Allowance for Loan Losses

The Company’s ALLL covers estimated credit losses on individually evaluated loans that are determined to be impaired as well as estimated credit losses inherent in the remainder of the loan portfolio. The ALLL is prepared using the information provided by the Company’s credit review process together with data from peer institutions and economic information gathered from published sources.

The loan portfolio is segmented into groups of loans with similar risk characteristics. Each segment possesses varying degrees of risk based on, among other things, the type of loan, the type of collateral, and the sensitivity of the borrower or industry to changes in external factors such as economic conditions. An estimated loss rate calculated using the Company’s actual historical loss rates adjusted for current portfolio trends, economic conditions, and other relevant internal and external factors, is applied to each group’s aggregate loan balances.

The Company's base ALLL factors are determined by management using the Bank's annualized actual trailing charge-off data over intervals ranging from 84, 72, 36, 24, 12 and 6 months. Adjustments to those base factors are made for relevant internal and external factors. Those factors may include:


•	Changes in national, regional and local economic conditions, including trends in real estate values and the interest rate environment,


•	Changes in the nature and volume of the loan portfolio, including new types of lending,


•	Changes in volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans, and


•	The existence and effect of concentrations of credit, and changes in the level of such concentrations.

The resulting total ALLL factor is compared for reasonableness against the 10-year average, 15-year average, and trailing 12 month total charge-off data for all Federal Deposit Insurance Corporation (“FDIC”) insured commercial banks and savings institutions based in California. This factor is applied to balances graded pass-1through pass-5. For loans risk graded as watch or worse, progressively higher potential loss factors are applied based on management’s judgment, taking into consideration the specific characteristics of the Bank’s portfolio and analysis of results from a select group of the Company’s peers.

The following tables summarize the allocation of the ALLL as well as the activity in the ALLL attributed to various segments in the loan portfolio as of and for the nine months ended for the periods indicated:



	Commercial and industrial			Franchise			Commercial owner occupied			SBA			Warehouse Facilities			Commercial non-owner occupied			Multi-family			One-to-four family			Construction			Land			Other loans			Total
	(dollars in thousands)
Balance, December 31, 2014	$	2,646		$	1,554		$	1,757		$	568		$	546		$	2,007		$	1,060		$	842		$	1,088		$	108		$	24		$	12,200
Charge-offs	(72		)	(764		)	—			—			—			—			—			—			—			—			—			(836		)
Recoveries	35			—			—			4			—			3			—			13			—			—			1			56
Provisions for (reduction in) loan losses	730			1,434			147			891			258			111			620			(137		)	613			63			(5		)	4,725
Balance, September 30, 2015	$	3,339		$	2,224		$	1,904		$	1,463		$	804		$	2,121		$	1,680		$	718		$	1,701		$	171		$	20		$	16,145

Amount of allowance attributed to:
Specifically evaluated impaired loans	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
General portfolio allocation	3,339			2,224			1,904			1,463			804			2,121			1,680			718			1,701			171			20			16,145
Loans individually evaluated for impairment	—			1,630			361			—			—			443			—			203			—			22			—			2,659
Specific reserves to total loans individually evaluated for impairment	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%
Loans collectively evaluated for impairment	$	288,982		$	294,335		$	302,195		$	70,191		$	144,274		$	406,047		$	421,240		$	78,578		$	141,293		$	12,736		$	5,017		$	2,164,888
General reserves to total loans collectively evaluated for impairment	1.16		%	0.76		%	0.63		%	2.08		%	0.56		%	0.52		%	0.40		%	0.91		%	1.20		%	1.34		%	0.40		%	0.75		%
Total gross loans	$	288,982		$	295,965		$	302,556		$	70,191		$	144,274		$	406,490		$	421,240		$	78,781		$	141,293		$	12,758		$	5,017		$	2,167,547
Total allowance to gross loans	1.16		%	0.75		%	0.63		%	2.08		%	0.56		%	0.52		%	0.40		%	0.91		%	1.20		%	1.34		%	0.40		%	0.74		%



	Commercial and industrial			Franchise			Commercial owner occupied			SBA			Warehouse Facilities			Commercial non-owner occupied			Multi-family			One-to-four family			Construction			Land			Other loans			Total
	(dollars in thousands)
Balance, December 31, 2013	$	1,968		$	—		$	1,818		$	151		$	392		$	1,658		$	817		$	1,099		$	136		$	127		$	34		$	8,200
Charge-offs	(223		)	—			—			—			—			(365		)	—			(195		)	—			—			—			(783		)
Recoveries	33			—			—			4			—			—			—			32			—			—			18			87
Provisions for (reduction in) loan losses	655			1,024			(44		)	290			102			608			194			(121		)	639			(55		)	(29		)	3,263
Balance, September 30, 2014	$	2,433		$	1,024		$	1,774		$	445		$	494		$	1,901		$	1,011		$	815		$	775		$	72		$	23		$	10,767

Amount of allowance attributed to:
Specifically evaluated impaired loans	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
General portfolio allocation	2,433			1,024			1,774			445			494			1,901			1,011			815			775			72			23			10,767
Loans individually evaluated for impairment	—			—			398			—			—			883			—			526			—			—			—			1,807
Specific reserves to total loans individually evaluated for impairment	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%	—		%
Loans collectively evaluated for impairment	$	218,871		$	163,887		$	215,540		$	20,482		$	108,093		$	355,101		$	262,588		$	124,800		$	67,118		$	6,103		$	3,521		$	1,546,104
General reserves to total loans collectively evaluated for impairment	1.11		%	0.62		%	0.82		%	2.17		%	0.46		%	0.54		%	0.39		%	0.65		%	1.15		%	1.18		%	0.65		%	0.70		%
Total gross loans	$	218,871		$	163,887		$	215,938		$	20,482		$	108,093		$	355,984		$	262,588		$	125,326		$	67,118		$	6,103		$	3,521		$	1,547,911
Total allowance to gross loans	1.11		%	0.62		%	0.82		%	2.17		%	0.46		%	0.53		%	0.39		%	0.65		%	1.15		%	1.18		%	0.65		%	0.70		%