30 unchanged sentences
We believe that the Company’s most critical accounting policies are those which the Company’s financial condition depends upon, and which involve the most complex or subjective decisions or assessments.
−Removed: There have been no material changes to the Company’s critical accounting policies during the three months ended March 31, 2021.
+Added: There have been no material changes to the Company’s critical accounting policies during the six months ended June 30, 2021.
Please refer to the Company’s 2020 Annual Report to Shareholders on Form 10-K for a complete listing of critical accounting policies.
This discussion should be read in conjunction with our unaudited condensed consolidated financial statements, including the notes thereto, appearing elsewhere in this report.
−Removed: Table of Contents `
Central Valley Community Bancorp (Company)
12 unchanged sentences
Our total market share in the other counties we operate in (El Dorado, Merced, Placer, Sacramento, and Stanislaus Counties), was less than 1.00% in 2020.
−Removed: Dividend Declared and Stock Repurchase Plan Announced
−Removed: On April 21, 2021, the Board of Directors declared a $0.12 per share cash dividend payable on May 21, 2021 to shareholders of record as of May 7, 2021.
−Removed: On March 17, 2021, the Board of Directors of the Company approved the adoption of a program to effect repurchases of the Company’s common stock with authorization to purchase up to $12 million worth of the Company’s outstanding common stock.
−Removed: During the three months ended March 31, 2021, the Company did not repurchase or retire any shares.
−Removed: The share repurchase plan began on March 18, 2021 and will end on March 17, 2022.
+Added: Dividend Declared
+Added: On July 21, 2021, the Board of Directors declared a $0.12 per share cash dividend payable on August 20, 2021 to shareholders of record as of August 6, 2021.
COVID-19 Pandemic
18 unchanged sentences
The Company has worked diligently with the SBA to qualify clients to receive PPP loans.
−Removed: Table of Contents `
−Removed: borrowers who can demonstrate that the funding received has been used for certain purposes such as to cover payroll and rent costs and meet certain other requirements, can qualify for partial or full federal relief on loan principal and interest.
+Added: PPP borrowers who can demonstrate that the funding received has been used for certain purposes such as to cover payroll and rent costs and meet certain other requirements, can qualify for partial or full federal relief on loan principal and interest.
Nonqualifying borrowers or borrowers who have not applied for forgiveness, who received loans under the CARES Act, are contractually obligated to begin making monthly repayments on principal and interest six months after their loans have funded.
3 unchanged sentences
Further, maximum loan amounts have been increased for accommodation and food service businesses.
−Removed: Recently, we began accepting applications for the second round of PPP loans.
−Removed: As of March 31, 2021 we have received approximately 434 applications totaling $72 million.
+Added: As of June 30, 2021 we have received approximately 512 applications totaling $78 million.
The federal bank regulatory agencies, along with their state counterparts, have issued guidance in response to the COVID-19 pandemic and have taken a number of unprecedented steps to help banks navigate the pandemic and mitigate its impact.
11 unchanged sentences
The FDIC has also acted to mitigate the deposit insurance assessment effects of participating in the PPP and the Federal Reserve’s PPP Liquidity Facility and Money Market Mutual Fund Liquidity Facility.
−Removed: We have also taken measures to protect the health and safety of our employees by implementing remote work arrangements to the full extent possible, and by adjusting banking center hours and operational measures to promote social distancing.
Management is closely monitoring credit metrics.
2 unchanged sentences
Based on the Company’s capital levels, conservative underwriting policies, low loan-to-deposit ratio, loan concentration diversification, and suburban geographical marketplace, management expects to be able to manage the economic risks and uncertainties associated with the COVID-19 pandemic and remain adequately capitalized.
−Removed: Financial position and results of operations
−Removed: The Company’s interest income could be reduced due to COVID-19.
−Removed: In keeping with guidance from regulators, the Company is actively working with COVID-19 affected borrowers to defer their payments, interest, and fees.
−Removed: While interest and fees will still accrue to income through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, interest income and fees accrued would need to be reversed.
−Removed: In such a scenario, interest income in future periods could be negatively impacted.
−Removed: At this time, the Company is unable to project the materiality of such an impact, but recognizes the breadth of the economic impact may affect its borrowers’ ability to repay in future periods.
Capital and liquidity
7 unchanged sentences
Asset valuation
−Removed: Table of Contents `
Currently, the Company does not expect COVID-19 to affect its ability to account timely for the assets on its balance sheet;
8 unchanged sentences
Based on this quantitative test, it was determined that the fair value of the reporting unit exceeded the carrying value as of September 30, 2020.
−Removed: With the economic risks and uncertainties associated with the COVID-19 pandemic continuing during the first quarter of 2021, management performed a qualitative assessment including performance trends, market information and economic data and determined it was more likely than not that the fair value of the reporting unit exceeded the carrying value.
Processes, controls and business continuity plan
7 unchanged sentences
Depending on the demonstrated need of the client, the Company is deferring either the full loan payment or the principal component of the loan payment for up to 90 days.
−Removed: As of March 31, 2021, based on the Bank’s discussion with these customers, loan customers with deferred payments of principal, interest, or both on loans totaling approximately $2.8 million were outstanding.
+Added: As of June 30, 2021, based on the Bank’s discussion with these customers, loan customers with deferred payments of principal, interest, or both on loans totaling approximately $1.4 million were outstanding.
In accordance with interagency guidance issued in March 2020 and Section 4013 of the Cares Act, these short-term deferrals are not considered troubled debt restructurings.
2 unchanged sentences
The Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program.
−Removed: During the year ended December 31, 2020 and the three months ended March 31, 2021, the Company closed 1,523 PPP loans representing $286,010,000 in funding.
+Added: During the year ended December 31, 2020 and the six months ended June 30, 2021, the Company closed 1,601 PPP loans representing $295,644,000 in funding.
It is the Company’s understanding that loans funded through the PPP program are fully guaranteed by the U.S.
5 unchanged sentences
It is possible that the Company’s asset quality measures could worsen at future measurement periods if the effects of COVID-19 are prolonged.
−Removed: First Quarter of 2021
−Removed: For the first quarter of 2021, our consolidated net income was $7,479,000 compared to $6,623,000 for the same period in 2020.
−Removed: Diluted EPS was $0.60 for the quarter ended March 31, 2021 compared to $0.52 for the same period in 2020.
−Removed: The increase in net income during the first quarter of 2021 compared to the same period in 2020 is primarily driven by a decrease in provision
−Removed: Table of Contents `
−Removed: for credit losses of $3,175,000, an increase in net interest income of $1,526,000, a decrease in non-interest expense of $690,000, and a decrease in the provision for income taxes of $7,000, partially offset by a decrease in non-interest income of $4,542,000.
−Removed: During the quarter ended March 31, 2021, the Company recorded a decrease of $4,198,000 in net realized gains on sales and calls of investment securities.
−Removed: During the quarter ended March 31, 2021, the Company recorded a $1,800,000 reversal of provision for credit losses, compared to a $1,375,000 provision during the quarter ended March 31, 2020.
−Removed: Throughout 2020 and the first quarter of 2021, we adjusted the economic risk factor methodology to incorporate the current economic implications from the COVID-19 pandemic.
−Removed: Net interest margin (fully tax equivalent basis) decreased to 3.76% for the quarter ended March 31, 2021 compared to 4.47% for the same period in 2020.
−Removed: The net interest margin period-to-period comparisons were impacted by the decrease in the yield on the average investment securities, the decrease in the yield on the loan portfolio, the decrease in the effective yield on interest earning deposits in other banks and Federal Funds sold, and the decrease in the cost of total interest-bearing liabilities.
−Removed: The effective yield on average investment securities, including interest-earning deposits in other banks and Federal funds sold, decreased to 2.07% for the three months ended March 31, 2021, compared to 2.80% for the three months ended March 31, 2020.
−Removed: The effective yield on average loans decreased to 5.18% for the three months ended March 31, 2021, compared to 5.62% for the three months ended March 31, 2020.
−Removed: The decrease in the loan yield was impacted by Company’s issuance of PPP loans.
−Removed: Total average PPP loans, which have an annual interest rate of 1.00%, were $178,956,000 for the three months ended March 31, 2021.
−Removed: The cost of deposits (calculated by dividing annualized interest expense on interest bearing deposits by total deposits), decreased to 0.06% for the quarter ended March 31, 2021 compared to 0.13% for the same period in 2020.
−Removed: Non-interest income decreased $4,542,000 or 69.44% to $1,999,000 for the quarter ended March 31, 2021 compared to $6,541,000 for the same period in 2020, primarily driven by a decrease of $4,198,000 in net realized gains on sales and calls of investment securities, a decrease in service charge income of $214,000, a decrease of $479,000 in other income, and a decrease in Federal Home Loan Bank (“FHLB”) dividends of $37,000, offset by an increase in loan placement fees of $358,000 and an increase in interchange fees of $37,000.
−Removed: Non-interest expense for the quarter ended March 31, 2021 decreased $690,000 or 5.71% from the comparable period due to decreases in professional services, occupancy and equipment, information technology, directors’ expenses, tax provision, amortization of software, education and training, mileage and travel, armored courier fees, risk management expenses, stationery/supplies, telephone expenses, operating losses, loan related expenses, advertising expenses, and ATM/debit card expenses, partially offset by increases in regulatory assessment, data processing, personnel, alarm expenses, and other expenses.
−Removed: Annualized return on average equity (ROE) for the first quarter of 2021 increased to 12.17% compared to 11.62% for the same period in 2020.
+Added: Second Quarter of 2021
+Added: For the second quarter of 2021, our consolidated net income was $7,563,000 compared to $2,301,000 for the same period in 2020.
+Added: Diluted EPS was $0.60 for the quarter ended June 30, 2021 compared to $0.18 for the same period in 2020.
+Added: The increase in net income during the second quarter of 2021 compared to the same period in 2020 is primarily driven by a decrease in provision for credit losses of $4,500,000, an increase in net interest income of $2,507,000, and an increase in non-interest income of $32,000, partially offset by an increase in total non-interest expenses of $132,000, and an increase in the provision for income taxes of $1,645,000.
+Added: During the quarter ended June 30, 2021, the Company recorded a $1,500,000 reversal of provision for credit losses, compared to a $3,000,000 provision during the quarter ended June 30, 2020.
+Added: Throughout 2020 and the first six months of of 2021, we adjusted the economic risk factor methodology to incorporate the current economic implications from the COVID-19 pandemic.
+Added: Net interest margin (fully tax equivalent basis) decreased to 3.60% for the quarter ended June 30, 2021 compared to 3.79% for the same period in 2020.
+Added: The net interest margin period-to-period comparisons were impacted by the decrease in the yield on the average investment securities, offset by the increase in the yield on the loan portfolio, the increase in the effective yield on interest earning deposits in other banks and Federal Funds sold, and the decrease in the cost of total interest-bearing liabilities.
+Added: The effective yield on average investment securities, including interest-earning deposits in other banks and Federal funds sold, decreased to 2.11% for the three months ended June 30, 2021, compared to 2.37% for the three months ended June 30, 2020.
+Added: The effective yield on average loans increased to 5.04% for the three months ended June 30, 2021, compared to 4.71% for the three months ended June 30, 2020.
+Added: The increase in the loan yield was impacted by Company’s issuance of PPP loans.
+Added: Total average PPP loans, which have an annual interest rate of 1.00%, were $158,490,000 and $160,392,000 for the three months ended June 30, 2021 and 2020, respectively.
+Added: The cost of deposits (calculated by dividing annualized interest
+Added: expense on interest bearing deposits by total deposits), decreased to 0.05% for the quarter ended June 30, 2021 compared to 0.10% for the same period in 2020.
+Added: Non-interest income increased $32,000 or 1.56% to $2,077,000 for the quarter ended June 30, 2021 compared to $2,045,000 for the same period in 2020, primarily driven by an increase in interchange fees of $164,000, an increase in service charge income of $20,000, and a increase in Federal Home Loan Bank (“FHLB”) dividends of $8,000, offset by a decrease of $88,000 in other income, a decrease in loan placement fees of $51,000, and a decrease of $21,000 in net realized gains on sales and calls of investment securities.
+Added: Non-interest expense for the quarter ended June 30, 2021 increased $132,000 or 1.15% from the comparable period due to increases in salaries and employee benefits, data processing, occupancy and equipment, personnel, regulatory assessments, appraisal fees, alarm monitoring, operating losses, information technology expenses, tax provision, postage, donations, education and training, armored courier fees, telephone expenses, loan related expenses, and ATM/debit card expenses, partially offset by decreases in professional services, internet banking expenses, risk management expenses, advertising, stationery and supplies, directors’ expenses, check printing, mileage and travel, and amortization of software.
+Added: Annualized return on average equity (ROE) for the second quarter of 2021 increased to 12.25% compared to 4.14% for the same period in 2020.
The increase in ROE reflects the increase in net income, as well as the increase in average shareholders’ equity compared to the prior year.
−Removed: Annualized return on average assets (ROA) was 1.42% and 1.66% for the quarter ended March 31, 2021 and 2020, respectively.
−Removed: Total average equity increased to $245,913,000 for the first quarter of 2021 compared to $228,001,000 for the first quarter of 2020.
−Removed: The Company declared and paid $0.11 per share in cash dividends to holders of common stock during the first quarter of 2021, compared to $0.11 in dividends declared and paid during the first quarter of 2020.
−Removed: Our average total assets increased $506,013,000 or 31.66% to $2,104,077,000 during the first quarter of 2021 compared to the same period in 2020.
−Removed: Total average interest-earning assets increased $488,897,000 or 33.84% in the first quarter of 2021 compared to the same period of 2020.
−Removed: Average total loans, including nonaccrual loans, increased $156,241,000 or 16.90% in the first quarter of 2021 compared to the same period in 2020.
−Removed: Average total investments and interest-earning deposits in other banks increased $334,965,000 or 64.21% in the period ended March 31, 2021 compared to the same period in 2020.
−Removed: Average interest-bearing liabilities increased $232,539,000 or 31.03% in the period ended March 31, 2021 compared to the same period in 2020.
+Added: Annualized return on average assets (ROA) was 1.36% and 0.51% for the quarter ended June 30, 2021 and 2020, respectively.
+Added: Total average equity increased to $246,959,000 for the second quarter of 2021 compared to $222,479,000 for the second quarter of 2020.
+Added: The Company declared and paid $0.12 per share in cash dividends to holders of common stock during the second quarter of 2021, compared to $0.11 in dividends declared and paid during the second quarter of 2020.
+Added: Our average total assets increased $413,767,000 or 22.81% to $2,227,632,000 during the second quarter of 2021 compared to the same period in 2020.
+Added: Total average interest-earning assets increased $393,188,000 or 23.62% in the second quarter of 2021 compared to the same period of 2020.
+Added: Total average loans, including nonaccrual loans, increased $3,217,000 or 0.30% in the second quarter of 2021 compared to the same period in 2020.
+Added: Average total investments and interest-earning deposits in other banks increased $391,002,000 or 66.35% in the period ended June 30, 2021 compared to the same period in 2020.
+Added: Average interest-bearing liabilities increased $251,149,000 or 31.06% in the period ended June 30, 2021 compared to the same period in 2020.
Average non-interest bearing demand deposits increased 18.61% to $893,441,000 in 2021 compared to $753,265,000 in 2020.
−Removed: The ratio of average non-interest bearing demand deposits to average total deposits was 46.39% in the first quarter of 2021 compared to 44.23% in 2020.
+Added: The ratio of average non-interest bearing demand deposits to average total deposits was 45.86% in the second quarter of 2021 compared to 48.39% in 2020.
+Added: First Six Months of 2021
+Added: For the six months ended June 30, 2021, our consolidated net income was $15,042,000 compared to $8,924,000 for the same period in 2020.
+Added: Diluted EPS was $1.20 for the first six months of 2021 compared to $0.71 for the first six months of 2020.
+Added: Net income for the six-month period ended June 30, 2021 increased 68.56%, compared to the six-month period ended June 30, 2020, primarily driven by an increase in net interest income, an increase in loan placement fees, a decrease in non-interest expense, and a decrease in the provision for credit losses, partially offset by a decrease in net realized gains on sales and calls of investment securities, a decrease in service charge income, and an increase in provision for income taxes.
+Added: Net interest income before the provision for credit losses increased $4,033,000 or 12.76%.
+Added: Net interest income during the first six months of 2021 and 2020 benefited by approximately $434,000 and $453,000, respectively, in nonrecurring income from prepayment penalties.
+Added: Excluding these benefits, net interest income for the six months ended June 30, 2021, decreased by $4,570,000 compared to the six-month period ended June 30, 2020.
+Added: Non-interest income decreased $4,512,000 or 52.54%, and non-interest expense decreased $559,000 or 2.37% in the first six months ended of 2021 compared to first six months ended of 2020.
+Added: During the six months ended June 30, 2021, the Company recorded a reversal of provision for credit losses of $3,300,000 compared to $4,375,000 provision during same period in 2020.
+Added: Net recoveries of previously charged-off loans totaling $824,000 and $432,000 during the six months ended June 30, 2021 and 2020, respectively.
+Added: Annualized return on average equity for the six months ended June 30, 2021 increased to 12.21% compared to 7.92% for the same period in 2020.
+Added: The increase in ROE reflects the increase in net income, notwithstanding the increase in average shareholders’ equity compared to the prior year.
+Added: Annualized return on average assets was 1.39% and 1.05% for the six months ended June 30, 2021 and 2020, respectively.
+Added: Total average equity was $246,439,000 for the six months ended June 30, 2021 compared to $225,240,000 for the same period in 2020.
+Added: The change in shareholders’ equity was driven by the retention of earnings, net of dividends paid, the decrease in net unrealized gains on available-for-sale (AFS) securities , and share repurchases.
+Added: Our average total assets increased $460,232,000 or 26.98% in the first six months of 2021 compared to the same period in 2020.
+Added: Total average interest-earning assets increased $441,383,000 or 28.39% comparing the first six months of 2021 to the same period in 2020.
+Added: Average total loans, including nonaccrual loans, increased $79,727,000 or 7.97% comparing the first six months of 2021 to the same period in 2020.
+Added: The effective yield on average loans decreased to 5.11% for the six months June 30, 2021, compared to 5.13% for the six months June 30, 2020.
+Added: Total average PPP loans, which yield 1.00%,
+Added: were $169,553,000 and $80,196,000 for the six months ended June 30, 2021 and 2020 , respectively.
+Added: Excluding PPP loans from total average loans, the effective yield on average loans for the six months ended June 30, 2021 and 2020 was 4.99% and 5.42%, respectively.
+Added: Average total investments (securities and interest-earning deposits) increased $363,326,000, or 65.41% in the six-month period ended June 30, 2021 compared to the same period in 2020, with average interest-bearing liabilities decreasing $242,059,000 or 31.07% on a period to period comparison.
+Added: Our net interest margin (fully tax equivalent basis) for the first six months ended June 30, 2021 decreased to 3.67% compared to 4.11% for the same period in 2020.
+Added: The decrease in net interest margin in the period-to-period comparison resulted primarily from a decrease in the effective yield on the Company’s average investment securities, the decrease in the yield on the loan portfolio, and the decrease in the effective yield on interest-earning deposits in other banks and Federal funds sold, partially offset by the decrease in the cost of total interest-bearing liabilities.
+Added: The effective yield on interest-earning assets decreased 49 basis points to 3.73% for the six-month period ended June 30, 2021 compared to 4.22% for the same period in 2020.
+Added: For the six-month period ended June 30, 2021, the effective yield on investment securities, including Federal funds sold and interest-earning deposits in other banks, decreased 48 basis points, compared to the same period in the prior year, and the effective yield on loans decreased 2 basis points.
+Added: The cost of total interest-bearing liabilities decreased 12 basis points to 0.11% compared to 0.23% for the same period in 2020.
+Added: The cost of total deposits, including noninterest bearing accounts decreased to 0.06% compared to 0.11% for the six months ended June 30, 2021 and 2020.
+Added: Net interest income before the reversal of provision for credit losses for the six months ended June 30, 2021 was $35,636,000 compared to $31,603,000 for the same period in 2020, an increase of $4,033,000 or 12.76%.
+Added: Net interest income increased as a result of yield changes, asset mix changes, and an increase in interest-bearing liabilities, offset by an increase in average earning assets.
+Added: The Bank recovered $434,000 and $453,000, of foregone interest income and prepaid payment penalties in 2021 and 2020, respectively.
+Added: The Bank had non-accrual loans totaling $2,035,000 at June 30, 2021, compared to $3,278,000 at December 31, 2020 and $2,406,000 at June 30, 2020.
+Added: The Company had no other real estate owned or repossessed assets at June 30, 2021, December 31, 2020, or June 30, 2020.
+Added: At June 30, 2021, we had total net loans of $1,059,506,000, total assets of $2,280,550,000, total deposits of $1,979,094,000, and shareholders’ equity of $251,049,000.
Key Factors in Evaluating Financial Condition and Operating Performance
7 unchanged sentences
· Operating efficiency;
−Removed: Table of Contents `
Return to Our Shareholders
1 unchanged sentence
ROE is a ratio that measures net income divided by average shareholders’ equity.
−Removed: Our annualized ROE was 12.17% for the three months ended March 31, 2021 compared to 8.85% for the year ended December 31, 2020 and 11.62% for the three months ended March 31, 2020.
−Removed: Our net income for the three months ended March 31, 2021 increased $856,000 or 12.92% to $7,479,000 compared to $6,623,000 for the three months ended March 31, 2020, primarily driven by an increase in net interest income, a decrease in non-interest expenses, a reversal of the provision for credit losses, an increase in loan placement fees, and a decrease in provision for income taxes, offset by a decrease in net realized gains on sales and calls of investment securities and a decrease in service charge income.
−Removed: Net interest margin (NIM) decreased 71 basis points for the three-month period ended March 31, 2021 compared to the three months ended March 31, 2020.
−Removed: Diluted EPS was $0.60 for the three months ended March 31, 2021 and $0.52 for the same period in 2020.
+Added: Our annualized ROE was 12.21% for the six months ended June 30, 2021 compared to 8.85% for the year ended December 31, 2020 and 7.92% for the six months ended June 30, 2020.
+Added: Our net income for the six months ended June 30, 2021 increased $6,118,000 or 68.56% to $15,042,000 compared to $8,924,000 for the six months ended June 30, 2020, primarily driven by an increase in net interest income, a decrease in non-interest expenses, a reversal of the provision for credit losses, and an increase in loan placement fees, offset by a decrease in net realized gains on sales and calls of investment securities, an increase in provision for income taxes, and a decrease in service charge income.
+Added: Net interest margin (NIM) decreased 44 basis points for the six-month period ended June 30, 2021 compared to the six months ended June 30, 2020.
+Added: Diluted EPS was $1.20 for the six months ended June 30, 2021 and $0.71 for the same period in 2020.
Return on Average Assets
Our return on average assets (ROA) is a ratio that we use to compare our performance with other banks and bank holding companies.
−Removed: Our annualized ROA for the three months ended March 31, 2021 was 1.42% compared to 1.11% for the year ended December 31, 2020 and 1.66% for the three months ended March 31, 2020.
−Removed: The decrease in ROA for the three months ended March 31, 2021 compared to March 31, 2020 was due to the increase in in average assets, notwithstanding the increase in net income.
−Removed: Average assets for the three months ended March 31, 2021 was $2,104,077,000 compared to $1,832,987,000 for the year ended December 31, 2020.
+Added: Our annualized ROA for the six months ended June 30, 2021 was 1.39% compared to 1.11% for the year ended December 31, 2020 and 1.05% for the six months ended June 30, 2020.
+Added: The increase in ROA for the six months ended June 30, 2021 compared to June 30, 2020 was due to the increase in net income, notwithstanding the increase in average assets.
+Added: Average assets for the six months ended June 30, 2021 was $2,166,196,000 compared to $1,832,987,000 for the year ended December 31, 2020.
Median ROA for our peer group was 1.06% for the year ended December 31, 2020.
3 unchanged sentences
Specifically, we have focused on net interest income through a variety of processes, including increases in average interest earning assets, and minimizing the effects of the recent interest rate changes on our net interest margin.
−Removed: The Company’s net interest margin (fully tax equivalent basis) decreased to 3.76% for the three months ended March 31, 2021, compared to 4.47% for the same period in 2020.
+Added: The Company’s net interest margin (fully tax equivalent basis) decreased to 3.67% for the six months ended June 30, 2021, compared to 4.11% for the same period in 2020.
The decrease in net interest margin in the period-over-period comparison resulted primarily from the decrease in the effective yield on average investment securities (including interest-earning deposits in other banks and Federal funds sold), and a decrease in the yield on the Company’s loan portfolio.
Interest-bearing liabilities continue to benefit from low interest rates.
−Removed: In comparing the two periods ending March 31, 2021 and 2020, the effective yield on total earning assets decreased 79 basis points, while the cost of total interest-bearing liabilities decreased 14 basis points and the cost of total deposits decreased to 0.06% compared to 0.13%.
−Removed: Net interest income before the provision for credit losses for the three-month period ended March 31, 2021 was $17,555,000 compared to $16,029,000 for the same period in 2020.
+Added: In comparing the two periods ending June 30, 2021 and 2020, the effective yield on total earning assets decreased 49 basis points, while the cost of total interest-bearing liabilities decreased 12 basis points and the cost of total deposits decreased to 0.06% compared to 0.11%.
+Added: Net interest income before the reversal of provision for credit losses for the six-month period ended June 30, 2021 was $35,636,000 compared to $31,603,000 for the same period in 2020.
Our non-interest income generally consists of service charges and fees on deposit accounts, fee income from loan placements and other services, appreciation in cash surrender value of bank-owned life insurance, net gains from sales of investment securities, FHLB dividends, and other income.
−Removed: Non-interest income for the three months ended March 31, 2021 decreased $4,542,000 or 69.44%, to $1,999,000 compared to $6,541,000 for the three months ended March 31, 2020.
+Added: Non-interest income for the six months ended June 30, 2021 decreased $4,512,000 or 52.54%, to $4,076,000 compared to $8,588,000 for the six months ended June 30, 2020.
The decrease resulted primarily from decreases in net realized gains on sales and calls of investment securities, service charge income, gain related to the collection of life insurance proceeds, and FHLB dividends;
1 unchanged sentence
Further detail of non-interest income is provided below.
−Removed: Table of Contents `
Asset Quality
1 unchanged sentence
Asset quality is measured in terms of percentage of total loans and total assets and is a key element in estimating the future earnings of a company.
−Removed: Total nonperforming assets were $3,783,000 and $3,278,000 at March 31, 2021 and December 31, 2020, respectively.
−Removed: Nonperforming assets totaled 0.35% of gross loans as of March 31, 2021 and 0.30% of gross loans as of December 31, 2020.
−Removed: The ratio of nonperforming assets to total assets was 0.17% as of March 31, 2021 and 0.16% as of December 31, 2020.
−Removed: The nonperforming assets at March 31, 2021 and December 31, 2020 consisted of nonaccrual loans of $3,783,000 and $3,278,000, respectively.
−Removed: The Company had no other real estate owned (OREO) or repossessed assets at March 31, 2021 or December 31, 2020.
+Added: Total nonperforming assets were $2,035,000 and $3,278,000 at June 30, 2021 and December 31, 2020, respectively.
+Added: Nonperforming assets totaled 0.19% of gross loans as of June 30, 2021 and 0.30% of gross loans as of December 31, 2020.
+Added: The ratio of nonperforming assets to total assets was 0.09% as of June 30, 2021 and 0.16% as of December 31, 2020.
+Added: The nonperforming assets at June 30, 2021 and December 31, 2020 consisted of nonaccrual loans of $2,035,000 and $3,278,000, respectively.
+Added: The Company had no other real estate owned (OREO) or repossessed assets at June 30, 2021 or December 31, 2020.
Management maintains certain loans that have been brought current by the borrower (less than 30 days delinquent) on nonaccrual status until such time as management has determined that the loans are likely to remain current in future periods.
−Removed: The allowance for credit losses as a percentage of outstanding loan balance was 1.11% as of March 31, 2021 and 1.17% as of December 31, 2020.
−Removed: The ratio of net charge-off (recovery) to average loans was (0.35)% as of March 31, 2021 and (0.05)% as of December 31, 2020.
+Added: The allowance for credit losses as a percentage of outstanding loan balance was 0.98% as of June 30, 2021 and 1.17% as of December 31, 2020.
+Added: The ratio of net charge-off (recovery) to average loans was (0.15)% as of June 30, 2021 and (0.05)% as of December 31, 2020.
As revenues from both net interest income and non-interest income are a function of asset size, the growth in assets has a direct impact in increasing net income and therefore ROE and ROA.
The majority of our assets are loans and investment securities, and the majority of our liabilities are deposits, and therefore the ability to generate deposits as a funding source for loans and investments is fundamental to our asset growth.
−Removed: Total assets increased by $196,427,000 or 9.80% during the three months ended March 31, 2021 to $2,200,523,000 compared to $2,004,096,000 as of December 31, 2020, primarily due to the Company’s participation in the PPP.
−Removed: Total gross loans decreased by 1.09% or $12,007,000 to $1,090,340,000 as of March 31, 2021 compared to $1,102,347,000 as of December 31, 2020.
−Removed: Total deposits increased 11.59% to $1,922,403,000 as of March 31, 2021 compared to $1,722,710,000 as of December 31, 2020.
−Removed: The Company’s deposit balances for the three months ended March 31, 2021 increased through organic growth and PPP loan proceeds retained in customer deposit accounts.
−Removed: Our loan-to-deposit ratio at March 31, 2021 was 56.72% compared to 63.99% at December 31, 2020.
+Added: Total assets increased by $276,454,000 or 13.79% during the six months ended June 30, 2021 to $2,280,550,000 compared to $2,004,096,000 as of December 31, 2020, primarily due to the Company’s participation in the PPP.
+Added: Total gross loans decreased by 2.94% or $32,402,000 to $1,069,945,000 as of June 30, 2021 compared to $1,102,347,000 as of December 31, 2020.
+Added: The gross loan decrease consisted of a decrease of $83,414,000 in the PPP loans, offset by an increase of $51,012,000 in non-PPP loan growth.Total deposits increased 14.88% to $1,979,094,000 as
+Added: of June 30, 2021 compared to $1,722,710,000 as of December 31, 2020.
+Added: The Company’s deposit balances for the six months ended June 30, 2021 increased through organic growth and PPP loan proceeds retained in customer deposit accounts.
+Added: Our loan-to-deposit ratio at June 30, 2021 was 54.06% compared to 63.99% at December 31, 2020.
The loan-to-deposit ratio of our peers was 80.00% at December 31, 2020.
11 unchanged sentences
As of August 30, 2018, bank holding companies with consolidated assets of less than $3 billion and banks like Central Valley Community Bank became subject to new capital requirements, and certain provisions of the new rules were phased in through 2019 under the Dodd-Frank Act and Basel III.
−Removed: As of March 31, 2021, the Bank met or exceeded all regulatory capital requirements inclusive of the capital buffer.
−Removed: The Bank’s capital ratios exceeded the regulatory guidelines for a well-capitalized financial institution under the Basel III regulatory requirements at March 31, 2021.
+Added: As of June 30, 2021, the Bank met or exceeded all regulatory capital requirements inclusive of the capital buffer.
+Added: The Bank’s capital ratios exceeded the regulatory guidelines for a well-capitalized financial institution under the Basel III regulatory requirements at June 30, 2021.
The Company’s regulatory capital ratios are presented in the table in the “Capital” section below.
2 unchanged sentences
When measuring operating efficiency, a lower ratio is more favorable.
−Removed: The Company’s efficiency ratio (operating expenses, excluding amortization of intangibles and foreclosed property expense, divided by net interest income before provision for credit losses (computed on a tax equivalent basis) plus non-interest income, excluding gains and losses from sales of securities and OREO, and gains related to the collection of life insurance proceeds) was 56.34% for the three months ended March 31, 2021 compared to 65.71% for the three months ended March 31, 2020.
−Removed: The improvement in the
−Removed: Table of Contents `
−Removed: efficiency ratio was due to the growth in non-interest income along with the decrease in non-interest expense.
+Added: The Company’s efficiency ratio (operating expenses, excluding amortization of intangibles and foreclosed property expense, divided by net interest income before provision for credit losses (computed on a tax equivalent basis) plus non-interest income, excluding gains and losses from sales of securities and OREO, and gains related to the collection of life insurance proceeds) was 55.96% for the six months ended June 30, 2021 compared to 65.00% for the six months ended June 30, 2020.
+Added: The improvement in the efficiency ratio was due to the growth in non-interest income along with the decrease in non-interest expense.
Further discussion of the change in net interest income and decrease in operating expenses is below.
−Removed: The Company’s net interest income before provision for credit losses on a non tax-equivalent basis plus non-interest income, net of investment securities related gains, increased 9.86% to $19,904,000 for the first three months of 2021 compared to $18,117,000 for the same period in 2020, while operating expenses, net of losses on sale of assets, and amortization of core deposit intangibles, decreased 5.80% to $11,214,000 from $11,904,000 for the same period in 2020.
+Added: The Company’s net interest income before provision for credit losses on a non tax-equivalent basis plus non-interest income, net of investment securities related gains, increased 13.36% to $40,516,000 for the first six months of 2021 compared to $35,740,000 for the same period in 2020, while operating expenses, net of losses on sale of assets, and amortization of core deposit intangibles, decreased 2.41% to $22,671,000 from $23,230,000 for the same period in 2020.
Liquidity management involves the Bank’s ability to meet cash flow requirements arising from fluctuations in deposit levels and demands of daily operations, which include providing for customers’ credit needs, funding of securities purchases, and ongoing repayment of borrowings.
5 unchanged sentences
Primary uses of funds include origination and purchases of loans, withdrawals of and interest payments on deposits, purchases of investment securities, and payment of operating expenses.
−Removed: We had liquid assets (cash and due from banks, interest-earning deposits in other banks, Federal funds sold, available-for-sale securities, and equity securities) totaling $991,060,000 or 45.04% of total assets at March 31, 2021 and $788,004,000 or 39.32% of total assets as of December 31, 2020.
+Added: We had liquid assets (cash and due from banks, interest-earning deposits in other banks, Federal funds sold, available-for-sale securities, and equity securities) totaling $1,080,604,000 or 47.38% of total assets at June 30, 2021 and $788,004,000 or 39.32% of total assets as of December 31, 2020.
RESULTS OF OPERATIONS
−Removed: Net Income for the Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020
−Removed: Net income increased to $7,479,000 for the three months ended March 31, 2021 compared to $6,623,000 for the three months ended March 31, 2020.
−Removed: Basic and diluted earnings per share for March 31, 2021 were $0.60 and $0.60, respectively.
+Added: Net Income for the Six Months Ended June 30, 2021 Compared to the Six Months Ended June 30, 2020
+Added: Net income increased to $15,042,000 for the six months ended June 30, 2021 compared to $8,924,000 for the six months ended June 30, 2020.
+Added: Basic and diluted earnings per share for June 30, 2021 were $1.20 and $1.20, respectively.
Basic and diluted earnings per share for the same period in 2020 were $0.71 and $0.71, respectively.
−Removed: Annualized ROE was 12.17% for the three months ended March 31, 2021 compared to 11.62% for the three months ended March 31, 2020.
−Removed: Annualized ROA for the three months ended March 31, 2021 and 2020 was 1.42% and 1.66%, respectively.
−Removed: The increase in net income for the three months ended March 31, 2021 compared to the same period in 2020 was primarily driven by an increase in net interest income, a decrease in non-interest expense, a reversal of provision for credit losses, an increase in loan placement fees, and a decrease in provision for income taxes, partially offset by a decrease in net realized gains on sales and calls of investment securities.
−Removed: During the three months ended March 31, 2021, the Company recorded a $1,800,000 reversal of provision for credit losses, compared to a $1,375,000 provision during the three months ended March 31, 2020.
+Added: Annualized ROE was 12.21% for the six months ended June 30, 2021 compared to 7.92% for the six months ended June 30, 2020.
+Added: Annualized ROA for the six months ended June 30, 2021 and 2020 was 1.39% and 1.05%, respectively.
+Added: The increase in net income for the six months ended June 30, 2021 compared to the same period in 2020 was primarily driven by an increase in net interest income, a decrease in non-interest expense, a reversal of provision for credit losses, and an increase in loan placement fees, partially offset by a decrease in net realized gains on sales and calls of investment securities, an increase in provision for income taxes, and a decrease in service charge income.
+Added: During the six months ended June 30, 2021, the Company recorded a $3,300,000 reversal of provision for credit losses, compared to a $4,375,000 provision during the six months ended June 30, 2020.
The reversal of provision to the allowance for credit losses resulted from our assessment of the overall adequacy of the allowance for credit losses considering a number of factors as discussed in the “Allowance for Credit Losses” section.
−Removed: During the three months ended March 31, 2021, the Company adjusted the economic risk factor methodology to incorporate the current economic implications from the COVID-19 pandemic.
+Added: During the six months ended June 30, 2021, the Company adjusted the economic risk factor methodology to incorporate the current economic implications from the COVID-19 pandemic.
Interest Income and Expense
4 unchanged sentences
Average balances are derived from daily balances, and nonaccrual loans are not included as interest earning assets for purposes of this table.
−Removed: Table of Contents `
CENTRAL VALLEY COMMUNITY BANCORP
SCHEDULE OF AVERAGE BALANCES AND AVERAGE YIELDS AND RATES
−Removed: For the Three Months Ended
−Removed: March 31, 2021 For the Three Months Ended
−Removed: March 31, 2020
+Added: For the Six Months Ended
+Added: June 30, 2021 For the Six Months Ended
+Added: June 30, 2020
(Dollars in thousands) Average
36 unchanged sentences
(1) Calculated on a fully tax equivalent basis, which includes Federal tax benefits relating to income earned on municipal bonds totaling $724 and $152 in 2021 and 2020, respectively.
−Removed: (2) Loan interest income includes loan fees (costs) of $2,068 in 2021 and $(66) in 2020.
+Added: (2) Loan interest income includes loan fees of $3,890 in 2021 and $226 in 2020.
(3) Average loans do not include nonaccrual loans but do include interest income recovered from previously charged off loans.
(4) Net interest margin is computed by dividing net interest income by total average interest-earning assets.
−Removed: Table of Contents `
The following table sets forth a summary of the changes in interest income and interest expense due to changes in average asset and liability balances (volume) and changes in average interest rates for the periods indicated.
−Removed: Changes in Volume/Rate For the Three Months Ended March 31, 2021 and 2020
+Added: Changes in Volume/Rate For the Six Months Ended June 30, 2021 and 2020
(In thousands) Volume Rate Net
17 unchanged sentences
(1) Computed on a tax equivalent basis for securities exempt from federal income taxes.
−Removed: Interest and fee income from loans increased $867,000 or 6.72% for the three months ended March 31, 2021 compared to the same period in 2020.
−Removed: Net interest income during the first three months of 2021 was positively impacted by an increase in average total loans of $153,932,000 or 16.67% to $1,077,140,000 compared to $923,208,000 for the same period in 2020.
−Removed: The yield on average loans, excluding nonaccrual loans, was 5.18% for the three months ended March 31, 2021 compared to 5.62% for the same period in 2020.
−Removed: Net interest income for the period ending March 31, 2021 was benefited by approximately $430,000 in nonrecurring income from prepayment penalties, compared to $238,000 recorded in the same period in 2020.
−Removed: The impact to interest income from the accretion of the loan marks on acquired loans was $173,000 and $693,000 for the three months ended March 31, 2021 and 2020, respectively.
−Removed: The remaining balance of accretable loan marks on acquired loans as of March 31, 2021 was $2,422,000.
−Removed: Interest income from total investments on a non tax-equivalent basis (total investments include investment securities, Federal funds sold, interest bearing deposits in other banks, and other securities) increased $474,000 in the first three months of 2021 to $4,082,000 compared to $3,608,000 for the same period in 2020.
−Removed: The yield on average total investments (total securities and interest-earning deposits) decreased 73 basis points to 2.07% for the three month period ended March 31, 2021 compared to 2.80% for the same period in 2020.
−Removed: Average total securities and interest-earning deposits for the first three months of 2021 increased $334,965,000 or 64.21% to $856,632,000 compared to $521,667,000 for the same period in 2020.
−Removed: Income from investments represents 23.25% of net interest income for the first three months of 2021 compared to 22.51% for the same period in 2020.
+Added: Interest and fee income from loans increased $1,823,000 or 7.15% for the six months ended June 30, 2021 compared to the same period in 2020.
+Added: Net interest income during the first six months of 2021 was positively impacted by an increase in average total loans of $78,057,000 or 7.81% to $1,077,455,000 compared to $999,398,000 for the same period in 2020.
+Added: The yield on average loans, excluding nonaccrual loans, was 5.11% for the six months ended June 30, 2021 compared to 5.13% for the same period in 2020.
+Added: Net interest income for the period ending June 30, 2021 was benefited by approximately $434,000 in nonrecurring income from prepayment penalties, compared to $453,000 recorded in the same period in 2020.
+Added: The impact to interest income from the accretion of the loan marks on acquired loans was $349,000 and $867,000 for the six months ended June 30, 2021 and 2020, respectively.
+Added: The remaining balance of accretable loan marks on acquired loans as of June 30, 2021 was $2,247,000.
+Added: Interest income from total investments on a non tax-equivalent basis (total investments include investment securities, Federal funds sold, interest bearing deposits in other banks, and other securities) increased $1,889,000 in the first six months of 2021 to $8,881,000 compared to $6,992,000 for the same period in 2020.
+Added: The yield on average total investments (total securities and interest-earning deposits) decreased 48 basis points to 2.09% for the six month period ended June 30, 2021 compared to 2.57% for the same period in 2020.
+Added: Average total securities and interest-earning deposits for the first six months of 2021 increased $363,326,000 or 65.41% to $918,823,000 compared to $555,497,000 for the same period in 2020.
+Added: Income from investments represents 24.92% of net interest income for the first six months of 2021 compared to 22.12% for the same period in 2020.
In an effort to increase yields, without accepting unreasonable risk, a significant portion of the investment portfolio is mortgage-backed securities (MBS) and collateralized mortgage obligations (CMOs).
−Removed: At March 31, 2021, we held $322,306,000 or 41.93% of the total fair value of the investment portfolio in CMOs with an average yield of 1.52% as compared to $299,806,000 and $266,228,000 with average yields of 2.15% and 2.85% at December 31, 2020 and March 31, 2020, respectively.
+Added: At June 30, 2021, we held $407,823,000 or 42.82% of the total fair value of the investment portfolio in CMOs with an average yield of 1.57% as compared to $299,806,000 and $254,338,000 with average yields of 2.15% and 2.57% at December 31, 2020 and June 30, 2020, respectively.
We invest in CMOs and MBS as part of our overall strategy to increase our net interest margin.
6 unchanged sentences
These factors include the type of investment, the investment structure, interest rates, interest rates on new mortgage
−Removed: Table of Contents `
loans, expectation of interest rate changes, current economic conditions, the level of principal remaining on the bond, the bond coupon rate, the bond origination date, and volume of available bonds in market.
The calculation of premium amortization and discount accretion represents management’s reasonable estimate of principal pay downs inherent in the total investment portfolio.
−Removed: The net-of-tax unrealized gain on the investment portfolio was $5,262,000 at March 31, 2021 and is reflected in the Company’s equity.
−Removed: At March 31, 2021, the average life of the investment portfolio was 4.47 years and the fair value of the portfolio reflected a net pre-tax unrealized gain of $7,470,000.
+Added: The net-of-tax unrealized gain on the investment portfolio was $12,874,000 at June 30, 2021 and is reflected in the Company’s equity.
+Added: At June 30, 2021, the average life of the investment portfolio was 5.22 years and the fair value of the portfolio reflected a net pre-tax unrealized gain of $18,278,000.
Management reviews fair value declines on individual investment securities to determine whether they represent an other-than-temporary impairment (OTTI).
Refer to Note 3 of the Notes to Consolidated Financial Statements (unaudited) for more detail.
−Removed: For the three months ended March 31, 2021 and 2020, no OTTI was recorded.
+Added: For the six months ended June 30, 2021 and 2020, no OTTI was recorded.
Additional deterioration in the market values of our investment securities, if any, may require the Company to recognize OTTI losses in future periods.
A component of the Company’s strategic plan has been to use its investment portfolio to offset, in part, its interest rate risk relating to variable rate loans.
−Removed: At March 31, 2021, we estimate an immediate rate increase of 200 basis points would result in an estimated decrease in the market value of the investment portfolio by approximately $88,000,000 or 9.23%.
+Added: At June 30, 2021, we estimate an immediate rate increase of 200 basis points would result in an estimated decrease in the market value of the investment portfolio by approximately $106,000,000 or 10.25%.
Conversely, with an immediate rate decrease of 200 basis points, the estimated increase in the market value of the investment portfolio would be $107,000,000 or 10.35%.
3 unchanged sentences
The policy addresses issues of average life, duration, concentration guidelines, prohibited investments, impairment, and prohibited practices.
−Removed: Total interest income on a non-tax equivalent basis for the three months ended March 31, 2021 increased $1,341,000 or 8.12% to $17,847,000 compared to $16,506,000 for the three months ended March 31, 2020.
−Removed: The yield on interest earning assets decreased 79 basis points to 3.82% on a fully tax equivalent basis for the three months ended March 31, 2021 from 4.61% for the period ended March 31, 2020.
+Added: Total interest income on a non-tax equivalent basis for the six months ended June 30, 2021 increased $3,712,000 or 11.43% to $36,202,000 compared to $32,490,000 for the six months ended June 30, 2020.
+Added: The yield on interest earning assets decreased 49 basis points to 3.73% on a fully tax equivalent basis for the six months ended June 30, 2021 from 4.22% for the period ended June 30, 2020.
The decrease was the result of yield changes, decrease in interest rates, and asset mix changes.
−Removed: Average interest earning assets increased to $1,933,772,000 for the three months ended March 31, 2021 compared to $1,444,875,000 for the three months ended March 31, 2020.
+Added: Average interest earning assets increased to $1,996,278,000 for the six months ended June 30, 2021 compared to $1,554,895,000 for the six months ended June 30, 2020.
The $441,383,000 increase in average earning assets was attributed to the $363,326,000 increase in average investments and a $78,057,000 or 7.81% increase in average loans.
−Removed: Interest expense on deposits for the three months ended March 31, 2021 and 2020 was $268,000 and $432,000, respectively.
−Removed: The average interest rate on interest bearing deposits decreased to 0.11% for the three months ended March 31, 2021 compared to 0.23% for the same period ended March 31, 2020.
−Removed: Average interest-bearing deposits increased 31.25% or $232,539,000 to $976,762,000 for the three months ended March 31, 2021 compared to $744,223,000 for the same period ended March 31, 2020.
−Removed: Average other borrowed funds were $5,155,000 with an effective rate of 1.86% for the three months ended March 31, 2021 compared to $5,155,000 with an effective rate of 3.49% for the three months ended March 31, 2020.
−Removed: Total interest expense on other borrowed funds was $24,000 for the three months ended March 31, 2021 and $45,000 for the three months ended March 31, 2020.
+Added: Interest expense on deposits for the six months ended June 30, 2021 and 2020 was $520,000 and $806,000, respectively.
+Added: The average interest rate on interest bearing deposits decreased to 0.10% for the six months ended June 30, 2021 compared to 0.21% for the same period ended June 30, 2020.
+Added: Average interest-bearing deposits increased 31.28% or $242,059,000 to $1,015,879,000 for the six months ended June 30, 2021 compared to $773,820,000 for the same period ended June 30, 2020.
+Added: Average other borrowed funds were $5,155,000 with an effective rate of 1.78% for the six months ended June 30, 2021 compared to $5,155,000 with an effective rate of 3.14% for the six months ended June 30, 2020.
+Added: Total interest expense on other borrowed funds was $46,000 for the six months ended June 30, 2021 and $81,000 for the six months ended June 30, 2020.
Other borrowings include advances from the Federal Home Loan Bank (“FHLB”), advances on available unsecured lines of credit with correspondent banks, and junior subordinated deferrable interest debentures.
The debentures were acquired in the merger with Service 1st and carry a floating rate based on the three month LIBOR plus a margin of 1.60%.
−Removed: The rates were 1.84% and 3.90% at March 31, 2021 and 2020, respectively.
+Added: The rates were 1.78% and 3.90% at June 30, 2021 and 2020, respectively.
See the section on “Financial Condition” for more detail.
−Removed: The cost of interest-bearing liabilities decreased 14 basis points to 0.12% for the three-month period ended March 31, 2021 compared to 0.26% for the same period in 2020.
−Removed: The cost of total deposits decreased to 0.06% compared to 0.13% for the three-month periods ended March 31, 2021 and 2020.
+Added: The cost of interest-bearing liabilities decreased 12 basis points to 0.11% for the six-month period ended June 30, 2021 compared to 0.23% for the same period in 2020.
+Added: The cost of total deposits decreased to 0.06% compared to 0.11% for the six-month periods ended June 30, 2021 and 2020.
Average non-interest bearing demand deposits increased 29.43% to $869,386,000 in 2021 compared to $671,723,000 for 2020.
−Removed: The ratio of average non-interest bearing demand deposits to average total deposits increased to 46.39% in the three-month period ended March 31, 2021 compared to 44.23% for the same period in 2020.
+Added: The ratio of average non-interest bearing demand deposits to average total deposits decreased to 46.11% in the six-month period ended June 30, 2021 compared to 46.47% for the same period in 2020.
Net Interest Income before Provision for Credit Losses
−Removed: Net interest income before provision for credit losses for the three months ended March 31, 2021 increased by $1,526,000 or 9.52% to $17,555,000 compared to $16,029,000 for the same period in 2020.
−Removed: The increase was a result of yield changes, asset mix changes, and an increase in average interest bearing liabilities, offset by an increase in average earning assets.
−Removed: The impact to interest income from the accretion of the loan marks on acquired loans was $173,000 and $693,000 for the three months ended March 31, 2021 and 2020, respectively.
−Removed: In addition, net interest income before the provision for credit losses for the three months ended March 31, 2021 was benefited by approximately $430,000 in nonrecurring income from prepayment penalties, as compared to $238,000 in nonrecurring income for the three months ended March 31, 2020.
−Removed: Excluding these reversals and benefits, net interest income for the three months ended March 31, 2021 increased by $1,854,000 compared to the
−Removed: Table of Contents `
−Removed: three months ended March 31, 2020.
−Removed: Average interest earning assets were $1,933,772,000 for the three months ended March 31, 2021 with a net interest margin (fully tax equivalent basis) of 3.76% compared to $1,444,875,000 with a net interest margin (fully tax equivalent basis) of 4.47% for the three months ended March 31, 2020.
+Added: Net interest income before the reversal of provision for credit losses for the six months ended June 30, 2021 increased by $4,033,000 or 12.76% to $35,636,000 compared to $31,603,000 for the same period in 2020.
+Added: The increase was a result of yield changes, asset mix changes, an increase in average earning assets, offset by an increase in average interest bearing liabilities.
+Added: The impact to interest income from the accretion of the loan marks on acquired loans was $349,000 and $867,000 for the six months ended June 30, 2021 and 2020, respectively.
+Added: In addition, net interest income before the provision for credit losses for the six months ended June 30, 2021 was benefited by approximately $434,000 in nonrecurring income from prepayment penalties, as compared to $453,000 in nonrecurring income for the six months ended June 30, 2020.
+Added: Excluding these reversals and benefits, net interest income for the six months ended June 30, 2021 increased by $4,570,000 compared to the six months ended June 30, 2020.
+Added: Average interest earning assets were $1,996,278,000 for the six months ended June 30, 2021 with a net
+Added: interest margin (fully tax equivalent basis) of 3.67% compared to $1,554,895,000 with a net interest margin (fully tax equivalent basis) of 4.11% for the six months ended June 30, 2020.
The $441,383,000 increase in average earning assets was attributed to the $363,326,000 increase in average total investments and the $78,057,000 or 7.81% increase in average loans.
−Removed: For the three months ended March 31, 2021, the effective yield on investment securities including Federal funds sold and interest-earning deposits in other banks decreased 73 basis points.
+Added: For the six months ended June 30, 2021, the effective yield on investment securities including Federal funds sold and interest-earning deposits in other banks decreased 48 basis points.
The effective yield on loans decreased 2 basis points.
−Removed: Average interest bearing liabilities increased 31.03% to $981,917,000 for the three months ended March 31, 2021, compared to $749,378,000 for the same period in 2020.
+Added: Average interest bearing liabilities increased 31.07% to $1,021,034,000 for the six months ended June 30, 2021, compared to $778,975,000 for the same period in 2020.
Provision for Credit Losses
21 unchanged sentences
Management believes that all adjustments, if any, to the allowance for credit losses are supported by the timely and consistent application of methodologies and processes resulting in detailed documentation of the allowance calculation and other portfolio trending analysis.
−Removed: Table of Contents `
The allocation of the allowance for credit losses is set forth below (in thousands):
−Removed: Loan Type March 31, 2021 December 31, 2020
+Added: Loan Type June 30, 2021 December 31, 2020
Commercial and industrial $ 1,753 $ 1,764
19 unchanged sentences
Management believes that the level of allowance for loan losses allocated to commercial and real estate loans has been adjusted accordingly.
−Removed: During the three months ended March 31, 2021, the Company recorded a $1,800,000 reversal of provision for credit losses, compared to a $1,375,000 provision during the three months ended March 31, 2020.
+Added: During the six months ended June 30, 2021, the Company recorded a $3,300,000 reversal of provision for credit losses, compared to a $4,375,000 provision during the six months ended June 30, 2020.
The reversal of provision to the allowance for credit losses resulted from our assessment of the overall adequacy of the allowance for credit losses considering a number of factors as discussed in the “Allowance for Credit Losses” section.
−Removed: During the three months ended March 31, 2021, the Company adjusted the economic risk factor methodology to incorporate the current economic implications from the COVID-19 pandemic.
−Removed: The Company had net recoveries totaling $941,000 for the three months ended March 31, 2021, and $41,000 for the same period in 2020.
−Removed: Nonperforming loans, consisting entirely of nonaccrual loans, were $3,783,000 and $3,278,000 at March 31, 2021 and December 31, 2020, respectively, and $1,115,000 at March 31, 2020.
−Removed: Nonperforming loans as a percentage of total loans were 0.35% at March 31, 2021 compared to 0.30% at December 31, 2020 and 0.12% at March 31, 2020.
−Removed: The Company had no other real estate owned (OREO) at March 31, 2021 or December 31, 2020.
−Removed: The Company held no repossessed assets at March 31, 2021 or December 31, 2020.
−Removed: The annualized net charge-off (recovery) ratio, which reflects net charge-offs (recoveries) to average loans was (0.35)% for the three months ended March 31, 2021, and (0.02)% for the same period in 2020.
+Added: During the six months ended June 30, 2021, the Company adjusted the economic risk factor methodology to incorporate the current economic implications from the COVID-19 pandemic.
+Added: The Company had net recoveries totaling $824,000 for the six months ended June 30, 2021, and $432,000 for the same period in 2020.
+Added: Nonperforming loans, consisting entirely of nonaccrual loans, were $2,035,000 and $3,278,000 at June 30, 2021 and December 31, 2020, respectively, and $2,406,000 at June 30, 2020.
+Added: Nonperforming loans as a percentage of total loans were 0.19% at June 30, 2021 compared to 0.30% at December 31, 2020 and 0.21% at June 30, 2020.
+Added: The Company had no other real estate owned (OREO) at June 30, 2021 or December 31, 2020.
+Added: The Company held no repossessed assets at June 30, 2021 or December 31, 2020.
+Added: The annualized net charge-off (recovery) ratio, which reflects net charge-offs (recoveries) to average loans was (0.15)% for the six months ended June 30, 2021, and (0.09)% for the same period in 2020.
Economic pressures may negatively impact the financial condition of borrowers to whom the Company has extended credit and as a result when negative economic conditions are anticipated, we may be required to make significant provisions to the allowance for credit losses.
−Removed: The Bank conducts banking operation principally in California’s Central Valley.
+Added: The Bank conducts banking operations principally in California’s Central Valley.
The Central Valley is largely dependent on agriculture.
5 unchanged sentences
Further declines in commodity prices or collateral values may increase the
−Removed: Table of Contents `
incidence of default by our borrowers.
2 unchanged sentences
We have been and will continue to be proactive in looking for signs of deterioration within the loan portfolio in an effort to manage credit quality and work with borrowers where possible to mitigate losses.
−Removed: As of March 31, 2021, there were $34.3 million in classified loans of which $1.2 million related to agricultural real estate, $9.1 million to commercial and industrial loans, $3.2 million to agricultural production, $7.0 million to real estate owner occupied, $9.6 million in commercial real estate, $3.2 million to real estate construction and other land loans, and $0.9 million to consumer equity loans and lines of credit.
+Added: As of June 30, 2021, there were $32.9 million in classified loans of which $1.2 million related to agricultural real estate, $12.1 million to commercial and industrial loans, $3.0 million to agricultural production, $7.0 million to real estate owner occupied, $9.6 million in commercial real estate.
This compares to $36.1 million in classified loans of which $1.2 million related to agricultural real estate, $10.4 million to commercial and industrial loans, $3.3 million to agricultural production, $7.3 million to real estate owner occupied, $9.6 million to commercial real estate, $1.0 million to consumer equity and lines of credit, and $3.2 million to real estate construction and other land loans as of December 31, 2020.
−Removed: As of March 31, 2021, we believe, based on all current and available information, the allowance for credit losses is adequate to absorb probable incurred losses within the loan portfolio.
+Added: As of June 30, 2021, we believe, based on all current and available information, the allowance for credit losses is adequate to absorb probable incurred losses within the loan portfolio.
However, no assurance can be given that we may not sustain charge-offs which are in excess of the allowance in any given period.
1 unchanged sentence
Net Interest Income after Provision for Credit Losses
−Removed: Net interest income, after the provision for credit losses, was $19,355,000 for the three months period ended March 31, 2021 and $14,654,000 for the same period in 2020.
+Added: Net interest income, after the provision for credit losses, was $38,936,000 for the six months period ended June 30, 2021 and $27,228,000 for the same period in 2020.
Non-Interest Income
Non-interest income is comprised of customer service charges, loan placement fees, net gains on sales and calls of investment securities, appreciation in cash surrender value of bank-owned life insurance, FHLB dividends, and other income.
−Removed: Non-interest income was $1,999,000 for the three months ended March 31, 2021 compared to $6,541,000 for the same period in 2020.
−Removed: The $4,542,000 or 69.44% decrease in non-interest income during the three months ended March 31, 2021 was primarily driven by a decrease of $4,198,000 in net realized gains on sales and calls of investment securities, a decrease in service charge income of $214,000, a decrease of $479,000 in other income, and a decrease in FHLB dividends of $37,000, offset by an increase in loan placement fees of $358,000 and an increase of $37,000 in interchange fees.
−Removed: During the three months ended March 31, 2021, we realized a net gain on sales and calls of investment securities of $0 compared to $4,198,000 for the same period in 2020.
+Added: Non-interest income was $4,076,000 for the six months ended June 30, 2021 compared to $8,588,000 for the same period in 2020.
+Added: The $4,512,000 or 52.54% decrease in non-interest income during the six months ended June 30, 2021 was primarily driven by a decrease of $4,219,000 in net realized gains on sales and calls of investment securities, a decrease in service charge income of $194,000, a decrease of $569,000 in other income, and a decrease in FHLB dividends of $29,000, offset by an increase in loan placement fees of $307,000 and an increase of $201,000 in interchange fees.
+Added: During the six months ended June 30, 2021, we realized a net loss on calls of investment securities of $79,000 compared to a $4,140,000 net gain for the same period in 2020.
The net gains realized on sales and calls of investment securities in 2020 were the result of a partial restructuring of the investment portfolio designed to improve the future performance of the portfolio.
−Removed: Customer service charges decreased $214,000 or 33.13% to $432,000 for the first three months of 2021 compared to $646,000 for the same period in 2020.
−Removed: Interchange fees increased $37,000 to $370,000 the first three months of 2021 compared to $333,000 for the same period in 2020.
−Removed: Loan placement fees increased $358,000 or 119.73% to $657,000 for the first three months of 2021 compared to $299,000 for the same period in 2020.
−Removed: Other income decreased $479,000 the first three months of 2021 compared to the same period in 2020.
−Removed: The decrease in other income resulted from a $297,000 gain recorded the first three months of 2020 related to the collection of life insurance proceeds.
+Added: Customer service charges decreased $194,000 or 17.75% to $899,000 for the first six months of 2021 compared to $1,093,000 for the same period in 2020.
+Added: Interchange fees increased $201,000 to $841,000 the first six months of 2021 compared to $640,000 for the same period in 2020.
+Added: Loan placement fees increased $307,000 or 35.70% to $1,167,000 for the first six months of 2021 compared to $860,000 for the same period in 2020.
+Added: Other income decreased $569,000 the first six months of 2021 compared to the same period in 2020.
+Added: The decrease in other income resulted from a $463,000 gain recorded the first six months of 2020 related to the collection of life insurance proceeds.
The Bank holds stock from the Federal Home Loan Bank (“FHLB”) of San Francisco in conjunction with our borrowing capacity and generally earns quarterly dividends.
We currently hold $5,595,000 in FHLB stock.
−Removed: We received dividends totaling $70,000 in the three months ended March 31, 2021, compared to $107,000 for the same period in 2020.
+Added: We received dividends totaling $153,000 in the six months ended June 30, 2021, compared to $182,000 for the same period in 2020.
Non-Interest Expenses
Salaries and employee benefits, occupancy and equipment, information technology, regulatory assessments, professional services, Internet banking, and data processing are the major categories of non-interest expenses.
−Removed: Non-interest expenses decreased $690,000 or 5.71% to $11,388,000 for the three months ended March 31, 2021, compared to $12,078,000 for the three months ended March 31, 2020.
−Removed: The net decrease for the first three months of 2021 was primarily the result of decreases in salaries and employee benefits of $574,000, professional services of $102,000, occupancy and equipment expenses of $31,000, information technology of $49,000, amortization of software of $33,000, advertising of $44,000, and directors’ expenses of $151,000, partially offset by increases in data processing expenses of $281,000, regulatory assessments of $114,000, personnel of $112,000, and other non-interest expenses of $7,000.
−Removed: The Company’s efficiency ratio, measured as the percentage of non-interest expenses (exclusive of amortization of core deposit intangible assets and foreclosure expenses) to net interest income before provision for credit losses (calculated on a fully tax equivalent basis) plus non-interest income (exclusive of net realized gains on sales and calls of investments, OREO related gains and losses, and gains related to the collection of life insurance proceeds) was 56.34% for the three months ended
−Removed: Table of Contents `
−Removed: March 31, 2021 compared to 65.71% for the three months ended March 31, 2020.
+Added: Non-interest expenses decreased $559,000 or 2.37% to $23,018,000 for the six months ended June 30, 2021, compared to $23,577,000 for the six months ended June 30, 2020.
+Added: The net decrease for the first six months of 2021 was primarily the result of decreases in salaries and employee benefits of $407,000, directors’ expenses of $174,000, internet banking of $170,000, professional services of $149,000, advertising of $83,000, ATM/Debit card expenses of $65,000, information technology of $40,000, amortization of software of $47,000, stationary and supplies of $44,000, and operating losses of $19,000, partially offset by increases in data processing expenses of $352,000, regulatory assessments of $140,000, personnel of $131,000, occupancy and equipment expenses of $31,000, and donations of $26,000.
+Added: The Company’s efficiency ratio, measured as the percentage of non-interest expenses (exclusive of amortization of core deposit intangible assets and foreclosure expenses) to net interest income before provision for credit losses (calculated on a fully tax equivalent basis) plus non-interest income (exclusive of net realized gains on sales and calls of investments, OREO
+Added: related gains and losses, and gains related to the collection of life insurance proceeds) was 55.96% for the six months ended June 30, 2021 compared to 65.00% for the six months ended June 30, 2020.
The decrease in the efficiency ratio was due to the decrease in non-interest expense as well as the growth in non-interest income.
−Removed: Salaries and employee benefits decreased $574,000 or 7.64% to $6,938,000 for the first three months of 2021 compared to $7,512,000 for the three months ended March 31, 2020.
−Removed: Full time equivalent employees were 269 for the three months ended March 31, 2021, compared to 273 for the three months ended March 31, 2020.
+Added: Salaries and employee benefits decreased $407,000 or 2.84% to $13,917,000 for the first six months of 2021 compared to $14,324,000 for the six months ended June 30, 2020.
+Added: Full time equivalent employees were 261 for the six months ended June 30, 2021, compared to 270 for the six months ended June 30, 2020.
The decrease in total salaries and employee benefits was the result of a decrease of $1,286,000 in officers’ expenses related to the change in the discount rate used to calculate the liability for salary continuation, deferred compensation, and split dollar plans;
−Removed: offset by an increase of approximately $659,000 in salaries and benefits.
−Removed: A portion of the salaries and benefits increase was related to a $214,000 accrual for severance pay.
−Removed: Occupancy and equipment expense decreased $31,000 or 2.71% to $1,113,000 for the three months ended March 31, 2021 compared to $1,144,000 for the three months ended March 31, 2020.
+Added: offset by an increase of approximately $879,000 in salaries and benefits and a decrease in loan issuance costs of $769,000.
+Added: A portion of the salaries and benefits increase was related to $172,000 paid and/or accrued for severance pay.
+Added: Occupancy and equipment expense increased $31,000 or 1.36% to $2,314,000 for the six months ended June 30, 2021 compared to $2,283,000 for the six months ended June 30, 2020.
The Company made no changes in its depreciation expense methodology.
−Removed: The Company operated 20 full-service offices at March 31, 2021 and at March 31, 2020.
−Removed: Data processing expense increased to $617,000 for the three months ended March 31, 2021 compared to $336,000 for the same period in 2020.
−Removed: Regulatory assessments increased to $161,000 for the three months ended March 31, 2021 compared to $47,000 for the same period in 2020.
+Added: The Company operated 20 full-service offices at June 30, 2021 and at June 30, 2020.
+Added: Data processing expense increased to $1,242,000 for the six months ended June 30, 2021 compared to $890,000 for the same period in 2020.
+Added: Regulatory assessments increased to $333,000 for the six months ended June 30, 2021 compared to $193,000 for the same period in 2020.
The assessment base for calculating the amount owed is average assets minus average tangible equity.
−Removed: Professional services decreased by $102,000 in the first three months of 2021 compared to the same period in 2020.
+Added: Professional services decreased by $149,000 in the first six months of 2021 compared to the same period in 2020.
Personnel expense included an accrual of $136,000 for an executive search firm to find a replacement for our retiring chief executive officer.
The following table shows significant components of other non-interest expense as a percentage of average assets.
−Removed: For the Three Months
−Removed: Ended March 31,
+Added: For the Six Months
+Added: Ended June 30,
(Dollars in thousands) Other Expense % Average
18 unchanged sentences
Provision for Income Taxes
−Removed: Our effective income tax rate was 24.95% for the three months ended March 31, 2021 compared to 27.36% for the three months ended March 31, 2020.
−Removed: The Company reported an income tax provision of $2,487,000 for the three months ended March 31, 2021, compared to $2,494,000 for the three months ended March 31, 2020.
+Added: Our effective income tax rate was 24.77% for the six months ended June 30, 2021 compared to 27.09% for the six months ended June 30, 2020.
+Added: The Company reported an income tax provision of $4,952,000 for the six months ended June 30, 2021, compared to $3,315,000 for the six months ended June 30, 2020.
The effective tax rate was affected by the increase in tax-exempt interest.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of tax expense in the consolidated statements of income.
−Removed: If deemed necessary, the Company maintains a reserve for uncertain income taxes where the merits of the position taken or the amount of the position that would be ultimately sustained upon examination do not meet a more-likely-than-not criteria.
−Removed: As of March 31, 2021 and December 31, 2020, there was no reserve for uncertain tax positions.
−Removed: Table of Contents `
+Added: If deemed necessary, the Company maintains a reserve for uncertain income taxes where the merits of the position taken or the amount of the position that would be ultimately sustained upon
+Added: examination do not meet a more-likely-than-not criteria.
+Added: As of June 30, 2021 and December 31, 2020, there was no reserve for uncertain tax positions.
+Added: Net Income for the Second Quarter of 2021 Compared to the Second Quarter of 2020
+Added: Net income increased to $7,563,000 for the quarter ended June 30, 2021 compared to $2,301,000 for the quarter ended June 30, 2020.
+Added: Basic earnings per share was $ 0.61 for the quarter ended June 30, 2021 compared to $ 0.18 for the same period in 2020.
+Added: Diluted earnings per share was $ 0.60 for the quarter ended June 30, 2021 compared to $ 0.18 for the same period in 2020.
+Added: Annualized ROE was 12.25% for the quarter ended June 30, 2021 compared to 4.14% for the quarter ended June 30, 2020.
+Added: Annualized ROA for the three months ended June 30, 2021 was 1.36% compared to 0.51% for the quarter ended June 30, 2020.
+Added: The increase in net income during the second quarter of 2021 compared to the same period in 2020 is primarily due to a decrease in provision for credit losses of $4,500,000, an increase in net interest income before the provision for credit losses of $2,507,000, and an increase in total non-interest income of $32,000, partially offset by an increase in the provision for income taxes of $1,645,000 and an increase in non-interest expenses of $132,000.
+Added: During the quarter ended June 30, 2021, the Company recorded a $ 1,500,000 reversal of provision for credit losses, compared to a $ 3,000,000 provision during the quarter ended June 30, 2020.
+Added: Non-interest income increased $32,000 or 1.56% to $2,077,000 for the quarter ended June 30, 2021 compared to $2,045,000 in the same period in 2020.
+Added: During the second quarter of 2021 interchange fees increased $164,000, service charge income increased $20,000 and Federal Home Loan Bank dividends increased $8,000, offset by a decrease in placement fees of $51,000, a decrease in other income of $88,000, and a decrease in net realized gains on sales and calls of investment securities of $21,000, compared to the same period in 2020.
+Added: For the quarter ended June 30, 2020, non-interest income included a $166,000 gain related to the collection of tax-exempt life insurance proceeds.
+Added: Interest Income and Expense
+Added: The following table sets forth a summary of average balances with corresponding interest income and interest expense as well as average yield and cost information for the periods presented.
+Added: Average balances are derived from daily balances, and non-accrual loans are not included as interest earning assets for purposes of this table.
+Added: CENTRAL VALLEY COMMUNITY BANCORP
+Added: SCHEDULE OF AVERAGE BALANCES AND AVERAGE YIELDS AND RATES
+Added: For the Three Months Ended
+Added: June 30, 2021 For the Three Months Ended
+Added: June 30, 2020
+Added: (Dollars in thousands) Average
+Added: Balance Interest
+Added: Expense Average
+Added: Balance Interest
+Added: Expense Average
+Added: Interest-earning deposits in other banks $ 114,590 $ 29 0.10 % $ 58,277 $ 13 0.09 %
+Added: Taxable securities 629,284 3,361 2.14 % 481,439 2,960 2.46 %
+Added: Non-taxable securities (1) 236,455 1,784 3.02 % 49,611 522 4.21 %
+Added: Total investment securities 865,739 5,145 2.38 % 531,050 3,482 2.62 %
+Added: Total securities and interest-earning deposits
+Added: 980,329 5,174 2.11 % 589,327 3,495 2.37 %
+Added: Loans (2) (3) 1,077,774 13,556 5.04 % 1,075,588 12,600 4.71 %
+Added: Total interest-earning assets 2,058,103 $ 18,730 3.65 % 1,664,915 $ 16,095 3.89 %
+Added: Allowance for credit losses (11,928) (10,783)
+Added: Non-accrual loans 2,651 1,620
+Added: Cash and due from banks 35,997 23,963
+Added: Bank premises and equipment 8,416 7,358
+Added: Other assets 134,393 126,792
+Added: Total average assets $ 2,227,632 $ 1,813,865
+Added: LIABILITIES AND SHAREHOLDERS’ EQUITY
+Added: Interest-bearing liabilities:
+Added: Savings and NOW accounts $ 522,209 $ 45 0.03 % $ 415,793 $ 83 0.08 %
+Added: Money market accounts 441,623 160 0.15 % 297,725 137 0.19 %
+Added: Time certificates of deposit 90,735 47 0.21 % 89,900 154 0.69 %
+Added: Total interest-bearing deposits 1,054,567 252 0.10 % 803,418 374 0.19 %
+Added: Other borrowed funds 5,155 22 1.71 % 5,155 36 2.79 %
+Added: Total interest-bearing liabilities 1,059,722 $ 274 0.10 % 808,573 $ 410 0.20 %
+Added: Non-interest bearing demand deposits 893,441 753,265
+Added: Other liabilities 27,510 29,548
+Added: Shareholders’ equity 246,959 222,479
+Added: Total average liabilities and shareholders’ equity $ 2,227,632 $ 1,813,865
+Added: Interest income and rate earned on average earning assets
+Added: $ 18,730 3.65 % $ 16,095 3.89 %
+Added: Interest expense and interest cost related to average interest-bearing liabilities
+Added: 274 0.10 % 410 0.20 %
+Added: Net interest income and net interest margin (4) $ 18,456 3.60 % $ 15,685 3.79 %
+Added: (1) Calculated on a fully tax equivalent basis, which includes Federal tax benefits relating to income earned on municipal bonds totaling $375 and $109 in 2021 and 2020, respectively.
+Added: (2) Loan interest income includes loan fees of $1,821 in 2021 and $291 in 2020.
+Added: (3) Average loans do not include non-accrual loans but do include interest income recovered from previously charged off loans.
+Added: (4) Net interest margin is computed by dividing net interest income by total average interest-earning assets .
+Added: The following table sets forth a summary of the changes in interest income and interest expense due to changes in average asset and liability balances (volume) and changes in average interest rates for the periods indicated.
+Added: The change in interest due to both rate and volume has been allocated to the change in rate.
+Added: Changes in Volume/Rate For the Three Months Ended June 30, 2021 and 2020
+Added: (In thousands) Volume Rate Net
+Added: Increase (decrease) due to changes in:
+Added: Interest income:
+Added: Interest-earning deposits in other banks $ 12 $ 4 $ 16
+Added: Investment securities:
+Added: Taxable 908 (507) 401
+Added: Non-taxable (1) 1,965 (703) 1,262
+Added: Total investment securities 2,873 (1,210) 1,663
+Added: Federal funds sold — — —
+Added: Loans 25 931 956
+Added: Total earning assets (1) 2,910 (275) 2,635
+Added: Interest expense:
+Added: Savings, NOW and MMA 87 (102) (15)
+Added: Time certificate of deposits 1 (108) (107)
+Added: Total interest-bearing deposits 88 (210) (122)
+Added: Other borrowed funds — (14) (14)
+Added: Total interest-bearing liabilities 88 (224) (136)
+Added: Net interest income (1) $ 2,822 $ (51) $ 2,771
+Added: (1) Computed on a tax equivalent basis for securities exempt from federal income taxes.
+Added: Interest and fee income from loans increased $956,000 or 7.59% to $ 13,556,000 for the second quarter of 2021 compared to $ 12,600,000 for the same period in 2020.
+Added: Total average loans, including nonaccrual loans, for the second quarter of 2021 increased $3,217,000 or 0.30% to $1,080,425,000 compared to $1,077,208,000 for the same period in 2020.
+Added: Yield on the loan portfolio, excluding nonaccrual loans, was 5.04% and 4.71% for the second quarters ending June 30, 2021 and 2020, respectively.
+Added: Net interest income during the second quarters of 2021 and 2020 benefited by approximately $4,000 and $288,000, respectively, in nonrecurring income from prepayment penalties and payoff of loans previously on nonaccrual status.
+Added: The accretion of the loan marks on acquired loans increased interest income by $176,000 and $174,000 during the quarters ended June 30, 2021 and 2020, respectively.
+Added: Income from investments represents 26.54% of net interest income for the second quarter of 2021 compared to 21.73% for the same quarter in 2020.
+Added: Interest income from total investments on a non tax equivalent basis (total investments include investment securities, Federal funds sold, interest bearing deposits with other banks, and other securities) increased $1,415,000 in the second quarter of 2021 to $4,799,000 compared to $3,384,000, for the same period in 2020.
+Added: The yield on average total investments decreased 26 basis points to 2.11% on a fully tax equivalent basis for the second quarter of 2021 compared to 2.37% on a fully tax equivalent basis for the second quarter of 2020.
+Added: Average total investments and interest bearing deposits in other banks for the second quarter of 2021 increased $391,002,000 or 66.35% to $980,329,000 compared to $589,327,000 for the second quarter of 2020.
+Added: Total interest income for the second quarter of 2021 increased $2,371,000 or 14.83% to $18,355,000 compared to $15,984,000 for the second quarter ended June 30, 2020.
+Added: The yield on interest earning assets decreased to 3.65% on a fully tax equivalent basis for the second quarter ended June 30, 2021 from 3.89% on a fully tax equivalent basis for the second quarter ended June 30, 2020.
+Added: Average interest earning assets increased to $2,058,103,000 for the second quarter ended June 30, 2021 compared to $1,664,915,000 for the second quarter ended June 30, 2020.
+Added: The $393,188,000 increase in average earning assets was attributed to the $2,186,000 increase in average loans and the $391,002,000 increase in total investments.
+Added: Interest expense on deposits for the quarter ended June 30, 2021 decreased $122,000 or 32.62% to $ 252,000 compared to $ 374,000 for the quarter ended June 30, 2020.
+Added: The cost of deposits, calculated by dividing annualized interest expense on interest bearing deposits by total deposits, was 0.05% and 0.10% for the quarters ended June 30, 2021 and 2020, respectively.
+Added: Average interest bearing deposits increased 31.26% or $251,149,000 in the second quarter of 2021 compared to the same period in 2020.
+Added: Average interest-bearing deposits were $1,054,567,000 for the quarter ended June 30, 2021, with an effective rate paid of 0.10%, compared to $803,418,000 for the same period in 2020, with an effective rate paid of 0.19%.
+Added: Average other borrowed funds totaled $5,155,000 for the quarter ended June 30, 2021, with an effective rate of 1.71% for the quarter ended June 30, 2021 compared to $5,155,000 and 2.79% for the quarter ended June 30, 2020.
+Added: As a result, interest expense on borrowed funds decreased $14,000 to $22,000 for the quarter ended June 30, 2021, from $36,000 for the
+Added: quarter ended June 30, 2020.
+Added: Other borrowings are comprised of advances from the Federal Home Loan Bank, junior subordinated deferrable interest debentures and advances on available unsecured lines of credit with correspondent banks.
+Added: The cost of our interest bearing liabilities was 0.10% and 0.20% for the quarters ended June 30, 2021 and 2020.
+Added: The cost of total deposits was 0.05% and 0.10% for the quarters ended June 30, 2021 and 2020.
+Added: Average non-interest bearing demand deposits increased 18.61% to $893,441,000 for the quarter ended June 30, 2021 compared to $753,265,000 for the quarter ended June 30, 2020.
+Added: The ratio of average non-interest bearing demand deposits to average total deposits was 45.86% in the second quarter of 2021 compared to 48.39% for the same period in 2020.
+Added: Net Interest Income before Provision for Credit Losses
+Added: Net interest income before provision for credit losses for the quarter ended June 30, 2021, increased $2,507,000 or 16.10% to $18,081,000 compared to $15,574,000 for the quarter ended June 30, 2020.
+Added: The increase was due to asset mix changes, and the increase in average interest earning assets, partially offset by an increase in average interest-bearing liabilities.
+Added: Average interest earning assets were $2,058,103,000 for the quarter ended June 30, 2021, with a net interest margin (fully tax equivalent basis) of 3.60% compared to $1,664,915,000 with a net interest margin (fully tax equivalent basis) of 3.79% for the quarter ended June 30, 2020.
+Added: The $393,188,000 increase in average earning assets can be attributed to the $3,217,000 increase in loans, and the $391,002,000 increase in total investments.
+Added: Average interest bearing liabilities increased 31.06% to $1,059,722,000 for the quarter ended June 30, 2021 compared to $808,573,000 for the same period in 2020.
+Added: Provision for Credit Losses
+Added: During the quarter ended June 30, 2021, the Company recorded a $ 1,500,000 reversal of provision for credit losses, compared to $ 3,000,000 provision during the quarter ended June 30, 2020.
+Added: The annualized net charge-off (recovery) ratio, which reflects net charge-offs (recoveries) to average loans, was 0.04% for the quarter ended June 30, 2021 compared to (0.15)% for the quarter ended June 30, 2020.
+Added: During the quarter ended June 30, 2021, the Company had net charge-offs totaling $117,000 compared to net recoveries of $391,000 for the same period in 2020.
+Added: Gross recoveries of previously charged off loan balances during the quarters ended June 30, 2021 and 2020 were $54,000 and $471,000, respectively.
+Added: Gross charge-offs during the quarters ended June 30, 2021 and 2020 were $171,000 and $80,000, respectively.
+Added: The majority of the loans charged off were previously classified and sufficient specific reserves related to these impaired credits were held in the allowance for credit losses in reporting periods prior to the date of charge-off.
+Added: Non-Interest Income
+Added: Non-interest income was $2,077,000 for the quarter ended June 30, 2021 compared to $2,045,000 for the same period ended June 30, 2020.
+Added: The $32,000 or 1.56% increase in non-interest income for the quarter ended June 30, 2021 was primarily due to recording a $164,000 increase in interchange fees, a $20,000 increase in service charge income, and a $8,000 increase in Federal Home Loan Bank dividends, partially offset by a $88,000 decrease in other income, a $51,000 decrease in loan placement fees, and a $21,000 decrease in net realized gains on sales and calls of investment securities,
+Added: Customer service charges increased $20,000 or 4.47% to $ 467,000 for the second quarter of 2021 compared to $ 447,000 for the same period in 2020, due primarily to an increase in overdraft fee income.
+Added: Other income decreased $88,000 or 16.39% to $ 449,000 for the second quarter of 2021 compared to $ 537,000 for the same period in 2020.
+Added: For the quarter ended June 30, 2020, other income included a $166,000 gain related to the collection of tax-exempt life insurance proceeds.
+Added: Non-Interest Expenses
+Added: Salaries and employee benefits, occupancy and equipment, regulatory assessments, data processing, acquisition and integration expenses, Internet banking, license and maintenance contracts, and professional services are the major categories of non-interest expenses.
+Added: Non-interest expenses increased $132,000 or 1.15% to $11,630,000 for the quarter ended June 30, 2021 compared to $11,498,000 for the same period in 2020.
+Added: The net increase quarter over quarter was a result of a increases in salaries and employee benefits of $167,000, increases in data processing expense of $71,000, increases in occupancy and equipment expenses of $62,000, increases in regulatory assessments of $26,000, increases in appraisal fees of $25,000, increases in alarm monitoring expenses of 15,000, increases in operating losses of $10,000, and increases in Information technology expenses of $9,000.
+Added: The increases were partially offset by the decreases in Internet banking expenses of $98,000, the decreases in professional services of $47,000, the decreases in advertising expenses of $39,000, the decreases in stationery and supplies of $29,000, the decreases in directors’ expenses of $23,000, and the decreases in amortization of software of $14,000 .
+Added: During the quarter ended June 30, 2021, nonrecurring expenses included $106,000 related to PPP loan forgiveness processing.
+Added: The Company’s efficiency ratio decreased to 55.58% for the second quarter of 2021 compared to 64.27% for the second quarter of 2020.
+Added: The improvement in the efficiency ratio is due to the growth in operating revenue outpacing the increase in non-interest expense.
+Added: Salaries and employee benefits increased $167,000 or 2.45% to $ 6,979,000 for the second quarter of 2021 compared to $ 6,812,000 for the second quarter of 2020.
+Added: The number of full time equivalent (FTE) employees as of June 30, 2021, December 31, 2020 and June 30, 2020 was 247, 273, and 265, respectively.
+Added: Other non-interest expenses included increases of $20,000 in donations, $18,000 in personnel expenses, $8,000 in education/training expenses, $4,000 in telephone expenses, and $3,000 in armored courier expenses, partially offset by decreases of $29,000 in stationary and supplies, $14,000 in amortization of software, $13,000 in risk management expense, and $13,000 in check printing expense, as compared to the same period in 2020.
+Added: Provision for Income Taxes
+Added: The effective income tax rate was 24.58% for the second quarter of 2021 compared to 26.27% for the same period in 2020.
+Added: Provision for income taxes totaled $ 2,465,000 and $ 820,000 for the quarters ended June 30, 2021 and 2020, respectively.
+Added: The 2021 effective tax rate was affected by the increase in tax-exempt interest, as well as the reversal of provision for credit losses.
+Added: The 2020 effective tax rate was affected by the large provision for credit losses which resulted in lower pretax and taxable income, as well as the gain related to the collection of life insurance proceeds.
FINANCIAL CONDITION
Summary of Changes in Consolidated Balance Sheets
−Removed: March 31, 2021 compared to December 31, 2020
−Removed: Total assets were $2,200,523,000 as of March 31, 2021, compared to $2,004,096,000 at December 31, 2020, an increase of 9.80% or $196,427,000.
−Removed: Total gross loans were $1,090,340,000 at March 31, 2021, compared to $1,102,347,000 at December 31, 2020, a decrease of $12,007,000 or 1.09%.
−Removed: The total investment portfolio (including Federal funds sold and interest-earning deposits in other banks) increased 27.35% or $206,148,000 to $959,977,000 at March 31, 2021 compared to $753,829,000 at December 31, 2020.
−Removed: Total deposits increased 11.59% or $199,693,000 to $1,922,403,000 at March 31, 2021, compared to $1,722,710,000 at December 31, 2020.
−Removed: Shareholders’ equity decreased $3,176,000 or 1.30% to $241,845,000 at March 31, 2021, compared to $245,021,000 at December 31, 2020.
−Removed: The decrease in shareholder’s equity was driven by the decrease in net unrealized gains on available-for-sale (AFS), offset by the retention of earnings, net of dividends paid.
−Removed: Accrued interest payable and other liabilities was $31,120,000 at March 31, 2021, compared to $31,210,000 at December 31, 2020, a decrease of $90,000.
+Added: June 30, 2021 compared to December 31, 2020
+Added: Total assets were $2,280,550,000 as of June 30, 2021, compared to $2,004,096,000 at December 31, 2020, an increase of 13.79% or $276,454,000.
+Added: Total gross loans were $1,069,945,000 at June 30, 2021, compared to $1,102,347,000 at December 31, 2020, a decrease of $32,402,000 or 2.94%.
+Added: The total investment portfolio (including Federal funds sold and interest-earning deposits in other banks) increased 38.13% or $287,429,000 to $1,041,258,000 at June 30, 2021 compared to $753,829,000 at December 31, 2020.
+Added: Total deposits increased 14.88% or $256,384,000 to $1,979,094,000 at June 30, 2021, compared to $1,722,710,000 at December 31, 2020.
+Added: Shareholders’ equity increased $6,028,000 or 2.46% to $251,049,000 at June 30, 2021, compared to $245,021,000 at December 31, 2020.
+Added: The increase in shareholders’ equity was driven by the retention of e arnings, net of dividends paid , the decrease in unrealized gains on available-for-sale (AFS) securities, and share repurchases.
+Added: Accrued interest payable and other liabilities was $45,252,000 at June 30, 2021, compared to $31,210,000 at December 31, 2020, a increase of $14,042,000.
The Company measures the fair values of its financial instruments utilizing a hierarchical framework associated with the level of observable pricing scenarios utilized in measuring financial instruments at fair value.
6 unchanged sentences
Government sponsored entities and agencies collateralized by residential mortgage backed obligations, private label mortgage and asset backed securities (PLMABS), corporate debt securities, and obligations of states and political subdivision securities and are classified at the date of acquisition as available for sale or held to maturity.
−Removed: As of March 31, 2021, investment securities with a fair value of $177,938,000, or 23.15% of our investment securities portfolio, were held as collateral for public funds, short and long-term borrowings, treasury, tax, and for other purposes.
+Added: As of June 30, 2021, investment securities with a fair value of $191,882,000, or 20.15% of our investment securities portfolio, were held as collateral for public funds, short and long-term borrowings, treasury, tax, and for other purposes.
Our investment policies are established by the Board of Directors and implemented by management.
1 unchanged sentence
The level of our investment portfolio as a percentage of our total earning assets is generally considered higher than our peers due primarily to a comparatively low loan-to-deposit ratio.
−Removed: Our loan-to-deposit ratio at March 31, 2021 was 56.72% compared to 63.99% at December 31, 2020.
+Added: Our loan-to-deposit ratio at June 30, 2021 was 54.06%
+Added: compared to 63.99% at December 31, 2020.
The loan-to-deposit ratio of our peers was 80.00% at December 31, 2020.
−Removed: The total investment portfolio, including Federal funds sold and interest-earning deposits in other banks, increased 27.35% or $206,148,000 to $959,977,000 at March 31, 2021, from $753,829,000 at December 31, 2020.
−Removed: The fair value of the available-for-sale investment portfolio reflected a net unrealized gain of $7,470,000 at March 31, 2021, compared to a net unrealized gain of $21,091,000 at December 31, 2020.
+Added: The total investment portfolio, including Federal funds sold and interest-earning deposits in other banks, increased 38.13% or $287,429,000 to $1,041,258,000 at June 30, 2021, from $753,829,000 at December 31, 2020.
+Added: The fair value of the available-for-sale investment portfolio reflected a net unrealized gain of $18,278,000 at June 30, 2021, compared to a net unrealized gain of $21,091,000 at December 31, 2020.
The Board and management have had periodic discussions about our strategy for risk management in dealing with potential losses should interest rates begin to rise.
4 unchanged sentences
The discount rate in this analysis is the original yield expected at time of purchase.
−Removed: Table of Contents `
−Removed: Management evaluated all available-for-sale investment securities with an unrealized loss at March 31, 2021 and identified those that had an unrealized loss for at least a consecutive 12 month period, which had an unrealized loss at March 31, 2021 greater than 10% of the recorded book value on that date, or which had an unrealized loss of more than $75,000.
+Added: Management evaluated all available-for-sale investment securities with an unrealized loss at June 30, 2021 and identified those that had an unrealized loss for at least a consecutive 12 month period, which had an unrealized loss at June 30, 2021 greater than 10% of the recorded book value on that date, or which had an unrealized loss of more than $75,000.
Management also analyzed any securities that may have been downgraded by credit rating agencies.
For those securities that met the evaluation criteria, management obtained and reviewed the most recently published national credit ratings for those securities.
−Removed: There were no OTTI losses recorded during the three months ended March 31, 2020.
−Removed: At March 31, 2021, the Company held one U.S.
+Added: There were no OTTI losses recorded during the six months ended June 30, 2020.
+Added: At June 30, 2021, the Company held two U.S.
+Added: Treasury securities of which one security was in a loss position for less than 12 months.
+Added: The unrealized loss on the Company’s investment in direct obligations of U.S.
+Added: Treasury securities is associated with the general fluctuation of market interest rates and are not an indication of any deterioration in the credit quality of the security issuer.
+Added: The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized costs of the investment.
+Added: Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold, and it is more likely than not that it will not be required to sell, those investments until a recovery of fair value, which may be the maturity date, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2021.
+Added: At June 30, 2021, the Company held one U.S.
Government agency security which was in a gain position.
−Removed: At March 31, 2021, the Company held 114 obligations of states and political subdivision securities of which 43 were in a loss position for less than 12 months.
+Added: At June 30, 2021, the Company held 122 obligations of states and political subdivision securities of which 16 were in a loss position for less than 12 months.
The unrealized losses on the Company’s investments in obligations of states and political subdivision securities and corporate debt securities were caused by interest rate changes.
−Removed: Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell, and it is more likely than not that it will not be required to sell those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2021.
−Removed: At March 31, 2021, the Company held 114 U.S.
−Removed: Government sponsored entity and agency securities collateralized by residential mortgage obligations of which four were in a loss position for less than 12 months and 15 have been in a loss position for more than 12 months.
+Added: Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell, and it is more likely than not that it will not be required to sell those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2021.
+Added: At June 30, 2021, the Company held 115 U.S.
+Added: Government sponsored entity and agency securities collateralized by residential mortgage obligations of which eight were in a loss position for less than 12 months and 11 have been in a loss position for more than 12 months.
The unrealized losses on the Company’s investments in U.S.
2 unchanged sentences
Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment.
−Removed: Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability to hold and does not intend to sell, and it is more likely than not that it will not be required to sell those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2021.
−Removed: At March 31, 2021, the Company had a total of 36 Private Label Mortgage and Asset Backed Securities (PLMABS) with a remaining principal balance of $108,053,000 and a net unrealized loss of approximately $132,000.
−Removed: 13 of the PLMABS securities were in a loss position for less than 12 months and one has been in loss for more than 12 months at March 31, 2021.
−Removed: Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold, and it is more likely than not that it will not be required to sell those investments until a recovery of fair value, which may be the maturity date, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2021.
+Added: Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability to hold and does not intend to sell, and it is more likely than not that it will not be required to sell those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2021.
+Added: At June 30, 2021, the Company had a total of 49 Private Label Mortgage and Asset Backed Securities (PLMABS) with a remaining principal balance of $180,844,000 and a net unrealized loss of approximately $63,000.
+Added: 18 of the PLMABS securities were in a loss position for less than 12 months and two has been in loss for more than 12 months at June 30, 2021.
+Added: Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold, and it is more likely than not that it will not be required to sell those investments until a recovery of fair value, which may be the maturity date, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2021.
The Company continues to monitor these securities for indications that declines in value, if any, may be other-than-temporary.
−Removed: At March 31, 2021, the Company held ten corporate debt securities of which four were in a loss position for less than 12 months.
+Added: At June 30, 2021, the Company held 14 corporate debt securities of which five were in a loss position for less than 12 months.
The unrealized loss on the Company’s investments in corporate debt security was caused by interest rate changes.
−Removed: Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell, and it is more likely than not that it will not be required to sell those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2021.
+Added: Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell, and it is more likely than not that it will not be required to sell those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2021.
See Note 3 of the Notes to Consolidated Financial Statements (unaudited) included in this report for carrying values and estimated fair values of our investment securities portfolio.
−Removed: Total gross loans decreased $12,007,000 or 1.09% to $1,090,340,000 as of March 31, 2021, compared to $1,102,347,000 as of December 31, 2020.
−Removed: Table of Contents `
+Added: Total gross loans decreased $32,402,000 or 2.94% to $1,069,945,000 as of June 30, 2021, compared to $1,102,347,000 as of December 31, 2020.
The following table sets forth information concerning the composition of our loan portfolio at the dates indicated:
−Removed: Loan Type (Dollars in thousands) March 31, 2021 % of Total
+Added: Loan Type (Dollars in thousands) June 30, 2021 % of Total
Loans December 31, 2020 % of Total
15 unchanged sentences
Total loans $ 1,059,506 $ 1,089,432
−Removed: As of March 31, 2021, in management’s judgment, a concentration of loans existed in commercial loans and loans collateralized by real estate, representing approximately 96.6% of total loans.
+Added: As of June 30, 2021, in management’s judgment, a concentration of loans existed in commercial loans and loans collateralized by real estate, representing approximately 96.5% of total loans.
This level of concentration of commercial loans and loans collateralized by real estate is consistent with 96.7% of total loans at December 31, 2020.
1 unchanged sentence
The Company does not engage in any sub-prime mortgage lending activities.
−Removed: At March 31, 2021, loans acquired in the Folsom Lake Bank (FLB), Sierra Vista Bank (SVB) and Visalia Community Bank (VCB) acquisitions had a balance of $120,733,000, of which $2,439,000 were commercial loans, $105,845,000 were real estate loans, and $12,449,000 were consumer loans.
+Added: At June 30, 2021, loans acquired in the Folsom Lake Bank (FLB), Sierra Vista Bank (SVB) and Visalia Community Bank (VCB) acquisitions had a balance of $109,932,000, of which $2,374,000 were commercial loans, $98,912,000 were real estate loans, and $8,646,000 were consumer loans.
At December 31, 2020, loans acquired in the FLB, SVB and VCB acquisitions had a balance of $127,186,000, of which $2,529,000 were commercial loans, $110,616,000 were real estate loans, and $14,041,000 were consumer loans.
2 unchanged sentences
Contributing to the commercial and industrial loan growth was the issuance of PPP loans.
−Removed: As of March 31, 2021, gross loans included $190,900,000 in PPP loans which are fully guaranteed by the SBA.
+Added: As of June 30, 2021, gross loans included $109,502,000 in PPP loans which are fully guaranteed by the SBA.
The Board of Directors review and approve concentration limits and exceptions to limitations of concentration are reported to the Board of Directors at least quarterly.
7 unchanged sentences
or (iii) principal or interest has been in default for a period of 90 days or more unless the loan is both well secured and in the process of collection.
−Removed: Table of Contents `
−Removed: At March 31, 2021, total nonperforming assets totaled $3,783,000, or 0.17% of total assets, compared to $3,278,000, or 0.16% of total assets at December 31, 2020.
−Removed: Total nonperforming assets at March 31, 2021, included nonaccrual loans totaling $3,783,000, no OREO, and no other repossessed assets.
+Added: At June 30, 2021, total nonperforming assets totaled $2,035,000, or 0.09% of total assets, compared to $3,278,000, or 0.16% of total assets at December 31, 2020.
+Added: Total nonperforming assets at June 30, 2021, included nonaccrual loans totaling $2,035,000, no OREO, and no other repossessed assets.
Nonperforming assets at December 31, 2020 consisted of $3,278,000 in nonaccrual loans, no OREO, and no other repossessed assets.
−Removed: At March 31, 2021 and December 31, 2020, we had no loan considered to be a troubled debt restructuring (“TDRs”) included in nonaccrual loans.
−Removed: A summary of nonperforming loans at March 31, 2021 and December 31, 2020 is set forth below.
−Removed: The Company had no loans past due more than 90 days and still accruing interest at March 31, 2021 or at December 31, 2020.
+Added: At June 30, 2021 and December 31, 2020, we had no loan considered to be a troubled debt restructuring (“TDRs”) included in nonaccrual loans.
+Added: A summary of nonperforming loans at June 30, 2021 and December 31, 2020 is set forth below.
+Added: The Company had no loans past due more than 90 days and still accruing interest at June 30, 2021 or at December 31, 2020.
Management can give no assurance that nonaccrual and other nonperforming loans will not increase in the future.
Composition of Nonperforming Loans
−Removed: (In thousands) March 31, 2021 December 31, 2020
+Added: (In thousands) June 30, 2021 December 31, 2020
Nonaccrual loans:
13 unchanged sentences
We measure our impaired loans by using the fair value of the collateral if the loan is collateral dependent and the present value of the expected future cash flows discounted at the loan’s original contractual interest rate if the loan is not collateral dependent.
−Removed: As of March 31, 2021 and December 31, 2020, we had impaired loans totaling $11,006,000 and $11,186,000, respectively.
+Added: As of June 30, 2021 and December 31, 2020, we had impaired loans totaling $8,539,000 and $11,186,000, respectively.
For collateral dependent loans secured by real estate, we obtain external valuations which are updated at least annually to determine the fair value of the collateral, and we record a charge-off for the difference between the book value of the loan and the appraised value less selling costs value of the collateral, unless there is an extenuating circumstance that may positively affect the amount collected.
2 unchanged sentences
Management maintains certain loans that have been brought current by the borrower (less than 30 days delinquent) on nonaccrual status until such time as management has determined that the loans are likely to remain current in future periods.
−Removed: The following table provides a reconciliation of the change in nonaccrual loans for the first three months of 2021.
+Added: The following table provides a reconciliation of the change in nonaccrual loans for the first six months of 2021.
(In thousands) Balance, December 31, 2020 Additions
4 unchanged sentences
Status Charge-
−Removed: Offs Balance, March 31, 2021
+Added: Offs Balance, June 30, 2021
Nonaccrual loans:
6 unchanged sentences
Total nonaccrual $ 3,278 $ 2,141 $ (3,044) $ — $ (340) $ — $ 2,035
−Removed: Table of Contents `
OREO represents real property taken either through foreclosure or through a deed in lieu thereof from the borrower.
OREO is initially recorded at fair value less costs to sell and thereafter carried at the lower of cost or fair value, less selling costs.
−Removed: We had no OREO properties at March 31, 2021 or December 31, 2020.
−Removed: The Company held no repossessed assets at March 31, 2021 or December 31, 2020.
+Added: We had no OREO properties at June 30, 2021 or December 31, 2020.
+Added: The Company held no repossessed assets at June 30, 2021 or December 31, 2020.
Allowance for Credit Losses
21 unchanged sentences
The following table sets forth information regarding our allowance for credit losses at the dates and for the periods indicated:
−Removed: For the Three Months
−Removed: Ended March 31, For the Year Ended
−Removed: December 31, For the Three Months
−Removed: Ended March 31,
+Added: For the Six Months
+Added: Ended June 30, For the Year Ended
+Added: December 31, For the Six Months
+Added: Ended June 30,
(Dollars in thousands) 2021 2020 2020
6 unchanged sentences
0.98 % 1.17 % 1.24 %
−Removed: Table of Contents `
Managing credits identified through the risk evaluation methodology includes developing a business strategy with the customer to mitigate our losses.
4 unchanged sentences
We have adopted the specific reserve approach to allocate reserves to each impaired asset for the purpose of estimating potential loss exposure.
−Removed: We adjusted the economic risk factor methodology to incorporate the current economic implications and rising unemployment rate from the COVID-19 pandemic.
+Added: At the onset of COVID we established a dedicated qualitative factor to address the lagging effect on our quantitative data.
+Added: We have begun reducing that factor’s impact on the ALLL given the passage of time.
+Added: We adjusted the economic risk factor methodology to incorporate the improving economic conditions and decreasing unemployment rate.
Although the allowance for credit losses is allocated to various portfolio categories, it is general in nature and available for the loan portfolio in its entirety.
1 unchanged sentence
Additions are also required when, in management’s judgment, the reserve does not properly reflect the potential loss exposure.
−Removed: As of March 31, 2021, the balance in the allowance for credit losses (ALLL) was $12,056,000 compared to $12,915,000 as of December 31, 2020.
−Removed: The decrease is attributed to the reversal of provision of $1,800,000 during the three months ended March 31, 2021.
−Removed: The balance of undisbursed commitments to extend credit on construction and other loans and letters of credit was $349,244,000 as of March 31, 2021, compared to $326,179,000 as of December 31, 2020.
−Removed: At March 31, 2021 and December 31, 2020, the balance of a contingent allocation for probable loan loss experience on unfunded obligations was $250,000.
+Added: As of June 30, 2021, the balance in the allowance for credit losses (ALLL) was $10,439,000 compared to $12,915,000 as of December 31, 2020.
+Added: The decrease is attributed to the reversal of provision of $3,300,000 during the six months ended June 30, 2021.
+Added: The balance of undisbursed commitments to extend credit on construction and other loans and letters of credit was $316,702,000 as of June 30, 2021, compared to $326,179,000 as of December 31, 2020.
+Added: At June 30, 2021 and December 31, 2020, the balance of a contingent allocation for probable loan loss experience on unfunded obligations was $250,000.
The contingent allocation for probable loan loss experience on unfunded obligations is calculated by management using appropriate, systematic, and consistently applied processes.
While related to credit losses, this allocation is not a part of the ALLL and is considered separately as a liability for accounting and regulatory reporting purposes.
−Removed: As of March 31, 2021, the ALLL was 1.11% of total gross loans compared to 1.17% as of December 31, 2020.
−Removed: Total loans include FLB, SVB and VCB loans that were recorded at fair value in connection with the acquisitions, with values of $120,733,000 at March 31, 2021 and $127,186,000 at December 31, 2020.
−Removed: Excluding these FLB, SVB and VCB loans from the calculation, the ALLL to total gross loans was 1.24% and 1.32% at March 31, 2021 and December 31, 2020, respectively and general reserves associated with non-impaired loans to total non-impaired loans was 1.40% and 1.59%, respectively.
−Removed: As of March 31, 2021, gross loans included $190,900,000 related to PPP loans which are fully guaranteed by the SBA.
−Removed: Excluding PPP loans and the acquired loans from the calculation, the allowance for credit losses to total gross loans was 1.55% and 1.65% as of March 31, 2021 and December 31, 2020, respectively.
−Removed: The Company believes the allowance for credit losses is adequate to provide for probable incurred credit losses within the loan portfolio at March 31, 2021.
+Added: As of June 30, 2021, the ALLL was 0.98% of total gross loans compared to 1.17% as of December 31, 2020.
+Added: Total loans include FLB, SVB and VCB loans that were recorded at fair value in connection with the acquisitions, with values of $109,932,000 at June 30, 2021 and $127,186,000 at December 31, 2020.
+Added: Excluding these FLB, SVB and VCB loans from the calculation, the ALLL to total gross loans was 1.09% and 1.32% at June 30, 2021 and December 31, 2020, respectively and general reserves associated with non-impaired loans to total non-impaired loans was 1.13% and 1.41%, respectively.
+Added: As of June 30, 2021, gross loans included $109,502,000 related to PPP loans which are fully guaranteed by the SBA.
+Added: Excluding PPP loans and the acquired loans from the calculation, the allowance for credit losses to total gross loans was 1.23% and 1.65% as of June 30, 2021 and December 31, 2020, respectively.
+Added: The Company believes the allowance for credit losses is adequate to provide for probable incurred credit losses within the loan portfolio at June 30, 2021.
The loan portfolios acquired in the mergers were booked at fair value with no associated allocation in the ALLL.
The size of the fair value discount remains adequate for all non-impaired acquired loans.
−Removed: therefore, there is no associated allocation in the ALLL for those loans.
−Removed: The Company’s loan portfolio balances for the three months ended March 31, 2021 increased through organic growth and through participation in the PPP loan program.
+Added: The Company’s loan portfolio balances for the six months ended June 30, 2021 increased through organic growth.
Management believes that the change in the allowance for credit losses to total loans ratio is directionally consistent with the composition of loans and the level of nonperforming and classified loans, and by the general economic conditions experienced in the central California communities serviced by the Company, partially offset by recent improvements in real estate collateral values.
2 unchanged sentences
However, the total reserve rates on non-impaired loans include qualitative factors which are systematically derived and consistently applied to reflect conservatively estimated losses from loss contingencies at the date of the financial statements.
−Removed: Based on the above considerations and given recent changes in historical charge-off rates included in the ALLL modeling and the changes in other factors, management determined that the ALLL was appropriate as of March 31, 2021.
+Added: Based on the above considerations and given recent changes in historical
+Added: charge-off rates included in the ALLL modeling and the changes in other factors, management determined that the ALLL was appropriate as of June 30, 2021.
However, no assurance can be given that the Company may not sustain charge-offs which are in excess of the allowance in any given period.
The following table illustrates and sets forth additional analysis which portrays the trends that are occurring in the loan portfolio.
−Removed: March 31, 2021 December 31, 2020 March 31, 2020
+Added: June 30, 2021 December 31, 2020 June 30, 2020
(Dollars in thousands) Balance % to Total Loans Balance % to Total Loans Balance % to Total Loans
2 unchanged sentences
Nonaccrual loans 2,035 0.19 % 3,278 0.30 % 2,406 0.21 %
−Removed: Table of Contents `
Goodwill and Intangible Assets
Business combinations involving the Company’s acquisition of the equity interests or net assets of another enterprise give rise to goodwill.
−Removed: Total goodwill at March 31, 2021, was $53,777,000 consisting of $8,934,000, $14,643,000, $6,340,000, $10,394,000, and $13,466,000 representing the excess of the cost of Bank of Madera County, Service 1st Bancorp, Visalia Community Bank, Sierra Vista Bank, and Folsom Lake Bank, respectively, over the net of the amounts assigned to assets acquired and liabilities assumed in the transactions accounted for under the purchase method of accounting.
+Added: Total goodwill at June 30, 2021, was $53,777,000 consisting of $8,934,000, $14,643,000, $6,340,000, $10,394,000, and $13,466,000 representing the excess of the cost of Bank of Madera County, Service 1st Bancorp, Visalia Community Bank, Sierra Vista Bank, and Folsom Lake Bank, respectively, over the net of the amounts assigned to assets acquired and liabilities assumed in the transactions accounted for under the purchase method of accounting.
The value of goodwill is ultimately derived from the Company’s ability to generate net earnings after the acquisitions and is not deductible for tax purposes.
11 unchanged sentences
Based on this quantitative test, it was determined that the fair value of the reporting unit exceeded the carrying value as of September 30, 2020.
−Removed: With the economic risks and uncertainties associated with the COVID-19 pandemic continuing during the first quarter of 2021, management performed a qualitative assessment including performance trends, market information and economic data and determined it was more likely than not that the fair value of the reporting unit exceeded the carrying value.
Goodwill is assessed for impairment between annual tests if a triggering event occurs or circumstances change that may cause the fair value of a reporting unit to decline below its carrying amount.
Management considers the entire Company to be one reporting unit.
−Removed: Based upon this assessment, it was determined that it was more likely than not that the fair value of the Company was more than its carrying value and therefore no quantitative impairment test was required.
+Added: No such events or circumstances arose during the first six months of 2021.
Changes in the economic environment, operations of the reporting unit or other adverse events could result in future impairment charges which could have a material adverse impact on the Company’s operating results.
1 unchanged sentence
Core deposit intangibles are being amortized using the straight-line method (which approximates the effective interest method) over estimated lives of five to 10 years from the date of acquisition.
−Removed: The carrying value of intangible assets at March 31, 2021 was $1,009,000, net of $2,743,000 in accumulated amortization expense.
+Added: The carrying value of intangible assets at June 30, 2021 was $835,000, net of $2,744,000 in accumulated amortization expense.
The carrying value at December 31, 2020 was $1,183,000, net of $2,569,000 accumulated amortization expense.
We evaluate the remaining useful lives quarterly to determine whether events or circumstances warrant a revision to the remaining periods of amortization.
−Removed: Based on the evaluation, no changes to the remaining useful lives was required in the first three months of 2021.
−Removed: Amortization expense recognized was $174,000 and $174,000 for the three months ended March 31, 2021 and March 31, 2020, respectively.
−Removed: Table of Contents `
+Added: Based on the evaluation, no changes to the remaining useful lives was required in the first six months of 2021.
+Added: Amortization expense recognized was $347,000 and $347,000 for the six months ended June 30, 2021 and June 30, 2020, respectively.
The following table summarizes the Company’s estimated remaining core deposit intangible amortization expense for each of the next five years (in thousands):
3 unchanged sentences
All of a depositor’s accounts at an insured depository institution, including all non-interest bearing transactions accounts, are insured by the FDIC up to standard maximum deposit insurance amount of $250,000 for each deposit insurance ownership category.
−Removed: Total deposits increased $199,693,000 or 11.59% to $1,922,403,000 as of March 31, 2021, compared to $1,722,710,000 as of December 31, 2020.
−Removed: Interest-bearing deposits increased $138,928,000 or 15.47% to $1,036,749,000 as of March 31, 2021, compared to $897,821,000 as of December 31, 2020.
−Removed: Non-interest bearing deposits increased $60,765,000 or 7.37% to $885,654,000 as of March 31, 2021, compared to $824,889,000 as of December 31, 2020.
−Removed: Average non-interest bearing deposits to average total deposits was 46.39% for the three months ended March 31, 2021 compared to 44.23% for the same period in 2020.
−Removed: The Company’s deposit balances for the three months ended March 31, 2021 increased through organic growth and PPP loan proceeds retained in customer deposit accounts.
−Removed: The composition of the deposits and average interest rates paid at March 31, 2021 and December 31, 2020 is summarized in the table below.
−Removed: (Dollars in thousands) March 31, 2021 % of
+Added: Total deposits increased $256,384,000 or 14.88% to $1,979,094,000 as of June 30, 2021, compared to $1,722,710,000 as of December 31, 2020.
+Added: Interest-bearing deposits increased $181,867,000 or 20.26% to $1,079,688,000 as of June 30, 2021, compared to $897,821,000 as of December 31, 2020.
+Added: Non-interest bearing deposits increased $74,517,000 or 9.03% to $899,406,000 as of June 30, 2021, compared to $824,889,000 as of December 31, 2020.
+Added: Average non-interest bearing deposits to average total deposits was 46.11% for the six months ended June 30, 2021 compared to 46.47% for the same period in 2020.
+Added: The Company’s deposit balances for the six months ended June 30, 2021 increased through organic growth and PPP loan proceeds retained in customer deposit accounts.
+Added: The composition of the deposits and average interest rates paid at June 30, 2021 and December 31, 2020 is summarized in the table below.
+Added: (Dollars in thousands) June 30, 2021 % of
Deposits Average Effective
9 unchanged sentences
Other Borrowings
−Removed: As of March 31, 2021 and December 31, 2020, the Company had no Federal Home Loan Bank (“FHLB”) of San Francisco advances.
+Added: As of June 30, 2021 and December 31, 2020, the Company had no Federal Home Loan Bank (“FHLB”) of San Francisco advances.
We maintain a line of credit with the FHLB collateralized by government securities and loans.
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The Company needs to maintain substantial levels of regulatory capital to give it maximum flexibility in the changing regulatory environment and to respond to changes in the market and economic conditions.
−Removed: Our shareholders’ equity was $241,845,000 at March 31, 2021, compared to $245,021,000 at December 31, 2020.
−Removed: The decrease from December 31, 2020 in shareholders’ equity is the result of a decrease in accumulated other comprehensive income (AOCI) of $9,594,000 and common stock cash dividends of $1,377,000, offset by an increase in retained earnings from net income of $7,479,000, the exercise of stock options of $1,000, stock issued under the employee stock purchase plan of $56,000, the effect of share based compensation expense of $101,000, and stock awarded to employees of $158,000.
−Removed: Table of Contents `
+Added: Our shareholders’ equity was $251,049,000 at June 30, 2021, compared to $245,021,000 at December 31, 2020.
+Added: The increase from December 31, 2020 in shareholders’ equity is the result of a an increase in retained earnings from net income of $15,042,000, the exercise of stock options of $213,000, stock issued under the employee stock purchase plan of $110,000, the effect of share based compensation expense of $210,000, and stock awarded to employees of $158,000, offset by a decrease in accumulated other comprehensive income (AOCI) of $1,982,000, common stock cash dividends of $2,881,000, and stock repurchases of $4,842,000.
On March 17, 2021, the Board of Directors of the Company approved the adoption of a program to effect repurchases of the Company’s common stock with the intent to purchase up to $12 million worth of the Company’s outstanding common stock.
−Removed: During the three months ended March 31, 2021, the Company did not repurchase or retired any shares related to the March 17, 2021 stock repurchase plan.
+Added: During the six months ended June 30, 2021, the Company repurchased and retired 239,679 shares at an approximate cost of $4,842,000.
The share repurchase plan began on March 18, 2021 and will end on March 17, 2022.
−Removed: During the first three months of 2021, the Company declared and paid $1,377,000 in cash dividends ($0.11 per common share) to holders of common stock.
+Added: During the first six months of 2021, the Company declared and paid $2,881,000 in cash dividends ($0.23 per common share) to holders of common stock.
The Company declared and paid a total of $5,530,000 in cash dividends ($0.44 per common share) to holders of common stock during the year ended December 31, 2020.
7 unchanged sentences
credit and recourse arrangements, which are reported as off-balance-sheet items.
−Removed: The following table presents the Company’s regulatory capital ratios as of March 31, 2021 and December 31, 2020.
+Added: The following table presents the Company’s regulatory capital ratios as of June 30, 2021 and December 31, 2020.
(Dollars in thousands)
−Removed: March 31, 2021 Amount Ratio
+Added: June 30, 2021 Amount Ratio
Tier 1 Leverage Ratio $ 186,712 8.63 %
7 unchanged sentences
Total Risk-Based Capital Ratio $ 191,572 15.58 %
−Removed: The following table presents the Bank’s regulatory capital ratios as of March 31, 2021 and December 31, 2020.
+Added: The following table presents the Bank’s regulatory capital ratios as of June 30, 2021 and December 31, 2020.
(Dollars in thousands) Actual Ratio Minimum regulatory requirement (1) Minimum requirement for “ Well-Capitalized ”
−Removed: March 31, 2021 Amount Ratio Amount Ratio Amount Ratio
+Added: June 30, 2021 Amount Ratio Amount Ratio Amount Ratio
Tier 1 Leverage Ratio $ 184,081 8.51 % $ 86,499 4.00 % $ 108,124 5.00 %
11 unchanged sentences
Under applicable regulatory guidance, the amount of trust preferred securities that is eligible as Tier 1 capital is limited to 25% of the Company’s Tier 1 capital on a pro forma basis.
−Removed: At March 31, 2021, all of the trust preferred securities that have been issued qualify as Tier 1 capital.
−Removed: The trust preferred securities mature on October 7, 2036, are redeemable at the Company’s option beginning five
−Removed: Table of Contents `
−Removed: years after issuance, and require quarterly distributions by the Trust to the holder of the trust preferred securities at a variable interest rate which will adjust quarterly to equal the three month LIBOR plus 1.60%.
+Added: At June 30, 2021, all of the trust preferred securities that have been issued qualify as Tier 1 capital.
+Added: The trust preferred securities mature on October 7, 2036, are redeemable at the Company’s option beginning five years
+Added: after issuance, and require quarterly distributions by the Trust to the holder of the trust preferred securities at a variable interest rate which will adjust quarterly to equal the three month LIBOR plus 1.60%.
The Trust used the proceeds from the sale of the trust preferred securities to purchase approximately $5,155,000 in aggregate principal amount of Service 1st’s junior subordinated notes (the Notes).
8 unchanged sentences
For each January 7, April 7, July 7 or October 7 of each year, the rate will be adjusted to equal the three month LIBOR plus 1.60%.
−Removed: As of March 31, 2021, the rate was 1.84%.
+Added: As of June 30, 2021, the rate was 1.78%.
Liquidity management involves our ability to meet cash flow requirements arising from fluctuations in deposit levels and demands of daily operations, which include funding of securities purchases, providing for customers’ credit needs and ongoing repayment of borrowings.
3 unchanged sentences
These funding sources are augmented by payments of principal and interest on loans, the routine maturities and pay downs of securities from the securities portfolio, the stability of our core deposits and the ability to sell investment securities.
−Removed: As of March 31, 2021, the Company had unpledged securities totaling $598,281,000 available as a secondary source of liquidity and total cash and cash equivalents of $214,841,000.
−Removed: Cash and cash equivalents at March 31, 2021 increased 205.70% compared to $70,278,000 at December 31, 2020.
+Added: As of June 30, 2021, the Company had unpledged securities totaling $768,056,000 available as a secondary source of liquidity and total cash and cash equivalents of $120,666,000.
+Added: Cash and cash equivalents at June 30, 2021 increased 71.70% compared to $70,278,000 at December 31, 2020.
Primary uses of funds include withdrawal of and interest payments on deposits, originations and purchases of loans, purchases of investment securities, and payment of operating expenses.
As a means of augmenting our liquidity, we have established federal funds lines with our correspondent banks.
−Removed: At March 31, 2021, our available borrowing capacity includes approximately $110,000,000 in unsecured credit lines with our correspondent banks, $244,763,000 in unused FHLB secured advances and a $12,845,000 secured credit line at the Federal Reserve Bank.
+Added: At June 30, 2021, our available borrowing capacity includes approximately $110,000,000 in unsecured credit lines with our correspondent banks, $245,311,000 in unused FHLB secured advances and a $11,480,000 secured credit line at the Federal Reserve Bank.
We believe our liquidity sources to be stable and adequate.
−Removed: At March 31, 2021, we were not aware of any information that was reasonably likely to have a material effect on our liquidity position.
−Removed: Table of Contents `
−Removed: The following table reflects the Company’s credit lines, balances outstanding, and pledged collateral at March 31, 2021 and December 31, 2020:
−Removed: Credit Lines (In thousands) March 31, 2021 December 31, 2020
+Added: At June 30, 2021, we were not aware of any information that was reasonably likely to have a material effect on our liquidity position.
+Added: The following table reflects the Company’s credit lines, balances outstanding, and pledged collateral at June 30, 2021 and December 31, 2020:
+Added: Credit Lines (In thousands) June 30, 2021 December 31, 2020
Unsecured Credit Lines
23 unchanged sentences
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.