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Loans and Leases and Allowance for Credit Losses
6 Months Ended
Jun. 30, 2022
Credit Quality and Nonperforming Assets [Abstract]  
Loans and Leases and Allowance for Credit Losses

Note 10 – Loans and Leases and Allowance for Credit Losses

We adopted the new current expected credit loss accounting guidance, CECL, and all related amendments as of January 1, 2022. Certain prior period credit quality disclosures related to impaired loans and individually and collectively evaluated loans were superseded with the current guidance and have not been included below as of June 30, 2022. Under CECL, disclosures are required on the amortized cost basis, whereas legacy GAAP required presentation on the recorded investment basis, with the primary difference being net deferred fees and costs. Unless specifically noted otherwise,

June 30, 2022 disclosures are prepared on the amortized cost basis and December 31, 2021 disclosures present information according to the recorded investment basis.

The following table presents loans by class as of June 30, 2022 and December 31, 2021. Accrued interest receivable on loans of $5.4 million and $6.8 million at June 30, 2022 and December 31, 2021 respectively is not included in the loans included in the table below but is included in other assets on the Company’s balance sheet. The June 30, 2022, balance in 1-4 family closed end loans reflects year-to-date 2022 loan purchase of $173.1 million. The majority of the disclosures in this footnote are prepared at the class level which is equivalent to the call report classification or call code classification. The final table in this section separates a roll forward of the Allowance for Credit Losses at the portfolio segment level.

Loan And Lease Distribution

(dollars in thousands, unaudited)

    

June 30, 2022

    

December 31, 2021

Real estate:

1-4 family residential construction

$

5,542

$

21,369

Other construction/land

20,816

25,299

1-4 family - closed-end

429,109

289,457

Equity lines

25,260

26,588

Multi-family residential

66,367

53,458

Commercial real estate - owner occupied

312,060

334,446

Commercial real estate - non-owner occupied

898,158

882,888

Farmland

101,675

106,706

Total real estate

1,858,987

1,740,211

Agricultural

28,660

33,990

Commercial and industrial

72,617

109,791

Mortgage warehouse lines

58,134

101,184

Consumer loans

4,264

4,550

Subtotal

2,022,662

1,989,726

Less net deferred loan fees and costs

(1,081)

(1,865)

Loans and leases, amortized cost basis

2,021,581

1,987,861

Allowance for credit losses

(22,802)

(14,256)

Net loans and leases

$

1,998,779

$

1,973,605

The following table presents the amortized cost basis of nonaccrual loans, according to loan class, with and without individually evaluated reserves as of June 30, 2022:

Nonaccrual Loans and Leases

(dollars in thousands, unaudited)

June 30, 2022

Nonaccrual Loans

    

With no allowance for credit loss

    

With an allowance for credit loss

Total

Loans Past Due 90+ Accruing

Real estate:

1-4 family residential construction

$

$

$

$

632

Other construction/land

1-4 family - closed-end

745

745

Equity lines

62

62

Multi-family residential

Commercial real estate - owner occupied

379

379

Commercial real estate - non-owner occupied

Farmland

19,301

19,301

Total real estate

20,487

20,487

632

Agricultural

8,414

30

8,444

Commercial and industrial

584

230

814

7

Mortgage warehouse lines

Consumer loans

Total

$

29,485

$

260

$

29,745

$

639

The following table presents the impaired loans as of December 31, 2021, according to loan class, with and without an individually evaluated reserve according to the recorded investment basis. Impaired loans as of December 31, 2021 included both nonaccrual loans and performing TDRs. A separate breakout of nonaccrual loans by class as of December 31, 2021 is included in the past due loans table as of December 31, 2021, later in this footnote.

December 31, 2021

Unpaid Principal

Recorded

Average Recorded

Interest Income

    

Balance(1)

    

Investment(2)

    

Related Allowance

    

Investment

    

Recognized(3)

With an Allowance Recorded

Real estate:

Other construction/land

$

341

$

341

$

64

$

352

$

55

1-4 family - closed-end

1,048

1,048

37

1,096

104

Equity lines

2,005

1,993

182

2,056

138

Commercial real estate - owner occupied

1,249

1,248

19

1,278

144

Commercial real estate - non-owner occupied

367

367

126

393

32

Total real estate

5,010

4,997

428

5,175

473

Agricultural

244

244

244

246

Commercial and industrial

757

757

127

873

41

Consumer loans

164

164

19

180

28

6,175

6,162

818

6,474

542

With no Related Allowance Recorded

Real estate:

1-4 family - closed-end

788

788

869

Equity lines

648

648

690

6

Commercial real estate - owner occupied

1,353

1,234

1,282

Total real estate

2,789

2,670

2,841

6

Agricultural

134

134

186

Commercial and industrial

466

466

550

3,389

3,270

3,577

6

Total

$

9,564

$

9,432

$

818

$

10,051

$

548

(1)Contractual principal balance due from customer.
(2)Principal balance on Company’s books, less any direct charge offs.
(3)Interest income is recognized on performing balances on a regular accrual basis.

The Company recognized $0 in interest on nonaccrual loans during the second quarter 2022 and would have recognized an additional $0.6 million on nonaccrual loans had those loans not been designated as nonaccrual.

The following table presents the amortized cost basis of collateral-dependent loans by class as of June 30, 2022:

Collateral Dependent Loans

(dollars in thousands, unaudited)

June 30, 2022

    

Amortized Cost

Individual Reserves

Real estate:

1-4 family residential construction

$

$

Other construction/land

1-4 family - closed-end

41

Equity lines

Multi-family residential

Commercial real estate - owner occupied

204

Commercial real estate - non-owner occupied

Farmland

19,300

Total real estate

19,545

Agricultural

8,414

Commercial and industrial

478

Mortgage warehouse lines

Consumer loans

Total loans and leases

$

28,437

$

During the second quarter the amortized cost balance of collateral-dependent loans declined by $1.3 million due to declines resulting from upgrades and payoffs, partially offset by additional collateral dependent loans downgraded during the quarter. The weighted average loan-to-value ratio of collateral dependent loans was 91% at June 30, 2022.  There were no collateral dependent loans in the process of foreclosure as of June 30, 2022

The following table presents the aging of the amortized cost basis in past-due loans, according to class, as of June 30, 2022:

Past Due Loans and Leases

(dollars in thousands, unaudited)

June 30, 2022

    

30-59 Days Past Due

    

60-89 Days Past Due

Loans Past Due 90+ Days

Total Past Due

Loans not Past Due

Total Loans

Real estate:

1-4 family residential construction

$

$

$

632

$

632

$

4,910

$

5,542

Other construction/land

20,757

20,757

1-4 family - closed-end

32

8

40

430,095

430,135

Equity lines

25,575

25,575

Multi-family residential

66,291

66,291

Commercial real estate - owner occupied

124

124

311,965

312,089

Commercial real estate - non-owner occupied

895,352

895,352

Farmland

5,129

13,932

342

19,403

82,358

101,761

Total real estate

5,161

14,056

982

20,199

1,837,303

1,857,502

Agricultural

7,760

597

8,357

20,400

28,757

Commercial and industrial

174

263

437

72,389

72,826

Mortgage warehouse lines

58,134

58,134

Consumer loans

7

2

9

4,353

4,362

Total loans and leases

$

5,342

$

21,818

$

1,842

$

29,002

$

1,992,579

$

2,021,581

The following table presents the aging of the recorded investment in past-due and nonaccrual loans, according to class, as of December 31, 2021:

December 31, 2021

30-59 Days

60-89 Days 

90 Days Or 
More Past

Total Financing

Non-Accrual

    

 Past Due

    

Past Due

    

Due(2)

    

Total Past Due

    

Current

    

Receivables

    

Loans(1)

Real Estate:

1-4 family residential construction

$

$

$

$

$

21,369

$

21,369

$

Other construction/land

25,299

25,299

1-4 family - closed-end

1,532

132

1,664

287,793

289,457

1,023

Equity lines

30

30

26,558

26,588

892

Multi-family residential

53,458

53,458

Commercial real estate owner occupied

124

698

822

333,624

334,446

1,234

Commercial real estate non-owner occupied

882,888

882,888

Farmland

106,706

106,706

Total real estate loans

1,686

132

698

2,516

1,737,695

1,740,211

3,149

Agricultural

284

284

33,706

33,990

378

Commercial and industrial

473

283

756

109,035

109,791

973

Mortgage warehouse lines

101,184

101,184

Consumer loans

6

3

9

4,541

4,550

22

Total gross loans and leases

$

2,165

$

135

$

1,265

$

3,565

$

1,986,161

$

1,989,726

$

4,522

(1)Included in Total Financing Receivables
(2)As of December 31, 2021 there were no loans over 90 days past due and still accruing.

Troubled Debt Restructurings

A loan that is modified for a borrower who is experiencing financial difficulty is classified as a troubled debt restructuring (TDR) if the modification constitutes a concession. At June 30, 2022, the Company had a total of $5.1 million in TDRs, including $0.3 million in TDRs that were on non-accrual status. Generally, a non-accrual loan that has been modified as a TDR remains on non-accrual status for a period of at least six months to demonstrate the borrower’s ability to comply with the modified terms. However, performance prior to the modification, or significant events that coincide with the modification, could result in a loan’s return to accrual status after a shorter performance period or even

at the time of loan modification. Regardless of the period of time that has elapsed, if the borrower’s ability to meet the revised payment schedule is uncertain, then the loan will be kept on non-accrual status.

The Company may agree to different types of concessions when modifying a loan or lease. The tables below summarize TDRs which were modified during the three and six months ended June 30, 2021, by type of concession. For the three and six months ended June 30, 2022, there were no new TDRs and no modifications of existing TDRs

Troubled Debt Restructurings, by Type of Loan Modification

(dollars in thousands, unaudited)

Three months ended June 30, 2021

    

Rate Modification

    

Term
Modification

    

Interest Only
Modification

    

Rate & Term Modification

    

Term & Interest Modification

Total

Real estate:

Other construction/land

$

$

$

$

$

$

1-4 family - closed-end

Equity lines

Multi-family residential

Commercial real estate - owner occupied

136

136

Farmland

Total real estate loans

136

136

Agricultural

Commercial and industrial

Consumer loans

Total

$

$

136

$

$

$

$

136

Six months ended June 30, 2021

    

Rate Modification

    

Term
Modification

    

Interest Only Modification

    

Rate & Term Modification

    

Term & Interest Modification

Total

Real estate:

Other construction/land

$

$

$

$

$

$

1-4 family - closed-end

Equity lines

83

83

Multi-family residential

Commercial real estate - owner occupied

136

136

Farmland

Total real estate loans

136

83

219

Agricultural

118

118

Commercial and industrial

185

185

Consumer loans

41

41

Total

$

$

480

$

$

83

$

$

563

Troubled Debt Restructurings

(dollars in thousands, unaudited)

Three months ended June 30, 2021

Pre-
Modification

Post-
Modification

    

Number of
Loans

    

Outstanding
Recorded
Investment

    

Outstanding
Recorded
Investment

    

Reserve
Difference¹

    

Reserve

Real estate:

Other construction/land

0

$

$

$

$

1-4 family - closed-end

0

Equity lines

0

Multi-family residential

0

Commercial real estate - owner occupied

1

137

136

(1)

Farmland

0

Total real estate loans

137

136

(1)

Agricultural

0

Commercial and industrial

0

Consumer loans

0

Total

$

137

$

136

$

($1)

$

(1)This represents the change in the ACL reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.

Six months ended June 30, 2021

Pre-
Modification

Post-
Modification

    

Number of
Loans

    

Outstanding
Recorded
Investment

    

Outstanding
Recorded
Investment

    

Reserve
Difference¹

    

Reserve

Real estate:

Other construction/land

0

$

$

$

$

1-4 family - closed-end

0

Equity lines

1

83

83

1

Multi-family residential

0

Commercial real estate - owner occupied

1

137

136

(1)

Farmland

0

Total real estate loans

220

219

(1)

1

Agricultural

1

118

118

116

Commercial and industrial

1

185

185

(1)

48

Consumer loans

1

41

41

Total

$

564

$

563

$

114

$

49

(1)This represents the change in the ACL reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.

The Company had no finance receivables modified as TDRs within the previous twelve months that defaulted or were charged off during the three or six-month periods ending June 30, 2022 and 2021.

The Company monitors the credit quality of loans on a continuous basis using the regulatory and accounting classifications of pass, special mention and substandard to characterize and qualify the associated credit risk. Loans classified as “loss” are immediately charged-off. The Company uses the following definitions of risk classifications:

Pass – Loans listed as pass include larger non-homogeneous loans not meeting the risk rating definitions below and smaller, homogeneous loans not assessed on an individual basis.

Special Mention – Loans classified as special mention have the potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard – Loans classified as substandard are those loans with clear and well-defined weaknesses such as a highly leveraged position, unfavorable financial operating results and/or trends, or uncertain repayment sources or poor financial condition, which may jeopardize ultimate recoverability of the debt.

The following tables present the amortized cost of loans and leases by credit quality classification in addition to loan and lease vintage as of June 30, 2022:

Loan and Lease Credit Quality by Vintage

(dollars in thousands, unaudited)

Term Loans and Loans Amortized Cost Basis by Origination Year

2022

2021

2020

2019

2018

Prior

Revolving Loans Amortized Cost

Total Loans

1-4 family construction

Pass

$

$

$

$

$

$

$

4,910

$

4,910

Special Mention

632

632

Substandard

Subtotal

5,542

5,542

Other construction/land

Pass

$

3,591

$

4,343

$

777

$

1,054

$

1,116

$

9,802

20,683

Special Mention

Substandard

74

74

Subtotal

3,591

4,417

777

1,054

1,116

9,802

20,757

1-4 family - closed-end

Pass

110,397

$

243,625

$

8,058

$

2,094

$

11,042

$

50,354

$

425,570

Special Mention

264

1,022

2,095

3,381

Substandard

32

1,152

1,184

Subtotal

110,661

243,625

8,058

2,094

12,096

53,601

430,135

Equity lines

Pass

2,355

$

171

$

551

$

361

$

79

$

$

20,691

24,208

Special Mention

20

790

810

Substandard

118

439

557

Subtotal

2,355

289

571

361

79

21,920

25,575

Multi-family residential

Pass

19,320

$

522

$

9,504

$

668

$

13,159

$

12,757

$

4,720

60,650

Special Mention

2,240

3,401

5,641

Substandard

Subtotal

19,320

522

11,744

668

13,159

16,158

4,720

66,291

Commercial real estate - OO

Pass

9,855

$

26,311

$

63,756

$

38,080

$

39,071

$

118,601

$

7,346

303,020

Special Mention

2,403

2,107

4,510

Substandard

326

80

3,393

760

4,559

Subtotal

10,181

26,311

63,756

40,483

39,151

124,101

8,106

312,089

Commercial real estate - NOO

Pass

51,922

$

19,710

$

451,234

$

26,810

$

56,883

$

165,217

$

62,955

834,731

Special Mention

$

33,613

7,266

3,121

12,671

56,671

Substandard

$

852

3,098

3,950

Subtotal

51,922

19,710

484,847

26,810

65,001

171,436

75,626

895,352

Farmland

Pass

$

1,377

$

5,008

$

1,978

$

8,202

$

25,700

$

27,588

69,853

Special Mention

7,116

4,385

1,004

12,505

Substandard

4,722

14,133

548

19,403

Subtotal

1,377

5,008

1,978

20,040

44,218

29,140

101,761

Agricultural

Pass

549

$

1,684

$

475

$

30

$

1,092

$

6,882

$

9,329

20,041

Special Mention

272

272

Substandard

7,847

597

8,444

Subtotal

549

9,531

475

30

1,092

6,882

10,198

28,757

Commercial and industrial

Pass

1,272

$

11,449

$

8,021

$

6,977

$

5,682

$

10,004

$

19,576

62,981

Special Mention

312

3,186

50

1,553

3,772

8,873

Substandard

44

143

93

643

49

972

Subtotal

1,272

11,761

11,251

7,170

5,775

12,200

23,397

72,826

Mortgage warehouse lines

Pass

$

$

$

$

$

$

58,134

58,134

Subtotal

58,134

58,134

Consumer loans

Pass

953

$

275

$

173

$

299

$

19

$

429

$

2,163

4,311

Special Mention

40

$

7

47

Substandard

2

$

2

4

Subtotal

955

275

213

299

19

431

2,170

4,362

Total

$

197,215

$

316,992

$

590,340

$

80,670

$

157,466

$

430,143

$

248,755

$

2,021,581

The following table presents the Company’s loan portfolio on the recorded investment basis, according to loan class and credit grade as of December 31, 2021:

    

Pass

    

Special
Mention

    

Substandard

    

Impaired

    

Total

Real estate:

1-4 family residential construction

$

19,669

$

1,700

$

$

$

21,369

Other construction/land

24,958

341

25,299

1-4 family - closed-end

282,717

4,703

201

1,836

289,457

Equity lines

23,277

615

55

2,641

26,588

Multi-family residential

49,986

3,472

53,458

Commercial real estate owner occupied

321,996

6,108

3,860

2,482

334,446

Commercial real estate non-owner occupied

841,728

26,364

14,429

367

882,888

Farmland

92,479

10,266

3,961

106,706

Total real estate

1,656,810

53,228

22,506

7,667

1,740,211

Agricultural

32,513

1,099

378

33,990

Commercial and industrial

98,367

9,989

212

1,223

109,791

Mortgage warehouse lines

101,184

101,184

Consumer loans

4,349

31

6

164

4,550

Total gross loans and leases

$

1,893,223

$

63,248

$

23,823

$

9,432

$

1,989,726

CECL replaces the legacy accounting for loans designated as purchased credit impaired (“PCI”) with loans designated as purchased credit deteriorated (“PCD”). PCD loans are loans acquired or purchased, which as of acquisition, had evidence of more than insignificant credit deterioration since origination. Due to the immaterial balance in the Company’s PCI loans as of December 31, 2021 management elected not to transition these loans into the PCD designation. As of June 30, 2022 the Company had no loans categorized as PCD.

As noted in footnote 3, on January 1, 2022 the Company implemented CECL and increased our ACL, previously the allowance for loan and lease losses, with a $9.5 million cumulative adjustment. The Company’s ACL is calculated quarterly, with any difference in the calculated ACL and the recorded ACL trued-up through an entry to the provision for credit losses. Management calculates the quantitative portion of collectively evaluated reserves for all loan categories, with the exception of Farmland, Agricultural Production and Consumer loans, using a discounted cash flow (“DCF”) methodology. For purposes of calculating the quantitative portion of collectively evaluated reserves on Farmland, Agricultural Production, and Consumer categories a Remaining Life methodology is utilized. For purposes of estimating the Company’s ACL, Management generally evaluates collectively evaluated loans by Federal Call code in order to group loans with similar risk characteristics together, however management has grouped loans in selected call codes together in determining portfolio segments, due to similar risk characteristics and reserve methodologies used for certain call code classifications.

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 current 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. Economic forecasts are considered over a four-quarter forecast period, with reversion to mean occurring on a straight-line basis over four quarters. The call code regression models utilized upon implementation of CECL on January 1, 2022, and as of June 30, 2022, were identical, and relied upon reasonable and supportable forecasts of the National Unemployment Rate. Management selected the National Unemployment Rate as the driver 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.

The quantitative reserves for Farmland, Agricultural Production and Consumer loans are calculated using a Remaining Life methodology where average historical bank specific and peer loss rates are applied to expected loan balances over an estimated remaining life of loans in calculation of the quantitative portion of collectively evaluated loans in these classes. The estimated remaining life is calculated using historical bank-specific loan attrition data. For the Farmland, Agricultural Production and Consumer classes of loans, reasonable and supportable forecasts of the National Unemployment rate, real GDP and the housing price index are considered through estimation of qualitative reserves.

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 Housing Price Index, Real GDP and the National Unemployment Rate (Farmland & Agricultural Production and Consumer segments only)
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, non-accruals loans, and adversely classified loans, as reflected in changes of the relative level of loans classified as substandard and special mention
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 influence of peer data on estimated quantitative reserves, residual COVID-19 related risk, expected impact of current and expected inflationary environment, reliance on the National Unemployment rate as opposed to the California unemployment rate in the calculation of quantitative reserves, the expected impact of current and expected geo-political conditions

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 historical peer, life-of-loan-equivalent, loss rate ranges and the relative weighting of Q-factors according to management’s judgement.

Although collectively evaluated reserves are generally calculated separately at the call code or loan class level, management has grouped loan classes with similar risk characteristics into the following portfolio segments: 1-4 Family Real Estate, Commercial Real Estate, Farmland & Agricultural Production, Commercial & Industrial, Mortgage Warehouse and Consumer loans. Loans secured by 1-4 family residences have a different profile from loans secured by Commercial Real Estate. Generally, the borrowers for 1-4 Family loans are consumers whereas borrowers for

Commercial Real Estate are often businesses. The COVID-19 pandemic illustrated how these different categories of real estate loans were subject to different risks, which was exacerbated by the widespread work-from-home model adopted by many companies during and since the pandemic. Farmland and Agricultural Production loans are included in a single segment as these loans are often times to the same borrowers, facing the same risks relating to commodity prices, water supply and drought conditions in addition to other environmental concerns. Commercial & Industrial loans are separated into a unique segment given the uniqueness of these loans, which are often revolving and secured by other business assets as opposed to real estate. Mortgage warehouse loans are also unique in the Company’s portfolio and warrant separate presentation as an individual portfolio segment, given the specific nature of these constantly revolving lines to mortgage originators and also attributable to a very limited loss history, even after consideration of peer data. Finally, the Company splits out Consumer loans as a separate segment as a result of the small balance, homogeneous terms that characterize these loans.

Management individually evaluates loans that do not share risk characteristics with other loans when estimating reserves. As of June 30, 2022, the only loans that Management considered to have different risk characteristics from other loans sharing the same Federal Call Report code were loans designated nonaccrual.

The following table presents the activity in the allowance for credit losses by portfolio segment for the quarter ended June 30, 2022:

Allowance for Credit Losses and Recorded Investment in Financing Receivables

(dollars in thousands, unaudited)

    

1-4 Family Real Estate

Commercial Real Estate

    

Farmland & Agricultural Production

    

Commercial & Industrial

Mortgage Warehouse

    

Consumer

    

Total

Allowance for credit losses:

Balance, March 31, 2022

$

3,329

$

17,043

$

606

$

1,231

$

51

$

270

$

22,530

Charge-offs

(1,911)

(213)

(86)

(313)

(2,523)

Recoveries

12

62

173

247

Provision for credit losses

252

2,187

(17)

(74)

(10)

210

2,548

Ending allowance balance:

$

3,593

$

17,319

$

376

$

1,133

$

41

$

340

$

22,802

The $0.3 million increase in the Company’s loan portfolio ACL in the second quarter 2022 from $22.5 million at March 31, 2022 to $22.8 million at June 30, 2022, is primarily a reflection of growth in loan balances recognized in the second quarter 2022.

The following table presents the activity in the allowance for credit losses by portfolio segment for the six months ended June 30, 2022:

Allowance for Credit Losses and Recorded Investment in Financing Receivables

(dollars in thousands, unaudited)

    

1-4 Family Real Estate

Commercial Real Estate

    

Farmland & Agricultural Production

    

Commercial & Industrial

Mortgage Warehouse

    

Consumer

    

Total

Allowance for credit losses:

Balance, December 31, 2021

$

1,909

$

9,052

$

1,202

$

1,060

$

512

$

521

$

14,256

Impact of adopting ASC 326

611

9,628

(480)

358

(421)

(242)

9,454

Charge-offs

(1,911)

(2,171)

(160)

(612)

(4,854)

Recoveries

99

260

82

357

798

Provision for credit losses

974

290

1,825

(207)

(50)

316

3,148

Ending allowance balance:

$

3,593

$

17,319

$

376

$

1,133

$

41

$

340

$

22,802

The $0.9 million decline in the Company’s loan portfolio ACL between the $23.7 million ACL recognized upon implementation of CECL on January 1, 2022 and the $22.8 million as of June 30, 2022, reflects a narrowing of the gap between the California unemployment rate and the National Unemployment rate during the first six months of 2022, compared with December 31, 2021.  The $2.2 million in charge-offs recognized in the Farmland and Agricultural Production portfolio segment is primarily the result of a reduction in the expected valuation of collateral on a single loan relationship, recorded in the first quarter 2022. The $1.9 million charge-off in Commercial Real Estate was recognized during the second quarter, when Management became aware of a borrower’s reduced ability to service their loan primarily as a result of increased vacancy rates related to the remote work which has increased following the pandemic.

The following table presents the activity in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2021:

Three months ended June 30, 2021

Real Estate

Agricultural
Products

Commercial and
Industrial (1)

Consumer

Unallocated

Total

Allowance for credit losses:

Beginning balance

$

12,806

$

672

$

4,205

$

593

$

43

$

18,319

Charge-offs

(11)

(50)

(25)

(169)

(255)

Recoveries

195

82

180

457

(Benefit) provision

(915)

(98)

(1,190)

86

17

(2,100)

Ending balance

$

12,075

$

524

$

3,072

$

690

$

60

$

16,421

Six months ended June 30, 2021

    

Real Estate

    

Agricultural
Products

    

Commercial and
Industrial (1)

    

Consumer

    

Unallocated

    

Total

Allowance for credit losses:

Beginning balance

    

$

11,766

    

$

482

    

$

4,721

    

$

720

    

$

49

    

$

17,738

Charge-offs

(245)

(50)

(77)

(331)

(703)

Recoveries

648

192

396

1,236

(Benefit) provision

(94)

92

(1,764)

(95)

11

(1,850)

Ending balance

$

12,075

$

524

$

3,072

$

690

$

60

$

16,421

Reserves:

Specific

$

641

$

246

$

381

$

16

$

$

1,284

General

11,434

278

2,691

674

60

15,137

Ending balance

$

12,075

$

524

$

3,072

$

690

$

60

$

16,421

Loans evaluated for impairment:

Individually

$

15,677

$

517

$

1,649

$

207

$

$

18,050

Collectively

1,780,290

42,435

299,334

4,687

2,126,746

Ending balance

$

1,795,967

$

42,952

$

300,983

$

4,894

$

$

2,144,796