7.	LOANS AND LEASE FINANCE RECEIVABLES AND ALLOWANCE FOR LOAN LOSSES

The following table provides a summary of total loans and lease finance receivables, excluding PCI loans, by type.


	September 30, 2017			December 31, 2016
	(Dollars in thousands)
Commercial and industrial	$	528,659		$	485,078
SBA		124,091			97,184
Real estate:
Commercial real estate		3,332,517			2,930,141
Construction		74,148			85,879
SFR mortgage		244,662			250,605
Dairy & livestock and agribusiness		270,482			338,631
Municipal lease finance receivables		71,352			64,639
Consumer and other loans		70,415			78,274

Gross loans, excluding PCI loans		4,716,326			4,330,431
Less: Deferred loan fees, net		(6,450	)		(6,952	)

Gross loans, excluding PCI loans, net of deferred loan fees		4,709,876			4,323,479
Less: Allowance for loan losses		(60,200	)		(60,321	)

Net loans, excluding PCI loans		4,649,676			4,263,158

PCI Loans		37,306			73,093
Discount on PCI loans		(758	)		(1,508	)
Less: Allowance for loan losses		(431	)		(1,219	)

PCI loans, net		36,117			70,366

Total loans and lease finance receivables	$	4,685,793		$	4,333,524

As of September 30, 2017, 77.42% of the total gross loan portfolio (excluding PCI loans) consisted of real estate loans, 70.66% of which consisted of commercial real estate loans. Substantially all of the Company’s real estate loans and construction loans are secured by real properties located in California. As of September 30, 2017, $180.2 million, or 5.41% of the total commercial real estate loans included loans secured by farmland, compared to $180.6 million, or 6.16%, at December 31, 2016. The loans secured by farmland included $102.0 million for loans secured by dairy & livestock land and $78.2 million for loans secured by agricultural land at September 30, 2017, compared to $127.1 million for loans secured by dairy & livestock land and $53.6 million for loans secured by agricultural land at December 31, 2016. As of September 30, 2017, dairy & livestock and agribusiness loans of $270.5 million were comprised of $235.2 million for dairy & livestock loans and $35.3 million for agribusiness loans, compared to $317.9 million for dairy & livestock loans and $20.7 million for agribusiness loans at December 31, 2016.

At September 30, 2017, the Company held approximately $2.16 billion of total fixed rate loans, including PCI loans.

At September 30, 2017 and December 31, 2016, loans totaling $3.61 billion and $3.11 billion, respectively, were pledged to secure the borrowings and available lines of credit from the FHLB and the Federal Reserve Bank.

There were no outstanding loans held-for-sale as of September 30, 2017 and December 31, 2016.

Credit Quality Indicators

Central to our credit risk management is our loan risk rating system. The originating officer assigns each loan an initial risk rating, which is reviewed and confirmed or changed, as appropriate, by credit management. Approvals are made based upon the amount of inherent credit risk specific to the transaction and are reviewed for appropriateness by senior line and credit management personnel. Credits are monitored by line and credit management personnel for deterioration in a borrower’s financial condition, which would impact the ability of the borrower to perform under the contract. Risk ratings are adjusted as necessary.

Loans are risk rated into the following categories (Credit Quality Indicators): Pass, Special Mention, Substandard, Doubtful and Loss. Each of these groups is assessed for the proper amount to be used in determining the adequacy of our allowance for losses. These categories can be described as follows:

Pass — These loans, including loans on the Bank’s internal watch list, range from minimal credit risk to lower than average, but still acceptable, credit risk. Watch list loans usually require more than normal management attention. Loans on the watch list may involve borrowers with adverse financial trends, higher debt/equity ratios, or weaker liquidity positions, but not to the degree of being considered a defined weakness or problem loan where risk of loss may be apparent.

Special Mention — Loans assigned to this category have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Company’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

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

Doubtful — Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or the liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Loss — Loans classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this asset with insignificant value even though partial recovery may be affected in the future.

The following table summarizes loans by type, excluding PCI loans, according to our internal risk ratings for the periods presented.


	September 30, 2017
	Pass		Special Mention		Substandard		Doubtful & Loss		Total
	(Dollars in thousands)
Commercial and industrial	$	485,025	$	30,675	$	12,959	$	-	$	528,659
SBA		113,423		4,504		6,164		-		124,091
Real estate:
Commercial real estate
Owner occupied		960,523		88,507		21,327		-		1,070,357
Non-owner occupied		2,238,827		16,363		6,970		-		2,262,160
Construction
Speculative		51,596		2,966		-		-		54,562
Non-speculative		19,586		-		-		-		19,586
SFR mortgage		236,027		4,560		4,075		-		244,662
Dairy & livestock and agribusiness		206,720		46,614		17,148		-		270,482
Municipal lease finance receivables		70,723		629		-		-		71,352
Consumer and other loans		67,362		1,457		1,594		2		70,415

Total gross loans, excluding PCI loans	$	4,449,812	$	196,275	$	70,237	$	2	$	4,716,326


	December 31, 2016
	Pass		Special Mention		Substandard		Doubtful & Loss		Total
	(Dollars in thousands)
Commercial and industrial	$	449,658	$	21,610	$	13,809	$	1	$	485,078
SBA		80,138		10,553		6,482		11		97,184
Real estate:
Commercial real estate
Owner occupied		842,992		87,781		19,046		-		949,819
Non-owner occupied		1,941,203		23,534		15,585		-		1,980,322
Construction
Speculative		48,841		-		-		-		48,841
Non-speculative		37,038		-		-		-		37,038
SFR mortgage		243,374		4,930		2,301		-		250,605
Dairy & livestock and agribusiness		187,819		114,106		36,706		-		338,631
Municipal lease finance receivables		60,102		4,537		-		-		64,639
Consumer and other loans		74,328		2,123		1,819		4		78,274

Total gross loans, excluding PCI loans	$	3,965,493	$	269,174	$	95,748	$	16	$	4,330,431

Allowance for Loan Losses (“ALLL”)

The Bank’s Audit and Director Loan Committees provide Board oversight of the ALLL process and approves the ALLL methodology on a quarterly basis.

Our methodology for assessing the appropriateness of the allowance is conducted on a regular basis and considers the Bank’s overall loan portfolio. Refer to Note 3 – Summary of Significant Accounting Policies of the 2016 Annual Report on Form 10-K for the year ended December 31, 2016 for a more detailed discussion concerning the allowance for loan losses.

Management believes that the ALLL was appropriate at September 30, 2017 and December 31, 2016. No assurance can be given that economic conditions which adversely affect the Company’s service areas or other circumstances will not be reflected in increased provisions for loan losses in the future.

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.


	For the Three Months Ended September 30, 2017

	Ending Balance June 30, 2017		Charge-offs			Recoveries		(Recapture of) Provision for Loan Losses			Ending Balance September 30, 2017
	(Dollars in thousands)
Commercial and industrial	$	8,060	$	(138	)	$	12	$	129		$	8,063
SBA		913		-			5		(54	)		864
Real estate:
Commercial real estate		39,927		-			-		943			40,870
Construction		1,059		-			2,055		(2,181	)		933
SFR mortgage		2,369		-			-		(49	)		2,320
Dairy & livestock and agribusiness		5,440		-			-		(66	)		5,374
Municipal lease finance receivables		852		-			-		54			906
Consumer and other loans		922		(9	)		5		(48	)		870
PCI loans		659		-			-		(228	)		431

Total allowance for loan losses	$	60,201	$	(147	)	$	2,077	$	(1,500	)	$	60,631


	For the Three Months Ended September 30, 2016

	Ending Balance June 30, 2016		Charge-offs			Recoveries		(Recapture of) Provision for Loan Losses			Ending Balance September 30, 2016
	(Dollars in thousands)
Commercial and industrial	$	9,387	$	-		$	49	$	30		$	9,466
SBA		1,177		-			6		(179	)		1,004
Real estate:
Commercial real estate		39,919		-			156		(1,267	)		38,808
Construction		1,228		-			1,731		(1,851	)		1,108
SFR mortgage		2,501		-			-		70			2,571
Dairy & livestock and agribusiness		4,882		-			-		1,089			5,971
Municipal lease finance receivables		1,115		-			-		(82	)		1,033
Consumer and other loans		419		(7	)		128		(100	)		440
PCI loans		310		-			-		290			600

Total allowance for loan losses	$	60,938	$	(7	)	$	2,070	$	(2,000	)	$	61,001


	For the Nine Months Ended September 30, 2017
	Ending Balance December 31, 2016		Charge-offs			Recoveries		(Recapture of) Provision for Loan Losses			Ending Balance September 30, 2017
	(Dollars in thousands)
Commercial and industrial	$	8,154	$	(138	)	$	106	$	(59	)	$	8,063
SBA		871		-			47		(54	)		864
Real estate:
Commercial real estate		37,443		-			154		3,273			40,870
Construction		1,096		-			5,774		(5,937	)		933
SFR mortgage		2,287		-			64		(31	)		2,320
Dairy & livestock and agribusiness		8,541		-			19		(3,186	)		5,374
Municipal lease finance receivables		941		-			-		(35	)		906
Consumer and other loans		988		(11	)		76		(183	)		870
PCI loans		1,219		-			-		(788	)		431

Total allowance for loan losses	$	61,540	$	(149	)	$	6,240	$	(7,000	)	$	60,631


	For the Nine Months Ended September 30, 2016
	Ending Balance December 31, 2015		Charge-offs			Recoveries		(Recapture of) Provision for Loan Losses			Ending Balance September 30, 2016
	(Dollars in thousands)
Commercial and industrial	$	8,588	$	(85	)	$	253	$	710		$	9,466
SBA		993		-			9		2			1,004
Real estate:
Commercial real estate		36,995		-			791		1,022			38,808
Construction		2,389		-			2,615		(3,896	)		1,108
SFR mortgage		2,103		(102	)		-		570			2,571
Dairy & livestock and agribusiness		6,029		-			206		(264	)		5,971
Municipal lease finance receivables		1,153		-			-		(120	)		1,033
Consumer and other loans		906		(8	)		166		(624	)		440
PCI loans		-		-			-		600			600

Total allowance for loan losses	$	59,156	$	(195	)	$	4,040	$	(2,000	)	$	61,001

The following tables present the recorded investment in loans held-for-investment and the related allowance for loan losses by loan type, based on the Company’s methodology for determining the allowance for loan losses for the periods presented. The Company’s ALLL methodology for the first nine months of 2017 excludes the impact of the recent VCBP acquisition from certain of the Bank’s qualitative factors that are otherwise designed to capture incremental risk in the legacy loan portfolio. The VBB acquired loans are also supported by a credit discount established through the determination of fair value for the acquired loan portfolio.


	September 30, 2017
	Recorded Investment in Loans						Allowance for Loan Losses
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deterioriated Credit Quality		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deterioriated Credit Quality
	(Dollars in thousands)
Commercial and industrial	$	745	$	527,914	$	-	$	2	$	8,061	$	-
SBA		2,273		121,818		-		3		861		-
Real estate:
Commercial real estate		8,168		3,324,349		-		-		40,870		-
Construction		-		74,148		-		-		933		-
SFR mortgage		4,550		240,112		-		-		2,320		-
Dairy & livestock and agribusiness		829		269,653		-		-		5,374		-
Municipal lease finance receivables		-		71,352		-		-		906		-
Consumer and other loans		743		69,672		-		83		787		-
PCI loans		-		-		36,548		-		-		431

Total	$	17,308	$	4,699,018	$	36,548	$	88	$	60,112	$	431


	September 30, 2016
	Recorded Investment in Loans						Allowance for Loan Losses
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deterioriated Credit Quality		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deterioriated Credit Quality
	(Dollars in thousands)
Commercial and industrial	$	1,349	$	493,134	$	-	$	493	$	8,973	$	-
SBA		3,867		100,176		-		33		971		-
Real estate:
Commercial real estate		15,806		2,895,959		-		-		38,808		-
Construction		7,651		83,059		-		4		1,104		-
SFR mortgage		5,502		235,988		-		6		2,565		-
Dairy & livestock and agribusiness		659		238,583		-		-		5,971		-
Municipal lease finance receivables		-		68,309		-		-		1,033		-
Consumer and other loans		850		78,814		-		12		428		-
PCI loans		-		-		73,035		-		-		600

Total	$	35,684	$	4,194,022	$	73,035	$	548	$	59,853	$	600

Past Due and Nonperforming Loans

We seek to manage asset quality and control credit risk through diversification of the loan portfolio and the application of policies designed to promote sound underwriting and loan monitoring practices. The Bank’s Credit Management Division is in charge of monitoring asset quality, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures across the Bank. Reviews of nonperforming, past due loans and larger credits, designed to identify potential charges to the allowance for loan losses, and to determine the adequacy of the allowance, are conducted on an ongoing basis. These reviews consider such factors as the financial strength of borrowers and any guarantors, the value of the applicable collateral, loan loss experience, estimated loan losses, growth in the loan portfolio, prevailing economic conditions and other factors. Refer to Note 3 –Summary of Significant Accounting Policies, included in our Annual Report on Form 10-K for the year ended December 31, 2016, for additional discussion concerning the Bank’s policy for past due and nonperforming loans.

A loan is reported as a Troubled Debt Restructuring (“TDR”) when the Bank grants a concession(s) to a borrower experiencing financial difficulties that the Bank would not otherwise consider. Examples of such concessions include a reduction in the interest rate, deferral of principal or accrued interest, extending the payment due dates or loan maturity date(s), or providing a lower interest rate than would be normally available for new debt of similar risk. As a result of these concessions, restructured loans are classified as impaired. Impairment reserves on non-collateral dependent restructured loans are measured by comparing the present value of expected future cash flows on the restructured loans discounted at the interest rate of the original loan agreement to the loan’s carrying value. These impairment reserves are recognized as a specific component to be provided for in the allowance for loan losses.

Generally, when loans are identified as impaired they are moved to our Special Assets Department. When we identify a loan as impaired, we measure the loan for potential impairment using discounted cash flows, unless the loan is determined to be collateral dependent. In these cases, we use the current fair value of collateral, less selling costs. Generally, the determination of fair value is established through obtaining external appraisals of the collateral.

The following tables present the recorded investment in, and the aging of, past due and nonaccrual loans, excluding PCI loans, by type of loans for the periods presented.


	September 30, 2017
	30-59 Days Past Due		60-89 Days Past Due		Total Past Due and Accruing		Nonaccrual (1)		Current		Total Loans and Financing Receivables
	(Dollars in thousands)
Commercial and industrial	$	45	$	-	$	45	$	313	$	528,301	$	528,659
SBA		-		-		-		1,611		122,480		124,091
Real estate:
Commercial real estate
Owner occupied		220		-		220		4,184		1,065,953		1,070,357
Non-owner occupied		-		-		-		2,544		2,259,616		2,262,160
Construction
Speculative (2)		-		-		-		-		54,562		54,562
Non-speculative		-		-		-		-		19,586		19,586
SFR mortgage		-		-		-		1,349		243,313		244,662
Dairy & livestock and agribusiness		-		-		-		829		269,653		270,482
Municipal lease finance receivables		-		-		-		-		71,352		71,352
Consumer and other loans		6		-		6		743		69,666		70,415

Total gross loans, excluding PCI Loans	$	271	$	-	$	271	$	11,573	$	4,704,482	$	4,716,326

(1) As of September 30, 2017, $4.5 million of nonaccruing loans were current, $1.4 million were 30-59 days past due, $423,000 were 60-89 days past due and $5.3 million were 90+ days past due.

(2) Speculative construction loans are generally for properties where there is no identified buyer or renter.


	December 31, 2016
	30-59 Days Past Due		60-89 Days Past Due		Total Past Due and Accruing		Nonaccrual (1)		Current		Total Loans and Financing Receivables
	(Dollars in thousands)
Commercial and industrial	$	-	$	-	$	-	$	156	$	484,922	$	485,078
SBA		352		-		352		2,737		94,095		97,184
Real estate:
Commercial real estate
Owner occupied		-		-		-		635		949,184		949,819
Non-owner occupied		-		-		-		1,048		1,979,274		1,980,322
Construction
Speculative (2)		-		-		-		-		48,841		48,841
Non-speculative		-		-		-		-		37,038		37,038
SFR mortgage		-		-		-		2,207		248,398		250,605
Dairy & livestock and agribusiness		-		-		-		-		338,631		338,631
Municipal lease finance receivables		-		-		-		-		64,639		64,639
Consumer and other loans		84		-		84		369		77,821		78,274

Total gross loans, excluding PCI Loans	$	436	$	-	$	436	$	7,152	$	4,322,843	$	4,330,431

(1)

As of December 31, 2016, $4.7 million of nonaccruing loans were current, $514,000 were 30-59 days past due, $435,000 were 60-89 days past due and $1.5 million were 90+ days past due.

(2)

Speculative construction loans are generally for properties where there is no identified buyer or renter.

Impaired Loans

At September 30, 2017, the Company had impaired loans, excluding PCI loans, of $17.3 million and included $4.5 million of loans acquired from VBB in the first quarter of 2017. Impaired loans included $6.7 million of nonaccrual commercial real estate loans, $1.6 million of nonaccrual Small Business Administration (“SBA”) loans, $1.3 million of nonaccrual single-family residential (“SFR”) mortgage loans, $829,000 of nonaccrual dairy & livestock and agribusiness loans, $743,000 of nonaccrual consumer and other loans, and $313,000 of nonaccrual commercial and industrial loans. These impaired loans included $10.0 million of loans whose terms were modified in a troubled debt restructuring, of which $4.3 million were classified as nonaccrual. The remaining balance of $5.7 million consisted of 21 loans performing according to the restructured terms. The impaired loans had a specific allowance of $88,000 at September 30, 2017. At December 31, 2016, the Company had classified as impaired, loans, excluding PCI loans, with a balance of $26.4 million with a related allowance of $141,000.

The following tables present information for held-for-investment loans, excluding PCI loans, individually evaluated for impairment by type of loans, as and for the periods presented.


	As of and For the Nine Months Ended September 30, 2017

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded
Commercial and industrial	$	726	$	1,256	$	-	$	870	$	15
SBA		2,270		2,573		-		2,489		38
Real estate:
Commercial real estate
Owner occupied		4,313		4,625		-		4,361		42
Non-owner occupied		3,855		5,155		-		4,010		72
Construction
Speculative		-		-		-		-		-
Non-speculative		-		-		-		-		-
SFR mortgage		4,550		5,345		-		4,620		109
Dairy & livestock and agribusiness		829		1,091		-		1,035		1
Municipal lease finance receivables		-		-		-		-		-
Consumer and other loans		356		571		-		381		-

Total		16,899		20,616		-		17,766		277

With a related allowance recorded
Commercial and industrial		19		20		2		42		1
SBA		3		20		3		7		-
Real estate:
Commercial real estate
Owner occupied		-		-		-		-		-
Non-owner occupied		-		-		-		-		-
Construction
Speculative		-		-		-		-		-
Non-speculative		-		-		-		-		-
SFR mortgage		-		-		-		-		-
Dairy & livestock and agribusiness		-		-		-		-		-
Municipal lease finance receivables		-		-		-		-		-
Consumer and other loans		387		394		83		390		-

Total		409		434		88		439		1

Total impaired loans	$	17,308	$	21,050	$	88	$	18,205	$	278


	As of and For the Nine Months Ended September 30, 2016
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded
Commercial and industrial	$	786	$	1,687	$	-	$	858	$	20
SBA		3,665		4,452		-		3,770		38
Real estate:
Commercial real estate
Owner occupied		2,773		3,786		-		3,039		63
Non-owner occupied		13,033		15,764		-		13,386		130
Construction
Speculative		-		-		-		-		-
Non-speculative		-		-		-		-		-
SFR mortgage		5,239		6,118		-		5,370		93
Dairy & livestock and agribusiness		659		722		-		695		24
Municipal lease finance receivables		-		-		-		-		-
Consumer and other loans		838		1,409		-		896		11

Total		26,993		33,938		-		28,014		379

With a related allowance recorded
Commercial and industrial		563		625		493		671		8
SBA		202		217		33		209		10
Real estate:
Commercial real estate
Owner occupied		-		-		-		-		-
Non-owner occupied		-		-		-		-		-
Construction
Speculative		7,651		7,651		4		7,651		291
Non-speculative		-		-		-		-		-
SFR mortgage		263		263		6		273		4
Dairy & livestock and agribusiness		-		-		-		-		-
Municipal lease finance receivables		-		-		-		-		-
Consumer and other loans		12		12		12		12		-

Total		8,691		8,768		548		8,816		313

Total impaired loans	$	35,684	$	42,706	$	548	$	36,830	$	692


	As of December 31, 2016
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in thousands)
With no related allowance recorded
Commercial and industrial	$	730	$	1,646	$	-
SBA		3,386		4,189		-
Real estate:
Commercial real estate
Owner occupied		1,797		2,276		-
Non-owner occupied		13,331		15,842		-
Construction
Speculative		-		-		-
Non-speculative		-		-		-
SFR mortgage		5,174		6,075		-
Dairy & livestock and agribusiness		747		747		-
Municipal lease finance receivables		-		-		-
Consumer and other loans		853		1,423		-

Total		26,018		32,198		-

With a related allowance recorded
Commercial and industrial		171		171		114
SBA		196		212		27
Real estate:
Commercial real estate
Owner occupied		-		-		-
Non-owner occupied		-		-		-
Construction
Speculative		-		-		-
Non-speculative		-		-		-
SFR mortgage		-		-		-
Dairy & livestock and agribusiness		-		-		-
Municipal lease finance receivables		-		-		-
Consumer and other loans		-		-		-

Total		367		383		141

Total impaired loans	$	26,385	$	32,581	$	141

The Company recognizes the charge-off of the impairment allowance on impaired loans in the period in which a loss is identified for collateral dependent loans. Therefore, the majority of the nonaccrual loans as of September 30, 2017, December 31, 2016 and September 30, 2016 have already been written down to the estimated net realizable value. An allowance is recorded on impaired loans for the following: nonaccrual loans where a charge-off is not yet processed, nonaccrual SFR mortgage loans where there is a potential modification in process, or smaller balance non-collateral dependent loans.

Reserve for Unfunded Loan Commitments

The allowance for off-balance sheet credit exposure relates to commitments to extend credit, letters of credit and undisbursed funds on lines of credit. The Company evaluates credit risk associated with the off-balance sheet loan commitments at the same time it evaluates credit risk associated with the loan and lease portfolio. There was no provision or recapture of provision for unfunded loan commitments for the three and nine months ended September 30, 2017, and 2016. As of September 30, 2017 and December 31, 2016, the balance in this reserve was $6.7 million and was included in other liabilities.

Troubled Debt Restructurings (“TDRs”)

Loans that are reported as TDRs are considered impaired and charge-off amounts are taken on an individual loan basis, as deemed appropriate. The majority of restructured loans are loans for which the terms of repayment have been renegotiated, resulting in a reduction in interest rate or deferral of principal. Refer to Note 3 – Summary of Significant Accounting Policies, included in our Annual Report on Form 10-K for the year ended December 31, 2016 for a more detailed discussion regarding TDRs.

As of September 30, 2017, there were $10.0 million of loans classified as a TDR, of which $4.3 million were nonperforming and $5.7 million were performing. TDRs on accrual status are comprised of loans that were accruing interest at the time of restructuring or have demonstrated repayment performance in compliance with the restructured terms for a sustained period and for which the Company anticipates full repayment of both principal and interest. At September 30, 2017, performing TDRs were comprised of three commercial real estate loans of $1.4 million, 11 SFR mortgage loans of $3.2 million, two SBA loans of $662,000, and five commercial and industrial loans of $432,000.

The majority of TDRs have no specific allowance allocated as any impairment amount is normally charged off at the time a probable loss is determined. We have allocated $5,000 and $141,000 of specific allowance to TDRs as of September 30, 2017 and December 31, 2016, respectively.

The following table provides a summary of the activity related to TDRs for the periods presented.


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2017			2016			2017			2016
	(Dollars in thousands)
Performing TDRs:
Beginning balance	$	16,574		$	20,292		$	19,233		$	42,687
New modifications		-			759			3,143			1,877
Payoffs/payments, net and other		(10,839	)		(2,584	)		(13,826	)		(26,097	)
TDRs returned to accrual status		-			8,551			329			8,551
TDRs placed on nonaccrual status		-			-			(3,144	)		-

Ending balance	$	5,735		$	27,018		$	5,735		$	27,018

Nonperforming TDRs:
Beginning balance	$	4,391		$	12,029		$	1,626		$	12,622
New modifications		-			20			2,066			102
Charge-offs		-			-			-			(38	)
Payoffs/payments, net and other		(81	)		(465	)		(2,197	)		(1,102	)
TDRs returned to accrual status		-			(8,551	)		(329	)		(8,551	)
TDRs placed on nonaccrual status		-			-			3,144			-

Ending balance	$	4,310		$	3,033		$	4,310		$	3,033

Total TDRs	$	10,045		$	30,051		$	10,045		$	30,051

There were no loans that were modified as TDRs during the three months ended September 30, 2017.

The following tables summarize loans modified as troubled debt restructurings for the periods presented.

Modifications (1)


	For the Three Months Ended September 30, 2016
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Outstanding Recorded Investment at September 30, 2016		Financial Effect Resulting From Modifications (2)
	(Dollars in thousands)
Commercial and industrial:
Interest rate reduction		-	$	-	$	-	$	-	$	-
Change in amortization period or maturity		-		-		-		-		-
SBA:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		1		20		20		14		-
Real estate:
Commercial real estate:
Owner occupied
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Non-owner occupied
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		1		759		759		759		-
Dairy & livestock and agribusiness:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Consumer:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-

Total loans		2	$	779	$	779	$	773	$	-


	For the Nine Months Ended September 30, 2017
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Outstanding Recorded Investment at September 30, 2017		Financial Effect Resulting From Modifications (2)
	(Dollars in thousands)
Commercial and industrial:
Interest rate reduction		-	$	-	$	-	$	-	$	-
Change in amortization period or maturity		-		-		-		-		-
SBA:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Real estate:
Commercial real estate:
Owner occupied
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		1		3,143		3,143		3,143		-
Non-owner occupied
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Dairy & livestock and agribusiness:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		1		1,984		1,984		78		-
Consumer:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		1		82		82		76		-

Total loans		3	$	5,209	$	5,209	$	3,297	$	-


	For the Nine Months Ended September 30, 2016
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Outstanding Recorded Investment at September 30, 2016		Financial Effect Resulting From Modifications (2)
	(Dollars in thousands)
Commercial and industrial:
Interest rate reduction		-	$	-	$	-	$	-	$	-
Change in amortization period or maturity		1		112		112		184		-
SBA:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		2		214		214		202		28
Real estate:
Commercial real estate:
Owner occupied
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Non-owner occupied
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		1		759		759		759		-
Dairy & livestock and agribusiness:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		-		-		-		-		-
Consumer:
Interest rate reduction		-		-		-		-		-
Change in amortization period or maturity		1		24		24		22		-

Total loans		5	$	1,109	$	1,109	$	1,167	$	28

(1)

The tables above exclude modified loans that were paid off prior to the end of the period.

(2)

Financial effects resulting from modifications represent charge-offs and specific allowance recorded at modification date.

As of September 30, 2017, there was one commercial real estate loan with an outstanding balance of $3.1 million and one dairy & livestock and agribusiness loan with an outstanding balance of $78,000 that was modified as a TDR within the previous 12 months that subsequently defaulted during the nine months ended September 30, 2017.