Note 4 - Loans and Allowance for Credit Losses

9 Months Ended

Sep. 30, 2014

Loans And Allowance For Credit Losses [Abstract]

Loans And Allowance For Credit Losses [Text Block]

Note 4: Loans and Allowance for Credit Losses

The FDIC indemnification expired February 6, 2014 for County Bank non-single-family residential collateralized purchased loans; accordingly, such loans have been reclassified from purchased covered loans to purchased non-covered loans.

A summary of the major categories of loans outstanding is shown in the following tables.

	At September 30, 2014
	Commercial			Commercial Real Estate			Construction			Residential Real Estate			Consumer Installment & Other			Total
	(In thousands)
Originated loans	$	370,060		$	573,179		$	9,824		$	156,794		$	379,708		$	1,489,565
Purchased covered loans:
Gross purchased covered loans		-			-			-			2,905			15,119			18,024
Credit risk discount		-			-			-			(434	)		(67	)		(501	)
Purchased non-covered loans:
Gross purchased non-covered loans		20,318			167,052			2,931			979			44,247			235,527
Credit risk discount		(1,460	)		(7,060	)		(50	)		(262	)		(1,401	)		(10,233	)
Total	$	388,918		$	733,171		$	12,705		$	159,982		$	437,606		$	1,732,382

	At December 31, 2013
	Commercial			Commercial Real Estate			Construction			Residential Real Estate			Consumer Installment & Other			Total
	(In thousands)
Originated loans	$	338,824		$	596,653		$	10,723		$	176,196		$	400,888		$	1,523,284
Purchased covered loans:
Gross purchased covered loans		20,066			175,562			3,223			8,558			54,194			261,603
Credit risk discount		(1,530	)		(8,122	)		(50	)		(434	)		(797	)		(10,933	)
Purchased non-covered loans:
Gross purchased non-covered loans		7,525			35,712			-			999			12,799			57,035
Credit risk discount		(726	)		(786	)		-			(262	)		(1,471	)		(3,245	)
Total	$	364,159		$	799,019		$	13,896		$	185,057		$	465,613		$	1,827,744

Changes in the carrying amount of impaired purchased loans were as follows:

	For the Nine Months Ended September 30, 2014			For the Year Ended December 31, 2013
Impaired purchased loans	(In thousands)
Carrying amount at the beginning of the period	$	4,936		$	14,629
Reductions during the period		(292	)		(9,693	)
Carrying amount at the end of the period	$	4,644		$	4,936

Changes in the accretable yield for purchased loans were as follows:

	For the Nine Months Ended September 30, 2014			For the Year Ended December 31, 2013
Accretable yield:	(In thousands)
Balance at the beginning of the period	$	2,505		$	4,948
Reclassification from nonaccretable difference		3,513			12,504
Accretion		(3,287	)		(14,947	)
Balance at the end of the period	$	2,731		$	2,505
Accretion	$	(3,287	)	$	(14,947	)
Reduction in FDIC indemnification asset		278			11,438
(Increase) in interest income	$	(3,009	)	$	(3,509	)

The following summarizes activity in the allowance for credit losses:

	Allowance for Credit Losses For the Three Months Ended September 30, 2014
	Commercial			Commercial Real Estate			Construction		Residential Real Estate			Consumer Installment and Other			Purchased Non-covered Loans			Purchased Covered Loans		Unallocated		Total
	(In thousands)
Allowance for loan losses:
Balance at beginning of period	$	5,297		$	10,664		$	442	$	409		$	2,055		$	2,707		$	-	$	10,824	$	32,398
Additions:
Provision		(269	)		(640	)		-		(17	)		802			(184	)		-		908		600
Deductions:
Chargeoffs		(905	)		-			-		-			(916	)		-			-		-		(1,821	)
Recoveries		229			15			-		-			297			51			-		-		592
Net loan (losses) recoveries		(676	)		15			-		-			(619	)		51			-		-		(1,229	)
Balance at end of period		4,352			10,039			442		392			2,238			2,574			-		11,732		31,769
Liability for off-balance sheet credit exposure		1,706			24			105		-			451			131			-		276		2,693
Total allowance for credit losses	$	6,058		$	10,063		$	547	$	392		$	2,689		$	2,705		$	-	$	12,008	$	34,462

	Allowance for Credit Losses For the Nine Months Ended September 30, 2014
	Commercial			Commercial Real Estate			Construction			Residential Real Estate			Consumer Installment and Other			Purchased Non-covered Loans			Purchased Covered Loans			Unallocated		Total
	(In thousands)
Allowance for loan losses:
Balance at beginning of period	$	4,005		$	12,070		$	602		$	405		$	3,198		$	-		$	1,561		$	9,852	$	31,693
Additions:
Provision		945			(2,224	)		(163	)		17			942			1,203			-			1,880		2,600
Deductions:
Chargeoffs		(1,114	)		-			-			(30	)		(3,217	)		(260	)		-			-		(4,621	)
Recoveries		516			193			3			-			1,315			70			-			-		2,097
Net loan recoveries (losses)		(598	)		193			3			(30	)		(1,902	)		(190	)		-			-		(2,524	)
Indemnification expiration		-			-			-			-			-			1,561			(1,561	)		-		-
Balance at end of period		4,352			10,039			442			392			2,238			2,574			-			11,732		31,769
Liability for off-balance sheet credit exposure		1,706			24			105			-			451			131			-			276		2,693
Total allowance for credit losses	$	6,058		$	10,063		$	547		$	392		$	2,689		$	2,705		$	-		$	12,008	$	34,462

	Allowance for Credit Losses For the Three Months Ended September 30, 2013
	Commercial			Commercial Real Estate			Construction		Residential Real Estate			Consumer Installment and Other			Purchased Non-covered Loans		Purchased Covered Loans			Unallocated			Total
	(In thousands)
Allowance for loan losses:
Balance at beginning of period	$	4,384		$	11,275		$	478	$	532		$	2,603		$	-	$	285		$	11,369		$	30,926
Additions:
Provision		102			447			53		(104	)		1,154			-		1,300			(1,152	)		1,800
Deductions:
Chargeoffs		(637	)		(117	)		-		-			(909	)		-		(79	)		-			(1,742	)
Recoveries		326			30			-		-			516			-		60			-			932
Net loan losses		(311	)		(87	)		-		-			(393	)		-		(19	)		-			(810	)
Balance at end of period		4,175			11,635			531		428			3,364			-		1,566			10,217			31,916
Liability for off-balance sheet credit exposure		1,613			-			103		-			483			-		-			494			2,693
Total allowance for credit losses	$	5,788		$	11,635		$	634	$	428		$	3,847		$	-	$	1,566		$	10,711		$	34,609

	Allowance for Credit Losses For the Nine Months Ended September 30, 2013
	Commercial			Commercial Real Estate			Construction		Residential Real Estate			Consumer Installment and Other			Purchased Non-covered Loans			Purchased Covered Loans			Unallocated		Total
	(In thousands)
Allowance for loan losses:
Balance at beginning of period	$	6,445		$	10,063		$	484	$	380		$	3,194		$	-		$	1,005		$	8,663	$	30,234
Additions:
Provision		(667	)		2,100			47		157			1,660			116			1,433			1,554		6,400
Deductions:
Chargeoffs		(2,687	)		(656	)		-		(109	)		(3,114	)		(116	)		(955	)		-		(7,637	)
Recoveries		1,084			128			-		-			1,624			-			83			-		2,919
Net loan losses		(1,603	)		(528	)		-		(109	)		(1,490	)		(116	)		(872	)		-		(4,718	)
Balance at end of period		4,175			11,635			531		428			3,364			-			1,566			10,217		31,916
Liability for off-balance sheet credit exposure		1,613			-			103		-			483			-			-			494		2,693
Total allowance for credit losses	$	5,788		$	11,635		$	634	$	428		$	3,847		$	-		$	1,566		$	10,711	$	34,609

The allowance for credit losses and recorded investment in loans were evaluated for impairment as follows:

	Allowance for Credit Losses and Recorded Investment in Loans Evaluated for Impairment At September 30, 2014
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Purchased Non-covered Loans		Purchased Covered Loans		Unallocated		Total
	(In thousands)
Allowance for credit losses:
Individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	892	$	-	$	-	$	892
Collectively evaluated for impairment		6,058		10,063		547		392		2,689		1,813		-		12,008		33,570
Purchased loans with evidence of credit deterioration		-		-		-		-		-		-		-		-		-
Total	$	6,058	$	10,063	$	547	$	392	$	2,689	$	2,705	$	-	$	12,008	$	34,462
Carrying value of loans:
Individually evaluated for impairment	$	2,714	$	3,037	$	-	$	-	$	-	$	13,118	$	-	$	-	$	18,869
Collectively evaluated for impairment		367,346		570,142		9,824		156,794		379,708		207,764		17,291		-		1,708,869
Purchased loans with evidence of credit deterioration		-		-		-		-		-		4,412		232		-		4,644
Total	$	370,060	$	573,179	$	9,824	$	156,794	$	379,708	$	225,294	$	17,523	$	-	$	1,732,382

	Allowance for Credit Losses and Recorded Investment in Loans Evaluated for Impairment At December 31, 2013
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Purchased Non-covered Loans		Purchased Covered Loans		Unallocated		Total
	(In thousands)
Allowance for credit losses:
Individually evaluated for impairment	$	100	$	1,243	$	-	$	-	$	-	$	-	$	153	$	-	$	1,496
Collectively evaluated for impairment		5,563		10,827		639		405		3,695		-		1,408		10,353		32,890
Purchased loans with evidence of credit deterioration		-		-		-		-		-		-		-		-		-
Total	$	5,663	$	12,070	$	639	$	405	$	3,695	$	-	$	1,561	$	10,353	$	34,386
Carrying value of loans:
Individually evaluated for impairment	$	3,901	$	3,357	$	-	$	-	$	-	$	3,785	$	9,999	$	-	$	21,042
Collectively evaluated for impairment		334,923		593,296		10,723		176,196		400,888		47,571		238,169		-		1,801,766
Purchased loans with evidence of credit deterioration		-		-		-		-		-		2,434		2,502		-		4,936
Total	$	338,824	$	596,653	$	10,723	$	176,196	$	400,888	$	53,790	$	250,670	$	-	$	1,827,744

The Bank’s customers are small businesses, professionals and consumers. Given the scale of these borrowers, corporate credit rating agencies do not evaluate the borrowers’ financial condition. The Bank maintains a Loan Review Department which reports directly to the Board of Directors. The Loan Review Department performs independent evaluations of loans and assigns credit risk grades to evaluated loans using grading standards employed by bank regulatory agencies. Loans judged to carry lower-risk attributes are assigned a “pass” grade, with a minimal likelihood of loss. Loans judged to carry higher-risk attributes are referred to as “classified loans,” and are further disaggregated, with increasing expectations for loss recognition, as “substandard,” “doubtful,” and “loss.” Loan Review Department evaluations occur every calendar quarter.  If the Bank becomes aware of deterioration in a borrower’s performance or financial condition between Loan Review Department examinations, assigned risk grades are re-evaluated promptly. Credit risk grades assigned by the Loan Review Department are subject to review by the Bank’s regulatory authorities during regulatory examinations.

The following summarizes the credit risk profile by internally assigned grade:

	Credit Risk Profile by Internally Assigned Grade At September 30, 2014
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Purchased Non-covered Loans			Purchased Covered Loans (1)			Total
	(In thousands)
Grade:
Pass	$	363,911	$	530,115	$	9,824	$	154,759	$	378,677	$	194,451		$	15,953		$	1,647,690
Substandard		6,136		43,064		-		2,035		680		40,717			2,071			94,703
Doubtful		13		-		-		-		13		337			-			363
Loss		-		-		-		-		338		22			-			360
Credit risk discount		-		-		-		-		-		(10,233	)		(501	)		(10,734	)
Total	$	370,060	$	573,179	$	9,824	$	156,794	$	379,708	$	225,294		$	17,523		$	1,732,382

 (1) Credit risk profile reflects internally assigned grade of purchased covered loans without regard to FDIC indemnification.

	Credit Risk Profile by Internally Assigned Grade At December 31, 2013
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Purchased Non-covered Loans			Purchased Covered Loans (1)			Total
	(In thousands)
Grade:
Pass	$	329,667	$	554,991	$	10,274	$	174,113	$	399,377	$	41,490		$	196,882		$	1,706,794
Substandard		8,142		41,662		449		2,083		1,127		14,587			64,624			132,674
Doubtful		1,015		-		-		-		19		958			97			2,089
Loss		-		-		-		-		365		-			-			365
Credit risk discount		-		-		-		-		-		(3,245	)		(10,933	)		(14,178	)
Total	$	338,824	$	596,653	$	10,723	$	176,196	$	400,888	$	53,790		$	250,670		$	1,827,744

 (1) Credit risk profile reflects internally assigned grade of purchased covered loans without regard to FDIC indemnification.

The following tables summarize loans by delinquency and nonaccrual status:

	Summary of Loans by Delinquency and Nonaccrual Status At September 30, 2014
	Current and Accruing		30-59 Days Past Due and Accruing		60-89 Days Past Due and Accruing		Past Due 90 days or More and Accruing		Nonaccrual		Total Loans
	(In thousands)
Commercial	$	368,428	$	723	$	414	$	-	$	495	$	370,060
Commercial real estate		563,817		3,679		1,469		-		4,214		573,179
Construction		8,894		-		930		-		-		9,824
Residential real estate		152,538		2,659		1,597		-		-		156,794
Consumer installment and other		375,971		2,936		459		342		-		379,708
Total originated loans		1,469,648		9,997		4,869		342		4,709		1,489,565
Purchased non-covered loans		209,775		891		1,255		76		13,297		225,294
Purchased covered loans		17,224		-		4		-		295		17,523
Total	$	1,696,647	$	10,888	$	6,128	$	418	$	18,301	$	1,732,382

	Summary of Loans by Delinquency and Nonaccrual Status At December 31, 2013
	Current and Accruing		30-59 Days Past Due and Accruing		60-89 Days Past Due and Accruing		Past Due 90 days or More and Accruing		Nonaccrual		Total Loans
	(In thousands)
Commercial	$	336,497	$	677	$	383	$	-	$	1,267	$	338,824
Commercial real estate		586,619		4,012		2,473		-		3,549		596,653
Construction		10,275		-		-		-		448		10,723
Residential real estate		173,082		2,789		325		-		-		176,196
Consumer installment and other		396,725		3,035		606		410		112		400,888
Total originated loans		1,503,198		10,513		3,787		410		5,376		1,523,284
Purchased non-covered loans		45,755		4,237		180		-		3,618		53,790
Purchased covered loans		236,577		845		940		-		12,308		250,670
Total	$	1,785,530	$	15,595	$	4,907	$	410	$	21,302	$	1,827,744

The following is a summary of the effect of nonaccrual loans on interest income:

	For the Three Months					For the Nine Months
	Ended September 30,
	2014		2013			2014			2013
	(In thousands)
Interest income that would have been recognized had the loans performed in accordance with their original terms	$	298	$	502		$	833		$	1,405
Net interest income reversed (recognized) on nonaccrual loans		15		(20	)		(55	)		(113	)
Total reduction of interest income	$	313	$	482		$	778		$	1,292

There were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status at September 30, 2014 and December 31, 2013.

The following summarizes impaired loans:

	Impaired Loans At September 30, 2014
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In thousands)
Impaired loans with no related allowance recorded:
Commercial	$	3,389	$	3,563	$	-
Commercial real estate		13,463		16,044		-
Construction		1,834		1,884		-
Consumer installment and other		1,183		1,332		-
Impaired loans with an allowance recorded:
Commercial		259		259		259
Commercial real estate		6,330		9,796		633
Total:
Commercial	$	3,648	$	3,822	$	259
Commercial real estate		19,793		25,840		633
Construction		1,834		1,884		-
Consumer installment and other		1,183		1,332		-

	Impaired Loans At December 31, 2013
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In thousands)
Impaired loans with no related allowance recorded:
Commercial	$	3,931	$	4,498	$	-
Commercial real estate		11,002		13,253		-
Construction		2,483		2,947		-
Consumer installment and other		2,014		2,133		-
Impaired loans with an allowance recorded:
Commercial		1,000		2,173		100
Commercial real estate		9,773		12,482		1,396
Total:
Commercial	$	4,931	$	6,671	$	100
Commercial real estate		20,775		25,735		1,396
Construction		2,483		2,947		-
Consumer installment and other		2,014		2,133		-

Impaired loans include troubled debt restructured loans. Impaired loans at September 30, 2014, included $5,907 thousand of restructured loans, including $711 thousand that were on nonaccrual status. Impaired loans at December 31, 2013, included $5,453 thousand of restructured loans, including $529 thousand that were on nonaccrual status.

	Impaired Loans
	For the Three Months Ended September 30,								For the Nine Months Ended September 30,
	2014				2013				2014				2013
	Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income		Average Recorded Investment		Recognized Interest Income
	(In thousands)
Commercial	$	3,885	$	59	$	9,977	$	35	$	4,388	$	186	$	11,726	$	141
Commercial real estate		20,787		103		27,714		129		19,961		373		27,795		634
Construction		1,934		-		2,660		29		2,076		-		2,389		80
Residential real estate		-		-		207		-		108		-		483		-
Consumer installment and other		1,207		7		1,054		8		1,416		22		1,359		23
Total	$	27,813	$	169	$	41,612	$	201	$	27,949	$	581	$	43,752	$	878

The following table provides information on troubled debt restructurings:

	Troubled Debt Restructurings At September 30, 2014
	Number of Contracts		Pre-Modification Carrying Value		Period-End Carrying Value		Period-End Individual Impairment Allowance
	(In thousands)
Commercial		6	$	3,465	$	3,109	$	259
Commercial real estate		3		2,754		2,787		-
Consumer installment and other		1		18		11		-
Total		10	$	6,237	$	5,907	$	259

	Troubled Debt Restructurings
	At September 30, 2013
	Number of Contracts		Pre-Modification Carrying Value		Period-End Carrying Value		Period-End Individual Impairment Allowance
	(In thousands)
Commercial		4	$	1,991	$	1,689	$	-
Commercial real estate		3		6,295		5,849		394
Total		7	$	8,286	$	7,538	$	394

During the three and nine months ended September 30, 2014, the Company modified three loans with a total carrying value of $617 thousand and five loans with a total carrying value of $726 thousand, respectively, that were considered troubled debt restructurings. The concessions granted in the five restructurings completed in the first nine months of 2014 consisted of modification of payment terms to extend the maturity date to allow for deferred principal repayment. During the three and nine months ended September 30, 2014, no troubled debt restructured loans defaulted.

During the three months ended September 30, 2013, no loans were modified that were considered troubled debt restructurings. During the nine months ended September 30, 2013, the Company modified four loans with a total carrying value of $3,019 thousand that were considered troubled debt restructurings. The concessions granted in the four restructurings completed in the first nine months of 2013 consisted of modification of payment terms to lower the interest rate and extend the maturity date to allow for deferred principal repayment. During the three months and nine months ended September 30, 2013, no troubled debt restructurings and one commercial real estate loan with a carrying value of $3,954 thousand defaulted, respectively. A troubled debt restructuring is considered to be in default when payments are 90 days or more past due.

The Company pledges loans to secure borrowings from the Federal Home Loan Bank of San Francisco (FHLB). The carrying value of the FHLB advances was $20,156 thousand and $20,577 thousand at September 30, 2014 and December 31, 2013, respectively. The loans restricted due to collateral requirements approximated $20,374 thousand and $24,242 thousand at September 30, 2014 and December 31, 2013, respectively. The FHLB does not have the right to sell or repledge such loans.

There were no loans held for sale at September 30, 2014 and December 31, 2013.