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 lo ans 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 agricultur al 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 b illion 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 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 $ 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 $ 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 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 $ 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 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 $ 13 $ 988 $ 1,420 $ 1,271 $ 126 $ 322 $ 263,526 $ 11,918 $ 279,584 Municipal lease finance Risk Rating: Pass $ 9,557 $ 7,875 $ - $ 279 $ 9,720 $ 19,498 $ - $ - $ 46,929 Special Mention - - - - - 376 - - 376 Substandard - - - - - - - - - Doubtful & Loss - - - - - - - - - Total Municipal lease $ 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 $ 27,356 $ 52,771 $ 44,447 $ 20,072 $ 17,176 $ 68,935 $ 152 $ 414 $ 231,323 Consumer and other 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 $ 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 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 $ 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 $ 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 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 $ 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 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 $ 1,919 $ 1,765 $ 2,347 $ 6,373 $ 2,405 $ 320 $ 332,466 $ 13,551 $ 361,146 Municipal lease finance 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 $ 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 $ 65,463 $ 59,596 $ 29,142 $ 22,452 $ 27,421 $ 66,002 $ 3 $ 432 $ 270,511 Consumer and other 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 $ 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) 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 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) 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, 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 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 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 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 9 0+ 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 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 (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 (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 Nine Months Ended 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 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 - - - - - Commercial and industrial: Interest rate reduction - - - - - Change in amortization period - - - - - SFR mortgage: Interest rate reduction - - - - - Change in amortization period - - - - - Total loans - $ - $ - $ - $ - For the Nine Months Ended September 30, 2021 Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded 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 - - - - - Commercial and industrial: Interest rate reduction - - - - - Change in amortization period 2 4,643 4,643 4,293 - SFR mortgage: Interest rate reduction - - - - - Change in amortization period - - - - - 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. |