Allowance for Loan and Lease Loss and Credit Quality

The Bank's methodology for assessing the appropriateness of the Allowance for Loan and Lease Loss ("ALLL") consists of three key elements: 1) the formula allowance; 2) the specific allowance; and 3) the unallocated allowance. By incorporating these factors into a single allowance requirement analysis, we believe all risk-based activities within the loan and lease portfolios are simultaneously considered.

Formula Allowance

When loans and leases are originated or acquired, they are assigned a risk rating that is reassessed periodically during the term of the loan or lease through the credit review process. The Bank's risk rating methodology assigns risk ratings ranging from 1 to 10, where a higher rating represents higher risk. The 10 risk rating categories are a primary factor in determining an appropriate amount for the formula allowance.

The formula allowance is calculated by applying risk factors to various segments of pools of outstanding loans and leases. Risk factors are assigned to each portfolio segment based on management's evaluation of the losses inherent within each segment. Segments with greater risk of loss will therefore be assigned a higher risk factor.

Base risk – The portfolio is segmented into loan categories, and these categories are assigned a Base risk factor based on an evaluation of the loss inherent within each segment.

Extra risk – Additional risk factors provide for an additional allocation of ALLL based on the loan and lease risk rating system and loan delinquency, and reflect the increased level of inherent losses associated with more adversely classified loans and leases.

Risk factors may be changed periodically based on management's evaluation of the following factors: loss experience; changes in the level of non-performing loans and leases; regulatory exam results; changes in the level of adversely classified loans and leases; improvement or deterioration in economic conditions; and any other factors deemed relevant. Additionally, Financial Pacific Leasing Inc. considers additional quantitative and qualitative factors: migration analysis; a static pool analysis of historic recoveries; and forecasting uncertainties. A migration analysis is a technique used to estimate the likelihood that an account will progress through the various delinquency states and ultimately be charged off.

Specific Allowance

Regular credit reviews of the portfolio identify loans that are considered potentially impaired. Potentially impaired loans are referred to the ALLL Committee which reviews and approves designated loans as impaired. A loan is considered impaired when, based on current information and events, we determine that we will probably not be able to collect all amounts due according to the loan contract, including scheduled interest payments. When we identify a loan as impaired, we measure the impairment using discounted cash flows or estimated note sale price, except when the sole remaining source of the repayment for the loan is the liquidation of the collateral. In these cases, we use the current fair value of the collateral, less selling costs, instead of discounted cash flows. If we determine that the value of the impaired loan is less than the recorded investment in the loan, we either recognize an impairment reserve as a specific allowance to be provided for in the allowance for loan and lease losses or charge-off the impaired balance on collateral-dependent loans if it is determined that such amount represents a confirmed loss. Loans determined to be impaired are excluded from the formula allowance so as not to double-count the loss exposure.

The combination of the formula allowance component and the specific allowance component represents the allocated allowance for loan and lease losses. There was no unallocated allowance as of December 31, 2017 and December 31, 2016.

Management believes that the ALLL was adequate as of December 31, 2017. There is, however, no assurance that future loan and lease losses will not exceed the levels provided for in the ALLL and could possibly result in additional charges to the provision for loan and lease losses.

The RUC is established to absorb inherent losses associated with our commitment to lend funds, such as with a letter or line of credit. The adequacy of the ALLL and RUC are monitored on a regular basis and are based on management's evaluation of numerous factors. These factors include the quality of the current loan portfolio; the trend in the loan portfolio's risk ratings; current economic conditions; loan concentrations; loan growth rates; past-due and non-performing trends; evaluation of specific loss estimates for all significant problem loans; historical charge-off and recovery experience; and other pertinent information.

There have been no significant changes to the Bank's ALLL methodology or policies in the periods presented.

Activity in the Allowance for Loan and Lease Losses

The following tables summarizes activity related to the allowance for loan and lease losses by loan and lease portfolio segment for the years ended December 31, 2017 and 2016:



(in thousands)	December 31, 2017
	Commercial Real Estate			Commercial			Residential			Consumer & Other			Total
Balance, beginning of period	$	47,795		$	58,840		$	17,946		$	9,403		$	133,984
Charge-offs	(2,407		)	(44,511		)	(985		)	(8,016		)	(55,919		)
Recoveries	3,068			8,163			764			3,294			15,289
(Recapture) provision	(2,691		)	40,813			1,635			7,497			47,254
Balance, end of period	$	45,765		$	63,305		$	19,360		$	12,178		$	140,608

	December 31, 2016
	Commercial Real Estate			Commercial			Residential			Consumer & Other			Total
Balance, beginning of period	$	54,293		$	47,487		$	22,017		$	6,525		$	130,322
Charge-offs	(3,137		)	(35,545		)	(1,885		)	(9,356		)	(49,923		)
Recoveries	1,958			4,995			1,028			3,930			11,911
(Recapture) provision	(5,319		)	41,903			(3,214		)	8,304			41,674
Balance, end of period	$	47,795		$	58,840		$	17,946		$	9,403		$	133,984

The valuation allowance on purchased impaired loans was increased by provision expense, which includes amounts related to subsequent deterioration of purchased impaired loans, of $396,000 for the year ended December 31, 2017, and $1.4 million for the year ended December 31, 2016. The increase due to the provision expense of the valuation allowance on purchased impaired loans was offset by recaptured provision of $733,000 for the year ended December 31, 2017, and $1.1 million for the year ended December 31, 2016.

The following tables present the allowance and recorded investment in loans and leases by portfolio segment and balances individually or collectively evaluated for impairment as of December 31, 2017 and 2016:



(in thousands)	December 31, 2017
	Commercial Real Estate		Commercial		Residential		Consumer & Other		Total
Allowance for loans and leases:
Collectively evaluated for impairment	$	43,186	$	62,912	$	18,912	$	12,150	$	137,160
Individually evaluated for impairment	531		4		—		—		535
Loans acquired with deteriorated credit quality	2,048		389		448		28		2,913
Total	$	45,765	$	63,305	$	19,360	$	12,178	$	140,608
Loans and leases:
Collectively evaluated for impairment	$	9,592,471	$	4,246,535	$	4,260,258	$	731,831	$	18,831,095
Individually evaluated for impairment	31,999		27,977		—		—		59,976
Loans acquired with deteriorated credit quality	149,282		4,151		35,224		456		189,113
Total	$	9,773,752	$	4,278,663	$	4,295,482	$	732,287	$	19,080,184



(in thousands)	December 31, 2016
	Commercial Real Estate		Commercial		Residential		Consumer & Other		Total
Allowance for loans and leases:
Collectively evaluated for impairment	$	44,205	$	58,515	$	17,353	$	9,345	$	129,418
Individually evaluated for impairment	859		8		—		—		867
Loans acquired with deteriorated credit quality	2,731		317		593		58		3,699
Total	$	47,795	$	58,840	$	17,946	$	9,403	$	133,984
Loans and leases:
Collectively evaluated for impairment	$	9,124,422	$	3,555,660	$	3,856,658	$	637,563	$	17,174,303
Individually evaluated for impairment	39,998		13,976		—		—		53,974
Loans acquired with deteriorated credit quality	230,642		5,991		43,157		596		280,386
Total	$	9,395,062	$	3,575,627	$	3,899,815	$	638,159	$	17,508,663

Summary of Reserve for Unfunded Commitments Activity

The following tables present a summary of activity in the RUC and unfunded commitments for the years ended December 31, 2017 and 2016:



(in thousands)	December 31, 2017		December 31, 2016
Balance, beginning of period	$	3,611	$	3,574
Net charge to other expense	352		37
Balance, end of period	$	3,963	$	3,611



(in thousands)
	Total
Unfunded loan and lease commitments:
December 31, 2017	$	4,947,750
December 31, 2016	$	4,192,059

Asset Quality and Non-Performing Loans and Leases

We manage asset quality and control credit risk through diversification of the loan and lease portfolio and the application of policies designed to promote sound underwriting and loan and lease monitoring practices. The Bank's Credit Quality Administration is charged with monitoring asset quality, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures across the Bank. Reviews of non-performing, past due loans and leases and larger credits, designed to identify potential charges to the allowance for loan and lease losses, and to determine the adequacy of the allowance, are conducted on an ongoing basis. These reviews consider such factors as the financial strength of borrowers, the value of the applicable collateral, loan and lease loss experience, estimated loan and lease losses, growth in the loan and lease portfolio, prevailing economic conditions and other factors.

Non-Accrual Loans and Leases and Loans and Leases Past Due

The following tables summarize our non-accrual loans and leases and loans and leases past due by loan and lease class as of December 31, 2017 and December 31, 2016:



(in thousands)	December 31, 2017
	Greater than 30 to 59 Days Past Due		60 to 90 Days Past Due		Greater than 90 Days and Accruing		Total Past Due		Non-Accrual		Current & Other ⁽¹⁾		Total Loans and Leases
Commercial real estate
Non-owner occupied term, net	$	207	$	2,097	$	—	$	2,304	$	4,578	$	3,484,255	$	3,491,137
Owner occupied term, net	4,997		2,015		71		7,083		13,870		2,467,298		2,488,251
Multifamily, net	—		—		—		—		355		3,087,437		3,087,792
Construction & development, net	—		—		—		—		—		540,707		540,707
Residential development, net	—		—		—		—		—		165,865		165,865
Commercial
Term, net	597		1,076		—		1,673		14,686		1,928,628		1,944,987
Lines of credit & other, net	1,263		—		401		1,664		6,402		1,158,107		1,166,173
Leases and equipment finance, net	8,494		10,133		2,857		21,484		11,574		1,134,445		1,167,503
Residential
Mortgage, net⁽²⁾	—		6,716		36,977		43,693		—		3,148,492		3,192,185
Home equity loans & lines, net	2,004		285		2,587		4,876		—		1,098,421		1,103,297
Consumer & other, net	3,116		870		529		4,515		—		727,772		732,287
Total, net of deferred fees and costs	$	20,678	$	23,192	$	43,422	$	87,292	$	51,465	$	18,941,427	$	19,080,184

⁽¹⁾Other includes purchased credit impaired loans of $189.1 million.

⁽²⁾Includes government guaranteed GNMA mortgage loans that Umpqua has the right but not the obligation to repurchase that are past due 90 days or more, totaling $12.4 million at December 31, 2017.



(in thousands)	December 31, 2016
	Greater than 30 to 59 Days Past Due		60 to 89 Days Past Due		Greater than 90 Days and Accruing		Total Past Due		Non-Accrual		Current & Other ⁽¹⁾		Total Loans and Leases
Commercial real estate
Non-owner occupied term, net	$	718	$	1,027	$	1,047	$	2,792	$	2,100	$	3,325,550	$	3,330,442
Owner occupied term, net	974		4,539		1		5,514		4,391		2,589,150		2,599,055
Multifamily, net	—		—		—		—		476		2,858,480		2,858,956
Construction & development, net	—		—		—		—		—		463,625		463,625
Residential development, net	—		—		—		—		—		142,984		142,984
Commercial
Term, net	319		233		—		552		6,880		1,501,348		1,508,780
Lines of credit & other, net	1,673		27		—		1,700		4,998		1,109,561		1,116,259
Leases and equipment finance, net	5,343		6,865		1,808		14,016		8,920		927,652		950,588
Residential
Mortgage, net ⁽²⁾	10		3,114		33,703		36,827		—		2,851,144		2,887,971
Home equity loans & lines, net	289		848		2,080		3,217		—		1,008,627		1,011,844
Consumer & other, net	3,261		1,185		587		5,033		—		633,126		638,159
Total, net of deferred fees and costs	$	12,587	$	17,838	$	39,226	$	69,651	$	27,765	$	17,411,247	$	17,508,663

⁽¹⁾Other includes purchased credit impaired loans of $280.4 million.

⁽²⁾Includes government guaranteed GNMA mortgage loans that Umpqua has the right but not the obligation to repurchase that are past due 90 days or more, totaling $10.9 million at December 31, 2016.

Impaired Loans

Loans with no related allowance reported generally represent non-accrual loans, which are also considered impaired loans. The Bank recognizes the charge-off on impaired loans in the period it arises for collateral dependent loans. Therefore, the non-accrual loans as of December 31, 2017 have already been written-down to their estimated net realizable value and are expected to be resolved with no additional material loss, absent further decline in market prices. The valuation allowance on impaired loans primarily represents the impairment reserves on performing restructured loans, and is 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.

The following tables summarize our impaired loans by loan class as of December 31, 2017 and 2016:



(in thousands)	December 31, 2017
			Recorded Investment
	Unpaid Principal Balance		Without Allowance		With Allowance		Related Allowance
Commercial real estate
Non-owner occupied term, net	$	15,930	$	2,603	$	13,310	$	314
Owner occupied term, net	12,775		11,272		940		94
Multifamily, net	3,994		355		3,519		123
Commercial
Term, net	28,117		19,084		2,510		4
Lines of credit & other, net	8,018		6,383		—		—
Total, net of deferred fees and costs	$	68,834	$	39,697	$	20,279	$	535



(in thousands)	December 31, 2016
			Recorded Investment
	Unpaid Principal Balance		Without Allowance		With Allowance		Related Allowance
Commercial real estate
Non-owner occupied term, net	$	19,797	$	278	$	19,116	$	524
Owner occupied term, net	8,467		1,768		6,445		131
Multifamily, net	4,015		476		3,520		123
Construction & development, net	1,091		—		1,091		9
Residential development, net	7,304		—		7,304		72
Commercial
Term, net	16,875		5,982		3,239		8
Lines of credit & other, net	8,279		4,755		—		—
Total, net of deferred fees and costs	$	65,828	$	13,259	$	40,715	$	867

The following table summarizes our average recorded investment and interest income recognized on impaired loans by loan class for the years ended December 31, 2017 and 2016:



(in thousands)	December 31, 2017				December 31, 2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial real estate
Non-owner occupied term, net	$	16,959	$	551	$	14,766	$	530
Owner occupied term, net	10,087		151		6,475		146
Multifamily, net	3,906		122		3,971		121
Construction & development, net	961		22		1,532		72
Residential development, net	5,816		163		7,666		315
Commercial
Term, net	17,157		330		16,843		217
Lines of credit & other, net	6,287		55		3,851		60
Leases and equipment finance, net	148		—		—		—
Total, net of deferred fees and costs	$	61,321	$	1,394	$	55,104	$	1,461

The impaired loans for which these interest income amounts were recognized primarily relate to accruing restructured loans.

Credit Quality Indicators

As previously noted, the Bank's risk rating methodology assigns risk ratings ranging from 1 to 10, where a higher rating represents higher risk. The Bank differentiates its lending portfolios into homogeneous loans and leases and non-homogeneous loans and leases. Homogeneous loans and leases are not risk rated until they are greater than 30 days past due, and risk rating is based on the past due status of the loan or lease. The 10 risk rating categories can be generally described by the following groupings for loans and leases:

Minimal Risk—A minimal risk loan or lease, risk rated 1, is to a borrower of the highest quality. The borrower has an unquestioned ability to produce consistent profits and service all obligations and can absorb severe market disturbances with little or no difficulty.

Low Risk—A low risk loan or lease, risk rated 2, is similar in characteristics to a minimal risk loan. Margins may be smaller or protective elements may be subject to greater fluctuation. The borrower will have a strong demonstrated ability to produce profits, provide ample debt service coverage and to absorb market disturbances.

Modest Risk—A modest risk loan or lease, risk rated 3, is a desirable loan or lease with excellent sources of repayment and no currently identifiable risk associated with collection. The borrower exhibits a very strong capacity to repay the credit in accordance with the repayment agreement. The borrower may be susceptible to economic cycles, but will have reserves to weather these cycles.

Average Risk—An average risk loan or lease, risk rated 4, is an attractive loan or lease with sound sources of repayment and no material collection or repayment weakness evident. The borrower has an acceptable capacity to pay in accordance with the agreement. The borrower is susceptible to economic cycles and more efficient competition, but should have modest reserves sufficient to survive all but the most severe downturns or major setbacks.

Acceptable Risk—An acceptable risk loan or lease, risk rated 5, is a loan or lease with lower than average, but still acceptable credit risk. These borrowers may have higher leverage, less certain but viable repayment sources, have limited financial reserves and may possess weaknesses that can be adequately mitigated through collateral, structural or credit enhancement. The borrower is susceptible to economic cycles and is less resilient to negative market forces or financial events. Reserves may be insufficient to survive a modest downturn.

Watch—A watch loan or lease, risk rated 6, is still pass-rated, but represents the lowest level of acceptable risk due to an emerging risk element or declining performance trend. Watch ratings are expected to be temporary, with issues resolved or manifested to the extent that a higher or lower rating would be appropriate. The borrower should have a plausible plan, with reasonable certainty of success, to correct the problems in a short period of time.

Special Mention—A special mention loan or lease, risk rated 7, has potential weaknesses that deserve 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. They contain unfavorable characteristics and are generally undesirable. Loans and leases in this category are currently protected but are potentially weak and constitute an undue and unwarranted credit risk, but not to the point of a substandard classification. A special mention loan or lease has potential weaknesses, which if not checked or corrected, weaken the asset or inadequately protect the Bank's position at some future date. For commercial and commercial real estate homogeneous loans and leases to be classified as special mention, risk rated 7, the loan or lease is greater than 30 to 59 days past due from the required payment date at month-end. Residential and consumer and other homogeneous loans are risk rated 7, when the loan is greater than 30 to 89 days past due from the required payment date at month-end.

Substandard—A substandard asset, risk rated 8, is inadequately protected by the current worth and paying capacity of the obligor 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. They are characterized by the distinct possibility that the Bank 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. Loans and leases are classified as substandard when they have unsatisfactory characteristics causing unacceptable levels of risk. A substandard loan or lease normally has one or more well-defined weaknesses that could jeopardize repayment of the debt. The likely need to liquidate assets to correct the problem, rather than repayment from successful operations is the key distinction between special mention and substandard. Commercial and commercial real estate homogeneous loans and leases are classified as a substandard loan or lease, risk rated 8, when the loan or lease is 60 to 89 days past due from the required payment date at month-end. Residential and consumer and other homogeneous loans are classified as a substandard loan, risk rated 8, when an open-end loan is 90 to 180 days past due from the required payment date at month-end or when a closed-end loan 90 to 120 days is past due from the required payment date at month-end.

Doubtful—Loans or leases classified as doubtful, risk rated 9, have all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, 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 reasonably specific pending factors, which may work towards strengthening of the asset, classification as a loss (and immediate charge-off) is deferred until more exact status may be determined. Pending factors include proposed merger, acquisition, liquidation procedures, capital injection, and perfection of liens on additional collateral and refinancing plans. In certain circumstances, a doubtful rating will be temporary, while the Bank is awaiting an updated collateral valuation. In these cases, once the collateral is valued and appropriate margin applied, the remaining un-collateralized portion will be charged-off. The remaining balance, properly margined, may then be upgraded to substandard, however must remain on non-accrual. Commercial and commercial real estate homogeneous doubtful loans or leases, risk rated 9, are 90 to 179 days past due from the required payment date at month-end.

Loss—Loans or leases classified as loss, risk rated 10, are considered un-collectible and of such little value that the continuance as an active Bank asset is not warranted. This rating does not mean that the loan or lease has no recovery or salvage value, but rather that the loan or lease should be charged-off now, even though partial or full recovery may be possible in the future. For a commercial or commercial real estate homogeneous loss loan or lease to be risk rated 10, the loan or lease is 180 days and more past due from the required payment date. These loans are generally charged-off in the month in which the 180 day time period elapses. Residential, consumer and other homogeneous loans are risk rated 10, when a closed-end loan becomes past due 120 cumulative days or when an open-end retail loan becomes past due 180 cumulative days from the contractual due date. These loans are generally charged-off in the month in which the 120 or 180 day period elapses.

Impaired—Loans are classified as impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal and interest when due, in accordance with the terms of the original loan agreement, without unreasonable delay. This generally includes all loans classified as non-accrual and troubled debt restructurings. Impaired loans are risk rated for internal and regulatory rating purposes, but presented separately for clarification.

The following tables summarize our internal risk rating by loan and lease class for the loan and lease portfolio, including purchased credit impaired loans, as of December 31, 2017 and December 31, 2016:



(in thousands)	December 31, 2017
	Pass/Watch		Special Mention		Substandard		Doubtful		Loss		Impaired ⁽¹⁾		Total
Commercial real estate
Non-owner occupied term, net	$	3,396,178	$	45,189	$	33,143	$	630	$	84	$	15,913	$	3,491,137
Owner occupied term, net	2,409,301		30,393		35,191		448		706		12,212		2,488,251
Multifamily, net	3,064,079		14,200		5,639		—		—		3,874		3,087,792
Construction & development, net	538,526		—		2,181		—		—		—		540,707
Residential development, net	165,426		—		439		—		—		—		165,865
Commercial
Term, net	1,900,230		12,735		10,266		82		80		21,594		1,944,987
Lines of credit & other, net	1,122,258		6,539		30,941		52		—		6,383		1,166,173
Leases and equipment finance, net	1,134,446		8,494		10,133		12,868		1,562		—		1,167,503
Residential
Mortgage, net⁽²⁾	3,145,363		7,512		35,928		—		3,382		—		3,192,185
Home equity loans & lines, net	1,097,886		2,558		2,322		—		531		—		1,103,297
Consumer & other, net	727,677		3,997		568		—		45		—		732,287
Total, net of deferred fees and costs	$	18,701,370	$	131,617	$	166,751	$	14,080	$	6,390	$	59,976	$	19,080,184

⁽¹⁾The percentage of impaired loans classified as pass/watch and substandard was 1.7% and 98.3% respectively, as of December 31, 2017.



(in thousands)	December 31, 2016
	Pass/Watch		Special Mention		Substandard		Doubtful		Loss		Impaired ⁽¹⁾		Total
Commercial real estate
Non-owner occupied term, net	$	3,205,241	$	55,194	$	48,699	$	1,368	$	546	$	19,394	$	3,330,442
Owner occupied term, net	2,466,247		75,189		46,781		972		1,653		8,213		2,599,055
Multifamily, net	2,828,370		11,903		14,687		—		—		3,996		2,858,956
Construction & development, net	458,328		1,712		2,494		—		—		1,091		463,625
Residential development, net	134,491		—		1,189		—		—		7,304		142,984
Commercial
Term, net	1,458,699		15,716		24,678		119		347		9,221		1,508,780
Lines of credit & other, net	1,063,305		10,565		37,387		3		244		4,755		1,116,259
Leases and equipment finance, net	927,378		5,614		6,866		9,752		978		—		950,588
Residential
Mortgage, net⁽²⁾	2,830,547		1,803		53,607		—		2,014		—		2,887,971
Home equity loans & lines, net	1,006,647		1,490		2,727		—		980		—		1,011,844
Consumer & other, net	633,098		4,446		527		—		88		—		638,159
Total, net of deferred fees and costs	$	17,012,351	$	183,632	$	239,642	$	12,214	$	6,850	$	53,974	$	17,508,663

⁽¹⁾The percentage of impaired loans classified as pass/watch, special mention, substandard and doubtful was 8.1%, 6.5%, 82.5%, and 2.9% respectively, as of December 31, 2016.

Troubled Debt Restructurings

At December 31, 2017 and December 31, 2016, impaired loans of $32.2 million and $40.7 million, respectively, were classified as accruing restructured loans. The restructurings were granted in response to borrower financial difficulty, and generally provide for a temporary modification of loan repayment terms. In order for a newly restructured loan to be considered for accrual status, the loan's collateral coverage generally will be greater than or equal to 100% of the loan balance, the loan is current on payments, and the borrower must either prefund an interest reserve or demonstrate the ability to make payments from a verified source of cash flow. Impaired restructured loans carry a specific allowance and the allowance on impaired restructured loans is calculated consistently across the portfolios.

There were $917,000 in available commitments for troubled debt restructurings outstanding as of December 31, 2017 and none as of December 31, 2016.

The following tables present troubled debt restructurings by accrual versus non-accrual status and by loan class as of December 31, 2017 and December 31, 2016:



(in thousands)	December 31, 2017
	Accrual Status		Non-Accrual Status		Total Modifications
Commercial real estate, net	$	17,694	$	5,088	$	22,782
Commercial, net	7,787		16,978		24,765
Residential, net	6,676		—		6,676
Total, net of deferred fees and costs	$	32,157	$	22,066	$	54,223



(in thousands)	December 31, 2016
	Accrual Status		Non-Accrual Status		Total Modifications
Commercial real estate, net	$	30,563	$	—	$	30,563
Commercial, net	3,054		3,345		6,399
Residential, net	7,050		—		7,050
Total, net of deferred fees and costs	$	40,667	$	3,345	$	44,012

The Bank's policy is that loans placed on non-accrual will typically remain on non-accrual status until all principal and interest payments are brought current and the prospect for future payment in accordance with the loan agreement appears relatively certain. The Bank's policy generally refers to six months of payment performance as sufficient to warrant a return to accrual status.

The following tables present newly restructured loans that occurred during the years ended December 31, 2017 and 2016:



(in thousands)	December 31, 2017
	Rate Modifications		Term Modifications		Interest Only Modifications		Payment Modifications		Combination Modifications		Total Modifications
Commercial real estate, net	$	—	$	—	$	—	$	—	$	5,086	$	5,086
Commercial, net	—		—		—		—		21,846		21,846
Residential, net	—		187		—		—		1,458		1,645
Total, net of deferred fees and costs	$	—	$	187	$	—	$	—	$	28,390	$	28,577

	December 31, 2016
	Rate Modifications		Term Modifications		Interest Only Modifications		Payment Modifications		Combination Modifications		Total Modifications
Commercial real estate, net	$	—	$	—	$	—	$	—	$	15,193	$	15,193
Commercial, net	—		—		—		—		4,600		4,600
Residential, net	—		—		—		—		2,882		2,882
Consumer & other, net	—		—		—		—		77		77
Total, net of deferred fees and costs	$	—	$	—	$	—	$	—	$	22,752	$	22,752

For the periods presented in the tables above, the outstanding recorded investment was the same pre and post modification.

There were $118,000 in financing receivables modified as troubled debt restructurings within the previous 12 months for which there was a payment default during the year ended December 31, 2017. There were $926,000 in financing receivables modified as troubled debt restructurings within the previous 12 months for which there was a payment default during the year ended December 31, 2016.