NOTE 5 - LOANS AND ALLOWANCE FOR LOAN LOSSES

The Company's loan portfolio consists primarily of loans to borrowers within Los Angeles, Ventura and Orange County, California and Las Vegas, Nevada. Although the Company seeks to avoid concentrations of loans to a single industry or based upon a single class of collateral, real estate and real estate associated businesses are among the principal industries in the Company's market area and, as a result, the Company's loan and collateral portfolios are, to some degree, concentrated in those industries.

The following tables present the balance and activity related to the allowance for loan losses for held for investment loans by type for the periods presented.

	Three Months Ended September 30,
	2017										2016
(dollars in thousands)	Real Estate		Commercial			Unallocated			Total		Real Estate		Commercial		Unallocated		Total
Beginning balance	$	6,433	$	3,384		$	810		$	10,627	$	9,455	$	2,694	$	—	$	12,149
Additions (reductions) to the allowance charged to expense		1,239		(115	)		(424	)		700		820		430		—		1,250
Recoveries on loans charged-off		—		93			—			93		—		—		—		—
Less loans charged-off		—		—			—			—		—		—		—		—
Ending balance	$	7,672	$	3,362		$	386		$	11,420	$	10,275	$	3,124	$	—	$	13,399

	Nine Months Ended September 30,
	2017											2016
(dollars in thousands)	Real Estate			Commercial			Unallocated		Total			Real Estate		Commercial			Unallocated		Total
Beginning balance	$	8,111		$	6,051		$	—	$	14,162		$	5,788	$	4,235		$	—	$	10,023
Additions (reductions) to the allowance charged to expense		(439	)		(3,435	)		386		(3,488	)		4,487		(888	)		—		3,599
Recoveries on loans charged-off		—			746			—		746			—		—			—		—
Less loans charged-off		—			—			—		—			—		(223	)		—		(223	)
Ending balance	$	7,672		$	3,362		$	386	$	11,420		$	10,275	$	3,124		$	—	$	13,399

The following table presents the recorded investment in loans and impairment method as of and for the nine months ended September 30, 2017 and September 30, 2016, and the activity in the allowance for loan losses for the year ended December 31, 2016, by portfolio segment:

(dollars in thousands)
As of September 30, 2017	Real Estate		Commercial		Unallocated		Total
Reserves:
Specific	$	—	$	—	$	—	$	—
General		7,672		3,362		386		11,420
Loans acquired with deteriorated credit quality		—		—		—		—
	$	7,672	$	3,362	$	386	$	11,420
Loans evaluated for impairment:
Individually	$	2,580	$	1,370	$	—	$	3,950
Collectively		819,654		372,602		—		1,192,256
Loans acquired with deteriorated credit quality		316		—		—		316
	$	822,550	$	373,972	$	—	$	1,196,522

As of December 31, 2016	Real Estate		Commercial			Unallocated		Total
Allowance for loan losses:
Beginning of year	$	5,788	$	4,235		$	—	$	10,023
Provisions		2,323		2,651			—		4,974
Charge-offs		—		(835	)		—		(835	)
Recoveries		—		—			—		—
	$	8,111	$	6,051		$	—	$	14,162
Reserves:
Specific	$	—	$	1,782		$	—	$	1,782
General		8,111		4,269			—		12,380
Loans acquired with deteriorated credit quality		—		—			—		—
	$	8,111	$	6,051		$	—	$	14,162
Loans evaluated for impairment:
Individually	$	2,556	$	3,577		$	—	$	6,133
Collectively		744,349		359,234			—		1,103,583
Loans acquired with deteriorated credit quality		730		—			—		730
	$	747,635	$	362,811		$	—	$	1,110,446

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis typically includes larger, non-homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. The Company uses the following definitions for risk ratings:

Pass - Loans classified as pass include loans not meeting the risk ratings defined below.

Special Mention - Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Impaired - A loan is considered impaired, when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Additionally, all loans classified as troubled debt restructurings are considered impaired.

The risk category of loans by class of loans was as follows at September 30, 2017 and December 31, 2016:

(dollars in thousands)			Special
September 30, 2017	Pass		Mention		Substandard		Impaired		Total
Real estate:
Construction and land development	$	94,004	$	—	$	—	$	293	$	94,297
Commercial real estate		444,108		4,517		40,174		2,287		491,086
Single-family residential mortgages		237,167		—		—		—		237,167
Commercial:
Other		222,743		960		971		1,293		225,967
SBA		143,507		1,819		2,602		77		148,005
	$	1,141,529	$	7,296	$	43,747	$	3,950	$	1,196,522

December 31, 2016
Real estate:
Construction and land development	$	87,174	$	1,932	$	—	$	303	$	89,409
Commercial real estate		475,499		4,562		19,484		2,253		501,798
Single-family residential mortgages		136,206		13,950		6,272		—		156,428
Commercial:
Other		194,227		—		9,616		—		203,843
SBA		151,066		1,934		2,391		3,577		158,968
	$	1,044,172	$	22,378	$	37,763	$	6,133	$	1,110,446

The following table presents the recorded investment in non-accrual loans by class of loans. There were no loans past due 90 days and still on accrual at September 30, 2017 and December 31, 2016:

	September 30		December 31,
(dollars in thousands)	2017		2016
Commercial:
SBA	$	77	$	3,577

The following table presents the aging of the recorded investment in past-due loans at September 30, 2017 and December 31, 2016 by class of loans:

	30-59		60-89		Greater Than
(dollars in thousands)	Days		Days		89 Days		Total		Loans Not
September 30, 2017	Past Due		Past Due		Past Due		Past Due		Past Due		Total
Real estate:
Construction and land development	$	—	$	—	$	—	$	—	$	94,297	$	94,297
Commercial real estate		—		—		—		—		491,086		491,086
Single-family residential mortgages		531		—		—		531		236,636		237,167
Commercial:								—
Other		213		—		—		213		225,754		225,967
SBA		254		1,434		—		1,688		146,317		148,005
	$	998	$	1,434	$	—	$	2,432	$	1,194,090	$	1,196,522

December 31, 2016
Real estate:
Construction and land development	$	—	$	—	$	—	$	—	$	89,409	$	89,409
Commercial real estate		—		—		—		—		501,798		501,798
Single-family residential mortgages		—		—		—		—		156,428		156,428
Commercial:
Other		343		—		—		343		203,500		203,843
SBA		—		—		3,577		3,577		155,391		158,968
	$	343	$	—	$	3,577	$	3,920	$	1,106,526	$	1,110,446

Information relating to individually impaired loans presented by class of loans was as follows at September 30, 2017 and December 31, 2016:

	Unpaid
(dollars in thousands)	Principal		Recorded		Average		Interest		Related
September 30, 2017	Balance		Investment		Balance		Income		Allowance
With no related allowance recorded
Construction and land development	$	293	$	293	$	298	$	16	$	—
Commercial real estate		2,287		2,287		2,270		253		—
Commercial - SBA		1,370		1,370		685		79		—
Total	$	3,950	$	3,950	$	3,253	$	348	$	—

December 31, 2016
With no related allowance recorded
Construction and land development	$	303	$	303	$	309	$	21	$	—
Commercial real estate		2,253		2,253		1,710		280		—
Commercial - SBA		18		18		93		—		—
Subtotal		2,574		2,574		2,112		301		—

With an allowance recorded
Commercial - SBA		3,559		3,559		3,559		—		1,782
Total	$	6,133	$	6,133	$	5,671	$	301	$	1,782

No interest income was recognized on a cash basis for the nine months ended September 30, 2017 and 2016 and for the year ended December 31, 2016.

The Company had five and six loans identified as troubled debt restructurings ("TDR's") at September 30, 2017 and December 31, 2016, respectively. A specific reserve of $1,782,000 had been allocated for one loan at December 31, 2016. There were no specific reserves on TDRs as of September 30, 2017. There are no commitments to lend additional amounts at September 30, 2017 and December 31, 2016 to customers with outstanding loans that are classified as TDR's.

During the year ended December 31, 2016 and for the nine months ended September 30, 2017, the terms of certain loans were modified as TDR's. The modification of the terms generally included loans where a moratorium on loan payments was granted. Such moratoriums ranged from three months to twelve months on the loans restructured in 2017 and 2016.

The following table presents loans by class modified as TDRs that occurred during the nine months ended September 30, 2017 and the year ended December 31, 2016;

Pre-

Post-

Modification

(dollars in thousands)

Number of

Recorded

September 30, 2017

Loans

Investment

Commercial

1,293

Pre-

Post-

Modification

(dollars in thousands)

Number of

Recorded

December 31, 2016

Loans

Investment

Commercial real estate

1,047

The Company has purchased loans as part of its whole bank acquisitions, for which there was at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected.

The outstanding balance and carrying amount of purchased credit-impaired loans at September 30, 2017 and December 31, 2016 were as follows:

	September 30,		December 31,
(dollars in thousands)	2017		2016
Outstanding balance	$	324	$	878
Carrying amount	$	316	$	730

For these purchased credit-impaired loans, the Company did not increase the allowance for loan losses during the nine months ended September 30, 2017 or for the year ended December 31, 2016, as there were no significant reductions in the expected cash flows.

Below is a summary of activity in the accretable yield on purchased credit-impaired loans for the nine months ended September 30, 2017 and for the year ended December 31, 2016:

	September 30,			December 31,
(dollars in thousands)	2017			2016
Beginning balance	$	142		$	349
Restructuring as TDR		—			(22	)
Accretion of income		(134	)		(185	)
Ending balance	$	8		$	142