Loans and Lease Finance Receivables and Allowance for Credit Losses

9 Months Ended

Sep. 30, 2021

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, 2021			December 31, 2020
	(Dollars in thousands)

Commercial real estate	$	5,734,699		$	5,501,509
Construction		77,398			85,145
SBA		307,533			303,896
SBA - Paycheck Protection Program (PPP)		330,960			882,986
Commercial and industrial		769,977			812,062
Dairy & livestock and agribusiness		279,584			361,146
Municipal lease finance receivables		47,305			45,547
SFR mortgage		231,323			270,511
Consumer and other loans		70,741			86,006
Total loans, at amortized cost		7,849,520			8,348,808
Less: Allowance for credit losses		(65,364	)		(93,692	)
Total loans and lease finance receivables, net	$	7,784,156		$	8,255,116

As of September 30, 2021, 76.99% of the Company’s total loan portfolio consisted of real estate loans, with commercial real estate loans representing 73.06% of total loans. The Company’s real estate loans and construction loans are secured by real properties primarily located in California. As of September 30, 2021, $354.3 million, or 6.18% of the total commercial real estate loans included loans secured by farmland, compared to $314.4 million, or 5.72%, at December 31, 2020. The loans secured by farmland included $125.1 million for loans secured by dairy & livestock land and $229.2 million for loans secured by agricultural land at September 30, 2021, compared to $132.9 million for loans secured by dairy & livestock land and $181.5 million for loans secured by agricultural land at December 31, 2020. As of September 30, 2021, dairy & livestock and agribusiness loans of $279.6 million were comprised of $242.0 million for dairy & livestock loans and $37.6 million for agribusiness loans, compared to $320.1 million for dairy & livestock loans and $41.0 million for agribusiness loans at December 31, 2020.

At September 30, 2021 and December 31, 2020, loans totaling $6.26 billion and $6.07 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, 2021 and December 31, 2020.

Credit Quality Indicators

We monitor credit quality by evaluating various risk attributes and utilize such information in our evaluation of the appropriateness of the allowance for credit losses. Internal credit risk ratings, within our loan risk rating system, are the credit quality indicators that we most closely monitor.

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: 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 dates presented.


	Origination Year												Revolving loans amortized		Revolving loans converted to
September 30, 2021	2021		2020		2019		2018		2017		Prior		cost basis		term loans		Total
	(Dollars in thousands)
Commercial real estate loans:
Risk Rating:
Pass	$	878,859	$	979,652	$	622,674	$	547,936	$	511,804	$	1,812,200	$	169,358	$	44,792	$	5,567,275
Special Mention		11,986		5,575		9,078		21,902		43,612		46,359		6,418		5,500		150,430
Substandard		2,446		-		463		-		4,877		8,892		-		316		16,994
Doubtful & Loss		-		-		-		-		-		-		-		-		-
Total Commercial real estate loans:	$	893,291	$	985,227	$	632,215	$	569,838	$	560,293	$	1,867,451	$	175,776	$	50,608	$	5,734,699

Construction loans:
Risk Rating:
Pass	$	7,465	$	22,258	$	7,148	$	3,142	$	-	$	-	$	37,385	$	-	$	77,398
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Doubtful & Loss		-		-		-		-		-		-		-		-		-
Total Construction loans:	$	7,465	$	22,258	$	7,148	$	3,142	$	-	$	-	$	37,385	$	-	$	77,398

SBA loans:
Risk Rating:
Pass	$	63,286	$	42,468	$	11,233	$	38,918	$	43,891	$	88,592	$	-	$	-	$	288,388
Special Mention		-		-		-		-		4,121		6,075		-		-		10,196
Substandard		-		-		-		840		5,471		2,638		-		-		8,949
Doubtful & Loss		-		-		-		-		-		-		-		-		-
Total SBA loans:	$	63,286	$	42,468	$	11,233	$	39,758	$	53,483	$	97,305	$	-	$	-	$	307,533

SBA - PPP loans:
Risk Rating:
Pass	$	278,560	$	50,877	$	-	$	-	$	-	$	-	$	-	$	-	$	329,437
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		1,523		-		-		-		-		-		-		1,523
Doubtful & Loss		-		-		-		-		-		-		-		-		-
Total SBA - PPP loans:	$	278,560	$	52,400	$	-	$	-	$	-	$	-	$	-	$	-	$	330,960

Commercial and industrial loans:
Risk Rating:
Pass	$	100,677	$	87,523	$	134,219	$	59,713	$	38,121	$	81,999	$	237,284	$	5,919	$	745,455
Special Mention		921		2,353		1,001		1,481		515		140		7,597		198		14,206
Substandard		2,643		7		106		2,016		1,142		612		343		3,447		10,316
Doubtful & Loss		-		-		-		-		-		-		-		-		-
Total Commercial and industrial loans:	$	104,241	$	89,883	$	135,326	$	63,210	$	39,778	$	82,751	$	245,224	$	9,564	$	769,977


	Origination Year												Revolving loans amortized		Revolving loans converted to
September 30, 2021	2021		2020		2019		2018		2017		Prior		cost basis		term loans		Total
	(Dollars in thousands)
Dairy & livestock and agribusiness loans:
Risk Rating:
Pass	$	13	$	988	$	1,420	$	1,152	$	126	$	322	$	258,432	$	886	$	263,339
Special Mention		-		-		-		-		-		-		5,094		2,300		7,394
Substandard		-		-		-		119		-		-		-		8,732		8,851
Doubtful & Loss		-		-		-		-		-		-		-		-		-
Total Dairy & livestock and agribusiness loans:	$	13	$	988	$	1,420	$	1,271	$	126	$	322	$	263,526	$	11,918	$	279,584

Municipal lease finance receivables loans:
Risk Rating:
Pass	$	9,557	$	7,875	$	-	$	279	$	9,720	$	19,498	$	-	$	-	$	46,929
Special Mention		-		-		-		-		-		376		-		-		376
Substandard		-		-		-		-		-		-		-		-		-
Doubtful & Loss		-		-		-		-		-		-		-		-		-
Total Municipal lease finance receivables loans:	$	9,557	$	7,875	$	-	$	279	$	9,720	$	19,874	$	-	$	-	$	47,305

SFR mortgage loans:
Risk Rating:
Pass	$	27,356	$	52,771	$	44,447	$	20,072	$	17,176	$	66,847	$	152	$	-	$	228,821
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		2,088		-		414		2,502
Doubtful & Loss		-		-		-		-		-		-		-		-		-
Total SFR mortgage loans:	$	27,356	$	52,771	$	44,447	$	20,072	$	17,176	$	68,935	$	152	$	414	$	231,323

Consumer and other loans:
Risk Rating:
Pass	$	5,196	$	2,825	$	1,539	$	558	$	454	$	1,901	$	53,550	$	2,195	$	68,218
Special Mention		909		-		-		-		-		-		591		403		1,903
Substandard		-		-		-		-		-		167		5		448		620
Doubtful & Loss		-		-		-		-		-		-		-		-		-
Total Consumer and other loans:	$	6,105	$	2,825	$	1,539	$	558	$	454	$	2,068	$	54,146	$	3,046	$	70,741

Total Loans:
Risk Rating:
Pass	$	1,370,969	$	1,247,237	$	822,680	$	671,770	$	621,292	$	2,071,359	$	756,161	$	53,792	$	7,615,260
Special Mention		13,816		7,928		10,079		23,383		48,248		52,950		19,700		8,401		184,505
Substandard		5,089		1,530		569		2,975		11,490		14,397		348		13,357		49,755
Doubtful & Loss		-		-		-		-		-		-		-		-		-
Total Loans:	$	1,389,874	$	1,256,695	$	833,328	$	698,128	$	681,030	$	2,138,706	$	776,209	$	75,550	$	7,849,520


	Origination Year												Revolving loans amortized		Revolving loans converted to
December 31, 2020	2020		2019		2018		2017		2016		Prior		cost basis		term loans		Total
	(Dollars in thousands)
Commercial real estate loans:
Risk Rating:
Pass	$	979,499	$	691,091	$	607,753	$	617,640	$	550,105	$	1,646,876	$	192,583	$	24,548	$	5,310,095
Special Mention		9,332		7,162		30,049		43,870		17,398		49,840		5,720		994		164,365
Substandard		-		491		2,157		7,382		2,528		13,790		360		341		27,049
Doubtful & Loss		-		-		-		-		-		-		-		-		-
Total Commercial real estate loans:	$	988,831	$	698,744	$	639,959	$	668,892	$	570,031	$	1,710,506	$	198,663	$	25,883	$	5,501,509

Construction loans:
Risk Rating:
Pass	$	14,511	$	9,350	$	14,945	$	2,258	$	-	$	4	$	44,077	$	-	$	85,145
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Doubtful & Loss		-		-		-		-		-		-		-		-		-
Total Construction loans:	$	14,511	$	9,350	$	14,945	$	2,258	$	-	$	4	$	44,077	$	-	$	85,145

SBA loans:
Risk Rating:
Pass	$	47,901	$	12,821	$	44,950	$	58,839	$	26,136	$	86,085	$	-	$	2,976	$	279,708
Special Mention		-		-		-		5,446		1,336		5,648		-		-		12,430
Substandard		-		-		904		5,503		1,554		3,797		-		-		11,758
Doubtful & Loss		-		-		-		-		-		-		-		-		-
Total SBA loans:	$	47,901	$	12,821	$	45,854	$	69,788	$	29,026	$	95,530	$	-	$	2,976	$	303,896

SBA - PPP loans:
Risk Rating:
Pass	$	882,986	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	882,986
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Doubtful & Loss		-		-		-		-		-		-		-		-		-
Total SBA - PPP loans:	$	882,986	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	882,986

Commercial and industrial loans:
Risk Rating:
Pass	$	104,478	$	168,050	$	62,453	$	56,043	$	32,149	$	76,019	$	257,250	$	6,058	$	762,500
Special Mention		1,995		1,081		1,892		1,028		95		4,882		17,395		1,132		29,500
Substandard		4,346		860		3,996		2,282		285		94		6,677		1,522		20,062
Doubtful & Loss		-		-		-		-		-		-		-		-		-
Total Commercial and industrial loans:	$	110,819	$	169,991	$	68,341	$	59,353	$	32,529	$	80,995	$	281,322	$	8,712	$	812,062


	Origination Year												Revolving loans amortized		Revolving loans converted to
December 31, 2020	2020		2019		2018		2017		2016		Prior		cost basis		term loans		Total
	(Dollars in thousands)
Dairy & livestock and agribusiness loans:
Risk Rating:
Pass	$	1,041	$	1,765	$	1,199	$	5,680	$	120	$	320	$	319,211	$	363	$	329,699
Special Mention		878		-		364		-		-		-		13,255		1,511		16,008
Substandard		-		-		784		693		2,285		-		-		11,677		15,439
Doubtful & Loss		-		-		-		-		-		-		-		-		-
Total Dairy & livestock and agribusiness loans:	$	1,919	$	1,765	$	2,347	$	6,373	$	2,405	$	320	$	332,466	$	13,551	$	361,146

Municipal lease finance receivables loans:
Risk Rating:
Pass	$	8,478	$	-	$	2,556	$	10,249	$	3,586	$	20,266	$	-	$	-	$	45,135
Special Mention		-		-		-		-		-		412		-		-		412
Substandard		-		-		-		-		-		-		-		-		-
Doubtful & Loss		-		-		-		-		-		-		-		-		-
Total Municipal lease finance receivables loans:	$	8,478	$	-	$	2,556	$	10,249	$	3,586	$	20,678	$	-	$	-	$	45,547

SFR mortgage loans:
Risk Rating:
Pass	$	65,463	$	59,596	$	29,142	$	22,452	$	27,192	$	62,593	$	3	$	-	$	266,441
Special Mention		-		-		-		-		-		452		-		-		452
Substandard		-		-		-		-		229		2,957		-		432		3,618
Doubtful & Loss		-		-		-		-		-		-		-		-		-
Total SFR mortgage loans:	$	65,463	$	59,596	$	29,142	$	22,452	$	27,421	$	66,002	$	3	$	432	$	270,511

Consumer and other loans:
Risk Rating:
Pass	$	8,557	$	2,077	$	871	$	969	$	1,586	$	961	$	67,774	$	1,688	$	84,483
Special Mention		-		-		-		-		-		91		517		22		630
Substandard		-		-		-		-		-		172		-		721		893
Doubtful & Loss		-		-		-		-		-		-		-		-		-
Total Consumer and other loans:	$	8,557	$	2,077	$	871	$	969	$	1,586	$	1,224	$	68,291	$	2,431	$	86,006

Total Loans:
Risk Rating:
Pass	$	2,112,914	$	944,750	$	763,869	$	774,130	$	640,874	$	1,893,124	$	880,898	$	35,633	$	8,046,192
Special Mention		12,205		8,243		32,305		50,344		18,829		61,325		36,887		3,659		223,797
Substandard		4,346		1,351		7,841		15,860		6,881		20,810		7,037		14,693		78,819
Doubtful & Loss		-		-		-		-		-		-		-		-		-
Total Loans:	$	2,129,465	$	954,344	$	804,015	$	840,334	$	666,584	$	1,975,259	$	924,822	$	53,985	$	8,348,808

Allowance for Credit Losses ("ACL")

Our allowance for credit losses is based upon lifetime loss rate models developed from an estimation framework that uses historical lifetime loss experiences to derive loss rates at a collective pool level. We measure the expected credit losses on a collective (pooled) basis for those loans that share similar risk characteristics. We have three collective loan pools: Commercial Real Estate, Commercial and Industrial, and Consumer. Our ACL amounts are largely driven by portfolio characteristics, including loss history and various risk attributes, and the economic outlook for certain macroeconomic variables. Risk attributes for commercial real estate loans include OLTV, origination year, loan seasoning, and macroeconomic variables that include GDP growth, commercial real estate price index and unemployment rate. Risk attributes for commercial and industrial loans include internal risk ratings, borrower industry sector, loan credit spreads and macroeconomic variables that include unemployment rate and BBB spread. The macroeconomic variables for Consumer include unemployment rate and GDP. The Commercial Real Estate methodology is applied over commercial real estate loans, a portion of construction loans, and a portion of SBA loans (excluding Payment Protection Program loans). The Commercial and Industrial methodology is applied over a substantial portion of the Company’s commercial and industrial loans, all dairy & livestock and agribusiness loans, municipal lease receivables, as well as the remaining portion of SBA loans (excluding Payment Protection Program loans). The Consumer methodology is applied to SFR mortgage loans, consumer loans, as well as the remaining construction loans. In addition to determining the quantitative life of loan loss rate to be applied against the amortized cost basis of the portfolio segments, management reviews current conditions and forecasts to determine whether adjustments are needed to ensure that the life of loan loss rates reflect both the current state of the

portfolio, and expectations for macroeconomic changes. 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 at September 30, 2021 decreased from the prior quarter end by $4.0 million, due to a $4.0 million recapture of provision for credit losses, primarily due to a modest improvement in our economic forecast. In comparison, the second quarter of 2021 included $2.0 million in recapture of provision that was also a result of an improving forecast of macroeconomic variables. Based on the magnitude of government economic stimulus and the wide availability of vaccines, our economic forecasts have continued to reflect improvements in key macroeconomic variables, including GDP, the commercial real estate price index and the unemployment rate. As a result, a $25.5 million recapture of provision for credit losses was recorded for the nine months ended September 30, 2021. In comparison, $23.5 million in provision for credit losses was recorded for the nine months ended September 30, 2020 due to the severe economic forecast at that time as a result of the COVID-19 pandemic. Our economic forecast continues to be a blend of multiple forecasts produced by Moody’s. These U.S. economic forecasts include a baseline forecast, as well as upside and downside forecasts. Our weighted forecast at the end of the third quarter of 2021, assumes GDP will increase by 5.7% in 2021 and then grows by more than 2% in both 2022 and 2023. The forecast for the unemployment rate is 5.7% in 2021 and then 5.6% in 2022, before declining to 5.3% in 2023. At September 30, 2021, the allowance for credit losses of $65.4 million was 0.83% of total loans, compared to 1.12% and 1.12% at December 31, 2020 and September 30, 2020, respectively.

Management believes that the ACL was appropriate at September 30, 2021 and December 31, 2020. Due to the degree of uncertainty around the epidemiological assumptions and on-going impact of government responses to the pandemic that impact our economic forecast, 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, 2021
	Ending Balance June 30, 2021		Charge-offs			Recoveries		(Recapture of) Provision for Credit Losses			Ending Balance September 30, 2021
	(Dollars in thousands)
Commercial real estate	$	55,200	$	-		$	-	$	(2,888	)	$	52,312
Construction		1,825		-			11		(775	)		1,061
SBA		2,546		-			5		376			2,927
Commercial and industrial		5,667		(10	)		6		(755	)		4,908
Dairy & livestock and agribusiness		2,775		-			-		391			3,166
Municipal lease finance receivables		67		-			-		18			85
SFR mortgage		284		-			-		(94	)		190
Consumer and other loans		978		(1	)		11		(273	)		715
Total allowance for credit losses	$	69,342	$	(11	)	$	33	$	(4,000	)	$	65,364


	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 real estate	$	74,928	$	-		$	-	$	(473	)	$	74,455
Construction		2,290		-			3		(355	)		1,938
SBA		3,651		(47	)		69		(169	)		3,504
Commercial and industrial		7,991		(161	)		2		761			8,593
Dairy & livestock and agribusiness		3,379		-			-		330			3,709
Municipal lease finance receivables		302		-			-		(153	)		149
SFR mortgage		222		-			-		15			237
Consumer and other loans		1,220		(23	)		43		44			1,284
Total allowance for credit losses	$	93,983	$	(231	)	$	117	$	-		$	93,869


	Nine Months Ended September 30, 2021
	Ending Balance December 31, 2020		Charge-offs			Recoveries		(Recapture of) Provision for Credit Losses			Ending Balance September 30, 2021
	(Dollars in thousands)
Commercial real estate	$	75,439	$	-		$	-	$	(23,127	)	$	52,312
Construction		1,934		-			55		(928	)		1,061
SBA		2,992		-			13		(78	)		2,927
Commercial and industrial		7,142		(2,985	)		10		741			4,908
Dairy & livestock and agribusiness		3,949		-			-		(783	)		3,166
Municipal lease finance receivables		74		-			-		11			85
SFR mortgage		367		-			79		(256	)		190
Consumer and other loans		1,795		(11	)		11		(1,080	)		715
Total allowance for credit losses	$	93,692	$	(2,996	)	$	168	$	(25,500	)	$	65,364


	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 real estate	$	48,629	$	3,547		$	-		$	-	$	22,279		$	74,455
Construction		858		655			-			9		416			1,938
SBA		1,453		1,818			(203	)		72		364			3,504
Commercial and industrial		8,880		(2,442	)		(172	)		7		2,320			8,593
Dairy & livestock and agribusiness		5,255		(186	)		-			-		(1,360	)		3,709
Municipal lease finance receivables		623		(416	)		-			-		(58	)		149
SFR mortgage		2,339		(2,043	)		-			206		(265	)		237
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

As of September 30, 2021, the remaining outstanding balance of PPP loans was $331.0 million. As these loans are fully guaranteed by the SBA, the ACL does not include an allowance.

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 credit losses, 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 credit 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, 2020, 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 dates presented.


	September 30, 2021
	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 real estate
Owner occupied	$	-	$	199	$	3,641	$	3,840	$	2,115,928	$	2,119,768
Non-owner occupied		-		-		-		-		3,614,931		3,614,931
Construction
Speculative (1)		-		-		-		-		52,856		52,856
Non-speculative		-		-		-		-		24,542		24,542
SBA		-		-		1,218		1,218		306,315		307,533
SBA - PPP		-		-		-		-		330,960		330,960
Commercial and industrial		584		382		1,013		1,979		767,998		769,977
Dairy & livestock and agribusiness		1,000		-		118		1,118		278,466		279,584
Municipal lease finance receivables		-		-		-		-		47,305		47,305
SFR mortgage		-		-		218		218		231,105		231,323
Consumer and other loans		-		-		188		188		70,553		70,741
Total loans	$	1,584	$	581	$	6,396	$	8,561	$	7,840,959	$	7,849,520

(1)

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


	December 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 real estate
Owner occupied	$	-	$	-	$	7,208	$	7,208	$	2,136,051	$	2,143,259
Non-owner occupied		-		-		-		-		3,358,250		3,358,250
Construction
Speculative (1)		-		-		-		-		72,126		72,126
Non-speculative		-		-		-		-		13,019		13,019
SBA		531		2,415		1,025		3,971		299,925		303,896
SBA - PPP		-		-		-		-		882,986		882,986
Commercial and industrial		608		811		2,338		3,757		808,305		812,062
Dairy & livestock and agribusiness		-		-		784		784		360,362		361,146
Municipal lease finance receivables		-		-		-		-		45,547		45,547
SFR mortgage		-		-		229		229		270,282		270,511
Consumer and other loans		-		-		-		-		86,006		86,006
Total loans	$	1,139	$	3,226	$	11,584	$	15,949	$	8,332,859	$	8,348,808

(1)

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

Amortized cost of our finance receivables and loans that are on nonaccrual status, including loans with no allowance are presented as of September 30, 2021 and December 31, 2020 by type of loan.


	September 30, 2021
	Nonaccrual with No Allowance for Credit Losses		Total Nonaccrual (1)		Loans Past Due Over 89 Days Still Accruing
	(Dollars in thousands)
Commercial real estate
Owner occupied	$	3,521	$	4,073	$	-
Non-owner occupied		-		-		-
Construction
Speculative (2)		-		-		-
Non-speculative		-		-		-
SBA		804		1,513		-
SBA - PPP		-		-		-
Commercial and industrial		370		2,038		-
Dairy & livestock and agribusiness		-		118		-
Municipal lease finance receivables		-		-		-
SFR mortgage		400		399		-
Consumer and other loans		305		305		-
Total loans	$	5,400	$	8,446	$	-

(1)

As of September 30, 2021, $1.0 million of nonaccruing loans were current, $463,000 were 30-59 days past due, $581,000 were 60-89 days past due, and $6.4 million were 90+ days past due.

(2)

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


	December 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 real estate
Owner occupied	$	7,563	$	7,563	$	-
Non-owner occupied		-		-		-
Construction
Speculative (2)		-		-		-
Non-speculative		-		-		-
SBA		2,035		2,273		-
SBA - PPP		-		-		-
Commercial and industrial		1,576		3,129		-
Dairy & livestock and agribusiness		785		785		-
Municipal lease finance receivables		430		-		-
SFR mortgage		-		430		-
Consumer and other loans		167		167		-
Total loans	$	12,556	$	14,347	$	-

(1)

As of December 31, 2020, $1.4 million of nonaccruing loans were current, $2,000 were 30-59 days past due, $1.3 million were 60-89 days past due, and $11.6 million were 90+ days past due.

(2)

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

(3)

Excludes $184,000 of guaranteed portion of nonaccrual SBA loans that are in process of collection.

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 dates presented.


	September 30, 2021						Number of Loans
	Real Estate		Business Assets		Other		Dependent on Collateral
	(Dollars in thousands)
Commercial real estate	$	6,705	$	-	$	-		8
Construction		-		-		-		-
SBA		608		775		130		11
SBA - PPP		-		-		-		-
Commercial and industrial		743		6,088		132		19
Dairy & livestock and agribusiness		-		118		-		1
Municipal lease finance receivables		-		-		-		-
SFR mortgage		1,143		-		-		6
Consumer and other loans		305		-		-		3
Total collateral-dependent loans	$	9,504	$	6,981	$	262		48


	December 31, 2020						Number of Loans
	Real Estate		Business Assets		Other		Dependent on Collateral
	(Dollars in thousands)
Commercial real estate	$	7,883	$	-	$	-		8
Construction		-		-		-		-
SBA		1,761		326		185		10
SBA - PPP		-		-		-		-
Commercial and industrial		470		5,542		95		18
Dairy & livestock and agribusiness		-		785		-		1
Municipal lease finance receivables		-		-		-		-
SFR mortgage		430		-		-		2
Consumer and other loans		168		-		-		2
Total collateral-dependent loans	$	10,712	$	6,653	$	280		41

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 in the same manner as it evaluates credit risk associated with the loan and lease portfolio. The Bank's ACL methodology produced an allowance of $8.0 million for the off-balance sheet credit exposures as of September 30, 2021. There was no provision or recapture of provision for unfunded loan commitments for the three months ended September 30, 2021, compared to a $1.0 million recapture of provision for unfunded loan commitments for the three months ended June 30, 2021, and no provision or recapture of provision for unfunded loan commitments for the nine months ended September 30, 2020. As of September 30, 2021 and December 31, 2020, the balance in this reserve was $8.0 million and $9.0 million, respectively, and was included in other liabilities.

Troubled Debt Restructurings (“TDRs”)

Loans that are reported as TDRs are considered impaired and charge-off amounts are taken on an individual loan basis, as deemed appropriate. The majority of restructured loans are loans for which the terms of repayment have been renegotiated, resulting in a reduction in interest rate or deferral of principal. Refer to Note 3 – Summary of Significant Accounting Policies, included in our Annual Report on Form 10-K for the year ended December 31, 2020 for a more detailed discussion regarding TDRs.

As of September 30, 2021, there were $8.0 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, 2021, performing TDRs were comprised of three commercial and industrial loans of $4.3 million, two commercial real estate loans of $2.6 million, and five SFR mortgage loans of $1.0 million.

The majority of TDRs have no specific allowance allocated as any impairment amount is normally charged off at the time the loan is considered uncollectible. We have no allocated allowance to TDRs as of September 30, 2021 and December 31, 2020.

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,
	2021			2020			2021			2020
	(Dollars in thousands)
Performing TDRs:
Beginning balance	$	8,215		$	2,771		$	2,159		$	3,112
New modifications		-			-			7,096			-
Payoffs/payments, net and other		(240	)		(554	)		(1,280	)		(895	)
TDRs returned to accrual status		-			-			-			-
TDRs placed on nonaccrual status		-			-			-			-
Ending balance	$	7,975		$	2,217		$	7,975		$	2,217
Nonperforming TDRs:
Beginning balance	$	-		$	-		$	-		$	244
New modifications		-			-			-			-
Charge-offs		-			-			-			-
Payoffs/payments, net and other		-			-			-			(244	)
TDRs returned to accrual status		-			-			-			-
TDRs placed on nonaccrual status		-			-			-			-
Ending balance	$	-		$	-		$	-		$	-
Total TDRs	$	7,975		$	2,217		$	7,975		$	2,217

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

Modifications (1)

For the Three Months Ended September 30, 2021

Number of Loans

Pre-Modification Outstanding Recorded Investment

Post-Modification Outstanding Recorded
Investment

Outstanding Recorded Investment at September 30, 2021

Financial Effect Resulting From Modifications (2)

(Dollars in thousands)

Commercial real estate:

Interest rate reduction

Change in amortization period
or maturity

Commercial and industrial:

Interest rate reduction

Change in amortization period
or maturity

SFR mortgage:

Interest rate reduction

Change in amortization period
or maturity

Total loans


	For the Nine Months Ended September 30, 2021
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Outstanding Recorded Investment at September 30, 2021		Financial Effect Resulting From Modifications (2)
	(Dollars in thousands)
Commercial real estate:
Interest rate reduction		1	$	2,453	$	2,453	$	2,446	$	-
Change in amortization period or maturity		-		-		-		-		-
Commercial and industrial:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		2		4,643		4,643		4,293		-
SFR mortgage:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Total loans		3	$	7,096	$	7,096	$	6,739	$	-

(1)

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

(2)

Financial effects resulting from modifications represent charge-offs and current allowance for credit losses at modification date.

As of September 30, 2021 and 2020, there were no loans that were modified as a TDR within the previous 12 months that subsequently defaulted during the nine months ended September 30, 2021 and 2020, respectively.