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Loans Held for Investment
 3 Months Ended
Mar. 31, 2020
Receivables [Abstract]  
Loans Held for Investment Loans Held for Investment
 
The following table presents the composition of the loan portfolio for the period indicated:
 
 
March 31,
 
December 31,
 
 
2020
 
2019
 
 
(Dollars in thousands)
Investor loans secured by real estate
 
 
 
 
Commercial real estate (“CRE”) non-owner-occupied
 
$
2,040,198

 
$
2,070,141

Multifamily
 
1,625,682

 
1,575,726

Construction and land
 
377,525

 
438,786

SBA secured by real estate (1)
 
61,665

 
68,431

Total investor loans secured by real estate
 
4,105,070

 
4,153,084

Business loans secured by real estate (2)
 
 
 
 
CRE owner-occupied
 
1,887,632

 
1,846,554

Franchise real estate secured
 
371,428

 
353,240

SBA secured by real estate (3)
 
83,640

 
88,381

Total business loans secured by real estate
 
2,342,700

 
2,288,175

Commercial loans (4)
 
 
 
 
Commercial and industrial
 
1,458,969

 
1,393,270

Franchise non-real estate secured
 
547,793

 
564,357

SBA non-real estate secured
 
16,265

 
17,426

Total commercial loans
 
2,023,027

 
1,975,053

Retail loans
 
 
 
 
Single family residential (5)
 
237,180

 
255,024

Consumer
 
46,892

 
50,975

Total retail loans
 
284,072

 
305,999

Gross loans held for investment (6)
 
8,754,869

 
8,722,311

Allowance for credit losses for loans held for investment (7)
 
(115,422
)
 
(35,698
)
Loans held for investment, net
 
$
8,639,447

 
$
8,686,613

 
 
 
 
 
Loans held for sale, at lower of cost or fair value
 
$
111

 
$
1,672

______________________________
(1) SBA loans that are collateralized by hotel/motel real property.
(2) Loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment.
(3) SBA loans that are collateralized by real property other than hotel/motel real property.
(4) Loans to businesses where the operating cash flow of the business is the primary source of repayment.
(5) Single family residential includes home equity lines of credit, as well as second trust deeds.
(6) Includes unaccreted fair value net purchase discounts of $35.9 million and $40.7 million as of March 31, 2020 and December 31, 2019, respectively.
(7) The ACL as of December 31, 2019 was the allowance for loan and lease losses (“ALLL”) accounted for under ASC 450 and ASC 310, which is reflective of probable incurred losses as of the balance sheet date. The ACL at March 31, 2020 is accounted for under ASC 326, which is reflective of estimated expected lifetime credit losses.

Loans Serviced for Others

The Company generally retains the servicing rights of the guaranteed portion of SBA loans sold, for which the Company records a servicing asset at fair value within its other assets category. At March 31, 2020 and December 31, 2019, the servicing asset totaled $7.3 million and $7.7 million, respectively, and was included in other assets in the Company’s consolidated balance sheets. Servicing rights are evaluated for impairment based upon the fair value of the rights as compared to the carrying amount. Impairment is recognized through a valuation allowance, to the extent the fair value is less than the carrying amount. At March 31, 2020 and December 31, 2019, the Company determined that no valuation allowance was necessary.
    
Loans serviced for others are not included in the accompanying consolidated statements of financial condition. The unpaid principal balance of loans and participations serviced for others were $614.7 million at March 31, 2020 and $633.8 million at December 31, 2019, including SBA participations serviced for others totaling $455.9 million at March 31, 2020 and $475.3 million at December 31, 2019.

Concentration of Credit Risk
 
As of March 31, 2020, the Company’s loan portfolio was primarily collateralized by various forms of real estate and business assets located predominately in California. The Company’s loan portfolio contains concentrations of credit in multifamily real estate, commercial non-owner-occupied real estate, commercial owner-occupied real estate loans and commercial and industrial business loans. The Bank maintains policies approved by the Bank’s Board of Directors (the “Bank Board”) that address these concentrations and diversifies its loan portfolio through loan originations, purchases and sales to meet approved concentration levels. While management believes that the collateral presently securing these loans is adequate, there can be no assurances that a significant deterioration in the California real estate market or economy would not expose the Company to significantly greater credit risk.

Under applicable laws and regulations, the Bank may not make secured loans to one borrower in excess of 25% of the Bank’s unimpaired capital plus surplus and likewise in excess of 15% of the Bank’s unimpaired capital plus surplus for unsecured loans. These loans-to-one borrower limitations result in a dollar limitation of $581.5 million for secured loans and $348.9 million for unsecured loans at March 31, 2020. In order to manage concentration risk, the Bank maintains a house lending limit well below these statutory maximums. At March 31, 2020, the Bank’s largest aggregate outstanding balance of loans to one borrower was $128.4 million comprised of $101.5 million and $26.9 million of secured CRE non-owner-occupied and unsecured C&I credit, respectively.
 
Credit Quality and Credit Risk Management
 
The Company’s credit quality and credit risk are controlled in two distinct areas. The first is the loan origination process, wherein the Bank underwrites credit quality and chooses which risks it is willing to accept. The Company maintains a comprehensive credit policy, which sets forth maximum tolerances for key elements of loan risk. The policy identifies and sets forth specific guidelines for analyzing each of the loan products the Company offers from both an individual and portfolio-wide basis. The credit policy is reviewed annually by the Bank Board. The Bank’s underwriters ensure key risk factors are analyzed with nearly all underwriting including a comprehensive global cash flow analysis of the prospective borrowers.
 
The second is in the ongoing oversight of the loan portfolio, where existing credit risk is measured and monitored, and where performance issues are dealt with in a timely and comprehensive fashion. Credit risk is managed within the loan portfolio by the Company’s portfolio managers based on a comprehensive credit and portfolio review policy. This policy requires a program of financial data collection and analysis, comprehensive loan reviews, property and/or business inspections and monitoring of portfolio concentrations and trends. The portfolio managers also monitor borrowing bases under asset-based lines of credit, loan covenants and other conditions associated with the Company’s business loans as a means to help identify potential credit risk. Individual loans, excluding the homogeneous loan portfolio, are reviewed at least every two years and in most cases, more often, including the assignment or confirmation of a risk grade.
 
Risk grades are based on a six-grade Pass scale, along with Special Mention, Substandard, Doubtful and Loss classifications, as such classifications are defined by the regulatory agencies. The assignment of risk grades allows the Company to, among other things, identify the risk associated with each credit in the portfolio, and to provide a basis for estimating credit losses inherent in the portfolio. Risk grades are reviewed regularly with the Company’s Credit and Portfolio Review Committee, and the portfolio management and risk grading process is
reviewed on an ongoing basis by an independent loan review function, as well as by regulatory agencies during scheduled examinations.
 
The following provides brief definitions for risk grades assigned to loans in the portfolio:
 
•
Pass classifications represent assets with a level of credit quality, in which no well-defined deficiency or weakness exists.
•
Special Mention assets do not currently expose the Bank to a sufficient risk to warrant classification in one of the adverse categories, but possess correctable deficiencies or potential weaknesses deserving management’s close attention.
•
Substandard assets are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. These assets are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. OREO acquired from foreclosure is also classified as Substandard.
•
Doubtful credits have all the weaknesses inherent in Substandard credits, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
•
Loss assets are those that are considered uncollectible and of such little value that their continuance as assets is not warranted. Amounts classified as loss are promptly charged off.

The Bank’s portfolio managers also manage loan performance risks, collections, workouts, bankruptcies and foreclosures. A special department, whose portfolio managers have professional expertise in these areas, typically handles or advises on these types of matters. Loan performance risks are mitigated by our portfolio managers acting promptly and assertively to address problem credits when they are identified. Collection efforts commence immediately upon non-payment, and the portfolio managers seek to promptly determine the appropriate steps to minimize the Company’s risk of loss. When foreclosure will maximize the Company’s recovery for a non-performing loan, the portfolio managers will take appropriate action to initiate the foreclosure process.
 
When a loan is graded as special mention, substandard or doubtful, the Company obtains an updated valuation of the underlying collateral. If, through the Company’s credit risk management process, it is determined the ultimate repayment of a loan will come from the foreclosure upon and ultimate sale of the underlying collateral, the loan is deemed collateral dependent and evaluated individually to determine an appropriate ACL for the loan. The ACL for such loans is measured as the amount by which the fair value of the underlying collateral, less estimated costs to sell, is less than the amortized cost of the loan. The Company typically continues to obtain or confirm updated valuations of underlying collateral for special mention and classified loans on an annual or biannual basis in order to have the most current indication of fair value of the underlying collateral securing the loan. Additionally, once a loan is identified as collateral dependent, due to the likelihood of foreclosure, and repayment of the loan is expected to come from the eventual sale of the underlying collateral, an analysis of the underlying collateral is performed at least quarterly. Changes in the estimated fair value of the collateral are reflected in the lifetime ACL for the loan. Balances deemed to be uncollectable are promptly charged-off.

The following table stratifies the loans held for investment portfolio by the Company’s internal risk grading, and by year of origination, as of March 31, 2020:
 
Term Loans by Vintage
 
 
 
 
 
 
 
2020
 
2019
 
2018
 
2017
 
2016
 
Prior
 
Revolving
 
Revolving Converted to Term During the Period
 
Total
March 31, 2020
(Dollars in thousands)
Investor loans secured by real estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CRE non-owner-occupied
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
$
104,083

 
$
382,006

 
$
381,751

 
$
302,979

 
$
207,185

 
$
644,656

 
$
11,085

 
$
—

 
$
2,033,745

Special mention
—

 
—

 
—

 
—

 
—

 
4,904

 
—

 
—

 
4,904

Substandard
—

 
—

 
318

 
—

 
—

 
672

 
559

 
—

 
1,549

Doubtful and loss
—

 
—

 
—

 
—

 
—

 
—

 
—

 

 
—

Multifamily
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
105,208

 
308,369

 
315,462

 
241,938

 
291,126

 
362,377

 
987

 
—

 
1,625,467

Special mention
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Substandard
—

 
—

 
—

 
—

 
—

 
215

 
—

 
—

 
215

Doubtful and loss
—

 
—

 
—

 
—

 
—

 
—

 
—

 

 
—

Construction and land
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
2,250

 
118,550

 
139,340

 
106,230

 
—

 
8,962

 
391

 
—

 
375,723

Special mention
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Substandard
—

 
—

 
—

 
1,802

 
—

 
$
—

 
—

 
—

 
1,802

Doubtful and loss
—

 
—

 
—

 
—

 
—

 
—

 
—

 

 
—

SBA secured by real estate (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
494

 
10,726

 
12,324

 
16,189

 
7,160

 
11,032

 
—

 
—

 
57,925

Special mention
—

 
—

 
—

 
699

 
—

 
271

 
—

 
—

 
970

Substandard
—

 
—

 
1,494

 
—

 
392

 
884

 
—

 
—

 
2,770

Doubtful and loss
—

 
—

 
—

 
—

 
—

 
—

 
—

 

 
—

Total investor loans secured by real estate
$
212,035

 
$
819,651

 
$
850,689

 
$
669,837

 
$
505,863

 
$
1,033,973

 
$
13,022

 
$
—

 
$
4,105,070

Business loans secured by real estate (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CRE owner-occupied
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
$
114,657

 
$
315,128

 
$
304,390

 
$
311,399

 
$
268,077

 
$
540,945

 
$
5,820

 
$
—

 
$
1,860,416

Special mention
—

 
—

 
—

 
8,251

 
—

 
6,875

 
—

 
—

 
15,126

Substandard
—

 
—

 
3,635

 
727

 
2,180

 
5,298

 
250

 
—

 
12,090

Doubtful and loss
—

 
—

 
—

 
—

 
—

 
—

 
—

 

 
—

Franchise real estate secured
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
19,326

 
87,574

 
76,587

 
109,203

 
31,652

 
46,184

 
—

 
—

 
370,526

Special mention
—

 
—

 
—

 
—

 
—

 
902

 
—

 
—

 
902

Substandard
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Doubtful and loss
—

 
—

 
—

 
—

 
—

 
—

 
—

 

 
—

SBA secured by real estate (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
2,109

 
7,723

 
14,253

 
17,388

 
11,027

 
25,896

 
364

 
—

 
78,760

Special mention
—

 
—

 
—

 
1,015

 
351

 
466

 
—

 
—

 
1,832

Substandard
—

 
—

 
—

 
1,033

 
413

 
1,602

 
—

 
—

 
3,048

Doubtful and loss
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total loans secured by business real estate
$
136,092

 
$
410,425

 
$
398,865

 
$
449,016

 
$
313,700

 
$
628,168

 
$
6,434

 
$
—

 
$
2,342,700

 
Term Loans by Vintage
 
 
 
 
 
 
 
2020
 
2019
 
2018
 
2017
 
2016
 
Prior
 
Revolving
 
Revolving Converted to Term During the Period
 
Total
March 31, 2020
(Dollars in thousands)
Commercial Loans (4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
$
31,625

 
$
125,432

 
$
102,018

 
$
103,546

 
$
37,006

 
$
115,500

 
$
899,341

 
$
1,574

 
$
1,416,042

Special mention
—

 
79

 
352

 
2,504

 
137

 
1,195

 
18,254

 
1,250

 
23,771

Substandard
—

 
524

 
2,769

 
467

 
1,915

 
2,443

 
11,038

 
—

 
19,156

Doubtful and loss
—

 
—

 
—

 
—

 
—

 
—

 
—

 

 
—

Franchise non-real estate secured
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
10,261

 
212,785

 
125,954

 
79,395

 
52,726

 
47,724

 
2,062

 
—

 
530,907

Special mention
—

 
—

 
—

 
3,914

 
—

 
2,861

 
—

 
—

 
6,775

Substandard
—

 
—

 
—

 
9,137

 
—

 
974

 
—

 
—

 
10,111

Doubtful and loss
—

 
—

 
—

 
—

 
—

 
—

 
—

 

 
—

SBA non-real estate secured
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
265

 
2,383

 
1,798

 
2,258

 
695

 
3,737

 
1,572

 
285

 
12,993

Special mention
—

 
—

 
—

 
—

 
293

 
173

 
—

 
—

 
466

Substandard
—

 
88

 
138

 
261

 
—

 
1,532

 
787

 
—

 
2,806

Doubtful and loss
—

 
—

 
—

 
—

 
—

 
—

 
—

 

 
—

Total commercial loans
$
42,151

 
$
341,291

 
$
233,029

 
$
201,482

 
$
92,772

 
$
176,139

 
$
933,054

 
$
3,109

 
$
2,023,027

Retail Loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Single family residential (5)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
$
3,466

 
$
11,064

 
$
17,759

 
$
16,931

 
$
38,556

 
$
108,224

 
$
39,981

 
—

 
$
235,981

Special mention
—

 
—

 
—

 
—

 
—

 
649

 
—

 
—

 
649

Substandard
—

 
—

 
—

 
—

 
—

 
192

 
358

 
—

 
550

Doubtful and loss
—

 
—

 
—

 
—

 
—

 
—

 
—

 

 
—

Consumer loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
89

 
214

 
874

 
38,045

 
29

 
3,311

 
4,282

 
—

 
46,844

Special mention
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Substandard
—

 
—

 
—

 
—

 
—

 
48

 
—

 
—

 
48

Doubtful and loss
—

 
—

 
—

 
—

 
—

 
—

 
—

 

 
—

Total retail loans
$
3,555

 
$
11,278

 
$
18,633

 
$
54,976

 
$
38,585

 
$
112,424

 
$
44,621

 
$
—

 
$
284,072

Totals gross loans
$
393,833

 
$
1,582,645

 
$
1,501,216

 
$
1,375,311

 
$
950,920

 
$
1,950,704

 
$
997,131

 
$
3,109

 
$
8,754,869

______________________________
(1) SBA loans that are collateralized by hotel/motel real property.
(2) Loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment.
(3) SBA loans that are collateralized by real property other than hotel/motel real property.
(4) Loans to businesses where the operating cash flow of the business is the primary source of repayment.
(5) Single family residential includes home equity lines of credit, as well as second trust deeds.
    











The following tables stratify the loan portfolio by the Company’s internal risk grading as of December 31, 2019:
 
 
Credit Risk Grades
 
 
Pass
 
Special
Mention
 
Substandard
 
Total Gross
Loans
December 31, 2019
 
(Dollars in thousands)
Investor loans secured by real estate
 
 

 
 

 
 

 
 

CRE non-owner-occupied
 
$
2,067,875

 
$
1,178

 
$
1,088

 
$
2,070,141

Multifamily
 
1,575,510

 
—

 
216

 
1,575,726

Construction and land
 
438,769

 
—

 
17

 
438,786

SBA secured by real estate (1)
 
65,835

 
973

 
1,623

 
68,431

Total investor loans secured by real estate
 
4,147,989

 
2,151

 
2,944

 
4,153,084

Business loans secured by real estate (2)
 
 
 
 
 
 
 
 
CRE owner-occupied
 
1,831,853

 
11,167

 
3,534

 
1,846,554

Franchise real estate secured
 
352,319

 
921

 
—

 
353,240

SBA secured by real estate (3)
 
83,106

 
1,842

 
3,433

 
88,381

Total business loans secured by real estate
 
2,267,278

 
13,930

 
6,967

 
2,288,175

Commercial loans (4)
 
 

 
 

 
 

 
 
Commercial and industrial
 
1,359,662

 
13,226

 
20,382

 
1,393,270

Franchise non-real estate secured
 
546,594

 
6,930

 
10,833

 
564,357

SBA not secured by real estate
 
13,933

 
485

 
3,008

 
17,426

Total commercial loans
 
1,920,189

 
20,641

 
34,223

 
1,975,053

Retail loans
 
 
 
 
 
 
 
 
Single family residential (5)
 
254,463

 
—

 
561

 
255,024

Consumer loans
 
50,921

 
—

 
54

 
50,975

Total retail loans
 
305,384

 
—

 
615

 
305,999

Total gross loans
 
$
8,640,840

 
$
36,722

 
$
44,749

 
$
8,722,311

______________________________
(1) SBA loans that are collateralized by hotel/motel real property.
(2) Loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment.
(3) SBA loans that are collateralized by real property other than hotel/motel real property.
(4) Loans to businesses where the operating cash flow of the business is the primary source of repayment.
(5) Single family residential includes home equity lines of credit, as well as second trust deeds.
The following tables stratify loans held by investment by delinquencies in the Company’s loan portfolio at the dates indicated:
 
 
 
Days Past Due
 
 
 
Current
 
30-59
 
60-89
 
90+
 
Total
March 31, 2020
(Dollars in thousands)
Investor loans secured by real estate
 
 
 
 
 
 
 
 
 
CRE non-owner-occupied
$
2,037,130

 
$
2,191

 
$
—

 
$
877

 
$
2,040,198

Multifamily
1,625,682

 
—

 
—

 
—

 
1,625,682

Construction and land
375,723

 
—

 
—

 
1,802

 
377,525

SBA secured by real estate (1)
58,978

 
1,147

 
1,148

 
392

 
61,665

Total investor loans secured by real estate
4,097,513

 
3,338

 
1,148

 
3,071

 
4,105,070

Business loans secured by real estate (2)
 
 
 
 
 
 
 
 
 
CRE owner-occupied
1,883,996

 
3,636

 
—

 
—

 
1,887,632

Franchise real estate secured
371,428

 
—

 
—

 
—

 
371,428

SBA secured by real estate (3)
82,608

 
—

 
—

 
1,032

 
83,640

Total business loans secured by real estate
2,338,032

 
3,636

 
—

 
1,032

 
2,342,700

Commercial loans (4)
 
 
 
 
 
 
 
 
 
Commercial and industrial
1,452,405

 
1,249

 
354

 
4,961

 
1,458,969

Franchise non-real estate secured
538,651

 
—

 
—

 
9,142

 
547,793

SBA not secured by real estate
15,325

 
62

 
—

 
878

 
16,265

Total commercial loans
2,006,381

 
1,311

 
354

 
14,981

 
2,023,027

Retail loans
 
 
 
 
 
 
 
 
 
Single family residential (5)
237,180

 
—

 
—

 
—

 
237,180

Consumer loans
46,892

 
—

 
—

 
—

 
46,892

Total retail loans
284,072

 
—

 
—

 
—

 
284,072

Totals
$
8,725,998

 
$
8,285

 
$
1,502

 
$
19,084

 
$
8,754,869

______________________________
(1) SBA loans that are collateralized by hotel/motel real property.
(2) Loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment.
(3) SBA loans that are collateralized by real property other than hotel/motel real property.
(4) Loans to businesses where the operating cash flow of the business is the primary source of repayment.
(5) Single family residential includes home equity lines of credit, as well as second trust deeds.


 
 
 

 
Days Past Due
 
 

 
 
Current
 
30-59
 
60-89
 
90+
 
Total Gross Loans
December 31, 2019
 
(Dollars in thousands)
Investor loans secured by real estate
 
 
 
 
 
 
 
 
 
 
CRE non-owner-occupied
 
$
2,067,874

 
$
1,179

 
$
—

 
$
1,088

 
$
2,070,141

Multifamily
 
1,575,726

 
—

 
—

 
—

 
1,575,726

Construction and land
 
438,786

 
—

 
—

 
—

 
438,786

SBA secured by real estate (1)
 
68,041

 
—

 
—

 
390

 
68,431

Total investor loans secured by real estate
 
4,150,427

 
1,179

 
—

 
1,478

 
4,153,084

Business loans secured by real estate (2)
 
 
 
 
 
 
 
 
 
 
CRE owner-occupied
 
1,846,223

 
331

 
—

 
—

 
1,846,554

Franchise real estate secured
 
353,240

 
—

 
—

 
—

 
353,240

SBA secured by real estate (3)
 
86,946

 
—

 
589

 
846

 
88,381

Total business loans secured by real estate
 
2,286,409

 
331

 
589

 
846

 
2,288,175

Commercial loans (4)
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
1,389,026

 
422

 
826

 
2,996

 
1,393,270

Franchise non-real estate secured
 
555,215

 
—

 
9,142

 
—

 
564,357

SBA not secured by real estate
 
16,141

 
167

 
—

 
1,118

 
17,426

Total commercial loans
 
1,960,382

 
589

 
9,968

 
4,114

 
1,975,053

Retail loans
 
 
 
 
 
 
 
 
 
 
Single family residential (5)
 
255,024

 
—

 
—

 
—

 
255,024

Consumer loans
 
50,967

 
5

 
2

 
1

 
50,975

Total retail loans
 
305,991

 
5

 
2

 
1

 
305,999

Totals loans
 
$
8,703,209

 
$
2,104

 
$
10,559

 
$
6,439

 
$
8,722,311

______________________________
(1) SBA loans that are collateralized by hotel/motel real property.
(2) Loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment.
(3) SBA loans that are collateralized by real property other than hotel/motel real property.
(4) Loans to businesses where the operating cash flow of the business is the primary source of repayment.
(5) Single family residential includes home equity lines of credit, as well as second trust deeds.

Individually Evaluated Loans

Beginning on January 1, 2020, the Company evaluates loans collectively for purposes of determining the ACL in accordance with ASC 326. Collective evaluation is based on aggregating loans deemed to possess similar risk characteristics. In certain instances the Company may identify loans that it believes no longer possess risk characteristics similar to other loans in the portfolio. These loans are typically identified from a substandard or worse internal risk grade, since the specific attributes and risks associated with such loans tend to become unique as the credit deteriorates. Such loans are typically nonperforming, modified through a TDR and/or are deemed collateral dependent, where the ultimate repayment of the loan is expected to come from the operation of or eventual sale of the collateral. Loans that are deemed by management to no longer possess risk characteristics similar to other loans in the portfolio are evaluated individually for purposes of determining an appropriate lifetime ACL. The Company uses a discounted cash flow approach, using the loan’s effective interest rate, for determining the ACL on individually evaluated loans, unless the loan is deemed collateral dependent, which requires evaluation based on the estimated fair value of the underlying collateral, less estimated costs to sell. The Company may increase or decrease the ACL for collateral dependent individually evaluated loans based on changes in the estimated fair value of the collateral. Changes in the ACL for all other individually evaluated loans is based substantially on the Company’s evaluation of cash flows expected to be received from such loans.

As of March 31, 2020, $22.3 million of loans were individually evaluated, and the ACL attributable to such loans was $1.9 million. At March 31, 2020, $16.3 million of individually evaluated loans were evaluated using a discounted cash flow approach and $6.0 million of individually evaluated loans were evaluated based on the underlying value of the collateral.

The Company had individually evaluated loans on nonaccrual status of $20.6 million at March 31, 2020.

Impaired Loans

Prior to the adoption of ASC 326 on January 1, 2020, the Company classified loans as impaired when, based on current information and events, it was probable that the Company would be unable to collect all amounts due according to the contractual terms of the loan agreement or it was determined that the likelihood of the Company receiving all scheduled payments, including interest, when due was remote. Credit losses on impaired loans were determined separately based on the guidance in ASC 310. Beginning January 1, 2020, the Company accounts for credit losses on all loans in accordance with ASC 326, which eliminates the concept of an impaired loan within the context of determining credit losses, and requires all loans to be evaluated for credit losses collectively. Loans are only evaluated individually when they are deemed to no longer possess similar risk characteristics with other loans within the portfolio.
 
Prior to the adoption of ASC 326, the Company reviewed loans for impairment when the loan was classified as substandard or worse, delinquent 90 days, determined by management to be collateral dependent, when the borrower files bankruptcy or is granted a loan modification in a TDR. Measurement of impairment was based on the loan’s expected future cash flows discounted at the loan’s effective interest rate, measured by reference to an observable market value, if one existed, or the fair value of the collateral if the loan was deemed collateral dependent. Valuation allowances were determined on a loan-by-loan basis or by aggregating loans with similar risk characteristics. Charge-offs were recorded when amounts were no longer deemed collectable.

The following tables provide a summary of the Company’s investment in impaired loans as of the period indicated:
 
 
Impaired Loans
 
 
Unpaid Principal Balance
 
Recorded Investment
 
With Specific Allowance
 
Without Specific Allowance
 
Specific Allowance for Impaired Loans
 
 
(Dollars in thousands)
December 31, 2019
 
 

 
 

 
 

 
 

 
 

Investor loans secured by real estate
 
 
 
 
 
 
 
 
 
 
CRE non-owner-occupied
 
$
1,184

 
$
1,088

 
$
—

 
$
1,088

 
$
—

Multifamily
 
—

 
—

 
—

 
—

 
—

Construction and land
 
—

 
—

 
—

 
—

 
—

SBA secured by real estate (1)
 
772

 
390

 
—

 
390

 
—

Business loans secured by real estate (2)
 
 
 
 
 
 
 
 
 
 
CRE owner-occupied
 
—

 
—

 
—

 
—

 
—

Franchise real estate secured
 
—

 
—

 
—

 
—

 
—

SBA secured by real estate (3)
 
1,743

 
1,517

 
—

 
1,517

 
—

Commercial loans (4)
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
7,755

 
7,529

 
—

 
7,529

 
—

Franchise non-real estate secured
 
10,835

 
10,834

 
—

 
10,834

 
—

SBA non-real estate secured
 
1,555

 
1,118

 
—

 
1,118

 
—

Retail loans
 
 
 
 
 
 
 
 
 
 
Single family residential (5)
 
412

 
366

 
—

 
366

 
—

Consumer loans
 
—

 
—

 
—

 
—

 
—

Totals
 
$
24,256

 
$
22,842

 
$
—

 
$
22,842

 
$
—

  
______________________________
(1) SBA loans that are collateralized by hotel/motel real property.
(2) Loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment.
(3) SBA loans that are collateralized by real property other than hotel/motel real property.
(4) Loans to businesses where the operating cash flow of the business is the primary source of repayment.
(5) Single family residential includes home equity lines of credit, as well as second trust deeds.

The following table presents information on impaired loans and leases, disaggregated by loan segment, for the periods indicated:
 
 
Impaired Loans
 
 
Three Months Ended
 
 
December 31, 2019
 
March 31, 2019
 
 
Average Recorded Investment
 
Interest Income Recognized (6)
 
Average Recorded Investment
 
Interest Income Recognized (6)
 
 
(Dollars in thousands)
Investor loans secured by real estate
 
 
 
 
 
 
 
 
CRE non-owner-occupied
 
$
1,061

 
$
—

 
$
—

 
$
—

Multifamily
 
—

 
—

 
—

 
—

Construction and land
 
—

 
—

 
—

 
—

SBA secured by real estate (1)
 
422

 
—

 
1,889

 
—

Business loans secured by real estate (2)
 
 
 
 
 
 
 
 
CRE owner-occupied
 
749

 
—

 
576

 
—

Franchise real estate secured
 
—

 
—

 
3,787

 
—

SBA secured by real estate (3)
 
1,409

 
16

 
280

 
—

Commercial loans (4)
 
 
 
 
 
 
 
 
Commercial and industrial
 
11,227

 
82

 
9,503

 
89

Franchise non-real estate secured
 
3,615

 
151

 
189

 
—

SBA non-real estate secured
 
1,247

 
—

 
1,110

 
—

Retail loans
 
 
 
 
 
 
 
 
Single family residential (5)
 
367

 
—

 
395

 
—

Consumer loans
 
—

 
—

 
57

 
—

Totals
 
$
20,097

 
$
249

 
$
17,786

 
$
89

______________________________
(1) SBA loans that are collateralized by hotel/motel real property.
(2) Loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment.
(3) SBA loans that are collateralized by real property other than hotel/motel real property.
(4) Loans to businesses where the operating cash flow of the business is the primary source of repayment.
(5) Single family residential includes home equity lines of credit, as well as second trust deeds.
(6) Interest income recognized represents interest on accruing loans.
    
The Company had impaired loans on nonaccrual status of $8.5 million at December 31, 2019. The Company had no loans 90 days or more past due and still accruing at December 31, 2019.

Troubled Debt Restructurings

We sometimes modify or restructure loans when the borrower is experiencing financial difficulties by making a concession to the borrower in the form of changes in the amortization terms, reductions in the interest rates, the acceptance of interest only payments and, in limited cases, concessions to the outstanding loan balances. These loans are classified as TDR. TDRs are loans modified for the purpose of alleviating temporary impairments to the borrower’s financial condition or cash flows. A workout plan between us and the borrower is designed to provide a bridge for borrower cash flow shortfalls in the near term. A TDR loan may be returned to accrual status when the loan is brought current, has performed in accordance with the contractual restructured terms for a time frame of at least six months, and the ultimate collectability of the total contractual restructured principal and interest in no longer in doubt. At March 31, 2020 and December 31, 2019, the amortized cost of TDRs totaled $2.3 million and $3.0 million, respectively. TDRs consisted of two loans at March 31, 2020, the same loans reported as TDRs at December 31, 2019. Modifications consisted of terms being modified to extend the maturity date for 24 months or less. One of these TDRs became nonaccrual at March 31, 2020 but both loans were current and on accrual status as of December 31, 2019. The modification of these loans did not have an impact on their amortized cost.
 
Purchased Credit Deteriorated and Purchased Credit Impaired Loans
 
Prior to the adoption of ASC 326, the Company accounted for purchased credit impaired loans (“PCI loans”) and income recognition thereof in accordance with ASC Subtopic 310-30 Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality. PCI loans are loans that as of the date of their acquisition have experienced deterioration in credit quality between origination and acquisition and for which it was probable, at acquisition, that not all contractually required payments would be collected. Following the adoption of ASC 326 on January 1, 2020, the Company analyzes acquired loans for more-than-insignificant deterioration in credit quality since their origination. Such loans are classified as purchased credit deteriorated loans. Please also see Note 3 - Significant Accounting Policies, of these financial statements for more information concerning the accounting for PCD loans. As of March 31, 2020 there were no PCD loans. As of December 31, 2019, there were $1.2 million of PCI loans, of which none were placed on nonaccrual status.

Prior to the adoption of ASC 326, the Company measured the amount by which the undiscounted expected cash future flows on PCI loans exceed the estimated fair value of the loan on the date of acquisition as the “accretable yield,” representing the amount of estimated future interest income on the loan. The amount of accretable yield was re-measured at each financial reporting date, representing the difference between the remaining undiscounted expected cash flows and the current carrying value of the PCI loan. Following the adoption of ASC 326, the Company accounts for interest income on PCD loans using the interest method, whereby any purchase discounts are accreted into interest income as an adjustment of the loan’s yield. An accretable yield is not determined for PCD loans.

Nonaccrual Loans

When loans are placed on nonaccrual status, previously accrued but unpaid interest is promptly reversed from earnings. Payments received on nonaccrual loans are generally applied as a reduction to the loan principal balance. If the likelihood of further loss is remote, the Company will recognize interest on a cash basis only. Loans may be returned to accruing status if the Company believes that all remaining principal and interest is fully collectible and there has been at least three months of sustained repayment performance since the loan was placed on nonaccrual.

The Company typically does not accrue interest on loans 90 days or more past due or when, in the opinion of management, there is reasonable doubt as to the timely collection of principal or interest. However, when such loans are well secured and in the process of collection, the Company may continue with the accrual of interest. The Company had no loans 90 days or more past due and still accruing at March 31, 2020 and December 31, 2019. Nonaccrual loans totaled $20.6 million at March 31, 2020 and $8.5 million as of December 31, 2019.

The following tables provide a summary of nonaccrual loans as of the date indicated:
 
Nonaccrual Loans (1)
 
Collateral Dependent Loans
 
ACL
 
Non-Collateral Dependent Loans
 
ACL
 
Total Nonaccrual Loans (2)
 
Nonaccrual Loans With No ACL
March 31, 2020
(Dollars in thousands)
Investor loans secured by real estate
 
 
 
 
 
 
 
 
 
 
 
CRE non-owner-occupied
$
318

 
$
—

 
$
559

 
$
—

 
$
877

 
$
877

Multifamily
—

 
—

 
—

 
—

 
—

 
—

Construction and land
1,802

 
—

 
—

 
—

 
1,802

 
1,802

SBA secured by real estate (3)
392

 
—

 
—

 
—

 
392

 
392

Total investor loans secured by real estate
2,512

 
—

 
559

 
—

 
3,071

 
3,071

Business loans secured by real estate (4)
 
 
 
 
 
 
 
 
 
 
 
CRE owner-occupied
—

 
—

 
322

 
27

 
322

 
—

Franchise real estate secured
—

 
—

 
—

 
—

 
—

 
—

SBA secured by real estate (5)
1,033

 
—

 
79

 
13

 
1,112

 
1,033

Total business loans secured by real estate
1,033

 
—

 
401

 
40

 
1,434

 
1,033

Commercial loans (6)
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
1,063

 
—

 
4,613

 
215

 
5,676

 
1,063

Franchise non-real estate secured
—

 
—

 
9,142

 
1,475

 
9,142

 
—

SBA non-real estate secured
878

 
—

 
51

 
6

 
929

 
877

Total commercial loans
1,941

 
—

 
13,806

 
1,696

 
15,747

 
1,940

Retail loans
 
 
 
 
 
 
 
 
 
 
 
Single family residential (7)
—

 
—

 
358

 
3

 
358

 
—

Consumer loans
—

 
—

 
—

 
—

 
—

 
—

Total retail loans
—

 
—

 
358

 
3

 
358

 
—

Totals nonaccrual loans
$
5,486

 
$
—

 
$
15,124

 
$
1,739

 
$
20,610

 
$
6,044

______________________________
(1) The ACL for nonaccrual loans is determined based on a discounted cash flow methodology unless the loan is considered collateral dependent. The ACL for collateral dependent loans is determined based on the estimated fair value of the underlying collateral.
(2) No interest income was recognized on nonaccrual loans during the quarter ended March 31, 2020.
(3) SBA loans that are collateralized by hotel/motel real property.
(4) Loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment.
(5) SBA loans that are collateralized by real property other than hotel/motel real property.
(6) Loans to businesses where the operating cash flow of the business is the primary source of repayment.
(7) Single family residential includes home equity lines of credit, as well as second trust deeds.


Residential Real Estate Loans In Process of Foreclosure

The Company had no consumer mortgage loans collateralized by residential real estate property for which formal foreclosure proceedings were in process as of March 31, 2020 or December 31, 2019.
 
Collateral Dependent Loans

Loans that have been classified as collateral dependent are loans where the ultimate repayment of the loan is expected to come from the operation of or eventual liquidation of the collateral. Collateral dependent loans are evaluated individually for purposes of determining the ACL for each loan. The ACL is determined based on the estimated fair value of the collateral, less estimated costs to sell. In cases where the loan is well secured and the estimated value of the collateral exceeds the amortized cost of the loan, no ACL is recorded.

The following table summarizes collateral dependent loans by collateral type as of March 31, 2020:
 
March 31, 2020
 
Office Properties
 
Industrial Properties
 
Retail Properties
 
Hotel Properties
 
Multifamily Properties
 
Various Business Assets
 
Total
 
(Dollars in thousands)
Investor loan secured by real estate
 
 
 
 
 
 
 
 
 
 
 
 
 
CRE non-owner-occupied
$
—

 
$
—

 
$
—

 
$
318

 
$
—

 
$
—

 
$
318

Multifamily
—

 
—

 
—

 
—

 
—

 
—

 
—

Construction and land
—

 
—

 
—

 
—

 
1,802

 
—

 
1,802

SBA secured by real estate (1)
—

 
—

 
—

 
392

 
—

 
—

 
392

Total investor loans secured by real estate
—

 
—

 
—

 
710

 
1,802

 
—

 
2,512

Business loans secured by real estate (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
CRE owner-occupied
—

 
—

 
—

 
—

 
—

 
—

 
—

Franchise real estate secured
—

 
—

 
—

 
—

 
—

 
—

 
—

SBA secured by real estate (3)
277

 
756

 
—

 
—

 
—

 
—

 
1,033

Total business loans secured by real estate
277

 
756

 
—

 
—

 
—

 
—

 
1,033

Commercial loans (4)
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
313

 
—

 
—

 
—

 
—

 
1,295

 
1,608

Franchise non-real estate secured
—

 
—

 
—

 
—

 
—

 
—

 
—

SBA non-real estate secured
—

 
—

 
—

 
—

 
—

 
877

 
877

Total commercial loans
313

 
—

 
—

 
—

 
—

 
2,172

 
2,485

Retail loans
 
 
 
 
 
 
 
 
 
 
 
 
 
Single family residential (5)
—

 
—

 
—

 
—

 
—

 
—

 
—

Consumer loans
—

 
—

 
—

 
—

 
—

 
—

 
—

Total retail loans
—

 
—

 
—

 
—

 
—

 
—

 
—

Totals collateral dependent loans
$
590

 
$
756

 
$
—

 
$
710

 
$
1,802

 
$
2,172

 
$
6,030

______________________________
(1) SBA loans that are collateralized by hotel/motel real property.
(2) Loans to businesses that are collateralized by real estate where the operating cash flow of the business is the primary source of repayment.
(3) SBA loans that are collateralized by real property other than hotel/motel real property.
(4) Loans to businesses where the operating cash flow of the business is the primary source of repayment.
(5) Single family residential includes home equity lines of credit, as well as second trust deeds.