6.	LOANS AND LEASE FINANCE RECEIVABLES AND ALLOWANCE FOR LOAN LOSSES

The following table provides a summary of total loans and lease finance receivables, excluding PCI loans, by type.


	September 30, 2015			December 31, 2014
	(Dollars in thousands)
Commercial and industrial	$	413,709		$	390,011
SBA		116,126			134,265
Real estate:
Commercial real estate		2,569,128			2,487,803
Construction		57,578			55,173
SFR mortgage		221,696			205,124
Dairy & livestock and agribusiness		212,670			279,173
Municipal lease finance receivables		75,839			77,834
Consumer and other loans		69,630			69,884

Gross loans, excluding PCI loans		3,736,376			3,699,267
Less: Deferred loan fees, net		(8,636	)		(8,567	)

Gross loans, excluding PCI loans, net of deferred loan fees		3,727,740			3,690,700
Less: Allowance for loan losses		(59,149	)		(59,825	)

Net loans, excluding PCI loans		3,668,591			3,630,875

PCI Loans		99,185			133,496
Discount on PCI loans		(4,754	)		(7,129	)

PCI loans, net		94,431			126,367

Total loans and lease finance receivables	$	3,763,022		$	3,757,242

As of September 30, 2015, 68.76% of the total gross loan portfolio (excluding PCI loans) consisted of commercial real estate loans and 1.54% of the total 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. As of September 30, 2015, $171.0 million, or 6.66% of the total commercial real estate loans included loans secured by farmland, compared to $165.6 million, or 6.66%, at December 31, 2014. The loans secured by farmland included $132.8 million for loans secured by dairy & livestock land and $38.2 million for loans secured by agricultural land at September 30, 2015, compared to $144.1 million for loans secured by dairy & livestock land and $21.5 million for loans secured by agricultural land at December 31, 2014. As of September 30, 2015, dairy & livestock and agribusiness loans of $212.7 million was comprised of $197.9 million for dairy & livestock loans and $14.8 million for agribusiness loans, compared to $268.1 million for dairy & livestock loans and $11.1 million for agribusiness loans at December 31, 2014. At September 30, 2015, the Company held approximately $1.84 billion of total fixed rate loans.

At September 30, 2015 and December 31, 2014, loans totaling $2.89 billion and $2.78 billion, respectively, were pledged to secure borrowings and available lines of credit 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 each loan 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 that 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 each class of loans, excluding PCI loans, according to our internal risk ratings for the periods presented.


	September 30, 2015

	Pass		Watch List		Special Mention		Substandard		Doubtful & Loss		Total
	(Dollars in thousands)
Commercial and industrial	$	278,042	$	95,419	$	36,338	$	3,668	$	242	$	413,709
SBA		72,280		22,218		13,648		6,531		1,449		116,126
Real estate:
Commercial real estate
Owner occupied		613,734		145,354		50,171		13,560		-		822,819
Non-owner occupied		1,462,203		216,513		27,413		40,180		-		1,746,309
Construction
Speculative		28,962		6,302		-		7,651		-		42,915
Non-speculative		14,663		-		-		-		-		14,663
SFR mortgage		194,265		20,104		4,241		3,086		-		221,696
Dairy & livestock and agribusiness		88,147		112,419		12,104		-		-		212,670
Municipal lease finance receivables		46,084		24,787		4,968		-		-		75,839
Consumer and other loans		53,327		11,797		1,667		2,748		91		69,630

Total gross loans, excluding PCI loans	$	2,851,707	$	654,913	$	150,550	$	77,424	$	1,782	$	3,736,376


	December 31, 2014
	Pass		Watch List		Special Mention		Substandard		Doubtful & Loss		Total
	(Dollars in thousands)
Commercial and industrial	$	234,029	$	105,904	$	33,795	$	16,031	$	252	$	390,011
SBA		84,769		24,124		15,858		7,920		1,594		134,265
Real estate:
Commercial real estate
Owner occupied		552,072		159,908		46,248		32,139		-		790,367
Non-owner occupied		1,347,006		241,809		56,353		52,268		-		1,697,436
Construction
Speculative		28,310		613		-		7,651		-		36,574
Non-speculative		18,071		528		-		-		-		18,599
SFR mortgage		174,311		20,218		2,442		8,153		-		205,124
Dairy & livestock and agribusiness		174,783		85,660		8,612		10,015		103		279,173
Municipal lease finance receivables		35,463		22,349		20,022		-		-		77,834
Consumer and other loans		62,904		2,233		1,789		2,763		195		69,884

Total gross loans, excluding PCI loans	$	2,711,718	$	663,346	$	185,119	$	136,940	$	2,144	$	3,699,267

Allowance for Loan Losses

The Company’s Credit Management Division is responsible for regularly reviewing the allowance for loan losses 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. Refer to Note 3 – Summary of Significant Accounting Policies of the 2014 Annual Report on Form 10-K for a more detailed discussion concerning the allowance for loan losses.

Management believes that the ALLL was appropriate at September 30, 2015 and December 31, 2014. 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 held-for-investment loans, by portfolio segment for the periods presented.


	For the Three Months Ended September 30, 2015
	Ending Balance June 30, 2015		Charge-offs			Recoveries		(Recapture of) Provision for Loan Losses			Ending Balance September 30, 2015
	(Dollars in thousands)
Commercial and industrial	$	7,185	$	(82	)	$	50	$	(620	)	$	6,533
SBA		2,085		-			2		(122	)		1,965
Real estate:
Commercial real estate		35,414		(10	)		2,018		(2,811	)		34,611
Construction		746		-			8		119			873
SFR mortgage		2,564		-			-		75			2,639
Dairy & livestock and agribusiness		3,974		-			98		796			4,868
Municipal lease finance receivables		1,014		-			-		17			1,031
Consumer and other loans		834		-			11		(16	)		829
Unallocated		5,738		-			-		62			5,800

Total allowance for loan losses	$	59,554	$	(92	)	$	2,187	$	(2,500	)	$	59,149


	For the Three Months Ended September 30, 2014
	Ending Balance June 30, 2014		Charge-offs			Recoveries		(Recapture of) Provision for Loan Losses			Ending Balance September 30, 2014
	(Dollars in thousands)
Commercial and industrial	$	6,037	$	(2	)	$	187	$	1,254		$	7,476
SBA		2,365		-			-		(1,157	)		1,208
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
Unallocated		6,013		-			-		(456	)		5,557

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


	For the Nine Months Ended September 30, 2015
	Ending Balance December 31, 2014		Charge-offs			Recoveries		(Recapture of) Provision for Loan Losses			Ending Balance September 30, 2015
	(Dollars in thousands)
Commercial and industrial	$	7,074	$	(216	)	$	282	$	(607	)	$	6,533
SBA		2,557		(33	)		39		(598	)		1,965
Real estate:
Commercial real estate		33,373		(117	)		3,658		(2,303	)		34,611
Construction		988		-			58		(173	)		873
SFR mortgage		2,344		(215	)		185		325			2,639
Dairy & livestock and agribusiness		5,479		-			308		(919	)		4,868
Municipal lease finance receivables		1,412		-			-		(381	)		1,031
Consumer and other loans		1,262		(197	)		72		(308	)		829
Unallocated		5,336		-			-		464			5,800

Total allowance for loan losses	$	59,825	$	(778	)	$	4,602	$	(4,500	)	$	59,149


	For the Nine Months Ended September 30, 2014
	Ending Balance December 31, 2013		Charge-offs			Recoveries		(Recapture of) Provision for Loan Losses			Ending Balance September 30, 2014
	(Dollars in thousands)
Commercial and industrial	$	8,502	$	(556	)	$	685	$	(1,155	)	$	7,476
SBA		2,332		-			63		(1,187	)		1,208
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
Unallocated		5,953		-			-		(396	)		5,557

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

The following tables present the recorded investment in loans held-for-investment, excluding PCI loans, and the related allowance for loan losses by portfolio segment, based on the Company’s methodology for determining the allowance for loan losses for the periods presented.


	September 30, 2015
	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	$	1,687	$	412,022	$	607	$	5,926
SBA		3,319		112,807		4		1,961
Real estate:
Commercial real estate		43,647		2,525,481		-		34,611
Construction		7,651		49,927		23		850
SFR mortgage		6,389		215,307		22		2,617
Dairy & livestock and agribusiness		5,262		207,408		-		4,868
Municipal lease finance receivables		-		75,839		-		1,031
Consumer and other loans		906		68,724		6		823
Unallocated		-		-		-		5,800

Total	$	68,861	$	3,667,515	$	662	$	58,487


	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	$	4,467	$	376,009	$	652	$	6,824
SBA		3,242		129,926		59		1,149
Real estate:
Commercial real estate		31,375		2,434,540		-		35,634
Construction		26,419		40,810		-		790
SFR mortgage		7,755		185,450		39		2,266
Dairy & livestock and agribusiness		18,939		173,991		-		4,277
Municipal lease finance receivables		-		80,013		-		1,468
Consumer and other loans		461		69,350		4		863
Unallocated		-		-		-		5,557

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

Past Due and Nonperforming Loans

We seek to manage asset quality and control credit risk through diversification of the 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 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, included in our Annual Report on Form 10-K for the year ended December 31, 2014 for additional discussion concerning the Bank’s policy for past due and nonperforming loans.

A loan is reported as a troubled debt restructuring (“TDR”) 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.

The following tables present the recorded investment in the aging of, past due and nonaccrual loans, excluding PCI loans, by type of loans for the periods presented.


	September 30, 2015

	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	$	-	$	-	$	-	$	1,051	$	412,658	$	413,709
SBA		-		-		-		2,634		113,492		116,126
Real estate:
Commercial real estate
Owner occupied		-		-		-		4,279		818,540		822,819
Non-owner occupied		266		-		266		12,417		1,733,626		1,746,309
Construction				-
Speculative (2)		-		-		-		-		42,915		42,915
Non-speculative		-		-		-		-		14,663		14,663
SFR mortgage		-		-		-		2,778		218,918		221,696
Dairy & livestock and agribusiness		-		-		-		-		212,670		212,670
Municipal lease finance receivables		-		-		-		-		75,839		75,839
Consumer and other loans		52		-		52		489		69,089		69,630

Total gross loans, excluding PCI Loans	$	318	$	-	$	318	$	23,648	$	3,712,410	$	3,736,376

(1)

As of September 30, 2015, $19.1 million of nonaccruing loans were current, $371,000 were 30-59 days past due, $2.3 million were 60-89 days past due and $1.9 million were 90+ days past due.

(2)

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


	December 31, 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	$	943	$	35	$	978	$	2,308	$	386,725	$	390,011
SBA		75		-		75		2,481		131,709		134,265
Real estate:
Commercial real estate
Owner occupied		36		86		122		4,072		786,173		790,367
Non-owner occupied		-		-		-		19,246		1,678,190		1,697,436
Construction
Speculative		-		-		-		-		36,574		36,574
Non-speculative		-		-		-		-		18,599		18,599
SFR mortgage		425		-		425		3,240		201,459		205,124
Dairy & livestock and agribusiness		-		-		-		103		279,070		279,173
Municipal lease finance receivables		-		-		-		-		77,834		77,834
Consumer and other loans		64		17		81		736		69,067		69,884

Total gross loans, excluding PCI Loans	$	1,543	$	138	$	1,681	$	32,186	$	3,665,400	$	3,699,267

(1)

As of December 31, 2014, $20.1 million of nonaccruing loans were current, $3.7 million were 30-59 days past due, $8.5 million were 90+ days past due.

Impaired Loans

At September 30, 2015, the Company had impaired loans, excluding PCI loans, of $68.9 million. Of this amount, there were $16.7 million of nonaccrual commercial real estate loans, $2.8 million of nonaccrual SFR mortgage loans, $2.6 million of nonaccrual SBA loans, $1.1 million of nonaccrual commercial and industrial loans and $489,000 of nonaccrual consumer and other loans. These impaired loans included $60.4 million of loans whose terms were modified in a troubled debt restructuring, of which $15.2 million were classified as nonaccrual. The remaining balance of $45.2 million consisted of 32 loans performing according to the restructured terms. The impaired loans had a specific allowance of $662,000 at September 30, 2015. At December 31, 2014, the Company had classified as impaired loans, excluding PCI loans, with a balance of $85.8 million with a related allowance of $1.5 million.

The following tables present information for held-for-investment loans, excluding PCI 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, 2015
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded:
Commercial and industrial	$	1,067	$	1,926	$	-	$	1,166	$	23
SBA		3,273		3,911		-		3,385		39
Real estate:
Commercial real estate
Owner occupied		7,665		8,806		-		7,935		178
Non-owner occupied		35,982		40,591		-		36,490		1,338
Construction
Speculative		-		-		-		-		-
Non-speculative		-		-		-		-		-
SFR mortgage		5,788		6,739		-		6,392		82
Dairy & livestock and agribusiness		5,262		5,650		-		5,569		180
Municipal lease finance receivables		-		-		-		-		-
Consumer and other loans		852		1,379		-		881		12

Total		59,889		69,002		-		61,818		1,852

With a related allowance recorded:
Commercial and industrial		620		694		607		637		-
SBA		46		47		4		58		-
Real estate:
Commercial real estate
Owner occupied		-		-		-		-		-
Non-owner occupied		-		-		-		-		-
Construction
Speculative		7,651		7,651		23		7,651		290
Non-speculative		-		-		-		-		-
SFR mortgage		601		653		22		612		9
Dairy & livestock and agribusiness		-		-		-		-		-
Municipal lease finance receivables		-		-		-		-		-
Consumer and other loans		54		59		6		56		-

Total		8,972		9,104		662		9,014		299

Total impaired loans	$	68,861	$	78,106	$	662	$	70,832	$	2,151


	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	$	2,913	$	3,954	$	-	$	2,912	$	44
SBA		3,183		3,907		-		2,937		-
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		1,554		1,882		652		1,560		-
SBA		59		69		59		66		-
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 impaired loans	$	92,658	$	108,519	$	754	$	96,419	$	2,419


	As of December 31, 2014
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in thousands)
With no related allowance recorded:
Commercial and industrial	$	2,391	$	3,624	$	-
SBA		1,853		2,197		-
Real estate:
Commercial real estate
Owner occupied		16,961		18,166		-
Non-owner occupied		30,068		38,156		-
Construction
Speculative		7,651		7,651		-
Non-speculative		-		-		-
SFR mortgage		6,512		7,493		-
Dairy & livestock and agribusiness		15,796		17,587		-
Municipal lease finance receivables		-		-		-
Consumer and other loans		673		1,094		-

Total		81,905		95,968		-

With a related allowance recorded:
Commercial and industrial		629		698		615
SBA		1,327		1,591		296
Real estate:
Commercial real estate
Owner occupied		-		-		-
Non-owner occupied		982		1,278		154
Construction
Speculative		-		-		-
Non-speculative		-		-		-
SFR mortgage		467		484		35
Dairy & livestock and agribusiness		-		-		-
Municipal lease finance receivables		-		-		-
Consumer and other loans		482		508		449

Total		3,887		4,559		1,549

Total impaired loans	$	85,792	$	100,527	$	1,549

The Company recognizes the charge-off of the 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, 2015 and December 31, 2014 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.

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 zero provision for unfunded loan commitments for the three months ended September 30, 2015, compared to a $1.3 million recapture of provision for unfunded commitments for the same period in 2014. A $500,000 recapture of provision for unfunded loan commitments was recorded for the nine months ended September 30, 2015, compared to a $1.3 million recapture of provision for unfunded commitments for the same period of 2014. At September 30, 2015 and December 31, 2014, the balance of the reserve was $7.2 million and $7.7 million, respectively, and was included in other liabilities.

Troubled Debt Restructurings (“TDRs”)

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, included in our Annual Report on Form 10-K for the year ended December 31, 2014 for a more detailed discussion regarding TDRs.

As of September 30, 2015, there were $60.4 million of loans classified as TDRs, of which $15.2 million were nonperforming and $45.2 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, 2015, performing TDRs were comprised of 11 commercial real estate loans of $27.0 million, one construction loan of $7.6 million, three dairy & livestock and agribusiness loans of $5.3 million, 11 SFR mortgage loans of $3.6 million, four commercial and industrial loans of $636,000, one SBA loan of $685,000 and one consumer loan of $417,000. There were no loans removed from TDR classification during the three and nine months ended September 30, 2015 and 2014.

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 $419,000 and $726,000 of specific allowance to TDRs as of September 30, 2015 and December 31, 2014, respectively.

The following tables provide a summary of the activity related to TDRs for the periods presented.


	For the Three Months September 30,						For the Nine Months Ended September 30,
	2015			2014			2015			2014
	(Dollars in thousands)
Performing TDRs:
Beginning balance	$	45,166		$	61,878		$	53,589		$	66,955
New modifications (1)		2,353			-			2,383			41
Payoffs and payments, net		(2,306	)		(6,270	)		(11,275	)		(11,388	)
TDRs returned to accrual status		-			-			516			-
TDRs placed on nonaccrual status		-			-			-			-

Ending balance	$	45,213		$	55,608		$	45,213		$	55,608

Nonperforming TDRs:
Beginning balance	$	15,167		$	27,397		$	20,285		$	25,119
New modifications (1)		330			-			661			4,187
Charge-offs		-			(1,061	)		-			(1,061	)
Transfer to OREO		-			-			(842	)		-
Payoffs and payments, net		(349	)		(3,730	)		(4,440	)		(5,639	)
TDRs returned to accrual status		-			-			(516	)		-
TDRs placed on nonaccrual status		-			-			-			-

Ending balance	$	15,148		$	22,606		$	15,148		$	22,606

Total TDRs	$	60,361		$	78,214		$	60,361		$	78,214

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

The following tables summarize loans modified as troubled debt restructurings for the periods presented.

Modifications (1)


	For the Three Months Ended September 30, 2015
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Outstanding Recorded Investment at September 30, 2015		Financial Effect Resulting From Modifications (2)
	(Dollars in thousands)
Commercial and industrial:
Interest rate reduction		-	$	-	$	-	$	-	$	-
Change in amortization period or maturity		-		-		-		-		-
Other		-		-		-		-		-
SBA:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Other		-		-		-		-		-
Real estate:
Commercial real estate:
Owner occupied
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Other		-		-		-		-		-
Non-owner occupied
Interest rate reduction		1		2,376		2,376		2,353		-
Change in amortization period or maturity		-		-		-		-		-
Other		-		-		-		-		-
SFR mortgage:
Interest rate reduction		1		322		322		330		-
Change in amortization period or maturity		-		-		-		-		-
Other		-		-		-		-		-
Consumer:
Interest rate reduction		-		-		-		-		-

Total loans		2	$	2,698	$	2,698	$	2,683	$	-


	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		-		-		-		-		-
Other		-		-		-		-		-
SBA:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Other		-		-		-		-		-
Real estate:
Commercial real estate:
Owner occupied
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Non-owner occupied
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Dairy & livestock and agribusiness:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Consumer:
Interest rate reduction		-		-		-		-		-

Total loans		-	$	-	$	-	$	-	$	-


	For the Nine Months Ended September 30, 2015

	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Outstanding Recorded Investment at September 30, 2015		Financial Effect Resulting From Modifications (2)
	(Dollars in thousands)
Commercial and industrial:
Interest rate reduction		-	$	-	$	-	$	-	$	-
Change in amortization period or maturity		1		30		30		15		12
Other		-		-		-		-		-
SBA:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		1		330		330		325		-
Other		-		-		-		-		-
Real estate:
Commercial real estate:
Owner occupied
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Other		-		-		-		-		-
Non-owner occupied
Interest rate reduction		1		2,376		2,376		2,353		-
Change in amortization period or maturity		-		-		-		-		-
Other		-		-		-		-		-
SFR mortgage:
Interest rate reduction		1		322		322		330		-
Change in amortization period or maturity		-		-		-		-		-
Other		-		-		-		-		-
Dairy & livestock and agribusiness:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Consumer:
Interest rate reduction		-		-		-		-		-

Total loans		4	$	3,058	$	3,058	$	3,023	$	12


	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		-		-		-		-		-
SBA:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Other		-		-		-		-		-
Real estate:
Commercial real estate:
Owner occupied
Interest rate reduction (3)		1		199		199		187		-
Change in amortization period or maturity		-		-		-		-		-
Non-owner occupied
Interest rate reduction (3)		3		3,573		3,573		3,469		-
Change in amortization period or maturity		-		-		-		-		-
Dairy & livestock and agribusiness:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Consumer:
Interest rate reduction		-		-		-		-		-

Total loans		6	$	4,140	$	4,140	$	3,993	$	-

(1) The tables above 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, 2015, there were no loans that were previously modified as a TDR within the previous 12 months that subsequently defaulted during the three and nine months ended September 30, 2015.