What changed in this filing

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Item 1. Financial Statements

2023-11-02 compared with 2023-08-03 · 189 added, 166 removed, 782 unchanged (31% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts) June 30, 2023 December 31, 2022

(In thousands, except share amounts) September 30, 2023 December 31, 2022

Cash and due from banks $ 27,558 $ 25,485

1 unchanged sentence

Total cash and cash equivalents 74,575 31,170

Available-for-sale debt securities, at fair value 619,759 648,825

Held-to-maturity debt securities, at amortized cost less allowance for credit losses of $456 at June 30, 2023 and $- at December 31, 2022 303,876 305,107

Available-for-sale debt securities, at fair value, net of allowance for credit losses of $0 593,430 648,825

Held-to-maturity debt securities, at amortized cost less allowance for credit losses of $281 at September 30, 2023 and $0 at December 31, 2022 303,451 305,107

Equity securities, at fair value 6,354 6,558

Loans, less allowance for credit losses of $15,463 at June 30, 2023 and $10,848 at December 31, 2022 1,240,195 1,245,456

Loans, less allowance for credit losses of $15,534 at September 30, 2023 and $10,848 at December 31, 2022 1,259,877 1,245,456

Bank premises and equipment, net 9,703 7,987

9 unchanged sentences

Short-term borrowings — 46,000

Senior debt and subordinated debentures, less debt issuance costs of $484 at June 30, 2023 and $556 at December 31, 2022 69,671 69,599

Senior debt and subordinated debentures, less debt issuance costs of $447 at September 30, 2023 and $556 at December 31, 2022 69,708 69,599

Accrued interest payable and other liabilities 35,159 32,611

7 unchanged sentences

issued and outstanding:

11,812,425 at June 30, 2023 and 11,735,291 at December 31, 2022 62,128 61,487

11,814,883 at September 30, 2023 and 11,735,291 at December 31, 2022 62,338 61,487

Retained earnings 206,073 194,400

6 unchanged sentences

For the Three Months

Ended June 30, For the Six Months

Ended June 30,

Ended September 30, For the Nine Months

Ended September 30,

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

11 unchanged sentences

Total interest expense 5,939 828 14,283 2,068

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

(CREDIT) PROVISION FOR CREDIT LOSSES ( 343 ) — 290 —

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

Net interest income before provision for credit losses 20,527 20,164 62,313 57,571

PROVISION FOR CREDIT LOSSES 186 495 476 495

Net interest income after provision for credit losses 20,341 19,669 61,837 57,076

NON-INTEREST INCOME:

21 unchanged sentences

For the Three Months

Ended June 30, For the Six Months

Ended June 30,

Ended September 30, For the Nine Months

Ended September 30,

(In thousands) 2023 2022 2023 2022

Net income $ 6,390 $ 6,384 $ 19,642 19,012

Other comprehensive income (loss):

Unrealized gains (losses) on securities:

Unrealized holding (losses) gains arising during the period ( 282 ) ( 36,332 ) 6,152 ( 116,931 )

Other comprehensive loss:

Unrealized losses on securities:

Unrealized holding losses arising during the period ( 16,107 ) ( 24,378 ) ( 9,955 ) ( 141,308 )

Reclassification of net losses included in net income 39 14 296 777

Amortization of net unrealized losses transferred 602 651 1,802 1,045

Other comprehensive income (loss), before tax 330 ( 34,969 ) 7,609 ( 115,774 )

Other comprehensive loss, before tax ( 15,466 ) ( 23,713 ) ( 7,857 ) ( 139,486 )

Tax effect 4,573 7,010 2,323 41,232

Total other comprehensive income (loss) 233 ( 24,632 ) 5,359 ( 81,551 )

Comprehensive income (loss) $ 6,515 $ ( 18,090 ) $ 18,611 $ ( 68,923 )

Total other comprehensive loss ( 10,893 ) ( 16,703 ) ( 5,534 ) ( 98,254 )

Comprehensive (loss) income $ ( 4,503 ) $ ( 10,319 ) $ 14,108 $ ( 79,242 )

See notes to unaudited consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

THREE MONTHS ENDED JUNE 30, 2023 AND 2022

THREE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

Common Stock Retained Earnings Accumulated

Comprehensive Income (Loss)

Comprehensive Loss

(Net of Taxes) Total Shareholders’ Equity

(In thousands, except share amounts) Shares Amount

Balance, March 31, 2022 11,752,623 $ 62,893 $ 178,054 $ ( 49,287 ) 191,660

Balance, June 30, 2022 11,717,146 $ 60,975 $ 183,197 $ ( 73,919 ) 170,253

Net income — — 6,384 — 6,384

2 unchanged sentences

3,515 53 — — 53

Stock awarded to employees 300 — — — —

Restricted stock granted net of forfeitures

37,781 — — — —

Stock-based compensation expense

Cash dividend

— 143 — — 143

Repurchase and retirement of common stock

Cash dividend

— — ( 1,407 ) — ( 1,407 )

1 unchanged sentence

11,350 91 — 91

Balance, September 30, 2022 11,732,011 $ 61,262 $ 188,174 $ ( 90,622 ) $ 158,814

Balance, June 30, 2023 11,812,425 $ 62,128 $ 201,100 $ ( 75,868 ) $ 187,360

Balance, March 31, 2023 11,754,938 $ 61,924 $ 196,229 $ ( 76,101 ) $ 182,052

— — 6,390 — 6,390

Other comprehensive income — — — 233 233

Other comprehensive loss — — — ( 10,893 ) ( 10,893 )

Stock issued under employee stock purchase plan

3,025 40 — — 40

Restricted stock granted net of forfeitures

53,877 — — — —

Restricted stock forfeitures ( 567 ) — — — —

Stock-based compensation expense

2 unchanged sentences

— — ( 1,417 ) — ( 1,417 )

Repurchase and retirement of common stock

( 39 ) ( 1 ) — — ( 1 )

Balance, June 30, 2023 11,812,425 $ 62,128 $ 201,100 $ ( 75,868 ) $ 187,360

Balance, September 30, 2023 11,814,883 $ 62,338 $ 206,073 $ ( 86,761 ) $ 181,650

See notes to unaudited consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

SIX MONTHS ENDED JUNE 30, 2023 AND 2022

NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

Common Stock Retained Earnings Accumulated

18 unchanged sentences

50,205 489 — — 489

Balance, June 30, 2022 11,717,146 $ 60,975 $ 183,197 $ ( 73,919 ) $ 170,253

Balance, September 30, 2022 11,732,011 $ 61,262 $ 188,174 $ ( 90,622 ) $ 158,814

Balance, December 31, 2022

3 unchanged sentences

— — 19,642 — 19,642

Other comprehensive income — — — 5,359 5,359

Other comprehensive loss — — — ( 5,534 ) ( 5,534 )

Stock issued under employee stock purchase plan

9 unchanged sentences

( 39 ) ( 1 ) — — ( 1 )

Balance, June 30, 2023 11,812,425 $ 62,128 $ 201,100 $ ( 75,868 ) $ 187,360

Balance, September 30, 2023 11,814,883 $ 62,338 $ 206,073 $ ( 86,761 ) $ 181,650

See notes to unaudited consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months

Ended June 30,

For the Nine Months

Ended September 30,

(In thousands) 2023 2022

2 unchanged sentences

Adjustments to reconcile net income to net cash provided by operating activities:

Net decrease in deferred loan fees 94 405

Net decrease (increase) in deferred loan fees 158 ( 419 )

Depreciation 454 586

4 unchanged sentences

Net realized losses on sales and calls of available-for-sale investment securities 296 777

Net gain on disposal of premises and equipment ( 30 ) —

Net change in equity securities 204 872

1 unchanged sentence

Net increase in accrued interest receivable and other assets ( 4,760 ) ( 6,033 )

Net decrease in accrued interest payable and other liabilities ( 649 ) ( 11,550 )

Benefit (provision) for deferred income taxes 381 ( 564 )

Net increase (decrease) in accrued interest payable and other liabilities 1,934 ( 6,860 )

Provision for deferred income taxes ( 244 ) ( 662 )

Net cash provided by operating activities 23,437 13,944

5 unchanged sentences

Proceeds from maturity and principal repayments of held-to-maturity investment securities 1,964 738

Net decrease (increase) in loans 556 ( 96,985 )

Net increase in loans ( 19,455 ) ( 185,474 )

Purchases of premises and equipment ( 4,609 ) ( 115 )

FHLB stock purchased ( 967 ) ( 574 )

Proceeds from sale of premises and equipment 2,469 —

Net cash provided by (used in) investing activities 20,851 ( 196,788 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Net decrease in demand, interest bearing and savings deposits ( 40,296 ) ( 14,300 )

Net (decrease) increase in demand, interest bearing and savings deposits ( 46,131 ) 30,257

Net increase (decrease) in time deposits 95,324 ( 13,910 )

2 unchanged sentences

Repayments of short-term borrowings to Federal Home Loan Bank ( 3,392,500 ) ( 2,065,326 )

Proceeds of issuance of senior debt — 30,000

Repurchase and retirement of common stock ( 1 ) ( 6,814 )

2 unchanged sentences

Cash dividend payments on common stock ( 4,238 ) ( 4,231 )

Net cash provided by (used in) financing activities 51,946 ( 16,605 )

Net cash (used in) provided by financing activities ( 883 ) 60,955

Increase (decrease) in cash and cash equivalents 43,405 ( 121,889 )

2 unchanged sentences

See notes to unaudited consolidated financial statements.

For the Six Months

Ended June 30,

For the Nine Months

Ended September 30,

(In thousands) 2023 2022

15 unchanged sentences

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 June 30, 2023, and the results of its operations and its cash flows for the three and six month interim periods ended June 30, 2023 and 2022 have been included.

In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company’s financial position at September 30, 2023, and the results of its operations and its cash flows for the three and nine month interim periods ended September 30, 2023 and 2022 have been included.

The results of operations for interim periods are not necessarily indicative of results for the full year.

103 unchanged sentences

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.

The following table summarizes the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at June 30, 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):

June 30, 2023

The following table summarizes the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at September 30, 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):

September 30, 2023

Available-for-Sale Securities Amortized Cost Gross

9 unchanged sentences

Total available-for-sale $ 694,732 $ 8 $ ( 101,310 ) $ — $ 593,430

June 30, 2023

September 30, 2023

Held-to-Maturity Securities Amortized Cost Gross

32 unchanged sentences

Total held-to-maturity $ 305,107 $ 67 $ ( 33,925 ) $ 271,249

Proceeds and gross realized gains (losses) from the sales or calls of available-for-sale investment securities for the periods ended June 30, 2023 and 2022 are shown below (in thousands):

Proceeds and gross realized gains (losses) from the sales or calls of available-for-sale investment securities for the periods ended September 30, 2023 and 2022 are shown below (in thousands):

For the Three Months

Ended June 30, For the Six Months

Ended June 30,

Ended September 30, For the Nine Months

Ended September 30,

Available-for-Sale Securities 2023 2022 2023 2022

2 unchanged sentences

Gross realized losses from sales or calls ( 39 ) ( 14 ) ( 296 ) ( 5,900 )

The provision for income taxes includes a $ 76,000 and $ 226,000 income tax benefit from security sales for the six months ended June 30, 2023 and 2022.

The amortized cost and estimated fair value of available-for-sale and held-to maturity investment securities at June 30, 2023 by contractual maturity is shown below (in thousands).

The provision for income taxes includes a $ 87,000 and $ 230,000 income tax benefit from security sales for the nine months ended September 30, 2023 and 2022.

The amortized cost and estimated fair value of available-for-sale and held-to maturity investment securities at September 30, 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.

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Available-for-Sale Securities Amortized Cost Estimated Fair

11 unchanged sentences

Total available-for-sale $ 694,732 $ 593,430 $ 740,468 $ 648,825

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Held-to-Maturity Securities Amortized Cost Estimated Fair

10 unchanged sentences

Total held-to-maturity $ 303,732 $ 260,023 $ 305,107 $ 271,249

At June 30, 2023 there were nine issuers of private label mortgage securities in which the Company had holdings of securities in amounts greater than 10% of shareholders’ equity.

At September 30, 2023 there were nine 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):

June 30, 2023

September 30, 2023

Less than 12 Months 12 Months or More Total

28 unchanged sentences

Total available-for-sale $ 237,917 $ ( 27,795 ) $ 410,654 $ ( 63,866 ) $ 648,571 $ ( 91,661 )

As of June 30, 2023, the Company had a total of 189 AFS debt securities in a gross unrealized loss position with no credit impairment, consisting of 6 U.S.

As of September 30, 2023, the Company had a total of 193 AFS debt securities in a gross unrealized loss position with no credit impairment, consisting of 6 U.S.

Treasury securities and U.S.

3 unchanged sentences

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 June 30, 2023 or upon adoption of ASU 2016-13 on January 1, 2023.

The Company did not record an ACL on any available for sale securities at September 30, 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.

As of September 30, 2023, the Company determined that it is not more likely than not that there is an intention to sell securities or that the Company would be required to sell securities.

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:

2 unchanged sentences

It is expected that the securities would not be settled at a price less than the amortized cost of the investment.

Government Sponsored Entities and Agencies Collateralized by Residential Mortgage Obligations:

Treasury and 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.

treasuries and 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.

5 unchanged sentences

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 June 30, 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 June 30, 2023 and December 31, 2022 provided against these securities.

No allowance for credit losses have been recognized on AFS debt securities in an unrealized loss position, as management does not believe that any of the securities are impaired due to credit risk factors as of September 30, 2023 and December 31, 2022.

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

compared against amortized cost.

The probability of default and loss given default are incorporated into the present value of expected cash flows and 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 $ 456,000 at June 30, 2023.

The allowance for credit losses on HTM securities was $ 281,000 at September 30, 2023.

The Company monitors credit quality of debt securities held-to-maturity through the use of credit ratings.

4 unchanged sentences

Government sponsored agencies are not included in the below tables as credit ratings are not applicable.

June 30, 2023

Debt Securities Held-to-Maturity AAA/AA/A BBB/BB/B Unrated

September 30, 2023

Debt Securities Held-to-Maturity AAA/AA/A BBB Unrated

Obligations of states and political subdivisions $ 192,056 $ — $ —

6 unchanged sentences

The roll forward of the allowance for credit losses is presented at the portfolio segment level.

Accrued interest receivable on loans of $ 3,972,000 and $ 4,512,000 at June 30, 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.

Accrued interest receivable on loans of $ 4,225,000 and $ 4,512,000 at September 30, 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) June 30, 2023 December 31, 2022

Loan Type (Dollars in thousands) September 30, 2023 December 31, 2022

Commercial and industrial $ 106,061 $ 141,197

9 unchanged sentences

Total real estate 1,096,412 1,036,462

47,597 40,252

Consumer 46,204 40,252

Total gross loans 1,273,867 1,254,918

3 unchanged sentences

Total loans, net $ 1,259,877 $ 1,245,456

At June 30, 2023 and December 31, 2022, loans originated under Small Business Administration (SBA) programs totaling $ 18,256,000 and $ 19,947,000 , respectively, were included in the real estate and commercial categories, of which, $ 13,955,000 or 76 % and $ 15,333,000 or 77 %, respectively, are secured by government guarantees.

At September 30, 2023 and December 31, 2022, loans originated under Small Business Administration (SBA) programs totaling $ 18,246,000 and $ 19,947,000 , respectively, were included in the real estate and commercial categories, of which, $ 13,955,000 or 76 % and $ 15,333,000 or 77 %, respectively, are secured by government guarantees.

Allowance for Credit Losses on Loans

1 unchanged sentence

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.

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 June 30, 2023 or December 31, 2022.

The following table shows the summary of activities for the allowance for credit losses for the three months ended June 30, 2023 and 2022 by portfolio segment (in thousands):

There were no loans on nonaccrual or individually evaluated as of September 30, 2023 or December 31, 2022.

The following table shows the summary of activities for the allowance for credit losses for the three months ended September 30, 2023 and 2022 by portfolio segment (in thousands):

Commercial Commercial Real Estate 1-4 Family Real Estate Consumer Total

Allowance for credit losses:

Beginning balance, April 1, 2023 $ 2,028 $ 10,065 $ 2,285 $ 879 $ 15,257

(Credit) provision for credit losses (1)

Beginning balance, July 1, 2023 $ 1,477 $ 10,684 $ 2,489 $ 813 $ 15,463

Provision (credit) for credit losses (1)

161 195 ( 71 ) ( 20 ) 265

1 unchanged sentence

Recoveries 38 — 2 20 60

Ending balance, June 30, 2023 $ 1,477 $ 10,684 $ 2,489 $ 813 $ 15,463

Ending balance, September 30, 2023 $ 1,440 $ 10,879 $ 2,420 $ 795 $ 15,534

(1) Represents credit losses for loans only.

The (credit) provision for credit losses on the Consolidated Statements of Income of $( 343 ) includes a $(228) credit for held-to-maturity securities and a $(299) credit for unfunded loan commitments.

The provision for credit losses on the Consolidated Statements of Income of $ 186 includes a $(175) credit for held-to-maturity securities and a $96 provision for unfunded loan commitments.

Commercial Real Estate Consumer Unallocated Total

Allowance for credit losses:

Beginning balance, April 1, 2022 $ 1,993 $ 7,048 $ 525 $ 298 $ 9,864

(Credit) provision for credit losses ( 30 ) ( 54 ) 245 ( 161 ) —

Beginning balance, July 1, 2022 $ 1,973 $ 6,994 $ 769 $ 137 $ 9,873

Provision (credit) for credit losses (1)

118 418 ( 29 ) ( 7 ) 500

Charge-offs — — — ( 20 ) — ( 20 )

Recoveries — — 13 — 13

Ending balance, June 30, 2022 $ 1,973 $ 6,994 $ 769 $ 137 $ 9,873

The following table shows the summary of activities for the allowance for credit losses as of and for the six months ended June 30, 2023 and 2022 by portfolio segment (in thousands):

Ending balance, September 30, 2022 $ 2,091 $ 7,412 $ 733 $ 130 $ 10,366

(1) Represents credit losses for loans only.

The provision for credit losses on the Consolidated Statements of Income of $ 495 includes a $5 provision for unfunded loan commitments.

The following table shows the summary of activities for the allowance for credit losses as of and for the nine months ended September 30, 2023 and 2022 by portfolio segment (in thousands):

Commercial Commercial Real Estate 1-4 Family Real Estate Consumer Unallocated Total

6 unchanged sentences

Recoveries 360 — 15 45 — 420

Ending balance, June 30, 2023 $ 1,477 $ 10,684 $ 2,489 $ 813 $ — $ 15,463

Ending balance, September 30, 2023 $ 1,440 $ 10,879 $ 2,420 $ 795 $ — $ 15,534

(1) Represents credit losses for loans only.

The provision for credit losses on the Consolidated Statements of Income of $ 290 includes a $(320) credit for held-to-maturity securities and a $(92) credit for unfunded loan commitments.

The provision for credit losses on the Consolidated Statements of Income of $ 476 includes a $(495) credit for held-to-maturity securities and a $4 provision for unfunded loan commitments.

Commercial Real Estate Consumer Unallocated Total

2 unchanged sentences

(Credit) provision for credit losses (1)

( 269 ) 671 248 ( 150 ) 500

Charge-offs ( 18 ) — ( 120 ) — ( 138 )

Recoveries 367 — 37 — 404

Ending balance, June 30, 2022 $ 1,973 $ 6,994 $ 769 $ 137 $ 9,873

During the three and six month periods ended June 30, 2023, the provision for credit losses was primarily driven by weakening economic scenario forecasts in commercial real estate and increases in commercial real estate loan balances, partially offset by lower loan balances in the commercial loan segment.

Management believes that the allowance for credit losses at June 30, 2023 appropriately reflected expected credit losses in the loan portfolio at that date.

Ending balance, September 30, 2022 $ 2,091 $ 7,412 $ 733 $ 130 $ 10,366

(1) Represents credit losses for loans only.

The provision for credit losses on the Consolidated Statements of Income of $ 495 includes a $5 provision for unfunded loan commitments.

During the three and nine month periods ended September 30, 2023, the provision for credit losses was primarily driven by weakening economic scenario forecasts in commercial real estate and multi-family and increases in commercial real estate and multi-family loan balances, partially offset by lower loan balances in the commercial loan segment.

Management believes that the allowance for credit losses at September 30, 2023 appropriately reflected expected credit losses in the loan portfolio at that date.

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 June 30, 2023

Term Loans Amortized Cost Basis by Origination Year As of September 30, 2023

2023 2022 2021 2020 2019 Prior Revolving Loans Revolving Converted to Term Total

76 unchanged sentences

Total $ 1,197,497 $ 31,024 $ 27,783 $ — $ 1,256,304

The following table shows an aging analysis of the loan portfolio by class at June 30, 2023 (in thousands):

The following table shows an aging analysis of the loan portfolio by class at September 30, 2023 (in thousands):

Past Due 60-89

10 unchanged sentences

1-4 family - revolving — — — — 28,251 28,251 — —

17 — — 17 47,580 47,597 — —

Consumer 199 — — 199 46,005 46,204 — —

Deferred fees — — — — $ 1,544 1,544 — —

17 unchanged sentences

Total $ 5,895 $ — $ — $ 5,895 $ 1,250,409 $ 1,256,304 $ — $ —

As of June 30, 2023 and December 31, 2022 there were no collateral dependent loans.

Foregone interest on nonaccrual loans totaled $ 53,000 and $ 57,000 for the three and six month periods ended June 30, 2022, respectively.

There was no foregone interest on nonaccrual loans for the three and six month periods ended June 30, 2023.

As of September 30, 2023 and December 31, 2022 there were no collateral dependent loans.

There was no foregone interest on nonaccrual loans for the three and nine month periods ended September 30, 2023.

Foregone interest on nonaccrual loans totaled $ 75,000 and $ 132,000 for the three and nine month periods ended September 30, 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 June 30, 2023 or during 2022.

There were no loan modifications granted to borrowers experiencing financial difficulty during the nine month period ended September 30, 2023 or during 2022.

As of December 31, 2022, the Company had a recorded investment in troubled debt restructurings (“TDR”) of $ 2,372,000 .

2 unchanged sentences

Borrowing Arrangements

As of June 30, 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 $ 607,860,000 in loans and $ 21,626,000 in securities were pledged under a blanket lien as collateral to the FHLB resulting in borrowing capacity of $ 347,510,000 as of June 30, 2023.

As of September 30, 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 $ 575,783,000 in loans and $ 20,739,000 in securities were pledged under a blanket lien as collateral to the FHLB resulting in borrowing capacity of $ 340,197,000 as of September 30, 2023.

The Bank’s credit limit varies according to the amount and composition of the investment and loan portfolios pledged as collateral.

As of June 30, 2023, and December 31, 2022 the Company had no Federal funds purchased.

As of September 30, 2023, and December 31, 2022 the Company had no Federal funds purchased.

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

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

Unsecured Credit Lines

Credit limit $ 110,000 $ 110,000

Balance outstanding $ — $ —

Federal Home Loan Bank

Credit limit $ 340,197 $ 319,309

Balance outstanding $ — $ 46,000

Collateral pledged $ 596,523 $ 687,357

Fair value of collateral $ 497,968 $ 565,869

Federal Reserve Bank Term Loan Funding Program

Credit limit $ 37,245 $ —

Balance outstanding $ — $ —

Collateral pledged $ 54,380 $ —

Fair value of collateral $ 46,281 $ —

Federal Reserve Bank

Credit limit $ 4,242 $ 4,702

Balance outstanding $ — $ —

Collateral pledged $ 5,073 $ 5,508

Fair value of collateral $ 4,306 $ 4,893

Senior Debt and Subordinated Debentures

The following table summarizes the Company’s long-term debt:

(Dollars in thousands) June 30, 2023 December 31, 2022

(Dollars in thousands) September 30, 2023 December 31, 2022

Fixed - floating rate subordinated debentures, due 2031 $ 35,000 $ 35,000

8 unchanged sentences

Under applicable regulatory guidance, the amount of trust preferred securities that is eligible as Tier 1 capital is limited to 25 % of the Company’s Tier 1 capital on a pro forma basis.

At June 30, 2023, all of the trust preferred securities that have been issued qualify as Tier 1 capital.

At September 30, 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 %.

7 unchanged sentences

For each January 7, April 7, July 7 or October 7 of each year, the rate will be adjusted to equal the three month SOFR plus 1.60 %.

As of June 30, 2023, the rate was 6.86 %.

Interest expense recognized by the Company for the three months ended June 30, 2023 and 2022 was $ 89,000 and $ 24,000 , respectively.

Interest expense recognized by the Company for the six months ended June 30, 2023 and 2022 was $ 170,000 and $ 47,000 , respectively.

As of September 30, 2023, the rate was 7.12 %.

Interest expense recognized by the Company for the three months ended September 30, 2023 and 2022 was $ 97,000 and $ 65,000 , respectively.

Interest expense recognized by the Company for the nine months ended September 30, 2023 and 2022 was $ 267,000 and $ 112,000 , respectively.

Subordinated Debentures

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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.

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 2.10 %.

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.

Interest expense recognized by the Company for the Subordinated and Senior Debt for the three months ended June 30, 2023 and 2022 was $ 310,000 .

Interest expense recognized by the Company for the Subordinated and Senior Debt for the six months ended June 30, 2023 and 2022 was $ 619,000 .

Interest expense recognized by the Company for the Subordinated Debentures for the three months ended September 30, 2023 and 2022 was $ 310,000 .

Interest expense recognized by the Company for the Subordinated Debentures for the nine months ended September 30, 2023 and 2022 was $ 929,000 .

On September 15, 2022, the Company entered into a $ 30,000,000 loan agreement with Bell Bank.

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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 and six months ended June 30, 2023 was $ 512,000 and $ 1,018,000 , respectively.

Interest expense recognized by the Company for the Senior Debt for the three and nine months ended September 30, 2023 was $ 517,000 and $ 1,536,000 , respectively.

Commitments and Contingencies

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The Company uses the same credit policies in making commitments and conditional obligations as it does for loans.

Commitments to extend credit amounting to $ 266,410,000 and $ 288,141,000 were outstanding at June 30, 2023 and December 31, 2022, respectively.

Commitments to extend credit amounting to $ 271,215,000 and $ 288,141,000 were outstanding at September 30, 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 $ 264,427,000 and $ 286,925,000 at June 30, 2023 and December 31, 2022, respectively.

Included in commitments to extend credit are undisbursed lines of credit totaling $ 269,267,000 and $ 286,925,000 at September 30, 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 $ 38,183,000 and $ 45,604,000 as of June 30, 2023 and December 31, 2022, respectively.

Included in undisbursed lines of credit are commitments for the undisbursed portions of construction loans totaling $ 45,760,000 and $ 45,604,000 as of September 30, 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 June 30, 2023 and December 31, 2022, respectively.

Standby letters of credit and financial guarantees amounting to $ 1,948,000 and $ 1,216,000 were outstanding at September 30, 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.

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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 June 30, 2023 or December 31, 2022.

The fair value of the liability related to these standby letters of credit, which represents the fees received for their issuance, was not significant at September 30, 2023 or December 31, 2022.

The Company recognizes these fees as revenue over the term of the commitment or when the commitment is used.

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Management does not anticipate any material loss will result from the outstanding commitments to extend credit, standby letters of credit and financial guarantees.

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

At September 30, 2023 and December 31, 2022, the allowance for credit losses of unfunded commitments was $ 725,000 and $ 110,000 , respectively.

The allowance for credit losses of unfunded commitments is calculated by management using an appropriate, systematic, and consistently applied process.

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For the Three Months

Ended June 30, For the Six Months

Ended June 30,

Ended September 30, For the Nine Months

Ended September 30,

(Dollars in thousands) 2023 2022 2023 2022

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For the Three Months

Ended June 30, For the Six Months

Ended June 30,

Ended September 30, For the Nine Months

Ended September 30,

(Dollars in thousands) 2023 2022 2023 2022

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Basic Earnings Per Share For the Three Months

Ended June 30, For the Six Months

Ended June 30,

Ended September 30, For the Nine Months

Ended September 30,

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

3 unchanged sentences

Diluted Earnings Per Share For the Three Months

Ended June 30, For the Six Months

Ended June 30,

Ended September 30, For the Nine Months

Ended September 30,

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

5 unchanged sentences

Diluted earnings per share $ 0.54 $ 0.55 $ 1.67 $ 1.62

No options awards were anti-dilutive for the six months ended June 30, 2022.

There were no outstanding options at June 30, 2023.

No options awards were anti-dilutive for the nine months ended September 30, 2022.

There were no outstanding options at September 30, 2023.

The two-class method for the calculation of earnings per share was applicable for the periods presented, but not materially significant.

Share-Based Compensation

The Company has two share-based compensation plans as described below.

Share-based compensation cost recognized for those plans was $ 158,000 and $ 298,000 for the three and six months ended June 30, 2023, respectively, and $ 84,000 and $ 181,000 for the three and six months ended June 30, 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 for the three and six months ended June 30, 2023, and $ 48,000 and $ 69,000 for the three and six months ended June 30, 2022, respectively.

The Central Valley Community Bancorp 2015 Omnibus Incentive Plan (2015 Plan) was adopted in May 2015.

The plan provides for awards in the form of incentive stock options, non-statutory stock options, stock appreciation rights, and restricted stock.

The plan also allows for performance awards that may be in the form of cash or shares of the Company, including restricted stock.

Outstanding arrangements to issue shares under this plan including options, will continue in force until expiration according to their respective terms.

Effective June 2, 2017, the Company adopted an Employee Stock Purchase Plan (ESPP) whereby our employees may purchase Company common stock through payroll deductions of between one percent and 15 percent of pay in each pay period.

Shares are purchased at the end of each of the three-month offering periods at a 10 percent discount from the lower of the closing market price on the Offering Date (first trading day of each offering period) or the Investment Date (last trading day of each offering period).

The Company reserved 500,000 common shares to be set aside for the ESPP, and there were 424,264 shares available for future purchase under the plan as of June 30, 2023.

Restricted and Common Stock Awards

The 2015 Plan provides for the issuance of restricted common stock to directors and officers and performance-based common stock awards.

In May 2015, the Company adopted the Central Valley Community Bancorp 2015 Omnibus Incentive Plan (2015 Plan).

The plan provides for awards in the form of 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’s common stock.

With respect to stock options and restricted stock the exercise price in the case of stock options and the grant value in the case of restricted stock may not be less than the fair market value at the date of the award.

The options and awards under the plan expire on dates determined by the Board of Directors, but not later than ten years from the date of grant.

The vesting period for stock options and restricted stock rights is determined by the Board of Directors and ranges one to five five years.

The maximum number of shares that can be issued with respect to all awards under the plan is 875,000.

Currently under the 2015 Plan, 612,652 shares remain reserved for future grants as of September 30, 2023.

Share-based compensation cost recognized for the 2015 Plan plans was $ 170,000 and $689,000 for the three and nine months ended September 30, 2023, respectively, and $ 143,000 and $603,000 for the three and nine months ended September 30, 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 for the three and nine months ended September 30, 2023, and $ 18,000 and $ 87,000 for the three and nine months ended September 30, 2022, respectively.

Restricted Stock and Common Stock Awards

The 2015 Plan provides for the issuance of restricted common stock to directors and officers and common stock awards based on the achievement of performance goals as determined by the Board of Directors or in accordance with executive employment agreements.

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.

Restricted 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 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.

Common stock awards vest immediately.

The Company has two forms of outstanding common stock:

fully vested common stock and unvested restricted stock awards.

Common stock awards for performance vest immediately.

Holders of restricted stock awards receive non-forfeitable dividends at the same rate as common stockholders and they both share equally in undistributed earnings.

Therefore, under the two-class method the difference in EPS is not significant for these participating securities.

The following table summarizes restricted stock and performance award activity for the six months ended June 30, 2023 as follows:

The following table summarizes restricted stock activity for the nine months ended September 30, 2023 as follows:

Shares Weighted Average

4 unchanged sentences

Forfeited ( 878 ) $ 15.19

Nonvested outstanding shares at June 30, 2023 75,953 $ 15.64

As of June 30, 2023, there were 75,953 shares of restricted stock that are nonvested and expected to vest.

As of June 30, 2023, there was $ 1,097,779 of total unrecognized compensation cost related to nonvested restricted common stock awards.

Nonvested outstanding shares at September 30, 2023 75,133 $ 15.83

As of September 30, 2023, there were 75,133 shares of restricted stock that are nonvested and expected to vest.

As of September 30, 2023, there was $ 926,085 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 2.24 years and will be adjusted for subsequent changes in estimated forfeitures.

Restricted common stock awards had an intrinsic value of $ 4,333,000 at June 30, 2023.

Restricted common stock awards had an intrinsic value of $ 649,000 at September 30, 2023.

Fair Value Measurements

8 unchanged sentences

The estimated carrying and fair values of the Company’s financial instruments not carried at fair value are as follows (in thousands):

June 30, 2023

September 30, 2023

Amount Fair Value

21 unchanged sentences

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).

(a) Cash and Cash Equivalents — The carrying amounts of cash and due from banks, interest-earning deposits in other banks, and Federal funds sold approximate fair values and are classified as Level 1.

(b) Investment securities — 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.

1 unchanged sentence

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.

fixed and variable loans are estimated using discounted cash flow analyses, taking into consideration various factors including loan type, credit loss and prepayment expectations.

The loan cash flows are discounted to present value using a combination of existing market rates and liquidity spreads as well as underlying index rates and margins on variable rate loans resulting in a Level 3 classification.

(d) Time Deposits — Fair value for fixed and variable rate certificates of deposit are estimated using discounted cash flow analyses using interest rates offered at each reporting date by the Company for certificates with similar remaining maturities resulting in a Level 2 classification.

(e) Short-Term Borrowings — The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings, generally maturing within ninety days, approximate their fair values resulting in a Level 2 classification.

(f) Subordinated Debentures and Senior Debt — The fair values of the Company’s Subordinated Debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.

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 June 30, 2023 and December 31, 2022:

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022:

Fair Value Measurements Using

June 30, 2023 Fair Value Level 1 Level 2 Level 3

September 30, 2023 Fair Value Level 1 Level 2 Level 3

Available-for-sale debt securities:

22 unchanged sentences

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 six months ended June 30, 2023 or the year ended December 31, 2022.

There were no assets measured on a non-recurring basis at June 30, 2023 and December 31, 2022.

There were no changes in valuation techniques used during the nine months ended September 30, 2023 or the year ended December 31, 2022.

There were no assets measured on a non-recurring basis at September 30, 2023 and December 31, 2022.

Subsequent Events

Dividend Declared

On October 18, 2023, the Board of Directors declared a $0.12 per share cash dividend payable on November 17, 2023 to shareholders of record as of November 3, 2023.

On October 3, 2023, the Company executed a sale of property in connection with a branch relocation.

The gain recognized on the sale was $371,000.

On October 26, 2023, the Company sold $10 million of available-for-sale securities for a net loss of $365,000.

On October 10, 2023, the Company, entered into an Agreement and Plan of Reorganization and Merger (the “Merger Agreement”) with Community West Bancshares, a California corporation (“Community West”), pursuant to which Community West will merge with and into the Company in an all stock merger (the “Merger”), with the Company as the surviving corporation.

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 1. Financial Statements