| Loans | Loans Loans, net of unearned fees and unamortized loan origination costs, are comprised of the following: (In thousands) June 30, 2024 December 31, 2023 Commercial and industrial: Commercial and business loans $ 58,907 6.2 % $ 53,273 5.8 % Government program loans 68 <0.01 % 74 <0.01 % Total commercial and industrial 58,975 6.2 % 53,347 5.8 % Real estate mortgage: Commercial real estate 442,180 46.6 % 386,134 42.0 % Residential mortgages 252,118 26.6 % 260,539 28.3 % Home improvement and home equity loans 28 <0.01 % 36 <0.01 % Total real estate mortgage 694,326 73.1 % 646,709 70.3 % Real estate construction and development 102,374 10.8 % 127,944 13.9 % Agricultural 53,546 5.6 % 49,795 5.4 % Installment and student loans 40,192 4.3 % 42,247 4.6 % Total loans $ 949,413 100.0 % $ 920,042 100.0 % The Company’s directly originated loans are predominantly in the San Joaquin Valley and the greater Oakhurst/East Madera County area, as well as the Campbell area of Santa Clara County. The Company’s participation loans with other financial institutions and residential mortgage loans are primarily within the state of California. Commercial and industrial loans are generally made to support the ongoing operations of small- to medium-sized commercial businesses. Commercial and industrial loans have a high degree of industry diversification and provide working capital, financing for the purchase of manufacturing plants and equipment, or funding for growth and general expansion of businesses. A substantial portion of commercial and industrial loans are secured by accounts receivable, inventory, leases, or other collateral including real estate; the remainder are unsecured. Extensions of credit are predicated upon the financial capacity of the borrower and repayment is generally from the cash flow of the borrower. Real estate mortgage loans are typically secured by either trust deeds on commercial property or single-family residences. Repayment of real estate mortgage loans generally comes from the cash flow of the borrower and or guarantor(s). • Commercial real estate mortgage loans comprise the largest segment of this loan category and are available for both income-producing and non-income-producing commercial properties, including office buildings, shopping centers, apartments and motels, owner-occupied buildings, manufacturing facilities, and more. Commercial real estate mortgage loans can also be used to refinance existing debt. These loans are typically repaid from the borrower’s business operations, rental income associated with the real property, or personal assets. • Residential mortgage loans are provided to individuals to finance or refinance single-family residences. Residential mortgages are not a primary business line offered by the Company, and a majority are conventional mortgages that were purchased as a pool. • Home improvement and home equity loans comprise a relatively small portion of total real estate mortgage loans. Home equity loans are generally secured by junior trust deeds, but may be secured by 1 st trust deeds. Real estate construction and development loans consist of loans for residential and commercial construction projects, as well as land acquisition and development, and land held for future development. Loans in this category are secured by real estate, including improved- and unimproved-land, as well as single-family residential, multi-family residential, and commercial properties in various stages of completion. All real estate loans have established equity requirements. Repayment of construction loans generally comes from long-term mortgages with other lending institutions obtained at completion of the project or from the sale of the constructed homes to individuals. Agricultural loans are generally secured by land, equipment, inventory, and receivables. Repayment is from the cash flow of the borrower. Installment loans generally consist of student loans; loans to individuals for household, family, and other personal expenditures; automobiles; or other consumer items. See “ Note 4 - Student Loans” for specific information on the student loan portfolio. Off-Balance Sheet Instruments In the normal course of business, the Company is party to financial instruments with off-balance sheet risk to meet the financing needs of its customers. At June 30, 2024, and December 31, 2023, these financial instruments include commitments to extend credit of $165.7 million and $183.5 million, respectively, and standby letters of credit of $1.7 million and $2.9 million for the same period ends, respectively. These instruments involve elements of credit risk in excess of the amount recognized on the consolidated balance sheet. The contract amounts of these instruments reflect the extent of the Company’s involvement in off-balance sheet financial instruments. The Company’s exposure to credit loss in the event of nonperformance by the counterparty to these financial instruments is represented by the contractual amounts of those instruments. The Company applies the same credit policies used for on-balance sheet instruments. Commitments to extend credit continue as long as there is no violation of any condition established in the customer’s contract. Substantially all of these commitments are at floating interest rates based on the prime rate and generally have fixed expiration dates. The Company evaluates each customer’s creditworthiness on a case-by-case basis and requires collateral in some cases. Collateral held varies but may include accounts receivable, inventory, leases, property, plant and equipment, residential real estate, and income-producing properties. Standby letters of credit are generally unsecured and are issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Past Due Loans The following is a summary of the amortized cost of delinquent loans at June 30, 2024: (In thousands) Loans Loans Loans Total Past Due Loans Current Loans Total Loans Accruing Loans 90 or More Days Past Due Commercial and business loans $ — $ — $ — $ — $ 58,907 $ 58,907 $ — Government program loans — — — — 68 68 — Total commercial and industrial — — — — 58,975 58,975 — Commercial real estate loans — — 320 320 441,860 442,180 320 Residential mortgages 779 — — 779 251,339 252,118 — Home improvement and home equity loans — — — — 28 28 — Total real estate mortgage 779 — 320 1,099 693,227 694,326 320 Real estate construction and development loans — — 12,067 12,067 90,307 102,374 — Agricultural loans — — 20 20 53,526 53,546 — Installment and student loans 1,372 665 206 2,243 37,949 40,192 206 Total loans $ 2,151 $ 665 $ 12,613 $ 15,429 $ 933,984 $ 949,413 $ 526 The following is a summary of the amortized cost of delinquent loans at December 31, 2023: (In thousands) Loans Loans Loans Total Past Due Loans Current Loans Total Loans Accruing Loans 90 or More Days Past Due Commercial and business loans $ — $ — $ — $ — $ 53,273 $ 53,273 $ — Government program loans — — — — 74 74 — Total commercial and industrial — — — — 53,347 53,347 — Commercial real estate loans — — — — 386,134 386,134 — Residential mortgages — — — — 260,539 260,539 — Home improvement and home equity loans — — — — 36 36 — Total real estate mortgage — — — — 646,709 646,709 — Real estate construction and development loans — — 11,390 11,390 116,554 127,944 — Agricultural loans — — 45 45 49,750 49,795 — Installment and student loans 791 328 426 1,545 40,702 42,247 426 Total loans $ 791 $ 328 $ 11,861 $ 12,980 $ 907,062 $ 920,042 $ 426 Nonaccrual Loans Loans are placed on nonaccrual status under the following circumstances: - When there is doubt regarding the full repayment of interest and principal. - When principal and/or interest on the loan has been in default for 90 days or more, unless the asset is both well-secured and in the process of collection that will result in repayment in the near future. - When the loan is identified as having loss elements and/or is risk rated grade 8 (doubtful). Loans on nonaccrual status are usually returned to accrual status when all delinquent principal and/or interest has been brought current, when there is no identified element of loss, and when current and continued satisfactory performance is expected. Return to accrual is generally demonstrated through the timely receipt of at least six monthly payments on a loan with monthly amortization. There was no interest income recognized on nonaccrual loans for the six months ended June 30, 2024 and 2023. There were no remaining undisbursed commitments to extend credit on nonaccrual loans at June 30, 2024, or December 31, 2023. The following table presents the amortized cost basis of loans on nonaccrual status and accruing loans more than 90 days past due: June 30, 2024 December 31, 2023 (In thousands) Nonaccrual Loans With No Allowance For Credit Losses Total Nonaccrual Loans Accruing Loans 90 or More Days Past Due Nonaccrual Loans With No Allowance For Credit Losses Total Nonaccrual Loans Accruing Loans 90 or More Days Past Due Commercial real estate loans $ — $ — $ 320 $ — $ — $ — Real estate construction and development loans 12,080 12,080 — 11,403 11,403 — Agricultural loans 20 20 — — 45 — Installment and student loans — — 206 — — 426 Total $ 12,100 $ 12,100 $ 526 $ 11,403 $ 11,448 $ 426 Credit Quality Indicators As part of its credit monitoring program, the Company utilizes a risk rating system to quantify the risk the Company estimates it has assumed during the life of a loan. This system rates the strength of the borrower and the facility or transaction, and is designed to provide a program for risk management and early detection of problems. For each new credit approval, credit extension, renewal, or modification of existing credit facilities, the Company assigns risk ratings utilizing the rating scale identified in this policy. In addition, on an ongoing basis, loans and credit facilities are reviewed for internal and external influences impacting the credit facility that would warrant a change in the risk rating. Each credit facility is given a risk rating that takes into account factors that materially affect credit quality. When assigning risk ratings, the Company evaluates two risk-rating approaches; a facility rating and a borrower rating. Facility Rating: The facility rating is determined by the analysis of positive and negative factors that may indicate that the quality of a particular loan or credit arrangement requires a different risk rating than that assigned to the borrower. The Company assesses the risk impact of these factors: Collateral - The rating may be affected by the type and quality of the collateral, the degree of coverage, the economic life of the collateral, the liquidation value, and the Company's ability to dispose of the collateral. Guarantees - The value of third-party support arrangements varies widely. Unconditional guarantees from persons with demonstrable ability to perform are more substantial than that of persons closely-related to the borrower who offer only modest support. Unusual Terms - Credit may be extended on terms that subject the Company to a higher level of risk than indicated in the rating of the borrower. Borrower Rating: The borrower rating is a measure of loss possibility based on the historical, current, and anticipated financial characteristics of the borrower in the current risk environment. To determine the rating, the Company considers the following factors: - Quality of management - Liquidity - Leverage/capitalization - Profit margins/earnings trend - Adequacy of financial records - Alternative funding sources - Geographic risk - Industry risk - Cash flow risk - Accounting practices - Asset protection - Extraordinary risks The Company assigns risk ratings to loans, other than consumer loans and other homogeneous loan pools, based on the following scale. The risk ratings are used when determining borrower ratings as well as facility ratings. The Company uses the following risk rating grades: Pass Ratings: - Grades 1 and 2 – These grades include loans to high-quality borrowers with high credit quality and sound financial strength. Key financial ratios are generally above industry averages and the borrower has a strong earnings history or net worth. These may be secured by deposit accounts or high-grade investment securities. - Grade 3 – This grade includes loans to borrowers with solid credit quality and minimal risk. The borrower’s balance sheet and financial ratios are generally in line with industry averages, and the borrower has historically demonstrated the ability to manage economic adversity. Real estate and asset-based loans assigned this risk rating must have characteristics that place them well above the minimum underwriting requirements for those departments. Asset-based borrowers assigned this rating must exhibit extremely favorable leverage and cash flow characteristics and consistently demonstrate a high level of unused borrowing capacity. - Grades 4 and 5 – These include pass-grade loans to borrowers of acceptable credit quality and risk. The borrower’s balance sheet and financial ratios may be below industry averages but above the lowest industry quartile. Leverage is above and liquidity is below industry averages. Inadequacies evident in financial performance and/or management sufficiency are offset by readily available features of support, such as adequate collateral, or good guarantors having the liquid assets and/or cash flow capacity to repay the debt. Although the borrower may have recognized a loss over three Special Mention Rating: - Grade 6 – This grade includes loans that are currently protected but potentially weak. This is generally an interim classification and these loans will typically be upgraded to an acceptable rating or downgraded to a substandard rating within a reasonable time period. Weaknesses in special mention loans may, if not checked or corrected, weaken the asset or inadequately protect the Company’s credit position at some future date. Special mention loans are often loans with weaknesses inherent in the loan origination and loan servicing, and may have some technical deficiencies. This designation indicates a distinct probability that the classification will deteriorate to a more adverse class if the noted deficiencies are not addressed by the loan officer or loan management. Substandard Rating: - Grade 7 – This grade includes substandard loans that are inadequately supported by the current sound net worth and paying capacity of the borrower or the collateral pledged, if any. Substandard loans have a well-defined weakness, or weaknesses, that may impair the regular liquidation of the debt. When a loan has been downgraded to substandard, there exists a distinct possibility that the Company will sustain a loss if the deficiencies are not corrected. Doubtful Ratings: - Grade 8 – This grade includes doubtful loans that exhibit the same characteristics as substandard loans. Loan weaknesses make collection or liquidation in full, based on currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high but, due to pending factors that may work toward the strengthening of the loan, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include a proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and refinancing plans. - Grade 9 – This grade includes loans classified as loss which are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the asset even though partial recovery may be achieved in the future. The following table presents loans by class, at amortized cost, by risk rating, and period indicated as of June 30, 2024: Term Loans Amortized Cost Basis by Origination Year - As of June 30, 2024 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans (In thousands) 2024 2023 2022 2021 2020 Prior Total Commercial and business Pass $ 4,032 $ 5,515 $ 4,870 $ 1,921 $ 603 $ 856 $ 40,517 $ — $ 58,314 Special Mention — — — — — — 421 — 421 Substandard — — 80 — — 92 — — 172 Total $ 4,032 $ 5,515 $ 4,950 $ 1,921 $ 603 $ 948 $ 40,938 $ — $ 58,907 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Government program Pass $ — $ — $ — $ — $ 5 $ 63 $ — $ — $ 68 Special Mention — — — — — — — — — Substandard — — — — — — — — — Total $ — $ — $ — $ — $ 5 $ 63 $ — $ — $ 68 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate Pass $ 71,434 $ 39,265 $ 80,980 $ 50,134 $ 38,456 $ 154,123 $ 1,491 $ — $ 435,883 Special Mention — — — — 5,726 — — — 5,726 Substandard — — — 571 — — — — 571 Total $ 71,434 $ 39,265 $ 80,980 $ 50,705 $ 44,182 $ 154,123 $ 1,491 $ — $ 442,180 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Residential mortgages Not graded $ — $ — $ 24,595 $ 200,792 $ 2,511 $ 7,500 $ — $ — $ 235,398 Pass — 3,967 1,925 4,576 1,580 4,672 — — 16,720 Special Mention — — — — — — — — — Substandard — — — — — — — — — Total $ — $ 3,967 $ 26,520 $ 205,368 $ 4,091 $ 12,172 $ — $ — $ 252,118 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Home improvement and home equity Not graded $ — $ — $ — $ — $ — $ 28 $ — $ — $ 28 Pass — — — — — — — — — Special Mention — — — — — — — — — Substandard — — — — — — — — — Total $ — $ — $ — $ — $ — $ 28 $ — $ — $ 28 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Real estate construction and development Pass $ 1,164 $ 11,793 $ 8,000 $ — $ 32,879 $ 3,187 $ 33,270 $ — $ 90,293 Special Mention — — — — — — — — — Substandard — — — — 3,524 8,557 — — 12,081 Total $ 1,164 $ 11,793 $ 8,000 $ — $ 36,403 $ 11,744 $ 33,270 $ — $ 102,374 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Term Loans Amortized Cost Basis by Origination Year - As of June 30, 2024 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans (In thousands) 2024 2023 2022 2021 2020 Prior Total Agricultural Pass $ 1,986 $ 2,077 $ 4,078 $ 500 $ 2,885 $ 13,702 $ 24,914 $ — $ 50,142 Special Mention — — 1,804 — 440 285 465 — 2,994 Substandard — — — — — 20 390 — 410 Total $ 1,986 $ 2,077 $ 5,882 $ 500 $ 3,325 $ 14,007 $ 25,769 $ — $ 53,546 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Installment and student loans Not graded $ 272 $ 585 $ 169 $ 121 $ 51 $ 37,061 $ 572 $ — $ 38,831 Pass — 1,155 — — — — — — 1,155 Special Mention — — — — — — — — — Substandard — — — — — 206 — — 206 Total $ 272 $ 1,740 $ 169 $ 121 $ 51 $ 37,267 $ 572 $ — $ 40,192 Current period gross charge-offs $ — $ 20 $ — $ — $ — $ 781 $ — $ — $ 801 Total loans outstanding (risk rating): Not graded $ 272 $ 585 $ 24,764 $ 200,913 $ 2,562 $ 44,589 $ 572 $ — $ 274,257 Pass 78,616 63,772 99,853 57,131 76,408 176,603 100,192 — 652,575 Special Mention — — 1,804 — 6,166 285 886 — 9,141 Substandard — — 80 571 3,524 8,875 390 — 13,440 Grand total loans $ 78,888 $ 64,357 $ 126,501 $ 258,615 $ 88,660 $ 230,352 $ 102,040 $ — $ 949,413 Total current period gross charge-offs $ — $ 20 $ — $ — $ — $ 781 $ — $ — $ 801 The following table presents loans by class, at amortized cost, by risk rating, and period indicated as of December 31, 2023: Term Loans Amortized Cost Basis by Origination Year - As of December 31, 2023 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans (In thousands) 2023 2022 2021 2020 2019 Prior Total Commercial and business Pass $ 5,989 $ 5,066 $ 1,594 $ 810 $ 6 $ 939 $ 38,869 $ — $ 53,273 Special Mention — — — — — — — — — Substandard — — — — — — — — — Total $ 5,989 $ 5,066 $ 1,594 $ 810 $ 6 $ 939 $ 38,869 $ — $ 53,273 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Government program Pass $ — $ — $ — $ 8 $ — $ 66 $ — $ — $ 74 Special Mention — — — — — — — — — Substandard — — — — — — — — — Total $ — $ — $ — $ 8 $ — $ 66 $ — $ — $ 74 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate Pass $ 40,929 $ 81,823 $ 52,019 $ 39,155 $ 60,626 $ 105,285 $ 501 $ — $ 380,338 Special Mention — — — 5,796 — — — — 5,796 Substandard — — — — — — — — — Total $ 40,929 $ 81,823 $ 52,019 $ 44,951 $ 60,626 $ 105,285 $ 501 $ — $ 386,134 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Residential mortgages Not graded $ — $ 24,835 $ 206,257 $ 2,260 $ — $ 8,969 $ — $ — $ 242,321 Pass 4,189 1,925 5,253 1,579 3,494 1,778 — — 18,218 Special Mention — — — — — — — — — Substandard — — — — — — — — — Total $ 4,189 $ 26,760 $ 211,510 $ 3,839 $ 3,494 $ 10,747 $ — $ — $ 260,539 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Home improvement and home equity Not graded $ — $ — $ — $ — $ — $ 32 $ — $ — $ 32 Pass — — — — — 4 — — 4 Special Mention — — — — — — — — — Substandard — — — — — — — — — Total $ — $ — $ — $ — $ — $ 36 $ — $ — $ 36 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Term Loans Amortized Cost Basis by Origination Year - As of December 31, 2023 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans (In thousands) 2023 2022 2021 2020 2019 Prior Total Real estate construction and development Pass $ 27,951 $ 9,571 $ — $ 31,308 $ — $ 3,978 $ 43,734 $ — $ 116,542 Special Mention — — — — — — — — — Substandard — — — 3,524 — 7,878 — — 11,402 Total $ 27,951 $ 9,571 $ — $ 34,832 $ — $ 11,856 $ 43,734 $ — $ 127,944 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Agricultural Pass $ 2,086 $ 4,163 $ 457 $ 2,958 $ 1,592 $ 12,574 $ 22,556 $ — $ 46,386 Special Mention — 2,105 — 513 — 356 — — 2,974 Substandard — — — — — 45 390 — 435 Total $ 2,086 $ 6,268 $ 457 $ 3,471 $ 1,592 $ 12,975 $ 22,946 $ — $ 49,795 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Installment and student loans Not graded $ 708 $ 250 $ 142 $ 74 $ 483 $ 38,519 $ 472 $ — $ 40,648 Pass 1,173 — — — — — — — 1,173 Special Mention — — — — — — — — — Substandard — — — — — 426 — — 426 Total $ 1,881 $ 250 $ 142 $ 74 $ 483 $ 38,945 $ 472 $ — $ 42,247 Current period gross charge-offs $ — $ — $ — $ — $ — $ 2,588 $ — $ — $ 2,588 Total loans outstanding (risk rating): Not graded 708 25,085 206,399 2,334 483 47,520 472 — 283,001 Pass 82,317 102,548 59,323 75,818 65,718 124,624 105,660 — 616,008 Special Mention — 2,105 — 6,309 — 356 — — 8,770 Substandard — — — 3,524 — 8,349 390 — 12,263 Grand total loans $ 83,025 $ 129,738 $ 265,722 $ 87,985 $ 66,201 $ 180,849 $ 106,522 $ — $ 920,042 Total current period gross charge-offs $ — $ — $ — $ — $ — $ 2,588 $ — $ — $ 2,588 Allowance for Credit Losses on Loans The Company adopted ASU 2016-13, Financial Instrument-Credit Losses (Topic 326), effective January 1, 2023. This loss measurement, which uses the current expected credit loss (CECL) cohort methodology analysis, relies on segmenting the loan portfolio into pools with similar risks, tracking the performance of the pools over time, and using the data to determine pool loss experience. Management estimates the allowance for credit loss balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The cumulative loss rate used as the basis for the estimate of credit losses is comprised of the Company’s historical loss experience from 2006 to the most recent quarter. The Company expects that the markets in which it operates will experience a slight decline in economic conditions and an increase in unemployment rates and levels and trends of delinquencies over the next two years. Management has adjusted the historical loss experience for these expectations. The Company analyzes risk characteristics inherent in each loan portfolio segment as part of the quarterly review of the adequacy of the allowance for credit losses on loans. The following summarizes some of the key risk characteristics for the ten segments of the loan portfolio: Commercial and industrial loans – Commercial loans are subject to the effects of economic cycles and tend to exhibit increased risk as economic conditions deteriorate or economic downturns are prolonged. The Company considers this segment to be one of higher risk given the size of individual loans and the balances in the overall portfolio. Government program loans – This is a relatively small part of the Company’s loan portfolio but has historically had a high percentage of loans that have migrated from pass to substandard given their vulnerability to economic cycles. Commercial real estate loans – This segment is considered to have more risk due to the vulnerability of commercial businesses to economic cycles as well as their exposure to fluctuations in real estate prices. Losses in this segment have been historically low because most loans are real estate-secured, and the Bank maintains appropriate loan-to-value ratios. Residential mortgages – This segment is considered to have low risk factors based on the past experience of both the Company and peers. Loans in this category are secured by first deeds of trust. Home improvement and home equity loans – Because of their junior lien position, these loans have an inherently higher risk level. Real estate construction and development loans – This segment of loans is considered to have a higher risk profile due to construction issues and market value fluctuations in conjunction with normal credit risks. Agricultural loans – This segment is considered to have risks associated with weather, insects, marketing issues, commodity prices, land valuation, water availability, fertilizer costs, and crop concentration. Additionally, California may experience severe droughts, which can significantly harm the business of customers and the credit quality of the loans to those customers. Water resources and related issues affecting customers are closely monitored. Signs of deterioration within this loan portfolio are closely monitored to manage credit quality and promote early efforts to work with borrowers to mitigate any potential losses. Installment, overdrafts, and overdraft protection lines – This segment is at higher risk because most of the loans are unsecured. Additionally, in the case of student loans, there are increased risks associated with liquidity as there is a significant time lag between funding a student loan and eventual repayment. The following summarizes the activity in the allowance for credit losses by loan category: Three Months Ended June 30, 2024 (In thousands) Commercial and Industrial Real Estate Mortgage Real Estate Construction Development Agricultural Installment and Student Loans Total Beginning balance $ 1,981 $ 2,732 $ 3,008 $ 1,097 $ 6,633 $ 15,451 Provision (reversal) for credit losses (1) 131 11 (611) 84 609 224 Charge-offs — — — — (397) (397) Recoveries 1 — — — 44 45 Ending balance $ 2,113 $ 2,743 $ 2,397 $ 1,181 $ 6,889 $ 15,323 (1) There was a reversal of provision of $194,000 for unfunded loan commitments and a provision for overdrafts of $11,000 during the quarter ended June 30, 2024. Three Months Ended June 30, 2023 (In thousands) Commercial and Industrial Real Estate Mortgage Real Estate Construction Development Agricultural Installment and Student Loans Total Beginning balance $ 1,908 $ 3,705 $ 3,587 $ 1,256 $ 5,166 $ 15,622 Provision (reversal) for credit losses (1) 98 (5) (74) 248 689 956 Charge-offs — — — — (518) (518) Recoveries 1 31 — — 18 50 Ending balance $ 2,007 $ 3,731 $ 3,513 $ 1,504 $ 5,355 $ 16,110 (1) There was a provision of $135,000 for unfunded loan commitments during the quarter ended June 30, 2023. Six Months Ended June 30, 2024 (In thousands) Commercial and Industrial Real Estate Mortgage Real Estate Construction Development Agricultural Installment and Student Loans Total Beginning balance $ 1,903 $ 2,524 $ 3,614 $ 1,250 $ 6,367 $ 15,658 Provision (reversal) for credit losses (1) 209 215 (1,217) (69) 1,168 306 Charge-offs — — — — (812) (812) Recoveries 1 4 — — 166 171 Ending balance $ 2,113 $ 2,743 $ 2,397 $ 1,181 $ 6,889 $ 15,323 (1) There was a reversal of provision of $103,000 for unfunded loan commitments and a provision for overdrafts of $11,000 during the six months ended June 30, 2024. Six Months Ended June 30, 2023 (In thousands) Commercial and Industrial Real Estate Mortgage Real Estate Construction Development Agricultural Installment and Student Loans Total Beginning balance $ 955 $ 1,363 $ 3,409 $ 525 $ 3,930 $ 10,182 Impact of ASC 326 adoption 1,336 2,359 721 1,025 926 6,367 Provision (reversal) for credit losses (1) (285) (42) (617) (46) 1,453 463 Charge-offs — — — — (995) (995) Recoveries 1 51 — — 41 93 Ending balance $ 2,007 $ 3,731 $ 3,513 $ 1,504 $ 5,355 $ 16,110 (1) There was a provision of $135,000 for unfunded loan commitments during the six months ended June 30, 2023. Collateral-Dependent Loans A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table presents the recorded investment in collateral-dependent loans by type of loan: June 30, 2024 December 31, 2023 (Dollars in thousands) Amount Number of Collateral-Dependent Loans Amount Number of Collateral-Dependent Loans Real estate construction and development loans $ 12,067 3 $ 11,390 3 Agricultural loans 390 1 390 1 Total $ 12,457 4 $ 11,780 4 Reserve for Unfunded 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 in the same manner as it evaluates credit risk within the loan portfolio. There was a reversal of provision of $194,000 for unfunded loan commitments made during the quarter ended June 30, 2024, decreasing the liability balance to $732,000. For the quarter ended June 30, 2023, there was a provision of $135,000 made for unfunded loan commitments increasing the balance for unfunded loan commitments to $940,000. For the six months ended June 30, 2024 and 2023, a reversal of provision of $103,000 and a provision of $135,000 were made, respectively. The reserve for the unfunded loan commitments is a liability on the Company’s consolidated financial statements and is included in other liabilities. Loan Modifications Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, and other-than-insignificant payment delay or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged off against the allowance for credit losses. There was one loan modification made during the three and six months ended June 30, 2024. No loans modifications were made during the three or six months ended June 30, 2023. The following tables present loan modifications made to borrowers experiencing financial difficulties for the periods indicated: Three Months Ended June 30, 2024 (In thousands) Principal Forgiveness Term Extension Interest Rate Reduction Payment Delay Total % of Loans Outstanding Commercial and business loans — $ 92 — — <0.01% Six Months Ended June 30, 2024 (In thousands) Principal Forgiveness Term Extension Interest Rate Reduction Payment Delay Total % of Loans Outstanding Commercial and business loans — $ 92 — — <0.01% |
