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, 2017 December 31, 2016 (Dollars in thousands) Loan portfolio composition Real estate loans: Residential $ 55,072 $ 57,884 Commercial 8,085,307 7,842,573 Construction 297,686 254,113 Total real estate loans 8,438,065 8,154,570 Commercial business 1,824,442 1,832,021 Trade finance 180,847 154,928 Consumer and other 521,459 403,470 Total loans outstanding 10,964,813 10,544,989 Deferred loan fees, net (1,839 ) (1,657 ) Loans receivable 10,962,974 10,543,332 Allowance for loan losses (83,633 ) (79,343 ) Loans receivable, net of allowance for loan losses $ 10,879,341 $ 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 nine months ended September 30, 2017 and 2016 : Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 (Dollars in thousands) Balance at beginning of period $ 53,657 $ 20,150 $ 43,611 $ 23,777 Additions due to acquisitions during the period — 41,271 — 41,271 Accretion (5,815 ) (4,723 ) (16,375 ) (10,226 ) Reclassification from nonaccretable difference 6,696 40 27,302 1,916 Balance at end of period $ 54,538 $ 56,738 $ 54,538 $ 56,738 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, 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 September 30, 2017 Balance, beginning of period $ 40,478 $ 21,495 $ 1,000 $ 2,282 $ 13,411 $ 1,291 $ 106 $ 11 $ 80,074 Provision (credit) for loan losses 3,664 1,499 418 664 (1,312 ) 395 56 16 5,400 Loans charged off (175 ) (3,870 ) — (218 ) (162 ) (471 ) — (17 ) (4,913 ) Recoveries of charge offs 23 3,020 2 — — 25 — 2 3,072 Balance, end of period $ 43,990 $ 22,144 $ 1,420 $ 2,728 $ 11,937 $ 1,240 $ 162 $ 12 $ 83,633 Nine Months Ended September 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 7,174 2,356 1,621 1,348 (406 ) 1,517 162 (12 ) 13,760 Loans charged off (2,221 ) (7,485 ) (2,104 ) (738 ) (479 ) (596 ) — (17 ) (13,640 ) Recoveries of charge offs 81 3,843 6 2 31 202 — 5 4,170 Balance, end of period $ 43,990 $ 22,144 $ 1,420 $ 2,728 $ 11,937 $ 1,240 $ 162 $ 12 $ 83,633 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 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 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 September 30, 2017 and December 31, 2016 : September 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 $ 1,462 $ 4,679 $ 2 $ 4 $ 245 $ 415 $ — $ — $ 6,807 Collectively evaluated for impairment 42,528 17,465 1,418 2,724 1,081 825 162 12 66,215 PCI loans — — — — 10,611 — — — 10,611 Total $ 43,990 $ 22,144 $ 1,420 $ 2,728 $ 11,937 $ 1,240 $ 162 $ 12 $ 83,633 Loans outstanding: Individually evaluated for impairment $ 48,535 $ 35,494 $ 4,201 $ 1,048 $ 10,155 $ 4,885 $ 3,384 $ 758 $ 108,460 Collectively evaluated for impairment 5,996,526 1,437,398 133,599 339,980 2,213,662 317,150 39,663 168,844 10,646,822 PCI loans — — — — 169,187 29,515 — 10,829 209,531 Total $ 6,045,061 $ 1,472,892 $ 137,800 $ 341,028 $ 2,393,004 $ 351,550 $ 43,047 $ 180,431 $ 10,964,813 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 September 30, 2017 and December 31, 2016 , the reserve for unfunded loan commitments recorded in other liabilities was $836 thousand and $3.2 million , respectively. For the three months ended September 30, 2017 and 2016 , the recognized (credit) provision for unfunded commitments recorded in credit related expense was $(2.8) million and $270 thousand , respectively. For the nine months ended September 30, 2017 and 2016 , the recognized credit for unfunded commitments was $(2.4) million and $(191) thousand , respectively. The credit for unfunded commitments recorded in the third quarter of 2017 was a result of updated information related to credit card commitments that was used in the calculation of allowance for off balance sheet unfunded commitments. The recorded investment of individually impaired loans and the total impaired loans net of specific allowance is presented in the following table: September 30, 2017 December 31, 2016 (Dollars in thousands) With allocated specific allowance Without charge off $ 40,218 $ 59,638 With charge off 879 1,120 With no allocated specific allowance Without charge off 60,129 76,775 With charge off 7,234 2,828 Specific allowance on impaired loans (6,807 ) (7,409 ) Impaired loans, net of specific allowance $ 101,653 $ 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 September 30, 2017 and December 31, 2016 , and the average recorded investment and interest income recognized for the three and nine months ended September 30, 2017 and 2016 . Loans with no related allowance are believed by management to be adequately collateralized. As of September 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 931 936 132 2,095 2,384 90 Hotel & motel 2,696 3,667 263 6,387 6,387 337 Gas station & car wash — — — 215 228 41 Mixed use 169 727 7 206 732 27 Industrial & warehouse 988 1,670 135 530 530 — Other 4,389 4,389 1,170 22,580 22,825 1,507 Real estate—construction — — — — — — Commercial business 27,292 28,713 5,094 26,543 27,161 4,493 Trade finance 4,201 4,201 2 2,111 2,156 864 Consumer and other 431 431 4 91 91 50 Subtotal $ 41,097 $ 44,734 $ 6,807 $ 60,758 $ 62,494 $ 7,409 With no related allowance: Real estate—residential $ 498 $ 1,488 $ — $ 3,562 $ 3,562 $ — Real estate—commercial Retail 10,467 12,210 — 12,753 13,290 — Hotel & motel 8,172 12,262 — 6,122 11,735 — Gas station & car wash 2,939 6,646 — 5,043 7,449 — Mixed use 1,319 3,732 — 7,303 7,822 — Industrial & warehouse 8,054 8,140 — 9,673 9,748 — Other 16,768 18,278 — 20,181 21,492 — Real estate—construction 1,300 1,441 — 1,300 1,441 — Commercial business 13,087 17,917 — 8,675 9,472 — Trade finance 3,384 5,067 — 3,918 3,918 — Consumer and other 1,375 1,453 — 1,073 1,136 — Subtotal $ 67,363 $ 88,634 $ — $ 79,603 $ 91,065 $ — Total $ 108,460 $ 133,368 $ 6,807 $ 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 September 30, For the Nine Months Ended September 30, 2017 2016 2017 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 1,197 4 1,711 — 1,268 11 1,711 — Hotel & motel 2,269 17 1,320 16 4,330 49 2,965 48 Gas station & car wash — — 1,052 9 54 — 1,051 28 Mixed use 228 2 208 2 228 5 386 5 Industrial & warehouse 746 — 542 6 1,226 — 551 18 Other 4,572 60 23,474 259 13,534 175 23,968 776 Real estate—construction — — — — — — — — Commercial business 27,031 261 32,553 296 25,036 749 34,147 821 Trade finance 4,118 58 6,465 70 2,587 215 8,390 237 Consumer and other 251 1 548 1 169 3 338 2 Subtotal $ 40,412 $ 403 $ 67,873 $ 659 $ 48,432 $ 1,207 $ 73,507 $ 1,935 With no related allowance: Real estate—residential $ 249 $ 20 $ — $ — $ 1,381 $ 57 $ — $ — Real estate—commercial Retail 10,071 91 9,381 95 12,412 263 10,243 296 Hotel & motel 10,494 59 9,776 54 8,346 175 8,813 163 Gas station & car wash 3,022 114 4,855 25 3,812 317 4,760 75 Mixed use 1,274 109 2,195 9 4,095 324 2,279 28 Industrial & warehouse 8,390 68 10,905 89 8,738 191 10,396 268 Other 14,733 6 9,912 59 16,324 19 11,312 177 Real estate—construction 1,300 — 1,300 — 1,689 — 1,328 — Commercial business 11,544 — 13,111 26 10,417 — 11,030 79 Trade finance 1,765 — 2,225 — 2,975 — 1,113 — Consumer and other 1,305 — 800 7 1,147 — 1,014 23 Subtotal $ 64,147 $ 467 $ 64,460 $ 364 $ 71,336 $ 1,346 $ 62,288 $ 1,109 Total $ 104,559 $ 870 $ 132,333 $ 1,023 $ 119,768 $ 2,553 $ 135,795 $ 3,044 __________________________________ * Unpaid contractual principal balance less charge offs, interest collected applied to principal if on nonaccrual and purchase discounts. As of September 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 661 666 127 1,826 2,114 85 Hotel & motel 87 87 2 — — — Gas station & car wash — — — — — — Mixed use 131 131 6 136 136 2 Industrial & warehouse 402 1,084 100 — — — Other 279 279 10 337 341 26 Real estate—construction — — — — — — Commercial business 1,787 2,919 415 294 339 73 Trade finance — — — — — — Consumer and other — — — — — — Subtotal $ 3,347 $ 5,166 $ 660 $ 2,593 $ 2,930 $ 186 With no related allowance: Real estate—residential $ 498 $ 1,488 $ — $ 679 $ 679 $ — Real estate—commercial Retail 1,962 2,279 — 3,148 3,214 — Hotel & motel 536 2,388 — 4,767 7,171 — Gas station & car wash 448 2,146 — 1,568 1,815 — Mixed use 162 2,240 — 5,315 5,551 — Industrial & warehouse 55 55 — 66 66 — Other 4,934 5,800 — 6,023 6,752 — Real estate—construction — — — — — — Commercial business 3,098 3,453 — 141 386 — Trade finance 3,384 5,067 — — — — Consumer and other 758 826 — 431 484 — Subtotal $ 15,835 $ 25,742 $ — $ 22,138 $ 26,118 $ — Total $ 19,182 $ 30,908 $ 660 $ 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 September 30, For the Nine Months Ended September 30, 2017 2016 2017 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 927 4 1,386 — 998 11 1,277 — Hotel & motel 174 — — — 110 — — — Gas station & car wash — — — — — — 254 — Mixed use 190 2 139 2 191 5 316 5 Industrial & warehouse 452 — — — 226 — — — Other 303 4 344 4 319 11 324 13 Real estate—construction — — — — — — — — Commercial business 1,250 9 396 — 892 24 486 — Trade finance — — — — — — — — Consumer and other — — 80 — — — 40 — Subtotal $ 3,296 $ 19 $ 2,345 $ 6 $ 2,736 $ 51 $ 2,697 $ 18 With no related allowance: Real estate—residential $ 249 $ 20 $ — $ — $ 294 $ 57 $ — $ — Real estate—commercial Retail 1,709 15 2,095 21 2,729 45 2,333 72 Hotel & motel 2,671 — 4,983 3 3,737 — 5,933 10 Gas station & car wash 454 — 1,589 25 774 — 1,490 75 Mixed use 104 — 166 — 2,701 — 219 — Industrial & warehouse 60 1 1,038 2 63 2 1,075 7 Other 3,806 46 3,215 13 4,205 116 3,520 39 Real estate—construction — — — — — — — — Commercial business 1,835 47 707 4 1,014 142 690 13 Trade finance 1,692 68 — — 846 191 — — Consumer and other 684 2 361 2 518 6 459 7 Subtotal $ 13,264 $ 199 $ 14,154 $ 70 $ 16,881 $ 559 $ 15,719 $ 223 Total $ 16,560 $ 218 $ 16,499 $ 76 $ 19,617 $ 610 $ 18,416 $ 241 __________________________________ * 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 or more 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 nine months ended September 30, 2017 or 2016 . The following tables present the recorded investment in past due loans by the number of days past due as of September 30, 2017 and December 31, 2016 by class of loans: As of September 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 1,168 — — 1,168 3,259 4,427 Hotel & motel 329 1,895 — 2,224 8,966 11,190 Gas station & car wash 1,755 — — 1,755 2,490 4,245 Mixed use 161 — — 161 1,196 1,357 Industrial & warehouse 1,123 — — 1,123 3,456 4,579 Other 1,418 — — 1,418 6,332 7,750 Real estate—construction — — — — 1,300 1,300 Commercial business 2,660 960 150 3,770 9,485 13,255 Trade finance — — — — — — Consumer and other 243 717 257 1,217 594 1,811 Subtotal $ 8,857 $ 3,572 $ 407 $ 12,836 $ 37,078 $ 49,914 Acquired Loans: (1) Real estate—residential $ — $ — $ — $ — $ — $ — Real estate—commercial Retail 128 — — 128 1,005 1,133 Hotel & motel — 1,521 — 1,521 621 2,142 Gas station & car wash — — — — 448 448 Mixed use — — — — 161 161 Industrial & warehouse 338 — — 338 402 740 Other 336 — — 336 1,818 2,154 Real estate—construction — — — — — — Commercial business 627 166 — 793 1,196 1,989 Trade finance — — — — — — Consumer and other — — — — 594 594 Subtotal $ 1,429 $ 1,687 $ — $ 3,116 $ 6,245 $ 9,361 TOTAL $ 10,286 $ 5,259 $ 407 $ 15,952 $ 43,323 $ 59,275 __________________________________ (1) Acquired Loans exclude PCI loans. (2) Nonaccrual loans exclude guaranteed portion of delinquent SBA loans that are in liquidation totaling $21.5 million . Includes nonaccrual loans less than 30 days past due totaling $9.1 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 September 30, 2017 and December 31, 2016 by class of loans: As of September 30, 2017 Pass/ Not Rated Special Mention Substandard Doubtful Total (Dollars in thousands) Legacy Loans: Real estate—residential $ 36,488 $ 1,035 $ 1,447 $ — $ 38,970 Real estate—commercial Retail 1,569,248 23,225 19,348 — 1,611,821 Hotel & motel 1,194,329 10,042 13,128 — 1,217,499 Gas station & car wash 729,531 12,382 4,246 — 746,159 Mixed use 400,074 4,612 1,544 — 406,230 Industrial & warehouse 568,172 15,999 22,032 — 606,203 Other 1,125,919 29,111 50,047 — 1,205,077 Real estate—construction 210,134 — 2,968 — 213,102 Commercial business 1,358,444 33,068 81,164 216 1,472,892 Trade finance 134,262 2,311 1,227 — 137,800 Consumer and other 340,187 — 841 — 341,028 Subtotal $ 7,666,788 $ 131,785 $ 197,992 $ 216 $ 7,996,781 Acquired Loans: Real estate—residential $ 15,837 $ 265 $ — $ — $ 16,102 Real estate—commercial Retail 649,572 8,974 21,643 — 680,189 Hotel & motel 285,539 9,289 20,423 2 315,253 Gas station & car wash 198,481 8,973 8,828 — 216,282 Mixed use 99,250 5,648 14,317 8 119,223 Industrial & warehouse 266,876 15,185 15,908 270 298,239 Other 600,411 36,607 26,114 — 663,132 Real estate—construction 84,584 — — — 84,584 Commercial business 310,220 7,782 33,528 20 351,550 Trade finance 39,663 — 3,384 — 43,047 Consumer and other 174,254 720 4,470 987 180,431 Subtotal $ 2,724,687 $ 93,443 $ 148,615 $ 1,287 $ 2,968,032 Total $ 10,391,475 $ 225,228 $ 346,607 $ 1,503 $ 10,964,813 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 nine months ended September 30, 2017 and 2016 is presented in the following table: Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Transfer of loans receivable to held for sale (Dollars in thousands) Real estate - commercial $ — $ 992 $ 429 $ 992 Consumer — — — 400 Total $ — $ 992 $ 429 $ 1,392 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 the 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 the 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, |