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Loans and Allowance for Credit Losses on Loans
 12 Months Ended
Dec. 31, 2024
Receivables [Abstract]  
Loans and Allowance for Credit Losses on Loans Loans and Allowance for Credit Losses on Loans
The following table presents the amortized cost of loans by portfolio class as of December 31, 2024 and 2023.
December 31,
(in thousands)20242023
Commercial and industrial$152,263 $153,750 
Real estate:
  Commercial owner-occupied321,962 333,181 
  Commercial non-owner occupied
1,273,596 1,219,385 
  Construction36,970 99,164 
  Home equity88,325 82,087 
  Other residential143,207 118,508 
Installment and other consumer loans66,933 67,645 
Total loans, at amortized cost 1
2,083,256 2,073,720 
Allowance for credit losses on loans(30,656)(25,172)
Total loans, net of allowance for credit losses on loans$2,052,600 $2,048,548 
1 Amortized cost includes net deferred loan origination costs of $2.5 million and $2.7 million at December 31, 2024 and 2023, respectively. Amounts are also net of unrecognized purchase discounts of $1.1 million and $2.0 million at December 31, 2024 and 2023, respectively. Amortized cost excludes accrued interest, which totaled $6.8 million and $6.6 million at December 31, 2024 and 2023, respectively, and is included in interest receivable and other assets in the consolidated statements of condition.

Lending Risks

Concentrations of Credit: Virtually all of our loans are from customers located in Northern California. Approximately 89% and 90% of total loans were secured by real estate at December 31, 2024 and 2023, respectively. At December 31, 2024 and 2023, 77% and 75%, respectively, of our total loans were commercial real estate, the majority of which were secured by real estate located in Marin, Sonoma, San Francisco, Alameda, Napa, Sacramento, and Contra Costa counties (California).

Commercial and Industrial Loans: Commercial loans are generally made to established small and mid-sized businesses to provide financing for their growth and working capital needs, equipment purchases and acquisitions.  Management examines historical, current, and projected cash flows to determine the ability of the borrower to repay obligations as agreed. Commercial loans are made based primarily on the identified cash flows of the borrower and secondarily on the underlying collateral and guarantor support. The cash flows of borrowers, however, may not occur as expected, and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed, such as accounts receivable and inventory, and typically include personal guarantees. We target stable businesses with guarantors who provide additional sources of repayment and have proven to be resilient in periods of economic stress.  A weakened economy, and the resultant decreased consumer and/or business spending, may have an effect on the credit quality of commercial loans.

Commercial Real Estate Loans: Commercial real estate loans, which include income producing investment properties and owner-occupied real estate used for business purposes, are subject to underwriting standards and processes similar to commercial loans discussed above. We underwrite these loans to be repaid from cash flow from either the business or investment property and supported by real property collateral. Underwriting standards for commercial real estate loans include, but are not limited to, debt coverage and loan-to-value ratios. Furthermore, a large majority of our loans are guaranteed by the owners of the properties. Conditions in the real estate markets or a downturn in the general economy may adversely affect our commercial real estate loans. In the event of a vacancy, we expect guarantors to carry the loans until they find a replacement tenant.  The owner's substantial equity investment provides a strong economic incentive to continue to support their commercial real estate projects. As such, we have generally experienced a relatively low level of losses and delinquencies in this portfolio.

Construction Loans: Construction loans are generally made to developers and builders to finance construction, renovation and occasionally land acquisitions in anticipation of near-term development. Construction loans include interest reserves that are used for the payment of interest during the development and marketing periods and are capitalized as part of the loan balance. When a construction loan is placed on nonaccrual status before the depletion of the interest reserve, we apply the interest funded by the interest reserve against the loan's principal
balance. These loans are underwritten after an evaluation of the borrower's financial strength, reputation, prior track record, and independent appraisals. We monitor all construction projects to determine whether they are on schedule, completed as planned and in accordance with the approved construction budgets. Significant events can affect the construction industry, including: the inherent volatility of real estate markets and vulnerability to delays due to weather, change orders, inability to obtain construction permits, labor or material shortages, and price changes. Estimates of construction costs and value associated with the completed project may be inaccurate. Repayment of construction loans is largely dependent on the ultimate success of the project.

Consumer Loans: Consumer loans primarily consist of home equity lines of credit, other residential loans, floating homes, and indirect luxury auto loans, along with a small number of installment loans. Our other residential loans include tenancy-in-common fractional interest loans ("TIC") located almost entirely in San Francisco County. We originate consumer loans utilizing credit score information, debt-to-income ratio, and loan-to-value ratio analysis. Diversification among consumer loan types, coupled with relatively small loan amounts that are spread across many individual borrowers, mitigates risk. We do not originate sub-prime residential mortgage loans, nor is it our practice to underwrite loans commonly referred to as "Alt-A mortgages," the characteristics of which are reduced documentation, borrowers with low FICO scores, or collateral with high loan-to-value ratios.

Credit Quality Indicators
 
We use a risk rating system to evaluate asset quality, and to identify and monitor credit risk in individual loans, and in the loan portfolio. Our definitions of “Special Mention” risk graded loans, or worse, are consistent with those used by the Federal Deposit Insurance Corporation ("FDIC").  Our internally assigned grades are as follows:
 
Pass and Watch: Loans to borrowers of acceptable or better credit quality. Borrowers in this category demonstrate fundamentally sound financial positions, repayment capacity, credit history, and management expertise.  Loans in this category must have an identifiable and stable source of repayment and meet the Bank’s policy regarding debt-service-coverage ratios.  These borrowers are capable of sustaining normal economic, market or operational setbacks without significant financial consequences.  Negative external industry factors are generally not present.  The loan may be secured, unsecured, or supported by non-real estate collateral for which the value is more difficult to determine and/or whose marketability is more uncertain. This category also includes “Watch” loans, where the primary source of repayment has been delayed. The “Watch” risk rating is intended to be a transitional grade, with either an upgrade or downgrade within a reasonable period.
 
Special Mention: Potential weaknesses that deserve close attention. If left uncorrected, those potential weaknesses may result in deterioration of the payment prospects for the asset. Special Mention assets do not present sufficient risk to warrant adverse classification.
 
Substandard: Inadequately protected by either the current sound worth and paying capacity of the obligor or the collateral pledged, if any. A Substandard asset has well-defined weaknesses that jeopardize the liquidation of the debt. Substandard assets are characterized by the distinct possibility that we will sustain some loss if such weaknesses or deficiencies are not corrected. Well-defined weaknesses include adverse trends or developments in the borrower’s financial condition, managerial weaknesses, and/or significant collateral deficiencies.
 
Doubtful: Critical weaknesses that make collection or liquidation in full improbable. There may be specific pending events that work to strengthen the asset; however, the amount or timing of the loss may not be determinable. Pending events generally occur within one year of the asset being classified as Doubtful. Examples include: merger, acquisition, or liquidation; capital injection; guarantee; perfecting liens on additional collateral; and refinancing. Such loans are placed on non-accrual status and are usually collateral-dependent.

We regularly review our credits for the accuracy of risk grades whenever we receive new information and at each quarterly and year-end reporting period. Borrowers are generally required to submit financial information at regular intervals. Typically, commercial borrowers with lines of credit are required to submit financial information with reporting intervals ranging from monthly to annually depending on credit size, risk and complexity. In addition, investor commercial real estate borrowers with loans exceeding a certain dollar threshold are usually required to submit rent rolls or property income statements annually. We monitor construction loans monthly. We review home equity and other consumer loans based on delinquency. We also review loans graded “Watch” or worse, regardless of loan type, no less than quarterly.
The following tables present the loan portfolio by loan portfolio class, origination/renewal year and internal risk rating as of December 31, 2024 and 2023. The current year vintage table reflects gross charge-offs by portfolio class and year of origination. Generally, existing term loans that were re-underwritten are reflected in the table in the year of renewal. Lines of credit that have a conversion feature at the time of origination, such as construction to perm loans, are presented by year of origination.
(in thousands)Term Loans - Amortized Cost by Origination YearRevolving Loans Amortized Cost
December 31, 202420242023202220212020PriorTotal
Commercial and industrial:
Pass and Watch$9,951 $20,282 $7,742 $1,371 $2,650 $27,487 $71,212 $140,695 
Special Mention598 — — — 5 221 7,286 8,110 
Substandard— — 2,793 — — — 665 3,458 
Total commercial and industrial$10,549 $20,282 $10,535 $1,371 $2,655 $27,708 $79,163 $152,263 
Gross current period charge-offs$— $— $— $— $— $— $(41)$(41)
Commercial real estate, owner-occupied:
Pass and Watch$14,638 $13,386 $43,381 $44,536 $41,160 $130,197 $169 $287,467 
Special Mention— 378 — 18,870 804 9,499 — 29,551 
Substandard— — 2,110 — — 2,834 — 4,944 
Total commercial real estate, owner-occupied$14,638 $13,764 $45,491 $63,406 $41,964 $142,530 $169 $321,962 
Commercial real estate, non-owner occupied:
Pass and Watch$119,053 $64,906 $162,804 $196,661 $179,060 $442,574 $9,178 $1,174,236 
Special Mention18,343 — 2,736 2,097 729 39,888 — 63,793 
Substandard— 497 — 2,127 — 32,943 — 35,567 
Total commercial real estate, non-owner occupied
$137,396 $65,403 $165,540 $200,885 $179,789 $515,405 $9,178 $1,273,596 
Construction:
Pass and Watch$18,128 $— $11,380 $— $— $— $— $29,508 
Special Mention7,462 — — — — — — 7,462 
Total construction$25,590 $— $11,380 $— $— $— $— $36,970 
Home equity:
Pass and Watch$94 $13 $— $— $— $968 $86,337 $87,412 
Substandard— — — — — 174 739 913 
Total home equity$94 $13 $— $— $— $1,142 $87,076 $88,325 
Other residential:
Pass and Watch$35,390 $17,267 $19,682 $12,989 $24,378 $33,501 $— $143,207 
Total other residential$35,390 $17,267 $19,682 $12,989 $24,378 $33,501 $— $143,207 
Installment and other consumer:
Pass and Watch$17,525 $15,429 $10,841 $7,798 $2,788 $10,901 $1,429 $66,711 
Substandard— — — 207 — 15 — 222 
Total installment and other consumer$17,525 $15,429 $10,841 $8,005 $2,788 $10,916 $1,429 $66,933 
Gross current period charge-offs$— $(14)$— $(39)$— $(1)$(4)$(58)
Total loans:
Pass and Watch$214,779 $131,283 $255,830 $263,355 $250,036 $645,628 $168,325 $1,929,236 
Total Special Mention$26,403 $378 $2,736 $20,967 $1,538 $49,608 $7,286 $108,916 
Total Substandard$— $497 $4,903 $2,334 $— $35,966 $1,404 $45,104 
Totals$241,182 $132,158 $263,469 $286,656 $251,574 $731,202 $177,015 $2,083,256 
Total gross current period charge-offs$— $(14)$— $(39)$— $(1)$(45)$(99)
(in thousands)Term Loans - Amortized Cost by Origination YearRevolving Loans Amortized Cost
December 31, 202320232022202120202019PriorTotal
Commercial and industrial:
Pass and Watch$25,615 $9,187 $2,970 $3,718 $15,128 $21,004 $62,486 $140,108 
Special Mention— — — — 334 — 9,300 9,634 
Substandard— — — — 1,311 2,697 — 4,008 
Total commercial and industrial$25,615 $9,187 $2,970 $3,718 $16,773 $23,701 $71,786 $153,750 
Commercial real estate, owner-occupied:
Pass and Watch$13,128 $41,808 $49,887 $37,708 $40,994 $114,018 $56 $297,599 
Special Mention1,431 4,498 15,636 820 286 8,902 — 31,573 
Substandard— 2,231 — — — 1,778 — 4,009 
Total commercial real estate, owner-occupied$14,559 $48,537 $65,523 $38,528 $41,280 $124,698 $56 $333,181 
Commercial real estate, non-owner occupied:
Pass and Watch$76,718 $172,028 $196,340 $150,831 $139,860 $368,675 $9,832 $1,114,284 
Special Mention— 2,790 9,498 11,776 15,708 41,602 — 81,374 
Substandard878 272 2,204 — — 20,373 — 23,727 
Total commercial real estate, non-owner occupied
$77,596 $175,090 $208,042 $162,607 $155,568 $430,650 $9,832 $1,219,385 
Construction:
Pass and Watch$13,138 $24,403 $19,521 $29,512 $— $— $— $86,574 
Special Mention12,590 — — — — — — 12,590 
Total construction$25,728 $24,403 $19,521 $29,512 $— $— $— $99,164 
Home equity:
Pass and Watch$— $— $— $— $— $734 $80,773 $81,507 
Substandard— — — — — 369 211 580 
Total home equity$— $— $— $— $— $1,103 $80,984 $82,087 
Other residential:
Pass and Watch$17,861 $20,114 $13,390 $25,637 $20,935 $20,571 $— $118,508 
Total other residential$17,861 $20,114 $13,390 $25,637 $20,935 $20,571 $— $118,508 
Installment and other consumer:
Pass and Watch$22,038 $14,528 $10,632 $4,687 $5,300 $9,399 $1,061 $67,645 
Total installment and other consumer$22,038 $14,528 $10,632 $4,687 $5,300 $9,399 $1,061 $67,645 
Total loans:
Pass and Watch$168,498 $282,068 $292,740 $252,093 $222,217 $534,401 $154,208 $1,906,225 
Total Special Mention$14,021 $7,288 $25,134 $12,596 $16,328 $50,504 $9,300 $135,171 
Total Substandard$878 $2,503 $2,204 $— $1,311 $25,217 $211 $32,324 
Totals$183,397 $291,859 $320,078 $264,689 $239,856 $610,122 $163,719 $2,073,720 
The following table shows the amortized cost of loans by portfolio class, payment aging and non-accrual status as of December 31, 2024 and 2023.

Loan Aging Analysis by Portfolio Class
(in thousands)Commercial and industrialCommercial real estate, owner-occupied
Commercial real estate, non-owner occupied
ConstructionHome equityOther residentialInstallment and other consumerTotal
December 31, 2024        
30-59 days past due$203 $208 $718 $— $738 $— $415 $2,282 
60-89 days past due— 559 — — 186 — 7 752 
90 days or more past due 1
2,793 113 10,742 — 248 — 8 13,904 
Total past due2,996 880 11,460 — 1,172 — 430 16,938 
Current149,267 321,082 1,262,136 36,970 87,153 143,207 66,503 2,066,318 
Total loans 1
$152,263 $321,962 $1,273,596 $36,970 $88,325 $143,207 $66,933 $2,083,256 
Non-accrual loans 2
$2,845 $1,537 $28,525 $— $752 $— $222 $33,881 
Non-accrual loans with no allowance$— $1,537 $497 $— $752 $— $207 $2,993 
December 31, 2023        
30-59 days past due$2,991 $618 $— $— $43 $83 $195 $3,930 
60-89 days past due69 — 2,204 — — — 1 2,274 
90 days or more past due 1
1,311 149 — — — — — 1,460 
Total past due4,371 767 2,204 — 43 83 196 7,664 
Current149,379 332,414 1,217,181 99,164 82,044 118,425 67,449 2,066,056 
Total loans 1
$153,750 $333,181 $1,219,385 $99,164 $82,087 $118,508 $67,645 $2,073,720 
Non-accrual loans 2
$4,008 $434 $3,081 $— $469 $— $— $7,992 
Non-accrual loans with no allowance$1,311 $434 $877 $— $469 $— $— $3,091 
1 There were no non-performing loans past due more than ninety days and accruing interest at December 31, 2024 and 2023.
2 None of the non-accrual loans as of December 31, 2024 or 2023 were earning interest on a cash basis. We recognized no interest income on non-accrual loans in 2024, 2023, or 2022. Accrued interest of $530 thousand, $206 thousand, and $48 thousand was reversed from interest income for the loans that were placed on non-accrual status in 2024, 2023, and 2022, respectively.

Collateral Dependent Loans

The following table presents the amortized cost basis of individually analyzed collateral-dependent loans, which were all on non-accrual status, by portfolio class and collateral type as of December 31, 2024 and 2023.
Amortized Cost by Collateral Type
(in thousands)Commercial Real EstateResidential Real EstateOther
Total1
Allowance for Credit Losses
December 31, 2024
Commercial and industrial$52 $— $— $52 $52 
Commercial real estate, owner-occupied1,537 — — 1,537 — 
Commercial real estate, non-owner occupied
28,525 — — 28,525 7,933 
Home equity— 752 — 752 — 
Installment and other consumer— 222 222 15 
Total$30,114 $752 $222 $31,088 $8,000 
December 31, 2023
Commercial and industrial$1,311 $— $— $1,311 $— 
Commercial real estate, owner-occupied434 — — 434 — 
Commercial real estate, non-owner occupied3,081 — — 3,081 408 
Home equity— 469 — 469 — 
Total$4,826 $469 $— $5,295 $408 
1There were no collateral-dependent residential real estate mortgage loans in process of foreclosure or in substance repossessed at December 31, 2024 and 2023.
The weighted average loan-to-value of collateral-dependent loans was approximately 115% and 70% at December 31, 2024 and 2023, respectively.
Loan Modifications to Borrowers Experiencing Financial Difficulty
The following table summarizes the amortized cost of loans as of December 31, 2024 and 2023 modified for borrowers experiencing financial difficulty during the years ended December 31, 2024 and 2023, respectively, by portfolio class and type of modification granted.
(in thousands)
Term Extension
Total Modifications
Percent of Portfolio Class Total
December 31, 2024
Home equity$188 $188 0.2 %
Total
$188 $188 
December 31, 2023
Commercial owner-occupied$1,431 $1,431 0.4 %
Commercial non-owner occupied878 878 0.1 %
Total
$2,309 $2,309 
As of December 31, 2024 and 2023, there were no unfunded loan commitments for loans that were modified during the periods presented.

The following table summarizes the financial effect of loan modifications presented in the table above during the years ended December 31, 2024 and 2023 by portfolio class.
(in thousands)Weighted-Average Term Extension (in years)
Year ended December 31, 2024
Home equity6.6
Year ended December 31, 2023
Commercial owner-occupied2.3
Commercial non-owner occupied0.5

The loan modifications did not significantly impact the determination of the allowance for credit losses on loans during the years ended December 31, 2024 and 2023.

The Bank closely monitors the performance of the modified loans to understand the effectiveness of its modification efforts. The following table summarizes the amortized cost and payment status of loans as of December 31, 2024 and 2023 that were modified during the years ended December 31, 2024 and 2023, respectively, by portfolio class.
(in thousands)
Current
30-59 Days Past Due60-89 Days Past Due
90 Days or More Past Due
Total
Non-Accrual
December 31, 2024
Home equity$188 $— $— $— $188 $113 
Total
$188 $— $— $— $188 $113 
December 31, 2023
Commercial owner-occupied$1,431 $— $— $— $1,431 $— 
Commercial non-owner occupied878 — — — 878 878 
Total
$2,309 $— $— $— $2,309 $878 

There were no loans to borrowers experiencing financial difficulty that were modified within the previous twelve months that had subsequently defaulted (i.e., fully or partially charged-off or became 90 days or more past due).
Allocation of the Allowance for Credit Losses on Loans

The following table presents the details of the allowance for credit losses on loans segregated by loan portfolio class as of December 31, 2024 and 2023.

Allocation of the Allowance for Credit Losses on Loans
(in thousands)Commercial and industrialCommercial real estate, owner-occupiedCommercial real estate, non-owner occupiedConstructionHome equityOther residentialInstallment and other consumerUnallocatedTotal
December 31, 2024
        
Modeled expected credit losses$759 $1,241 $7,632 $41 $620 $1,133 $625 $— $12,051 
Qualitative adjustments672 1,120 6,528 597 64 8 268 1,255 10,512 
Specific allocations145 — 7,933 — — — 15 — 8,093 
Total$1,576 $2,361 $22,093 $638 $684 $1,141 $908 $1,255 $30,656 
December 31, 2023
        
Modeled expected credit losses$897 $1,270 $7,380 $185 $482 $619 $634 $— $11,467 
Qualitative adjustments622 1,205 6,327 1,647 70 33 342 2,038 12,284 
Specific allocations193 1 1,226 — — 1 — — 1,421 
Total$1,712 $2,476 $14,933 $1,832 $552 $653 $976 $2,038 $25,172 

The $5.5 million increase in the allowance for credit losses on loans in 2024 was largely due to the specific allowance increase of $6.7 million. This was mainly due to the increased reserve of $5.2 million for one non-owner occupied commercial real estate loan totaling $16.7 million that, although current, had experienced a deterioration in the collateral value and, therefore, a material increase in the loan-to-value.

Allowance for Credit Losses on Loans Rollforward

The following table discloses activity in the allowance for credit losses for the periods presented.
Allowance for Credit Losses on Loans Rollforward
(in thousands)Commercial and industrialCommercial real estate, owner-occupied
Commercial real estate, non-owner occupied
ConstructionHome equityOther residentialInstallment and other consumerUnallocatedTotal
Year ended December 31, 2024
Beginning balance$1,712 $2,476 $14,933 $1,832 $552 $653 $976 $2,038 $25,172 
(Reversal) provision (116)(115)7,152 (1,194)132 488 (14)(783)5,550 
(Charge-offs)(41)— — — — — (58)— (99)
Recoveries21 — 8 — — — 4 — 33 
Ending balance$1,576 $2,361 $22,093 $638 $684 $1,141 $908 $1,255 $30,656 
Year ended December 31, 2023
Beginning balance$1,794 $2,487 $12,676 $1,937 $558 $595 $868 $2,068 22,983 
(Reversal) provision(100)395 2,257 (130)(6)58 131 (30)2,575 
(Charge-offs)(11)(406)— — — — (24)— (441)
Recoveries29 — — 25 — — 1 — 55 
Ending balance$1,712 $2,476 $14,933 $1,832 $552 $653 $976 $2,038 $25,172 
Year ended December 31, 2022
Beginning balance$1,709 $2,776 $12,739 $1,653 $595 $644 $621 $2,286 $23,023 
Provision (reversal)72 (289)(63)251 (37)(49)270 (218)(63)
(Charge-offs)(9)— — — — — (23)— (32)
Recoveries22 — — 33 — — — — 55 
Ending balance$1,794 $2,487 $12,676 $1,937 $558 $595 $868 $2,068 $22,983 

Pledged Loans

Our FHLB line of credit is secured under terms of a blanket collateral agreement by a pledge of certain qualifying loans with unpaid principal balances of $1.351 billion and $1.288 billion at December 31, 2024 and 2023, respectively. In addition, we pledged eligible TIC loans, which totaled $110.0 million and $110.4 million at
December 31, 2024 and 2023, respectively, to secure our borrowing capacity with the Federal Reserve Bank ("FRB"). For additional information, see Note 7, Borrowings.

Related Party Loans

The Bank has, and expects to have in the future, banking transactions in the ordinary course of its business with directors, officers, principal shareholders and their businesses or associates. These transactions, including loans, are granted on substantially the same terms, including interest rates and collateral on loans, as those prevailing at the same time for comparable transactions with persons not related to us. Likewise, these transactions do not involve more than the normal risk of collectability or present other unfavorable features.

The following table shows changes in net loans to related parties for each of the three years ended December 31, 2024, 2023 and 2022.
(in thousands)202420232022
Balance at beginning of year$5,832 $6,445 $7,942 
Additions1,425 — 1,525 
Repayments(3,125)(613)(364)
Reclassified due to a change in borrower status— — (2,658)
Balance at end of year$4,132 $5,832 $6,445 
Undisbursed commitments to related parties totaled $211 thousand and $212 thousand as of December 31, 2024 and 2023, respectively.