LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES

The following is a summary of loans by major category at December 31, 2013 and 2012:



	December 31, 2013			December 31, 2012
	(In thousands)
Loan portfolio composition
Real estate loans:
Residential	$	10,039		$	9,247
Commercial & industrial	3,821,163			3,100,466
Construction	72,856			65,045
Total real estate loans	3,904,058			3,174,758
Commercial business	949,093			921,556
Trade finance	124,685			152,070
Consumer and other	98,507			49,954
Total loans outstanding	5,076,343			4,298,338
Less: deferred loan fees	(2,168		)	(2,086		)
Gross loans receivable	5,074,175			4,296,252
Less: allowance for loan losses	(67,320		)	(66,941		)
Loans receivable, net	$	5,006,855		$	4,229,311

Our loan portfolio is made up of four segments: real estate loans, commercial business, trade finance and consumer and other. These segments are further segregated between loans accounted for under the amortized cost method Legacy Loans and acquired loans that were originally recorded at fair value with no carryover of the related pre-acquisition allowance for loan losses Acquired Loans. The Acquired Loans are further segregated between ACILs and APLs.

The following table presents changes in the accretable discount on the ACILs for the years ended December 31, 2013 and 2012:



	Year Ended December 31,
	2013			2012
Balance at beginning of period	$	18,652		$	31,999
Additions due to mergers and acquisitions	19,873			—
Accretion	(15,590		)	(14,135		)
Changes in expected cash flows	24,463			788
Balance at end of period	$	47,398		$	18,652

On the acquisition date, the amount by which the undiscounted expected cash flows exceed the estimated fair value of the ACILs is the “accretable yield”. The accretable yield is then measured at each financial reporting date and represents the difference between the remaining undiscounted expected cash flows and the current carrying value of the loans. The accretable yield will change from period to period due to the following: 1) estimates of the remaining life of acquired loans will affect the amount of future interest income, 2) indicies for variable rates of interest on ACILs may change; and 3) estimates of the amount of the contractual principal and interest that will not be collected (nonaccretable difference) may change.

The following tables detail the activity in the allowance for loan losses by portfolio segment for the year ended December 31, 2013 and 2012:



	Legacy												Acquired												Total
	Real Estate			Commercial Business			Trade Finance			Consumer and Other			Real Estate			Commercial Business			Trade Finance			Consumer and Other			Total
	(In thousands)
December 31, 2012
Balance, beginning of period	$	39,040		$	20,681		$	1,786		$	445		$	—		$	—		$	—		$	—		$	61,952
Provision for loan losses	7,098			3,700			403			673			4,824			1,903			303			200			19,104
Loans charged off	(6,770		)	(9,406		)	—			(568		)	(411		)	(945		)	(300		)	(380		)	(18,780		)
Recoveries of charged offs	2,137			1,515			160			108			305			157			—			283			4,665
Balance, end of period	$	41,505		$	16,490		$	2,349		$	658		$	4,718		$	1,115		$	3		$	103		$	66,941

December 31, 2013
Balance, beginning of period	41,505			16,490			2,349			658			4,718			1,115			3			103			66,941
Provision (credit) for loan losses	665			2,491			7,517			169			7,880			1,319			(3		)	(38		)	20,000
Loans charged off	(2,406		)	(4,022		)	(7,213		)	(524		)	(6,123		)	(1,738		)	—			(43		)	(22,069		)
Recoveries of charged offs	304			1,837			—			158			7			100			—			42			2,448
Balance, end of period	$	40,068		$	16,796		$	2,653		$	461		$	6,482		$	796		$	—		$	64		$	67,320

The following tables disaggregate the allowance for loan losses and the carrying value of loans receivables by impairment methodology at December 31, 2013 and December 31, 2012:



	December 31, 2013
	Legacy								Acquired								Total
	Real Estate		Commercial Business		Trade Finance		Consumer and Other		Real Estate		Commercial Business		Trade Finance		Consumer and Other		Total
	(In thousands)
Allowance for loan losses:
Individually evaluated for impairment	$	5,578	$	5,183	$	159	$	32	$	1,092	$	622	$	—	$	—	$	12,666
Collectively evaluated for impairment	34,490		11,613		2,494		429		612		174		—		64		49,876
Loans acquired with credit deterioration	—		—		—		—		4,778		—		—		—		4,778
Total	$	40,068	$	16,796	$	2,653	$	461	$	6,482	$	796	$	—	$	64	$	67,320

Loans outstanding:
Individually evaluated for impairment	$	49,177	$	37,314	$	5,692	$	535	$	19,992	$	2,792	$	—	$	767	$	116,269
Collectively evaluated for impairment	3,076,924		778,350		117,249		32,421		613,696		84,325		—		31,802		4,734,767
Loans acquired with credit deterioration	—		—		—		—		144,269		46,312		1,744		32,982		225,307
Total	$	3,126,101	$	815,664	$	122,941	$	32,956	$	777,957	$	133,429	$	1,744	$	65,551	$	5,076,343



	December 31, 2012
	Legacy								Acquired								Total
	Real Estate		Commercial Business		Trade Finance		Consumer and Other		Real Estate		Commercial Business		Trade Finance		Consumer and Other		Total
	(In thousands)
Allowance for loan losses:
Individually evaluated for impairment	$	4,723	$	3,084	$	96	$	—	$	183	$	1,074	$	—	$	—	$	9,160
Collectively evaluated for impairment	36,782		13,406		2,253		658		—		41		3		103		53,246
Loans acquired with credit deterioration	—		—		—		—		4,535		—		—		—		4,535
Total	$	41,505	$	16,490	$	2,349	$	658	$	4,718	$	1,115	$	3	$	103	$	66,941

Loans outstanding:
Individually evaluated for impairment	$	37,394	$	23,951	$	6,199	$	536	$	17,951	$	3,323	$	—	$	802	$	90,156
Collectively evaluated for impairment	2,387,080		729,904		144,173		27,284		628,449		114,621		242		18,257		4,050,010
Loans acquired with credit deterioration	—		—		—		—		103,884		49,757		1,456		3,075		158,172
Total	$	2,424,474	$	753,855	$	150,372	$	27,820	$	750,284	$	167,701	$	1,698	$	22,134	$	4,298,338

As of December 31, 2013 and December 31, 2012, the liability for unfunded commitments was $885 thousand and $802 thousand, respectively. For the year ended December 31, 2013 and 2012, the recognized provision for credit losses related to unfunded commitments was $83 thousand and $116 thousand.

The recorded investment in individually impaired loans was as follows:



	December 31, 2013			December 31, 2012
	(In thousands)
With Allocated Allowance
Without charge-off	$	85,920		$	65,526
With charge-off	851			2,599
With No Allocated Allowance
Without charge-off	23,160			17,536
With charge-off	6,338			4,495
Allowance on Impaired Loans	(12,666		)	(9,160		)
Impaired Loans, net of allowance	$	103,603		$	80,996

The following tables detail impaired loans (Legacy and Acquired) by portfolio segment as of December 31, 2013 and December 31, 2012 and for the years ended December 31, 2013 and 2012. Loans with no related allowance for loan losses are believed by management to have adequate collateral securing their carrying value.



	As of December 31, 2013						For the year ended December 31, 2013
Total Impaired Loans	Recorded Investment*		Unpaid Contractual Principal Balance		Related Allowance		Average Recorded Investment*		Interest Income Recognized during Impairment
	(In thousands)
With Related Allowance:
Real Estate—Residential	$	—	$	—	$	—	$	—	$	—
Real Estate—Commercial
Retail	7,318		7,451		827		7,783		181
Hotel & Motel	11,920		12,744		2,841		11,432		550
Gas Station & Car Wash	3,145		3,236		519		2,090		117
Mixed Use	930		953		212		1,108		43
Industrial & Warehouse	12,398		12,470		810		9,496		323
Other	10,262		10,351		1,461		9,826		405
Real Estate—Construction	—		—		—		—		—
Commercial Business	34,663		36,472		5,805		27,010		1,572
Trade Finance	5,600		5,628		159		5,313		41
Consumer and Other	535		535		32		348		23
	$	86,771	$	89,840	$	12,666	$	74,406	$	3,255
With No Related Allowance
Real Estate—Residential	$	—	$	—	$	—	$	—	$	—
Real Estate—Commercial
Retail	4,025		6,591		—		3,428		45
Hotel & Motel	6,502		10,498		—		6,304		—
Gas Station & Car Wash	4,845		8,273		—		3,803		139
Mixed Use	845		912		—		697		—
Industrial & Warehouse	3,806		7,204		—		3,958		10
Other	1,548		3,647		—		3,043		—
Real Estate—Construction	1,625		1,625		—		1,670		89
Commercial Business	5,443		8,437		—		2,770		25
Trade Finance	92		7,279		—		18		—
Consumer and Other	767		831		—		1,067		—
	$	29,498	$	55,297	$	—	$	26,758	$	308
Total	$	116,269	$	145,137	$	12,666	$	101,164	$	3,563


*	Unpaid contractual principal balance less charge-offs, interest applied to principal and purchase discounts.



	As of December 31, 2013						For the year ended December 31, 2013
Impaired APLs⁽¹⁾	Recorded Investment*		Unpaid Contractual Principal Balance		Related Allowance		Average Recorded Investment*		Interest Income Recognized during Impairment
	(In thousands)
With Related Allowance:
Real Estate—Residential	$	—	$	—	$	—	$	—	$	—
Real Estate—Commercial
Retail	391		397		15		1,084		14
Hotel & Motel	—		—		—		—		—
Gas Station & Car Wash	794		885		341		485		—
Mixed Use	—		—		—		—		—
Industrial & Warehouse	5,128		5,200		612		6,323		—
Other	1,362		1,412		124		1,819		43
Real Estate—Construction	—		—		—		—		—
Commercial Business	1,984		3,354		622		2,827		5
Trade Finance	—		—		—		—		—
Consumer and Other	—		—		—		—		—
	$	9,659	$	11,248	$	1,714	$	12,538	$	62
With No Related Allowance
Real Estate—Residential	$	—	$	—	$	—	$	—	$	—
Real Estate—Commercial
Retail	1,244		2,216		—		953		14
Hotel & Motel	6,441		8,676		—		6,169		—
Gas Station & Car Wash	1,614		2,109		—		1,366		62
Mixed Use	—		—		—		—		—
Industrial & Warehouse	1,883		3,446		—		2,482		10
Other	1,135		1,547		—		1,600		—
Real Estate—Construction	—		—		—		—		—
Commercial Business	808		948		—		291		—
Trade Finance	—		—		—		—		—
Consumer and Other	767		831		—		779		—
	$	13,892	$	19,773	$	—	$	13,640	$	86
Total	$	23,551	$	31,021	$	1,714	$	26,178	$	148


*	Unpaid contractual principal balance less charge-offs, interest applied to principal and purchase discounts.


⁽¹⁾	APLs that became impaired subsequent to being acquired.



	As of December 31, 2012						For the year ended December 31, 2012
Total Impaired Loans	Recorded Investment*		Unpaid Contractual Principal Balance		Related Allowance		Average Recorded Investment*		Interest Income Recognized during Impairment
	(In thousands)
With Related Allowance:
Real Estate—Residential	$	—	$	—	$	—	$	—	$	—
Real Estate—Commercial
Retail	5,477		5,610		1,167		3,512		255
Hotel & Motel	8,990		8,995		1,860		17,536		426
Gas Station & Car Wash	1,892		2,440		73		2,908		—
Mixed Use	900		976		250		3,182		—
Industrial & Warehouse	2,074		2,153		567		3,052		66
Other	16,184		16,389		989		14,322		805
Real Estate—Construction	—		—		—		26		—
Commercial Business	26,354		29,073		4,158		25,227		1,252
Trade Finance	6,199		7,173		96		3,510		248
Consumer and Other	55		56		—		119		4
	$	68,125	$	72,865	$	9,160	$	73,394	$	3,056
With No Related Allowance
Real Estate—Residential	$	—	$	—	$	—	$	—	$	—
Real Estate—Commercial
Retail	2,516		5,404		—		1,602		48
Hotel & Motel	6,212		8,202		—		1,365		—
Gas Station & Car Wash	1,731		4,359		—		1,775		—
Mixed Use	899		923		—		180		—
Industrial & Warehouse	4,392		6,450		—		4,408		160
Other	2,371		6,283		—		2,598		—
Real Estate—Construction	1,710		1,710		—		1,710		111
Commercial Business	920		1,368		—		8,028		18
Trade Finance	—		—		—		946		—
Consumer and Other	1,280		1,316		—		357		20
	$	22,031	$	36,015	$	—	$	22,969	$	357
Total	$	90,156	$	108,880	$	9,160	$	96,363	$	3,413


*	Unpaid contractual principal balance less charge-offs, interest applied to principal and purchase discounts.



	As of December 31, 2012						For the year ended December 31, 2012
Impaired APLs⁽¹⁾	Recorded Investment*		Unpaid Contractual Principal Balance		Related Allowance		Average Recorded Investment*		Interest Income Recognized during Impairment
	(In thousands)
With Related Allowance:
Real Estate—Residential	$	—	$	—	$	—	$	—	$	—
Real Estate—Commercial
Retail	1,286		1,286		9		920		64
Hotel & Motel	—		—		—		3,676		—
Gas Station & Car Wash	—		—		—		57		—
Mixed Use	—		—		—		—		—
Industrial & Warehouse	832		887		2		331		36
Other	4,272		4,461		172		1,711		288
Real Estate—Construction	—		—		—		—		—
Commercial Business	2,974		3,072		1,074		1,625		26
Trade Finance	—		—		—		—		—
Consumer and Other	—		—		—		—		—
	$	9,364	$	9,706	$	1,257	$	8,320	$	414
With No Related Allowance
Real Estate—Residential	$	—	$	—	$	—	$	—	$	—
Real Estate—Commercial
Retail	800		840		—		161		48
Hotel & Motel	5,990		7,375		—		1,198		—
Gas Station & Car Wash	774		1,865		—		608		—
Mixed Use	—		—		—		—		—
Industrial & Warehouse	3,190		3,302		—		2,005		160
Other	807		3,156		—		993		—
Real Estate—Construction	—		—		—		—		—
Commercial Business	349		681		—		680		15
Trade Finance	—		—		—		—		—
Consumer and Other	802		836		—		160		—
	$	12,712	$	18,055	$	—	$	5,805	$	223
Total	$	22,076	$	27,761	$	1,257	$	14,125	$	637


*	Unpaid contractual principal balance less charge-offs, interest applied to principal and purchase discounts.


⁽¹⁾	APLs that became impaired subsequent to being acquired.



	For the year ended December 31, 2011
Total Impaired Loans	Average Recorded Investment*		Interest Income Recognized during Impairment

With Related Allowance:
Real Estate—Residential	$	—	$	—
Real Estate—Commercial
Retail	3,476		34
Hotel & Motel	14,581		1,013
Gas Station & Car Wash	2,825		95
Mixed Use	1,561		158
Industrial & Warehouse	4,819		310
Other	6,195		298
Real Estate—Construction	2,504		—
Commercial Business	23,133		538
Trade Finance	899		71
Consumer and Other	—		—
	$	59,993	$	2,517
With No Related Allowance
Real Estate—Residential	$	—	$	—
Real Estate—Commercial
Retail	6,199		—
Hotel & Motel	4,722		—
Gas Station & Car Wash	2,584		—
Mixed Use	2,157		—
Industrial & Warehouse	3,150		—
Other	10,596		—
Real Estate—Construction	3,280		113
Commercial Business	12,432		203
Trade Finance	758		30
Consumer and Other	145		—
	$	46,023	$	346
Total	$	106,016	$	2,863


*	Unpaid contractual principal balance less charge-offs, interest applied to principal and purchase discounts.

Generally, loans are placed on nonaccrual status if principal or interest payments become 90 days past due and/or management deems the collectibility of the principal and/or interest to be in question, as well as when required by regulatory requirements. Loans to a customer whose financial condition has deteriorated are considered for nonaccrual status whether or not the loan is 90 days or more past due. Generally, payments received on nonaccrual loans are recorded as principal reductions. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The following tables present the aging of past due loans as of December 31, 2013 and December 31, 2012 by class of loans:



	As of December 31, 2013
	Past Due and Accruing
	30-59 Days Past Due		60-89 Days Past Due		90 or More Days Past Due		Total		Nonaccrual Loans		Total Delinquent loans
	(In thousands)
Legacy Loans
Real estate—Residential	$	—	$	—	$	—	$	—	$	—	$	—
Real estate—Commercial
Retail	122		—		—		122		4,363		4,485
Hotel & Motel	—		—		—		—		121		121
Gas Station & Car Wash	1,038		—		—		1,038		2,228		3,266
Mixed Use	—		—		—		—		974		974
Industrial & Warehouse	215		—		—		215		1,923		2,138
Other	—		—		—		—		1,398		1,398
Real estate—Construction	—		—		—		—		—		—
Commercial business	780		244		—		1,024		6,402		7,426
Trade finance	—		—		—		—		1,031		1,031
Consumer and other	54		22		—		76		—		76
Subtotal	$	2,209	$	266	$	—	$	2,475	$	18,440	$	20,915
Acquired Loans ⁽¹⁾
Real estate—Residential	$	—	$	—	$	—	$	—	$	—	$	—
Real estate—Commercial
Retail	2,024		—		—		2,024		1,030		3,054
Hotel & Motel	—		—		—		—		6,441		6,441
Gas Station & Car Wash	1,068		—		—		1,068		1,339		2,407
Mixed Use	576		—		—		576		—		576
Industrial & Warehouse	121		—		—		121		6,890		7,011
Other	516		1,729		—		2,245		1,376		3,621
Real estate—Construction	—		—		—		—		—		—
Commercial business	524		703		5		1,232		2,708		3,940
Trade finance	—		—		—		—		—		—
Consumer and other	284		74		—		358		930		1,288
Subtotal	$	5,113	$	2,506	$	5	$	7,624	$	20,714	$	28,338
TOTAL	$	7,322	$	2,772	$	5	$	10,099	$	39,154	$	49,253


⁽¹⁾	The Acquired Loan balances exclude ACILs of $9.7 million, $2.5 million and $43.8 million that were 30-59 days, 60-89 days and 90 or more days past due, respectively.



	As of December 31, 2012
	Past Due and Accruing
	30-59 Days Past Due		60-89 Days Past Due		90 or More Days Past Due		Total		Nonaccrual Loans		Total Delinquent loans
	(In Thousands)
Legacy Loans
Real estate—Residential	$	—	$	—	$	—	$	—	$	—	$	—
Real estate—Commercial
Retail	87		—		—		87		3,316		3,403
Hotel & Motel	—		—		—		—		437		437
Gas Station & Car Wash	359		—		—		359		2,848		3,207
Mixed Use	34		—		—		34		1,799		1,833
Industrial & Warehouse	—		—		—		—		1,950		1,950
Other	—		115		—		115		2,379		2,494
Real estate—Construction	—		—		—		—		—		—
Commercial business	298		234		—		532		4,942		5,474
Trade finance	—		—		—		—		869		869
Consumer and other	190		—		—		190		—		190
Subtotal	968		349		—		1,317		18,540		19,857
Acquired Loans ⁽¹⁾
Real estate—Residential	$	—	$	—	$	—	$	—	$	—	$	—
Real estate—Commercial
Retail	75		—		—		75		—		75
Hotel & Motel	—		—		—		—		5,990		5,990
Gas Station & Car Wash	—		1,109		—		1,109		774		1,883
Mixed Use	—		—		—		—		—		—
Industrial & Warehouse	—		3,278		—		3,278		—		3,278
Other	15		—		—		15		937		952
Real estate—Construction	—		—		—		—		—		—
Commercial business	220		285		—		505		2,442		2,947
Trade finance	—		—		—		—		—		—
Consumer and other	98		17		—		115		970		1,085
Subtotal	$	408	$	4,689	$	—	$	5,097	$	11,113	$	16,210
TOTAL	$	1,376	$	5,038	$	—	$	6,414	$	29,653	$	36,067


⁽¹⁾	The Acquired Loan balances exclude ACILs of $7.0 million, $12.1 million and $17.7 million that were 30-59 days, 60-89 days and 90 or more days past due, respectively.

Loans accounted for under ASC 310-30 are generally considered accruing and performing loans and the accretable discount is accreted to interest income over the estimate life of the loan when cash flows are reasonably estimable. Accordingly, ACILs that are contractually past due are still considered to be accruing and performing loans. The loans may be classified as nonaccrual if the timing and amount of future cash flows is not reasonably estimable.

Loans are categorized into risk categories based on relevant information about the ability of borrowers to service their debt, including, but not limited to, current financial information, historical payment experience, credit documentation, public information, and current economic trends. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes all non-homogeneous loans. This analysis is performed at least on a quarterly basis. The Company uses the following definitions for risk ratings:


•	Pass: Loans that meet a preponderance or more of the Company's underwriting criteria and evidence an acceptable level of risk.


•	Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

•

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.


•	Doubtful/Loss: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

The following tables present the risk rating for Legacy Loans and Acquired Loans as of December 31, 2013 and December 31, 2012 by class of loans:



	As of December 31, 2013
	Pass		Special Mention		Substandard		Doubtful/Loss		Total
	(In thousands)
Legacy Loans:
Real estate—Residential	$	8,070	$	—	$	—	$	—	$	8,070
Real estate—Commercial
Retail	842,815		858		14,365		—		858,038
Hotel & Motel	568,263		1,841		13,661		—		583,765
Gas Station & Car Wash	455,205		—		10,854		—		466,059
Mixed Use	259,788		360		3,324		—		263,472
Industrial & Warehouse	251,993		4,116		12,056		—		268,165
Other	589,895		3,928		11,493		359		605,675
Real estate—Construction	71,231		—		1,626		—		72,857
Commercial business	759,956		12,756		42,952		—		815,664
Trade finance	91,055		22,589		9,297		—		122,941
Consumer and other	32,389		32		535		—		32,956
Subtotal	$	3,930,660	$	46,480	$	120,163	$	359	$	4,097,662
Acquired Loans:
Real estate—Residential	$	1,066	$	284	$	619	$	—	$	1,969
Real estate—Commercial
Retail	237,325		9,319		28,128		94		274,866
Hotel & Motel	109,138		7,134		14,836		179		131,287
Gas Station & Car Wash	35,356		1,621		14,440		245		51,662
Mixed Use	32,992		1,467		5,316		—		39,775
Industrial & Warehouse	92,570		3,525		19,720		—		115,815
Other	133,752		6,698		21,573		560		162,583
Real estate—Construction	—		—		—		—		—
Commercial business	94,854		10,266		26,245		2,064		133,429
Trade finance	1,744		—		—		—		1,744
Consumer and other	51,036		2,695		7,460		4,360		65,551
Subtotal	$	789,833	$	43,009	$	138,337	$	7,502	$	978,681
Total	$	4,720,493	$	89,489	$	258,500	$	7,861	$	5,076,343



	As of December 31, 2012
	Pass		Special Mention		Substandard		Doubtful/Loss		Total
			(In thousands)
Legacy Loans:
Real estate—Residential	$	9,223	$	—	$	24	$	—	$	9,247
Real estate—Commercial
Retail	589,720		3,584		12,303		—		605,607
Hotel & Motel	453,908		1,894		16,795		—		472,597
Gas Station & Car Wash	370,803		1,288		9,982		—		382,073
Mixed Use	233,687		2,131		3,423		—		239,241
Industrial & Warehouse	202,066		1,010		4,295		370		207,741
Other	431,686		1,219		17,084		—		449,989
Real estate—Construction	56,270		—		1,710		—		57,980
Commercial business	726,073		6,164		21,514		104		753,855
Trade finance	136,197		7,976		6,199		—		150,372
Consumer and other	26,801		13		1,006		—		27,820
Subtotal	$	3,236,434	$	25,279	$	94,335	$	474	$	3,356,522
Acquired Loans:
Real estate—Residential	$	—	$	—	$	—	$	—	$	—
Real estate—Commercial
Retail	225,982		6,469		17,331		—		249,782
Hotel & Motel	105,032		16,150		13,215		—		134,397
Gas Station & Car Wash	33,360		7,192		4,119		—		44,671
Mixed Use	34,927		3,826		6,526		—		45,279
Industrial & Warehouse	114,616		1,385		9,470		—		125,471
Other	121,666		4,473		17,479		—		143,618
Real estate—Construction	1,093		—		5,972		—		7,065
Commercial business	119,026		14,057		34,047		571		167,701
Trade finance	242		334		1,122		—		1,698
Consumer and other	17,292		424		4,329		89		22,134
Subtotal	$	773,236	$	54,310	$	113,610	$	660	$	941,816
Total	$	4,009,670	$	79,589	$	207,945	$	1,134	$	4,298,338

The following table presents loans sold from loans held for investment or transferred from held for investment to held for sale during the year ended December 31, 2013 and 2012 by portfolio segment:



	Year Ended December 31,
	2013		2012
Sales or reclassification to held for sale
Real estate - Commercial	$	6,900	$	3,061
Total	$	6,900	$	3,061

The adequacy of the allowance for loan losses is determined by management based upon an evaluation and review of the credit quality of the loan portfolio, consideration of historical loan loss experience, relevant internal and external factors that affect the collection of a loan, and other pertinent factors.

The Migration Analysis is a formula methodology based on the Bank's actual historical net charge off experience for each loan class (type) pool and risk grade. The migration analysis is centered on the Bank's internal credit risk rating system. Our internal loan review and external contracted credit review examinations are used to determine and validate loan risk grades. This credit review system takes into consideration factors such as: borrower's background and experience; historical and current financial condition; credit history and payment performance; economic conditions and their impact on various industries; type, fair value and volatility of the fair value of collateral; lien position; and the financial strength of any guarantors.

A general loan loss allowance is provided on loans not specifically identified as impaired (“non-impaired loans”). The Bank's general loan loss allowance has two components: quantitative and qualitative risk factors. The quantitative risk factors are based on a historical loss migration methodology. The loans are classified by class and risk grade and the historical loss migration is tracked for the various classes. Loss experience is quantified for a specified period and then weighted to place more significance to the most recent loss history. That loss experience is then applied to the stratified portfolio at each quarter end. For the APLs, a general loan loss allowance is provided to the extent that there has been credit deterioration since the acquisition date.

Additionally, in order to systematically quantify the credit risk impact of other trends and changes within the loan portfolio, the Bank utilizes qualitative adjustments to the Migration Analysis within established parameters. The parameters for making adjustments are established under a Credit Risk Matrix that provides seven possible scenarios for each of the factors below. The matrix allows for up to three positive (major, moderate, and minor), three negative (major, moderate, and minor), and one neutral credit risk scenarios within each factor for each loan type pool. Generally, the factors are considered to have no significant impact (neutral) to our historical migration ratios. However, if information exists to warrant adjustment to the Migration Analysis, changes are made in accordance with the established parameters supported by narrative and/or statistical analysis. The Credit Risk Matrix and the nine possible scenarios enable the Bank to qualitatively adjust the Loss Migration Ratio by as much as 50 basis points in either direction (positive or negative) for each loan type pool. This matrix considers the following nine factors, which are patterned after the guidelines provided under the FFIEC Interagency Policy Statement on the Allowance for Loan and Lease Losses:


•	Changes in lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices.


•	Changes in national and local economic and business conditions and developments, including the condition of various market segments.


•	Changes in the nature and volume of the loan portfolio.


•	Changes in the experience, ability and depth of lending management and staff.


•	Changes in the trends of the volume and severity of past due loans, Classified Loans, nonaccrual loans, troubled debt restructurings and other loan modifications.


•	Changes in the quality of our loan review system and the degree of oversight by the Directors.


•	Changes in the value of underlying collateral for collateral-dependent loans.


•	The existence and effect of any concentrations of credit and changes in the level of such concentrations.


•	The effect of external factors, such as competition and legal and regulatory requirements, on the level of estimated losses in our loan portfolio.

The Company also establishes specific loss allowances for loans where we have identified potential credit risk conditions or circumstances related to a specific individual credit. The specific allowance amounts are determined by a method prescribed by FASB ASC 310-10-35-22, Measurement of Impairment. The loans identified as impaired will be accounted for in accordance with one of the three acceptable valuation methods: 1) the present value of future cash flows discounted at the loan's effective interest rate; 2) the loan's observable market price; or 3) the fair value of the collateral, if the loan is collateral dependent. For the collateral dependent impaired loans, we obtain a new appraisal to determine the amount of impairment as of the date that the loan became impaired. The appraisals are based on an “as is” valuation. To ensure that appraised values remain current, the Company either obtains updated appraisals every twelve months from a qualified independent appraiser or an internal re-valuation of the collateral is performed by qualified personnel. If the fair value of the collateral, less cost to sell, is less than the recorded amount of the loan, we then recognize impairment by creating or adjusting an existing valuation allowance with a corresponding charge to the provision for loan losses. If an impaired loan is expected to be collected through liquidation of the underlying collateral, the loan is deemed to be collateral dependent and the amount of impairment is charged off against the allowance for loan losses.

The Bank considers a loan to be impaired when it is probable that not all amounts due (principal and interest) will be collectible in accordance with the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. The significance of payment delays and payment shortfalls is determined on a case-by-case basis by taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal and interest owed.

For commercial business loans, real estate loans and certain consumer loans, the Company bases the measurement of loan impairment on the present value of the expected future cash flows, discounted at the loan's effective interest rate or on the fair value of the loan's collateral, less estimated costs to sell, if the loan is collateral dependent. Management evaluates most consumer loans for impairment on a collective basis because these loans generally have smaller balances and are homogeneous in the underwriting of terms and conditions and in the type of collateral.

The allowance for loan losses for ACILs is based upon expected cash flows for these loans. To the extent that a deterioration in borrower credit quality results in a decrease in expected cash flows subsequent to the acquisition of the loans, an allowance for loan losses would be established based on management's estimate of future credit losses over the remaining life of the loans.

The following table presents loans by portfolio segment and impairment method at December 31, 2013 and December 31, 2012:



	As of December 31, 2013
	Real estate - Residential			Real estate - Commercial			Real estate - Construction			Commercial business			Trade finance			Consumer and other			Total
	(Dollars in thousands)
Impaired loans (Gross carrying value)	$	—		$	67,544		$	1,625		$	40,106		$	5,692		$	1,302		$	116,269
Specific allowance	$	—		$	6,670		$	—		$	5,805		$	159		$	32		$	12,666
Loss coverage ratio	N/A			9.9		%	0.0		%	14.5		%	2.8		%	2.5		%	10.9		%
Non-impaired loans	$	10,039		$	3,753,619		$	71,231		$	908,987		$	118,993		$	97,205		$	4,960,074
General allowance	$	25		$	39,227		$	628		$	11,787		$	2,494		$	493		$	54,654
Loss coverage ratio	0.2		%	1.0		%	0.9		%	1.3		%	2.1		%	0.5		%	1.1		%
Total loans	$	10,039		$	3,821,163		$	72,856		$	949,093		$	124,685		$	98,507		$	5,076,343
Total allowance for loan losses	$	25		$	45,897		$	628		$	17,592		$	2,653		$	525		$	67,320
Loss coverage ratio	0.2		%	1.2		%	0.9		%	1.9		%	2.1		%	0.5		%	1.3		%



	As of December 31, 2012
	Real estate - Residential			Real estate - Commercial			Real estate - Construction			Commercial business			Trade finance			Consumer and other			Total
	(Dollars in thousands)
Impaired loans (Gross carrying value)	$	—		$	53,634		$	1,710		$	27,274		$	6,199		$	1,338		$	90,155
Specific allowance	$	—		$	4,906		$	—		$	4,158		$	96		$	—		$	9,160
Loss coverage ratio	N/A			9.1		%	0.0		%	15.2		%	1.5		%	0.0		%	10.2		%
Non-impaired loans	$	9,247		$	3,046,832		$	63,335		$	894,282		$	145,871		$	48,616		$	4,208,183
General allowance	$	74		$	40,256		$	986		$	13,448		$	2,256		$	761		$	57,781
Loss coverage ratio	0.8		%	1.3		%	1.6		%	1.5		%	1.5		%	1.6		%	1.4		%
Total loans	$	9,247		$	3,100,466		$	65,045		$	921,556		$	152,070		$	49,954		$	4,298,338
Total allowance for loan losses	$	74		$	45,162		$	986		$	17,606		$	2,352		$	761		$	66,941
Loss coverage ratio	0.8		%	1.5		%	1.5		%	1.9		%	1.5		%	1.5		%	1.6		%

Under certain circumstances, the Company provides borrowers relief through loan modifications. These modifications are either temporary in nature (“temporary modifications”) or are more substantive. At December 31, 2013, total modified loans were $58.9 million, compared to $51.5 million at December 31, 2012. The temporary modifications generally consist of interest only payments for a three to six month period, whereby principal payments are deferred. At the end of the modification period, the remaining principal balance is re-amortized based on the original maturity date. Loans subject to temporary modifications are generally downgraded to Substandard or Special Mention. At the end of the modification period, the loan either 1) returns to the original contractual terms; 2) is further modified and accounted for as a troubled debt restructuring in accordance with ASC 310-10-35; or 3) is disposed of through foreclosure or liquidation.

Troubled Debt Restructurings (“TDRs”) of loans are defined by ASC 310-40, Troubled Debt Restructurings by Creditors, and ASC 470-60, Troubled Debt Restructurings by Debtors, and evaluated for impairment in accordance with ASC 310-10-35. The concessions may be granted in various forms, including reduction in the stated interest rate, reduction in the amount of principal amortization, forgiveness of a portion of a loan balance or accrued interest, or extension of the maturity date. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under our internal underwriting policy.

A summary of TDRs on accrual and nonaccrual by type of concession as of December 31, 2013 and December 31, 2012 is presented below:



	As of December 31, 2013
	TDRs on accrual								TDRs on nonaccrual								TOTAL
	Real estate - Commercial		Commercial Business		Other		Total		Real estate - Commercial		Commercial Business		Other		Total		TOTAL
	(In thousands)
Payment concession	$	7,437	$	1,057	$	—	$	8,494	$	9,489	$	1,279	$	767	$	11,535	$	20,029
Maturity / Amortization concession	765		6,565		535		7,865		1,653		3,656		—		5,309		13,174
Rate concession	13,055		4,490		—		17,545		8,107		—		—		8,107		25,652
Principal forgiveness	—		—		—		—		—		49		—		49		49
	$	21,257	$	12,112	$	535	$	33,904	$	19,249	$	4,984	$	767	$	25,000	$	58,904



	As of December 31, 2012
	TDRs on accrual								TDRs on nonaccrual								TOTAL
	Real estate - Commercial		Commercial Business		Other		Total		Real estate - Commercial		Commercial Business		Other		Total		TOTAL
	(In thousands)
Payment concession	$	9,608	$	687	$	—	$	10,295	$	4,735	$	4,618	$	802	$	10,155	$	20,450
Maturity / Amortization concession	348		3,847		536		4,731		652		1,941		869		3,462		8,193
Rate concession	13,594		1,229		—		14,823		7,923		—		—		7,923		22,746
Principal forgiveness	—		—		—		—		—		62		—		62		62
	$	23,550	$	5,763	$	536	$	29,849	$	13,310	$	6,621	$	1,671	$	21,602	$	51,451

TDRs on accrual status are comprised of loans that were accruing at the time of restructuring and for which the Bank anticipates full repayment of both principal and interest under the restructured terms. TDRs that are on nonaccrual can be returned to accrual status after a period of sustained performance, generally determined to be six months of timely payments as modified. Sustained performance includes the periods prior to the modification if the prior performance met or exceeded the modified terms. TDRs on accrual status at December 31, 2013 were comprised of 15 commercial real estate loans totaling $21.3 million, 28 commercial business loans totaling $12.1 million and 2 consumer loans totaling $535 thousand. TDRs on accrual status at December 31, 2012 were comprised of 12 commercial real estate loans totaling $23.6 million and 20 commercial business loans totaling $5.8 million. Management expects that the TDRs on accrual status as of December 31, 2013, which were all performing in accordance with their restructured terms, will continue to comply with the restructured terms because of the reduced principal or interest payments on these loans. TDRs that were restructured at market interest rates and had sustained performance as agreed under the modified loan terms may be reclassified as non-TDRs after each year end but are still monitored for potential impairment.

The Company has allocated $6.6 million and $6.3 million of specific reserves to TDRs as of December 31, 2013 and 2012, respectively. As of December 31, 2013 and 2012, the Company did not have any outstanding commitments to extend additional funds to these borrowers.

The following table presents loans by class modified as TDRs that occurred during the year ended December 31, 2013 and 2012:



	For the year ended					For the year ended
	December 31, 2013					December 31, 2012
	Number of Loans	Pre-Modification		Post-Modification		Number of Loans	Pre-Modification		Post-Modification

Legacy Loans:
Real estate - Residential	—	$	—	$	—	—	$	—	$	—
Real estate - Commercial
Retail	6	6,195		6,214		5	2,456		2,321
Hotel & Motel	—	—		—		1	1,479		1,444
Gas Station & Car Wash	1	1,371		880		1	216		50
Mixed Use	—	—		—		—	—		—
Industrial & Warehouse	1	370		338		1	502		494
Other	—	—		—		4	12,391		9,234
Real estate - Construction	—	—		—		—	—		—
Commercial business	15	8,687		7,552		14	4,075		4,838
Trade Finance	—	—		—		1	1,493		401
Consumer and Other	2	970		490		1	480		480
Subtotal	25	$	17,593	$	15,474	28	$	23,092	$	19,262
Acquired Loans:
Real estate - Residential	—	$	—	$	—	—	$	—	$	—
Real estate - Commercial
Retail	3	336		321		2	1,458		1,286
Hotel & Motel	—	—		—		1	6,165		5,990
Gas Station & Car Wash	1	165		—		—	—		—
Mixed Use	—	—		—		—	—		—
Industrial & Warehouse	2	10,336		5,208		—	—		—
Other	2	1,137		1,122		1	670		631
Real estate - Construction	—	—		—		—	—		—
Commercial business	8	1,182		441		6	2,476		2,384
Trade Finance	—	—		—		—	—		—
Consumer and Other	—	—		—		4	808		802
Subtotal	16	$	13,156	$	7,092	14	$	11,577	$	11,093
Total	41	$	30,749	$	22,566	42	$	34,669	$	30,355

The specific reserves for the TDRs described above as of December 31, 2013 and 2012 were $2.0 million and $2.5 million, respectively, and the charge offs for the years ended December 31, 2013 and 2012 were $2.6 million and $158 thousand, respectively.

The following table presents loans by class for TDRs that have been modified within the previous twelve months and have subsequently had a payment default during the years ended December 31, 2013 and 2012:



	December 31, 2013			December 31, 2012			December 31, 2011
	Number of Loans	Balance		Number of Loans	Balance		Number of Loans	Balance
	(Dollars In thousands)
Legacy Loans:
Real estate - Commercial
Retail	1	$	508	1	$	268	1	$	771
Hotel & Motel	—	—		—	—		2	—
Gas Station & Car Wash	—	—		1	50		—	—
Industrial & Warehouse	—	—		—	—		3	961
Other	—	—		1	562		1	294
Commercial Business	5	540		3	76		8	422
Subtotal	6	$	1,048	6	$	956	15	$	2,448
Acquired Loans:
Real estate - Commercial
Retail	1	$	56	—	$	—	—	$	—
Hotel & Motel	—	—		1	5,990		—	—
Gas Station & Car Wash	1	—		—	—		—	—
Industrial & Warehouse	1	5,128		—	—		—	—
Other	—	—		—	—		—	—
Commercial Business	3	47		2	143		—	—
Subtotal	6	$	5,231	3	$	6,133	—	$	—
	12	$	6,279	9	$	7,089	15	$	2,448

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. The specific reserves for the TDRs described above as of December 31, 2013 and 2012 were $661 thousand and $89 thousand, respectively, and the charge offs for the years ended December 31, 2013 and 2012 were $7.0 million and $158 thousand, respectively.

The six Legacy Loans that subsequently defaulted in 2013 were modified through payment concessions, maturity/amortization concessions, or rate concessions. The payment concessions were comprised of two Commercial Business loans totaling $540 thousand. The maturity / amortization concessions were comprised of two Commercial Business loans that were fully charged off during the year. The rate concessions were comprised of one Real Estate Commercial - Retail loan totaling $508 thousand, and one Commercial Business loan that was fully charged off during the year.

The six Acquired Loans that subsequently defaulted in 2013 were modified through payment concessions and are comprised of: three Commercial Business loans totaling $47 thousand, one Real Estate Commercial - Industrial loan totaling $5.1 million, one Real Estate Commercial - Retail loan totaling $56 thousand, and one Real Estate Commercial - Gas Station loan that was fully charged off during the year.

The six Legacy Loans that subsequently defaulted in 2012 were modified through payment concession, maturity / amortization concession, or rate concession. The payment concessions were comprised of one Real Estate Commercial - Gas Station & Car Wash loan totaling $50 thousand and one Commercial Business loan. The maturity / amortization concessions were comprised of one Real Estate Commercial - Retail loan totaling $268 thousand and two Commercial Business loans totaling $76 thousand. The rate concession was comprised of one Real Estate Commercial - Other loan totaling $562 thousand.

The three Acquired Loans that subsequently defaulted in 2012 were modified as follows: one Real Estate Commercial - Hotel & Motel loan totaling $6.0 million was modified through a rate concession and two Commercial Business loans totaling $143 thousand were modified through a payment concession and rate concession, respectively.

The fifteen Legacy Loans that subsequently defaulted during 2011 were modified through payment concessions and maturity date / amortization concessions. The payment concessions were comprised of: three Real Estate Commercial - Industrial & Warehouse loans totaling $961 thousand, five Commercial Business loans totaling $397 thousand, one Real Estate Commercial - Other loan totaling $294 thousand, and two Real Estate Commercial - Hotel & Motel loans. The maturity date / amortization concessions were comprised of one Real Estate Commercial - Retail loan totaling $771 thousand and three Commercial Business loan totaling $25 thousand.

Covered Assets

On April 16, 2010, the Department of Financial Institutions closed Innovative Bank, California, and appointed the FDIC as its receiver. On the same date, Center Bank assumed the banking operations of Innovative Bank from the FDIC under a purchase and assumption agreement and two related loss sharing agreements with the FDIC.

Covered nonperforming assets totaled $826 thousand and $882 thousand at December 31, 2013 and December 31, 2012, respectively. These covered nonperforming assets are subject to the loss sharing agreements with the FDIC. The covered nonperforming assets at December 31, 2013 and December 31, 2012 were as follows:



	December 31, 2013		December 31, 2012
	(In thousands)
Covered loans on nonaccrual status	$	236	$	489
Covered other real estate owned	590		393
Total covered nonperforming assets	$	826	$	882

Acquired covered loans	$	55,088	$	72,528

Related Party Loans

In the ordinary course of business, the Company entered into loan transactions with certain of its directors or associates of such directors (“Related Parties”). The loans to Related Parties are on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with unrelated parties. In management’s opinion, these transactions did not involve more than normal credit risk or present other unfavorable features. All loans to Related Parties were current as of December 31, 2013 and December 31, 2012, and the outstanding principal balance as of December 31, 2013 and December 31, 2012 was $3.9 million and $11.1 million, respectively.