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Loans and Lease Finance Receivables and Allowance for Loan Losses
 3 Months Ended
Mar. 31, 2020
Receivables [Abstract]  
Loans and Lease Finance Receivables and Allowance for Loan Losses
5.
LOANS AND LEASE FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES
The following table provides a summary of total loans and lease finance receivables by type.
                                                                         
 
 
 
 
 
 
March 31, 2020
 
 
 
 
 
 
  
 
 
December 31, 2019
 
 
 
(Dollars in thousands)
  
Commercial and industrial
    $
960,761
      $
935,127
 
SBA
   
313,071
     
305,008
 
Real estate:
   
     
 
Commercial real estate
   
5,347,925
     
5,374,617
 
Construction
   
128,045
     
116,925
 
SFR mortgage
   
278,743
     
283,468
 
Dairy & livestock and agribusiness
   
272,114
     
383,709
 
Municipal lease finance receivables
   
51,287
     
53,146
 
Consumer and other loans
   
114,206
     
116,319
 
                 
Gross loans
   
7,466,152
     
7,568,319
 
Less: Deferred loan fees, net (1)
   
-
     
(3,742
 )
                 
Gross loans, net of deferred loan fees
   
7,466,152
     
7,564,577
 
Less: Allowance for
credit
losses
   
(82,641
 )    
(68,660
 )
                 
Total loans and lease finance receivables
    $
7,383,511
      $
7,495,917
 
                 
 
 
 
 
 
 
 
 
  (1) Beginning with March 31, 2020, gross loans are presented net of deferred loan fees by respective class of financing receivables.
 
 
 
 
 
 
As of March 31, 2020, 77.08% of the Company’s total gross loan portfolio consisted of real estate loans, with commercial real estate loans representing 71.63% 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 March 31, 2020, $248.2 million, or 4.64% of the total commercial real estate loans included loans secured by farmland, compared to $241.8 million, or 4.50%, at December 31, 2019. The loans secured by farmland included $122.5 million for loans secured by dairy & livestock land and $125.7 million for loans secured by agricultural land at March 31, 2020, compared to $125.9 million for loans secured by dairy & livestock land and $115.9 million for loans secured by agricultural land at December 31, 2019. As of March 31, 2020, dairy & livestock and agribusiness loans of $272.1 million were comprised of $218.0 million for dairy & livestock loans and $54.1 million for agribusiness loans, compared to $323.5 million for dairy & livestock loans and $60.2 million for agribusiness loans at December 31, 2019.
At March 31, 2020 and December 31, 2019, loans totaling $6.06 billion and $6.03 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 March 31, 2020 and December 31, 2019.
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 on an ongoing basis 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 and origination year, according to our internal risk ratings as of the date presented.
 
                                                                         
 
Origination Year
   
Revolving
loans
amortized
cost basis
 
  
Revolving
loans
converted to
term loans
 
  
 
March 31, 2020
 
2020
 
  
2019
 
  
2018
 
  
2017
 
  
2016
 
  
Prior
 
Total
 
 
(Dollars in thousands)
  
Commercial and industrial loans:
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Risk Rating:
   
     
     
     
     
     
     
     
     
 
Pass
    $
35,101
       $
160,551
       $
79,808
       $
74,291
       $
48,698
       $
85,803
       $
423,186
       $
8,849
       $
916,287
  
Special Mention
   
1,066
      
257
      
7,405
      
1,694
      
539
      
3,524
      
12,598
      
2,442
      
29,525
  
Substandard
   
-
      
143
      
796
      
855
      
637
      
37
      
11,256
      
1,225
      
14,949
  
Doubtful & Loss
   
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
                                                                         
Total Commercial and industrial loans:
    $
36,167
       $
160,951
       $
88,009
       $
76,840
       $
49,874
       $
89,364
       $
447,040
       $
12,516
       $
960,761
  
                                                                         
SBA:
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Risk Rating:
   
     
     
     
     
     
     
     
     
 
Pass
    $
26,599
       $
18,009
       $
48,416
       $
77,219
       $
27,922
       $
93,865
      $
-
       $
-
      $
292,030
  
Special Mention
   
-
      
-
      
-
      
1,177
      
1,277
      
7,809
     
-
      
-
     
10,263
  
Substandard
   
-
      
-
      
1,424
      
3,835
      
1,604
      
3,915
     
-
      
-
     
10,778
  
Doubtful & Loss
   
-
      
-
      
-
      
-
      
-
      
-
     
-
      
-
     
-
  
                                                                         
Total SBA:
    $
26,599
       $
18,009
       $
49,840
       $
82,231
       $
30,803
       $
105,589
      $
-
       $
-
      $
313,071
  
                                                                         
Commercial real estate loans:
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Risk Rating:
   
     
     
     
     
     
     
     
     
 
Pass
    $
153,366
       $
726,268
       $
743,909
       $
732,319
       $
626,561
       $
2,021,759
       $
197,335
       $
18,747
       $
5,220,264
  
Special Mention
   
-
      
5,343
      
9,106
      
16,484
      
7,211
      
52,995
      
3,457
      
-
      
94,596
  
Substandard
   
-
      
-
      
5,155
      
5,813
      
1,315
      
18,819
      
250
      
1,713
      
33,065
  
Doubtful & Loss
   
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
                                                                         
Total Commercial real estate loans:
    $
153,366
       $
731,611
       $
758,170
       $
754,616
       $
635,087
       $
2,093,573
       $
201,042
       $
20,460
       $
5,347,925
  
                                                                         
Construction loans:
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Risk Rating:
   
     
     
     
     
     
     
     
     
 
Pass
    $
550
       $
13,414
       $
13,300
       $
35,130
       $
10,592
       $
5
       $
49,591
       $
5,463
       $
128,045
  
Special Mention
   
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
Substandard
   
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
Doubtful & Loss
   
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
                                                                         
Total Construction loans:
    $
550
       $
13,414
       $
13,300
       $
35,130
       $
10,592
       $
5
       $
49,591
       $
5,463
       $
128,045
  
                                                                         
SFR mortgage loans:
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Risk Rating:
   
     
     
     
     
     
     
     
     
 
Pass
    $
10,473
       $
66,680
       $
38,192
      $
26,819
      $
35,992
       $
96,795
       $
-
       $
-
       $
274,951
 
Special Mention
   
-
      
-
      
-
     
-
     
-
      
1,942
      
-
      
-
      
1,942
 
Substandard
   
-
      
-
      
-
     
379
     
-
      
1,025
      
-
      
446
      
1,850
 
Doubtful & Loss
   
-
      
-
      
-
     
-
     
-
      
-
      
-
      
-
      
-
 
                                                                         
Total SFR mortgage loans:
    $
10,473
       $
66,680
       $
38,192
      $
27,198
      $
35,992
       $
99,762
       $
-
       $
446
       $
278,743
 
                                                                         
 
                                                                         
 
Origination Year
   
Revolving
loans
amortized
cost basis
 
  
Revolving
loans
converted to
term loans
 
  
 
March 31, 2020
 
2020
 
  
2019
 
  
2018
 
  
2017
 
  
2016
 
  
Prior
 
Total
 
 
(Dollars in thousands)
  
Dairy & livestock and agribusiness loans:
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Risk Rating:
   
     
     
     
     
     
     
     
     
 
Pass
    $
78
       $
2,945
       $
1,940
       $
8,109
       $
2,831
       $
14,655
       $
192,649
       $
-
       $
223,207
  
Special Mention
   
-
      
-
      
166
      
722
      
-
      
-
      
22,150
     
3,686
      
26,724
 
Substandard
   
-
      
-
      
882
      
-
      
4,016
      
-
      
4,625
     
12,660
      
22,183
 
Doubtful & Loss
   
-
      
-
      
-
      
-
      
-
      
-
      
-
     
-
      
-
 
                                                                         
Total Dairy & livestock and agribusiness loans:
    $
78
       $
2,945
       $
2,988
       $
8,831
       $
6,847
       $
14,655
       $
219,424
      $
16,346
       $
272,114
 
                                                                         
Municipal lease finance receivables loans:
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Risk Rating:
   
     
     
     
     
     
     
     
     
 
Pass
    $
147
       $
-
       $
3,081
       $
10,961
       $
7,912
       $
28,739
       $
-
       $
-
       $
50,840
  
Special Mention
   
-
      
-
      
-
      
-
      
-
      
447
      
-
      
-
      
447
  
Substandard
   
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
Doubtful & Loss
   
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
                                                                         
Total Municipal lease finance receivables loans:
    $
147
       $
-
       $
3,081
       $
10,961
       $
7,912
       $
29,186
       $
-
       $
-
       $
51,287
  
                                                                         
Consumer and other loans:
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Risk Rating:
   
     
     
     
     
     
     
     
     
 
Pass
    $
1,647
       $
3,197
       $
1,160
       $
1,372
       $
2,094
       $
2,612
       $
98,953
       $
1,582
       $
112,617
  
Special Mention
   
-
      
-
      
-
      
-
      
80
      
148
      
609
      
-
      
837
  
Substandard
   
-
      
-
      
5
      
-
      
-
      
179
      
148
      
420
      
752
  
Doubtful & Loss
   
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
                                                                         
Total Consumer and other loans:
    $
1,647
       $
3,197
       $
1,165
       $
1,372
       $
2,174
       $
2,939
       $
99,710
       $
2,002
       $
114,206
  
                                                                         
Gross loans:
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Risk Rating:
   
     
     
     
     
     
     
     
     
 
Pass
    $
227,961
      $
991,064
       $
929,806
       $
966,220
      $
762,602
       $
2,344,233
      $
961,714
      $
34,641
      $
7,218,241
 
Special Mention
   
1,066
     
5,600
      
16,677
      
20,077
     
9,107
      
66,865
     
38,814
     
6,128
     
164,334
 
Substandard
   
-
     
143
      
8,262
      
10,882
     
7,572
      
23,975
     
16,279
     
16,464
     
83,577
 
Doubtful & Loss
   
-
     
-
      
-
      
-
     
-
      
-
     
-
     
-
     
-
 
                                                                         
Total Gross loans:
    $
229,027
      $
996,807
       $
954,745
       $
997,179
      $
779,281
       $
2,435,073
      $
1,016,807
      $
57,233
      $
7,466,152
 
                                                                         
 
The following table summarizes lo
an
s by type, according to our internal risk ratings as of the date presented.
                                         
 
December 31, 2019
 
    Pass    
 
Special
 
 
Mention  
 
Substandard 
 
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
  
                                         
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Credit Losses
The allowance for credit losses for 2020 is based upon historical lifetime loss rate models segregated by three loan segments: Commercial and Industrial, Commercial Real Estate, and Consumer Retail. Our methodology for assessing the appropriateness of the allowance is reviewed on a regular basis and considers overall risks in the Bank’s loan portfolio. Refer to Note 3 –
Summary of Significant Accounting Policies
contained herein for a more detailed discussion concerning the allowance for credit losses.
During the second half of March 2020, the broader economy experienced a significant deterioration in the economic environment driven by the
 
COVID-19
 
pandemic resulting in adverse changes to the forecasted macroeconomic
variables utilized in our modeling processes. For the quarter ended March 31, 2020, the Bank’s CECL methodology produced an ACL of $82.6 million, resulting in a provision for credit losses of $12.0 million. The ACL/Total Loan Coverage Ratio as of March 31, 2020 increased to 1.11%, compared to 0.93% as of January 1, 2020 due to the more severe economic forecast that resulted from the
COVID-19
crisis.
 
Our economic forecast is a blend of multiple forecasts produced by Moody’s. The resulting forecast assumes a decline in GDP for the second quarter of almost 20% and unemployment rising to more than 9% in the second quarter of 2020. GDP is forecasted to rebound to growth of approximately 10% in the third quarter of 2020, but unemployment continues to be inflated at more than 6% through the remainder of 2020.
Management believes that the ACL was appropriate at March 31, 2020 and December 31, 2019. No assurance can be given that economic conditions that adversely affect the Company’s service areas or other circumstances will not be reflected in increased provisions for credit losses in the future.
The following tables present the balance and activity related to the allowance for credit losses for
held-for-investment
loans by type for the periods presented.
                                                 
 
  
Three Months Ended March 31, 2020
 
  
Ending Balance,
  prior to adoption of  
ASU 2016-13
December 31, 2019
 
Impact of
adopting ASU
2016-13
 
Provision for
    (Recapture of)    
Credit Losses
Expense
 
Charge-offs
 
    Recoveries    
 
Ending Balance
March 31, 2020
 
 
(Dollars
i
in thousands)
  
Commercial and industrial
    $
8,880
       $
(2,442
 )     $
2,947
       $
-
       $
2
       $
9,387
  
SBA
   
1,453
      
1,818
      
675
      
-
      
-
      
3,946
  
Real estate:
   
     
     
     
     
     
 
Commercial real estate
   
48,629
      
3,547
      
6,251
      
-
      
-
      
58,427
  
Construction
   
858
      
655
      
3,116
      
-
      
3
      
4,632
  
SFR mortgage
   
2,339
      
(2,043
 )    
(221
 )    
-
      
206
      
281
  
Dairy & livestock and agribusiness
   
5,255
      
(186
 )    
(803
 )    
-
      
-
      
4,266
  
Municipal lease finance receivables
   
623
      
(416
 )    
70
      
-
      
-
      
277
  
Consumer and other loans
   
623
      
907
      
(35
 )    
(86
 )    
16
      
1,425
  
                                                 
Total allowance for credit losses
    $
68,660
       $
1,840
       $
12,000
       $
(86
 )     $
227
       $
82,641
  
                                                 
 
 
 
 
 
 
 
 
                                         
 
Three Months Ended March 31, 2019
 
 
     Ending Balance     

December 31,
2018
 
  
    Charge-offs    
 
  
    Recoveries    
 
  
Provision for

    (Recapture of)    

Loan Losses
 
  
  Ending Balance  

March 31, 2019
 
 
(Dollars in thousands)
  
Commercial and industrial
    $
7,520
       $
-
       $
110
       $
(31
 )     $
7,599
  
SBA
   
1,062
      
(20
 )    
5
      
232
      
1,279
  
Real estate:
   
     
-
      
-
      
     
 
Commercial real estate
   
44,934
      
-
      
-
      
1,144
      
46,078
  
Construction
   
981
      
-
      
3
      
(120
 )    
864
  
SFR mortgage
   
2,196
      
-
      
68
      
(76
 )    
2,188
  
Dairy & livestock and agribusiness
   
5,215
      
(78
 )    
-
      
562
      
5,699
  
Municipal lease finance receivabl
es
    
775
      
-
      
-
      
(37
 )    
738
  
Consumer and other loans
   
726
      
(1
 )    
1
      
(150
 )    
576
  
PCI loans
   
204
      
-
      
-
      
(24
 )    
180
  
                                         
Total allowance for loan losses
    $
63,613
       $
(99
 )     $
187
       $
1,500
       $
65,201
  
                                         
 
 
 
 
 
 
 
 
The following table presents the recorded investment in loans
held-for-investment
and the related
ACL
by loan type, based on the Company’s methodology for determining the
ACL
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.
                                                 
 
March 31, 2019
 
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
    $
8,512
       $
948,614
       $
-
       $
117
      $
7,482
       $
-
  
SBA
   
4,661
      
333,296
      
-
      
317
      
962
      
-
  
Real estate:
   
     
     
     
     
     
 
Commercial real estate
   
1,589
      
5,387,277
      
-
      
-
      
46,078
      
-
  
Construction
   
-
      
121,912
      
-
      
-
      
864
      
-
  
SFR mortgage
   
5,051
      
280,736
      
-
      
-
      
2,188
      
-
  
Dairy & livestock and agribusiness
   
-
      
322,321
      
-
      
-
      
5,699
      
-
  
Municipal lease finance receivables
   
-
      
61,249
      
-
      
-
      
738
      
-
  
Consumer and other loans
   
477
      
120,291
      
-
      
1
      
575
      
-
  
PCI loans
   
-
      
-
      
15,356
      
-
      
-
      
180
  
                                                 
Total
    $
20,290
       $
7,575,696
       $
15,356
       $
435
       $
64,586
       $
180
  
                                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 ACL, 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, 2019, for additional discussion concerning the Bank’s policy for past due and nonperforming loans.
The following table presents the recorded investment in, and the ag
in
g of, past due loans (including nonaccrual loans), by type of loans as of the date pres
ent
ed.
                                                 
 
March 31, 2020
 
  
30-59
 Days
Past Due
 
60-89
 Days
Past Due
 
 Greater 
than 89 Days
Past Due
 
Total Past
Due
 
Loans Not
Past Due
 
Total Loans
 
 
 
 and Financing  
Receivables
 
 
(Dollars in thousands)
Commercial and industrial
    $
347
       $
362
       $
1,487
       $
2,196
       $
958,565
       $
960,761
  
SBA
   
3,086
      
954
      
1,669
      
5,709
      
307,362
      
313,071
  
Real estate:
   
     
     
     
     
     
 
 Commercial real estate
   
     
     
     
     
     
 
  Owner occupied
   
154
      
310
      
250
      
714
      
2,069,646
      
2,070,360
  
  
Non-owner
occupied
    
210
      
-
      
-
      
210
      
3,277,355
      
3,277,565
  
 Construction
   
     
     
     
     
     
 
  Speculative (1)
   
-
      
-
      
-
      
-
      
116,143
      
116,143
  
  
Non-speculative
   
-
      
-
      
-
      
-
      
11,902
      
11,902
  
 SFR mortgage
   
233
      
-
      
486
      
719
      
278,024
      
278,743
  
Dairy & livestock and agribusiness
   
166
      
-
      
-
      
166
      
271,948
      
272,114
  
Municipal lease finance receivables
   
-
      
-
      
-
      
-
      
51,287
      
51,287
  
Consumer and other loans
   
-
      
-
      
93
      
93
      
114,113
      
114,206
  
                                                 
  Total gross loans
    $
4,196
       $
1,626
       $
3,985
       $
9,807
       $
7,456,345
       $
7,466,152
  
                                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  (1) Speculative construction loans are generally for properties where there is no identified buyer or renter.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Following the adoption of CECL on January 1, 2020, the definitions of impairment and related impaired loan disclosures were removed. Under CECL, amortized cost of our finance receivables and loans that are on nonaccrual status, including loans with no allowance, are presented as of March 31, 2020 by type of loan.
                         
 
March 31, 2020
 
 
Nonaccrual
with No
Allowance for
Credit Losses
 
  
Total
Nonaccrual
(1) (3) 
 
  
Loans Past Due
Over 89 Days
Still Accruing
 
 
(Dollars in thousands)
 
Commercial and industrial
    $
549
       $
1,703
       $
-
  
SBA
   
2,110
      
2,748
      
-
  
Real estate:
   
     
     
 
 Commercial real estate
   
     
     
 
  Owner occupied
   
715
      
715
      
-
  
  
Non-owner
occupied
    
232
      
232
      
-
  
 Construction
   
     
     
 
  Speculative (2)
   
-
      
-
      
-
  
  
Non-speculative
   
-
      
-
      
-
  
 SFR mortgage
   
864
      
864
      
-
  
Dairy & livestock and agribusiness
   
-
      
-
      
-
  
Municipal lease finance receivables
   
-
      
-
      
-
  
Consumer and other loans
   
166
      
166
      
-
  
                         
  Total gross loans
    $
4,636
       $
6,428
       $
-
  
                         
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  (1) As of March 31, 2020, $982,000 of nonaccruing loans were current, $154,000 were
30-59
days past due, $1.3 million were
60-89
days past due, and $4.0 million were 90+ days past due.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  (2) Speculative construction loans are generally for properties where there is no identified buyer or renter.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  (
3
)		 Excludes $1.7 million of guaranteed portion of nonaccrual SBA loans that are in process of collection.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following table presents the recorded investment in, and the aging of, past due and nonaccrual loans, by type of loans as of the date presented.
                                                 
 
December 31, 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
    $
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
    $
            
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 identifi
ed
buyer or renter.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  (
3
)		 Excludes $2.0 million of guaranteed porti
on
of nonaccrual SBA loans that are in process of collection.
 
 
 
 
 
 
 
 
Impaired Loans (prior to adoption of CECL)
Following the adoption of CECL as of January 1, 2020, the definitions of impairment and related impaired loan disclosures were removed. As a result of the change, the following tables present information about our impaired loans and lease finance receivables, individually evaluated for impairment by type of loans, as of March 31, 2019 and December 31, 2019, prior to the date of adoption of the amendments to the credit loss standard.
                                         
 
Three Months Ended
 
March 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
    $
8,208
       $
12,317
       $
-
      $
8,230
       $
2
  
SBA
   
3,400
      
5,779
      
-
     
3,511
      
11
  
Real estate:
   
     
     
     
     
 
Commercial real estate
   
     
     
     
     
 
Owner occupied
   
519
      
618
      
-
     
521
      
-
 
Non-owner
occupied
    
1,070
      
1,231
      
-
     
1,084
      
7
  
Construction
   
     
     
     
     
 
Speculative
   
-
     
-
     
-
     
-
     
-
 
Non-speculative
   
-
     
-
     
-
     
-
     
-
 
SFR mortgage
   
5,051
      
5,865
      
-
     
5,082
      
21
  
Dairy & livestock and agribusiness
   
-
     
-
     
-
     
-
     
-
 
Municipal lease finance receivables
   
-
     
-
     
-
     
-
     
-
 
Consumer and other loans
   
476
      
625
      
-
     
482
      
-
 
                                         
Total
   
18,724
      
26,435
      
-
     
18,910
      
41
  
                                         
With a related allowance recorded:
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Commercial and industrial
   
304
      
309
      
117
      
323
      
-
 
SBA
   
1,261
      
1,236
      
317
      
1,261
      
-
 
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
   
1
      
1
      
1
      
1
      
-
 
                                         
Total
   
1,566
      
1,546
      
435
      
1,585
      
-
 
                                         
 Total impaired loans
    $
20,290
       $
     
27,981
       $
435
       $
20,495
       $
41
  
                                         
 
 
 
  
December 31, 2019
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
(Dollars in thousands)
With no related allowance recorded:
 
 
 
  
 
 
  
 
 
Commercial and industrial
    $
1,091
       $
1,261
       $
-
 
SBA
   
2,243
      
2,734
      
-
 
Real estate:
   
     
     
 
Commercial real estate
   
     
     
 
Owner occupied
   
479
      
613
      
-
 
Non-owner
occupied
    
642
      
643
      
-
 
Construction
   
     
     
 
Speculative
   
-
     
-
     
-
 
Non-speculative
   
-
     
-
     
-
 
SFR mortgage
   
2,979
      
3,310
      
-
 
Dairy & livestock and agribusiness
   
-
     
-
     
-
 
Municipal lease finance receivables
   
-
     
-
     
-
 
Consumer and other loans
   
377
      
514
      
-
 
                         
Total
   
7,811
      
9,075
      
-
 
                         
With a related allowance recorded:
 
 
 
  
 
 
  
 
 
Commercial and industrial
   
253
      
347
      
251
  
SBA
   
325
      
324
      
257
  
Real estate:
   
     
     
 
Commercial real estate
   
     
     
 
Owner occupied
   
-
     
-
     
-
 
Non-owner
occup
ied
    
-
     
-
     
-
 
Construction
   
     
     
 
Speculative
   
-
     
-
     
-
 
Non-speculative
   
-
     
-
     
-
 
SFR mortgage
   
-
     
-
     
-
 
Dairy & livestock and agribusiness
   
-
     
-
     
-
 
Municipal lease finance receivables
   
-
     
-
     
-
 
Consumer and other loans
   
-
     
-
     
-
 
                         
Total
   
578
      
671
      
508
  
                         
 Total impaired loans
    $
           
8,389
       $
           
9,746
       $
             
508
  
                         
 
 
 
Collateral Dependent Loans
A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral.
 
The following table presents the recorded investment in collateral-dependent loans by type of loans as of the date presented.
  
March 31, 2020
   
Number of
Loans

Dependent on
Collateral
 
  
Real Estate
 
  
Business Assets
  
Other
 
  
(Dollars in thousands)
    
 
Commercial and industrial
    $
112
       $
1,652
       $
8
      
12
  
SBA
   
1,852
      
2,524
      
8
      
19
  
Real estate:
   
     
     
     
 
Commercial real estate
   
1,324
      
-
      
-
      
5
  
Construction
   
-
      
-
      
-
      
-
  
SFR mortgage
   
864
      
-
      
-
      
3
  
Dairy & livestock and agribusiness
   
-
      
-
      
-
      
-
  
Municipal lease finance receivables
   
-
      
-
      
-
      
-
  
Consumer and other loans
   
84
      
-
      
22
      
4
  
                                 
 Total collateral-dependent loans
    $
       
4,236
       $
       
4,176
       $
               
38
      
          
43
  
                                 
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 adoption of ASU
2016-13,
the reserve for unfunded loan commitments
included a transition adjustment of
$41,000
as
of
 January 1,
2020. There was no provision or recapture of provision for unfunded commitments for the three months ended March 31, 2020. As of March 31, 2020 and December 31, 2019, 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
nonperforming
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, 2019 for a more detailed discussion regarding TDRs.
As of March 31, 2020, there were $2.8 million of loans classified as a TDR, of which $2.8 million were performing and none 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 March 31, 2020, performing TDRs were comprised of seven SFR mortgage loans of $1.8 million, one SBA loan of $524,000, one commercial real estate loan of $377,000, and two commercial and industrial loans of $68,000.
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
no
allocated allowance to TDRs as of March 31, 2020 and December 31, 2019
.
The following table provides a summary of the activity related to TDRs for the periods presented.
 
Three Months Ended
March 31,
 
2020
 
2019
 
  
(Dollars in thousands)
Performing TDRs:
 
 
 
  
 
 
Beginning balance
    $
3,112
       $
3,594
  
New modifications
   
-
      
-
  
Payoffs/payments, net and other
   
(299
 )    
(295
 )
TDRs returned to accrual status
   
-
      
-
  
TDRs placed on nonaccrual status
   
-
      
-
  
                 
Ending balance
    $
2,813
       $
3,299
  
                 
Nonperforming TDRs:
 
 
 
  
 
 
Beginning balance
    $
244
       $
3,509
  
New modifications
   
-
      
-
  
Charge-offs
   
-
      
(78
 )
Transfer to OREO
   
-
      
(2,275
 )
Payoffs/payments, net and other
   
(244
 )    
(879
 )
TDRs returned to accrual status
   
-
      
-
  
TDRs placed on nonaccrual status
   
-
      
-
  
                 
Ending balance
    $
-
       $
277
  
                 
Total TDRs
    $
2,813
       $
3,576
  
                 
As of March 31, 2020 and 2019, there were no loans that were modified as TDRs dur
ing
 the three months ended March 31, 2020 and 2019, respectively.
There were no loans that were previously modified as a TDR within the previous 12 months that subsequently defaulted during the three months ended March 31, 2020 and 2019.
In accordance with regulatory guidance, if borrowers are less than 30 days past due on their loans, upon implementation of the modification program, or as allowed under the CARES Act if borrowers are less than 30 days past due on their loans as of December 31, 2019, and enter into short-term loan modifications offered as a result of
COVID-19,
their loans generally continue to be considered performing loans and continue to accrue interest during the period of the loan modification. For borrowers who are 30 days or more past due when entering into loan modifications offered as a result of
COVID-19,
we evaluate the loan modifications under our existing troubled debt restructuring framework, and where such a loan modification would result in a concession to a borrower experiencing financial difficulty, the loan will be accounted for as a TDR and will generally not accrue interest. For all borrowers who enroll in these loan modification programs offered as a result of
COVID-19,
the delinquency status of the borrowers is frozen, resulting in a static delinquency metric during the deferral period. Upon exiting the deferral program, the measurement of loan delinquency will resume where it had left off upon entry into the program. Through May 3, 2020, we have granted temporary payment deferments of interest or of principal and interest for 90 days on 620 loans in the amount of $940 million, or approximately 13% of our total loan portfolio at March 31, 2020.