Loans and Allowance for Credit Losses on Loans

6 Months Ended

Jun. 30, 2021

Loans and Allowance for Credit Losses on Loans

Loans and Allowance for Credit Losses on Loans

5) Loans and Allowance for Credit Losses on Loans

The allowance for credit losses on loans was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures. The loan portfolio is classified into eight segments of loans - commercial, commercial real estate – owner occupied, commercial real estate – non-owner occupied, land and construction, home equity, multifamily, residential mortgages and consumer and other.

The risk characteristics of each loan portfolio segment are as follows:

Commercial

Commercial loans primarily rely on the identified cash flows of the borrower for repayment and secondarily on the underlying collateral provided by the borrower. However, the cash flows of the borrowers may not be as expected and the collateral securing these loans may vary in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable, inventory or equipment and may incorporate a personal guarantee; however, some loans may be unsecured. Included in commercial loans are $286,461,000 of PPP loans at June 30, 2021 and $290,679,000 at December 31, 2020. No allowance for credit losses has been recorded for PPP loans as they are fully guaranteed by the SBA.

Commercial Real Estate (“CRE”)

CRE loans rely primarily on the cash flows of the properties securing the loan and secondarily on the value of the property that is securing the loan. CRE loans comprise two segments differentiated by owner occupied CRE and non-owner CRE. Owner occupied CRE loans are secured by commercial properties that are at least 50% occupied by the borrower or borrower affiliate. Non-owner occupied CRE loans are secured by commercial properties that are less than 50% occupied by the borrower or borrower affiliate. CRE loans may be adversely affected by conditions in the real estate markets or in the general economy.

Land and Construction

Land and construction loans are generally based on estimates of costs and value associated with the complete project. Construction loans usually involve the disbursement of funds with repayment substantially dependent on the success of the completion of the project. Sources of repayment for these loans may be permanent loans from HBC or other lenders, or proceeds from the sales of the completed project. These loans are monitored by on-site inspections and are considered to have higher risk than other real estate loans due to the final repayment dependent on numerous factors including general economic conditions.

Home Equity

Home equity loans are secured by 1-4 family residences that are generally owner occupied. Repayment of these loans depends primarily on the personal income of the borrower and secondarily by the value of the property securing the loan which can be impacted by changes in economic conditions such as the unemployment rate and property values.

Multifamily

Multifamily loans are loans on residential properties with five or more units. These loans rely primarily on the cash flows of the properties securing the loan for repayment and secondarily on the value of the properties securing the loan. The cash flows of these borrowers can fluctuate along with the values of the underlying property depending on general economic conditions.

Residential Mortgages

Residential mortgage loans are secured by 1-4 family residences which are generally owner-occupied. Repayment of these loans depends primarily on the personal income of the borrower and secondarily by the value of the property securing the loan which can be impacted by changes in economic conditions such as the unemployment rate and property values. During the second quarter of 2021, the Company purchased two single family residential mortgage loan portfolios totaling $140,030,000, all of which are domiciled in California, with an average principal balance of $585,000, and a weighted average yield of approximately 3.39% (excluding servicing costs, which are netted against interest income contributing to a lower overall average yield).

Consumer and Other

Consumer and other loans are secured by personal property or are unsecured and rely primarily on the income of the borrower for repayment and secondarily on the collateral value for secured loans. Borrower income and collateral value can vary dependent on economic conditions.

Loans by portfolio segment and the allowance for credit losses on loans were as follows for the periods indicated:

	June 30,		December 31,
	2021		2020
	(Dollars in thousands)
Loans held-for-investment:
Commercial	$	844,147	$	846,386
Real estate:
CRE - owner occupied		583,091		560,362
CRE - non-owner occupied		742,135		693,103
Land and construction		129,426		144,594
Home equity		107,873		111,885
Multifamily		198,771		166,425
Residential mortgages		205,904		85,116
Consumer and other		21,519		18,116
Loans		2,832,866		2,625,987
Deferred loan fees, net		(8,070)		(6,726)
Loans, net of deferred fees		2,824,796		2,619,261
Allowance for credit losses on loans		(43,956)		(44,400)
Loans, net	$	2,780,840	$	2,574,861

Changes in the allowance for credit losses on loans were as follows for the periods indicated:

	Three Months Ended June 30, 2021
			CRE		CRE
			Owner		Non-owner		Land &		Home		Multi-		Residential		Consumer
	Commercial		Occupied		Occupied		Construction		Equity		Family		Mortgage		and Other		Total
	(Dollars in thousands)
Beginning of period balance	$	11,600	$	8,368	$	16,431	$	2,754	$	1,171	$	2,751	$	918	$	303	$	44,296
Charge-offs		(105)		—		—		—		—		—		—		—		(105)
Recoveries		115		4		—		68		16		—		—		55		258
Net recoveries		10		4		—		68		16		—		—		55		153
Provision for (recapture of) credit losses on loans		(753)		(166)		54		(686)		(118)		199		1,050		(73)		(493)
End of period balance	$	10,857	$	8,206	$	16,485	$	2,136	$	1,069	$	2,950	$	1,968	$	285	$	43,956

	Three Months Ended June 30, 2020
			CRE		CRE
			Owner		Non-owner		Land &		Home		Multi-		Residential		Consumer
	Commercial		Occupied		Occupied		Construction		Equity		Family		Mortgage		and Other		Total
	(Dollars in thousands)
Beginning of period balance	$	12,801	$	7,737	$	15,645	$	2,603	$	1,746	$	1,622	$	708	$	1,841	$	44,703
Charge-offs		(465)		-		-		-		-		-		-		-		(465)
Recoveries		46		1		-		13		31		-		-		1		92
Net (charge-offs) recoveries		(419)		1		-		13		31		-		-		1		(373)
Provision for (recapture of) credit losses on loans		797		809		(196)		(64)		74		206		117		(629)		1,114
End of period balance	$	13,179	$	8,547	$	15,449	$	2,552	$	1,851	$	1,828	$	825	$	1,213	$	45,444

	Six Months Ended June 30, 2021
			CRE		CRE
			Owner		Non-owner		Land &		Home		Multi-		Residential		Consumer
	Commercial		Occupied		Occupied		Construction		Equity		Family		Mortgage		and Other		Total
	(Dollars in thousands)
Beginning of period balance	$	11,587	$	8,560	$	16,416	$	2,509	$	1,297	$	2,804	$	943	$	284	$	44,400
Charge-offs		(368)		—		—		—		—		—		—		—		(368)
Recoveries		928		8		—		884		39		—		—		70		1,929
Net recoveries		560		8		—		884		39		—		—		70		1,561
Provision for (recapture of) credit losses on loans		(1,290)		(362)		69		(1,257)		(267)		146		1,025		(69)		(2,005)
End of period balance	$	10,857	$	8,206	$	16,485	$	2,136	$	1,069	$	2,950	$	1,968	$	285	$	43,956

	Six Months Ended June 30, 2020
			Owner		Non-owner		Land &		Home		Multi-		Residential		Consumer
	Commercial		Occupied		Occupied		Construction		Equity		Family		Mortgage		and Other		Total
	(Dollars in thousands)
Beginning of period balance	$	10,453	$	3,825	$	3,760	$	2,621	$	2,244	$	57	$	243	$	82	$	23,285
Adoption of Topic 326		(3,663)		3,169		7,912		(1,163)		(923)		1,196		435		1,607		8,570
Balance at adoption on January 1, 2020		6,790		6,994		11,672		1,458		1,321		1,253		678		1,689		31,855
Charge-offs		(1,135)		—		—		—		—		—		—		(3)		(1,138)
Recoveries		255		1		—		32		54		—		—		1		343
Net (charge-offs) recoveries		(880)		1		—		32		54		—		—		(2)		(795)
Provision for (recapture of) credit losses on loans		7,269		1,552		3,777		1,062		476		575		147		(474)		14,384
End of period balance	$	13,179	$	8,547	$	15,449	$	2,552	$	1,851	$	1,828	$	825	$	1,213	$	45,444

Management’s methodology for estimating the allowance balance consists of several key elements, which include pooling loans with similar characteristics into segments and using a discounted cash flow calculation to estimate losses. The discounted cash flow model inputs include loan level cash flow estimates for each loan segment based on peer and bank historic loss correlations with certain economic factors. Management uses a four quarter forecast of each economic factor that is used for each loan segment and the economic factors are assumed to revert to the historic mean over an eight quarter period after the forecast period. The economic factors management has selected include the California unemployment rate, California gross domestic product, California home price index, and a national CRE value index. These factors are evaluated and updated occasionally and as economic conditions change. Additionally, management uses qualitative adjustments to the discounted cash flow quantitative loss estimates in certain cases when management has assessed an adjustment is necessary. These qualitative adjustments are applied by pooled loan segment and have been made for increased risk due to loan quality trends, collateral risk, or other risks management determines are not adequately captured in the discounted cash flow loss estimation. Specific allowances on individually evaluated loans are combined to the allowance on pools of loans with similar risk characteristics to derive to total allowance for credit losses on loans.

The decrease in the allowance for credit losses on loans and related recapture of provision for the six months ended June 30, 2021, was primarily attributed to a net decrease of ($56,000) in the reserve for pooled loans, driven by improvements in forecasted macroeconomic conditions offset by changes in the portfolio, and a ($388,000) decrease in specific reserves for individually evaluated loans compared to December 31, 2020. The decrease in the allowance for credit losses for pooled loans from December 31, 2020 is largely the result of improvements in the economic factors used in our methodology and reductions in qualitative adjustments for risks such as collateral values, concentrations of credit risk (geographic, large borrower, and industry), economic conditions, changes in underwriting standards, experience and depth of lending staff, trends in delinquencies, and the level of criticized loans to address asset-specific risks and current conditions that were not fully considered by the macroeconomic variables driving the quantitative estimate.

The following tables presents the amortized cost basis of nonperforming loans and loans past due over 90 days and still accruing for the periods indicated:

	June 30, 2021
						Restructured
	Nonaccrual		Nonaccrual			and Loans
	with no Specific		with Specific			over 90 Days
	Allowance for		Allowance for			Past Due
	Credit		Credit			and Still
	Losses		Losses			Accruing	Total
	(Dollars in thousands)
Commercial	$	415	$	1,378	$	164	$	1,957
Real estate:
CRE - Owner Occupied		1,774		—		—		1,774
CRE - Non-Owner Occupied		—		—		725		725
Home equity		168		—		—		168
Multifamily		1,149		—		—		1,149
Consumer and other		407		—		—		407
Total	$	3,913	$	1,378	$	889	$	6,180

	December 31, 2020
					Restructured
	Nonaccrual		Nonaccrual		and Loans
	with no Specific		with no Specific		over 90 Days
	Allowance for		Allowance for		Past Due
	Credit		Credit		and Still
	Losses		Losses		Accruing		Total
	(Dollars in thousands)
Commercial	$	752	$	1,974	$	81	$	2,807
Real estate:
CRE - Owner Occupied		3,706		—		—		3,706
Home equity		949		—		—		949
Consumer and other		407		—		—		407
Total	$	5,814	$	1,974	$	81	$	7,869

The following tables presents the aging of past due loans by class for the periods indicated:

	June 30, 2021
	30 - 59		60 - 89		90 Days or
	Days		Days		Greater		Total
	Past Due		Past Due		Past Due		Past Due		Current		Total
	(Dollars in thousands)
Commercial	$	4,467	$	1,187	$	261	$	5,915	$	838,232	$	844,147
Real estate:
CRE - Owner Occupied		1,172		9		1,143		2,324		580,767		583,091
CRE - Non-Owner Occupied		145		—		725		870		741,265		742,135
Land and construction		—		—		—		—		129,426		129,426
Home equity		—		—		—		—		107,873		107,873
Multifamily		—		—		—		—		198,771		198,771
Residential mortgages		—		—		—		—		205,904		205,904
Consumer and other		—		—		407		407		21,112		21,519
Total	$	5,784	$	1,196	$	2,536	$	9,516	$	2,823,350	$	2,832,866

	December 31, 2020
	30 - 59		60 - 89		90 Days or
	Days		Days		Greater		Total
	Past Due		Past Due		Past Due		Past Due		Current		Total
	(Dollars in thousands)
Commercial	$	3,524	$	259	$	392	$	4,175	$	842,211	$	846,386
Real estate:
CRE - Owner Occupied		1,133		—		29		1,162		559,200		560,362
CRE - Non-Owner Occupied		—		485		—		485		692,618		693,103
Land and construction		—		—		—		—		144,594		144,594
Home equity		—		—				—		111,885		111,885
Multifamily		—		—		—		—		166,425		166,425
Residential mortgages		—		—		—		—		85,116		85,116
Consumer and other		—		—		407		407		17,709		18,116
Total	$	4,657	$	744	$	828	$	6,229	$	2,619,758	$	2,625,987

Past due loans 30 days or greater totaled $9,516,000 and $6,229,000 at June 30, 2021 and December 31, 2020, respectively, of which $1,658,000 and $1,918,000 were on nonaccrual, at June 30, 2021 and December 31, 2020, respectively. At June 30, 2021, there were also $3,633,000 of loans less than 30 days past due included in nonaccrual loans held-for-investment. At December 31, 2020, there were also $5,870,000 loans less than 30 days past due included in nonaccrual loans held-for-investment. Management’s classification of a loan as “nonaccrual” is an indication that there is reasonable doubt as to the full recovery of principal or interest on the loan. At that point, the Company stops accruing interest income, and reverses any uncollected interest that had been accrued as income. The Company begins recognizing interest income only as cash interest payments are received and it has been determined the collection of all outstanding principal is not in doubt.

Credit Quality Indicators

Concentrations of credit risk arise when a number of customers are engaged in similar business activities, or activities in the same geographic region, or have similar features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions. The Company’s loan portfolio is concentrated in commercial (primarily manufacturing, wholesale, and service) and real estate lending, with the remaining balance in consumer loans. While no specific industry concentration is considered significant, the Company’s lending operations are located in the Company’s market areas that are dependent on the technology and real estate industries and their supporting companies. Thus, the Company’s borrowers could be adversely impacted by a downturn in these sectors of the economy which could reduce the demand for loans and adversely impact the borrowers’ ability to repay their loans.

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, credit documentation, public information, and current economic trends, and other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis. Nonclassified loans generally include those loans that are expected to be repaid in accordance with their contractual loan terms. Loans categorized as special mention have potential weaknesses that may, if not checked or corrected, weaken the credit or inadequately protect the Company’s position at some future date. These loans pose elevated risk, but their weaknesses do not yet justify a substandard classification. Classified loans are those loans that are assigned a substandard, substandard-nonaccrual, or doubtful risk rating using the following definitions:

Special Mention. A Special Mention asset has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in a deterioration of the repayment prospects for the asset or in the credit position at some future date. Special Mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

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 will 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.

Substandard-Nonaccrual. Loans classified as substandard-nonaccrual are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any, and it is probable that the Company will not receive payment of the full contractual principal and interest. 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. In addition, the Company no longer accrues interest on the loan because of the underlying weaknesses.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, 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. Loans classified as loss are considered uncollectable or of so little value that their continuance as assets is not warranted. This classification does not necessarily mean that a loan has no recovery or salvage value; but rather, there is much doubt about whether, how much, or when the recovery would occur. Loans classified as loss are immediately charged off against the allowance for credit losses on loans. Therefore, there is no balance to report as of June 30, 2021 and December 31, 2020.

Loans may be reviewed at any time throughout a loan’s duration. If new information is provided, a new risk assessment may be performed if warranted.

The following tables present term loans amortized cost by vintage and loan grade classification, and revolving loans amortized cost by loan grade classification at June 30, 2021 and December 31, 2020. The loan grade classifications are based on the Bank’s internal loan grading methodology. Loan grade categories for doubtful and loss rated loans are not included on the tables below as there are no loans with those grades at June 30, 2021 and December 31, 2020. The vintage year represents the period the loan was originated or in the case of renewed loans, the period last renewed.  The amortized balance is the loan balance less any purchase discounts, and plus any loan purchase premiums.  The loan categories are based on the loan segmentation in the Company's CECL reserve methodology based on loan purpose and type. 

														Revolving
														Loans
		Term Loans Amortized Cost Basis by Originated Period												Amortized
											2016 and			Cost
	6/30/2021		12/31/2020		12/31/2019		12/31/2018		12/31/2017		Prior			Basis		Total
	(Dollars in thousands)
Commercial:
Pass	$	302,753	$	163,815	$	19,144	$	15,904	$	9,543	$	8,699	$	307,122	$	826,980
Special Mention		323		733		-		1,082		447		270		978		3,833
Substandard		1,349		3,337		-		16		452		30		6,357		11,541
Substandard-Nonaccrual		30		1,143		-		-		-		106		514		1,793
Total		304,455		169,028		19,144		17,002		10,442		9,105		314,971		844,147
CRE - Owner Occupied:
Pass		78,046		154,477		74,843		66,269		37,006		135,709		24,038		570,388
Special Mention		531		2,648		680		1,495		770		1,089		-		7,213
Substandard				2,547		-		394		735		40		-		3,716
Substandard-Nonaccrual		-		1,774		-		-		-		-		-		1,774
Total		78,577		161,446		75,523		68,158		38,511		136,838		24,038		583,091
CRE - Non-Owner Occupied:
Pass		131,832		148,179		121,987		55,878		75,126		165,195		22,377		720,574
Special Mention		-		2,808		-		2,527		606		6,338		2,165		14,444
Substandard		-		5,240		-		1,392		-		485		-		7,117
Substandard-Nonaccrual		-		-		-		-		-		-		-		-
Total		131,832		156,227		121,987		59,797		75,732		172,018		24,542		742,135
Land and construction:
Pass		58,297		56,553		4,443		-		-		1,321		7,453		128,067
Special Mention		-		-		-		-		-		-		-		-
Substandard		1,359		-		-		-		-		-		-		1,359
Substandard-Nonaccrual		-		-		-		-		-		-		-		-
Total		59,656		56,553		4,443		-		-		1,321		7,453		129,426
Home equity:
Pass		-		-		-		61		-		-		104,746		104,807
Special Mention		-		-		-		-		-		-		1,932		1,932
Substandard		-		-		-		-		-		143		823		966
Substandard-Nonaccrual		-		107		-		-		-		-		61		168
Total		-		107		-		61		-		143		107,562		107,873
Multifamily:
Pass		42,576		32,568		37,612		16,321		21,215		35,092		915		186,299
Special Mention		-		-		-		-		-		10,444		-		10,444
Substandard		-		879		-		-		-		-		-		879
Substandard-Nonaccrual		1,149		-		-		-		-		-		-		1,149
Total		43,725		33,447		37,612		16,321		21,215		45,536		915		198,771
Residential mortgage:
Pass		137,195		18,204		9,379		3,157		5,129		30,567		960		204,591
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		1,313		-		1,313
Substandard-Nonaccrual		-		-		-		-		-		-		-		-
Total		137,195		18,204		9,379		3,157		5,129		31,880		960		205,904
Consumer and other:
Pass		-		6		409		1,456		17		1,051		17,953		20,892
Special Mention		-		-		-		-		-		-		-		-
Substandard		20		-		-		-		-		-		200		220
Substandard-Nonaccrual		-		-				407		-		-		-		407
Total		20		6		409		1,863		17		1,051		18,153		21,519
Total loans	$	755,460	$	595,018	$	268,497	$	166,359	$	151,046	$	397,892	$	498,594	$	2,832,866
Risk Grades:
Pass	$	750,699	$	573,802	$	267,817	$	159,046	$	148,036	$	377,634	$	485,564	$	2,762,598
Special Mention		854		6,189		680		5,104		1,823		18,141		5,075		37,866
Substandard		2,728		12,003		-		1,802		1,187		2,011		7,380		27,111
Substandard-Nonaccrual		1,179		3,024		-		407		-		106		575		5,291
Grand Total	$	755,460	$	595,018	$	268,497	$	166,359	$	151,046	$	397,892	$	498,594	$	2,832,866

														Revolving
														Loans
		Term Loans Amortized Cost Basis by Originated Period												Amortized
												2015 and		Cost
		2020		2019		2018		2017		2016		Prior		Basis		Total
	(Dollars in thousands)
Commercial:
Pass	$	431,369	$	33,350	$	21,154	$	13,840	$	7,341	$	8,292	$	296,286	$	811,632
Special Mention		15,720		716		1,301		953		713		170		1,937		21,510
Substandard		4,036		-		19		758		2,396		73		3,236		10,518
Substandard-Nonaccrual		2,106		56		36		-		115		26		387		2,726
Total		453,231		34,122		22,510		15,551		10,565		8,561		301,846		846,386
CRE - Owner Occupied:
Pass		168,224		73,064		68,068		51,705		50,716		109,350		15,964		537,091
Special Mention		3,151		2,568		4,128		783		-		2,569		-		13,199
Substandard		2,561		-		400		2,954		-		451		-		6,366
Substandard-Nonaccrual		3,678		-		-		-		-		28		-		3,706
Total		177,614		75,632		72,596		55,442		50,716		112,398		15,964		560,362
CRE - Non-Owner Occupied:
Pass		166,550		128,361		68,796		99,816		57,422		150,683		1,926		673,554
Special Mention		11,930		-		2,557		-		-		-		-		14,487
Substandard		3,166		-		1,411		-		485		-		-		5,062
Substandard-Nonaccrual		-		-		-		-		-		-		-		-
Total		181,646		128,361		72,764		99,816		57,907		150,683		1,926		693,103
Land and construction:
Pass		114,932		22,054		-		-		-		1,343		4,906		143,235
Special Mention		-		-		-		-		-		-		-		-
Substandard		1,359		-		-		-		-		-		-		1,359
Substandard-Nonaccrual		-		-		-		-		-		-		-		-
Total		116,291		22,054		-		-		-		1,343		4,906		144,594
Home equity:
Pass		266		-		74		-		-		-		109,848		110,188
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		143		605		748
Substandard-Nonaccrual		117		-		-		-		-		-		832		949
Total		383		-		74		-		-		143		111,285		111,885
Multifamily:
Pass		31,481		39,183		17,248		24,572		16,235		30,751		880		160,350
Special Mention		-		-		-		-		-		5,186		-		5,186
Substandard		889		-		-		-		-		-		-		889
Substandard-Nonaccrual		-		-		-		-		-		-		-		-
Total		32,370		39,183		17,248		24,572		16,235		35,937		880		166,425
Residential mortgage:
Pass		12,798		10,048		3,246		7,324		28,115		15,568		-		77,099
Special Mention		5,089		-		1,630		-				-		-		6,719
Substandard		-		-		-		-		-		1,298		-		1,298
Substandard-Nonaccrual		-		-		-		-		-		-		-		-
Total		17,887		10,048		4,876		7,324		28,115		16,866		-		85,116
Consumer and other:
Pass		10		522		1,486		20		116		987		14,568		17,709
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Substandard-Nonaccrual		-		-		407		-		-		-		-		407
Total		10		522		1,893		20		116		987		14,568		18,116
Total loans	$	979,432	$	309,922	$	191,961	$	202,725	$	163,654	$	326,918	$	451,375	$	2,625,987
Risk Grades:.
Pass	$	925,630	$	306,582	$	180,072	$	197,277	$	159,945	$	316,974	$	444,378	$	2,530,858
Special Mention		35,890		3,284		9,616		1,736		713		7,925		1,937		61,101
Substandard		12,011		-		1,830		3,712		2,881		1,965		3,841		26,240
Substandard-Nonaccrual		5,901		56		443		-		115		54		1,219		7,788
Grand Total	$	979,432	$	309,922	$	191,961	$	202,725	$	163,654	$	326,918	$	451,375	$	2,625,987

The following table presents the amortized cost basis of collateral-dependent loans by loan classification at June 30, 2021:

	Collateral Type
	Real
	Estate		Business
	Property		Assets		Unsecured			Total
	(Dollars in thousands)
Commercial	$	25	$	1,324	$	29	$	1,378
Total	$	25	$	1,324	$	29	$	1,378

The following table presents the amortized cost basis of collateral-dependent loans by loan classification at December 31, 2020:

	Collateral Type
	Real
	Estate		Business
	Property		Assets		Unsecured		Total
	(Dollars in thousands)
Commercial	$	29	$	1,815	$	130	$	1,974
Total	$	29	$	1,815	$	130	$	1,974

When management determines that foreclosures are probable, expected credit losses for collateral-dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. For loans for which foreclosure is not probable, but for which repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty, management has elected the practical expedient under ASC 326 to estimate expected credit losses based on the fair value of collateral, adjusted for selling costs as appropriate. The class of loan represents the primary collateral type associated with the loan. Significant quarter over quarter changes are reflective of changes in nonaccrual status and not necessarily associated with credit quality indicators like appraisal value.

The book balance of troubled debt restructurings at June 30, 2021 was $552,000, which included $448,000 of nonaccrual loans and $104,000 of accruing loans. The book balance of troubled debt restructurings at December 31, 2020 was $674,000, which included $468,000 of nonaccrual loans and $206,000 of accruing loans. Approximately $331,000 and $352,000 in specific reserves were established with respect to these loans as of June 30, 2021 and December 31, 2020, respectively.

The following table presents loans by class modified as troubled debt restructurings for the periods indicated:

	During the Six Months Ended
		June 30, 2021
				Pre-modification		Post-modification
		Number		Outstanding		Outstanding
		of		Recorded		Recorded
Troubled Debt Restructurings:		Contracts		Investment		Investment
	(Dollars in thousands)
Commercial		1	$	3	$	3
Total		1	$	3	$	3

	During the Six Months Ended
		June 30, 2020
				Pre-modification		Post-modification
		Number		Outstanding		Outstanding
		of		Recorded		Recorded
Troubled Debt Restructurings:		Contracts		Investment		Investment
	(Dollars in thousands)
Commercial		3	$	13	$	13
Total		3	$	13	$	13

There were no loans modified as trobled debt restructings during the three months ended June 30, 2021 and 2020.

There was one new loan with total recorded investment of $3,000 that was modified as a troubled debt restructuring during the six months ended June 30, 2021.

During the three and six months ended June 30, 2021, there were no new loans modified as troubled debt restructurings in which the amount of principal or accrued interest owed from the borrower was forgiven or which resulted in a charge-off or change in the allowance for credit losses on loans.

A loan is considered to be in payment default when it is 30 days contractually past due under the modified terms. There were no defaults on troubled debt restructurings, within twelve months following the modification, during the three months ended June 30, 2021 and 2020.

A loan that is a troubled debt restructuring on nonaccrual status may return to accruing status after a period of at least six months of consecutive payments in accordance with the modified terms.

On April 7, 2020, U.S. banking agencies issued the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus. The statement describes accounting for COVID-19-related loan modifications and clarifies the interaction between current accounting rules and the temporary relief provided by the CARES Act. Initially, the Bank made accommodations for payment deferrals for a number of customers with a window of up to 90 days, with the potential of an additional 90 days of payment deferral (180 days maximum) upon application. The Bank also waived all customary applicable fees. Of the loans for which deferrals were originally granted, nearly all have returned to regular payment status. At June 30, 2021, there were three remaining second deferments totaling $1,800,000, of which two loans were secured by real estate, and one loan was secured by business assets.