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Non-accruing loan balances secured by real estate comprised $19.0 million of total nonperforming loans at December
31, 2014, down $14.3 million, or 43%, since December 31, 2013. The gross reduction in nonperforming real estate
loans totaled $21.7 million during 2014, due in part to the sale of $10 million in nonperforming loans and a material
pay-down on one of our largest nonperforming loans, but reductions were partially offset by the migration of $7.4
million in real estate loans to non-accrual status. Nonperforming ag production loans were down $470,000, to a
balance of zero at year-end 2014. Nonperforming commercial loans declined by $1.8 million, or 69%, in 2014,
ending the period at $821,000. Nonperforming consumer loans, which are largely unsecured, declined by $166,000,
or 17%, to a balance of $826,000 at December 31, 2014.
As noted above, foreclosed assets were reduced by $4.2 million, or 51%, in 2014, due to OREO sold or written down
to current fair values during the year. At December 31, 2014 foreclosed assets had an aggregate carrying value of
$4.0 million, comprised of 24 properties classified as OREO and 3 mobile homes. Much of our OREO at year-end
2014 consisted of vacant lots or land, but there were also two residential properties totaling $386,000 and 8
commercial properties with a combined book balance of $1.2 million. At the end of 2013 foreclosed assets totaled
$8.2 million, comprised of 33 properties in OREO and five mobile homes. All foreclosed assets are periodically
evaluated and written down to their fair value less expected disposition costs, if lower than the then-current carrying
value.
An action plan is in place for each of our non-accruing loans and foreclosed assets and they are all being actively
managed or marketed. Collection efforts are continuously pursued for all nonperforming loans, but no assurance can
be provided that they will be resolved in a timely manner or that nonperforming balances will not increase further.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses, a contra-asset, is established through a provision for loan and lease losses. It
is maintained at a level that is considered adequate to absorb probable losses on specifically identified impaired
loans, as well as probable incurred losses inherent in the remaining loan portfolio. Specifically identifiable and
quantifiable losses are immediately charged off against the allowance; recoveries are generally recorded only when
cash payments are received subsequent to the charge off. Note 2 to the consolidated financial statements provides a
more comprehensive discussion of the accounting guidance we conform to and the methodology we use to determine
an appropriate allowance for loan and lease losses.
The Company’s allowance for loan and lease losses was $11.2 million as of December 31, 2014, down slightly from
the $11.7 million balance at December 31, 2013. Due to loan growth and credit quality improvement, and the fact
that Santa Clara Valley Bank loans were acquired at their fair values, the overall allowance declined to 1.16% of total
loans at December 31, 2014 from 1.45% at December 31, 2013. Because of the reduction in nonperforming loans,
the ratio of the allowance to nonperforming loans increased to 54.40% at December 31, 2014, from 31.21% at
December 31, 2013. In addition to our allowance for loan and lease losses, a $304,000 allowance for potential losses
inherent in unused commitments is included in other liabilities as of December 31, 2014.
