Loans Receivable and Allowance for Loan Losses | Loans Receivable and Allowance for Loan Losses The following is a summary of loans receivable by major category: June 30, 2018 December 31, 2017 (Dollars in thousands) Loan portfolio composition Real estate loans: Residential $ 45,383 $ 49,774 Commercial 8,165,420 8,142,036 Construction 301,937 316,412 Total real estate loans 8,512,740 8,508,222 Commercial business 2,131,301 1,780,869 Trade finance 156,181 166,664 Consumer and other 872,562 647,102 Total loans outstanding 11,672,784 11,102,857 Deferred loan fees, net (1,344 ) (282 ) Loans receivable 11,671,440 11,102,575 Allowance for loan losses (89,881 ) (84,541 ) Loans receivable, net of allowance for loan losses $ 11,581,559 $ 11,018,034 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 “PCI loans”) 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, 2018 and 2017 : Three Months Ended June 30, Six Months Ended June 30, 2018 2017 2018 2017 (Dollars in thousands) Balance at beginning of period $ 54,846 $ 51,651 $ 55,002 $ 43,611 Accretion (5,959 ) (5,212 ) (11,731 ) (10,560 ) Reclassification from nonaccretable difference 4,686 7,218 10,302 20,606 Balance at end of period $ 53,573 $ 53,657 $ 53,573 $ 53,657 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, 2018 and 2017 : Legacy Loans Acquired Loans Total Real Estate Commercial Business Trade Finance Consumer and Other Real Commercial Business Trade Finance Consumer and Other (Dollars in thousands) Three Months Ended June 30, 2018 Balance, beginning of period $ 45,977 $ 20,387 $ 1,767 $ 3,934 $ 13,048 $ 1,308 $ 38 $ 2 $ 86,461 Provision (credit) for loan losses 1,776 487 (796 ) 1,086 (141 ) (96 ) (35 ) 19 2,300 Loans charged off (144 ) (446 ) — (229 ) (92 ) (352 ) — — (1,263 ) Recoveries of charge offs 626 1,603 12 8 1 131 — 2 2,383 Balance, end of period $ 48,235 $ 22,031 $ 983 $ 4,799 $ 12,816 $ 991 $ 3 $ 23 $ 89,881 Six Months Ended June 30, 2018 Balance, beginning of period $ 45,360 $ 17,228 $ 1,674 $ 3,385 $ 13,322 $ 3,527 $ 42 $ 3 $ 84,541 Provision (credit) for loan losses 2,255 3,776 (715 ) 1,963 (314 ) (2,142 ) (39 ) 16 4,800 Loans charged off (207 ) (788 ) — (576 ) (194 ) (566 ) — — (2,331 ) Recoveries of charge offs 827 1,815 24 27 2 172 — 4 2,871 Balance, end of period $ 48,235 $ 22,031 $ 983 $ 4,799 $ 12,816 $ 991 $ 3 $ 23 $ 89,881 Legacy Loans Acquired Loans Total Real Commercial Business Trade Finance Consumer and Other Real 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 of charge offs 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 The following tables break out the allowance for loan losses and the recorded investment of loans outstanding (not including accrued interest receivable and net deferred loan costs or fees by individually impaired, general valuation, and PCI impairment, by portfolio segment, at June 30, 2018 and December 31, 2017 : June 30, 2018 Legacy Loans Acquired Loans Total Real Commercial Business Trade Finance Consumer and Other Real Commercial Business Trade Finance Consumer and Other (Dollars in thousands) Allowance for loan losses: Individually evaluated for impairment $ 6,353 $ 3,169 $ 252 $ 15 $ 305 $ 511 $ — $ 1 $ 10,606 Collectively evaluated for impairment 41,882 18,862 731 4,784 1,145 480 3 22 67,909 PCI loans — — — — 11,366 — — — 11,366 Total $ 48,235 $ 22,031 $ 983 $ 4,799 $ 12,816 $ 991 $ 3 $ 23 $ 89,881 Loans outstanding: Individually evaluated for impairment $ 45,977 $ 30,151 $ 3,694 $ 851 $ 15,218 $ 16,800 $ 2,961 $ 2,111 $ 117,763 Collectively evaluated for impairment 6,446,113 1,939,901 149,012 717,591 1,857,454 118,508 514 143,156 11,372,249 PCI loans — — — — 147,978 25,941 — 8,853 182,772 Total $ 6,492,090 $ 1,970,052 $ 152,706 $ 718,442 $ 2,020,650 $ 161,249 $ 3,475 $ 154,120 $ 11,672,784 December 31, 2017 Legacy Loans Acquired Loans Total Real Commercial Business Trade Finance Consumer and Other Real Commercial Business Trade Finance Consumer and Other (Dollars in thousands) Allowance for loan losses: Individually evaluated for impairment $ 1,378 $ 2,807 $ 3 $ 35 $ 246 $ 854 $ — $ — $ 5,323 Collectively evaluated for impairment 43,982 14,421 1,671 3,350 1,036 2,673 42 3 67,178 PCI loans — — — — 12,040 — — — 12,040 Total $ 45,360 $ 17,228 $ 1,674 $ 3,385 $ 13,322 $ 3,527 $ 42 $ 3 $ 84,541 Loans outstanding: Individually evaluated for impairment $ 41,041 $ 31,322 $ 3,951 $ 908 $ 14,239 $ 18,733 $ 2,984 $ 1,171 $ 114,349 Collectively evaluated for impairment 6,172,448 1,459,273 152,204 477,375 2,120,001 244,980 7,525 157,794 10,791,600 PCI loans — — — — 160,493 26,561 — 9,854 196,908 Total $ 6,213,489 $ 1,490,595 $ 156,155 $ 478,283 $ 2,294,733 $ 290,274 $ 10,509 $ 168,819 $ 11,102,857 As of June 30, 2018 and December 31, 2017 , the reserve for unfunded loan commitments recorded in other liabilities was $786 thousand and $836 thousand , respectively. For the three months ended June 30, 2018 and 2017 , recognized provision for unfunded commitments recorded in credit related expense was $150 thousand and $201 thousand , respectively. For the six months ended June 30, 2018 and 2017 , the recognized (credit) provision for unfunded commitments was $(50) thousand and $442 thousand , respectively. The recorded investment of individually impaired loans and the total impaired loans net of specific allowance is presented in the following table: June 30, 2018 December 31, 2017 (Dollars in thousands) With allocated specific allowance Without charge off $ 48,192 $ 28,614 With charge off 1,188 3,044 With no allocated specific allowance Without charge off 61,806 77,533 With charge off 6,577 5,158 Specific allowance on impaired loans (10,606 ) (5,323 ) Impaired loans, net of specific allowance $ 107,157 $ 109,026 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, 2018 and December 31, 2017 , and the average recorded investment and interest income recognized for the three and six months ended June 30, 2018 and 2017 . Impaired loans with no related allowance are believed by management to be adequately collateralized. As of June 30, 2018 As of December 31, 2017 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 $ 251 $ 251 $ 2 $ — $ — $ — Real estate—commercial Retail 7,790 8,027 5,662 532 531 131 Hotel & motel 2,758 3,055 860 2,931 5,090 284 Gas station & car wash — — — — — — Mixed use 3,012 3,071 15 312 958 4 Industrial & warehouse 2,855 3,688 103 772 1,482 96 Other 3,918 4,304 16 4,397 4,401 1,109 Real estate—construction — — — — — — Commercial business 24,098 25,806 3,680 18,330 22,757 3,661 Trade finance 3,694 3,694 252 3,861 3,861 3 Consumer and other 1,004 39 16 523 524 35 Subtotal $ 49,380 $ 51,935 $ 10,606 $ 31,658 $ 39,604 $ 5,323 With no related allowance: Real estate—residential $ — $ — $ — $ — $ — $ — Real estate—commercial Retail 7,867 10,855 — 11,792 13,923 — Hotel & motel 4,388 10,113 — 2,841 5,288 — Gas station & car wash 336 1,718 — 591 1,764 — Mixed use 3,847 6,001 — 1,101 3,490 — Industrial & warehouse 11,165 12,127 — 8,429 8,525 — Other 13,008 16,760 — 20,282 24,412 — Real estate—construction — — — 1,300 1,441 — Commercial business 22,853 27,248 — 31,725 33,207 — Trade finance 2,961 2,961 — 3,074 3,091 — Consumer and other 1,958 149 — 1,556 1,676 — Subtotal $ 68,383 $ 87,932 $ — $ 82,691 $ 96,817 $ — Total $ 117,763 $ 139,867 $ 10,606 $ 114,349 $ 136,421 $ 5,323 __________________________________ * 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, For the Six Months Ended June 30, 2018 2017 2018 2017 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 $ 125 $ — $ — $ — $ 84 $ — $ — $ — Real estate—commercial Retail 7,088 7 1,022 4 4,902 15 1,380 7 Hotel & motel 2,792 — 4,119 16 2,838 — 4,875 32 Gas station & car wash — — — — — — 72 — Mixed use 2,985 39 268 2 2,094 75 247 3 Industrial & warehouse 2,616 36 1,692 — 2,002 67 1,305 — Other 6,655 24 13,584 60 5,902 47 16,583 117 Real estate—construction — — — — — — — — Commercial business 27,487 168 23,154 233 24,435 331 24,284 456 Trade finance 3,146 63 2,018 106 3,384 121 2,049 157 Consumer and other 748 6 77 1 673 6 82 2 Subtotal $ 53,642 $ 343 $ 45,934 $ 422 $ 46,314 $ 662 $ 50,877 $ 774 With no related allowance: Real estate—residential $ — $ — $ 732 $ — $ — $ — $ 1,675 $ — Real estate—commercial Retail 10,917 36 13,214 82 11,209 71 13,060 161 Hotel & motel 3,713 — 9,545 — 3,423 — 8,404 — Gas station & car wash 542 — 3,633 — 558 — 4,103 — Mixed use 2,475 50 3,879 — 2,017 100 5,020 — Industrial & warehouse 11,886 56 8,612 58 10,733 112 8,965 116 Other 13,587 112 14,173 81 15,819 233 16,176 162 Real estate—construction 650 — 2,078 — 867 — 1,819 — Commercial business 20,530 37 9,953 41 19,752 63 9,527 83 Trade finance 3,165 47 2,298 2 3,134 90 2,838 3 Consumer and other 1,807 — 1,070 6 1,718 — 1,071 13 Subtotal $ 69,272 $ 338 $ 69,187 $ 270 $ 69,230 $ 669 $ 72,658 $ 538 Total $ 122,914 $ 681 $ 115,121 $ 692 $ 115,544 $ 1,331 $ 123,535 $ 1,312 __________________________________ * Unpaid contractual principal balance less charge offs, interest collected applied to principal if on nonaccrual and purchase discounts. As of June 30, 2018 As of December 31, 2017 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 $ 251 $ 251 $ 2 $ — $ — $ — Real estate—commercial Retail 1,093 1,106 182 262 261 126 Hotel & motel 73 345 8 85 86 2 Gas station & car wash — — — — — — Mixed use 2,839 2,839 14 129 129 1 Industrial & warehouse 268 1,090 96 221 896 96 Other 1,313 1,313 3 319 323 21 Real estate—construction — — — — — — Commercial business 4,653 5,584 511 1,987 2,903 854 Trade finance — — — — — — Consumer and other 153 — 1 — — — Subtotal $ 10,643 $ 12,528 $ 817 $ 3,003 $ 4,598 $ 1,100 With no related allowance: Real estate—residential $ — $ — $ — $ — $ — $ — Real estate—commercial Retail 2,918 3,657 — 3,412 4,099 — Hotel & motel 1,573 2,991 — 482 1,887 — Gas station & car wash 188 708 — 1 28 — Mixed use 71 1,967 — 152 2,240 — Industrial & warehouse 119 894 — 45 45 — Other 4,512 5,281 — 9,131 9,951 — Real estate—construction — — — — — — Commercial business 12,147 12,708 — 16,746 16,926 — Trade finance 2,961 2,961 — 2,984 3,001 — Consumer and other 1,958 149 — 1,171 1,291 — Subtotal $ 26,447 $ 31,316 $ — $ 34,124 $ 39,468 $ — Total $ 37,090 $ 43,844 $ 817 $ 37,127 $ 44,066 $ 1,100 __________________________________ * 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, For the Six Months Ended June 30, 2018 2017 2018 2017 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 $ 125 $ — $ — $ — $ 84 $ — $ — $ — Real estate—commercial Retail 800 — 753 4 621 — 1,110 7 Hotel & motel 79 — 176 — 81 — 117 — Gas station & car wash — — — — — — — — Mixed use 2,899 39 249 2 1,976 75 212 3 Industrial & warehouse 266 — 251 — 251 1 168 — Other 3,314 19 330 4 2,316 37 333 8 Real estate—construction — — — — — — — — Commercial business 8,243 41 744 — 6,158 80 594 — Trade finance — — — — — — — — Consumer and other 76 2 — — 51 2 — — Subtotal $ 15,802 $ 101 $ 2,503 $ 10 $ 11,538 $ 195 $ 2,534 $ 18 With no related allowance: Real estate—residential $ — $ — $ — $ — $ — $ — $ 226 $ — Real estate—commercial Retail 3,108 31 2,903 15 3,209 61 2,985 30 Hotel & motel 1,029 — 4,823 — 847 — 4,805 — Gas station & car wash 193 — 539 — 129 — 882 — Mixed use 36 — 2,664 — 74 — 3,548 — Industrial & warehouse 491 — 65 1 342 — 65 2 Other 4,475 60 2,931 8 6,027 117 3,961 16 Real estate—construction — — — — — — — — Commercial business 8,380 24 408 7 6,660 38 319 14 Trade finance 3,165 47 — — 3,104 90 — — Consumer and other 1,618 — 441 2 1,463 — 437 4 Subtotal $ 22,495 $ 162 $ 14,774 $ 33 $ 21,855 $ 306 $ 17,228 $ 66 Total $ 38,297 $ 263 $ 17,277 $ 43 $ 33,393 $ 501 $ 19,762 $ 84 __________________________________ * 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 six months ended June 30, 2018 or 2017 . The following table represent the recorded investment in nonaccrual and loans past due over 90 days or more and still on accrual status by class of loans as of June 30, 2018 and December 31, 2017 . Nonaccrual Loans (1) Accruing Loans Past Due 90 or More Days June 30, 2018 December 31, 2017 June 30, 2018 December 31, 2017 (Dollars in thousands) Legacy Loans: Real estate—residential $ — $ — $ — $ — Real estate—commercial Retail 10,883 3,179 — — Hotel & motel 5,501 3,931 — — Gas station & car wash 149 590 2,564 — Mixed use 762 1,132 — — Industrial & warehouse 6,195 3,403 — — Other 6,581 5,689 — — Real estate—construction — 1,300 — — Commercial business 18,916 8,540 39 — Trade finance — — — — Consumer and other 481 471 427 407 Subtotal $ 49,468 $ 28,235 $ 3,030 $ 407 Acquired Loans: (2) Real estate—residential $ 251 $ — $ — $ — Real estate—commercial Retail 1,319 638 — — Hotel & motel 1,645 568 — — Gas station & car wash 188 1 — — Mixed use 71 152 — — Industrial & warehouse 363 221 — — Other 630 1,389 — — Real estate—construction — — — — Commercial business 12,333 14,560 — — Trade finance — — — — Consumer and other 1,958 1,011 — — Subtotal $ 18,758 $ 18,540 $ — $ — Total $ 68,226 $ 46,775 $ 3,030 $ 407 __________________________________ (1) Total nonaccrual loans exclude guaranteed portion of delinquent SBA loans that are in liquidation totaling $26.0 million and $22.1 million , at June 30, 2018 and December 31, 2017 , respectively. (2) Acquired Loans exclude PCI loans. The following tables present the recorded investment in past due loans, including nonaccrual loans, by the number of days past due as of June 30, 2018 and December 31, 2017 by class of loans: As of June 30, 2018 As of December 31, 2017 30-59 Past Due 60-89 Past Due 90 or More Past Due Total Past Due 30-59 60-89 90 or More Past Due Total (Dollars in thousands) Legacy Loans: Real estate—residential $ — $ — $ — $ — $ — $ — $ — $ — Real estate—commercial Retail 810 1,262 827 2,899 3,239 — 285 3,524 Hotel & motel 2,493 3,534 2,464 8,491 1,884 1,172 2,635 5,691 Gas station & car wash — — 2,598 2,598 956 — 435 1,391 Mixed use — 189 590 779 129 — 952 1,081 Industrial & warehouse 118 1,115 2,472 3,705 1,121 99 2,473 3,693 Other 83 3,166 2,269 5,518 1,409 — 5,425 6,834 Real estate—construction — — — — — — 1,300 1,300 Commercial business 6,312 1,453 7,601 15,366 698 516 2,508 3,722 Trade finance 649 — — 649 — — — — Consumer and other 2,802 113 427 3,342 7,512 97 494 8,103 Subtotal $ 13,267 $ 10,832 $ 19,248 $ 43,347 $ 16,948 $ 1,884 $ 16,507 $ 35,339 Acquired Loans: (1) Real estate—residential $ — $ — $ 251 $ 251 $ — $ — $ — $ — Real estate—commercial Retail 33 — 868 901 81 216 386 683 Hotel & motel 4,098 — 73 4,171 — 1,219 — 1,219 Gas station & car wash 123 — 160 283 1,161 41 1 1,203 Mixed use — — 71 71 151 — 152 303 Industrial & warehouse — — 363 363 804 264 221 1,289 Other 906 — 148 1,054 275 — — 275 Real estate—construction — — — — — — — — Commercial business 214 136 1,061 1,411 1,088 256 885 2,229 Trade finance — — — — — — — — Consumer and other 1,826 — 432 2,258 957 270 181 1,408 Subtotal $ 7,200 $ 136 $ 3,427 $ 10,763 $ 4,517 $ 2,266 $ 1,826 $ 8,609 Total Past Due $ 20,467 $ 10,968 $ 22,675 $ 54,110 $ 21,465 $ 4,150 $ 18,333 $ 43,948 __________________________________ (1) Acquired Loans exclude PCI loans. 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. Homogeneous loans are not risk rated and credit risk is analyzed largely by the number of days past due. 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 deserve 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, 2018 and December 31, 2017 by class of loans: As of June 30, 2018 Pass/ Not Rated Special Mention Substandard Doubtful Total (Dollars in thousands) Legacy Loans: Real estate—residential $ 32,669 $ 519 $ 404 $ — $ 33,592 Real estate—commercial Retail 1,691,312 9,333 25,527 5,461 1,731,633 Hotel & motel 1,245,407 13,004 14,745 — 1,273,156 Gas station & car wash 774,954 5,686 2,916 — 783,556 Mixed use 456,488 6,971 6,279 — 469,738 Industrial & warehouse 625,276 13,527 29,909 — 668,712 Other 1,249,912 30,779 34,513 — 1,315,204 Real estate—construction 208,671 6,076 1,752 — 216,499 Commercial business 1,885,670 11,048 72,943 391 1,970,052 Trade finance 146,267 4,491 1,948 — 152,706 Consumer and other 717,590 1 851 — 718,442 Subtotal $ 9,034,216 $ 101,435 $ 191,787 $ 5,852 $ 9,333,290 Acquired Loans: Real estate—residential $ 11,283 $ — $ 508 $ — $ 11,791 Real estate—commercial Retail 549,238 2,567 18,392 — 570,197 Hotel & motel 247,404 3,254 22,879 — 273,537 Gas station & car wash 171,446 279 8,557 — 180,282 Mixed use 87,724 2,135 11,030 — 100,889 Industrial & warehouse 221,227 10,147 17,773 248 249,395 Other 508,871 13,623 26,627 — 549,121 Real estate—construction 81,051 4,387 — — 85,438 Commercial business 115,026 1,628 44,577 18 161,249 Trade finance 514 — 2,961 — 3,475 Consumer and other 147,619 39 6,309 153 154,120 Subtotal $ 2,141,403 $ 38,059 $ 159,613 $ 419 $ 2,339,494 Total $ 11,175,619 $ 139,494 $ 351,400 $ 6,271 $ 11,672,784 As of December 31, 2017 Pass/ Special Mention Substandard Doubtful Total (Dollars in thousands) Legacy Loans: Real estate—residential $ 33,557 $ 1,147 $ 1,439 $ — $ 36,143 Real estate—commercial Retail 1,640,809 32,723 17,856 — 1,691,388 Hotel & motel 1,224,597 19,358 8,877 — 1,252,832 Gas station & car wash 737,485 9,013 590 — 747,088 Mixed use 421,755 4,581 1,477 — 427,813 Industrial & warehouse 577,344 16,716 24,317 — 618,377 Other 1,133,188 30,030 53,995 — 1,217,213 Real estate—construction 219,583 — 3,052 — 222,635 Commercial business 1,389,043 35,640 65,912 — 1,490,595 Trade finance 152,583 2,200 1,372 — 156,155 Consumer and other 477,370 5 908 — 478,283 Subtotal $ 8,007,314 $ 151,413 $ 179,795 $ — $ 8,338,522 Acquired Loans: Real estate—residential $ 13,369 $ 262 $ — $ — $ 13,631 Real estate—commercial Retail 630,555 6,921 20,797 — 658,273 Hotel & motel 275,191 4,247 24,987 — 304,425 Gas station & car wash 194,063 2,872 8,992 — 205,927 Mixed use 94,864 5,725 14,738 — 115,327 Industrial & warehouse 250,049 14,973 16,358 265 281,645 Other 568,545 19,848 33,335 — 621,728 Real estate—construction 93,777 — — — 93,777 Commercial business 236,705 8,593 44,964 12 290,274 Trade finance 7,455 — 3,054 — 10,509 Consumer and other 162,495 37 6,202 85 168,819 Subtotal $ 2,527,068 $ 63,478 $ 173,427 $ 362 $ 2,764,335 Total $ 10,534,382 $ 214,891 $ 353,222 $ 362 $ 11,102,857 The Company may reclassify 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, 2018 and 2017 is presented in the following table: Three Months Ended June 30, Six Months Ended June 30, 2018 2017 2018 2017 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 6,155 225 Total $ — $ 5,139 $ 6,155 $ 14,590 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. The Company utilizes nineteen non-homogeneous loan pools in the quantitative analysis process. The non-impaired commercial real estate loan portfolio is stratified into fourteen different loan pools based on property types and the non-impaired commercial and industrial loan portfolio is stratified into five different loan pools based on loan type in order to allocate historic loss experience to more granular loan pools. 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, management bases the measurement of loan impairment o |