Prior to April 1, 2019, our loans and lease finance receivables consisted of purchase credit impaired (“PCI”) loans associated with the acquisition of San Joaquin Bank (“SJB”) on October 16, 2009, and loans and lease finance receivables excluding PCI loans (“Non-PCI loans”). The PCI loans are more fully discussed in Note 3 –

Summary of Significant Accounting Policies

, included in our Annual Report on Form 10-K for the year ended December 31, 2018. At June 30, 2019 and December 31, 2018, the remaining discount associated with the PCI loans was zero and our total gross PCI loan portfolio represented less than 0.2% of total gross loans and leases at June 30, 2019 and December 31, 2018. As of June 30, 2019, PCI loans were accounted for and combined with Non-PCI loans and were reflected in total loans and lease finance receivables.

The following table provides a summary of the Company’s total loans and lease finance receivables by type.


	June 30, 2019			December 31, 2018
	Total Loans and Leases			Non-PCI Loans and Leases			PCI Loans			Total Loans and Leases
	(Dollars in thousands)
Commercial and industrial	$	917,953		$	1,002,209		$	519		$	1,002,728
SBA		327,606			350,043			1,258			351,301
Real estate:
Commercial real estate		5,417,351			5,394,229			14,407			5,408,636
Construction		116,457			122,782			-			122,782
SFR mortgage		278,285			296,504			145			296,649
Dairy & livestock and agribusiness		301,752			393,843			700			394,543
Municipal lease finance receivables		59,985			64,186			-			64,186
Consumer and other loans		120,779			128,429			185			128,614
Gross loans		7,540,168			7,752,225			17,214			7,769,439
Less: Deferred loan fees, net		(4,478	)		(4,828	)		-			(4,828	)
Gross loans, net of deferred loan fees		7,535,690			7,747,397			17,214			7,764,611
Less: Allowance for loan losses		(67,132	)		(63,409	)		(204	)		(63,613	)
Total loans and lease finance receivables	$	7,468,558		$	7,683,988		$	17,010		$	7,700,998

As of June 30, 2019, 77.08% of the Company’s total gross loan portfolio consisted of real estate loans, 71.85% of which consisted of commercial real estate loans. Substantially all of the Company’s real estate loans and construction loans are secured by real properties located in California. As of June 30, 2019, $225.6 million, or 4.16% of the total commercial real estate loans included loans secured by farmland, compared to $231.0 million, or 4.27%, at December 31, 2018. The loans secured by farmland included $122.7 million for loans secured by dairy & livestock land and $102.9 million for loans secured by agricultural land at June 30, 2019, compared to $126.9 million for loans secured by dairy & livestock land and $104.1 million for loans secured by agricultural land at December 31, 2018. As of June 30, 2019, dairy & livestock and agribusiness loans of $301.8 million were comprised of $245.7 million for dairy & livestock loans and $56.1 million for agribusiness loans, compared to $340.5 million for dairy & livestock loans and $54.0 million for agribusiness loans at December 31, 2018.

At June 30, 2019, the Company held approximately $3.81 billion of total fixed rate loans.

At June 30, 2019 and December 31, 2018, loans totaling $6.05 billion and $5.71 billion, respectively, were pledged to secure the borrowings and available lines of credit from the FHLB and the Federal Reserve Bank.

There were no outstanding loans

held-for-sale

as of June 30, 2019 and December 31, 2018.

Credit Quality Indicators

An important element of our approach to credit risk management is our loan risk rating system. The originating officer assigns each loan an initial risk rating, which is reviewed and confirmed or changed, as appropriate, by credit management. Approvals are made based upon the amount of inherent credit risk specific to the transaction and are reviewed for appropriateness by senior line and credit management personnel. Credits are monitored by line and credit management personnel for deterioration or improvement 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, 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, including loans on the Bank’s internal watch list, range from minimal credit risk to lower than average, but still acceptable, credit risk. Watch list loans usually require more than normal management attention. Loans on the 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 have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Company’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard — Loans classified as substandard are inadequately protected by the current sound 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. Substandard loans are characterized by 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 characteristic that the weaknesses make collection or the liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

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

The following table summarizes loans by type, according to our internal risk ratings for the periods presented.


	June 30, 2019
	Pass		Special Mention		Substandard (1)		Doubtful & Loss		Total
	(Dollars in thousands)
Commercial and industrial	$	883,044	$	28,611	$	6,298	$	-	$	917,953
SBA		303,947		14,444		9,215		-		327,606
Real estate:
Commercial real estate
Owner occupied		1,985,951		87,246		20,446		-		2,093,643
Non-owner occupied		3,310,103		12,850		755		-		3,323,708
Construction
Speculative		93,170		-		-		-		93,170
Non-speculative		23,287		-		-		-		23,287
SFR mortgage		272,767		2,158		3,360		-		278,285
Dairy & livestock and agribusiness		239,481		54,003		8,268		-		301,752
Municipal lease finance receivables		59,481		504		-		-		59,985
Consumer and other loans		118,706		1,019		1,054		-		120,779
Total gross loans	$	7,289,937	$	200,835	$	49,396	$	-	$	7,540,168

(1)

Includes $

19.9

million of classified loans acquired from CB in the third quarter of 2018.


	December 31, 2018 (1)
	Pass		Special Mention		Substandard (2)		Doubtful & Loss		Total
	(Dollars in thousands)
Commercial and industrial	$	961,909	$	29,358	$	10,942	$	-	$	1,002,209
SBA		336,033		7,375		6,635		-		350,043
Real estate:
Commercial real estate
Owner occupied		2,008,169		95,841		13,980		-		2,117,990
Non-owner occupied		3,260,822		9,938		5,479		-		3,276,239
Construction
Speculative		118,233		-		-		-		118,233
Non-speculative		4,549		-		-		-		4,549
SFR mortgage		289,607		3,310		3,587		-		296,504
Dairy & livestock and agribusiness		350,044		34,586		9,213		-		393,843
Municipal lease finance receivables		63,650		536		-		-		64,186
Consumer and other loans		126,085		1,263		1,081		-		128,429
Total gross loans	$	7,519,101	$	182,207	$	50,917	$	-	$	7,752,225

(1)

Excludes PCI loans of $17.2 million as of December 31, 2018, of which $15.8 million were rated pass, $1.2 million were rated special mention, $224,000 were rated substandard, and zero were rated doubtful & loss.

(2)

Includes $19.0 million of classified loans acquired from CB in the third quarter of 2018.

Allowance for Loan Losses (“ALLL”)

The Bank’s Audit and Director Loan Committees provide Board oversight of the ALLL process and approve the ALLL methodology on a quarterly basis.

Our methodology for assessing the appropriateness of the allowance is conducted on a regular basis and considers the Bank’s overall loan portfolio. Refer to Note 3 –

Summary of Significant Accounting Policies

of the 2018 Annual Report on Form

10-K

for the year ended December 31, 2018 for a more detailed discussion concerning the allowance for loan losses.

Management believes that the ALLL was appropriate at June 30, 2019 and December 31, 2018. No assurance can be given that economic conditions which adversely affect the Company’s service areas or other circumstances will not be reflected in increased provisions for loan losses in the future.

The following tables present the balance and activity related to the allowance for loan losses for held-for-investment loans by type for the periods presented.


	For the Three Months Ended June 30, 2019
	Ending Balance March 31, 2019		Charge-offs			Recoveries		Provision for (Recapture of) Loan Losses			Ending Balance June 30, 2019
	(Dollars in thousands)
Commercial and industrial	$	7,608	$	(48	)	$	49	$	248		$	7,857
SBA		1,294		(210	)		4		31			1,119
Real estate:
Commercial real estate		46,227		-			-		2,060			48,287
Construction		864		-			3		4			871
SFR mortgage		2,189		-			115		19			2,323
Dairy & livestock and agribusiness		5,699		-			19		(377	)		5,341
Municipal lease finance receivables		738		-			-		(12	)		726
Consumer and other loans		582		(3	)		2		27			608
Total allowance for loan losses	$	65,201	$	(261	)	$	192	$	2,000		$	67,132

	For the Three Months Ended June 30, 2018
	Ending Balance March 31, 2018		Charge-offs			Recoveries		(Recapture of) Provision for Loan Losses			Ending Balance June 30, 2018
	(Dollars in thousands)
Commercial and industrial	$	7,499	$	-		$	27	$	(556	)	$	6,970
SBA		884		-			5		(48	)		841
Real estate:
Commercial real estate		41,863		-			-		734			42,597
Construction		987		-			596		(580	)		1,003
SFR mortgage		2,202		-			-		(47	)		2,155
Dairy & livestock and agribusiness		4,666		-			19		(334	)		4,351
Municipal lease finance receivables		834		-			-		(26	)		808
Consumer and other loans		688		(2	)		3		(47	)		642
PCI loans		312		-			-		(96	)		216
Total allowance for loan losses	$	59,935	$	(2	)	$	650	$	(1,000	)	$	59,583


	For the Six Months Ended June 30, 2019
	Ending Balance December 31, 2018		Charge-offs			Recoveries		Provision for (Recapture of) Loan Losses			Ending Balance June 30, 2019
	(Dollars in thousands)
Commercial and industrial	$	7,528	$	(48	)	$	159	$	218		$	7,857
SBA		1,078		(230	)		9		262			1,119
Real estate:
Commercial real estate		45,097		-			-		3,190			48,287
Construction		981		-			6		(116	)		871
SFR mortgage		2,197		-			183		(57	)		2,323
Dairy & livestock and agribusiness		5,225		(78	)		19		175			5,341
Municipal lease finance receivables		775		-			-		(49	)		726
Consumer and other loans		732		(4	)		3		(123	)		608
Total allowance for loan losses	$	63,613	$	(360	)	$	379	$	3,500		$	67,132


	For the Six Months Ended June 30, 2018
	Ending Balance December 31, 2017		Charge-offs			Recoveries		(Recapture of) Provision for Loan Losses			Ending Balance June 30, 2018
	(Dollars in thousands)
Commercial and industrial	$	7,280	$	-		$	37	$	(347	)	$	6,970
SBA		869		-			10		(38	)		841
Real estate:
Commercial real estate		41,722		-			-		875			42,597
Construction		984		-			1,930		(1,911	)		1,003
SFR mortgage		2,112		-			-		43			2,155
Dairy & livestock and agribusiness		4,647		-			19		(315	)		4,351
Municipal lease finance receivables		851		-			-		(43	)		808
Consumer and other loans		753		(9	)		11		(113	)		642
PCI loans		367		-			-		(151	)		216
Total allowance for loan losses	$	59,585	$	(9	)	$	2,007	$	(2,000	)	$	59,583

The following tables present the recorded investment in loans

held-for-investment

and the related allowance for loan losses by loan type, based on the Company’s methodology for determining the allowance for loan losses for the periods presented. Acquired loans are also supported by a credit discount established through the determination of fair value for the acquired loan portfolio.

	June 30, 2019
		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		$	2,088	$	915,865	$	276	$	7,581
SBA			5,632		321,974		93		1,026
Real estate:
Commercial real estate			1,531		5,415,820		-		48,287
Construction			-		116,457		-		871
SFR mortgage			4,858		273,427		-		2,323
Dairy & livestock and agribusiness			-		301,752		-		5,341
Municipal lease finance receivables			-		59,985		-		726
Consumer and other loans			397		120,382		2		606

Total		$	14,506	$	7,525,662	$	371	$	66,761


	June 30, 2018
	Recorded Investment in Loans						Allowance for Loan Losses
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deterioriated Credit Quality		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deterioriated Credit Quality
	(Dollars in thousands)
Commercial and industrial	$	355	$	508,833	$	-	$	-	$	6,970	$	-
SBA		1,174		119,874		-		-		841		-
Real estate:
Commercial real estate		7,741		3,446,289		-		-		42,597		-
Construction		-		84,400		-		-		1,003		-
SFR mortgage		4,133		233,021		-		13		2,142		-
Dairy & livestock and agribusiness		800		267,689		-		-		4,351		-
Municipal lease finance receivables		-		67,721		-		-		808		-
Consumer and other loans		509		60,366		-		3		639		-
PCI loans		-		-		19,426		-		-		216
Total	$	14,712	$	4,788,193	$	19,426	$	16	$	59,351	$	216

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

, included in our Annual Report on Form

10-K

for the year ended December 31, 2018, for additional discussion concerning the Bank’s policy for past due and nonperforming loans.

A loan is reported as a TDR when the Bank grants a concession(s) to a borrower experiencing financial difficulties that the Bank would not otherwise consider. Examples of such concessions include a reduction in the interest rate, deferral of principal or accrued interest, extending the payment due dates or loan maturity date(s), or providing a lower interest rate than would be normally available for new debt of similar risk. As a result of one or more 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 carrying value of the loan. These impairment reserves are recognized as a specific component to be provided for in the allowance for loan losses.

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

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


	June 30, 2019
	30-59 Days Past Due		60-89 Days Past Due		Total Past Due and Accruing		Nonaccrual (1) (3)		Current		Total Loans and Financing Receivables
	(Dollars in thousands)
Commercial and industrial	$	300	$	10	$	310	$	1,993	$	915,650	$	917,953
SBA		-		-		-		5,082		322,524		327,606
Real estate:
Commercial real estate
Owner occupied		-		-		-		502		2,093,141		2,093,643
Non-owner occupied		-		-		-		593		3,323,115		3,323,708
Construction
Speculative (2)		-		-		-		-		93,170		93,170
Non-speculative		-		-		-		-		23,287		23,287
SFR mortgage		-		-		-		2,720		275,565		278,285
Dairy & livestock and agribusiness		-		-		-		-		301,752		301,752
Municipal lease finance receivables		-		-		-		-		59,985		59,985
Consumer and other loans		22		-		22		397		120,360		120,779
Total gross loans	$	322	$	10	$	332	$	11,287	$	7,528,549	$	7,540,168

(1)

As of June 30, 2019, $2.8 million of nonaccruing loans were current, $360,000 were

30-59

days past due, $

832,000

were

60-89

days past due and $7.3 million were 90+ days past due.

(2)

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

(3)

Includes $8.4 million of nonaccrual loans acquired from CB in the third quarter of 2018.


	December 31, 2018 (1)
	30-59 Days Past Due		60-89 Days Past Due		Total Past Due and Accruing		Nonaccrual (2) (4)		Current		Total Loans and Financing Receivables
	(Dollars in thousands)
Commercial and industrial	$	820	$	89	$	909	$	7,490	$	993,810	$	1,002,209
SBA		1,172		135		1,307		2,892		345,844		350,043
Real estate:
Commercial real estate
Owner occupied		2,439		350		2,789		589		2,114,612		2,117,990
Non-owner occupied		-		-		-		5,479		3,270,760		3,276,239
Construction
Speculative (3)		-		-		-		-		118,233		118,233
Non-speculative		-		-		-		-		4,549		4,549
SFR mortgage		-		285		285		2,937		293,282		296,504
Dairy & livestock and agribusiness		-		-		-		78		393,765		393,843
Municipal lease finance receivables		-		-		-		-		64,186		64,186
Consumer and other loans		-		-		-		486		127,943		128,429
Total gross loans	$	4,431	$	859	$	5,290	$	19,951	$	7,726,984	$	7,752,225

(1)

Excludes PCI loans.

(2)

As of December 31, 2018, $2.3 million of nonaccruing loans were current, $33,000 were

30-59

days past due, $57,000 were

60-89

days past due and $17.6 million were 90+ days past due.

(3)

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

(4)

Includes $12.3 million of nonaccrual loans acquired from CB in the third quarter of 2018.

Impaired Loans

At June 30, 2019, the Company had impaired loans of $14.5 million. Impaired loans included $5.1 million of nonaccrual

Small Business Administration (“SBA”)

loans, $

2.7

million of nonaccrual single-family residential (“SFR”) mortgage loans, $

2.0

million of nonaccrual

commercial and industrial

loans, $

1.1

million of nonaccrual commercial real estate loans, and $

397,000

of nonaccrual consumer and other loans. These impaired loans included $

3.5

million of loans whose terms were modified in a troubled debt restructuring, of which $

263,000

were classified as nonaccrual. The remaining balance of $

3.2

million consisted of

loans performing according to the restructured terms. The impaired loans had a specific allowance of $

371,000

at June

2019

. At December

2018

, the Company had classified as impaired, loans with a balance of $

23.5

million with a related allowance of $

561,000

The following tables present information for

held-for-investment

loans, individually evaluated for impairment by type of loans, as and for the periods presented.


	As of and For the Six Months Ended June 30, 2019
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded:
Commercial and industrial	$	898	$	1,033	$	-	$	1,022	$	2
SBA		4,369		5,714		-		3,703		21
Real estate:
Commercial real estate
Owner occupied		502		616		-		515		-
Non-owner occupied		1,029		1,209		-		1,068		14
Construction
Speculative		-		-		-		-		-
Non-speculative		-		-		-		-		-
SFR mortgage		4,858		5,467		-		4,893		42
Dairy & livestock and agribusiness		-		-		-		-		-
Municipal lease finance receivables		-		-		-		-		-
Consumer and other loans		395		518		-		407		-

Total		12,051		14,557		-		11,608		79

With a related allowance recorded:
Commercial and industrial		1,190		1,263		276		1,251		-
SBA		1,263		1,534		93		1,179		-
Real estate:
Commercial real estate
Owner occupied		-		-		-		-		-
Non-owner occupied		-		-		-		-		-
Construction
Speculative		-		-		-		-		-
Non-speculative		-		-		-		-		-
SFR mortgage		-		-		-		-		-
Dairy & livestock and agribusiness		-		-		-		-		-
Municipal lease finance receivables		-		-		-		-		-
Consumer and other loans		2		3		2		2		-

Total		2,455		2,800		371		2,432		-

Total impaired loans	$	14,506	$	17,357	$	371	$	14,040	$	79


	As of and For the Six Months Ended June 30, 2018 (1)
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded:
Commercial and industrial	$	355	$	864	$	-	$	378	$	4
SBA		1,174		1,302		-		1,204		23
Real estate:
Commercial real estate
Owner occupied		4,294		4,747		-		4,331		-
Non-owner occupied		3,447		4,894		-		3,565		44
Construction
Speculative		-		-		-		-		-
Non-speculative		-		-		-		-		-
SFR mortgage		4,120		4,860		-		4,159		55
Dairy & livestock and agribusiness		800		1,091		-		819		-
Municipal lease finance receivables		-		-		-		-		-
Consumer and other loans		506		716		-		568		-

Total		14,696		18,474		-		15,024		126

With a related allowance recorded:
Commercial and industrial		-		-		-		-		-
SBA		-		-		-		-		-
Real estate:
Commercial real estate
Owner occupied		-		-		-		-		-
Non-owner occupied		-		-		-		-		-
Construction
Speculative		-		-		-		-		-
Non-speculative		-		-		-		-		-
SFR mortgage		13		13		13		13		-
Dairy & livestock and agribusiness		-		-		-		-		-
Municipal lease finance receivables		-		-		-		-		-
Consumer and other loans		3		3		3		3		-

Total		16		16		16		16		-

Total impaired loans	$	14,712	$	18,490	$	16	$	15,040	$	126

(1)

Excludes PCI loans.


	As of December 31, 2018 (1)
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in thousands)
With no related allowance recorded:
Commercial and industrial	$	7,436	$	11,457	$	-
SBA		3,467		5,746		-
Real estate:
Commercial real estate
Owner occupied		589		705		-
Non-owner occupied		2,808		4,324		-
Construction
Speculative		-		-		-
Non-speculative		-		-		-
SFR mortgage		5,349		6,270		-
Dairy & livestock and agribusiness		-		-		-
Municipal lease finance receivables		-		-		-
Consumer and other loans		418		526		-
Total		20,067		29,028		-
With a related allowance recorded:
Commercial and industrial		189		191		3
SBA		-		-		-
Real estate:
Commercial real estate
Owner occupied		-		-		-
Non-owner occupied		3,143		3,144		478
Construction
Speculative		-		-		-
Non-speculative		-		-		-
SFR mortgage		-		-		-
Dairy & livestock and agribusiness		78		78		12
Municipal lease finance receivables		-		-		-
Consumer and other loans		68		100		68
Total		3,478		3,513		561
Total impaired loans	$	23,545	$	32,541	$	561

(1)

Excludes PCI loans.

The Company recognizes the

charge-off

of the impairment allowance on impaired loans in the period in which a loss is identified for collateral dependent loans. Therefore, the majority of the nonaccrual loans as of June 30, 2019, December 31, 2018 and June 30, 2018 have already been written down to the estimated net realizable value. An allowance is recorded on impaired loans for the following: nonaccrual loans where a

charge-off

is not yet processed, nonaccrual SFR mortgage loans where there is a potential modification in process, or on smaller balance

non-collateral

dependent loans.

Reserve for Unfunded Loan Commitments

The allowance for

off-balance

sheet credit exposure relates to commitments to extend credit, letters of credit and undisbursed funds on lines of credit. The Company evaluates credit risk associated with the

off-balance

sheet loan commitments at the same time it evaluates credit risk associated with the loan and lease portfolio. There was

provision or recapture of provision for unfunded loan commitments for the three and six months ended June 30, 2019, and 2018. As of June 30, 2019 and December 31, 2018, the balance in this reserve was $9.0 million and was included in other liabilities.

Troubled Debt Restructurings (“TDRs”)

Loans that are reported as TDRs are considered impaired and

charge-off

amounts are taken on an individual loan basis, as deemed appropriate. The majority of restructured loans are loans for which the terms of repayment have been renegotiated, resulting in a reduction in interest rate or deferral of principal. Refer to Note 3 –

Summary of Significant Accounting Policies

, included in our Annual Report on Form

10-K

for the year ended December 31, 2018 for a more detailed discussion regarding TDRs.

As of June 30, 2019, there were $3.5 million of loans classified as a TDR, of which $3.2 million were performing and $263,000 were nonperforming. 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 June 30, 2019, performing TDRs were comprised of eight SFR mortgage loans of $2.1 million, one SBA loan of $550,000, one commercial real estate loan of $436,000, and two commercial and industrial loans of $95,000.

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 zero and $490,000 of specific allowance to TDRs as of June 30, 2019 and December 31, 2018, respectively.

The following table provides a summary of the activity related to TDRs for the periods presented.


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018 (1)			2019			2018 (1)
	(Dollars in thousands)
Performing TDRs:
Beginning balance	$	3,299		$	4,285		$	3,594		$	4,809
New modifications		-			311			-			311
Payoffs/payments, net and other		(80	)		(66	)		(375	)		(590	)
TDRs returned to accrual status		-			-			-			-
TDRs placed on nonaccrual status		-			-			-			-
Ending balance	$	3,219		$	4,530		$	3,219		$	4,530
Nonperforming TDRs:
Beginning balance	$	277		$	3,909		$	3,509		$	4,200
New modifications		-			38			-			38
Charge-offs		-			-			(78	)		-
Transfer to OREO		-			-			(2,275	)		-
Payoffs/payments, net and other		(14	)		(55	)		(893	)		(346	)
TDRs returned to accrual status		-			-			-			-
TDRs placed on nonaccrual status		-			-			-			-
Ending balance	$	263		$	3,892		$	263		$	3,892
Total TDRs	$	3,482		$	8,422		$	3,482		$	8,422

(1)

Excludes PCI loans.

There were no loans that were modified as TDRs during the three and six months ended June 30, 2019.

The following tables summarize loans modified as TDRs for the periods presented.

Modifications (1)


	For the Three Months Ended June 30, 2018 (2)
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Outstanding Recorded Investment at June 30, 2018		Financial Effect Resulting From Modifications (3)
	(Dollars in thousands)
Commercial and industrial:
Interest rate reduction		-	$	-	$	-	$	-	$	-
Change in amortization period or maturity		1		38		38		31		-
Real estate:
Commercial real estate:
Owner occupied
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Non-owner occupied
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
SFR mortgage:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		1		311		311		307		-
Consumer:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-

Total loans		2	$	349	$	349	$	338	$	-


	For the Six Months Ended June 30, 2018 (2)
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Outstanding Recorded Investment at June 30, 2018		Financial Effect Resulting From Modifications (3)
	(Dollars in thousands)
Commercial and industrial:
Interest rate reduction		-	$	-	$	-	$	-	$	-
Change in amortization period or maturity		1		38		38		31		-
Real estate:
Commercial real estate:
Owner occupied
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Non-owner occupied
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
SFR mortgage:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		1		311		311		307		-
Consumer:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-

Total loans		2	$	349	$	349	$	338	$	-

(1)

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

(2)

Excludes PCI loans.

(3)

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

There were no loans that were previously modified as a TDR within the previous 12 months that subsequently defaulted during the three and six months ended June 30, 2019 and 2018.