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Item 2. Management’s Discussion and Analysis

2023-08-03 compared with 2023-05-15 · 249 added, 166 removed, 295 unchanged (58% of the section changed)

34 unchanged sentences

Dividend Declared

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.

On July 19, 2023, the Board of Directors declared a $0.12 per share cash dividend payable on August 18, 2023 to shareholders of record as of August 4, 2023.

Critical Accounting Policies and Estimates

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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.

Please refer to the Company’s 2022 Annual Report on Form 10-K for a complete listing of critical accounting policies.

Financial Highlights

The significant highlights for the Company as of or for the three months ended March 31, 2023 included the following:

• 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.

The Company recorded a $633,000 provision for credit losses during the first quarter of 2023.

• 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.

• Total deposits increased 3.62% to $2.18 billion at March 31, 2023 compared to December 31, 2022.

• 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.

• 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.

• There were no non-performing assets for the quarter ended March 31, 2023.

Additionally, net loan charge-offs were $19,000 and loans delinquent more than 30 days were $22,000.

• 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.

• Net interest margin increased to 3.81% at March 31, 2023, from 3.80% at December 31, 2022.

• Capital positions remain strong at March 31, 2023 with a 8.58% Tier 1 Leverage Ratio;

The significant highlights for the Company as of or for the period ended June 30, 2023 included the following:

• Net income for the second quarter of 2023 decreased to $6,282,000 or $0.54 per diluted common share, compared to $6,970,000 and $0.59, respectively, in the first quarter of 2023.

• Net loans decreased $5.3 million or 0.42%, and total assets increased $67.3 million or 2.78% at June 30, 2023 compared to December 31, 2022.

• Total deposits increased 4.79% to $2.20 billion at June 30, 2023 compared to December 31, 2022.

• Total cost of deposits increased to 0.88% for the quarter ended June 30, 2023 compared to 0.20% for the quarter ended March 31, 2023.

• Average non-interest bearing demand deposit accounts as a percentage of total average deposits was 43.53% and 43.92% for the quarters ended June 30, 2023 and 2022, respectively.

• Net interest margin decreased to 3.46% for the quarter ended June 30, 2023, from 3.81% for the quarter ended March 31, 2023.

• There were no non-performing assets for the quarter ended June 30, 2023.

Additionally, net loan recoveries were $22,000 and loans delinquent more than 30 days were $252,000.

• Capital positions remain strong at June 30, 2023 with a 8.51% Tier 1 Leverage Ratio;

a 12.41% Common Equity Tier 1 Ratio;

1 unchanged sentence

and a 15.76% Total Risk-Based Capital Ratio.

• The Company declared a $0.12 per common share cash dividend, payable on August 18, 2023 to shareholders of record as of August 4, 2023.

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

March 31, December 31, March 31,

For the Three Months Ended For the Six Months Ended

June 30, March 31, June 30, June 30, June 30,

(In thousands, except share and per-share amounts) 2023 2023 2022 2023 2022

Net interest income before provision for credit losses 21,581 21,993 17,597

Provision for credit losses 633 500 —

Net interest income after provision for credit losses 20,948 21,493 17,597

Net interest income before (credit) provision for credit losses $ 20,205 $ 21,581 $ 19,810 $ 41,786 $ 37,407

(Credit) provision for credit losses (343) 518 — 290 —

Net interest income after (credit) provision for credit losses 20,548 20,948 19,810 41,496 37,407

Total non-interest income 1,594 1,575 770 3,169 2,604

3 unchanged sentences

Net income $ 6,282 $ 6,970 $ 6,542 $ 13,252 $ 12,628

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.

Basic and diluted earnings per share for March 31, 2023 were $0.60 and $0.59, respectively.

Net income decreased to $6,282,000 for the three months ended June 30, 2023 compared to $6,542,000 for the three months ended June 30, 2022.

Basic and diluted earnings per share for the quarter ended June 30, 2023 were $0.54.

Basic and diluted earnings per share for the same period in 2022 were $0.56.

Net income for the period was impacted by an increase in total non-interest expenses of $1,722,000, primarily driven by the increase in costs for salaries and employee benefits and non-recurring one-time expenses in professional services, and an increase in the provision for income taxes of $100,000, partially offset by an increase in net interest income before provision for credit losses of $395,000 and an increase in non-interest income of $824,000.

During the quarter ended June 30, 2023, the Company recorded a $343,000 credit for credit losses, compared to no provision during the quarter ended June 30, 2022.

Net income increased to $13,252,000 for the six months ended June 30, 2023 compared to $12,628,000 for the six months ended June 30, 2022.

Basic and diluted earnings per share for the six months ended June 30, 2023 were $1.13.

Basic and diluted earnings per share for the same period in 2022 were $1.08 and $1.07, respectively.

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.

Annualized return on assets (“ROA”) for the three months ended March 31, 2023 and 2022 was 1.15% and 0.99%, respectively.

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.

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.

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.

Annualized return on average equity (“ROAE”) was 14.44% for the six months ended June 30, 2023 compared to 12.35% for the six months ended June 30, 2022.

Annualized return on average assets (“ROAA”) for the six months ended June 30, 2023 and 2022 was 1.08% and 1.03%, respectively.

The increase in net income for the six months ended June 30, 2023 compared to the same period in 2022 was primarily driven by an increase of $11,483,000 in total interest income, offset by an increase in total interest expense of $7,104,000.

Additionally, the six month period saw an increase in non-interest income of $565,000 and an increase in non-interest expense of $3,482,000.

During the six months ended June 30, 2023, the Company recorded a $290,000 provision for credit losses, compared to no provision during the six months ended June 30, 2022.

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.

7 unchanged sentences

For the Three Months Ended

March 31, 2023 For the Three Months Ended

March 31, 2022

June 30, 2023 For the Three Months Ended

June 30, 2022

(Dollars in thousands) Average

8 unchanged sentences

Total securities and interest-earning deposits 1,129,062 8,979 3.18 % 1,252,494 8,082 2.58 %

Loans (2) (3) 1,257,984 17,382 5.54 % 1,085,887 12,883 4.76 %

Total interest-earning assets 2,387,046 $ 26,361 4.43 % 2,338,381 $ 20,965 3.60 %

Allowance for credit losses (15,317) (9,870)

Non-accrual loans — 280

Cash and due from banks 26,467 33,050

Bank premises and equipment 9,392 8,132

Other assets 93,936 71,989

Total average assets $ 2,501,524 $ 2,441,962

LIABILITIES AND SHAREHOLDERS’ EQUITY

Interest-bearing liabilities:

Savings and NOW accounts $ 476,398 $ 158 0.13 % $ 600,685 $ 34 0.02 %

Money market accounts 547,452 2,423 1.78 % 520,224 164 0.13 %

Time certificates of deposit 225,638 2,290 4.07 % 89,107 33 0.15 %

Total interest-bearing deposits 1,249,488 4,871 1.56 % 1,210,016 231 0.08 %

Other borrowed funds 69,653 911 5.23 % 78,435 424 2.16 %

Total interest-bearing liabilities 1,319,141 $ 5,782 1.76 % 1,288,451 $ 655 0.20 %

Non-interest bearing demand deposits 963,104 947,724

Other liabilities 34,492 28,091

Shareholders’ equity 184,787 177,696

Total average liabilities and shareholders’ equity $ 2,501,524 $ 2,441,962

Interest income and rate earned on average earning assets $ 26,361 4.43 % $ 20,965 3.60 %

Interest expense and interest cost related to average interest-bearing liabilities 5,782 1.76 % 655 0.20 %

Net interest income and net interest margin (4) $ 20,579 3.46 % $ 20,310 3.48 %

(1) Calculated on a fully tax equivalent basis, which includes Federal tax benefits relating to income earned on municipal bonds totaling $374 and $499 at June 30, 2023 and June 30, 2022, respectively.

(2) Loan interest income includes loan fees of $26 and $226 at June 30, 2023 and June 30, 2022, respectively.

(3) Average loans do not include non-accrual 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.

CENTRAL VALLEY COMMUNITY BANCORP

SCHEDULE OF AVERAGE BALANCES AND AVERAGE YIELDS AND RATES

For the Six Months Ended

June 30, 2023 For the Six Months Ended

June 30, 2022

(Dollars in thousands) Average

Balance Interest

Expense Average

Balance Interest

Expense Average

Interest-earning deposits in other banks $ 57,285 $ 1,449 5.06 % $ 81,204 $ 109 0.27 %

Taxable securities 774,569 11,712 3.02 % 913,481 10,176 2.23 %

Non-taxable securities (1) 257,036 3,557 2.77 % 265,459 4,201 3.17 %

Total investment securities 1,031,605 15,269 2.96 % 1,178,940 14,377 2.44 %

Total securities and interest-earning deposits

1,088,890 16,718 3.07 % 1,260,144 14,486 2.30 %

25 unchanged sentences

Net interest income and net interest margin (4) $ 42,533 3.65 % $ 38,290 3.34 %

(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.

(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.

(1) Calculated on a fully tax equivalent basis, which includes Federal tax benefits relating to income earned on municipal bonds totaling $747 and $882 at June 30, 2023 and June 30, 2022, respectively.

(2) Loan interest income includes loan fees of $36 and $490 at June 30, 2023 and June 30, 2022, respectively.

(3) Average loans do not include non-accrual 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.

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.

The Volume and Rate Variances table below sets forth the dollar difference in interest earned and paid for each major category of interest-bearing 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.

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.

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.

Changes in Volume/Rate For the Three Months Ended March 31, 2023 and 2022

(In thousands) Volume Rate Net

Changes in Volume/Rate For the Three Months Ended June 30, 2023 and 2022 For the Six Months Ended June 30, 2023 and 2022

(In thousands) Volume Rate Net Volume Rate Net

Increase (decrease) due to changes in:

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(1) Computed on a tax equivalent basis for securities exempt from federal income taxes.

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.

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.

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.

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.

Comparison of the quarter ended June 30, 2023 and June 30, 2022

The Company’s net interest margin (fully tax equivalent basis), expressed as a percentage of average earning assets, decreased 2 basis points to 3.46% for the second quarter of 2023, from 3.48% for the second quarter of 2022.

Average interest earning assets were $2,387,046,000 for the three months ended June 30, 2023 compared to $2,338,381,000 for the three months ended June 30, 2022.

The $48,665,000 increase in average earning assets was attributed to the $172,097,000 or 15.85% increase in average loans, partially offset by the $123,432,000 decrease in average total securities and interest-earning deposits.

For the three months ended June 30, 2023, the effective yield on investment securities including Federal funds sold and interest-earning deposits in other banks increased 60 basis points.

The effective yield on loans increased 78 basis points.

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.

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.

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.

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.

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.

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.

The remaining balance of accretable loan marks on acquired loans as of March 31, 2023 was $1,205,000.

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.

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.

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.

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.

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.

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.

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.

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.

Interest expense on deposits for the three months ended March 31, 2023 and 2022 was $1,004,000 and $252,000, respectively.

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.

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.

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.

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.

Average interest bearing liabilities increased 2.38% to $1,319,141,000 for the three months ended June 30, 2023, compared to $1,288,451,000 for the same period in 2022.

Interest and fee income from loans increased $4,499,000 or 34.92% for the three months ended June 30, 2023 compared to the same period in 2022.

Net interest income during the three months ended June 30, 2023 was impacted by an increase in average total loans of $172,097,000 or 15.85% to $1,257,984,000 compared to $1,085,887,000 for the same period in 2022.

The yield on average loans, excluding nonaccrual loans, was 5.54% for the three months ended June 30, 2023 compared to 4.76% for the same period in 2022.

Net interest income for the period ending June 30, 2023 was benefited by approximately $40,000 in nonrecurring income from prepayment penalties, compared to $184,000 recorded in the same period in 2022.

The impact to interest income from the accretion of the loan marks on acquired loans was $72,000 and $102,000 for the three months ended June 30, 2023 and 2022, respectively.

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 $1,023,000 in the three months ended June 30, 2023 to $8,605,000 compared to $7,582,000 for the same period in 2022.

The yield on average total investments (total securities and interest-earning deposits) increased 60 basis points to 3.18% for the three month period ended June 30, 2023

compared to 2.58% for the same period in 2022.

Average total securities and interest-earning deposits for the three month period ended June 30, 2023 decreased $123,432,000 or 9.85% to $1,129,062,000 compared to $1,252,494,000 for the same period in 2022.

Total interest income on a non-tax equivalent basis for the three months ended June 30, 2023 increased $5,522,000 or 26.98% to $25,987,000 compared to $20,465,000 for the three months ended June 30, 2022.

The yield on interest earning assets increased 83 basis points to 4.43% on a fully tax equivalent basis for the three months ended June 30, 2023 from 3.60% for the period ended June 30, 2022.

The increase was the result of yield changes, increase in interest rates, and asset mix changes.

Average interest earning assets increased to $2,387,046,000 for the three months ended June 30, 2023 compared to $2,338,381,000 for the three months ended June 30, 2022.

Interest expense on deposits for the three months ended June 30, 2023 and 2022 was $4,871,000 and $231,000, respectively.

The average interest rate on interest bearing deposits increased to 1.56% for the three months ended June 30, 2023 compared to 0.08% for the same period ended June 30, 2022.

Average interest-bearing deposits increased 3.26% or $39,472,000 to $1,249,488,000 for the three months ended June 30, 2023 compared to $1,210,016,000 for the same period ended June 30, 2022.

Average other borrowed funds were $69,653,000 with an effective rate of 5.23% for the three months ended June 30, 2023 compared to $78,435,000 with an effective rate of 2.16% for the three months ended June 30, 2022.

Total interest expense on other borrowed funds was $911,000 for the three months ended June 30, 2023 and $424,000 for the three months ended June 30, 2022.

The cost of interest-bearing liabilities increased 156 basis points to 1.76% for the three month period ended June 30, 2023 compared to 0.20% for the same period in 2022.

The cost of total deposits increased to 0.88% compared to 0.04% for the three month periods ended June 30, 2023 and 2022, respectively.

Average non-interest bearing demand deposits increased 1.62% to $963,104,000 for the three month period ended June 30, 2023 compared to $947,724,000 for the same period in 2022.

The ratio of average non-interest bearing demand deposits to average total deposits decreased to 43.53% in the three month period ended June 30, 2023 compared to 43.92% for the same period in 2022.

Net interest income before the provision for credit losses for the three months ended June 30, 2023 increased by $395,000 or 1.99% to $20,205,000 compared to $19,810,000 for the same period in 2022.

The increase was a result of yield changes, asset mix changes, a credit to the provision for credit losses, and an increase in average earning assets, offset by an increase in interest expense on average interest bearing liabilities.

Comparison of the six months ended June 30, 2023 and June 30, 2022

The Company’s net interest margin (fully tax equivalent basis), expressed as a percentage of average earning assets, increased 31 basis points to 3.65% for the six months ended June 30, 2023, from 3.34% for the same period of 2022.

Average interest earning assets were $2,347,965,000 for the six months ended June 30, 2023 compared to $2,311,916,000 for the six months ended June 30, 2022.

The $36,049,000 increase in average earning assets was attributed to the $207,303,000 or 19.71% increase in average loans, partially offset by the $171,254,000 decrease in average total securities and interest-earning deposits.

For the six months ended June 30, 2023, the effective yield on investment securities including Federal funds sold and interest-earning deposits in other banks increased 77 basis points.

The effective yield on loans increased 67 basis points.

Average interest bearing liabilities decreased 1.17% to $1,253,697,000 for the six months ended June 30, 2023, compared to $1,268,492,000 for the same period in 2022.

Interest and fee income from loans increased $9,115,000 or 36.40% for the six months ended June 30, 2023 compared to the same period in 2022.

Net interest income during the first six months of 2023 was impacted by an increase in average total loans of $207,303,000 or 19.71% to $1,259,075,000 compared to $1,051,772,000 for the same period in 2022.

The yield on average loans, excluding nonaccrual loans, was 5.47% for the six months ended June 30, 2023 compared to 4.80% for the same period in 2022.

Net interest income for the six months ending June 30, 2023 was benefited by approximately $42,000 in nonrecurring income from prepayment penalties, compared to $470,000 recorded in the same period in 2022.

The impact to interest income from the accretion of the loan marks on acquired loans was $139,000 and $342,000 for the six months ended June 30, 2023 and 2022, respectively.

The remaining balance of accretable loan marks on acquired loans as of June 30, 2023 was $1,133,000.

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 $2,368,000 in the first six months of 2023 to $15,971,000 compared to $13,603,000 for the same period in 2022.

The yield on average total investments (total securities and

interest-earning deposits) increased 77 basis points to 3.07% for the six months period ended June 30, 2023 compared to 2.30% for the same period in 2022.

Average total securities and interest-earning deposits for the first six months of 2023 decreased $171,254,000 or 13.59% to $1,088,890,000 compared to $1,260,144,000 for the same period in 2022.

Income from these investments represents 38.22% of net interest income for the first six months of 2023 compared to 36.36% for the same period in 2022.

Total interest income on a non-tax equivalent basis for the six months ended June 30, 2023 increased $11,483,000 or 29.71% to $50,130,000 compared to $38,647,000 for the six months ended June 30, 2022.

The yield on interest earning assets increased 92 basis points to 4.37% on a fully tax equivalent basis for the six months ended June 30, 2023 from 3.45% for the six months ended June 30, 2022.

The increase was the result of yield changes, increase in interest rates, and asset mix changes.

Average interest earning assets increased to $2,347,965,000 for the six months ended June 30, 2023 compared to $2,311,916,000 for the six months ended June 30, 2022.

Interest expense on deposits for the six months ended June 30, 2023 and 2022 was $5,876,000 and $483,000, respectively.

The average interest rate on interest bearing deposits increased to 1.02% for the six months ended June 30, 2023 compared to 0.08% for the same period ended June 30, 2022.

Average interest-bearing deposits decreased 4.35% or $52,648,000 to $1,156,782,000 for the six months ended June 30, 2023 compared to $1,209,430,000 for the same period ended June 30, 2022.

Average other borrowed funds were $96,915,000 with an effective rate of 5.09% for the six months ended June 30, 2023 compared to $59,062,000 with an effective rate of 2.56% for the six months ended June 30, 2022.

Total interest expense on other borrowed funds was $2,468,000 for the six months ended June 30, 2023 and $757,000 for the six months ended June 30, 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.

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.

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.

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.

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.

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.

The cost of interest-bearing liabilities increased 114 basis points to 1.34% for the six months ended June 30, 2023 compared to 0.20% for the same period in 2022.

The cost of total deposits increased to 0.55% compared to 0.05% for the six months ended June 30, 2023 and 2022, respectively.

Average non-interest bearing demand deposits increased 4.89% to $990,505,000 for the six months ended June 30, 2023 compared to $944,362,000 for the same period in 2022.

The ratio of average non-interest bearing demand deposits to average total deposits increased to 46.13% in the six months ended June 30, 2023 compared to 43.85% for the same period in 2022.

Net interest income before the provision for credit losses for the six months ended June 30, 2023 increased by $4,379,000 or 11.71% to $41,786,000 compared to $37,407,000 for the same period in 2022.

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.

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.

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.

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.

Provision for Credit Losses on Loans

1 unchanged sentence

For the Three Months

Ended March 31, For the Year Ended

December 31, For the Three Months

Ended March 31,

Ended June 30, For the Six Months

Ended June 30,

(Dollars in thousands) 2023 2022 2023 2022

1 unchanged sentence

Impact of ASU 2016-13 adoption — — 3,910 —

Provision (reversal of) for credit losses 518 1,000 —

Provision for credit losses 184 — 702 —

Losses charged to allowance (3) (16) (357) (117)

6 unchanged sentences

Management believes that the level of allowance for credit losses has been adjusted accordingly.

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.

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.

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.

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.

During the three and six month periods ended June 30, 2023, the Company recorded a $184,000 and $702,000 provision for credit losses on loans, respectively, compared to no provisi on durin g the three and six month periods ended June 30, 2022.

The Company had net recoveries totaling $22,000 and $9,000 for the three months ended June 30, 2023 and 2022, respectively, and net recoveries totaling $3,000 and $273,000 for the six months ended June 30, 2023 and 2022, respectively.

The Company has 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.

As of June 30, 2023, there were $25,435,000 in classified loans of which $1,339,000 related to commercial and industrial loans, $1,160,000 to agricultural production, $2,142,000 to owner occupied real estate, $16,603,000 to real estate construction and other land loans, $2,378,000 to non-owner occupied real estate, $1,766,000 to farmland, and $47,000 to consumer.

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.

1 unchanged sentence

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.

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.

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.

These decreases were offset by an increase of $458,000 in other income.

Non-interest income was $1,594,000 for the three months ended June 30, 2023 compared to $770,000 for the same period in 2022.

The $824,000 or 107.01% increase in non-interest income during the three months ended June 30, 2023 was primarily driven by a positive change of $930,000 in net realized loss on sales and calls of investment securities from $969,000 at June 30, 2022 to $39,000 at June 30, 2023 and an increase of $154,000 in other income.

These increases were partially offset by decreases in loan placement fees of $96,000 and a decrease in service charge income of $177,000.

Non-interest income was $3,169,000 for the six months ended June 30, 2023 compared to $2,604,000 for the same period in 2022.

The $565,000 or 21.70% increase in non-interest income during the six months ended June 30, 2023 was primarily driven by a positive change of $506,000 in net realized loss on sales and calls of investment securities from $763,000 at June 30, 2022 to $257,000 at June 30, 2023 and an increase of $611,000 in other income.

These increases were partially offset by decreases in loan placement fees of $271,000 and a decrease in service charge income of $328,000.

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 $7,136,000 in FHLB stock.

We received dividends totaling $109,000 in the three months ended March 31, 2023, compared to $85,000 for the same period in 2022.

We received dividends totaling $106,000 and $215,000 in the three and six months ended June 30, 2023, respectively, compared to $82,000 and $167,000 for the three and six months ended June 30, 2022, respectively.

The following table shows significant components of other non-interest income for the periods indicated:

For the Three Months

Ended June 30, For the Six Months

Ended June 30,

(Dollars in thousands) 2023 2022 $ Change % Change 2023 2022 $ Change % Change

Appreciation in cash surrender value of bank owned life insurance $ 254 $ 245 $ 9 3.7 % $ 503 $ 487 $ 16 3.3 %

Loan placement fees 172 268 (96) (35.8) % 296 567 (271) (47.8) %

Interchange fees 458 478 (20) (4.2) % 903 920 (17) (1.8) %

Federal Home Loan Bank dividends 106 82 24 29.3 % 215 167 48 28.7 %

Other 276 122 154 126.2 % 754 143 611 427.3 %

Total other non-interest income $ 1,266 $ 1,195 $ 71 5.9 % $ 2,671 $ 2,284 $ 387 16.9 %

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.

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.

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.

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.

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.

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.

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.

The Company operated 19 full-service offices at March 31, 2023 compared to 20 at March 31, 2022.

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.

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.

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.

Non-interest expenses increased $1,722,000 or 14.25% to $13,805,000 for the three months ended June 30, 2023, compared to $12,083,000 for the three months ended June 30, 2022.

The net increase for the three months ended June 30, 2023 was primarily the result of increases in salaries and employee benefits of $919,000, professional services of $419,000, regulatory assessments of $162,000, information technology of $107,000, and directors’ expenses of $103,000, partially offset by a decrease of the amortization of core deposit intangibles of $106,000 and occupancy and equipment expense of $80,000.

Non-interest expenses increased $3,482,000 or 14.80% to $27,010,000 for the six months ended June 30, 2023, compared to $23,528,000 for the six months ended June 30, 2022.

The net increase for the six month period was primarily the result of increases in salaries and employee benefits of $2,009,000, professional services of $397,000, directors’ expenses of $221,000, and information technology of $196,000, partially offset by a decrease of the amortization of core deposit intangible of $212,000.

Salaries and employee benefits increased $2,009,000 or 14.35% to $16,010,000 for the first six months of 2023 compared to $14,001,000 for the six months ended June 30, 2022.

The increase in salaries and benefits and director expenses was primarily due to credits in post-retirement costs recorded in the prior year, a result of changes in the discount rate compared to expense in the current period.

Additionally, increases in salaries and benefits were a reflection of salary adjustments due to market conditions.

Full time equivalent employees were 246 for the six months ended June 30, 2023, compared to 244 for the six months ended June 30, 2022.

The following table shows significant components of other non-interest expense for the periods indicated:

For the Three Months

Ended March 31,

(Dollars in thousands) Other Expense Other Expense $ Change % Change

Stationery/supplies $ 34 $ 34 $ — — %

Amortization of software 17 19 (2) (10.5) %

Postage 6 50 (44) (88.0) %

Risk management expense 20 30 (10) (33.3) %

Shareholder services 23 22 1 4.5 %

Armored courier fees 61 56 5 8.9 %

Telephone 119 71 48 67.6 %

Alarm 39 42 (3) (7.1) %

Donations 80 64 16 25.0 %

Education/training 46 64 (18) (28.1) %

General insurance 66 49 17 34.7 %

Travel and mileage expense 37 24 13 54.2 %

Ended June 30, For the Six Months

Ended June 30,

(Dollars in thousands) 2023 2022 $ Change % Change 2023 2022 $ Change % Change

Regulatory assessments $ 356 $ 194 $ 162 83.5 % $ 566 $ 416 $ 150 36.1 %

Data processing expense 618 548 70 12.8 % 1,269 1,089 180 16.5 %

ATM/Debit card expenses 193 217 (24) (11.1) % 377 412 (35) (8.5) %

Internet banking 47 48 (1) (2.1) % 82 69 13 18.8 %

Advertising 124 138 (14) (10.1) % 249 278 (29) (10.4) %

Professional Services 883 464 419 90.3 % 1,235 838 397 47.4 %

Information technology 935 828 107 12.9 % 1,782 1,586 196 12.4 %

Directors’ expenses 151 48 103 214.6 % 314 93 221 237.6 %

Loan related expenses 51 68 (17) (25.0) % 198 139 59 42.4 %

Personnel other 63 59 4 6.8 % 323 162 161 99.4 %

Amortization of core deposit intangibles 34 140 (106) (75.7) % 68 280 (212) (75.7) %

Other 1,110 930 180 19.4 % 2,016 1,659 357 21.5 %

1 unchanged sentence

Provision for Income Taxes

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.

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.

Our effective income tax rate was 24.65% and 24.94% and for the three and six month periods ended June 30, 2023, respectively, compared to 23.01% and 23.39% for the three and six month periods ended June 30, 2022, respectively.

The Company reported an income tax provision of $2,055,000 and $4,403,000 for the three and six month periods ended June 30, 2023, respectively, compared to $1,955,000 and $3,855,000 for the three and six month periods ended June 30, 2022, respectively.

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.

As of March 31, 2023 and December 31, 2022, there was no reserve for uncertain tax positions.

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.

As of June 30, 2023 and December 31, 2022, there was no reserve for uncertain tax positions.

FINANCIAL CONDITION

Summary of Changes in Consolidated Balance Sheets

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.

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%.

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.

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.

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.

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.

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.

Total assets were $2,489,807,000 as of June 30, 2023, compared to $2,422,519,000 at December 31, 2022, an increase of 2.78% or $67,288,000.

Total gross loans were $1,255,658,000 at June 30, 2023, compared to $1,256,304,000 at December 31, 2022, an decrease of $646,000 or 0.05%.

Total cash and cash equivalents increased 312.76% or $97,488,000 to $128,658,000 at June 30, 2023 compared to $31,170,000 at December 31, 2022.

The investment portfolio decreased 1.75% or $30,297,000 to $930,193,000 at June 30, 2023 compared to $960,490,000 at December 31, 2022.

Total deposits increased 4.79% or $100,645,000 to $2,200,294,000 at June 30, 2023, compared to $2,099,649,000 at December 31, 2022.

Shareholders’ equity increased $12,700,000 or 7.27% to $187,360,000 at June 30, 2023, compared to $174,660,000 at December 31, 2022.

The increase in shareholders’ equity was driven by the change in the unrealized losses on investment securities and the retention of e arnings, partially offset by dividends paid.

Accrued interest payable and other liabilities was $32,482,000 at June 30, 2023, compared to $32,611,000 at December 31, 2022, an decrease of $129,000.

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.

As of March 31, 2023, investment securities with a fair value of $247,692,000, or 26.48% of our investment

securities portfolio, were held as collateral for public funds, short and long-term borrowings, treasury, tax, and for other purposes.

Our investment policies are established by the Board of Directors and implemented by management.

Our policies are designed primarily to provide and maintain liquidity, to enable us to meet our pledging requirements for public money and borrowing arrangements, to generate a favorable return on investments without incurring undue interest rate and credit risk, and to complement our lending activities.

As of June 30, 2023, investment securities with a fair value of $340,310,000, or 36.84% of our investment securities portfolio, were held as collateral for public funds, short and long-term borrowings, treasury, tax, and for other purposes.

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.

Our loan-to-deposit ratio at March 31, 2023 was 59.09% compared to 59.83% at December 31, 2022.

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.

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.

Our loan-to-deposit ratio at June 30, 2023 was 57.07% compared to 59.83% at December 31, 2022 and 53.94% at June 30, 2022.

The total investment portfolio decreased 1.75% or $30,297,000 to $930,193,000 at June 30, 2023 compared to $960,490,000 at December 31, 2022.

The fair value of the available-for-sale investment portfolio reflected a net unrealized loss of $85,234,000 at June 30, 2023, compared to net unrealized losses of $91,643,000 at December 31, 2022 and $80,011,000 at June 30, 2022.

See Note 2 of the Notes to Consolidated Financial Statements (unaudited) included in this report for carrying values and estimated fair values of our investment securities portfolio.

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.

Total gross loans decreased $646,000 or 0.05% to $1,255,658,000 as of June 30, 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:

Loan Type (Dollars in thousands) March 31, 2023 % of Total

Loan Type (Dollars in thousands) June 30, 2023 % of Total

Loans December 31, 2022 % of Total

16 unchanged sentences

Total loans $ 1,240,195 $ 1,245,456

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.

As of June 30, 2023, in management’s judgment, a concentration of loans existed in commercial loans and loans collateralized by real estate, representing approximately 96.1% 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.

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 June 30, 2023, loans acquired in the Folsom Lake Bank (FLB), Sierra Vista Bank (SVB) and Visalia Community Bank (VCB) acquisitions had a balance of $67,523,000, of which $1,788,000 were commercial loans, $61,225,000 were real estate loans, and $4,510,000 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.

9 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.

At March 31, 2023 and December 31, 2022 there were no nonperforming assets.

At June 30, 2023 and December 31, 2022 there were no nonperforming assets.

Allowance for Credit Losses on Loans

2 unchanged sentences

The following table summarizes the allocation for the allowance for credit losses by loan type as of the dates indicated (in thousands):

Loan Type March 31, 2023 December 31, 2022

Loan Type June 30, 2023 December 31, 2022

Commercial and industrial $ 876 $ 1,583

12 unchanged sentences

Total allowance for credit losses $ 15,463 $ 10,848

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.

The increase is attributed to the impact of the adoption of ASU 2016-13 and increases in the Company’s loan portfolio balances.

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.

At March 31, 2023 and December 31, 2022, the balance of the reserve for unfunded commitments was $928,000 and $110,000, respectively.

The reserve for unfunded commitments is calculated by

management using appropriate, systematic, and consistently applied processes.

As of June 30, 2023, the balance in the allowance for credit losses (ACL) on loans was $15,463,000, or 1.23% of total gross loans, compared to $10,848,000, or 0.86% of total gross loans, as of December 31, 2022.

The increase is attributed to the impact of the adoption of ASU 2016-13 and increases in the balance of the Company’s loan portfolio.

The balance of unfunded commitments to extend credit on construction and other loans and letters of credit was $266,410,000 as of June 30, 2023, compared to $288,141,000 as of December 31, 2022.

At June 30, 2023 and December 31, 2022, the balance of the reserve for unfunded commitments was $629,000 and $110,000, respectively.

The reserve for unfunded commitments is calculated by management using appropriate, systematic, and consistently applied processes.

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.

March 31, 2023 December 31, 2022 March 31, 2022

June 30, 2023 December 31, 2022 June 30, 2022

(Dollars in thousands) Balance % to Total Loans Balance % to Total Loans Balance % to Total Loans

3 unchanged sentences

All of a depositor’s accounts at an insured depository institution, including all non-interest bearing transactions accounts, are insured by the FDIC up to standard maximum deposit insurance amount of $250,000 for each deposit insurance ownership category.

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.

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.

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.

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.

The composition of the deposits and average interest rates paid at March 31, 2023 and December 31, 2022 is summarized in the table below.

(Dollars in thousands) March 31, 2023 % of

Total deposits increased $100,645,000 or 4.79% to $2,200,294,000 as of June 30, 2023, compared to $2,099,649,000 as of December 31, 2022.

Interest-bearing deposits increased $200,124,000 or 19.19% to $1,243,206,000 as of June 30, 2023, compared to $1,043,082,000 as of December 31, 2022.

Non-interest bearing deposits decreased $99,479,000 or 9.42% to $957,088,000 as of June 30, 2023, compared to $1,056,567,000 as of December 31, 2022.

Average non-interest bearing

deposits to average total deposits was 46.13% for the six months ended June 30, 2023 compared to 43.85% for the same period in 2022.

The composition of the deposits and year-to-date average effective rates at June 30, 2023 and December 31, 2022 is summarized in the table below.

(Dollars in thousands) June 30, 2023 % of

Deposits Average Effective

8 unchanged sentences

Total deposits $ 2,200,294 100.0 % $ 2,099,649 100.0 %

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.

As of June 30, 2023 there was $776,137,000 in uninsured deposits or 35.27% of total deposits, compared to $900,123,000 and 42.87% as of December 31, 2022.

Other Borrowings

As of March 31, 2023 the Company had no Federal Home Loan Bank (“FHLB”) of San Francisco advances.

As of June 30, 2023 the Company had no Federal Home Loan Bank (“FHLB”) of San Francisco advances.

At December 31, 2022 the Company had $46,000,000 in FHLB advances.

6 unchanged sentences

Maintenance of adequate capital levels is integral to providing stability to the Company.

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.

Our shareholders’ equity was $182,052,000 at March 31, 2023, compared to $174,660,000 at December 31, 2022.

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.

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.

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 .

The following table presents the Company’s regulatory capital r atios as of March 31, 2023 and December 31, 2022.

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.

Our shareholders’ equity was $187,360,000 at June 30, 2023, compared to $174,660,000 at December 31, 2022.

The increase from December 31, 2022 in shareholders’ equity is the result of a decrease in accumulated other comprehensive loss of $5,359,000, an increase in retained earnings from net income of $13,252,000, stock issued under the employee stock purchase plan of $123,000, the effect of share-based compensation expense of $298,000, and stock awarded to employees of $221,000, offset by common stock cash dividends of $2,821,000 and the adoption of ASU 2016-13 of $3,731,000.

During the first six months of 2023, the Company declared and paid $2,821,000 in cash dividends ($0.24 per common share) to holders of common stock.

The Company declared and paid $2,824,000 in cash dividends ($0.24 per common share) to holders of common stock during the six months ended June 30, 2022 .

The following table presents the Company’s regulatory capital r atios as of June 30, 2023 and December 31, 2022.

(Dollars in thousands)

March 31, 2023 Amount Ratio

June 30, 2023 Amount Ratio

Tier 1 Leverage Ratio $ 212,614 8.51 %

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Total Risk-Based Capital Ratio $ 250,556 14.92 %

The following table presents the Bank’s regulatory capital ratios as of March 31, 2023 and December 31, 2022.

The following table presents the Bank’s regulatory capital ratios as of June 30, 2023 and December 31, 2022.

(Dollars in thousands) Actual Ratio Minimum regulatory requirement (1) Minimum requirement for “ Well-Capitalized ”

March 31, 2023 Amount Ratio Amount Ratio Amount Ratio

June 30, 2023 Amount Ratio Amount Ratio Amount Ratio

Tier 1 Leverage Ratio $ 275,830 11.04 % $ 99,397 4.00 % $ 124,921 5.00 %

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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.

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.

Cash and cash equivalents at March 31, 2023 increased 106.17% compared to $31,170,000 at December 31, 2022.

As of June 30, 2023, the Company had unpledged securities totaling $589,883,000 available as a secondary source of liquidity and total cash and cash equivalents of $128,658,000.

Cash and cash equivalents at June 30, 2023 increased 312.76% 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.

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.

At June 30, 2023, our available borrowing capacity includes approximately $110,000,000 in unsecured credit lines with our correspondent

banks, $347,510,000 in unused FHLB secured advances, a $4,583,000 secured credit line at the Federal Reserve Bank, and $37,968,000 available under the Federal Reserve’s Bank Term Loan Funding Program.

We believe our liquidity sources to be stable and adequate.

At March 31, 2023, we were not aware of any information that was reasonably likely to have a material effect on our liquidity position.

The following table reflects the Company’s credit lines, balances outstanding, and pledged collateral at March 31, 2023 and December 31, 2022:

Credit Lines (In thousands) March 31, 2023 December 31, 2022

At June 30, 2023, we were not aware of any information that was reasonably likely to have a material effect on our liquidity position.

The following table reflects the Company’s credit lines, balances outstanding, and pledged collateral at June 30, 2023 and December 31, 2022:

Credit Lines (In thousands) June 30, 2023 December 31, 2022

Unsecured Credit Lines

(interest rate varies with market):

Credit limit $ 110,000 $ 110,000

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Federal Home Loan Bank

(interest rate at prevailing interest rate):

Credit limit $ 347,510 $ 319,309

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Federal Reserve Bank Term Loan Funding Program

(interest rate at prevailing interest rate):

Credit limit $ 37,968 $ —

3 unchanged sentences

Federal Reserve Bank

(interest rate at prevailing discount interest rate):

Credit limit $ 4,583 $ 4,702

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The liquidity of the parent company, Central Valley Community Bancorp, is primarily dependent on the payment of cash dividends by its subsidiary, Central Valley Community Bank, subject to limitations imposed by California statutes and the regulations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our results of operations are highly dependent upon our ability to manage interest rate risk.

We consider interest rate risk to be a significant market risk that could have a material effect on our financial condition and results of operations.

Interest rate risk is measured and assessed on a quarterly basis.

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.

What changed 10-Q

Item 2. Management’s Discussion and Analysis