
(in 000's)	June 30, 2020		December 31, 2019
Commercial and industrial:
Commercial and business loans	$	41,525	$	44,534
Government program loans	26,705		744
Total commercial and industrial	68,230		45,278
Real estate mortgage:
Commercial real estate	264,492		245,183
Residential mortgages	49,826		45,881
Home improvement and home equity loans	120		173
Total real estate mortgage	314,438		291,237
Real estate construction and development	153,655		138,784
Agricultural	48,979		52,197
Installment and student loans	64,352		69,878
Total loans	$	649,654	$	597,374

The Company's 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. Although the Company does participate in loans with other financial institutions, they are primarily in the state of California.

Commercial and industrial loans represent 10.6% of total loans at June 30, 2020 and 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; however, extensions of credit are predicated upon the financial capacity of the borrower. Repayment of commercial loans is generally from the cash flow of the borrower. Included within the balance of Commercial and industrial loans is $26,035,000 in Paycheck Protection Program ("PPP") loans administrated by the SBA. PPP loans have a two-year term and earn interest at 1%. The Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program.

Real estate mortgage loans, representing 48.4% of total loans at June 30, 2020, are secured by trust deeds on primarily commercial property, but are also secured by trust deeds on 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 on all types of 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. Commercial real estate loans are made under the premise that the loan will be 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.

Real estate construction and development loans, representing 23.7% of total loans at June 30, 2020, consist of loans for residential and commercial construction projects, as well as land acquisition and development, or 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 on 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.

Installment loans, including student loans, represent 9.8% of total loans at June 30, 2020 and 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.

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, 2020 and December 31, 2019, these financial instruments include commitments to extend credit of $231,275,000 and $197,559,000, respectively, and standby letters of credit of $3,615,000 and $1,662,000, 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 involvement the Company has in off-balance sheet financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amounts of those instruments. The Company uses the same credit policies as it does for on-balance sheet instruments.

Commitments to extend credit are agreements to lend to a customer, as long as there is no violation of any condition established in the contract. A majority of these commitments are at floating interest rates based on the Prime rate. Commitments generally have fixed expiration dates. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation. Collateral held varies but includes 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.

The Bank has entered into a Small Business Administration (SBA) 504 Loan Forward Purchase Commitment to buy a one hundred percent (100%) interest in up to $30 million, first mortgage, California SBA 504 loans on a flow basis with servicing released by the Seller.


June 30, 2020	Loans 30-60 Days Past Due		Loans 61-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Current Loans		Total Loans		Accruing Loans 90 or More Days Past Due
Commercial and business loans	$	—	$	—	$	—	$	—	$	41,525	$	41,525	$	—
Government program loans	—		—		—		—		26,705		26,705		—
Total commercial and industrial	—		—		—		—		68,230		68,230		—
Commercial real estate loans	—		1,009		—		1,009		263,483		264,492		—
Residential mortgages	—		—		—		—		49,826		49,826		—
Home improvement and home equity loans	—		—		—		—		120		120		—
Total real estate mortgage	—		1,009		—		1,009		313,429		314,438		—

Real estate construction and development loans	—		—		8,573		8,573		145,082		153,655		—
Agricultural loans	—		—		514		514		48,465		48,979		—

Installment and student loans	209		292		269		770		63,328		64,098		269
Overdraft protection lines	—		—		—		—		30		30		—
Overdrafts	—		—		—		—		224		224		—
Total installment and student loans	209		292		269		770		63,582		64,352		269
Total loans	$	209	$	1,301	$	9,356	$	10,866	$	638,788	$	649,654	$	269


December 31, 2019	Loans 30-60 Days Past Due		Loans 61-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Current Loans		Total Loans		Accruing Loans 90 or More Days Past Due
Commercial and business loans	$	568	$	—	$	75	$	643	$	43,891	$	44,534	$	—
Government program loans	—		—		—		—		744		744		—
Total commercial and industrial	568		—		75		643		44,635		45,278		—
Commercial real estate loans	—		—		—		—		245,183		245,183		—
Residential mortgages	28		—		—		28		45,853		45,881		—
Home improvement and home equity loans	—		—		—		—		173		173		—
Total real estate mortgage	28		—		—		28		291,209		291,237		—
Real estate construction and development loans	—		—		8,825		8,825		129,959		138,784		—
Agricultural loans	957		423		144		1,524		50,673		52,197		—

Installment and student loans	292		657		386		1,335		68,280		69,615		386
Overdraft protection lines	—		—		—		—		33		33		—
Overdrafts	—		—		—		—		230		230		—
Total installment and student loans	292		657		386		1,335		68,543		69,878		386
Total loans	$	1,845	$	1,080	$	9,430	$	12,355	$	585,019	$	597,374	$	386

All loans, outside of student loans, where principal or interest is due and unpaid for 90 days or more are placed on nonaccrual and the accrual of interest for financial statement purposes is discontinued. Previously accrued but unpaid interest is reversed and charged against interest income. See Note 4 - Student Loans for specific information on the student loan portfolio.

Cost recovery method: If the loan is in doubt as to full collection, the interest received in subsequent payments is diverted from interest income to a valuation reserve and treated as a reduction of principal for financial reporting purposes.

Cash basis: This method is only used if the recorded investment or total contractual amount is expected to be fully collectible, under which circumstances the subsequent payments of interest are credited to interest income as received.

Loans on non-accrual status are usually not returned to accrual status unless all delinquent principal and/or interest has been brought current, there is no identified element of loss, and current and continued satisfactory performance is expected (loss of the contractual amount not the carrying amount of the loan). Return to accrual is generally demonstrated through the timely receipt of at least six monthly payments on a loan with monthly amortization.


	June 30, 2020		December 31, 2019
Commercial and business loans	$	—	$	75
Government program loans	—		—
Total commercial and industrial	—		75

Commercial real estate loans	—		—
Residential mortgages	—		—
Home improvement and home equity loans	—		—
Total real estate mortgage	—		—

Real estate construction and development loans	11,109		11,478
Agricultural loans	514		144
Installment and student loans	—		—

Total nonaccrual loans	$	11,623	$	11,697

A loan is considered impaired when based on current information and events, it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the loan agreement.

The Company applies its normal loan review procedures in making judgments regarding probable losses and loan impairment. The Company evaluates for impairment those loans on nonaccrual status, graded doubtful, graded substandard or those that are troubled debt restructures. The primary basis for inclusion in impaired status under generally accepted accounting pronouncements is that it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement.

A loan is not considered impaired if there is merely an insignificant delay or shortfall in the amounts of payments and the Company expects to collect all amounts due, including interest accrued, at the contractual interest rate for the period of the delay.

Review for impairment does not include large groups of smaller balance homogeneous loans that are collectively evaluated to estimate the allowance for loan losses. The Company’s present allowance for loan losses methodology, including migration analysis, captures required reserves for these loans in the formula allowance.

- For loans secured by collateral including real estate and equipment, the fair value of the collateral less selling costs will determine the carrying value of the loan. The difference between the recorded investment in the loan and the fair value, less selling costs, determines the amount of impairment. The Company uses the measurement method based on fair value of collateral when the loan is collateral dependent and foreclosure is probable. For loans that are not considered collateral dependent, a discounted cash flow methodology is used.

- The discounted cash flow method of measuring the impairment of a loan is used for impaired loans that are not considered to be collateral dependent. Under this method, the Company assesses both the amount and timing of cash flows expected from impaired loans. The estimated cash flows are discounted using the loan's effective interest rate. The difference between the amount of the loan on the Bank's books and the discounted cash flow amounts determines the amount of impairment to be provided. This method is used for most of the Company’s troubled debt restructurings or other impaired loans where some payment stream is being collected.

The method for recognizing interest income on impaired loans is dependent on whether the loan is on nonaccrual status or is a troubled debt restructure. For income recognition, the existing nonaccrual and troubled debt restructuring policies are applied to impaired loans. Generally, except for certain troubled debt restructurings which are performing under the restructure agreement, the Company does not recognize interest income received on impaired loans, but reduces the carrying amount of the loan for financial reporting purposes.

Loans other than certain homogeneous loan portfolios are reviewed on a quarterly basis for impairment. Impaired loans are written down to estimated realizable values by the establishment of specific reserves for loan utilizing the discounted cash flow method, or charge-offs for collateral-based impaired loans, or those using observable market pricing.


June 30, 2020	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance (1)		Recorded Investment With Allowance (1)		Total Recorded Investment		Related Allowance		Average Recorded Investment (2)		Interest Recognized (2)
Commercial and business loans	$	316	$	318	$	—	$	318	$	—	$	744	$	14
Government program loans	240		241		—		241		—		249		7
Total commercial and industrial	556		559		—		559		—		993		21

Commercial real estate loans	2,040		1,156		892		2,048		175		2,066		60
Residential mortgages	1,037		502		539		1,041		31		1,052		27
Home improvement and home equity loans	—		—		—		—		—		—		—
Total real estate mortgage	3,077		1,658		1,431		3,089		206		3,118		87

Real estate construction and development loans	11,109		11,109		—		11,109		—		11,333		147
Agricultural loans	694		325		371		696		243		704		8
Installment and student loans	—		—		—		—		—		—		—

Total impaired loans	$	15,436	$	13,651	$	1,802	$	15,453	$	449	$	16,148	$	263


December 31, 2019	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance (1)		Recorded Investment With Allowance (1)		Total Recorded Investment		Related Allowance		Average Recorded Investment (2)		Interest Recognized (2)
Commercial and business loans	$	1,484	$	368	$	1,128	$	1,496	$	606	$	1,930	$	116
Government program loans	257		258		—		258		—		275		18
Total commercial and industrial	1,741		626		1,128		1,754		606		2,205		134

Commercial real estate loans	2,073		1,181		902		2,083		263		2,031		123
Residential mortgages	1,060		517		546		1,063		20		1,577		56
Home improvement and home equity loans	—		—		—		—		—		—		—
Total real estate mortgage	3,133		1,698		1,448		3,146		283		3,608		179

Real estate construction and development loans	11,478		11,478		—		11,478		—		11,572		231
Agricultural loans	684		262		432		694		256		726		57

Installment and student loans	—		—		—		—		—		14		—

Total impaired loans	$	17,036	$	14,064	$	3,008	$	17,072	$	1,145	$	18,125	$	601

In most cases, the Company uses the cash basis method of income recognition for impaired loans. In the case of certain troubled debt restructurings for which the loan is performing under the current contractual terms for a reasonable period of time, income is recognized under the accrual method.

The average recorded investment in impaired loans for the quarters ended June 30, 2020 and 2019 was $15,685,000 and $18,225,000, respectively. Interest income recognized on impaired loans for the quarters ended June 30, 2020 and 2019 was approximately $124,000 and $197,000, respectively. For impaired nonaccrual loans, interest income recognized under a cash-basis method of accounting was approximately $67,000 and $87,000 for the quarters ended June 30, 2020 and 2019, respectively.

The average recorded investment in impaired loans for the six months ended June 30, 2020 and 2019 was $16,148,000 and $18,396,000, respectively. Interest income recognized on impaired loans for the six months ended June 30, 2020 and 2019 was approximately $263,000 and $334,000, respectively. For impaired nonaccrual loans, interest income recognized under a cash-basis method of accounting was approximately $148,000 and $129,000 for the six months ended June 30, 2020 and 2019, respectively.

In certain circumstances, when the Company grants a concession to a borrower as part of a loan restructuring, the restructuring is accounted for as a troubled debt restructuring (TDR). TDRs are reported as a component of impaired loans.

A TDR is a type of restructuring in which the Company, for economic or legal reasons related to the borrower's financial difficulties, grants a concession (either imposed by court order, law, or agreement between the borrower and the Bank) to the

For a restructured loan to return to accrual status there needs to be, among other factors, at least 6 months successful payment history and continued satisfactory performance is expected. To this end, the Company typically performs a financial analysis of the credit to determine whether the borrower has the ability to continue to meet payments over the remaining life of the loan. This includes, but is not limited to, a review of financial statements and cash flow analysis of the borrower. Only after determination that the borrower has the ability to perform under the terms of the loans, will the restructured credit be considered for accrual status. Although the Company does not have a policy which specifically addresses when a loan may be removed from TDR classification, as a matter of practice, loans classified as TDRs generally remain classified as such until the loan either reaches maturity, a confirming loan is renewed at market terms, or its outstanding balance is paid off.


	Six Months Ended June 30, 2020
($ in 000's)	Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts which Defaulted During Period	Recorded Investment on Defaulted TDRs
Troubled Debt Restructurings
Commercial and business loans	—	—		—			$	—
Government program loans	—	—		—		—	—
Commercial real estate term loans	—	—		—		—	—
Single family residential loans	—	—		—		—	—
Home improvement and home equity loans	—	—		—		—	—
Real estate construction and development loans	—	—		—		—	—
Agricultural loans	1	179		179		—	—
Installment and student loans	—	—		—		—	—
Overdraft protection lines	—	—		—		—	—
Total loans	1	$	179	$	179	—	$	—

The Company makes various types of concessions when structuring TDRs including rate discounts, payment extensions, and other-than-temporary forbearance. At June 30, 2020, the Company had 13 restructured loans totaling $5,155,000 as compared to 13 restructured loans totaling $5,187,000 at December 31, 2019.


Three Months Ended June 30, 2020	Commercial and Industrial		Commercial Real Estate		Residential Mortgages		Home Improvement and Home Equity		Real Estate Construction Development		Agricultural		Installment and Student Loans		Total
Beginning balance	$	4	$	893	$	1,048	$	—	$	2,587	$	721	$	—	$	5,253

Additions	—		—		—		—		—		—		—		—

Principal (reductions) additions	(4)		(4)		(10)		—		(51)		(29)		—		(98)
Charge-offs	—		—		—		—		—		—		—		—

Ending balance	$	—	$	889	$	1,038	$	—	$	2,536	$	692	$	—	$	5,155

Allowance for loan loss	$	—	$	175	$	31	$	—	$	—	$	243	$	—	$	449
Defaults	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


Three Months Ended June 30, 2019	Commercial and Industrial		Commercial Real Estate		Residential Mortgages		Home Improvement and Home Equity		Real Estate Construction Development		Agricultural		Installment and Student Loans		Total
Beginning balance	$	57	$	911	$	1,857	$	—	$	2,804	$	711	$	—	$	6,340

Additions	—		—		—		—		—		—		—		—

Principal (reductions) additions	(19)		(4)		(16)		—		(66)		(52)		—		(157)
Charge-offs	—		—		—		—		—		—		—		—

Ending balance	$	38	$	907	$	1,841	$	—	$	2,738	$	659	$	—	$	6,183

Allowance for loan loss	$	—	$	347	$	32	$	—	$	—	$	451	$	—	$	830
Defaults	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


Six Months Ended June 30, 2020	Commercial and Industrial		Commercial Real Estate		Residential Mortgages		Home Improvement and Home Equity		Real Estate Construction Development		Agricultural		Installment and Student Loans		Total
Beginning balance	$	9	$	898	$	1,060	$	—	$	2,654	$	566	$	—	$	5,187

Additions	—		—		—		—		—		179		—		179

Principal (reductions) additions	(9)		(9)		(22)		—		(118)		(53)		—		(211)
Charge-offs	—		—		—		—		—		—		—		—

Ending balance	$	—	$	889	$	1,038	$	—	$	2,536	$	692	$	—	$	5,155

Allowance for loan loss	$	—	$	175	$	31	$	—	$	—	$	243	$	—	$	449
Defaults	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


Six Months Ended June 30, 2019	Commercial and Industrial		Commercial Real Estate		Residential Mortgages		Home Improvement and Home Equity		Real Estate Construction Development		Agricultural		Installment and Student Loans		Total
Beginning balance	$	75	$	1,305	$	2,029	$	—	$	2,838	$	812	$	—	$	7,059

Additions	—		—		—		—		—		—		—		—

Principal (reductions) additions	(37)		(393)		(188)		—		(100)		(153)		—		(871)
Charge-offs	—		(5)				—		—		—		—		(5)

Ending balance	$	38	$	907	$	1,841	$	—	$	2,738	$	659	$	—	$	6,183

Allowance for loan loss	$	—	$	347	$	32	$	—	$	—	$	451	$	—	$	830
Defaults	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

The Company is working with customers directly affected by COVID-19. The Company is prepared to offer short-term assistance in accordance with regulatory guidelines. As of June 30, 2020, the Company had executed 28 payment deferrals or modifications on outstanding loan balances of $69,997,000 in connection with the COVID-19 relief provided by the CARES Act. These deferrals were generally no more than six months in duration and were not considered troubled debt restructurings based on interagency guidance issued in March 2020.

As part of its credit monitoring program, the Company utilizes a risk rating system which quantifies the risk the Company estimates it has assumed during the life of a loan. The 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 on-going 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 to be given a risk rating that takes into account factors that materially affect credit quality.

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 that it be rated differently from the risk rating assigned to the borrower. The Company assesses the risk impact of these factors:

Guarantees - The value of third party support arrangements varies widely. Unconditional guaranties from persons with demonstrable ability to perform are more substantial than that of closely related persons to the borrower who offer only modest support.

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 at least the following factors:

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. When the borrower rating and the facility ratings differ, the lowest rating applied is:

- Grades 1 and 2 – These grades include loans which are given to high quality borrowers with high credit quality and sound financial strength. Key financial ratios are generally above industry averages and the borrower’s 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 with 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, which 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. The borrower may have recognized a loss over three or four years, however recent earnings trends, while perhaps somewhat cyclical, are improving and cash flows are adequate to cover debt service and fixed obligations. Real estate and asset-borrowers fully comply with all underwriting standards and are performing according to projections would be assigned this rating. These also include grade 5 loans which are “leveraged” or on management’s “watch list.” While still considered pass loans (loans given a grade 5), the borrower’s financial condition, cash flow or operations evidence more than average risk and short term

weaknesses, these loans warrant a higher than average level of monitoring, supervision and attention from the Company, but do not reflect credit weakness trends that weaken or inadequately protect the Company’s credit position. Loans with a grade rating of 5 are not normally acceptable as new credits unless they are adequately secured or carry substantial endorser/guarantors.

- Grade 6 – This grade includes “special mention” loans which are loans that are currently protected but are potentially weak. This generally is an interim grade classification and should usually be upgraded to an Acceptable rating or downgraded to Substandard 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 from the loan origination, loan servicing, and perhaps some technical deficiencies. The main theme in special mention credits is the 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.

- Grade 7 – This grade includes “substandard” loans which are inadequately supported by the current sound net worth and paying capacity of the borrower or of the collateral pledged, if any. Substandard loans have a well-defined weakness or weaknesses that may impair the regular liquidation of the debt. Substandard loans exhibit a distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Substandard loans also include impaired loans.

- Grade 8 – This grade includes “doubtful” loans which exhibit the same characteristics as the Substandard loans with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may work to the advantage and 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 “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 absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off the asset even though partial recovery may be achieved in the future.


June 30, 2020	Commercial and Industrial		Commercial Real Estate		Real Estate Construction and Development		Agricultural		Total
(in 000's)
Grades 1 and 2	$	26,306	$	2,767	$	—	$	—	$	29,073
Grade 3	—		751		—		—		751
Grades 4 and 5 – pass	40,073		258,108		141,548		45,966		485,695
Grade 6 – special mention	1,275		1,715		998		2,320		6,308
Grade 7 – substandard	576		1,151		11,109		693		13,529
Grade 8 – doubtful	—		—		—		—		—
Total	$	68,230	$	264,492	$	153,655	$	48,979	$	535,356


December 31, 2019	Commercial and Industrial		Commercial Real Estate		Real Estate Construction and Development		Agricultural		Total
(in 000's)
Grades 1 and 2	$	278	$	2,806	$	—	$	—	$	3,084
Grade 3	—		981		—		—		981
Grades 4 and 5 – pass	41,757		238,612		126,308		50,234		456,911
Grade 6 – special mention	919		1,608		998		1,279		4,804
Grade 7 – substandard	2,324		1,176		11,478		684		15,662
Grade 8 – doubtful	—		—		—		—		—
Total	$	45,278	$	245,183	$	138,784	$	52,197	$	481,442

The Company follows consistent underwriting standards outlined in its loan policy for consumer and other homogeneous loans but, does not specifically assign a risk rating when these loans are originated. Consumer loans are monitored for credit risk and are considered “pass” loans until some issue or event requires that the credit be downgraded to special mention or worse. Within the student loan portfolio, the Company does not grade these loan individually, but monitors credit quality indicators such as delinquency and program defined status codes such as forbearance.


	June 30, 2020														December 31, 2019
	Residential Mortgages		Home Improvement and Home Equity		Installment and Student Loans		Total		Residential Mortgages		Home Improvement and Home Equity		Installment and Student Loans		Total
(in 000's)
Not graded	$	35,163	$	103	$	63,427	$	98,693	$	33,059	$	155	$	68,752	$	101,966
Pass	14,123		17		656		14,796		12,542		18		740		13,300
Special mention	357		—		269		626		88		—		386		474
Substandard	183		—		—		183		192		—		—		192
Doubtful	—		—		—		—		—		—		—		—
Total	$	49,826	$	120	$	64,352	$	114,298	$	45,881	$	173	$	69,878	$	115,932

The Company analyzes risk characteristics inherent in each loan portfolio segment as part of the quarterly review of the adequacy of the allowance for loan losses. The following summarizes some of the key risk characteristics for the ten segments of the loan portfolio (Consumer loans include three segments):

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 if the economic downturn is 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 a 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 in part because of the vulnerability of commercial businesses to economic cycles as well as the exposure to fluctuations in real estate prices because most of these loans are secured by real estate. Losses in this segment have however been historically low because most of the 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 both from the Company and peer statistics. These loans are secured by first deeds of trust. The losses experienced over the past sixteen quarters are isolated to approximately three loans and are generally the result of short sales.

Home improvement and home equity loans – Because of their junior lien position, these loans have an inherently higher risk level. Because residential real estate has been severely distressed in the recent past, the anticipated risk for this loan segment has increased.

Installment and student loans (Includes consumer loans, student loans, overdrafts, and overdraft protection lines) – This segment is higher risk because many 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 of a student loan and eventual repayment.

COVID-19 – As a result of the current economic environment caused by the COVID-19 virus, the Company is engaging in more frequent communication with borrowers to better understand their situation and the challenges faced, allowing it to respond proactively as needs and issues arise. While the Company has not yet experienced any charge-offs related to COVID-19, the allowance for credit loss calculation and resulting provision for credit losses are significantly impacted by changes in economic conditions resulting from significant increase in unemployment. Given that economic scenarios have darkened significantly since the pandemic was declared in early March, the credit risk in the loan portfolio has increased resulting in the need for an additional reserve for credit loss.


Three Months Ended	Commercial and Industrial		Real Estate Mortgage		Real Estate Construction Development		Agricultural		Installment and Student Loans		Unallocated		Total
June 30, 2020
Beginning balance	$	914	$	910	$	3,461	$	868	$	2,616	$	351	$	9,120
Provision (recovery of provision) for credit losses	(166)		(103)		363		(32)		577		(211)		428

Charge-offs	—		—		(252)		—		(448)		—		(700)
Recoveries	8		5		—		—		1		—		14
Net recoveries (charge-offs)	8		5		(252)		—		(447)		—		(686)

Ending balance	$	756	$	812	$	3,572	$	836	$	2,746	$	140	$	8,862
Period-end amount allocated to:
Loans individually evaluated for impairment	—		206		—		243		—		—		449
Loans collectively evaluated for impairment	756		606		3,572		593		2,746		140		8,413
Ending balance	$	756	$	812	$	3,572	$	836	$	2,746	$	140	$	8,862


Three Months Ended	Commercial and Industrial		Real Estate Mortgage		Real Estate Construction Development		Agricultural		Installment and Student Loans		Unallocated		Total
June 30, 2019
Beginning balance	$	1,614	$	995	$	2,188	$	969	$	1,838	$	813	$	8,417
Provision (recovery of provision) for credit losses	(167)		(135)		142		163		136		(135)		4

Charge-offs	—		—		—		—		(5)		—		(5)
Recoveries	9		4		—		—		23		—		36
Net recoveries (charge-offs)	9		4		—		—		18		—		31

Ending balance	$	1,456	$	864	$	2,330	$	1,132	$	1,992	$	678	$	8,452
Period-end amount allocated to:
Loans individually evaluated for impairment	609		379		—		451		—		—		1,439
Loans collectively evaluated for impairment	847		485		2,330		681		1,992		678		7,013
Ending balance	$	1,456	$	864	$	2,330	$	1,132	$	1,992	$	678	$	8,452


Six Months Ended	Commercial and Industrial		Real Estate Mortgage		Real Estate Construction Development		Agricultural		Installment and Student Loans		Unallocated		Total
June 30, 2020
Beginning balance	$	1,322	$	712	$	2,808	$	761	$	2,132	$	173	$	7,908
Provision (recovery of provision) for credit losses	(579)		91		1,016		75		1,564		(33)		2,134

Charge-offs	—		—		(252)		—		(956)		—		(1,208)
Recoveries	13		9		—		—		6		—		28
Net recoveries (charge-offs)	13		9		(252)		—		(950)		—		(1,180)

Ending balance	$	756	$	812	$	3,572	$	836	$	2,746	$	140	$	8,862
Period-end amount allocated to:
Loans individually evaluated for impairment	—		206		—		243		—		—		449
Loans collectively evaluated for impairment	756		606		3,572		593		2,746		140		8,413
Ending balance	$	756	$	812	$	3,572	$	836	$	2,746	$	140	$	8,862


Six Months Ended	Commercial and Industrial		Real Estate Mortgage		Real Estate Construction Development		Agricultural		Installment and Student Loans		Unallocated		Total
June 30, 2019
Beginning balance	$	1,673	$	1,015	$	2,424	$	1,131	$	1,559	$	593	$	8,395
Provision (recovery of provision) for credit losses	(274)		(154)		(94)		1		446		85		10

Charge-offs	—		(5)		—		—		(114)		—		(119)
Recoveries	57		8		—		—		101		—		166
Net (charge-offs) recoveries	57		3		—		—		(13)		—		47

Ending balance	$	1,456	$	864	$	2,330	$	1,132	$	1,992	$	678	$	8,452
Period-end amount allocated to:
Loans individually evaluated for impairment	609		379		—		451		—		—		1,439
Loans collectively evaluated for impairment	847		485		2,330		681		1,992		678		7,013
Ending balance	$	1,456	$	864	$	2,330	$	1,132	$	1,992	$	678	$	8,452


	June 30, 2020										June 30, 2019
	Loans Individually Evaluated for Impairment		Loans Collectively Evaluated for Impairment		Total Loans		Loans Individually Evaluated for Impairment		Loans Collectively Evaluated for Impairment		Total Loans
(in 000's)
Commercial and business loans	$	318	$	41,207	$	41,525	$	1,878	$	52,456	$	54,334
Government program loans	241		26,464		26,705		275		536		811
Total commercial and industrial	559		67,671		68,230		2,153		52,992		55,145

Commercial real estate loans	2,048		262,444		264,492		1,824		225,701		227,525
Residential mortgage loans	1,041		48,785		49,826		1,848		52,294		54,142
Home improvement and home equity loans	—		120		120		—		221		221
Total real estate mortgage	3,089		311,349		314,438		3,672		278,216		281,888

Real estate construction and development loans	11,109		142,546		153,655		11,562		103,049		114,611

Agricultural loans	696		48,283		48,979		667		51,360		52,027

Installment and student loans	—		64,352		64,352		—		69,750		69,750

Total loans	$	15,453	$	634,201	$	649,654	$	18,054	$	555,367	$	573,421