850 2,649 318,846 321,495 Gross loans receivable $ 7,827 $ 6,718 $ 14,545 $ 2,508,672 $ 2,523,217 December 31, 2015 30-89 Days 90 Days or Greater Total Past Due Current Total (In thousands) Commercial business: Commercial and industrial $ 2,900 $ 2,679 $ 5,579 $ 591,147 $ 596,726 Owner-occupied commercial real estate 2,240 2,609 4,849 567,760 572,609 Non-owner occupied commercial real estate 2,177 184 2,361 751,625 753,986 Total commercial business 7,317 5,472 12,789 1,910,532 1,923,321 One-to-four family residential 490 — 490 72,058 72,548 Real estate construction and land development: One-to-four family residential — 2,392 2,392 49,360 51,752 Five or more family residential and commercial properties 118 42 160 55,165 55,325 Total real estate construction and land development 118 2,434 2,552 104,525 107,077 Consumer 3,029 202 3,231 294,936 298,167 Gross loans receivable $ 10,954 $ 8,108 $ 19,062 $ 2,382,051 $ 2,401,113 There were no loans 90 days or more past due that were still accruing interest as of June 30, 2016 or December 31, 2015 , excluding PCI loans. (f) Impaired loans Impaired loans include nonaccrual loans and performing troubled debt restructured ("TDR") loans. The balances of impaired loans as of June 30, 2016 and December 31, 2015 are set forth in the following tables. June 30, 2016 Recorded Investment With No Specific Valuation Allowance Recorded Investment With Specific Valuation Allowance Total Recorded Investment Unpaid Contractual Principal Balance Related Specific Valuation Allowance (In thousands) Commercial business: Commercial and industrial $ 2,166 $ 8,220 $ 10,386 $ 13,330 $ 1,026 Owner-occupied commercial real estate 2,243 2,949 5,192 5,491 424 Non-owner occupied commercial real estate 4,990 6,511 11,501 11,543 859 Total commercial business 9,399 17,680 27,079 30,364 2,309 One-to-four family residential — 267 267 269 81 Real estate construction and land development: One-to-four family residential 2,335 879 3,214 3,886 17 Five or more family residential and commercial properties — 1,633 1,633 1,633 179 Total real estate construction and land development 2,335 2,512 4,847 5,519 196 Consumer 791 211 1,002 1,046 54 Total $ 12,525 $ 20,670 $ 33,195 $ 37,198 $ 2,640 December 31, 2015 Recorded Investment With No Specific Valuation Allowance Recorded Investment With Specific Valuation Allowance Total Recorded Investment Unpaid Contractual Principal Balance Related Specific Valuation Allowance (In thousands) Commercial business: Commercial and industrial $ 872 $ 8,769 $ 9,641 $ 11,368 $ 1,173 Owner-occupied commercial real estate — 4,295 4,295 4,342 809 Non-owner occupied commercial real estate 3,696 6,834 10,530 10,539 943 Total commercial business 4,568 19,898 24,466 26,249 2,925 One-to-four family residential — 275 275 276 85 Real estate construction and land development: One-to-four family residential 1,403 2,065 3,468 4,089 66 Five or more family residential and commercial properties — 1,960 1,960 1,960 203 Total real estate construction and land development 1,403 4,025 5,428 6,049 269 Consumer 48 145 193 200 29 Total $ 6,019 $ 24,343 $ 30,362 $ 32,774 $ 3,308 The Company had governmental guarantees of $3.0 million and $1.5 million related to the impaired loan balances at June 30, 2016 and December 31, 2015 , respectively. The average recorded investment of impaired loans for the three and six months ended June 30, 2016 and 2015 are set forth in the following table. Three Months Ended June 30, Six Months Ended June 30, 2016 2015 2016 2015 (In thousands) Commercial business: Commercial and industrial $ 10,192 $ 9,524 $ 9,933 $ 12,203 Owner-occupied commercial real estate 5,209 4,186 4,904 3,981 Non-owner occupied commercial real estate 11,665 8,727 11,287 8,446 Total commercial business 27,066 22,437 26,124 24,630 One-to-four family residential 269 242 271 375 Real estate construction and land development: One-to-four family residential 3,310 3,669 3,438 4,683 Five or more family residential and commercial properties 1,816 2,020 1,864 2,056 Total real estate construction and land development 5,126 5,689 5,302 6,739 Consumer 977 143 716 488 Total $ 33,438 $ 28,511 $ 32,413 $ 32,232 For the three and six months ended June 30, 2016 and 2015 , no interest income was recognized subsequent to a loan’s classification as nonaccrual. For the three months ended June 30, 2016 and 2015 , the Bank recorded $167,000 and $250,000 , respectively, of interest income related to performing TDR loans. For the six months ended June 30, 2016 and 2015 , the Bank recorded $345,000 and $449,000 , respectively, of interest income related to performing TDR loans. (g) Troubled Debt Restructured Loans A TDR loan is a restructuring in which the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. TDRs are considered impaired and are separately measured for impairment under FASB ASC 310-10-35, whether on accrual ("performing") or nonaccrual ("nonperforming") status. The Company has more stringent definitions of concessions and impairment measures for PCI loans which are not in a pool as these loans have known credit deterioration and are generally accreting income at a lower discounted rate as compared to the contractual note rate based on the guidance of FASB ASC 310-30. The majority of the Bank’s TDR loans are a result of granting extensions of maturity on troubled credits which have already been adversely classified. The Bank grants such extensions to reassess the borrower’s financial status and to develop a plan for repayment. The second most prevalent concessions are certain modifications with extensions that also include interest rate reductions. Certain TDRs were additionally re-amortized over a longer period of time. These modifications would all be considered a concession for a borrower that could not obtain similar financing terms from another source other than from the Bank. The financial effects of each modification will vary based on the specific restructure. For the majority of the Bank’s TDRs, the loans were interest-only with a balloon payment at maturity. If the interest rate is not adjusted and the modified terms are consistent with other similar credits being offered, the Bank may not experience any loss associated with the restructure. If, however, the restructure involves forbearance agreements or interest rate modifications, the Bank may not collect all the principal and interest based on the original contractual terms. The Bank estimates the necessary allowance for loan losses on TDRs using the same guidance as used for other impaired loans. The recorded investment balance and related allowance for loan losses of performing and nonaccrual TDR loans as of June 30, 2016 and December 31, 2015 were as follows: June 30, 2016 December 31, 2015 Performing TDRs Nonaccrual TDRs Performing TDRs Nonaccrual (In thousands) TDR loans $ 19,331 $ 6,618 $ 20,695 $ 6,301 Allowance for loan losses on TDR loans 1,844 568 2,069 679 The unfunded commitment to borrowers related to TDRs was $428,000 and $551,000 at June 30, 2016 and December 31, 2015 , respectively. Loans that were modified as TDRs during the three and six months ended June 30, 2016 and 2015 are set forth in the following tables: Three Months Ended June 30, 2016 2015 Number of Contracts (1) Outstanding Number of Contracts (1) Outstanding Principal Balance (1)(2) (Dollars in thousands) Commercial business: Commercial and industrial 5 $ 325 13 $ 2,243 Owner-occupied commercial real estate — — 3 873 Non-owner occupied commercial real estate — — 4 13,695 Total commercial business 5 325 20 16,811 Real estate construction and land development: One-to-four family residential — — 2 1,038 Five or more family residential and commercial properties 1 1,633 1 418 Total real estate construction and land development 1 1,633 3 1,456 Consumer 2 28 — — Total TDR loans 8 $ 1,986 23 $ 18,267 Six Months Ended June 30, 2016 2015 Number of Contracts (1) Outstanding Number of Contracts (1) Outstanding Principal Balance (1)(2) (Dollars in thousands) Commercial business: Commercial and industrial 13 $ 1,225 19 $ 3,288 Owner-occupied commercial real estate — — 4 1,181 Non-owner occupied commercial real estate 1 834 4 13,695 Total commercial business 14 2,059 27 18,164 Real estate construction and land development: One-to-four family residential 5 2,349 4 2,543 Five or more family residential and commercial properties 1 1,633 1 418 Total real estate construction and land development 6 3,982 5 2,961 Consumer 5 67 2 142 Total TDR loans 25 $ 6,108 34 $ 21,267 (1) Number of contracts and outstanding principal balance represent loans which have balances as of period end as certain loans may have been paid-down or charged-off during the three and six months ended June 30, 2016 and 2015 . (2) Includes subsequent payments after modifications and reflects the balance as of period end. As the Bank did not forgive any principal or interest balance as part of the loan modification, the Bank’s recorded investment in each loan at the date of modification (pre-modification) did not change as a result of the modification (post-modification). Of the eight loans modified during the three months ended June 30, 2016 , three loans with a total outstanding principal balance of $61,000 had no prior modifications. Of the 25 loans modified during the six months ended June 30, 2016 , ten loans with a total outstanding principal balance of $571,000 had no prior modifications. Of the 23 loans modified during the three months ended June 30, 2015 , nine loans with a total outstanding principal balance of $4.0 million had no prior modifications. Of the 34 loans modified during the six months ended June 30, 2015 , 14 loans with a total outstanding principal balance of $5.0 million had no prior modifications. The remaining loans included in the tables above for the three and six months ended June 30, 2016 and 2015 were previously reported as TDRs. The Bank typically grants shorter extension periods to continually monitor these troubled credits despite that the extended date may not be when cash flows from these troubled credits are expected. The Company does not consider these modifications a subsequent default of a TDR as new loan terms, specifically new maturity dates, were granted. The potential losses related to these loans would have been considered in the period the loan was first reported as a TDR and adjusted, as necessary, in the current period based on more recent information. The related specific valuation allowance at June 30, 2016 for loans that were modified as TDRs during the six months ended June 30, 2016 was $378,000 . There were no loans that were modified during the previous twelve months that subsequently defaulted during the three and six months ended June 30, 2016 . There were two commercial and industrial loans totaling $1.9 million at June 30, 2015 that were modified during the previous twelve months that subsequently defaulted during the three and six months ended June 30, 2015. Of the two loans that were modified as TDRs and subsequently defaulted, one with outstanding principal balance of $1.8 million defaulted because the borrower did not pay the loan balance at its maturity date during the period. The other TDR subsequently defaulted as the borrower was 90 days delinquent on his scheduled payment. (h) Purchased Credit Impaired Loans The Company acquired loans and designated them as PCI loans, which are accounted for under FASB ASC 310-30, in the Washington Banking Merger on May 1, 2014 and in previously completed acquisitions, including the FDIC-assisted acquisitions of Cowlitz Bank ("Cowlitz") and Pierce Commercial Bank ("Pierce") on July 30, 2010 and November 8, 2010, respectively, and the acquisitions of Northwest Commercial Bank ("NCB") on January 9, 2013 and Valley Community Bancshares, Inc. ("Valley") on July 15, 2013. The following table reflects the outstanding principal balance and recorded investment at June 30, 2016 and December 31, 2015 of the PCI loans: June 30, 2016 December 31, 2015 Outstanding Principal Recorded Investment Outstanding Principal Recorded Investment (In thousands) Commercial business: Commercial and industrial $ 16,108 $ 11,919 $ 20,110 $ 16,986 Owner-occupied commercial real estat |
