Loans and Allowance for Credit Losses

12 Months Ended

Dec. 31, 2023

Loans and Allowance for Credit Losses [Abstract]

Loans and Allowance for Credit Losses

(4) Loans and Allowance for Credit Losses

The composition of the Company’s loan portfolio, by loan class, as of December 31, is as follows:

	2023			2022
Commercial	$	106,897		$	106,771
Commercial Real Estate		721,729			645,166
Agriculture		105,838			114,040
Residential Mortgage		107,328			92,669
Residential Construction		12,323			10,167
Consumer		14,868			15,287
		1,068,983			984,100
Allowance for credit losses		(16,596	)		(14,792	)
Net deferred origination fees and costs		78			830
Loans, net	$	1,052,465		$	970,138

At December 31, 2023 and 2022, all loans were pledged under a blanket collateral lien to secure actual and potential borrowings from the Federal Home Loan Bank.
 
Allowance for Credit Losses

Allowance information presented as of and for the year ended December 31, 2023 is presented under the CECL model and allowance information presented as of and for the year ended December 31, 2022 is presented under the incurred loss model.

The following table summarizes the activity in the allowance for credit losses on loans which is recorded as a contra asset, and the reserve for unfunded commitments which is recorded on the balance sheet within other liabilities as of December 31, 2023:

	Allowance for Credit Losses – Year ended December 31, 2023
($ in thousands)	Beginning balance		Adoption of CECL			Charge-offs			Recoveries		Provision (Recovery)			Ending Balance
Commercial	$	1,491	$	689		$	(366	)	$	235	$	(8	)	$	2,041
Commercial Real Estate		10,259		(513	)		—			—		1,118			10,864
Agriculture		1,789		(742	)		(2,567	)		2,567		(50	)		997
Residential Mortgage		896		923			(3	)		—		189			2,005
Residential Construction		181		221			—			—		(68	)		334
Consumer		176		222			(13	)		1		(31	)		355
Allowance for credit losses on loans		14,792		800			(2,949	)		2,803		1,150			16,596
Reserve for unfunded commitments		700		500			—			—		(50	)		1,150
Total	$	15,492	$	1,300		$	(2,949	)	$	2,803	$	1,100		$	17,746

During 2023, the Company experienced a credit event related to suspected customer fraud on a single agricultural relationship that required a charge-off of $2,567 against the allowance for credit losses (ACL) that was subsequently fully recovered later in the year. The levels of California unemployment and gross domestic product are forecasted to be relatively stable. Loan growth was the primary driver for provision expense of $1,100 recognized for the year ended December 31, 2023. Management believes that the allowance for credit losses at December 31, 2023 appropriately reflected expected credit losses in the loan portfolio at that date.

The following tables summarize the activity in the allowance for credit losses by loan class for the year ended December 31, 2022:

	Commercial			Commercial Real Estate		Agriculture		Residential Mortgage		Residential Construction		Consumer			Unallocated			Total
Balance as of December 31, 2021	$	1,604		$	8,808	$	1,482	$	742	$	74	$	167		$	1,075		$	13,952
Provision for loan losses		(119	)		1,265		275		138		104		44			(807	)		900
Charge-offs		(297	)		—		—		—		—		(48	)		—			(345	)
Recoveries		275			—		—		—		—		10			—			285
Net charge-offs		(22	)		—		—		—		—		(38	)		—			(60	)
Ending Balance		1,463			10,073		1,757		880		178		173			268			14,792
Period-end amount allocated to:
Loans individually evaluated for impairment		—			—		—		75		—		2			—			77
Loans collectively evaluated for impairment		1,463			10,073		1,757		805		178		171			268			14,715
Balance as of December 31, 2022	$	1,463		$	10,073	$	1,757	$	880	$	178	$	173		$	268		$	14,792

The Company’s investment in loans as of December 31, 2022 related to each balance in the allowance for credit losses by loan category and disaggregated on the basis of the Company’s impairment methodology was as follows:

	Commercial		Commercial Real Estate		Agriculture		Residential Mortgage		Residential Construction		Consumer		Total
December 31, 2022
Loans individually evaluated for impairment	$	—	$	—	$	7,416	$	622	$	—	$	701	$	8,739
Loans collectively evaluated for impairment		106,771		645,166		106,624		92,047		10,167		14,586		975,361
Ending Balance	$	106,771	$	645,166	$	114,040	$	92,669	$	10,167	$	15,287	$	984,100

Collateral-Dependent Loans

In accordance with ASC 326, 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. All loans individually analyzed were collateral-dependent loans as of December 31, 2023 and December 31, 2022. The following table presents the amortized cost basis of collateral-dependent loans by class, which are individually evaluated to determine expected credit losses as of December 31, 2023 and December 31, 2022:

December 31, 2023
($ in thousands)	Secured by 1-4 Family Residential Properties-1st lien		Secured by 1-4 Family Residential Properties-junior lien		Secured by 1-4 Family Residential Properties- revolving		Commercial		Construction and land development		Secured by farmland		Agriculture production loans		Total
Commercial	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial Real Estate		—		—		—		—		—		—		—		—
Agriculture		—		—		—		—		—		946		1,925		2,871
Residential Mortgage		424		—		—		—		—		—		—		424
Residential Construction		—		—		—		—		—		—		—		—
Consumer		—		351		352		—		—		—		—		703
Total	$	424	$	351	$	352	$	—	$	—	$	946	$	1,925	$	3,998

December 31, 2022
($ in thousands)	Secured by 1-4 Family Residential Properties-1st lien		Secured by 1-4 Family Residential Properties-junior lien		Secured by 1-4 Family Residential Properties- revolving		Commercial		Construction and land development		Secured by farmland		Agriculture production loans		Total
Commercial	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial Real Estate		—		—		—		—		—		—		—		—
Agriculture		—		—		—		—		—		1,148		6,268		7,416
Residential Mortgage		123		—		—		—		—		—		—		123
Residential Construction		—		—		—		—		—		—		—		—
Consumer		—		—		637		—		—		—		—		637
Total	$	123	$	—	$	637	$	—	$	—	$	1,148	$	6,268	$	8,176

Foreclosure Proceedings

The Company had no residential real estate property in the process of foreclosure at December 31, 2023 and December 31, 2022.

Non-accrual and Past Due Loans

The Company’s loans by delinquency and non-accrual status, as of December 31, 2023 and December 31, 2022, was as follows:

($ in thousands)	30-59 days Past Due & Accruing		60-89 days Past Due & Accruing		90 days or More Past Due & Accruing		Nonaccrual Loans		Total Past Due & Nonaccrual Loans		Current & Accruing Loans		Total Loans		Nonaccrual loans with No ACL
December 31, 2023
Commercial	$	91	$	178	$	—	$	—	$	269	$	106,628	$	106,897	$	—
Commercial Real Estate		—		—		—		—		—		721,729		721,729		—
Agriculture		—		—		—		2,871		2,871		102,967		105,838		2,871
Residential Mortgage		976		—		916		424		2,316		105,012		107,328		424
Residential Construction		—		—		3,420		—		3,420		8,903		12,323		—
Consumer		194		—		—		703		897		13,971		14,868		703
Total	$	1,261	$	178	$	4,336	$	3,998	$	9,773	$	1,059,210	$	1,068,983	$	3,998
December 31, 2022
Commercial	$	41	$	—	$	403	$	—	$	444	$	106,327	$	106,771	$	—
Commercial Real Estate		—		—		—		—		—		645,166		645,166		—
Agriculture		—		—		—		7,416		7,416		106,624		114,040		7,416
Residential Mortgage		—		—		—		123		123		92,546		92,669		123
Residential Construction		—		—		—		—		—		10,167		10,167		—
Consumer		—		—		—		637		637		14,650		15,287		637
Total	$	41	$	—	$	403	$	8,176	$	8,620	$	975,480	$	984,100	$	8,176

The Company recognized $1,626 and $51 of interest income on nonaccrual loans during the years ended December 31, 2023 and December 31, 2022, respectively.

Impaired Loans Prior to the Adoption of ASU 2016-13

The following table presents information related to impaired loans as of December 31, 2022, as determined in accordance with ASC 310 prior to the adoption of ASU 2016-13:

	Unpaid Contractual Principal Balance		Recorded Investment with no Allowance		Recorded Investment with Allowance		Total Recorded Investment		Related Allowance
December 31, 2022
Commercial	$	—	$	—	$	—	$	—	$	—
Commercial Real Estate		—		—		—		—		—
Agriculture		10,032		7,416		—		7,416		—
Residential Mortgage		673		123		499		622		75
Residential Construction		—		—		—		—		—
Consumer		822		637		64		701		2
Total	$	11,527	$	8,176	$	563	$	8,739	$	77

The following table presents the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans during the year ended December 31, 2022:

	December 31, 2022
	Average Recorded Investment		Interest Income Recognized
Commercial	$	40	$	3
Commercial Real Estate		384		32
Agriculture		8,047		—
Residential Mortgage		639		19
Residential Construction		48		—
Consumer		737		21
Total	$	9,895	$	75

None of the interest on impaired loans was recognized using a cash basis of accounting for the year ended December 31, 2022.

Loan Modifications

On January 1, 2023, the Company adopted ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.  These amendments eliminate the TDR recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan.

Occasionally, the Company modifies loans to borrowers in financial difficulty by providing principal forgiveness, term extension, payment delays or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the ACL.

In some cases, the Company provides multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. For the loans included in the “combination” columns below, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least two of the following: a term extension, principal forgiveness, an other-than-insignificant payment delay and/or an interest rate reduction.

The following tables present the amortized cost basis of loans that were experiencing both financial difficulty and modification during the periods indicated, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial difficulty as compared to the amortized cost basis of each class of financing receivable is also presented below.

The amortized cost basis of loans that were experiencing both financial difficulty and modification during the year ended December 31, 2023 were as follows:

($ in thousands)	Term Extension		Combination  Term Extension and Interest Rate Reduction		Total Class of Financing Receivable
Commercial	$	1,990	$	41		1.90	%
Commercial Real Estate		—		395		0.05	%
Agriculture		4,005		—		3.78	%
Residential Mortgage		—		—		—
Residential Construction		3,420		—		27.75	%
Consumer		—		—		—
Total	$	9,415	$	436		0.92	%

The Company had no commitments to lend additional funds to borrowers whose loans were modified at December 31, 2023.

The following table presents the financial effect of the loan modifications to borrowers experiencing financial difficulty during the year ended December 31, 2023:

($ in thousands)	Weighted-Average Interest Rate Reduction			Weighted-Average Term Extension (in months)
Commercial		0.50	%	$	3
Commercial Real Estate		0.25	%		26
Agriculture		—			4
Residential Mortgage		—			—
Residential Construction		—			1
Consumer		—			—
Total		0.27	%	$	3

There were two agricultural loans totaling $4,005 and a residential construction loan totaling $3,420 that were modified within the previous twelve months and for which there was a payment default during the year ended December 31, 2023. In 2023, the Company recorded charge-offs on two agricultural loans totaling $2,567 that was subsequently recovered later in the year. The residential construction loan was 90 days or more past due as of December 31, 2023.

Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently become uncollectible, the loan (or a portion of the loan) is written off.  Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the ACL is adjusted by the same amount.

Troubled Debt Restructurings Prior to the Adoption of ASU 2022-02

Prior to the adoption of ASU 2022-02, the Company accounted for a modification to the contractual terms of a loan that resulted in granting a concession to a borrower experiencing financial difficulties as a TDR. The Company had $8,399 in TDR loans as of December 31, 2022. Specific reserves for TDR loans totaled $77 as of December 31, 2022. TDR loans performing in compliance with modified terms totaled $8,399 as of December 31, 2022.

Loans modified as TDRs during the year ended December 31, 2022  were as follows:

	Year Ended December 31, 2022
	Number of Contracts		Pre- modification outstanding recorded investment		Post- modification outstanding recorded investment
Consumer		1	$	75	$	75
Total		1	$	75	$	75

Loan modifications generally involve reductions in the interest rate, payment extensions, forgiveness of principal, or forbearance. No loans were modified as a TDR within the previous 12 months that subsequently defaulted during the year ended December 31, 2022. The Company considers a loan to be in payment default when it is 90 days or more past due.

Credit Quality Indicators

All new loans are rated using the credit risk ratings and criteria adopted by the Company. Risk ratings are adjusted as future circumstances warrant. All credits risk rated 1, 2, 3 or 4 equate to a Pass as indicated by Federal and State regulatory agencies; a 5 equates to a Special Mention; a 6 equates to Substandard; a 7 equates to Doubtful; and an 8 equates to a Loss. General definitions for each risk rating are as follows:

Risk Rating “1” – Pass (High Quality):  This category is reserved for loans fully secured by Company CDs or savings accounts and properly margined (as defined in the Company’s Credit Policy) and actively traded securities (including stocks, as well as corporate, municipal and U.S. Government bonds).

Risk Rating “2” – Pass (Above Average Quality): This category is reserved for borrowers with strong balance sheets that are well structured with manageable levels of debt and good liquidity. Cash flow is sufficient to service all debt, including the Company’s, as agreed. Historical earnings, cash flow, and payment performance have all been strong and trends are positive and consistent.  Collateral protection is better than the Company’s Credit Policy guidelines.

Risk Rating “3” – Pass (Average Quality): Credits within this category are considered to be of average, but acceptable, quality.  Loan characteristics, including term and collateral advance rates, meet the Company’s Credit Policy guidelines; unsecured lines to borrowers with above average liquidity and cash flow may be considered for this category; the borrower’s financial strength is well documented, with adequate, but consistent, cash flow to meet all obligations. Liquidity should be sufficient and leverage should be moderate. Monitoring of collateral may be required, including a borrowing base or construction budget. Alternative financing is typically available.

Risk Rating “4” – Pass (Below Average Quality): Credits within this category are considered sound, but merit additional attention due to industry concentrations within the borrower’s customer base, problems within their industry, deteriorating financial or earnings trends, declining collateral values, increased frequency of past due payments and/or overdrafts, discovery of documentation deficiencies which may impair our borrower’s ability to repay, or the Company’s ability to liquidate collateral. Financial performance is average but inconsistent. There also may be changes of ownership, management or professional advisors, which could be detrimental to the borrower’s future performance.

Risk Rating “5” – Special Mention (Criticized): Loans in this category are currently protected by their collateral value and have no loss potential identified, but have potential weaknesses which may, if not monitored or corrected, weaken our ability to collect payments from the borrower or satisfactorily liquidate our collateral position. Loans where terms have been modified due to their failure to perform as agreed may be included in this category. Adverse trends in the borrower’s operation, such as reporting losses or inadequate cash flow, increasing and unsatisfactory leverage, or an adverse change in economic or market conditions may have weakened the borrower’s business and impaired their ability to repay based on original terms. The condition or value of the collateral has deteriorated to the point where adequate protection for our loan may be jeopardized in the future. Loans in this category are in transition and, generally, do not remain in this category beyond 12 months. During this time, efforts are focused on strategies aimed at upgrading the credit or locating alternative financing.

Risk Rating “6” – Substandard (Classified): Loans in this category are inadequately protected by the borrower’s net worth, capacity to repay or collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. There exists a strong possibility of loss if the deficiencies are not corrected. Loans that are dependent on the liquidation of collateral to repay are included in this category, as well as borrowers in bankruptcy or where legal action is required to effect collection of our debt.

Risk Rating “7” – Doubtful (Classified): Loans in this category indicate all of the weaknesses of a Substandard classification, however, collection of loan principal, in full, is highly questionable and improbable; possibility of loss is very high, but there is still a possibility that certain collection strategies may, yet, be successful, rendering a definitive loss difficult to estimate, at this time. Loans in this category are in transition and, generally, do not remain in this category more than 6 months.

Risk Rating “8” – Loss (Classified):

Active Charge-Off. Loans in this category are considered uncollectible and of such little value that their removal from the Company’s books is required. The charge-off is pending or already processed. Collateral positions have been or are in the process of being liquidated and the borrower/guarantor may or may not be cooperative in repayment of the debt. Recovery prospects are unknown, but the Company is actively engaged in the collection of the loan.

Inactive Charge-Off. Loans in this category are considered uncollectible and of such little value that their removal from the Company’s books is required. The charge-off is pending or already processed. Collateral positions have been liquidated and the borrower/guarantor has nothing of any value remaining to apply to the repayment of our loan. Any further collection activities would be of little value.

The following tables present the loan portfolio by loan class, origination year, and internal risk rating as of December 31, 2023. Generally, existing term loans that were re-underwritten are reflected in the table in the year of renewal. Lines of credit that have a conversion feature at the time of origination, such as construction to permanent loans, are presented by year of origination. Revolving loans converted to term loans totaled $881 as of December 31, 2023.

(in thousands)
	Term Loans Amortized Cost Basis by Origination Year - As of December 31, 2023
	2023			2022			2021			2020		2019			Prior		Revolving Loans Amortized Cost Basis			Total
Commercial
Pass	$	19,776		$	16,961		$	15,833		$	5,381	$	7,420		$	6,298	$	26,183		$	97,852
Special Mention		—			1,122			2,530			235		308			—		2,936			7,131
Substandard		—			32			1,152			542		—			—		188			1,914
Doubtful/Loss		—			—			—			—		—			—		—			—
Total Commercial loans	$	19,776		$	18,115		$	19,515		$	6,158	$	7,728		$	6,298	$	29,307		$	106,897
Year-to-date Period Charge-offs		(47	)		(196	)		(36	)		—		(87	)		—		—			(366	)
Year-to-date Recoveries		—			—			—			—		87			148		—			235
Year-to-date Net Charge-offs		(47	)		(196	)		(36	)		—		—			148		—			(131	)
Commercial Real Estate
Pass	$	115,807		$	173,918		$	191,907		$	50,150	$	52,157		$	107,909	$	6,879		$	698,727
Special Mention		—			—			7,448			—		2,869			1,273		—			11,590
Substandard		395			—			1,712			1,684		6,604			1,017		—			11,412
Doubtful/Loss		—			—			—			—		—			—		—			—
Total Commercial Real Estate loans	$	116,202		$	173,918		$	201,067		$	51,834	$	61,630		$	110,199	$	6,879		$	721,729
Year-to-date Charge-offs		—			—			—			—		—			—		—			—
Year-to-date Recoveries		—			—			—			—		—			—		—			—
Year-to-date Net Charge-offs		—			—			—			—		—			—		—			—
Agriculture
Pass	$	6,842		$	16,985		$	20,511		$	8,792	$	2,509			11,437	$	29,893		$	96,969
Special Mention		—			1,937			2,996			—		—			1,064		—			5,997
Substandard		—			—			946			—		1,926			—		—			2,872
Doubtful/Loss		—			—			—			—		—			—		—			—
Total Agriculture loans	$	6,842		$	18,922		$	24,453		$	8,792	$	4,435		$	12,501	$	29,893		$	105,838
Year-to-date Charge-offs		(1,825	)		—			—			—		—			—		(742	)		(2,567	)
Year-to-date Recoveries		1,825			—			—			—		—			—		742			2,567
Year-to-date Net Charge-offs		—			—			—			—		—			—		—			—

(in thousands)
	Term Loans Amortized Cost Basis by Origination Year - As of December 31, 2023
	2023			2022			2021			2020		2019			Prior			Revolving Loans Amortized Cost Basis			Total
Residential Mortgage
Pass	$	20,239		$	24,906		$	26,429		$	14,500	$	5,481		$	15,349		$	—		$	106,904
Special Mention		—			—			—			—		—			—			—			—
Substandard		—			—			39			—		—			385			—			424
Doubtful/Loss		—			—			—			—		—			—			—			—
Total Residential Mortgage loans	$	20,239		$	24,906		$	26,468		$	14,500	$	5,481		$	15,734		$	—		$	107,328
Year-to-date Charge-offs		—			—			—			—		—			(3	)		—			(3	)
Year-to-date Recoveries		—			—			—			—		—			—			—			—
Year-to-date Net Charge-offs		—			—			—			—		—			(3	)		—			(3	)
Residential Construction
Pass	$	3,714		$	1,991		$	3,198		$	—	$	—		$	—		$	—		$	8,903
Special Mention		—			—			—			—		—			—			—			—
Substandard		—			3,420			—			—		—			—			—			3,420
Doubtful/Loss		—			—			—			—		—			—			—			—
Total Residential Construction loans	$	3,714		$	5,411		$	3,198		$	—	$	—		$	—		$	—		$	12,323
Year-to-date Charge-offs		—			—			—			—		—			—			—			—
Year-to-date Recoveries		—			—			—			—		—			—			—			—
Year-to-date Net Charge-offs		—			—			—			—		—			—			—			—
Consumer
Pass	$	350		$	758		$	133		$	149	$	70		$	273		$	12,516		$	14,249
Special Mention		—			—			—			—		—			—			—			—
Substandard		—			—			—			—		—			—			619			619
Doubtful/Loss		—			—			—			—		—			—			—			—
Total Consumer loans	$	350		$	758		$	133		$	149	$	70		$	273		$	13,135		$	14,868
Year-to-date Charge-offs		(13	)		—			—			—		—			—			—			(13	)
Year-to-date Recoveries		—			—			—			—		—			1			—			1
Year-to-date Net Charge-offs		(13	)		—			—			—		—			1			—			(12	)
Total Loans
Pass	$	166,728		$	235,519		$	258,011		$	78,972	$	67,637		$	141,266		$	75,471		$	1,023,604
Special Mention		—			3,059			12,974			235		3,177			2,337			2,936			24,718
Substandard		395			3,452			3,849			2,226		8,530			1,402			807			20,661
Doubtful/Loss		—			—			—			—		—			—			—			—
Total Loans	$	167,123		$	242,030		$	274,834		$	81,433	$	79,344		$	145,005		$	79,214		$	1,068,983
Year-to-date Charge-offs	$	(1,885	)	$	(196	)	$	(36	)	$	—	$	(87	)	$	(3	)	$	(742	)	$	(2,949	)
Year-to-date Recoveries	$	1,825		$	—		$	—		$	—	$	87		$	149		$	742		$	2,803
Year-to-date Net Charge-offs	$	(60	)	$	(196	)	$	(36	)	$	—	$	—		$	146		$	—		$	(146	)

The following table presents the risk ratings by loan class as of December 31, 2022.

	Pass		Special Mention		Substandard		Doubtful		Loss		Total
December 31, 2022
Commercial	$	106,643	$	—	$	128	$	—	$	—	$	106,771
Commercial Real Estate		631,693		6,748		6,725		—		—		645,166
Agriculture		105,560		1,064		7,416		—		—		114,040
Residential Mortgage		92,299		207		163		—		—		92,669
Residential Construction		10,167		—		—		—		—		10,167
Consumer		14,650		—		637		—		—		15,287
Total	$	961,012	$	8,019	$	15,069	$	—	$	—	$	984,100