NOTE 5 - LOANS AND ALLOWANCE FOR LOAN LOSSES

The Company's loan portfolio consists primarily of loans to borrowers within Los Angeles, Ventura and Orange County, California 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,
	2018											2017
(dollars in thousands)	Real Estate		Commercial			Unallocated			Total			Real Estate		Commercial			Unallocated			Total
Beginning balance	$	10,492	$	4,100		$	65		$	14,657		$	6,433	$	3,384		$	810		$	10,627
Additions (reductions) to the allowance charged to expense		1,633		127			(65	)		1,695			1,239		(115	)		(424	)		700
Recoveries on loans charged-off		—		—			—			—			—		93			—			93
Less loans charged-off		—		(174	)		—			(174	)		—		—			—			—
Ending balance	$	12,125	$	4,053		$	—		$	16,178		$	7,672	$	3,362		$	386		$	11,420

	Nine months ended September 30,
	2018											2017
(dollars in thousands)	Real Estate		Commercial			Unallocated			Total			Real Estate			Commercial			Unallocated		Total
Beginning balance	$	9,309	$	4,044		$	420		$	13,773		$	8,111		$	6,051		$	—	$	14,162
Additions (reductions) to the allowance charged to expense		2,816		183			(420	)		2,579			(439	)		(3,435	)		386		(3,488	)
Recoveries on loans charged-off		—		—			—			—			—			746			—		746
Less loans charged-off		—		(174	)		—			(174	)		—			—			—		—
Ending balance	$	12,125	$	4,053		$	—		$	16,178		$	7,672		$	3,362		$	386	$	11,420

	For the year end December 31,
	2017
(dollars in thousands)	Real Estate		Commercial			Unallocated		Total
Beginning balance	$	8,111	$	6,051		$	—	$	14,162
Additions (reductions) to the allowance charged to expense		1,198		(2,671	)		420		(1,053	)
Recoveries on loans charged-off		—		747			—		747
Less loans charged-off		—		(83	)		—		(83	)
Ending balance	$	9,309	$	4,044		$	420	$	13,773

The following table presents the recorded investment in loans and impairment method as of and for the nine months ended September 30, 2018 and September 30, 2017, and the activity in the allowance for loan losses for the year ended December 31, 2017, by portfolio segment:

(dollars in thousands)
As of and for the nine months ended September 30, 2018	Real Estate		Commercial		Unallocated		Total
Reserves:
Specific	$	43	$	—	$	—	$	43
General		12,082		4,053		—		16,135
Total allowance for loan losses	$	12,125	$	4,053	$	—	$	16,178
Loans evaluated for impairment:
Individually	$	4,080	$	2,506	$	—	$	6,586
Collectively		989,915		384,717		—		1,374,632
Total loans, net of deferred loan fees	$	993,995	$	387,223	$	—	$	1,381,218

As of and for the nine months ended September 30, 2017	Real Estate		Commercial		Unallocated		Total
Reserves:
Specific	$	—	$	—	$	—	$	—
General		7,672		3,362		386		11,420
Loans acquired with deteriorated credit quality		—		—		—		—
Total allowance for loan losses	$	7,672	$	3,362	$	386	$	11,420
Loans evaluated for impairment:
Individually	$	2,580	$	1,370	$	—	$	3,950
Collectively		819,654		372,602		—		1,192,256
Loans acquired with deteriorated credit quality		316		—		—		316
Total loans, net of deferred loan fees	$	822,550	$	373,972	$	—	$	1,196,522

As of and for the year ended December 31, 2017	Real Estate		Commercial		Unallocated		Total
Reserves:
Specific	$	—	$	—	$	—	$	—
General		9,309		4,044		420		13,773
Loans acquired with deteriorated credit quality		—		—		—		—
Total allowance for loan losses	$	9,309	$	4,044	$	420	$	13,773
Loans evaluated for impairment:
Individually	$	2,420	$	155	$	—	$	2,575
Collectively		834,152		412,032		—		1,246,184
Loans acquired with deteriorated credit quality		315		—		—		315
Total loans, net of deferred loan fees	$	836,887	$	412,187	$	—	$	1,249,074

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, 2018 and December 31, 2017:

(dollars in thousands)			Special
September 30, 2018	Pass		Mention		Substandard		Impaired		Total
Real estate:
Construction and land development	$	110,431	$	—	$	—	$	279	$	110,710
Commercial real estate		515,034		4,418		1,682		3,040		524,174
Single-family residential mortgages		358,350		—		—		761		359,111
Commercial:
Other		297,140		934		1,743		—		299,817
SBA		82,132		—		2,768		2,506		87,406
Total loans	$	1,363,087	$	5,352	$	6,193	$	6,586	$	1,381,218


December 31, 2017
Real estate:
Construction and land development	$	91,619	$	—	$	—	$	289	$	91,908
Commercial real estate		469,422		19,070		5,416		2,131		496,039
Single-family residential mortgages		248,940		—		—		—		248,940
Commercial:
Other		277,518		2,360		888		—		280,766
SBA		126,759		1,778		2,729		155		131,421
Total loans	$	1,214,258	$	23,208	$	9,033	$	2,575	$	1,249,074

As of September 30, 2018, there was one past due loan in single-family residential mortgages held for sale. The following table presents the aging of the recorded investment in past-due loans at September 30, 2018 and December 31, 2017 by class of loans:



(dollars in thousands)	30-59 Days		60-89 Days		90 or More Days		Total		Loans Not		Total		Total Nonaccrual
September 30, 2018	Past Due		Past Due		Past Due		Past Due		Past Due		Loans		Loans
Real estate:
Construction and land development	$	—	$	—	$	—	$	—	$	110,710	$	110,710	$	—
Commercial real estate		—		—		—		—		524,174		524,174		—
Single-family residential mortgages		615		452		761		1,828		356,522		359,111		761
Commercial:
Other		—		—		—		—		299,817		299,817		—
SBA		—		—		1,541		1,541		85,865		87,406		1,541
	$	615	$	452	$	2,302	$	3,369	$	1,377,088	$	1,381,218	$	2,302
Real estate:
Single-family residential mortgages held for sale	$	373	$	—	$	—	$	373	$	378,570	$	378,943	$	—

December 31, 2017
Real estate:
Construction and land development	$	—	$	—	$	—	$	—	$	91,908	$	91,908	$	—
Commercial real estate		—		—		—		—		496,039		496,039		—
Single-family residential mortgages		1,175		338		—		1,513		247,427		248,940		—
Commercial:
Other		—		—		—		—		280,766		280,766		—
SBA		—		1,426		84		1,510		129,756		131,421		155
	$	1,175	$	1,764	$	84	$	3,023	$	1,245,896	$	1,249,074	$	155
Real estate:
Single-family residential mortgages held for sale	$	697	$	—	$	—	$	697	$	125,150	$	125,847	$	—

Information relating to individually impaired loans presented by class of loans was as follows at September 30, 2018 and December 31, 2017:

	Unpaid
(dollars in thousands)	Principal		Recorded		Average		Interest		Related
September 30, 2018	Balance		Investment		Balance		Income		Allowance
With no related allowance recorded
Construction and land development	$	279	$	279	$	284	$	17	$	—
Commercial real estate		3,039		3,039		2,597		189		—
Single-family residential mortgages		761		761		380		—		—
Commercial - SBA		2,377		2,377		1,302		64		—
Total	$	6,456	$	6,456	$	4,563	$	270	$	—

With related allowance recorded
Commercial - SBA	$	183	$	183	$	92	$	—	$	43


December 31, 2017
With no related allowance recorded
Construction and land development	$	289	$	289	$	296	$	16	$	—
Commercial real estate		2,131		2,131		2,192		297		—
Commercial - SBA		155		155		78		15		—
Total	$	2,575	$	2,575	$	2,566	$	328	$	—

No interest income was recognized on a cash basis for the nine months ended September 30, 2018 and 2017 and for the year ended December 31, 2017.

The Company had six and four loans identified as troubled debt restructurings (“TDRs”) at September 30, 2018 and December 31, 2017, respectively, with aggregate balances of $4.3 million and $2.4 million, respectively. There were no specific reserves on TDRs as of September 30, 2018 or December 31, 2017. There are no commitments to lend additional amounts at September 30, 2018 and December 31, 2017 to customers with outstanding loans that are classified as TDRs.

In the third quarter of 2018, the Company did not have any loans that were modified as TDRs. 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 2018 and 2017.

The following table presents loans by class modified as TDRs during the nine months ended September 30, 2018. There was no TDRs during the nine months ended September 30, 2017.

			Pre-		Post-
			Modification		Modification
(dollars in thousands)	Number of		Recorded		Recorded
September 30, 2018	Loans		Investment		Investment
Commercial		2	$	1,148	$	1,148
Commercial real estate		1		1,025		1,025
Total		3	$	2,173	$	2,173