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Commitments and Contingencies

6 Months Ended

Jun. 30, 2021

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 10: Commitments and Contingencies

Financial Instruments with Off-Balance Sheet Risk

Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Substantially all of these commitments are at variable interest rates, based on an index, and have fixed expiration dates.

Off-balance sheet risk to loan loss exists up to the face amount of these instruments, although material losses are not anticipated. The Company uses the same credit policies in making commitments to originate loans and lines of credit as it does for on-balance sheet instruments, including obtaining collateral at exercise of the commitment. The contractual amount of unfunded loan commitments and standby letters of credit not reflected in the consolidated balance sheets are as follows:

(in thousands)		June 30, 2021				December 31, 2020
Commercial Lines of Credit		$	114,145			$	107,231
Undisbursed Construction Loans			26,078				50,442
Undisbursed Commercial Real Estate Loans			43,376				39,946
Agricultural Lines of Credit			13,174				11,553
Undisbursed Agricultural Real Estate Loans			3,474				5,945
Other			6,544				920
Total commitments and standby letters of credit		$	206,791			$	216,037

The Company records an allowance for loan losses on unfunded loan commitments at the consolidated balance sheet date based on estimates of the probability that these commitments will be drawn upon according to historical utilization experience of the different types of commitments and historical loss rates determined for pooled funded loans. The allowance for loan losses on unfunded commitments totaled $0.1 million as of June 30, 2021 and December 31, 2020, which is recorded in interest payable and other liabilities in the consolidated balance sheets.

Concentrations of Credit Risk: The Company grants real estate mortgage, real estate construction, commercial and consumer loans to customers primarily in Northern California. Although the Company has a diversified loan portfolio, a substantial portion is secured by commercial and residential real estate.

In management’s judgment, a concentration of loans exists in real estate related loans, which represented approximately 82.53% of the Company’s loan portfolio at June 30, 2021 and 79.23% of the Company’s loan portfolio at December 31, 2020. Although management believes such concentrations have no more than the normal risk of collectability, a substantial decline in the economy in general, or a decline in real estate values in the Company’s primary market areas in particular, could have an adverse impact on the collectability of these loans. Personal and business incomes represent the primary source of repayment for the majority of these loans.

Deposits Concentrations: At June 30, 2021, the Company had 62 deposit relationships that exceeded $5.0 million each, totaling $1,059.5 million, or approximately 51.28% of total deposits. The Company’s largest single deposit relationship at June 30, 2021 totaled $175.7 million, or approximately 8.50% of total deposits. Management maintains the Company’s liquidity position and lines of credit with correspondent banks to mitigate the risk of large withdrawals by this group of large depositors.

Contingencies: The Company is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to such actions will not materially affect the consolidated financial position or results of operations of the Company.

Correspondent Banking Agreements: The Company maintains funds on deposit with other FDIC-insured financial institutions under correspondent banking agreements. Uninsured deposits through these agreements totaled $297.0 million and $118.0 million at June 30, 2021 and December 31, 2020, respectively.

Leases

The Company leases office space for its banking operations under non-cancelable operating leases of various terms. The leases expire at dates through 2032 and provide for renewal options from zero to five years. In the normal course of business, it is expected that these leases will be renewed or replaced by leases on other properties. One of the leases provides for increases in future minimum annual rental payments based on defined increases in the Consumer Price Index, while the remaining leases include pre-defined rental increases over the term of the lease.

The Company has a sublease agreement for space adjacent to the Redding location. The sublease has renewal terms extended to December 31, 2021.

The Company leases its Natomas branch and Sacramento loan production office from a partnership comprised of some of the Company’s shareholders and certain members of the board of directors. The Natomas branch lease extends through February 2025, and the Sacramento loan production office lease extends through April 2023. Rent expense was $0.1 million for the three months ended June 30, 2021 and 2020 and $0.1 million for the six months ended June 30, 2021 and 2020 under these leases.

The following table shows the future minimum lease payments and weighted average remaining lease terms under the Company’s operating lease arrangements as of June 30, 2021.

(in thousands)		June 30, 2021
2021		$	521
2022			1,078
2023			1,009
2024			984
2025			768
Thereafter			1,756
Total		$	6,116
Weighted average remaining term (in years)			5.15

Litigation Matters

The Company is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to such actions will not materially affect the consolidated financial position or results of operations of the Company.