XML 23 R14.htm IDEA: XBRL DOCUMENT

ALLOWANCE FOR LOAN LOSSES

9 Months Ended

Sep. 30, 2023

Allowance for Loan Losses [Abstract]

NOTE 6 – ALLOWANCE FOR CREDIT LOSSES FOR LOANS

The following tables summarize the Company’s allowance for credit losses for loans, reserve for unfunded commitments, and loan balances individually and collectively evaluated by type of loan as of or for the three and nine months ended September 30, 2023 and 2022:


	Commercial		Construction		Commercial								Reserve for
	and industrial		and land		real estate		Residential		Consumer		Total		unfunded commitments
Three months ended September 30, 2023
Allowance for credit losses
Beginning balance	$	3,647	$	317	$	14,167	$	959	$	10	$	19,100	$	300
Charge-offs		(27)		—		—		—		—		(27)		—
Recoveries		—		—		—		1		2		3		—
Provision for (reversal of) credit losses		883		(60)		(131)		36		(4)		724		(50)
Ending balance	$	4,503	$	257	$	14,036	$	996	$	8	$	19,800	$	250

Nine months ended September 30, 2023
Allowance for loan losses:
Beginning balance	$	2,885	$	68	$	14,185	$	1,742	$	20	$	18,900	$	315
Impact of CECL adoption		1,366		402		2		(302)		32		1,500		45
Charge-offs		(309)		—		—		(175)		(3)		(487)		—
Recoveries		80		—		2		1		5		88		—
Provision for (reversal) of credit losses		481		(213)		(153)		(270)		(46)		(201)		(110)
Ending balance	$	4,503	$	257	$	14,036	$	996	$	8	$	19,800	$	250

September 30, 2023
Allowance for credit losses:
Loans individually evaluated	$	1,572	$	—	$	309	$	2	$	—	$	1,883
Loans collectively evaluated		2,931		257		13,198		986		8		17,380
PCD loans		—		—		529		8		—		537

Loans receivable:
Individually evaluated	$	1,943	$	366	$	10,448	$	1,564	$	—	$	14,321
Collectively evaluated		168,795		8,038		1,664,631		85,539		639		1,927,642
PCD loans		205		—		26,066		496		—		26,767
Total loans	$	170,943	$	8,404	$	1,701,145	$	87,599	$	639	$	1,968,730


	Commercial		Construction		Commercial
	and industrial		and land		real estate		Residential		Consumer		Total
Three months ended September 30, 2022
Allowance for loan losses
Beginning balance	$	2,871	$	74	$	13,830	$	1,007	$	18	$	17,800
Charge-offs		(1,095)		—		—		—		—		(1,095)
Recoveries		151		—		—		—		—		151
Provision for (reversal of) loan losses		1,029		(12)		13		162		2		1,194
Ending balance	$	2,956	$	62	$	13,843	$	1,169	$	20	$	18,050

Nine months ended September 30, 2022
Allowance for loan losses
Beginning balance	$	3,261	$	175	$	12,709	$	1,536	$	19	$	17,700
Charge-offs		(3,620)		—		(1)		(6)		(6)		(3,633)
Recoveries		159		—		—		—		—		159
Provision for (reversal of) loan losses		3,156		(113)		1,135		(361)		7		3,824
Ending balance	$	2,956	$	62	$	13,843	$	1,169	$	20	$	18,050

September 30, 2022
Allowance for loan losses:
Loans individually evaluated	$	725	$	—	$	259	$	14	$	—	$	998
Loans collectively evaluated		2,231		62		13,584		1,155		20		17,052
PCD loans		—		—		—		—		—		—

Loans receivable:
Individually evaluated	$	2,620	$	—	$	12,382	$	2,126	$	—	$	17,128
Collectively evaluated		212,731		8,171		1,637,087		85,669		4,294		1,947,952
PCD loans		4,163		4,060		20,814		1,107		—		30,144
Total loans	$	219,514	$	12,231	$	1,670,283	$	88,902	$	4,294	$	1,995,224

For the three months ended September 30, 2023, the provision for credit losses was primarily due to a $1.2 million increase in reserves for individually evaluated loans, which included the loan to the Trust discussed below, and an increase in qualitative reserves, partially offset by improvements in forecasted economic conditions, specifically, national gross domestic product and national unemployment, indicators utilized to estimate credit losses and, to a lesser extent, a decrease in outstanding loan balances and $24,000 in net charge-offs during the third quarter of 2023.

During the quarter ended September 30, 2023, the Company determined that a certificate of deposit-secured line of credit loan made to a revocable living trust (the “Trust” or the “Borrower”) with an outstanding balance of approximately $1.0 million as of September 30, 2023 was impaired and placed on nonaccrual as a result of the sole trustee and beneficiary of the Trust filing for personal bankruptcy in July 2023. At June 30, 2023, the loan had an outstanding balance of $5.0 million and was secured by a $4.0 million certificate of deposit held at the Bank. An additional $1.0 million in cash collateral securing the loan had previously been released by the Bank into a third-party escrow account at the request of the Borrower to be used as a refundable retainer in connection with a separate transaction by the Borrower. The loan matured on July 16, 2023, and the Bank received notification that the sole trustee and beneficiary of the Trust filed for personal bankruptcy on July 18, 2023. After receiving this notification, the Bank used the $4.0 million certificate of deposit held at the Bank to offset amounts owed on the loan and contacted the third-party escrow agent for the return of the additional $1.0 million of collateral. The Bank was advised by the escrow agent that the previously escrowed funds had been released by the escrow agent, which was done without the Bank’s consent and contrary to the written escrow instructions. The Bank has initiated legal action against the Borrower, the Borrower’s related parties and the escrow agent to recover the previously escrowed collateral. The results of the legal action and the Bank’s ability to recover the previously escrowed collateral are currently uncertain. The loan was fully reserved for at September 30, 2023.

For the nine months ended September 30, 2023, the reversal of the allowance for credit losses was due to a decrease in the quantitative reserve primarily due to improvements in forecasted economic conditions, specifically, national gross domestic product and national unemployment indicators utilized to estimate credit losses over the next four quarters, as compared to those used in estimating the allowance for credit losses on loans at adoption, and to a lesser

extent, a decrease in outstanding loan balances, partially offset by an overall increase in reserves of individually evaluated loans and replenishment of the reserve from $399,000 in net charge-offs for the nine months ended September 30, 2023. The reserve for individually evaluated loans increased during the nine months ended September 30, 2023 primarily due to a $1.0 million reserve for the individually evaluated loan to the Trust discussed above, partially offset by a decrease in the specific reserve due to nine nonaccrual loans that were fully reserved for and charged-off during the nine months ended September 30, 2023.

The following table summarizes the amortized cost basis of individually evaluated collateral-dependent nonaccrual loans by loan and collateral type at September 30, 2023 and December 31, 2022.


	Retail and				Convalescent						A/R and				Allowance for
	Office		Multifamily		facility		Other		SFR 1-4		Equipment		Total		Credit/Loan Losses
September 30, 2023
Commercial and industrial	$	—	$	—	$	—	$	1,021	$	—	$	923	$	1,944	$	1,572
Construction and land		—		—		—		—		366		—		366		—
Commercial real estate		1,048		5,316		2,213		1,880		—		—		10,457		309
Residential		—		—		—		—		1,554		—		1,554		2
Consumer		—		—		—		—		—		—		—		—
Total	$	1,048	$	5,316	$	2,213	$	2,901	$	1,920	$	923	$	14,321	$	1,883

December 31, 2022
Commercial and industrial	$	—	$	—	$	—	$	—	$	—	$	878	$	878	$	687
Construction and land		—		—		—		—		—		—		—		—
Commercial real estate		389		5,351		3,577		1,889		—		—		11,206		259
Residential		—		—		—		—		2,205		—		2,205		222
Consumer		—		—		—		—		—		—		—		—
Total	$	389	$	5,351	$	3,577	$	1,889	$	2,205	$	878	$	14,289	$	1,168

The following table shows the amortized cost and allowance for credit losses for loans on nonaccrual status as of September 30, 2023 and the amortized cost and allowance for loan losses for loans on nonaccrual status as of December 31, 2022.


	As of September 30, 2023						As of December 31, 2022
	Nonaccrual		Nonaccrual				Nonaccrual		Nonaccrual
	with no allowance		with allowance		Total		with no allowance		with allowance		Total
	for credit losses		for credit losses		nonaccrual		for loan losses		for loan losses		nonaccrual
Commercial and industrial	$	—	$	1,944	$	1,944	$	—	$	878	$	878
Construction and land		366		—		366		—		—		—
Commercial real estate		7,793		2,664		10,457		10,734		472		11,206
Residential		1,401		153		1,554		1,991		214		2,205
Consumer		—		—		—		—		—		—
Total	$	9,560	$	4,761	$	14,321	$	12,725	$	1,564	$	14,289

Interest income recognized on nonaccrual loans was $39,000 and $120,000 for the three and nine months ended September 30, 2023, and $52,000 and $84,000 for the three and nine months ended September 30, 2022, respectively.

As part of the acquisition of PEB, the Company acquired certain small business loans to borrowers qualified under The California Capital Access Program for Small Business, a state guaranteed loan program sponsored by the California Pollution Control Financing Authority (“CalCAP”). PEB ceased originating loans under this loan program in 2017. Under this loan program, the borrower, CalCAP and the participating lender contributed funds to a loss reserve account that is held in a demand deposit account at the participating lender. The borrower contributions to the loss reserve account are attributed to the participating lender. Losses on qualified loans are charged to this account after approval by CalCAP. Under the program, if a loan defaults, the participating lender has immediate coverage of 100% of the loss. The participating lender must return recoveries from the borrower, less expenses, to the credit loss reserve account. The funds in the loss reserve account are the property of CalCAP; however, in the event that the participating lender leaves the program any excess funds, after all loans have been repaid or unenrolled from the program by the

participating lender and provided there are no pending claims for reimbursement, the remaining excess funds are distributed to CalCAP and the participating lender based on their respective contributions to the loss reserve account. Funds contributed by the participating lender to the loss reserve account are treated as a receivable from CalCAP and evaluated for impairment quarterly. As of September 30, 2023, the Company had $23.2 million of loans enrolled in this loan program. The Company had a loss reserve account of $13.7 million as of September 30, 2023.

In addition, as successor to PEB, the Company was approved by CalCAP, in partnership with the California Air Resources Board, to originate loans to California truckers in the On-Road Heavy-Duty Vehicle Air Quality Loan Program. Under this loan program, CalCAP solely contributes funds to a loss reserve account that is held in a demand deposit account at the participating lender. Losses are handled in the same manner as described above. The funds are the property of CalCAP and are payable upon termination of the program. When the loss reserve account balance exceeds the total associated loan balance, the excess is to be remitted to CalCAP. The Company originated $4.2 million of loans under this program during the nine months ended September 30, 2023. As of September 30, 2023, the Company had $20.3 million of loans enrolled in this program and a loss reserve account of $6.2 million.