5 unchanged sentences
(2) the impact of changes in interest rates;
+Added: (3) inflationary pressures and changes in the interest rate environment that reduce our margins and yields, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make, whether held in the portfolio or in the secondary market;
+Added: (4) our ability to mitigate and manage deposit liabilities in a manner that balances the need to meet current and expected withdrawals while investing a sufficient portion of our assets to promote strong earning capacity;
+Added: (5) changes in the level of nonperforming assets and charge offs and other credit quality measures, and their impact on the adequacy of our allowance for credit losses and our provision for credit losses;
(6) a decline in economic conditions in the Central Valley and the Greater Sacramento Region, including the impact of inflation;
6 unchanged sentences
(13) changes in business conditions and inflation;
−Removed: (11) changes in securities markets (12) risks associated with acquisitions, relating to difficulty in integrating combined operations and related negative impact on earnings, and incurrence of substantial expenses;
+Added: (14) changes in securities markets;
+Added: (15) regulatory limits on Central Valley Community Bank’s ability to pay dividends to the Company;
+Added: (16) risks associated with acquisitions, relating to difficulty in integrating combined operations and related negative impact on earnings, and incurrence of substantial expenses;
(17) political developments, uncertainties or instability, catastrophic events, acts of war or terrorism, or natural disasters, such as earthquakes, drought, pandemic diseases or extreme weather events, any of which may affect services we use or affect our customers, employees or third parties with which we conduct business;
10 unchanged sentences
In addition, our periodic and current reports are available free of charge on our website at www.cvcb.com as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC.
+Added: We are a central California-based bank holding company for a one-bank subsidiary, Central Valley Community Bank (Bank).
+Added: We provide traditional commercial banking services to small and medium-sized businesses and individuals in the communities along the Highway 99 corridor in the Fresno, El Dorado, Madera, Merced, Placer, Sacramento, Stanislaus, San Joaquin, and Tulare Counties of central California.
+Added: Dividend Declared
+Added: On April 19, 2023, the Board of Directors declared a $0.12 per share cash dividend payable on May 19, 2023 to shareholders of record as of May 5, 2023.
Critical Accounting Policies and Estimates
1 unchanged sentence
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 nine months ended September 30, 2022.
+Added: Allowance for Credit Losses
+Added: As a result of our January 1, 2023, adoption of Accounting Standards Update (“ASU”) No.
+Added: 2016-13, “Measurement of Credit Losses on Financial Instruments,” and its related amendments, our methodology for estimating the allowance for credit losses changed significantly from December 31, 2022.
+Added: The standard replaced the “incurred loss” approach with an “expected loss” approach known as current expected credit loss (“CECL”).
+Added: The CECL approach requires an estimate of the credit losses expected over the life of a financial asset carried at amortized cost.
+Added: It removes the incurred loss approach’s threshold that delayed the recognition of a credit loss until it was “probable” a loss event was “incurred.”
+Added: The estimate of expected credit losses under the CECL approach is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts.
+Added: Historical loss experience is generally the starting point for estimating expected credit losses.
+Added: We then consider whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period from which historical experience was used.
+Added: Finally, we consider forecasts about future economic conditions that are reasonable and supportable.
+Added: Management’s evaluation of the appropriateness of the allowance for credit losses is often the most critical of accounting estimates for a financial institution.
+Added: Our determination of the amount of the allowance for credit losses is a critical accounting estimate as it requires significant reliance on the use of estimates and significant judgment as to the amount and timing of expected future cash flows on criticized loans, significant reliance on historical loss rates, consideration of our quantitative and qualitative evaluation of economic factors, and the reliance on our reasonable and supportable forecasts.
+Added: The allowance for credit losses attributable to each portfolio segment also includes an amount for inherent risks not reflected in the historical analyses.
+Added: Relevant factors include, but are not limited to, concentrations of credit risk (geographic, large borrower, and industry), economic trends and conditions, changes in underwriting standards, experience and depth of lending staff, trends in delinquencies, and the level of criticized loans.
+Added: Going forward, the impact of utilizing the CECL approach to calculate the reserve for credit losses will be significantly influenced by the composition, characteristics and quality of our loan portfolios, as well as the prevailing economic conditions and forecasts utilized.
+Added: Material changes to these and other relevant factors may result in greater volatility to the reserve for credit losses, and therefore, greater volatility to our reported earnings.
+Added: See Note 1 to the Consolidated Financial Statements and the “ Allowance for Credit Losses on Loans ” section below.
Please refer to the Company’s 2022 Annual Report to Shareholders on Form 10-K for a complete listing of critical accounting policies.
−Removed: This discussion should be read in conjunction with our unaudited condensed consolidated financial statements, including the notes thereto, appearing elsewhere in this report.
−Removed: Central Valley Community Bancorp (Company)
−Removed: We are a central California-based bank holding company for a one-bank subsidiary, Central Valley Community Bank (Bank).
−Removed: We provide traditional commercial banking services to small and medium-sized businesses and individuals in the communities along the Highway 99 corridor in the Fresno, El Dorado, Madera, Merced, Placer, Sacramento, Stanislaus, San Joaquin, and Tulare Counties of central California.
−Removed: As a bank holding company, the Company is subject to supervision, examination and regulation by the Federal Reserve Bank.
−Removed: Central Valley Community Bank (Bank)
−Removed: The Bank commenced operations in January 1980 as a state-chartered bank.
−Removed: As a state-chartered bank, the Bank is subject to primary supervision, examination and regulation by the California Department of Financial Protection and Innovation (DFPI).
−Removed: The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to the applicable limits thereof, and the Bank is subject to supervision, examination and regulations of the FDIC.
−Removed: The Bank is a member of the FDIC, which currently insures customer deposits in each member bank to a maximum of $250,000 per depositor.
−Removed: For this insurance, the Bank is subject to the rules and regulations of the FDIC, and, as is the case with all insured banks, may be required to pay a quarterly statutory assessment.
−Removed: The Bank operates 20 full-service branches which serve the communities of Cameron Park, Clovis, Exeter, Folsom, Fresno, Gold River, Kerman, Lodi, Madera, Merced, Modesto, Oakhurst, Prather, Roseville, Sacramento, Stockton, and Visalia, California.
−Removed: Additionally, the Bank operates Real Estate, Agribusiness and SBA departments that originate loans in California.
−Removed: According to the June 30, 2022 FDIC data, the Bank’s branches in Fresno, Madera, San Joaquin, and Tulare Counties had a 3.66% combined deposit market share of all insured depositories.
−Removed: 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 2022.
−Removed: Dividend Declared
−Removed: On October 19, 2022, the Board of Directors declared a $0.12 per share cash dividend payable on November 18, 2022 to shareholders of record as of November 4, 2022.
−Removed: Economic Conditions
−Removed: Agriculture and agricultural-related businesses remain a critical part of the Central Valley’s economy.
−Removed: The Valley’s agricultural production is widely diversified, producing nuts, vegetables, frui t, cattle, dairy products, and cotton.
−Removed: The continued future success of agriculture related businesses is highly dependent on the availability of water and is subject to fluctuation in worldwide commodity prices, currency exchanges, and demand.
−Removed: From time to time, California experiences severe droughts or adverse weather issues, which could significantly harm the business of our customers and the credit quality of the loans to those customers.
−Removed: Currently, California is experiencing multi-year drought conditions which impacts surface water deliveries to customers.
−Removed: In reaction to these conditions, we closely monitor the surface water availability with customer specific budgeting and third party information and surveys.
−Removed: There are also certain regulatory impacts that limit the water than can be pumped from underground sources.
−Removed: Both sources are closely considered and monitored in the granting and monitoring of our loan exposures, along with related issues affecting our customers.
−Removed: We closely monitor the water resources and the related issues affecting our customers, and we will remain vigilant for identifying signs of deterioration within the loan portfolio in an effort to manage cred it quality and work with borrowers where possible to mitigate any losses.
−Removed: As a whole the loan portfolio may be subject to the impact of changes in interest rates, a decline in economic conditions in the Central Valley and the Greater Sacramento Region, and inflation.
−Removed: Third Quarter of 2022
−Removed: For the third quarter of 2022, our consolidated net income was $6,384,000 compared to $6,521,000 for the same period in 2021.
−Removed: Diluted EPS was $0.55 for the quarter ended September 30, 2022 compared to $0.54 for the same period in 2021.
−Removed: The decrease in net income during the third quarter of 2022 compared to the same period in 2021 is primarily driven by a $500,000 provision for credit losses, an increase in net realized losses on sales and calls of investment securities of $131,000, a decrease in loan placement fees of $312,000, a decrease in non-interest income of $668,000, and an increase in total non-interest expenses of $736,000, partially offset by an increase in net interest income of $1,954,000.
−Removed: It’s noted that the increase in non-interest expenses during the quarter are attributed to non-recurring severance expenses and an increase in overtime resulting from a recent conversion in the Company’s core processing system.
−Removed: During the quarter ended September 30, 2022, the Company recorded $500,000 provision for credit losses, compared to a $500,000 reversal of provision during the quarter ended September 30, 2021.
−Removed: Throughout 2020, 2021 and the first nine months of 2022, the Company adjusted the economic risk and interest risk factors methodology to incorporate the current economic implications from the COVID-19 pandemic as well as the continuing labor shortage.
−Removed: In addition, the Company adjusted the factors to incorporate the potential and realized implications from rising interest rates, input price increases and ongoing supply chain disruptions.
−Removed: Net interest margin (fully tax equivalent basis) increased to 3.57% for the quarter ended September 30, 2022 compared to 3.47% for the same period in 2021.
−Removed: Net interest income, before provision for credit losses, increased $1,954,000, or 10.73%, to $20,164,000 for the third quarter of 2022, compared to $18,210,000 for the same period in 2021.
−Removed: The net interest margin period-to-period comparisons were impacted by the increase in the yield on the average investment securities, including interest-earning deposits in other banks and Federal funds sold, offset by the decrease in the yield on the loan portfolio.
−Removed: The effective yield on average investment securities, including interest-earning deposits in other banks and Federal funds sold,
−Removed: increased to 2.46% for the three months ended September 30, 2022, compared to 2.14% for the three months ended September 30, 2021.
−Removed: The effective yield on average loans decreased to 4.90% for the three months ended September 30, 2022, compared to 4.91% for the three months ended September 30, 2021.
−Removed: Total average PPP loans, which have an annual interest rate of 1.00%, were $659,000 and $158,490,000 for the three months ended September 30, 2022 and 2021, respectively.
−Removed: Excluding PPP loans from total average loans, the effective yield on average loans for the three months ended September 30, 2022 and 2021 was 4.84% and 4.73%, respectively.
−Removed: The cost of deposits (calculated by dividing annualized interest expense on interest bearing deposits by total deposits), decreased to 0.04% for the quarter ended September 30, 2022 compared to 0.05% for the same period in 2021.
−Removed: Non-interest income decreased $668,000 or 31.10% to $1,480,000 for the quarter ended September 30, 2022 compared to $2,148,000 for the same period in 2021, primarily driven by an increase of $131,000 in net realized losses on sales and calls of investment securities, a decrease in loan placement fees of $312,000, a decrease of $182,000 in other income, and a decrease in interchange fees of $40,000.
−Removed: Non-interest expense for the quarter ended September 30, 2022 increased $736,000 or 6.10% from the comparable period due to increases in salaries and employee benefits primarily attributed to non-recurring severance and overtime expenditures.
−Removed: Annualized return on average equity (ROE) for the third quarter of 2022 increased to 14.42% compared to 10.41% for the same period in 2021.
−Removed: The increase in ROE reflects the decrease in average shareholders’ equity, notwithstanding the decrease in net income compared to the prior year.
−Removed: Annualized return on average assets (ROA) was 1.06% and 1.13% for the quarters ended September 30, 2022 and 2021, respectively.
−Removed: Total average equity decreased to $177,083,000 for the third quarter of 2022 compared to $250,520,000 for the third quarter of 2021.
−Removed: The Company declared and paid $0.12 per share in cash dividends to holders of common stock during the third quarters of 2022 and 2021.
−Removed: The change in shareholders’ equity was driven by the retention of earnings, net of dividends paid, the decrease in accumulated other comprehensive income (AOCI), and share repurchases.
−Removed: The Company’s average total assets increased $96,242,000 or 4.15% to $2,414,414,000 during the third quarter of 2022 compared to the same period in 2021.
−Removed: Total average interest-earning assets increased $164,489,000 or 7.73% in the third quarter of 2022 compared to the same period of 2021.
−Removed: Total average loans, including nonaccrual loans, increased $120,067,000 or 11.22% in the third quarter of 2022 compared to the same period in 2021.
−Removed: Average total investments and interest-earning deposits in other banks increased $42,838,000 or 4.04% in the quarter ended September 30, 2022 compared to the same period in 2021.
−Removed: Average interest-bearing liabilities increased $55,816,000 or 5.02% in the quarter ended September 30, 2022 compared to the same period in 2021.
−Removed: Average non-interest bearing demand deposits increased 13.75% to $1,041,698,000 in the third quarter of 2022 compared to $915,742,000 during the same period in 2021.
−Removed: The ratio of average non-interest bearing demand deposits to average total deposits was 48.50% in the third quarter of 2022 compared to 45.30% in 2021.
−Removed: First Nine Months of 2022
−Removed: For the nine months ended September 30, 2022, our consolidated net income was $19,012,000 compared to $21,563,000 for the same period in 2021.
−Removed: Diluted EPS was $1.62 for the first nine months of 2022 compared to $1.74 for the first nine months of 2021.
−Removed: Net income for the nine-month period ended September 30, 2022 decreased 11.83%, compared to the nine-month period ended September 30, 2021, primarily driven by a provision for credit losses, an increase in net realized losses on sales and calls of investment securities, a decrease in loan placement fees, and an increase in non-interest expense, partially offset by an increase in net interest income, an increase in service charge income, and a decrease in provision for income taxes.
−Removed: Net interest income before the provision for credit losses increased $3,725,000 or 6.92%.
−Removed: The impact to interest income from the accretion of the loan marks on acquired loans was $445,000 and $579,000 for the nine months ended September 30, 2022 and 2021, respectively.
−Removed: Net interest income during the first nine months of 2022 and 2021 benefited by approximately $562,000 and $438,000, respectively, in nonrecurring income from loan prepayment penalties.
−Removed: Excluding the loan mark accretion and prepayment penalties, net interest income for the nine months ended September 30, 2022, increased by $3,735,000 compared to the nine-month period ended September 30, 2021.
−Removed: Non-interest income decreased $2,140,000 or 34.38%, and non-interest expense increased $1,246,000 or 3.55% in the first nine months of 2022 compared to the first nine months of 2021.
−Removed: During the nine months ended September 30, 2022, the Company recorded $500,000 provision for credit losses compared to a $3,800,000 reversal of provision during same period in 2021.
−Removed: Net recoveries of previously charged-off loans totaling $266,000 and $946,000 were recorded during the nine months ended September 30, 2022 and 2021, respectively.
−Removed: Annualized return on average equity for the nine months ended September 30, 2022 increased to 12.98% compared to 11.60% for the same period in 2021.
−Removed: The increase in ROE reflects the decrease in average shareholders’ equity, notwithstanding the decrease in net income compared to the prior year.
−Removed: Annualized return on average assets was 1.04% and 1.30% for the nine months ended September 30, 2022 and 2021, respectively.
−Removed: Total average equity decreased to $195,295,000 for the nine months ended September 30, 2022 compared to $247,814,000 for the same period in 2021.
−Removed: The change in shareholders’ equity was driven by the retention of earnings, net of dividends paid, the decrease in accumulated other comprehensive income (AOCI) , and share repurchases.
−Removed: Our average total assets increased $221,222,000 or 9.98% in the first nine months of 2022 compared to the same period in 2021.
−Removed: Total average interest-earning assets increased $264,706,000 or 12.97% comparing the first nine months of
−Removed: 2022 to the same period in 2021.
−Removed: Average total loans, including nonaccrual loans, increased $21,553,000 or 2.00% comparing the first nine months of 2022 to the same period in 2021.
−Removed: The effective yield on average loans decreased to 4.84% for the nine months September 30, 2022, compared to 5.04% for the nine months September 30, 2021.
−Removed: Total average PPP loans were $4,935,000 and $140,883,000 for the nine months ended September 30, 2022 and 2021 , respectively.
−Removed: Excluding PPP loans from total average loans, the effective yield on average loans for the nine months ended September 30, 2022 and 2021 was 4.79% and 4.90%, respectively.
−Removed: Average total investments (securities and interest-earning deposits) increased $240,734,000, or 24.92% in the nine-month period ended September 30, 2022 compared to the same period in 2021.
−Removed: Average interest-bearing liabilities increased $182,876,000 or 17.39% on a period-to-period comparison.
−Removed: Our net interest margin (fully tax equivalent basis) for the first nine months ended September 30, 2022 decreased to 3.42% compared to 3.60% for the same period in 2021.
−Removed: The decrease in net interest margin in the period-to-period comparison resulted primarily from a decrease in the yield on the loan portfolio and an increase in the cost of total interest-bearing liabilities, partially offset by an increase in the effective yield on the Company’s average investment securities.
−Removed: The effective yield on interest-earning assets decreased 12 basis points to 3.54% for the nine-month period ended September 30, 2022 compared to 3.66% for the same period in 2021.
−Removed: For the nine-month period ended September 30, 2022, the effective yield on investment securities, including Federal funds sold and interest-earning deposits in other banks, increased 24 basis points, compared to the same period in the prior year, and the effective yield on loans decreased 20 basis points.
−Removed: The cost of total interest-bearing liabilities increased 11 basis points to 0.22% compared to 0.11% for the same period in 2021.
−Removed: The cost of total deposits, including noninterest bearing accounts decreased to 0.04% compared to 0.05% for the nine months ended September 30, 2022 and 2021, respectively.
−Removed: Net interest income before the reversal of provision for credit losses for the nine months ended September 30, 2022 was $57,571,000 compared to $53,846,000 for the same period in 2021, an increase of $3,725,000 or 6.92%.
−Removed: Net interest income increased as a result of yield changes, and asset mix changes, offset by an increase in average earning assets and an increase in interest-bearing liabilities.
−Removed: The Bank recovered $562,000 and $438,000, of foregone interest income and prepaid payment penalties in 2022 and 2021, respectively.
−Removed: The impact to interest income from the accretion of the loan marks on acquired loans was $445,000 and $579,000 for the nine months ended September 30, 2022 and 2021, respectively.
−Removed: The Bank had non-accrual loans totaling $251,000 at September 30, 2022, compared to $946,000 at December 31, 2021 and $1,597,000 at September 30, 2021.
−Removed: The Company had no other real estate owned or repossessed assets at September 30, 2022, December 31, 2021, or September 30, 2021.
−Removed: At September 30, 2022, we had total net loans of $1,214,904,000, total assets of $2,425,698,000, total deposits of $2,139,144,000, and shareholders’ equity of $158,814,000.
−Removed: Non-interest income was $4,084,000 for the nine months ended September 30, 2022 compared to $6,224,000 for the same period in 2021.
−Removed: The $2,140,000 or 34.38% decrease in non-interest income during the nine months ended September 30, 2022 was primarily driven by a decrease in loan placement fees of $912,000, a decrease of $785,000 in other income, and an increase of $815,000 in net realized losses on sales and calls of investment securities, offset by an increase in service charge income of $172,000, an increase of $39,000 in interchange fees, an increase of $140,000 in appreciation in cash surrender value of bank-owned life insurance, and an increase in FHLB dividends of $21,000.
−Removed: Key Factors in Evaluating Financial Condition and Operating Performance
−Removed: As a publicly traded community bank holding company, we focus on several key factors including:
−Removed: · Return to our shareholders;
−Removed: · Return on average assets;
−Removed: · Development of revenue streams, including net interest income and non-interest income;
−Removed: · Asset quality;
−Removed: · Asset growth;
−Removed: · Capital adequacy;
−Removed: · Operating efficiency;
−Removed: Return to Our Shareholders
−Removed: Our return to shareholders is determined in a ratio that measures the return on average equity (ROE), which is net income divided by average shareholders’ equity.
−Removed: Our annualized ROE was 12.98% for the nine months ended September 30, 2022 compared to 11.50% for the year ended December 31, 2021 and 11.60% for the nine months ended September 30, 2021.
−Removed: Our net income for the nine months ended September 30, 2022 decreased $2,551,000 or 11.83% to $19,012,000 compared to $21,563,000 for the nine months ended September 30, 2021, primarily driven by a $500,000 provision for credit losses, compared to a $3,800,000 reversal of provision in the prior period, an increase in net realized losses on sales and calls of investment securities, a decrease in loan placement fees, a decrease in non-interest income, and an increase in total non-interest
−Removed: expenses, partially offset by a decrease in the provision for income taxes, an increase in interchange fees, an increase in service charge income, and an increase in net interest income.
−Removed: Net interest margin (NIM) decreased 18 basis points for the nine-month period ended September 30, 2022 compared to the nine months ended September 30, 2021.
−Removed: Diluted EPS was $1.62 for the nine months ended September 30, 2022 and $1.74 for the same period in 2021.
−Removed: Return on Average Assets
−Removed: 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 nine months ended September 30, 2022 was 1.04% compared to 1.25% for the year ended December 31, 2021 and 1.30% for the nine months ended September 30, 2021.
−Removed: The decrease in ROA for the nine months ended September 30, 2022 compared to September 30, 2021 was due to the decrease in net income.
−Removed: Average assets for the nine months ended September 30, 2022 was $2,438,633,000 compared to $2,267,615,000 for the year ended December 31, 2021.
−Removed: Median ROA for our peer group was 0.93% for the year ended December 31, 2021.
−Removed: Peer group data from S&P Global Market Intelligence includes bank holding companies in central California with assets from $1 billion to $3.5 billion.
−Removed: Development of Revenue Streams
−Removed: Over the past several years, we have focused on not only improving net income, but improving the consistency of our revenue streams in order to create more predictable future earnings and reduce the effect of changes in our operating environment on our net income.
−Removed: 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 3.42% for the nine months ended September 30, 2022, compared to 3.60% for the same period in 2021.
−Removed: The decrease in net interest margin in the period-over-period comparison resulted primarily from the decrease in the yield on the Company’s loan portfolio, the increase on the cost of interest bearing liabilities, offset by the increase in the effective yield on average investment securities (including interest-earning deposits in other banks and Federal funds sold).
−Removed: Interest-bearing liabilities continue to benefit from low interest rates.
−Removed: In comparing the two periods ending September 30, 2022 and 2021, the effective yield on total earning assets decreased 12 basis points, while the cost of total interest-bearing liabilities increased 11 basis points and the cost of total deposits decreased to 0.04% compared to 0.05%.
−Removed: Net interest income before the provision for credit losses for the nine-month period ended September 30, 2022 was $57,571,000 compared to $53,846,000 for the same period in 2021.
−Removed: 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 nine months ended September 30, 2022 decreased $2,140,000 or 34.38%, to $4,084,000 compared to $6,224,000 for the nine months ended September 30, 2021.
−Removed: The decrease resulted primarily from decreases in loan placement fees, other income, and in net realized losses on sales and calls of investment securities, offset by increases in service charge income, FHLB dividends;
−Removed: appreciation in cash surrender value of bank-owned life insurance, and interchange fees, compared to the comparable 2021 period.
−Removed: Asset Quality
−Removed: For all banks and bank holding companies, asset quality has a significant impact on the overall financial condition and results of operations.
−Removed: 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 $251,000 and $946,000 at September 30, 2022 and December 31, 2021, respectively.
−Removed: Nonperforming assets totaled 0.02% of gross loans as of September 30, 2022 and 0.09% of gross loans as of December 31, 2021.
−Removed: The ratio of nonperforming assets to total assets was 0.01% as of September 30, 2022 and 0.04% as of December 31, 2021.
−Removed: The nonperforming assets at September 30, 2022 and December 31, 2021 consisted of nonaccrual loans of $251,000 and $946,000, respectively.
−Removed: The Company had no other real estate owned (OREO) or repossessed assets at September 30, 2022 or December 31, 2021.
−Removed: 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 the outstanding loan balance was 0.85% as of September 30, 2022 and 0.92% as of December 31, 2021.
−Removed: The ratio of net charge-off (recovery) to average loans was (0.03)% for the nine months ended September 30, 2022 and (0.09)% as of December 31, 2021.
−Removed: 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.
−Removed: 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
−Removed: investments is fundamental to our asset growth.
−Removed: Total assets decreased by $24,441,000 or 1.00% during the nine months ended September 30, 2022 to $2,425,698,000 compared to $2,450,139,000 as of December 31, 2021.
−Removed: Total gross loans increased by 17.92% or $186,159,000 to $1,225,270,000 as of September 30, 2022 compared to $1,039,111,000 as of December 31, 2021.
−Removed: The gross loan increase consisted of a decrease of $18,203,000 in the PPP loans, and an increase of $204,362,000 in non-PPP loan growth.
−Removed: Total deposits increased 0.77% to $2,139,144,000 as of September 30, 2022 compared to $2,122,797,000 as of December 31, 2021.
−Removed: The Company’s deposit balances for the nine months ended September 30, 2022 increased through organic growth.
−Removed: Our loan-to-deposit ratio at September 30, 2022 was 57.28% compared to 48.95% at December 31, 2021.
−Removed: The loan-to-deposit ratio of our peers was 71.00% at December 31, 2021.
−Removed: Further discussion of loans and deposits is below.
−Removed: Capital Adequacy
−Removed: Capital serves as a source of funds and helps protect depositors and shareholders against potential losses.
−Removed: The Company has historically maintained substantial levels of capital.
−Removed: The assessment of capital adequacy is dependent on several factors including asset quality, earnings trends, liquidity and economic conditions.
−Removed: Maintenance of adequate capital levels is integral to providing stability to the Company.
−Removed: The Company needs to maintain substantial levels of regulatory capital to give it flexibility in the changing regulatory environment and to respond to changes in the market and economic conditions including acquisition opportunities.
−Removed: The Company and the Bank are each subject to regulatory capital requirements administered by federal banking agencies.
−Removed: Failure to meet minimum capital requirements may cause certain mandatory and discretionary actions by regulators that, if undertaken, could have a material effect on our financial statements.
−Removed: Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative and qualitative measures.
−Removed: These measures were established by bank regulatory agencies to ensure capital adequacy.
−Removed: 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 September 30, 2022, 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 September 30, 2022.
−Removed: The Company’s regulatory capital ratios are presented in the table in the “Capital” section below.
−Removed: Operating Efficiency
−Removed: Operating efficiency is the measure of how efficiently earnings before provision for credit losses and taxes are generated as a percentage of revenue.
−Removed: 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 56.29% for the nine months ended September 30, 2022 compared to 56.46% for the nine months ended September 30, 2021.
−Removed: The modest improvement in the efficiency ratio was due to the increase in non-interest income outpacing the increase in non-interest expense.
−Removed: Further discussion of the change in net interest income and increase 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 4.22% to $63,789,000 for the first nine months of 2022 compared to $61,209,000 for the same period in 2021, while operating expenses, net of losses on sale of assets, and amortization of core deposit intangibles, increased 3.90% to $35,907,000 from $34,559,000 for the same period in 2021.
−Removed: 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.
−Removed: Our liquidity is actively managed on a daily basis and reviewed periodically by our management and Directors’ Asset/Liability Committee.
−Removed: This process is intended to ensure the maintenance of sufficient liquidity to meet our funding needs, including adequate cash flow for off-balance sheet commitments.
−Removed: Our primary sources of liquidity are derived from financing activities which include the acceptance of customer and, to a lesser extent, broker deposits, Federal funds facilities and advances from the Federal Home Loan Bank of San Francisco (“FHLB”).
−Removed: We have available unsecured lines of credit with correspondent banks totaling approximately $110,000,000 and secured borrowing lines of approximately $277,058,000 with the FHLB.
−Removed: These funding sources are augmented by collection of principal and interest on loans, the routine maturities and pay downs of securities from our investment securities portfolio, the stability of our core deposits, and the ability to sell investment securities.
−Removed: 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 $716,422,000 or 29.53% of total assets at September 30, 2022 and $1,280,091,000 or 52.25% of total assets as of December 31, 2021.
+Added: Financial Highlights
+Added: The significant highlights for the Company as of or for the three months ended March 31, 2023 included the following:
+Added: • Net income for the first quarter of 2023 decreased to $6,970,000 or $0.59 per diluted common share, compared to $7,633,000 and $0.65, respectively, in the fourth quarter of 2022.
+Added: The Company recorded a $633,000 provision for credit losses during the first quarter of 2023.
+Added: • Net loans increased $24.8 million or 1.99%, and total assets increased $41.4 million or 1.71% at March 31, 2023 compared to December 31, 2022.
+Added: • Total deposits increased 3.62% to $2.18 billion at March 31, 2023 compared to December 31, 2022.
+Added: • Total cost of deposits increased to 0.20% for the quarter ended March 31, 2023 compared to 0.09% for the quarter ended December 31, 2022.
+Added: • Average non-interest bearing demand deposit accounts as a percentage of total average deposits was 48.92% and 43.77% for the quarters ended March 31, 2023 and 2022, respectively.
+Added: • There were no non-performing assets for the quarter ended March 31, 2023.
+Added: Additionally, net loan charge-offs were $19,000 and loans delinquent more than 30 days were $22,000.
+Added: • The Company adopted and implemented Accounting Standard Update (ASU) 2016-13, more commonly referred to as the Current Expected Credit Loss (CECL) method on January 1, 2023, which resulted in an increase to the allowance for credit losses for loans of $3,910,000, a reserve for held-to-maturity securities of $776,000, an increase to the reserve for unfunded commitments of $612,000, and a decrease, net of taxes, to retained earnings of $3,731,000.
+Added: • Net interest margin increased to 3.81% at March 31, 2023, from 3.80% at December 31, 2022.
+Added: • Capital positions remain strong at March 31, 2023 with a 8.58% Tier 1 Leverage Ratio;
+Added: a 11.80% Common Equity Tier 1 Ratio;
+Added: a 12.09% Tier 1 Risk-Based Capital Ratio;
+Added: and a 15.08% Total Risk-Based Capital Ratio.
+Added: The following is management’s discussion and analysis of the Company’s financial condition, operating results, asset and liability management, liquidity and capital resources and should be read in conjunction with the Condensed Consolidated Financial Statements of the Company and the Notes thereto located at Item 1 of this report.
RESULTS OF OPERATIONS
−Removed: Net Income for the Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021
−Removed: Net income decreased to $19,012,000 for the nine months ended September 30, 2022 compared to $21,563,000 for the nine months ended September 30, 2021.
−Removed: Basic and diluted earnings per share for September 30, 2022 were $1.62 and $1.62, respectively.
+Added: March 31, December 31, March 31,
+Added: (In thousands, except share and per-share amounts) 2023 2022 2022
+Added: Net interest income before provision for credit losses 21,581 21,993 17,597
+Added: Provision for credit losses 633 500 —
+Added: Net interest income after provision for credit losses 20,948 21,493 17,597
+Added: Total non-interest income 1,575 970 1,834
+Added: Total non-interest expenses 13,205 12,152 11,445
+Added: Income before provision for income taxes 9,318 10,311 7,986
+Added: Provision for income taxes 2,348 2,678 1,900
+Added: Net income $ 6,970 $ 7,633 $ 6,086
+Added: Net income increased to $6,970,000 for the three months ended March 31, 2023 compared to $6,086,000 for the three months ended March 31, 2022.
+Added: Basic and diluted earnings per share for March 31, 2023 were $0.60 and $0.59, respectively.
Basic and diluted earnings per share for the same period in 2022 were $0.51 and $0.51, respectively.
−Removed: Annualized ROE was 12.98% for the nine months ended September 30, 2022 compared to 11.60% for the nine months ended September 30, 2021.
−Removed: Annualized ROA for the nine months ended September 30, 2022 and 2021 was 1.04% and 1.30%, respectively.
−Removed: The decrease in net income for the nine months ended September 30, 2022 compared to the same period in 2021 was primarily driven by an increase in non-interest expense, a provision for credit losses, an increase in net realized losses on sales and calls of investment securities, and a decrease in loan placement fees, partially offset by an increase in net interest income, a decrease in provision for income taxes, and an increase in service charge income.
−Removed: During the nine months ended September 30, 2022, the Company recorded a $500,000 provision for credit losses, compared to a $3,800,000 reversal of provision during the nine months ended September 30, 2021.
−Removed: The provision 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 nine months ended September 30, 2022, the Company adjusted the economic risk factor methodology to incorporate the current economic implications from the COVID-19 pandemic as well as the continuing labor shortage.
−Removed: In addition, the Company adjusted the factors to incorporate the potential and realized implications from rising interest rates, input price increases and ongoing supply chain disruptions.
−Removed: Interest Income and Expense
−Removed: Net interest income is the most significant component of our income from operations.
−Removed: Net interest income (the “interest rate spread”) is the difference between the gross interest and fees earned on the loan and investment portfolios and the interest paid on deposits and other borrowings.
−Removed: Net interest income depends on the volume of and interest rate earned on interest-earning assets and the volume of and interest rate paid on interest-bearing liabilities.
−Removed: 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.
−Removed: Average balances are derived from daily balances, and nonaccrual loans are not included as interest earning assets for purposes of this table.
+Added: Annualized return on equity (“ROE”) was 15.64% for the three months ended March 31, 2023 compared to 10.51% for the three months ended March 31, 2022.
+Added: Annualized return on assets (“ROA”) for the three months ended March 31, 2023 and 2022 was 1.15% and 0.99%, respectively.
+Added: The increase in net income for the three months ended March 31, 2023 compared to the same period in 2022 was primarily driven by an increase of $5,961,000 in total interest income, offset by an increase in total interest expense of $1,977,000.
+Added: Additionally, the three-month period saw a decrease in non-interest income of $259,000 and an increase in non-interest expense of $1,760,000.
+Added: During the quarter ended March 31, 2023, the Company recorded a $633,000 provision for credit losses, compared to no provision during the quarter ended March 31, 2022.
+Added: The provision for credit loses resulted from our assessment of the overall adequacy of the allowance for credit losses on HTM debt securities and loans, including unfunded commitments.
+Added: Net Interest Income and Net Interest Margin
+Added: The level of net interest income depends on several factors in combination, including yields on earning assets, the cost of interest‑bearing liabilities, the relative volumes of earning assets and interest‑bearing liabilities, and the mix of products which comprise the Company’s earning assets, deposits, and other interest‑bearing liabilities.
+Added: To maintain its net interest margin, the Company must manage the relationship between interest earned and paid.
+Added: The following Distribution, Rate and Yield table presents the average amounts outstanding for the major categories of the Company’s balance sheet, the average interest rates earned or paid thereon, and the resulting net interest margin on average interest earning assets for the periods indicated.
+Added: Average balances are based on daily averages.
CENTRAL VALLEY COMMUNITY BANCORP
SCHEDULE OF AVERAGE BALANCES AND AVERAGE YIELDS AND RATES
−Removed: For the Nine Months Ended
−Removed: September 30, 2022 For the Nine Months Ended
−Removed: September 30, 2021
+Added: For the Three Months Ended
+Added: March 31, 2023 For the Three Months Ended
+Added: March 31, 2022
(Dollars in thousands) Average
36 unchanged sentences
(1) C alculated on a fully tax equivalent basis, which includes Federal tax benefits relating to income earned on municipal bonds totaling $373 and $383 in 2023 and 2022, respectively.
−Removed: (2) Loan interest income includes loan fees of $410 in 2022 and $4,966 in 2021.
+Added: (2) Loan interest income includes loan costs of $260 in 2023 and loan fees of $264 in 2022.
(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: 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 Nine Months Ended September 30, 2022 and 2021
+Added: The Volume and Rate Variances table below sets forth the dollar difference in interest earned and paid for each major category of interest‑earning assets and interest‑bearing liabilities for the noted periods, and the amount of such change attributable to changes in average balances (volume) or changes in average interest rates.
+Added: Volume variances are equal to the increase or decrease in the average balance times the prior period rate, and rate variances are equal to the increase or decrease in the average rate times the prior period average balance.
+Added: Variances attributable to both rate and volume changes are equal to the change in rate times the change in average balance and are included below in the average volume column.
+Added: Changes in Volume/Rate For the Three Months Ended March 31, 2023 and 2022
(In thousands) Volume Rate Net
16 unchanged sentences
(1) Computed on a tax equivalent basis for securities exempt from federal income taxes.
−Removed: Interest and fee income from loans decreased $777,000 or 1.92% for the nine months ended September 30, 2022 compared to the same period in 2021.
−Removed: Net interest income during the first nine months of 2022 was impacted by an increase in average total loans of $23,972,000 or 2.23% to $1,098,274,000 compared to $1,074,302,000 for the same period in 2021.
−Removed: The yield on average loans, excluding nonaccrual loans, was 4.84% for the nine months ended September 30, 2022 compared to 5.04% for the same period in 2021.
−Removed: Net interest income for the period ending September 30, 2022 was benefited by approximately $562,000 in nonrecurring income from prepayment penalties, compared to $438,000 recorded in the same period in 2021.
−Removed: The impact to interest income from the accretion of the loan marks on acquired loans was $445,000 and $579,000 for the nine months ended September 30, 2022 and 2021, respectively.
−Removed: The remaining balance of accretable loan marks on acquired loans as of September 30, 2022 was $1,349,000.
−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 $5,717,000 in the first nine months of 2022 to $19,887,000 compared to $14,170,000 for the same period in 2021.
−Removed: The yield on average total investments (total securities and interest-earning deposits) increased 24 basis points to 2.35% for the nine month period ended September 30, 2022 compared to 2.11% for the same period in 2021.
−Removed: Average total securities and interest-earning deposits for the first nine months of 2022 increased $240,734,000 or 24.92% to $1,206,839,000 compared to $966,105,000 for the same period in 2021.
−Removed: Income from investments represents 34.54% of net interest income for the first nine months of 2022 compared to 26.32% for the same period in 2021.
−Removed: The net-of-tax unrealized loss on the investment portfolio was $90,622,000 at September 30, 2022 and is reflected in the Company’s equity.
−Removed: At September 30, 2022, the average life of the investment portfolio was 5.95 years and the fair value of the portfolio reflected a net pre-tax unrealized loss of $104,377,000.
−Removed: Management reviews fair value declines on individual investment securities to determine whether they represent an other-than-temporary impairment (OTTI).
−Removed: Refer to Note 3 of the Notes to Consolidated Financial Statements (unaudited) for more detail.
−Removed: For the nine months ended September 30, 2022 and 2021, no OTTI was recorded.
−Removed: Additional deterioration in the market values of our investment securities, if any, may require the Company to recognize OTTI losses in future periods.
−Removed: 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 September 30, 2022, we estimate an immediate rate increase of 200 basis points would result in an estimated decrease in the market value of the available-for-sale investment portfolio by approximately $63,000 or 9.29%.
−Removed: Conversely, with an immediate rate decrease of 200 basis points, the estimated increase in the market value of the investment portfolio would be $67,000 or 9.88%.
−Removed: Our modeling environment assumes management would take no action during an immediate shock of 200 basis points.
−Removed: However, the Company uses those increments to measure its interest rate risk
−Removed: in accordance with regulatory requirements and risk tolerance policy limits established by the Board of Directors to measure the possible future risk in the investment portfolio.
−Removed: Management’s review of all investments before purchase includes an analysis of how the security will perform under several interest rate scenarios to monitor whether investments are consistent with our investment policy.
−Removed: 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 nine months ended September 30, 2022 increased $4,940,000 or 9.03% to $59,639,000 compared to $54,699,000 for the nine months ended September 30, 2021.
−Removed: The yield on interest earning assets decreased 12 basis points to 3.54% on a fully tax equivalent basis for the nine months ended September 30, 2022 from 3.66% for the period ended September 30, 2021.
+Added: The Company’s net interest margin (fully tax equivalent basis), expressed as a percentage of average earning assets, increased 62 basis points to 3.81% for the first quarter of 2023, from 3.19% for the first quarter of 2022.
+Added: Average interest earning assets were $2,308,450,000 for the three months ended March 31, 2023 compared to $2,285,160,000 for the three months ended March 31, 2022.
+Added: The $23,290,000 increase in average earning assets was attributed to the $219,608,000 decrease in average total investments, offset by the $242,898,000 or 23.88% increase in average loans.
+Added: For the three months ended March 31, 2023, the effective yield on investment securities including Federal funds sold and interest-earning deposits in other banks increased 93 basis points.
+Added: The effective yield on loans increased 46 basis points.
+Added: Average interest bearing liabilities decreased 4.87% to $1,187,528,000 for the three months ended March 31, 2023, compared to $1,248,312,000 for the same period in 2022.
+Added: Interest and fee income from loans increased $4,347,000 or 35.75% for the three months ended March 31, 2023 compared to the same period in 2022.
+Added: Net interest income during the first three months of 2023 was impacted by an increase in average total loans of $242,898,000 or 23.88% to $1,260,178,000 compared to $1,017,280,000 for the same period in 2022.
+Added: The yield on average loans, excluding nonaccrual loans, was 5.31% for the three months ended March 31, 2023 compared to 4.85% for the same period in 2022.
+Added: Net interest income for the period ending March 31, 2023 was benefited by approximately $649,000 in nonrecurring income from prepayment penalties, compared to $676,000 recorded in the same period in 2022.
+Added: The impact to interest income from the accretion of the loan marks on acquired loans was $67,000 and $222,000 for the three months ended March 31, 2023 and 2022, respectively.
+Added: The remaining balance of accretable loan marks on acquired loans as of March 31, 2023 was $1,205,000.
+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 $1,345,000 in the first three months of 2023 to $7,366,000 compared to $6,021,000 for the same period in 2022.
+Added: The yield on average total investments (total securities and interest-earning deposits) increased 93 basis points to 2.95% for the three month period ended March 31, 2023 compared to 2.02% for the same period in 2022.
+Added: Average total securities and interest-earning deposits for the first three months of 2023 decreased $219,608,000 or 17.32% to $1,048,272,000 compared to $1,267,880,000 for the same period in 2022.
+Added: Income from investments represents 34.13% of net interest income for the first three months of 2023 compared to 34.22% for the same period in 2022.
+Added: Total interest income on a non-tax equivalent basis for the three months ended March 31, 2023 increased $5,961,000 or 32.79% to $24,143,000 compared to $18,182,000 for the three months ended March 31, 2022.
+Added: The yield on interest earning assets increased 97 basis points to 4.26% on a fully tax equivalent basis for the three months ended March 31, 2023 from 3.29% for the period ended March 31, 2022.
The decrease was the result of yield changes, decrease in interest rates, and asset mix changes.
−Removed: Average interest earning assets increased to $2,305,113,000 for the nine months ended September 30, 2022 compared to $2,040,407,000 for the nine months ended September 30, 2021.
−Removed: The $264,706,000 increase in average earning assets was attributed to the $240,734,000 increase in average investments, offset by a $23,972,000 or 2.23% decrease in average loans.
−Removed: Interest expense on deposits for the nine months ended September 30, 2022 and 2021 was $714,000 and $783,000, respectively.
−Removed: The average interest rate on interest bearing deposits decreased to 0.08% for the nine months ended September 30, 2022 compared to 0.10% for the same period ended September 30, 2021.
−Removed: Average interest-bearing deposits increased 12.27% or $128,385,000 to $1,174,553,000 for the nine months ended September 30, 2022 compared to $1,046,168,000 for the same period ended September 30, 2021.
−Removed: Average other borrowed funds were $59,646,000 with an effective rate of 3.03% for the nine months ended September 30, 2022 compared to $5,155,000 with an effective rate of 1.81% for the nine months ended September 30, 2021.
−Removed: Total interest expense on other borrowed funds was $1,354,000 for the nine months ended September 30, 2022 and $70,000 for the nine months ended September 30, 2021.
+Added: Average interest earning assets increased to $2,308,450,000 for the three months ended March 31, 2023 compared to $2,285,160,000 for the three months ended March 31, 2022.
+Added: The $23,290,000 increase in average earning assets was attributed to the $219,608,000 decrease in average investments, offset by a $242,898,000 or 23.88% increase in average loans.
+Added: Interest expense on deposits for the three months ended March 31, 2023 and 2022 was $1,004,000 and $252,000, respectively.
+Added: The average interest rate on interest bearing deposits increased to 0.38% for the three months ended March 31, 2023 compared to 0.08% for the same period ended March 31, 2022.
+Added: Average interest-bearing deposits decreased 12.06% or $145,790,000 to $1,063,048,000 for the three months ended March 31, 2023 compared to $1,208,838,000 for the same period ended March 31, 2022.
+Added: Average other borrowed funds were $124,480,000 with an effective rate of 5.01% for the three months ended March 31, 2023 compared to $39,474,000 with an effective rate of 3.37% for the three months ended March 31, 2022.
+Added: Total interest expense on other borrowed funds was $1,558,000 for the three months ended March 31, 2023 and $333,000 for the three months ended March 31, 2022.
Included in other borrowings are the junior subordinated deferrable interest debentures acquired from Service 1 st , subordinated debt, senior debt, advances on lines of credit, advances from the Federal Home Loan Bank (“FHLB”) , and overnight borrowings.
−Removed: The junior subordinated debentures carry a floating rate based on the three month LIBOR plus a margin of 1.60%.
−Removed: The rates were 2.64% and 1.73% at September 30, 2022 and December 31, 2021, respectively .
−Removed: The subordinated debt, issued in 2021, initially bears a fixed interest rate of 3.125% per year until December 1, 2026 when the interest rate will reset to a floating rate.
−Removed: The senior debt carries a floating rated payable at the Prime Rate less 50 basis points.
−Removed: See the section on “Financial Condition” for more detail.
−Removed: The cost of interest-bearing liabilities increased 11 basis points to 0.22% for the nine-month period ended September 30, 2022 compared to 0.11% for the same period in 2021.
−Removed: The cost of total deposits decreased to 0.04% compared to 0.05% for the nine-month periods ended September 30, 2022 and 2021, respectively.
−Removed: Average non-interest bearing demand deposits increased 10.41% to $977,164,000 in 2022 compared to $885,008,000 for 2021.
−Removed: The ratio of average non-interest bearing demand deposits to average total deposits decreased to 45.41% in the nine-month period ended September 30, 2022 compared to 45.83% for the same period in 2021.
−Removed: Net Interest Income before Provision for Credit Losses
−Removed: Net interest income before the provision for credit losses for the nine months ended September 30, 2022 increased by $3,725,000 or 6.92% to $57,571,000 compared to $53,846,000 for the same period in 2021.
−Removed: The increase was a result of yield changes, asset mix changes, and an increase in average earning assets, partially offset by an increase in average interest bearing liabilities.
−Removed: The impact to interest income from the accretion of the loan marks on acquired loans was $445,000 and $579,000 for the nine months ended September 30, 2022 and 2021, respectively.
−Removed: In addition, net interest income before the provision for credit losses for the nine months ended September 30, 2022 was benefited by approximately $562,000 in nonrecurring income from prepayment penalties, as compared to $438,000 in nonrecurring income for the nine months ended September 30, 2021.
−Removed: Excluding these reversals and benefits, net interest income for the nine months ended September 30, 2022 increased by $3,735,000 compared to the nine months ended September 30, 2021.
−Removed: Average interest earning assets were $2,305,113,000 for the nine months ended September 30, 2022 with a net interest margin (fully tax equivalent basis) of 3.42% compared to $2,040,407,000 with a net interest margin (fully tax equivalent basis) of 3.60% for the nine months ended September 30, 2021.
−Removed: The $264,706,000 increase in average earning assets was attributed to the $240,734,000 increase in average total investments, offset by the $23,972,000 or 2.23% increase in average loans.
−Removed: For the nine months ended September 30, 2022, the effective yield on investment securities including Federal funds sold and interest-earning deposits in other banks increased 24 basis points.
−Removed: The effective yield on loans decreased 20 basis points.
−Removed: Average interest bearing liabilities increased 17.39% to $1,234,199,000 for the nine months ended September 30, 2022, compared to $1,051,323,000 for the same period in 2021.
−Removed: Provision for Credit Losses
−Removed: We provide for probable incurred credit losses through a charge to operating income based upon the composition of the loan portfolio, delinquency levels, historical losses, and nonperforming assets, economic and environmental conditions and other factors which, in management’s judgment, deserve recognition in estimating credit losses.
−Removed: Credit risk is inherent in the business
−Removed: of making loans.
−Removed: The Company establishes an allowance for credit losses on loans through charges to earnings, which are presented in the statements of income as the provision for credit losses on loans.
−Removed: Specifically identifiable and quantifiable known losses are promptly charged off against the allowance.
−Removed: Loans are charged off when they are considered uncollectible or when continuance as an active earning bank asset is not warranted.
−Removed: The establishment of an adequate credit allowance is based on an allowance model that utilizes qualitative and quantitative factors, historical losses, loan level risk ratings and portfolio management tools.
−Removed: The Board of Directors has established initial responsibility for the accuracy of credit risk ratings with the individual credit officer and oversight from Credit Administration who ensures the accuracy of the risk ratings.
−Removed: Quarterly, the credit officers must certify the current risk ratings of the loans in their portfolio.
−Removed: Credit Administration reviews the certifications and reports to the Board of Directors Audit/Compliance Committee.
−Removed: At least annually, the loan portfolio, including risk ratings, is reviewed by a third party credit reviewer.
−Removed: Regulatory agencies also review the loan portfolio on a periodic basis.
−Removed: See “Allowance for Credit Losses” for more information on the Company’s Allowance for Loan Loss.
−Removed: Quarterly, the Chief Credit Officer (CCO) reviews the specific reserve calculations for all impaired credits.
−Removed: Additionally, the CCO is responsible to ensure that the general reserves on non-impaired loans are properly set each quarter.
−Removed: This process includes the utilization of loan delinquency reports, classified asset reports, collateral analysis and portfolio concentration reports to assist in accurately assessing credit risk and establishing appropriate reserves.
−Removed: The allowance for credit losses is reviewed at least quarterly by the Board of Directors’ Audit/Compliance Committee and by the Board of Directors.
−Removed: General reserves are allocated to loan portfolio categories using percentages which are based on both historical risk elements such as delinquencies and losses and predictive risk elements such as economic, competitive and environmental factors.
−Removed: We have adopted the specific reserve approach to allocate reserves to each impaired credit for the purpose of estimating potential loss exposure.
−Removed: 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.
−Removed: Changes in the allowance for credit losses may be required based on the results of independent loan portfolio examinations, regulatory agency examinations, or our own internal review process.
−Removed: Additions are also required when, in management’s judgment, the allowance does not properly reflect the portfolio’s probable loss exposure.
−Removed: 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: The allocation of the allowance for credit losses is set forth below (in thousands):
−Removed: Loan Type September 30, 2022 December 31, 2021
−Removed: Commercial and industrial $ 1,912 $ 1,691
−Removed: Agricultural production 179 320
−Removed: Total commercial 2,091 2,011
−Removed: Owner occupied 903 1,355
−Removed: Real estate construction and other land loans 1,423 812
−Removed: Commercial real estate 4,302 3,805
−Removed: Agricultural real estate 739 697
−Removed: Other real estate 46 72
−Removed: Total real estate 7,413 6,741
−Removed: Equity loans and lines of credit 507 256
−Removed: Consumer and installment 226 312
−Removed: Total consumer 733 568
−Removed: Unallocated reserves 129 280
−Removed: Total allowance for credit losses $ 10,366 $ 9,600
−Removed: Loans are charged to the allowance for credit losses when the loans are deemed uncollectible.
−Removed: It is the policy of management to make additions to the allowance so that it remains adequate to cover all probable incurred credit losses that exist in the portfolio at that time.
−Removed: We assign qualitative and environmental factors (Q factors) to each loan category.
−Removed: Q factors include reserves held for the effects of lending policies, economic trends, and portfolio trends along with other dynamics which may cause additional stress to the portfolio.
+Added: The cost of interest-bearing liabilities increased 68 basis points to 0.87% for the three-month period ended March 31, 2023 compared to 0.19% for the same period in 2022.
+Added: The cost of total deposits increased to 0.20% compared to 0.05% for the three-month periods ended March 31, 2023 and 2022, respectively.
+Added: Average non-interest bearing demand deposits increased 8.21% to $1,018,210,000 for the three month period ended March 31, 2023 compared to $940,963,000 for the same period in 2022.
+Added: The ratio of average non-interest bearing demand deposits to average total deposits increased to 48.92% in the three-month period ended March 31, 2023 compared to 43.77% for the same period in 2022.
+Added: Net interest income before the provision for credit losses for the three months ended March 31, 2023 increased by $3,984,000 or 22.64% to $21,581,000 compared to $17,597,000 for the same period in 2022.
+Added: The increase was a result of yield changes, asset mix changes, and an increase in average earning assets, offset by an increase in interest expense on average interest bearing liabilities.
+Added: The impact to interest income from the accretion of the loan marks on acquired loans was $67,000 and $222,000 for the three months ended March 31, 2023 and 2022, respectively.
+Added: In addition, net interest income before the provision for credit losses for the three months ended March 31, 2023 was benefited by approximately $649,000 in nonrecurring income from prepayment penalties, as compared to $676,000 in nonrecurring income for the three months ended March 31, 2022.
+Added: Excluding these reversals and benefits, net interest income for the three months ended March 31, 2023 increased by $4,292,000 compared to the three months ended March 31, 2022.
+Added: Provision for Credit Losses on Loans
+Added: The following table sets forth information regarding our provisions for credit losses on loans, charge-offs and recoveries and ending allowance for credit losses for loans at the dates and for the periods indicated:
+Added: For the Three Months
+Added: Ended March 31, For the Year Ended
+Added: December 31, For the Three Months
+Added: Ended March 31,
+Added: (Dollars in thousands) 2023 2022 2022
+Added: Balance, beginning of period $ 10,848 $ 9,600 $ 9,600
+Added: Impact of ASU 2016-13 adoption 3,910 — —
+Added: Provision (reversal of) for credit losses 518 1,000 —
+Added: Losses charged to allowance (354) (178) (101)
+Added: Recoveries 335 426 365
+Added: Balance, end of period $ 15,257 $ 10,848 $ 9,864
+Added: Allowance for credit losses to total loans at end of period 1.19 % 0.86 % 0.97 %
Managing high-risk credits includes developing a business strategy with the customer to mitigate our potential losses.
1 unchanged sentence
additional provisions may be necessary.
−Removed: Management believes that the level of allowance for loan losses allocated to commercial and real estate loans has been adjusted accordingly.
−Removed: During the nine months ended September 30, 2022, the Company recorded a $500,000 provision for credit losses, compared to a $3,800,000 reversal of provisi on durin g the nine months ended September 30, 2021.
−Removed: The provision 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 nine months ended September 30, 2022, the Company adjusted the economic risk and interest rate factors to incorporate the potential and realized implications from rising interest rates, input price increases and supply chain backlogs.
−Removed: The Company had net recoveries totaling $266,000 for the nine months ended September 30, 2022, and $946,000 for the same period in 2021.
−Removed: Nonperforming loans, consisting entirely of nonaccrual loans, were $251,000 and $946,000 at September 30, 2022 and December 31, 2021, respectively, and $1,083,498,000 at September 30, 2021.
−Removed: Nonperforming loans as a percentage of total loans were 0.02% at September 30, 2022 compared to 0.09% at December 31, 2021 and 0.15% at September 30, 2021.
−Removed: The Company had no other real estate owned (OREO) at September 30, 2022 or December 31, 2021.
−Removed: The Company held no repossessed assets at September 30, 2022 or December 31, 2021.
−Removed: The annualized net charge-off (recovery) ratio, which reflects net charge-offs (recoveries) to average loans was (0.03)% for the nine months ended September 30, 2022, and (0.12)% for the same period in 2021.
−Removed: 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 operations principally in California’s Central Valley.
−Removed: The Central Valley is largely dependent on agriculture.
−Removed: The agricultural economy in the Central Valley is therefore important to our business, financial performance and results of operations.
−Removed: We are also dependent in a large part upon the business activity, population growth, income levels and real estate activity in this market area.
−Removed: A downturn in agriculture and the agricultural related businesses could have a material adverse effect our business, results of operations and financial condition.
−Removed: The agricultural industry has been affected by declines in prices and the changes in yields on various crops and other agricultural commodities.
−Removed: Similarly, weaker prices could reduce the cash flows generated by farms and the value of agricultural land in our local markets and thereby increase the risk of default by our borrowers or reduce the foreclosure value of agricultural land and equipment that serve as collateral for our loans.
−Removed: Further declines in commodity prices or collateral values may increase the incidence of default by our borrowers.
−Removed: Moreover, weaker prices might threaten farming operations in the Central Valley, reducing market demand for agricultural lending.
−Removed: In particular, farm income has seen recent declines, and in line with the downturn in farm income, farmland prices are coming under pressure.
+Added: Management believes that the level of allowance for credit losses has been adjusted accordingly.
+Added: During the three months ended March 31, 2023, the Company recorded a $518,000 provision for credit losses on loans, compared to no provisi on durin g the three months ended March 31, 2022.
+Added: The Company had net charge-offs totaling $19,000 for the three months ended March 31, 2023, and net recoveries of $264,000 for the same period in 2022.
+Added: The annualized net charge-off (recovery) ratio, which reflects net charge-offs (recoveries) to average loans was (0.01)% for the three months ended March 31, 2023, and (0.10)% for the same period in 2022.
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 September 30, 2022, there were $22.7 million in classified loans of which $1.7 million related to commercial and industrial loans, $3.0 million to agricultural production, $2.2 million to owner occupied real estate, $13.2 to real estate construction and other land loans, and $2.4 million in commercial real estate.
−Removed: This compares to $8.5 in classified loans of which $2.6 million related to commercial and industrial loans, $2.4 million to agricultural production, $3.6 million to owner occupied real estate as of December 31, 2021.
−Removed: As of September 30, 2022, 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.
−Removed: However, no assurance can be given that we may not sustain charge-offs which are in excess of the allowance in any given period.
−Removed: Refer to the “Allowance for Credit Losses” section for further information.
−Removed: Net Interest Income after Provision for Credit Losses
−Removed: Net interest income, after the provision for credit losses, was $57,071,000 for the nine months period ended September 30, 2022 and $57,646,000 for the same period in 2021.
+Added: As of March 31, 2023, there were $30,843,000 in classified loans of which $1,950,000 related to commercial and industrial loans, $5,183,000 to agricultural production, $2,159,000 to owner occupied real estate, $15,821,000 to real estate construction and other land loans, $2,395,000 to non-owner occupied real estate, $3,022,000 to farmland, $— to 1-4 family revolving, and $50,000 to consumer.
+Added: This compares to $27,783,000 in classified loans of which $1,655,000 related to commercial and industrial loans, $5,399,000 to agricultural production, $2,169,000 to owner occupied real estate, $15,024,000 to real estate construction and other land loans, $2,412,000 to non-owner occupied real estate, $824,000 to farmland, $266,000 to 1-4 family revolving, and $34,000 to consumer as of December 31, 2022.
Non-Interest Income
−Removed: 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 $4,084,000 for the nine months ended September 30, 2022 compared to $6,224,000 for the same period in 2021.
−Removed: The $2,140,000 or 34.38% decrease in non-interest income during the nine months ended September 30, 2022 was primarily driven by a decrease in loan placement fees of $912,000, a decrease of $785,000 in other income, and an increase of $815,000 in net realized losses on sales and calls of investment securities, offset by an increase in service charge income of $172,000, an increase of $39,000 in interchange fees, an increase of $140,000 in appreciation in cash surrender value of bank-owned life insurance, and an increase in FHLB dividends of $21,000.
−Removed: During the nine months ended September 30, 2022, we realized a net loss on sales and calls of investment securities of $777,000 compared to a $38,000 net gain for the same period in 2021.
−Removed: The net losses realized on sales and calls of investment securities in 2022 were the result of a partial restructuring of the investment portfolio designed to improve the future performance of the portfolio and provide needed liquidity for loan growth.
−Removed: Customer service charges increased $172,000 or 12.41% to $1,558,000 for the first nine months of 2022 compared to $1,386,000 for the same period in 2021.
−Removed: Interchange fees increased $39,000 to $1,352,000 the first nine months of 2022 compared to $1,313,000 for the same period in 2021.
−Removed: Loan placement fees decreased $912,000 or 55.81% to $722,000 for the first nine months of 2022 compared to $1,634,000 for the same period in 2021.
−Removed: Other income decreased $785,000 the first nine months of 2022 compared to the same period in 2021.
+Added: Non-interest income is comprised of customer service charges, loan placement fees, net gains/losses on sales and calls of investment securities, appreciation in cash surrender value of bank-owned life insurance, FHLB dividends, and other income.
+Added: Non-interest income was $1,575,000 for the three months ended March 31, 2023 compared to $1,834,000 for the same period in 2022.
+Added: The $259,000 or 14.12% decrease in non-interest income during the three months ended March 31, 2023 was primarily driven by a decrease in loan placement fees of $175,000, a decrease in service charge income of $152,000, and a change of $425,000 in net realized sales and calls of investment securities from a $206,000 gain at March 31, 2022 to a $219,000 loss at March 31, 2023.
+Added: These decreases were offset by an increase of $458,000 in other income.
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 $6,169,000 in FHLB stock.
−Removed: We received dividends totaling $258,000 in the nine months ended September 30, 2022, compared to $237,000 for the same period in 2021.
+Added: We received dividends totaling $109,000 in the three months ended March 31, 2023, compared to $85,000 for the same period in 2022.
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 increased $1,246,000 or 3.55% to $36,326,000 for the nine months ended September 30, 2022, compared to $35,080,000 for the nine months ended September 30, 2021.
−Removed: The net increase for the first nine months of 2022 was primarily the result of increases in salaries and employee benefits of $493,000, information technology of $404,000, occupancy and equipment expenses of $331,000, professional services of $113,000, regulatory assessments of $88,000, operating losses of $62,000, advertising of $30,000, general insurance of $26,000, donations of $29,000, partially offset by decreases in internet banking of $164,000, data processing expenses of $192,000, directors’ expenses of $122,000, personnel expenses of $17,000, ATM/Debit card expenses of $27,000, armored courier expenses of $9,000, and amortization of software of $13,000.
−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 56.29% for the nine months ended September 30, 2022 compared to 56.46% for the nine months ended September 30, 2021.
−Removed: The modest improvement in the efficiency ratio was due to the increase in non-interest income outpacing the increase in non-interest expense.
−Removed: Salaries and employee benefits increased $493,000 or 2.35% to $21,501,000 for the first nine months of 2022 compared to $21,008,000 for the nine months ended September 30, 2021.
−Removed: The increase in salaries and employee benefits was primarily attributed to non-recurring expenditures relating to severance for the transition of our Chief Financial Officer, and overtime expenditures relating to the Company’s core software conversion.
−Removed: Full time equivalent employees were 249 for the nine months ended September 30, 2022, compared to 258 for the nine months ended September 30, 2021.
−Removed: Occupancy and equipment expense increased $331,000 or 9.36% to $3,869,000 for the nine months ended September 30, 2022 compared to $3,538,000 for the nine months ended September 30, 2021.
+Added: Non-interest expenses increased $1,760,000 or 15.38% to $13,205,000 for the three months ended March 31, 2023, compared to $11,445,000 for the three months ended March 31, 2022.
+Added: The net increase for the first three months of 2023 was primarily the result of increases in salaries and employee benefits of $1,090,000, information technology of $89,000, occupancy and equipment expenses of $96,000, director’s expenses of $118,000, provision for unfunded commitments of $0, and personnel other of $156,000, partially offset by a decrease by the amortization of core deposit intangibles of $106,000.
+Added: Salaries and employee benefits increased $1,090,000 or 15.70% to $8,034,000 for the first three months of 2023 compared to $6,944,000 for the three months ended March 31, 2022.
+Added: The increase in salaries and employee benefits was primarily attributed to non-recurring expenditures relating to fees from the transition of our Chief Financial Officer, and cost of living adjustments.
+Added: Full time equivalent employees were 257 for the three months ended March 31, 2023, compared to 253 for the three months ended March 31, 2022.
+Added: Occupancy and equipment expense increased $96,000 or 8.26% to $1,258,000 for the three months ended March 31, 2023 compared to $1,162,000 for the three months ended March 31, 2022.
The Company made no changes in its depreciation expense methodology.
−Removed: The Company operated 20 full-service offices at September 30, 2022 and at September 30, 2021.
−Removed: Data processing expense decreased to $1,649,000 for the nine months ended September 30, 2022 compared to $1,841,000 for the same period in 2021.
−Removed: Regulatory assessments increased to $640,000 for the nine months ended September 30, 2022 compared to $552,000 for the same period in 2021.
+Added: The Company operated 19 full-service offices at March 31, 2023 compared to 20 at March 31, 2022.
+Added: Data processing expense increased to $650,000 for the three months ended March 31, 2023 compared to $541,000 for the same period in 2022.
+Added: Regulatory assessments decreased to $210,000 for the three months ended March 31, 2023 compared to $222,000 for the same period in 2022.
The assessment base for calculating regulatory assessments is average assets less average tangible equity.
−Removed: Professional services increased by $113,000 in the first nine months of 2022 compared to the same period in 2021.
+Added: Professional services decreased by $21,000 in the first three months of 2023 compared to the same period in 2022.
The following table shows significant components of other non-interest expense as a percentage of average assets.
−Removed: For the Nine Months
−Removed: Ended September 30,
−Removed: (Dollars in thousands) Other Expense % Average
−Removed: Assets Other Expense % Average
+Added: For the Three Months
+Added: Ended March 31,
+Added: (Dollars in thousands) Other Expense Other Expense $ Change % Change
Stationery/supplies $ 34 $ 34 $ — — %
3 unchanged sentences
Shareholder services 23 22 1 4.5 %
−Removed: Personnel other 219 0.01 % 236 0.01 %
Armored courier fees 61 56 5 8.9 %
3 unchanged sentences
Education/training 46 64 (18) (28.1) %
−Removed: Loan related expenses 291 0.02 % 216 0.01 %
General insurance 66 49 17 34.7 %
Travel and mileage expense 37 24 13 54.2 %
−Removed: Operating losses 139 0.01 % 77 — %
Other 393 225 168 74.7 %
1 unchanged sentence
Provision for Income Taxes
−Removed: Our effective income tax rate was 23.43% for the nine months ended September 30, 2022 compared to 25.10% for the nine months ended September 30, 2021.
−Removed: The Company reported an income tax provision of $5,817,000 for the nine months ended September 30, 2022, compared to $7,227,000 for the nine months ended September 30, 2021.
−Removed: The effective tax rate was affected by the increase in tax-exempt interest.
+Added: Our effective income tax rate was 25.20% for the three months ended March 31, 2023 compared to 23.79% for the three months ended March 31, 2022.
+Added: The Company reported an income tax provision of $2,348,000 for the three months ended March 31, 2023, compared to $1,900,000 for the three months ended March 31, 2022.
+Added: The effective tax rate was affected by the change 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.
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 September 30, 2022 and December 31, 2021, there was no reserve for uncertain tax positions.
−Removed: Net Income for the Third Quarter of 2022 Compared to the Third Quarter of 2021
−Removed: Net income decreased to $6,384,000 for the quarter ended September 30, 2022 compared to $6,521,000 for the quarter ended September 30, 2021.
−Removed: Basic earnings per share was $0.55 for the quarter ended September 30, 2022 compared to $0.54 for the same period in 2021.
−Removed: Diluted earnings per share was $0.55 for the quarter ended September 30, 2022 compared to $0.54 for the same period in 2021.
−Removed: Annualized ROE was 14.42% for the quarter ended September 30, 2022 compared to 10.41% for the quarter ended September 30, 2021.
−Removed: Annualized ROA for the three months ended September 30, 2022 was 1.06% compared to 1.13% for the quarter ended September 30, 2021.
−Removed: The decrease in net income during the third quarter of 2022 compared to the same period in 2021 is primarily due to a decrease in total non-interest income of $668,000, an increase in provision for credit losses of $1,000,000, and an increase in non-interest expenses of $736,000, partially offset by an increase in net interest income before the provision for credit losses of $1,954,000, and a decrease in the provision for income taxes of $313,000.
−Removed: During the quarter ended September 30, 2022, the Company recorded a $500,000 provision for credit losses, compared to a $500,000 reversal of provision during the quarter ended September 30, 2021.
−Removed: Non-interest income decreased $668,000 or 31.10% to $1,480,000 for the quarter ended September 30, 2022 compared to $2,148,000 in the same period in 2021, primarily due to an increase in net realized losses on sales and calls of investment securities of $131,000.
−Removed: In addition, during the third quarter 2022 there was a decrease in loan placement fees of $312,000, a decrease in other income of $182,000, a decrease of $40,000 in interchange fees, and a decrease of $12,000 in service charge income compared to the same period in 2021.
−Removed: Interest Income and Expense
−Removed: 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.
−Removed: Average balances are derived from daily balances, and non-accrual loans are not included as interest earning assets for purposes of this table.
−Removed: CENTRAL VALLEY COMMUNITY BANCORP
−Removed: SCHEDULE OF AVERAGE BALANCES AND AVERAGE YIELDS AND RATES
−Removed: For the Three Months Ended
−Removed: September 30, 2022 For the Three Months Ended
−Removed: September 30, 2021
−Removed: (Dollars in thousands) Average
−Removed: Balance Interest
−Removed: Expense Average
−Removed: Balance Interest
−Removed: Expense Average
−Removed: Interest-earning deposits in other banks $ 6,192 $ 48 3.10 % $ 70,980 $ 29 0.16 %
−Removed: Taxable securities 819,649 4,411 2.15 % 746,923 3,842 2.06 %
−Removed: Non-taxable securities (1) 276,125 2,311 3.35 % 241,225 1,794 2.97 %
−Removed: Total investment securities 1,095,774 6,722 2.45 % 988,148 5,636 2.28 %
−Removed: Total securities and interest-earning deposits
−Removed: 1,101,966 6,770 2.46 % 1,059,128 5,665 2.14 %
−Removed: Loans (2) (3) 1,189,762 14,708 4.90 % 1,068,111 13,208 4.91 %
−Removed: Total interest-earning assets 2,291,728 $ 21,478 3.72 % 2,127,239 $ 18,873 3.52 %
−Removed: Allowance for credit losses (9,877) (10,558)
−Removed: Non-accrual loans 260 1,844
−Removed: Cash and due from banks 32,144 39,566
−Removed: Bank premises and equipment 7,984 8,562
−Removed: Other assets 92,175 151,519
−Removed: Total average assets $ 2,414,414 $ 2,318,172
−Removed: LIABILITIES AND SHAREHOLDERS’ EQUITY
−Removed: Interest-bearing liabilities:
−Removed: Savings and NOW accounts $ 584,070 $ 60 0.04 % $ 551,590 $ 50 0.04 %
−Removed: Money market accounts 443,301 142 0.13 % 464,546 166 0.14 %
−Removed: Time certificates of deposit 78,563 29 0.15 % 89,621 47 0.21 %
−Removed: Total interest-bearing deposits 1,105,934 231 0.08 % 1,105,757 263 0.09 %
−Removed: Other borrowed funds 60,794 597 3.93 % 5,155 22 1.71 %
−Removed: Total interest-bearing liabilities 1,166,728 $ 828 0.28 % 1,110,912 $ 285 0.10 %
−Removed: Non-interest bearing demand deposits 1,041,698 915,742
−Removed: Other liabilities 28,905 40,998
−Removed: Shareholders’ equity 177,083 250,520
−Removed: Total average liabilities and shareholders’ equity $ 2,414,414 $ 2,318,172
−Removed: Interest income and rate earned on average earning assets
−Removed: $ 21,478 3.72 % $ 18,873 3.52 %
−Removed: Interest expense and interest cost related to average interest-bearing liabilities
−Removed: 828 0.28 % 285 0.10 %
−Removed: Net interest income and net interest margin (4) $ 20,650 3.57 % $ 18,588 3.47 %
−Removed: (1) Calculated on a fully tax equivalent basis, which includes Federal tax benefits relating to income earned on municipal bonds totaling $486 and $377 in 2022 and 2021, respectively.
−Removed: (2) Loan interest income includes loan costs of $80 in 2022 and loan fees $1,076 in 2021.
−Removed: (3) Average loans do not include non-accrual loans but do include interest income recovered from previously charged off loans.
−Removed: (4) Net interest margin is computed by dividing net interest income by total average interest-earning assets .
−Removed: 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: The change in interest due to both rate and volume has been allocated to the change in rate.
−Removed: Changes in Volume/Rate For the Three Months Ended September 30, 2022 and 2021
−Removed: (In thousands) Volume Rate Net
−Removed: Increase (decrease) due to changes in:
−Removed: Interest income:
−Removed: Interest-earning deposits in other banks $ (25) $ 45 $ 20
−Removed: Investment securities:
−Removed: Taxable 374 193 567
−Removed: Non-taxable (1) 259 258 517
−Removed: Total investment securities 633 451 1,084
−Removed: Federal funds sold — — —
−Removed: Loans 1,504 (4) 1,500
−Removed: Total earning assets (1) 2,112 492 2,604
−Removed: Interest expense:
−Removed: Savings, NOW and MMA (6) (9) (15)
−Removed: Time certificate of deposits (5) (13) (18)
−Removed: Total interest-bearing deposits (11) (22) (33)
−Removed: Other borrowed funds 258 316 574
−Removed: Total interest-bearing liabilities 247 294 541
−Removed: Net interest income (1) $ 1,865 $ 198 $ 2,063
−Removed: (1) Computed on a tax equivalent basis for securities exempt from federal income taxes.
−Removed: Interest and fee income from loans increased $1,500,000 or 11.36% to $14,708,000 for the third quarter of 2022 compared to $13,208,000 for the same period in 2021.
−Removed: Total average loans, including nonaccrual loans, for the third quarter of 2022 increased $120,067,000 or 11.22% to $1,190,022,000 compared to $1,069,955,000 for the same period in 2021.
−Removed: Yield on the loan portfolio, excluding nonaccrual loans, was 4.90% and 4.91% for the third quarters ending September 30, 2022 and 2021, respectively.
−Removed: Net interest income during the third quarters of 2022 and 2021 benefited by approximately $92,000 and $4,000, respectively, in nonrecurring income from prepayment penalties and payoff of loans previously on nonaccrual status.
−Removed: The accretion of the loan marks on acquired loans increased interest income by $121,000 and $231,000 during the quarters ended September 30, 2022 and 2021, respectively.
−Removed: Income from investments represents 31.16% of net interest income for the third quarter of 2022 compared to 29.04% for the same quarter in 2021.
−Removed: 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 $995,000 in the third quarter of 2022 to $6,284,000 compared to $5,289,000, for the same period in 2021.
−Removed: The yield on average total investments increased 32 basis points to 2.46% on a fully tax equivalent basis for the third quarter of 2022 compared to 2.14% on a fully tax equivalent basis for the third quarter of 2021.
−Removed: Average total investments and interest bearing deposits in other banks for the third quarter of 2022 increased $42,838,000 or 4.04% to $1,101,966,000 compared to $1,059,128,000 for the third quarter of 2021.
−Removed: Total interest income for the third quarter of 2022 increased $2,495,000 or 13.49% to $20,992,000 compared to $18,497,000 for the third quarter ended September 30, 2021.
−Removed: The yield on interest earning assets increased to 3.72% on a fully tax equivalent basis for the third quarter ended September 30, 2022 from 3.52% on a fully tax equivalent basis for the third quarter ended September 30, 2021.
−Removed: Average interest earning assets increased to $2,291,728,000 for the third quarter ended September 30, 2022 compared to $2,127,239,000 for the third quarter ended September 30, 2021.
−Removed: The $164,489,000 increase in average earning assets was attributed to the $121,651,000 increase in average loans, and by the $42,838,000 increase in total investments.
−Removed: Interest expense on deposits for the quarter ended September 30, 2022 decreased $32,000 or 12.17% to $231,000 compared to $263,000 for the quarter ended September 30, 2021.
−Removed: The cost of deposits, calculated by dividing annualized interest expense on interest bearing deposits by total deposits, was 0.04% and 0.05% for the quarters ended September 30, 2022 and 2021, respectively.
−Removed: Average interest bearing deposits increased 0.02% or $177,000 in the third quarter of 2022 compared to the same period in 2021.
−Removed: Average interest-bearing deposits were $1,105,934,000 for the quarter ended September 30, 2022,
−Removed: with an effective rate paid of 0.08%, compared to $1,105,757,000 for the same period in 2021, with an effective rate paid of 0.09%.
−Removed: Average other borrowed funds totaled $60,794,000 for the quarter ended September 30, 2022, with an effective rate of 3.93% for the quarter ended September 30, 2022 compared to $5,155,000 and 1.71% for the quarter ended September 30, 2021.
−Removed: As a result, interest expense on borrowed funds increased $575,000 to $597,000 for the quarter ended September 30, 2022, from $22,000 for the quarter ended September 30, 2021.
−Removed: Other borrowings are comprised of advances from the Federal Home Loan Bank, junior subordinated deferrable interest debentures, senior debt, and advances on available unsecured lines of credit with correspondent banks.
−Removed: The cost of our interest bearing liabilities was 0.28% and 0.10% for the quarters ended September 30, 2022 and 2021.
−Removed: The cost of total deposits was 0.04% and 0.05% for the quarters ended September 30, 2022 and 2021.
−Removed: Average non-interest bearing demand deposits increased 13.75% to $1,041,698,000 for the quarter ended September 30, 2022 compared to $915,742,000 for the quarter ended September 30, 2021.
−Removed: The ratio of average non-interest bearing demand deposits to average total deposits was 48.50% in the third quarter of 2022 compared to 45.30% for the same period in 2021.
−Removed: Net Interest Income before Provision for Credit Losses
−Removed: Net interest income before provision for credit losses for the quarter ended September 30, 2022, increased $1,954,000 or 10.73% to $20,164,000 compared to $18,210,000 for the quarter ended September 30, 2021.
−Removed: 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.
−Removed: Average interest earning assets were $2,291,728,000 for the quarter ended September 30, 2022, with a net interest margin (fully tax equivalent basis) of 3.57% compared to $2,127,239,000 with a net interest margin (fully tax equivalent basis) of 3.47% for the quarter ended September 30, 2021.
−Removed: The $164,489,000 increase in average earning assets can be attributed to the $120,067,000 increase in loans, and the $42,838,000 increase in total investments.
−Removed: Average interest bearing liabilities increased 5.02% to $1,166,728,000 for the quarter ended September 30, 2022 compared to $1,110,912,000 for the same period in 2021.
−Removed: Provision for Credit Losses
−Removed: During the quarter ended September 30, 2022, the Company recorded a $500,000 provision for credit losses, compared to $500,000 reversal of provision during the quarter ended September 30, 2021.
−Removed: The annualized net charge-off (recovery) ratio, which reflects net charge-offs (recoveries) to average loans, was 0.00% for the quarter ended September 30, 2022 compared to (0.05)% for the quarter ended September 30, 2021.
−Removed: During the quarter ended September 30, 2022, the Company had net charge-offs totaling $7,000 compared to net recoveries of $122,000 for the same period in 2021.
−Removed: Gross recoveries of previously charged off loan balances during the quarters ended September 30, 2022 and 2021 were $13,000 and $156,000, respectively.
−Removed: Gross charge-offs during the quarters ended September 30, 2022 and 2021 were $20,000 and $34,000, respectively.
−Removed: 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.
−Removed: Non-Interest Income
−Removed: Non-interest income was $1,480,000 for the quarter ended September 30, 2022 compared to $2,148,000 for the same period ended September 30, 2021.
−Removed: The $668,000 or 31.10% decrease in non-interest income for the quarter ended September 30, 2022 was primarily due to recording a $312,000 decrease in loan placement fees, a $131,000 increase in net realized losses on sales and calls of investment securities, a $182,000 decrease in other income, a $40,000 decrease in interchange fees, a $12,000 decrease in service charge income, partially offset by a $2,000 increase in appreciation in cash surrender value of bank-owned life insurance.
−Removed: Customer service charges decreased $12,000 or 2.46% to $475,000 for the third quarter of 2022 compared to $487,000 for the same period in 2021, due primarily to an increase in overdraft and analysis fee income.
−Removed: Other income decreased $182,000 or 66.42% to $92,000 for the third quarter of 2022 compared to $274,000 for the same period in 2021.
−Removed: Non-Interest Expenses
−Removed: 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.
−Removed: Non-interest expenses increased $736,000 or 6.10% to $12,798,000 for the quarter ended September 30, 2022 compared to $12,062,000 for the same period in 2021.
−Removed: The net increase quarter over quarter was a result of increases in salaries and employee benefits of $409,000, increases in occupancy and equipment of $139,000, increases in professional fees of $106,000, increases in operating losses of $33,000, increases in regulatory assessments of $5,000, increases in mileage and travel of $8,000, increases in personnel expense of $29,000, increases in telephone expenses of $49,000, and increases in advertising expenses of $9,000.
−Removed: The increases were partially offset by the decreases in data processing expenses of $39,000, decreases in directors’ expenses of $61,000, decreases in Internet banking of $25,000, decreases in amortization of core deposit intangibles of $35,000, decreases in appraisal fees of $111,000, decreases in education and training expenses of $24,000, and decreases of $12,000 in information technology expenses.
−Removed: The Company’s efficiency ratio improved to 57.20% for the third quarter of 2022 compared to 57.66% for the third quarter of 2021.
−Removed: The improvement in the efficiency ratio is due to the growth in operating revenue outpacing the growth in non-interest expense.
−Removed: Salaries and employee benefits increased $409,000 or 5.77% to $7,500,000 for the third quarter of 2022 compared to $7,091,000 for the third quarter of 2021.
−Removed: The increase was primarily attributed to non-recurring severance and overtime expenditures.
−Removed: The number of full time equivalent (FTE) employees as of September 30, 2022, December 31, 2021 and September 30, 2021 was 247, 273, and 246, respectively.
−Removed: Provision for Income Taxes
−Removed: The effective income tax rate was 23.51% for the third quarter of 2022 compared to 25.86% for the same period in 2021.
−Removed: Provision for income taxes totaled $1,962,000 and $2,275,000 for the quarters ended September 30, 2022 and 2021, respectively.
+Added: As of March 31, 2023 and December 31, 2022, there was no reserve for uncertain tax positions.
FINANCIAL CONDITION
Summary of Changes in Consolidated Balance Sheets
−Removed: September 30, 2022 compared to December 31, 2021
−Removed: Total assets were $2,425,698,000 as of September 30, 2022, compared to $2,450,139,000 at December 31, 2021, a decrease of 1.00% or $24,441,000.
−Removed: Total gross loans were $1,225,270,000 at September 30, 2022, compared to $1,039,111,000 at December 31, 2021, an increase of $186,159,000 or 17.92%.
−Removed: The total investment portfolio (including Federal funds sold and interest-earning deposits in other banks) decreased 20.89% or $261,310,000 to $989,369,000 at September 30, 2022 compared to $1,250,679,000 at December 31, 2021.
−Removed: Total deposits increased 0.77% or $16,347,000 to $2,139,144,000 at September 30, 2022, compared to $2,122,797,000 at December 31, 2021.
−Removed: Shareholders’ equity decreased $89,031,000 or 35.92% to $158,814,000 at September 30, 2022, compared to $247,845,000 at December 31, 2021.
−Removed: The decrease in shareholders’ equity was driven by the adverse change in the unrealized losses on available-for-sale (AFS) investment securities, dividends paid, and share repurchases, offset by the retention of e arnings.
−Removed: Accrued interest payable and other liabilities was $33,177,000 at September 30, 2022, compared to $40,043,000 at December 31, 2021, a decrease of $6,866,000.
−Removed: 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.
−Removed: The degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of the observable pricing scenario.
−Removed: Financial instruments with readily available actively quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of observable pricing and a lesser degree of judgment utilized in measuring fair value.
−Removed: Conversely, financial instruments rarely traded or not quoted will generally have little or no observable pricing and a higher degree of judgment utilized in measuring fair value.
−Removed: Observable pricing scenarios are impacted by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established and the characteristics specific to the transaction.
−Removed: See Note 2 of the Notes to Consolidated Financial Statements (unaudited) for additional information about the level of pricing transparency associated with financial instruments carried at fair value.
+Added: Total assets were $2,463,893,000 as of March 31, 2023, compared to $2,422,519,000 at December 31, 2022, an increase of 1.71% or $41,374,000.
+Added: Total gross loans were $1,285,554,000 at March 31, 2023, compared to $1,256,304,000 at December 31, 2022, an increase of $29,250,000 or 2.33%.
+Added: The total investment portfolio (including Federal funds sold and interest-earning deposits in other banks) increased 1.52% or $14,654,000 to $980,829,000 at March 31, 2023 compared to $966,175,000 at December 31, 2022.
+Added: Total deposits increased 3.62% or $76,098,000 to $2,175,747,000 at March 31, 2023, compared to $2,099,649,000 at December 31, 2022.
+Added: Shareholders’ equity increased $7,392,000 or 4.23% to $182,052,000 at March 31, 2023, compared to $174,660,000 at December 31, 2022.
+Added: The increase in shareholders’ equity was driven by the change in the unrealized losses on investment securities, and dividends paid , offset by the retention of e arnings.
+Added: Accrued interest payable and other liabilities was $36,459,000 at March 31, 2023, compared to $32,611,000 at December 31, 2022, an increase of $3,848,000.
Our investment portfolio consists primarily of U.S.
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 September 30, 2022, investment securities with a fair value of $177,503,000, or 18.23% 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 March 31, 2023, investment securities with a fair value of $247,692,000, or 26.48% of our investment
+Added: 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 September 30, 2022 was 57.28% compared to 48.95% at December 31, 2021.
−Removed: The loan-to-deposit ratio of our peers was 71.00% at December 31, 2021.
−Removed: The total investment portfolio, including Federal funds sold and interest-earning deposits in other banks, decreased 20.89% or $261,310,000 to $989,369,000 at September 30, 2022, from $1,250,679,000 at December 31, 2021.
−Removed: 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 a net unrealized gain of $10,835,000 at December 31, 2021.
−Removed: During the second quarter of 2022, the Company designated certain securities previously classified as available-for-sale to the held-to-maturity classification.
−Removed: The securities designated consisted of obligations of states and political subdivision securities, U.S.
−Removed: 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.
−Removed: At the time of 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.
−Removed: 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.
−Removed: We have been managing the portfolio with an objective of optimizing risk and return in various interest rate scenarios.
−Removed: We do not attempt to predict future interest rates, but we analyze the cash flows of our investment portfolio in different interest rate scenarios in connection with the rest of our balance sheet to design an investment portfolio that optimizes performance.
−Removed: 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.
−Removed: 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.
−Removed: The discount rate in this analysis is the original yield expected at time of purchase.
−Removed: Management evaluated all 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.
−Removed: Management also analyzed any securities that may have been downgraded by credit rating agencies.
−Removed: 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 nine months ended September 30, 2021.
−Removed: At September 30, 2022, the Company held one U.S.
−Removed: Treasury securities which was in a loss position for more than 12 months.
−Removed: At September 30, 2022, the Company held one U.S.
−Removed: Government agency security which was in a loss position for less than 12 months.
−Removed: 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.
−Removed: 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 September 30, 2022.
−Removed: At September 30, 2022, the Company held 85 U.S.
−Removed: 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.
−Removed: The unrealized losses on the Company’s investments in U.S.
−Removed: Government sponsored entities and agencies collateralized by residential mortgage obligations were caused by interest rate changes.
−Removed: The contractual cash flows of those investments are guaranteed by an agency or sponsored entity of the U.S.
−Removed: 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
−Removed: 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.
−Removed: At September 30, 2022, the Company had a total of 97 Private Label Mortgage and Asset Backed Securities (PLMABS).
−Removed: 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.
−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 September 30, 2022.
−Removed: The Company continues to monitor these securities for indications that declines in value, if any, may be other-than-temporary.
−Removed: 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.
−Removed: 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 September 30, 2022.
+Added: Our loan-to-deposit ratio at March 31, 2023 was 59.09% compared to 59.83% at December 31, 2022.
+Added: The total investment portfolio, including Federal funds sold and interest-earning deposits in other banks, increased 1.52% or $14,654,000 to $980,829,000 at March 31, 2023, from $966,175,000 at December 31, 2022.
+Added: The fair value of the available-for-sale investment portfolio reflected a net unrealized loss of $84,991,000 at March 31, 2023, compared to a net unrealized loss of $91,643,000 at December 31, 2022.
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 increased $186,159,000 or 17.92% to $1,225,270,000 as of September 30, 2022, compared to $1,039,111,000 as of December 31, 2021.
+Added: Total gross loans increased $29,250,000 or 2.33% to $1,285,554,000 as of March 31, 2023, compared to $1,256,304,000 as of December 31, 2022.
The following table sets forth information concerning the composition of our loan portfolio at the dates indicated:
−Removed: Loan Type (Dollars in thousands) September 30, 2022 % of Total
+Added: Loan Type (Dollars in thousands) March 31, 2023 % of Total
Loans December 31, 2022 % of Total
2 unchanged sentences
Total commercial 171,793 13.4 % 178,204 14.1 %
−Removed: Owner occupied 195,272 15.9 % 212,234 20.4 %
−Removed: Real estate construction and other land loans 97,169 7.9 % 61,586 5.9 %
−Removed: Commercial real estate 451,588 37.0 % 369,529 35.6 %
−Removed: Agricultural real estate 115,477 9.4 % 98,481 9.5 %
−Removed: Other real estate 24,776 2.0 % 26,084 2.5 %
+Added: Construction & other land loans 112,989 8.8 % 109,175 8.7 %
+Added: Commercial real estate - owner occupied 196,117 15.3 % 194,663 15.5 %
+Added: Commercial real estate - non-owner occupied 500,420 39.0 % 464,809 37.2 %
+Added: Farmland 116,723 9.1 % 119,648 9.5 %
+Added: Multi-family residential 23,694 1.8 % 24,586 2.0 %
+Added: 1-4 family - close-ended 91,696 7.1 % 93,510 7.4 %
+Added: 1-4 family - revolving 27,260 2.1 % 30,071 2.4 %
Total real estate 1,068,899 83.2 % 1,036,462 82.7 %
−Removed: Equity loans and lines of credit 121,305 9.9 % 55,620 5.4 %
−Removed: Consumer and installment 35,546 2.9 % 36,999 3.6 %
−Removed: Total consumer 156,851 12.8 % 92,619 9.0 %
−Removed: Net deferred origination fees 1,297 871
+Added: 43,431 3.4 % 40,252 3.2 %
Total gross loans 1,284,123 100.0 % 1,254,918 100.0 %
+Added: Net deferred origination fees 1,431 1,386
+Added: Loan, net of deferred origination fees 1,285,554 1,256,304
Allowance for credit losses (15,257) (10,848)
Total loans $ 1,270,297 $ 1,245,456
−Removed: As of September 30, 2022, in management’s judgment, a concentration of loans existed in commercial loans and loans collateralized by real estate, representing approximately 97.1% of total loans.
+Added: As of March 31, 2023, 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.
This level of concentration of commercial loans and loans collateralized by real estate is consistent with 96.8% of total loans at December 31, 2022.
1 unchanged sentence
The Company does not engage in any sub-prime mortgage lending activities.
−Removed: At September 30, 2022, loans acquired in the Folsom Lake Bank (FLB), Sierra Vista Bank (SVB) and Visalia Community Bank (VCB) acquisitions had a balance of $79,232,000, of which $2,140,000 were commercial loans, $72,126,000 were real estate loans, and $4,966,000 were consumer loans.
+Added: At March 31, 2023, loans acquired in the Folsom Lake Bank (FLB), Sierra Vista Bank (SVB) and Visalia Community Bank (VCB) acquisitions had a balance of $69,012,000, of which $1,843,000 were commercial loans, $62,593,000 were real estate loans, and $4,576,000 were consumer loans.
At December 31, 2022, loans acquired in the FLB, SVB and VCB acquisitions had a balance of $73,456,000, of which $2,049,000 were commercial loans, $66,583,000 were real estate loans, and $4,824,000 were consumer loans.
1 unchanged sentence
Commercial real estate loans include certain loans which represent low to moderate risk and certain loans with higher risks.
−Removed: Contributing to the commercial and industrial loan decrease was the forgiveness of PPP loans.
−Removed: As of September 30, 2022, gross loans included $350,000 in PPP loans which are fully guaranteed by the SBA as compared to $18,553,000.00 at December 31, 2021.
−Removed: 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.
Nonperforming Assets
6 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: At September 30, 2022, total nonperforming assets totaled $251,000, or 0.01% of total assets, compared to $946,000, or 0.04% of total assets at December 31, 2021.
−Removed: Total nonperforming assets at September 30, 2022, included nonaccrual loans totaling $251,000, no OREO, and no other repossessed assets.
−Removed: Nonperforming assets at December 31, 2021 consisted of $946,000 in nonaccrual loans, no OREO, and no other repossessed assets.
−Removed: At September 30, 2022 and December 31, 2021, we had no loan considered to be a troubled debt restructuring (“TDRs”) included in nonaccrual loans.
−Removed: A summary of nonperforming loans at September 30, 2022 and December 31, 2021 is set forth below.
−Removed: The Company had no loans past due more than 90 days and still accruing interest at September 30, 2022 or at December 31, 2021.
−Removed: Management can give no assurance that nonaccrual and other nonperforming loans will not increase in the future.
−Removed: Composition of Nonperforming Loans
−Removed: (In thousands) September 30, 2022 December 31, 2021
−Removed: Nonaccrual loans:
+Added: At March 31, 2023 and December 31, 2022 there were no nonperforming assets.
+Added: Allowance for Credit Losses on Loans
+Added: For additional information regarding provisions to credit losses on loans, see “Provision for credit losses on loans” above.
+Added: Based on the current conditions of the loan portfolio, management believes that the $15,257,000 is adequate to absorb current expected credit losses in the Company’s loan portfolio.
+Added: The following table summarizes the allocation for the allowance for credit losses by loan type as of the dates indicated (in thousands):
+Added: Loan Type March 31, 2023 December 31, 2022
Commercial and industrial $ 1,164 $ 1,583
Agricultural production 864 229
−Removed: Total nonaccrual 251 946
−Removed: Accruing loans past due 90 days or more — —
−Removed: Total nonperforming loans $ 251 $ 946
−Removed: Ratio of nonperforming loans to total loans 0.02 % 0.09 %
−Removed: Ratio of allowance for credit losses to nonperforming loans 4,129.9 % 1,014.8 %
−Removed: Loans considered to be impaired $ 2,665 $ 8,586
−Removed: Related allowance for credit losses on impaired loans $ 344 $ 649
−Removed: 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 September 30, 2022 and December 31, 2021, we had impaired loans totaling $2,665,000 and $8,586,000, respectively.
−Removed: 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.
−Removed: We perform quarterly internal reviews on substandard loans.
−Removed: We place loans on nonaccrual status and classify them as impaired when it becomes probable that we will not receive interest and principal under the original contractual terms, or when loans are delinquent 90 days or more unless the loan is both well secured and in the process of collection.
−Removed: Management maintains certain loans that have been brought current by the borrower (less than 30
−Removed: 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 nine months of 2022.
−Removed: (In thousands) Balance, December 31, 2021 Additions
−Removed: Loans Net Pay
−Removed: Downs Transfers
−Removed: Collateral and
−Removed: OREO Returns to
−Removed: Status Charge-
−Removed: Offs Balance, September 30, 2022
−Removed: Nonaccrual loans:
−Removed: Commercial and industrial $ 312 $ — $ (61) $ — $ — $ — $ 251
−Removed: Agricultural land and industrial 634 — (634) — — — —
−Removed: Total nonaccrual $ 946 $ — $ (695) $ — $ — $ — $ 251
−Removed: OREO represents real property taken either through foreclosure or through a deed in lieu thereof from the borrower.
−Removed: 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 September 30, 2022 or December 31, 2021.
−Removed: The Company held no repossessed assets at September 30, 2022 or December 31, 2021.
−Removed: Allowance for Credit Losses
−Removed: We have established a methodology for determining the adequacy of the allowance for credit losses made up of general and specific allocations.
−Removed: The methodology is set forth in a formal policy and takes into consideration the need for an overall allowance for credit losses as well as specific allowances that are tied to individual loans.
−Removed: The allowance for credit losses is an estimate of probable incurred credit losses in the Company’s loan portfolio.
−Removed: The 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.
−Removed: 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 loss 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 incurred in the portfolio taken as a whole.
−Removed: Management has determined that the most recent 55 quarters was an appropriate look back period based on several factors including the current global economic uncertainty and various national and local economic indicators, and a time period sufficient to capture enough data due to the size of the portfolio to produce statistically accurate historical loss calculations.
−Removed: We believe this period is an appropriate look back period.
−Removed: In originating loans, we recognize that losses will be experienced and that the risk of loss will vary with, among other things, the type of loan being made, the creditworthiness of the borrower over the term of the loan, general economic conditions and, in the case of a secured loan, the quality of the collateral securing the loan.
−Removed: The allowance is increased by provisions charged against earnings and recoveries, and reduced by net loan charge-offs.
−Removed: Loans are charged off when they are deemed to be uncollectible, or partially charged off when portions of a loan are deemed to be uncollectible.
−Removed: Recoveries are generally recorded only when cash payments are received.
−Removed: The allowance for credit losses is maintained to cover probable incurred credit losses in the loan portfolio.
−Removed: The responsibility for the review of our assets and the determination of the adequacy lies with management and our Audit/Compliance Committee.
−Removed: They delegate the authority to the Chief Credit Officer (CCO) to determine the loss reserve ratio for each type of asset and to review, at least quarterly, the adequacy of the allowance based on an evaluation of the portfolio, past experience, prevailing market conditions, amount of government guarantees, concentration in loan types and other relevant factors.
−Removed: The allowance for credit losses is an estimate of the probable incurred credit losses in our loan and lease portfolio.
−Removed: The allowance is based on principles of accounting:
−Removed: (i) losses accrued for on loans when they are probable of occurring and can be reasonably estimated and (ii) losses accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance.
−Removed: Management adheres to an internal asset review system and loss allowance methodology designed to provide for timely recognition of problem assets and adequate valuation allowances to cover probable incurred losses.
−Removed: The Bank’s asset monitoring process includes the use of asset classifications to segregate the assets, largely loans, into various risk categories.
−Removed: The Bank uses the various asset classifications as a means of measuring risk and determining the adequacy of valuation allowances by using a nine-grade system to classify assets.
−Removed: In general, all credit facilities exceeding 90 days of delinquency require classification and are placed on nonaccrual.
−Removed: The following table sets forth information regarding our allowance for credit losses at the dates and for the periods indicated:
−Removed: For the Nine Months
−Removed: Ended September 30, For the Year Ended
−Removed: December 31, For the Nine Months
−Removed: Ended September 30,
−Removed: (Dollars in thousands) 2022 2021 2021
−Removed: Balance, beginning of period $ 9,600 $ 12,915 $ 12,915
−Removed: Provision (reversal of) for credit losses 500 (4,300) (3,800)
−Removed: Losses charged to allowance (138) (267) (261)
−Removed: Recoveries 404 1,252 1,207
−Removed: Balance, end of period $ 10,366 $ 9,600 $ 10,061
−Removed: Allowance for credit losses to total loans at end of period
−Removed: 0.85 % 0.92 % 0.93 %
−Removed: Managing credits identified through the risk evaluation methodology includes developing a business strategy with the customer to mitigate our losses.
−Removed: Our management continues to monitor these credits with a view to identifying as early as possible when, and to what extent, additional provisions may be necessary.
−Removed: Risks and uncertainties exist in all lending transactions and our management and Board of Directors’ Loan Committee have established reserve levels based on economic uncertainties and other risks that exist as of each reporting period.
−Removed: The allowance for credit losses is reviewed at least quarterly by the Bank’s and our Board of Directors’ Audit/Compliance Committee.
−Removed: Reserves are allocated to loan portfolio segments using percentages which are based on both historical risk elements such as delinquencies and losses and predictive risk elements such as economic, competitive and environmental factors.
−Removed: We have adopted the specific reserve approach to allocate reserves to each impaired asset for the purpose of estimating potential loss exposure.
−Removed: At the onset of COVID we established a dedicated qualitative factor to address the lagging effect on our quantitative data.
−Removed: We have materially reduced that factor’s impact on the ALLL given the passage of time and improving economic conditions from mid-2020.
−Removed: 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.
−Removed: Additions may be required based on the results of independent loan portfolio examinations, regulatory agency examinations, or our own internal review process.
−Removed: Additions are also required when, in management’s judgment, the reserve does not properly reflect the potential loss exposure.
−Removed: As of September 30, 2022, the balance in the allowance for credit losses (ALLL) was $10,366,000 compared to $9,600,000 as of December 31, 2021.
−Removed: The increase is attributed to the net recoveries durin g the nine months ended September 30, 2022.
−Removed: The balance of undisbursed commitments to extend credit on construction and other loans and letters of credit was $319,346,000 as of September 30, 2022, compared to $326,108,000 as of December 31, 2021.
−Removed: 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.
−Removed: The contingent allocation for probable loan loss experience on unfunded obligations is calculated by management using appropriate, systematic, and consistently applied processes.
−Removed: 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 September 30, 2022, the ALLL was 0.85% of total gross loans compared to 0.92% as of December 31, 2021.
−Removed: Total loans include FLB, SVB and VCB loans that were recorded at fair value in connection with the acquisitions, with values of $79,232,000 at September 30, 2022 and $93,201,000 at December 31, 2021.
−Removed: Excluding these FLB, SVB and VCB loans from the calculation, the ALLL to total gross loans was 0.90% and 1.01% at September 30, 2022 and December 31, 2021, respectively and general reserves associated with non-impaired loans to total non-impaired loans was 0.87% and 0.98%, respectively.
−Removed: As of September 30, 2022, gross loans included $350,000 related to PPP loans which are fully guaranteed by the SBA as compared to $18,553,000.00 at December 31, 2021.
−Removed: Excluding PPP loans and the acquired loans from the calculation, the allowance for credit losses to total gross loans was 0.90% and 1.04% as of September 30, 2022 and December 31, 2021, respectively.
−Removed: The Company believes the allowance for credit losses is adequate to provide for probable incurred credit losses within the loan portfolio at September 30, 2022.
−Removed: The loan portfolios acquired in the mergers were booked at fair value with no associated allocation in the ALLL.
−Removed: The size of the fair value discount remains adequate for all non-impaired acquired loans.
−Removed: The Company’s loan portfolio balances for the nine months ended September 30, 2022 increased.
−Removed: 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.
−Removed: Assumptions regarding the collateral value of various under-performing loans may affect the level and allocation of the allowance for credit losses in future periods.
−Removed: The allowance may also be affected by trends in the amount of charge-offs experienced or expected trends within different loan portfolios.
−Removed: 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
−Removed: appropriate as of September 30, 2022.
−Removed: 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.
+Added: Total commercial 2,028 1,812
+Added: Construction & other land loans 2,802 1,678
+Added: Commercial real estate - owner occupied 1,606 814
+Added: Commercial real estate - non-owner occupied 4,935 4,388
+Added: Farmland 1,142 863
+Added: Multi-family residential 173 60
+Added: 1-4 family - revolving 1,148 465
+Added: 1-4 family - revolving 544 142
+Added: Total real estate 12,350 8,410
+Added: Total consumer 879 286
+Added: Unallocated reserves — 340
+Added: Total allowance for credit losses $ 15,257 $ 10,848
+Added: As of March 31, 2023, the balance in the allowance for credit losses (ACL) on loans was $15,257,000, or 1.19% of total gross loans, compared to $10,848,000, or 0.86% of total gross loans, as of December 31, 2022.
+Added: The increase is attributed to the impact of the adoption of ASU 2016-13 and increases in the Company’s loan portfolio balances.
+Added: The balance of unfunded commitments to extend credit on construction and other loans and letters of credit was $318,046,000 as of March 31, 2023, compared to $288,141,000 as of December 31, 2022.
+Added: At March 31, 2023 and December 31, 2022, the balance of the reserve for unfunded commitments was $928,000 and $110,000, respectively.
+Added: The reserve for unfunded commitments is calculated by
+Added: management using appropriate, systematic, and consistently applied processes.
+Added: While related to credit losses, this allocation is not a part of the ACL and is considered separately as a liability for accounting and regulatory reporting purposes.
The following table illustrates and sets forth additional analysis which portrays the trends that are occurring in the loan portfolio.
−Removed: September 30, 2022 December 31, 2021 September 30, 2021
+Added: March 31, 2023 December 31, 2022 March 31, 2022
(Dollars in thousands) Balance % to Total Loans Balance % to Total Loans Balance % to Total Loans
−Removed: Impaired loans with specific reserves $ 1,640 0.13 % $ 8,450 0.81 % $ 9,436 0.87 %
Past due loans 25 — % 5,895 0.47 % 17 — %
Nonaccrual loans — — % — — % 292 0.03 %
−Removed: Goodwill and Intangible Assets
−Removed: 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 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 purchase method of accounting.
−Removed: 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.
−Removed: The fair values of assets acquired and liabilities assumed are subject to adjustment during the first twelve months after the acquisition date if additional information becomes available to indicate a more accurate or appropriate value for an asset or liability.
−Removed: 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.
−Removed: For that reason, goodwill is assessed at least annually for impairment.
−Removed: The Company’s annual goodwill test is completed as of September 30 each year.
−Removed: Management performed an annual impairment test in the third quarter of 2021 utilizing various qualitative factors.
−Removed: Management believes these factors are sufficient and comprehensive and as such, no further factors need to be assessed at this time.
−Removed: Based on management’s analysis performed, no impairment was required.
−Removed: 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.
−Removed: Management considers the entire Company to be one reporting unit.
−Removed: No such events or circumstances arose during the first three months of 2022.
−Removed: 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.
−Removed: The intangible assets represent the estimated fair value of the core deposit relationships acquired in the 2017 acquisition of Folsom Lake Bank of $1,879,000 and the 2013 acquisition of Visalia Community Bank of $1,365,000.
−Removed: 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 September 30, 2022 was $102,000, net of $3,142,000 in accumulated amortization expense.
−Removed: The carrying value at December 31, 2021 was $522,000, net of $3,230,000 accumulated amortization expense.
−Removed: 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 nine months of 2022.
−Removed: Amortization expense recognized was $419,000 and $521,000 for the nine months ended September 30, 2022 and September 30, 2021, respectively.
−Removed: The following table summarizes the Company’s estimated remaining core deposit intangible amortization expense for each of the next two years (in thousands):
−Removed: Years Ended Estimated Core Deposit Intangible Amortization
−Removed: Deposits and Borrowings
The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to applicable legal limits.
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 $16,347,000 or 0.77% to $2,139,144,000 as of September 30, 2022, compared to $2,122,797,000 as of December 31, 2021.
−Removed: Interest-bearing deposits decreased $64,747,000 or 5.59% to $1,094,466,000 as of
−Removed: September 30, 2022, compared to $1,159,213,000 as of December 31, 2021.
−Removed: Non-interest bearing deposits increased $81,094,000 or 8.42% to $1,044,678,000 as of September 30, 2022, compared to $963,584,000 as of December 31, 2021.
−Removed: Average non-interest bearing deposits to average total deposits was 45.41% for the nine months ended September 30, 2022 compared to 45.83% for the same period in 2021.
−Removed: The Company’s deposit balances for the nine months ended September 30, 2022 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 September 30, 2022 and December 31, 2021 is summarized in the table below.
−Removed: (Dollars in thousands) September 30, 2022 % of
+Added: Total deposits increased $76,098,000 or 3.62% to $2,175,747,000 as of March 31, 2023, compared to $2,099,649,000 as of December 31, 2022.
+Added: Interest-bearing deposits increased $157,241,000 or 15.07% to $1,200,323,000 as of March 31, 2023, compared to $1,043,082,000 as of December 31, 2022.
+Added: Non-interest bearing deposits decreased $81,143,000 or 7.68% to $975,424,000 as of March 31, 2023, compared to $1,056,567,000 as of December 31, 2022.
+Added: Average non-interest bearing deposits to average total deposits was 48.92% for the three months ended March 31, 2023 compared to 43.77% for the same period in 2022.
+Added: The composition of the deposits and average interest rates paid at March 31, 2023 and December 31, 2022 is summarized in the table below.
+Added: (Dollars in thousands) March 31, 2023 % of
Deposits Average Effective
8 unchanged sentences
Total deposits $ 2,175,747 100.0 % $ 2,099,649 100.0 %
+Added: As of March 31, 2023 there was $794,872,000 in uninsured deposits or 36.53% of total deposits, compared to $900,123,000 and 42.87% as of December 31, 2022.
Other Borrowings
−Removed: As of September 30, 2022 and December 31, 2021, the Company had $25,000,000 Federal Home Loan Bank (“FHLB”) of San Francisco advances.
+Added: As of March 31, 2023 the Company had no Federal Home Loan Bank (“FHLB”) of San Francisco advances.
+Added: At December 31, 2022 the Company had $46,000,000 in FHLB advances.
We maintain a line of credit with the FHLB collateralized by government securities and loans.
5 unchanged sentences
Maintenance of adequate capital levels is integral to providing stability to the Company.
−Removed: 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 $158,814,000 at September 30, 2022, compared to $247,845,000 at December 31, 2021.
−Removed: The decrease from December 31, 2021 in shareholders’ equity is the result of a decrease in accumulated other comprehensive income (AOCI) of $98,254,000, common stock cash dividends of $4,231,000, and stock repurchases of $6,814,000, offset by an increase in retained earnings from net income of $19,012,000, the exercise of stock options of $489,000, stock issued under the employee stock purchase plan of $164,000, the effect of share-based compensation expense of $324,000, and stock awarded to employees of $279,000.
−Removed: On November 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 $15 million worth of the Company’s outstanding common stock, or approximately 702,576 shares.
−Removed: During the year ended December 31, 2021, the Company repurchased and retired 76,613 shares at an approximate average cost of $21.10 per share.
−Removed: During the nine months ended September 30, 2022, the Company repurchased and retired 300,761 shares at an average cost of $22.63 or $6,814,000.
−Removed: During the first nine months of 2022, the Company declared and paid $4,231,000 in cash dividends ($0.36 per common share) to holders of common stock.
+Added: The Company needs to maintain substantial levels of regulatory capital
+Added: to give it maximum flexibility in the changing regulatory environment and to respond to changes in the market and economic conditions.
+Added: Our shareholders’ equity was $182,052,000 at March 31, 2023, compared to $174,660,000 at December 31, 2022.
+Added: The increase from December 31, 2022 in shareholders’ equity is the result of an increase in accumulated other comprehensive income (AOCI) of $5,126,000, an increase in retained earnings from net income of $6,970,000, stock issued under the employee stock purchase plan of $76,000, the effect of share-based compensation expense of $140,000, and stock awarded to employees of $221,000, offset by common stock cash dividends of $1,410,000 and the adoption of ASU 2016-13 of $3,731,000.
+Added: During the first three months of 2023, the Company declared and paid $1,410,000 in cash dividends ($0.12 per common share) to holders of common stock.
+Added: The Company declared and paid $1,408,000 in cash dividends ($0.12 per common share) to holders of common stock during the quarter ended December 31, 2022 .
The Company declared and paid a total of $5,638,000 in cash dividends ($0.48 per common share) to holders of common stock during the year ended December 31, 2022 .
−Removed: Management considers capital requirements as part of its strategic planning process.
−Removed: The strategic plan calls for continuing increases in assets and liabilities, and the capital required may therefore be in excess of retained earnings.
−Removed: The ability to obtain capital is dependent upon the capital markets as well as our performance.
−Removed: Management regularly evaluates sources of capital and the timing required to meet its strategic objectives.
−Removed: The Board of Governors, the FDIC and other federal banking agencies have issued risk-based capital adequacy
−Removed: guidelines intended to provide a measure of capital adequacy that reflects the degree of risk associated with a banking
−Removed: organization’s operations for both transactions reported on the balance sheet as assets, and transactions, such as letters of
−Removed: credit and recourse arrangements, which are reported as off-balance-sheet items.
−Removed: The following table presents the Company’s regulatory capital r atios as of September 30, 2022 and December 31, 2021.
+Added: The following table presents the Company’s regulatory capital r atios as of March 31, 2023 and December 31, 2022.
(Dollars in thousands)
−Removed: September 30, 2022 Amount Ratio
+Added: March 31, 2023 Amount Ratio
Tier 1 Leverage Ratio $ 207,480 8.58 %
7 unchanged sentences
Total Risk-Based Capital Ratio $ 250,556 14.92 %
−Removed: The following table presents the Bank’s regulatory capital ratios as of September 30, 2022 and December 31, 2021.
+Added: The following table presents the Bank’s regulatory capital ratios as of March 31, 2023 and December 31, 2022.
(Dollars in thousands) Actual Ratio Minimum regulatory requirement (1) Minimum requirement for “ Well-Capitalized ”
−Removed: September 30, 2022 Amount Ratio Amount Ratio Amount Ratio
+Added: March 31, 2023 Amount Ratio Amount Ratio Amount Ratio
Tier 1 Leverage Ratio $ 270,488 11.19 % $ 96,664 4.00 % $ 120,829 5.00 %
8 unchanged sentences
(1) The minimum regulatory requirement threshold includes the capital conservation buffer of 2.50%.
−Removed: The Company succeeded to all of the rights and obligations of the Service 1st Capital Trust I, a Delaware business trust, in connection with the acquisition of Service 1st as of November 12, 2008.
−Removed: The Trust was formed on August 17, 2006 for the sole purpose of issuing trust preferred securities fully and unconditionally guaranteed by Service 1st.
−Removed: 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 September 30, 2022, 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 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%.
−Removed: 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).
−Removed: The Notes bear interest at the same variable interest rate during the same quarterly periods as the trust preferred securities.
−Removed: The Notes are redeemable by the Company on any January 7, April 7, July 7, or October 7 on or after October 7, 2012 or at any time within 90 days following the occurrence of certain events, such as:
−Removed: (i) a change in the regulatory capital treatment of the Notes;
−Removed: (ii) in the event the Trust is deemed an investment company;
−Removed: or (iii) upon the occurrence of certain adverse tax events.
−Removed: In each such case, the Company may redeem the Notes for their aggregate principal amount, plus any accrued but unpaid interest.
−Removed: 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.
−Removed: Holders of the trust preferred securities are entitled to a cumulative cash distribution on the liquidation amount of $1,000 per security.
−Removed: For each January 7,
−Removed: 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 September 30, 2022, the rate was 2.64%.
−Removed: 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.
−Removed: The Subordinated Debt initially bears a fixed interest rate of 3.125% per year.
−Removed: 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.
−Removed: The Company may at its option redeem in whole or in part the Subordinated Debt on or after November 12, 2026 without a premium.
−Removed: The Subordinated Debt is treated as Tier 2 Capital for regulatory purposes.
−Removed: On September 15, 2022, the Company entered into a $30 million loan agreement with Bell Bank.
−Removed: Initially, payments of interest only are payable in 12 quarterly payments commencing December 31, 2022.
−Removed: 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.
−Removed: A final payment of outstanding principal and accrued interest is due at maturity on September 30, 2032.
−Removed: Variable interest is payable at the Prime Rate (published by the Wall Street Journal) less 50 basis points.
−Removed: 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.
−Removed: The Company may prepay the loan without penalty with one exception.
−Removed: 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.
−Removed: The loan contains customary representations, covenants, and events of default.
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 September 30, 2022, the Company had unpledged securities totaling $802,823,000 available as a secondary source of liquidity and total cash and cash equivalents of $41,578,000.
−Removed: Cash and cash equivalents at September 30, 2022 decreased 74.56% compared to $163,467,000 at December 31, 2021.
+Added: As of March 31, 2023, the Company had unpledged securities totaling $694,339,000 available as a secondary source of liquidity and total cash and cash equivalents of $64,262,000.
+Added: Cash and cash equivalents at March 31, 2023 increased 106.17% compared to $31,170,000 at December 31, 2022.
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 September 30, 2022, our available borrowing capacity includes approximately $110,000,000 in unsecured credit lines with our correspondent banks, $277,058,000 in unused FHLB secured advances and a $4,862,000 secured credit line at the Federal Reserve Bank.
+Added: At March 31, 2023, our available borrowing capacity includes approximately $110,000,000 in unsecured credit lines with our correspondent banks, $318,365,000 in unused FHLB secured advances, a $4,792,000 secured credit line at the Federal Reserve Bank, and $38,209,000 available under the Federal Reserve’s Bank Term Loan Funding Program.
We believe our liquidity sources to be stable and adequate.
−Removed: At September 30, 2022, we were not aware of any information that was reasonably likely to have a material effect on our liquidity position.
−Removed: The following table reflects the Company’s credit lines, balances outstanding, and pledged collateral at September 30, 2022 and December 31, 2021:
−Removed: Credit Lines (In thousands) September 30, 2022 December 31, 2021
+Added: At March 31, 2023, 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 March 31, 2023 and December 31, 2022:
+Added: Credit Lines (In thousands) March 31, 2023 December 31, 2022
Unsecured Credit Lines
8 unchanged sentences
Fair value of collateral $ 498,312 $ 565,869
+Added: Federal Reserve Bank Term Loan Funding Program
+Added: (interest rate at prevailing interest rate):
+Added: Credit limit $ 38,209 $ —
+Added: Balance outstanding $ — $ —
+Added: Collateral pledged $ 56,429 $ —
+Added: Fair value of collateral $ 50,214 $ —
Federal Reserve Bank
6 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.