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

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


	December 31, 2014			December 31, 2013
	(Dollars in thousands)
Commercial and industrial	$	390,011		$	376,800
SBA		134,265			135,992
Real estate:
Commercial real estate		2,487,803			2,207,515
Construction		55,173			47,109
SFR mortgage		205,124			189,233
Dairy & livestock and agribusiness		279,173			294,292
Municipal lease finance receivables		77,834			89,106
Consumer and other loans		69,884			55,103

Gross loans, excluding PCI loans,		3,699,267			3,395,150
Less:
Deferred loan fees, net		(8,567	)		(9,234	)

Gross loans, excluding PCI loans, net of deferred loan fees		3,690,700			3,385,916
Less: Allowance for loan losses		(59,825	)		(75,235	)

Net loans, excluding PCI loans		3,630,875			3,310,681

PCI Loans		133,496			173,104
Discount on PCI loans		(7,129	)		(12,789	)

PCI loans, net		126,367			160,315

Total loans and lease finance receivables	$	3,757,242		$	3,470,996

As of December 31, 2014, 67.25% of the total loan portfolio consisted of commercial real estate loans and 1.49% of the total loan portfolio consisted of construction loans, respectively. Substantially all of the Company’s real estate loans and construction loans are secured by real properties located in California. At December 31, 2014, the Company held approximately $1.79 billion of fixed rate loans.

At December 31, 2014 and 2013, loans totaling $2.78 billion and $2.31 billion, respectively, were pledged to secure the borrowings from the FHLB and the Federal Reserve Bank.

Loans Held-for-Sale

The following table provides a summary of the activity related to loans held-for-sale for the years ended December 31, 2014 and 2013:


	For the Year Ended December 31,
	2014			2013
	(Dollars in thousands)
Balance, beginning of period	$	3,667		$	—
Originations of mortgage loans		—			485
Sales of mortgage loans		—			(485	)
Transfer of mortgage loans to held for investment		—			—
Sales of other loans		(3,667	)		—
Transfers of other loans to held-for-sale		—			3,667
Write-down of loans held-for-sale		—			—

Balance, end of period	$	—		$	3,667

Credit Quality Indicators

Central to our credit risk management is our loan risk rating system. The originating credit officer assigns borrowers an initial risk rating, which is reviewed and confirmed or changed, as appropriate, by Credit Management. Approvals are made based upon the amount of inherent credit risk specific to the transaction and are reviewed for appropriateness by senior line and credit management personnel. Credits are monitored by line and credit management personnel for deterioration in a borrower’s financial condition, which would impact the ability of the borrower to perform under the contract. Risk ratings are adjusted as necessary.

Loans are risk rated into the following categories (Credit Quality Indicators): Pass, Pass Watch List, Special Mention, Substandard, Doubtful and Loss. Each of these groups is assessed for the proper amount to be used in determining the adequacy of our allowance for losses. These categories can be described as follows:

Pass — These loans range from minimal credit risk to lower than average, but still acceptable, credit risk.

Pass Watch List — Pass Watch list loans usually require more than normal management attention. Loans which qualify for the Pass Watch List may involve borrowers with adverse financial trends, higher debt/equity ratios, or weaker liquidity positions, but not to the degree of being considered a defined weakness or problem loan where risk of loss may be apparent.

Special Mention — Loans assigned to this category are currently protected but are weak. Although concerns exist, the Company is currently protected and loss is unlikely. Such loans have potential weaknesses that may, if not checked or corrected, weaken the asset or inadequately protect the Company’s credit position at some future date.

Substandard — Loans classified as substandard include poor liquidity, high leverage, and erratic earnings or losses. The primary source of repayment is no longer realistic, and asset or collateral liquidation may be the only source of repayment. Substandard loans are marginal and require continuing and close supervision by credit management. Substandard loans have the distinct possibility that the Company will sustain some loss if deficiencies are not corrected.

Doubtful — Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added provision that the weaknesses make collection or the liquidation, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors which may work to the advantage and strengthening of the assets, their classifications as losses are deferred until their more exact status may be determined.

Loss — Loans classified as loss are considered uncollectible and of such little value that their continuance as active assets of the Company is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be achieved in the future.

The following table summarizes each class of loans, excluding PCI loans, according to internal risk ratings as of December 31, 2014 and 2013:


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

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


	December 31, 2013
	Pass		Watch List		Special Mention		Substandard		Doubtful & Loss		Total
	(Dollars in thousands)
Commercial and industrial	$	228,976	$	100,016	$	38,219	$	9,560	$	29	$	376,800
SBA		83,951		28,052		15,198		8,390		401		135,992
Real estate:
Commercial real estate
Owner occupied		449,853		147,165		74,999		57,934		—		729,951
Non-owner occupied		1,104,065		242,431		81,088		49,980		—		1,477,564
Construction
Speculative		8,611		21		1,529		17,617		—		27,778
Non-speculative		6,940		3,190		—		9,201		—		19,331
SFR mortgage		152,500		20,485		3,302		12,946		—		189,233
Dairy & livestock and agribusiness		43,588		86,580		92,514		69,005		2,605		294,292
Municipal lease finance receivables		43,445		18,338		20,893		6,430		—		89,106
Consumer and other loans		43,225		6,938		3,449		1,491		—		55,103

Total gross loans, excluding PCI loans	$	2,165,154	$	653,216	$	331,191	$	242,554	$	3,035	$	3,395,150

Allowance for Loan losses

The Company’s Credit Management Division is responsible for regularly reviewing the ALLL methodology, including loss factors and economic risk factors. The Bank’s Director Loan Committee provides Board oversight of the ALLL process and approves the ALLL methodology on a quarterly basis.

Our methodology for assessing the appropriateness of the allowance is conducted on a regular basis and considers the Bank’s overall loan portfolio. Refer to Note 3 — Summary of Significant Accounting Policies for a more detailed discussion concerning the allowance for loan losses.

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

The following tables present the balance and activity related to the allowance for loan losses for held-for-investment loans, excluding PCI loans, by portfolio segment as of December 31, 2014, 2013 and 2012:


	For the Year Ended December 31, 2014
	Ending Balance December 31, 2013		Charge-offs			Recoveries		(Recapture of) Provision for Loan Losses			Ending Balance December 31, 2014
	(Dollars in thousands)
Commercial and industrial	$	8,502	$	(888	)	$	873	$	(1,413	)	$	7,074
SBA		2,332		(50	)		114		161			2,557
Real estate:
Commercial real estate		39,402		(353	)		140		(5,816	)		33,373
Construction		1,305		—			885		(1,202	)		988
SFR mortgage		2,718		—			401		(775	)		2,344
Dairy & livestock and agribusiness		11,728		(1,061	)		492		(5,680	)		5,479
Municipal lease finance receivables		2,335		—			—		(923	)		1,412
Consumer and other loans		960		(17	)		154		165			1,262
Unallocated		5,953		—			—		(617	)		5,336

Total allowance for loan losses	$	75,235	$	(2,369	)	$	3,059	$	(16,100	)	$	59,825


	For the Year Ended December 31, 2013
	Ending Balance December 31, 2012		Charge-offs			Recoveries		(Recapture of) Provision for Loan Losses			Ending Balance December 31, 2013
	(Dollars in thousands)
Commercial and industrial	$	8,901	$	(2,491	)	$	544	$	1,548		$	8,502
SBA		2,751		—			215		(634	)		2,332
Real estate:
Commercial real estate		47,457		—			402		(8,457	)		39,402
Construction		2,291		—			703		(1,689	)		1,305
SFR mortgage		3,448		(252	)		367		(845	)		2,718
Dairy & livestock and agribusiness		18,696		—			109		(7,077	)		11,728
Municipal lease finance receivables		1,588		—			—		747			2,335
Consumer and other loans		1,170		(108	)		55		(157	)		960
Unallocated		6,139		—			—		(186	)		5,953

Total allowance for loan losses	$	92,441	$	(2,851	)	$	2,395	$	(16,750	)	$	75,235


	For the Year Ended December 31, 2012
	Ending Balance December 31, 2011		Charge-offs			Recoveries			(Recapture of) Provision for Loan Losses			Ending Balance December 31, 2012
	(Dollars in thousands)
Commercial and industrial	$	8,030	$	(1,158	)	$	876		$	1,153		$	8,901
SBA		2,624		(101	)		404			(176	)		2,751
Real estate:
Commercial real estate		47,841		(1,873	)		514			975			47,457
Construction		4,947		—			1,139			(3,795	)		2,291
SFR mortgage		4,032		(642	)		(108	)		166			3,448
Dairy & livestock and agribusiness		17,278		(1,150	)		166			2,402			18,696
Municipal lease finance receivables		2,403		—			—			(815	)		1,588
Consumer and other loans		1,590		(283	)		36			(173	)		1,170
Unallocated		5,219		—			—			920			6,139

Total allowance for loan losses	$	93,964	$	(5,207	)	$	3,027		$	657		$	92,441

The following tables present the recorded investment in loans held-for-investment, excluding PCI loans, and the related allowance for loan losses by portfolio segment, based on the Company’s methodology for determining the allowance for loan losses as December 31, 2014 and 2013:


	December 31, 2014
	Recorded Investment in Loans				Allowance for Loan Losses
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
	(Dollars in thousands)
Commercial and industrial	$	3,020	$	386,991	$	615	$	6,459
SBA		3,180		131,085		296		2,261
Real estate:
Commercial real estate		48,011		2,439,792		154		33,219
Construction		7,651		47,522		—		988
SFR mortgage		6,979		198,145		35		2,309
Dairy & livestock and agribusiness		15,796		263,377		—		5,479
Municipal lease finance receivables		—		77,834		—		1,412
Consumer and other loans		1,155		58,749		449		813
Unallocated		—		9,980		—		5,336

Total	$	85,792	$	3,613,475	$	1,549	$	58,276


	December 31, 2013
	Recorded Investment in Loans				Allowance for Loan Losses
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
	(Dollars in thousands)
Commercial and industrial	$	3,348	$	373,452	$	293	$	8,209
SBA		1,685		134,307		72		2,260
Real estate:
Commercial real estate		33,440		2,174,075		—		39,402
Construction		26,818		20,291		—		1,305
SFR mortgage		11,405		177,828		103		2,615
Dairy & livestock and agribusiness		29,812		264,480		2,702		9,026
Municipal lease finance receivables		—		89,106		—		2,335
Consumer and other loans		401		54,702		4		956
Unallocated								5,953

Total	$	106,909	$	3,288,241	$	3,174	$	72,061

Past Due and Nonperforming Loans

We seek to manage asset quality and control credit risk through diversification of the loan portfolio and the application of policies designed to promote sound underwriting and loan monitoring practices. The Bank’s Credit Management Division is in charge of monitoring asset quality, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures across the Bank. Reviews of nonperforming, past due loans and larger credits, designed to identify potential charges to the allowance for loan losses, and to determine the adequacy of the allowance, are conducted on an ongoing basis. These reviews consider such factors as the financial strength of borrowers and any guarantors, the value of the applicable collateral, loan loss experience, estimated loan losses, growth in the loan portfolio, prevailing economic conditions and other factors. Refer to Note 3 — Summary of Significant Accounting Policies for additional discussion concerning the Bank’s policy for past due and nonperforming loans.

Loans are reported as a troubled debt restructuring when the Bank grants a concession(s) to a borrower experiencing financial difficulties that the Bank would not otherwise consider. Examples of such concessions include a reduction in the interest rate, deferral of principal or accrued interest, extending the payment due dates or loan maturity date(s), or providing a lower interest rate than would be normally available for new debt of similar risk. As a result of these concessions, restructured loans are classified as impaired. Impairment reserves on non-collateral dependent restructured loans are measured by comparing the present value of expected future cash flows on the restructured loans discounted at the interest rate of the original loan agreement to the loan’s carrying value. These impairment reserves are recognized as a specific component to be provided for in the allowance for loan losses.

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

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

The following tables present the recorded investment in the aging of past due and nonaccrual loans, excluding PCI loans, by class of loans as of December 31, 2014 and 2013:


	December 31, 2014
	30-59 Days Past Due		60-89 Days Past Due		Total Past Due and Accruing		Nonaccrual (1)		Current		Total Loans and Lease Finance Receivables
	(Dollars in thousands)
Commercial and industrial	$	943	$	35	$	978	$	2,308	$	386,725		390,011
SBA		75		—		75		2,481		131,709		134,265
Real estate:
Commercial real estate
Owner occupied		36		86		122		4,072		786,173		790,367
Non-owner occupied		—		—		—		19,246		1,678,190		1,697,436
Construction
Speculative		—		—		—				36,574		36,574
Non-speculative		—		—		—		—		18,599		18,599
SFR mortgage		425		—		425		3,240		201,459		205,124
Dairy & livestock and agribusiness		—		—		—		103		279,070		279,173
Municipal lease finance receivables		—		—		—		—		77,834		77,834
Consumer and other loans		64		17		81		736		69,067		69,884

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

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


	December 31, 2013
	30-59 Days Past Due		60-89 Days Past Due		Total Past Due and Accruing		Nonaccrual (1)		Current		Total Loans and Lease Finance Receivables
	(Dollars in thousands)
Commercial and industrial	$	900	$	93	$	993	$	2,175	$	373,632	$	376,800
SBA		—		—		—		1,686		134,306		135,992
Real estate:
Commercial real estate
Owner occupied		220		—		220		4,105		725,626		729,951
Non-owner occupied		303		—		303		8,305		1,468,956		1,477,564
Construction
Speculative		—		—		—		9,966		17,812		27,778
Non-speculative		—		—		—		—		19,331		19,331
SFR mortgage		773		935		1,708		7,577		179,948		189,233
Dairy & livestock and agribusiness		—		—		—		5,739		288,553		294,292
Municipal lease finance receivables		—		—		—		—		89,106		89,106
Consumer and other loans		75		—		75		401		54,627		55,103

Total gross loans, excluding PCI loans	$	2,271	$	1,028	$	3,299	$	39,954	$	3,351,897	$	3,395,150

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

Impaired Loans

At December 31, 2014, the Company had impaired loans, excluding PCI loans, of $85.8 million. Of this amount, there was, $3.2 million of nonaccrual SFR mortgage loans, $23.3 million of nonaccrual commercial real estate loans, $2.3 million of nonaccrual commercial and industrial loans, $2.5 million of SBA loans, $103,000 of nonaccrual dairy & livestock and agribusiness loans and $736,000 of consumer and other loans. These impaired loans included $73.9 million of loans whose terms were modified in a troubled debt restructuring, of which $20.3 million are classified as nonaccrual. The remaining balance of $53.6 million consisted of 36 loans performing according to the restructured terms. The impaired loans had a specific allowance of $1.5 million at December 31, 2014. At December 31, 2013, the Company had classified as impaired, loans, excluding PCI loans, with a balance of $106.9 million with a related allowance of $3.2 million.

The following tables present held-for-investment loans, excluding PCI loans, individually evaluated for impairment by class of loans, as of December 31, 2014, 2013 and 2012:


	As of and For the Year Ended December 31, 2014
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded:
Commercial and industrial	$	2,391	$	3,624	$	—	$	2,487	$	41
SBA		1,853		2,197		—		1,886		53
Real estate:
Commercial real estate
Owner occupied		16,961		18,166		—		18,027		938
Non-owner occupied		30,068		38,156		—		30,133		723
Construction
Speculative		7,651		7,651		—		7,651		310
Non-speculative		—		—		—		—		—
SFR mortgage		6,512		7,493		—		6,566		110
Dairy & livestock and agribusiness		15,796		17,587		—		19,060		1,057
Municipal lease finance receivables		—		—		—		—		—
Consumer and other loans		673		1,094		—		623		2

Total		81,905		995,968		—		86,433		3,234

With a related allowance recorded:
Commercial and industrial		629		698		615		552		—
SBA		1,327		1,591		296		714		—
Real estate:
Commercial real estate
Owner occupied		—		—		—		—		—
Non-owner occupied		982		1,278		154		573		—
Construction
Speculative		—		—		—		—		—
Non-speculative		—		—		—		—		—
SFR mortgage		467		484		35		474		—
Dairy & livestock and agribusiness		—		—		—		—		—
Municipal lease finance receivables		—		—		—		—		—
Consumer and other loans		482		508		449		285		—

Total		3,887		4,559		1,549		2,598		—

Total impaired loans	$	86,077	$	100,527	$	1,549	$	89,031	$	3,234


	As of and For the Year Ended December 31, 2013
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded:
Commercial and industrial	$	3,055	$	3,843	$	—	$	3,248	$	66
SBA		1,613		2,084		—		1,717		—
Real estate:
Commercial real estate
Owner occupied		13,041		14,133		—		13,463		548
Non-owner occupied		20,399		26,155		—		21,313		817
Construction
Speculative		17,617		18,408		—		18,043		310
Non-speculative		9,201		9,201		—		9,217		572
SFR mortgage		10,919		12,516		—		10,408		103
Dairy & livestock and agribusiness		17,702		17,702		—		19,205		434
Municipal lease finance receivables		—		—		—		—		—
Consumer and other loans		385		445		—		389		—

Total		93,932		104,487		—		97,003		2,850

With a related allowance recorded:
Commercial and industrial		293		301		293		305		—
SBA		72		78		72		81		—
Real estate:
Commercial real estate
Owner occupied		—		—		—		—		—
Non-owner occupied		—		—		—		—		—
Construction
Speculative		—		—		—		—		—
Non-speculative		—		—		—		—		—
SFR mortgage		486		489		103		479		—
Dairy & livestock and agribusiness		12,110		12,783		2,702		13,377		209
Municipal lease finance receivables		—		—		—		—		—
Consumer and other loans		16		19		4		18		—

Total		12,977		13,670		3,174		14,260		209

Total impaired loans	$	106,909	$	118,157	$	3,174	$	111,263	$	3,059


	As of and For the Year Ended December 31, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded:
Commercial and industrial	$	1,936	$	2,476	$	—	$	2,131	$	43
SBA		1,449		1,739		—		1,635		—
Real estate:
Commercial real estate
Owner occupied		13,478		14,569		—		14,459		397
Non-owner occupied		28,639		38,633		—		29,801		670
Construction
Speculative		21,314		21,607		—		21,650		311
Non-speculative		9,219		9,219		—		9,219		574
SFR mortgage		11,079		14,342		—		11,292		54
Dairy & livestock and agribusiness		12,406		13,756		—		11,834		173
Municipal lease finance receivables		263		263		—		443		5
Consumer and other loans		142		196		—		145		—

Total		99,925		116,800		—		102,609		2,227

With a related allowance recorded:
Commercial and industrial		304		327		289		387		—
SBA		—		—		—		—		—
Real estate:
Commercial real estate
Owner occupied		19		19		2		28		—
Non-owner occupied		—		—		—		—		—
Construction
Speculative		—		—		—		—		—
Non-speculative		—		—		—		—		—
SFR mortgage		3,766		4,071		434		3,363		—
Dairy & livestock and agribusiness		4,303		4,340		1,596		4,017		73
Municipal lease finance receivables		—		—		—		—		—
Consumer and other loans		73		74		11		75		—

Total		8,465		8,831		2,332		7,870		73

Total impaired loans	$	108,390	$	125,631	$	2,332	$	110,479	$	2,300

The Company recognizes the charge-off of impairment allowance on impaired loans in the period it arises for collateral dependent loans. Therefore, the majority of the nonaccrual loans as of December 31, 2014 and 2013 have already been written down to their estimated net realizable value. The impaired loans with a related allowance recorded are on nonaccrual loans where a charge-off is not yet processed, on nonaccrual SFR loans where there is a potential modification in process, or on smaller balance non-collateral dependent loans.

Construction was completed on one $9.6 million impaired construction speculative loans which was therefore reflected as a nonperforming commercial real estate loan as of December 31, 2014.

Reserve for Unfunded Loan Commitments

The allowance for off-balance sheet credit exposure relates to commitments to extend credit, letters of credit and undisbursed funds on lines of credit. The Company evaluates credit risk associated with the off-balance sheet loan commitments at the same time it evaluates credit risk associated with the loan and lease portfolio. The Company recorded a reduction of the reserve for unfunded loan commitments of $1.3 million for the year ended December 31, 2014, compared with a provision for unfunded loan commitments of $500,000 for the year ended December 31, 2013 and a $1.0 million reduction of the reserve for the year ended December 31, 2012. As of December 31, 2014 and December 31, 2013, the balance in this reserve was $7.8 million and $9.1 million, respectively, and was included in other liabilities.

Troubled Debt Restructurings

Loans that are reported as TDRs are considered impaired and charge-off amounts are taken on an individual loan basis, as deemed appropriate. The majority of restructured loans are loans for which the terms of repayment have been renegotiated, resulting in a reduction in interest rate or deferral of principal. Refer to Note 3 — Summary of Significant Accounting Policies, Troubled Debt Restructurings, included herein.

As of December 31 2014, there were $73.9 million of loans classified as a TDR, of which $20.3 million were nonperforming and $53.6 million were performing. TDRs on accrual status are comprised of loans that were accruing interest at the time of restructuring or have demonstrated repayment performance in compliance with the restructured terms for a sustained period and for which the Company anticipates full repayment of both principal and interest. At December 31, 2014, performing TDRs were comprised primarily of 11 commercial real estate loans of $24.7 million, one construction loan of $7.7 million, eight dairy & livestock loans of $15.7 million, 11 SFR mortgage loans of $3.7 million, three commercial and industrial loans of $711,000, and one SBA loan of $699,000. There were no loans removed from TDR classification for the years ended December 31, 2014 and 2013.

The majority of TDRs have no specific allowance allocated as any impairment amount is normally charged off at the time a probable loss is determined. We have allocated $726,000 and $2.7 million of specific allowance to TDRs as of December 31, 2014 and December 31, 2013, respectively.

The following table provides a summary of the activity related to TDRs for the years ended December 31, 2014, and 2013:


	For the Year Ended December 31,
	2014			2013
	(Dollars in thousands)
Performing TDRs:
Beginning balance	$	66,955		$	50,392
New modifications		462			30,796
Payoffs and payments, net		(14,527	)		(15,492	)
TDRs returned to accrual status		699			1,259
TDRs placed on nonaccrual status		—			—

Ending balance	$	53,589		$	66,955


	For the Year Ended December 31,
	2014			2013
	(Dollars in thousands)
Nonperforming TDRs:
Beginning balance	$	25,119		$	31,309
New modifications (1)		4,372			4,187
Charge-offs		(1,061	)		(92	)
Payoffs and payments, net		(7,446	)		(9,026	)
TDRs returned to accrual status		(699	)		(1,259	)
TDRs placed on nonaccrual status		—			—

Ending balance	$	20,285		$	25,119

The following are the loans modified as troubled debt restructurings for the years ended December 31, 2014, 2013, and 2012:

Modifications (1)


	For the Year Ended December 31, 2014
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Outstanding Recorded Investment at December 31, 2014		Financial Effect Resulting From Modifications (2)
	(Dollars in thousands)
Commercial and industrial:
Interest rate reduction (3)(4)		3	$	553	$	553	$	522	$	185
Change in amortization period or maturity		—		—		—		—		—
Real estate:
Commercial real estate:
Owner occupied
Interest rate reduction (3)		1		199		—		187		—
Change in amortization period or maturity		—		—		—		—		—
Other		—		—		—		—		—
Non-owner occupied
Interest rate reduction (3)		3		3,573		—		3,469
Change in amortization period or maturity		—		—		—		—		—
Other		—		—		—		—		—
Dairy & livestock and agribusiness:
Interest rate reduction		—		—		—		—		—
Change in amortization period or maturity
Consumer
Interest rate reduction (4)		1		421		421		419		—

Total loans		8	$	4,746	$	974	$	4,597	$	185


	For the Year Ended December 31, 2013
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Outstanding Recorded Investment at December 31, 2013		Financial Effect Resulting From Modifications (2)
	(Dollars in thousands)
Commercial and industrial:
Interest rate reduction		—	$	—	$	—	$	—	$	—
Change in amortization period or maturity		4		621		621		570		95
Real estate:
Commercial real estate:
Owner occupied
Interest rate reduction		—		—		—		—		—
Change in amortization period or maturity		1		168		168		138		—
Non-owner occupied
Interest rate reduction		—		—		—		—		—
Change in amortization period or maturity		—		—		—		—		—
Construction:
Speculative
Interest rate reduction		—		—		—		—		—
Change in amortization period or maturity		—		—		—		—		—
SFR mortgage:
Interest rate reduction		3		1,365		1,365		1,349		—
Change in amortization period or maturity		—		—		—		—		—
Dairy & livestock and agribusiness:
Interest rate reduction		—		—		—		—		—
Change in amortization period or maturity		10		26,915		26,915		22,662		149

Total loans		18	$	29,069	$	29,069	$	24,719	$	244


	For the Year Ended December 31, 2012
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Outstanding Recorded Investment at December 31 2012		Financial Effect Resulting From Modifications (2)
	(Dollars in thousands)
Commercial and industrial:
Interest rate reduction		1	$	80	$	80	$	66	$	—
Change in amortization period or maturity		8		2,301		2,301		1,817		3
Real estate:
Commercial real estate:
Owner occupied
Interest rate reduction		—		—		—		—		—
Change in amortization period or maturity		6		4,225		4,225		3,903		—
Non-owner occupied
Interest rate reduction		1		3,378		3,378		3,359		—
Change in amortization period or maturity		4		5,906		5,906		5,303		—
Construction:
Speculative
Interest rate reduction		—		—		—		—		—
Change in amortization period or maturity		1		10,966		10,966		10,663		—
Non-speculative
Interest rate reduction		—		—		—		—		—
Change in amortization period or maturity		—		—		—		—		—
Other		—		—		—		—		—
SFR mortgage:
Interest rate reduction		1		399		399		398		—
Change in amortization period or maturity		—		—		—		—		—
Dairy & livestock and agribusiness:
Interest rate reduction		—		—		—		—		—
Change in amortization period or maturity		7		9,447		9,447		9,184		—
Municipal lease finance receivables
Interest rate reduction		—		—		—		—		—
Change in amortization period or maturity		2		519		519		263		—

Total loans		31	$	37,221	$	37,221	$	34,956	$	3

(1)	The tables exclude modified loans that were paid off prior to the end of the period.

(2)	Financial effects resulting from modifications represent charge-offs and specific allowance recorded at modification date.

(3)	New modifications for the year ended December 31, 2014 included six TDR’s acquired from ASB.

(4)	New modifications for the year ended December 31, 2014 included three TDR’s that encompass both an interest rate reduction and a maturity extension.

As of December 31 2014, there were no loans that were previously modified as a troubled debt restructuring within the previous 12 months that subsequently defaulted during the year ended December 31, 2014.

As of December 31 2013, there were no loans that were previously modified as a troubled debt restructuring within the previous 12 months that subsequently defaulted during the year ended December 31, 2013.

As of December 31 2012, there was one construction loan with an outstanding balance of $10.7 million and one commercial real estate loan with an outstanding balance of $2.4 million that were previously modified as a troubled debt restructuring within the previous 12 months that subsequently defaulted during the year ended December 31, 2012.