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Note 5 - Loans and Allowance for Loan Losses

9 Months Ended

Sep. 30, 2020

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

NOTE 5 - LOANS AND ALLOWANCE FOR LOAN LOSSES

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

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

	*Three Months Ended September 30,*
	*2020*												*2019*
*(dollars in thousands)*	*Real Estate*		*Commercial*			*Other*		*Unallocated*		*Total*			*Real Estate*		*Commercial*		*Other*		*Unallocated*		*Total*
Allowance for loan losses:
Beginning balance	$	18,985	$	3,813		$	22	$	—	$	22,820		$	14,582	$	3,976	$	3	$	—	$	18,561
Additions (reductions) to the allowance charged to expense		2,858		990			13		—		3,861			558		25		3		238		824
Charge-offs on loans		—		(48	)		—		—		(48	)		—		—		—		—		—
Recoveries on loans		—		1			—		—		1			—		1		—		—		1
Ending balance	$	21,843	$	4,756		$	35	$	—	$	26,634		$	15,140	$	4,002	$	6	$	238	$	19,386

	*Nine Months Ended September 30,*
	*2020*													*2019*
*(dollars in thousands)*	*Real Estate*		*Commercial*			*Other*		*Unallocated*			*Total*			*Real Estate*		*Commercial*			*Other*		*Unallocated*		*Total*
Allowance for loan losses:
Beginning of year	$	15,118	$	3,588		$	9	$	101		$	18,816		$	13,437	$	4,140		$	—	$	—	$	17,577
Additions (reductions) to the allowance charged to expense		6,725		2,165			26		(101	)		8,815			1,703		(216	)		6		238		1,731
Charge-offs on loans		—		(998	)		—		—			(998	)		—		110			—		—		110
Recoveries on loans		—		1			—		—			1			—		(32	)		—		—		(32	)
Ending balance	$	21,843	$	4,756		$	35	$	—		$	26,634		$	15,140	$	4,002		$	6	$	238	$	19,386

	*For the year end December 31, 2019*
*(dollars in thousands)*	*Real Estate*			*Commercial*			*Other*		*Unallocated*		*Total*
Allowance for loan losses:
Beginning of year	$	13,437		$	4,140		$	—	$	—	$	17,577
Additions (reductions) to the allowance charged to expense		1,847			433			9		101		2,390
Charge-offs on loans		(166	)		(1,093	)		—		—		(1,259	)
Recoveries on loans		—			108			—		—		108
Ending balance	$	15,118		$	3,588		$	9	$	101	$	18,816

The following table presents the recorded investment in loans and impairment method as of September 30, 2020, September 30, 2019, and December 31, 2019, by portfolio segment:

*(dollars in thousands)*
September 30, 2020	*Real Estate*		*Commercial*		*Other*		*Unallocated*		*Total*
Reserves:
Specific	$	—	$	436	$	—	$	—	$	436
General		21,843		4,320		35		—		26,198
Total allowance for loan losses	$	21,843	$	4,756	$	35	$	—	$	26,634
Loans evaluated for impairment:
Individually	$	6,119	$	11,842	$	15	$	—	$	17,976
Collectively		2,316,619		417,242		3,316		—		2,737,177
Total loans, net of deferred loan fees and unaccreted discount on acquired loans	$	2,322,738	$	429,084	$	3,331	$	—	$	2,755,153

September 30, 2019	Real Estate		Commercial		Other		Unallocated		Total
Reserves:
Specific	$	127	$	303	$	—	$	—	$	430
General		15,013		3,699		6		238		18,956
Total allowance for loan losses	$	15,140	$	4,002	$	6		238		19,386
Loans evaluated for impairment:
Individually	$	4,537	$	5,091	$	—	$	—	$	9,628
Collectively		1,773,616		342,365		536		—		2,116,517
Total loans, net of deferred loan fees and unaccreted discount on acquired loans	$	1,778,153	$	347,456	$	536	$	—	$	2,126,145

December 31, 2019	*Real Estate*		*Commercial*		*Other*		*Unallocated*		*Total*
Reserves:
Specific	$	—	$	—	$	—	$	—	$	—
General		15,118		3,588		9		101		18,816
Total allowance for loan losses	$	15,118	$	3,588	$	9	$	101	$	18,816
Loans evaluated for impairment:
Individually	$	3,795	$	9,423	$	—	$	—	$	13,218
Collectively		1,842,747		340,148		821		—		2,183,716
Total loans, net of deferred loan fees and unaccreted discount on acquired loans	$	1,846,542	$	349,571	$	821	$	—	$	2,196,934

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

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

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

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

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

The risk category of loans by class of loans was as follows at September 30, 2020 and December 31, 2019:

*(dollars in thousands)*			*Special*
September 30, 2020	*Pass*		*Mention*		*Substandard*		*Impaired*		*Total (1)*
Real estate:
Construction and land development	$	182,808	$	—	$	—	$	761	$	183,569
Commercial real estate		913,868		5,980		52,728		2,611		975,187
Single-family residential mortgages		1,158,935		2,083		217		2,747		1,163,982
Commercial:
Other		308,412		—		7,354		2,125		317,891
SBA		97,010		187		4,279		9,717		111,193
Other:		3,316		—		—		15		3,331
Total loans	$	2,664,349	$	8,250	$	64,578	$	17,976	$	2,755,153

*(dollars in thousands)*			*Special*
December 31, 2019	*Pass*		*Mention*		*Substandard*		*Impaired*		*Total(1)*
Real estate:
Construction and land development	$	95,756	$	—	$	—	$	264	$	96,020
Commercial real estate		767,603		5,353		18,115		2,197		793,268
Single-family residential mortgages		955,327		—		593		1,334		957,254
Commercial:
Other		265,178		4,078		5,330		—		274,586
SBA		61,496		189		3,877		9,423		74,985
Other:		821		—		—		—		821
Total loans	$	2,146,181	$	9,620	$	27,915	$	13,218	$	2,196,934

(1)

Loans, net of deferred fees

The following table presents the aging of the recorded investment in past-due loans at September 30, 2020 and December 31, 2019 by class of loans:

*(dollars in thousands)*	30-59		60-89		*90 Days*		*Total*		*Loans Not*		*Total*		*Non-Accrual*
September 30, 2020	*Days*		*Days*		*Or More*		*Past Due*		*Past Due*		*Loans*		*Loans (1)*
Real estate:
Construction and land development	$	—	$	400	$	361	$	761	$	182,808	$	183,569	$	761
Commercial real estate		7,578		11,791		1,168		20,537		954,650		975,187		1,168
Single-family residential mortgages		2,408		791		799		3,998		1,159,984		1,163,982		2,747
Commercial:
Other		—		—		882		882		317,009		317,891		1,622
SBA		—		37		9,680		9,717		101,476		111,193		9,680
Other:		12		—		15		27		3,304		3,331		15
	$	9,998	$	13,019	$	12,905	$	35,922	$	2,719,231	$	2,755,153	$	15,993

	30-59		60-89		*90 Days*		*Total*		*Loans Not*		*Total*		*Non-Accrual*
December 31, 2019	*Days*		*Days*		*Or More*		*Past Due*		*Past Due*		*Loans*		*Loans (1)*
Real estate:
Construction and land development	$	—	$	—	$	—	$	—	$	96,020	$	96,020	$	—
Commercial real estate		—		—		725		725		792,543		793,268		725
Single-family residential mortgages		1,454		1,560		450		3,464		953,790		957,254		1,334
Commercial:
Other		—		—		—		—		274,586		274,586		—
SBA		2,263		—		9,378		11,641		63,344		74,985		9,378
Other:		—		—		—		—		821		821		—
	$	3,717	$	1,560	$	10,553	$	15,830	$	2,181,104	$	2,196,934	$	11,437

(1)

Included in total loans.

The Company has no loans that are 90 days or more past due and still accruing at September 30, 2020 and December 31, 2019.

Information relating to individually impaired loans presented by class of loans was as follows at September 30, 2020 and December 31, 2019:

*(dollars in thousands)*	*Principal*		*Recorded*		*Related*
September 30, 2020	*Balance*		*Investment*		*Allowance*
With no related allowance recorded
Construction and land development	$	761	$	761	$	—
Commercial and industrial		1,764		1,713
Commercial real estate		2,611		2,611		—
Residential mortgage loans		2,846		2,747		—
Commercial – SBA		9,695		9,680		—
Other		15		15		—
With related allowance recorded
Commercial and industrial		430		412		430
Commercial - SBA		37		37		6
Total	$	18,159	$	17,976	$	436

*(dollars in thousands)*	*Principal*		*Recorded*		*Related*
December 31, 2019	*Balance*		*Investment*		*Allowance*
With no related allowance recorded
Construction and land development	$	264	$	264	$	—
Commercial real estate		2,198		2,197		—
Residential mortgage loans		1,349		1,334		—
Commercial – SBA		9,423		9,423		—
With related allowance recorded
Commercial – SBA		—		—		—
Total	$	13,234	$	13,218	$	—

The following table presents information on impaired loans and leases, disaggregated by loan segment, for the periods indicated:

	*Three Months Ended*								*Nine Months Ended*
	*September 30, 2020*				*September 30, 2019*				*September 30, 2020*				*September 30, 2019*
	*Average*		*Interest*		*Average*		*Interest*		*Average*		*Interest*		*Average*		*Interest*
*(dollars in thousands)*	*Balance*		*Income*		*Balance*		*Income*		*Balance*		*Income*		*Balance*		*Income*
With no related allowance recorded
Construction and land development	$	762	$	—	$	269	$	18	$	765	$	—	$	271	$	24
Commercial and industrial		1,782		7		—		—		1,819		24		—		—
Commercial real estate		2,679		25		2,552		152		2,689		77		2,560		169
Residential mortgage loans		2,916		—		906		3		2,755		—		907		25
Commercial – SBA		10,017		—		3,005		3		12,682		—		3,007		4
Other		15		—		—		—		15		—		—
With related allowance recorded
Commercial and industrial		433		—		—		—		482		—		—		—
Commercial real estate		—		—		894		—		—		—		895		—
Commercial – SBA		39		1		2,128		—		41		2		2,131		—
	$	18,643	$	33	$	9,754	$	176	$	21,248	$	103	$	9,771	$	222

No interest income on non-accrual loans was recognized on a cash basis for the three and nine months ended September 30, 2020 and 2019 and for the year ended December 31, 2019.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), signed into law on March 27, 2020, permits financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as troubled debt restructurings ("TDRs") and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the coronavirus emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. In addition, federal bank regulatory authorities have issued guidance to encourage financial institutions to make loan modifications for borrowers affected by COVID-19 and have assured financial institutions that they will neither receive supervisory criticism for such prudent loan modifications, nor be required by examiners to automatically categorize COVID-19-related loan modifications as TDRs. The Company is applying this guidance to qualifying loan modifications.

The Company identified six loans as TDRs at September 30, 2020 and four loans at December 31, 2019, respectively, with aggregate balances of $3.1 million and $1.8 million, respectively. Non-accrual TDRs were $1.1 million at September 30, 2020, and zero at December 31, 2019. There were no specific reserves allocated to the loans as of September 30, 2020 and December 31, 2019. There are no commitments to lend additional amounts at September 30, 2020 and December 31, 2019 to customers with outstanding loans that are classified as TDRs. There were two non-accrual loans that were modified as TDRs during the past twelve months that had payment defaults during the periods.

The following table presents loans by class modified as TDRs that occurred during the nine months ended September 30, 2020. There was one loan modified as a TDR during the three months ended September 30, 2020 and three loans modified as TDRs during the nine months ended September 30, 2020. There were no loans and one new TDRs during the three and nine months ended September 30, 2019, respectively. The modification of the terms generally included loans where a moratorium on loan payments was granted. Such moratoriums ranged from six months to nine months on the loans restructured in 2020 and 2019.

Pre-

Post-

Modification

(dollars in thousands)

Number of

Recorded

September 30, 2020

Loans

Investment

Commercial and industrial

1,719

Total

1,719