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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2023 or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 000-23575

COMMUNITY WEST BANCSHARES

(Exact name of registrant as specified in its charter)

California		77-0446957
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

445 Pine Avenue, Goleta, California		93117
(Address of principal executive offices)		(Zip Code)

(805) 692-5821

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, no par value	CWBC	The Nasdaq Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ YES ☐ NO

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ YES ☐ NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Shares of common stock, no par value, of the registrant issued and outstanding as of ~~August~~November 8, 2023: 8,850,~~547~~312.

Table of Contents

Index			Page
Part I. Financial Information
	Item 1 – Financial Statements
		Consolidated Balance Sheets as of June 30, 2023 (unaudited) and December 31, 2022	3
		Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022	3
		Consolidated Income Statements for the three and six months ended June 30, 2023 and 2022 (unaudited)	4
		Consolidated Income Statements for the three and nine months ended September 30, 2023 and 2022 (unaudited)	4
		Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2023 and 2022 (unaudited)	5
		Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023 and 2022 (unaudited)	5
		Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2023 and 2022 (unaudited)	6
		Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2023 and 2022 (unaudited)	6
		Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 (unaudited)	7
		Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (unaudited)	7
		Notes to Unaudited Consolidated Financial Statements	8
	The financial statements included in this Form 10-Q should be read in conjunction with Community West Bancshares’ Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
	Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		2636
	Item 3 – Quantitative and Qualitative Disclosures About Market Risk		4252
	Item 4 – Controls and Procedures		4353
Part II. Other Information
	Item 1 – Legal Proceedings		4454
	Item 1A – Risk Factors		4454
	Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		4454
	Item 3 – Defaults Upon Senior Securities		4454
	Item 4 – Mine Safety Disclosures		4454
	Item 5 – Other Information		4454
	Item 6 – Exhibits		4555
Signatures			4656

Page 2

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

COMMUNITY WEST BANCSHARES

CONSOLIDATED BALANCE SHEETS

	June 30, 2023			December 31, 2022
	September 30, 2023			December 31, 2022
	(unaudited)
	(in thousands, except share amounts)
Assets:
Cash and due from banks	$	1,~~801~~855		$	1,379
Interest-earning demand deposits in other financial institutions		~~128~~138,~~754~~764			63,311
Cash and cash equivalents		~~130~~140,~~555~~619			64,690
Investment securities - available-for-sale, at fair value; amortized cost of $17,158 at June 30, 2023 and $27,790 at December 31, 2022		14,766			26,688
Investment securities - available-for-sale, at fair value, net of allowance for credit losses of $103 at September 30, 2023 and $0 at December 31, 2022; amortized cost of $16,924 at September 30, 2023 and $27,790 at December 31, 2022		15,124			26,688
Investment securities - held-to-maturity, at amortized cost; fair value of $2,074 at June 30, 2023 and $2,423 at December 31, 2022		2,188			2,557
Investment securities - held-to-maturity, at amortized cost; fair value of $1,987 at September 30, 2023 and $2,423 at December 31, 2022		2,158			2,557
Investment securities - measured at fair value; amortized cost of $66 at June 30, 2023 and December 31, 2022		287			225
Investment securities - measured at fair value; amortized cost of $66 at September 30, 2023 and December 31, 2022		309			225
Federal Home Loan Bank and Federal Reserve Bank stock, at cost		4,865			4,533
Loans held for sale, at lower of cost or fair value		1918,~~126~~435			21,033
Loans held for investment		~~937~~934,~~124~~247			934,309
Allowance for credit losses(1)		(12,~~148~~135	)		(10,765	)
Total loans held for investment, net		~~924~~922,~~976~~112			923,544
Other assets acquired through foreclosure, net		651,511			2,250
Premises and equipment, net		5,~~998~~891			6,104
Other assets		2829,~~604~~275			39,878
Total assets	$	1,~~131~~140,~~430~~299		$	1,091,502
Liabilities:
Deposits:
Noninterest-bearing demand	$	~~195~~190,~~612~~817		$	216,494
Interest-bearing demand		~~460~~456,~~597~~808			428,173
Savings		1816,~~548~~905			23,490
Certificates of deposit ($250,000 or more)		1014,~~328~~911			6,693
Other certificates of deposit		~~226~~236,~~639~~652			200,234
Total deposits		~~911~~916,~~724~~093			875,084
Federal Home Loan Bank advances and other borrowings		90,000			90,000
Other liabilities		1518,~~765~~144			13,768
Total liabilities		1,~~017~~024,~~489~~237			978,852
Stockholders’ equity:
Common stock — no par value, 60,000,000 shares authorized; 8,849,112 shares issued and outstanding at June 30, 2023 and 8,798,412 at December 31, 2022		46,293			45,694
Common stock — no par value, 60,000,000 shares authorized; 8,850,312 shares issued and outstanding at September 30, 2023 and 8,798,412 at December 31, 2022		46,381			45,694
Retained earnings		6970,~~328~~872			67,727
Accumulated other comprehensive loss, net		(1,~~680~~191	)		(771	)
Total stockholders’ equity		~~113~~116,~~941~~062			112,650
Total liabilities and stockholders’ equity	$	1,~~131~~140,~~430~~299		$	1,091,502

(1) On January 1, 2023, the Company adopted the provisions of Accounting Standards Codification Topic 326. The allowance in 2023 is reported using the current expected credit loss (“CECL”) method. Periods prior to adoption are reported in accordance with previous GAAP using the incurred loss method.

See the accompanying Notes to Unaudited Consolidated Financial Statements.

Page 3

Table of Contents

COMMUNITY WEST BANCSHARES

CONSOLIDATED INCOME STATEMENTS (unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2023

2022

2023

2022

Interest and dividend income:

(in thousands, except per share amounts)

Loans, including fees

13,~~161~~331

11,~~129~~867

2538,~~650~~981

2234,~~323~~190

Investment securities and other

1,~~554~~222

~~577~~787

23,~~650~~872

~~883~~1,670

Total interest and dividend income

14,~~715~~553

1112,~~706~~654

2842,~~300~~853

2335,~~206~~860

Interest expense:

Deposits

3,~~751~~830

~~500~~528

69,~~028~~858

1,~~070~~598

Other borrowings

247

196

525

390

FHLB advances and other borrowings

204

203

729

593

Total interest expense

34,~~998~~034

~~696~~731

610,~~553~~587

12,~~460~~191

Net interest income

10,~~717~~519

11,~~010~~923

2132,~~747~~266

2133,~~746~~669

Provision (credit) for credit losses

1243

~~252~~298

(~~710~~667

)

~~(32~~266

)

Net interest income after provision (credit) for credit losses

10,~~705~~476

1011,~~758~~625

2232,~~457~~933

2133,~~778~~403

Non-interest income:

Other loan fees

~~286~~248

~~377~~292

~~455~~703

~~623~~915

Gains from loan sales, net

5624

~~136~~49

86110

~~196~~245

Document processing fees

~~102~~88

~~122~~114

~~180~~268

~~223~~337

Service charges

~~167~~149

93114

~~321~~470

~~181~~295

Other

~~535~~572

~~323~~303

~~866~~1,438

1,~~119~~422

Total non-interest income

1,~~146~~081

~~1,051~~872

12,~~908~~989

23,~~342~~214

Non-interest expenses:

Salaries and employee benefits

5,~~302~~114

4,~~981~~823

1015,~~750~~864

914,~~919~~784

Occupancy, net

1,~~135~~093

1,~~021~~046

23,~~233~~326

23,~~018~~064

Professional services

~~851~~672

~~635~~653

12,~~770~~442

1,~~034~~687

Data processing

~~377~~349

~~307~~302

~~726~~1,075

~~617~~919

Depreciation

~~183~~180

~~179~~173

~~363~~543

~~362~~535

FDIC assessment

~~276~~331

~~164~~131

~~458~~789

~~335~~466

Advertising and marketing

~~282~~179

~~233~~196

~~492~~671

~~491~~687

Other

~~448~~445

~~592~~286

~~896~~1,341

~~307~~551

Total non-interest expenses

8,~~854~~363

87,~~112~~610

1726,~~688~~051

1522,~~083~~693

Income before provision for income taxes

23,~~997~~194

34,~~697~~887

69,~~677~~871

913,~~037~~924

Provision for income taxes

~~876~~942

1,~~062~~409

23,~~092~~034

23,~~442~~851

Net income

2,~~121~~252

23,~~635~~478

46,~~585~~837

610,~~595~~073

Earnings per share:

Basic

0.2425

0.3040

0.5277

01.7616

Diluted

0.2425

0.3039

0.5176

01.7413

Weighted average number of common shares outstanding:

Basic

8,~~841~~850

8,~~715~~748

8,~~827~~835

8,~~689~~709

Diluted

8,~~934~~981

8,~~885~~915

8,~~957~~968

8,~~867~~883

Dividends declared per common share

0.080

0.075

0.~~160~~240

0.~~145~~220

See the accompanying Notes to Unaudited Consolidated Financial Statements.

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COMMUNITY WEST BANCSHARES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

		Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended September 30,							Nine Months Ended September 30,
	2023	~~2023~~			2022			2023			2022
	(in thousands)	~~(in thousands)~~
Net income		$	2,~~121~~252		$	23,~~635~~478		$	46,~~585~~837		$	610,~~595~~073
Other comprehensive loss, net:
Other comprehensive income (loss), net:
Unrealized loss on securities available-for-sale (“AFS”), net (tax effect of $179, $121, $381 and $226 for each respective period presented)			(427	)		(289	)		(909	)		(539	)
Unrealized gain (loss) on securities available-for-sale (“AFS”), net (tax effect of ($206), $121, $175 and $226 for each respective period presented)			489			(307	)		(420	)		(846	)
Net other comprehensive loss			(427	)		(289	)		(909	)		(539	)
Net other comprehensive income (loss)			489			(307	)		(420	)		(846	)
Comprehensive income		$	12,~~694~~741		$	23,~~346~~171		$	36,~~676~~417		$	69,~~056~~227

See the accompanying Notes to Unaudited Consolidated Financial Statements.

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COMMUNITY WEST BANCSHARES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)

Three Months Ended June 30, 2023	Common Stock				Accumulated Other Comprehensive			Retained			Total Stockholders’
Three Months Ended September 30, 2023	Common Stock				Accumulated Other Comprehensive			Retained			Total Stockholders’
	Shares		Amount		Loss			Earnings			Equity
	(in thousands)
Balance, April 1, 2023		8,835	$	46,128	$	(1,253	)	$	67,914		$	112,789
Balance, July 1, 2023		8,849	$	46,293	$	(1,680	)	$	69,328		$	113,941
Net income		—		—		—			2,~~121~~252			2,~~121~~252
Exercise of stock options		143		9113		—			—			9113
Stock based compensation		—		7475		—			—			7475
Dividends on common stock		—		—		—			(~~707~~708	)		(~~707~~708	)
Other comprehensive loss, net		—		—		(427	)		—			(427	)
Other comprehensive income, net		—		—		489			—			489
Balance, June 30, 2023		8,849	$	46,293	$	(1,680	)	$	69,328		$	113,941
Balance, September 30, 2023		8,852	$	46,381	$	(1,191	)	$	70,872		$	116,062

Three Months Ended June 30, 2022	Common Stock				Accumulated Other Comprehensive			Retained			Total Stockholders’
Three Months Ended September 30, 2022	Common Stock				Accumulated Other Comprehensive			Retained			Total Stockholders’
	Shares		Amount		Loss			Earnings			Equity
	(in thousands)
Balance, April 1, 2022		8,682	$	44,780	$	(158	)	$	60,206		$	104,828
Balance, July 1, 2022		8,744	$	45,402	$	(447	)	$	62,187		$	107,142
Net income		—		—		—			23,~~635~~478			23,~~635~~478
Exercise of stock options		6211		~~551~~93		—			—			~~551~~93
Stock based compensation		—		71		—			—			71
Dividends on common stock		—		—		—			(~~654~~656	)		(~~654~~656	)
Other comprehensive loss, net		—		—		(~~289~~307	)		—			(~~289~~307	)
Balance, June 30, 2022		8,744	$	45,402	$	(447	)	$	62,187		$	107,142
Balance, September 30, 2022		8,755	$	45,566	$	(754	)	$	65,009		$	109,821

Six Months Ended June 30, 2023	Common Stock				Accumulated Other Comprehensive			Retained			Total Stockholders’
Nine Months Ended September 30, 2023	Common Stock				Accumulated Other Comprehensive			Retained			Total Stockholders’
	Shares		Amount		Loss			Earnings			Equity
	(in thousands)
Balance, January 1, 2023		8,798	$	45,694	$	(771	)	$	67,727		$	112,650
Cumulative effect of change in accounting principle (net of taxes of $659) (1)		—		—		—			(1,573	)		(1,573	)
Net income		—		—		—			46,~~585~~837			46,~~585~~837
Exercise of stock options		5154		~~279~~292		—			—			~~279~~292
Stock based compensation		—		~~320~~395		—			—			~~320~~395
Dividends on common stock		—		—		—			(12,~~411~~119	)		(12,~~411~~119	)
Other comprehensive loss, net		—		—		(~~909~~420	)		—			(~~909~~420	)
Balance, June 30, 2023		8,849	$	46,293	$	(1,680	)	$	69,328		$	113,941
Balance, September 30, 2023		8,852	$	46,381	$	(1,191	)	$	70,872		$	116,062

Six Months Ended June 30, 2022	Common Stock				Accumulated Other Comprehensive			Retained			Total Stockholders’
Nine Months Ended September 30, 2022	Common Stock				Accumulated Other Comprehensive			Retained			Total Stockholders’
	Shares		Amount		(Loss) Income			Earnings			Equity
	(in thousands)
Balance, January 1, 2022		8,650	$	44,431	$	92		$	56,852		$	101,375
Net income		—		—		—			610,~~595~~073			610,~~595~~073
Exercise of stock options		94105		~~827~~920		—			—			~~827~~920
Stock based compensation		—		~~144~~215		—			—			~~144~~215
Dividends on common stock		—		—		—			(1,~~260~~916	)		(1,~~260~~916	)
Other comprehensive loss, net		—		—		(~~539~~846	)		—			(~~539~~846	)
Balance, June 30, 2022		8,744	$	45,402	$	(447	)	$	62,187		$	107,142
Balance, September 30, 2022		8,755	$	45,566	$	(754	)	$	65,009		$	109,821

See the accompanying Notes to Unaudited Consolidated Financial Statements.

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COMMUNITY WEST BANCSHARES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	Six Months Ended June 30,
	Nine Months Ended September 30,
	2023			2022
	(in thousands)
Cash flows from operating activities:
Net income	$	46,~~585~~837		$	610,~~595~~073
Adjustments to reconcile net income to cash provided by operating activities:
Provision (credit) for credit losses		(~~710~~667	)		~~(32~~266	)
Depreciation		~~363~~543			~~362~~535
Stock based compensation		~~320~~395			~~144~~215
Deferred taxes		(~~247~~906	)		124
Net (amortization) accretion of discounts and premiums for investment securities		(3733	)		11(33	)
Gains on:
Sale of other assets acquired through foreclosure, net		(~~255~~236	)		(104	)
Sale of loans, net		(86110	)		(~~196~~245	)
Loans originated for sale		(57,~~272~~620	)		(1014,~~840~~701	)
Proceeds from sales of loans held for sale		57,~~346~~717			1014,~~964~~629
Proceeds from principal paydowns on loans held for sale		23,~~654~~346			~~160~~1,384
Changes in:
Investment securities measured at fair value		(6284	)		5250
Servicing assets, net		2314			(145	)
Other assets		12,~~538~~329			1,~~707~~496
Other liabilities		14,~~664~~045			~~(524~~722	)
Net cash provided by operating activities		2025,~~824~~570			814,~~422~~456
Cash flows from investing activities:
Principal pay downs and maturities of available-for-sale securities		20,~~637~~868			~~992~~1,791
Purchase of available-for-sale securities		(9,964	)		(3940,~~738~~360	)
Principal pay downs and maturities of held-to-maturity securities		~~365~~394			~~179~~217
Purchase of FHLB stock		(332	)		(92	)
Loan originations and principal collections, net		(32,~~421~~010	)		(2054,~~183~~235	)
Purchase of premises and equipment, net		(~~257~~330	)		(~~151~~291	)
Proceeds from sale of other assets acquired through foreclosure, net		2,~~505~~551			372
Net cash provided by (used in) investing activities		911,~~533~~177			(5892,~~621~~598	)
Cash flows from financing activities:
Net increase (decrease) in deposits		3641,~~640~~009			(5597,~~467~~942	)
Proceeds from FHLB advances		1520,000			—20,000
Repayments of FHLB advances		(1520,000	)		—
Proceeds from advances from line of credit		10,000			—
Repayments of advances from line of credit		(10,000	)		—
Proceeds from exercise of stock options		~~279~~292			~~827~~920
Cash dividends paid on common stock		(12,~~411~~119	)		(1,~~260~~916	)
Net cash provided by (used in) financing activities		3539,~~508~~182			(5578,~~900~~938	)
Net increase (decrease) in cash and cash equivalents		6575,~~865~~929			(~~106~~157,~~099~~080	)
Cash and cash equivalents at beginning of period		64,690			208,375
Cash and cash equivalents at end of period	$	~~130~~140,~~555~~619		$	~~102~~51,~~276~~295
Supplemental disclosure:
Cash paid during the period for:
Interest	$	58,~~367~~212		$	12,~~481~~204
Income taxes		1,420			3,~~195~~945
Noncash items:
Transfers from loans to loans held for sale		735			—
Transfers from loans to other assets acquired through foreclosure, net		651,576			—

See the accompanying Notes to Unaudited Consolidated Financial Statements.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Community West Bancshares (“CWBC”), incorporated under the laws of the state of California, is a bank holding company providing full-service banking through its wholly owned subsidiary Community West Bank, N.A. (“CWB” or the “Bank”) which includes 445 Pine, LLC, the Bank’s wholly owned limited liability company. Unless indicated otherwise or unless the context suggests otherwise, these entities are referred to herein collectively and on a consolidated basis as the “Company.”

Basis of Presentation

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States (“GAAP”) and conform to practices within the banking industry. The accounts of the Company and its consolidated subsidiary are included in these consolidated financial statements. All significant intercompany balances and transactions have been eliminated.

Interim Financial Information

The accompanying unaudited consolidated financial statements as of ~~June~~September 30, 2023 and for the three and ~~six~~nine months ended September ~~June~~ 30, 2023 and 2022, have been prepared in a condensed format, and therefore do not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited consolidated financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied to the Company’s audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2022.

The information furnished in these interim statements reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for each respective period presented. Such adjustments are of a normal recurring nature. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter or for the full year. The interim financial information should be read in conjunction with the Company’s audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2022.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for credit losses and the fair value of securities available-for-sale. Although management believes these estimates to be reasonably accurate, actual amounts may differ. In the opinion of management, all necessary adjustments have been reflected in the financial statements during their preparation.

Reclassifications

Certain amounts in the consolidated financial statements as of December 31, 2022 and for the three and ~~six~~nine months ended September ~~June~~ 30, ~~2022~~ 2022 have been reclassified to conform to the current presentation. The reclassifications have no effect on net income, comprehensive income, or stockholders’ equity as previously reported.

Allowance for Credit Losses - Available-For-Sale (“AFS”) and Held-To-Maturity (“HTM”) Debt Securities

Effective January 1, 2023, the allowance for credit losses on investment securities is determined for both HTM and AFS investments in accordance with Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) - “Financial Instruments-Credit Losses.”

The allowance for credit losses for HTM investment securities is determined on a collective basis, based on shared risk characteristics, and is determined at the individual security level when the Company deems a security to no longer possess shared risk characteristics. For investment securities where the Company has reason to believe the credit loss exposure is remote, a zero-credit loss assumption is applied. Such investment securities typically consist of those guaranteed by the U.S. government or government agencies, where there is an explicit or implicit guarantee by the U.S. government, that are highly rated by rating agencies, and historically have had no credit loss experience.

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For AFS securities, the Company performs a quarterly qualitative evaluation for securities in an unrealized loss position to determine if the decline in fair value below the security’s amortized cost is credit related or non-credit related. In determining whether a security’s decline in fair value is credit related, the Company considers a number of factors including, but not limited to: (i) the extent to which the fair value of the investment is less than its amortized cost; (ii) the financial condition and near-term prospects of the issuer; (iii) downgrades in credit ratings; (iv) payment structure of the security; (v) the ability of the issuer of the security to make scheduled principal and interest payments; and (vi) general market conditions which reflect prospects for the economy as a whole, including interest rates and sector credit spreads. If it is determined that the unrealized loss, or a portion thereof, is credit related, the Company records the amount of credit loss through a charge to provision for credit losses in current period earnings. However, the amount of credit loss recorded in the current period’s earnings is limited to the amount of the total unrealized loss on the security, which is measured as the amount by which the security’s fair value is below its amortized cost. If the Company intends to sell, or if it is more likely than not that the Company will be required to sell a security in an unrealized loss position before the recovery of its amortized cost basis, the total amount of the unrealized loss is recognized in the current period’s earnings. Unrealized losses deemed non-credit related are recorded, net of tax, through accumulated other comprehensive income (loss).

As of January 1, 2023 and June 30, 2023, the Company determined that the unrealized loss positions in AFS and HTM securities were not the result of credit losses. Management’s analysis of the securities that are in an unrealized loss position indicated that the declines in the fair value of the securities were related to interest rates or other market conditions. In addition, as of June 30, 2023, management does not intend to sell any securities in an unrealized loss position, and it is not more likely than not that the Company will be required to sell any securities that are in an unrealized loss position. Therefore, an allowance for credit losses with respect to both AFS and HTM securities was not recorded. See Note 2 - Investment Securities for more information.

A debt security is placed on nonaccrual status at the time any principal or interest payments become greater than 90 days delinquent. Interest accrued but not received when a security is placed on nonaccrual status is reversed against interest income. Accrued interest receivable on available-for-sale securities is excluded from the estimate of the required allowance for credit losses.

Loans Held for Sale

Loans which are originated and intended for sale in the secondary market are carried at the lower of their amortized cost or estimated fair value determined on an aggregate basis. Valuation adjustments, if any, are recognized through a valuation allowance by charges to the lower of cost or fair value provision. Loans held for sale are comprised of commercial agriculture loans guaranteed by the USDA Farm Service Agency (“FSA”) and Small Business Association (“SBA”) loans. The Company did not incur any lower of cost or fair value provision expense in the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022.

Loans Held for Investment

Loans are recorded at the principal amount outstanding, net of unearned income, loan participations, and amounts charged off. Unearned income includes deferred loan origination fees reduced by loan origination costs.

Interest income on loans is accrued daily using the effective interest method and recognized over the terms of the loans. Loan fees collected for the origination of loans less direct loan origination costs (net deferred loan fees) are amortized over the contractual life of the loan through interest income. If the loan has scheduled payments, the amortization of the net deferred loan fee is calculated using the interest method over the contractual life of the loan. If the loan does not have scheduled payments, such as a line of credit, the net deferred loan fee is recognized as interest income on a straight-line basis over the contractual life of the loan commitment. Commitment fees based on a percentage of a client’s unused line of credit and fees related to standby letters of credit are recognized over the commitment period. When loans are repaid, any remaining unamortized balances of unearned fees, deferred fees and costs, and premiums and discounts paid on purchased loans are accounted for through interest income.

When a borrower discontinues making payments as contractually required by the note, the Company must determine whether it is appropriate to continue to accrue interest. Generally, the Company places loans in a nonaccrual status and ceases recognizing interest income when the loan has become delinquent by more than 90 days or when management determines that the full repayment of principal and collection of interest is unlikely. The Company may decide to continue to accrue interest on certain loans more than 90 days delinquent if they are well secured by collateral and in the process of collection.

When a loan is placed on nonaccrual status, all interest accrued but uncollected is reversed against interest income in the period in which the status is changed. Subsequent payments received from the borrower are applied to principal and no further interest income is recognized until the principal has been paid in full or until circumstances have changed such that payments are again consistently received as contractually required. The Company occasionally recognizes income on a cash basis for non-accrual loans in which the collection of the remaining principal balance is not in doubt.

Allowance for Credit Losses - Loans (Subsequent to the Adoption of ASC 326 on January 1, 2023)

Effective January 1, 2023, the Company accounts for credit losses on loans in accordance with ASC 326 – “Financial Instruments-Credit Losses”. The allowance for credit losses for loans (“ACL”) is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. The Company has elected to exclude accrued interest receivable from the amortized cost basis in the estimate of the ACL. The provision for credit losses on loans (which is a component of the provision for credit losses on the consolidated income statements) reflects the amount required to maintain the ACL at an appropriate level based upon management’s evaluation of the adequacy of collective and individual loss reserves. The Company’s methodologies for determining the adequacy of ACL are set forth in a formal policy and take into consideration the need for an ACL for loans evaluated on a collective pool basis which have similar risk characteristics, as well as allowances that are tied to individual loans that do not share risk characteristics and are individually evaluated. The Company increases its ACL by charging the provision for credit losses on its consolidated income statements. Losses related to specific assets are applied as a reduction of the carrying value of the assets and charged against the ACL when management believes the non-collectability of a loan balance is confirmed. Recoveries on previously charged off loans are credited to the ACL.

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Allowance for Credit Losses - Loans (Subsequent to the Adoption of ASC 326 on January 1, 2023)

Effective January 1, 2023, the Company accounts for credit losses on loans in accordance with ASC 326 – “Financial Instruments-Credit Losses”. The allowance for credit losses for loans (“ACL”) is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. The Company has elected to exclude accrued interest receivable from the amortized cost basis in the estimate of the ACL. The provision for credit losses on loans (which is a component of the provision for credit losses on the consolidated statements of income) reflects the amount required to maintain the ACL at an appropriate level based upon management’s evaluation of the adequacy of collective and individual loss reserves. The Company’s methodologies for determining the adequacy of ACL are set forth in a formal policy and take into consideration the need for an ACL for loans evaluated on a collective pool basis which have similar risk characteristics, as well as allowances that are tied to individual loans that do not share risk characteristics and are individually evaluated. The Company increases its ACL by charging the provision for loan losses on its consolidated income statements. Losses related to specific assets are applied as a reduction of the carrying value of the assets and charged against the ACL when management believes the non-collectability of a loan balance is confirmed. Recoveries on previously charged off loans are credited to the ACL.

Management conducts an assessment of the ACL on a monthly basis and undertakes a more comprehensive evaluation quarterly. The ACL is estimated using relevant information from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts and is maintained at a level sufficient to provide for expected credit losses over the life of the loan, including expected prepayments, based on evaluating historical credit loss experience and making adjustments to historical loss information for differences in the specific risk characteristics in the current loan portfolio and economic conditions.

The ACL is measured on a collective pool basis when similar risk characteristics exist. In estimating the component of the ACL for loans that share common risk characteristics, loans are pooled based on the loan types and areas of risk concentration. For loans evaluated collectively as a pool, the ACL is calculated using the weighted average remaining maturity (“WARM”) method. The WARM method utilizes a historical average annual charge-off rate containing loan loss information over a historical lookback period that is used as a foundation for estimating the ACL for the remaining outstanding balances of loans in a segment at a particular consolidated balance sheet date. The WARM methodology was chosen because each of the loan segments have had loan loss histories dating back as far as 2006 and therefore capture the Company’s historical losses and recoveries and thus established reliable loan loss rates for each loan segment. In the events where there was insufficient historical loan data to establish a reliable loan loss rate, California peer bank data has been utilized to establish loan loss rates.

The Company established a general forecast loan policy to calculate the loan loss rates for each loan segment. The general forecast policy projects that the next four quarters will be similar to the Company’s loan loss rates from 2009 to 2016, and then revert to the long-term average over one quarter.

The calculation of the ACL is adjusted using qualitative factors for current conditions and for reasonable and supportable forecast periods. These qualitative factors serve to compensate for additional areas of uncertainty inherent in the portfolio that are not directly reflected in the Company’s historical loan losses and may include adjustments for changes in environmental and economic conditions, such as changes in unemployment rates, changes in Gross Domestic Product, ~~change~~the ~~in percentage~~impact of ~~drought~~droughts ~~impact~~in the Company’s lending areas, and other relevant factors in near to medium term of time.

Portfolio segmentation is defined as the level at which an entity develops and documents a systematic methodology to determine its ACL. The method for determining the ACL described above is used to determine the ACL in each portfolio segment in the Company’s loan portfolio. The Company has designated the following portfolio segments of loans:

Manufactured Housing: The Company has a financing program for manufactured housing to provide affordable home ownership. These loans are offered in approved mobile home parks throughout California primarily on or near the coast. The parks must meet specific criteria. The manufactured housing loans are secured by the manufactured home and are retained in the Company’s loan portfolio. The primary risks of manufactured housing loans include the borrower’s inability to pay, material decreases in the value of the collateral, and significant increases in interest rates, which may reduce the borrower’s ability to make the required principal and/or interest payments.

Commercial Real Estate (“CRE”): CRE loans are those for which the Company holds commercial real estate property as collateral. This category of loans also includes loans secured by agriculture/farmland and construction loans. These loans are primarily underwritten based on the cash flows of the business and secondarily on the real estate. The primary risks associated with CRE loans include the borrower’s inability to pay, material decreases in the value of the real estate that is being held as collateral, and significant increases in interest rates, which may make the real estate loan unprofitable to the borrower. Real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy.

Commercial: Commercial loans are loans that are secured by business assets including inventory, receivables, ~~and~~ machinery, and equipment. Risk associated ~~associated~~ with commercial loans arises primarily due to the difference between expected and actual cash flows of the borrowers. In addition, the recoverability of the Company’s investment in these loans is also dependent on other factors primarily ~~primarily~~ dictated by the type of collateral securing these loans, and occasionally upon other borrower assets and guarantor assets. The fair value of the collateral securing these loans may fluctuate as market conditions change. In the case of loans secured by accounts receivable, the recovery of the Company’s investment is dependent upon the borrower’s ability to collect amounts due from its customers.

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Small Business Administration (SBA): These are the unguaranteed portion of loans that are partially guaranteed by the SBA. SBA loans are similar to commercial business loans. The Company originates SBA loans with the intent to sell the guaranteed portion into the secondary market on a quarterly basis. Certain loans classified as SBA are secured by commercial real estate property which are included in the commercial real estate category above. SBA loans secured by all other forms of real estate are included in the business loans secured by real estate segment. All other SBA loans are secured by business assets and have similar risks to those discussed in the commercial category above.

Single Family Real Estate and Home Equity Lines of Credit (“HELOC”): These loans are made to consumers and are secured by residential real estate. The primary risks of single family real estate and HELOC loans include the borrower’s inability to pay, material decreases in the value of the real estate that is being held as collateral, and significant increases in interest rates, which may reduce the borrower’s ability to make the required principal and/or interest payments.

Consumer: The Company has a limited number of consumer loans. Risk arises with these loans in the borrower’s inability to pay and decreases in the fair value of the underlying collateral, if any.

Loans that do not share risk characteristics with other loans in the portfolio are individually evaluated for a required ACL and are not included in the collective evaluation. Factors involved in determining whether a loan should be individually evaluated include, but are not limited to, the financial condition of the borrower and the value of the underlying collateral. Expected credit losses for loans evaluated individually are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, when the Company determines that foreclosure is probable, the expected credit loss is measured based on the fair value of the collateral as of the reporting date, less estimated selling costs. Collateral may consist of various types of real estate including residential properties, commercial properties, agriculture land, vacant land, and manufactured housing. The Company assesses these loans on each reporting date to determine whether repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty.

If the fair value of the collateral is less than the amortized cost basis of the loan, the Company will recognize an ACL or partial charge off as the difference between the fair value of the collateral, less costs to sell, and the amortized cost basis of the loan. If the fair value of the collateral exceeds the amortized cost basis of the loan, any expected recovery added to the amortized cost basis will be limited to the amount previously charged off. Subsequent changes in the expected credit losses for loans evaluated individually are included within the provision for ~~loan~~credit losses in the same manner in which the expected credit loss initially was recognized or as a reduction in the provision that would otherwise be reported.

The process of assessing the adequacy of the ACL is necessarily subjective. Further, and particularly in times of economic downturns, it is reasonably possible that future credit losses may exceed historical loss levels and may also exceed management’s current estimates of expected credit losses within the loan portfolio. As such, there can be no assurance that future charge offs will not exceed management’s current estimate of what constitutes a reasonable ACL.

Allowance for Loan Losses (Prior to the Adoption of ASC 326 on January 1, 2023)

Prior to the adoption of ASC 326 on January 1, 2023, the allowance for loan losses was intended to be appropriate to provide for probable losses that were considered inherent in the loan portfolio. This process involved deriving probable loss estimates that were based on migration analyses and historical loss rates, in addition to qualitative factors that were based on management’s judgment. The migration analysis and historical loss rate calculations were based on annualized loss rates. Migration analysis was utilized for the commercial real estate, commercial, commercial agriculture, SBA, HELOC, single family residential, and consumer portfolios. The historical loss rate method was utilized primarily for the manufactured housing portfolio. The migration analysis considered the risk rating of loans that were charged off in each loan category.

The Company’s allowance for loan losses was maintained at a level believed appropriate by management to absorb known and inherent probable losses on existing loans. The allowance was charged for losses when management believed that full recovery on the loan was unlikely.

The allowance for loan losses calculation for the different loan portfolios consisted of the following:

•

Commercial real estate, commercial, commercial agriculture, SBA, HELOC, single family residential, and consumer: Migration analysis combined with risk rating of the loans was used to determine the required allowance for loan losses for all non-impaired loans. In addition, the migration results were adjusted based upon qualitative factors that affect the specific portfolio category. Reserves on impaired loans were determined based upon the individual characteristics of the loan.

•

Manufactured housing: The allowance for loan losses was calculated on the basis of loss history and risk rating, which was primarily a function of delinquency. In addition, the loss results were adjusted based upon qualitative factors that affected this specific portfolio.

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A loan was considered impaired when, based on current information, it was probable that the Company would be unable to collect the scheduled payments of principal and/or interest under the contractual terms of the loan agreement. Factors considered by management in determining impairment included payment status, collateral value, and the probability of collecting scheduled principal and/or interest payments. Loans that experienced insignificant payment delays or payment shortfalls generally were not classified as impaired. Management determined the significance of payment delays or payment shortfalls on a case-by-case basis. When determining the possibility of impairment, management considered the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. For collateral-dependent loans, the Company used the fair value of collateral method to measure impairment. The collateral-dependent loans that recognized impairment were charged down to the fair value of the collateral less costs to sell. All other loans were measured for impairment either based on the present value of future cash flows or the loan’s observable market price.

The Company evaluated and individually assessed for impairment loans either on nonaccrual, those that were classified as a troubled debt restructuring, or when other conditions existed which led management to review for possible impairment. Measurement of impairment on impaired loans was determined on a loan-by-loan basis and in total established a specific reserve for impaired loans. Interest income was not recognized on impaired loans except for limited circumstances in which a loan, although impaired, continued to perform in accordance with the loan contract and the borrower provided financial information to support maintaining the loan on accrual.

The Company determined the appropriate allowance for loan losses on a monthly basis. Any differences between estimated and actual observed losses from the prior month were reflected in the current period in determining the appropriate allowance for loan losses determination and adjusted as deemed necessary. The review of the appropriateness of the allowance took into consideration such factors as concentrations of credit, changes in the growth, size, and composition of the loan portfolio, overall and individual portfolio quality, review of specific problem loans, collateral, guarantees and economic and environmental conditions that may have affected borrowers’ ability to pay and/or the value of the underlying collateral. Additional factors considered included geographic location of borrowers, changes in the Company’s product-specific credit policy, and lending staff experience. These estimates depended on the outcome of future events and, therefore, contained inherent uncertainties.

Another component of the allowance for loan losses considered qualitative factors related to non-impaired loans. The qualitative portion of the allowance on each of the loan pools was based on changes in any of the following factors:

•

Concentrations of credit

•

Trends in volume, maturity, and composition of loans

•

Volume and trend in delinquency, nonaccrual, and classified assets

•

Economic conditions

•

Policy and procedures or underwriting standards

•

Staff experience and ability

•

Value of underlying collateral

•

Competition, legal, or regulatory environment

•

Results of outside exams and quality of loan review and Board oversight

Modified Loans to Troubled Borrowers

From time to time, the Company will modify certain loans in order to alleviate temporary difficulties in a borrower’s financial condition and/or constraints on a borrower’s ability to repay the loan, and to minimize potential losses to the Company. Such modifications may include changes in the amortization terms of the loan, reductions in interest rates, acceptance of interest only payments, and in limited cases, reductions to the outstanding loan balance. Such loans are typically placed on nonaccrual status when there is doubt concerning the full repayment of principal and interest or the loan has been in default for a period of 90 days or more. These loans may be returned to accrual status when all contractual amounts past due have been brought current, and the borrower’s performance under the modified terms of the loan agreement and the ultimate collectability of all contractual amounts due under the modified terms is no longer in doubt. The Company typically measures the ACL on these loans on an individual basis when the loans are deemed to no longer share risk characteristics that are similar with other loans in the portfolio. The determination of the ACL for these loans is based on a discounted cash flow approach, unless the loan is deemed collateral dependent, which requires measurement of the ACL based on the estimated ~~expected~~ fair value of the underlying collateral, less estimated selling costs. In addition, GAAP requires the Company to make certain disclosures related to these ~~these~~ loans, including certain types of modifications, as well as how such loans have performed since their modifications. See Note 4 - Loans Held for Investment for additional information concerning modified loans to troubled borrowers.

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Off-Balance Sheet Credit Exposure

In the ordinary course of business, the Company has entered into off-balance sheet financial instruments consisting of commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the consolidated financial statements when they are funded. They involve, to varying degrees, elements of credit risk in excess of amounts recognized in the consolidated balance sheets. Losses would be experienced when the Company is contractually obligated to make a payment under these instruments and must seek repayment from the borrower, which may not be as financially sound in the current period as they were when the commitment was originally made. 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. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Company enters into credit arrangements that generally provide for the termination of advances in the event of a covenant violation or other event of default. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the party. The commitments are collateralized by the same types of assets used as loan collateral.

After the adoption of ASC 326 on January 1, 2023, the estimate of the ACL for off-balance sheet commitments provides for current estimated credit losses for the unused portion of collective pools of off-balance sheet credit exposures expected to be funded, except for unconditionally cancellable commitments for which no allowance for credit losses is required under ASC 326. The ACL for off-balance sheet commitments includes factors that are consistent with the ACL methodology for loans using the expected loss factors and an estimated utilization or probability of draw factor, which are based on historical experience. Changes in the ACL for off-balance sheet commitments are reported as a component of provision for credit losses in the consolidated income statements and the allowance for credit losses for off-balance sheet commitments is included in other liabilities in the consolidated balance sheets.

Prior to the adoption of ASC 326 on January 1, 2023, the Company applied qualitative factors to its off-balance sheet obligations in determining an estimate of losses inherent in these contractual obligations. The estimate for losses on off-balance sheet instruments is included within other liabilities and the charge to income that established this liability is included in other expense on the consolidated income statement.

Income Taxes

The Company uses the asset and liability method, which recognizes an asset or liability representing the tax effects of future deductible or taxable amounts that have been recognized in the consolidated financial statements. Due to tax regulations, certain items of income and expense are recognized in different periods for tax return purposes than for financial statement reporting. These items represent “temporary differences.” Deferred income taxes are recognized for the tax effect of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is established for deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets may not be realized. Any interest or penalties assessed by the taxing authorities are classified as income tax expense in the consolidated income statements. Deferred tax assets are included in other assets on the consolidated balance sheets.

Management evaluates the Company’s deferred tax asset for recoverability using a consistent approach, which considers the relative impact of negative and positive evidence, including the Company’s historical profitability and projections of future taxable income. The Company is required to establish a valuation allowance for deferred tax assets and record a charge to income if management determines, based on available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax assets may not be realized.

The Company is subject to the provisions of ASC 740, Income Taxes (“ASC 740”). ASC 740 prescribes a more likely than not threshold for the financial statement recognition of uncertain tax positions. ASC 740 clarifies the accounting for income taxes by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. On a quarterly basis, the Company evaluates income tax accruals in accordance with ASC 740 guidance on uncertain tax positions.

Earnings Per Share

Basic earnings per common share is computed using the weighted average number of common shares outstanding for the period. Diluted earnings per share includes the effect of all dilutive potential common shares for the period. Potentially dilutive common shares include outstanding stock options. Restricted stock awards are considered to be outstanding common shares for the purpose of computing basic and diluted earnings per share.

The components of basic and diluted earnings per share are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(dollars in thousands, except per share amounts)
Net income available to common stockholders	$	2,~~121~~252	$	23,~~635~~478	$	46,~~585~~837	$	610,~~595~~073
Weighted average number of common shares outstanding - basic		8,~~841~~849,~~100~~831		8,~~714~~748,~~870~~308		8,~~827~~834,~~403~~961		8,~~688~~708,~~726~~805
Add: Dilutive effects of assumed exercises of stock options		93131,~~297~~403		~~170~~166,~~440~~403		~~130~~133,~~044~~520		~~178~~173,~~381~~934
Weighted average number of common shares outstanding - diluted		8,~~934~~981,~~397~~234		8,~~885~~914,~~310~~711		8,~~957~~968,~~447~~481		8,~~867~~882,~~107~~739
Earnings per share:
Basic	$	0.2425	$	0.3040	$	0.5277	$	01.7616
Diluted	$	0.2425	$	0.3039	$	0.5176	$	01.7413

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Stock options for ~~184~~113,~~497~~131 and 9096,~~360~~450 shares of common stock were not considered in computing diluted earnings per share for the three months ended ~~June~~ September 30, 2023 and 2022, respectively, because they were antidilutive. Stock options for 129,~~858~~276 and 8790,~~090~~243 shares of common stock were not considered in computing diluted earnings per share for the ~~six~~ nine months ended ~~June~~ September 30, 2023 and 2022, respectively, because they were antidilutive.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13 - “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. This ASU replaces the incurred loss impairment model in current GAAP with a model that reflects current expected credit losses (“CECL”). The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. CECL also requires credit losses on available-for-sale debt securities to be measured through an allowance for credit losses when the fair value is less than the amortized cost basis. It also applies to off-balance sheet credit exposures. The ASU requires that all expected credit losses for financial assets held at the reporting date be measured based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU also requires enhanced disclosure, including qualitative and quantitative disclosures that provide additional information about significant estimates and judgments used in estimating credit losses. The provisions of this Update became effective for the Company for all annual and interim periods beginning January 1, 2023.

In April 2019, the FASB issued ASU 2019-04 - “Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”. This ASU was issued as part of an ongoing project on the FASB’s agenda for improving the Codification or correcting for its unintended application. The FASB issued this ASU, which is specific to ASUs: 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” 2016-01 - “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” and 2017-12 - “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” The amendments in this Update became effective for all interim and annual reporting periods for the Company on January 1, 2023. The Company adopted the provisions within this ASU in conjunction with the implementation of ASC 326 - “Financial Instruments - Credit Losses,” including: (i) the election to not measure credit losses on accrued interest receivable when such balances are written-off in a timely manner when deemed uncollectable and (ii) the election to not include the balance of accrued interest receivable as part of the amortized cost of a loan, but rather to present it separately in the consolidated balance sheets.

In May 2019, the FASB issued ASU 2019-05 - “Financial Instruments - Credit Losses (Topic 326) - Targeted Transition Relief.” This ASU was issued to allow entities that have certain financial instruments within the scope of ASC 326-20 - “Financial Instruments - Credit Losses - Measured at Amortized Cost” to make an irrevocable election to elect the fair value option for those instruments in ASC 825-10 - “Financial Instruments - Overall” upon the adoption of ASC 326, which for the Company was January 1, 2023. The fair value option is not applicable to held-to-maturity debt securities. Entities are required to make this election on an instrument-by-instrument basis. The Company did not elect the fair value option for any of its financial assets upon the adoption of ASC 326 on January 1, 2023.

The Company has developed an expected credit loss estimation model in accordance with ASC 326. The Company established a committee comprised of executive management and members of Accounting and Credit Administration and utilizes a third-party software provider specializing in CECL loss modeling. For loans evaluated collectively as a pool, the allowance for credit losses is calculated using the weighted average remaining maturity (“WARM”) method, as described more fully above. The Company’s model incorporates reasonable and supportable economic forecasts into the estimate of expected credit losses, which requires significant judgment.

Effective January 1, 2023, the Company adopted the provisions of ASC 326 through the application of the modified retrospective transition approach, and recorded a net decrease of $1.6 million to the beginning balance of retained earnings as of January 1, 2023 for the cumulative effect adjustment. The following table illustrates the impact of adoption of the CECL methodology on the Company’s consolidated balance sheet as of January 1, 2023:

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Effective January 1, 2023, the Company adopted the provisions of ASC 326 through the application of the modified retrospective transition approach, and recorded a net decrease of $1.6 million to the beginning balance of retained earnings as of January 1, 2023, for the cumulative effect adjustment. The following table illustrates the impact of adoption of the CECL methodology on the Company’s consolidated balance sheet as of January 1, 2023:

	Pre-CECL Adoption		Impact of CECL Adoption			As Reported Under CECL
	(in thousands)
Assets:
Allowance for credit losses on securities:
Available-for-sale	$	—	$	—		$	—
Held-to-maturity		—		—			—
Allowance for credit losses - loans		10,765		1,811			12,576
Deferred tax assets		5,053		659			5,712

Liabilities:
Allowance for credit losses for off-balance sheet commitments		94		421			515

Stockholders’ equity:
Retained earnings		67,727		(1,573	)		66,154

The Company’s assessment of held-to-maturity and available-for-sale investment securities as of January 1, 2023, indicated that an allowance for credit losses was not required. The Company determined the likelihood of default on held-to-maturity investment securities was remote, and the amount of expected non-repayment on those investments was zero. The Company also analyzed available-for-sale investment securities that were in an unrealized loss position as of January 1, 2023, and determined the decline in fair value for those securities was not related to credit, but rather related to changes in interest rates and general market conditions. As such, no allowance for credit losses was recorded for held-to-maturity and available-for-sale securities as of January 1, 2023.

In February 2019, the U.S. federal bank regulatory agencies approved a final rule modifying their regulatory capital rules and providing an option to phase in over a three-year period the Day 1 adverse regulatory capital effects of ASU 2016-13. As a result, entities have the option to gradually phase in the full effect of CECL on regulatory capital over a three-year transition period. The Company elected to phase in the full effect of CECL on regulatory capital over the three-year transition period.

In March 2022, the FASB issued ASU No. 2022-02, “Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”). ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Under the provisions of this ASU, an entity must determine whether a modification results in a new loan or the continuation of an existing loan. Further, the amendments in this ASU require that an entity disclose current period gross charge-offs on loans by year of origination and class of financing receivable. This guidance became effective for the Company on January 1, 2023. The new guidance did not have a material impact on the Company’s consolidated financial statements; however, the required disclosures were added to the consolidated financial statements.

2. INVESTMENT SECURITIES

The amortized cost and estimated fair value of investment securities are as follows:

	June 30, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Securities available-for-sale	(in thousands)
U.S. government agency notes	$	3,626	$	16	$	—		$	3,642
U.S. government agency collateralized mortgage obligations (“CMO”)		4,282		—		(199	)		4,083
Corporate debt securities		9,250		—		(2,209	)		7,041
Total	$	17,158	$	16	$	(2,408	)	$	14,766
Securities held-to-maturity
U.S. government agency mortgage-backed securities (“MBS”)	$	2,188	$	2	$	(116	)	$	2,074
Total	$	2,188	$	2	$	(116	)	$	2,074
Securities measured at fair value
Equity securities: Farmer Mac class A stock	$	66	$	221	$	—		$	287
Total	$	66	$	221	$	—		$	287

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2.	INVESTMENT SECURITIES

The amortized cost and estimated fair value of investment securities are as follows:

	September 30, 2023
	Amortized Cost		Allowance for Credit Losses			Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale	(in thousands)
U.S. government agency notes	$	3,478	$	—		$	15	$	—		$	3,493
U.S. government agency collateralized mortgage obligations (“CMO”)		4,196		—			—		(218	)		3,978
Corporate debt securities		9,250		(103	)		—		(1,494	)		7,653
Total	$	16,924	$	(103	)	$	15	$	(1,712	)	$	15,124

Securities held-to-maturity
U.S. government agency mortgage-backed securities (“MBS”)	$	2,158		—		$	2	$	(173	)	$	1,987
Total	$	2,158		—		$	2	$	(173	)	$	1,987

	September 30, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value
Securities measured at fair value		(in thousands)
Equity securities: Farmer Mac class A stock	$	66	$	243	$	—	$	309
Total	$	66	$	243	$	—	$	309

	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Securities available-for-sale	(in thousands)
U.S. government agency notes	$	4,081	$	26	$	—		$	4,107
U.S. government agency CMO		4,475		—		(179	)		4,296
U.S. Treasury securities		9,984		—		(14	)		9,970
Corporate debt securities		9,250		—		(935	)		8,315
Total	$	27,790	$	26	$	(1,128	)	$	26,688

Securities held-to-maturity
U.S. government agency MBS	$	2,557	$	3	$	(137	)	$	2,423
Total	$	2,557	$	3	$	(137	)	$	2,423

Securities measured at fair value
Equity securities: Farmer Mac class A stock	$	66	$	159	$	—		$	225
Total	$	66	$	159	$	—		$	225

At ~~June~~September 30, 2023 and December 31, 2022, securities with carrying values of $9.85 million and $21.1 ~~million,~~ million, respectively, were pledged to the Federal Home Loan Bank (“FHLB”) as collateral for current and future advances.

At ~~June 30,~~September 30, 2023 and December 31, 2022, there were no holdings of securities of any one issuer, other than the U.S. Government and ~~its~~ its agencies, in an amount greater than 10% of stockholders’ equity.

The maturity periods and weighted average yields of investment securities available-for-sale and held-to-maturity at the period ends indicated were as follows:

	June 30, 2023
	Less than One Year				One to Five Years				Five to Ten Years					Over Ten Years					Total
	Amount		Yield		Amount		Yield		Amount		Yield			Amount		Yield			Amount		Yield
Securities available-for-sale	(dollars in thousands)
U.S. government agency notes	$	—		—	$	—		—	$	494		5.35	%	$	3,148		6.09	%	$	3,642		5.99	%
U.S. government agency CMO		—		—		—		—		453		3.69	%		3,630		5.43	%		4,083		5.24	%
Corporate debt securities		—		—		—		—		7,041		3.74	%		—		—			7,041		3.74	%
Total	$	—		—	$	—		—	$	7,988		3.84	%	$	6,778		5.74	%	$	14,766		4.71	%
Securities held-to-maturity
U.S. government agency MBS	$	—		—	$	—		—	$	738		3.60	%	$	1,450		3.97	%	$	2,188		3.85	%
Total	$	—		—	$	—		—	$	738		3.60	%	$	1,450		3.97	%	$	2,188		3.85	%

	December 31, 2022
	Less than One Year					One to Five Years				Five to Ten Years					Over Ten Years					Total
	Amount		Yield			Amount		Yield		Amount		Yield			Amount		Yield			Amount		Yield
Securities available-for-sale	(dollars in thousands)
U.S. government agency notes	$	—		—		$	—		—	$	519		3.59	%	$	3,588		4.40	%	$	4,107		4.30	%
U.S. government agency CMO		—		—			—		—		—		—			4,296		4.63	%		4,296		4.63	%
U.S. Treasury securities		9,970		2.06	%		—		—		—		—			—		—			9,970		2.06	%
Corporate debt securities		—		—			—		—		8,315		3.74	%		—		—			8,315		3.74	%
Total	$	9,970		2.06	%	$	—		—	$	8,834		3.73	%	$	7,884		4.53	%	$	26,688		3.34	%
Securities held-to-maturity
U.S. government agency MBS	$	—		—		$	—		—	$	746		3.60	%	$	1,811		3.68	%	$	2,557		3.66	%
Total	$	—		—		$	—		—	$	746		3.60	%	$	1,811		3.68	%	$	2,557		3.66	%

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The maturity periods and weighted average yields of investment securities available-for-sale and held-to-maturity at the period ends indicated were as follows:

	September 30, 2023
	Less than One Year				One to Five Years				Five to Ten Years					Over Ten Years					Total
	Amount		Yield		Amount		Yield		Amount		Yield			Amount		Yield			Amount		Yield
Securities available-for-sale	(dollars in thousands)
U.S. government agency notes	$	—		—	$	—		—	$	482		5.60	%	$	3,011		6.35	%	$	3,493		6.25	%
U.S. government agency CMO		—		—		—		—		429		3.69	%		3,549		5.64	%		3,978		5.43	%
Corporate debt securities		—		—		—		—		7,653		3.74	%		—		—			7,653		3.74	%
Total	$	—		—	$	—		—	$	8,564		3.84	%	$	6,560		5.97	%	$	15,124		4.76	%

Securities held-to-maturity
U.S. government agency MBS	$	—		—	$	—		—	$	731		3.60	%	$	1,427		4.28	%	$	2,158		4.05	%
Total	$	—		—	$	—		—	$	731		3.60	%	$	1,427		4.28	%	$	2,158		4.05	%

	December 31, 2022
	Less than One Year					One to Five Years				Five to Ten Years					Over Ten Years					Total
	Amount		Yield			Amount		Yield		Amount		Yield			Amount		Yield			Amount		Yield
Securities available-for-sale	(dollars in thousands)
U.S. government agency notes	$	—		—		$	—		—	$	519		3.59	%	$	3,588		4.40	%	$	4,107		4.30	%
U.S. government agency CMO		—		—			—		—		—		—			4,296		4.63	%		4,296		4.63	%
U.S. Treasury securities		9,970		2.06	%		—		—		—		—			—		—			9,970		2.06	%
Corporate debt securities		—		—			—		—		8,315		3.74	%		—		—			8,315		3.74	%
Total	$	9,970		2.06	%	$	—		—	$	8,834		3.73	%	$	7,884		4.53	%	$	26,688		3.34	%

Securities held-to-maturity
U.S. government agency MBS	$	—		—		$	—		—	$	746		3.60	%	$	1,811		3.68	%	$	2,557		3.66	%
Total	$	—		—		$	—		—	$	746		3.60	%	$	1,811		3.68	%	$	2,557		3.66	%

The amortized cost and fair value of available-for-sale and held-to-maturity investment securities maturities as of the periods presented are as shown below:

	June 30, 2023				December 31, 2022
	September 30, 2023				December 31, 2022
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Securities available-for-sale	(in thousands)
Due in less than one year	$	—	$	—	$	9,984	$	9,970
After one year through five years		—		—		—		—
After five years through ten years		10,~~233~~220		78,~~988~~564		9,768		8,834
After ten years		6,~~925~~704		6,~~778~~560		8,038		7,884
Total	$	1716,~~158~~924	$	1415,~~766~~124	$	27,790	$	26,688
Securities held-to-maturity
Due in less than one year	$	—	$	—	$	—	$	—
After one year through five years		—		—		—		—
After five years through ten years		~~738~~731		~~691~~662		746		705
After ten years		1,~~450~~427		1,~~383~~325		1,811		1,718
Total	$	2,~~188~~158	$	21,~~074~~987	$	2,557	$	2,423

Actual maturities may differ from contractual maturities as borrowers or issuers have the right to prepay or call the investment securities. Changes in interest rates may also impact prepayments.

As of June 30, 2023 and December 31, 2022, securities that are in an unrealized loss position and length of time that individual securities have been in a continuous loss position are summarized as follows:

	June 30, 2023
	Less Than Twelve Months					More Than Twelve Months					Total
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
Securities available-for-sale	(in thousands)
U.S. government agency CMO	$	(60	)	$	1,130	$	(139	)	$	2,953	$	(199	)	$	4,083
Corporate debt securities		(172	)		1,328		(2,037	)		5,713		(2,209	)		7,041
Total	$	(232	)	$	2,458	$	(2,176	)	$	8,666	$	(2,408	)	$	11,124
Securities held-to-maturity
U.S. government agency MBS	$	(55	)	$	990	$	(61	)	$	789	$	(116	)	$	1,779
Total	$	(55	)	$	990	$	(61	)	$	789	$	(116	)	$	1,779

	December 31, 2022
	Less Than Twelve Months					More Than Twelve Months					Total
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
Securities available-for-sale	(in thousands)
U.S. government agency CMO	$	(130	)	$	3,690	$	(49	)	$	606	$	(179	)	$	4,296
U.S. Treasury securities		(14	)		9,970		—			—		(14	)		9,970
Corporate debt securities		(764	)		6,986		(171	)		1,329		(935	)		8,315
Total	$	(908	)	$	20,646	$	(220	)	$	1,935	$	(1,128	)	$	22,581
Securities held-to-maturity
U.S. government agency MBS	$	(137	)	$	2,115	$	—		$	—	$	(137	)	$	2,115
Total	$	(137	)	$	2,115	$	—		$	—	$	(137	)	$	2,115

As of June 30, 2023 and December 31, 2022, there were 35 and 37 securities, respectively, in an unrealized loss position.

At June 30, 2023 and December 31, 2022, there were no available-for-sale or held-to-maturity securities that were on nonaccrual status. All securities in the portfolio were current with their contractual principal and interest payments. Accrued interest receivable related to available-for-sale and held-to-maturity securities was $68 thousand and $7 thousand, respectively, at June 30, 2023. Accrued interest receivable related to available-for-sale and held-to-maturity securities was $69 thousand and $8 thousand, respectively, at December 31, 2022. Accrued interest receivable is included in other assets on the consolidated balance sheets.

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~~There~~As ~~were~~of noSeptember ~~collateral~~30, ~~dependent~~2023 ~~available-for-sale~~and orDecember ~~held-to-maturity~~31, 2022, securities atthat ~~June~~are ~~30,~~in ~~2023~~an unrealized orloss ~~December~~position ~~31,~~and ~~2022.~~length of time that individual securities have been in a continuous loss position are summarized as follows:

The Company did not record an allowance for credit losses for available-for-sale or held-to-maturity investment securities as of June 30, 2023. For available-for-sale securities where a security’s estimated fair value was below its amortized cost, such declines were deemed non-credit related and recorded as an adjustment to accumulated other comprehensive income, net of tax. Non-credit related declines in the fair value of available-for-sale investment securities can be attributed to changes in interest rates and other market-related factors. The Company did not record an allowance for credit losses for held-to maturity securities as of June 30, 2023, because the likelihood of non-repayment is remote. There was no provision for credit losses recognized for investment securities during the three and six months ended June 30, 2023.

	September 30, 2023
	Less Than Twelve Months					More Than Twelve Months					Total
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
Securities available-for-sale	(in thousands)
U.S. government agency CMO	$	(23	)	$	607	$	(195	)	$	3,371	$	(218	)	$	3,978
Corporate debt securities		—			—		(1,494	)		7,653		(1,494	)		7,653
Total	$	(23	)	$	607	$	(1,689	)	$	11,024	$	(1,712	)	$	11,631

Securities held-to-maturity
U.S. government agency MBS	$	(2	)	$	134	$	(171	)	$	1,694	$	(173	)	$	1,828
Total	$	(2	)	$	134	$	(171	)	$	1,694	$	(173	)	$	1,828

	December 31, 2022
	Less Than Twelve Months					More Than Twelve Months					Total
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
Securities available-for-sale	(in thousands)
U.S. government agency CMO	$	(130	)	$	3,690	$	(49	)	$	606	$	(179	)	$	4,296
U.S. Treasury securities		(14	)		9,970		—			—		(14	)		9,970
Corporate debt securities		(764	)		6,986		(171	)		1,329		(935	)		8,315
Total	$	(908	)	$	20,646	$	(220	)	$	1,935	$	(1,128	)	$	22,581

Securities held-to-maturity
U.S. government agency MBS	$	(137	)	$	2,115	$	—		$	—	$	(137	)	$	2,115
Total	$	(137	)	$	2,115	$	—		$	—	$	(137	)	$	2,115

As of September 30, 2023 and December 31, 2022, there were 36 and 37 securities, respectively, in an unrealized loss position.

At September 30, 2023 and December 31, 2022, there were no available-for-sale or held-to-maturity securities that were on nonaccrual status. All securities in the portfolio were current with their contractual principal and interest payments. Accrued interest receivable related to available-for-sale and held-to-maturity securities was $124 thousand and $7 thousand, respectively, at September 30, 2023. Accrued interest receivable related to available-for-sale and held-to-maturity securities was $69 thousand and $8 thousand, respectively, at December 31, 2022. Accrued interest receivable is included in other assets on the consolidated balance sheets.

There were no collateral dependent available-for-sale or held-to-maturity securities at September 30, 2023 or December 31, 2022.

The Company reviews individual securities classified as available-for-sale to determine whether a decline in fair value below the amortized cost basis is deemed credit related or due to other factors such as changes in interest rates and general market conditions. An ACL on available-for-sale investment securities is recorded when the fair value of the investment is below its amortized cost and the decline in fair value has been deemed, through the Company’s qualitative assessment, to be credit-related. Non-credit-related declines in fair value of available-for-sale investment securities, which may be attributed to changes in interest rates and other market related factors, are not recorded through an ACL. Such declines are recorded as an adjustment to accumulated other comprehensive income (loss), net of tax. In the event the Company is required to sell or has the intent to sell an available-for-sale 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.

During the three and nine months ended September 30, 2023, the Company recorded a provision for credit losses for certain corporate debt securities classified as available-for-sale in the amount of $103 thousand. The need for ACL for these securities was in response to downgrades of the credit ratings of the issuers. The ACL was determined using the discounted cash flow method, using estimated loss rates that were derived from averages for corporate debt securities with similar credit ratings. There were no charge offs of any balances of corporate debt securities. The ending allowance for credit losses for securities at September 30, 2023 was $103 thousand.

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The Company did not record an allowance for credit losses for held-to-maturity securities as of September 30, 2023, because the likelihood of non-repayment was considered to be remote as the issuers of those securities were U.S. Federal government agencies. There was no provision for credit losses recognized related to any held-to-maturity investment securities during the three and nine months ended September 30, 2023.

Prior to the adoption of ASC 326, declines in the fair value of held-to-maturity and available-for-sale securities below their cost that were deemed to be other-than-temporary were reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considered, among other things: (i) the length of time and the extent to which the fair value had been less than cost; (ii) the financial condition and near-term prospects of the issuer; and (iii) the Company’s intent to sell an impaired security and if it was more likely than not that it would have been required to sell the security before the recovery of its amortized basis. Management concluded that none of the Company’s securities were impaired due to reasons of credit quality as of December 31, 2022, and therefore management believes the impairments detailed in the table above were temporary and no other-than-temporary impairment loss was recorded in the Company’s consolidated income statements.

3.	LOANS HELD FOR SALE AND LOANS SERVICED FOR OTHERS

As of ~~June~~September 30, 2023 and December 31, 2022, the Company had approximately $4.87 million and $5.2 million of SBA loans included in loans held for sale, respectively. The Company’s agricultural lending program includes loans for agricultural land, agricultural operational lines, and agricultural term loans for crops, equipment, and livestock. The primary products are supported by guarantees issued from the United States Department of Agriculture (“USDA”), USDA Farm Service Agency (“FSA”), and the USDA Business and Industry loan program. As of ~~June~~September 30, 2023 and December 31, 2022, the Company had $1413.47 million and $15.9 million of USDA loans included in loans held for sale, respectively.

The unpaid balance of loan serviced for others as of the periods presented are as shown below:

	June 30, 2023		December 31, 2022
	September 30, 2023		December 31, 2022
	(in thousands)
SBA	$	1,~~783~~438	$	1,926
USDA, FSA, and USDA Business and Industry		—		735
Farmer Mac		159,~~505~~450		155,522
Total loans serviced for others	$	~~161~~160,~~288~~888	$	158,183

4.	LOANS HELD FOR INVESTMENT

The composition of the Company’s loans held for investment loan portfolio follows:

	June 30,			December 31,
	September 30,			December 31,
	2023			2022
	(in thousands)
Manufactured housing	$	~~321~~325,~~127~~068		$	315,825
Commercial real estate		~~559~~556,~~677~~945			545,317
Commercial		4138,~~696~~232			59,070
SBA		1,~~800~~687			3,482
HELOC		2,556			2,613
Single family real estate		10,~~555~~615			8,709
Consumer		~~614~~52			107
Gross loans held for investment		~~938~~935,~~025~~155			935,123
Deferred fees, net		(~~875~~883	)		(787	)
Discount on SBA loans		(2625	)		(27	)
Loans held for investment		~~937~~934,~~124~~247			934,309
Allowance for credit losses		(12,~~148~~135	)		(10,765	)
Loans held for investment, net	$	~~924~~922,~~976~~112		$	923,544

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The following table presents the contractual aging of the recorded investment in past due held for investment loans by class of loans:

	June 30, 2023
	September 30, 2023
	Current		30-59 Days Past Due		60-89 Days Past Due		Over 90 Days Past Due		Total Past Due		Total
	(in thousands)
Manufactured housing	$	~~320~~324,~~159~~276	$	~~447~~615	$	~~105~~—	$	~~416~~177	$	~~968~~792	$	~~321~~325,~~127~~068
Commercial real estate:
Commercial real estate		~~483~~484,~~250~~172		~~2,439~~—		—1,576		—		21,~~439~~576		485,~~689~~748
SBA 504 1st trust deed		12,~~453~~335		—		—		—		—		12,~~453~~335
Land		108,~~480~~025		—		—		—		—		108,~~480~~025
Construction		5148,~~055~~887		—		—1,950		—		—1,950		5150,~~055~~837
Commercial		4037,~~879~~985		—		—247		~~817~~—		~~817~~247		4138,~~696~~232
SBA		1,~~710~~613		8973		—		1		9074		1,~~800~~687
HELOC		2,556		—		—		—		—		2,556
Single family real estate		10,~~555~~615		—		—		—		—		10,~~555~~615
Consumer		~~614~~52		—		—		—		—		~~614~~52
Total	$	~~933~~930,~~711~~516	$	~~2,975~~688	$	~~105~~3,773	$	~~1,234~~178	$	4,~~314~~639	$	~~938~~935,~~025~~155

	December 31, 2022
	Current		30-59 Days Past Due		60-89 Days Past Due		Over 90 Days Past Due		Total Past Due		Total
	(in thousands)
Manufactured housing	$	315,058	$	665	$	102	$	—	$	767	$	315,825
Commercial real estate:
Commercial real estate		481,599		1,160		—		—		1,160		482,759
SBA 504 1st trust deed		12,947		—		—		—		—		12,947
Land		11,237		—		—		—		—		11,237
Construction		38,374		—		—		—		—		38,374
Commercial		59,070		—		—		—		—		59,070
SBA		2,529		953		—		—		953		3,482
HELOC		2,613		—		—		—		—		2,613
Single family real estate		8,709		—		—		—		—		8,709
Consumer		107		—		—		—		—		107
Total	$	932,243	$	2,778	$	102	$	—	$	2,880	$	935,123

The following table presents the composition of nonaccrual loans as of ~~June~~September 30, 2023, and December 31, 2022:

	June 30, 2023						December 31, 2022
	September 30, 2023						December 31, 2022
	With an ACL		Without an ACL		Total Nonaccrual		With an Allowance		Without an Allowance		Total Nonaccrual
	(in thousands)
Manufactured housing	$	—100	$	~~748~~627	$	~~748~~727	$	—	$	61	$	61
Commercial		—		817		817		—		—		—
Commercial real estate		—		327		327		—		—		—
Single family real estate		—		144		144		—		150		150
Construction		—		1,950		1,950		—		—		—
Total	$	—	$	1,709	$	1,709	$	—	$	211	$	211
Commercial		—		50		50		—		—		—
HELOC		—		141		141		—		—		—
Single family real estate		—		—		—		—		150		150
Total	$	100	$	3,095	$	3,195	$	—	$	211	$	211

There were $1 thousand of loans past due by 90 days or more that were not on nonaccrual status at September ~~June~~ 30, 2023. There were no loans past due by 90 days or more that were not on nonaccrual status at December 31, 2022.

The accrual of interest is discontinued when substantial doubt exists as to collectability of the loan; generally, at the time the loan is 90 days delinquent. Any unpaid but accrued interest is reversed from interest income at ~~that~~ that time. Thereafter, interest income is no longer recognized on the loan. Interest income may be recognized on impaired loans to the extent they are not past due by 90 days. Interest on nonaccrual loans is accounted for on the cash-basis or or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Foregone ~~interest~~ interest on nonaccrual loans for the three months ended ~~June~~September 30, 2023 and 2022, was $40 117 thousand and $109 thousand, respectively. Foregone interest on nonaccrual loans for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, was $~~180~~296 thousand and $2332 thousand, respectively.

~~Accrued~~Page interest receivable related to loans was $5.3 million and $5.1 million at June 30, 2023 and December 31, 2022, respectively. Accrued interest receivable is included in other assets on the consolidated balance sheets. 20

~~Allowance~~Table ~~for~~of ~~Credit Losses~~ Contents

~~The~~ ~~Company adopted CECL on January 1,~~Accrued ~~2023.~~interest Asreceivable ~~discussed~~related ~~further~~to inloans ~~Note~~was 1$5.3 -million ~~Summary~~and ~~of Significant Accounting Policies, the Company uses the WARM method as the basis for the estimation of expected credit losses under CECL~~$5. ~~The~~1 ~~calculation~~million ofat ~~the~~September ~~ACL~~30, is2023 ~~adjusted using qualitative factors for current conditions~~ and ~~for~~December ~~reasonable~~31, ~~and~~2022, ~~supportable forecast periods~~respectively. ~~Loans~~Accrued ~~that~~interest doreceivable ~~not~~is ~~share risk characteristics with other loans in the portfolio are individually evaluated for a required ACL and are not~~ included in ~~the collective~~other ~~evaluation.~~assets ~~Expected credit losses for loans evaluated individually are measured based~~ on the ~~present value of expected future cash flows discounted at the loan’s effective interest rate or, when the Company determines that~~ ~~foreclosure~~consolidated isbalance ~~probable, the fair value of the collateral securing the loan, less estimated selling costs~~sheets.

Allowance ~~During~~for ~~the~~Credit ~~three~~Losses ~~months ended June 30, 2023, the allowance~~ for ~~credit losses increased by $83 thousand to $12.1 million. This~~Loans increase in the required ACL during the quarter was primarily due to a $107 thousand increase in qualitative factors. During the quarter, the Company increased the weighting of the qualitative factor related to substandard loans in the overall evaluation of total qualitative factors because of the positive correlation between the level of substandard assets and the amount of anticipated loan losses. This increase was partially offset by a decrease of $27 thousand in the ACL due to an improvement in historical loss factors on which management’s methodology is based.

~~During~~The ~~the~~Company ~~six~~adopted ~~months ended June 30, 2023,~~ the ~~allowance~~CECL requirements ~~for~~of ~~credit~~ASC ~~losses~~326 on ~~loans~~January ~~increased by $~~1.4, ~~million from $10~~2023.~~8 million~~ atAs ~~December~~discussed ~~31,~~further ~~2022.~~in ~~When~~Note ~~the~~1 ~~Company~~- ~~adopted~~Summary ~~the provisions~~ of ~~ASC~~Significant ~~326~~Accounting ~~on January 1~~Policies, ~~2023,~~the itCompany ~~recorded~~uses the ~~required~~WARM ~~$1.8 million~~method ~~increase~~as ~~directly~~the tobasis ~~retained~~for ~~earnings~~the ~~(net~~estimation of ~~tax).~~expected ~~During~~credit ~~the~~losses ~~first~~under ~~six~~CECL. The ~~months~~ calculation of ~~2023,~~ the ~~Company~~ACL ~~recorded~~is aadjusted ~~provision~~using ~~(credit)~~qualitative factors for ~~loan~~current ~~losses~~conditions ofand ~~$(622)~~for ~~thousand.This decrease~~reasonable inand ~~allowance~~supportable ~~for~~forecast ~~credit~~periods. ~~losses~~Loans ~~during~~that ~~the~~do ~~six~~not ~~months~~share ~~ended~~risk ~~June~~characteristics ~~30,~~with ~~2023~~other ~~(after~~loans ~~the~~in ~~adjustment for~~ the ~~adoption~~portfolio ofare ~~ASC~~individually ~~326)~~evaluated ~~was~~for ~~primarily due to~~ a required ~~reduction~~ACL inand ~~the~~are ~~qualitative~~not ~~factor~~included ~~related~~in to the ~~percentage~~collective ofevaluation. ~~the~~Expected ~~state~~credit oflosses ~~California that~~for ~~was~~loans ~~experiencing~~evaluated aindividually ~~drought.~~are Inmeasured ~~addition,~~based on the ~~allowance~~present ~~for~~value ~~credit~~of ~~losses~~expected ~~also~~future ~~declined~~cash ~~due~~flows todiscounted aat ~~reduction~~the inloan’s effective ~~the~~interest ~~portion~~rate or, ofwhen the ~~allowance~~Company ~~derived~~determines ~~from~~that ~~historical~~foreclosure ~~losses.~~is ~~Offsetting~~probable, ~~these~~the ~~decreases~~fair ~~was~~value anof ~~increase in~~ the ~~qualitative~~collateral ~~factor related~~securing tothe ~~substandard loans~~loan, ~~discussed~~less ~~above~~estimated selling costs.

During the three months ended September 30, 2023, the ACL for loans decreased by $13 thousand to $12.1 million. The decline in the ACL was primarily due to a decline in the required allowance for loans evaluated on a collective basis of $140 thousand due to a decrease in net loan balances. This decrease was partially offset by an increase in the ACL for the qualitative factor related to the levels of substandard loans.

During the nine months ended September 30, 2023, the allowance for credit losses on loans increased by $1.4 million from $10.8 million at December 31, 2022. When the Company adopted the provisions of ASC 326 on January 1, 2023, it recorded the required $1.8 million increase directly to retained earnings (net of tax). During the first nine months of 2023, the Company recorded a provision (credit) for credit losses for loans of $(680) thousand.This decrease in allowance for credit losses during the nine months ended September 30, 2023 (after the adjustment for the adoption of ASC 326) was primarily due to a reduction in the qualitative factor related to the percentage of the state of California that was experiencing a drought. In addition, the allowance for credit losses also declined due to a reduction in the portion of the allowance derived from historical losses. Offsetting these decreases was an increase in the qualitative factor related to substandard loans, discussed above.

The following tables summarize the changes in the allowance for credit losses by portfolio type. Prior to the adoption of ASC 326 on January 1, 2023, the allowance for loan losses was determined in accordance with ASC 450 and ASC 310.

	For the Three Months Ended June 30,
	For the Three Months Ended September 30,
	Manufactured Housing			Commercial Real Estate		Commercial			SBA			HELOC			Single Family Real Estate		Consumer			Total
2023	(in thousands)
Beginning balance	$	5,~~482~~519		$	5,~~817~~896	$	~~562~~515		$	5		$	4241		$	~~155~~171	$	21		$	12,~~065~~148
Charge-offs		—			—		—			—			—			—		—			—
Recoveries		78			20		1013			614			—			—		—			9845
Net recoveries		78			20		1013			614			—			—		—			9845
Provision (credit) for loan losses		30			59		(57	)		(61	)		(1	)		16		(1	)		(15	)
Provision (credit) for credit losses		(54	)		44		(46	)		(4	)		1			1		—			(58	)
Ending balance	$	5,~~519~~473		$	5,~~896~~960	$	~~515~~482		$	5		$	4142		$	~~171~~172	$	1		$	12,~~148~~135
2022
Beginning balance	$	3,~~758~~976		$	6,~~046~~120	$	~~580~~594		$	2223		$	3537		$	~~105~~115	$	1		$	10,~~547~~866
Charge-offs		—			—		—			—(182	)		—			—		—			—(182	)
Recoveries		2888			2120		313			114			46			—		—			67131
Net recoveries		28			21		3			11			4			—		—			67
Net recoveries (charge-offs)		88			20		13			(178	)		6			—		—			(51	)
Provision (credit) for loan losses		190			53		11			(10	)		(2	)		10		—			252
Provision (credit) for credit losses		(77	)		182		24			174			(6	)		—		1			298
Ending balance	$	3,~~976~~987		$	6,~~120~~322	$	~~594~~631		$	2319		$	37		$	115	$	12		$	1011,~~866~~113

	For the Six Months Ended June 30,
	Manufactured Housing			Commercial Real Estate			Commercial			SBA			HELOC			Single Family Real Estate		Consumer			Total
2023	(in thousands)
Beginning balance, prior to adoption of ASC 326	$	3,879		$	5,980		$	747		$	21		$	27		$	107	$	4		$	10,765
Impact of adoption of ASC 326		1,671			31			70			(15	)		17			39		(2	)		1,811
Charge-offs		—			—			—			—			—			—		—			—
Recoveries		66			39			24			65			—			—		—			194
Net recoveries		66			39			24			65			—			—		—			194
Provision (credit) for loan losses		(97	)		(154	)		(326	)		(66	)		(3	)		25		(1	)		(622	)
Ending balance	$	5,519		$	5,896		$	515		$	5		$	41		$	171	$	1		$	12,148
2022
Beginning balance	$	2,606		$	6,729		$	923		$	22		$	18		$	105	$	1		$	10,404
Charge-offs		—			—			—			—			—			—		—			—
Recoveries		35			40			170			242			6			—		1			494
Net recoveries		35			40			170			242			6			—		1			494
Provision (credit) for loan losses		1,335			(649	)		(499	)		(241	)		13			10		(1	)		(32	)
Ending balance	$	3,976		$	6,120		$	594		$	23		$	37		$	115	$	1		$	10,866

Page 21

AsTable of ~~June~~ 30, 2023 and December 31, 2022, the Company had an allowance for credit losses for off-balance sheet commitments of $427 thousand and $94 thousand, respectively, which was included in other liabilities on the consolidated balance sheets. The provision (credit) for credit losses associated with the allowance for off-balance sheet commitments was $27 thousand and $(88) thousand for the three and six months ended June 30, 2023. Contents

	For the Nine Months Ended September 30,
	Manufactured Housing			Commercial Real Estate			Commercial			SBA			HELOC			Single Family Real Estate		Consumer			Total
2023	(in thousands)
Beginning balance, prior to adoption of ASC 326	$	3,879		$	5,980		$	747		$	21		$	27		$	107	$	4		$	10,765
Impact of adoption of ASC 326		1,671			31			70			(15	)		17			39		(2	)		1,811
Charge-offs		—			—			—			—			—			—		—			—
Recoveries		74			59			37			69			—			—		—			239
Net recoveries		74			59			37			69			—			—		—			239
Provision (credit) for credit losses		(151	)		(110	)		(372	)		(70	)		(2	)		26		(1	)		(680	)
Ending balance	$	5,473		$	5,960		$	482		$	5		$	42		$	172	$	1		$	12,135

2022
Beginning balance	$	2,606		$	6,729		$	923		$	22		$	18		$	105	$	1		$	10,404
Charge-offs		—			—			—			(182	)		—			—		—			(182	)
Recoveries		123			60			183			246			12			—		1			625
Net recoveries		123			60			183			64			12			—		1			443
Provision (credit) for credit losses		1,258			(467	)		(475	)		(67	)		7			10		—			266
Ending balance	$	3,987		$	6,322		$	631		$	19		$	37		$	115	$	2		$	11,113

As of September 30, 2023, and December 31, 2022, the Company had an allowance for credit losses for off-balance sheet commitments of $424 thousand and $94 thousand, respectively, which was included in other liabilities on the consolidated balance sheets. The provision (credit) for credit losses associated with the allowance for off-balance sheet commitments was $(2) thousand and $(90) thousand for the three and nine months ended September 30, 2023, respectively.

Beginning on January 1, 2023, the Company evaluates loans collectively for purposes of determining the allowance for credit losses in accordance with ASC 326. Collective evaluation is based on aggregating loans deemed to possess similar risk characteristics. In certain instances, the Company may identify loans that it believes no longer possess risk characteristics similar to other loans in the loan portfolio. These loans are typically identified as those that have exhibited deterioration in credit quality, since the specific attributes and risks associated with such loans tend to become unique as the credit deteriorates. Such loans are typically nonperforming, have undergone a significant modification, have been downgraded to substandard or worse, and/or are deemed collateral dependent, where the ultimate repayment of the loan is expected to come from the operation of or eventual sale of the collateral. Loans that are deemed by management to no longer possess risk characteristics similar to other loans in the portfolio, or that have been identified as collateral dependent, are evaluated individually for purposes of determining an appropriate lifetime allowance for credit losses. The Company uses a discounted cash flow approach, using the loan’s effective interest rate, for determining the allowance for credit losses on individually evaluated loans, unless the loan is deemed collateral dependent, which requires evaluation based on the estimated fair value of the underlying collateral, less estimated costs to sell. The Company may increase or decrease the allowance for credit losses for collateral dependent loans based on changes in the estimated fair value of the collateral. Changes in the allowance for credit losses for all other individually evaluated loans are based substantially on the Company’s evaluation of cash flows expected to be received from such loans.

~~The~~Page ~~following table presents the amortized cost basis and the associated allowance for credit losses by portfolio segment for loans that were individually evaluated as of June 30, 2023:~~22

	Manufactured Housing		Commercial Real Estate		Commercial		SBA		HELOC		Single Family Real Estate		Consumer		Total Loans
	(in thousands)
Amortized Cost Basis:
Individually evaluated loans with an allowance for credit losses recorded	$	579	$	—	$	—	$	—	$	—	$	—	$	—	$	579
Individually evaluated loans with no allowance for credit losses recorded		1,324		—		1,287		—		—		144		—		2,755
Total individually evaluated loans		1,903		—		1,287		—		—		144		—		3,334
Collectively evaluated loans		319,224		559,677		40,409		1,800		2,556		10,411		614		934,691
Total loans held for investment	$	321,127	$	559,677	$	41,696	$	1,800	$	2,556	$	10,555	$	614	$	938,025
Allowance for Credit Losses:
Individually evaluated loans	$	11	$	—	$	—	$	—	$	—	$	—	$	—	$	11
Collectively evaluated loans		5,508		5,896		515		5		41		171		1		12,137
Total allowance for credit losses	$	5,519	$	5,896	$	515	$	5	$	41	$	171	$	1	$	12,148

Table of Contents

The following table presents the amortized cost basis and the associated allowance for credit losses by portfolio segment for loans that were individually evaluated as of September 30, 2023:

	Manufactured Housing		Commercial Real Estate		Commercial		SBA		HELOC		Single Family Real Estate		Consumer		Total Loans
	(in thousands)
Amortized Cost Basis:
Individually evaluated loans with an allowance for credit losses recorded	$	853	$	—	$	—	$	—	$	—	$	—	$	—	$	853
Individually evaluated loans with no allowance for credit losses recorded		1,359		2,277		1,210		—		—		141		—		4,987
Total individually evaluated loans		2,212		2,277		1,210		—		—		141		—		5,840
Collectively evaluated loans		322,856		554,668		37,022		1,687		2,556		10,474		52		929,315
Total loans held for investment	$	325,068	$	556,945	$	38,232	$	1,687	$	2,556	$	10,615	$	52	$	935,155

Allowance for Credit Losses:
Individually evaluated loans	$	16	$	—	$	—	$	—	$	—	$	—	$	—	$	16
Collectively evaluated loans		5,457		5,960		482		5		42		172		1		12,119
Total allowance for credit losses	$	5,473	$	5,960	$	482	$	5	$	42	$	172	$	1	$	12,135

Prior to the adoption of ASC 326 on January 1, 2023, the Company classified loans as impaired when, based on current information and events, it was probable that the Company would be unable to collect all amounts due according to the contractual terms of the loan agreement or it was determined that the likelihood of the Company receiving all scheduled payments, including interest, when due was remote. Credit losses on impaired loans were determined separately based on the guidance in ASC 310. Beginning January 1, 2023, the Company accounts for credit losses on all loans in accordance with ASC 326, which eliminates the concept of an impaired loan within the context of determining credit losses.

The following table presents impairment method information related to loans and allowance for loan losses by loan portfolio segment as of December 31, 2022:

	Manufactured Housing		Commercial Real Estate		Commercial		SBA		HELOC		Single Family Real Estate		Consumer		Total Loans
	(in thousands)
Recorded Investment:
Impaired loans with an allowance recorded	$	2,918	$	209	$	67	$	41	$	—	$	208	$	—	$	3,443
Impaired loans with no allowance recorded		1,166		—		1,297		—		—		151		—		2,614
Total loans individually evaluated for impairment		4,084		209		1,364		41		—		359		—		6,057
Loans collectively evaluated for impairment		311,741		545,108		57,706		3,441		2,613		8,350		107		929,066
Total loans held for investment	$	315,825	$	545,317	$	59,070	$	3,482	$	2,613	$	8,709	$	107	$	935,123

Related Allowance for Loan Losses
Loans individually evaluated for impairment		157		18		—		1		—		8		—		184
Loans collectively evaluated for impairment		3,722		5,962		747		20		27		99		4		10,581
Total allowance for loan losses	$	3,879	$	5,980	$	747	$	21	$	27	$	107	$	4	$	10,765

The recorded investment in impaired loans approximated the unpaid balance of the loans as of December 31, 2022.

Prior to the adoption of ASC 326, a valuation allowance was established for an impaired loan when the fair value of the loan was less than the recorded investment. In certain cases, portions of impaired loans were charged-off to realizable value instead of establishing a valuation allowance and were included, when applicable, in the table above as “Impaired loans without specific valuation allowance.” The valuation allowance disclosed above is included in the allowance for loan losses reported in the consolidated balance sheets as of December 31, 2022.

Page 23

Table of Contents

The following table presents the amortized cost basis of collateral dependent loans by class of loans and by collateral type as of the dates indicated :

	Manufactured Homes		Single Family Residence		~~Land~~Machinery & Equipment		~~Machinery & Equipment~~Total		~~Total~~
June 30, 2023	(in thousands)
September 30, 2023	(in thousands)
Manufactured housing	$	1,~~141~~014	$	—	$	—	$	—1,014	$	~~1,141~~
Commercial		—		—		82		1,205		1,287
Commercial real estate		2,277		—		—		2,277
Single family real estate		—		144		—		—		144
Commercial		—		—		1,210		1,210
Total	$	1,141	$	144	$	82	$	1,205	$	2,572
Single family real estate		—		141		—		141
Total	$	3,291	$	141	$	1,210	$	4,642

	Manufactured Homes		Single Family Residence		~~Land~~Machinery & Equipment		~~Machinery & Equipment~~Total		~~Total~~
December 31, 2022	(in thousands)
Manufactured housing	$	574	$	—	$	—	$	—574	$	~~574~~
Commercial		—		—		—1,297		1,297		~~1,297~~
Single family real estate		—		150		—		—150		~~150~~
Total	$	574	$	150	$	—1,297	$	12,~~297~~021	$	~~2,021~~

There was no associated allowance for credit losses (or allowance for loan losses prior to the adoption of ASC 326 on January 1, 2023) for collateral dependent loans as of ~~June~~September 30, 2023, or December 31, 2022.

The Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans. Loan ratings are reviewed as part of the Company’s normal loan monitoring process, but, at a minimum, updated on an annual basis. Under the Company’s risk rating system, the Company rates loans with potential problems as “Special Mention,” “Substandard,” “Doubtful,” and “Loss”. The following is a description of the characteristics of loan ratings.

Special Mention - A Special Mention loan has potential weaknesses that require management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan 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.

Substandard - A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. These loans have a well-defined weakness or weaknesses that jeopardize the full collection of amounts due. They are characterized by the distinct possibility that the Company will sustain some loss if the borrower’s deficiencies are not corrected.

Doubtful - A loan classified Doubtful has all the weaknesses inherent in one classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may work to the advantage and strengthening of the loan, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans.

Loss - Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable loans is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this loan even though partial recovery may be realized in the future. Losses are taken in the period in which they are considered uncollectible.

Loans not meeting the criteria above are considered to be pass-rated loans.

Page 24

Table of Contents

The following tables present the risk categories for gross loans by class of loans and by year of origination as of the dates indicated:

	Term Loans Amortized Cost Basis by Origination Year
	2023		2022		2021		2020		2019		Prior		Revolving		Total
June 30, 2023	(in thousands)
September 30, 2023	(in thousands)
Manufactured housing:
Pass	$	2338,~~978~~199	$	5957,~~114~~135	$	5149,~~587~~553	$	4846,~~332~~564	$	2524,~~010~~731	$	~~111~~106,~~182~~655	$	—	$	~~319~~322,~~203~~837
Substandard		—		~~298~~—		~~102~~101		~~220~~219		—		1,~~304~~911		—		12,~~924~~231
Total		2338,~~978~~199		5957,~~412~~135		5149,~~689~~654		4846,~~552~~783		2524,~~010~~731		~~112~~108,~~486~~566		—		~~321~~325,~~127~~068
Commercial real estate:
Pass		2734,~~962~~298		~~155~~152,~~884~~500		~~125~~122,~~396~~794		6058,~~808~~350		49,~~966~~489		~~124~~121,~~949~~401		—		~~544~~538,~~965~~832
Special mention		—		—		~~467~~464		~~215~~211		4,~~165~~145		1,~~020~~014		—		5,~~867~~834
Substandard		—		—		500		12,~~052~~993		—		78,~~293~~786		—		812,~~845~~279
Total		2734,~~962~~298		~~155~~152,~~884~~500		~~126~~123,~~363~~758		6261,~~075~~554		5453,~~131~~634		~~133~~131,~~262~~201		—		~~559~~556,~~677~~945
Commercial:
Pass		~~904~~1,589		5,~~578~~497		2,~~927~~663		1,~~230~~094		~~961~~738		1413,~~827~~418		98,~~916~~176		3633,~~343~~175
Special mention		—		—		21,~~072~~996		—407		—		—		—		2,~~072~~403
Substandard		—		—		—		—		—		32,~~281~~654		—		32,~~281~~654
Total		~~904~~1,589		5,~~578~~497		4,~~999~~659		1,~~230~~501		~~961~~738		1816,~~108~~072		98,~~916~~176		4138,~~696~~232
SBA:
Pass		—		—		—		—192		~~225~~—		—1,454		~~1,533~~—		1,~~758~~646
Special mention		—		—		—		—		—		—40		41—		4140
Doubtful		—		—		—		—		—		—		1		1
Loss		—		—		—		—		—		1		—		1
Total		—		—		—		—192		~~225~~—		—1,495		~~1,575~~—		1,~~800~~687
HELOC:
Pass		—		—		—		—		—		2,556		—		2,556
Total		—		—		—		—		—		2,556		—		2,556
Single family real estate:
Pass		12,~~828~~242		~~1,107~~826		21,~~020~~997		21,~~002~~989		~~753~~748		2,~~696~~667		—		10,~~406~~469
Substandard		—		—		—		—		—		~~149~~146		—		~~149~~146
Total		12,~~828~~242		~~1,107~~826		21,~~020~~997		21,~~002~~989		~~753~~748		2,~~845~~813		—		10,~~555~~615
Consumer:
Pass		~~580~~52		—		—		—		—		34—		—		~~614~~52
Total		~~580~~52		—		—		—		—		34—		—		~~614~~52
Total loans	$	5576,~~252~~380	$	~~221~~215,~~981~~958	$	~~185~~180,~~071~~068	$	~~113~~112,~~859~~019	$	8179,~~080~~851	$	~~269~~262,~~291~~703	$	118,~~491~~176	$	~~938~~935,~~025~~155

Page 25

Table of Contents

	Term Loans Amortized Cost Basis by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving		Total
December 31, 2022	(in thousands)
(Manufactured housing:
Pass	$	62,591	$	54,403	$	51,158	$	26,745	$	25,768	$	94,106	$	—	$	314,771
Substandard		—		—		—		—		121		933		—		1,054
Total		62,591		54,403		51,158		26,745		25,889		95,039		—		315,825

Commercial real estate:
Pass		161,023		125,074		57,441		50,134		32,662		95,174		—		521,508
Special mention		—		—		10,092		4,206		1,033		—		—		15,331
Substandard		—		—		1,056		—		—		7,422		—		8,478
Total		161,023		125,074		68,589		54,340		33,695		102,596		—		545,317

Commercial:
Pass		8,804		2,924		1,505		1,107		6,956		10,889		20,699		52,884
Special mention		—		2,723		—		—		—		—		—		2,723
Substandard		—		—		—		—		—		3,463		—		3,463
Total		8,804		5,647		1,505		1,107		6,956		14,352		20,699		59,070

SBA:
Pass		—		690		1,083		—		—		1,709		—		3,482
Total		—		690		1,083		—		—		1,709		—		3,482

HELOC:
Pass		—		—		—		—		—		—		2,613		2,613
Total		—		—		—		—		—		—		2,613		2,613

Single family real estate:
Pass		817		2,187		2,028		761		364		2,398		—		8,555
Substandard		—		—		—		—		150		4		—		154
Total		817		2,187		2,028		761		514		2,402		—		8,709

Consumer:

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