Loans, Notes, Trade and Other Receivables Disclosure [Text Block] | NOTE 4 LOANS The Company’s customers are primarily located in Stanislaus, San Joaquin, Tuolumne, Inyo, and Mono Counties. As of June 30, 2024, approximately 86% of the Company’s loans are commercial real estate loans, which include construction loans. Approximately 7% of the Company’s loans are for general commercial uses including professional, retail, and small business. Additionally, 3% of the Company’s loans are for residential real estate and other consumer loans. The remaining 4% are agriculture loans. As of June 30, 2024, accrued interest receivable on loans was $3,294,000 and is not included in the tables within this footnote. Loan totals were as follows: (in thousands) June 30, 2024 December 31, 2023 Commercial real estate: Construction & land $ 46,080 $ 63,060 Multi-family 57,371 54,045 Owner occupied 221,790 210,407 Non-owner occupied 504,954 470,052 Farmland 94,712 96,188 Commercial and industrial 74,868 65,218 Consumer 33,229 31,687 Agriculture 37,033 25,922 Total loans 1,070,037 1,016,579 Less: Deferred loan fees and costs, net (1,318 ) (1,406 ) Allowance for credit losses (11,121 ) (10,896 ) Net loans $ 1,057,598 $ 1,004,277 Loan Origination/Risk Management. Commercial and industrial loans Commercial real estate loans With respect to loans to developers and builders that are secured by non-owner occupied properties that the Company may originate from time to time, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success. Construction loans Consumer loans Agricultural loans The Company maintains an independent loan review function that validates the credit risk program on a periodic basis. Results of these reviews are presented to management. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures. Non-Accrual and Past Due Loans. No The following table analyzes past due loans including any past due non-accrual loans, segregated by class of loans, as of June 30, 2024 (in thousands): June 30, 2024 30-59 60-89 90 Days Total Current Total 90 Days Commercial real estate: Construction & land $ 0 $ 0 $ 0 $ 0 $ 46,080 $ 46,080 $ 0 Multi-family 0 0 0 0 57,371 57,371 0 Owner occupied 0 0 0 0 221,790 221,790 0 Non-owner occupied 0 0 0 0 504,954 504,954 0 Farmland 0 0 0 0 94,712 94,712 0 Commercial and industrial 0 0 0 0 74,868 74,868 0 Consumer 0 0 0 0 33,229 33,229 0 Agriculture 0 0 0 0 37,033 37,033 0 Total $ 0 $ 0 $ 0 $ 0 $ 1,070,037 $ 1,070,037 $ 0 The following table analyzes past due loans including any past due non-accrual loans, segregated by class of loans, as of December 31, 2023 (in thousands): December 31, 2023 30-59 60-89 90 Days Total Current Total 90 Days Commercial real estate: Construction & land $ 0 $ 0 $ 0 $ 0 $ 63,060 $ 63,060 $ 0 Multi-family 0 0 0 0 54,045 54,045 0 Owner occupied 0 0 0 0 210,407 210,407 0 Non-owner occupied 0 0 0 0 470,052 470,052 0 Farmland 0 0 0 0 96,188 96,188 0 Commercial and industrial 0 0 0 0 65,218 65,218 0 Consumer 0 0 0 0 31,687 31,687 0 Agriculture 0 0 0 0 25,922 25,922 0 Total $ 0 $ 0 $ 0 $ 0 $ 1,016,579 $ 1,016,579 $ 0 Collateral Dependent Loans. no Loan Modification Disclosures Pursuant to ASU 2022-02 Loan Risk Grades The Company grades loans using the following letter system: 1 Exceptional Loan 2 Quality Loan 3A Better Than Acceptable Loan 3B Acceptable Loan 3C Marginally Acceptable Loan 4 (W) Watch Acceptable Loan 5 Special Mention Loan 6 Substandard Loan 7 Doubtful Loan 8 Loss 1. Exceptional Loan ● A high level of liquidity and whose debt-servicing capacity exceeds expected obligations by a substantial margin. ● Where leverage is below average for the industry and earnings are consistent or growing without severe vulnerability to economic cycles. ● Also included in this rating (but not mandatory unless one or more of the preceding characteristics are missing) are loans that are fully secured and properly margined by our own time instruments or U.S. blue chip securities. To be properly margined, cash collateral must be equal to, or greater than, 110% of the loan amount. 2. Quality Loan ● Unquestionable debt-servicing capacity to cover all obligations in the ordinary course of business from well-defined primary and secondary sources. ● Consistent strong earnings. ● A solid equity base. 3A. Better than Acceptable Loan ● Strong earnings with no loss in last three years and ample cash flow to service all debt well above policy guidelines. ● Long term experienced management with depth and defined management succession. ● The loan has no exceptions to policy. ● Loan-to-value on real estate secured transactions is 10% to 20% less than policy guidelines. ● Very liquid balance sheet that may have cash available to pay off our loan completely. ● Little to no debt on balance sheet. 3B. Acceptable Loan ● Are those where the borrower has average financial strengths, a history of profitable operations and experienced management. ● Are those where the borrower can be expected to handle normal credit needs in a satisfactory manner. 3C. Marginally Acceptable Loan ● Requires collateral. ● A credit facility where the borrower has average financial strengths, but usually lacks reliable secondary sources of repayment other than the subject collateral. ● Other common characteristics can include some or all of the following: minimal background experience of management, lacking continuity of management, a start-up operation, erratic historical profitability (acceptable reasons-well identified), lack of or marginal sponsorship of guarantor, and government guaranteed loans. 4(W). Watch Acceptable Loan ● Any unexpected short-term adverse financial performance from budgeted projections or a prior period’s results (i.e., declining profits, sales, margins, cash flow, or increased reliance on leverage, including adverse balance sheet ratios, trade debt issues, etc.). ● Any managerial or personal problems with company management, decline in the entire industry or local economic conditions, or failure to provide financial information or other documentation as requested. ● Issues regarding delinquency, overdrafts, or renewals. ● Any other issues that cause concern for the company. ● Loans to individuals or loans supported by guarantors with marginal net worth and/or marginal collateral. ● Weaknesses that are identified are short-term in nature. ● Loans in this category are usually accounts the Bank would want to retain providing a positive turnaround can be expected within a reasonable time frame. Grade 4(W) loans are considered Pass. 5. Special Mention Loan ● The lending officer may be unable to properly supervise the credit because of an inadequate loan or credit agreement. ● Questions exist regarding the condition of and/or control over collateral. ● Economic or market conditions may unfavorably affect the obligor in the future. ● A declining trend in the obligor’s operations or an imbalanced position in the balance sheet exists, but not to the point that repayment is jeopardized. 6. Substandard Loan 7. Doubtful Loan 8. Loss As of June 30, 2024 and December 31, 2023, there are no 8- Loss. The risk grades are reviewed every month, at a minimum and on an as-needed basis depending on the specific circumstances of the loan. The following table summarizes loan risk grade totals by class and year of origination as of June 30, 2024. Risk grades 1 through 4(W) have been aggregated in the “Pass” line. As of June 30, 2024 (in thousands) Term Loans Amortized Cost Basis by Origination Year Risk Grade Ratings 2024 2023 2022 2021 2020 Prior Revolving Loans Total Commercial real estate - construction & land Pass $ 3,960 $ 16,357 $ 22,031 $ 923 $ 0 $ 2,809 $ 0 $ 46,080 Total commercial real estate - construction & land 3,960 16,357 22,031 923 0 2,809 0 46,080 Commercial real estate - multi-family Pass 3,904 4,746 6,907 7,738 3,413 30,663 0 57,371 Total commercial real estate - multi-family 3,904 4,746 6,907 7,738 3,413 30,663 0 57,371 Commercial real estate - owner occupied Pass 16,836 9,913 43,013 47,255 24,678 67,645 63 209,403 Special mention 0 0 0 7,541 0 284 0 7,825 Substandard 0 0 0 0 0 4,562 0 4,562 Total commercial real estate - owner occupied 16,836 9,913 43,013 54,796 24,678 72,491 63 221,790 Commercial real estate - non-owner occupied Pass 19,539 88,887 87,073 79,806 40,724 184,261 2,261 502,551 Special mention 0 0 0 0 0 2,403 0 2,403 Total commercial real estate - non-owner occupied 19,539 88,887 87,073 79,806 40,724 186,664 2,261 504,954 Commercial real estate - Farmland Pass 4,935 13,474 10,212 16,740 14,769 28,494 0 88,624 Special mention 0 0 0 0 0 6,088 0 6,088 Total commercial real estate - farmland 4,935 13,474 10,212 16,740 14,769 34,582 0 94,712 Commercial and Industrial Pass 10,151 12,071 10,554 7,874 4,764 5,078 24,304 74,796 Special mention 0 0 0 0 0 3 0 3 Substandard 0 0 0 0 0 69 0 69 Total commercial and industrial 10,151 12,071 10,554 7,874 4,764 5,150 24,304 74,868 Consumer Pass 2,524 1,119 4,914 3,660 2,152 9,260 9,555 33,184 Substandard 1 0 0 0 0 44 0 45 Total consumer 2,525 1,119 4,914 3,660 2,152 9,304 9,555 33,229 Agriculture Pass 28 1,907 1,225 1,290 0 577 25,851 30,878 Special mention 0 1,585 0 0 0 0 4,570 6,155 Total agriculture 28 3,492 1,225 1,290 0 577 30,421 37,033 Total by Risk Category Pass 61,877 148,474 185,929 165,286 90,500 328,787 62,034 1,042,887 Special mention 0 1,585 0 7,541 0 8,778 4,570 22,474 Substandard 1 0 0 0 0 4,675 0 4,676 Total $ 61,878 $ 150,059 $ 185,929 $ 172,827 $ 90,500 $ 342,240 $ 66,604 $ 1,070,037 The following table summarizes loan risk grade totals by class and year of origination as of December 31, 2023. Risk grades 1 through 4(W) have been aggregated in the “Pass” line. As of December 31, 2023 (in thousands) Term Loans Amortized Cost Basis by Origination Year Risk Grade Ratings 2023 2022 2021 2020 2019 Prior Revolving Loans Total Commercial real estate - Construction & land Pass $ 16,237 $ 42,670 $ 1,259 $ 0 $ 1,244 $ 1,650 $ 0 $ 63,060 Total commercial real estate - construction & land 16,237 42,670 1,259 0 1,244 1,650 0 63,060 Commercial real estate - Multi-family Pass 3,803 6,976 8,711 3,473 6,780 24,302 0 54,045 Total commercial real estate - multi-family 3,803 6,976 8,711 3,473 6,780 24,302 0 54,045 Commercial real estate - Owner occupied Pass 10,031 40,666 48,377 25,642 14,341 57,971 251 197,279 Special mention 0 0 7,683 0 0 289 530 8,502 Substandard 0 0 0 0 4,626 0 0 4,626 Total commercial real estate - owner occupied 10,031 40,666 56,060 25,642 18,967 58,260 781 210,407 Commercial real estate - Non-owner occupied Pass 78,417 71,236 81,386 43,531 44,413 145,073 1,879 465,935 Special mention 0 0 0 0 0 4,117 0 4,117 Total commercial real estate - non-owner occupied 78,417 71,236 81,386 43,531 44,413 149,190 1,879 470,052 Commercial real estate - Farmland Pass 14,377 10,393 1,667 15,392 6,551 31,610 15,717 95,707 Special mention 0 0 0 0 0 481 0 481 Total commercial real estate - farmland 14,377 10,393 1,667 15,392 6,551 32,091 15,717 96,188 Commercial and Industrial Pass 10,967 11,268 9,608 6,018 4,384 2,239 20,502 64,986 Special mention 0 0 0 139 0 6 0 145 Substandard 0 0 0 0 0 87 0 87 Total commercial and industrial 10,967 11,268 9,608 6,157 4,384 2,332 20,502 65,218 Consumer Pass 1,234 5,042 4,104 2,213 2,074 7,555 8,529 30,751 Special mention 0 0 0 0 0 0 890 890 Substandard 0 0 0 0 0 46 0 46 Total consumer 1,234 5,042 4,104 2,213 2,074 7,601 9,419 31,687 Agriculture Pass 3,032 1,707 1,309 0 214 488 18,984 25,734 Special mention 0 0 0 0 0 0 188 188 Total agriculture 3,032 1,707 1,309 0 214 488 19,172 25,922 Total by Risk Category Pass 138,098 189,958 156,421 96,269 80,001 270,888 65,862 997,497 Special mention 0 0 7,683 139 0 4,893 1,608 14,323 Substandard 0 0 0 0 4,626 133 0 4,759 Total $ 138,098 $ 189,958 $ 164,104 $ 96,408 $ 84,627 $ 275,914 $ 67,470 $ 1,016,579 Allowance for Credit Losses ( “ ACL ” ). The DCF quantitative reserve methodology incorporates the consideration of probability of default (“PD”) and loss given default (“LGD”) estimates to estimate periodic losses. The PD estimates are derived through the application of reasonable and supportable economic forecasts to call code specific regression models, derived from the consideration of historical bank-specific and peer loss-rate data. The loss rate data has been regressed against benchmark economic indicators, for which reasonable and supportable forecasts exist, in the development of the call-code specific regression models. Regression models are generally refreshed on an annual basis, in order to pull in more recent loss rate data. Reasonable and supportable forecasts of the selected economic metric are then input into the regression model to calculate an expected default rate. The expected default rates are then applied to expected monthly loan balances estimated through the consideration of contractual repayment terms and expected prepayments. The Company utilizes a four-quarter forecast period, after which the expected default rates revert to the historical average for each call code, over a four-quarter reversion period, on a straight-line basis. The prepayment assumptions applied to expected cash flow over the contractual life of the loans are estimated based on historical, bank-specific experience, peer data and the consideration of current and expected conditions and circumstances including the level of interest rates. The prepayment assumptions may be updated by Management in the event that changing conditions impact Management’s estimate or additional historical data gathered has resulted in the need for a reevaluation. LGD utilized in the DCF is derived from the application of the Frye-Jacobs theory which relates LGD to PD based on historical peer data, as calculated by a third-party. The call code regression models utilized upon implementation of CECL on January 1, 2023, and as of June 30, 2024, were identical, and relied upon reasonable and supportable forecasts of the National Unemployment Rate. Some of the call code regression models also use the Real Gross Domestic Product. Management selected the National Unemployment Rate and the Real Gross Domestic Product as the drivers of quantitative portion of collectively reserves on loan classes reliant upon the DCF methodology, primarily as a result of high correlation coefficients identified in regression modeling, the availability of forecasts including the quarterly FOMC forecast, and given the widespread familiarity of stakeholders with this economic metric. Management recognizes that there are additional factors impacting risk of loss in the loan portfolio beyond what is captured in the quantitative portion of reserves on collectively evaluated loans. As current and expected conditions, may vary compared with conditions over the historical lookback period, which is utilized in the calculation of quantitative reserves, management considers whether additional or reduced reserve levels on collectively evaluated loans may be warranted given the consideration of a variety of qualitative factors. Several of the following qualitative factors (“Q-factors”) considered by management reflect the legacy regulatory guidance on Q-factors, whereas several others represent factors unique to the Company or unique to the current time period. ● Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices ● Changes in international, regional and local economic and business conditions, and developments that affect the collectability of the portfolio, as reflected in forecasts of the California unemployment rate ● Changes in the nature and volume of the loan portfolio ● Changes in the experience, ability, and depth of lending management and other relevant staff ● Changes in the volume and severity of past due, watch loans and classified loans ● Changes in the quality of the Bank’s loan review processes ● Changes in the value of underlying collateral for loans not identified as collateral dependent ● Changes in loan categorization concentrations ● Other external factors, which include, the regulatory risk ratings. The qualitative portion of the Company’s reserves on collectively evaluated loans are calculated using a combination of numeric frameworks and management judgement, to determine risk categorizations in each of the Q-factors presented above. The amount of qualitative reserves is also contingent upon the relative weighting of Q-factors according to management’s judgement. Loans identified as losses by management, internal loan review and/or bank examiners are charged-off. Furthermore, consumer loan accounts are charged-off automatically based on regulatory requirements. Accrued interest receivable for loans is included in the “Interest receivable and other assets” line item on the Company’s Consolidated Balance Sheet. The Company elected not to measure an allowance for accrued interest receivable and instead elected to reverse accrued interest income on loans that are placed on nonaccrual status. The Company believes this policy results in the timely reversal of uncollectible interest. The following table details activity in the ACL by portfolio segment for the three and six-month periods ended June 30, 2024 and 2023. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. Allowance for Credit Losses For the Three and Six Months Ended June 30, 2024 and 2023 (in thousands) Three Months Ended June 30, 2024 CRE & Land CRE Multi- family CRE Owner occupied CRE Non- owner occupied CRE Farmland Commercial and Industrial Consumer Agriculture Total Beginning balance $ 1,059 $ 634 $ 1,809 $ 4,620 $ 1,462 $ 1,022 $ 235 $ 81 $ 10,922 Charge-offs 0 0 0 0 0 0 (10 ) 0 (10 ) Recoveries 206 0 0 0 0 0 3 0 209 Provision for (reversal of) credit losses (356 ) 32 47 144 (53 ) 155 11 20 0 Ending balance $ 909 $ 666 $ 1,856 $ 4,764 $ 1,409 $ 1,177 $ 239 $ 101 $ 11,121 Six Months Ended June 30, 2024 Beginning balance $ 1,227 $ 667 $ 1,805 $ 4,805 $ 1,468 $ 650 $ 227 $ 47 $ 10,896 Charge-offs 0 0 0 0 0 0 (25 ) 0 (25 ) Recoveries 242 0 0 0 0 0 8 0 250 Provision for (reversal of) credit losses (560 ) (1 ) 51 (41 ) (59 ) 527 29 54 0 Ending balance $ 909 $ 666 $ 1,856 $ 4,764 $ 1,409 $ 1,177 $ 239 $ 101 $ 11,121 Three Months Ended June 30, 2023 Beginning balance $ 757 $ 509 $ 1,955 $ 4,344 $ 902 $ 679 $ 203 $ 34 $ 9,383 CECL Day-One Adjustments 0 0 0 0 0 0 0 0 0 Charge-offs 0 0 0 0 0 0 (9 ) 0 (9 ) Recoveries 34 0 0 0 0 0 3 0 37 Provision for (reversal of) credit losses (213 ) 5 (11 ) 284 (1 ) (79 ) 10 5 0 Ending balance $ 578 $ 514 $ 1,944 $ 4,628 $ 901 $ 600 $ 207 $ 39 $ 9,411 Six Months Ended June 30, 2023 Beginning balance $ 1,055 $ 479 $ 1,798 $ 4,211 $ 830 $ 612 $ 311 $ 172 $ 9,468 CECL Day-One Adjustments 338 23 103 25 12 102 (120 ) (137 ) 346 Charge-offs 0 0 0 0 0 (12 ) (17 ) 0 (29 ) Recoveries 68 0 0 0 0 12 6 0 86 Provision for (reversal of) credit losses (883 ) 12 43 392 59 (114 ) 27 4 (460 ) Ending balance $ 578 $ 514 $ 1,944 $ 4,628 $ 901 $ 600 $ 207 $ 39 $ 9,411 The following table details the ACL and ending gross loan balances as of June 30, 2024 and December 31, 2023, summarized by collective and individual evaluation methods of impairment. (in thousands) June 30, 2024 CRE Construction & Land CRE Multi- family CRE Owner occupied CRE Non- owner occupied CRE Farmland Commercial and Industrial Consumer Agriculture Total Allowance for credit losses for loans: Individually evaluated for impairment $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Collectively evaluated for impairment 909 666 1,856 4,764 1,409 1,177 239 101 11,121 $ 909 $ 666 $ 1,856 $ 4,764 $ 1,409 $ 1,177 $ 239 $ 101 $ 11,121 Ending gross loan balances: Individually evaluated for impairment $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Collectively evaluated for impairment 46,080 57,371 221,790 504,954 94,712 74,868 33,229 37,033 1,070,037 $ 46,080 $ 57,371 $ 221,790 $ 504,954 $ 94,712 $ 74,868 $ 33,229 $ 37,033 $ 1,070,037 December 31, 2023 Allowance for credit losses for loans: Individually evaluated for impairment $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Collectively evaluated for impairment 1,227 667 1,805 4,805 1,468 650 227 47 10,896 $ 1,227 $ 667 $ 1,805 $ 4,805 $ 1,468 $ 650 $ 227 $ 47 $ 10,896 Ending gross loan balances: Individually evaluated for impairment $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Collectively evaluated for impairment 63,060 54,045 210,407 470,052 96,188 65,218 31,687 25,922 1,016,579 $ 63,060 $ 54,045 $ 210,407 $ 470,052 $ 96,188 $ 65,218 $ 31,687 $ 25,922 $ 1,016,579 The following tables present gross charge-offs for the three and six-months ended June 30, 2024 by portfolio class and origination year: Three Months Ended June 30, 2024 (in thousands) Term Loans Charged-off by Origination Year Chargeoffs 2024 2023 2022 2021 2020 Prior Revolving Loans Total Commercial real estate: Construction & land $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Multi-family 0 0 0 0 0 0 0 0 Owner occupied 0 0 0 0 0 0 0 0 Non-owner occupied 0 0 0 0 0 0 0 0 Farmland 0 0 0 0 0 0 0 0 Commercial and industrial 0 0 0 0 0 0 0 0 Consumer 0 0 0 0 0 0 10 10 Agriculture 0 0 0 0 0 0 0 0 Total $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 10 $ 10 Six Months Ended June 30, 2024 (in thousands) Term Loans Charged-off by Origination Year Chargeoffs 2024 2023 2022 2021 2020 Prior Revolving Loans Total Commercial real estate: Construction & land $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Multi-family 0 0 0 0 0 0 0 0 Owner occupied 0 0 0 0 0 0 0 0 Non-owner occupied 0 0 0 0 0 0 0 0 Farmland 0 0 0 0 0 0 0 0 Commercial and industrial 0 0 0 0 0 0 0 0 Consumer 0 0 0 0 0 0 25 25 Agriculture 0 0 0 0 0 0 0 0 Total $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 25 $ 25 Changes in the reserve for off-balance-sheet commitments for the three and six-months ended June 30, 2024 were as follows: (in thousands) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2024 2023 2024 2023 Balance, beginning of period $ 531 $ 741 $ 609 $ 546 CECL day-one adjustment 0 0 0 547 (Reversal of) Provision to Operations for Off Balance Sheet Commitments 0 (70 ) (78 ) (422 ) Balance, end of period $ 531 $ 671 $ 531 $ 671 The method for calculating the reserve for off-balance-sheet loan commitments is based on a historical funding rate applied to the undisbursed loan amount to estimate an average outstanding amount during the life of the loan commitment. Then, a historic loss rate as computed by our CECL model is applied to the estimated average outstanding balance to calculate the off-balance-sheet reserve amount. The funding rates, historic loss rates and resulting reserve amount for off-balance-sheet commitments are evaluated by management periodically as part of the CECL procedures. Reserves for off-balance-sheet commitments are recorded in interest payable and other liabilities on the condensed consolidated balance sheets. At June 30, 2024 and December 31, 2023, loans carried at $1,070,036,000 and $1,016,579,000, respectively, were pledged as collateral on advances from the Federal Home Loan Bank. |