Loans and Lease Finance Receivables and Allowance for Credit Losses

3 Months Ended

Mar. 31, 2024

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.


	March 31, 2024			December 31, 2023
	(Dollars in thousands)

Commercial real estate	$	6,720,538		$	6,784,505
Construction		58,806			66,734
SBA		268,320			270,619
SBA - Paycheck Protection Program (PPP)		2,249			2,736
Commercial and industrial		963,120			969,895
Dairy & livestock and agribusiness		351,624			412,891
Municipal lease finance receivables		72,032			73,590
SFR mortgage		276,475			269,868
Consumer and other loans		57,549			54,072
Total loans, at amortized cost		8,770,713			8,904,910
Less: Allowance for credit losses		(82,817	)		(86,842	)
Total loans and lease finance receivables, net	$	8,687,896		$	8,818,068

As of March 31, 2024, 80.44% of the Company’s total loan portfolio consisted of real estate loans, with commercial real estate loans representing 76.62% of total loans. The Company’s real estate loans and construction loans are secured by real properties primarily located in California. As of March 31, 2024, $498.2 million, or 7.41% of the total commercial real estate loans included loans secured by farmland, compared to $497.7 million, or 7.34%, at December 31, 2023. The loans secured by farmland included $121.4 million for loans secured by dairy & livestock land and $376.8 million secured by agricultural land at March 31, 2024, compared to $122.4 million for loans secured by dairy & livestock land and $375.3 million for loans secured by agricultural land at December 31, 2023. As of March 31, 2024, dairy & livestock and agribusiness loans of $351.6 million were comprised of $308.5 million for dairy & livestock loans and $43.1 million for agribusiness loans, compared to $412.9 million were comprised of $374.9 million for dairy & livestock loans and $38.0 million of agribusiness loans at December 31, 2023.

At March 31, 2024 and December 31, 2023, loans totaling $4.24 billion and $4.04 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, 2024 and December 31, 2023.

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
March 31, 2024	2024		2023		2022		2021		2020		Prior		cost basis		term loans		Total
	(Dollars in thousands)
Commercial real estate loans:
Risk Rating:
Pass	$	54,653	$	441,596	$	1,299,240	$	1,120,686	$	866,833	$	2,457,881	$	179,725	$	38,940	$	6,459,554
Special Mention		678		4,556		3,867		18,616		19,117		121,713		2,366		—		170,913
Substandard		—		669		8,105		2,891		32,952		44,705		749		—		90,071
Doubtful & Loss		—		—		—		—		—		—		—		—		—
Total Commercial real estate loans:	$	55,331	$	446,821	$	1,311,212	$	1,142,193	$	918,902	$	2,624,299	$	182,840	$	38,940	$	6,720,538
Current YTD Period: Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	2,258	$	—	$	—	$	2,258

Construction loans:
Risk Rating:
Pass	$	3	$	2,513	$	12,277	$	22,289	$	8,066	$	—	$	11,549	$	—	$	56,697
Special Mention		—		—		—		—		—		—		—		—		-
Substandard		—		—		—		2,109		—		—		—		—		2,109
Doubtful & Loss		—		—		—		—		—		—		—		—		—
Total Construction loans:	$	3	$	2,513	$	12,277	$	24,398	$	8,066	$	—	$	11,549	$	—	$	58,806
Current YTD Period: Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

SBA loans:
Risk Rating:
Pass	$	10,759	$	19,621	$	47,896	$	50,594	$	24,417	$	102,067	$	—	$	—	$	255,354
Special Mention		—		—		1,616		—		4,767		3,010		—		—		9,393
Substandard		—		—		—		—		—		3,573		—		—		3,573
Doubtful & Loss		—		—		—		—		—		—		—		—		—
Total SBA loans:	$	10,759	$	19,621	$	49,512	$	50,594	$	29,184	$	108,650	$	—	$	—	$	268,320
Current YTD Period: Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	90	$	—	$	—	$	90

SBA - PPP loans:
Risk Rating:
Pass	$	—	$	—	$	—	$	591	$	1,658	$	—	$	—	$	—	$	2,249
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful & Loss		—		—		—		—		—		—		—		—		—
Total SBA - PPP loans:	$	—	$	—	$	—	$	591	$	1,658	$	—	$	—	$	—	$	2,249
Current YTD Period: Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial and industrial loans:
Risk Rating:
Pass	$	28,523	$	135,426	$	136,353	$	90,310	$	82,495	$	151,348	$	296,236	$	4,688	$	925,379
Special Mention		—		9,498		1,124		1,595		828		7,989		8,133		5,279		34,446
Substandard		—		—		239		—		—		45		2,637		374		3,295
Doubtful & Loss		—		—		—		—		—		—		—		—		—
Total Commercial and industrial loans:	$	28,523	$	144,924	$	137,716	$	91,905	$	83,323	$	159,382	$	307,006	$	10,341	$	963,120
Current YTD Period: Gross charge-offs	$	—	$	—	$	300	$	—	$	—	$	1,186	$	—	$	431	$	1,917


	Origination Year												Revolving loans amortized		Revolving loans converted to
March 31, 2024	2024		2023		2022		2021		2020		Prior		cost basis		term loans		Total
	(Dollars in thousands)
Dairy & livestock and agribusiness loans:
Risk Rating:
Pass	$	—	$	—	$	—	$	685	$	917	$	262	$	266,157	$	270	$	268,291
Special Mention		—		432		—		1,335		—		—		79,044		—		80,811
Substandard		—		—		—		—		—		60		2,380		82		2,522
Doubtful & Loss		—		—		—		—		—		—		—		—		—
Total Dairy & livestock and agribusiness loans:	$	—	$	432	$	—	$	2,020	$	917	$	322	$	347,581	$	352	$	351,624
Current YTD Period: Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Municipal lease finance receivables loans:
Risk Rating:
Pass	$	193	$	—	$	5,719	$	25,803	$	5,733	$	34,402	$	—	$	—	$	71,850
Special Mention		—		—		—		—		—		182		—		—		182
Substandard		—		—		—		—		—		—		—		—		—
Doubtful & Loss		—		—		—		—		—		—		—		—		—
Total Municipal lease finance receivables loans:	$	193	$	—	$	5,719	$	25,803	$	5,733	$	34,584	$	—	$	—	$	72,032
Current YTD Period: Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

SFR mortgage loans:
Risk Rating:
Pass	$	11,528	$	21,229	$	60,524	$	43,305	$	43,832	$	93,044	$	—	$	—	$	273,462
Special Mention		—		750		—		—		913		438		—		—		2,101
Substandard		—		—		—		—		—		604		—		308		912
Doubtful & Loss		—		—		—		—		—		—		—		—		—
Total SFR mortgage loans:	$	11,528	$	21,979	$	60,524	$	43,305	$	44,745	$	94,086	$	—	$	308	$	276,475
Current YTD Period: Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer and other loans:
Risk Rating:
Pass	$	1,636	$	4,037	$	3,483	$	2,492	$	572	$	1,035	$	42,049	$	1,256	$	56,560
Special Mention		—		—		—		214		—		—		4		173		391
Substandard		—		—		—		—		—		—		—		598		598
Doubtful & Loss		—		—		—		—		—		—		—		—		—
Total Consumer and other loans:	$	1,636	$	4,037	$	3,483	$	2,706	$	572	$	1,035	$	42,053	$	2,027	$	57,549
Current YTD Period: Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	1	$	1	$	2

Total Loans, at amortized cost:
Risk Rating:
Pass	$	107,295	$	624,422	$	1,565,492	$	1,356,755	$	1,034,523	$	2,840,039	$	795,716	$	45,154	$	8,369,396
Special Mention		678		15,236		6,607		21,760		25,625		133,332		89,547		5,452		298,237
Substandard		—		669		8,344		5,000		32,952		48,987		5,766		1,362		103,080
Doubtful & Loss		—		—		—		—		—		—		—		—		—
Total Loans at amortized cost:	$	107,973	$	640,327	$	1,580,443	$	1,383,515	$	1,093,100	$	3,022,358	$	891,029	$	51,968	$	8,770,713
Current YTD Period: Total gross charge-offs	$	—	$	—	$	300	$	—	$	—	$	3,534	$	1	$	432	$	4,267


	Origination Year												Revolving loans amortized		Revolving loans converted to
December 31, 2023	2023		2022		2021		2020		2019		Prior		cost basis		term loans		Total
	(Dollars in thousands)
Commercial real estate loans:
Risk Rating:
Pass	$	447,991	$	1,315,563	$	1,133,331	$	885,590	$	497,541	$	2,041,329	$	171,223	$	38,568	$	6,531,136
Special Mention		3,241		3,897		15,868		19,368		43,824		74,673		2,911		—		163,782
Substandard		744		8,127		2,891		33,401		12,986		30,637		801		—		89,587
Doubtful & Loss		—		—		—		—		—		—		—		—		—
Total Commercial real estate loans:	$	451,976	$	1,327,587	$	1,152,090	$	938,359	$	554,351	$	2,146,639	$	174,935	$	38,568	$	6,784,505
Current YTD Period: Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Construction loans:
Risk Rating:
Pass	$	1,274	$	15,046	$	22,288	$	8,058	$	—	$	—	$	17,938	$	—	$	64,604
Special Mention		—		—		2,130		—		—		—		—		—		2,130
Substandard		—		—		—		—		—		—		—		—		—
Doubtful & Loss		—		—		—		—		—		—		—		—		—
Total Construction loans:	$	1,274	$	15,046	$	24,418	$	8,058	$	—	$	—	$	17,938	$	—	$	66,734
Current YTD Period: Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

SBA loans:
Risk Rating:
Pass	$	20,701	$	48,212	$	51,038	$	29,306	$	6,236	$	101,856	$	—	$	—	$	257,349
Special Mention		—		1,627		—		4,784		1,132		1,760		—		—		9,303
Substandard		—		—		—		—		749		3,218		—		—		3,967
Doubtful & Loss		—		—		—		—		—		—		—		—		—
Total SBA loans:	$	20,701	$	49,839	$	51,038	$	34,090	$	8,117	$	106,834	$	—	$	—	$	270,619
Current YTD Period: Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	288	$	—	$	—	$	288

SBA - PPP loans:
Risk Rating:
Pass	$	—	$	—	$	699	$	2,037	$	—	$	—	$	—	$	—	$	2,736
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful & Loss		—		—		—		—		—		—		—		—		—
Total SBA - PPP loans:	$	—	$	—	$	699	$	2,037	$	—	$	—	$	—	$	—	$	2,736
Current YTD Period: Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial and industrial loans:
Risk Rating:
Pass	$	141,080	$	143,847	$	100,059	$	88,743	$	68,352	$	94,027	$	289,539	$	5,460	$	931,107
Special Mention		7,829		738		745		552		4,114		3,986		10,529		5,347		33,840
Substandard		—		257		—		—		89		1,296		2,487		819		4,948
Doubtful & Loss		—		—		—		—		—		—		—		—		—
Total Commercial and industrial loans:	$	148,909	$	144,842	$	100,804	$	89,295	$	72,555	$	99,309	$	302,555	$	11,626	$	969,895
Current YTD Period: Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	109	$	109


	Origination Year												Revolving loans amortized		Revolving loans converted to
December 31, 2023	2023		2022		2021		2020		2019		Prior		cost basis		term loans		Total
	(Dollars in thousands)
Dairy & livestock and agribusiness loans:
Risk Rating:
Pass	$	296	$	—	$	1,586	$	931	$	80	$	208	$	337,525	$	—	$	340,626
Special Mention		448		—		—		—		25		—		69,232		—		69,705
Substandard		—		—		—		—		—		60		2,500		—		2,560
Doubtful & Loss		—		—		—		—		—		—		—		—		—
Total Dairy & livestock and agribusiness loans:	$	744	$	—	$	1,586	$	931	$	105	$	268	$	409,257	$	—	$	412,891
Current YTD Period: Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Municipal lease finance receivables loans:
Risk Rating:
Pass	$	—	$	5,735	$	25,803	$	5,981	$	4,267	$	31,622	$	—	$	—	$	73,408
Special Mention		—		—		—		—		—		182		—		—		182
Substandard		—		—		—		—		—		—		—		—		—
Doubtful & Loss		—		—		—		—		—		—		—		—		—
Total Municipal lease finance receivables loans:	$	—	$	5,735	$	25,803	$	5,981	$	4,267	$	31,804	$	—	$	—	$	73,590
Current YTD Period: Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

SFR mortgage loans:
Risk Rating:
Pass	$	22,248	$	61,070	$	43,573	$	44,076	$	28,049	$	67,750	$	—	$	—	$	266,766
Special Mention		789		—		—		918		544		327		—		—		2,578
Substandard		—		—		—		—		—		200		—		324		524
Doubtful & Loss		—		—		—		—		—		—		—		—		—
Total SFR mortgage loans:	$	23,037	$	61,070	$	43,573	$	44,994	$	28,593	$	68,277	$	—	$	324	$	269,868
Current YTD Period: Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer and other loans:
Risk Rating:
Pass	$	4,911	$	4,122	$	2,707	$	702	$	644	$	486	$	38,595	$	871	$	53,038
Special Mention		—		—		246		—		—		—		4		173		423
Substandard		—		—		—		—		—		12		1		598		611
Doubtful & Loss		—		—		—		—		—		—		—		—		—
Total Consumer and other loans:	$	4,911	$	4,122	$	2,953	$	702	$	644	$	498	$	38,600	$	1,642	$	54,072
Current YTD Period: Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	4	$	—	$	4	$	8

Total Loans, at amortized cost:
Risk Rating:
Pass	$	638,501	$	1,593,595	$	1,381,084	$	1,065,424	$	605,169	$	2,337,278	$	854,820	$	44,899	$	8,520,770
Special Mention		12,307		6,262		18,989		25,622		49,639		80,928		82,676		5,520		281,943
Substandard		744		8,384		2,891		33,401		13,824		35,423		5,789		1,741		102,197
Doubtful & Loss		—		—		—		—		—		—		—		—		—
Total Loans at amortized cost:	$	651,552	$	1,608,241	$	1,402,964	$	1,124,447	$	668,632	$	2,453,629	$	943,285	$	52,160	$	8,904,910
Current YTD Period: Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	292	$	—	$	113	$	405

Allowance for Credit Losses ("ACL")

The Company's allowance models calculate reserves over the average life of the loan, which includes the remaining time to maturity, adjusted for estimated prepayments applied as an adjustment to our commercial real estate and commercial and industrial loans. 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. A substantial portion of the ACL relates to loans within the Commercial Real Estate and Commercial and Industrial methodologies, each evaluated on a collective basis. Our ACL amounts are largely driven by portfolio characteristics, including loss history, internal risk grading, various risk attributes, and the economic outlook for certain macroeconomic variables. Risk attributes for commercial real

estate loans include Original Loan to Value ratios ("OLTV"), origination year, loan seasoning, and macroeconomic variables that include Real 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. 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 Paycheck 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. The Company’s ACL estimate incorporates a reasonable and supportable forecast of various macroeconomic variables over the remaining average life of our loans. This forecast incorporates an assumption that each macroeconomic variable will revert to a long-term expectation, starting in years two through three, of the reasonable and supportable forecast period, with the reversion largely completed within the first five years of the forecast. The economic forecast is based on probability weighted scenarios to address macroeconomic uncertainty. 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 included in our Annual Report on Form 10-K for the year ended December 31, 2023 for a more detailed discussion concerning the allowance for credit losses.

The ACL totaled $82.8 million at March 31, 2024, compared to $86.8 million at December 31, 2023. The $4.0 million decrease in the ACL from December 31, 2023 to March 31, 2024 is comprised of $4.0 in net charge-offs. At March 31, 2024, the ACL as a percentage of total loans and leases, at amortized cost, was 0.94%. This compares to 0.97% at December 31, 2023. 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 downside forecasts. The baseline forecast continues to represent the largest weighting in our multi-weighted forecast scenario, with downside risks weighted among multiple forecasts. As of March 31, 2024, the resulting weighted forecast resulted in Real GDP growth declining in the third and fourth quarters of 2024. Real GDP growth is forecasted to be below 2% for 2025, before returning to growth between 2% and 2.5% in 2026. Commercial real estate values are forecasted to continue their decline until reaching their lowest level in the third quarter 2024. Unemployment is forecasted to rise in 2024, peaking around 6% in the first quarter of 2025. The unemployment rate is forecasted to stay elevated through 2026.

Management believes that the ACL was appropriate at March 31, 2024 and December 31, 2023. Due to inflationary pressures, high interest rates, lower commercial real estate values, and geopolitical events, 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, 2024
	Ending Balance December 31, 2023		Charge-offs			Recoveries		Provision for (Recapture of) Credit Losses			Ending Balance March 31, 2024
	(Dollars in thousands)
Commercial real estate	$	69,466	$	(2,258	)	$	—	$	2,237		$	69,445
Construction		1,277		—			3		16			1,296
SBA		2,679		(90	)		63		(121	)		2,531
Commercial and industrial		9,116		(1,917	)		176		(2,316	)		5,059
Dairy & livestock and agribusiness		3,098		—			—		154			3,252
Municipal lease finance receivables		210		—			—		(16	)		194
SFR mortgage		535		—			—		(52	)		483
Consumer and other loans		461		(2	)		—		98			557
Total allowance for credit losses	$	86,842	$	(4,267	)	$	242	$	—		$	82,817


	Three Months Ended March 31, 2023
	Ending Balance December 31, 2022		Charge-offs			Recoveries		Provision for (Recapture of) Credit Losses			Ending Balance March 31, 2023
	(Dollars in thousands)
Commercial real estate	$	64,806	$	—		$	—	$	2,311		$	67,117
Construction		1,702		—			3		(31	)		1,674
SBA		2,809		(94	)		12		2			2,729
Commercial and industrial		10,206		(16	)		14		(1,241	)		8,963
Dairy & livestock and agribusiness		4,400		—			4		366			4,770
Municipal lease finance receivables		296		—			—		(13	)		283
SFR mortgage		366		—			—		43			409
Consumer and other loans		532		—			—		63			595
Total allowance for credit losses	$	85,117	$	(110	)	$	33	$	1,500		$	86,540

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 responsible for 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, 2023, 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.


	March 31, 2024
	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	$	2,526	$	—	$	—	$	2,526	$	2,407,593	$	2,410,119
Non-owner occupied		11,295		5,960		10,661		27,916		4,282,503		4,310,419
Construction
Speculative (1)		—		—		—		—		52,256		52,256
Non-speculative		—		—		—		—		6,550		6,550
SBA		408		—		54		462		267,858		268,320
SBA - PPP		—		—		—		—		2,249		2,249
Commercial and industrial		6		—		2,487		2,493		960,627		963,120
Dairy & livestock and agribusiness		—		—		—		—		351,624		351,624
Municipal lease finance receivables		—		—		—		—		72,032		72,032
SFR mortgage		—		—		—		—		276,475		276,475
Consumer and other loans		—		—		—		—		57,549		57,549
Total loans at amortized cost	$	14,235	$	5,960	$	13,202	$	33,397	$	8,737,316	$	8,770,713

(1)

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


	December 31, 2023
	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	$	300	$	—	$	2,505	$	2,805	$	2,430,447	$	2,433,252
Non-owner occupied		16		—		531		547		4,350,706		4,351,253
Construction
Speculative (1)		—		—		—		—		57,921		57,921
Non-speculative		—		—		—		—		8,813		8,813
SBA		—		108		969		1,077		269,542		270,619
SBA - PPP		—		—		—		—		2,736		2,736
Commercial and industrial		12		—		4,253		4,265		965,630		969,895
Dairy & livestock and agribusiness		—		—		—		—		412,891		412,891
Municipal lease finance receivables		—		—		—		—		73,590		73,590
SFR mortgage		201		—		—		201		269,667		269,868
Consumer and other loans		18		—		—		18		54,054		54,072
Total loans at amortized cost	$	547	$	108	$	8,258	$	8,913	$	8,895,997	$	8,904,910

(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 March 31, 2024 and December 31, 2023 by type of loan.


	March 31, 2024
	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	$	—	$	—	$	—
Non-owner occupied		10,661		10,661		—
Construction
Speculative (2)		—		—		—
Non-speculative		—		—		—
SBA		54		54		—
SBA - PPP		—		—		—
Commercial and industrial		2,727		2,727		—
Dairy & livestock and agribusiness		60		60		—
Municipal lease finance receivables		—		—		—
SFR mortgage		308		308		—
Consumer and other loans		-		-		—
Total loans at amortized cost	$	13,810	$	13,810	$	—

(1)

As of March 31, 2024, $608,000 of nonaccruing loans were current and $13.2 million were 90+ days past due.

(2)

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

(3)

There were no guaranteed portion of nonaccrual SBA loans that are in process of collection.


	December 31, 2023
	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	$	2,505	$	2,505	$	—
Non-owner occupied		548		12,935		—
Construction
Speculative (2)		—		—		—
Non-speculative		—		—		—
SBA		787		969		—
SBA - PPP		—		—		—
Commercial and industrial		908		4,509		—
Dairy & livestock and agribusiness		60		60		—
Municipal lease finance receivables		—		—		—
SFR mortgage		323		324		—
Consumer and other loans		—		—		—
Total loans at amortized cost	$	5,131	$	21,302	$	—

(1)

As of December 31, 2023, $13.0 million of nonaccruing loans were current, $16,000 were 30-59 days past due, and $8.3 million were 90+ days past due.

(2)

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

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, 2024						Number of Loans
	Real Estate		Business Assets		Other		Dependent on Collateral
	(Dollars in thousands)
Commercial real estate	$	10,661	$	—	$	—		2
Construction		—		—		—		—
SBA		54		—		—		1
SBA - PPP		—		—		—		—
Commercial and industrial		—		2,727		—		2
Dairy & livestock and agribusiness		60		—		—		1
Municipal lease finance receivables		—		—		—		—
SFR mortgage		308		—		—		1
Consumer and other loans		—		—		—		—
Total collateral-dependent loans	$	11,083	$	2,727	$	—		7


	December 31, 2023						Number of Loans
	Real Estate		Business Assets		Other		Dependent on Collateral
	(Dollars in thousands)
Commercial real estate	$	15,440	$	—	$	—		5
Construction		—		—		—		—
SBA		749		220		—		4
SBA - PPP		—		—		—		—
Commercial and industrial		392		2,950		1,167		8
Dairy & livestock and agribusiness		60		—		—		1
Municipal lease finance receivables		—		—		—		—
SFR mortgage		324		—		—		1
Consumer and other loans		—		—		—		—
Total collateral-dependent loans	$	16,965	$	3,170	$	1,167		19

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 $7.5 million for the off-balance sheet credit exposures as of March 31, 2024. There was no provision for unfunded loan commitments for the three months ended March 31, 2024, compared to $500,000 in provision for the three months ended March 31, 2023. As of March 31, 2024 and December 31, 2023, the balance in this reserve was $7.5 million and was included in other liabilities.

Modifications of Loans to Borrowers Experiencing Financial Difficulty

The Company adopted Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measurement of TDRs and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.

There were three loans to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2024 with an amortized cost totaling $1.3 million as of March 31, 2024, including one dairy & livestock and agribusiness loan of $962,000 and two commercial and industrial loans totaling $350,000.

The tables below reflect the amortized cost of loans by type made to borrowers experiencing financial difficulty that were modified as of March 31, 2024 and March 31, 2023, and the financial effect of those modifications.


	Term Extension					Combination-Term Extension and Interest Rate Reduction
	Amortized Cost Basis		% of Total Class of Financing Receivables			Amortized Cost Basis		% of Total Class of Financing Receivables			Total
March 31, 2024
Commercial real estate loans	$	2,466		0.03	%	$	686		0.01	%	$	3,152
Commercial and industrial		1,644		0.02	%		242		0.00	%		1,886
Dairy & livestock and agribusiness		5,727		0.07	%		—		0.00	%		5,727
Total	$	9,837				$	928				$	10,765

March 31, 2023
Commercial real estate loans	$	1,587		0.02	%	$	—		—		$	1,587
Commercial and industrial		2,250		0.03	%		—		—			2,250
Dairy & livestock and agribusiness		1,999		0.02	%		—		—			1,999
Total	$	5,836				$	—				$	5,836



Loan Type		Financial Effect

		Term Extension
March 31, 2024
Commercial real estate loans		Added a weighted-average 1.3 years to the life of loans, which reduced monthly payment amounts for the borrowers.
Commercial and industrial		Added a weighted-average 0.7 years to the life of loans, which reduced monthly payment amounts for the borrowers.
Dairy & livestock and agribusiness		Added a weighted-average 0.6 years to the life of loans, which reduced monthly payment amounts for the borrowers.

		Term Extension
March 31, 2023
Commercial real estate loans		Added a weighted-average 1.1 years to the life of loans, which reduced monthly payment amounts for the borrowers.
Commercial and industrial		Added a weighted-average 0.8 years to the life of loans, which reduced monthly payment amounts for the borrowers.
Dairy & livestock and agribusiness		Added a weighted-average 1.2 years to the life of loans, which reduced monthly payment amounts for the borrowers.

As of March 31, 2024, the Company did not have any loans made to borrowers experiencing financial difficulty that were modified during the first quarter of 2024 that subsequently defaulted. Payment default is defined as movement to nonaccrual (nonperforming) status, foreclosure or charge-off, whichever occurs first.

The following table presents the recorded investment in, and the aging of, past due loans at amortized cost (including nonaccrual loans), by type of loans, made to borrowers experiencing financial difficulty as of March 31, 2024.


	Payment Status (amortized cost basis)
	Current		30-89 Days Past Due		90+ Days Past Due
	(Dollars in thousands)
Commercial real estate loans	$	3,152	$	—	$	—
Commercial and industrial		1,886		—		—
Dairy & livestock and agribusiness		5,727		—		—
Total	$	10,765	$	—	$	—