Loans Receivable and Allowance for Loan Losses | 7. Loans Receivable and Allowance for Loan Losses The following is a summary of loans receivable by major category: September 30, 2016 December 31, 2015 (In thousands) Loan portfolio composition Real estate loans: Residential $ 60,280 $ 33,797 Commercial & industrial 7,887,734 4,912,655 Construction 210,857 123,030 Total real estate loans 8,158,871 5,069,482 Commercial business 1,829,785 980,153 Trade finance 182,128 99,163 Consumer and other 392,608 102,573 Total loans outstanding 10,563,392 6,251,371 Deferred loan fees (2,195 ) (3,030 ) Loans receivable 10,561,197 6,248,341 Allowance for loan losses (79,976 ) (76,408 ) Loans receivable, net of allowance for loan losses $ 10,481,221 $ 6,171,933 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 previously 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 Purchased Credit Impaired Loans (loans with credit deterioration on the acquisition date and accounted for under ASC 310-30, or “PCIs”) 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 “non-PCIs”). The following table presents changes in the accretable discount on the PCI loans for the three and nine months ended September 30, 2016 and 2015 : Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 2016 2015 (In thousands) Balance at beginning of period $ 20,150 $ 21,389 $ 23,777 $ 24,051 Additions due to acquisitions during the period 8,713 — 8,713 — Accretion (2,630 ) (2,978 ) (8,133 ) (9,211 ) Changes in expected cash flows 40 7,042 1,916 10,613 Balance at end of period $ 26,273 $ 25,453 $ 26,273 $ 25,453 On the acquisition date, the amount by which the undiscounted expected cash flows exceed the estimated fair value of the PCI loans 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 PCI loans 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 nine months ended September 30, 2016 and 2015 : 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 September 30, 2016 Balance, beginning of period $ 43,666 $ 16,576 $ 2,449 $ 926 $ 12,607 $ 148 $ — $ 53 $ 76,425 Provision (credit) for loan losses (2,474 ) 7,444 (32 ) 970 527 72 — (7 ) 6,500 Loans charged off (132 ) (3,219 ) — (162 ) (435 ) (10 ) — — (3,958 ) Recoveries of charge offs 432 539 — 2 8 27 — 1 1,009 Balance, end of period $ 41,492 $ 21,340 $ 2,417 $ 1,736 $ 12,707 $ 237 $ — $ 47 $ 79,976 Nine Months Ended September 30, 2016 Balance, beginning of period $ 42,829 $ 16,332 $ 3,592 $ 556 $ 12,823 $ 214 $ — $ 62 $ 76,408 Provision (credit) for loan losses (2,318 ) 9,792 (1,175 ) 1,370 633 (82 ) — (20 ) 8,200 Loans charged off (151 ) (5,845 ) — (278 ) (758 ) (43 ) — — (7,075 ) Recoveries of charge offs 1,132 1,061 — 88 9 148 — 5 2,443 Balance, end of period $ 41,492 $ 21,340 $ 2,417 $ 1,736 $ 12,707 $ 237 $ — $ 47 $ 79,976 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 September 30, 2015 Balance, beginning of period $ 36,996 $ 15,778 $ 1,760 $ 1,029 $ 13,991 $ 500 $ — $ 64 $ 70,118 Provision (credit) for loan losses 2,261 (266 ) (86 ) (470 ) (729 ) (110 ) — — 600 Loans charged off (29 ) (802 ) (300 ) (616 ) (11 ) (14 ) — (7 ) (1,779 ) Recoveries of charge offs 383 1,083 — 479 163 58 — 5 2,171 Balance, end of period $ 39,611 $ 15,793 $ 1,374 $ 422 $ 13,414 $ 434 $ — $ 62 $ 71,110 Nine Months Ended September 30, 2015 Balance, beginning of period $ 38,775 $ 15,986 $ 3,456 $ 427 $ 8,573 $ 485 $ — $ 56 $ 67,758 Provision (credit) for loan losses (136 ) (1,038 ) (794 ) 50 4,861 152 — 5 3,100 Loans charged off (272 ) (1,701 ) (1,288 ) (629 ) (183 ) (271 ) — (11 ) (4,355 ) Recoveries of charge offs 1,244 2,546 — 574 163 68 — 12 4,607 Balance, end of period $ 39,611 $ 15,793 $ 1,374 $ 422 $ 13,414 $ 434 $ — $ 62 $ 71,110 The following tables disaggregate the allowance for loan losses and the loans outstanding by impairment methodology and general valuation methodology at September 30, 2016 and December 31, 2015 : September 30, 2016 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 $ 1,916 $ 5,397 $ 1,413 $ 61 $ 107 $ 195 $ — $ — $ 9,089 Collectively evaluated for impairment 39,576 15,943 1,004 1,675 548 42 — 47 58,835 PCI loans — — — — 12,052 — — — 12,052 Total $ 41,492 $ 21,340 $ 2,417 $ 1,736 $ 12,707 $ 237 $ — $ 47 $ 79,976 Loans outstanding: Individually evaluated for impairment $ 62,609 $ 40,321 $ 8,439 $ 1,047 $ 14,153 $ 1,106 $ — $ 436 $ 128,111 Collectively evaluated for impairment 5,203,707 1,043,856 81,681 153,399 2,671,162 670,823 86,401 221,310 10,132,339 PCI loans — — — — 207,239 73,679 5,608 16,416 302,942 Total $ 5,266,316 $ 1,084,177 $ 90,120 $ 154,446 $ 2,892,554 $ 745,608 $ 92,009 $ 238,162 $ 10,563,392 December 31, 2015 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 $ 1,663 $ 4,188 $ 2,603 $ — $ 225 $ 128 $ — $ — $ 8,807 Collectively evaluated for impairment 41,166 12,144 989 556 616 86 — 62 55,619 PCI loans — — — — 11,982 — — — 11,982 Total $ 42,829 $ 16,332 $ 3,592 $ 556 $ 12,823 $ 214 $ — $ 62 $ 76,408 Loans outstanding: Individually evaluated for impairment $ 63,376 $ 40,352 $ 12,548 $ 812 $ 19,109 $ 1,235 $ — $ 658 $ 138,090 Collectively evaluated for impairment 4,717,300 896,041 86,615 60,570 200,753 22,660 — 20,533 6,004,472 PCI loans — — — — 68,944 19,865 — 20,000 108,809 Total $ 4,780,676 $ 936,393 $ 99,163 $ 61,382 $ 288,806 $ 43,760 $ — $ 41,191 $ 6,251,371 As of September 30, 2016 and December 31, 2015 , the reserve for unfunded commitments recorded in other liabilities was $ 2.8 million and $2.0 million , respectively. For the three months ended September 30, 2016 and 2015 , the recognized provisions for credit losses related to unfunded commitments was $270 thousand and $220 thousand , respectively. For the nine months ended September 30, 2016 and 2015, the recognized provision for credit losses (benefits) related to unfunded commitments was $(191) thousand and $74 thousand , respectively. The recorded investment in individually impaired loans was as follows: September 30, 2016 December 31, 2015 (In thousands) With allocated allowance Without charge off $ 68,989 $ 77,922 With charge off 1,124 155 With no allocated allowance Without charge off 54,877 57,585 With charge off 3,121 2,428 Allowance on impaired loans (9,089 ) (8,807 ) Impaired loans, net of allowance $ 119,022 $ 129,283 The following tables detail impaired loans (legacy and acquired loans that became impaired subsequent to being acquired) as of September 30, 2016 and December 31, 2015, for the three and nine months ended September 30, 2016 and 2015 , and for the year ended December 31, 2015 . Loans with no related allowance for loan losses are believed by management to have adequate collateral securing their carrying value. As of September 30, 2016 For the Nine Months Ended September 30, 2016 For the Three Months Ended September 30, 2016 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 2,004 2,289 81 1,711 — 1,711 — Hotel & motel 1,315 1,315 115 2,965 48 1,320 16 Gas station & car wash 1,046 1,058 292 1,051 28 1,052 9 Mixed use 207 734 26 386 5 208 2 Industrial & warehouse 537 537 — 551 18 542 6 Other 22,755 23,000 1,509 23,968 776 23,474 259 Real estate—construction — — — — — — — Commercial business 33,409 34,068 5,592 34,147 821 32,553 296 Trade finance 8,439 8,468 1,413 8,390 237 6,465 70 Consumer and other 401 401 61 338 2 548 1 $ 70,113 $ 71,870 $ 9,089 $ 73,507 $ 1,935 $ 67,873 $ 659 With no related allowance: Real estate—residential $ — $ — $ — $ — $ — $ — $ — Real estate—commercial Retail 9,610 10,082 — 10,243 296 9,381 95 Hotel & motel 9,815 14,201 — 8,813 163 9,776 54 Gas station & car wash 4,750 7,327 — 4,760 75 4,855 25 Mixed use 2,075 2,354 — 2,279 28 2,195 9 Industrial & warehouse 10,703 11,027 — 10,396 268 10,905 89 Other 10,645 12,214 — 11,312 177 9,912 59 Real estate—construction 1,300 1,441 — 1,328 — 1,300 — Commercial business 8,018 10,247 — 11,030 79 13,111 26 Trade finance — — — 1,113 — 2,225 — Consumer and other 1,082 1,142 — 1,014 23 800 7 $ 57,998 $ 70,035 $ — $ 62,288 $ 1,109 $ 64,460 $ 364 Total $ 128,111 $ 141,905 $ 9,089 $ 135,795 $ 3,044 $ 132,333 $ 1,023 * Unpaid contractual principal balance less charge offs, interest applied to principal and purchase discounts. For the Nine Months Ended September 30, 2015 For the Three Months Ended September 30, 2015 Total Impaired Loans 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 3,767 42 3,128 14 Hotel & motel 11,966 378 11,440 126 Gas station & car wash 1,535 44 1,711 15 Mixed use 481 — 481 — Industrial & warehouse 4,467 127 4,418 42 Other 9,581 409 10,317 137 Real estate—construction — — — — Commercial business 31,856 925 29,856 304 Trade finance 4,625 159 4,741 51 Consumer and other 157 — 307 — $ 68,435 $ 2,084 $ 66,399 $ 689 With no related allowance: Real estate—residential $ — $ — $ — $ — Real estate—commercial Retail 10,648 348 10,503 117 Hotel & motel 6,171 30 6,421 10 Gas station & car wash 3,668 50 4,091 17 Mixed use 2,373 28 2,953 9 Industrial & warehouse 10,491 235 9,064 79 Other 8,382 133 8,143 45 Real estate—construction 1,099 — 698 — Commercial business 8,387 186 8,817 59 Trade finance 1,232 — 827 — Consumer and other 1,138 20 1,191 7 $ 53,589 $ 1,030 $ 52,708 $ 343 Total $ 122,024 $ 3,114 $ 119,107 $ 1,032 * Unpaid contractual principal balance less charge offs, interest applied to principal and purchase discounts. As of September 30, 2016 For the Nine Months Ended September 30, 2016 For the Three Months Ended September 30, 2016 Impaired acquired 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 1,734 2,019 73 1,277 — 1,386 — Hotel & motel — — — — — — — Gas station & car wash — — — 254 — — — Mixed use 138 138 2 316 5 139 2 Industrial & warehouse — — — — — — — Other 341 346 32 324 13 344 4 Real estate—construction — — — — — — — Commercial business 366 412 195 486 — 396 — Trade finance — — — — — — — Consumer and other — — — 40 — 80 — $ 2,579 $ 2,915 $ 302 $ 2,697 $ 18 $ 2,345 $ 6 With no related allowance: Real estate—residential $ — $ — $ — $ — $ — $ — $ — Real estate—commercial Retail 1,707 1,748 — 2,333 72 2,095 21 Hotel & motel 4,911 7,253 — 5,933 10 4,983 3 Gas station & car wash 1,586 1,824 — 1,490 75 1,589 25 Mixed use 61 73 — 219 — 166 — Industrial & warehouse 991 1,251 — 1,075 7 1,038 2 Other 2,684 5,284 — 3,520 39 3,215 13 Real estate—construction — — — — — — — Commercial business 740 1,122 — 690 13 707 4 Trade finance — — — — — — — Consumer and other 436 487 — 459 7 361 2 $ 13,116 $ 19,042 $ — $ 15,719 $ 223 $ 14,154 $ 70 Total $ 15,695 $ 21,957 $ 302 $ 18,416 $ 241 $ 16,499 $ 76 * Unpaid contractual principal balance less charge offs, interest applied to principal and purchase discounts. For the Nine Months Ended September 30, 2015 For the Three Months Ended September 30, 2015 Impaired acquired loans 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 2,001 42 1,875 14 Hotel & motel — — — — Gas station & car wash 1,303 44 1,368 15 Mixed use 352 — 352 — Industrial & warehouse 90 — — — Other 920 12 799 4 Real estate—construction — — — — Commercial business 697 12 682 4 Trade finance — — — — Consumer and other — — — — $ 5,363 $ 110 $ 5,076 $ 37 With no related allowance: Real estate—residential $ — $ — $ — $ — Real estate—commercial Retail 2,215 79 2,060 26 Hotel & motel 5,608 15 5,661 5 Gas station & car wash 516 18 512 6 Mixed use 195 — 278 — Industrial & warehouse 1,311 7 1,142 2 Other 4,234 47 3,977 16 Real estate—construction — — — — Commercial business 948 45 875 12 Trade finance — — — — Consumer and other 622 5 621 2 $ 15,649 $ 216 $ 15,126 $ 69 Total $ 21,012 $ 326 $ 20,202 $ 106 * Unpaid contractual principal balance less charge offs, interest applied to principal and purchase discounts. As of December 31, 2015 For the Year Ended 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 1,871 1,984 230 3,388 — Hotel & motel 4,697 4,707 158 10,512 230 Gas station & car wash 1,569 1,625 47 1,542 59 Mixed use 564 1,087 13 498 9 Industrial & warehouse 563 563 — 3,686 25 Other 24,603 24,851 1,440 12,585 1,110 Real estate—construction — — — — — Commercial business 31,527 31,832 4,316 31,790 998 Trade finance 12,548 12,548 2,603 6,209 527 Consumer and other 135 135 — 153 7 $ 78,077 $ 79,332 $ 8,807 $ 70,363 $ 2,965 With no related allowance: Real estate—residential $ — $ — $ — $ — $ — Real estate—commercial Retail 11,305 12,051 — 10,779 464 Hotel & motel 7,592 10,180 — 6,455 93 Gas station & car wash 3,754 6,435 — 3,685 107 Mixed use 2,382 2,604 — 2,375 51 Industrial & warehouse 8,967 10,608 — 10,186 254 Other 13,250 14,234 — 9,355 362 Real estate—construction 1,369 1,470 — 1,153 — Commercial business 10,059 12,063 — 8,722 345 Trade finance — — — 986 — Consumer and other 1,335 1,431 — 1,177 26 $ 60,013 $ 71,076 $ — $ 54,873 $ 1,702 Total $ 138,090 $ 150,408 $ 8,807 $ 125,236 $ 4,667 * Unpaid contractual principal balance less charge offs, interest applied to principal and purchase discounts. As of December 31, 2015 For the Year Ended December 31, 2015 Impaired acquired 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 1,171 1,173 197 1,835 — Hotel & motel — — — — — Gas station & car wash 1,017 1,062 6 1,246 59 Mixed use 494 491 5 380 9 Industrial & warehouse — — — 72 — Other 306 306 17 797 16 Real estate—construction — — — — — Commercial business 566 645 128 671 15 Trade finance — — — — — Consumer and other — — — — — $ 3,554 $ 3,677 $ 353 $ 5,001 $ 99 With no related allowance: Real estate—residential $ — $ — $ — $ — $ — Real estate—commercial Retail 2,642 2,756 — 2,301 105 Hotel & motel 7,014 9,303 — 5,889 73 Gas station & car wash 1,188 1,299 — 651 64 Mixed use 273 282 — 210 13 Industrial & warehouse 1,127 1,298 — 1,275 9 Other 3,876 4,615 — 4,162 53 Real estate—construction — — — — — Commercial business 668 1,039 — 892 55 Trade finance — — — — — Consumer and other 658 748 — 629 7 $ 17,446 $ 21,340 $ — $ 16,009 $ 379 Total $ 21,000 $ 25,017 $ 353 $ 21,010 $ 478 * 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 only when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. The following tables present past due loans by the number of days past due as of September 30, 2016 and December 31, 2015 by class of loans: As of September 30, 2016 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 729 — 729 1,923 2,652 Hotel & motel — 388 — 388 973 1,361 Gas station & car wash — — — — 3,382 3,382 Mixed use — — — — 1,327 1,327 Industrial & warehouse 106 — — 106 1,944 2,050 Other 1,291 164 — 1,455 4,290 5,745 Real estate—construction — — — — 1,300 1,300 Commercial business 985 460 — 1,445 11,608 13,053 Trade finance 359 — — 359 3,275 3,634 Consumer and other 110 88 192 390 531 921 Subtotal $ 3,580 $ 1,100 $ 192 $ 4,872 $ 30,553 $ 35,425 Acquired Loans: (1) Real estate—residential $ — $ — $ — $ — $ — $ — Real estate—commercial Retail 1,730 — — 1,730 1,781 3,511 Hotel & motel — — — — 4,643 4,643 Gas station & car wash — 1,007 — 1,007 (123 ) 884 Mixed use — — — — 61 61 Industrial & warehouse 435 — — 435 857 1,292 Other 589 — — 589 1,697 2,286 Real estate—construction — — — — — — Commercial business 696 162 — 858 859 1,717 Trade finance — — — — — — Consumer and other — — — — 274 274 Subtotal $ 3,450 $ 1,169 $ — $ 4,619 $ 10,049 $ 14,668 TOTAL $ 7,030 $ 2,269 $ 192 $ 9,491 $ 40,602 $ 50,093 (1) The Acquired Loans exclude PCI loans. (2) Nonaccrual loans exclude the guaranteed portion of delinquent SBA loans that are in liquidation totaling $14.1 million . As of December 31, 2015 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 574 — — 574 2,383 2,957 Hotel & motel 854 — — 854 318 1,172 Gas station & car wash — 640 330 970 2,418 3,388 Mixed use — — — — 1,407 1,407 Industrial & warehouse — 110 — 110 2,275 2,385 Other — — — — 2,930 2,930 Real estate—construction — — — — 1,369 1,369 Commercial business 905 770 — 1,675 13,393 15,068 Trade finance — — — — 1,731 1,731 Consumer and other 770 158 45 973 245 1,218 Subtotal $ 3,103 $ 1,678 $ 375 $ 5,156 $ 28,469 $ 33,625 Acquired Loans: (1) Real estate—residential $ — $ — $ — $ — $ — $ — Real estate—commercial Retail 2,572 — — 2,572 2,113 4,685 Hotel & motel — — — — 5,072 5,072 Gas station & car wash — — — — — — Mixed use — — — — 415 415 Industrial & warehouse — — — — 990 990 Other — — — — 2,684 2,684 Real estate—construction — — — — — — Commercial business 310 39 — 349 476 825 Trade finance — — — — — — Consumer and other 287 — — 287 582 869 Subtotal $ 3,169 $ 39 $ — $ 3,208 $ 12,332 $ 15,540 TOTAL $ 6,272 $ 1,717 $ 375 $ 8,364 $ 40,801 $ 49,165 (1) The Acquired Loans exclude PCI loans. (2) Nonaccrual loans exclude guaranteed portion of delinquent SBA loans that are in liquidation totaling $18.7 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, PCI loans 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. The Company categorizes 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. The Company analyzes 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. The definitions for risk ratings are as follows: • 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 borrower or by the collateral pledged, if any. Loans in this classification 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 and Acquired Loans as of September 30, 2016 and December 31, 2015 by class of loans: As of September 30, 2016 Pass Special Mention Substandard Doubtful/Loss Total (In thousands) Legacy Loans: Real estate—residential $ 32,124 $ 2,901 $ — $ — $ 35,025 Real estate—commercial Retail 1,279,197 14,325 13,372 — 1,306,894 Hotel & motel 1,182,036 12,436 7,513 — 1,201,985 Gas station & car wash 651,456 8,430 3,381 — 663,267 Mixed use 364,631 613 1,491 — 366,735 Industrial & warehouse 477,787 29,041 14,435 — 521,263 Other 951,764 32,444 34,106 — 1,018,314 Real estate—construction 139,148 12,385 1,300 — 152,833 Commercial business 995,315 49,615 39,106 141 1,084,177 Trade finance 74,780 5,951 9,389 — 90,120 Consumer and other 153,153 148 845 300 154,446 Subtotal $ 6,301,391 $ 168,289 $ 124,938 $ 441 $ 6,595,059 Acquired Loans: Real estate—residential $ 23,432 $ 1,822 $ — $ — $ 25,254 Real estate—commercial Retail 782,362 14,871 16,021 — 813,254 Hotel & motel 338,076 10,466 17,160 — 365,702 Gas station & car wash 256,208 7,618 12,024 — 275,850 Mixed use 120,890 8,654 9,262 8 138,814 Industrial & warehouse 338,183 35,762 11,406 338 385,689 Other 780,525 19,940 29,503 — 829,968 Real estate—construction 58,023 — — — 58,023 Commercial business 680,304 40,310 24,612 382 745,608 Trade finance 86,402 163 5,444 — 92,009 Consumer and other 229,435 998 5,966 1,763 238,162 Subtotal $ 3,693,840 $ 140,604 $ 131,398 $ 2,491 $ 3,968,333 Total $ 9,995,231 $ 308,893 $ 256,336 $ 2,932 $ 10,563,392 As of December 31, 2015 Pass Special Mention Substandard Doubtful/Loss Total (In thousands) Legacy Loans: Real estate—residential $ 32,543 $ 465 $ — $ — $ 33,008 Real estate—commercial Retail 1,168,844 25,686 14,838 — 1,209,368 Hotel & motel 1,009,493 789 5,937 — 1,016,219 Gas station & car wash 610,749 6,192 3,758 — 620,699 Mixed use 326,902 1,191 2,610 — 330,703 Industrial & warehouse 461,938 10,099 11,966 — 484,003 Other 913,304 15,805 34,537 — 963,646 Real estate—construction 121,661 — 1,369 — 123,030 Commercial business 875,989 21,886 38,505 13 936,393 Trade finance 82,797 3,818 12,548 — 99,163 Consumer and other 60,549 14 812 7 61,382 Subtotal $ 5,664,769 $ 85,945 $ 126,880 $ 20 $ 5,877,614 Acquired Loans: Real estate—residential $ 508 $ 281 $ — $ — $ 789 Real estate—commercial Retail 91,076 2,364 14,926 — 108,366 Hotel & motel 21,306 4,339 13,835 — 39,480 Gas station & car wash 22,231 356 6,548 — 29,135 Mixed use 14,195 6,382 3,762 — 24,339 Industrial & warehouse 31,606 1,361 4,708 378 38,053 Other 38,311 366 9,967 — 48,644 Real estate—construction — — — — — Commercial business 27,413 1,149 14,835 363 43,760 Trade finance — — — — — Consumer and other 32,194 1,643 5,901 1,453 41,191 Subtotal $ 278,840 $ 18,241 $ 74,482 $ 2,194 $ 373,757 Total $ 5,943,609 $ 104,186 $ 201,362 $ 2,214 $ 6,251,371 Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 2016 2015 Reclassification to held for sale (In thousands) Real estate - Commercial $ 992 $ — $ 992 $ 685 Real estate - Construction — — — — Commercial Business — — — — Consumer — 5,108 400 6,196 Total $ 992 $ 5,108 $ 1,392 $ 6,881 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 (“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 PCI loans, 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 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 Company 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 co |