Community West Bancshares 10-Q

ITEM 1: FINANCIAL STATEMENTS CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share amounts) September 30, 2022 December 31, 2021 ASSETS Cash and due from banks $ 32,535 $ 29,412 Interest-earning deposits in other banks 9,043 134,055 Total cash and cash equivalents 41,578 163,467 Available-for-sale investment securities 668,300 1,109,208 Held-to-maturity investment securities 305,482 — Equity securities 6,544 7,416 Loans, less allowance for credit losses of $10,366 at September 30, 2022 and $9,600 at December 31, 2021 1,214,904 1,029,511 Bank premises and equipment, net 7,909 8,380 Bank-owned life insurance 40,289 39,553 Federal Home Loan Bank stock 6,169 5,595 Goodwill 53,777 53,777 Core deposit intangibles 102 522 Accrued interest receivable and other assets 80,644 32,710 Total assets $ 2,425,698 $ 2,450,139 LIABILITIES AND SHAREHOLDERS’ EQUITY Deposits: Non-interest bearing $ 1,044,678 $ 963,584 Interest bearing 1,094,466 1,159,213 Total deposits 2,139,144 2,122,797 Short-term borrowings 25,000 — Senior debt and subordinated debentures 69,563 39,454 Accrued interest payable and other liabilities 33,177 40,043 Total liabilities 2,266,884 2,202,294 Commitments and contingencies (Note 8) Shareholders’ equity: Preferred stock, no par value; 10,000,000 shares authorized, none issued and outstanding — — Common stock, no par value; 80,000,000 shares authorized; issued and outstanding: 11,732,011 at September 30, 2022 and 11,916,651 at December 31, 2021 61,262 66,820 Retained earnings 188,174 173,393 Accumulated other comprehensive (loss) income, net of tax ( 90,622 ) 7,632 Total shareholders’ equity 158,814 247,845 Total liabilities and shareholders’ equity $ 2,425,698 $ 2,450,139 See notes to unaudited consolidated financial statements. 3 CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Unaudited) For the Three Months Ended September 30, For the Nine Months Ended September 30, (In thousands, except share and per-share amounts) 2022 2021 2022 2021 INTEREST INCOME: Interest and fees on loans $ 14,708 $ 13,208 $ 39,752 $ 40,529 Interest on deposits in other banks 48 28 157 89 Interest and dividends on investment securities: Taxable 4,411 3,844 14,586 9,938 Exempt from Federal income taxes 1,825 1,417 5,144 4,143 Total interest income 20,992 18,497 59,639 54,699 INTEREST EXPENSE: Interest on deposits 231 263 714 783 Interest on subordinated debentures and borrowings 597 24 1,354 70 Total interest expense 828 287 2,068 853 Net interest income before provision for credit losses 20,164 18,210 57,571 53,846 PROVISION FOR (REVERSAL OF) CREDIT LOSSES 500 ( 500 ) 500 ( 3,800 ) Net interest income after provision for credit losses 19,664 18,710 57,071 57,646 NON-INTEREST INCOME: Service charges 475 487 1,558 1,386 Appreciation in cash surrender value of bank-owned life insurance 249 247 736 596 Interchange fees 432 472 1,352 1,313 Net realized (losses) gains on sales and calls of investment securities ( 14 ) 117 ( 777 ) 38 Federal Home Loan Bank dividends 91 84 258 237 Loan placement fees 155 467 722 1,634 Other income 92 274 235 1,020 Total non-interest income 1,480 2,148 4,084 6,224 NON-INTEREST EXPENSES: Salaries and employee benefits 7,500 7,091 21,501 21,008 Occupancy and equipment 1,363 1,224 3,869 3,538 Professional services 613 507 1,451 1,338 Data processing 560 599 1,649 1,841 Regulatory assessments 224 219 640 552 ATM/Debit card expenses 176 199 588 615 Information technology 879 891 2,465 2,061 Directors’ expenses 91 152 184 306 Advertising 138 129 416 386 Internet banking expense 29 54 98 262 Amortization of core deposit intangibles 139 174 419 521 Other 1,086 823 3,046 2,652 Total non-interest expenses 12,798 12,062 36,326 35,080 Income before provision for income taxes 8,346 8,796 24,829 28,790 Provision for income taxes 1,962 2,275 5,817 7,227 Net income $ 6,384 $ 6,521 $ 19,012 $ 21,563 Earnings per common share: Basic earnings per share $ 0.55 $ 0.54 $ 1.62 $ 1.75 Weighted average common shares used in basic computation 11,678,532 12,007,689 11,723,790 12,332,248 Diluted earnings per share $ 0.55 $ 0.54 $ 1.62 $ 1.74 Weighted average common shares used in diluted computation 11,689,323 12,044,896 11,748,693 12,378,591 Cash dividend per common share $ 0.12 $ 0.12 $ 0.36 $ 0.35 See notes to unaudited consolidated financial statements. 4 CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) For the Three Months Ended September 30, For the Nine Months Ended September 30, (In thousands) 2022 2021 2022 2021 Net income $ 6,384 $ 6,521 $ 19,012 21,563 Other Comprehensive (Loss) Income: Unrealized losses on securities: Unrealized holding losses arising during the period ( 24,378 ) ( 3,552 ) ( 141,308 ) ( 6,444 ) Reclassification of net losses (gains) included in net income 14 ( 117 ) 777 ( 38 ) Amortization of net unrealized losses transferred 651 — 1,045 — Other comprehensive loss, before tax ( 23,713 ) ( 3,669 ) ( 139,486 ) ( 6,482 ) Tax effect 7,010 1,085 41,232 1,916 Total other comprehensive loss ( 16,703 ) ( 2,584 ) ( 98,254 ) ( 4,566 ) Comprehensive (loss) income $ ( 10,319 ) $ 3,937 $ ( 79,242 ) $ 16,997 See notes to unaudited consolidated financial statements. 5 CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY THREE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Common Stock Accumulated Other Comprehensive Income (Loss) (Net of Taxes) Total Shareholders’ Equity Retained Earnings (In thousands, except share amounts) Shares Amount Balance, June 30, 2021 12,329,089 $ 75,265 $ 162,910 $ 12,874 $ 251,049 Net income — — 6,521 — 6,521 Other comprehensive loss — — — ( 2,584 ) ( 2,584 ) Stock issued under employee stock purchase plan 2,470 48 — — 48 Stock-based compensation expense — 100 — — 100 Cash dividend — — ( 1,438 ) — ( 1,438 ) Stock options exercised 1,285 10 — — 10 Repurchase and retirement of common stock ( 344,940 ) ( 7,158 ) — — ( 7,158 ) Balance, September 30, 2021 11,987,904 $ 68,265 $ 167,993 $ 10,290 $ 246,548 Balance, June 30, 2022 11,717,146 $ 60,975 $ 183,197 $ ( 73,919 ) $ 170,253 Net income — — 6,384 — 6,384 Other comprehensive loss — — — ( 16,703 ) ( 16,703 ) Stock issued under employee stock purchase plan 3,515 53 — — 53 Stock-based compensation expense — 143 — — 143 Cash dividend — — ( 1,407 ) — ( 1,407 ) Stock options exercised 11,350 91 — — 91 Balance, September 30, 2022 11,732,011 $ 61,262 $ 188,174 $ ( 90,622 ) $ 158,814 6 CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 Common Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) (Net of Taxes) Total Shareholders’ Equity (In thousands, except share amounts) Shares Amount Balance, January 1, 2021 12,509,848 $ 79,416 $ 150,749 $ 14,856 245,021 Net income — — 21,563 — 21,563 Other comprehensive loss — — — ( 4,566 ) ( 4,566 ) Stock issued under employee stock purchase plan 10,141 159 — — 159 Stock awarded to employees 10,529 158 — — 158 Restricted stock granted net of forfeitures 20,720 — — — — Stock-based compensation expense — 310 — — 310 Cash dividend — — ( 4,319 ) — ( 4,319 ) Repurchase and retirement of common stock ( 584,619 ) ( 12,000 ) — — ( 12,000 ) Stock options exercised 21,285 222 — — 222 Balance, September 30, 2021 11,987,904 $ 68,265 $ 167,993 $ 10,290 $ 246,548 Balance, January 1, 2022 11,916,651 $ 66,820 $ 173,393 $ 7,632 $ 247,845 Net income — — 19,012 — 19,012 Other comprehensive loss — — — ( 98,254 ) ( 98,254 ) Restricted stock granted net of forfeitures 42,399 — — — — Stock issued under employee stock purchase plan 10,071 164 — — 164 Stock awarded to employees 13,446 279 — — 279 Stock-based compensation expense — 324 — — 324 Cash dividend — — ( 4,231 ) — ( 4,231 ) Stock options exercised 50,205 489 — — 489 Repurchase and retirement of common stock ( 300,761 ) ( 6,814 ) — — ( 6,814 ) Balance, September 30, 2022 11,732,011 $ 61,262 $ 188,174 $ ( 90,622 ) $ 158,814 See notes to unaudited consolidated financial statements. 7 CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Nine Months Ended September 30, (In thousands) 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 19,012 $ 21,563 Adjustments to reconcile net income to net cash provided by operating activities: Net (increase) decrease in deferred loan fees ( 419 ) 2,203 Depreciation 586 688 Accretion ( 892 ) ( 1,050 ) Amortization 7,201 5,752 Stock-based compensation 324 310 Provision for (reversal of) credit losses 500 ( 3,800 ) Net realized losses (gains) on sales and calls of available-for-sale investment securities 777 ( 38 ) Net gain on disposal of premises and equipment — ( 8 ) Net change in equity securities 872 148 Increase in bank-owned life insurance, net of expenses ( 736 ) ( 596 ) Net increase in accrued interest receivable and other assets ( 6,033 ) ( 1,878 ) Net (decrease) increase in accrued interest payable and other liabilities ( 6,586 ) 7,529 (Provision) benefit for deferred income taxes ( 662 ) 1,256 Net cash provided by operating activities 13,944 32,079 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of available-for-sale investment securities ( 301,699 ) ( 410,308 ) Proceeds from sales or calls of available-for-sale investment securities 235,645 10,760 Proceeds from maturity and principal repayments of available-for-sale investment securities 54,691 38,727 Proceeds from maturity and principal repayments of held-to-maturity investment securities 738 — Net (increase) decrease in loans ( 185,474 ) 17,593 Purchases of premises and equipment ( 115 ) ( 889 ) Purchases of bank-owned life insurance — ( 10,000 ) FHLB stock purchased ( 574 ) — Proceeds from sale of premises and equipment — 9 Net cash used in investing activities ( 196,788 ) ( 354,108 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in demand, interest bearing and savings deposits 30,257 335,370 Net (decrease) increase in time deposits ( 13,910 ) 12 Proceeds from short-term borrowings from Federal Home Loan Bank 2,090,326 — Repayments of short-term borrowings to Federal Home Loan Bank ( 2,065,326 ) — Proceeds of issuance of senior debt 30,000 — Purchase and retirement of common stock ( 6,814 ) ( 12,000 ) Proceeds from stock issued under employee stock purchase plan 164 159 Proceeds from exercise of stock options 489 222 Cash dividend payments on common stock ( 4,231 ) ( 4,319 ) Net cash provided by financing activities 60,955 319,444 Decrease in cash and cash equivalents ( 121,889 ) ( 2,585 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 163,467 70,278 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 41,578 $ 67,693 8 For the Nine Months Ended September 30, (In thousands) 2022 2021 SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: Cash paid during the period for : Interest $ 1,525 $ 866 Income taxes $ 5,614 $ 6,755 Operating cash flows from operating leases $ 1,653 $ 1,688 Non-cash investing and financing activities: Transfer of securities from available-for-sale to held-to-maturity $ 331,230 $ — Transfer of unrealized loss on securities from available-for-sale to held-to-maturity $ ( 25,328 ) $ — See notes to unaudited consolidated financial statements. 9 Note 1. Basis of Presentation The interim unaudited condensed consolidated financial statements of Central Valley Community Bancorp and subsidiary have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). These interim condensed consolidated financial statements include the accounts of Central Valley Community Bancorp and its wholly owned subsidiary Central Valley Community Bank (the Bank) (collectively, the Company). All significant intercompany accounts and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been omitted. The Company believes that the disclosures are adequate to make the information presented not misleading. These interim unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s 2021 Annual Report to Shareholders on Form 10-K. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company’s financial position at September 30, 2022, and the results of its operations and its cash flows for the nine month interim periods ended September 30, 2022 and 2021 have been included. The results of operations for interim periods are not necessarily indicative of results for the full year. The preparation of these interim unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Management has determined that since all of the banking products and services offered by the Company are available in each branch of the Bank, all branches are located within the same economic environment, and management does not allocate resources based on the performance of different lending or transaction activities, it is appropriate to aggregate the Bank branches and report them as a single operating segment. No customer accounts for more than 10 percent of revenues for the Company or the Bank. Impact of New Financial Accounting Standards: FASB Accounting Standards Update (ASU) 2016-13 - Measurement of Credit Losses on Financial Instruments (Subtopic 326) : Financial Instruments - Credit Losses, commonly referred to as “CECL,” was issued June 2016. The provisions of the update eliminate the probable initial recognition threshold under current GAAP which requires reserves to be based on an incurred loss methodology. Under CECL, reserves required for financial assets measured at amortized cost will reflect an organization’s estimate of all expected credit losses over the weighted average life of the financial asset and thereby require the use of reasonable and supportable forecasts to estimate future credit losses. Because CECL encompasses all financial assets carried at amortized cost, the requirement that reserves be established based on an organization’s reasonable and supportable estimate of expected credit losses extends to held to maturity (“HTM”) debt securities. Under the provisions of the update, credit losses recognized on available for sale (“AFS”) debt securities will be presented as an allowance as opposed to a write-down. In addition, CECL will modify the accounting for purchased loans, with credit deterioration since origination, so that reserves are established at the date of acquisition for purchased loans. Under current GAAP a purchased loan’s contractual balance is adjusted to fair value through a credit discount and no reserve is recorded on the purchased loan upon acquisition. Since under CECL, reserves will be established for purchased loans at the time of acquisition, the accounting for purchased loans is made more comparable to the accounting for originated loans. Finally, increased disclosure requirements under CECL require organizations to present the currently required credit quality disclosures disaggregated by the year of origination or vintage. The FASB expects that the evaluation of underwriting standards and credit quality trends by financial statement users will be enhanced with the additional vintage disclosures. On August 15, 2019, the FASB issued a proposed Accounting Standards Update (ASU), “Financial Instruments -Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates,” that would provide private entities and certain small public companies additional time to implement the standards on CECL, leases, and hedging. The final ASU extends the effective date for SEC filers, such as the Company, that are classified as smaller reporting companies to January 1, 2023. The Company has formed an internal task force that is responsible for oversight of the Company’s implementation strategy for compliance with provisions of the new standard. The Company has also established a project management governance process to manage the implementation across affected disciplines. An external provider specializing in bank loss driver and CECL reserving model design as well as other related consulting services has been retained. As part of this process, the Company has determined potential loan pool segmentation and sub-segmentation under CECL, as well as begun to evaluate the key economic loss drivers for each segment. Further, the Company has begun developing internal controls around the CECL process, data, calculations and implementation. The Company presently plans to generate and evaluate model scenarios under CECL in tandem with its current reserving processes for interim and annual reporting periods during the fourth quarter of 2022 due to the fact the Company elected to delay implementation of the CECL process as allowed by FASB. While the 10 Company is currently unable to reasonably estimate the impact of adopting this new guidance, management expects the impact of adoption will be significantly influenced by the composition and quality of the Company’s loans as well as the economic conditions as of the date of adoption. The Company also anticipates changes to the processes and procedures for calculating the reserve for credit losses and continues to evaluate the potential impact on our consolidated financial statements. FASB Accounting Standards Update (ASU) 2020-04 - Reference Rate Reform (Subtopic 848) : Facilitation of the Effects of Reference Rate Reform on Financial Reporting, was issued March 2020. This ASU provides optional expedients and exceptions for contracts, hedging relationships, and other transactions that reference LIBOR or other reference rates expected to be discontinued because of reference rate reform. The ASU is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is in the process of evaluating the provisions of this ASU and its effects on our consolidated financial statements. The Company believes the adoption of this guidance on activities subsequent to September 30, 2022 through December 31, 2022 will not have a material impact on the consolidated financial statements. FASB Accounting Standards Update (ASU) 2022-02 - Financial Instruments-Credit Losses (Subtopic 326). Troubled Debt Restructurings and Vintage Disclosures, was issued March 2022. The amendments in this update eliminate the accounting guidance for troubled debt restructurings (“TDRs”) by creditors in Subtopic 310-40, Receivables-Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring guidance in paragraphs 310-20-35-9 through 35-11 to determine whether a modification results in a new loan or a continuation of an existing loan. Additionally, for public business entities, the amendments in this Update require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost in the vintage disclosures required by paragraph 326-20-50-6. The guidance is effective for the Corporation upon the adoption of ASU 2016-13, January 1, 2023. The Company is currently assessing the impact of ASU 2022-02 on its disclosures and control structure; however, the Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements. In April 2020, various regulatory agencies, including the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, (“the agencies”) issued a revised interagency statement encouraging financial institutions to work with customers affected by the COVID-19 pandemic and providing additional information regarding loan modifications. The revised interagency statement clarifies the interaction between the interagency statement issued on March 22, 2020 and the temporary relief provided by Section 4013 of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. Section 4013 allows financial institutions to suspend the requirements to classify certain loan modifications troubled debt restructurings (“TDRs”). The revised statement also provides supervisory interpretations on past due and nonaccrual regulatory reporting of loan modification programs and regulatory capital. Section 4013 and the interagency guidance were applied by the Company to loan modifications made related to the COVID-19 pandemic as eligible and appropriate. The application of the guidance reduced the number of TDRs that were reported. In December 2020, the Consolidated Appropriations Act, 2021 was signed into law. Section 541 of this legislation, “Extension of Temporary Relief From Troubled Debt Restructurings and Insurer Clarification,” extended Section 4013 of the CARES Act to the earlier of January 1, 2022 or 60 days after the termination of the national emergency declared relating to COVID-19. This relief ended on January 1, 2022. Future TDRs are indeterminable and will depend on future developments, which are highly uncertain and cannot be predicted, including the economic recovery, market volatility and other actions taken by governmental authorities and other third parties as a result of the pandemic. Note 2. Fair Value Measurements Fair Value Hierarchy Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values: Level 1 — Quoted market prices (unadjusted) for identical instruments traded in active markets that the entity has the ability to access as of the measurement date. Level 2 —Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. 11 Level 3 — Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. Management monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, we report the transfer at the beginning of the reporting period. The estimated carrying and fair values of the Company’s financial instruments are as follows (in thousands): September 30, 2022 Carrying Amount Fair Value (In thousands) Level 1 Level 2 Level 3 Total Financial assets: Cash and due from banks $ 32,535 $ 32,535 $ — $ — $ 32,535 Interest-earning deposits in other banks 9,043 9,043 — — 9,043 Available-for-sale debt securities 668,300 — 668,300 — 668,300 Held-to-maturity investment securities 305,482 — 267,443 — 267,443 Equity securities 6,544 6,544 — — 6,544 Loans, net 1,214,904 — — 1,181,932 1,181,932 Federal Home Loan Bank stock 6,169 N/A N/A N/A N/A Accrued interest receivable 9,616 14 5,770 3,832 9,616 Financial liabilities: Deposits 2,139,144 2,063,024 75,157 — 2,138,181 Short-term borrowings 25,000 — 25,000 — 25,000 Senior debt and subordinated debentures 69,563 — — 63,451 63,451 Accrued interest payable 608 — 62 546 608 December 31, 2021 Carrying Amount Fair Value (In thousands) Level 1 Level 2 Level 3 Total Financial assets: Cash and due from banks $ 29,412 $ 29,412 $ — $ — $ 29,412 Interest-earning deposits in other banks 134,055 134,055 — — 134,055 Available-for-sale debt securities 1,109,208 — 1,109,208 — 1,109,208 Equity securities 7,416 7,416 — — 7,416 Loans, net 1,029,511 — — 1,015,052 1,015,052 Federal Home Loan Bank stock 5,595 N/A N/A N/A N/A Accrued interest receivable 9,395 7 6,076 3,312 9,395 Financial liabilities: Deposits 2,122,797 2,010,407 89,923 — 2,100,330 Subordinated debentures 39,454 — — 39,463 39,463 Accrued interest payable 202 — 30 172 202 These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates. These estimates are made at a specific point in time based on relevant market data and information about the financial instruments. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the fair values presented. The methods and assumptions used to estimate fair values are described as follows: 12 (a) Cash and Cash Equivalents — The carrying amounts of cash and due from banks, interest-earning deposits in other banks, and Federal funds sold approximate fair values and are classified as Level 1. (b) Investment Securities — Investment securities in Level 1 are mutual funds and fair values are based on quoted market prices for identical instruments traded in active markets. Fair values for investment securities classified in Level 2 are based on quoted market prices for similar securities in active markets. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators. (c) Loans — Fair values of loans are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Purchased credit impaired (PCI) loans are measured at estimated fair value on the date of acquisition. Carrying value is calculated as the present value of expected cash flows and approximates fair value and included in Level 3. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are initially valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for credit losses. For collateral dependent real estate loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. The estimated fair values of financial instruments disclosed above follow the guidance in ASU 2016-01 which prescribes an “exit price” approach in estimating and disclosing fair value of financial instruments incorporating discounts for credit, liquidity, and marketability factors. (d) FHLB Stock — It is not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability. (e) Deposits — Fair value of demand deposit, savings, and money market accounts are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. Fair value for fixed and variable rate certificates of deposit are estimated using discounted cash flow analyses using interest rates offered at each reporting date by the Company for certificates with similar remaining maturities resulting in a Level 2 classification. (f) Short-Term Borrowings — The fair values of the Company’s federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings, generally maturing within ninety days, are based on the market rates for similar types of borrowing arrangements resulting in a Level 2 classification. (g) Subordinated Debentures and Senior Debt — The fair values of the Company’s Subordinated Debentures and Senior Debt are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification. (h) Accrued Interest Receivable/Payable — The fair value of accrued interest receivable and payable is based on the fair value hierarchy of the related asset or liability. (i) Off-Balance Sheet Instruments — Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not considered significant for financial reporting purposes. Assets Recorded at Fair Value The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of September 30, 2022 and December 31, 2021: 13 Recurring Basis The Company is required or permitted to record the following assets at fair value on a recurring basis under other accounting pronouncements (in thousands): Fair Value Measurements Using September 30, 2022 Fair Value Level 1 Level 2 Level 3 Available-for-sale debt securities: U.S. Treasury securities $ 8,548 $ — $ 8,548 $ — U.S. Government agencies 333 — 333 — Obligations of states and political subdivisions 182,598 — 182,598 — U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations 115,340 — 115,340 — Private label mortgage and asset backed securities 361,481 — 361,481 — Equity securities 6,544 6,544 — — Total assets measured at fair value on a recurring basis $ 674,844 $ 6,544 $ 668,300 $ — Fair Value Measurements Using December 31, 2021 Fair Value Level 1 Level 2 Level 3 Available-for-sale debt securities: U.S. Treasury securities $ 9,925 $ — $ 9,925 $ — U.S. Government agencies 379 — 379 — Obligations of states and political subdivisions 526,467 — 526,467 — U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations 214,439 — 214,439 — Private label mortgage and asset backed securities 313,220 — 313,220 — Corporate debt securities 44,778 — 44,778 — Equity securities 7,416 7,416 — — Total assets measured at fair value on a recurring basis $ 1,116,624 $ 7,416 $ 1,109,208 $ — Securities in Level 1 are mutual funds and fair values are based on quoted market prices for identical instruments traded in active markets. Fair values for available-for-sale debt securities in Level 2 are based on quoted market prices for similar securities in active markets. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators. Management evaluates the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total assets, total liabilities or total earnings. During the periods ended September 30, 2022 and December 31, 2021, no transfers between levels occurred. There were no Level 3 assets measured at fair value on a recurring basis at or during the periods ended September 30, 2022 and December 31, 2021. Also there were no liabilities measured at fair value on a recurring basis at September 30, 2022 or December 31, 2021. Non-recurring Basis The Company may be required, from time to time, to measure certain assets and liabilities at fair value on a non-recurring basis. These include assets and liabilities that are measured at the lower of cost or fair value that were recognized at fair value which was below cost at September 30, 2022 and December 31, 2021. As of September 30, 2022, there were no impaired loans measured for impairment using the fair value. Those measured at December 31, 2021 were (in thousands): December 31, 2021 Fair Value Level 1 Level 2 Level 3 Impaired loans: Real estate-construction and other land loans $ 262 $ — $ — $ 262 Total assets measured at fair value on a non-recurring basis $ 262 $ — $ — $ 262 14 15 At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for credit losses. For collateral dependent real estate loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. The fair value of impaired loans is based on the fair value of the collateral. Impaired loans were determined to be collateral dependent and categorized as Level 3 due to ongoing real estate market conditions resulting in inactive market data, which in turn required the use of unobservable inputs and assumptions in fair value measurements. Impaired loans evaluated under the discounted cash flow method are excluded from the table above. The discounted cash flow methods as prescribed by ASC Topic 310 is not a fair value measurement since the discount rate utilized is the loan’s effective interest rate which is not necessarily a market rate. There were no changes in valuation techniques used during the nine months ended September 30, 2022 or the year ended December 31, 2021. Appraisals for collateral-dependent impaired loans are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, the assumptions and approaches utilized in the appraisal as well as the overall resultin g fair value is compared with independent data sources such as recent market data or industry-wide statistics. Impaired loans that are measured for impairment on a non-recurring basis using the fair value of the collateral for collateral dependent loans had a principal balance of $ 292,000 with a valuation allowance of $ 30,000 at December 31, 2021, resulting in a fair value of $262,000. The valuation allowance represents specific allocations for the allowance for credit losses for impaired loans. There were no charge-offs related to loans carried at fair value during the nine months ended September 30, 2022. Activity related to changes in the allowance for loan losses related to impaired loans for the three months ended September 30, 2022 and 2021 was not considered significant for disclosure purposes. There were no liabilities measured at fair value on a non-recurring basis at September 30, 2022 or December 31, 2021. Note 3. Investments The investm ent portfolio consists primarily of U.S. Government sponsored entity and agency securities collateralized by residential mortgage obligations, private label mortgage and asset backed securities (PLMABS), corporate debt securities, and obligations of states and political subdivisions securities. As of September 30, 2022, $ 177,503,000 of these securities were held as collateral for borrowing arrangements, pub lic funds, and for other purposes. The fair value of the available-for-sale investment portfolio reflected a net unrealized loss of $( 104,377,000 ) at September 30, 2022 compared to an unrealized gain of $ 10,835,000 at December 31, 2021. 16 The following table sets forth the carrying values and estimated fair values of our investment securities portfolio at the dates indicated (in thousands): September 30, 2022 Available-for-Sale Securities Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Debt securities: U.S. Treasury securities $ 9,989 $ — $ ( 1,441 ) $ 8,548 U.S. Government agencies 344 — ( 11 ) 333 Obligations of states and political subdivisions 219,720 28 ( 37,150 ) 182,598 U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations 123,093 3 ( 7,756 ) 115,340 Private label mortgage and asset backed securities 419,531 137 ( 58,187 ) 361,481 Total available-for-sale $ 772,677 $ 168 $ ( 104,545 ) $ 668,300 September 30, 2022 Held-to-Maturity Securities Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Debt securities: Obligations of states and political subdivisions $ 191,975 $ 25 $ ( 28,121 ) $ 163,879 U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations 10,350 — ( 1,317 ) 9,033 Private label mortgage and asset backed securities 57,201 — ( 6,033 ) 51,168 Corporate debt securities 45,956 — ( 2,593 ) 43,363 Total held-to-maturity $ 305,482 $ 25 $ ( 38,064 ) $ 267,443 December 31, 2021 Available-for-Sale Securities Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Debt securities: U.S. Treasury securities $ 9,988 $ — $ ( 63 ) $ 9,925 U.S. Government agencies 373 6 — 379 Obligations of states and political subdivisions 512,952 16,703 ( 3,188 ) 526,467 U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations 213,471 2,245 ( 1,277 ) 214,439 Private label mortgage and asset backed securities 317,089 824 ( 4,693 ) 313,220 Corporate debt securities 44,500 595 ( 317 ) 44,778 Total available-for-sale $ 1,098,373 $ 20,373 $ ( 9,538 ) $ 1,109,208 Proceeds and gross realized gains (losses) from the sales or calls of investment securities for the periods ended September 30, 2022 and 2021 are shown below (in thousands): For the Three Months Ended September 30, For the Nine Months Ended September 30, Available-for-Sale Securities 2022 2021 2022 2021 Proceeds from sales or calls $ 275 $ 10,170 $ 235,645 $ 10,760 Gross realized gains from sales or calls — 117 5,123 117 Gross realized losses from sales or calls ( 14 ) — ( 5,900 ) ( 79 ) 17 During the second quarter of 2022, the Company designated certain securities previously classified as available-for-sale to the held-to-maturity classification. The securities designated consisted of obligations of states and political subdivision securities, U.S. Government sponsored entity and agency securities collateralized by residential mortgage obligations, private label mortgage and asset backed securities, and corporate debt securities with a total carrying value of $ 306.7 million at April 1, 2022. At the time of re-designation the securities included $ 25.3 million of pretax unrealized losses in other comprehensive income which is being amortized over the remaining life of the securities in a manner consistent with the amortization of a premium or discount. As market interest rates or risks associated with an available-for-sale security’s issuer continue to change and impact the actual or perceived values of investment securities, the Company may determine that selling these securities and using proceeds to purchase securities that fit with the Company’s current risk profile is appropriate and beneficial to the Company. The provision for income taxes includes a $( 230,000 ) and $ 11,000 income (benefit) tax impact from unrealized net losses and gains on securities realized through security sales for the nine months ended September 30, 2022 and 2021. Investment securities, aggregated by investment category, with unrealized losses as of the dates indicated are summarized and classified according to the duration of the loss period as follows (in thousands): September 30, 2022 Less than 12 Months 12 Months or More Total Fair Unrealized Fair Unrealized Fair Unrealized Available-for-Sale Securities Value Losses Value Losses Value Losses Debt securities: U.S. Treasury securities $ — $ — $ 8,548 $ ( 1,441 ) $ 8,548 $ ( 1,441 ) U.S. Government agencies 333 ( 11 ) — — 333 ( 11 ) Obligations of states and political subdivisions 165,535 ( 32,830 ) 17,063 ( 4,320 ) 182,598 ( 37,150 ) U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations 66,164 ( 3,371 ) 49,176 ( 4,385 ) 115,340 ( 7,756 ) Private label mortgage and asset backed securities 202,786 ( 26,135 ) 158,695 ( 32,052 ) 361,481 ( 58,187 ) Total available-for-sale $ 434,818 $ ( 62,347 ) $ 233,482 $ ( 42,198 ) $ 668,300 $ ( 104,545 ) September 30, 2022 Less than 12 Months 12 Months or More Total Fair Unrealized Fair Unrealized Fair Unrealized Held-to-Maturity Securities Value Losses Value Losses Value Losses Debt securities: Obligations of states and political subdivisions $ 87,855 $ ( 15,353 ) $ 76,024 $ ( 12,768 ) $ 163,879 $ ( 28,121 ) U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations — — 9,033 ( 1,317 ) 9,033 ( 1,317 ) Private label mortgage and asset backed securities 35,419 ( 4,702 ) 15,749 ( 1,331 ) 51,168 ( 6,033 ) Corporate debt securities 26,916 ( 1,501 ) 16,447 ( 1,092 ) 43,363 ( 2,593 ) Total held-to-maturity $ 150,190 $ ( 21,556 ) $ 117,253 $ ( 16,508 ) $ 267,443 $ ( 38,064 ) 18 December 31, 2021 Less than 12 Months 12 Months or More Total Fair Unrealized Fair Unrealized Fair Unrealized Available-for-Sale Securities Value Losses Value Losses Value Losses Debt securities: U.S. treasury securities $ 9,925 $ ( 63 ) $ — $ — $ 9,925 $ ( 63 ) Obligations of states and political subdivisions 143,336 ( 2,896 ) 6,336 ( 292 ) 149,672 ( 3,188 ) U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations 91,385 ( 905 ) 40,365 ( 372 ) 131,750 ( 1,277 ) Private label mortgage and asset backed securities 230,987 ( 3,661 ) 28,908 ( 1,032 ) 259,895 ( 4,693 ) Corporate debt securities 21,183 ( 317 ) — — 21,183 ( 317 ) Total available-for-sale $ 496,816 $ ( 7,842 ) $ 75,609 $ ( 1,696 ) $ 572,425 $ ( 9,538 ) The Company periodically evaluates each investment security for other-than-temporary impairment, relying primarily on industry analyst reports, observation of market conditions, and interest rate fluctuations. The portion of the impairment that is attributable to a shortage in the present value of expected future cash flows relative to the amortized cost should be recorded as a current period charge to earnings. The discount rate in this analysis is the original yield expected at time of purchase. As of September 30, 2022, the Company performed an analysis of the investment portfolio to determine whether any of the investments held in the portfolio had an other-than-temporary impairment (OTTI). The Company evaluated all individual available-for-sale investment securities with an unrealized loss at September 30, 2022 and identified those that had an unrealized loss for at least a consecutive 12 month period, which had an unrealized loss at September 30, 2022 greater than 10 % of the recorded book value on that date, or which had an unrealized loss of more than $ 75,000 . The Company also analyzed any securities that may have been downgraded by credit rating agencies. For those investment securities that met the evaluation criteria, management obtained and reviewed the most recently published national credit ratings for those investment securities. There were no OTTI losses recorded during the nine months ended September 30, 2022. U.S. Treasury Securities At September 30, 2022, the Company held one U.S. Treasury security which was in a loss position for more than 12 months. The unrealized losses on the Company’s investments in U.S. Treasury securities were caused by interest rate changes. 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 September 30, 2022. U.S. Government Agencies At September 30, 2022, the Company held one U.S. Government agency security which was in a loss position for less than 12 months. Obligations of States and Political Subdivisions At September 30, 2022, the Company held 97 obligations of states and political subdivision securities of which 73 were in a loss position for less than 12 months and 22 have been in a loss position for more than 12 months. The unrealized losses on the Company’s investments in obligations of states and political subdivision securities were caused by interest rate changes. 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 September 30, 2022. 19 U.S. Government Sponsored Entities and Agencies Collateralized by Residential Mortgage Obligations At September 30, 2022, the Company held 85 U.S. Government sponsored entity and agency securities collateralized by residential mortgage obligations of which 49 were in a loss position for less than 12 months and 15 have been in a loss position for more than 12 months. The unrealized losses on the Company’s investments in U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations were caused by interest rate changes. The contractual cash flows of those investments are guaranteed or supported by an agency or sponsored entity of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment. 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 September 30, 2022. Private Label Mortgage and Asset Backed Securities At September 30, 2022, the Company had a total of 97 Private Label Mortgage and Asset Backed Securities (PLMABS). 48 of the PLMABS securities were in a loss position for less than 12 months and 45 have been in loss for more than 12 months at September 30, 2022. 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 September 30, 2022. The Company continues to monitor these securities for indications that declines in value, if any, may be other-than-temporary. Corporate Debt Securities At September 30, 2022, the Company held 13 corporate debt securities of which 8 were in a loss position for less than 12 months and 5 have been in a loss position for more than 12 months. The unrealized loss on the Company’s investments in corporate debt security was caused by interest rate changes. 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 September 30, 2022. 20 The amortized cost and estimated fair value of available-for-sale and held-to maturity investment securities at September 30, 2022 by contractual maturity is shown below (in thousands). Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties. September 30, 2022 Available-for-Sale Securities Amortized Cost Estimated Fair Value Within one year $ — $ — After one year through five years — — After five years through ten years 46,640 38,868 After ten years 183,069 152,279 229,709 191,147 Investment securities not due at a single maturity date: U.S. Government agencies 344 333 U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations 123,093 115,340 Private label mortgage and asset backed securities 419,531 361,480 Total available-for-sale $ 772,677 $ 668,300 September 30, 2022 Held-to-Maturity Securities Amortized Cost Estimated Fair Value Within one year $ — $ — After one year through five years 131 124 After five years through ten years 49,810 44,318 After ten years 142,034 119,437 191,975 163,879 Investment securities not due at a single maturity date: U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations 10,350 9,033 Private label mortgage and asset backed securities 57,201 51,168 Corporate debt securities 45,956 43,363 Total held-to-maturity $ 305,482 $ 267,443 21 Note 4. Loans and Allowance for Credit Losses Outstanding loans are summarized as follows: Loan Type (Dollars in thousands) September 30, 2022 % of Total Loans December 31, 2021 % of Total Loans Commercial: Commercial and industrial $ 147,715 12.1 % $ 136,847 13.2 % Agricultural production 35,125 2.9 % 40,860 3.9 % Total commercial 182,840 15.0 % 177,707 17.1 % Real estate: Owner occupied 195,272 15.9 % 212,234 20.4 % Real estate construction and other land loans 97,169 7.9 % 61,586 5.9 % Commercial real estate 451,588 37.0 % 369,529 35.6 % Agricultural real estate 115,477 9.4 % 98,481 9.5 % Other real estate 24,776 2.0 % 26,084 2.5 % Total real estate 884,282 72.2 % 767,914 73.9 % Consumer: Equity loans and lines of credit 121,305 9.9 % 55,620 5.4 % Consumer and installment 35,546 2.9 % 36,999 3.6 % Total consumer 156,851 12.8 % 92,619 9.0 % Net deferred origination fees 1,297 871 Total gross loans 1,225,270 100.0 % 1,039,111 100.0 % Allowance for credit losses ( 10,366 ) ( 9,600 ) Total loans $ 1,214,904 $ 1,029,511 At September 30, 2022 and December 31, 2021, loans originated under Small Business Administration (SBA) programs totaling $ 21,090,000 and $ 23,024,000 , respectively, were included in the real estate and commercial categories, of which, $ 16,242,000 or 77 % and $ 17,720,000 or 77 %, respectively, are secured by government guarantees. In addition, the Company participated in the SBA Paycheck Protection Program (PPP) to help provide loans to our business customers to provide them with additional working capital. At September 30, 2022, two PPP loans totaling $ 350,000 were outstanding and included in the commercial and industrial line item above. At December 31, 2021, 70 PPP loans totaling $ 18,553,000 were outstanding and included in the commercial and industrial line item above. Allowance for Credit Losses The allowance for credit losses (the “Allowance”) is a valuation allowance for probable incurred credit losses in the Company’s loan portfolio. The Allowance is established through a provision for credit losses which is charged to expense. Additions to the Allowance are expected to maintain the adequacy of the total Allowance after credit losses and loan growth. Credit exposures determined to be uncollectible are charged against the Allowance. Cash received on previously charged-off credits is recorded as a recovery to the Allowance. The overall Allowance consists of two primary components, specific reserves related to impaired loans and general reserves for probable incurred losses related to loans that are not impaired. For all portfolio segments, the determination of the general reserve for loans that are not impaired is based on estimates made by management, including but not limited to, consideration of historical losses by portfolio segment (and in certain cases peer data) over the most recent 55 quarters, and qualitative factors including economic trends in the Company’s service areas, industry experience and trends, geographic concentrations, estimated collateral values, the Company’s underwriting policies, the character of the loan portfolio, and probable losses inherent in the portfolio taken as a whole. 22 The following table shows the summary of activities for the Allowance as of and for the three months ended September 30, 2022 and 2021 by portfolio segment (in thousands): Commercial Real Estate Consumer Unallocated Total Allowance for credit losses: Beginning balance, July 01, 2022 $ 1,973 $ 6,994 $ 769 $ 137 $ 9,873 Provision (reversal) charged to operations 118 418 ( 29 ) ( 7 ) 500 Charge-offs — — ( 20 ) — ( 20 ) Recoveries — — 13 — 13 Ending balance, September 30, 2022 $ 2,091 $ 7,412 $ 733 $ 130 $ 10,366 Allowance for credit losses: Beginning balance, July 1, 2021 $ 2,210 $ 7,050 $ 828 $ 351 $ 10,439 Provision (reversal) charged to operations 118 ( 434 ) ( 230 ) 46 ( 500 ) Charge-offs ( 15 ) — ( 19 ) — ( 34 ) Recoveries 21 — 135 — 156 Ending balance, September 30, 2021 $ 2,334 $ 6,616 $ 714 $ 397 $ 10,061 The following table shows the summary of activities for the Allowance as of and for the nine months ended September 30, 2022 and 2021 by portfolio segment (in thousands): Commercial Real Estate Consumer Unallocated Total Allowance for credit losses: Beginning balance, January 1, 2022 $ 2,011 $ 6,741 $ 568 $ 280 $ 9,600 (Reversal) provision charged to operations ( 269 ) 671 248 ( 150 ) 500 Losses charged to allowance ( 18 ) — ( 120 ) — ( 138 ) Recoveries 367 — 37 — 404 Ending balance, September 30, 2022 $ 2,091 $ 7,412 $ 733 $ 130 $ 10,366 Allowance for credit losses: Beginning balance, January 1, 2021 $ 2,019 $ 9,174 $ 1,091 $ 631 $ 12,915 Reversal charged to operations ( 321 ) ( 2,877 ) ( 368 ) ( 234 ) ( 3,800 ) Losses charged to allowance ( 46 ) — ( 215 ) — ( 261 ) Recoveries 682 319 206 — 1,207 Ending balance, September 30, 2021 $ 2,334 $ 6,616 $ 714 $ 397 $ 10,061 The following is a summary of the Allowance by impairment methodology and portfolio segment as of September 30, 2022 and December 31, 2021 (in thousands): Commercial Real Estate Consumer Unallocated Total Allowance for credit losses: Ending balance, September 30, 2022 $ 2,091 $ 7,412 $ 733 $ 130 $ 10,366 Ending balance: individually evaluated for impairment $ 337 $ 7 $ — $ — $ 344 Ending balance: collectively evaluated for impairment $ 1,754 $ 7,405 $ 733 $ 130 $ 10,022 Ending balance, December 31, 2021 $ 2,011 $ 6,741 $ 568 $ 280 $ 9,600 Ending balance: individually evaluated for impairment $ 607 $ 38 $ 4 $ — $ 649 Ending balance: collectively evaluated for impairment $ 1,404 $ 6,703 $ 564 $ 280 $ 8,951 23 The following table shows the ending balances of loans as of September 30, 2022 and December 31, 2021 by portfolio segment and by impairment methodology (in thousands): Commercial Real Estate Consumer Total Loans: Ending balance, September 30, 2022 $ 182,840 $ 884,282 $ 156,851 $ 1,223,973 Ending balance: individually evaluated for impairment $ 1,490 $ 150 $ 1,025 $ 2,665 Ending balance: collectively evaluated for impairment $ 181,350 $ 884,132 $ 155,826 $ 1,221,308 Loans: Ending balance, December 31, 2021 $ 177,707 $ 767,914 $ 92,619 $ 1,038,240 Ending balance: individually evaluated for impairment $ 7,086 $ 450 $ 1,050 $ 8,586 Ending balance: collectively evaluated for impairment $ 170,621 $ 767,464 $ 91,569 $ 1,029,654 The following table shows the loan portfolio by class allocated by management’s internal risk ratings at September 30, 2022 (in thousands): Pass Special Mention Sub-Standard Doubtful Total Commercial: Commercial and industrial $ 135,972 $ 10,044 $ 1,699 $ — $ 147,715 Agricultural production 27,738 4,339 3,048 — 35,125 Real Estate: Owner occupied 189,648 3,441 2,183 — 195,272 Real estate construction and other land loans 83,956 — 13,213 — 97,169 Commercial real estate 446,273 2,881 2,434 — 451,588 Agricultural real estate 105,521 9,956 — — 115,477 Other real estate 24,776 — — — 24,776 Consumer: Equity loans and lines of credit 121,036 224 45 — 121,305 Consumer and installment 35,502 9 35 — 35,546 Total $ 1,170,422 $ 30,894 $ 22,657 $ — $ 1,223,973 The following table shows the loan portfolio by class allocated by management’s internally assigned risk grade ratings at December 31, 2021 (in thousands): Pass Special Mention Sub-Standard Doubtful Total Commercial: Commercial and industrial $ 125,537 $ 8,724 $ 2,586 $ — $ 136,847 Agricultural production 37,179 1,325 2,356 — 40,860 Real Estate: Owner occupied 205,092 3,582 3,560 — 212,234 Real estate construction and other land loans 54,066 7,520 — — 61,586 Commercial real estate 351,395 18,134 — — 369,529 Agricultural real estate 96,949 1,532 — — 98,481 Other real estate 26,084 — — — 26,084 Consumer: Equity loans and lines of credit 55,611 9 — — 55,620 Consumer and installment 36,942 19 38 — 36,999 Total $ 988,855 $ 40,845 $ 8,540 $ — $ 1,038,240 24 The following table shows an aging analysis of the loan portfolio by class and the time past due at September 30, 2022 (in thousands): 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Past Due Total Past Due Current Total Loans Recorded Investment > 90 Days Accruing Non-accrual Commercial: Commercial and industrial $ — $ — $ — $ — $ 147,715 $ 147,715 $ — $ 251 Agricultural production — — — — 35,125 35,125 — — Real estate: — — Owner occupied 251 — — 251 195,021 195,272 — — Real estate construction and other land loans — — — — 97,169 97,169 — — Commercial real estate — — — — 451,588 451,588 — — Agricultural real estate — — — — 115,477 115,477 — — Other real estate — — — — 24,776 24,776 — — Consumer: — Equity loans and lines of credit — — — — 121,305 121,305 — — Consumer and installment 235 — — 235 35,311 35,546 — — Total $ 486 $ — $ — $ 486 $ 1,223,487 $ 1,223,973 $ — $ 251 The following table shows an aging analysis of the loan portfolio by class and the time past due at December 31, 2021 (in thousands): 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Past Due Total Past Due Current Total Loans Recorded Investment > 90 Days Accruing Non- accrual Commercial: Commercial and industrial $ 1 $ — $ — $ 1 $ 136,846 $ 136,847 $ — $ 312 Agricultural production — — — — 40,860 40,860 — 634 Real estate: — Owner occupied — — — — 212,234 212,234 — — Real estate construction and other land loans — — — — 61,586 61,586 — — Commercial real estate — — — — 369,529 369,529 — — Agricultural real estate — — — — 98,481 98,481 — — Other real estate — — — — 26,084 26,084 — — Consumer: Equity loans and lines of credit — — — — 55,620 55,620 — — Consumer and installment 79 — — 79 36,920 36,999 — — Total $ 80 $ — $ — $ 80 $ 1,038,160 $ 1,038,240 $ — $ 946 25 The following table shows information related to impaired loans by class at September 30, 2022 (in thousands): Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Consumer: Equity loans and lines of credit $ 1,025 $ 1,060 $ — Total with no related allowance recorded 1,025 1,060 — With an allowance recorded: Commercial: Commercial and industrial 1,490 1,543 337 Real estate: Commercial real estate 129 129 2 Agricultural real estate 21 21 5 Total real estate 150 150 7 Total with an allowance recorded 1,640 1,693 344 Total $ 2,665 $ 2,753 $ 344 The recorded investment in loans excludes accrued interest receivable and net loan origination fees, due to immateriality. The following table shows information related to impaired loans by class at December 31, 2021 (in thousands): Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Consumer: Equity loans and lines of credit $ 136 $ 172 $ — Total with no related allowance recorded 136 172 — With an allowance recorded: Commercial: Commercial and industrial 6,452 6,491 544 Agricultural production 634 714 63 Total commercial 7,086 7,205 607 Real estate: Real estate construction and other land loans 292 292 30 Commercial real estate 137 138 3 Agricultural real estate 21 21 5 Total real estate 450 451 38 Consumer: Equity loans and lines of credit 914 914 4 Total consumer 914 914 4 Total with an allowance recorded 8,450 8,570 649 Total $ 8,586 $ 8,742 $ 649 The recorded investment in loans excludes accrued interest receivable and net loan origination fees, due to immateriality. The following tables present by class, information related to the average recorded investment and interest income recognized on impaired loans for the three months ended September 30, 2022 and 2021 (in thousands). 26 Three Months Ended September 30, 2022 Three Months Ended September 30, 2021 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial: Commercial and industrial $ — $ — $ 123 $ — Total commercial — — 123 — Real estate: Real estate construction and other land loans $ — $ — $ 234 $ — Commercial real estate — — 365 — Total real estate — — 599 — Consumer: Equity loans and lines of credit 1,036 24 139 3 Total consumer 1,036 24 139 3 Total with no related allowance recorded 1,036 24 861 3 With an allowance recorded: Commercial: Commercial and industrial 2,270 48 5,538 129 Agricultural production — — 1,063 — Total commercial 2,270 48 6,601 129 Real estate: Real estate construction and other land loans — — 76 5 Commercial real estate 132 2 141 2 Agricultural real estate 21 1 28 — Total real estate 153 3 245 7 Consumer: Equity loans and lines of credit — — 922 14 Total consumer — — 922 14 Total with an allowance recorded 2,423 51 7,768 150 Total $ 3,459 $ 75 $ 8,629 $ 153 27 Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial: Commercial and industrial $ 57 $ — $ 56 $ — Agricultural land and production 33 — — — Total commercial 90 — 56 — Real estate: Owner occupied — — 72 — Real estate construction and other land loans — — 203 — Commercial real estate — — 446 — Total real estate — — 721 — Consumer: Equity loans and lines of credit 673 56 141 9 Total with no related allowance recorded 763 56 918 9 With an allowance recorded: Commercial: Commercial and industrial 2,612 103 6,217 282 Agricultural land and production 63 — 983 — Total commercial 2,675 103 7,200 282 Real estate: Real estate construction and other land loans 114 — 785 16 Commercial real estate 133 6 144 7 Agricultural real estate 21 1 29 1 Total real estate 268 7 958 24 Consumer: Equity loans and lines of credit 364 — 928 40 Consumer and installment — — 18 — Total consumer 364 — 946 40 Total with an allowance recorded 3,307 110 9,104 346 Total $ 4,070 $ 166 $ 10,022 $ 355 Foregone interest on nonaccrual loans totaled $ 132,000 and $ 101,000 for the nine month period ended September 30, 2022 and 2021, respectively. Foregone interest on nonaccrual loans totaled 75,000 and 30,000 for the three month period ended September 30, 2022 and 2021, respectively. Troubled Debt Restructurings: As of September 30, 2022 and December 31, 2021, the Company has a recorded investment in troubled debt restructurings (“TDR”) of $ 2,415,000 and $ 7,640,000 , respectively. The Company has allocated $ 525,000 and $ 538,000 of specific reserves to loans whose terms have been modified in troubled debt restructurings as of September 30, 2022 and December 31, 2021, respectively. For the nine months ended September 30, 2022 and 2021, the terms of certain loans were modified as TDRs. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan or an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk. During the same period, there were no troubled debt restructurings in which the amount of principal or accrued interest owed from the borrower was forgiven or which resulted in a charge-off or change to the allowance for loan losses. 28 As discussed in Note 1 to these financial statements, Section 4013 of the CARES Act and the “ Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) ” provided banks an option to elect to not account for certain loan modifications related to COVID-19 as TDRs as long as the borrowers were not more than 30 days past due as of December 31, 2019 or at the time of modification program implementation, respectively, and the borrowers meet other applicable criteria. In accordance with such guidance, during 2020 and throughout 2021 the Company offered short-term modifications in response to COVID-19 to borrowers who were current and otherwise not past due. As of September 30, 2022, there were no such loans remaining on deferral. During the nine months ended September 30, 2022, no loans were modified as troubled debt restructuring. The following table presents loans by class modified as troubled debt restructurings that occurred during the nine months ended September 30, 2021 (in thousands): Troubled Debt Restructurings: Number of Loans Pre-Modification Outstanding Recorded Investment (1) Principal Modification (2) Post Modification Outstanding Recorded Investment (3) Outstanding Recorded Investment Commercial: Commercial and Industrial 1 $ 2,989 $ — $ 2,489 $ 2,489 Real Estate: Real estate-construction and other land loans 1 333 — 333 305 Total 2 $ 3,322 $ — $ 2,822 $ 2,794 (1) Amounts represent the recorded investment in loans before recognizing effects of the TDR, if any. (2) Principal modification includes principal forgiveness at the time of modification, contingent principal forgiveness granted over the life of the loan based on borrower performance, and principal that has been legally separated and deferred to the end of the loan, with zero percent contractual interest rate. (3) Balance outstanding after principal modification, if any borrower reduction to recorded investment. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. There were no defaults on troubled debt restructurings, within twelve months following the modification, during the nine months ended September 30, 2022 or September 30, 2021. Note 5. Goodwill Business combinations involving the Company’s acquisition of the equity interests or net assets of another enterprise give rise to goodwill. Total goodwill at September 30, 2022, 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 acquisition 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. A significant decline in net earnings, among other factors, could be indicative of a decline in the fair value of goodwill and result in impairment. For that reason, goodwill is assessed at least annually for impairment. Management performed an annual impairment test in the third quarter of 2022 utilizing various qualitative factors. Management believes these factors are sufficient and comprehensive and as such, no further factors need to be assessed at this time. Based on management’s analysis performed, no impairment was required. Goodwill is also tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the Company below its carrying amount. No such events or circumstances arose during the first nine months of 2022. Note 6. Borrowing Arrangements As of September 30, 2022 the Company had $ 25,000,000 Federal Home Loan Bank (“FHLB”) of San Francisco advances as compared to none at December 31, 2021. Approximately $ 472,949,000 in loans were pledged under a blanket lien as collateral to the FHLB for the Bank’s remaining borrowing capacity of $ 277,058,000 as of September 30, 2022. FHLB advances are also secured by investment securities with amortized costs totaling $ 90,000 and $ 112,000 and market values totaling $ 95,000 and $ 117,000 at September 30, 2022 and December 31, 2021, respectively. The Bank’s credit limit varies according to the amount and 29 composition of the investment and loan portfolios pledged as collateral. As of September 30, 2022, and December 31, 2021 the Company had no Federal funds purchased. Note 7. Senior Debt and Subordinated Debentures The following table summarizes the Company’s subordinated debentures: (Dollars in thousands) September 30, 2022 December 31, 2021 Fixed - floating rate subordinated debentures, due 2031 $ 35,000 $ 35,000 Unamortized debt issuance costs ( 592 ) ( 701 ) Floating rate senior debt bank loan, due 2032 30,000 — Junior subordinated deferrable interest debentures, due October 2036 5,155 5,155 Total subordinated debentures $ 69,563 $ 39,454 Junior Subordinated Debentures Service 1 st Capital Trust I is a Delaware business trust formed by Service 1 st . The Company succeeded to all of the rights and obligations of Service 1 st in connection with the merger with Service 1 st as of November 12, 2008. The Trust was formed on August 17, 2006 for the sole purpose of issuing trust preferred securities fully and unconditionally guaranteed by Service 1 st . 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. At September 30, 2022, all of the trust preferred securities that have been issued qualify as Tier 1 capital. The trust preferred securities mature on October 7, 2036, are redeemable at the Company’s option, 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 1 st ’s junior subordinated notes (the Notes). The Notes bear interest at the same variable interest rate during the same quarterly periods as the trust preferred securities. The Notes are redeemable by the Company on any January 7, April 7, July 7, or October 7 or at any time within 90 days following the occurrence of certain events, such as: (i) a change in the regulatory capital treatment of the Notes (ii) in the event the Trust is deemed an investment company or (iii) upon the occurrence of certain adverse tax events. In each such case, the Company may redeem the Notes for their aggregate principal amount, plus any accrued but unpaid interest. The Notes may be declared immediately due and payable at the election of the trustee or holders of 25 % of the aggregate principal amount of outstanding Notes in the event that the Company defaults in the payment of any interest following the nonpayment of any such interest for 20 or more consecutive quarterly periods. Holders of the trust preferred securities are entitled to a cumulative cash distribution on the liquidation amount of $ 1,000 per security. 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 %. As of September 30, 2022, the rate was 2.64 %. Interest expense recognized by the Company for the nine months ended September 30, 2022 and 2021 was $ 112,000 and $ 70,000 , respectively. Subordinated Debentures On November 12, 2021, the Company completed a private placement of $ 35.0 million aggregate principal amount of its fixed-to-floating rate subordinated notes (“Subordinated Debt”) due December 1, 2031. The Subordinated Debt initially bears a fixed interest rate of 3.125 % per year. Commencing on December 1, 2026, the interest rate on the Subordinated Debt will reset each quarter at a floating interest rate equal to the then-current three month term SOFR plus 210 basis points. The Company may at its option redeem in whole or in part the Subordinated Debt on or after November 12, 2026 without a premium. The Subordinated Debt is treated as Tier 2 Capital for regulatory purposes. Senior Debt On September 15, 2022, the Company entered into a $ 30.0 million loan agreement with Bell Bank. Initially, payments of interest only are payable in 12 quarterly payments commencing December 31, 2022. Commencing December 31, 2025, 27 equal quarterly principal and interest payments are payable based on the outstanding balance of the loan on August 30, 2025 and an amortization of 48 quarters. A final payment of outstanding principal and accrued interest is due at maturity on September 30, 2032. Variable interest is payable at the Prime Rate (published by the Wall Street Journal) less 50 basis points. 30 The loan is secured by the assets of the Company and a pledge of the outstanding common stock of Central Valley Community Bank, the Company’s banking subsidiary. The Company may prepay the loan without penalty with one exception. If the loan is prepaid prior to August 30, 2025 with funds received from a financing source other than Bell Bank, the Company will incur a 2 % prepayment penalty. The loan contains customary representations, covenants, and events of default. Interest expense recognized by the Company for the Subordinated and Senior Debt for the nine months ended September 30, 2022 and 2021 was $ 1,056,000 and $ 0 , respectively. Note 8. Commitments and Contingencies Financial Instruments with Off-Balance-Sheet Risk - In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk. These financial instruments include commitments to extend credit and standby letters of credit . These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. The contract or notional amounts of these instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for loans. Commitments to extend credit amounting to $ 319,346,000 and $ 326,108,000 were outstanding at September 30, 2022 and December 31, 2021, respectively. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract unless waived by the Bank. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Included in commitments to extend credit are undisbursed lines of credit totaling $ 318,359,000 and $ 325,674,000 at September 30, 2022 and December 31, 2021, respectively. Undisbursed lines of credit include credits whereby customers can repay principal and request principal advances during the term of the loan at their discretion and most expire between one and 12 months. Included in undisbursed lines of credit are commitments for the undisbursed portions of construction loans totaling $ 62,355,000 and $ 93,263,000 as of September 30, 2022 and December 31, 2021, respectively. These commitments are agreements to lend to customers, subject to meeting certain construction progress requirements established in the contracts. The underlying construction loans have fixed expiration dates. Standby letters of credit and financial guarantees amounting to $ 987,000 and $ 434,000 were outstanding at September 30, 2022 and December 31, 2021, respectively. Standby letters of credit and financial guarantees are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private financial arrangements. Standby letters of credit and guarantees carry a one year term or less, many have auto-renewal features. The fair value of the liability related to these standby letters of credit, which represents the fees received for their issuance, was not significant at September 30, 2022 or December 31, 2021. The Company recognizes these fees as revenue over the term of the commitment or when the commitment is used. The Company generally requires collateral or other security to support financial instruments with credit risk. Management does not anticipate any material loss will result from the outstanding commitments to extend credit, standby letters of credit and financial guarantees. At September 30, 2022 and December 31, 2021, the balance of a contingent allocation for probable loan loss experience on unfunded obligations was $ 110,000 and $ 115,000 , respectively. The contingent allocation for probable loan loss experience on unfunded obligations is calculated by management using an appropriate, systematic, and consistently applied process. While related to credit losses, this allocation is not a part of the allowance for credit losses and is considered separately as a liability for accounting and regulatory reporting purposes, and is included in Other Liabilities on the Company’s balance sheet. In 2018, the Company sold its credit card portfolio to a third party vendor. Part of the sale of the portfolio was to provide a guarantee of certain accounts which, as of September 30, 2022, was $ 2,294,500 . The Company is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to such actions will not materially affect the consolidated financial position or consolidated results of operations of the Company. Note 9. Earnings Per Share Basic earnings per share (EPS), which excludes dilution, is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options or restricted stock awards, result in the issuance of common stock which shares in the earnings of the Company. A reconciliation of the numerators and denominators of the basic and diluted EPS computations is as follows: 31 Basic Earnings Per Share For the Three Months Ended September 30, For the Nine Months Ended September 30, (In thousands, except share and per share amounts) 2022 2021 2022 2021 Net income $ 6,384 $ 6,521 $ 19,012 $ 21,563 Weighted average shares outstanding 11,678,532 12,007,689 11,723,790 12,332,248 Basic earnings per share $ 0.55 $ 0.54 $ 1.62 $ 1.75 Diluted Earnings Per Share For the Three Months Ended September 30, For the Nine Months Ended September 30, (In thousands, except share and per share amounts) 2022 2021 2022 2021 Net income $ 6,384 $ 6,521 $ 19,012 $ 21,563 Weighted average shares outstanding 11,678,532 12,007,689 11,723,790 12,332,248 Effect of diluted stock options and restricted stock 10,791 37,207 24,903 46,343 Weighted average shares of common stock and common stock equivalents 11,689,323 12,044,896 11,748,693 12,378,591 Diluted earnings per share $ 0.55 $ 0.54 $ 1.62 $ 1.74 No outstanding options awards were anti-dilutive for the nine months ended September 30, 2022 and 2021. Note 10. Share-Based Compensation The Company has two share-based compensation plans as described below. Share-based compensation cost recognized for those plans was $ 324,000 and $ 310,000 for the nine months ended September 30, 2022 and 2021, respectively. The recognized tax (benefit) expense for the share-based compensation expense, forfeitures of restricted stock, and exercise of stock options, resulted in the recognition of $ 87,000 and $ 50,000 , respectively, for the nine months ended September 30, 2022 and 2021. The Central Valley Community Bancorp 2015 Omnibus Incentive Plan (2015 Plan) was adopted in May 2015. The plan provides for awards in the form of incentive stock options, non-statutory stock options, stock appreciation rights, and restricted stock. The plan also allows for performance awards that may be in the form of cash or shares of the Company, including restricted stock. Outstanding arrangements to issue shares under this plan including options, will continue in force until expiration according to their respective terms. Effective June 2, 2017, the Company adopted an Employee Stock Purchase Plan (ESPP) whereby our employees may purchase Company common stock through payroll deductions of between one percent and 15 percent of pay in each pay period. Shares are purchased at the end of each of the three-month offering periods at a 10 percent discount from the lower of the closing market price on the Offering Date (first trading day of each offering period) or the Investment Date (last trading day of each offering period). The Company reserved 500,000 common shares to be set aside for the ESPP, and there were 435,336 shares available for future purchase under the plan as of September 30, 2022. Stock Option Plan The Company bases the fair value of the stock options granted on the date of grant using a Black-Scholes Merton option pricing model that uses assumptions based on expected option life and the level of estimated forfeitures, expected stock volatility, risk free interest rate, and dividend yield. The expected term and level of estimated forfeitures of the Company’s stock options are based on the Company’s own historical experience. Stock volatility is based on the historical volatility of the Company’s stock. The risk-free interest rate is based on the U. S. Treasury yield curve for the periods within the contractual life of the stock options in effect at the time of grant. The compensation cost for stock options granted is based on the weighted average grant date fair value per share. No options to purchase shares of the Company’s common stock were granted during the nine months ended September 30, 2022 and 2021. 32 A summary of the combined activity of the Company’s stock option compensation plans for the nine months ended September 30, 2022 follows (in thousands, except per share amounts): Shares Weighted Average Exercise Price Options outstanding at December 31, 2021 52,805 $ 9.81 Options exercised ( 50,205 ) $ 9.74 Options forfeited ( 2,600 ) $ 11.12 Options outstanding at September 30, 2022 — Information related to the stock option plan is as follows (in thousands): For the Three Months Ended September 30, For the Nine Months Ended September 30, 2022 2021 2022 2021 Intrinsic value of options exercised $ 108 $ 19 $ 496 $ 225 Cash received from options exercised $ 91 $ 10 $ 489 $ 222 Excess tax benefit realized for option exercises $ 18 $ 4 $ 87 $ 50 As of September 30, 2022, there was no remaining unrecognized compensation cost related to stock options granted under all plans. Restricted and Performance Common Stock Awards The 2015 Plan provides for the issuance of restricted common stock to directors and officers. In addition, performance awards may be granted in the form of cash or shares. Restricted common stock grants typically vest over a one to five-year period. Restricted common stock (all of which are shares of our common stock) is subject to forfeiture if employment terminates prior to vesting. The cost of these awards is recognized over the vesting period of the awards based on the fair value of our common stock on the date of the grant. The following table summarizes restricted stock and performance award activity for the nine months ended September 30, 2022 as follows: Shares Weighted Average Grant-Date Fair Value Nonvested outstanding shares at December 31, 2021 24,177 $ 20.50 Granted 56,089 $ 17.75 Vested ( 30,807 ) $ 20.64 Forfeited ( 244 ) $ 20.50 Nonvested outstanding shares at September 30, 2022 49,215 $ 17.28 The shares awarded to employees and directors under the restricted stock agreements vest on applicable vesting dates only to the extent the recipient of the shares is then an employee or a director of the Company or one of its subsidiaries, and each recipient will forfeit all of the shares that have not vested on the date his or her employment or service is terminated. Performance common stock awards vest immediately. As of September 30, 2022, there were 49,215 shares of restricted stock that are nonvested and expected to vest. As of September 30, 2022, there was $ 676,000 of total unrecognized compensation cost related to nonvested restricted common stock awards. Restricted stock compensation expense is recognized on a straight-line basis over the vesting period. This cost is expected to be recognized over a weighted-average remaining period of 2.06 years and will be adjusted for subsequent changes in estimated forfeitures. Restricted common stock awards had an intrinsic value of $ 3,654,000 at September 30, 2022. 33