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Loans and Lease Finance Receivables and Allowance for Loan Losses
 12 Months Ended
Dec. 31, 2019
Receivables [Abstract]  
Loans and Lease Finance Receivables and Allowance for Loan Losses
6.
LOANS AND LEASE FINANCE RECEIVABLES AND ALLOWANCE FOR LOAN LOSSES
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
. At December 31, 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 December 31, 2019 and December 31, 2018. Beginning with 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 total loans and lease finance receivables by type.
 
December 31, 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
 
$
935,127
 
 
$
 1,002,209
 
 
$
519
 
 
$
 1,002,728
 
SBA
 
 
305,008
 
 
 
350,043
 
 
 
1,258
 
 
 
351,301
 
Real estate:
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
 
 
5,374,617
 
 
 
5,394,229
 
 
 
14,407
 
 
 
5,408,636
 
Construction
 
 
116,925
 
 
 
122,782
 
 
 
-
 
 
 
122,782
 
SFR mortgage
 
 
283,468
 
 
 
296,504
 
 
 
145
 
 
 
296,649
 
Dairy & livestock and agribusiness
 
 
383,709
 
 
 
393,843
 
 
 
700
 
 
 
394,543
 
Municipal lease finance receivables
 
 
53,146
 
 
 
64,186
 
 
 
-
 
 
 
64,186
 
Consumer and other loans
 
 
116,319
 
 
 
128,429
 
 
 
185
 
 
 
128,614
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross loans
 
 
7,568,319
 
 
 
7,752,225
 
 
 
17,214
 
 
 
7,769,439
 
Less: Deferred loan fees, net
 
 
(3,742
)
 
 
(4,828
)
 
 
-
 
 
 
(4,828
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross loans, net of deferred loan fees
 
 
7,564,577
 
 
 
7,747,397
 
 
 
17,214
 
 
 
7,764,611
 
Less: Allowance for loan losses
 
 
(68,660
)
 
 
(63,409
)
 
 
(204
)
 
 
(63,613
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total loans and lease finance receivables
 
$
 7,495,917
 
 
$
         7,683,988
 
 
$
         17,010
 
 
$
         7,700,998
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2019, 76.31% of the Company’s total gross loan portfolio consisted of real estate loans, with commercial real estate loans representing 71.01% of total loans. Substantially all of the Company’s real estate loans and construction loans are secured by real properties located in California. As of December 31, 2019, $241.8 million, or 4.50% 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 $
125.9
 million for loans secured by dairy & livestock land and $
115.9
 million for loans secured by agricultural land at December 
31
,
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 December 
31
,
2019
, dairy & livestock and agribusiness loans of $
383.7
 million were comprised of $
323.5
 million for dairy & livestock loans and $
60.2
 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 December 31, 2019, the Company held approximately $3.86 billion of total fixed rate loans.
At December 31, 2019 and 2018, loans totaling $6.03 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 December 31, 2019 and 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 as of the dates presented.
  
December 31, 2019
 
  
Pass
 
  
Special
Mention
 
  
Substandard (1)
 
  
Doubtful &
Loss
 
  
Total
 
  
(Dollars in thousands)
  
Commercial and industrial
  $
895,234
    $
 35,473
    $
 4,420
    $
-
     $
 935,127
 
SBA
   
283,430
     
11,032
     
10,546
     
-
      
305,008
 
Real estate:
   
     
     
     
     
 
Commercial real estate
   
     
     
     
     
 
Owner occupied
   
1,977,007
     
78,208
     
28,435
     
-
      
2,083,650
 
Non-owner
occupied
    
3,280,580
     
10,005
     
382
     
-
      
3,290,967
 
Construction
   
     
     
     
     
 
Speculative
   
106,895
     
-
      
-
      
-
      
106,895
 
Non-speculative
   
10,030
     
-
      
-
      
-
      
10,030
 
SFR mortgage
   
280,010
     
1,957
     
1,501
     
-
      
283,468
 
Dairy & livestock and agribusiness
   
320,670
     
35,920
     
27,119
     
-
      
383,709
 
Municipal lease finance receivables
   
52,676
     
470
     
-
      
-
      
53,146
 
Consumer and other loans
   
114,870
     
421
     
1,028
     
-
      
116,319
 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total gross loans
   $
     7,321,402
    $
     173,486
    $
     73,431
    $
-
     $
     7,568,319
 
                                         
 
(1)
Includes $26.8 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
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
for a more detailed discussion concerning the allowance for loan losses.
Management believes that the ALLL was appropriate at December 31, 2019 and 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.
 
Year Ended December 31, 2019
 
  
Ending Balance
December 31,
2018
 
  
Charge-offs
 
  
Recoveries
 
  
Provision for
(Recapture of)
Loan Losses
 
  
Ending Balance
December 31,
2019
 
  
(Dollars in thousands)
 
Commercial and industrial
  $
7,528
     $
(48
 )    $
255
    $
1,145
     $
8,880
 
SBA
   
1,078
      
(321
)     
9
      
687
     
1,453
 
Real estate:
   
     
     
     
     
 
Commercial real estate
   
45,097
      
-
      
-
     
3,532
     
48,629
 
Construction
   
981
      
-
      
12
     
(135
)     
858
 
SFR mortgage
   
2,197
      
-
      
196
     
(54
)     
2,339
 
Dairy & livestock and agribusiness
   
5,225
      
(78
 )     
19
     
89
     
5,255
 
Municipal lease finance receivables
   
775
      
-
      
-
     
(152
)     
623
 
Consumer and other loans
   
732
      
(7
)     
10
     
(112
)     
623
 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total allowance for loan losses
  $
63,613
     $
(454
)    $
501
    $
5,000
     $
68,660
 
                                         
                                         
 
Year Ended December 31, 2018
 
 
Ending Balance
December 31,
2017
 
  
Charge-offs
 
  
Recoveries
 
  
Provision for
(Recapture of)
Loan Losses
 
  
Ending Balance
December 31,
2018
 
 
(Dollars in thousands)
  
Commercial and industrial
  $
 7,280
    $
(10
)
   $
 82
    $
168
    $
7,520
 
SBA
   
869
     
(257
 )    
20
     
430
     
1,062
 
Real estate:
   
     
     
     
     
 
Commercial real estate
   
41,722
     
-
      
-
      
3,212
     
44,934
 
Construction
   
984
     
-
      
2,506
     
(2,509
 )    
981
 
SFR mortgage
   
2,112
     
(13
 )    
51
     
46
     
2,196
 
Dairy & livestock and agribusiness
   
4,647
     
-
      
19
     
549
     
5,215
 
Municipal lease finance receivables
   
851
     
-
      
-
      
(76
 )    
775
 
Consumer and other loans
   
753
     
(11
 )    
141
     
(157
 )    
726
 
PCI loans
   
367
     
-
      
-
      
(163
 )    
204
 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total allowance for loan losses
  $
 59,585
    $
(291
 )   $
2,819
    $
1,500
    $
63,613
 
                                         
 
 
                                         
 
Year Ended December 31, 2017
 
 
Ending Balance
December 31,
2016
 
  
Charge-offs
 
  
Recoveries
 
  
(Recapture of)
Provision for
Loan Losses
 
  
Ending Balance
December 31,
2017
 
 
(Dollars in thousands)
  
Commercial and industrial
  $
 8,154
    $
(138
 )   $
118
    $
(854
 )   $
7,280
 
SBA
   
871
     
-
      
78
     
(80
 )    
869
 
Real estate:
   
     
     
     
     
 
Commercial real estate
   
37,443
     
-
      
154
     
4,125
     
41,722
 
Construction
   
1,096
     
-
      
6,036
     
(6,148
 )    
984
 
SFR mortgage
   
2,287
     
-
      
212
     
(387
 )    
2,112
 
Dairy & livestock and agribusiness
   
8,541
     
-
      
19
     
(3,913
 )    
4,647
 
Municipal lease finance receivables
   
941
     
-
      
-
      
(90
 )    
851
 
Consumer and other loans
   
988
     
(13
 )    
79
     
(301
 )    
753
 
PCI loans
   
1,219
     
-
      
-
      
(852
 )    
367
 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total allowance for loan losses
  $
 61,540
    $
(151
 )   $
6,696
    $
(8,500
 )   $
59,585
 
                                         
 
 
 
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.
                                 
 
December 31, 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
  $
 1,344
    $
 933,783
    $
 251
    $
 8,629
 
SBA
   
2,568
     
302,440
     
257
     
1,196
 
Real estate:
   
     
     
     
 
Commercial real estate
   
1,121
     
5,373,496
     
-
      
48,629
 
Construction
   
-
     
116,925
     
-
      
858
 
SFR mortgage
   
2,979
     
280,489
     
-
      
2,339
 
Dairy & livestock and agribusiness
   
-
     
383,709
     
-
      
5,255
 
Municipal lease finance receivables
   
-
     
53,146
     
-
     
623
 
Consumer and other loans
   
377
     
115,942
     
-
     
623
 
   
 
 
    
 
 
    
 
 
    
 
 
  
Total
  $
 8,389
    $
 7,559,930
    $
 508
    $
 68,152
 
                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
December 31, 2018
 
  
Recorded Investment in Loans
   
Allowance for Loan Losses
 
  
Individually
Evaluated for
Impairment
 
  
Collectively
Evaluated for
Impairment
 
  
Acquired with
Deteriorated
Credit Quality
 
  
Individually
Evaluated for
Impairment
 
  
Collectively
Evaluated for
Impairment
 
  
Acquired with
Deteriorated
Credit Quality
 
  
(Dollars in thousands)
 
Commercial and industrial
  $
 7,625
    $
994,584
    $
 -
     $
3
    $
 7,517
    $
  -
  
SBA
   
3,467
     
346,576
     
-
      
-
      
1,062
     
-
  
Real estate:
   
     
     
     
     
     
 
Commercial real estate
   
6,540
     
5,387,689
     
-
      
478
     
44,456
     
-
  
Construction
   
-
      
122,782
     
-
      
-
      
981
     
-
  
SFR mortgage
   
5,349
     
291,155
     
-
      
-
      
2,196
     
-
  
Dairy & livestock and agribusiness
   
78
     
393,765
     
-
      
12
     
5,203
     
-
  
Municipal lease finance receivables
   
-
      
64,186
     
-
      
-
      
775
     
-
  
Consumer and other loans
   
486
     
127,943
     
-
      
68
     
658
     
-
  
PCI loans
   
-
      
-
      
17,214
     
-
      
-
      
204
 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total
  $
23,545
    $
7,728,680
    $
17,214
    $
561
    $
62,848
    $
 204
 
                                                 
Past Due and Nonperforming Loans
 
The following tables present the recorded investment in, and the aging of, past due and nonaccrual loans, by type of loans as of the dates presented.
 
December 31, 2019
 
  
30-59
 Days
Past Due
 
  
60-89
 Days
Past Due
 
  
Total Past Due
and Accruing
 
  
Nonaccrual
(1) (3) (4)
 
  
Current
 
  
Total Loans
and Financing
Receivables
 
  
(Dollars in thousands)
 
Commercial and industrial
  $
2
    $
-
    $
2
    $
  1,266
    $
933,859
    $
935,127
 
SBA
   
870
     
532
     
1,402
     
2,032
     
301,574
     
305,008
 
Real estate:
   
     
     
     
     
     
 
Commercial real estate
   
     
     
     
     
     
 
Owner occupied
   
-
     
-
     
-
     
479
     
2,083,171
     
2,083,650
 
Non-owner
occupied
    
-
     
-
     
-
     
245
     
3,290,722
     
3,290,967
 
Construction
   
     
     
     
     
     
 
Speculative (2)
   
-
     
-
     
-
     
-
     
106,895
     
106,895
 
Non-speculative
   
-
     
-
     
-
     
-
     
10,030
     
10,030
 
SFR mortgage
   
6
     
243
     
249
     
878
     
282,341
     
283,468
 
Dairy & livestock and agribusiness
   
-
     
-
     
-
     
-
     
383,709
     
383,709
 
Municipal lease finance receivables
   
-
     
-
     
-
     
-
     
53,146
     
53,146
 
Consumer and other loans
   
-
     
-
     
-
     
377
     
115,942
     
116,319
 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total gross loans, excluding PCI loans
  $
 878
    $
 775
    $
 1,653
    $
 5,277
    $
   7,561,389
    $
 7,568,319
 
                                                 
  (1) As of December 31, 2019, $1.2 million of nonaccruing loans were current, $59,000 were
30-59
days past due, $1.1 million were
60-89
days past due
,
and $2.9 million were 90+ days past due.
  (2) Speculative construction loans are generally for properties where there is no identified buyer or renter.
  (3) Includes $3.5 million of nonaccrual loans acquired from CB in the third quarter of 2018.
  (4) Excludes $2.0 million of guaranteed portion of nonaccrual SBA loans that are in process of collection.
  
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, excluding PCI 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 December 31, 2019, the Company had impaired loans of $8.4 million. Impaired loans included $2.0 
million of nonaccrual SBA
 
loans, $1.3 
million of nonaccrual commercial and industrial
loans, $878,000
of
nonaccrual SFR mortgage
 
loans, $724,000
of nonaccrual commercial real estate loans, and $377,000 of nonaccrual consumer and other loans. These impaired loans 
included $3.4 million of loans whose terms were modified in a troubled debt restructuring, of which $244,000 are classified as nonaccrual. The remaining balance of $3.1 million consisted of 12 loans performing according to the restructured terms. The impaired loans had a specific allowance of $508,000 at December 31, 2019
. At December 31, 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 of and for the periods presented.
  
Year Ended December 31, 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
  $
 1,091
    $
 1,261
    $
-
     $
 1,369
    $
 4
 
SBA
   
2,243
     
2,734
     
-
      
2,389
     
41
 
Real estate:
   
     
     
     
     
 
Commercial real estate
   
     
     
     
     
 
Owner occupied
   
479
     
613
     
-
      
505
     
-
  
Non-owner
occupied
    
642
     
643
     
-
      
681
     
26
 
Construction
   
     
     
     
     
 
Speculative
   
-
      
-
      
-
      
-
      
-
  
Non-speculative
   
-
      
-
      
-
      
-
      
-
  
SFR mortgage
   
2,979
     
3,310
     
-
      
3,043
     
86
 
Dairy & livestock and agribusiness
   
-
      
-
      
-
      
-
      
-
  
Municipal lease finance receivables
   
-
      
-
      
-
      
-
      
-
  
Consumer and other loans
   
377
     
514
     
-
      
396
     
-
  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total
   
7,811
     
9,075
     
-
      
8,383
     
157
 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
With a related allowance recorded:
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Commercial and industrial
   
253
     
347
     
251
     
699
     
-
  
SBA
   
325
     
324
     
257
     
327
     
-
  
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
   
-
      
-
      
-
      
-
      
-
  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total
   
578
     
671
     
508
     
1,026
     
-
  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total impaired loans
  $
 8,389
    $
 9,746
    $
 508
    $
 9,409
    $
 157
 
                                         
  
Year Ended December 31, 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
  $
 7,436
    $
 11,457
    $
 -
    
     $
 7,718
    $
7
 
SBA
   
3,467
     
5,746
     
-    
      
3,919
     
44
 
Real estate:
   
     
     
     
     
 
Commercial real estate
   
     
     
     
     
 
Owner occupied
   
589
     
705
     
-    
      
624
     
-    
  
Non-owner
occupied
    
2,808
     
4,324
     
-    
      
4,585
     
32
 
Construction
   
     
     
     
     
 
Speculative
   
-    
     
-    
     
-    
      
-    
     
-    
  
Non-speculative
   
-    
     
-    
     
-    
      
-    
     
-    
  
SFR mortgage
   
5,349
     
6,270
     
-    
      
5,484
     
80
 
Dairy & livestock and agribusiness
   
-    
     
-    
     
-    
      
-    
     
-    
  
Municipal lease finance receivables
   
-    
     
-    
     
-    
      
-    
     
-    
  
Consumer and other loans
   
418
     
526
     
-    
      
459
     
-    
  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total
   
20,067
     
29,028
     
-    
      
22,789
     
163
 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
With a related allowance recorded:
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Commercial and industrial
   
189
     
191
     
3
     
203
     
-    
  
SBA
   
-    
     
-    
     
-    
      
-    
     
-    
  
Real estate:
   
     
     
     
     
 
Commercial real estate
   
     
     
     
     
 
Owner occupied
   
-    
     
-    
     
-    
      
-    
     
-    
  
Non-owner
occupied
    
3,143
     
3,144
     
478
     
3,144
     
-    
  
Construction
   
     
     
     
     
 
Speculative
   
-    
     
-    
     
-    
      
-    
     
-    
  
Non-speculative
   
-    
     
-    
     
-    
      
-    
     
-    
  
SFR mortgage
   
-    
     
-    
     
-    
      
-    
     
-    
  
Dairy & livestock and agribusiness
   
78
     
78
     
12
     
78
     
-    
  
Municipal lease finance receivables
   
-    
     
-    
     
-    
      
-    
     
-    
  
Consumer and other loans
   
68
     
100
     
68
     
76
     
-    
  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total
   
3,478
     
3,513
     
561
     
3,501
     
-    
  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total impaired loans
  $
 23,545
    $
   32,541
    $
 561
    $
 26,290
    $
 163
 
                                         
  
Ye
ar Ended
December 31, 2017 (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
  $
440
    $
980
    $
 -
    
     $
548
    $
 10
 
SBA
   
1,530
     
1,699
     
-    
      
1,598
     
47
 
Real estate:
   
     
     
     
     
 
Commercial real estate
   
     
     
     
     
 
Owner occupied
   
4,365
     
4,763
     
-    
      
4,414
     
36
 
Non-owner
occupied
    
3,768
     
5,107
     
-    
      
3,951
     
94
 
Construction
   
     
     
     
     
 
Speculative
   
-    
      
-    
      
-    
      
-    
      
-    
  
Non-speculative
   
-    
      
-    
      
-    
      
-    
      
-    
  
SFR mortgage
   
4,040
     
4,692
     
-    
      
4,119
     
118
 
Dairy & livestock and agribusiness
   
829
     
1,091
     
-    
      
988
     
1
 
Municipal lease finance receivables
   
-    
      
-    
      
-    
      
-    
      
-    
  
Consumer and other loans
   
174
     
370
     
-    
      
202
     
-    
  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total
   
15,146
     
18,702
     
-    
      
15,820
     
306
 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
With a related allowance recorded:
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Commercial and industrial
   
-    
      
-    
      
-    
      
-    
      
-    
  
SBA
   
1
     
18
     
1
     
6
     
-    
  
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
   
378
     
391
     
74
     
385
     
-    
  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total
   
379
     
409
     
75
     
391
     
-    
  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total impaired loans
  $
 15,525
    $
 19,111
    $
 75
    $
 16,211
    $
 306
 
                                         
 
(1)
Excludes PCI 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 as it evaluates credit risk associated with the loan and lease portfolio. As a result of the acquisition of CB, the reserve for unfunded loan commitments increased by $2.9 million in 2018. There was no provision or recapture of provision for unfunded commitments for the year ended December 31, 2019, compared with a recapture of provision for unfunded loan commitments of $250,000 for the year ended December 31, 2018 and a recapture of provision for unfunded loan commitments of $400,000 for the year ended December 31, 2017. As of December 31, 2019 and 2018, the balance in this reserve was $9.0 million 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, 2019, there were $3.4 million of loans classified as a TDR, of which $244,000 were nonperforming and $3.1 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, 2019, performing TDRs were comprised of eight SFR mortgage loans of $2.1 million, one SBA loan of $536,000, one commercial real estate loan of $397,000, and two commercial and industrial loans of $78,000.
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 December 31, 2019 and December 31, 2018, respectively.
The following table provides a summary of the activity related to TDRs for the periods presented.
  
Year Ended December 31,
 
  
            2019            
 
  
            2018
 (1)
            
 
  
(Dollars in thousands)
  
Performing TDRs:
 
 
 
  
 
 
Beginning balance
  $
 3,594
    $
 4,809
 
New modifications
   
-
     
311
 
Payoffs/payments, net and other
   
(482
 )    
(1,526
 )
TDRs returned to accrual status
   
-
     
-
  
TDRs placed on nonaccrual status
   
-
     
-
  
   
 
 
    
 
 
  
Ending balance
  $
 3,112
    $
 3,594
 
   
 
 
    
 
 
  
Nonperforming TDRs:
 
 
 
  
 
 
Beginning balance
  $
 3,509
    $
 4,200
 
New modifications
   
-
     
316
 
Charge-offs
   
(78
 )    
-
  
Transfer to OREO
   
(2,275
 )    
-
  
Payoffs/payments, net and other
   
(912
 )    
(1,007
 )
TDRs returned to accrual status
   
-
     
-
  
TDRs placed on nonaccrual status
   
-
     
-
  
   
 
 
    
 
 
  
Ending balance
  $
244
    $
 3,509
 
   
 
 
    
 
 
  
Total TDRs
  $
 3,356
    $
 7,103
 
                 
 
  (1) Excludes PCI loans.
There were no loans that were modified as TDRs for the year ended December 31, 2019.
The following tables summarize loans modified as TDRs for the periods
presented
.
Modifications (1)
 
Year Ended December 31, 2018 (2)
 
  
Number of
Loans
 
  
Pre-Modification

Outstanding
Recorded
Investment
 
  
Post-Modification

Outstanding
Recorded
Investment
 
  
Outstanding Recorded
Investment at
December 31, 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
     
20
     
-
  
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
     
300
     
-
  
Dairy & livestock and agribusiness:
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Interest rate reduction
   
-
      
-
      
-
      
-
      
-
  
Change in amortization period or maturity
   
-
      
-
      
-
      
-
      
-
  
Consumer:
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Interest rate reduction
   
-
      
-
      
-
      
-
      
-
  
Change in amortization period or maturity
   
1
     
278
     
278
     
267
     
-
  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total loans
   
3
    $
 627
    $
 627
    $
 587
    $
 -
  
                                         
                                         
 
  
Year Ended December 31, 2017
 (2)
  
 
Number of
Loans
 
  
Pre-Modification

Outstanding
Recorded
Investment
 
  
Post-Modification

Outstanding
Recorded
Investment
 
  
Outstanding Recorded
Investment at
December 31, 2017
 
  
Financial Effect
Resulting From
Modifications (
3
)
 
 
(Dollars in thousands)
 
Commercial and industrial:
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Interest rate reduction
   
-
    $
-
    $
-
    $
-
    $
 -
  
Change in amortization period or maturity
   
-
     
-
     
-
     
-
     
-
 
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
   
1
     
3,143
     
3,143
     
3,143
     
-
 
SFR mortgage:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate reduction
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Change in amortization period or maturity
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Dairy & livestock and
agribusiness:
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Interest rate reduction
   
-
     
-
     
-
     
-
     
-
 
Change in amortization period or maturity
   
1
     
1,984
     
1,984
     
78
     
-
 
Consumer:
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Interest rate reduction
   
-
     
-
     
-
     
-
     
-
 
Change in amortization period or maturity
   
-
     
-
     
-
     
-
     
-
 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total loans
   
2
    $
5,127
    $
5,127
    $
3,221
    $
  -
 
                                         
 
 
 
(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.
 
As of December 31, 2019 and 2018, there were no loans that were modified as a TDR within the previous 12 months that subsequently defaulted. As of December 31, 2017, there was
one
commercial real estate loan with an outstanding balance of $
3.1
 million that
was
previously modified as a troubled debt restructuring within the previous 12 months that subsequently defaulted.