7. NON-COVERED 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:


	September 30, 2014			December 31, 2013
	(Dollars in thousands)
Commercial and industrial	$	513,644		$	512,792
Real estate:
Commercial real estate		2,465,915			2,207,515
Construction		67,229			47,109
SFR mortgage		193,205			189,233
Dairy & livestock and agribusiness		192,930			294,292
Municipal lease finance receivables		80,013			89,106
Consumer and other loans		69,811			55,103

Gross non-covered loans		3,582,747			3,395,150
Less: Deferred loan fees, net		(8,862	)		(9,234	)

Gross loans, net of deferred loan fees		3,573,885			3,385,916
Less: Allowance for non-covered loan losses		(59,582	)		(75,235	)

Net non-covered loans	$	3,514,303		$	3,310,681

As of September 30, 2014, 68.83% of the total non-covered loan portfolio consisted of commercial real estate loans and 1.88% of the total non-covered loan portfolio consisted of construction loans. Substantially all of the Company’s real estate loans and construction loans are secured by real properties located in California. At September 30, 2014, the Company held approximately $1.75 billion of non-covered fixed rate loans.

At September 30, 2014 and December 31, 2013, loans totaling $2.61 billion and $2.31 billion, respectively, were pledged to secure borrowings and available lines of credit from the FHLB and the Federal Reserve Bank.

Non-Covered Loans Held-for-Sale

The following table provides a summary of the activity related to non-covered loans held-for-sale for the nine months ended September 30, 2014 and 2013:


	For the Nine Months Ended September 30,
	2014			2013
	(Dollars in thousands)
Balance, beginning of period	$	3,667		$	—
Originations of mortgage loans		—			—
Sales of mortgage loans		—			—
Transfer of mortgage loans to held for investment		—			—
Sales of other loans		(3,667	)		—
Transfers of other loans to held-for-sale		—			—
Write-down of loans held-for-sale		—			—

Balance, end of period	$	—		$	—

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 confirmed or changed, as appropriate, by Credit Management. 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 tables summarize our internal risk grouping by loan class as of September 30, 2014 and December 31, 2013:


	September 30, 2014
	Pass		Watch List		Special Mention		Substandard		Doubtful & Loss (1)		Total
	(Dollars in thousands)
Commercial and industrial	$	306,627	$	125,212	$	63,569	$	16,539	$	1,697	$	513,644
Real estate:
Commercial real estate
Owner occupied		529,273		161,659		65,056		25,426		—		781,414
Non-owner occupied		1,305,708		254,429		76,113		48,251		—		1,684,501
Construction
Speculative		23,230		2,872		—		17,318		—		43,420
Non-speculative		11,230		3,476		2		9,101		—		23,809
SFR mortgage		160,920		20,459		2,455		9,371		—		193,205
Dairy & livestock and agribusiness		70,125		90,136		16,240		14,966		1,463		192,930
Municipal lease finance receivables		36,609		23,091		20,313		—		—		80,013
Consumer and other loans		56,971		6,860		2,959		2,825		196		69,811

Total non-covered gross loans	$	2,500,693	$	688,194	$	246,707	$	143,797	$	3,356	$	3,582,747

(1)	There were no loans classified as loss as of September 30, 2014.


	December 31, 2013
	Pass		Watch List		Special Mention		Substandard		Doubtful & Loss (1)		Total
	(Dollars in thousands)
Commercial and industrial	$	312,927	$	128,068	$	53,417	$	17,950	$	430	$	512,792
Real estate:
Commercial real estate
Owner occupied		449,853		147,165		74,999		57,934		—		729,951
Non-owner occupied		1,104,065		242,431		81,088		49,980		—		1,477,564
Construction
Speculative		8,611		21		1,529		17,617		—		27,778
Non-speculative		6,940		3,190		—		9,201		—		19,331
SFR mortgage		152,500		20,485		3,302		12,946		—		189,233
Dairy & livestock and agribusiness		43,588		86,580		92,514		69,005		2,605		294,292
Municipal lease finance receivables		43,445		18,338		20,893		6,430		—		89,106
Consumer and other loans		43,225		6,938		3,449		1,491		—		55,103

Total non-covered gross loans	$	2,165,154	$	653,216	$	331,191	$	242,554	$	3,035	$	3,395,150

(1)	There were no loans classified as loss as of December 31, 2013.

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 Directors 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. Refer to Note 3 – Summary of Significant Accounting Policies for a more detailed discussion concerning the allowance for loan losses.

Management believes that the ALLL was appropriate at September 30, 2014 and December 31, 2013. No assurance can be given that economic conditions which adversely affect the Company’s service areas or other circumstances will not be reflected in increased provisions for loan losses in the future.

The following tables present the balance and activity related to the allowance for loan losses for non-covered held-for-investment loans by portfolio segment for the three and nine months ended September 30, 2014 and 2013:


	For the Three Months Ended September 30, 2014
	Ending Balance June 30, 2014		Charge-offs			Recoveries		Provision for Loan Losses			Ending Balance September 30, 2014
	(Dollars in thousands)
Commercial and industrial	$	8,402	$	(2	)	$	187	$	97		$	8,684
Real estate:
Commercial real estate		35,918		—			2		(286	)		35,634
Construction		605		—			37		148			790
SFR mortgage		2,214		—			188		(97	)		2,305
Dairy & livestock and agribusiness		5,428		(1,061	)		151		(241	)		4,277
Municipal lease finance receivables		1,464		—			—		4			1,468
Consumer and other loans		930		(7	)		113		(169	)		867
Covered loans		—		—			—		—			—
Unallocated		6,013		—			—		(456	)		5,557

Total allowance for loan losses	$	60,974	$	(1,070	)	$	678	$	(1,000	)	$	59,582


	For the Three Months Ended September 30, 2013
	Ending Balance June 30, 2013		Charge-offs			Recoveries		Provision for Loan Losses			Ending Balance September 30, 2013
	(Dollars in thousands)
Commercial and industrial	$	12,586	$	(1,235	)	$	315	$	(1,022	)	$	10,644
Real estate:
Commercial real estate		44,392		—			34		(1,007	)		43,419
Construction		1,172		—			15		412			1,599
SFR mortgage		3,715		(110	)		—		(144	)		3,461
Dairy & livestock and agribusiness		14,225		—			14		(2,152	)		12,087
Municipal lease finance receivables		2,369		—			—		69			2,438
Consumer and other loans		1,052		(39	)		12		25			1,050
Unallocated		5,946		—			—		69			6,015

Total allowance for loan losses	$	85,457	$	(1,384	)	$	390	$	(3,750	)	$	80,713


	For the Nine Months Ended September 30, 2014
	Ending Balance December 31, 2013		Charge-offs			Recoveries		Provision for Loan Losses			Ending Balance September 30, 2014
	(Dollars in thousands)
Commercial and industrial	$	10,834	$	(516	)	$	748	$	(2,382	)	$	8,684
Real estate:
Commercial real estate		39,402		(352	)		140		(3,556	)		35,634
Construction		1,305		—			834		(1,349	)		790
SFR mortgage		2,718		—			188		(601	)		2,305
Dairy & livestock and agribusiness		11,728		(1,061	)		393		(6,783	)		4,277
Municipal lease finance receivables		2,335		—			—		(867	)		1,468
Consumer and other loans		960		(26	)		139		(206	)		867
Covered loans		—		(40	)		—		40			—
Unallocated		5,953		—			—		(396	)		5,557

Total allowance for loan losses	$	75,235	$	(1,995	)	$	2,442	$	(16,100	)	$	59,582


	For the Nine Months Ended September 30, 2013
	Ending Balance December 31, 2012		Charge-offs			Recoveries		Provision for Loan Losses			Ending Balance September 30, 2013
	(Dollars in thousands)
Commercial and industrial	$	11,652	$	(2,339	)	$	523	$	808		$	10,644
Real estate:
Commercial real estate		47,457		—			100		(4,138	)		43,419
Construction		2,291		—			83		(775	)		1,599
SFR mortgage		3,448		(252	)		133		132			3,461
Dairy & livestock and agribusiness		18,696		—			42		(6,651	)		12,087
Municipal lease finance receivables		1,588		—			—		850			2,438
Consumer and other loans		1,170		(108	)		40		(52	)		1,050
Unallocated		6,139		—			—		(124	)		6,015

Total allowance for loan losses	$	92,441	$	(2,699	)	$	921	$	(9,950	)	$	80,713

The following tables present the recorded investment in non-covered loans held-for-investment, and the related allowance for loan losses by portfolio segment, based on the Company’s methodology for determining the allowance for loan losses as of September 30, 2014 and 2013:


	September 30, 2014
	Recorded Investment in Loans				Allowance for Loan Losses
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
	(Dollars in thousands)
Commercial and industrial	$	7,709	$	505,935	$	711	$	7,954
Real estate:
Commercial real estate		31,375		2,434,540		—		35,633
Construction		26,419		40,810		—		790
SFR mortgage		7,755		185,450		39		2,266
Dairy & livestock and agribusiness		18,939		173,991		—		4,278
Municipal lease finance receivables		—		80,013		—		1,468
Consumer and other loans		461		69,350		4		882
Unallocated		—		—		—		5,557

Total	$	92,658	$	3,490,089	$	754	$	58,828


	September 30, 2013
	Recorded Investment in Loans				Allowance for Loan Losses
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
	(Dollars in thousands)
Commercial and industrial	$	4,983	$	505,583	$	387	$	10,257
Real estate:
Commercial real estate		38,999		2,087,416		1		43,418
Construction		27,239		20,409		144		1,455
SFR mortgage		12,805		179,325		290		3,171
Dairy & livestock and agribusiness		24,494		237,144		2,658		9,429
Municipal lease finance receivables		—		99,188		—		2,438
Consumer and other loans		159		52,727		5		1,045
Unallocated		—		—		—		6,015

Total	$	108,679	$	3,181,792	$	3,485	$	77,228

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 appropriateness 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. Refer to Note 3 – Summary of Significant Accounting Policies for additional discussion concerning the Bank’s policy for past due and nonperforming loans.

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 Department. When we identify a loan as impaired, we measure the loan for potential impairment using discounted cash flows, unless the loan is determined to be collateral dependent. In these cases, we use the current fair value of collateral, less selling costs. Generally, the determination of fair value is established through obtaining external appraisals of the collateral.

Speculative construction loans are generally for properties where there is no identified buyer or renter.

The following tables present the recorded investment in, and the aging of, non-covered past due and nonaccrual loans and loans past due by class of loans as of September 30, 2014 and December 31, 2013:


	September 30, 2014
	30-59 Days Past Due		60-89 Days Past Due		Total Past Due and Accruing		Nonaccrual (1)		Current		Total Loans and Financing Receivables
	(Dollars in thousands)
Commercial and industrial	$	673	$	—	$	673	$	6,666	$	506,305	$	513,644
Real estate:
Commercial real estate
Owner occupied		—		—		—		4,034		777,380		781,414
Non-owner occupied		—		—		—		10,761		1,673,740		1,684,501
Construction
Speculative		—		—		—		9,666		33,754		43,420
Non-speculative		—		—		—		—		23,809		23,809
SFR mortgage		—		—		—		3,999		189,206		193,205
Dairy & livestock and agribusiness		—		—		—		1,463		191,467		192,930
Municipal lease finance receivables		—		—		—		—		80,013		80,013
Consumer and other loans		15		—		15		461		69,335		69,811

Total non-covered gross loans	$	688	$	—	$	688	$	37,050	$	3,545,009	$	3,582,747

(1)	As of September 30, 2014, $22.7 million of nonaccrual loans were current according to original or restructured terms, $3.2 million were 30-59 days past due, $13,000 were 60-89 days past due, and $11.2 million were 90+ days past due.


	December 31, 2013
	30-59 Days Past Due		60-89 Days Past Due		Total Past Due and Accruing		Nonaccrual (1)		Current		Total Loans and Financing Receivables
	(Dollars in thousands)
Commercial and industrial	$	900	$	93	$	993	$	3,861	$	507,938	$	512,792
Real estate:
Commercial real estate
Owner occupied		220		—		220		4,105		725,626		729,951
Non-owner occupied		303		—		303		8,305		1,468,956		1,477,564
Construction
Speculative		—		—		—		9,966		17,812		27,778
Non-speculative		—		—		—		—		19,331		19,331
SFR mortgage		773		935		1,708		7,577		179,948		189,233
Dairy & livestock and agribusiness		—		—		—		5,739		288,553		294,292
Municipal lease finance receivables		—		—		—		—		89,106		89,106
Consumer and other loans		75		—		75		401		54,627		55,103

Total non-covered gross loans	$	2,271	$	1,028	$	3,299	$	39,954	$	3,351,897	$	3,395,150

(1)	As of December 31, 2013, $23.9 million of nonaccruing loans were current according to original or restructured terms, $473,000 were 30-59 days past due, $854,000 were 60-89 days past due, and $14.7 million were 90+ days past due.

Non-Covered Impaired Loans

At September 30, 2014, the Company had non-covered impaired loans of $92.7 million. Of this amount, there were $14.8 million of nonaccrual commercial real estate loans, $9.7 million in nonaccrual commercial construction loans, $4.0 million of nonaccrual SFR mortgage loans, $6.7 million of nonaccrual commercial and industrial loans, $1.5 million of nonaccrual dairy & livestock and agribusiness loans and $461,000 of nonaccrual consumer and other loans. These non-covered impaired loans included $78.2 million of loans whose terms were modified in a troubled debt restructuring, of which $22.6 million were classified as nonaccrual. The remaining balance of $55.6 million consisted of 39 loans performing according to the restructured terms. The impaired loans had a specific allowance of $754,000 at September 30, 2014. At December 31, 2013, the Company had classified as impaired, non-covered loans with a balance of $106.9 million with a related allowance of $3.2 million.

The following tables present information for held-for-investment loans, individually evaluated for impairment by class of loans, as of and for the periods indicated below:


	As of and For the Nine Months Ended September 30, 2014
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded:
Commercial and industrial	$	6,096	$	7,861	$	—	$	5,849	$	44
Real estate:
Commercial real estate
Owner occupied		8,742		9,896		—		9,025		238
Non-owner occupied		22,633		29,545		—		23,252		541
Construction
Speculative		17,318		18,407		—		17,440		232
Non-speculative		9,101		9,101		—		9,145		463
SFR mortgage		7,285		9,685		—		7,934		82
Dairy & livestock and agribusiness		18,939		20,698		—		21,205		819
Municipal lease finance receivables		—		—		—		—		—
Consumer and other loans		450		876		—		455		—

Total		90,564		106,069		—		94,305		2,419

With a related allowance recorded:
Commercial and industrial		1,613		1,951		711		1,626		—
Real estate:
Commercial real estate
Owner occupied		—		—		—		—		—
Non-owner occupied		—		—		—		—		—
Construction
Speculative		—		—		—		—		—
Non-speculative		—		—		—		—		—
SFR mortgage		470		484		39		476		—
Dairy & livestock and agribusiness		—		—		—		—		—
Municipal lease finance receivables		—		—		—		—		—
Consumer and other loans		11		15		4		12		—

Total		2,094		2,450		754		2,114		—

Total non-covered impaired loans	$	92,658	$	108,519	$	754	$	96,419	$	2,419


	As of and For the Nine Months Ended September 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	$	4,595	$	6,020	$	—	$	5,131	$	161
Real estate:
Commercial real estate
Owner occupied		13,361		14,412		—		13,635		494
Non-owner occupied		25,631		36,851		—		26,838		553
Construction
Speculative		10,369		10,956		—		10,522		—
Non-speculative		9,219		9,219		—		9,219		428
SFR mortgage		10,156		11,838		—		9,487		75
Dairy & livestock and agribusiness		17,553		18,515		—		19,308		445
Municipal lease finance receivables		—		—		—		—		—
Consumer and other loans		142		214		—		149		—

Total		91,026		108,025		—		94,289		2,156

With a related allowance recorded:
Commercial and industrial		388		408		387		417		—
Real estate:
Commercial real estate
Owner occupied		7		9		1		11		—
Non-owner occupied		—		—		—		—		—
Construction
Speculative		7,651		7,651		144		7,651		232
Non-speculative		—		—		—		—		—
SFR mortgage		2,649		2,764		290		2,636		5
Dairy & livestock and agribusiness		6,941		7,654		2,658		7,571		—
Municipal lease finance receivables		—		—		—		—		—
Consumer and other loans		17		19		5		19		—

Total		17,653		18,505		3,485		18,305		237

Total non-covered impaired loans	$	108,679	$	126,530	$	3,485	$	112,594	$	2,393


	As of December 31, 2013
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in thousands)
With no related allowance recorded:
Commercial and industrial	$	4,668	$	5,927	$	—
Real estate:
Commercial real estate
Owner occupied		13,041		14,133		—
Non-owner occupied		20,399		26,155		—
Construction
Speculative		17,617		18,408		—
Non-speculative		9,201		9,201		—
SFR mortgage		10,919		12,516		—
Dairy & livestock and agribusiness		17,702		17,702		—
Municipal lease finance receivables		—		—		—
Consumer and other loans		385		445		—

Total		93,932		104,487		—

With a related allowance recorded:
Commercial and industrial		365		379		365
Real estate:
Commercial real estate
Owner occupied		—		—		—
Non-owner occupied		—		—		—
Construction
Speculative		—		—		—
Non-speculative		—		—		—
SFR mortgage		486		489		103
Dairy & livestock and agribusiness		12,110		12,783		2,702
Municipal lease finance receivables		—		—		—
Consumer and other loans		16		19		4

Total		12,977		13,670		3,174

Total non-covered impaired loans	$	106,909	$	118,157	$	3,174

The Company recognizes the charge-off of impairment allowance on impaired loans in the period in which a loss is identified for collateral dependent loans. Therefore, the majority of the nonaccrual loans as of September 30, 2014 and December 31, 2013 have already been written down to the 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 loans where there is a potential modification in process, or on smaller balance non-collateral dependent loans.

As of September 30, 2014 and December 31, 2013, impaired construction speculative loans included one nonaccruing loan that represents the Company’s only participating interest in a loan classified under the Shared National Credit program. The outstanding balance of this loan was $9.7 million as of September 30, 2014 and $10.0 million at December 31, 2013.

Reserve for Unfunded Loan Commitments

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 a reduction in our reserve for unfunded loan commitments of $1.3 million for the three and nine months ended September 30, 2014, compared with a provision for unfunded loan commitments of $500,000 for the same period in 2013. At September 30, 2014 and December 31, 2013, the balance of the reserve was $7.8 million and $9.1 million, respectively, and was included in other liabilities.

Troubled Debt Restructurings (“TDR”)

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 September 30, 2014, there were $78.2 million of loans classified as TDR, of which $22.6 million were nonperforming and $55.6 million were performing. TDRs on accrual status are comprised of loans that were accruing interest 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 September 30, 2014, performing TDRs were comprised of 10 commercial real estate loans of $16.6 million, two construction loans of $16.7 million, 10 dairy & livestock loans of $17.5 million, 11 SFR mortgage loans of $3.8 million, and six commercial and industrial loans of $1.0 million. There were no loans removed from TDR classification during the three and nine months ended September 30, 2014 and 2013.

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 $389,000 and $2.7 million of specific allowance to TDRs as of September 30, 2014 and December 31, 2013, respectively.

The following tables provide a summary of the activity related to TDRs for the three and nine months ended September 30, 2014 and 2013:


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2014			2013			2014			2013
	(Dollars in thousands)						(Dollars in thousands)
Performing TDRs:
Beginning balance	$	61,878		$	61,566		$	66,955		$	50,392
New modifications		—			—			41			21,364
Payoffs and payments, net		(6,270	)		(2,481	)		(11,388	)		(13,820	)
TDRs returned to accrual status		—			110			—			1,259
TDRs placed on nonaccrual status		—			—			—			—

Ending balance	$	55,608		$	59,195		$	55,608		$	59,195


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2014			2013			2014			2013
	(Dollars in thousands)						(Dollars in thousands)
Nonperforming TDRs:
Beginning balance	$	27,397		$	26,497		$	25,119		$	31,309
New modifications (1)		—			3,676			4,187			3,804
Charge-offs		(1,061	)		(68	)		(1,061	)		(68	)
Payoffs and payments, net		(3,730	)		(1,950	)		(5,639	)		(5,741	)
TDRs returned to accrual status		—			(110	)		—			(1,259	)
TDRs placed on nonaccrual status		—			—			—			—

Ending balance	$	22,606		$	28,045		$	22,606		$	28,045

(1)	New modifications for the nine months ended September 30, 2014 represent TDRs acquired from ASB.

The following tables summarize loans modified as troubled debt restructurings during the three and nine months ended September 30, 2014 and 2013:

Modifications (1)

For the Three Months Ended September 30, 2014

Number
of Loans

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

Outstanding
Recorded
Investment at
September 30,
2014

Financial Effect
Resulting From
Modifications (2)

(Dollars in thousands)

Commercial and industrial:

Interest rate reduction

—

Change in amortization period or maturity

—

Real estate:

Commercial real estate:

Owner occupied

Interest rate reduction

—

Change in amortization period or maturity

—

Other

—

Non-owner occupied

Interest rate reduction

—

Change in amortization period or maturity

—

Other

—

Dairy & livestock and agribusiness:

Interest rate reduction

—

Change in amortization period or maturity

—

Total non-covered loans

—


	For the Three Months Ended September 30, 2013
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Outstanding Recorded Investment at September 30, 2013		Financial Effect Resulting From Modifications (2)
	(Dollars in thousands)
Commercial and industrial:
Interest rate reduction		—	$	—	$	—	$	—	$	—
Change in amortization period or maturity		1		34		34		34		—
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		2		3,642		3,642		3,556		—

Total non-covered loans		3	$	3,676	$	3,676	$	3,590	$	—

(1)	The tables exclude 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 Nine Months Ended September 30, 2014
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Outstanding Recorded Investment at September 30, 2014		Financial Effect Resulting From Modifications (2)
	(Dollars in thousands)
Commercial and industrial:
Interest rate reduction (3)		2	$	368	$	368	$	337	$	—
Change in amortization period or maturity		—		—		—		—		—
Real estate:		—		—		—		—		—
Commercial real estate:		—		—		—		—		—
Owner occupied		—		—		—		—		—
Interest rate reduction (3)		1		199		199		187		—
Change in amortization period or maturity		—		—		—		—		—
Other		—		—		—		—		—
Non-owner occupied		—		—		—		—		—
Interest rate reduction (3)		3		3,573		3,573		3,469		—
Change in amortization period or maturity		—		—		—		—		—
Other		—		—		—		—		—
Dairy & livestock and agribusiness:		—		—		—		—		—
Interest rate reduction		—		—		—		—		—
Change in amortization period or maturity		—		—		—		—		—

Total non-covered loans		6	$	4,140	$	4,140	$	3,993	$	—


	For the Nine Months Ended September 30, 2013
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Outstanding Recorded Investment at September 30, 2013		Financial Effect Resulting From Modifications (2)
	(Dollars in thousands)
Commercial and industrial:
Interest rate reduction		—	$	—	$	—	$	—	$	—
Change in amortization period or maturity		4		265		265		223		122
Real estate:
Commercial real estate:
Owner occupied
Interest rate reduction		—		—		—		—		—
Change in amortization period or maturity		1		168		168		143		—
Dairy & livestock and agribusiness:
Interest rate reduction		—		—		—		—		—
Change in amortization period or maturity		7		18,848		18,848		16,068		—

Total non-covered loans		12	$	19,281	$	19,281	$	16,434	$	122

(1)	The tables exclude 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.

(3)	New modifications for the nine months ended September 30, 2014 represent TDRs acquired from ASB.

As of September 30, 2014, there were no loans that were previously modified as a troubled debt restructuring within the previous 12 months that subsequently defaulted during the three and nine months ended September 30, 2014.