4.	Loans and Allowance for Loan Losses

Loan Origination/Risk Management

The Company has certain lending policies and procedures in place that are designed to minimize the level of risk within the loan portfolio. Diversification of the loan portfolio manages the risk associated with fluctuations in economic conditions. Authority levels are established for the extension of credit to ensure consistency throughout the Company. It is necessary that policies, processes and practices implemented to control the risks of individual credit transactions and portfolio segments are sound and adhered to. The Company maintains an independent loan review department that reviews and validates the risk assessment on a continual basis. Management regularly evaluates the results of the loan reviews. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.

Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Commercial loans are made based on the identified cash flows of the borrower and on the underlying collateral provided by the borrower. The cash flows of the borrower, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts from its customers. Commercial credit cards are generally unsecured and are underwritten with criteria similar to commercial loans including an analysis of the borrower’s cash flow, available business capital, and overall credit-worthiness of the borrower.

Asset-based loans are offered primarily in the form of revolving lines of credit to commercial borrowers that do not generally qualify for traditional bank financing. Asset-based loans are underwritten based primarily upon the value of the collateral pledged to secure the loan, rather than on the borrower’s general financial condition as traditionally reflected by cash flow, balance sheet strength, operating results, and credit bureau ratings. The Company utilizes pre-loan due diligence techniques, monitoring disciplines, and loan management practices common within the asset-based lending industry to underwrite loans to these borrowers.

Factoring loans provide working capital through the purchase and/or financing of accounts receivable to borrowers in the transportation industry and to commercial borrowers that do not generally qualify for traditional bank financing.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. The Company requires that an appraisal of the collateral be made at origination and on an as-needed basis, in conformity with current market conditions and regulatory requirements. The underwriting standards address both owner and non-owner occupied real estate.

Construction loans are underwritten using feasibility studies, independent appraisal reviews, sensitivity analysis or absorption and lease rates and financial analysis of the developers and property owners. Construction loans are based upon estimates of costs and value associated with the complete project. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their repayment being sensitive to interest rate changes, governmental regulation of real property, economic conditions, and the availability of long-term financing.

Underwriting standards for residential real estate and home equity loans are based on the borrower’s loan-to-value percentage, collection remedies, and overall credit history.

Consumer loans are underwritten based on the borrower’s repayment ability. The Company monitors delinquencies on all of its consumer loans and leases and periodically reviews the distribution of FICO scores relative to historical periods to monitor credit risk on its credit card loans. The underwriting and review practices combined with the relatively small loan amounts that are spread across many individual borrowers, minimizes risk. Consumer loans and leases that are 90 days past due or more are considered non-performing.

Credit risk is a potential loss resulting from nonpayment of either the primary or secondary exposure. Credit risk is mitigated with formal risk management practices and a thorough initial credit-granting process including consistent underwriting standards and approval process. Control factors or techniques to minimize credit risk include knowing the client, understanding total exposure, analyzing the client and debtor’s financial capacity, and monitoring the client’s activities. Credit risk and portions of the portfolio risk are managed through concentration considerations, average risk ratings, and other aggregate characteristics.

The loan portfolio is comprised of loans originated by the Company and purchased loans in connection with the Company’s acquisition of Marquette Financial Companies (Marquette) on May 31, 2015 (Acquisition Date). The purchased loans were recorded at estimated fair value at the Acquisition Date with no carryover of the related allowance. The purchased loans were segregated between those considered to be performing, non-purchased credit impaired loans (Non-PCI), and those with evidence of credit deterioration, purchased credit impaired loans (PCI). Purchased loans are considered impaired if there is evidence of credit deterioration and if it is probable, at acquisition, that all contractually required payments will not be collected.

At Acquisition Date, gross loans from the Marquette acquisition had a fair value of $980.4 million split between Non-PCI loans totaling $972.6 million and PCI loans totaling $7.8 million. The gross contractually required principal and interest payments receivable for the Non-PCI loans and PCI loans totaled $983.9 million and $9.3 million, respectively.

The fair value estimates for purchased loans are based on expected prepayments and the amount and timing of discounted expected principal, interest and other cash flows. Credit discounts representing the principal losses expected over the life of the loan are also a component of the initial fair value. In determining the Acquisition Date fair value of PCI loans, and in subsequent accounting, the Company generally aggregated purchased commercial, real estate, and consumer loans into pools of loans with common risk characteristics.

The difference between the fair value of Non-PCI loans and contractual amounts due at the Acquisition Date is accreted into income over the estimated life of the loans. Contractual amounts due represent the total undiscounted amount of all uncollected principal and interest payments.

Loans accounted for under ASC Topic 310-30

The excess of PCI loans’ contractual amounts due over the amount of undiscounted cash flows expected to be collected is referred to as the non-accretable difference. The non-accretable difference, which is neither accreted into income nor recorded on the consolidated balance sheet, reflects estimated future credit losses and uncollectible contractual interest expected to be incurred over the life of the PCI loans. The excess cash flows expected to be collected over the carrying amount of PCI loans is referred to as the accretable yield. This amount is accreted into interest income over the remaining life of the purchased loans or pools using the level yield method. The accretable yield is affected by changes in interest rate indices for variable rate loans, changes in prepayment speed assumptions, and changes in expected principal and interest payments over the estimated lives of the PCI loans.

Each quarter the Company evaluates the remaining contractual amounts due and estimates cash flows expected to be collected over the life of the PCI loans. Contractual amounts due may increase or decrease for a variety of reasons, for example, when the contractual terms of the loan agreement are modified, when interest rates on variable rate loans change, or when principal and/or interest payments are received. Cash flows expected to be collected on PCI loans are estimated by incorporating several key assumptions similar to the initial estimate of fair value. These key assumptions include probability of default, loss given default, and the amount of actual prepayments after the Acquisition Date. Prepayments affect the estimated lives of loans and could change the amount of interest income, and possibly principal, expected to be collected. In re-forecasting future estimated cash flows, credit loss expectations are adjusted as necessary. The adjustments are based, in part, on actual loss severities recognized for each loan type, as well as changes in the probability of default. For periods in which estimated cash flows are not reforecasted, the prior reporting period’s estimated cash flows are adjusted to reflect the actual cash received and credit events that transpired during the current reporting period.

Increases in expected cash flows of PCI loans subsequent to the Acquisition Date are recognized prospectively through adjustments of the yield on the loans or pools over their remaining lives, while decreases in expected cash flows are recognized as impairment through a provision for loan losses and an increase in the allowance.

The PCI loans are accounted for in accordance with ASC Topic 310-30, Loans and Debt Securities Purchased with Deteriorated Credit Quality. At September 30, 2015, the net recorded carrying amount of loans accounted for under ASC 310-30 was $7.1 million and the contractual amount due was $8.4 million.

Information about the PCI loan portfolio subject to purchased credit impairment accounting guidance (ASC 310-30) as of May 31, 2015 is as follows (in thousands):


	At May 31, 2015
PCI Loans:
Contractually required principal and interest at acquisition	$	9,282
Non-accretable difference		(1,307	)

Expected cash flows at acquisition		7,975
Accretable yield		(164	)

Fair value of purchased loans	$	7,811

Below is the composition of the net book value for the PCI loans accounted for under ASC 310-30 at September 30, 2015 (in thousands):


	At September 30, 2015
PCI Loans:
Contractual cash flows	$	8,411
Non-accretable difference		(1,307	)
Accretable yield		(14	)

Loans accounted for under ASC 310-30	$	7,090

Loan Aging Analysis

This table provides a summary of loan classes and an aging of past due loans at September 30, 2015 and December 31, 2014 (in thousands):


	September 30, 2015
	30-89 Days Past Due and Accruing		Greater than 90 Days Past Due and Accruing		Non- Accrual Loans		Total Past Due		PCI Loans		Current		Total Loans
Loans
Commercial:
Commercial	$	15,787	$	8	$	29,098	$	44,893	$	2,497	$	4,040,023	$	4,087,413
Asset-based		—		—		830		830		—		217,836		218,666
Factoring		—		—		706		706		—		105,272		105,978
Commercial – credit card		396		42		32		470		—		143,256		143,726
Real estate:
Real estate – construction		322		—		741		1,063		525		365,529		367,117
Real estate – commercial		2,391		562		9,948		12,901		1,744		2,477,234		2,491,879
Real estate – residential		690		—		1,236		1,926		—		472,509		474,435
Real estate – HELOC		227		—		3,360		3,587		—		715,452		719,039
Consumer:
Consumer – credit card		2,182		1,653		586		4,421		—		279,917		284,338
Consumer – other		3,268		287		3,418		6,973		2,324		103,852		113,149
Leases		—		—		—		—		—		40,386		40,386

Total loans	$	25,263	$	2,552	$	49,955	$	77,770	$	7,090	$	8,961,266	$	9,046,126


	September 30, 2015
	30-89 Days Past Due		Greater than 90 Days Past Due		Current		Total Loans
PCI Loans
Commercial:
Commercial	$	—	$	2,497	$	—	$	2,497
Asset-based		—		—		—		—
Factoring		—		—		—		—
Commercial – credit card		—		—		—		—
Real estate:
Real estate – construction		—		525		—		525
Real estate – commercial		—		1,744		—		1,744
Real estate – residential		—		—		—		—
Real estate – HELOC		—		—		—		—
Consumer:
Consumer – credit card		—		—		—		—
Consumer – other		106		51		2,167		2,324
Leases		—		—		—		—

Total PCI loans	$	106	$	4,817	$	2,167	$	7,090


	December 31, 2014
	30-89 Days Past Due and Accruing		Greater than 90 Days Past Due and Accruing		Non- Accrual Loans		Total Past Due		Current		Total Loans
Commercial:
Commercial	$	2,509	$	363	$	13,114	$	15,986	$	3,798,023	$	3,814,009
Commercial – credit card		267		147		37		451		115,258		115,709
Real estate:
Real estate – construction		1,244		—		983		2,227		253,779		256,006
Real estate – commercial		1,727		61		12,037		13,825		1,852,476		1,866,301
Real estate – residential		828		113		562		1,503		318,324		319,827
Real estate – HELOC		1,371		—		19		1,390		642,196		643,586
Consumer:
Consumer – credit card		2,268		2,303		560		5,131		305,165		310,296
Consumer – other		1,743		843		70		2,656		98,314		100,970
Leases		—		—		—		—		39,090		39,090

Total loans	$	11,957	$	3,830	$	27,382	$	43,169	$	7,422,625	$	7,465,794

Loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. Non-accrual loans include troubled debt restructurings on non-accrual status. Loan delinquency for all loans is shown in the tables above at September 30, 2015 and December 31, 2014, respectively. Non-PCI loans that become nonperforming subsequent to acquisition are put on nonaccrual status and reported as nonperforming or past due using the same criteria applied to the originated loan portfolio.

The Company has ceased the recognition of interest on loans with a carrying value of $50.0 million and $27.4 million at September 30, 2015 and December 31, 2014, respectively. Restructured loans totaled $35.3 million and $9.3 million at September 30, 2015 and December 31, 2014, respectively. Loans 90 days past due and still accruing interest totaled $2.6 million and $3.8 million at September 30, 2015 and December 31, 2014, respectively. There was an insignificant amount of interest recognized on impaired loans during 2015 and 2014.

The Company sold residential real estate loans with proceeds of $79.7 million and $51.9 million in the secondary market without recourse during the nine-month periods ended September 30, 2015 and September 30, 2014, respectively.

Credit Quality Indicators

As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to the risk grading of specified classes of loans, net charge-offs, non-performing loans, and general economic conditions.

The Company utilizes a risk grading matrix to assign a rating to each of its commercial, asset-based, factoring, commercial real estate, and construction real estate loans. The loan rankings are summarized into the following categories: Non-watch list, Watch, Special Mention, and Substandard. Any loan not classified in one of the categories described below is considered to be a Non-watch list loan. A description of the general characteristics of the loan ranking categories is as follows:

•

Watch – This rating represents credit exposure that presents higher than average risk and warrants greater than routine attention by Company personnel due to conditions affecting the borrower, the borrower’s industry or the economic environment. These conditions have resulted in some degree of uncertainty that results in higher than average credit risk.

•

Special Mention – This rating reflects 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 asset or the institution’s credit position at some future date. The rating is not adversely classified and does not expose an institution to sufficient risk to warrant adverse classification.

•

Substandard – This rating represents an asset inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Loans in this category are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified substandard. This category may include loans where the collection of full principal is doubtful or remote.

All other classes of loans are generally evaluated and monitored based on payment activity. Non-performing loans include restructured loans on non-accrual and all other non-accrual loans.

This table provides an analysis of the credit risk profile of each loan class excluded from ASC 310-30 at September 30, 2015 and December 31, 2014 (in thousands):

Credit Exposure

Credit Risk Profile by Risk Rating

Originated and Non-PCI Loans


	Commercial				Asset-based				Factoring
	September 30, 2015		December 31, 2014		September 30, 2015		December 31, 2014		September 30, 2015		December 31, 2014
Non-watch list	$	3,798,138	$	3,532,611	$	194,028	$	—	$	105,978	$	—
Watch		75,905		72,283		—		—		—		—
Special Mention		46,802		98,750		23,808		—		—		—
Substandard		164,071		110,365		830		—		—		—

Total	$	4,084,916	$	3,814,009	$	218,666	$	—	$	105,978	$	—


	Real estate – construction				Real estate – commercial
	September 30, 2015		December 31, 2014		September 30, 2015		December 31, 2014
Non-watch list	$	364,464	$	253,895	$	2,411,729	$	1,780,323
Watch		170		181		33,341		31,984
Special Mention		—		756		16,273		8,691
Substandard		1,958		1,174		28,792		45,303

Total	$	366,592	$	256,006	$	2,490,135	$	1,866,301

Credit Exposure

Credit Risk Profile Based on Payment Activity

Originated and Non-PCI Loans


	Commercial – credit card				Real estate – residential				Real estate – HELOC
	September 30, 2015		December 31, 2014		September 30, 2015		December 31, 2014		September 30, 2015		December 31, 2014
Performing	$	143,694	$	115,672	$	473,199	$	319,265	$	715,679	$	643,567
Non-performing		32		37		1,236		562		3,360		19

Total	$	143,726	$	115,709	$	474,435	$	319,827	$	719,039	$	643,586


	Consumer – credit card				Consumer – other				Leases
	September 30, 2015		December 31, 2014		September 30, 2015		December 31, 2014		September 30, 2015		December 31, 2014
Performing	$	283,752	$	309,736	$	107,407	$	100,900	$	40,386	$	39,090
Non-performing		586		560		3,418		70		—		—

Total	$	284,338	$	310,296	$	110,825	$	100,970	$	40,386	$	39,090

This table provides an analysis of the credit risk profile of each loan class accounted for under ASC 310-30 at September 30, 2015 and December 31, 2014 (in thousands):

Credit Exposure

Credit Risk Profile by Risk Rating

PCI Loans


	Commercial				Real estate – construction				Real estate – commercial
	September 30, 2015		December 31, 2014		September 30, 2015		December 31, 2014		September 30, 2015		December 31, 2014
Non-watch list	$	1,039	$	—	$	—	$	—	$	—	$	—
Watch		—		—		—		—		—		—
Special Mention		—		—		—		—		—		—
Substandard		1,458		—		525		—		1,744		—

Total	$	2,497	$	—	$	525	$	—	$	1,744	$	—

Credit Exposure

Credit Risk Profile Based on Payment Activity

PCI Loans


	Consumer – other
	September 30, 2015		December 31, 2014
Performing	$	2,324	$	—
Non-performing		—		—

Total	$	2,324	$	—

Allowance for Loan Losses

The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s judgment of inherent probable losses within the Company’s loan portfolio as of the balance sheet date. The allowance is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. Accordingly, the methodology is based on historical loss trends. The Company’s process for determining the appropriate level of the allowance for loan losses is designed to account for credit deterioration as it occurs. The provision for probable loan losses reflects loan quality trends, including the levels of and trends related to non-accrual loans, past due loans, potential problem loans, criticized loans and net charge-offs or recoveries, among other factors.

The level of the allowance reflects management’s continuing evaluation of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions and estimated losses inherent in the current loan portfolio. Portions of the allowance may be allocated for specific loans; however, the entire allowance is available for any loan that, in management’s judgment, should be charged off. While management utilizes its best judgment and information available, the adequacy of the allowance is dependent upon a variety of factors beyond the Company’s control, including, among other things, the performance of the Company’s loan portfolio, the economy, changes in interest rates and changes in the regulatory environment.

The Company’s allowance for loan losses consists of specific valuation allowances and general valuation allowances based on historical loan loss experience for similar loans with similar characteristics and trends, general economic conditions and other qualitative risk factors both internal and external to the Company.

The allowances established for probable losses on specific loans are based on a regular analysis and evaluation of impaired loans. Loans are classified based on an internal risk grading process that evaluates the obligor’s ability to repay, the underlying collateral, if any, and the economic environment and industry in which the borrower operates. When a loan is considered impaired, the loan is analyzed to determine the need, if any, to specifically allocate a portion of the allowance for loan losses to the loan. Specific valuation allowances are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk ranking of the loan and economic conditions affecting the borrower’s industry.

General valuation allowances are calculated based on the historical loss experience of specific types of loans including an evaluation of the time span and volume of the actual charge-off. The Company calculates historical loss ratios for pools of similar loans with similar characteristics based on the proportion of actual charge-offs experienced to the total population of loans in the pool. The historical loss ratios are updated based on actual charge-off experience. A valuation allowance is established for each pool of similar loans based upon the product of the historical loss ratio, time span to charge-off, and the total dollar amount of the loans in the pool. The Company’s pools of similar loans include similarly risk-graded groups of commercial loans, commercial real estate loans, commercial credit card, home equity loans, consumer real estate loans and consumer and other loans. The Company also considers a loan migration analysis for criticized loans. This analysis includes an assessment of the probability that a loan will move to a loss position based on its risk rating. The consumer credit card pool is evaluated based on delinquencies and credit scores. In addition, a portion of the allowance is determined by a review of qualitative factors by management.

Generally, the unsecured portion of a commercial or commercial real estate loan is charged off when, after analyzing the borrower’s financial condition, it is determined that the borrower is incapable of servicing the debt, little or no prospect for near term improvement exists, and no realistic and significant strengthening action is pending. For collateral-dependent commercial or commercial real estate loans, an analysis is completed regarding the Company’s collateral position to determine if the amounts due from the borrower are in excess of the calculated current fair value of the collateral. Specific allocations of the allowance for loan losses are made for any collateral deficiency. If a collateral deficiency is ultimately deemed to be uncollectible, the amount is charged off. Revolving commercial loans (such as commercial credit cards) which are past due 90 cumulative days are classified as a loss and charged off.

Generally, a consumer loan, or a portion thereof, is charged off in accordance with regulatory guidelines which provide that such loans be charged off when the Company becomes aware of the loss, such as from a triggering event that may include, but is not limited to, new information about a borrower’s intent and ability to repay the loan, bankruptcy, fraud, or death. However, the charge-off timeframe should not exceed the specified delinquency time frames, which state that closed-end retail loans (such as real estate mortgages, home equity loans and consumer installment loans) that become past due 120 cumulative days and open-end retail loans (such as home equity lines of credit and consumer credit cards) that become past due 180 cumulative days are classified as a loss and charged off.

ALLOWANCE FOR LOAN LOSSES AND RECORDED INVESTMENT IN LOANS

This table provides a rollforward of the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2015 (in thousands):


	Three Months Ended September 30, 2015
	Commercial			Real estate			Consumer			Leases			Total
Allowance for loan losses:
Beginning balance	$	59,378		$	8,892		$	9,288		$	163		$	77,721
Charge-offs		(1,124	)		(68	)		(2,263	)		—			(3,455	)
Recoveries		488			133			643			—			1,264
Provision		540			448			1,525			(13	)		2,500

Ending balance	$	59,282		$	9,405		$	9,193		$	150		$	78,030


	Nine Months Ended September 30, 2015
	Commercial			Real estate			Consumer			Leases			Total
Allowance for loan losses:
Beginning balance	$	55,349		$	10,725		$	9,921		$	145		$	76,140
Charge-offs		(4,624	)		(168	)		(7,413	)		—			(12,205	)
Recoveries		1,387			225			1,983			—			3,595
Provision		7,170			(1,377	)		4,702			5			10,500

Ending balance	$	59,282		$	9,405		$	9,193		$	150		$	78,030

Ending balance: individually evaluated for impairment	$	2,504		$	305		$	31		$	—		$	2,840
Ending balance: collectively evaluated for impairment		56,778			9,100			9,162			150			75,190
Loans:
Ending balance: loans	$	4,555,783		$	4,052,470		$	397,487		$	40,386		$	9,046,126
Ending balance: individually evaluated for impairment		52,450			8,957			3,365			—			64,772
Ending balance: collectively evaluated for impairment		4,503,333			4,043,513			394,122			40,386			8,981,354

This table provides a rollforward of the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2014 (in thousands):


	Three Months Ended September 30, 2014
	Commercial			Real estate			Consumer			Leases		Total
Allowance for loan losses:
Beginning balance	$	52,433		$	14,217		$	10,074		$	78	$	76,802
Charge-offs		(2,033	)		(57	)		(2,745	)		—		(4,835	)
Recoveries		396			8			445			—		849
Provision		3,983			(1,515	)		1,964			68		4,500

Ending balance	$	54,779		$	12,653		$	9,738		$	146	$	77,316


	Nine Months Ended September 30, 2014
	Commercial			Real estate			Consumer			Leases		Total
Allowance for loan losses:
Beginning balance	$	48,886		$	15,342		$	10,447		$	76	$	74,751
Charge-offs		(4,980	)		(238	)		(8,881	)		—		(14,099	)
Recoveries		664			25			1,975			—		2,664
Provision		10,209			(2,476	)		6,197			70		14,000

Ending balance	$	54,779		$	12,653		$	9,738		$	146	$	77,316

Ending balance: individually evaluated for impairment	$	2,252		$	1,368		$	—		$	—	$	3,620
Ending balance: collectively evaluated for impairment		52,527			11,285			9,738			146		73,696
Loans:
Ending balance: loans	$	3,669,298		$	2,999,052		$	395,613		$	39,200	$	7,103,163
Ending balance: individually evaluated for impairment		19,176			13,467			17			—		32,660
Ending balance: collectively evaluated for impairment		3,650,122			2,985,585			395,596			39,200		7,070,503

Impaired Loans

This table provides an analysis of impaired loans by class at September 30, 2015 and December 31, 2014 (in thousands):


	As of September 30, 2015
	Unpaid Principal Balance		Recorded Investment with No Allowance		Recorded Investment with Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment

Commercial:
Commercial	$	55,273	$	29,137	$	21,777	$	50,914	$	2,504	$	28,658
Asset-based		860		830		—		830		—		—
Factoring		706		706		—		706		—		—
Commercial – credit card		—		—		—		—		—		—
Real estate:
Real estate – construction		1,189		741		120		861		49		935
Real estate – commercial		7,228		5,106		1,361		6,467		225		8,314
Real estate – residential		1,582		1,120		284		1,404		31		1,426
Real estate – HELOC		249		225		—		225		—		114
Consumer:
Consumer – credit card		—		—		—		—		—		—
Consumer – other		3,398		2,174		1,191		3,365		31		1,152
Leases		—		—		—		—		—		—

Total	$	70,485	$	40,039	$	24,733	$	64,772	$	2,840	$	40,599


	As of December 31, 2014
	Unpaid Principal Balance		Recorded Investment with No Allowance		Recorded Investment with Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment

Commercial:
Commercial	$	21,758	$	13,928	$	3,132	$	17,060	$	972	$	16,022
Commercial – credit card		—		—		—		—		—		—
Real estate:
Real estate – construction		1,540		983		—		983		—		939
Real estate – commercial		9,546		4,454		3,897		8,351		935		11,298
Real estate – residential		1,083		909		—		909		—		1,006
Real estate – HELOC		—		—		—		—		—		—
Consumer:
Consumer – credit card		—		—		—		—		—		—
Consumer – other		1		1		—		1		—		12
Leases		—		—		—		—		—		—

Total	$	33,928	$	20,275	$	7,029	$	27,304	$	1,907	$	29,277

PCI loans are not subject to individual evaluation for impairment and are not reported as impaired loans based on PCI loan accounting.

Troubled Debt Restructurings

A loan modification is considered a troubled debt restructuring (TDR) when a concession has been granted to a debtor experiencing financial difficulties. The Company’s modifications generally include interest rate adjustments, principal reductions, and amortization and maturity date extensions. These modifications allow the debtor short-term cash relief to allow them to improve their financial condition. The Company’s restructured loans are individually evaluated for impairment and evaluated as part of the allowance for loan losses as described above in the Allowance for Loan Losses section of this note.

Purchased loans restructured after acquisition are not considered or reported as troubled debt restructurings if the loans evidenced credit deterioration as of the Acquisition Date and are accounted for in pools. For the period ended September 30, 2015, no purchased loans were modified as troubled debt restructurings after the Acquisition Date.

The Company had $217 thousand in commitments to lend to borrowers with loan modifications classified as TDR’s. The Company monitors loan payments on an on-going basis to determine if a loan is considered to have a payment default. Determination of payment default involves analyzing the economic conditions that exist for each customer and their ability to generate positive cash flows during the loan term. During the nine month period ended September 30, 2015, the Company had one commercial real estate loan classified as a TDR with a payment default totaling $178 thousand. A specific valuation allowance for the full amount of this loan had previously been established within the Company’s allowance for loan losses, and this loan was charged off against the allowance for loan losses during the current period.

This table provides a summary of loans restructured by class during the three and nine months ended September 30, 2015 (in thousands):


	Three Months Ended September 30, 2015						Nine Months Ended September 30, 2015
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Commercial:
Commercial		2	$	8,675	$	8,675		16	$	28,138	$	28,138
Asset-based		—		—		—		—		—		—
Factoring		—		—		—		—		—		—
Commercial – credit card		—		—		—		—		—		—
Real estate:
Real estate – construction		—		—		—		—		—		—
Real estate – commercial		—		—		—		1		261		261
Real estate – residential		1		261		261		1		121		121
Real estate – HELOC		—		—		—		—		—		—
Consumer:
Consumer – credit card		—		—		—		—		—		—
Consumer – other		—		—		—		—		—		—
Leases		—		—		—		—		—		—

Total		3	$	8,936	$	8,936		18	$	28,520	$	28,520

This table provides a summary of loans restructured by class during the three and nine months ended September 30, 2014 (in thousands):


	Three Months Ended September 30, 2014						Nine Months Ended September 30, 2014
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Commercial:
Commercial		—	$	—	$	—		1	$	469	$	469
Commercial – credit card		—		—		—		—		—		—
Real estate:
Real estate – construction		—		—		—		—		—		—
Real estate – commercial		1		178		178		1		178		178
Real estate – residential		1		67		67		4		277		301
Real estate – HELOC		—		—		—		—		—		—
Consumer:
Consumer – credit card		—		—		—		—		—		—
Consumer – other		—		—		—		—		—		—
Leases		—		—		—		—		—		—

Total		2	$	245	$	245		6	$	924	$	948