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: June 30, 2017 December 31, 2016 (Dollars in thousands) Loan portfolio composition Real estate loans: Residential $ 60,544 $ 57,884 Commercial 8,065,057 7,842,573 Construction 306,794 254,113 Total real estate loans 8,432,395 8,154,570 Commercial business 1,744,103 1,832,021 Trade finance 181,400 154,928 Consumer and other 460,446 403,470 Total loans outstanding 10,818,344 10,544,989 Deferred loan fees, net (1,925 ) (1,657 ) Loans receivable 10,816,419 10,543,332 Allowance for loan losses (80,074 ) (79,343 ) Loans receivable, net of allowance for loan losses $ 10,736,345 $ 10,463,989 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-PCI loans”). The following table presents changes in the accretable discount on the PCI loans for the three and six months ended June 30, 2017 and 2016 : Three Months Ended June 30, Six Months Ended June 30, 2017 2016 2017 2016 (Dollars in thousands) Balance at beginning of period $ 51,651 $ 22,097 $ 38,591 $ 23,777 Accretion (5,212 ) (2,474 ) (10,560 ) (5,503 ) Reclassification from nonaccretable difference 7,218 527 25,626 1,876 Balance at end of period $ 53,657 $ 20,150 $ 53,657 $ 20,150 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 six months ended June 30, 2017 and 2016 : Legacy Loans Acquired Loans Total Real Estate Commercial Business Trade Finance Consumer and Other Real Estate Commercial Business Trade Finance Consumer and Other (Dollars in thousands) Three Months Ended June 30, 2017 Balance, beginning of period $ 43,929 $ 17,479 $ 624 $ 2,022 $ 13,455 $ 944 $ 187 $ 19 $ 78,659 Provision (credit) for loan losses (2,596 ) 3,741 900 500 (69 ) 374 (81 ) (9 ) 2,760 Loans charged off (892 ) (425 ) (528 ) (241 ) 19 (55 ) — — (2,122 ) Recoveries 37 700 4 1 6 28 — 1 777 Balance, end of period $ 40,478 $ 21,495 $ 1,000 $ 2,282 $ 13,411 $ 1,291 $ 106 $ 11 $ 80,074 Six Months Ended June 30, 2017 Balance, beginning of period $ 38,956 $ 23,430 $ 1,897 $ 2,116 $ 12,791 $ 117 $ — $ 36 $ 79,343 Provision (credit) for loan losses 3,510 857 1,203 684 906 1,122 106 (28 ) 8,360 Loans charged off (2,046 ) (3,615 ) (2,104 ) (520 ) (317 ) (125 ) — — (8,727 ) Recoveries of charge offs 58 823 4 2 31 177 — 3 1,098 Balance, end of period $ 40,478 $ 21,495 $ 1,000 $ 2,282 $ 13,411 $ 1,291 $ 106 $ 11 $ 80,074 Legacy Loans Acquired Loans Total Real Estate Commercial Business Trade Finance Consumer and Other Real Estate Commercial Business Trade Finance Consumer and Other (Dollars in thousands) Three Months Ended June 30, 2016 Balance, beginning of period $ 42,115 $ 19,048 $ 2,085 $ 768 $ 12,626 $ 154 $ — $ 60 $ 76,856 Provision (credit) for loan losses 1,375 (798 ) 364 123 187 (42 ) — (9 ) 1,200 Loans charged off — (2,005 ) — (50 ) (207 ) (33 ) — — (2,295 ) Recoveries 176 331 — 85 1 69 — 2 664 Balance, end of period $ 43,666 $ 16,576 $ 2,449 $ 926 $ 12,607 $ 148 $ — $ 53 $ 76,425 Six Months Ended June 30, 2016 Balance, beginning of period $ 42,829 $ 16,332 $ 3,592 $ 556 $ 12,823 $ 214 $ — $ 62 $ 76,408 Provision (credit) for loan losses 157 2,349 (1,143 ) 399 105 (154 ) — (13 ) 1,700 Loans charged off (19 ) (2,626 ) — (115 ) (323 ) (33 ) — — (3,116 ) Recoveries of charge offs 699 521 — 86 2 121 — 4 1,433 Balance, end of period $ 43,666 $ 16,576 $ 2,449 $ 926 $ 12,607 $ 148 $ — $ 53 $ 76,425 The following tables break out the allowance for loan losses and the recorded investment of loans outstanding (not including accrued interest receivables and net deferred loan fees) by individually impaired, general valuation, and PCI impairment, by portfolio segment, at June 30, 2017 and December 31, 2016 : June 30, 2017 Legacy Loans Acquired Loans Total Real Estate Commercial Business Trade Finance Consumer and Other Real Estate Commercial Business Trade Finance Consumer and Other (Dollars in thousands) Allowance for loan losses: Individually evaluated for impairment $ 1,907 $ 6,303 $ 3 $ 30 $ 256 $ 451 $ — $ — $ 8,950 Collectively evaluated for impairment 38,571 15,192 997 2,252 1,089 840 106 11 59,058 PCI loans — — — — 12,066 — — — 12,066 Total $ 40,478 $ 21,495 $ 1,000 $ 2,282 $ 13,411 $ 1,291 $ 106 $ 11 $ 80,074 Loans outstanding: Individually evaluated for impairment $ 46,357 $ 35,487 $ 4,182 $ 697 $ 12,045 $ 1,285 $ — $ 610 $ 100,663 Collectively evaluated for impairment 5,829,796 1,235,783 105,921 264,028 2,365,273 419,050 68,108 183,065 10,471,024 PCI loans — — — — 178,924 52,498 3,189 12,046 246,657 Total $ 5,876,153 $ 1,271,270 $ 110,103 $ 264,725 $ 2,556,242 $ 472,833 $ 71,297 $ 195,721 $ 10,818,344 December 31, 2016 Legacy Loans Acquired Loans Total Real Estate Commercial Business Trade Finance Consumer and Other Real Estate Commercial Business Trade Finance Consumer and Other (Dollars in thousands) Allowance for loan losses: Individually evaluated for impairment $ 1,889 $ 4,420 $ 864 $ 50 $ 113 $ 73 $ — $ — $ 7,409 Collectively evaluated for impairment 37,067 19,010 1,033 2,066 548 44 — 36 59,804 PCI loans — — — — 12,130 — — — 12,130 Total $ 38,956 $ 23,430 $ 1,897 $ 2,116 $ 12,791 $ 117 $ — $ 36 $ 79,343 Loans outstanding: Individually evaluated for impairment $ 74,085 $ 34,783 $ 6,029 $ 733 $ 23,865 $ 435 $ — $ 431 $ 140,361 Collectively evaluated for impairment 5,271,262 1,079,348 75,365 179,961 2,597,200 650,710 70,535 206,802 10,131,183 PCI loans — — — — 188,158 66,745 2,999 15,543 273,445 Total $ 5,345,347 $ 1,114,131 $ 81,394 $ 180,694 $ 2,809,223 $ 717,890 $ 73,534 $ 222,776 $ 10,544,989 As of June 30, 2017 and December 31, 2016 , the reserve for unfunded loan commitments recorded in other liabilities was $3.6 million and $3.2 million , respectively. For the three months ended June 30, 2017 and 2016 , the recognized provision for unfunded commitments recorded in credit related expense was $201 thousand and $109 thousand , respectively. For the six months ended June 30, 2017 and 2016 , the recognized provision (credit) for unfunded commitments was $442 thousand and $(461) thousand , respectively. The recorded investment of individually impaired loans was as follows: June 30, 2017 December 31, 2016 (Dollars in thousands) With allocated specific allowance Without charge off $ 37,636 $ 59,638 With charge off 2,093 1,120 With no allocated specific allowance Without charge off 54,707 76,775 With charge off 6,227 2,828 Specific allowance on impaired loans (8,950 ) (7,409 ) Impaired loans, net of specific allowance $ 91,713 $ 132,952 The following tables detail the recorded investment of impaired loans (Legacy Loans and Acquired Loans that became impaired subsequent to being originated and acquired, respectfully) as of June 30, 2017 and December 31, 2016 and average recorded investment and interest income recognized for the three and six months ended June 30, 2017 and 2016 . Loans with no related allowance are believed by management to be adequately collateralized. As of June 30, 2017 As of December 31, 2016 Total Impaired Loans Recorded Investment* Unpaid Contractual Principal Balance Related Allowance Recorded Investment* Unpaid Contractual Principal Balance Related Allowance (Dollars in thousands) With related allowance: Real estate—residential $ — $ — $ — $ — $ — $ — Real estate—commercial Retail 1,464 1,583 134 2,095 2,384 90 Hotel & motel 1,843 2,606 109 6,387 6,387 337 Gas station & car wash — — — 215 228 41 Mixed use 287 2,695 3 206 732 27 Industrial & warehouse 503 1,198 101 530 530 — Other 4,755 5,000 1,816 22,580 22,825 1,507 Real estate—construction — — — — — — Commercial business 26,770 27,146 6,754 26,543 27,161 4,493 Trade finance 4,035 4,035 3 2,111 2,156 864 Consumer and other 72 72 30 91 91 50 Subtotal $ 39,729 $ 44,335 $ 8,950 $ 60,758 $ 62,494 $ 7,409 With no related allowance: Real estate—residential $ — $ — $ — $ 3,562 $ 3,562 $ — Real estate—commercial Retail 9,675 11,057 — 12,753 13,290 — Hotel & motel 12,817 18,499 — 6,122 11,735 — Gas station & car wash 3,106 6,321 — 5,043 7,449 — Mixed use 1,229 1,773 — 7,303 7,822 — Industrial & warehouse 8,725 8,800 — 9,673 9,748 — Other 12,698 13,870 — 20,181 21,492 — Real estate—construction 1,300 1,441 — 1,300 1,441 — Commercial business 10,002 13,452 — 8,675 9,472 — Trade finance 147 147 — 3,918 3,918 — Consumer and other 1,235 1,259 — 1,073 1,136 — Subtotal $ 60,934 $ 76,619 $ — $ 79,603 $ 91,065 $ — Total $ 100,663 $ 120,954 $ 8,950 $ 140,361 $ 153,559 $ 7,409 __________________________________ * Unpaid contractual principal balance less charge offs, interest collected applied to principal if on nonaccrual and purchase discounts. For the Three Months Ended June 30, 2017 For the Three Months Ended June 30, 2016 For the Six Months Ended June 30, 2017 For the Six Months Ended June 30, 2016 Total Impaired Loans Average Recorded Investment* Interest Income Recognized during Impairment Average Recorded Investment* Interest Income Recognized during Impairment Average Recorded Investment* Interest Income Recognized during Impairment Average Recorded Investment* Interest Income Recognized during Impairment (Dollars in thousands) With related allowance: Real estate—residential $ — $ — $ — $ — $ — $ — $ — $ — Real estate—commercial Retail 1,022 4 1,486 — 1,380 7 1,614 — Hotel & motel 4,119 16 2,925 16 4,875 32 3,515 32 Gas station & car wash — — 794 9 72 — 1,052 19 Mixed use 268 2 386 2 247 3 445 3 Industrial & warehouse 1,692 — 552 6 1,305 — 555 12 Other 13,584 60 24,257 274 16,583 117 24,372 550 Real estate—construction — — — — — — — — Commercial business 23,154 233 35,826 271 24,284 456 34,393 481 Trade finance 2,018 106 6,286 16 2,049 157 8,373 57 Consumer and other 77 1 408 10 82 2 317 17 Subtotal $ 45,934 $ 422 $ 72,920 $ 604 $ 50,877 $ 774 $ 74,636 $ 1,171 With no related allowance: Real estate—residential $ 732 $ — $ — $ — $ 1,675 $ — $ — $ — Real estate—commercial Retail 13,214 82 10,029 79 13,060 161 10,454 160 Hotel & motel 9,545 — 8,922 49 8,404 — 8,479 98 Gas station & car wash 3,633 — 5,268 25 4,103 — 4,763 50 Mixed use 3,879 — 2,331 12 5,020 — 2,348 24 Industrial & warehouse 8,612 58 10,957 89 8,965 116 10,294 179 Other 14,173 81 10,676 43 16,176 162 11,534 85 Real estate—construction 2,078 — 1,321 — 1,819 — 1,337 — Commercial business 9,953 41 13,022 140 9,527 83 12,034 281 Trade finance 2,298 2 2,225 56 2,838 3 1,484 109 Consumer and other 1,070 6 820 — 1,071 13 991 1 Subtotal $ 69,187 $ 270 $ 65,571 $ 493 $ 72,658 $ 538 $ 63,718 $ 987 Total $ 115,121 $ 692 $ 138,491 $ 1,097 $ 123,535 $ 1,312 $ 138,354 $ 2,158 __________________________________ * Unpaid contractual principal balance less charge offs, interest collected applied to principal if on nonaccrual and purchase discounts. As of June 30, 2017 As of December 31, 2016 Impaired Acquired Loans Recorded Investment* Unpaid Contractual Principal Balance Related Allowance Recorded Investment* Unpaid Contractual Principal Balance Related Allowance (Dollars in thousands) With related allowance: Real estate—residential $ — $ — $ — $ — $ — $ — Real estate—commercial Retail 1,194 1,313 128 1,826 2,114 85 Hotel & motel 260 1,005 2 — — — Gas station & car wash — — — — — — Mixed use 248 2,099 2 136 136 2 Industrial & warehouse 503 1,198 101 — — — Other 328 332 23 337 341 26 Real estate—construction — — — — — — Commercial business 714 764 451 294 339 73 Trade finance — — — — — — Consumer and other — — — — — — Subtotal $ 3,247 $ 6,711 $ 707 $ 2,593 $ 2,930 $ 186 With no related allowance: Real estate—residential $ — $ — $ — $ 679 $ 679 $ — Real estate—commercial Retail 1,456 1,508 — 3,148 3,214 — Hotel & motel 4,807 7,285 — 4,767 7,171 — Gas station & car wash 460 903 — 1,568 1,815 — Mixed use 46 274 — 5,315 5,551 — Industrial & warehouse 64 64 — 66 66 — Other 2,679 3,234 — 6,023 6,752 — Real estate—construction — — — — — — Commercial business 571 641 — 141 386 — Trade finance — — — — — — Consumer and other 610 624 — 431 484 — Subtotal $ 10,693 $ 14,533 $ — $ 22,138 $ 26,118 $ — Total $ 13,940 $ 21,244 $ 707 $ 24,731 $ 29,048 $ 186 __________________________________ * Unpaid contractual principal balance less charge offs, interest collected applied to principal if on nonaccrual and purchase discounts. For the Three Months Ended June 30, 2017 For the Three Months Ended June 30, 2016 For the Six Months Ended June 30, 2017 For the Six Months Ended June 30, 2016 Impaired Acquired Loans Average Recorded Investment* Interest Income Recognized during Impairment Average Recorded Investment* Interest Income Recognized during Impairment Average Recorded Investment* Interest Income Recognized during Impairment Average Recorded Investment* Interest Income Recognized during Impairment (Dollars in thousands) With related allowance: Real estate—residential $ — $ — $ — $ — $ — $ — $ — $ — Real estate—commercial Retail 753 4 1,103 — 1,110 7 1,125 — Hotel & motel 176 — — — 117 — — — Gas station & car wash — — — — — — 339 — Mixed use 249 2 316 2 212 3 375 3 Industrial & warehouse 251 — — — 168 — — — Other 330 4 324 4 333 8 318 9 Real estate—construction — — — — — — — — Commercial business 744 — 506 3 594 — 526 6 Trade finance — — — — — — — — Consumer and other — — 80 2 — — 53 4 Subtotal $ 2,503 $ 10 $ 2,329 $ 11 $ 2,534 $ 18 $ 2,736 $ 22 With no related allowance: Real estate—residential $ — $ — $ — $ — $ 226 $ — $ — $ — Real estate—commercial Retail 2,903 15 2,491 26 2,985 30 2,542 52 Hotel & motel 4,823 — 5,903 3 4,805 — 6,273 7 Gas station & car wash 539 — 1,593 25 882 — 1,458 50 Mixed use 2,664 — 271 3 3,548 — 272 5 Industrial & warehouse 65 1 1,090 2 65 2 1,103 5 Other 2,931 8 3,761 13 3,961 16 3,799 26 Real estate—construction — — — — — — — — Commercial business 408 7 675 8 319 14 673 17 Trade finance — — — — — — — — Consumer and other 441 2 371 — 437 4 467 1 Subtotal $ 14,774 $ 33 $ 16,155 $ 80 $ 17,228 $ 66 $ 16,587 $ 163 Total $ 17,277 $ 43 $ 18,484 $ 91 $ 19,762 $ 84 $ 19,323 $ 185 __________________________________ * Unpaid contractual principal balance less charge offs, interest collected applied to principal if on nonaccrual and purchase discounts. Generally, loans are placed on nonaccrual status if the principal and/or interest payments become 90 days past due and/or management deems the collectability of the principal and/or interest to be in question, as well as when required by regulatory requirements. Loans to customers 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 Company did not recognize any cash basis interest income for the three and six ended June 30, 2017 or 2016 . The following tables present the recorded investment of past due loans by the number of days past due as of June 30, 2017 and December 31, 2016 by class of loans: As of June 30, 2017 Nonaccrual Loans (2) Total Delinquent and Nonaccrual Loans Past Due and Accruing 30-59 Days 60-89 Days 90 or More Days Total (Dollars in thousands) Legacy Loans: Real estate—residential $ — $ — $ — $ — $ — $ — Real estate—commercial Retail 555 457 — 1,012 3,392 4,404 Hotel & motel 343 1,902 1,433 3,678 8,305 11,983 Gas station & car wash — — — — 2,646 2,646 Mixed use 539 — — 539 1,221 1,760 Industrial & warehouse — — — — 3,472 3,472 Other 3,331 — — 3,331 4,092 7,423 Real estate—construction — 7,000 — 7,000 1,300 8,300 Commercial business 919 2,245 — 3,164 12,114 15,278 Trade finance 92 — — 92 — 92 Consumer and other 131 137 246 514 300 814 Subtotal $ 5,910 $ 11,741 $ 1,679 $ 19,330 $ 36,842 $ 56,172 Acquired Loans: (1) Real estate—residential $ — $ — $ — $ — $ — $ — Real estate—commercial Retail — 137 — 137 1,022 1,159 Hotel & motel — — — — 5,067 5,067 Gas station & car wash — — — — 460 460 Mixed use 30 — — 30 161 191 Industrial & warehouse 33 — — 33 503 536 Other 5,491 — 77 5,568 1,861 7,429 Real estate—construction 95 — — 95 — 95 Commercial business 660 859 — 1,519 761 2,280 Trade finance — — — — — — Consumer and other 64 — 94 158 684 842 Subtotal $ 6,373 $ 996 $ 171 $ 7,540 $ 10,519 $ 18,059 TOTAL $ 12,283 $ 12,737 $ 1,850 $ 26,870 $ 47,361 $ 74,231 __________________________________ (1) Acquired Loans exclude PCI loans. (2) Nonaccrual loans exclude guaranteed portion of delinquent SBA loans that are in liquidation totaling $15.5 million . Includes nonaccrual loans less than 30 days past due totaling $14.7 million . As of December 31, 2016 Nonaccrual Loans (2) Total Delinquent and Nonaccrual Loans Past Due and Accruing 30-59 Days 60-89 Days 90 or More Days Total (Dollars in thousands) Legacy Loans: Real estate—residential $ — $ — $ — $ — $ — $ — Real estate—commercial Retail 480 — — 480 3,672 4,152 Hotel & motel 1,836 3,137 — 4,973 1,392 6,365 Gas station & car wash 362 — — 362 3,690 4,052 Mixed use — — — — 1,305 1,305 Industrial & warehouse — 697 — 697 1,922 2,619 Other 2,871 — — 2,871 4,007 6,878 Real estate—construction — 1,513 — 1,513 1,300 2,813 Commercial business 558 815 — 1,373 9,371 10,744 Trade finance — 500 — 500 2,056 2,556 Consumer and other 146 58 305 509 229 738 Subtotal $ 6,253 $ 6,720 $ 305 $ 13,278 $ 28,944 $ 42,222 Acquired Loans: (1) Real estate—residential $ — $ — $ — $ — $ 679 $ 679 Real estate—commercial Retail 1,611 — — 1,611 1,871 3,482 Hotel & motel 95 — — 95 4,501 4,596 Gas station & car wash 68 340 — 408 993 1,401 Mixed use — — — — 48 48 Industrial & warehouse 257 — — 257 — 257 Other 350 — — 350 2,144 2,494 Real estate—construction — — — — — — Commercial business 1,303 684 — 1,987 345 2,332 Trade finance — — — — — — Consumer and other 331 25 — 356 549 905 Subtotal $ 4,015 $ 1,049 $ — $ 5,064 $ 11,130 $ 16,194 TOTAL $ 10,268 $ 7,769 $ 305 $ 18,342 $ 40,074 $ 58,416 __________________________________ (1) Acquired Loans exclude PCI loans. (2) Nonaccrual loans exclude guaranteed portion of delinquent SBA loans that are in liquidation totaling $15.9 million . Includes nonaccrual loans less than 30 days past due totaling $18.3 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 potential weaknesses 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: 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 recorded investment of risk ratings for Legacy and Acquired Loans as of June 30, 2017 and December 31, 2016 by class of loans: As of June 30, 2017 Pass Special Mention Substandard Doubtful Total (Dollars in thousands) Legacy Loans: Real estate—residential $ 39,957 $ 1,497 $ 1,456 $ — $ 42,910 Real estate—commercial Retail 1,468,439 23,024 20,725 — 1,512,188 Hotel & motel 1,185,023 10,770 12,243 — 1,208,036 Gas station & car wash 675,710 11,422 6,244 — 693,376 Mixed use 400,257 438 1,380 — 402,075 Industrial & warehouse 570,413 21,390 9,924 — 601,727 Other 1,103,423 38,537 45,035 — 1,186,995 Real estate—construction 212,195 13,774 2,877 — 228,846 Commercial business 1,165,079 27,779 76,204 2,208 1,271,270 Trade finance 106,218 3,738 147 — 110,103 Consumer and other 263,859 4 862 — 264,725 Subtotal $ 7,190,573 $ 152,373 $ 177,097 $ 2,208 $ 7,522,251 Acquired Loans: Real estate—residential $ 17,368 $ 266 $ — $ — $ 17,634 Real estate—commercial Retail 695,235 10,389 20,013 — 725,637 Hotel & motel 302,653 12,599 17,979 — 333,231 Gas station & car wash 237,757 8,135 9,444 — 255,336 Mixed use 108,020 5,942 11,002 8 124,972 Industrial & warehouse 293,708 13,475 16,158 273 323,614 Other 639,150 38,599 20,121 — 697,870 Real estate—construction 77,948 — — — 77,948 Commercial business 432,487 8,592 31,302 452 472,833 Trade finance 68,108 — 3,189 — 71,297 Consumer and other 188,840 687 5,267 927 195,721 Subtotal $ 3,061,274 $ 98,684 $ 134,475 $ 1,660 $ 3,296,093 Total $ 10,251,847 $ 251,057 $ 311,572 $ 3,868 $ 10,818,344 As of December 31, 2016 Pass Special Mention Substandard Doubtful Total (Dollars in thousands) Legacy Loans: Real estate—residential $ 34,283 $ 223 $ 2,883 $ — $ 37,389 Real estate—commercial Retail 1,303,452 18,929 15,430 — 1,337,811 Hotel & motel 1,187,709 12,763 9,026 — 1,209,498 Gas station & car wash 643,282 7,259 3,690 — 654,231 Mixed use 375,312 — 1,467 — 376,779 Industrial & warehouse 478,528 29,830 13,745 — 522,103 Other 969,024 22,220 41,017 — 1,032,261 Real estate—construction 159,230 14,745 1,300 — 175,275 Commercial business 1,032,232 15,919 65,885 95 1,114,131 Trade finance 68,051 5,673 7,670 — 81,394 Consumer and other 179,864 1 829 — 180,694 Subtotal $ 6,430,967 $ 127,562 $ 162,942 $ 95 $ 6,721,566 Acquired Loans: Real estate—residential $ 18,007 $ 1,809 $ 679 $ — $ 20,495 Real estate—commercial Retail 772,465 9,860 21,110 — 803,435 Hotel & motel 328,396 5,419 18,233 — 352,048 Gas station & car wash 249,379 8,437 11,338 — 269,154 Mixed use 118,643 3,105 12,505 8 134,261 Industrial & warehouse 321,040 31,819 9,048 315 362,222 Other 736,385 23,286 29,099 — 788,770 Real estate—construction 78,838 — — — 78,838 Commercial business 649,186 31,340 37,265 99 717,890 Trade finance 70,535 61 2,938 — 73,534 Consumer and other 214,437 958 5,949 1,432 222,776 Subtotal $ 3,557,311 $ 116,094 $ 148,164 $ 1,854 $ 3,823,423 Total $ 9,988,278 $ 243,656 $ 311,106 $ 1,949 $ 10,544,989 The Company reclassifies loans held for investment to loans held for sale in the event that the Company plans to sell loans that were originated with the intent to hold to maturity. Loans transferred from held to investment to held for sale are carried at the lower of cost or fair value. The breakdown of loans by type that were reclassified from held to investment to held for sale for the three and six months ended June 30, 2017 and 2016 is presented in the following table: Three Months Ended June 30, Six Months Ended June 30, 2017 2016 2017 2016 Transfer of loans receivable to held for sale (Dollars in thousands) Real estate - commercial $ 2,671 $ — $ 11,370 $ — Commercial business 2,243 — 2,995 — Consumer 225 — 225 400 Total $ 5,139 $ — $ 14,590 $ 400 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) or pool and risk grade. The migration analysis is centered on the Bank’s internal credit risk rating system. Management’s internal loan review and external contracted credit review examinations are used to determine and validate loan risk grades. This credit review system takes into consideration factors such as: borrower’s background and experience; historical and current financial condition; credit history and payment performance; economic conditions and their impact on various industries; type, fair value and volatility of the fair value of collateral; lien position; and the financial strength of any guarantors. A general loan loss allowance is provided on loans not specifically identified as impaired (“non-impaired loans”). The Bank’s general loan loss allowance has two components: quantitative and qualitative risk factors. The quantitative risk factors are based on the 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 losses. That loss experience is then applied to the stratified portfolio at the end of each quarter. 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 or 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 in accordance with 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 or operation 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 consumer loans, management bases the measurement of loan impairment on the present value of the expected future cash flows, discounted at the loan’s effective interest rate, or on the fair value of the loan’s collateral if the loan is collateral dependent. Management evaluates most consumer loans for impairment on a collective basis because these loans generally have smaller balances and are homogeneous in the underwriting of terms and conditions and in the types of collateral. For PCI loans, the allowance for loan losses is |