FFB BANCORP
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2024, and 2023
FFB BANCORP
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2024, and 2023
CONTENTS
INDEPENDENT AUDITOR’S REPORT ......................................................................................................
1
CONSOLIDATED FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS ...............................................................................................
3
CONSOLIDATED STATEMENTS OF INCOME .................................................................................
4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME .............................................
5
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY .....................
6
CONSOLIDATED STATEMENTS OF CASH FLOWS.......................................................................
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS .............................................................
9
(Continued)
1.
Crowe LLP
Independent Member Crowe Global
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors
FFB Bancorp
Fresno, California
Report on the Audit of the Financial Statements
Opinion
We have audited the consolidated financial statements of FFB Bancorp, which comprise the consolidated
balance sheets as of December 31, 2024 and 2023, and the related consolidated statements of income,
comprehensive income, changes in shareholders’ equity, and cash flows for the years then ended, and the
related notes to the financial statements.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of FFB Bancorp as of December 31, 2024 and 2023, and the results of its operations
and its cash flows for the years then ended in accordance with accounting principles generally accepted in
the United States of America.
We also have audited, in accordance with auditing standards generally accepted in the United States of
America, FFB Bancorp’s internal control over financial reporting as of December 31, 2024, based on criteria
established in the Internal Control—Integrated Framework (2013), issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) relevant to reporting objectives for the express
purpose of meeting the regulatory requirements of Section 112 of the Federal Deposit Insurance
Corporation Improvement Act (FDICIA) and our report dated March 31, 2025 expressed an adverse opinion.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America (GAAS). Our responsibilities under those standards are further described in the Auditor’s
Responsibilities for the Audit of the Financial Statements section of our report. We are required to be
independent of FFB Bancorp and to meet our other ethical responsibilities, in accordance with the relevant
ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with accounting principles generally accepted in the United States of America,
and for the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of consolidated financial statements that are free from material misstatement, whether due to
fraud or error.
2.
In preparing the consolidated financial statements, management is required to evaluate whether there are
conditions or events, considered in the aggregate, that raise substantial doubt about FFB Bancorp’s ability
to continue as a going concern for one year from the date the consolidated financial statements are
available to be issued.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance
and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a
material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud
is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control. Misstatements are considered material if there is a
substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a
reasonable user based on the consolidated financial statements.
In performing an audit in accordance with GAAS, we:
Exercise professional judgment and maintain professional skepticism throughout the audit.
Identify and assess the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error, and design and perform audit procedures responsive to those risks. Such
procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that
are appropriate in the circumstances.
Evaluate the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluate the overall presentation of the
consolidated financial statements.
Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that
raise substantial doubt about FFB Bancorp’s ability to continue as a going concern for a reasonable
period of time.
We are required to communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit, significant audit findings, and certain internal control–related matters
that we identified during the audit.
Crowe LLP
Sacramento, California
March 31, 2025
2024
2023
ASSETS
Cash and due from banks
$
43,905 $
30,147
Interest-bearing deposits in banks
19,510
32,456
Total cash and cash equivalents
63,415
62,603
Certificates of deposit, at fair value
1,723
1,673
Debt securities available-for-sale, at fair value
319,276
322,878
Debt securities held-to-maturity, at amortized cost, net of allowance for
credit losses of $0
2,910
3,127
Loans
1,066,879
924,713
Allowance for credit losses
(11,834)
(9,980)
Total loans, net
1,055,045
914,733
SBIC investments and correspondent bank stock, at cost
8,891
7,125
Cash surrender value of life insurance
12,402
12,029
Premises and equipment, net
384
391
Interest receivable and other assets
40,082
39,753
Total assets
$ 1,504,128 $ 1,364,312
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
$ 1,284,377 $ 1,145,170
Other borrowed funds
—
34,000
Long term debt (net of issuance cost $243 and $401 as of December 31,
2024 and 2023, respectively)
38,007
39,599
Interest payable and other liabilities
13,352
14,843
Total liabilities
1,335,736
1,233,612
Commitments (Note 12)
Shareholders’ equity:
Common stock - 50,000,000 shares authorized, no par value: 3,175,817
and 3,171,690 shares issued and outstanding in 2024 and 2023,
respectively
38,436
36,178
Retained earnings
148,138
113,991
Accumulated other comprehensive loss
(18,182)
(19,469)
Total shareholders' equity
168,392
130,700
Total liabilities and shareholders' equity
$ 1,504,128 $ 1,364,312
FFB BANCORP
CONSOLIDATED BALANCE SHEETS
For the Years Ended December 31, 2024 and 2023
(Dollar amounts in thousands except per share data)
See accompanying notes to the consolidated financial statements.
3.
2024
2023
Interest Income:
Loans, including fees
$
66,826 $
56,102
Taxable investment securities
13,486
12,298
Tax-exempt investment securities
1,342
1,561
Federal funds sold and other
2,309
2,694
Total interest income
83,963
72,655
Interest Expense
Savings deposits, NOW, and money market accounts
6,611
3,721
Time deposits
5,106
3,029
Other borrowings
346
515
Long term debt
1,858
1,858
Total interest expense
13,921
9,123
Net interest income
70,042
63,532
Provision for credit losses
3,103
1,750
Net interest income after provision for credit losses
66,939
61,782
Non-interest income:
Service charges on deposits
4,069
3,546
Merchant services income
25,268
20,931
Net loss on sales of available-for-sale securities
(1,299)
(3,142)
Net gain on sales of loans
2,526
1,906
Income from life insurance
500
811
Other
884
993
Total non-interest income
31,948
25,045
Non-interest expenses:
Salaries and employee benefits
24,952
20,162
Occupancy and equipment
1,606
1,554
Regulatory assessments
831
667
Data processing fees
2,454
2,013
Professional fees
2,981
1,907
Marketing and business promotion
1,991
1,486
Merchant services operating expense
10,661
7,997
Director fees
555
534
Other expenses
5,961
4,286
Total non-interest expenses
51,992
40,606
Income before income taxes
46,895
46,221
Provision for income taxes
12,748
12,663
Net income
$
34,147 $
33,558
Net income per share - basic
$10.76
$10.57
Net income per share - diluted
$10.72
$10.56
FFB BANCORP
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 2024 and 2023
(Dollar amounts in thousands except per share data)
See accompanying notes to the consolidated financial statements.
4.
2024
2023
Net income
$
34,147 $
33,558
Other comprehensive income:
Available-for-sale securities:
Unrealized holdings gains arising during the year
480
1,188
Reclassification of net losses included in net income
1,299
3,142
Net unrealized gains
1,779
4,330
Income tax expense
(492)
(1,319)
Other comprehensive income
1,287
3,011
Total comprehensive income
$
35,434 $
36,569
FFB BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31, 2024 and 2023
(Dollar amounts in thousands except per share data)
See accompanying notes to the consolidated financial statements.
5.
Common Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
Shares
Amount
Balances, December 31, 2022
3,139,880
34,369
80,469
(22,480)
92,358
Implementation of ASU 2016-13, Current
Expected Credit Loss (CECL) Day 1
Adjustment
—
—
(36)
—
(36)
Adjusted Balance, January 1, 2023
3,139,880
34,369
80,433
(22,480)
92,322
Stock based compensation
—
1,756
—
—
1,756
Exercise of stock options
5,451
53
—
—
53
Restricted stock granted net of
forfeitures
33,771
—
—
—
—
Restricted stock surrendered for tax
liability
(7,412)
—
—
—
—
Net income
—
—
33,558
—
33,558
Other comprehensive income
—
—
—
3,011
3,011
Balances, December 31, 2023
3,171,690
36,178
113,991
(19,469)
130,700
Issuance of common stock
9,500
725
—
—
725
Stock based compensation
—
1,528
—
—
1,528
Exercise of stock options
500
5
—
—
5
Restricted stock units released net
of forfeitures
5,719
—
—
—
—
Restricted stock surrendered for tax
liability
(11,592)
—
—
—
—
Net income
—
—
34,147
—
34,147
Other comprehensive income
—
—
—
1,287
1,287
Balances, December 31, 2024
3,175,817
38,436
148,138
(18,182)
168,392
FFB BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2024 and 2023
(Dollar amounts in thousands except per share data)
See accompanying notes to the consolidated financial statements.
6.
2024
2023
Cash flows from operating activities
Net income
$
34,147
$
33,558
Adjustments to reconcile net income to net cash from operating activities:
Depreciation of premises and equipment
167
283
Amortization and accretion on securities available for sale, net
463
1,084
Amortization and accretion on securities held to maturity, net
(1)
1
Provision for credit losses
3,103
1,750
Loss on sale of available-for-sale securities, net
1,299
3,142
Gain on sale of loans, net
(2,526)
(1,906)
Proceeds from sale of loans held for sale, net
—
11,063
Stock based compensation expense
1,528
1,756
Increase in value of life insurance
(500)
(811)
Increase in interest receivable
(1,023)
(565)
Provision for deferred income taxes
(1,196)
(595)
Net change in interest payable and other liabilities
(605)
(1,423)
Net change in other assets
(461)
1,575
Net cash from operating activities
34,395
48,912
Cash flow from investing activities
Proceeds from maturities of certificates of deposit
—
1,310
Purchase of available-for-sale securities
(71,935)
(68,281)
Proceeds from paydowns or maturities of available-for-sale securities
42,257
27,386
Proceeds from sale/call of available-for-sale securities
32,755
57,161
Proceeds from maturities of held-to-maturity securities
218
355
Loan originations and payments, net
(140,889)
(82,589)
Purchase of SBIC investments and correspondent bank stock
(1,766)
(1,571)
Purchases of premises and equipment
(160)
(270)
Purchase of bank owned life insurance annuity
—
(6,628)
Purchase of bank owned life insurance
—
(3,152)
Net cash from investing activities
(139,520)
(76,279)
Cash flows from financing activities
Net increase in demand deposits and savings accounts
118,285
13,690
Increase in time deposits, net
20,922
50,253
Repayment from short term borrowings with the FHLB, net
(34,000)
(31,000)
Net proceeds from exercise of stock options
5
53
Cash proceeds from issuance of common stock
725
—
Net cash from financing activities
105,937
32,996
Net change in cash and cash equivalents
812
5,629
Cash and cash equivalents, beginning of year
62,603
56,974
Cash and cash equivalents, end of year
63,415
62,603
FFB BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2024 and 2023
See accompanying notes to the consolidated financial statements.
7.
Supplemental disclosures of cash flow information:
Interest paid
13,877
8,863
Taxes paid
11,180
13,575
Operating cash flows from operating leases
762
775
Non-cash investing and financing activities:
Initial recognition of operating lease right-of-use assets
545
—
Transfers from portfolio loans to loans held for sale
46,418
44,859
FFB BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2024 and 2023
See accompanying notes to the consolidated financial statements.
8.
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of FFB Bancorp (the Company) conform to accounting principles
generally accepted in the United States of America and general practices within the banking industry. A
summary of the significant accounting policies applied in the preparation of the accompanying
consolidated financial statements is as follows:
Nature of Operations: On November 7, 2014, a bank holding company reorganization was completed
whereby FFB Bancorp, previously Communities First Financial Corporation, became the parent holding
company of FFB Bank, previously Fresno First Bank (the Bank). On the Effective Date, each of the Bank’s
outstanding shares of common stock converted into an equal number of shares of common stock of FFB
Bancorp, and the Bank became its wholly owned subsidiary. The Company’s administrative headquarters
is based in Fresno, California. The Company began expanding into Northern and Southern California
during 2023 and changed its name to better resonate with clients in the new markets. Effective March 13,
2023, the Bank changed its name from Fresno First Bank to FFB Bank. On May 18, 2023, The Company
changed its name from Communities First Financial Corporation to FFB Bancorp. On August 30, 2023,
The Company's ticker symbol changed from "CFST" to "FFBB" to align with the renaming of the Company
and Bank.
The Bank is incorporated in the state of California and organized as a single operating segment that
operates one full-service office in Fresno, California. The Bank has an SBA production department and
opened a loan production office in Torrance, California in 2020. The Bank’s primary source of revenue is
providing loans to customers, who are predominately small and middle-market businesses and
individuals.
Subsequent Events: On January 7, 2025, the Company’s wholly owned subsidiary, FFB Bank (“Bank”)
stipulated to the entry of a Consent Order (“Order”) by the Federal Deposit Insurance Corporation
(“FDIC”) and the California Department of Financial Protection and Innovation (“CDFPI”) addressing
various matters relating principally to Bank Secrecy Act and Anti-Money Laundering / Countering
Financing of Terrorism (“AML/CFT”) program issues at the Bank and in connection with its Merchant
Payment Business and its relationships with Independent Sales Organizations (“ISO”). The Order was
dated January 10, 2025. While the Bank believes that its efforts are well underway, and it will be able to
correct the matters required by the Order, compliance with the Order will be determined solely by the
FDIC and the CDFPI, based upon subsequent visitations and examinations.
The Company has evaluated the effects of subsequent events for recognition and disclosure through
March 31, 2025, which is the date the consolidated financial statements were available to be issued.
Consolidation: The consolidated financial statements include the accounts of FFB Bancorp and its wholly
owned subsidiary, FFB Bank. Intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates: The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires Management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. The Company bases its estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not readily
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9.
apparent from other sources. Actual results may differ from these estimates under different assumptions
or conditions.
Risks and Uncertainties: The lack of soundness of other financial institutions or financial market utilities
may adversely affect the Company. The Company’s ability to engage in routine funding and other
transactions could be adversely affected by the actions and commercial soundness of other financial
institutions. Financial institutions are interrelated because of trading, clearing, counterparty or other
relationships. Defaults by, or even rumors or questions about, one or more financial institutions or
financial market utilities, or the financial services industry generally, may lead to market-wide liquidity
problems and losses of client, creditor and counterparty confidence and could lead to losses or defaults
by other financial institutions, or the Company.
Liquidity risk could impair the Company’s ability to fund operations and jeopardize its financial condition.
Liquidity is essential to the Company’s business. The Company relies on a variety of sources to meet its
potential liquidity demands. The Company is required to maintain enough liquidity to meet customer loan
requests, customer deposit maturities and withdrawals, payments on its debt obligations as they come
due and other cash commitments under both normal operating conditions and other unpredictable
circumstances, including events causing industry or general financial market stress. A tightening of the
credit markets and the inability to obtain adequate funding may negatively affect its liquidity, asset growth
and, consequently, earnings capability and capital levels. In addition to any deposit growth, and the sale
of loans or investment securities, maturity of investment securities and loan payments, the Company
relies from time to time on advances from the FHLB, FRB, unsecured lines of credit, and certain other
wholesale funding sources to meet liquidity demands. Liquidity position could be significantly constrained
if the Company was unable to access funds from its funding sources.
The Company’s access to funding sources, such as through its lines of credit, capital markets offerings,
borrowing from the FRB and FHLB, or from other third-parties, in amounts adequate to finance or
capitalize its activities, or on terms that are acceptable, could be impaired by factors that affect the
Company directly or the financial services industry or economy in general, such as disruptions in the
financial markets or negative views and expectations about the prospects for the financial services
industry.
Concentrations of Credit Risk: Assets and liabilities that subject the Company to concentrations of credit
risk consist of cash balances at other banks, loans, and deposits. Most of the Company’s customers are
located within Fresno County and the surrounding areas. The Company’s primary lending products are
discussed in Note 3 to the consolidated financial statements. The Company did not have any significant
concentrations in its business with any one customer or industry. The Company obtains what it believes to
be sufficient collateral to secure potential losses on loans. The extent and value of collateral varies based
on the details underlying each loan agreement.
As of December 31, 2024, and 2023, the Company has cash deposits at other financial institutions in
excess of FDIC insured limits. However, as the Company places these deposits with major financial
institutions and monitors the financial condition of these institutions, management believes the risk of loss
to be minimal.
Cash and Cash Equivalents: Net cash flows are reported for loan and deposit transactions and other
borrowings. For purposes of the consolidated statement of cash flows, cash, due from banks with original
maturities less than 90 days, interest-earning deposits in other banks, and Federal funds sold are
considered to be cash equivalents.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(Continued)
10.
As part of the bank's ACH processing, certain transactions are deducted from the Federal Reserve Bank
(FRB) account before they are reflected in depositors' balances. These timing differences arise due to
standard settlement procedures and are typically resolved on the next business day. As of December 31,
2024 and 2023, cash includes $19.35 million and $10.25 million, respectively, of ACH transactions that
were settled at the FRB but will be reflected in customer accounts in the normal course of business.
Certificates of Deposit: These instruments are held similar to available-for-sale securities, with maturities
greater than one year. The securities are carried at estimated fair value with unrealized holding gains and
losses, net of tax, reported within the separate component of accumulated other comprehensive income,
until realized.
Securities: Available-for-Sale ("AFS"): AFS debt securities consist of U.S. agency securities, obligations of
states and political subdivisions, commercial and residential mortgage-backed securities, corporate
bonds, and other debt securities not classified as trading securities or held-to-maturity securities. These
securities are carried at estimated fair value with unrealized holding gains and losses, net of tax, reported
as a separate component of accumulated other comprehensive income, until realized. Premiums and
discounts on securities are amortized on the level-yield method without anticipating repayments, except
for mortgage-backed securities where prepayments are anticipated. Premiums on callable debt securities
are amortized to their earliest call date.
Gains and losses on the sale of securities are determined using the specific identification method. The
amortization of premiums and accretion of discounts are recognized as adjustments to interest income
using the interest method over the period to call or maturity.
The Company evaluates AFS debt securities in an unrealized loss position to determine whether the
decline in the fair value below the amortized cost basis is due to credit-related factors or noncredit-related
factors. Any impairment that is not credit related is recognized in other comprehensive income, net of
applicable taxes. Credit-related impairment is recognized as an allowance for credit losses on the balance
sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a
corresponding adjustment to earnings. Both the allowance for credit losses and the adjustment to net
income may be reversed if conditions change. However, if the Company intends to sell an impaired AFS
debt security or more likely than not will be required to sell such a security before recovering its amortized
cost basis, the entire impairment amount is recognized in earnings with a corresponding adjustment to the
security's amortized cost basis. In evaluating AFS debt securities in unrealized loss positions for
impairment and the criteria regarding its intent or requirement to sell such securities, the Company
considers the extent to which fair value is less than amortized cost, whether the securities are issued by
the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and
the results of reviews of the issuers' financial condition, among other factors. Changes in the allowance
for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged
against the allowance for credit losses when management believes the uncollectability of an AFS debt
security is confirmed or when either of the criteria regarding intent or requirement to sell is met. No
security credit losses were recognized during the year ended December 31, 2024.
Securities: Held-to-Maturity ("HTM"): HTM debt securities consist of U.S. agency securities and
commercial and residential mortgage-backed securities not classified as trading securities or available-
for-sale debt securities. These securities are carried at amortized cost when management has the
positive intent and ability to hold them to maturity.
The Company measures expected credit losses on HTM debt securities on a collective basis by major
security type, then further disaggregated by sector and bond rating. The estimate of expected credit
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(Continued)
11.
losses considers historical credit loss information that is adjusted for current conditions and reasonable
and supportable forecasts based on current and expected changes in credit ratings and default rates.
Based on the implied guarantees of the U. S. Government or its agencies for these investment securities,
the Company did not recognize credit losses related to HTM securities during the year ended
December 31, 2024.
Loans: Loans are stated at the principal amount outstanding, net of unearned discount and unamortized
deferred fees and costs. Interest is accrued daily on the outstanding principal balances and included in
other assets. Loans which are more than 90 days delinquent with respect to interest or principal, unless
they are well secured and in the process of collection, and other loans on which full recovery of principal
or interest is in doubt, are placed on nonaccrual status. Interest previously accrued, but not collected, on
loans placed on nonaccrual status is charged against interest income. When the ability to fully collect
nonaccrual loan principal is in doubt, payments received are applied against the principal balance of the
loans on a cost-recovery method until such time as full collection of the remaining recorded balance is
expected. Any additional interest payments received after that time are recorded as interest income on a
cash basis. Nonaccrual loans are reinstated to accrual status when none of the loan’s principal and
interest is past due and improvements in credit quality eliminate doubt as to the full collectability of both
principal and interest, or the loan otherwise becomes well secured and in the process of collection.
Loan fees, net of certain direct costs of origination, are deferred and amortized over the contractual term
of the loan as an adjustment to the interest yield. During the years ended December 31, 2024 and 2023
salaries and employee benefits expense totaling $1.13 million and $781,000 respectively, were deferred
as loan origination costs.
Allowance for Credit Losses - Loans: The allowance for credit losses (“ACL”) on loans is a valuation
account that is deducted from the loans’ amortized cost basis to present the net amount expected to be
collected on the loans. The allowance is established through a provision for credit losses which is charged
to expense. Loans are charged off against the allowance when management believes the uncollectibility
of a loan balance is confirmed. Cash received on previously charged off amounts is recorded as a
recovery to the allowance.
The Company elected the practical expedient to exclude accrued interest from the amortized cost basis
when measuring potential impairment. Additionally, management notes that due to this election, accrued
interest is separately reported from the loans’ amortized cost basis. As of December 31, 2024 and 2023,
the Company's accrued interest total was $8.52 million and $7.49 million.
Management estimates the allowance balance using relevant available information, from internal and
external sources, relating to past events, current conditions and reasonable and supportable forecasts.
Historical credit loss experience from peer data provides the basis for the estimation of expected credit
losses. Adjustments to historical loss information are made for the differences in the current loan-specific
risk characteristics, such as differences in loan-to-values, portfolio mix, or term as well as for changes in
environmental conditions, such as changes in unemployment rates, market interest rates, property
values, or other relevant factors. Management may assign qualitative factors to each loan segment if
there are risks or improvements present but not yet captured in the model environment. On a regular
basis, management reviews the credit quality of the loan portfolio and considers problem and delinquent
loans, existing general economic conditions affecting the key lending areas of the Company, credit quality
trends, collateral values, loan volumes and concentrations, seasoning of the loan portfolio, specific
industry conditions, recent loss experience, duration of the current business cycle, bank regulatory
examination results, and findings of the Company’s internal credit examiners.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(Continued)
12.
All loan segments are exposed to risks inherent in the economy and market conditions. Significant risk
characteristics related to the commercial and industrial loan segment include the borrowers’ business
performance and financial condition, and the value of collateral for secured loans. Significant risk
characteristics related to the commercial real estate segment include the borrowers’ business
performance and the value of properties collateralizing the loans. Significant risk characteristics related to
the land and construction loan segment include the borrowers’ performance in successfully developing
the real estate into the intended purpose and the value of the property collateralizing the loans. Significant
risk characteristics related to the agriculture segment include the borrower's financial condition, adverse
weather conditions, market price fluctuations, and competition. Significant risk characteristics related to
the residential real estate segment include the borrowers’ financial wherewithal to service the mortgages
and the value of the property collateralizing the loans. Significant risk characteristics related to the
consumer and other loan segment include the financial condition of the borrowers and the value of
collateral securing the loans.
The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics
exist. The Company segments its loans by call code for calculating the allowance for credit losses.
Specifically for loans to nondepository financial institutions and all other loans (excluding consumer),
which are included in the commercial and industrial segment, the weighted average remaining maturity is
utilized. For all other loan segments, including other loans in the commercial and industrial segment, the
cash flow method is utilized.
When loans do not share similar risk characteristics, the Company evaluates the loan for expected credit
losses on an individual basis. Loans evaluated individually are not included in the collective evaluation.
When management determines that foreclosure is probable or when the borrower is experiencing
financial difficulty at the reporting date and repayment is expected to be provided substantially through the
operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at
the reporting date, adjusted for selling costs as appropriate. For other individually evaluated loans that are
not collateral dependent, a credit loss reserve is established at the difference between the amortized cost
basis in the loan and the present value of expected future cash flows discounted at the loan’s effective
interest rate.
Allowance for Credit Losses on Unfunded Commitments: The Company estimates expected credit losses
over the contractual period in which the Company is exposed to credit risk via a contractual obligation to
extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for
credit losses on unfunded commitments is adjusted through provision for credit losses. The estimate
includes consideration of the likelihood that funding will occur and an estimate of expected credit losses
on commitments expected to be funded over its estimated life.
SBIC Investments and Correspondent Bank Stock: The Company is a member of the Federal Home Loan
Bank (FHLB) system. Members are required to own a certain amount of stock based on the level of
borrowings and other factors and may invest in additional amounts. The Company held stock in the FHLB
totaling $5.82 million and $5.33 million at December 31, 2024 and 2023, respectively. FHLB stock is
carried at cost, classified as a restricted security, and periodically evaluated for impairment based on the
ultimate recovery of par value. Both cash and stock dividends are reported as income. FHLB stock was
not considered impaired as of December 31, 2024 and 2023. Correspondent bank stock accounts on the
consolidated balance sheet include The Independent Bankers Bank (TIB) stock of $225,000 and Pacific
Coast Bankers’ Bank (PCBB) stock of $400,000 at December 31, 2024 and 2023. TIB and PCBB stock
are carried at cost and were not considered impaired as of December 31, 2024 and 2023. The Company
has made certain investments in Small Business Development Corporations (SBICs). SBIC investments
on the consolidated balance sheet include $2.43 million and $1.15 million, at December 31, 2024 and
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(Continued)
13.
2023, respectively. These investments are carried at cost and were not considered impaired as of
December 31, 2024 and 2023. The Company held stock in Farmer Mac with a balance of at $20,000 and
$19,000 as of December 31, 2024 and 2023, respectively and are periodically evaluated for impairment
based on the ultimate recovery of the par value.
Premises and Equipment: Premises and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the estimated useful lives,
which range from three to seven years for computer equipment, equipment, furniture, and fixtures.
Leasehold improvements are amortized using the straight-line method over the estimated useful lives of
the improvements or the remaining lease term, whichever is shorter. Expenditures for betterments or
major repairs are capitalized and those for ordinary repairs and maintenance are charged to operations
as incurred.
Advertising and Marketing Costs: The Company expenses the costs of advertising and marketing in the
year incurred. Advertising and marketing expense was $1.28 million and $918,000 for the years ended
December 31, 2024 and 2023, respectively.
Cash Surrender Value of Life Insurance: The Company has purchased life insurance policies on certain
key executives. Company owned life insurance is recorded at the amount that can be realized under the
insurance contract at the balance sheet date, which is the cash surrender value adjusted for other
charges or other amounts due that are probable at settlement.
Lifetime Income Nonqualified Solution (LINQS+): The Company has purchased certain annuity-based
funding mechanisms that provide lifetime income as a means to fund benefits under a Supplemental
Executive Retirement Plan (SERP). This is recorded in other assets at the amount that can be realized
under the contract at the balance sheet date, which is the cash surrender value adjusted for other
charges or other amounts due that are probable at settlement.
Other Real Estate Owned: Real estate acquired by foreclosure or deed in lieu of foreclosure is recorded
at fair value at the date of foreclosure, establishing a new cost basis by a charge to the allowance for loan
losses, if necessary. Fair value is based on current appraisals less estimated selling costs. Any
subsequent write-downs are charged against operating expenses and recognized as a valuation
allowance. Operating expenses of such properties, net of related income, and gains and losses on their
disposition are included in other operating expenses. As of December 31, 2024 and 2023 there was no
other real estate owned by the Company.
Loans Held for Sale: Loans held for sale are reported at the lower of cost or fair value. Cost generally
approximates market value, given the short duration of these assets. Net unrealized losses, if any, are
recorded as a valuation allowance and charged to earnings.
Income Taxes: The Company uses the asset and liability method to account for income taxes. Under such
method, deferred tax assets and liabilities are recognized for the future tax consequences of differences
between the consolidated financial statement carrying amounts of existing assets and liabilities and their
respective tax basis (temporary differences). Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are
expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes in the period of enactment. A valuation
allowance against net deferred tax assets is established to the extent that it is more likely than not that the
benefits associated with the deferred tax assets will not be fully realized.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(Continued)
14.
In accordance with accounting standards, the Company has assessed its tax positions and has concluded
there are no unrecognized tax benefits at December 31, 2024 and 2023. The Company recognizes
interest accrued and penalties related to unrecognized tax benefits in tax expense. During the years
ended December 31, 2024 and 2023, the Company recognized no interest and penalties.
Comprehensive Income: Changes in unrealized gains and losses on available-for-sale securities are the
only component of accumulated other comprehensive income (loss) for the Company.
Loan Commitments and Related Financial Instruments: In the ordinary course of business, the Company
has entered into off-balance sheet financial instruments consisting of commitments to extend credit,
commercial letters of credit, and standby letters of credit as described in Note 12. Such financial
instruments are recorded in the consolidated financial statements when they are funded or related fees
are incurred or received.
Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant
market information and other assumptions, as more fully disclosed in a separate note. Fair value
estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for particular items. Changes
in assumptions or in market conditions could significantly affect these estimates.
Earnings per Share (EPS): Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common
stock, such as stock options, were exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the earnings of the entity. The treasury stock method is applied to
determine the dilutive effect of stock options when computing diluted earnings per share.
Stock-Based Compensation: The Company recognizes the cost of employee services received in
exchange for awards of stock options, or other equity instruments, based on the grant-date fair value of
those awards. A Black-Scholes model is utilized to estimate the fair value of stock options, while the
market price of the Company's common stock at the date of grant is used for restricted stock awards. This
cost is recognized over the period that an employee is required to provide services in exchange for the
award, generally the vesting period. The Company's accounting policy is to recognize forfeitures as they
occur. See Note 13 for additional information on the Company’s equity based compensation plans.
Transfers of Financial Assets: Transfers of financial assets are accounted for as sales when control over
the assets has been surrendered. Control over transferred assets is deemed to be surrendered when: (1)
the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions
that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3)
the Company does not maintain effective control over the transferred assets through an agreement to
repurchase them before their maturity.
Servicing Rights: The Company sells or transfers loans, including the guaranteed portion of various
government agencies’ loans (with servicing retained) for cash proceeds equal to the principal amount of
loans, as adjusted to yield interest to the investor based upon the current market rates. The Company
records an asset representing the right to service a loan for others when it sells a loan and retains the
servicing rights. The carrying value of the loan is allocated between the loan and the servicing rights,
based on their relative fair values. The fair value of servicing rights is estimated by discounting estimated
future cash flows from servicing using discount rates that approximate current market rates and estimated
prepayment rates. Servicing rights are included in other assets on the consolidated balance sheets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(Continued)
15.
The servicing rights are initially measured at fair value and amortized in proportion to and over the period
of the estimated net servicing income assuming prepayments. Additionally, management assesses the
servicing rights for impairment as of each financial reporting date. For purposes of evaluating and
measuring impairment, servicing rights are based on a discounted cash flow methodology, current
prepayment speeds, and market discount rates. Any impairment is measured as the amount by which the
carrying value of servicing rights for a stratum exceeds its fair value. The carrying value of servicing
rights, reported in other assets, at December 31, 2024 and 2023 were $395,000 and $325,000
respectively. No impairment charges were recorded for the years ended December 31, 2024 or 2023
related to servicing assets.
Investment in Low Income Housing Tax Credit Funds (LIHTC): The Bank has invested in limited
partnerships that were formed to develop and operate affordable housing projects for low or moderate
income tenants throughout California. The Bank’s ownership in each limited partnership is less than two
percent. In accordance with ASU No. 2014-01, Investments - Equity Method and Joint Ventures (Topic
323), the Company elected to account for the investments in qualified affordable housing tax credit funds
using the proportional amortization method. Under the proportional amortization method, the initial cost of
the investment is amortized in proportion to the tax credits and other tax benefits received and the net
investment performance is recognized as part of income tax expense (benefit). Each of the partnerships
must meet the regulatory minimum requirements for affordable housing for a minimum 15-year
compliance period to fully utilize the tax credits. If the partnerships cease to qualify during the compliance
period, the credit may be denied for any period in which the project is not in compliance and a portion of
the credit previously taken is subject to recapture with interest. The Company’s investment in Low Income
Housing Tax Credit Funds is reported in other assets on the consolidated balance sheet.
Operating Segments: While the chief decision-maker monitors the revenue streams of the various
products and services, operations are managed, and financial performance is evaluated on a Company-
wide basis. Operating segments are aggregated into one as operating results for all segments are similar.
Accordingly, all of the financial service operations are considered by management to be aggregated in
one reportable operating segment.
The Company's reportable segment is determined by the Chief Executive Officer, who is the designated
chief operating decision maker ("CODM"), based upon information provided about the Company's
products and services offered, primarily banking operations. The segment is also distinguished by the
level of information provided to the CODM, who uses such information to review performance of various
components of the business, which are then aggregated if operating performance, product/services, and
customers are similar. The CODM will evaluate the financial performance of the Company's business
components such as by evaluating revenue streams, significant expenses, and budget to actual results in
assessing the Company's segment and determination of allocation of resources. The CODM uses
consolidated net income to benchmark the Company against its competitors. This benchmarking analysis
coupled with monitoring of budget to actual results are used in assessment performance and in
establishing compensation. Loans, investments, merchant revenue, and deposits provide the revenues in
the banking operation. Interest expense, provision for credit losses, and payroll provide the significant
expenses in the banking operation. All operations are domestic.
As the Company's uses a consolidated profit and loss measure, see Consolidated Statements of Income
for the periods presented for additional information related to revenue and significant expenses.
Merchant Services Income and Expense: Merchant services revenue is generated from the fees charged
for processing customer payments through credit cards, debit cards, or other payment gateways. These
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(Continued)
16.
fees may include transaction fees, monthly account maintenance fees, gateway fees, and other ancillary
charges such as chargeback fees.
Payment processing services are provided as an acquiring bank through the third-party or ISO business
model in which we process credit and debit card transactions on behalf of merchants. The Company
enters into a tri-party merchant agreement, between the company, ISO and each merchant. The
Company’s performance obligation is clearing and settling credit and debit transactions on behalf of the
merchants. The Company recognizes revenue monthly once it summarizes and computes all revenue
and expenses applicable to each ISO, which is our performance obligation.
The Company has different types of business activity related to contracted merchant services; ISO
Partner Sponsorships and FFB Payments (Sub-ISO & Direct Merchants).
Revenue for ISO Partner Sponsorships is recognized net of expenses within non-interest income, while
revenue for FFB Payments (Sub-ISO & Direct Merchants) is recognized gross of expenses and recorded
as applicable within non-interest income and non-interest expense within the consolidated statements of
income.
Reclassifications: Some items in the prior year financial statements were reclassified to conform to the
current presentation. Reclassifications had no effect on prior year net income or shareholders equity.
Adoption of New Accounting Standard: The Company adopted ASU 2023-07, Segment Reporting (Topic
280) as of January 1, 2024 on a retrospective basis. The amendments in this update require more
detailed information about significant segment expenses, disclosures for single reportable segment
entities, and the disclosure of information about the Company's chief operating decision maker.
Additionally, for public entities, the amendments in this Update require that an entity disclose how the
chief operating decision maker uses segment profit or loss information. This adoption modified the
Company’s disclosures but did not have a material impact on its financial position or results of operations.
On January 1, 2023, the Company adopted ASU 2016-13 Financial instruments - Credit loss (Topic 326)
Measurement of Credit Losses on Financial Instruments, as amended, which replaces the incurred loss
methodology with an expected loss methodology that is referred to as the current expected credit loss
(CECL) methodology. The measurement of expected Credit loss under the CECL methodology is
applicable to financial assets measured at amortized cost, including loan receivables, and held to maturity
debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan
commitments, standby letters of credit, financial guarantees, and other similar instruments) and net
investments in leases recognized by a lessor in accordance with Topic 842 on leases. In addition, ASC
326 made changes to the accounting for AFS debt securities. One such change is to require credit losses
to be presented as an allowance rather than as a write-down on available-for-sale debt securities
management does not intend to sell or believes that it is more likely than not they will be required to sell.
The Company adopted ASC 326 using the modified retrospective method for all financial assets
measured at amortized cost, and off-balance-sheet credit exposures. Results for reporting periods
beginning after January 1, 2023, are presented under ASC 326 while prior period amounts continue to be
reported in accordance with previously applicable GAAP. The Company recognized a decrease in the
allowance for credit losses on loans totaling $637,000, an increase to the reserve for unfunded
commitments of $688,000, and a corresponding decrease, net of taxes, in retained earnings, of $36,000
as of January 1, 2023 for the cumulative effect of adopting ASC 326. The adoption of the new standard
did not result in a credit loss being recorded on AFS and HTM securities.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(Continued)
17.
The following table illustrates the impact of ASC 326 (in thousands).
January 1, 2023
As Reported under
ASC 326
Pre-ASC 326
Adoption
Impact of ASC 326
Adoption
Loans:
Commercial and industrial
$
4,333 $
4,801 $
(468)
Commercial real estate:
Multifamily
1,138
2,971
(1,833)
CRE owner- occupied
1,025
478
547
CRE non-owner occupied
802
449
353
Land and construction
1,601
981
620
Residential real estate
254
120
134
Agriculture
119
110
9
Consumer and other
5
4
1
Allowance for credit losses on loans
9,277
9,914
(637)
Liabilities:
Allowance for credit losses on unfunded
commitments
$
708 $
20 $
688
The Company also adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled
Debt Restructurings and Vintage Disclosures upon the adoption of ASU 2016-13 as of January 1, 2023 on
a prospective basis. The amendments in this update eliminated the accounting guidance for troubled debt
restructurings (“TDRs”) by creditors in Subtopic 310-40, Receivables-Troubled Debt Restructurings by
Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by
creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the
recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and
restructuring guidance in paragraphs 310-20-35-9 through 35-11 to determine whether a modification
results in a new loan or a continuation of an existing loan. The adoption modified the Company’s
disclosures but did not have a material impact on its financial position or results of operations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(Continued)
18.
NOTE 2 – INVESTMENTS
The amortized cost and estimated fair values of debt securities are as follows:
2024
(in thousands)
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Available-for-sale:
U.S. Treasury securities
$
3,916 $
— $
(460) $
3,456
U.S. government sponsored entities and
agencies
12,154
32
(271)
11,915
Obligations of states and political
subdivisions
107,560
—
(17,081)
90,479
Agency collateralized mortgage
obligations
138,809
243
(3,381)
135,671
Non-agency collateralized mortgage
obligations
59,891
—
(3,074)
56,817
Corporate bonds
22,752
—
(1,814)
20,938
Total
$
345,082 $
275 $
(26,081) $
319,276
Held to Maturity:
U.S. government sponsored entities and
agencies
$
636 $
— $
(30) $
606
Mortgage backed securities
2,274
—
(29)
2,245
Total
$
2,910 $
— $
(59) $
2,851
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
19.
2023
(in thousands)
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Available-for-sale:
U.S. Treasury securities
$
11,869 $
— $
(1,087) $
10,782
U.S. government sponsored entities and
agencies
16,854
64
(330)
16,588
Obligations of states and political
subdivisions
108,816
—
(15,832)
92,984
Agency collateralized mortgage
obligations
84,389
642
(2,337)
82,694
Non-agency collateralized mortgage
obligations
96,987
—
(4,630)
92,357
Corporate bonds
31,548
—
(4,075)
27,473
Total
$
350,463 $
706 $
(28,291) $
322,878
Held to Maturity:
U.S. government sponsored entities and
agencies
789
—
(35)
754
Agency collateralized mortgage
obligations
2,338
—
(59)
2,279
Total
$
3,127 $
— $
(94) $
3,033
The amortized cost and estimated fair value of all investment securities as of December 31, 2024, by
contractual maturities are shown below. Expected maturities may differ from contractual maturities
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – INVESTMENTS (Continued)
(Continued)
20.
because borrowers may have the right to call or prepay obligations with or without call or prepayment
penalties. Securities not due at a single maturity date are shown separately.
(in thousands)
Amortized
Estimated
Fair Value
Available-for-sale
Within One Year
$
— $
—
One to Five Years
5,005
4,666
Five to Ten Years
26,894
23,918
Beyond Ten Years
102,329
86,289
$
134,228 $
114,873
U.S. government sponsored entities and agencies
12,154
11,915
Agency collateralized mortgage obligations
138,809
135,671
Non-agency collateralized mortgage obligations
59,891
56,817
$
345,082 $
319,276
Amortized
Estimated
Fair Value
Held-to-maturity
U.S. government and agency securities
$
636 $
606
Mortgage-backed securities
2,274
2,245
$
2,910 $
2,851
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – INVESTMENTS (Continued)
(Continued)
21.
The following table summarizes debt securities AFS in an unrealized loss position for which an allowance
for credit losses has not been recorded at December 31, 2024 and 2023, aggregated by major security
type and length of time in a continuous unrealized loss position:
(in thousands)
Less than 12 months
12 months or more
Total
2024
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
U.S. Treasury securities
$
—
$
—
$
3,456
$
(460) $
3,456
$
(460)
U.S. government sponsored
entities and agencies
2,933
(10)
5,713
(261)
8,646
(271)
Obligations of states and
political subdivisions
—
—
90,479
(17,081)
90,479
(17,081)
Agency collateralized mortgage
obligations
52,497
(1,329)
25,951
(2,052)
78,448
(3,381)
Non-agency collateralized
mortgage obligations
—
—
53,709
(3,074)
53,709
(3,074)
Corporate bonds
—
—
20,938
(1,814)
20,938
(1,814)
$
55,430
$
(1,339) $
200,246
$
(24,742) $
255,676
$
(26,081)
(in thousands)
Less than 12 months
12 months or more
Total
2023
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
U.S. Treasury securities
$
—
$
—
$
10,782
$
(1,087) $
10,782
$
(1,087)
U.S. government sponsored
entities and agencies
2,986
(8)
6,234
(322)
9,220
(330)
Obligations of states and
political subdivisions
—
—
92,984
(15,832)
92,984
(15,832)
Agency collateralized mortgage
obligations
30,857
(290)
28,173
(2,047)
59,030
(2,337)
Non-agency collateralized
mortgage obligations
11,262
(500)
81,095
(4,130)
92,357
(4,630)
Corporate bonds
—
—
27,473
(4,075)
27,473
(4,075)
$
45,105
$
(798) $
246,741
$
(27,493) $
291,846
$
(28,291)
As of December 31, 2024, there were 4 HTM investment securities with a fair value of $2.85 million and
an unrealized loss of $59,000. As of December 31, 2023, there were 4 HTM investment securities with a
fair value of $3.03 million and an unrealized loss of $94,000. There were no debt securities held to
maturity on nonaccrual status or past due 30 days or more as of December 31, 2024. There were no
securities transferred between AFS and HTM during the years ended December 31, 2024 and 2023.
The Company performed an assessment of HTM investments as of December 31, 2024 and 2023. Based
on the implied guarantees of the U. S. Government or its agencies related to these investment securities,
and the absence of any historical or expected losses, substantially all qualify for a zero loss assumption.
Additionally, the Company continues to maintain the intention and ability to hold these securities through
the date of maturity.
The Company reviews individual securities classified as AFS to determine whether unrealized losses are
deemed credit related or due to other factors such as changes in interest rates and general market
conditions. An allowance for credit loss on investment securities is recorded when unrealized losses have
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – INVESTMENTS (Continued)
(Continued)
22.
been deemed, through the Company’s qualitative assessment, to be credit related. Non-credit related
unrealized losses on investment securities, which may be attributed to changes in interest rates and other
market-related factors, are not recorded through an allowance for credit loss. Such declines are recorded
as an adjustment to accumulated other comprehensive income, net of tax. In the event the Company is
required to sell or has the intent to sell an AFS security that has experienced a decline in fair value below
its amortized cost, the Company writes the amortized cost of the security down to fair value in the current
period.
The Company performed a qualitative assessment of AFS investments as of December 31, 2024 and
determined the unrealized losses across the classes of major security-type to be related to fluctuations in
market conditions, primarily interest rates, and not reflective of a deterioration in credit value. As part of
the assessment, management considers whether the securities are issued by the federal government or
its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of
the security issuer’s financial condition.
At December 31, 2024, there were 208 in AFS debt securities in a gross unrealized loss position with no
credit impairment, consisting of 2 US Treasury securities, 49 US government sponsored entity and
agency securities, 70 obligations of state and political subdivisions, 44 agency collateralized mortgage
obligations, 20 non-agency collateralized mortgage obligations, and 23 corporate debt securities. The
gross unrealized losses were primarily attributable to interest rate increases and liquidity and were
comprised of the following:
• Obligations of States and Political Subdivisions: The unrealized losses on investments in obligations
of states and political subdivisions are caused by increases in required yields by investors in these
types of securities. It is expected that the securities would not be settled at a price less than the
amortized cost of the investment.
• U.S. Treasury, Government Sponsored Entities and Agencies, and Agency Collateralized Mortgage
Obligations: The unrealized losses on the Company’s investments in U.S. treasuries and government
sponsored entities and agency collateralized mortgage obligations were caused by interest rate
changes. The contractual cash flows of those investments are guaranteed or supported by an agency
or sponsored entity of the U.S. Government. Accordingly, it is expected that the securities would not be
settled at a price less than the amortized cost of the Company’s investment.
• Non-agency Collateralized Mortgage Obligations: The unrealized losses on investments in non-
agency collateralized mortgage obligation securities were caused by increases in required yields by
investors in these types of securities. It is expected that the securities would not be settled at a price
less than the amortized cost of the investment. Financial metrics, payment status, credit enhancement,
and ratings are reviewed on a quarterly basis in addition to other metrics provided through third-party
services.
• Corporate Bonds: The unrealized losses on investments in corporate bonds were caused by
increases in required yields by investors in these types of securities. Financial metrics and credit
ratings are monitored quarterly. It is expected that the securities would not be settled at a price less
than the amortized cost of the investment.
At December 31, 2024 there is no intent to sell securities, and the Company determined that it is not more
likely than not that it would be required to sell securities. No allowance for credit losses have been
recognized on AFS debt securities in an unrealized loss position, as management does not believe that
any of the securities are impaired due to credit risk factors as of December 31, 2024 and 2023. As of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – INVESTMENTS (Continued)
(Continued)
23.
December 31, 2024 and 2023 there were no non-performing AFS or HTM debt securities and all
remained within investment grade.
The proceeds from sales and calls of investment securities and the associated gains and losses are listed
below:
(in thousands)
2024
2023
Proceeds
$
32,755 $
57,161
Gross gains
315
79
Gross losses
$
1,614 $
3,221
Debt securities carried at approximately $204.77 million and $244.15 million at December 31, 2024 and
2023, respectively, were pledged to secure public deposits, borrowing lines, or other purposes as
permitted or required by law.
At December 31, 2024 and 2023, there were no holdings of securities of any one issuer, other than the
U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity.
NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS
Loans at year-end were as follows:
(in thousands)
2024
2023
Commercial and industrial
$
268,395 $
219,011
Commercial real estate:
Multifamily
334,790
296,986
CRE owner- occupied
193,119
149,400
CRE non-owner occupied
141,378
109,853
Land and construction
26,522
75,773
Residential real estate
16,845
17,355
Agriculture
90,017
59,961
Consumer and other
13
5
Total gross loans
1,071,079
928,344
Deferred loan costs, net
(4,200)
(3,631)
Loans, net of deferred origination costs
1,066,879
924,713
Allowance for credit losses
(11,834)
(9,980)
Loans, net of allowance
$
1,055,045 $
914,733
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – INVESTMENTS (Continued)
(Continued)
24.
The Company’s loan portfolio consists primarily of loans to borrowers within Fresno County, California.
The Company’s loans are underwritten by evaluating the borrower’s character, cash flow, collateral, and
credit worthiness and, for commercial and business loans, managerial and operational experience.
Underwriting standards are designed to promote relationship banking rather than transactional banking.
Commercial and industrial loans are primarily made to commercial and business enterprises for working
capital, equipment purchases, acquisition, partner/management buyout, growth and expansion, and any
other permissible purposes. The Company’s management examines current and projected cash flow to
determine the ability of the borrower to repay its obligations as agreed. Commercial loans are primarily
made based on the identified cash flow of the borrower and secondarily on the underlying collateral
provided by the borrower. The cash flow of borrowers, however, may not be as expected and the
collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets
being financed or other business assets such as equipment, accounts receivable, or inventory and may
incorporate personal guarantees or personal assets as collateral; however, some loans may be made on
an unsecured basis.
Commercial real estate loans are primarily made to owner-users of the property or investors with current
tenants in the property. Commercial real estate loans are subject to underwriting standards and
processes similar to commercial loans. These loans are viewed primarily as cash flow loans and
secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan
principal amounts, and the repayment of these loans is generally largely dependent on the successful
operation of the property securing the loan or the business conducted on the property securing the loan.
Commercial real estate loans may be more adversely affected by conditions in the real estate markets or
in the general economy. The properties securing the Company’s commercial real estate portfolio are
diverse in terms of type and industries operating within the properties. This diversity helps reduce the
Company’s exposure to adverse economic events that affect any single market or industry. Management
monitors and evaluates commercial real estate loans based on collateral type, geography, industry, and
risk grade criteria.
Land and construction loans generally possess a higher inherent risk of loss than other real estate
portfolio segments. A major risk arises from the necessity to complete projects within specified costs and
time lines. Trends in the construction industry significantly impact the credit quality of these loans, as
demand drives construction activity. In addition, trends in real estate values significantly impact the credit
quality of these loans, as property values determine the economic viability of construction projects.
Residential real estate includes loans secured by collateral connected to 1-4 family close-ended and
revolving real estate. The degree of risk in residential real estate lending depends primarily on the loan
amount in relation to collateral value, the interest rate and the borrower’s ability to repay in an orderly
fashion. These loans generally possess a lower inherent risk of loss than other real estate portfolio
segments. Economic trends determined by unemployment rates and other key economic indicators are
closely correlated to the credit quality of these loans. Weak economic trends may indicate that the
borrowers’ capacity to repay their obligations may be deteriorating.
Agriculture loans may be adversely impacted by weather, insects, marketing issues, and crop
concentration. Additionally, California may experience severe droughts, which can significantly harm the
business of customers and the credit quality of the loans to impacted borrowers. Water resources and
related issues affecting customers are closely monitored by Management. Signs of deterioration within
the portfolio are closely monitored in an effort to manage credit quality and promote early efforts to work
with borrowers in order to mitigate any potential losses.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS (Continued)
(Continued)
25.
The following table summarizes the Company’s 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 liabiliies for the year ended December 31, 2024 and 2023:
(in thousands)
December 31, 2024
Beginning
Balance
Charge-offs
Recoveries
Provision
(Benefit)
Ending
Balance
Commercial and Industrial
$
3,907 $
(1,287) $
35 $
3,931 $
6,586
Commercial Real Estate:
Multifamily
1,400
—
—
36
1,436
CRE owner- occupied
1,100
—
—
101
1,201
CRE non-owner occupied
974
—
—
461
1,435
Land and Construction
2,282
—
—
(1,483)
799
Residential Real Estate
223
—
—
(27)
196
Agriculture
94
—
—
87
181
Consumer and other
—
—
—
—
—
Allowance for credit losses on loans
9,980
(1,287)
35
3,106
11,834
(in thousands)
December 31, 2023
Beginning
Balance
Adoption
of CECL
Charge-
offs
Recoveries
Provision
(Benefit)
Ending
Balance
Commercial and Industrial
$
4,801 $
(468) $
(1,445) $
73 $
946 $
3,907
Commercial Real Estate:
Multifamily
2,971
(1,833)
—
—
262
1,400
CRE owner- occupied
478
547
—
—
75
1,100
CRE non-owner occupied
449
353
—
—
172
974
Land and Construction
981
620
—
—
681
2,282
Residential Real Estate
120
134
—
—
(31)
223
Agriculture
110
9
—
—
(25)
94
Consumer and other
4
1
—
—
(5)
—
Allowance for credit losses on
loans
9,914
(637)
(1,445)
73
2,075
9,980
There were no loans considered collateral dependent at December 31, 2024. There was one Commercial &
Industrial collateral-dependent loan with a balance of $1.76 million, secured by equipment, at December 31,
2023.
Credit Quality Indicators:
The Company has established a loan risk rating system to measure and monitor the quality of the loan
portfolio. All loans are assigned a risk rating from inception until the loan is paid off. The primary loan
grades are as follows:
Loans rated Pass – These are loans to borrowers with satisfactory financial support, repayment capacity,
and credit strength. Borrowers in this category demonstrate fundamentally sound financial positions,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS (Continued)
(Continued)
26.
repayment capacity, credit history, and management expertise. Loans in this category must have an
identifiable and stable source of repayment and meet the Company’s policy regarding debt service
coverage ratios. These borrowers are capable of sustaining normal economic, market, or operational
setbacks without significant financial impacts. Financial ratios and trends are acceptable. Negative
external industry factors are generally not present. The loan may be secured, unsecured, or supported by
non-real estate collateral for which the value is more difficult to determine and/or marketability is more
uncertain. These loans carry a normal degree of risk. The borrowers have the capacity to perform
according to terms; any deviation from historic performance is limited and temporary.
Loans rated Special Mention – These are loans that have potential weaknesses that deserve
management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration
of the repayment prospects for the asset or in the Company’s credit position at some future date. Special
Mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant
adverse classification. These loans exhibit a more weakened condition than Pass loans, but not to the
degree where they would be considered substandard. These loans show definite signs of deterioration or
weakness, and the likelihood of correction is somewhat questionable. Weaknesses might include
significant earnings decline, collection of accounts receivable is slowing, delayed accounts payable,
greater dependency on line usage, and covenants not being met and/or waived for short periods.
Loans rated Substandard – These are loans that are inadequately protected by the current sound worth
and paying capacity of the borrower or by the collateral pledged, if any. These loans have a well-defined
weakness or weaknesses that may jeopardize the liquidation of the loan. They are characterized by the
distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Loans rated Doubtful – These are loans that have all the weaknesses inherent in a loan classified as
Substandard with the added characteristic that the weaknesses make the collection or liquidation in full,
on the basis of currently known facts, conditions and values, highly questionable, and improbable. These
loans have a high probability of loss due to significant deterioration in financial condition of the borrower
and collateral value pledged, if any. The borrower is unable to demonstrate the ability to strengthen their
financial condition within a reasonable time; therefore, close supervision is required and the loan is placed
on non-accrual. The risk of loss is measured by an impairment analysis; any loss exposure determined
through this analysis is to be charged off.
The following table shows the loan portfolio by segment allocated by management's internal risk ratings
as of December 31, 2024 (in thousands):
Term Loans Amortized Cost Basis by Origination Year
Revolving
Loans
Revolving
Converted
to Term
Total
December 31, 2024
2024
2023
2022
2021
2020
Prior
Commercial and industrial
Pass
$ 52,398 $ 19,130 $ 28,565 $ 14,395 $ 5,351
$ 24,799 $
92,055
$
—
$ 236,693
Special Mention
—
2,461
—
21
541
361
249
—
3,633
Substandard
18,596
1,245
2,474
1,383
3,906
465
—
—
28,069
Total
70,994
22,836
31,039
15,799
9,798
25,625
92,304
—
268,395
Current period gross
write-offs
142
1,064
—
62
19
—
—
—
1,287
Commercial Real Estate-
Multifamily
Pass
118,611 65,618
105,558 24,125
17,491
3,387
—
—
334,790
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS (Continued)
(Continued)
27.
Special Mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
—
—
Total
118,611 65,618
105,558 24,125
17,491
3,387
—
—
334,790
Current period gross
write-offs
—
—
—
—
—
—
—
—
—
Commercial Real Estate-
Owner-occupied
Pass
31,249
18,915
37,773
41,822
23,876
32,371
6,446
—
192,452
Special Mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
667
—
—
—
—
667
Total
31,249
18,915
37,773
42,489
23,876
32,371
6,446
—
193,119
Current period gross
write-offs
—
—
—
—
—
—
—
—
—
Commercial Real Estate-
Non-owner occupied
Pass
24,068
22,396
25,680
29,505
3,250
21,890
—
—
126,789
Special Mention
—
—
—
7,190
7,399
—
—
—
14,589
Substandard
—
—
—
—
—
—
—
—
—
Total
24,068
22,396
25,680
36,695
10,649
21,890
—
—
141,378
Current period gross
write-offs
—
—
—
—
—
—
—
—
—
Land & construction
Pass
8,798
5,890
2,204
8,185
1,286
3
156
—
26,522
Special Mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
—
—
Total
8,798
5,890
2,204
8,185
1,286
3
156
—
26,522
Current period gross
write-offs
—
—
—
—
—
—
—
—
—
Residential real estate
Pass
2,628
1,215
925
1,110
5,499
1,683
2,286
—
15,346
Special Mention
1,499
—
—
—
—
—
—
—
1,499
Substandard
—
—
—
—
—
—
—
—
—
Total
4,127
1,215
925
1,110
5,499
1,683
2,286
—
16,845
Current period gross
write-offs
—
—
—
—
—
—
—
—
—
Agriculture
Pass
19,070
7,608
4,280
7,230
3,360
6,170
30,914
—
78,632
Special Mention
512
—
—
6,373
—
—
4,500
—
11,385
Substandard
—
—
—
—
—
—
—
—
—
Total
19,582
7,608
4,280
13,603
3,360
6,170
35,414
—
90,017
Current period gross
write-offs
—
—
—
—
—
—
—
—
—
Consumer and other
Pass
—
—
—
—
—
—
13
—
13
Special Mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
—
—
Total
—
—
—
—
—
—
13
—
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS (Continued)
(Continued)
28.
Current period gross
write-offs
—
—
—
—
—
—
—
—
—
Total loans outstanding
(risk rating):
Pass
256,822 140,772 204,985 126,372 60,113
90,303
131,870
—
1,011,237
Special Mention
2,011
2,461
—
13,584
7,940
361
4,749
—
31,106
Substandard
18,596
1,245
2,474
2,050
3,906
465
—
—
28,736
Total
277,429 144,478 207,459 142,006 71,959
91,129
136,619
—
1,071,079
Current period gross
write-offs
$
142
$ 1,064
$
—
$
62
$
19
$
—
$
—
$
—
$
1,287
The following table shows the loan portfolio by segment allocated by management's internal risk ratings
as of December 31, 2023 (in thousands):
Term Loans Amortized Cost Basis by Origination Year
Revolving
Loans
Revolving
Converted
to Term
Total
December 31, 2023
2023
2022
2021
2020
2019
Prior
Commercial and industrial
Pass
$ 27,360 $ 41,504 $ 17,510 $ 9,954
$ 9,773
$ 22,329 $
82,626
$
—
$ 211,056
Special Mention
—
—
133
—
1,430
101
—
—
1,664
Substandard
—
663
536
3,775
504
813
—
—
6,291
Total
27,360
42,167
18,179
13,729
11,707
23,243
82,626
—
219,011
Current period gross
write-offs
—
491
454
464
—
36
—
—
1,445
Commercial Real Estate-
Multifamily
Pass
97,085
147,772 29,527
18,707
2,027
1,868
—
—
296,986
Special Mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
—
—
Total
97,085
147,772 29,527
18,707
2,027
1,868
—
—
296,986
Current period gross
write-offs
—
—
—
—
—
—
—
—
—
Commercial Real Estate-
Owner-occupied
Pass
22,739
25,934
39,162
24,623
15,091
19,399
2,452
—
149,400
Special Mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
—
—
Total
22,739
25,934
39,162
24,623
15,091
19,399
2,452
—
149,400
Current period gross
write-offs
—
—
—
—
—
—
—
—
—
Commercial Real Estate-
Non-owner occupied
Pass
24,851
20,586
26,830
10,791
7,129
19,666
—
—
109,853
Special Mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
—
—
Total
24,851
20,586
26,830
10,791
7,129
19,666
—
—
109,853
Current period gross
write-offs
—
—
—
—
—
—
—
—
—
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS (Continued)
(Continued)
29.
Land & construction
Pass
26,206
18,231
26,849
2,035
466
—
1,986
—
75,773
Special Mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
—
—
Total
26,206
18,231
26,849
2,035
466
—
1,986
—
75,773
Current period gross
write-offs
—
—
—
—
—
—
—
—
—
Residential real estate
Pass
1,318
1,214
3,878
6,105
—
2,101
2,739
—
17,355
Special Mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
—
—
Total
1,318
1,214
3,878
6,105
—
2,101
2,739
—
17,355
Current period gross
write-offs
—
—
—
—
—
—
—
—
—
Agriculture
Pass
7,520
4,905
16,985
3,570
3,815
2,683
20,483
—
59,961
Special Mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
—
—
Total
7,520
4,905
16,985
3,570
3,815
2,683
20,483
—
59,961
Current period gross
write-offs
—
—
—
—
—
—
—
—
—
Consumer and other
Pass
—
—
—
—
—
—
5
—
5
Special Mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
—
—
Total
—
—
—
—
—
—
5
—
5
Current period gross
write-offs
—
—
—
—
—
—
—
—
—
Total loans outstanding
(risk rating):
Pass
207,079 260,146 160,741 75,785
38,301
68,046
110,291
—
920,389
Special Mention
—
—
133
—
1,430
101
—
—
1,664
Substandard
—
663
536
3,775
504
813
—
—
6,291
Total
207,079 260,809 161,410 79,560
40,235
68,960
110,291
—
928,344
Current period gross
write-offs
$
—
$
491
$
454
$
464
$
—
$
36
$
—
$
—
$
1,445
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS (Continued)
(Continued)
30.
Non-accrual loans, segregated by class, are as follows as of December 31, 2024 and 2023:
Nonaccrual loans
Loans Past Due
(in thousands)
with no Allowance
over 89 Days Still
December 31, 2024
Nonaccrual
for Credit Losses
Accruing
Commercial and industrial
$
9,227 $
— $
953
Commercial real estate
667
—
—
Land and construction
—
—
—
Residential real estate
—
—
—
Agriculture
—
—
34
Consumer
—
—
—
Total
$
9,894 $
— $
987
Nonaccrual loans
Loans Past Due
(in thousands)
with no Allowance
over 89 Days Still
December 31, 2023
Nonaccrual
for Credit Losses
Accruing
Commercial and industrial
$
6,006 $
938 $
1,345
Commercial real estate
—
—
—
Land and construction
—
—
—
Residential real estate
—
—
—
Agriculture
—
—
—
Consumer
—
—
—
Total
$
6,006 $
938 $
1,345
The following table is an aging analysis of loans, segregated by class of loans, as of December 31, 2024:
(in thousands)
30-59
Days
Past Due
60-89
Days
Past Due
Past Due
89+ Days
Loans Not Past
Due
Total
Loans
Commercial & Industrial
$
2,994
$
2,449
$
9,844
$
253,108
$
268,395
Commercial Real Estate:
Multifamily
—
—
—
334,790
334,790
CRE owner- occupied
1,892
—
67
191,160
193,119
CRE non-owner occupied
—
—
—
141,378
141,378
Land & Construction
—
—
—
26,522
26,522
Residential Real Estate
—
—
—
16,845
16,845
Agriculture
—
—
34
89,983
90,017
Consumer
—
—
—
13
13
Total
$
4,886
$
2,449
$
9,945
$
1,053,799
$
1,071,079
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS (Continued)
(Continued)
31.
The following table is an aging analysis of loans, segregated by class of loans, as of December 31, 2023:
(in thousands)
30-59
Days
Past Due
60-89
Days
Past Due
Past Due
89+ Days
Loans Not Past
Due
Total
Loans
Commercial & Industrial
$
1,076
$
861
$
2,886
$
214,188
$
219,011
Commercial Real Estate:
Multifamily
—
—
—
296,986
296,986
CRE owner- occupied
—
—
—
149,400
149,400
CRE non-owner occupied
—
—
—
109,853
109,853
Land & Construction
—
—
—
75,773
75,773
Residential Real Estate
—
—
—
17,355
17,355
Agriculture
—
—
—
59,961
59,961
Consumer
—
—
—
5
5
Total
$
1,076
$
861
$
2,886
$
923,521
$
928,344
Occasionally, the Company modifies loans to borrowers experiencing financial difficulty by providing
interest rate reductions, principal or interest forgiveness, forbearance, term extensions, and other actions
intended to minimize economic loss and to avoid foreclosure or repossession of collateral.
There were no loan modifications granted to borrowers experiencing financial difficulty during the year
ended December 31, 2024.
The following table shows the balance of loans that were both experiencing financial difficulty and granted
modifications during the period ended December 31, 2023:
(in thousands)
Principal
Forgiveness
Payment
Delay/Term
Extension
Interest Rate
Reduction
Combination-
Payment Delay/Rate
Reduction
Total % of Loans
Outstanding
Commercial and industrial
$
—
$
5,733
$
—
$
—
0.62 %
Commercial real estate:
Multifamily
—
—
—
—
— %
CRE owner- occupied
—
856
—
—
0.09 %
CRE non-owner occupied
—
—
—
—
— %
Land and construction
—
—
—
—
— %
Residential real estate
—
—
—
—
— %
Agriculture
—
—
—
—
— %
Consumer and other
—
—
—
—
— %
Total
$
—
$
6,589
$
—
$
—
0.71 %
The Company closely monitors the performance of loans that are modified to borrowers experiencing
financial difficulty to understand the effectiveness of its modification efforts. As of December 31, 2024,
$5.2 million in commercial and industrial loans, that had been granted modifications in 2023, were on non-
accrual.
The Company did not have any loans with a payment default during the years ended December 31, 2024,
or 2023, that were modified in the twelve months prior to that default to borrowers experiencing financial
difficulty. In the event the Company determines that a modified loan is deemed uncollectible, the loan or
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS (Continued)
(Continued)
32.
portion of the loan is written off. The amortized cost basis is reduced by the uncollectible amount and the
allowance for credit losses is adjusted by the same amount.
NOTE 4 – PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
(in thousands)
2024
2023
Leasehold improvements
$
1,120 $
1,120
Furniture, fixtures, and equipment
775
734
Computer equipment
550
409
2,445
2,263
Less accumulated depreciation
(2,061)
(1,872)
$
384 $
391
Depreciation expense amounted to $167,000 and $283,000 for the years ending December 31, 2024 and
2023, respectively.
NOTE 5 – LEASES
The Company leases its offices under noncancelable operating leases with terms extending through
2030. Leases with an initial term of twelve months or less are not recorded on the balance sheet.
Operating lease cost is comprised of lease expense recognized on a straight-line basis, the amortization
of the right-of-use asset and the implicit interest accreted on the operating lease liability. Operating lease
cost is included in occupancy and equipment expense on our consolidated statements of income. We
evaluate the lease term by assuming the exercise of options to the extent that they are reasonably
assured and those option periods covered by an option to terminate the lease, if deemed not reasonably
certain to be exercised. The lease term is used to determine the straight-line expense and limits the
depreciable life of any related leasehold improvements. Certain leases require us to pay real estate taxes,
insurance, maintenance and other operating expenses associated with the leased premises. These
expenses are classified in occupancy and equipment expense on our consolidated statements of income,
but are not included in operating lease cost below. We calculate the lease liability using a discount rate
that represents our incremental borrowing rate at the lease commencement date.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS (Continued)
(Continued)
33.
At December 31, 2024, the future undiscounted lease payments under non-cancellable operating lease
commitments for the Company’s offices were as follows (in thousands):
2025
$
893
2026
314
2027
113
2028
116
2029
119
Thereafter
61
Total undiscounted lease payments
1,616
Less: imputed interest
(165)
Present value of net future minimum lease payments
$
1,451
The table below summarizes the total lease cost for the twelve months ended December 31:
(in thousands)
2024
2023
Operating lease cost
$
822 $
796
Variable lease cost
$
— $
—
$
822 $
796
The table below summarizes other information related to the Company’s operating leases for the twelve
months ending December 31:
2024
2023
Weighted average remaining lease term, in years
2.79
2.23
Weighted average discount rate
5.66%
5.57%
(in thousands)
Balance Sheet Classification
2024
2023
Right-of-use assets
Interest receivable and other assets
$
1,389 $
1,584
Lease liabilities
Interest payable and other liabilities
$
1,451 $
1,652
Total lease cost included in occupancy and equipment was $822,000 and $796,000 for the years ended
December 31, 2024 and 2023, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – LEASES (Continued)
(Continued)
34.
NOTE 6 – DEPOSITS
Customer deposits were as follows:
(in thousands)
2024
2023
Non-interest-bearing demand
$
828,508 $
775,507
Savings, NOW, and money market accounts
329,575
264,288
Time deposits under $250,000
45,962
42,578
Time deposits $250,000 and over
80,332
62,797
$ 1,284,377 $ 1,145,170
At December 31, 2024, the scheduled maturities of time deposits are as follows (in thousands):
2025
$
78,738
2026
32,042
2027
518
2028
7,524
2029
7,472
Thereafter
—
$
126,294
NOTE 7 – BORROWING ARRANGEMENTS
The Company had unsecured available lines of credit with correspondent banks for short-term borrowings
totaling $91.50 million on December 31, 2024, and 2023. In general, interest rates on these lines
approximate the federal funds target rate. There were no borrowings under these credit facilities on
December 31, 2024, or 2023.
As of December 31, 2024 and 2023, the Company had available lines of credit with the Federal Home
Loan Bank of San Francisco totaling $304.08 million and $295.98 million, respectively, based on eligible
collateral of certain loans and investment securities. As of December 31, 2024 and 2023, the Company
had an available line of credit with the Federal Reserve Bank of San Francisco totaling $166.48 million
and $179.84 million, respectively, based on eligible collateral of certain loans and investment securities.
As of December 31, 2024, the Company had no overnight advances outstanding from the Federal Home
Loan Bank of San Francisco or the Federal Reserve Bank of San Francisco. As of December 31, 2023,
the Company had $20.00 million in advances outstanding from the Federal Home Loan Bank of San
Francisco and $14.00 million from the Federal Reserve Bank of San Francisco.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
35.
NOTE 8 – EMPLOYEE BENEFITS
The Company sponsors an employee stock ownership plan (ESOP) for eligible employees. Eligibility begins
after an employee has attained the age of 21 and completed one year of service, as defined in the ESOP
documents. Under the ESOP, the Company contributes a discretionary amount to the ESOP for the purchase
of the Company’s stock, to be held in trust for each participant to be distributed later in accordance with the
ESOP. For the years ended December 31, 2024 and 2023 contributions to the ESOP were $700,000 and
$916,000, respectively. The ESOP held 136,300 and 175,113 shares of common stock as of December 31,
2024, and 2023, respectively, and there were no unearned shares of common stock held by the ESOP at
December 31, 2024 and 2023.
The Company sponsors a 401(k) plan for the benefit of its employees. The Company can match
employee contributions and make additional contributions annually as determined by the Board of
Directors. The Company made no contributions for the years ended December 31, 2024 and 2023.
The Board of Directors approved salary continuation plans for certain executives during 2017 and 2023.
Under the plans the Company is obligated to provide executives with supplemental benefits after retirement.
The estimated present value of these future benefits is accrued from the effective date of the plan and is
expensed over the years of service. The expense recognized under this plan was $238,000 and $353,000 for
the years ended December 31, 2024 and 2023, respectively. Accrued compensation payable under the salary
continuation plan totaled $2.06 million and $1.96 million at December 31, 2024 and 2023 and is included in
interest payable and other liabilities on the Company’s balance sheet.
The Company recognized $127,000 and $526,000 in income on the annuity contracts for the years ended
December 31, 2024 and 2023, respectively.
NOTE 9 – INCOME TAXES
The provision for income taxes for the years ended December 31 consists of the following:
(in thousands)
2024
2023
Current
Federal
$
9,085 $
8,871
State
4,859
4,387
13,944
13,258
Deferred
Federal
(849)
(508)
State
(347)
(87)
(1,196)
(595)
Provision
$
12,748 $
12,663
Deferred taxes are a result of differences between income tax accounting and generally accepted
accounting principles with respect to the timing of income and expense recognition.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
36.
The following is a summary of the components of the net deferred tax asset accounts included in interest
receivable and other assets in the accompanying consolidated balance sheets at December 31:
(in thousands)
2024
2023
Deferred tax assets
Depreciation
$
87 $
84
Allowance for credit losses
3,438
2,902
Stock-based compensation
544
411
Deferred compensation
598
571
State tax deferral
1,020
959
Non-accrual loan interest
550
233
Lease liability
422
480
Unrealized losses on available-for-sale securities
7,645
8,208
Other
406
290
14,710
14,138
Deferred tax liabilities:
Lease financing receivable
—
(107)
Right-of-use asset
(403)
(461)
Deductible prepaids
(38)
(99)
Other
(595)
(430)
(1,036)
(1,097)
Net deferred income tax asset
$
13,674 $
13,041
The Company is subject to federal income tax and franchise tax of the state of California, as well as other
immaterial state taxing jurisdictions. Income tax returns for the years ended December 31, 2021 through
December 31, 2023 are open to audit by the federal authorities and income tax returns for the years
ended December 31, 2020 through December 31, 2023, are open to audit by state authorities. As of
December 31, 2024, the Company does not have any unrecognized tax benefits. The Company does not
expect unrecognized tax benefits to significantly increase or decrease within the next 12 months.
NOTE 10 – RELATED PARTY TRANSACTIONS
The Company makes loans to certain directors, officers, and their related interests with which they are
associated. The balance of these loans outstanding was approximately $2.90 million and $3.11 million at
December 31, 2024 and 2023, respectively.
Deposits from certain directors, officers, and their related interests with which they are associated, held by
the Company at December 31, 2024 and 2023, totaled $4.30 million and $3.40 million respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 – INCOME TAXES (Continued)
(Continued)
37.
NOTE 11 – EARNINGS PER SHARE (EPS)
Earnings per share for the years ended December 31 were computed as follows:
2024
2023
Basic earnings per share:
Net income available to common shareholders (in thousands)
$
34,147 $
33,558
Weighted average common shares outstanding
3,173,800
3,174,750
Basic earnings per share
$
10.76 $
10.57
Diluted earnings per share:
Net income available to common shareholders, diluted (in thousands)
$
34,147 $
33,558
Weighted average common shares outstanding
3,173,800
3,174,750
Effect of dilutive stock options
10,690
3,273
Adjusted weighted average common shares outstanding, diluted
3,184,490
3,178,023
Diluted earnings per share
$
10.72 $
10.56
At December 31, 2024 and 2023, there were 160 and 267 stock options, respectively that could
potentially dilute earnings per share in the future that were not included in the computation of diluted
earnings per share.
NOTE 12 – COMMITMENTS
In the ordinary course of business, the Company enters into financial commitments to meet the financing
needs of its customers. These financial commitments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk
not recognized in the Company’s consolidated financial statements.
The Company’s exposure to loan loss in the event of non-performance on commitments to extend credit
and standby letters of credit is represented by the contractual amount of those instruments. The Company
uses the same credit policies in making commitments as it does for loans reflected in the consolidated
financial statements.
As of December 31, 2024, and 2023, the Company had the following outstanding financial commitments
whose contractual amount represents credit risk:
(in thousands)
2024
2023
Commitments to extend credit
$
180,183 $
178,341
Letters of credit
1,936
2,117
$
182,119 $
180,458
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
38.
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. Since many of the commitments are expected to expire without
being drawn upon, the total amounts do not necessarily represent future cash requirements. The
Company evaluates each client’s credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company, is based on management’s credit evaluation of the
customer. The majority of the Company’s commitments to extend credit and standby letters of credit are
secured by real estate.
NOTE 13 – STOCK-BASED COMPENSATION
The Company’s 2005 Equity Based Compensation Plan (the Plan) was approved by its shareholders in
February 2006. Under the terms of the Plan, officers and key employees may be granted both non-
qualified, incentive stock options and restricted stock awards, and directors, who are not also an officer or
employee, may only be granted non-qualified stock options and restricted stock awards. The Plan
provides for a maximum number of shares that may be awarded to eligible employees and directors not to
exceed 495,000 shares. In July 2012, the shareholders approved an additional 183,000 shares to be
added to the Plan increasing the total to 678,000 shares. In July 2015, the Shareholders approved the
2015 Equity Based Compensation Plan to replace the 2005 plan, which was due to expire at the end of
10 years. Upon approval, the remaining unallocated shares in the 2005 Plan were transferred into the
2015 Plan for future grants. In May 2019, the shareholders approved the Directors Equity Compensation
Plan, which added an additional 75,000 shares available to be granted beyond those already approved
under the 2005 and 2015 plans. In May 2024, shareholders approved the 2024 Equity Based
Compensation Plan to replace the 2015 Plan. Upon approval, the remaining unallocated shares in the
2015 Plan were transferred into the 2024 Plan for future grants.
There are 574,538 shares authorized under the plans. The total number of shares authorized has been
retroactively adjusted for the effect of stock dividends. Stock options are granted at a price not less than
100% of the fair market value of the stock on the date of grant. Stock options expire no later than ten
years from the date of the grant and all equity-based awards generally vest over three years. The Plan
provides for accelerated vesting if there is a change of control, as defined in the Plan.
The Company recognized stock-based compensation cost of $1,528,000 and $1,756,000 in 2024 and
2023, respectively. The total income tax benefit was $433,000 and $498,000 for 2024 and
2023,respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 – COMMITMENTS (Continued)
(Continued)
39.
A summary of the status of stock options that have been granted by the Company as of December 31,
2024, and changes during the year ending thereon, is presented below:
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Outstanding at beginning of year
2,000
$
10.15
2.01 years
$
116,000
Granted
—
$
—
Exercised
(500)
$
9.25
Forfeited, expired, or returned to Plan through
cashless exercise
—
$
—
Outstanding at end of year
1,500
$
10.45
0.3 years
$
131,280
Options exercisable
1,500
$
10.45
0.3 years
$
131,280
Information related to the stock option plan during each year follows:
2024
2023
Intrinsic value of options exercised
$
44,000 $
311,000
Cash received from option exercises
5,000
53,000
Tax benefit from option exercises
—
—
Weighted average fair value of options granted
—
—
As of December 31, 2024, there was no unrecognized compensation cost related to the outstanding stock
options.
Share Award Plan: The Equity Compensation Plan provides for the issuance of restricted shares to
directors and officers. Compensation expense is recognized over the vesting period of the awards based
on the fair value of the stock at the issue date. The fair value of the stock was determined based on the
closing price listed for the Company’s stock on the date of grant.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 – STOCK-BASED COMPENSATION (Continued)
(Continued)
40.
A summary of changes in the Company’s non-vested restricted share awards and units for the year
follows:
Shares
Weighted
Average
Grant Date
Fair Value
Non-vested at January 1, 2024
65,450
$
56.40
Granted
39,465
78.19
Vested
(36,101)
54.87
Forfeited
(2,129)
66.69
Non-vested at December 31, 2024
66,685
$
69.79
As of December 31, 2024, there was approximately $2,703,000 of total unrecognized compensation cost
related to the outstanding restricted stock awards and units that will be recognized over a weighted
average period of 1.84 years. Total fair value of shares vested during the years ended December 31,
2024 and 2023 was $2,740,944 and $2,352,322, respectively.
NOTE 14 – SUBORDINATED DEBT
In November 2020, the Company issued, through a private placement, $40.0 million aggregate principal
amount of its 4.25% fixed-to-floating rate subordinated notes. The transaction was structured in two
tranches:
(1) $30.0 million of its 4.25% Fixed-to-Floating Rate Subordinated Notes due 2030. The notes mature
on November 15, 2030 and bear a fixed rate of interest of 4.25% for the first five years, payable
semiannually in arrears beginning May 15, 2021. Beginning November 15, 2025, the interest rate
will reset quarterly to a floating rate per annum equal to the then current 3-month term SOFR plus
407 basis points payable quarterly in arrears on February 15, May 15, August 15, and November
15 of each year to the maturity date or earlier redemption. On any scheduled interest payment
date beginning November 15, 2025, the Company may, at its option, redeem the notes, in whole
or in part, at the redemption price equal to 100% of the principal amount plus accrued and unpaid
interest. On September 27, 2024 the Company redeemed $1.75 million of this subordinated note
at a 15% discount, recognizing a gain of $256,000. As of December 31, 2024, the remaining
balance outstanding for the note was $28.25 million.
(2) $10.0 million of its 4.25% Fixed-to-Floating Rate Subordinated Notes due 2035. The notes mature
on November 15, 2035 and bear a fixed rate of interest of 4.25% for the first ten years, payable
semiannually in arrears beginning May 15, 2021. Beginning November 15, 2030, the interest rate
will reset quarterly to a floating rate per annum equal to the then current 3-month term SOFR plus
370 basis points payable quarterly, in arrears on February 15, May 15, August 15, and November
15 of each year to the maturity date or earlier redemption. On any scheduled interest payment
date beginning November 15, 2030, the Company may, at its option, redeem the notes, in whole
or in part, at the redemption price equal to 100% of the principal amount plus accrued and unpaid
interest.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 – STOCK-BASED COMPENSATION (Continued)
(Continued)
41.
The value of the subordinated debentures was reduced by $901,000 of debt issuance costs, which are
being amortized on a straight-line basis through the earlier of the redemption option or maturity date of
the subordinated debentures.
All the subordinated debentures may be included in Tier 2 capital under current regulatory guidelines and
interpretations.
NOTE 15 – SHAREHOLDERS' EQUITY
Regulatory Capital:
Banks are subject to regulatory capital requirements administered by federal banking agencies. Capital
adequacy guidelines and prompt corrective action regulations, involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital
amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital
requirements can initiate regulatory action. The net unrealized gain or loss on AFS securities is not
included in computing regulatory capital. Management believes as of December 31, 2024, the Bank
meets all capital adequacy requirements to which it is subject.
The minimum capital ratio requirements consist of the following: (i) common equity Tier 1 capital to total
risk weighted assets ratio of 4.5%; (ii) a Tier 1 capital to total risk weighted assets ratio of 6%; (iii) a total
capital to total risk weighted assets ratio of 8%; and (iv) a Tier 1 capital to adjusted average total assets
(“leverage”) ratio of 4%.
In addition, a “capital conservation buffer” is established which requires maintenance of a minimum of
2.5% of common equity Tier 1 capital to total risk weighted assets in excess of the regulatory minimum
capital ratio requirements described above. The 2.5% buffer increases the minimum capital ratios to (i) a
common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of
10.5%. If the capital ratio levels of a banking organization fall below the capital conservation buffer
amount, the organization will be subject to limitations on (i) the payment of dividends; (ii) discretionary
bonus payments; (iii) discretionary payments under Tier 1 instruments; and (iv) engaging in share
repurchases.
Prompt corrective action regulations provide five classifications: well-capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are
not used to represent overall financial condition. If adequately capitalized, regulatory approval is required
to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and
expansion, and capital restoration plans are required. At December 31, 2024 and 2023, the most recent
regulatory notifications categorized the Bank as well-capitalized under the regulatory framework for
prompt corrective action.
There are no conditions or events since that notification that management believes have changed the
institution’s category.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 – SUBORDINATED DEBT (Continued)
(Continued)
42.
Actual and required capital amounts and ratios, including the capital conservation buffer, are presented
for the Bank below (dollar amounts in thousands):
Actual
For Capital
Adequacy Purposes
To be Well-Capitalized
Under Prompt Corrective
Action Provisions
Amount
Ratio
Amount
Minimum
Ratio
Amount
Minimum
Ratio
December 31, 2024:
Common Equity Tier I Capital
(to Risk-Weighted Assets)
$
220,991
19.75 %
$
78,321
7.0 %
$
72,727
6.5 %
Total Capital
(to Risk-Weighted Assets)
$
233,205
20.84 %
$
117,482
10.5 %
$
111,887
10.0 %
Tier I Capital
(to Risk-Weighted Assets)
$
220,991
19.75 %
$
95,104
8.5 %
$
89,510
8.0 %
Tier I Capital (Leverage)
(to Average Assets)
$
220,991
14.33 %
$
61,686
4.0 %
$
77,108
5.0 %
December 31, 2023:
Common Equity Tier I Capital
(to Risk-Weighted Assets)
$
186,137
18.72 %
$
69,599
7.0 %
$
64,628
6.5 %
Total Capital
(to Risk-Weighted Assets)
$
196,500
19.76 %
$
104,399
10.5 %
$
99,427
10.0 %
Tier I Capital
(to Risk-Weighted Assets)
$
186,137
18.72 %
$
84,513
8.5 %
$
79,542
8.0 %
Tier I Capital
(to Average Assets)
$
186,137
13.58 % $
54,807
4.0 % $
68,509
5.0 %
Dividends:
The California Financial Code provides that a bank may not make a cash distribution to its shareholders
in excess of the lessor of the bank’s undivided profits or the bank’s net income for its last three fiscal
years less any distributions made to shareholders during the same period without the approval in advance
of the Commissioner of the California Department of Financial Protection and Innovation. During the year
ended December 31, 2024, the Bank paid $3.00 million in dividends to the parent company for operating
expenses and interest due on subordinated debentures.
Common Stock:
On March 26, 2024, the Company issued 9,500 shares of its common stock totaling $725,000 as part of
the Company’s ESOP contribution for 2023.
NOTE 16 – FAIR VALUE
Fair Value Measurement: Fair value is the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. Current accounting guidance
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 – SHAREHOLDERS' EQUITY (Continued)
(Continued)
43.
establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels
of inputs that may be used to measure fair value:
Level 1 - Quoted prices (unadjusted) for identical assets or liabilities in active markets, that the entity has
the ability to access as of the measurement date.
Level 2 - Significant other observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can
be corroborated by observable market data.
Level 3 - Significant unobservable inputs that reflect a Company’s own assumptions about the
assumptions that market participants would use in pricing an asset or a liability.
The following is a description of valuation methodologies used for assets and liabilities recorded at fair
value:
Securities – The fair values of debt securities available-for-sale are determined matrix pricing, which is a
mathematical technique used widely in the industry to value debt securities without relying exclusively on
quoted prices for specific securities, but rather by relying on the securities’ relationship to other
benchmark securities (Level 2).
Collateral-Dependent Loans – The Company does not record loans at fair value on a recurring basis.
However, from time to time, fair value adjustments are recorded on these loans to reflect: (1) partial write-
downs, through charge offs or allowances, that are based on the current appraised or market-quoted value
of the underlying collateral, or (2) the full charge off the loan carrying value. In some cases, the properties
for which market quotes or appraisal values have been obtained are in areas where comparable sales data
is limited, outdated, or unavailable. Fair value estimates for collateral-dependent loans are obtained from
real estate brokers or other third-party consultants. Adjustments are routinely made in the appraisal process
by the appraisers to adjust for differences between the comparable sales and income data available. There
were no loans measured at fair value on a non-recurring basis at December 31, 2024. There was one
Commercial & Industrial collateral-dependent loan with a balance of $1.76 million measured at fair value at
December 31, 2023.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 – FAIR VALUE (Continued)
(Continued)
44.
The following table summarizes the Company’s assets that were measured at fair value on a recurring
basis at December 31, 2024 (in thousands):
Description of Assets
December 31,
2024
Quoted
Prices in
Active Markets
For Identical
Assets
Inputs (Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Securities available-for-sale
U.S. Treasury securities
$
3,456 $
— $
3,456 $
—
U.S. government sponsored entities and
agencies
11,915
—
11,915
—
Obligations of states and political
subdivisions
90,479
—
90,479
—
Agency collateralized mortgage
obligations
135,671
—
135,671
—
Non-agency collateralized mortgage
obligations
56,817
—
56,817
—
Corporate bonds
20,938
—
20,938
—
Total
$
319,276 $
— $
319,276 $
—
Certificates of Deposits
$
1,723 $
— $
1,723 $
—
The following table summarizes the Company’s assets that were measured at fair value on a recurring
basis at December 31, 2023 (in thousands):
Description of Assets
December 31,
2023
Quoted
Prices in
Active Markets
For Identical
Assets
Inputs (Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Securities available-for-sale
U.S. Treasury securities
$
10,782 $
— $
10,782 $
—
U.S. government sponsored entities
and agencies
16,588
—
16,588
—
Obligations of states and political
subdivisions
92,984
—
92,984
—
Agency collateralized mortgage
82,694
—
82,694
—
Non-agency collateralized mortgage
obligations
92,357
—
92,357
—
Corporate bonds
27,473
—
27,473
—
Total
$
322,878 $
— $
322,878 $
—
Certificates of Deposits
$
1,673 $
— $
1,673 $
—
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 – FAIR VALUE (Continued)
(Continued)
45.
The fair value of a financial instrument is the amount at which the asset or obligation could be exchanged
in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value
estimates are made at a specific point in time based on relevant market information and information about
the financial instrument. These estimates do not reflect any premium or discount that could result from
offering for sale at one time the entire holdings of a particular financial instrument. Because no market
value exists for a significant portion of the financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are subjective in nature, involve
uncertainties and matters of judgment and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Fair value estimates are based on financial instruments both on and off the balance sheet without
attempting to estimate the value of anticipated future business and the value of assets and liabilities that
are not considered financial instruments. Additionally, tax consequences related to the realization of the
unrealized gains and losses can have a potential effect on fair value estimates and have not been
considered in many of the estimates.
The following methods and assumptions were used by the Company in estimating fair values of financial
instruments:
Financial Assets – The carrying amounts of cash, short-term investments due from customers on
acceptances, and bank acceptances outstanding are considered to approximate fair value. Short-term
investments include federal funds sold, securities purchased under agreements to resell, and interest-
bearing deposits with banks. The fair values of securities held to maturity are generally based on matric
pricing, which is a mathematical technique used widely in the industry to value debt securities without
relying exclusively on quoted prices for specific securities, but rather by relying on the securities’
relationship to other benchmark securities. The fair value of variable loans that reprice frequently and that
have experienced no significant change in credit risk is based on carrying values. The fair values for all
other loans are estimated using discounted cash flow analyses and interest rates currently being offered
for loans with similar terms to borrowers with similar credit quality. Loans are generally expected to be
held to maturity and any unrealized gains or losses are not expected to be realized. Fair value for
correspondent bank stock is not practical to determine due to restrictions on transferability. Fair value for
interest receivable and SBIC investments approximates carrying value. The estimated fair values of
financial instruments disclosed below follow the guidance in ASU 2016-01 which prescribes an “exit price”
approach in estimating and disclosing fair value of financial instruments incorporating discounts for credit,
liquidity, and marketability factors.
Loans Held for Sale – The Company does not measure loans held for sale at fair value on a recurring
basis. Loans held for sale are carried at the lower of cost or fair value. The fair value of loans held for sale
is based on what secondary markets are currently offering for portfolios with similar characteristics (Level
2).
Financial Liabilities – The carrying amounts of deposit liabilities payable on demand, commercial paper,
and other borrowed funds are considered to approximate fair value. For fixed maturity deposits and long-
term debt, fair value is estimated by discounting estimated future cash flows using currently offered rates
for deposits of similar remaining maturities. The fair value of interest payable approximates its carrying
amount.
Off-Balance Sheet Financial Instruments – The fair value of commitments to extend credit and standby
letters of credit is estimated using the fees currently charged to enter into similar agreements, taking into
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 – FAIR VALUE (Continued)
(Continued)
46.
account the remaining terms of the agreements and the credit standing of the counterparties. The fair
value of the commitments is not material.
The carrying amounts and estimated fair value of financial instruments not carried at fair value at
December 31 are summarized as follows (in thousands):
2024
2023
Carrying
Amount
Estimated
Fair Value
Fair Value
Hierarchy
Carrying
Amount
Estimated
Fair Value
Fair Value
Hierarchy
Financial assets:
Cash and cash equivalents
$
63,415
$
63,415
Level 1
$
62,603
$
62,603
Level 1
Securities held-to-maturity
2,910
2,851
Level 2
3,127
3,124
Level 2
Loans held for sale
—
—
Level 2
—
—
Level 2
Loans, net
1,066,879
1,044,989
Level 3
924,713
910,182
Level 3
SBIC investments
2,430
2,430
Level 2
1,149
1,149
Level 2
Interest receivable
8,515
8,515
Level 2
7,492
7,492
Level 2
Financial liabilities:
Deposits
1,284,377
1,088,385
Level 2
1,145,170
1,042,776
Level 2
Long term debt
38,007
30,347
Level 3
39,599
33,220
Level 3
Interest payable
586
586
Level 2
543
543
Level 2
NOTE 17 – INVESTMENT IN LOW INCOME HOUSING TAX CREDIT FUNDS
The Company invests in Low Income Housing Tax Credit “LIHTC” partnerships. At December 31, 2024,
and 2023, the investment balance for LIHTC partnerships was $6.56 million and $7.02 million
respectively. These balances are reflected in interest receivable and other assets on the consolidated
balance sheets. Total unfunded commitments related to these partnerships totaled $2.34 million at
December 31, 2024 which is reflected in interest payable and other liabilities on the consolidated balance
sheet. The Company expects to fulfill these commitments during the year ending 2027.
During the year ended December 31, 2024, the Company recorded amortization expense of $1.44 million,
in income tax expense. The Company recorded $979,000 amortization expense associated with the
LIHTC for the year ended December 31, 2023. The recognized tax benefit for the year ended
December 31, 2024, was $1.29 million. The Company recognized $916,000 in tax benefit associated with
the LIHTC in the year end December 31, 2023.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 – FAIR VALUE (Continued)
(Continued)
47.
NOTE 18 – REVENUE FROM CONTRACTS WITH CUSTOMERS
All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within
Non-Interest Income. The following table presents the Company’s sources of Non-Interest Income within
the scope of ASC 606.
(in thousands)
2024
2023
Non-interest income
Service charges on deposits
$
4,069 $
3,546
Debit card interchange fees
732
614
Merchant Services
25,268
20,931
$
30,069 $
25,091
The remaining balance of non-interest income is made up of other income which includes gains (loss) on
sale of securities, cash overs, sundry recoveries, gain on sale of assets, gain on sale of loans, cash
surrender value of life insurance, referral fee income, and other miscellaneous income totaling $1.88
million, which is outside the scope of ASC 606.
Service Charges on Deposit Accounts: The Company earns fees from its deposit customers for
transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include
services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are
recognized at the time the transaction is executed as that is the point in time the Company fulfills the
customer’s request.
Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of
a month, representing the period over which the Company satisfies the performance obligation. Overdraft
fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are
withdrawn from the customer’s account balance.
Debit Card Interchange Fees: The Company earns interchange fees from cardholder transactions
conducted through the payment networks. Interchange fees from cardholder transactions represent a
percentage of the underlying transaction value and are recognized daily.
Merchant Service Income: The Company provides transaction processing services for business
customers to allow the customer to collect payments via credit and debit card. The Company also
sponsors Independent Sales Organizations (“ISO’s”) who provide these services to their clients. Fees
charged represent a percentage of the underlying transaction value and are recognized daily,
concurrently with the transaction processing services provided the merchant. Payment processing
services are provided as an acquiring bank through the third-party or ISO business model in which we
process credit and debit card transactions on behalf of merchants. The Company enters into a tri-party
merchant agreement, between the company, ISO and each merchant. The Company’s performance
obligation is clearing and settling credit and debit transactions on behalf of the merchants. The Company
recognizes revenue monthly once it summarizes and computes all revenue and expenses applicable to
each ISO, which is our performance obligation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
48.