Community West Bancshares 10-Q

ITEM 1: FINANCIAL STATEMENTS CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share amounts) March 31, 2023 December 31, 2022 ASSETS Cash and due from banks $ 25,464 $ 25,485 Interest-earning deposits in other banks 38,798 5,685 Total cash and cash equivalents 64,262 31,170 Available-for-sale debt securities, at fair value 631,524 648,825 Held-to-maturity debt securities, at amortized cost less allowance for credit losses of $684 at March 31, 2023 and $- at December 31, 2022 303,844 305,107 Equity securities, at fair value 6,663 6,558 Loans, less allowance for credit losses of $15,257 at March 31, 2023 and $10,848 at December 31, 2022 1,270,297 1,245,456 Bank premises and equipment, net 8,040 7,987 Bank-owned life insurance 40,786 40,537 Federal Home Loan Bank stock 6,169 6,169 Goodwill 53,777 53,777 Accrued interest receivable and other assets 78,531 76,933 Total assets $ 2,463,893 $ 2,422,519 LIABILITIES AND SHAREHOLDERS’ EQUITY Deposits: Non-interest bearing $ 975,424 $ 1,056,567 Interest bearing 1,200,323 1,043,082 Total deposits 2,175,747 2,099,649 Short-term borrowings — 46,000 Senior debt and subordinated debentures, less debt issuance costs of $520 at March 31, 2023 and $556 at December 31, 2022 69,635 69,599 Accrued interest payable and other liabilities 36,459 32,611 Total liabilities 2,281,841 2,247,859 Shareholders’ equity: Preferred stock, no par value; 10,000,000 shares authorized, none issued and outstanding — — Common stock, no par value; 80,000,000 shares authorized; issued and outstanding: 11,754,938 at March 31, 2023 and 11,735,291 at December 31, 2022 61,924 61,487 Retained earnings 196,229 194,400 Accumulated other comprehensive (loss) income, net of tax ( 76,101 ) ( 81,227 ) Total shareholders’ equity 182,052 174,660 Total liabilities and shareholders’ equity $ 2,463,893 $ 2,422,519 See notes to unaudited consolidated financial statements. 3 CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Unaudited) For the Three Months Ended March 31, (In thousands, except share and per-share amounts) 2023 2022 INTEREST INCOME: Interest and fees on loans $ 16,777 $ 12,161 Interest on deposits in other banks 75 57 Interest and dividends on investment securities: Taxable 5,886 4,524 Exempt from Federal income taxes 1,405 1,440 Total interest income 24,143 18,182 INTEREST EXPENSE: Interest on deposits 1,004 252 Interest on short-term borrowings 661 — Interest on senior debt and subordinated debentures 897 333 Total interest expense 2,562 585 Net interest income before provision for credit losses 21,581 17,597 PROVISION FOR CREDIT LOSSES 633 — Net interest income after provision for credit losses 20,948 17,597 NON-INTEREST INCOME: Service charges 387 539 Appreciation in cash surrender value of bank-owned life insurance 249 242 Interchange fees 446 442 Net realized (losses) gains on sales and calls of investment securities ( 219 ) 206 Federal Home Loan Bank dividends 109 85 Loan placement fees 124 299 Other income 479 21 Total non-interest income 1,575 1,834 NON-INTEREST EXPENSES: Salaries and employee benefits 8,034 6,944 Occupancy and equipment 1,258 1,162 Professional services 353 374 Data processing 650 541 Regulatory assessments 210 222 ATM/Debit card expenses 184 195 Information technology 847 758 Directors’ expenses 163 45 Advertising 125 140 Loan related expenses 147 71 Personnel other 259 103 Amortization of core deposit intangibles 34 140 Other 941 750 Total non-interest expenses 13,205 11,445 Income before provision for income taxes 9,318 7,986 Provision for income taxes 2,348 1,900 Net income $ 6,970 $ 6,086 Earnings per common share: Basic earnings per share $ 0.60 $ 0.51 Weighted average common shares used in basic computation 11,703,813 11,829,245 Diluted earnings per share $ 0.59 $ 0.51 Weighted average common shares used in diluted computation 11,731,135 11,872,025 Cash dividend per common share $ 0.12 $ 0.12 See notes to unaudited consolidated financial statements. 4 CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) For the Three Months Ended March 31, (In thousands) 2023 2022 Net income $ 6,970 $ 6,086 Other Comprehensive Income (Loss): Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the period 6,433 ( 80,603 ) Reclassification of net losses (gains) included in net income 219 ( 206 ) Amortization of net unrealized losses transferred 627 — Other comprehensive income (loss), before tax 7,279 ( 80,809 ) Tax effect ( 2,153 ) 23,890 Total other comprehensive income (loss) 5,126 ( 56,919 ) Comprehensive income (loss) $ 12,096 $ ( 50,833 ) See notes to unaudited consolidated financial statements. 5 CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY THREE MONTHS ENDED MARCH 31, 2023 AND 2022 Common Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) (Net of Taxes) Total Shareholders’ Equity (In thousands, except share amounts) Shares Amount Balance, December 31, 2021 11,916,651 $ 66,820 $ 173,393 $ 7,632 247,845 Net income — — 6,086 — 6,086 Other comprehensive loss — — — ( 56,919 ) ( 56,919 ) Stock issued under employee stock purchase plan 3,006 57 — — 57 Stock awarded to employees 13,146 273 — — 273 Restricted stock granted net of forfeitures 4,618 — — — — Stock-based compensation expense — 97 — — 97 Cash dividend — — ( 1,425 ) — ( 1,425 ) Repurchase and retirement of common stock ( 195,873 ) ( 4,486 ) — — ( 4,486 ) Stock options exercised 11,075 132 — — 132 Balance, March 31, 2022 11,752,623 $ 62,893 $ 178,054 $ ( 49,287 ) $ 191,660 Balance, December 31, 2022 11,735,291 $ 61,487 $ 194,400 $ ( 81,227 ) $ 174,660 Implementation of ASU 2016-13, Current Expected Credit Loss (CECL) Day 1 Adjustment — — ( 3,731 ) — ( 3,731 ) Adjusted Balance, January 1, 2023 11,735,291 $ 61,487 $ 190,669 $ ( 81,227 ) $ 170,929 Net income — — 6,970 — 6,970 Other comprehensive income — — — 5,126 5,126 Restricted stock granted net of forfeitures 5,157 — — — — Stock issued under employee stock purchase plan 4,143 76 — — 76 Stock awarded to employees 10,347 221 — — 221 Stock-based compensation expense — 140 — — 140 Cash dividend — — ( 1,410 ) — ( 1,410 ) Balance, March 31, 2023 11,754,938 $ 61,924 $ 196,229 $ ( 76,101 ) $ 182,052 See notes to unaudited consolidated financial statements. 6 CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Three Months Ended March 31, (In thousands) 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 6,970 $ 6,086 Adjustments to reconcile net income to net cash provided by operating activities: Net (increase) decrease in deferred loan fees ( 56 ) 208 Depreciation 158 204 Accretion ( 515 ) ( 336 ) Amortization 2,306 2,319 Stock-based compensation 140 97 Provision for credit losses 633 — Net realized losses (gains) on sales and calls of available-for-sale investment securities 219 ( 206 ) Net change in equity securities ( 105 ) 345 Increase in bank-owned life insurance, net of expenses ( 249 ) ( 242 ) Net (decrease) increase in accrued interest receivable and other assets ( 2,509 ) 1,574 Net increase (decrease) in accrued interest payable and other liabilities 3,251 ( 10,249 ) Benefit (provision) for deferred income taxes 289 ( 435 ) Net cash provided by (used in) operating activities 10,532 ( 635 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of available-for-sale investment securities — ( 286,385 ) Proceeds from sales or calls of available-for-sale investment securities 12,066 132,991 Proceeds from maturity and principal repayments of available-for-sale investment securities 10,355 18,435 Proceeds from maturity and principal repayments of held-to-maturity investment securities 798 — Net (increase) decrease in loans ( 29,212 ) 27,125 Purchases of premises and equipment ( 210 ) ( 2 ) Net cash used in investing activities ( 6,203 ) ( 107,836 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net (decrease) increase in demand, interest bearing and savings deposits ( 69,013 ) 44,891 Net increase (decrease) in time deposits 145,110 ( 5,328 ) Proceeds from short-term borrowings from Federal Home Loan Bank 3,346,500 — Repayments of short-term borrowings to Federal Home Loan Bank ( 3,392,500 ) — Purchase and retirement of common stock — ( 4,486 ) Proceeds from stock issued under employee stock purchase plan 76 57 Proceeds from exercise of stock options — 132 Cash dividend payments on common stock ( 1,410 ) ( 1,425 ) Net cash provided by financing activities 28,763 33,841 Increase (decrease) in cash and cash equivalents 33,092 ( 74,630 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 31,170 163,467 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 64,262 $ 88,837 See notes to unaudited consolidated financial statements. 7 For the Three Months Ended March 31, (In thousands) 2023 2022 SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: Cash paid during the period for : Interest $ 2,730 $ 172 Income taxes $ — $ — Operating cash flows from operating leases $ 589 $ 575 See notes to unaudited consolidated financial statements. 8 Note 1. Basis of Presentation The interim unaudited condensed consolidated financial statements of Central Valley Community Bancorp and subsidiary have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). These interim condensed consolidated financial statements include the accounts of Central Valley Community Bancorp and its wholly owned subsidiary Central Valley Community Bank (the Bank) (collectively, the Company). All significant intercompany accounts and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been omitted. The Company believes that the disclosures are adequate to make the information presented not misleading. These interim unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s 2022 Annual Report to Shareholders on Form 10-K. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company’s financial position at March 31, 2023, and the results of its operations and its cash flows for the three month interim periods ended March 31, 2023 and 2022 have been included. The results of operations for interim periods are not necessarily indicative of results for the full year. The preparation of these interim unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Management has determined that since all of the banking products and services offered by the Company are available in each branch of the Bank, all branches are located within the same economic environment, and management does not allocate resources based on the performance of different lending or transaction activities, it is appropriate to aggregate the Bank branches and report them as a single operating segment. No customer accounts for more than 10 percent of revenues for the Company or the Bank. Impact of New Financial Accounting Standards Adopted in 2023 On January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments). In addition, credit losses recognized on available-for-sale debt securities will be presented as an allowance as opposed to a write-down, based on management’s intent to sell the security or the likelihood the Company will be required to sell the security before recovery of the amortized cost basis. The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for the reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recognized an increase in the allowance for credit losses on loans totaling $ 3,910,000 , a reserve for credit losses for held-to-maturity securities of $ 776,000 , and an increase to the reserve for unfunded commitments of $ 612,000 with a corresponding decrease, net of taxes, in retained earnings, of $ 3,731,000 as of January 1, 2023 for the cumulative effect of adopting ASC 326. The Company also adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures upon the adoption of ASU 2016-13 as of January 1, 2023 on a propsective basis. The amendments in this update eliminated the accounting guidance for troubled debt restructurings (“TDRs”) by creditors in Subtopic 310-40, Receivables-Troubled Debt Restructurings by Creditors , while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring guidance in paragraphs 310-20-35-9 through 35-11 to determine whether a modification results in a new loan or a continuation of an existing loan. Additionally, for public business entities, the amendments in this Update require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost in the vintage disclosures required by paragraph 326-20-50-6. The adoption modified the Company’s disclosures but did not have a material impact on its financial position or results of operations. 9 In March 2020, The FASB issued Accounting Standards Update (ASU) 2020-04, Reference Rate Reform (Subtopic 848) : Facilitation of the Effects of Reference Rate Reform on Financial Reporting . This ASU provides optional expedients and exceptions for contracts, hedging relationships, and other transactions that reference LIBOR or other reference rates expected to be discontinued because of reference rate reform. As the Company has an insignificant number of instruments that are applicable to this ASU, management has determined that no impact to the valuations of these instruments are applicable for financial reporting purposes. Reclassifications - Certain reclassifications have been made to prior year financial statements to conform to the classifications used in 2023. None of the reclassifications had an impact on equity or net income. Summary of Significant Accounting Policies The Company has revised the following significant accounting policies as a result of the the adoption of ASU 2016-13. Allowance for Credit Losses on Available-for-Sale Debt Securities: For available-for-sale (“AFS”) debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more than likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of the cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as credit loss provision (or reversal). Losses are charged against the allowance when management believes that the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Allowance for Credit Losses on Held-to-Maturity Debt Securities: Management measures expected credit losses on held-to-maturity (“HTM”) debt securities on a collective basis by major security type. The estimate of expected credit losses considers historical credit loss information based on industry data that is adjusted for current conditions and reasonable and supportable forecasts. Management classifies the held-to-maturity portfolio into the following major security types: Obligations of States and Political Subdivisions, U.S. Government sponsored Entities and Agencies collateralized by Residential Mortgage Obligations, Private Label Mortgage and Asset Backed Securities, and Corporate Debt Securities. Allowance for Credit Losses on Loans: The allowance for credit losses (“ACL”) is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. The allowance is established through a provision for credit losses which is charged to expense. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Cash received on previously charged off amounts is recorded as a recovery to the allowance. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience from national and peer data provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for the differences in the current loan-specific risk characteristics, such as differences in loan-to-values, portfolio mix, or term as well as for changes in environmental conditions, such as changes in unemployment rates, market interest rates, property values, or other relevant factors. Management may assign qualitative factors to each loan segment if there are material risks or improvements present but not yet captured in the model environment. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company segregates the allowance by portfolio segment. These portfolio segments include commercial, commercial real estate, 1-4 family real estate and consumer loans. The relative significance of risk considerations vary by portfolio segment. Real estate construction loans, as summarized by class within the loan footnote, are disaggregated into either the commercial real estate or 1-4 family real estate allowance segments based on the type of construction loan due to the varying risks between commercial and consumer construction. 10 Commercial: Commercial and industrial - Commercial and industrial loans are generally underwritten to existing cash flows of operating businesses. Additionally, economic trends influenced by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Past due payments may indicate the borrower’s capacity to repay their obligations may be deteriorating. Agricultural production - Loans secured by crop production and livestock are especially vulnerable to two risk factors that are largely outside the control of Company and borrowers: commodity prices and weather conditions. Commercial Real Estate: Commercial real estate construction and other land loans - Commercial Land and construction loans generally possess a higher inherent risk of loss than other real estate portfolio segments. A major risk arises from the necessity to complete projects within specified costs and time lines. Trends in the construction industry significantly impact the credit quality of these loans, as demand drives construction activity. In addition, trends in real estate values significantly impact the credit quality of these loans, as property values determine the economic viability of construction projects. Commercial real estate - owner-occupied - Real estate collateral secured by commercial or professional properties with repayment arising from the owner’s business cash flows. To meet this classification, the owner’s operation must occupy no less than 50% of the real estate held. Financial profitability and capacity to meet the cyclical nature of the industry and related real estate market over a significant timeframe is essential. Commercial real estate - non-owner occupied - Investor commercial real estate loans generally possess a higher inherent risk of loss than other real estate portfolio segments, except land and construction loans. Adverse economic developments or an overbuilt market impact commercial real estate projects and may result in troubled loans. Trends in vacancy rates of commercial properties impact the credit quality of these loans. High vacancy rates reduce operating revenues and the ability for properties to produce sufficient cash flows to service debt obligations. Farmland - Agricultural loans secured by real estate generally possess a higher inherent risk of loss caused by changes in concentration of permanent plantings, government subsidies, and the value of the U.S. dollar affecting the export of commodities. Multi-family - These properties are generally comprised of more than four rentable units, such as apartment buildings, with each unit intended to be occupied as the primary residence for one or more persons. Multi-family properties are also subject to changes in general or regional economic conditions, such as unemployment, ultimately resulting in increased vacancy rates or reduced rents or both. In addition, new construction can create an oversupply condition and market competition resulting in increased vacancy, reduced market rents, or both. Due to the nature of their use and the greater likelihood of tenant turnover, the management of these properties is more intensive and therefore is more critical to the preclusion of loss. 1-4 Family Real Estate: Including 1-4 family close-ended, revolving real estate loans, and residential construction loans, the degree of risk in residential real estate lending depends primarily on the loan amount in relation to collateral value, the interest rate and the borrower’s ability to repay in an orderly fashion. These loans generally possess a lower inherent risk of loss than other real estate portfolio segments. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends may indicate that the borrowers’ capacity to repay their obligations may be deteriorating Consumer: A consumer installment loan portfolio is usually comprised of a large number of small loans scheduled to be amortized over a specific period. Most installment loans are made directly for consumer purchases. Other consumer loans include other open ended unsecured consumer loans. Open ended unsecured loans generally have a higher rate of default than all other portfolio segments and are also impacted by weak economic conditions and trends. When loans do not share similar risk characteristics, the Company evaluates the loan for expected credit losses on an individual basis. Loans evaluated individually are not included in the collective evaluation. When management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. When the Company measures credit losses based on the present value of expected future cash flows, management does not adjust the effective interest rate used to discount expected cash flows to incorporate expected prepayments. Allowance for Credit Losses on Unfunded Commitments: The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on unfunded commitments is 11 adjusted through provision for credit losses. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. Note 2. Fair Value Measurements Fair Value Hierarchy Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values: Level 1 — Quoted market prices (unadjusted) for identical instruments traded in active markets that the entity has the ability to access as of the measurement date. Level 2 —Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3 — Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. The estimated carrying and fair values of the Company’s financial instruments not carried at fair value are as follows (in thousands): March 31, 2023 Carrying Amount Fair Value (In thousands) Level 1 Level 2 Level 3 Total Financial assets: Cash and due from banks $ 25,464 $ 25,464 $ — $ — $ 25,464 Interest-earning deposits in other banks 38,798 38,798 — — 38,798 Held-to-maturity investment securities 303,844 — 276,633 — 276,633 Loans, net 1,270,297 — — 1,182,862 1,182,862 Financial liabilities: Time Deposits 213,033 — 207,554 — 207,554 Senior debt and subordinated debentures 69,635 — — 58,944 58,944 December 31, 2022 Carrying Amount Fair Value (In thousands) Level 1 Level 2 Level 3 Total Financial assets: Cash and due from banks $ 25,485 $ 25,485 $ — $ — $ 25,485 Interest-earning deposits in other banks 5,685 5,685 — — 5,685 Held-to-maturity investment securities 305,107 — 271,249 — 271,249 Loans, net 1,245,456 — — 1,113,849 1,113,849 Financial liabilities: Time deposits 67,923 — 67,047 — 67,047 Short-term borrowings 46,000 — 46,000 — 46,000 Subordinated debentures 69,599 — — 62,504 62,504 The methods and assumptions used to estimate fair values are described as follows: (a) Investment securities — The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2), using matrix pricing. Matrix pricing is a mathematical technique commonly used to price debt securities that are not actively traded, values debt securities without relying exclusively on quoted prices for the specific securities but 12 rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). (b) Individually Evaluated Loans — Fair values for individually evaluated loans are estimated either using the fair value of the collateral less selling costs if collateral dependent resulting in a Level 3 classification. Individually evaluated loan amounts are initially valued at the lower of cost or fair value. Individually evaluated loans carried at fair value generally receive specific allocations of the allowance for credit losses. For collateral dependent real estate loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Individually evaluated loans are evaluated on a quarterly basis for additional credit losses and adjusted accordingly. The estimated fair values of financial instruments disclosed above follow the guidance in ASU 2016-01 which prescribes an “exit price” approach in estimating and disclosing fair value of financial instruments incorporating discounts for credit, liquidity, and marketability factors. (c) Real Estate Owned — Appraisals for assets acquired through foreclosure are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value is compared with independent data sources such as recent market data or industry-wide statistics. Assets Recorded at Fair Value The Company is required or permitted to record the following assets at fair value on a recurring basis. The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022: Fair Value Measurements Using March 31, 2023 Fair Value Level 1 Level 2 Level 3 Available-for-sale debt securities: U.S. Treasury securities $ 8,879 $ — $ 8,879 $ — U.S. Government agencies 98 — 98 — Obligations of states and political subdivisions 178,051 — 178,051 — U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations 92,631 — 92,631 — Private label mortgage and asset backed securities 351,865 — 351,865 — Equity securities 6,663 6,663 — — Total assets measured at fair value on a recurring basis $ 638,187 $ 6,663 $ 631,524 $ — 13 Fair Value Measurements Using December 31, 2022 Fair Value Level 1 Level 2 Level 3 Available-for-sale debt securities: U.S. Treasury securities $ 8,707 $ — $ 8,707 $ — U.S. Government agencies 98 — 98 — Obligations of states and political subdivisions 174,985 — 174,985 — U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations 109,493 — 109,493 — Private label mortgage and asset backed securities 355,542 — 355,542 — Equity securities 6,558 6,558 — — Total assets measured at fair value on a recurring basis $ 655,383 $ 6,558 $ 648,825 $ — There were no changes in valuation techniques used during the three months ended March 31, 2023 or the year ended December 31, 2022. There were no assets measured on a non-recurring basis at March 31, 2023 and December 31, 2022. Note 3. Investments The following table summarizes the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at March 31, 2023 and December 31, 2022 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses (in thousands): March 31, 2023 Available-for-Sale Securities Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Estimated Fair Value Debt securities: U.S. Treasury securities $ 9,990 $ — $ ( 1,111 ) $ — $ 8,879 U.S. Government agencies 106 — ( 8 ) — 98 Obligations of states and political subdivisions 200,915 — ( 22,864 ) — 178,051 U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations 99,307 4 ( 6,680 ) — 92,631 Private label mortgage and asset backed securities 406,197 11 ( 54,343 ) — 351,865 Total available-for-sale $ 716,515 $ 15 $ ( 85,006 ) $ — $ 631,524 March 31, 2023 Held-to-Maturity Securities Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses Estimated Fair Value Allowance for Credit Losses Debt securities: Obligations of states and political subdivisions $ 192,028 $ 68 $ ( 17,529 ) $ 174,567 $ — U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations 10,511 — ( 1,559 ) 8,952 — Private label mortgage and asset backed securities 55,981 — ( 5,919 ) 50,062 260 Corporate debt securities 46,008 — ( 2,956 ) 43,052 424 Total held-to-maturity $ 304,528 $ 68 $ ( 27,963 ) $ 276,633 $ 684 14 December 31, 2022 Available-for-Sale Securities Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Debt securities: U.S. Treasury securities $ 9,990 $ — $ ( 1,283 ) $ 8,707 U.S. Government agencies 107 — ( 9 ) 98 Obligations of states and political subdivisions 201,638 — ( 26,653 ) 174,985 U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations 117,292 4 ( 7,803 ) 109,493 Private label mortgage and asset backed securities 411,441 14 ( 55,913 ) 355,542 Total available-for-sale $ 740,468 $ 18 $ ( 91,661 ) $ 648,825 December 31, 2022 Held-to-Maturity Securities Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses Estimated Fair Value Debt securities: Obligations of states and political subdivisions 192,004 67 ( 23,166 ) $ 168,905 U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations 10,430 — ( 1,762 ) 8,668 Private label mortgage and asset backed securities 56,691 — ( 5,931 ) 50,760 Corporate debt securities 45,982 — ( 3,066 ) 42,916 Total held-to-maturity $ 305,107 $ 67 $ ( 33,925 ) $ 271,249 Proceeds and gross realized gains (losses) from the sales or calls of investment securities for the periods ended March 31, 2023 and 2022 are shown below (in thousands): For the Three Months Ended March 31, Available-for-Sale Securities 2023 2022 Proceeds from sales or calls $ 12,066 $ 132,991 Gross realized gains from sales or calls — 206 Gross realized losses from sales or calls ( 219 ) — The provision for income taxes includes a $( 44,000 ) and $ 61,000 income tax (benefit)/expense from unrealized net losses and gains on securities realized through security sales for the three months ended March 31, 2023 and 2022. The amortized cost and estimated fair value of available-for-sale and held-to maturity investment securities at March 31, 2023 by contractual maturity is shown below (in thousands). Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately. 15 March 31, 2023 Available-for-Sale Securities Amortized Cost Estimated Fair Value Within one year $ — $ — After one year through five years 9,990 8,879 After five years through ten years 35,853 30,451 After ten years 165,062 147,600 210,905 186,930 Investment securities not due at a single maturity date: U.S. Government agencies 106 98 U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations 99,307 92,631 Private label mortgage and asset backed securities 406,197 351,865 Total available-for-sale $ 716,515 $ 631,524 March 31, 2023 Held-to-Maturity Securities Amortized Cost Estimated Fair Value Within one year $ — $ — After one year through five years 133 131 After five years through ten years 57,832 52,986 After ten years 134,063 121,450 192,028 174,567 Investment securities not due at a single maturity date: U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations 10,511 8,952 Private label mortgage and asset backed securities 55,981 50,062 Corporate debt securities 46,008 43,052 Total held-to-maturity $ 304,528 $ 276,633 At March 31, 2023 there were eight issuers of private label mortgage securities in which the Company had holdings of securities in amounts greater than 10% of shareholders’ equity. Investments with these issuers were in senior tranches and/or were rated “AAA” or higher and there were no credit issues identified. The following table summarizes the Company’s AFS debt securities in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands): March 31, 2023 Less than 12 Months 12 Months or More Total Fair Unrealized Fair Unrealized Fair Unrealized Available-for-Sale Securities Value Losses Value Losses Value Losses Debt securities: U.S. Treasury securities $ — $ — $ 8,879 $ ( 1,111 ) $ 8,879 $ ( 1,111 ) U.S. Government agencies — — 98 ( 8 ) 98 ( 8 ) Obligations of states and political subdivisions — — 178,051 ( 22,864 ) 178,051 ( 22,864 ) U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations 1,123 ( 20 ) 91,267 ( 6,660 ) 92,390 ( 6,680 ) Private label mortgage and asset backed securities 3,500 ( 542 ) 348,311 ( 53,801 ) 351,811 ( 54,343 ) Total available-for-sale $ 4,623 $ ( 562 ) $ 626,606 $ ( 84,444 ) $ 631,229 $ ( 85,006 ) 16 December 31, 2022 Less than 12 Months 12 Months or More Total Fair Unrealized Fair Unrealized Fair Unrealized Available-for-Sale Securities Value Losses Value Losses Value Losses Debt securities: U.S. Treasury securities $ — $ — $ 8,707 $ ( 1,283 ) $ 8,707 $ ( 1,283 ) U.S. Government agencies — — 98 ( 9 ) 98 ( 9 ) Obligations of states and political subdivisions 90,808 ( 12,208 ) 84,177 ( 14,445 ) 174,985 ( 26,653 ) U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations 20,825 ( 1,058 ) 88,520 ( 6,745 ) 109,345 ( 7,803 ) Private label mortgage and asset backed securities 126,284 ( 14,529 ) 229,152 ( 41,384 ) 355,436 ( 55,913 ) Total available-for-sale $ 237,917 $ ( 27,795 ) $ 410,654 $ ( 63,866 ) $ 648,571 $ ( 91,661 ) As of March 31, 2023, the Company had a total of 183 AFS debt securities in a gross unrealized loss position with no credit impairment, consisting of 6 U.S. Treasury securities and U.S. Government agencies, 43 obligations of states and political subdivisions, 50 U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations, and 84 private label mortgage and asset backed securities. Allowance for Credit Losses on Available-for-Sale Debt Securities Each reporting period, the Company assesses each AFS debt security that is in an unrealized loss position to determine whether the decline in fair value below the amortized cost basis results from a credit loss or other factors. The Company did not record an ACL on any available for sale securities at March 31, 2023 or upon adoption of ASU 2016-13 on January 1, 2023. As of both dates, the Company considers the unrealized losses across the classes of major security-type to be related to fluctuations in market conditions, primarily interest rates, and not reflective of a deterioration in credit value. The gross unrealized losses presented in the preceding tables were primarily attributable to interest rate increases and liquidity and were mainly comprised of the following: • Obligations of States and Political Subdivisions: The unrealized losses on investments in obligations of states and political subdivisions are caused by increases in required yields by investors in these types of securities. It is expected that the securities would not be settled at a price less than the amortized cost of the investment. • U.S. Government Sponsored Entities and Agencies Collateralized by Residential Mortgage Obligations: The unrealized losses on the Company’s investments in U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations were caused by interest rate changes. The contractual cash flows of those investments are guaranteed or supported by an agency or sponsored entity of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment. • Private Label Mortgage and Asset Backed Securities: The Company has invested exclusively in AA and AAA tranches of various private label mortgage and asset backed securities. Each purchase is subject to a credit and structure review prior to their purchase. Ratings are reviewed on a quarterly basis in addition to other metrics provided through third-party services. Following review of the financial metrics and ratings, management concluded that the unrealized loss position of the private label mortgage and asset backed securities related exclusively to the fluctuation in market conditions and were not reflective of any credit concerns with the tranches comprising the Company’s investments. As of March 31, 2023 and December 31, 2022, the Company had the intent to hold the AFS debt securities with unrealized losses through the anticipated recovery period and it was more-than-likely-than-not that the Company would not be required to sell these securities. Accordingly, there was no allowance for credit losses as of March 31, 2023 and December 31, 2022 provided against these securities. Allowance for Credit Losses on Held-to-Maturity Debt Securities The Company separately evaluates its HTM debt securities for any credit losses based on probability of default and loss given default utilizing historical industry data based on investment category, while also considering reasonable and supportable forecasts. The probability of default and loss given default are incorporated into the present value of expected cash flows and 17 compared against amortized cost. The Company recorded an ACL on January 1, 2023 for held-to-maturity debt securities within the corporate bond and private label mortgage securities of $ 545,000 and $ 231,000 , respectively. The allowance for credit losses on HTM securities was $ 684,000 at March 31, 2023. The Company monitors credit quality of debt securities held-to-maturity through the use of credit ratings. The Company monitors the credit ratings on a quarterly basis. There were no HTM securities on nonaccrual or past due over 89 days and still on accrual. The following table summarizes the amortized cost of debt securities held-to-maturity at the dates indicated, aggregated by credit quality indicator. U.S. Government sponsored agencies are not included in the below tables as credit ratings are not applicable. March 31, 2023 Debt Securities Held-to-Maturity AAA/AA/A BBB/BB/B Unrated Obligations of states and political subdivisions $ 192,028 $ — $ — Private label mortgage and asset backed securities 46,706 — 9,275 Corporate debt securities — — 46,008 Total debt securities held-to-maturity $ 238,734 $ — $ 65,794 Note 4. Loans and Allowance for Credit Losses on Loans The majority of the disclosures in this footnote are prepared at the class level, which is equivalent to the call report or call code classification. The roll forward of the allowance for credit losses is presented at the portfolio segment level. Accrued interest receivable on loans of $ 3,773,000 and $ 4,512,000 at March 31, 2023 and December 31, 2022 respectively is not included in the loan tables below and is included in other assets on the Company’s balance sheets. Outstanding loans are summarized by class as follows: Loan Type (Dollars in thousands) March 31, 2023 December 31, 2022 Commercial: Commercial and industrial $ 149,689 $ 141,197 Agricultural production 22,104 37,007 Total commercial 171,793 178,204 Real estate: Construction & other land loans 112,989 109,175 Commercial real estate - owner occupied 196,117 194,663 Commercial real estate - non-owner occupied 500,420 464,809 Farmland 116,723 119,648 Multi-family residential 23,694 24,586 1-4 family - close-ended 91,696 93,510 1-4 family - revolving 27,260 30,071 Total real estate 1,068,899 1,036,462 Consumer: 43,431 40,252 Total gross loans 1,284,123 1,254,918 Net deferred origination fees 1,431 1,386 Loans, net of deferred origination fees 1,285,554 1,256,304 Allowance for credit losses ( 15,257 ) ( 10,848 ) Total loans, net $ 1,270,297 $ 1,245,456 At March 31, 2023 and December 31, 2022, loans originated under Small Business Administration (SBA) programs totaling $ 18,964,000 and $ 19,947,000 , respectively, were included in the real estate and commercial categories, of which, $ 14,505,000 or 76 % and $ 15,333,000 or 77 %, respectively, are secured by government guarantees. 18 Allowance for Credit Losses on Loans The measurement of the allowance for credit losses on collectively evaluated loans is based on modeled expectations of lifetime expected credit losses utilizing national and peer group historical losses, weighting of economic scenarios, and other relevant factors. The Company incorporates forward-looking information using macroeconomic scenarios, which include variables that are considered key drivers of credit losses within the portfolio. The Company uses a probability-weighted, multiple scenario forecast approach. These scenarios may consist of a base forecast representing the most likely outcome, combined with downside or upside scenarios reflecting possible worsening or improving economic conditions. When a loan no longer shares similar risk characteristics with other loans, such as in the case of certain nonaccrual loans, the Company estimates the allowance for credit losses on an individual loan basis. There were no loans on nonaccrual or individually evaluated as of March 31, 2023 or December 31, 2022. The following table shows the summary of activities for the allowance for credit losses as of and for the three months ended March 31, 2023 and 2022 by portfolio segment (in thousands): Commercial Commercial Real Estate 1-4 Family Real Estate Consumer Unallocated Total Allowance for credit losses: Beginning balance, January 1, 2023 prior to adoption of ASU 2016-13 (CECL) $ 1,814 $ 7,803 $ 607 $ 284 $ 340 $ 10,848 Impact of adoption of ASU 2016-13 454 1,693 1,614 489 ( 340 ) 3,910 Provision (credit) for credit losses (1) ( 240 ) 569 64 125 — 518 Charge-offs ( 322 ) — — ( 32 ) — ( 354 ) Recoveries 322 — — 13 — 335 Ending balance, March 31, 2023 $ 2,028 $ 10,065 $ 2,285 $ 879 $ — $ 15,257 (1) Represents credit losses for loans only. The provision for credit losses on the Consolidated Statements of Income of $ 633 includes a $(92) credit for held-to-maturity securities and a $207 provision for unfunded loan commitments. Commercial Real Estate Consumer Unallocated Total Allowance for credit losses: Beginning balance, January 1, 2022 $ 2,011 $ 6,741 $ 568 $ 280 $ 9,600 Provision (credit) for credit losses ( 356 ) 307 31 18 — Charge-offs ( 18 ) — ( 83 ) — ( 101 ) Recoveries 356 — 9 — 365 Ending balance, March 31, 2022 $ 1,993 $ 7,048 $ 525 $ 298 $ 9,864 The following table shows the loan portfolio by class, net of deferred fees, allocated by management’s internal risk ratings for the period indicated (in thousands): Term Loans Amortized Cost Basis by Origination Year - As of March 31, 2023 2023 2022 2021 2020 2019 Prior Revolving Loans Revolving Converted to Term Total Commercial and industrial Pass/Watch $ 10,246 $ 33,809 $ 42,922 $ 6,238 $ 2,545 $ 9,035 $ 33,886 $ — $ 138,681 Special mention — — 174 197 2,718 283 6,150 — 9,522 Substandard — — 26 6 — 1,583 335 — 1,950 Total $ 10,246 $ 33,809 $ 43,122 $ 6,441 $ 5,263 $ 10,901 $ 40,371 $ — $ 150,153 Current period gross write-offs $ — $ — $ 323 $ — $ — $ — $ — $ — $ 323 Agricultural production Pass/Watch $ 83 $ 347 $ 51 $ — $ 257 $ 185 $ 11,538 $ 535 $ 12,996 19 Special mention — — — — — — 3,941 — 3,941 Substandard — 1,160 1,123 — — — 2,900 — 5,183 Total $ 83 $ 1,507 $ 1,174 $ — $ 257 $ 185 $ 18,379 $ 535 $ 22,120 Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Construction & other land loans Pass/Watch $ 366 $ 25,445 $ 49,585 $ 10,083 $ 1,695 $ 2,875 $ 6,772 $ — $ 96,821 Special mention — — — — — — — — — Substandard — 291 — — 15,530 — — — 15,821 Total $ 366 $ 25,736 $ 49,585 $ 10,083 $ 17,225 $ 2,875 $ 6,772 $ — $ 112,642 Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate - owner occupied Pass/Watch $ 6,316 $ 16,369 $ 17,587 $ 29,281 $ 23,675 $ 94,432 $ 2,951 $ — $ 190,611 Special mention — — — — — 3,421 — — 3,421 Substandard — — — — — 2,159 — — 2,159 Total $ 6,316 $ 16,369 $ 17,587 $ 29,281 $ 23,675 $ 100,012 $ 2,951 $ — $ 196,191 Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate - non-owner occupied Pass/Watch $ 23,172 $ 114,471 $ 79,092 $ 41,919 $ 23,613 $ 200,311 $ 11,803 $ — $ 494,381 Special mention — 600 — — — 2,798 — — 3,398 Substandard — — — — — 2,395 — — 2,395 Total $ 23,172 $ 115,071 $ 79,092 $ 41,919 $ 23,613 $ 205,504 $ 11,803 $ — $ 500,174 Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Farmland Pass/Watch $ — $ 19,886 $ 12,981 $ 27,859 $ 11,563 $ 26,291 $ 6,286 $ — $ 104,866 Special mention — 3,613 — 4,092 — 1,074 — — 8,779 Substandard — — 871 — — 196 — 1,955 3,022 Total $ — $ 23,499 $ 13,852 $ 31,951 $ 11,563 $ 27,561 $ 6,286 $ 1,955 $ 116,667 Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Multi-family residential Pass/Watch $ — $ — $ 2,870 $ 2,769 $ 4,603 $ 13,306 $ 191 $ — $ 23,739 Special mention — — — — — — — — — Substandard — — — — — — — — Total $ — $ — $ 2,870 $ 2,769 $ 4,603 $ 13,306 $ 191 $ — $ 23,739 Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — 1-4 family - close-ended Pass/Watch $ — $ 66,199 $ 8,353 $ 2,396 $ 2,183 $ 11,937 $ 751 $ — $ 91,819 Special mention — — — — — — — — — Substandard — — — — — — — — — 20 Total $ — $ 66,199 $ 8,353 $ 2,396 $ 2,183 $ 11,937 $ 751 $ — $ 91,819 Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — 1-4 family - revolving Pass/Watch $ — $ — $ — $ — $ — $ — $ 20,729 $ 6,763 $ 27,492 Special mention — — — — — — — — — Substandard — — — — — — — — — Total $ — $ — $ — $ — $ — $ — $ 20,729 $ 6,763 $ 27,492 Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Consumer Pass/Watch $ 7,097 $ 10,694 $ 8,306 $ 3,154 $ 2,977 $ 11,831 $ 448 $ — $ 44,507 Special mention — — — — — — — — — Substandard — — 33 — — 17 — — 50 Total $ 7,097 $ 10,694 $ 8,339 $ 3,154 $ 2,977 $ 11,848 $ 448 $ — $ 44,557 Current period gross write-offs $ 5 $ — $ — $ — $ 26 $ — $ — $ — $ 31 Grand Total $ 47,280 $ 292,884 $ 223,974 $ 127,994 $ 91,359 $ 384,129 $ 108,681 $ 9,253 $ 1,285,554 The following table shows the loan portfolio by class, net of deferred fees, allocated by management’s internal risk ratings at December 31, 2022 (in thousands): Pass Special Mention Substandard Doubtful Total Commercial: Commercial and industrial $ 131,300 $ 8,707 $ 1,655 $ — $ 141,662 Agricultural production 24,926 6,713 5,399 — 37,038 Real Estate: Construction & other land loans 93,817 — 15,024 — 108,841 Commercial real estate - owner occupied 189,344 3,283 2,169 — 194,796 Commercial real estate - non-owner occupied 458,746 3,440 2,412 — 464,598 Farmland 109,898 8,879 824 — 119,601 Multi-family residential 24,636 — — — 24,636 1-4 family - close-ended 93,644 — — — 93,644 1-4 family - revolving 30,031 — 266 — 30,297 Consumer: 41,155 2 34 — 41,191 Total $ 1,197,497 $ 31,024 $ 27,783 $ — $ 1,256,304 21 The following table shows an aging analysis of the loan portfolio by class at March 31, 2023 (in thousands): 30-59 Days Past Due 60-89 Days Past Due Greater Than 89 Days Past Due Total Past Due Current Total Loans Loans Past Due > 89 Days, Still Accruing Non-accrual Commercial: Commercial and industrial $ — $ — $ — $ — $ 149,689 $ 149,689 $ — $ — Agricultural production — — — — 22,104 22,104 — — Real estate: — Construction & other land loans — — — — 112,989 112,989 — — Commercial real estate - owner occupied — — — — 196,117 196,117 — — Commercial real estate - non-owner occupied — — — — 500,420 500,420 — — Farmland — — — — 116,723 116,723 — — Multi-family residential — — — 23,694 23,694 1-4 family - close-ended — — — 91,696 91,696 1-4 family - revolving — — — — 27,260 27,260 — — Consumer: 8 17 — 25 43,406 43,431 — — Deferred fees — — — — $ 1,431 1,431 — — Total $ 8 $ 17 $ — $ 25 $ 1,285,529 $ 1,285,554 $ — $ — The following table shows an aging analysis of the loan portfolio by class at December 31, 2022 (in thousands): 30-59 Days Past Due 60-89 Days Past Due Greater Than 89 Days Past Due Total Past Due Current Total Loans Loans Past Due > 89 Days, Still Accruing Non- accrual Commercial: Commercial and industrial $ 440 $ — $ — $ 440 $ 140,757 $ 141,197 $ — $ — Agricultural production — — — — 37,007 37,007 — — Real estate: — Construction & other land loans — — — — 109,175 109,175 — — Commercial real estate - owner occupied 250 — — 250 194,413 194,663 — — Commercial real estate - non-owner occupied 4,507 — — 4,507 460,302 464,809 — — Farmland — — — — 119,648 119,648 — — Multi-family residential — — — — 24,586 24,586 1-4 family - close-ended — — — — 93,510 93,510 1-4 family - revolving 465 — — 465 29,606 30,071 — — Consumer 233 — — 233 40,019 40,252 — 0 — Deferred fees — — — — 1,386 1,386 — — Total $ 5,895 $ — $ — $ 5,895 $ 1,250,409 $ 1,256,304 $ — $ — As of March 31, 2023 and December 31, 2022 there were no collateral dependent loans. 22 Foregone interest on nonaccrual loans totaled $ 0 and $ 4,000 for the three month period ended March 31, 2023 and 2022, respectively. Occasionally, the Company modifies loans to borrowers in financial distress by providing reductions of the stated interest rate of the loan or an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk. There were no loan modifications granted to borrowers experiencing financial difficulty during the quarter ended March 31, 2023 or during 2022. As of December 31, 2022, the Company had a recorded investment in troubled debt restructurings (“TDR”) of $ 2,372,000 . The Company allocated $ 314,000 of specific reserves for those loans at December 31, 2022. The Company committed to lend no additional amounts as of December 31, 2022 to customers with outstanding loans that were classified as troubled debt restructurings. Note 5. Borrowing Arrangements As of March 31, 2023 the Company had no Federal Home Loan Bank (“FHLB”) of San Francisco advances as compared to $ 46,000,000 at December 31, 2022. Approximately $ 577,589,000 in loans and $ 21,743,000 in securities were pledged under a blanket lien as collateral to the FHLB resulting in borrowing capacity of $ 318,365,000 as of March 31, 2023. The Bank’s credit limit varies according to the amount and composition of the investment and loan portfolios pledged as collateral. As of March 31, 2023, and December 31, 2022 the Company had no Federal funds purchased. Note 6. Senior Debt and Subordinated Debentures The following table summarizes the Company’s long-term debt: (Dollars in thousands) March 31, 2023 December 31, 2022 Fixed - floating rate subordinated debentures, due 2031 $ 35,000 $ 35,000 Unamortized debt issuance costs ( 520 ) ( 556 ) Floating rate senior debt bank loan, due 2032 30,000 30,000 Junior subordinated deferrable interest debentures, due October 2036 5,155 5,155 Total subordinated debentures $ 69,635 $ 69,599 Junior Subordinated Debentures Service 1 st Capital Trust I is a Delaware business trust formed by Service 1 st . The Company succeeded to all of the rights and obligations of Service 1 st in connection with the merger with Service 1 st as of November 12, 2008. The Trust was formed on August 17, 2006 for the sole purpose of issuing trust preferred securities fully and unconditionally guaranteed by Service 1 st . Under applicable regulatory guidance, the amount of trust preferred securities that is eligible as Tier 1 capital is limited to 25 % of the Company’s Tier 1 capital on a pro forma basis. At March 31, 2023, all of the trust preferred securities that have been issued qualify as Tier 1 capital. The trust preferred securities mature on October 7, 2036, are redeemable at the Company’s option, and require quarterly distributions by the Trust to the holder of the trust preferred securities at a variable interest rate which will adjust quarterly to equal the three month SOFR plus 1.60 %. The Trust used the proceeds from the sale of the trust preferred securities to purchase approximately $ 5,155,000 in aggregate principal amount of Service 1 st ’s junior subordinated notes (the Notes). The Notes bear interest at the same variable interest rate during the same quarterly periods as the trust preferred securities. The Notes are redeemable by the Company on any January 7, April 7, July 7, or October 7 or at any time within 90 days following the occurrence of certain events, such as: (i) a change in the regulatory capital treatment of the Notes (ii) in the event the Trust is deemed an investment company or (iii) upon the occurrence of certain adverse tax events. In each such case, the Company may redeem the Notes for their aggregate principal amount, plus any accrued but unpaid interest. The Notes may be declared immediately due and payable at the election of the trustee or holders of 25 % of the aggregate principal amount of outstanding Notes in the event that the Company defaults in the payment of any interest following the nonpayment of any such interest for 20 or more consecutive quarterly periods. 23 Holders of the trust preferred securities are entitled to a cumulative cash distribution on the liquidation amount of $ 1,000 per security. For each January 7, April 7, July 7 or October 7 of each year, the rate will be adjusted to equal the three month LIBOR plus 1.60 %. As of March 31, 2023, the rate was 6.43 %. Interest expense recognized by the Company for the twelve months ended March 31, 2023 and 2022 was $ 81,000 and $ 333,000 , respectively. Subordinated Debentures On November 12, 2021, the Company completed a private placement of $ 35,000,000 aggregate principal amount of its fixed-to-floating rate subordinated notes (“Subordinated Debt”) due December 1, 2031. The Subordinated Debt initially bears a fixed interest rate of 3.125 % per year. Commencing on December 1, 2026, the interest rate on the Subordinated Debt will reset each quarter at a floating interest rate equal to the then-current three month term SOFR plus 210 basis points. The Company may at its option redeem in whole or in part the Subordinated Debt on or after November 12, 2026 without a premium. The Subordinated Debt is treated as Tier 2 Capital for regulatory purposes. Senior Debt On September 15, 2022, the Company entered into a $ 30,000,000 loan agreement with Bell Bank. Initially, payments of interest only are payable in 12 quarterly payments commencing December 31, 2022. Commencing December 31, 2025, 27 equal quarterly principal and interest payments are payable based on the outstanding balance of the loan on August 30, 2025 and an amortization of 48 quarters. A final payment of outstanding principal and accrued interest is due at maturity on September 30, 2032. Variable interest is payable at the Prime Rate (published by the Wall Street Journal) less 50 basis points. The loan is secured by the assets of the Company and a pledge of the outstanding common stock of Central Valley Community Bank, the Company’s banking subsidiary. The Company may prepay the loan without penalty with one exception. If the loan is prepaid prior to August 30, 2025 with funds received from a financing source other than Bell Bank, the Company will incur a 2 % prepayment penalty. The loan contains customary representations, covenants, and events of default. Interest expense recognized by the Company for the Subordinated and Senior Debt for the three months ended March 31, 2023 and 2022 was $ 816,000 and $ 310,000 , respectively. Note 7. Commitments and Contingencies Financial Instruments with Off-Balance-Sheet Risk - In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk. These financial instruments include commitments to extend credit and standby letters of credit . These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. The contract or notional amounts of these instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for loans. Commitments to extend credit amounting to $ 318,046,000 and $ 288,141,000 were outstanding at March 31, 2023 and December 31, 2022, respectively. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract unless waived by the Bank. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Included in commitments to extend credit are undisbursed lines of credit totaling $ 316,063,000 and $ 286,925,000 at March 31, 2023 and December 31, 2022, respectively. Undisbursed lines of credit include credits whereby customers can repay principal and request principal advances during the term of the loan at their discretion and most expire between one and 12 months. Included in undisbursed lines of credit are commitments for the undisbursed portions of construction loans totaling $ 48,305,000 and $ 45,604,000 as of March 31, 2023 and December 31, 2022, respectively. These commitments are agreements to lend to customers, subject to meeting certain construction progress requirements established in the contracts. The underlying construction loans have fixed expiration dates. Standby letters of credit and financial guarantees amounting to $ 1,983,000 and $ 1,216,000 were outstanding at March 31, 2023 and December 31, 2022, respectively. Standby letters of credit and financial guarantees are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private financial arrangements. Standby letters of credit and guarantees carry a one year term or less, many have auto-renewal features. The fair value of the liability related to these standby letters of credit, which represents the fees received for their issuance, was not significant at March 31, 2023 or December 31, 2022. The Company recognizes these fees as revenue over the term of the commitment or when the commitment is used. 24 The Company generally requires collateral or other security to support financial instruments with credit risk. Management does not anticipate any material loss will result from the outstanding commitments to extend credit, standby letters of credit and financial guarantees. At March 31, 2023 and December 31, 2022, the allowance for credit losses of unfunded commitments was $ 928,000 and $ 110,000 , respectively. The allowance for credit losses of unfunded commitments is calculated by management using an appropriate, systematic, and consistently applied process. While related to credit losses, this allocation is not a part of the allowance for credit losses on loans and is considered separately as a liability for accounting and regulatory reporting purposes, and is included in Other Liabilities on the Company’s balance sheet. The Company is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to such actions will not materially affect the consolidated financial position or consolidated results of operations of the Company. Note 8. Earnings Per Share Basic earnings per share (EPS), which excludes dilution, is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options or restricted stock awards, result in the issuance of common stock which shares in the earnings of the Company. A reconciliation of the numerators and denominators of the basic and diluted EPS computations is as follows: Basic Earnings Per Share For the Three Months Ended March 31, (In thousands, except share and per share amounts) 2023 2022 Net income $ 6,970 $ 6,086 Weighted average shares outstanding 11,703,813 11,829,245 Basic earnings per share $ 0.60 $ 0.51 Diluted Earnings Per Share For the Three Months Ended March 31, (In thousands, except share and per share amounts) 2023 2022 Net income $ 6,970 $ 6,086 Weighted average shares outstanding 11,703,813 11,829,245 Effect of diluted stock options and restricted stock 27,322 42,780 Weighted average shares of common stock and common stock equivalents 11,731,135 11,872,025 Diluted earnings per share $ 0.59 $ 0.51 No options awards were anti-dilutive for the three months ended March 31, 2022. There were no outstanding options at March 31, 2023. Note 9. Share-Based Compensation The Company has two share-based compensation plans as described below. Share-based compensation cost recognized for those plans was $ 140,000 and $ 97,000 for the three months ended March 31, 2023 and 2022, respectively. The recognized tax benefit for the share-based compensation expense, forfeitures of restricted stock, and exercise of stock options, resulted in the recognition of $ 0 and $ 22,000 , respectively, for the three months ended March 31, 2023 and 2022. The Central Valley Community Bancorp 2015 Omnibus Incentive Plan (2015 Plan) was adopted in May 2015. The plan provides for awards in the form of incentive stock options, non-statutory stock options, stock appreciation rights, and restricted stock. The plan also allows for performance awards that may be in the form of cash or shares of the Company, including restricted stock. Outstanding arrangements to issue shares under this plan including options, will continue in force until expiration according to their respective terms. Effective June 2, 2017, the Company adopted an Employee Stock Purchase Plan (ESPP) whereby our employees may purchase Company common stock through payroll deductions of between one percent and 15 percent of pay in each pay period. Shares 25 are purchased at the end of each of the three-month offering periods at a 10 percent discount from the lower of the closing market price on the Offering Date (first trading day of each offering period) or the Investment Date (last trading day of each offering period). The Company reserved 500,000 common shares to be set aside for the ESPP, and there were 427,913 shares available for future purchase under the plan as of March 31, 2023. Restricted and Performance Common Stock Awards The 2015 Plan provides for the issuance of restricted common stock to directors and officers. In addition, performance awards may be granted in the form of cash or shares. Restricted common stock grants typically vest over a one to five-year period. Restricted common stock (all of which are shares of our common stock) is subject to forfeiture if employment terminates prior to vesting. The cost of these awards is recognized over the vesting period of the awards based on the fair value of our common stock on the date of the grant. The following table summarizes restricted stock and performance award activity for the three months ended March 31, 2023 as follows: Shares Weighted Average Grant-Date Fair Value Nonvested outstanding shares at December 31, 2022 46,706 $ 17.28 Granted 15,504 $ 22.69 Vested ( 11,495 ) $ 21.38 Forfeited — $ — Nonvested outstanding shares at March 31, 2023 50,715 $ 18.01 The shares awarded to employees and directors under the restricted stock agreements vest on applicable vesting dates only to the extent the recipient of the shares is then an employee or a director of the Company or one of its subsidiaries, and each recipient will forfeit all of the shares that have not vested on the date his or her employment or service is terminated. Performance common stock awards vest immediately. As of March 31, 2023, there were 50,715 shares of restricted stock that are nonvested and expected to vest. As of March 31, 2023, there was $ 502,000 of total unrecognized compensation cost related to nonvested restricted common stock awards. Restricted stock compensation expense is recognized on a straight-line basis over the vesting period. This cost is expected to be recognized over a weighted-average remaining period of 2.82 years and will be adjusted for subsequent changes in estimated forfeitures. Restricted common stock awards had an intrinsic value of $ 4,179,000 at March 31, 2023. 26