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Loans and Lease Finance Receivables and Allowance for Credit Losses
 9 Months Ended
Sep. 30, 2020
Receivables [Abstract]  
Loans and Lease Finance Receivables and Allowance for Credit 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.
 
                                                     
   
September 30, 2020
  
December 31, 2019
   
(Dollars in thousands)
Commercial and industrial
  
  $
817,056
 
  
  $
935,127
 
SBA
  
 
304,987
 
  
 
305,008
 
SBA - Paycheck Protection Program (PPP)
  
 
1,101,142
 
  
 
-
 
Real estate:
    
Commercial real estate
  
 
5,428,223
 
  
 
5,374,617
 
Construction
  
 
101,903
 
  
 
116,925
 
SFR mortgage
  
 
274,731
 
  
 
283,468
 
Dairy & livestock and agribusiness
  
 
252,802
 
  
 
383,709
 
Municipal lease finance receivables
  
 
38,040
 
  
 
53,146
 
Consumer and other loans
  
 
88,988
 
  
 
116,319
 
 
 
 
 
  
 
 
 
Total loans
  
 
8,407,872
 
  
 
7,568,319
 
Less: Deferred loan fees, net (1)
  
 
-
 
  
 
(3,742
) 
 
 
 
 
  
 
 
 
Total loans, net of deferred loan fees
  
 
8,407,872
 
  
 
7,564,577
 
Less: Allowance for credit losses
  
 
(93,869
) 
  
 
(68,660
) 
 
 
 
 
  
 
 
 
Total loans and lease finance receivables, net
  
  $
8,314,003
 
  
  $
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 September 30, 2020, 69.04% of the Company’s total gross loan portfolio consisted of real estate loans, with commercial real estate loans representing 64.56% 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 September 30, 2020, $271.2 million, or 5.00% 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 $121.1 million for loans secured by dairy & livestock land and $150.2 million for loans secured by agricultural land at September 30, 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 September 30, 2020, dairy & livestock and agribusiness loans of $252.8 million were comprised of $210.4 million for dairy & livestock loans and $42.4 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 September 30, 2020 and December 31, 2019, loans totaling $6.00 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 September 30, 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. Loans 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
     
September 30, 2020
   
2020
   
2019
   
2018
   
2017
   
2016
   
Prior
   
Total
    
(Dollars in thousands)
Commercial and
industrial loans:
                           
Risk Rating:
                           
Pass
   
  $
81,480
 
   
  $
170,738
 
   
  $
72,345
 
   
  $
62,918
 
   
  $
41,860
 
   
  $
80,669
 
   
  $
255,407
 
   
  $
8,153
 
   
  $
773,570
 
Special Mention
   
 
-
 
   
 
1,235
 
   
 
3,087
 
   
 
814
 
   
 
241
 
   
 
5,015
 
   
 
15,970
 
   
 
1,022
 
   
 
27,384
 
Substandard
   
 
4,545
 
   
 
111
 
   
 
1,500
 
   
 
1,815
 
   
 
448
 
   
 
8
 
   
 
6,472
 
   
 
1,203
 
   
 
16,102
 
Doubtful & Loss
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Total Commercial and
industrial loans:
   
  $
86,025
 
   
  $
172,084
 
   
  $
76,932
 
   
  $
65,547
 
   
  $
42,549
 
   
  $
85,692
 
   
  $
277,849
 
   
  $
10,378
 
   
  $
817,056
 
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
SBA loans:
                           
Risk Rating:
                           
Pass
   
  $
37,389
 
   
  $
13,394
 
   
  $
46,193
 
   
  $
72,665
 
   
  $
26,687
 
   
  $
88,255
 
   
  $
-
 
   
  $
2,873
 
   
  $
287,456
 
Special Mention
   
 
-
 
   
 
-
 
   
 
-
 
   
 
1,113
 
   
 
1,352
 
   
 
6,910
 
   
 
-
 
   
 
-
 
   
 
9,375
 
Substandard
   
 
-
 
   
 
-
 
   
 
955
 
   
 
1,998
 
   
 
1,546
 
   
 
3,657
 
   
 
-
 
   
 
-
 
   
 
8,156
 
Doubtful & Loss
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Total SBA loans:
   
  $
37,389
 
   
  $
13,394
 
   
  $
47,148
 
   
  $
75,776
 
   
  $
29,585
 
   
  $
98,822
 
   
  $
-
 
   
  $
2,873
 
   
  $
304,987
 
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
SBA - PPP loans:
                           
Risk Rating:
                           
Pass
   
  $
1,101,142
 
   
  $
-
 
   
  $
-
 
   
  $
-
 
   
  $
-
 
   
  $
-
 
   
  $
-
 
   
  $
-
 
   
  $
1,101,142
 
Special Mention
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
Substandard
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
Doubtful & Loss
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Total SBA - PPP loans:
   
  $
1,101,142
 
   
  $
-
 
   
  $
-
 
   
  $
-
 
   
  $
-
 
   
  $
-
 
   
  $
-
 
   
  $
-
 
   
  $
1,101,142
 
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Commercial real estate loans:
                           
Risk Rating:
                           
Pass
   
  $
617,068
 
   
  $
701,648
 
   
  $
680,997
 
   
  $
684,519
 
   
  $
589,553
 
   
  $
1,776,989
 
   
  $
201,021
 
   
  $
26,329
 
   
  $
5,278,124
 
Special Mention
   
 
4,619
 
   
 
11,125
 
   
 
18,168
 
   
 
21,767
 
   
 
13,865
 
   
 
48,591
 
   
 
5,447
 
   
 
297
 
   
 
123,879
 
Substandard
   
 
-
 
   
 
793
 
   
 
3,815
 
   
 
5,497
 
   
 
1,281
 
   
 
14,597
 
   
 
237
 
   
 
-
 
   
 
26,220
 
Doubtful & Loss
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Total Commercial real estate loans:
   
  $
621,687
 
   
  $
713,566
 
   
  $
702,980
 
   
  $
711,783
 
   
  $
604,699
 
   
  $
1,840,177
 
   
  $
206,705
 
   
  $
26,626
 
   
  $
5,428,223
 
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Construction loans:
                           
Risk Rating:
                           
Pass
   
  $
11,160
 
   
  $
8,614
 
   
  $
14,399
 
   
  $
15,667
 
   
  $
10,592
 
   
  $
4
 
   
  $
41,467
 
   
  $
-
 
   
  $
101,903
 
Special Mention
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
Substandard
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
Doubtful & Loss
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Total Construction loans:
   
  $
11,160
 
   
  $
8,614
 
   
  $
14,399
 
   
  $
15,667
 
   
  $
10,592
 
   
  $
4
 
   
  $
41,467
 
   
  $
-
 
   
  $
101,903
 
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
SFR mortgage loans:
                           
Risk Rating:
                           
Pass
   
  $
52,050
 
   
  $
62,087
 
   
  $
33,614
 
   
  $
25,069
 
   
  $
28,344
 
   
  $
69,215
 
   
  $
-
 
   
  $
-
 
   
  $
270,379
 
Special Mention
   
 
15
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
456
 
   
 
-
 
   
 
-
 
   
 
471
 
Substandard
   
 
-
 
   
 
238
 
   
 
-
 
   
 
-
 
   
 
229
 
   
 
2,974
 
   
 
-
 
   
 
440
 
   
 
3,881
 
Doubtful & Loss
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Total SFR mortgage loans:
   
  $
52,065
 
   
  $
62,325
 
   
  $
33,614
 
   
  $
25,069
 
   
  $
28,573
 
   
  $
72,645
 
   
  $
-
 
   
  $
440
 
   
  $
274,731
 
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
                
                
                
                
                
                
                
                
                
    
Origination Year
   
Revolving
loans
amortized
cost basis
   
Revolving
loans
converted
to term
loans
     
September 30, 2020
   
2020
   
2019
   
2018
   
2017
   
2016
   
Prior
   
Total
    
(Dollars in thousands)
Dairy & livestock and agribusiness loans:
                           
Risk Rating:
                           
Pass
   
  $
742
 
   
  $
2,201
 
   
  $
1,675
 
   
  $
5,709
 
   
  $
152
 
   
  $
341
 
   
  $
210,610
 
   
  $
494
 
   
  $
221,924
 
Special Mention
   
 
13
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
11,596
 
   
 
1,631
 
   
 
13,240
 
Substandard
   
 
-
 
   
 
-
 
   
 
849
 
   
 
703
 
   
 
2,985
 
   
 
-
 
   
 
824
 
   
 
12,277
 
   
 
17,638
 
Doubtful & Loss
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Total Dairy & livestock and agribusiness loans:
   
  $
755
 
   
  $
2,201
 
   
  $
2,524
 
   
  $
6,412
 
   
  $
3,137
 
   
  $
341
 
   
  $
223,030
 
   
  $
14,402
 
   
  $
252,802
 
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Municipal lease finance receivables loans:
                           
Risk Rating:
                           
Pass
   
  $
123
 
   
  $
-
 
   
  $
2,556
 
   
  $
10,436
 
   
  $
3,587
 
   
  $
20,926
 
   
  $
-
 
   
  $
-
 
   
  $
37,628
 
Special Mention
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
412
 
   
 
-
 
   
 
-
 
   
 
412
 
Substandard
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
Doubtful & Loss
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Total Municipal lease finance receivables loans:
   
  $
123
 
   
  $
-
 
   
  $
2,556
 
   
  $
10,436
 
   
  $
3,587
 
   
  $
21,338
 
   
  $
-
 
   
  $
-
 
   
  $
38,040
 
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Consumer and other
loans:
                           
Risk Rating:
                           
Pass
   
  $
5,483
 
   
  $
2,334
 
   
  $
971
 
   
  $
1,068
 
   
  $
1,714
 
   
  $
1,380
 
   
  $
72,501
 
   
  $
1,994
 
   
  $
87,445
 
Special Mention
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
91
 
   
 
737
 
   
 
-
 
   
 
828
 
Substandard
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
174
 
   
 
-
 
   
 
541
 
   
 
715
 
Doubtful & Loss
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Total Consumer and other loans:
   
  $
5,483
 
   
  $
2,334
 
   
  $
971
 
   
  $
1,068
 
   
  $
1,714
 
   
  $
1,645
 
   
  $
73,238
 
   
  $
2,535
 
   
  $
88,988
 
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Gross loans:
                           
Risk Rating:
                           
Pass
   
  $
1,906,637
 
   
  $
961,016
 
   
  $
852,750
 
   
  $
878,051
 
   
  $
702,489
 
   
  $
2,037,779
 
   
  $
781,006
 
   
  $
39,843
 
   
  $
8,159,571
 
Special Mention
   
 
4,647
 
   
 
12,360
 
   
 
21,255
 
   
 
23,694
 
   
 
15,458
 
   
 
61,475
 
   
 
33,750
 
   
 
2,950
 
   
 
175,589
 
Substandard
   
 
4,545
 
   
 
1,142
 
   
 
7,119
 
   
 
10,013
 
   
 
6,489
 
   
 
21,410
 
   
 
7,533
 
   
 
14,461
 
   
 
72,712
 
Doubtful & Loss
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
   
 
-
 
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Total Gross loans:
   
  $
1,915,829
 
   
  $
974,518
 
   
  $
881,124
 
   
  $
911,758
 
   
  $
724,436
 
   
  $
2,120,664
 
   
  $
822,289
 
   
  $
57,254
 
   
  $
8,407,872
 
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
The following table summarizes loans 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.
Our allowance for credit losses decreased in the third quarter by $114,000, as a result of net charge-offs of $114,000. There was no provision for credit losses in the third quarter of 2020. Our allowance for credit losses at September 30, 2020 was $93.9 million or 1.12% of total loans. For the nine months ended September 30, 2020, the ACL increased by $25.2 million, including a $1.8 million increase from the adoption of CECL on January 1, 2020. The increase in the ACL was primarily due to $23.5 million in provision for credit losses recorded in the first half of 2020 resulting from the forecasted changes in macroeconomic variables related to the
COVID
-19
pandemic. Our economic forecast continues to be a blend of multiple forecasts produced by Moody’s. Moody’s baseline forecast continues to represent more than a 50% weighting in our multi-weighted forecast scenario. This U.S. baseline forecast assumes GDP will increase by 27% in the third quarter, 2.9% in the fourth quarter and then grow by 3.5% in 2021 and 5% in 2022. The unemployment rate
 in this baseline forec
as
t
 is forecasted to be 8.9% in the third quarter of 2021, stay at an elevated level over 8% through 2021, before declining to 6.4% percent in 2022. With California slowly
re-opening
its
 economy and
currently
having an unemployment rate greater than 11% percent, our forecast includes a partial weighting o
f
 downside economic forecast scenarios from Moody’s.    
Management believes that the ACL was appropriate at September 30, 2020 and December 31, 2019. There is a high degree of uncertainty around the epidemiological assumptions and impact of government responses to the pandemic that impact our economic forecast, so 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 September 30, 2020
   
 Ending Balance 
June 30, 2020
  
Charge-offs
  
Recoveries
  
Provision for
(Recapture of)
Credit Losses
  
 Ending Balance 
September 30,
2020
   
(Dollars in thousands)
Commercial and industrial
  
  $
7,991
 
  
  $
(161
) 
  
  $
2
 
  
  $
761
 
  
  $
8,593
 
SBA
  
 
3,651
 
  
 
(47
) 
  
 
69
 
  
 
(169
) 
  
 
3,504
 
SBA - PPP
  
 
-
 
  
 
-
 
  
 
-
 
  
 
-
 
  
 
-
 
Real estate:
          
Commercial real estate
  
 
74,928
 
  
 
-
 
  
 
-
 
  
 
(473
) 
  
 
74,455
 
Construction
  
 
2,290
 
  
 
-
 
  
 
3
 
  
 
(355
) 
  
 
1,938
 
SFR mortgage
  
 
222
 
  
 
-
 
  
 
-
 
  
 
15
 
  
 
237
 
Dairy & livestock and agribusiness
  
 
3,379
 
  
 
-
 
  
 
-
 
  
 
330
 
  
 
3,709
 
Municipal lease finance receivables
  
 
302
 
  
 
-
 
  
 
-
 
  
 
(153
) 
  
 
149
 
Consumer and other loans
  
 
1,220
 
  
 
(23
) 
  
 
43
 
  
 
44
 
  
 
1,284
 
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Total allowance for credit losses
  
  $
93,983
 
  
  $
(231
) 
  
  $
117
 
  
  $
-
 
  
  $
93,869
 
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
                                                                                              
   
Three Months Ended September 30, 2019
   
 Ending Balance 
June 30, 2019
  
Charge-offs
  
Recoveries
  
Provision for
(Recapture of)
Loan Losses
  
 Ending Balance 
September 30,
2019
   
(Dollars in thousands)
Commercial and industrial
  
  $
7,857
 
  
  $
-
 
  
  $
94
 
  
  $
287
 
  
  $
8,238
 
SBA
  
 
1,119
 
  
 
(65
) 
  
 
-
 
  
 
412
 
  
 
1,466
 
Real estate:
          
Commercial real estate
  
 
48,287
 
  
 
-
 
  
 
-
 
  
 
624
 
  
 
48,911
 
Construction
  
 
871
 
  
 
-
 
  
 
3
 
  
 
55
 
  
 
929
 
SFR mortgage
  
 
2,323
 
  
 
-
 
  
 
8
 
  
 
44
 
  
 
2,375
 
Dairy & livestock and agribusiness
  
 
5,341
 
  
 
-
 
  
 
-
 
  
 
88
 
  
 
5,429
 
Municipal lease finance receivables
  
 
726
 
  
 
-
 
  
 
-
 
  
 
(64
) 
  
 
662
 
Consumer and other loans
  
 
608
 
  
 
(3
) 
  
 
3
 
  
 
54
 
  
 
662
 
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Total allowance for loan losses
  
  $
67,132
 
  
  $
(68
) 
  
  $
108
 
  
  $
1,500
 
  
  $
68,672
 
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
                                                                                                                 
   
Nine Months Ended September 30, 2020
   
Ending Balance,
prior to adoption
of ASU
2016-13

December 31,
2019
  
Impact of
Adoption of
ASU 2016-13
  
Charge-offs
  
Recoveries
  
Provision for
(Recapture of)
Credit Losses
  
 Ending Balance 
September 30,
2020
   
(Dollars in thousands)
Commercial and industrial
  
  $
8,880
 
  
  $
(2,442
) 
  
  $
(172
) 
  
  $
7
 
  
  $
2,320
 
  
  $
8,593
 
SBA
  
 
1,453
 
  
 
1,818
 
  
 
(203
) 
  
 
72
 
  
 
364
 
  
 
3,504
 
SBA - PPP
  
 
-
 
  
 
-
 
  
 
-
 
  
 
-
 
  
 
-
 
  
 
-
 
Real estate:
            
Commercial real estate
  
 
48,629
 
  
 
3,547
 
  
 
-
 
  
 
-
 
  
 
22,279
 
  
 
74,455
 
Construction
  
 
858
 
  
 
655
 
  
 
-
 
  
 
9
 
  
 
416
 
  
 
1,938
 
SFR mortgage
  
 
2,339
 
  
 
(2,043
) 
  
 
-
 
  
 
206
 
  
 
(265
) 
  
 
237
 
Dairy & livestock and agribusiness
  
 
5,255
 
  
 
(186
) 
  
 
-
 
  
 
-
 
  
 
(1,360
) 
  
 
3,709
 
Municipal lease finance receivables
  
 
623
 
  
 
(416
) 
  
 
-
 
  
 
-
 
  
 
(58
) 
  
 
149
 
Consumer and other loans
  
 
623
 
  
 
907
 
  
 
(109
) 
  
 
59
 
  
 
(196
) 
  
 
1,284
 
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Total allowance for credit losses
  
  $
68,660
 
  
  $
1,840
 
  
  $
(484
) 
  
  $
353
 
  
  $
23,500
 
  
  $
93,869
 
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   
Nine Months Ended September 30, 2019
   
 Ending Balance 
December 31,
2018
  
Charge-offs
  
Recoveries
  
Provision for
(Recapture of)
Loan Losses
  
 Ending Balance 
September 30,
2019
   
(Dollars in thousands)
Commercial and industrial
     $ 7,528       $ (48 )      $ 253       $ 505       $ 8,238  
SBA
     1,078       (295 )      9       674       1,466  
Real estate:
          
Commercial real estate
     45,097       -       -       3,814       48,911  
Construction
     981       -       9       (61 )      929  
SFR mortgage
     2,197       -       191       (13 )      2,375  
Dairy & livestock and agribusiness
     5,225       (78 )      19       263       5,429  
Municipal lease finance receivables
     775       -       -       (113 )      662  
Consumer and other loans
     732       (7 )      6       (69 )      662  
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Total allowance for loan losses
     $ 63,613       $ (428 )      $ 487       $ 5,000       $ 68,672  
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
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.
 
   
September 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
     $ 1,638       $ 920,040       $ 254       $ 7,984  
SBA
     3,248       316,323       286       1,180  
Real estate:
        
  Commercial real estate
     1,500       5,374,168       -       48,911  
  Construction
     -       119,931       -       929  
  SFR mortgage
     3,009       275,635       -       2,375  
Dairy & livestock and agribusiness
     -       311,229       -       5,429  
Municipal lease finance receivables
     -       54,468       -       662  
Consumer and other loans
     385       116,743       -       662  
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Total
     $ 9,780       $ 7,488,537       $ 540       $ 68,132  
 
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
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 aging of, past due loans (including nonaccrual loans), by type of loans as of the date presented.
 
    
September 30, 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
      $ 3,582        $ 1,209        $ 560        $ 5,351        $ 811,705        $ 817,056  
SBA
      468        270        777        1,515        303,472        304,987  
SBA - PPP
      -        -        -        -        1,101,142        1,101,142  
Real estate:
                  
 Commercial real estate
                  
  Owner occupied
      -        -        3,770        3,770        2,121,430        2,125,200  
  Non-owner
occupied
      -        -        1,715        1,715        3,301,308        3,303,023  
 Construction
                  
  Speculative (1)
      -        -        -        -        94,232        94,232  
  Non-speculative
      -        -        -        -        7,671        7,671  
 SFR mortgage
      -        -        467        467        274,264        274,731  
Dairy & livestock and agribusiness
      -        849        -        849        251,953        252,802  
Municipal lease finance receivables
      -        -        -        -        38,040        38,040  
Consumer and other loans
      68        -        34        102        88,886        88,988  
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Total gross loans
      $         4,118        $         2,328        $         7,323        $       13,769        $     8,394,103        $ 8,407,872  
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
 
  (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 September 30, 2020 by type of loan.
 
    
September 30, 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
      $ 1,421        $ 1,822        $ -  
SBA
      850        1,724        -  
SBA - PPP
      -        -        -  
Real estate:
         
 Commercial real estate
         
  Owner occupied
      4,766        4,766        -  
  Non-owner
occupied
      -        1,715        -  
 Construction
         
  Speculative (2)
      -        -        -  
  Non-speculative
      -        -        -  
 SFR mortgage
      675        675        -  
Dairy & livestock and agribusiness
      849        849        -  
Municipal lease finance receivables
      -        -        -  
Consumer and other loans
      224        224        -  
  
 
 
 
   
 
 
 
   
 
 
 
Total gross loans
      $         8,785        $         11,775        $ -  
  
 
 
 
   
 
 
 
   
 
 
 
 
  (1)
As of September 30, 2020, $1.8 million of nonaccruing loans were current, $571,000 were
30-59
days past due, $2.1 million 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)
Excludes $51,000 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 identified buyer or renter.
  (3)
Excludes $2.0 million of guaranteed portion 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 September 30, 2019 and December 31, 2019, prior to the date of adoption of the amendments to the credit loss standard.
 
    
As of and For the Nine Months Ended
September 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
      $ 1,382        $ 1,537        $ -        $ 1,560        $ 4  
SBA
      2,447        3,554        -        2,606        31  
Real estate:
               
Commercial real estate
               
Owner occupied
      494        614        -        508        -  
Non-owner occupied
      1,006        1,190        -        1,052        21  
Construction
               
Speculative
      -        -        -        -        -  
Non-speculative
      -        -        -        -        -  
SFR mortgage
      3,009        3,338        -        3,059        62  
Dairy & livestock and agribusiness
      -        -        -        -        -  
Municipal lease finance receivables
      -        -        -        -        -  
Consumer and other loans
      385        516        -        401        -  
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Total
      8,723        10,749        -        9,186        118  
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
With a related allowance recorded:
               
Commercial and industrial
      256        345        254        829        -  
SBA
      801        816        286        816        -  
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
      1,057        1,161        540        1,645        -  
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
 Total impaired loans
    $ 9,780      $ 11,910      $ 540      $ 10,831      $ 118  
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
    
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
occupied
      -        -        -  
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.
 
    
September 30, 2020
     
Number of
Loans
Dependent on
Collateral
  
    
Real Estate
     
Business Assets
     
Other
  
    
(Dollars in thousands)
         
Commercial and industrial
      $ 145        $ 4,703        $ 62        14  
SBA
      1,015        497        7        11  
SBA - PPP
      -        -        -        -  
Real estate:
            
Commercial real estate
      6,836        -        -        7  
Construction
      -        -        -        -  
SFR mortgage
      675        -        -        3  
Dairy & livestock and agribusiness
      -        849        -        1  
Municipal lease finance receivables
      -        -        -        -  
Consumer and other loans
      203        -        20        4  
  
 
 
     
 
 
     
 
 
     
 
 
  
Total collateral-dependent loans
      $ 8,874        $ 6,049        $ 89        40  
  
 
 
     
 
 
     
 
 
     
 
 
  
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 nine months ended September 30, 2020. As of September 30, 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 September 30, 2020, there were $2.2 million of loans classified as a TDR, all of
which
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 September 30, 2020, performing TDRs were comprised of seven SFR mortgage loans of $1.8 million, one commercial real estate loan of $354,000, and one commercial and industrial loan of $47,000.
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 September 30, 2020 and December 31, 2019.
The following table provides a summary of the activity related to TDRs for the periods presented.
 
    
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
    
2020
   
2019
   
2020
   
2019
    
(Dollars in thousands)
Performing TDRs:
            
Beginning balance
      $ 2,771        $ 3,219        $ 3,112        $ 3,594  
New modifications
      -        -        -        -  
Payoffs/payments, net and other
      (554 )       (51 )       (895 )       (426 ) 
TDRs returned to accrual status
      -        -        -        -  
TDRs placed on nonaccrual status
      -        -        -        -  
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Ending balance
    $ 2,217      $ 3,168      $ 2,217      $ 3,168  
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Nonperforming TDRs:
            
Beginning balance
      $ -        $ 263        $ 244        $ 3,509  
New modifications
      -        -        -        -  
Charge-offs
      -        -        -        (78 ) 
Transfer to OREO
      -        -        -        (2,275 ) 
Payoffs/payments, net and other
      -        (14 )       (244 )       (907 ) 
TDRs returned to accrual status
      -        -        -        -  
TDRs placed on nonaccrual status
      -        -        -        -  
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Ending balance
      $ -        $ 249        $ -        $ 249  
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Total TDRs
      $ 2,217        $ 3,417        $ 2,217        $ 3,417  
  
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
As of September 30, 2020 and 2019, there were no loans that were modified as TDRs during the nine months ended September 30, 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 nine months ended September 30, 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. As of October 9, 2020, we have loans with temporary payment deferments of interest or of principal and interest for 90 days in the amount of $68.6 million, or less than 1% of our total loan portfolio, at September 30, 2020.