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Loan and Lease Finance Receivables and Allowance for Loan Losses | 6 Months Ended
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Jun. 30, 2013
Receivables [Abstract] |
Loan and Lease Finance Receivables and Allowance for Loan Losses |
6. | LOAN AND LEASE FINANCE RECEIVABLES AND ALLOWANCE FOR LOAN LOSSES
The following tables provide a summary of the components of loan and lease finance receivables:
|  | June 30, 2013 |
|  | Non-Covered Loans |  |  | Covered Loans |  |  | Total |
|  | (Dollars in thousands) |
Commercial and industrial |  | $ | 525,144 |  |  | $ | 24,632 |  |  | $ | 549,776 |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  |  | 2,008,746 |  |  |  | 154,288 |  |  |  | 2,163,034 |
Construction |  |  | 46,365 |  |  |  | 1,007 |  |  |  | 47,372 |
SFR mortgage |  |  | 180,123 |  |  |  | 315 |  |  |  | 180,438 |
Dairy & livestock and agribusiness |  |  | 259,127 |  |  |  | 5,536 |  |  |  | 264,663 |
Municipal lease finance receivables |  |  | 105,246 |  |  |  | — |  |  |  | 105,246 |
Consumer and other loans |  |  | 53,220 |  |  |  | 5,591 |  |  |  | 58,811 |
Gross loans |  |  | 3,177,971 |  |  |  | 191,369 |  |  |  | 3,369,340 |
Less: |  |  |  |  |  |  |  |  |  |  |  |
Purchase accounting discount |  |  | — |  |  |  | (17,526 | ) |  |  | (17,526 | )
Deferred loan fees, net |  |  | (8,156 | ) |  |  | — |  |  |  | (8,156 | )
Gross loans, net of deferred loan fees and discount |  |  | 3,169,815 |  |  |  | 173,843 |  |  |  | 3,343,658 |
Less: Allowance for loan losses |  |  | (85,457 | ) |  |  | — |  |  |  | (85,457 | )
Net loans |  | $ | 3,084,358 |  |  | $ | 173,843 |  |  | $ | 3,258,201 |
|  | December 31, 2012 |
|  | Non-Covered Loans |  |  | Covered Loans |  |  | Total |
|  | (Dollars in thousands) |
Commercial and industrial |  | $ | 547,422 |  |  | $ | 26,149 |  |  | $ | 573,571 |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  |  | 1,990,107 |  |  |  | 179,428 |  |  |  | 2,169,535 |
Construction |  |  | 59,721 |  |  |  | 1,579 |  |  |  | 61,300 |
SFR mortgage |  |  | 159,288 |  |  |  | 1,415 |  |  |  | 160,703 |
Dairy & livestock and agribusiness |  |  | 336,660 |  |  |  | 5,651 |  |  |  | 342,311 |
Municipal lease finance receivables |  |  | 105,767 |  |  |  | — |  |  |  | 105,767 |
Consumer and other loans |  |  | 60,273 |  |  |  | 6,337 |  |  |  | 66,610 |
Gross loans |  |  | 3,259,238 |  |  |  | 220,559 |  |  |  | 3,479,797 |
Less: |  |  |  |  |  |  |  |  |  |  |  |
Purchase accounting discount |  |  | — |  |  |  | (25,344 | ) |  |  | (25,344 | )
Deferred loan fees, net |  |  | (6,925 | ) |  |  | — |  |  |  | (6,925 | )
Gross loans, net of deferred loan fees and discount |  |  | 3,252,313 |  |  |  | 195,215 |  |  |  | 3,447,528 |
Less: Allowance for loan losses |  |  | (92,441 | ) |  |  | — |  |  |  | (92,441 | )
Net loans |  | $ | 3,159,872 |  |  | $ | 195,215 |  |  | $ | 3,355,087 |
As of June 30, 2013, 64.20% of the total gross loan portfolio consisted of commercial real estate loans and 1.41% of the total gross loan portfolio consisted of construction loans, respectively. Substantially all of the Company’s real estate loans and construction loans are secured by real properties located in California. At June 30, 2013, the Company held approximately $1.60 billion of fixed rate loans. At June 30, 2013 and December 31, 2012, loans totaling $1.98 billion and $2.32 billion, respectively, were pledged to secure borrowings from the FHLB and the Federal Reserve Bank. Credit Quality Indicators Central to our credit risk management is our loan risk rating system. The originating credit officer assigns borrowers an initial risk rating, which is reviewed and possibly changed by Credit Management, which is based primarily on a thorough analysis of each borrower’s financial capacity in conjunction with industry and economic trends. Approvals are made based upon the amount of inherent credit risk specific to the transaction and are reviewed for appropriateness by senior line and credit management personnel. Credits are monitored by line and credit management personnel for deterioration in a borrower’s financial condition, which would impact the ability of the borrower to perform under the contract. Risk ratings are adjusted as necessary. Loans are risk rated into the following categories (Credit Quality Indicators): Pass, Pass Watch List, Special Mention, Substandard, Doubtful and Loss. Each of these groups is assessed for the proper amount to be used in determining the adequacy of our allowance for losses. These categories can be described as follows: Pass – These loans range from minimal credit risk to lower than average, but still acceptable, credit risk. Pass Watch List — Pass Watch list loans usually require more than normal management attention. Loans which qualify for the Pass Watch List may involve borrowers with adverse financial trends, higher debt/equity ratios, or weaker liquidity positions, but not to the degree of being considered a defined weakness or problem loan where risk of loss may be apparent. Special Mention — Loans assigned to this category are currently protected but are weak. Although concerns exist, the Company is currently protected and loss is unlikely. Such loans have potential weaknesses that may, if not checked or corrected, weaken the asset or inadequately protect the Company’s credit position at some future date. Substandard – Loans classified as substandard include poor liquidity, high leverage, and erratic earnings or losses. The primary source of repayment is no longer realistic, and asset or collateral liquidation may be the only source of repayment. Substandard loans are marginal and require continuing and close supervision by credit management. Substandard loans have the distinct possibility that the Company will sustain some loss if deficiencies are not corrected. Doubtful – Loans classified doubtful have all the weaknesses inherent in those classified substandard with the added provision that the weaknesses make collection or the liquidation, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors which may work to the advantage and strengthening of the assets, their classifications as losses are deferred until their more exact status may be determined. Loss — Loans classified as loss are considered uncollectible and of such little value that their continuance as active assets of the Company is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be achieved in the future. The following table summarizes our internal risk grouping by loan class as of June 30, 2013 and December 31, 2012: Credit Quality Indicators
|  | June 30, 2013 |
|  | Pass |  |  | Watch List |  |  | Special Mention |  |  | Substandard |  |  | Doubtful & Loss |  |  | Total |
|  | (Dollars in thousands) |
Commercial and industrial |  | $ | 323,938 |  |  | $ | 124,391 |  |  | $ | 49,584 |  |  | $ | 25,849 |  |  | $ | 1,382 |  |  | $ | 525,144 |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  |  | 411,455 |  |  |  | 117,712 |  |  |  | 94,305 |  |  |  | 83,171 |  |  |  | — |  |  |  | 706,643 |
Non-owner occupied |  |  | 939,407 |  |  |  | 210,414 |  |  |  | 88,680 |  |  |  | 63,602 |  |  |  | — |  |  |  | 1,302,103 |
Construction |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Speculative |  |  | 6,827 |  |  |  | — |  |  |  | 1,547 |  |  |  | 18,146 |  |  |  | — |  |  |  | 26,520 |
Non-speculative |  |  | 7,630 |  |  |  | 2,996 |  |  |  | — |  |  |  | 9,219 |  |  |  | — |  |  |  | 19,845 |
SFR mortgage |  |  | 143,732 |  |  |  | 18,128 |  |  |  | 3,530 |  |  |  | 14,733 |  |  |  | — |  |  |  | 180,123 |
Dairy & livestock and agribusiness |  |  | 57,916 |  |  |  | 33,341 |  |  |  | 87,544 |  |  |  | 78,116 |  |  |  | 2,210 |  |  |  | 259,127 |
Municipal lease finance receivables |  |  | 54,915 |  |  |  | 27,084 |  |  |  | 16,647 |  |  |  | 6,600 |  |  |  | — |  |  |  | 105,246 |
Consumer and other loans |  |  | 42,949 |  |  |  | 5,456 |  |  |  | 3,410 |  |  |  | 1,402 |  |  |  | 3 |  |  |  | 53,220 |
Total non-covered loans |  |  | 1,988,769 |  |  |  | 539,522 |  |  |  | 345,247 |  |  |  | 300,838 |  |  |  | 3,595 |  |  |  | 3,177,971 |
Covered loans |  |  | 42,041 |  |  |  | 66,549 |  |  |  | 26,260 |  |  |  | 56,519 |  |  |  | — |  |  |  | 191,369 |
Total gross loans |  | $ | 2,030,810 |  |  | $ | 606,071 |  |  | $ | 371,507 |  |  | $ | 357,357 |  |  | $ | 3,595 |  |  | $ | 3,369,340 |
|  | December 31, 2012 |
|  | Pass |  |  | Watch List |  |  | Special Mention |  |  | Substandard |  |  | Doubtful & Loss |  |  | Total |
|  | (Dollars in thousands) |
Commercial and industrial |  | $ | 347,275 |  |  | $ | 131,186 |  |  | $ | 44,466 |  |  | $ | 22,901 |  |  | $ | 1,594 |  |  | $ | 547,422 |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  |  | 382,111 |  |  |  | 159,653 |  |  |  | 78,087 |  |  |  | 84,116 |  |  |  | — |  |  |  | 703,967 |
Non-owner occupied |  |  | 888,777 |  |  |  | 214,901 |  |  |  | 105,121 |  |  |  | 77,341 |  |  |  | — |  |  |  | 1,286,140 |
Construction |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Speculative |  |  | 1,417 |  |  |  | — |  |  |  | 15,163 |  |  |  | 21,314 |  |  |  | — |  |  |  | 37,894 |
Non-speculative |  |  | 9,841 |  |  |  | 2,767 |  |  |  | — |  |  |  | 9,219 |  |  |  | — |  |  |  | 21,827 |
SFR mortgage |  |  | 129,730 |  |  |  | 10,215 |  |  |  | 3,107 |  |  |  | 16,236 |  |  |  | — |  |  |  | 159,288 |
Dairy & livestock and agribusiness |  |  | 72,113 |  |  |  | 111,393 |  |  |  | 75,316 |  |  |  | 77,721 |  |  |  | 117 |  |  |  | 336,660 |
Municipal lease finance receivables |  |  | 72,432 |  |  |  | 20,237 |  |  |  | 11,124 |  |  |  | 1,974 |  |  |  | — |  |  |  | 105,767 |
Consumer and other loans |  |  | 49,321 |  |  |  | 6,763 |  |  |  | 2,714 |  |  |  | 1,421 |  |  |  | 54 |  |  |  | 60,273 |
Total non-covered loans |  |  | 1,953,017 |  |  |  | 657,115 |  |  |  | 335,098 |  |  |  | 312,243 |  |  |  | 1,765 |  |  |  | 3,259,238 |
Covered loans |  |  | 52,637 |  |  |  | 72,803 |  |  |  | 31,689 |  |  |  | 63,354 |  |  |  | 76 |  |  |  | 220,559 |
Total gross loans |  | $ | 2,005,654 |  |  | $ | 729,918 |  |  | $ | 366,787 |  |  | $ | 375,597 |  |  | $ | 1,841 |  |  | $ | 3,479,797 |
Allowance for Loan losses The Company’s Credit Management Division is responsible for regularly reviewing the allowance for loan losses (“ALLL”) methodology, including loss factors and economic risk factors. The Bank’s Director Loan Committee provides Board oversight of the ALLL process and approves the ALLL methodology on a quarterly basis. Our methodology for assessing the appropriateness of the allowance is conducted on a regular basis and considers the Bank’s overall loan portfolio. The Bank’s methodology consists of two major phases. In the first phase, individual loans are reviewed to identify loans for impairment. A loan is generally considered impaired when principal and interest are deemed uncollectible in accordance with the contractual terms of the loan. A loan for which there is an insignificant delay or shortfall in the amount of payments due is not considered an impaired loan. Impairment is measured as either the expected future cash flows discounted at each loan’s effective interest rate, the fair value of the loan’s collateral if the loan is collateral dependent, or an observable market price of the loan (if one exists). If we determine that the value of the impaired loan is less than the recorded investment of the loan, we either recognize an impairment reserve as a Specific Allowance, or charge off the impaired balance for collateral dependent loans if it is determined that such amount represents a confirmed loss. Loans determined to be impaired are excluded from the formula allowance so as not to double count the loss exposure. The second phase is conducted by evaluating or segmenting the remainder of the loan portfolio into groups or pools of loans with similar characteristics. In this second phase, groups or pools of homogeneous loans are reviewed to determine a portfolio formula allowance. In the case of the portfolio formula allowance, homogeneous portfolios, such as small business loans, consumer loans, agricultural loans, and real estate loans, are aggregated or pooled in determining the appropriate allowance. The risk assessment process in this case emphasizes trends in the different portfolios for delinquency, loss, and other behavioral characteristics of the subject portfolios. Included in this second phase is our considerations of qualitative factors, including, all known relevant internal and external factors that may affect the collectability of a loan. This includes our estimates of the amounts necessary for concentrations, economic uncertainties, the volatility of the market value of collateral, and other relevant factors. These qualitative factors are used to adjust the historical loan loss rates for each pool of loans to determine the probable loan losses inherent in the portfolio. The methodology is consistently applied across all the portfolio segments taking into account the applicable historical loss rates and the qualitative factors applicable to each pool of loans. Periodically, we assess various attributes utilized in adjusting our historical loss factors to reflect current economic conditions. Although dairy and livestock loan balances and the respective allowance decreased at June 30, 2013 from December 31, 2012, our dairy and livestock borrowers continue to experience a difficult operating environment. Milk prices are up, but high feed costs continue to put pressure on profit margins. Management believes that the ALLL was appropriate at June 30, 2013. No assurance can be given that economic conditions which adversely affect our service areas or other circumstances will not be reflected in increased provisions for loan losses in the future. The following table presents the balance and activity in the allowance for loan losses; and the recorded investment in held-for-investment loans by portfolio segment and based upon our impairment method as of June 30, 2013, and 2012: Allowance for Loan losses and Recorded Investment in Financing Receivables
|  | As of and For the Three and Six Months Ended June 30, 2013 |
|  |  |  |  | Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Commercial and Industrial |  |  | Commercial Real Estate |  |  | Construction |  |  | SFR Mortgage |  |  | Dairy & Livestock and Agribusiness |  |  | Municipal Lease Finance Receivables |  |  | Consumer and Other Loans |  |  | Covered Loans (1) |  |  | Unallocated |  |  | Total |
|  | (Dollars in thousands) |
Beginning balance, April 1, 2013 |  | $ | 12,313 |  |  | $ | 46,725 |  |  | $ | 2,124 |  |  | $ | 3,606 |  |  | $ | 16,571 |  |  | $ | 2,632 |  |  | $ | 1,133 |  |  | $ | — |  |  | $ | 7,114 |  |  | $ | 92,218 |
Charge-offs |  |  | (747 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (22 | ) |  |  | — |  |  |  | — |  |  |  | (769 | )
Recoveries |  |  | 109 |  |  |  | 29 |  |  |  | (58 | ) |  |  | 99 |  |  |  | 14 |  |  |  | — |  |  |  | 15 |  |  |  | — |  |  |  | — |  |  |  | 208 |
Provision / reallocation of ALLL |  |  | 911 |  |  |  | (2,362 | ) |  |  | (894 | ) |  |  | 10 |  |  |  | (2,360 | ) |  |  | (263 | ) |  |  | (74 | ) |  |  | — |  |  |  | (1,168 | ) |  |  | (6,200 | )
Ending balance, June 30, 2013 |  | $ | 12,586 |  |  | $ | 44,392 |  |  | $ | 1,172 |  |  | $ | 3,715 |  |  | $ | 14,225 |  |  | $ | 2,369 |  |  | $ | 1,052 |  |  | $ | — |  |  | $ | 5,946 |  |  | $ | 85,457 |
Beginning balance, January 1, 2013 |  | $ | 11,652 |  |  | $ | 47,457 |  |  | $ | 2,291 |  |  | $ | 3,448 |  |  | $ | 18,696 |  |  | $ | 1,588 |  |  | $ | 1,170 |  |  | $ | — |  |  | $ | 6,139 |  |  | $ | 92,441 |
Charge-offs |  |  | (1,104 | ) |  |  | — |  |  |  | — |  |  |  | (142 | ) |  |  | — |  |  |  | — |  |  |  | (69 | ) |  |  | — |  |  |  | — |  |  |  | (1,315 | )
Recoveries |  |  | 208 |  |  |  | 66 |  |  |  | 68 |  |  |  | 133 |  |  |  | 28 |  |  |  | — |  |  |  | 28 |  |  |  | — |  |  |  | — |  |  |  | 531 |
Provision / reallocation of ALLL |  |  | 1,830 |  |  |  | (3,131 | ) |  |  | (1,187 | ) |  |  | 276 |  |  |  | (4,499 | ) |  |  | 781 |  |  |  | (77 | ) |  |  | — |  |  |  | (193 | ) |  |  | (6,200 | )
Ending balance, June 30, 2013 |  | $ | 12,586 |  |  | $ | 44,392 |  |  | $ | 1,172 |  |  | $ | 3,715 |  |  | $ | 14,225 |  |  | $ | 2,369 |  |  | $ | 1,052 |  |  | $ | — |  |  | $ | 5,946 |  |  | $ | 85,457 |
Allowance for loan losses: |
Individually evaluated for impairment |  | $ | 1,905 |  |  | $ | 1 |  |  | $ | — |  |  | $ | 351 |  |  | $ | 2,593 |  |  | $ | — |  |  | $ | 6 |  |  | $ | — |  |  | $ | — |  |  | $ | 4,856 |
Collectively evaluated for impairment |  | $ | 10,681 |  |  | $ | 44,391 |  |  | $ | 1,172 |  |  | $ | 3,364 |  |  | $ | 11,632 |  |  | $ | 2,369 |  |  | $ | 1,046 |  |  | $ | — |  |  | $ | 5,946 |  |  | $ | 80,601 |
Loans and financing receivables (2): |
Balance, June 30, 2013 |  | $ | 525,144 |  |  | $ | 2,008,746 |  |  | $ | 46,365 |  |  | $ | 180,123 |  |  | $ | 259,127 |  |  | $ | 105,246 |  |  | $ | 53,220 |  |  | $ | 173,843 |  |  | $ | — |  |  | $ | 3,351,814 |
Individually evaluated for impairment |  | $ | 6,171 |  |  | $ | 39,623 |  |  | $ | 27,365 |  |  | $ | 13,440 |  |  | $ | 28,161 |  |  | $ | — |  |  | $ | 157 |  |  | $ | — |  |  | $ | — |  |  | $ | 114,917 |
Collectively evaluated for impairment |  | $ | 518,973 |  |  | $ | 1,969,123 |  |  | $ | 19,000 |  |  | $ | 166,683 |  |  | $ | 230,966 |  |  | $ | 105,246 |  |  | $ | 53,063 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,063,054 |
Acquired loans with deteriorated credit quality, net of discount |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 173,843 |  |  | $ | — |  |  | $ | 173,843 |
(1) | Represents the allowance and related loan balances in accordance with ASC 310-30.
(2) | Net of purchase accounting discount.
|  | As of and For the Three and Six Months Ended June 30, 2012 |
|  |  |  |  | Real Estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Commercial and Industrial |  |  | Commercial Real Estate |  |  | Construction |  |  | SFR Mortgage |  |  | Dairy & Livestock and Agribusiness |  |  | Municipal Lease Finance Receivables |  |  | Consumer and Other Loans |  |  | Covered Loans (1) |  |  | Unallocated |  |  | Total |
|  | (Dollars in thousands) |
Beginning balance, April 1, 2012 |  | $ | 11,907 |  |  | $ | 48,462 |  |  | $ | 4,323 |  |  | $ | 3,473 |  |  | $ | 16,080 |  |  | $ | 2,020 |  |  | $ | 1,489 |  |  | $ | — |  |  | $ | 4,168 |  |  | $ | 91,922 |
Charge-offs |  |  | (123 | ) |  |  | (952 | ) |  |  | — |  |  |  | (474 | ) |  |  | — |  |  |  | — |  |  |  | (3 | ) |  |  | (50 | ) |  |  | — |  |  |  | (1,602 | )
Recoveries |  |  | 526 |  |  |  | 150 |  |  |  | 1,025 |  |  |  | (136 | ) |  |  | 2 |  |  |  | — |  |  |  | 5 |  |  |  | — |  |  |  | — |  |  |  | 1,572 |
Provision / reallocation of ALLL |  |  | 22 |  |  |  | (2,341 | ) |  |  | (2,319 | ) |  |  | 176 |  |  |  | 894 |  |  |  | (364 | ) |  |  | (90 | ) |  |  | 50 |  |  |  | 3,972 |  |  |  | — |
Ending balance, June 30, 2012 |  | $ | 12,332 |  |  | $ | 45,319 |  |  | $ | 3,029 |  |  | $ | 3,039 |  |  | $ | 16,976 |  |  | $ | 1,656 |  |  | $ | 1,401 |  |  | $ | — |  |  | $ | 8,140 |  |  | $ | 91,892 |
Beginning balance, January 1, 2012 |  | $ | 10,654 |  |  | $ | 47,841 |  |  | $ | 4,947 |  |  | $ | 4,032 |  |  | $ | 17,278 |  |  | $ | 2,403 |  |  | $ | 1,590 |  |  | $ | — |  |  | $ | 5,219 |  |  | $ | 93,964 |
Charge-offs |  |  | (683 | ) |  |  | (1,482 | ) |  |  | — |  |  |  | (474 | ) |  |  | (1,150 | ) |  |  | — |  |  |  | (88 | ) |  |  | (81 | ) |  |  | — |  |  |  | (3,958 | )
Recoveries |  |  | 588 |  |  |  | 347 |  |  |  | 1,052 |  |  |  | (112 | ) |  |  | 2 |  |  |  | — |  |  |  | 9 |  |  |  | — |  |  |  | — |  |  |  | 1,886 |
Provision / reallocation of ALLL |  |  | 1,773 |  |  |  | (1,387 | ) |  |  | (2,970 | ) |  |  | (407 | ) |  |  | 846 |  |  |  | (747 | ) |  |  | (110 | ) |  |  | 81 |  |  |  | 2,921 |  |  |  | — |
Ending balance, June 30, 2012 |  | $ | 12,332 |  |  | $ | 45,319 |  |  | $ | 3,029 |  |  | $ | 3,039 |  |  | $ | 16,976 |  |  | $ | 1,656 |  |  | $ | 1,401 |  |  | $ | — |  |  | $ | 8,140 |  |  | $ | 91,892 |
Allowance for loan losses: |
Individually evaluated for impairment |  | $ | 486 |  |  | $ | 362 |  |  | $ | — |  |  | $ | 306 |  |  | $ | — |  |  | $ | — |  |  | $ | 100 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,254 |
Collectively evaluated for impairment |  | $ | 11,846 |  |  | $ | 44,957 |  |  | $ | 3,029 |  |  | $ | 2,733 |  |  | $ | 16,976 |  |  | $ | 1,656 |  |  | $ | 1,301 |  |  | $ | — |  |  | $ | 8,140 |  |  | $ | 90,638 |
Loans and financing receivables (2): |
Balance, June 30, 2012 |  | $ | 523,816 |  |  | $ | 1,965,011 |  |  | $ | 68,312 |  |  | $ | 159,633 |  |  | $ | 290,430 |  |  | $ | 109,816 |  |  | $ | 63,597 |  |  | $ | 210,147 |  |  | $ | — |  |  | $ | 3,390,762 |
Individually evaluated for impairment |  | $ | 7,926 |  |  | $ | 35,754 |  |  | $ | 37,989 |  |  | $ | 14,147 |  |  | $ | 10,900 |  |  | $ | — |  |  | $ | 392 |  |  | $ | — |  |  | $ | — |  |  | $ | 107,108 |
Collectively evaluated for impairment |  | $ | 515,890 |  |  | $ | 1,929,257 |  |  | $ | 30,323 |  |  | $ | 145,486 |  |  | $ | 279,530 |  |  | $ | 109,816 |  |  | $ | 63,205 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,073,507 |
Acquired loans with deteriorated credit quality, net of discount |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 210,147 |  |  | $ | — |  |  | $ | 210,147 |
(1) | Represents the allowance and related loan balances in accordance with ASC 310-30.
(2) | Net of purchase accounting discount.
Past Due and Nonperforming Loans We seek to manage asset quality and control credit risk through diversification of the non-covered loan portfolio and the application of policies designed to promote sound underwriting and loan monitoring practices. The Bank’s Credit Management Division is in charge of monitoring asset quality, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures across the Bank. Reviews of nonperforming, past due non-covered loans and larger credits, designed to identify potential charges to the allowance for loan losses, and to determine the adequacy of the allowance, are conducted on an ongoing basis. These reviews consider such factors as the financial strength of borrowers and any guarantors, the value of the applicable collateral, loan loss experience, estimated loan losses, growth in the loan portfolio, prevailing economic conditions and other factors. Loans are reported as a troubled debt restructuring when the Bank grants a concession(s) to a borrower experiencing financial difficulties that the Bank would not otherwise consider. Examples of such concessions include a reduction in the interest rate, deferral of principal or accrued interest, extending the payment due dates or loan maturity date(s), or providing a lower interest rate than would be normally available for new debt of similar risk. As a result of these concessions, restructured loans are classified as impaired. Impairment reserves on non-collateral dependent restructured loans are measured by comparing the present value of expected future cash flows on the restructured loans discounted at the interest rate of the original loan agreement to the loan’s carrying value. These impairment reserves are recognized as a specific component to be provided for in the allowance for loan losses. Generally, when loans are identified as impaired they are moved to our Special Assets Division. When we identify a loan as impaired, we measure the loan for potential impairment using discounted cash flows, except when the sole remaining source of the repayment for the loan is the liquidation of the collateral. In these cases, we use the current fair value of collateral, less selling costs. The starting point for determining the fair value of collateral is through obtaining external appraisals. Speculative construction loans are generally for properties where there is no identified buyer or renter. The following table presents the recorded investment in non-covered past due and nonaccrual loans and loans past due by class of loans as of June 30, 2013, and December 31, 2012: Non-Covered Past Due and Nonaccrual Loans
|  | June 30, 2013 |
|  | 30-59 Days Past Due |  |  | 60-89 Days Past Due |  |  | 90+ Days Past Due and Accruing |  |  | Total Past Due and Accruing |  |  | Nonaccrual |  |  | Current |  |  | Total Loans and Financing Receivables |
|  | (Dollars in thousands) |
Commercial and industrial |  | $ | 373 |  |  | $ | — |  |  | $ | — |  |  | $ | 373 |  |  | $ | 5,012 |  |  | $ | 519,759 |  |  | $ | 525,144 |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  |  | 683 |  |  |  | — |  |  |  | — |  |  |  | 683 |  |  |  | 4,395 |  |  |  | 701,565 |  |  |  | 706,643 |
Non-owner occupied |  |  | 568 |  |  |  | — |  |  |  | — |  |  |  | 568 |  |  |  | 14,215 |  |  |  | 1,287,320 |  |  |  | 1,302,103 |
Construction |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Speculative |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 10,494 |  |  |  | 16,026 |  |  |  | 26,520 |
Non-speculative |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 19,845 |  |  |  | 19,845 |
SFR mortgage |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 11,423 |  |  |  | 168,700 |  |  |  | 180,123 |
Dairy & livestock and agribusiness |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 7,655 |  |  |  | 251,472 |  |  |  | 259,127 |
Municipal lease finance receivables |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 105,246 |  |  |  | 105,246 |
Consumer and other loans |  |  | 8 |  |  |  | — |  |  |  | — |  |  |  | 8 |  |  |  | 157 |  |  |  | 53,055 |  |  |  | 53,220 |
Total non-covered gross loans |  | $ | 1,632 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,632 |  |  | $ | 53,351 |  |  | $ | 3,122,988 |  |  | $ | 3,177,971 |
|  | December 31, 2012 |
|  | 30-59 Days Past Due |  |  | 60-89 Days Past Due |  |  | 90+ Days Past Due and Accruing |  |  | Total Past Due and Accruing |  |  | Nonaccrual |  |  | Current |  |  | Total Loans and Financing Receivables |
|  | (Dollars in thousands) |
Commercial and industrial |  | $ | 233 |  |  | $ | 457 |  |  | $ | — |  |  | $ | 690 |  |  | $ | 3,136 |  |  | $ | 543,596 |  |  | $ | 547,422 |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 5,415 |  |  |  | 698,552 |  |  |  | 703,967 |
Non-owner occupied |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 15,624 |  |  |  | 1,270,516 |  |  |  | 1,286,140 |
Construction |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Speculative |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 10,663 |  |  |  | 27,231 |  |  |  | 37,894 |
Non-speculative |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 21,827 |  |  |  | 21,827 |
SFR mortgage |  |  | 107 |  |  |  | — |  |  |  | — |  |  |  | 107 |  |  |  | 13,102 |  |  |  | 146,079 |  |  |  | 159,288 |
Dairy & livestock and agribusiness |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 9,842 |  |  |  | 326,818 |  |  |  | 336,660 |
Municipal lease finance receivables |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 105,767 |  |  |  | 105,767 |
Consumer and other loans |  |  | 82 |  |  |  | 8 |  |  |  | — |  |  |  | 90 |  |  |  | 215 |  |  |  | 59,968 |  |  |  | 60,273 |
Total non-covered gross loans |  | $ | 422 |  |  | $ | 465 |  |  | $ | — |  |  | $ | 887 |  |  | $ | 57,997 |  |  | $ | 3,200,354 |  |  | $ | 3,259,238 |
Non-Covered Impaired Loans At June 30, 2013, the Company had non-covered impaired loans of $114.9 million. Of this amount, there was $10.5 million in nonaccrual commercial construction loans, $11.4 million of nonaccrual SFR mortgage loans, $18.6 million of nonaccrual commercial real estate loans, $5.0 million of nonaccrual commercial and industrial loans, $7.7 million of nonaccrual dairy & livestock loans and $157,000 of other loans. These non-covered impaired loans included $88.1 million of loans whose terms were modified in a troubled debt restructure, of which $26.5 million are classified as nonaccrual. The remaining balance of $61.6 million consists of 40 loans performing according to the restructured terms. The impaired loans had a specific allowance of $4.9 million at June 30, 2013. At December 31, 2012, the Company had classified as impaired, non-covered loans with a balance of $108.4 million with a related allowance of $2.3 million. The following table presents held-for-investment, individually evaluated for impairment by class of loans, as of June 30, 2013 and December 31, 2012: Non-Covered Impaired Loans
|  | June 30, 2013 |
|  | Recorded Investment |  |  | Unpaid Principal Balance |  |  | Related Allowance |  |  | Average Recorded Investment |  |  | Interest Income Recognized |
|  | (Dollars in thousands) |
With no related allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 3,158 |  |  | $ | 4,079 |  |  | $ | — |  |  | $ | 3,280 |  |  | $ | 35 |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  |  | 12,316 |  |  |  | 13,445 |  |  |  | — |  |  |  | 12,742 |  |  |  | 235 |
Non-owner occupied |  |  | 27,298 |  |  |  | 38,081 |  |  |  | — |  |  |  | 27,787 |  |  |  | 406 |
Construction |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Speculative |  |  | 18,146 |  |  |  | 18,607 |  |  |  | — |  |  |  | 18,230 |  |  |  | 154 |
Non-speculative |  |  | 9,219 |  |  |  | 9,219 |  |  |  | — |  |  |  | 9,219 |  |  |  | 284 |
SFR mortgage |  |  | 10,571 |  |  |  | 13,303 |  |  |  | — |  |  |  | 10,690 |  |  |  | 33 |
Dairy & livestock and agribusiness |  |  | 23,085 |  |  |  | 24,138 |  |  |  | — |  |  |  | 24,868 |  |  |  | 248 |
Municipal lease finance receivables |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Consumer and other loans |  |  | 139 |  |  |  | 196 |  |  |  | — |  |  |  | 141 |  |  |  | — |
Total |  |  | 103,932 |  |  |  | 121,068 |  |  |  | — |  |  |  | 106,957 |  |  |  | 1,395 |
With a related allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 3,013 |  |  |  | 3,131 |  |  |  | 1,905 |  |  |  | 3,108 |  |  |  | — |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  |  | 9 |  |  |  | 10 |  |  |  | 1 |  |  |  | 13 |  |  |  | — |
Non-owner occupied |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Construction |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Speculative |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Non-speculative |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
SFR mortgage |  |  | 2,869 |  |  |  | 3,010 |  |  |  | 351 |  |  |  | 2,877 |  |  |  | — |
Dairy & livestock and agribusiness |  |  | 5,076 |  |  |  | 5,578 |  |  |  | 2,593 |  |  |  | 5,879 |  |  |  | 22 |
Municipal lease finance receivables |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Consumer and other loans |  |  | 18 |  |  |  | 20 |  |  |  | 6 |  |  |  | 20 |  |  |  | — |
Total |  |  | 10,985 |  |  |  | 11,749 |  |  |  | 4,856 |  |  |  | 11,897 |  |  |  | 22 |
Total non-covered impaired loans |  | $ | 114,917 |  |  | $ | 132,817 |  |  | $ | 4,856 |  |  | $ | 118,854 |  |  | $ | 1,417 |
|  | December 31, 2012 |
|  | Recorded Investment |  |  | Unpaid Principal Balance |  |  | Related Allowance |  |  | Average Recorded Investment |  |  | Interest Income Recognized |
|  | (Dollars in thousands) |
With no related allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 3,385 |  |  | $ | 4,215 |  |  | $ | — |  |  | $ | 3,766 |  |  | $ | 43 |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  |  | 13,478 |  |  |  | 14,569 |  |  |  | — |  |  |  | 14,459 |  |  |  | 397 |
Non-owner occupied |  |  | 28,639 |  |  |  | 38,633 |  |  |  | — |  |  |  | 29,801 |  |  |  | 670 |
Construction |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Speculative |  |  | 21,314 |  |  |  | 21,607 |  |  |  | — |  |  |  | 21,650 |  |  |  | 311 |
Non-speculative |  |  | 9,219 |  |  |  | 9,219 |  |  |  | — |  |  |  | 9,219 |  |  |  | 574 |
SFR mortgage |  |  | 11,079 |  |  |  | 14,342 |  |  |  | — |  |  |  | 11,292 |  |  |  | 54 |
Dairy & livestock and agribusiness |  |  | 12,406 |  |  |  | 13,756 |  |  |  | — |  |  |  | 11,834 |  |  |  | 173 |
Municipal lease finance receivables |  |  | 263 |  |  |  | 263 |  |  |  | — |  |  |  | 443 |  |  |  | 5 |
Consumer and other loans |  |  | 142 |  |  |  | 196 |  |  |  | — |  |  |  | 145 |  |  |  | — |
Total |  |  | 99,925 |  |  |  | 116,800 |  |  |  | — |  |  |  | 102,609 |  |  |  | 2,227 |
With a related allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 304 |  |  |  | 327 |  |  |  | 289 |  |  |  | 387 |  |  |  | — |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  |  | 19 |  |  |  | 19 |  |  |  | 2 |  |  |  | 28 |  |  |  | — |
Non-owner occupied |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Construction |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Speculative |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Non-speculative |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
SFR mortgage |  |  | 3,766 |  |  |  | 4,071 |  |  |  | 434 |  |  |  | 3,363 |  |  |  | — |
Dairy & livestock and agribusiness |  |  | 4,303 |  |  |  | 4,340 |  |  |  | 1,596 |  |  |  | 4,017 |  |  |  | 73 |
Municipal lease finance receivables |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Consumer and other loans |  |  | 73 |  |  |  | 74 |  |  |  | 11 |  |  |  | 75 |  |  |  | — |
Total |  |  | 8,465 |  |  |  | 8,831 |  |  |  | 2,332 |  |  |  | 7,870 |  |  |  | 73 |
Total non-covered impaired loans |  | $ | 108,390 |  |  | $ | 125,631 |  |  | $ | 2,332 |  |  | $ | 110,479 |  |  | $ | 2,300 |
The Company recognizes the charge-off of impairment allowance on impaired loans in the period it arises for collateral dependent loans. Therefore, the majority of the nonaccrual loans as of June 30, 2013 and December 31, 2012 have already been written down to their estimated net realizable value. The impaired loans with a related allowance recorded are on nonaccrual loans where a charge-off is not yet processed, on nonaccrual SFR mortgage loans where there is a potential modification in process, or on smaller balance non-collateral dependent loans. Impaired construction speculative loans increased in the second quarter of 2012 due to a participating interest in the Company’s only Shared National Credit loan that was transferred to nonaccrual status. The outstanding balance was $10.5 million as of June 30, 2013. The allowance for off-balance sheet credit exposure relates to commitments to extend credit, letters of credit and undisbursed funds on lines of credit. The Company evaluates credit risk associated with the off-balance sheet commitments at the same time it evaluates credit risk associated with the loan and lease portfolio. The Company recorded zero provision for unfunded commitments for the three and six months ended June 30, 2013 and 2012. At June 30, 2013 and December 31, 2012, the balance in this reserve was $8.6 million and was included in other liabilities. Troubled Debt Restructurings (“TDR”) As a result of adopting the amendments in ASU 2011-02, the Company reassessed all restructurings that occurred on or after January 1, 2011 for identification as troubled debt restructurings. Loans that are reported as TDRs are considered impaired and charge-off amounts are taken on an individual loan basis, as deemed appropriate. The majority of restructured loans are loans for which the terms of repayment have been renegotiated, resulting in a reduction in interest rate or deferral of principal. Refer to Note 3 – Summary of Significant Accounting Policies, Troubled Debt Restructurings, included herein. As of June 30, 2013, we had loans of $88.1 million classified as TDR, of which $26.5 million are nonperforming and $61.6 million are performing. TDRs on accrual status are comprised of loans that were accruing at the time of restructuring or have demonstrated repayment performance in compliance with the restructured terms for a sustained period and for which the Company anticipates full repayment of both principal and interest. At June 30, 2013, performing TDRs were comprised of 14 commercial real estate loans of $21.0 million, two construction loans of $16.9 million, 10 dairy and livestock loans of $20.5 million, seven single-family residential loans of $2.0 million, and seven commercial and industrial loans of $1.2 million. There were no loans removed from TDR classification for the six months ended June 30, 2013 and 2012. The majority of TDRs have no specific allowance allocated as any impairment amount is normally charged off at the time a probable loss is determined. We have allocated $1.9 million and $1.4 million specific allowance to TDRs as of June 30, 2013 and December 31, 2012, respectively. The following tables provide a summary of the activity related to TDRs for the three and six months ended June 30, 2013, and 2012:
|  | For the Three Months Ended June 30, |  |  | For the Six Months Ended June 30, |
|  | 2013 |  |  | 2012 |  |  | 2013 |  |  | 2012 |
|  | (Dollars in thousands) |
Performing TDRs: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 57,591 |  |  | $ | 41,873 |  |  | $ | 50,392 |  |  | $ | 38,554 |
New modifications |  |  | 11,119 |  |  |  | 7,246 |  |  |  | 21,364 |  |  |  | 10,600 |
Payoffs and payments, net |  |  | (7,144 | ) |  |  | (1,352 | ) |  |  | (11,339 | ) |  |  | (1,904 | )
TDRs returned to accrual status |  |  | — |  |  |  | — |  |  |  | 1,149 |  |  |  | 517 |
TDRs placed on nonaccrual status |  |  | — |  |  |  | (2,524 | ) |  |  | — |  |  |  | (2,524 | )
Ending balance |  | $ | 61,566 |  |  | $ | 45,243 |  |  | $ | 61,566 |  |  | $ | 45,243 |
|  | For the Three Months Ended June 30, |  |  | For the Six Months Ended June 30, |
|  | 2013 |  |  | 2012 |  |  | 2013 |  |  | 2012 |
|  | (Dollars in thousands) |
Nonperforming TDRs: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 29,566 |  |  | $ | 18,620 |  |  | $ | 31,309 |  |  | $ | 23,844 |
New modifications |  |  | 28 |  |  |  | 12,951 |  |  |  | 128 |  |  |  | 12,951 |
Payoffs and payments, net |  |  | (3,097 | ) |  |  | (2,342 | ) |  |  | (3,791 | ) |  |  | (7,049 | )
TDRs returned to accrual status |  |  | — |  |  |  | — |  |  |  | (1,149 | ) |  |  | (517 | )
TDRs placed on nonaccrual status |  |  | — |  |  |  | 2,524 |  |  |  | — |  |  |  | 2,524 |
Ending balance |  | $ | 26,497 |  |  | $ | 31,753 |  |  | $ | 26,497 |  |  | $ | 31,753 |
The following tables summarize loans modified as troubled debt restructurings during the three and six months ended June 30, 2013, and 2012: Modifications(1)
|  | For the Three Months Ended June 30, 2013 |
|  | Number of Loans |  |  | Pre-Modification Outstanding Recorded Investment |  |  | Post-Modification Outstanding Recorded Investment |  |  | Outstanding Recorded Investment at June 30, 2013 |  |  | Financial Effect Resulting From Modifications (2) |
|  | (Dollars in thousands) |
Commercial and industrial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate reduction |  |  | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Change in amortization period or maturity |  |  | 1 |  |  |  | 28 |  |  |  | 28 |  |  |  | 28 |  |  |  | 28 |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate reduction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Change in amortization period or maturity |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Dairy & livestock and agribusiness: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate reduction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Change in amortization period or maturity |  |  | 3 |  |  |  | 11,119 |  |  |  | 11,119 |  |  |  | 10,932 |  |  |  | — |
Total non-covered loans |  |  | 4 |  |  |  | 11,147 |  |  |  | 11,147 |  |  |  | 10,960 |  |  |  | 28 |
Covered loans |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total gross loans |  |  | 4 |  |  | $ | 11,147 |  |  | $ | 11,147 |  |  | $ | 10,960 |  |  | $ | 28 |
|  | For the Six Months Ended June 30, 2013 |
|  | Number of Loans |  |  | Pre-Modification Outstanding Recorded Investment |  |  | Post-Modification Outstanding Recorded Investment |  |  | Outstanding Recorded Investment at June 30, 2013 |  |  | Financial Effect Resulting From Modifications (2) |
|  | (Dollars in thousands) |
Commercial and industrial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate reduction |  |  | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Change in amortization period or maturity |  |  | 3 |  |  |  | 231 |  |  |  | 231 |  |  |  | 207 |  |  |  | 122 |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate reduction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Change in amortization period or maturity |  |  | 1 |  |  |  | 168 |  |  |  | 168 |  |  |  | 158 |  |  |  | — |
Dairy & livestock and agribusiness: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate reduction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Change in amortization period or maturity |  |  | 6 |  |  |  | 15,207 |  |  |  | 15,207 |  |  |  | 15,136 |  |  |  | — |
Total non-covered loans |  |  | 10 |  |  |  | 15,606 |  |  |  | 15,606 |  |  |  | 15,501 |  |  |  | 122 |
Covered loans |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total gross loans |  |  | 10 |  |  | $ | 15,606 |  |  | $ | 15,606 |  |  | $ | 15,501 |  |  | $ | 122 |
(1) | The table excludes modified loans that were paid off prior to the end of the period.
(2) | Financial effects resulting from modifications represent charge-offs and specific allowance recorded at modification date.
|  | For the Three Months Ended June 30, 2012 |
|  | Number of Loans |  |  | Pre-Modification Outstanding Recorded Investment |  |  | Post-Modification Outstanding Recorded Investment |  |  | Outstanding Recorded Investment at June 30, 2012 |  |  | Financial Effect Resulting From Modifications (2) |
|  | (Dollars in thousands) |
Commercial and industrial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate reduction |  |  | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Change in amortization period or maturity |  |  | 7 |  |  |  | 1,677 |  |  |  | 1,677 |  |  |  | 1,350 |  |  |  | 3 |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate reduction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Change in amortization period or maturity |  |  | 1 |  |  |  | 307 |  |  |  | 307 |  |  |  | 306 |  |  |  | — |
Non-owner occupied |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate reduction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Change in amortization period or maturity |  |  | 1 |  |  |  | 3,378 |  |  |  | 3,378 |  |  |  | 3,359 |  |  |  | — |
Other |  |  | 1 |  |  |  | 648 |  |  |  | 648 |  |  |  | 309 |  |  |  | — |
Construction: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Speculative |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate reduction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Change in amortization period or maturity |  |  | 1 |  |  |  | 10,966 |  |  |  | 10,966 |  |  |  | 10,916 |  |  |  | — |
Dairy & livestock and agribusiness: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate reduction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Change in amortization period or maturity |  |  | 4 |  |  |  | 3,221 |  |  |  | 3,221 |  |  |  | 3,221 |  |  |  | — |
Total non-covered loans |  |  | 15 |  |  |  | 20,197 |  |  |  | 20,197 |  |  |  | 19,461 |  |  |  | 3 |
Covered loans |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total gross loans |  |  | 15 |  |  | $ | 20,197 |  |  | $ | 20,197 |  |  | $ | 19,461 |  |  | $ | 3 |
|  | For the Six Months Ended June 30, 2012 |
|  | Number of Loans |  |  | Pre-Modification Outstanding Recorded Investment |  |  | Post-Modification Outstanding Recorded Investment |  |  | Outstanding Recorded Investment at June 30, 2012 |  |  | Financial Effect Resulting From Modifications (2) |
|  | (Dollars in thousands) |
Commercial and industrial: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate reduction |  |  | 1 |  |  | $ | 80 |  |  | $ | 80 |  |  | $ | 74 |  |  | $ | — |
Change in amortization period or maturity |  |  | 8 |  |  |  | 4,131 |  |  |  | 4,131 |  |  |  | 3,808 |  |  |  | 3 |
Real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate reduction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Change in amortization period or maturity |  |  | 2 |  |  |  | 614 |  |  |  | 614 |  |  |  | 610 |  |  |  | — |
Non-owner occupied |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate reduction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Change in amortization period or maturity |  |  | 2 |  |  |  | 3,891 |  |  |  | 3,891 |  |  |  | 3,865 |  |  |  | — |
Other |  |  | 1 |  |  |  | 648 |  |  |  | 648 |  |  |  | 316 |  |  |  | — |
Construction: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Speculative |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate reduction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Change in amortization period or maturity |  |  | 1 |  |  |  | 10,966 |  |  |  | 10,966 |  |  |  | 10,916 |  |  |  | — |
Dairy & livestock and agribusiness: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate reduction |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Change in amortization period or maturity |  |  | 4 |  |  |  | 3,221 |  |  |  | 3,221 |  |  |  | 3,221 |  |  |  | — |
Total non-covered loans |  |  | 19 |  |  |  | 23,551 |  |  |  | 23,551 |  |  |  | 22,810 |  |  |  | 3 |
Covered loans |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total gross loans |  |  | 19 |  |  | $ | 23,551 |  |  | $ | 23,551 |  |  | $ | 22,810 |  |  | $ | 3 |
(1) | The table excludes modified loans that were paid off prior to the end of the period.
(2) | Financial effects resulting from modifications represent charge-offs and specific allowance recorded at modification date.
As of June 30, 2013, there was one commercial real estate loan with an outstanding balance of $2.3 million and one commercial and industrial loan with an outstanding balance of $89,000 that were previously modified as a troubled debt restructuring within the previous 12 months that subsequently defaulted during the six months ended June 30, 2013.

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- Definition The entire disclosure for financing receivables. Examples of financing receivables include, but are not limited to, loans, trade accounts receivables, notes receivable, credit cards, and receivables relating to a lessor's right(s) to payment(s) from a lease other than an operating lease that is recognized as assets. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -URI http://asc.fasb.org/subtopic&trid=2196772 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 55 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=32702940&loc=SL6953791-111525 + Details
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