Securities registered pursuant to Section 12(b) of the Act:

Portions of the Registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the 20212024 Annual Meeting of Shareholders to be held on May 19, 202130, 2024 are incorporated by reference into Part III of this Report. The proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the Registrant’s fiscal year ended December 31, 2020.2023.

TABLE OF CONTENTS

 

General

Central Valley Community Bancorp is a bank holding company registered under the Bank Holding Company Act of 1956, as amended (the “Company”). The Company was incorporated on February 7, 2000 as a California corporation, for the purpose of becoming the holding company for Central Valley Community Bank (the “Bank”), formerly known as Clovis Community Bank, a California state chartered bank, through a corporate reorganization.  In the reorganization, the Bank became the wholly-owned subsidiary of the Company, and the shareholders of the Bank became the shareholders of the Company.  The Company made a decision in the first half of 2002 to change the name of its one subsidiary, Clovis Community Bank, to Central Valley Community Bank.

The Company is regulated by the Board of Governors of the Federal Reserve.Reserve (“Federal Reserve”). The Bank is regulated by the California Department of Financial Protection and Innovation (“DFPI”) and its primary Federal regulator is the Federal Deposit Insurance Corporation (“FDIC”).

As of March 1, 2021,2024, we had a total of 281259 employees and 267245 full time equivalent employees, including the employees of the Bank.

The Bank

The Bank was organized in 1979 and commenced business as a California state chartered bank in 1980.  The deposits of the Bank are insured by the FDIC up to applicable limits.  The Bank is not a member of the Federal Reserve System.

The Bank operates 2019 full-service banking offices in Cameron Park, Clovis, Exeter, Folsom, Fresno, Gold River, Kerman, Lodi, Madera, Merced, Modesto, Oakhurst, Prather, Roseville, Sacramento, Stockton, and Visalia. The Bank conducts a commercial banking business, which includes accepting demand, savings and time deposits and making commercial, real estate and consumer loans.  It also provides domestic and international wire transfer services and provides safe deposit boxes and other customary banking services.  The Bank also offers Internet bankingBanking that consists of inquiry, account status, bill paying, account transfers, and cash management.  The Bank does not offer trust services or international banking services and does not currently plan to do so in the near future.  The Bank has a Real Estate Division, an Agribusiness Center, and an SBA Lending Division.  The Real Estate Division processes or assists in processing the majority of the Bank’s real estate related transactions, including interim construction loans for single family residences and commercial buildings.  We offer permanent single family residential loans through our mortgage broker services.  Our total market share of deposits in Fresno, Madera, San Joaquin, and Tulare counties was 3.40%4.15% in 20202023 compared to 3.31%3.66% in 20192022 based on FDIC deposit market share information published as of June 30, 2020.2023. Our total market share in the other counties we operate in (El Dorado, Merced,(Merced, Placer, Sacramento, and Stanislaus), was less than 1.00% in 2020as of June 30, 2023 and 2019. 2022.

We have a diversified loan portfolio. At December 31, 2020,2023, we had total loans of $1,102,347,000.$1,290,797,000.  Total commercial and industrial loans outstanding were $273,994,000 which included $192,916,000 in PPP loans ,$105,466,000, total agricultural land and production loans outstanding were $21,971,000,$33,556,000, total real estate construction and other land loans outstanding were $55,419,000; total other real estate loans outstanding were $660,705,000, total equity loans and lines of credit were $55,634,000$1,094,327,000, and total consumer installment loans outstanding were $37,236,000.$55,606,000.  Our loans are collateralized by real estate, listed securities, savings and time deposits, automobiles, inventory, accounts receivable, machinery and equipment.

In addition to acquisitions, we have experienced organic growth by expanding our branch network. Opening new branches provides us with opportunities to expand our loan and deposit base; however, based on past experience, management expects these new offices may initially have a negative impact on earnings until the volume of business grows to cover fixed overhead expenses. Management of the Bank analyzes its branch network on an ongoing basis to determine whether to open new branches, or consolidate, or potential eliminate existing branches in the future. In 2019, we consolidated two banking offices into branches currently serving the same communities - one in Fair Oaks and one in Rancho Cordova. The Bank opened a full-service branch in Gold River, California in June 2019.

Competition

The banking business in California generally, and our primary service area specifically, is highly competitive with respect to both loans and deposits, and is dominated by a relatively small number of major banks with many offices operating over a wide geographic area.  Among the advantages such major banks have over us is their ability to finance wide-ranging advertising campaigns and to allocate their investment assets, including loans, to regions of higher yield and demand.  Major banks offer certain services such as international banking and trust services which we do not offer directly but which we usually can offer indirectly through correspondent institutions.  To compete effectively, we rely substantially on local promotional activity, personal contacts by our officers, directors and employees, referrals by our shareholders, personalized service and our reputation in the communities we serve.

Our total market share of deposits in Fresno, Madera, San Joaquin, and Tulare counties was 3.40%4.15% in 20202023 compared to 3.31%3.66% in 20192022 based on FDIC deposit market share information published each year as of June 2020.June. In Fresno and Madera Counties, in addition to our 10ten full-service branch locations serving the Bank’s primary service areas, as of June 30, 20202023 there were 129 130

operating banking and credit union offices in our primary service area, which consists of the cities of Clovis, Fresno, Kerman, Oakhurst, Madera, and Prather, California. Prather does not contain any banking offices other than our office.branch location. In San Joaquin County, in addition to our two full service branch locations, as of June 30, 20202023 there were 9990 operating banking and credit union offices. In Tulare County, in addition to our three branches there were 5248 operating banking and credit union offices in our primary service area. Our combined total market share in the other counties we operate in (El Dorado, Merced,(Merced, Placer, Sacramento, and Stanislaus), was less than 1.00% in 2020as of 2023 and 2019.2022.  In Merced County, in addition to our one branch, as of June 30, 20202023 there were 2825 operating banking and credit union offices in our primary service area. In Sacramento County, in addition to our two branches, as of June 30, 20202023 there were 202179 operating banking and credit union offices in our primary service area.  In Stanislaus County, in addition to our one branch, there were 8276 operating banking and credit union offices in our primary service area. In El Dorado County, in addition to our one branch, there were 38 operating banking and credit union offices in our primary service area. In Placer County, in addition to our one branch, there were 8671 operating banking and credit union offices in our primary service area. Business activity in our primary service area is oriented toward light industry, small business and agriculture.

By virtue of their greater total capitalization, larger banks have substantially higher lending limits than we do.  Legal lending limits to an individual customer are limited to a percentage of our total capital. As of December 31, 2020,2023, the Bank’s legal lending limits to individual customers were $28,528,000$43,560,000 for unsecured loans and $47,546,000$72,433,000 for unsecured and secured loans combined.

For borrowers desiring loans in excess of the Bank’s lending limits, the Bank seeks to make such loans on a participation basis with other financial institutions. Banks also compete with money market funds and other money market instruments, which are not subject to interest rate ceilings.  In recent years, increased competition has also developed from specialized finance and non-finance companies that offer wholesale finance, credit card, and other consumer finance services, including on-lineonline banking services and personal finance software.  Competition for deposit and loan products remains strong, from both banking and non-banking firms, and affects the rates of those products as well as the terms on which they are offered to customers.

Technological innovation continues to contribute to greater competition in domestic and international financial services markets.  Technological innovation has, for example, made it possible for non-depository institutions to offer customers automated transfer payment services that previously have been traditional banking products.  In addition, customers now expect a choice of several delivery systems and channels, including telephone, mail, home computer, ATMs, remote deposit, mobile banking applications, self-service branches, and in-store branches.

Mergers between financial institutions have placed additional pressure on banks to streamline their operations, reduce expenses, and increase revenues to remain competitive.  In addition, competition has intensified due to federal and state interstate banking laws, which permit banking organizations to expand geographically with fewer restrictions than in the past.  Such laws allow banks to merge with other banks across state lines, thereby enabling banks to establish or expand banking operations in our market.  The competitive environment also is significantly impacted by federal and state legislation, which may make it easier for non-bank financial institutions to compete with us.

Supervision and Regulation

Banking is a complex, highly regulated industry. Regulation and supervision by federal and state banking agencies are intended to maintain a safe and sound banking system, protect depositors and the FDIC’s insurance fund, and to facilitate the conduct of sound monetary policy. In furtherance of these goals, Congress and the states have created several largely autonomous regulatory agencies and enacted numerous laws that govern banks, bank holding companies and the financial services industry. Consequently, the growth and earnings performance of the Company can be affected not only by management decisions and general economic conditions, but also by the requirements of applicable state and federal statutes, regulations and the policies of various governmental regulatory authorities, including the Federal Reserve, the FDIC, the DFPI and the Consumer Financial Protection Bureau (“CFPB”). Furthermore, tax laws administered by the Internal Revenue Service and state taxing authorities, accounting rules developed by the FASB, securities laws administered by the SEC and state securities authorities, anti-money laundering laws enforced by the U.S. Department of the Treasury, or Treasury, and mortgage related rules, including with respect to loan securitization and servicing by the U.S. Department of Housing and Urban Development and agencies such as Fannie Mae and Freddie Mac, also impact our business. The effect of these statutes, regulations, regulatory policies and rules are significant tosignificantly impact our financial condition and results of operations. Further, the nature and extent of future legislative, regulatory or other changes affecting financial institutions are impossible to predict with any certainty.

Federal and state banking laws impose a comprehensive system of supervision, regulation and enforcement on the operations of banks, their holding companies and their affiliates. These laws are intended primarily for the protection of the FDIC’s Deposit Insurance Fund and bank customers rather than shareholders. Federal and state laws, and the related regulations of the bank regulatory agencies, affect, among other things, the scope of business, the kinds and amounts of investments banks may make, reserve requirements, capital levels relative to operations, the nature and amount of collateral for loans, the establishment of branches, the ability to merge, consolidate and acquire other financial institutions, dealings with insiders and affiliates, and the payment of dividends.

This supervisory and regulatory framework subjects banks and bank holding companies to regular examination by their respective regulatory agencies, which results in examination reports and ratings that, while not publicly available, can affect the conduct and growth of their businesses. These examinations consider not only compliance with applicable laws and regulations, but also capital levels, asset quality and risk, management ability and performance, earnings, liquidity, and various other factors. The regulatory agencies have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations or with the supervisory policies of these agenciesagencies.

The following is a summary of the material elements of the supervisory and regulatory framework applicable to the Company and its bank subsidiary. It does not describe all of the statutes, regulations and regulatory policies that apply, nor does it restate all of the requirements of those that are described. The descriptions are qualified in their entirety by reference to the particular statutory or regulatory provision.

The Company, as a bank holding company, is subject to regulation under the Bank Holding Company Act of 1956, as amended (“BHC Act”), and is subject to the supervision and examination ofby the Federal Reserve. Pursuant to the BHC Act, we are required to obtain the prior approval of the Federal Reserve before we may acquire all or substantially all of the assets of any bank, or ownership or control of voting shares of any bank if, after giving effect to such acquisition, we would own or control, directly or indirectly, 5% or more than five percentof the voting shares of such bank.

Under the BHC Act, we may not engage in any business other than managing or controlling banks or furnishing services to our subsidiaries that the Federal Reserve deems to be so closely related to banking as to be a proper incident to banking. Bank

holding companies that qualify and elect to be treated as “financial holding companies” may engage in a broad range of additional activities that are (i) financial in nature or incidental to such financial activities or (ii) complementary to a financial activity and do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. These activities include securities underwriting and dealing, insurance underwriting and making merchant banking investments. We have not elected to be treated as a financial holding company and currently have no plans to make a financial holding company election.

We are also prohibited, with certain exceptions, from acquiring direct or indirect ownership or control of 5% or more than five percent of the voting shares of any company unless the company is engaged in banking activities or the Federal Reserve determines that the activity is so closely related to banking to be a proper incident to banking. The Federal Reserve’s approval must be obtained before the shares of any such company can be acquired and, in certain cases, before any approved company can open new offices.

The BHC Act, and the Federal Reserve regulations, and general corporate law also impose certain constraints on the payment of dividends and the redemption or purchase by a bank holding company of its own shares of stock.

Pursuant to Dodd-Frank, bank holding companies are required to act as a source of financial and managerial strength to their subsidiary banks. As such, the Company is expected to commit resources to support the Bank, including at times when the Company may not be in a financial position to do so. The Company must stand ready to use its available resources to provide adequate capital to the subsidiary bank during periods of financial stress or adversity. The Company must also maintain the financial flexibility and capital raising capacity to obtain additional resources to assist the Bank. The Company’s failure to meet its source of strength obligations may constitute an unsafe and unsound practice, or a violation of the applicable regulations, or both. The source of strength doctrine most directly affects bank holding companies where a bank holding company’s subsidiary bank fails to maintain adequate capital levels. In such a situation, the subsidiary bank will be required by the bank’sits federal regulator to take “prompt corrective action.” Any capital loans by a bank holding company to a subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of such bank.

In addition, banking subsidiaries of bank holding companiesbanks are subject to certain restrictions imposed by federal law in dealings with their holding companies and other affiliates.  Transactions between affiliates are subject to Sections 23A and 23B of the Federal Reserve Act. Regulation W codifies interpretive guidance with respectAct (the “FRA”) on extensions of credit to affiliate transactions.their affiliates, including executive officers, directors, and principal shareholders. Subject to certain exceptions, set forth in the Federal Reserve Act and Regulation W, a bank subsidiary can make a loanloans and other extensions of credit, investments and asset purchases, as well as certain other transactions involving the transfer of value to or extend credit to an affiliate, purchase or invest infor the securitiesbenefit of an affiliate purchase assets from anif such transactions with one affiliate accept securities of an affiliate as collateral security for a loan or extension of credit to any person or company, issue a guarantee, or accept letters of credit on behalf of an affiliate only if the aggregate amount of the above transactionsdo not exceed 10% of such subsidiary does not exceed 10 percentbank subsidiary’s capital and surplus, or 20% of such bank subsidiary’s capital stock and surplus on a per affiliate basis or 20 percent of such subsidiary’s capital stock and surplus on an aggregate affiliate basis.for all transactions with affiliates in the aggregate. Such transactions must be on terms and conditions that are consistent with safe and sound banking practices and on terms that are not more favorable than those provided to a non-affiliate. A bank and its subsidiaries generally may not purchase a “low-quality asset,” as that term is defined in the Federal Reserve Act,FRA, from an affiliate. Such restrictions also generally prevent a holding companyCertain transactions between the Bank and its other affiliates, from borrowing from a banking subsidiary ofincluding the holding company unlessCompany, must be on terms substantially the loans are secured by collateral.same, or at least as favorable to the Bank, as those prevailing at the time for comparable transactions with non-affiliates.

A bank holding company and its banking subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, sale or lease of property or provision of services. For example, with certain exceptions, a bank may not condition an extension of credit on a customer obtaining other services provided by it, aits holding company or any of its other bank affiliates, or on a promise by the customer not to obtain other services from a competitor.

The Federal Reserve has cease and desist powers over parent bank holding companies and non-banking subsidiaries where their actions of a parent bank holding company or its non-financial institution subsidiaries represent an unsafe or unsound practice or violation of law.

The Federal Reserve has the authority to regulate debt obligations (other than commercial paper) issued by bank holding companies by imposing interest ceilings and reserve requirements on such debt obligations. Further, we are required by the Federal Reserve to maintain certain capital levels. See “Capital Standards.”

We are also a bank holding company within the meaning of Section 1280 of the California Financial Code. As such, we and our subsidiaries are subject to examination by, and may be required to file reports with, the DFPI.

Banks are extensively regulated under both federal and state law. The Bank, as a California state-chartered bank, is subject to primary supervision, regulation and periodic examination by the DFPI and the FDIC.DFPI. The Bank is not a member of the Federal Reserve System, but it is nevertheless subject to certain Federal Reserve regulations.

Various remedies are available to the FDIC if it determines during an examination the FDIC determines that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of the Bank’s operations are unsatisfactory or that the Bank or its management is violating or has violated any law or regulation, various remedies are available to the FDIC.regulation. Such remedies include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in capital, to restrict the growth of the Bank, to assess civil monetary penalties, to remove officers and directors, and ultimately to terminate the Bank’s deposit insurance, which for a California state-chartered bank would result in a revocation of the Bank’s charter. The DFPI has many of the same remedial powers.

Various requirements and restrictions under the laws of the State of California and the United States affect the operations of the Bank. State and federal statutes and regulations relate to many aspects of the Bank’s operations, including standards for safety and soundness, reserves against deposits, interest rates payable on deposits, loans, investments, mergers and acquisitions, borrowings, dividends, locations of branch offices, fair lending requirements, Community Reinvestment Act activities, and loans to affiliates.

Furthermore, the Bank must periodically report all loans made to directors and other insiders to the bank regulators, and these loans are closely scrutinized by the regulators for compliance with Sections 22(g) and 22(h) of the Federal Reserve ActFRA and Regulation O. Each loan to directors or other insiders must be pre-approved by the Bank’s boardBoard of directorsDirectors with the interested director abstaining from voting.

The Company’s shareholders are entitled to receive dividends when and as declared by our Board of Directors, out of funds legally available, subject to the dividends preference, if any, on preferred shares that may be outstanding. The principal source of cash revenue to the Company is dividends received from the Bank. The Bank’s ability to make dividend payments to the Company is subject to state and federal regulatory restrictions.

The Company’s ability to pay dividends to its shareholders is affected by both general corporate law considerations and the policies of the Federal Reserve applicable to bank holding companies. As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company should eliminate, defer or significantly reduce dividends to shareholders if: (i) the bank holding company’s net income available to shareholders for the past four quarters, net of dividends previously

paid during that period, is not sufficient to fully fund the dividends;dividends or (ii) the prospective rate of earnings retention is inconsistent with the bank holding company’s capital needs and overall current and prospective financial condition. If the Company fails to adhere to these policies, the Federal Reserve could find that the Company is operating in an unsafe and unsound manner. See “Supervision and Regulation-Regulatory Capital Requirements” below.

Subject to exceptions for well-capitalized and well-managed holding companies, Federal Reserve regulations also require approval of holding company purchases and redemptions of its securities if the gross consideration paid exceeds 10 percent10% of consolidated net worth for any 12-month period. In addition, Federal Reserve policy requires that bank holding companies consult with and inform the Federal Reserve in advance of (i) redeeming or repurchasing capital instruments when experiencing financial weakness and (ii) redeeming or repurchasing common stock and perpetual preferred stock if the result will be a net reduction in the amount of such capital instruments outstanding for the quarter in which the reduction occurs.

As a California corporation, the Company is subject to the limitations of California law, which allows a corporation to distribute cash or property to shareholders, including a dividend or repurchase or redemption of shares, if the corporation meets either a retained earnings“retained earnings” test or a “balance sheet” test. Under the retained earnings“retained earnings” test, the Company may make a distribution from retained earnings to the extent that its retained earnings exceed the sum of (i) the amount of the distribution plus (ii) the

Dividends payable by the Bank to the Company are restricted under California law to the lesser of the Bank’s retained earnings, or the Bank’s net income for the latest three (3) fiscal years, less dividends paid during that period, or, with the approval of the DFPI, to the greater of the retained earnings of the Bank, the net income of the Bank for its last fiscal year or the net income of the Bank for its current fiscal year.

In addition to the regulations concerning minimum uniform capital adequacy requirements described below, the FDIC has established guidelines regarding the maintenance of an adequate allowance for credit losses. Therefore, the future payment of cash dividends by the Bank will generally depend, in addition to regulatory constraints, upon the Bank’s earnings during any fiscal period, the assessment ofby the Board of Directors of the capital requirements of the Bank and other factors, including the maintenance of an adequate allowance for credit losses.

Capital Rulesrules (the “Rules”) adopted by Federal banking regulators (including the federal banking agencies. The Basel III Capital Rules are risk-based, meaning that they provide a measureFederal Reserve and the FDIC) generally recognize three components, or tiers, of capital adequacy that reflects the perceived degree of risk associated with a banking organization’s operations, both for transactions reported on the balance sheet as assets and for transactions, such as letters of credit and recourse arrangements, that are recorded as off-balance sheet items.

The Rules generally measure an institution’s capital is generally defined asusing four capital measures or ratios. The common stockholders’ equity and retained earnings. Tier 1 capital ratio is generally defined as CET1 and Additional Tier 1 capital. Additionalthe ratio of the institution’s common equity Tier 1 capital generally includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accountsto its total risk-weighted assets. The Tier 1 risk-based capital ratio is the ratio of consolidated subsidiaries. Total capital includesthe institution’s Tier 1 capital (CET1to its total risk-weighted assets. The total risk-based capital plus Additionalratio is the ratio of the institution's total capital to its total risk-weighted assets. The Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capitalleverage ratio is the allowance for loan loss limited to a maximum of 1.25% of risk-weighted assets. We exercised the opt-out election regarding the treatment of Accumulated Other Comprehensive Income (“AOCI”) in part to avoid significant variations in our capital levels resulting from changes in the fair value of our available-for-sale investment securities portfolio as interest rates fluctuate. Institutions that have not exercised the AOCI opt-out have AOCI incorporated into CET1 capital (including unrealized gains and losses on available-for-sale-securities). The calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations.

into a risk category as prescribed by the regulations and given a percentage weight based on the relative risk of that category. An asset’s risk-weighted value will generally be its percentage weight multiplied by the asset’s value as determined under generally accepted accounting principles. In addition, certain off-balance-sheet items are converted to balance-sheet credit equivalent amounts, and each amount is then assigned to one of the risk categories. An institution’s federal regulator may require the institution to hold more capital than $3 billionwould otherwise be required under the Rules if the regulator determines that meet certain qualitativethe institution’s capital requirements from consolidated capital requirements.under the Rules are not commensurate with the institution's credit, market, operational or other risks.

To be adequately capitalized, both the Company and the Bank are required to maintainhave a CET1 capital ratio of at least 6.375%, acommon equity Tier 1 capital ratio of at least 7.875%, and4.5% or more, a total capital ratio of at least 9.875% to avoid limitations on capital distributions and certain discretionary incentive compensation payments. As phased-in on January 1, 2019, the Bank is required to meet a minimum

The Rules set forth the manner in which certain capital elements are determined, including but not limited to, either a 50% risk weight for first-lien mortgages that meet prudent underwriting standards or a 100% risk weight category for all other mortgages;

The Rules also prescribe the minimum capital adequacy guideline percentage requirements of the federal banking agenciesmethods for “well capitalized” institutions under the Basel III Capital Rules on a fully phased-in basis.

We are subject to federal laws aiming to counter money laundering and terrorist financing, as well as transactions with persons, companies and foreign governments sanctioned by the United States. These laws include, among others, the USA PATRIOT Act, the Bank Secrecy Act (“BSA”), and the MoneyAnti-Money Laundering Act.Act (“AMLA”). Financial institutions are subject to prohibitions against specified financial transactions and account relationships as well as enhanced due diligence and identifying customers when establishing new relationships and standards in their dealings with high risk customers, foreign financial institutions, and foreign individuals and entities. The Customer Due Diligence final rule, which became effective in 2018, clarified and strengthened customer due diligence requirements for U.S.BSA requires financial institutions aiming to improve financial transparencydevelop policies, procedures and practices to prevent criminals and terrorists from misusing companiesdeter money laundering, and mandates that every bank have a written program approved by its board of directors that is designed to disguise their illicit activitiesassure and launder their ill-gotten gains.monitor compliance. As part of the BSA compliance program, banks are required to adopt a customer identification program. The Bank has extensive controls in place to comply with these requirements.

The Office of Foreign Assets Control (“OFAC”) is a financial intelligence and enforcement agency of the U.S. Treasury Department. ItDepartment, which administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries and regimes. The OFAC regulations require financial institutions to block or reject payments, transfers, withdrawals or other dealings with respect to accounts and assets of designated targets and countries that are identified by

We are subject to several federal, state, and local laws and regulations relating to consumer privacy and data protection. The Gramm-Leach Bliley Act of 1999 (“GLBA”) imposes requirements on financial institutions with respect to consumer privacy and disclosure of non-public personal information. The GLBA generally prohibits disclosure of consumer information to most nonaffiliated third parties unless the consumer has been given the opportunity to object and has not objected to such disclosure. In addition, the California Financial Information Privacy Act (“CFIPA”) also requires a financial institution to provide specific information to a consumer related to the sharing of that consumer’s nonpublic personal information. The CFIPA allows a consumer to direct the financial institution not to share his or her nonpublic personal information with affiliated or nonaffiliated companies with which a financial institution has contracted to provide financial products and services, and requires that permission from each such consumer be acquired by a financial institution prior to sharing such information. Financial institutions are required to implement policies and procedures regarding the disclosure of nonpublic personal information about consumers to non-affiliated third parties. In general, financial institutions must provide explanations to consumers on policies and procedures regarding the disclosure of such nonpublic personal information and, except as otherwise required by law, prohibitsprohibit disclosing such information. Similar to the CFIPA, the State of California recently enactedIn addition, the California Consumer Privacy Act (“CCPA”), which became effective in 2020, gives consumers more control over the personal information that businesses collect about them. The CCPA includes new privacy rights including the right to know about the personal information a business collects about them and how it is used and shared; the right to delete personal information collected from them (with some exceptions); the right to opt-out of the sale of their personal information; and the right to non-discrimination for exercising their CCPA rights. The CCPA was further expanded by the California Privacy Rights Act of 2020, which became effective on January 1, 2023, and provided additional privacy rights to California residents and created a new agency tasked with implementing and enforcement of privacy laws in California. Businesses (including Financial Institutions)financial institutions) are required to give consumers certain notices explaining their privacy rights. The Bank has implemented privacy policies addressing these restrictions which are distributed regularly to all existing and new customers of the Bank.

The Community Reinvestment Act (“CRA”) is intended to encourage insured depository institutions, while operating safely and soundly, to help meet the credit needs of their communities. The CRA specifically directs the federal bank regulatory agencies, in examining insured depository institutions, to assess their record of helping to meet the credit needs of their entire community, including low-andlow- and moderate-income neighborhoods, consistent with safe and sound banking practices. The CRA further requires the agencies to take a financial institution’s record of meeting its community credit needs into account when evaluating applications for, among other things, domestic branches, consummating mergers or acquisitions or holding company formations. The federal banking agencies have adopted regulations which measure a bank’s compliance with its CRA obligations on a performance based evaluation system. This system bases CRA ratings on an institution’s actual lending service and investment performance rather than the extent to which the institution conducts needs assessments, documents community outreach or complies with other procedural requirements. The ratings range from “outstanding” to a low of “substantial noncompliance.” The Bank had a CRA rating of “satisfactory” as ofIn its most recent regulatory examination.

In October 2023, the federal banking agencies have expressed support for modernizingissued a final rule to modernize the CRA regulatory framework. In December 2019, the FDIC and the OCC issued a joint proposedThe final rule that would amendwill take effect on April 1, 2024. It adapts the CRA regulations. The proposed rule soughtframework to clarify what qualifies for credit underchanges in the banking industry, including expanded role of mobile and online banking, tailors performance standards, data collection and reporting requirements, and provides greater clarity and consistency in the application of CRA update the definition of a small business loan and create an additional definition of “assessment area” tied to where deposits are located, partly to address changes that have occurred due to the rise in digital banking, ensuring that banks continue to serve low- and moderate-income customers in their communities. It is unclear at this time whether and to what extent any changes will be made to the applicable CRA requirements.regulations.

The bank regulatory agencies are focusing greater attention on compliance with consumer protection laws and their implementing regulations. Examination and enforcement have become more intense in nature, and insured institutions have been advised to monitor carefully compliance with such laws and regulations. The Bank is subject to many federal consumer protection statutes and regulations, some of which are discussed below.

The Equal Credit Opportunity Act (ECOA) generally prohibits discrimination in any credit transaction, whether for consumer or business purposes, on the basis of race, color, religion, national origin, sex, marital status, age, receipt of income from public assistance programs, or good faith exercise of any rights under the Consumer Credit Protection Act.

The Truth in Lending Act (TILA) is designed to ensure that credit terms are disclosed in a meaningful way so that consumers may compare credit terms more readily and knowledgeably. As a result of TILA, all creditors must use the same credit terminology to express rates and payments, including the annual percentage rate, the finance charge, the amount financed, the total of payments and the payment schedule, among other things.

The Fair Housing Act (FHA) regulates many practices, including making it unlawful for any lender to discriminate in its housing-related lending activities against any person because of race, color, religion, national origin, sex, handicap or familial status. A number of lending practices have been found by the courts to be, or may be considered, illegal under the FHA, including some that are not specifically mentioned in the FHA itself.

The Home Mortgage Disclosure Act (HMDA) grew out of public concern over credit shortages in certain urban neighborhoods. It seeks to provide public information showing whether financial institutions are serving the housing credit needs of the neighborhoods and communities in which they are located. HMDA also includes a “fair lending” aspect that requires the collection and disclosure of data about applicant and borrower characteristics as a way of identifying possible discriminatory lending patterns and enforcing anti-discrimination statutes.

Finally, the Real Estate Settlement Procedures Act (RESPA) requires lenders to provide borrowers with disclosures regarding the nature and cost of real estate settlements. RESPA also prohibits certain abusive practices, such as kickbacks, and places

limitations on the amount of escrow accounts. Penalties under the above laws may include fines, reimbursements and other civil money penalties.

Due to heightened regulatory concern related to compliance with the consumer protection laws, the Bank may incur additional compliance costs or be required to expend additional funds for investments in its local community.

The CFPB is an independent federal agency the CFPB, which was grantedwith broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws. The CFPB is also authorized to engage in consumer financial education, track consumer complaints, request data and promote the availability of financial services to underserved consumers and communities. Although all institutions are subject to rules adopted by the CFPB and examination by the CFPB in conjunction with examinations by the institution’s primary federal regulator, theThe CFPB has primary examination and enforcement authority over financial institutions with total consolidated assets of $10 billion or more. Nonetheless, the CFPB regulations and guidance apply to all financial institutions, including the Bank. The FDIC has primary responsibility for examination of the Bank and enforcement with respect to federal consumer protection laws so long as the Bank has total consolidated assets of less than $10 billion, and state authorities are responsible for monitoring our compliance with all state consumer laws. The CFPB also has the authority to require reports from financial institutions with less than $10 billion in assets, such as the Bank, to support the CFPB in implementing federal consumer protection laws, supporting examination activities, and assessing and detecting risks to consumers and financial markets.

The consumer protection provisions of Dodd-Frank and the examination, supervision and enforcement of those laws and implementing regulations by the CFPB have created a more intense and complex environment for consumer finance regulation. The CFPB has significant authority to implement and enforce federal consumer finance laws, as well as the authority to identify and prohibit unfair, deceptive or abusive acts and practices. The reviewpractices (UDAAP). Prevention of products and practices to prevent such acts and practices is a continuing focus of the CFPB, and of banking regulators more broadly. The ultimate impact of this heightened scrutiny is uncertain but could result in changes to pricing, practices, products and procedures. It could also result in increased costs related to regulatory oversight, supervision and examination, additional remediation efforts and possible penalties. In addition, Dodd-Frank provides the CFPB with broad supervisory, examination and enforcement authority over various consumer financial products and services, including the ability to require reimbursements and other payments to customers for alleged legal violations and to impose significant penalties, as well as injunctive relief that prohibits

We are also subject to certain state consumer protection standards.laws, such as, for example, debt collection practices, and the prohibition of unfair, deceptive, or abusive acts or practices. State regulation of financial products and potential enforcement actions could also adversely affect our business, financial condition or results of operations.

The FDIC is an independent federal agency that insures deposits up to prescribed statutory limits of federally insured banks and savings institutions and safeguards the safety and soundness of the banking and savings industries. The FDIC insures the Bank’s customer deposits through the Deposit Insurance Fund (the “DIF”) up to prescribed limits for each depositor. Pursuant to Dodd-Frank, theThe maximum deposit insurance amount was increased to $250,000.generally is $250,000 for each account ownership category at each depository institution. The amount of FDIC assessments paid by each DIF member institution is based on its relative risk of default as measured by regulatory capital ratios and other supervisory factors.

The Bank is subject to deposit insurance assessments to maintain the DIF. Dodd-Frank increased the minimum designated reserve ratio of the DIF to 1.35% of the estimated amount of total insured deposits as of September 30, 2020, and eliminated the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds. At least semi-annually, the FDIC updates its loss and income projections for the DIF and, if needed, may increase or decrease the assessment rates, following notice and comment on proposed rulemaking. In October 2022, the FDIC increased initial base deposit assessment rate schedules uniformly by 2 basis points, beginning in the first quarterly assessment period of 2023.

We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance. If there are additional bank or financial institution failures or if the FDIC otherwise determines, we may be required to pay even higher FDIC premiums than the recently increased levels. These announced increases and any future increases in FDIC insurance

premiums may have a material and adverse effect on our earnings and could have a material adverse effect on the value of or market for our common stock.

The FDIC may terminate a depository institution’s deposit insurance upon a finding that the institution’s financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices that pose a risk to the DIF or that may prejudice the interest of the bank’s depositors. The termination of deposit insurance for a bank would also result in the revocation of the bank’s charter by the DFPI.

Other legislative and regulatory initiatives which could affect the Company and the Bank and the banking industry in general may be proposed or introduced before the United States Congress, the California legislature and other governmental bodies in the future. Such proposals, if enacted, may further alter the structure, regulation and competitive relationship among financial institutions, and may subject the Company or the Bank to increased regulation, disclosure and reporting requirements. In addition, the various banking regulatory agencies often adopt new rules and regulations to implement and enforce existing legislation. It cannot be predicted whether, or in what form, any such legislation or regulations may be enacted or the extent to which the business of the Company or the Bank would be affected thereby.

Specifically, although the Dodd-Frank are subject to continued rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on us. Although the reforms primarily targettargeted systemically important financial service providers, Dodd-Frank’sits influence has and is expected to continue to filter down in varying degrees to smaller institutions over time. In addition, some of the recent financial laws and regulations aiming to ease regulatory and compliance burden on financial institutions that were adopted during the last presidential administration could be rolled back in the near future. We will continue to evaluate the effect of Dodd-Frank, as it may be amended from time to time, and other pending and proposed legislation. The impact of any future legislative or regulatory changes cannot be predicted, but they could affect the Company and the Bank, and no current assurance may be given that they will not have a negative impact on the results of operations and financial condition of the Company and the Bank.

Inquiries regarding Central Valley Community Bancorp’s accounting, internal controls or auditing concerns should be directed to Steven D. McDonald, chairman of the Board of Directors’ Audit Committee, at steve.mcdonald@cvcb.com or anonymously at www.ethicspoint.comwww.hotline-services.com or EthicsPoint, Inc.Compliance Hotline at 1-866-294-9588.1-855-252-7606.

General inquiries about Central Valley Community Bancorp or Central Valley Community Bank should be directed to LeAnn Ruiz, Assistant Corporate Secretary at 1-800-298-1775.

 

The Bank conducts banking operation principally in California’s Central Valley. The Central Valley is largely dependent on agriculture. The agricultural economy in the Central Valley is therefore important to our financial performance, results of operations and cash flows. We are also dependent in a large part upon the business activity, population growth, income levels and real estate activity in this market area. A downturn in agriculture and the agricultural related businesses could have a material adverse effect on our business, results of operations and financial condition. The agricultural industry has been affected by declines in prices and changes in yields of various crops and other agricultural commodities. Weaker prices

Inflation began to rise sharply at the end of 2021 and has remained at an elevated level through 2023. Small to medium-sized businesses may be impacted more during periods of high inflation as they are not able to leverage economics of scale to mitigate cost pressures compared to larger businesses. Consequently, the ability of our business customers to repay their loans may deteriorate, and in some cases this deterioration may occur quickly, which would adversely impact our results of COVID-19operations and financial condition. Furthermore, a prolonged period of inflation could have a material adverse effect oncause wages and other costs to the Company to increase, which could adversely affect our results of operations and financial condition.

The COVID-19 pandemic has had,In addition to being affected by general economic conditions, our earnings and continuesgrowth are affected by the policies of the Federal Reserve. An important function of the Federal Reserve is to have, a material impact on businesses aroundregulate the worldmoney supply and credit conditions. Among the instruments used by the Federal Reserve to implement these objectives are open market operations in U.S. government securities, adjustments of the discount rate and changes in reserve requirements against bank deposits. These instruments are

used in varying combinations to influence overall economic growth and the economic environments in which they operate. In March 2020,distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits. The monetary policies and regulations of the United States declared a federal state of emergency in response to the COVID-19 pandemic, which continues to spread throughout the United States. The outbreak of this virus has disrupted global financial markets and negatively affected supply and demand across a broad range of industries. There are a number of factors associated with the outbreak and its impact on global economies including the United States thatFederal Reserve have had a significant effect on the operating results of commercial banks in the past and couldare expected to continue to do so in the future. The effects of such policies upon our business, financial condition and results of operations cannot be predicted.

Liquidity is essentialOn March 9, 2023, Silvergate Bank, La Jolla, California, announced its decision to voluntarily liquidate its assets and wind down operations. On March 10, 2023, Silicon Valley Bank, Santa Clara, California, was closed by the DFPI on March 12, 2023, Signature Bank, New York, New York, was closed by the New York State Department of Financial Services and on May 1, 2023, First Republic Bank, San Francisco, California, was closed by the DFPI, and in each case the FDIC was appointed receiver for the failed institution. These banks had elevated levels of uninsured deposits, which may be less likely to remain at the bank over time and less stable as a source of funding than insured deposits. These failures led to volatility and declines in the market for bank stocks and questions about depositor confidence in depository institutions.

If we are unable to adequately manage our business. An inability to raise funds throughliquidity, deposits, borrowings, the sale of loans and/or investment securitiescapital levels and from other sources could haveinterest rate risk, we may experience a substantial negativematerial adverse effect on our liquidity. Our most importantfinancial condition and results of operations. We must maintain sufficient funds to respond to the needs of depositors and borrowers. Deposits have traditionally been our primary source of funds consistsfor use in lending and investment activities. We also receive funds from loan repayments, investment maturities and income on other interest-earning assets. While we emphasize the generation of low-cost core deposits as a source of funding, there is strong competition for such deposits in our customer deposits. Suchmarket area. Additionally, deposit balances can decrease whenif customers perceive alternative investments such as the stock market, as providing a better risk/return tradeoff. If customers move money outAccordingly, as a part of bankour liquidity management, we must use a number of funding sources in addition to deposits and into other investments, we could lose a relatively low cost sourcerepayments and maturities of funds, which would require us to seek wholesale funding alternatives in order to continue to grow, thereby increasing our funding costsloans and reducing our net interest income and net income.investments. We also rely on alternative funding sources including unsecured borrowing lines with correspondent banks, secured borrowing lines with the Federal Home Loan Bank of San Francisco and the Federal Reserve Bank of San Francisco, and public time certificates of deposits. Our ability to access these sources could be impaired by deterioration in our financial condition as well as factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations for the financial services industry or serious dislocation in the general credit markets. In the event such a disruption should occur, our abilityAdverse operating results or changes in industry conditions could lead to difficulty or an inability to access these sources could be adversely affected, both as to price and availability, which would limit or potentially raise the cost of the funds available to us. additional funding sources.

Any decline in available funding could adversely impact our ability to continue to implement our strategic plan, including our ability to originate loans, invest in securities, meetpay our expenses, or to fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, financial condition and results of operations.

When interest-bearing liabilities mature or reprice more quickly, or to a greater degree than interest-earning assets in a period, an increase in interest rates could reduce our profitability.

If the merger is not completed for any reason, there may be negatively affected. Wevarious adverse consequences and the Company may experience negative reactions from the financial markets and from its customers and employees. For example, the Company’s business may have been impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger. Additionally, if the merger agreement is terminated, the market price of the Company’s common stock could decline to the extent that current market prices reflect a market assumption that the merger will be beneficial and will be completed. The Company also could be subject to litigation related to any failure to complete the merger or to proceedings commenced against the Company to perform its obligations under the merger agreement if the merger agreement is terminated under certain circumstances.

The success of the merger will depend in part on the combined company’s ability to retain the talent and dedication of key employees currently employed by the Company and Community West. It is possible that these employees may decide not to remain with the Company and Community West, as applicable, while the merger is pending or with the combined company after the merger is consummated. If the Company and Community West are unable to predict fluctuationsretain key employees, including management, who are critical to the successful integration and future operations of market interest rates,the companies, the Company and Community West could face disruptions in their operations, loss of existing customers, loss of key information, expertise or know-how and unanticipated additional recruitment costs. In addition, following the merger, if key employees terminate their employment, the combined company’s business activities may be adversely affected, and management’s attention may be diverted from successfully hiring suitable replacements, all of which may cause the combined company’s business to suffer. The Company and Community West also may not be able to locate or retain suitable replacements for any key employees who leave either company.

Some of these costs are affectedpayable by either the Company or Community West regardless of whether or not the merger is completed.

Goodwill and other intangible assets are expected to increase as a result of the merger. Based on the Company’s preliminary purchase price allocation as of December 31, 2023, goodwill of approximately $64.7 million and core deposits intangibles of $12.7 million are currently expected to be recorded by the followingCompany as a result of the merger. The actual amount of goodwill and core deposits intangibles recorded may be materially different and will depend on a number of factors, outside our control.

As of December 31, 2020,2023, approximately 2.0%$33.6 million, or 2.6% of our total gross loan portfolio was comprised of agribusiness loans. Repayment of agribusiness loans depends primarily on the successful planting and harvest of crops and marketing the harvested commodity or raising and feeding of livestock (including milk production). Collateral securing these loans may be illiquid. In addition, the limited purpose of some agricultural-related collateral affects credit risk because such collateral may have limited or no other uses to support values when loan repayment problems emerge. Many external factors can impact our agricultural borrowers’ ability to repay their loans, including adverse weather conditions, water issues, commodity price volatility, diseases, land values, production costs, changing government regulations and subsidy programs, changing tax treatment, technological changes, labor market shortages/increased wages, and changes in consumers’ preferences, over which

our borrowers may have no control. These factors, as well as recent volatility in certain commodity prices, could adversely impact the ability of those to whom we have made agribusiness loans to perform under the terms of their borrowing arrangements with us, which in turn could result in credit losses and materially and adversely affect our business, financial condition and results of operations.

At December 31, 2020, $772 million,2023, $1.09 billion, or 69.8%84.8% of our total loan and lease portfolio, consisted of real estate related loans. The real estate securing our loan portfolio is concentrated in California. The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions in the geographic area in which the real estate is located. Real estate values and real estate markets are generally affected by changes in national, regional or local economic conditions, the rate of unemployment, fluctuations in interest rates and the availability of loans to potential purchasers, changes in tax laws and other governmental statutes, regulations and policies and acts of nature, such as earthquakes and natural disasters. Adverse changes affecting real estate values and the liquidity of real estate in one or more of our markets could increase the credit risk associated with our loan portfolio, significantly impair the value of property pledged as collateral on loans and affect our ability to sell the collateral upon foreclosure without a loss or additional losses, which could result in losses that would adversely affect profitability.losses. Such declines and losses would have a material adverse impact on our business, financial condition and results of operations. In addition, if hazardous

Banking regulators are foundgiving commercial real estate lending greater scrutiny, and may require banks with higher levels of commercial real estate loans to implement improved underwriting, internal controls, risk management policies and portfolio stress testing, as well as possibly higher levels of allowances for losses and capital levels as a result of commercial real estate lending growth and exposures. Therefore, we could be required to raise additional capital or restrict our future growth as a result of our higher level of commercial real estate loans.

At December 31, 2023, commercial loans totaled $105.5 million or 8.2% of our loan portfolio (including SBA loans, PPP loans, asset-based lending, and factored receivables). Commercial loans are often larger and involve greater risks than other types of lending. Because payments on properties pledged as collateral,such loans are often dependent on the valuesuccessful operation or development of the property or business involved, repayment of such loans is often more sensitive than other types of loans to adverse conditions in the real estate couldmarket or the general business climate and economy. Accordingly, a downturn in the real estate market and a challenging business and economic environment may increase our risk related to commercial loans, particularly commercial real estate loans. Unlike home mortgage loans, which generally are made on the basis of the borrowers’ ability to make repayment from their employment and other income and which are secured by real property whose value tends to be more easily ascertainable, commercial loans typically are made on the basis of the borrowers’ ability to make repayment from the cash flow of the commercial venture. Our commercial and industrial loans are primarily made based on the identified cash flow of the borrower and secondarily on the collateral underlying the loans. Most often, collateral consists of accounts receivable, inventory and equipment. Inventory and equipment may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. Accounts receivable may be uncollectable. If the cash flow from business operations is reduced, the borrower’s ability to repay the loan may be impaired. Vacancy rates can also negatively impact cash flows from business operations. Due to the larger average size of each commercial loan as compared with other loans such as residential loans, as well as collateral that is generally less readily-marketable, losses incurred on a small number of commercial loans could have a material adverse effect on our business, financial condition and results of operations.

Our SBA lending program is dependent upon the U.S. federal government. As an approved participant in the SBA Preferred Lender’s Program (an “SBA Preferred Lender”), we enable our clients to obtain SBA loans without being subject to the potentially lengthy SBA approval process necessary for lenders that are not SBA Preferred Lenders. The SBA periodically reviews the lending operations of participating lenders to assess, among other things, whether the lender exhibits prudent risk management. When weaknesses are identified, the SBA may request corrective actions or impose enforcement actions, including revocation of the lender’s SBA Preferred Lender status. If we lose our status as an SBA Preferred Lender, we may lose some or all of our customers to lenders who are SBA Preferred Lenders, and as a result we could experience a material

adverse effect to our financial results. Any changes to the SBA program, including but not limited to changes to the level of guarantee provided by the federal government on SBA loans, changes to program specific rules impacting volume eligibility under the guaranty program, as well as changes to the program amounts authorized by Congress may also have a material adverse effect on our business. In addition, any default by the U.S. government on its obligations or any prolonged government shutdown could, among other things, impede our ability to originate SBA loans or sell such loans in the secondary market, which could adversely affect our business, results of operations and financial condition.

Because government regulation greatly affects the business and financial results of all commercial banks and bank holding companies and especially our organization, changes in the laws, regulations and procedures applicable to SBA loans could adversely affect our business, financial condition and results of operation.

Our loan customers may not repay their loans according to the terms of these loans, and the collateral securing the payment of these loans may be insufficient to assure repayment.  We may experience significant credit losses that could have a material adverse effect on our operating results.  We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. We maintain an allowance for credit losses on loans to provide for loan defaults and non-performance. This allowance, expressed as a percentage of loans, was 1.14%, at December 31, 2023. Allowance for credit losses on loans is funded from a provision for probable incurredcredit losses on loans, which is a charge to our income statement. The Company had a credit for credit losses on loans of $85,000 for the year ended December 31, 2023. The allowance for credit losses on loans reflects our estimate of the current expected credit losses in our loan portfolio. Theportfolio at the relevant balance sheet date. Our allowance is established through a provision for loancredit losses on loans is based on management’sour prior experience, as well as an evaluation of the known risks inherent in the current portfolio, composition and growth of the loan portfolio and the general economy.economic forecasts for correlated economic factors. The determination of an appropriate level of allowance for credit losses on loans is also appropriately increased for new loan growth. The allowancean inherently difficult and subjective process, requiring complex judgments, and is based upon a numberon numerous analytical assumptions. The amount of factors,future losses is susceptible to changes in economic and other conditions, including the size of the loan portfolio, asset classifications,changes in interest rates, changes in economic trends, industry experience and trends, industry and geographic concentrations, estimated collateral values, management’s assessment of the credit risk inherentforecasts, changes in the portfolio, historical loan loss experiencefinancial condition of borrowers, and loan underwriting policies.deteriorating values of collateral that may be beyond our control, and these losses may exceed current estimates. The allowance is only an estimate of the probable incurred losses in the loan portfolio and may not represent actual losses realized over time, either of losses in excess of the allowance or of losses less than the allowance. If

In addition, we evaluate all loans identified as impaired loans and allocate an allowance based upon our assumptions proveestimation of the potential loss associated with those problem loans. While we strive to be incorrect, our current allowance my not be sufficientcarefully manage and monitor credit quality and to cover future loan losses and adjustmentsidentify loans that may be necessarydeteriorating, at any time there are loans included in the portfolio that may result in losses, but that have not yet been identified as nonperforming or potential problem loans. Through established credit practices, we attempt to allowidentify deteriorating loans and adjust the allowance for different economic conditionscredit losses on loans accordingly. However, because future events are uncertain and because we may not successfully identify all deteriorating loans in a timely manner, there may be loans that deteriorate in an accelerated time frame. We cannot be sure that we will be able to identify deteriorating loans before they become nonperforming assets, or adverse developmentsthat we will be able to limit losses on those loans that have been so identified.

Although management believes that the allowance for credit losses on loans is adequate to absorb losses on any existing loans that may become uncollectible, we may be required to take additional provisions for credit losses on loans in the future to further supplement the allowance for credit losses on loans, either due to management’s decision to do so or because our loan portfolio.banking regulators require us to do so. Our bank regulatory agencies will periodically review our allowance for loancredit losses on loans and the value attributed to nonaccrual loans or to real estate acquired through foreclosure and may require us to adjust our determination of the value for these items. These adjustments may adversely affectIf our allowance for credit losses on loans is inaccurate, for any of the reasons

discussed above (or other reasons), and is inadequate to cover the loan losses that we actually experience, the resulting losses could have a material adverse effect on our business, financial condition and results of operations.

At December 31, 2020,2023, our non-performing loans and leases were 0.30%0.00% of total loans and leases compared to 0.18%0.00% at December 31, 2019,2022, and 0.30%0.09% at December 31, 2018,2021, and our non-performing assets (which include foreclosed real estate) were 0.16%0.00% of total assets compared to 0.11%0.00% at December 31, 2019.2022.  The allowance for credit losses as a percentage of non-performing loans and leases was 393.99%15,534.00% as of December 31, 20202023 compared to 539.28%10,848.00% at December 31, 2019.2022.  Non-performing assets adversely affect our net income in various ways. We generally do not record interest income on non-performing loans or other real estate owned, thereby adversely affecting our income and increasing our loan administration costs. When we take collateral in foreclosures and similar proceedings, we are required to mark the related asset to the then fair value of the collateral, which may ultimately result in a loss. An increase in the level of non-performing assets increases our risk profile and may impact the capital levels our regulators believe are appropriate in light of the ensuing risk profile, which could result in a request to reduce our level of non-performing assets. When we reduce problem assets through loan sales, workouts, restructurings and otherwise, decreases in the value of the underlying collateral, or in these borrowers’ performance or financial condition, whether or not due to economic and market conditions beyond our control, could adversely affect our business, results of operations and financial condition. In addition, the resolution of non-performing assets requires significant commitments of time from management, and our directors, which can be detrimental to the performance of their other responsibilities. There can be no assurance that we will not experience future increases in non-performing assets or that the disposition of such non-performing assets will not have a material adverse effect on our business, financial condition and results of operations.

Commercial real estate and commercial business loans generally are considered riskier than single-family residential loans because they have larger balances to a single borrower or group of related borrowers. Commercial real estate and commercial business loans involve risks because the borrowers’ ability to repay the loans typically depends primarily on the successful operation of the businesses or the properties securing the loans. Most of the Bank’s commercial real estate and commercial business loans are made to small toand medium sized businesses who may have a heightened vulnerability to economic conditions. Moreover, a portion of these loans have been made by us in recent years and the borrowers may not have experienced a complete business or economic cycle.  Furthermore, theThe deterioration of our borrowers’ businesses may hinder their ability to repay their loans with us, which could have a material adverse effect on our business, financial condition and results of operations.

As of December 31, 2023, the carrying value of our securities portfolio was approximately $906,287,000. Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities. For example, fixed-rate securities acquired by us are exposedgenerally subject to riskdecreases in market value when interest rates rise. Additional factors include, but are not limited to, rating agency downgrades of environmental liabilitiesthe securities or our own analysis of the value of the security, defaults by the issuer or individual mortgagors with respect to propertiesthe underlying securities, and continued instability in the credit markets. Any of the foregoing factors could cause credit-related impairment in future periods and result in realized losses. The process for determining whether impairment is credit related usually requires difficult, subjective judgments about the future financial performance of the issuer and any collateral underlying the security in order to which we take title.

Our success depends, in large degree, on the skills of our management team and our ability to retain, recruit and motivate key officers and employees. Our senior management team has significant industry experience, and their knowledge and relationships would be difficult to replace. Leadership changes will occur from time to time, and we cannot predict whether

significant resignations will occur or whether we will be able to recruit additional qualified personnel. Competition for senior executives and skilled personnel in the financial services and banking industry is intense, which means the cost of hiring, paying incentives and retaining skilled personnel may continue to increase. We need to continue to attract and retain key personnel and to recruit qualified individuals to succeed existing key personnel to ensure the continued growth and successful operation of our business. In addition, as a provider of relationship-based commercial banking services, we must attract and retain qualified banking personnel to continue to grow our business, and competition for such personnel can be intense. The loss of the services of any senior executive or other key personnel, or the inability to recruit and retain qualified personnel in the future, could have a material adverse effect on our business, financial condition and results of operations. In addition, to attract and retain personnel with appropriate skills and knowledge to support our business, we may offer a variety of benefits, which could reduce our earnings or have a material adverse effect on our business, financial condition and results of operations.

We may need to raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our commitments and business strategies. Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time which are outside of our control, and our financial performance. We cannot be assured that such capital will be available to us on acceptable terms or at all. Any occurrence that may limit our access to the capital markets may adversely affect our capital costs and our ability to raise capital. Moreover, if we need to raise capital in the future, we may have to do so when many other financial institutions are also seeking to raise capital and would have to compete with those institutions for investors. An inability to raise additional capital on acceptable terms when needed could have a material adverse effect on our business, financial condition and results of operations.

We have initiated internal asset growth programs, completed various acquisitions and opened additional offices in prior years. We may not be able to sustain our historical rate of asset growth or may not even be able to grow at all. We may not be able to obtain the financing necessary to fund additional asset growth and may not be able to find suitable candidates for acquisition. Various factors, such as economic conditions and competition, may impede or prohibit the opening of new branch offices. Further, our inability to attract and retain experienced bankers may adversely affect our internal asset growth. A significant decrease in our historical rate of asset growth could have a material adverse impact on our business, financial condition and results of operations.

We plan to continue to grow our business organically. However, from time to time, we may be unable to complete futureconsider opportunistic strategic acquisitions and once complete,that we believe support our long-term business strategy. We face significant competition from numerous other financial services institutions, many of which will have greater financial resources than we do, when considering acquisition opportunities. Accordingly, attractive acquisition opportunities may not be ableavailable to integrate our acquisitions successfully.

If we complete any future acquisitions and, for completed acquisitions, we may not be able to successfully integrate the operations, management, products and services of the entities that we acquire.acquire and eliminate redundancies. The integration process could result in the loss of key employees or disruption of the combined entity’s ongoing business or inconsistencies in standards, controls, procedures, and policies that adversely affect our ability to maintain relationships with customers and employees or achieve the anticipated benefits of the transaction. The integration process may also require significant time and attention from our management that they would otherwise direct at servicing existing business and developing new business. We may not be able to realize expectedany projected cost savings, synergies or make revenue enhancements. Following eachother benefits associated with any such acquisition we must expend substantial managerial, operating, financialcomplete. We cannot determine all potential events, facts and other resources to integrate these entities. In particular, wecircumstances that could result in loss and our investigation or mitigation efforts may be requiredinsufficient to installprotect against any such loss.

In connection with our growth strategy, we have issued, and may issue in the future, shares of our common stock to acquire additional banks or modify equipment, implement marketing effortsbank holding companies that may complement our organizational structure. Resales of substantial amounts of common stock in newthe public market and the potential of such sales could adversely affect the prevailing market price of our common stock and impair our ability to raise additional capital through the sale of equity securities. We sometimes must pay an acquisition premium above the fair market value of acquired assets for the acquisition of banks or bank holding companies. Paying this acquisition premium, in addition to the dilutive effect of issuing additional shares, may also adversely affect the prevailing market price of our common stock.

Goodwill represents the amount by which the cost of an acquisition exceeded the fair value of net assets we acquired in connection with the purchase. We review goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate that the carrying value of the asset might be impaired. We determine impairment by comparing the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. Estimates of fair value are determined based on a complex model using cash flows, the fair value of our Company as well as existing locationsdetermined by our stock price, and employcompany comparisons. If management’s estimates of future cash flows are inaccurate, fair value determined could be inaccurate and maintain qualified personnel. Our failureimpairment may not be recognized in a timely manner. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to successfully integratethat excess. Any such adjustments are reflected in our results of operations in the entities we acquire intoperiods in which they become known. There can be no assurance that our existing operations couldfuture evaluations of goodwill will not result in findings of impairment and related write-downs, which may have a material adverse effect on our financial condition and results of operations.

In business combinations, we acquire significant portfolios of loans that are marked to their estimated fair value. There is no assurance that the acquired loans will not suffer deterioration in value. The fluctuations in national, regional and local economic conditions, including those related to local residential, commercial real estate and construction markets, may increase the level of charge offs in the loan portfolio that we acquire and correspondingly reduce our net income. These fluctuations are not predictable, cannot be controlled and may have a material adverse affecteffect on our business, financial condition, and results of operations.

We seek to expand our franchise safely and consistently. A successful growth strategy requires us to manage multiple aspects of our business simultaneously, such as following adequate loan underwriting standards, balancing loan and deposit growth without increasing interest rate risk or compressing our net interest margin, maintaining sufficient capital, maintaining proper system and controls, and recruiting, training and retaining qualified professionals. We also may experience a lag in profitability associated with new branch openings. As part of our general growth strategy we may expand into additional communities or attempt to strengthen our position in our current markets by opening new offices, subject to any regulatory constraints on our ability to open new offices. To the goodwillextent that we are able to open additional offices, we are likely to experience the effects of higher operating expenses relative to operating income from the new operations for a period of time which could have recordeda material adverse effect on our business, financial condition and results of operations.

From time to time, we may implement or may acquire new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in connectioninstances where the markets are not fully developed. In developing and marketing new lines of business and new products and services we may invest significant time and resources. We may not achieve target timetables for the introduction and development of new lines of business and new products or services and price and profitability targets may not prove feasible. External factors, such as regulatory compliance obligations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, any new line of business and/or new product or service could have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, financial condition and results of operations.

We also compete with non-bank providers of financial services, such as brokerage firms, consumer finance companies, insurance companies and governmental organizations, which may offer more favorable terms. Some of our acquisitions becomes impaired, itnon-bank competitors are not subject to the same extensive regulations that govern our operations. As a result, such non-bank competitors may have advantages over us in providing certain products and services. This competition may reduce or limit our margins on banking services, reduce our market share and adversely affect our earnings and financial condition.

The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Our inability to compete successfully in the markets in which we operate could have an adverse impacteffect on our earningsbusiness, financial condition or results of operations.

We are a community bank, and our reputation is one of the most valuable components of our business. Threats to our reputation can come from many sources, includingincluding: adverse sentiment about financial institutions generally,generally; unethical practices,

Our risk management framework is comprised of various processes, systems and strategies, and is designed to manage the types of risk to which we are subject, including, among others, credit, market, liquidity, interest rate and compliance. Our framework also includes financial or other modeling methodologies that involve management assumptions and judgment. Our risk management framework may not be effective under all circumstances and may not adequately mitigate any risk or loss to us. If

our risk management framework is not effective, we could suffer unexpected losses and our business, financial condition and results of operations could be materially and adversely affected. We may also be subject to potentially adverse regulatory consequences.

OurPandemics, natural disasters, global climate change, acts of terrorism, global conflicts or other similar events have in the past, and may in the future growth prospects will be highly dependenthave, a negative impact on our ability to implement changes in technology that affect the delivery of banking services such as the increased demand for computer or mobile access to bank accounts and the availability to perform banking transactions electronically.  Our ability to compete will depend upon our ability to continue to adapt technology on a timely and cost-effective basis to meet such demands.  In addition, our business and operations could be susceptibleoperations. These events impact us negatively to adverse effects from computer failures, communication and energy disruption, and activities such as fraud of unethical individuals with the technological ability to cause disruptions or failures of our data processing system.

Our business operations could be disrupted if significant portions of operations.our workforce were unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic. Further, work-from-home and other modified business practices may introduce additional operational risks, including cybersecurity and execution risks, which may result in inefficiencies or delays, and may affect our ability to, or the manner in which we, conduct our business activities. Disruptions to our clients could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans.

The occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents could have a material adverse effect on ourCompany’s business, financial condition and results of operations.

Federal and state banking regulators and statessupervisory authorities, investors, and other stakeholders have also enacted data security breach notification requirementsincreasingly viewed financial institutions as important in helping to address the risks related to climate change both directly and with varying levelsrespect to their clients. This may result in financial institutions coming under increased pressure regarding the disclosure and management of individual, consumer,their climate risks and related lending and investment activities. Given that climate change could impose systemic risks upon the financial sector, either via disruptions in economic activity resulting from the physical impacts of climate change or changes in policies as the economy transitions to a less carbon-intensive environment, the Company may face regulatory or law enforcement notification. Moreover, legislators and regulatorsrisk of increasing focus on the Company’s resilience to climate-related risks, including in the United Statescontext of stress testing for various climate stress scenarios. Ongoing legislative or regulatory uncertainties and changes regarding climate risk management and practices may result in higher regulatory, compliance, credit, and reputational risks and costs.

Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their environmental, social and governance (“ESG”) practices and disclosure. Investor advocacy groups, investment funds and influential investors are also increasingly adopting or revising privacy, information securityfocused on these practices, especially as they relate to the environment, health and data protection laws that potentially could have a significant impact on our currentsafety, diversity, labor conditions and planned privacy, data protection and information security-related practices,human rights. Increased ESG-related compliance costs for us as well as onamong our collection, use, sharing, retentionsuppliers, vendors and safeguarding of consumer or employee information.

The processes we use to estimate our inherentprobable incurred loan losses and to measure the fair value of financial instruments, as well as the processes used to estimate the effects of changing interest rates and other market measures on our financial condition and results of operations, depends upon the use of analytical and forecasting models. These models reflect assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances. Even if these assumptions are adequate, the models using those assumptions may prove to be inadequate or inaccurate because of other flaws in their design or their implementation. If the models we use for interest rate risk and asset-liability management are inadequate, we may incur increased or unexpected losses upon changes in market interest rates or other market measures. If the models we use for determining our probable loan losses are inadequate, the allowance for loancredit losses on loans may not be sufficient to support future

Our business is highly regulated, and our operations are subject to extensive supervision and regulation by federal and state and local governmental authorities and weregulatory authorities. We are subject to various laws, regulations, and judicial and administrative decisions imposing requirements and restrictions on part or all of our operations. Similarly, the lending, credit and deposit products we offer are subject to broad oversight and regulation. Because our business is highly regulated, theThe laws, rules, regulations and supervisory guidance and policies applicable to us are subject to regular modification and change. Perennially, various laws, rules and regulations are proposed at the federal, state and local levels of government, which, if adopted, could impact our operations by making compliance much more difficult or expensive, restricting our ability to originate or sell loans or further restricting the amount of interest or other charges or fees earned on loans or other products. Current and future legal and regulatory requirements, restrictions and regulations, including those imposed under Dodd-Frank, may adversely impact our profitability and may have a material and adverse effect on our business, financial condition, and results of operations,operations. While the banking regulators continue to refine existing regulations implemented after the 2007-2008 financial crisis, currently they are also focusing their attention on certain policy areas, such as climate risk, digital currencies, and technological innovation. This new focus may require us to invest significant management attention and resources to evaluate and make any changes required by the legislation and accompanying rules, and may make it more difficult for us to attract and retain qualified executive officers and employees.

The Bank Secrecy Act, the USA PATRIOT Act of 2001, and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate. The federal Financial Crimes Enforcement Network is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration, and Internal Revenue Service. We are also subject to scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control and compliance with the Foreign Corrupt Practices Act. If our policies, procedures, and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could materially and adversely affect our business, financial condition and results of operations.

We are not restricted from issuing additional shares of common stock or securities that are convertible into or exchangeable for, or that represent the right to receive, common stock.We frequently evaluate opportunities to access the capital markets taking into account our regulatory capital ratios, financial condition and other relevant considerations, and subject to market conditions, we may take further capital actions.Such actions could include, among other things, the issuance

The issuance of any additional shares of common stock or securities convertible into or exchangeable for common stock or that represent the right to receive common stock, or the exercise of such securities including, without limitation, securities issued upon exercise of outstanding stock options under our stock option plans, could be substantially dilutive to shareholders of our common stock.With the exception of one major shareholder, holders Holders of our shares of common stock have no preemptive rights that entitle holders to purchase their pro rata share of any offering of shares of any class or series and, therefore, such sales or offerings could result in increased dilution to our shareholders.The market price of our common stock could decline as a result of sales of shares of our common stock or the perception that such sales could occur.

At times, the stock market and, in particular, the market for financial institution stocks, has experienced significant volatility, which has reached unprecedented levels. In some cases, the markets have produced downward pressure on stock prices for certain issuers without regard to those issuers’ underlying financial strength. As a result, the trading volume in our common stock may fluctuate more than usual and cause significant price variations to occur. This may make it difficult for shareholders to resell shares of common stock at times or at prices youthey find attractive. The low trading volume in our common shares on the NASDAQ Capital Market means that our shares may have less liquidity than other publicly traded companies. We cannot ensure that the volume of trading in our common shares will be maintained or will increase in the future.

The trading price of the shares of our common stock will depend on many factors, which may change from time to time and which may be beyond our control including the other factors identified above in the forward-looking statement discussion under the section titled “Cautionary Statements Regarding Forward-Looking Statements” and below.control. Broad market fluctuations have adversely affected and may continue to adversely affect the market price of our common stock. Among the factors that could affect our stock price are:

Since 2000, our board of directors have declared quarterly cash dividends on our common stock. However, we have no obligation to continue doing so and may change our dividend policy at any time without notice to holders of our common stock. Holders of our common stock is not an insured deposit.are only entitled to receive such cash dividends, as our board of directors, in its discretion, may declare out of funds legally available for such payments. Furthermore, consistent with our strategic plans, growth initiatives, capital availability, projected liquidity needs, and other factors, we have made, and will continue to make, capital management decisions and policies that could adversely affect the amount of dividends paid to holders of our common stock and the maintenance of share repurchase program. For more information on the statutory and regulatory limitations relating to dividends and stock repurchases see “Description of Business-Supervision and Regulation-Payment of Dividends and Stock Repurchases.”

The holders of our debt obligations if any, will have priority over our common stock with respect to payment in the event of liquidation, dissolution or winding up and with respect to the payment of interest and dividends. In any liquidation, dissolution or winding up of the Company, our common stock would rank below all claims of the holders of outstanding debt issued by the Company. As of December 31, 2023, we had $65.0 million principal amount of senior debt and subordinated notes outstanding through 2032. In addition, as of December 31, 2023, we had $5.15 million of trust preferred securities outstanding due 2036. In such asevent, holders of our common stock would not be entitled to receive any payment or other distribution of assets upon the Bank. These provisions may prevent a mergerliquidation, dissolution or acquisition that would be attractivewinding up of the Company until after all of the Company’s obligations to shareholdersthe debt holders were satisfied and could limitholders of the price investors would be willingsubordinated debt and trust preferred securities subordinate debentures had received any payment or distribution due to them. In addition, we are required to pay interest on the senior debt, subordinated notes, and trust preferred securities and if we are in default in the future forpayment of interest we would not be able to pay any dividends on our common stock.

The CompanyProvisions of our charter documents and the California General Corporation Law, or the CGCL, could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial by our shareholders. Furthermore, with certain limited exceptions, federal regulations prohibit a person or company or a group of persons deemed to be “acting in concert” from, directly or indirectly, acquiring more than 10% (5% if the acquirer is a legal entity separate and distinct frombank holding company) of any class of our voting stock or obtaining the Bank. The Company’s principal source of cash flow, including cash flow to pay dividends to our shareholders, is dividends from the Bank. The Company’s ability to pay dividendscontrol in any manner the election of a majority of our directors or otherwise direct the management or policies of our company without prior notice or application to and the approval of the Federal Reserve. Under the California Financial Code, no person may, directly or indirectly, acquire control of a California state bank or its stockholders is substantially dependent uponholding company unless the Bank’s abilityDFPI has approved such acquisition of control. A person would be deemed to pay dividendshave acquired control of if such person, directly or indirectly, has the power (i) to vote 25% or more of the Company. Federal and state law imposes limits on the abilityvoting power of the Bank or (ii) to pay dividendsdirect or cause the direction of the management and makepolicies of the Bank. For purposes of this law, a person who directly or indirectly owns or controls 10% or more of our outstanding common stock would be presumed to control the Bank. Accordingly, prospective investors need to be aware of and comply with these requirements, if applicable, in connection with any purchase of shares of our common stock. Moreover, the combination of these provisions effectively inhibits certain mergers or other distributions and payments. Ifbusiness combinations, which, in turn, could adversely affect the Bank is unable to meet regulatory requirements to pay dividends or make other distributions to the Company, the Company will be unable to pay dividends to its shareholders.market price of our common stock.

 

The Company owns the property on which full-service branch offices are situated at the following California locations: the Clovis Main office in Clovis,Office, the Foothill office in Prather the Modesto office,Office, the Kerman office, the Floral office in Visalia, and the Exeter office.

All other property is leased by the Company, including the principal executive offices in Fresno, which houses the Company’s corporate offices, comprised of various departments, including accounting and finance, business lending for real estate, SBA, and agribusiness, information services, human resources, real estate department, loan servicing,operations, credit review administration, branch support operations,banking services administration, risk management, and compliance.

The Company continually evaluates the suitability and adequacy of the Company’s offices and has a program of relocating or remodeling them as necessary to be efficient and attractive facilities. Management believes that its existing facilities are adequate for its present purposes.

 

The Company is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to such actions will not materially affect the consolidated financial position or consolidated results of operations of the Company.

 

 

Our common stock is listed for trading on the Nasdaq Capital Market under the ticker symbol CVCY. As of March 5, 2021,February 29, 2024, we had approximately 934891 shareholders of record.

The amount of future dividends will depend upon our earnings, financial condition, capital requirements and other factors, and will be determined by our board of directors on a quarterly basis. It is Federal Reserve policy that bank holding companies

generally pay dividends on common stock only out of income available over the past year, and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. It is also Federal Reserve policy that bank holding companies not maintain dividend levels that undermine the holding company’s ability to be a source of strength to its banking subsidiaries. Additionally, the Federal Reserve has indicated that bank holding companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum allowable levels unless both asset quality and capital are very strong. Under the federal Prompt Corrective Action regulations, the Federal Reserve or the FDIC may prohibit a bank holding company from paying any dividends if the holding company’s bank subsidiary is classified as undercapitalized.

As a holding company, our ability to pay cash dividends is affected by the ability of our bank subsidiary, to pay cash dividends. The ability of the Bank (and our ability) to pay cash dividends in the future and the amount of any such cash dividends is and could be in the future further influenced by bank regulatory requirements and approvals and capital guidelines.

The decision whether to pay dividends will be made by our board of directors in light of conditions then existing, including factors such as our results of operations, financial condition, business conditions, regulatory capital requirements and covenants under any applicable contractual arrangements, including agreements with regulatory authorities.

For information on the statutory and regulatory limitations on the ability of the Company to pay dividends and on the Bank to pay dividends to Company see “Item 1 - Business - Supervision and Regulation - Dividends.”

Management’s discussion and analysis should be read in conjunction with the Company’s audited Consolidated Financial Statements, including the Notes thereto, in Item 8 of this Annual Report.

INTRODUCTION

During 2020,2023, we focused on managing the COVID-19 affects on businesses, customersasset quality, liquidity, and employees.capital adequacy.  We also focused on assuring that competitive products and services were made available to our clients while adjusting to the many new laws and regulations that affect the banking industry.

As of December 31, 2020,2023, the Bank operated 2019 full-service offices. Additionally, the Bank maintains a Commercial Real Estate Division, an Agribusiness Center, and a SBA Lending Division.  The Real Estate Division processes or assists in processing the majority of the Bank’s real estate related transactions, including interim construction loans for single family residences and commercial buildings. We offer permanent single family residential loans through our mortgage broker services.

 

The Company declared a $0.11$0.12 per common share cash dividend, payable on February 26, 202119, 2024 to shareholders of record on February 12, 2021.2, 2024.

  

One measure of our return to our shareholders is the return on average equity (ROE), which is a ratio that measures net income divided by average shareholders’ equity. Our ROE was 8.85%13.81% for the year ended 20202023 compared to 9.39%14.25% and 10.07%11.5% for the years ended 20192022 and 2018,2021, respectively. 

Our net income for the year ended December 31, 20202023 decreased $1,096,000$1,109,000 compared to 20192022 and increased $154,000decreased $1,756,000 in 20192022 compared to 2018.2021.  Contributing to the decrease during 20202023, compared to 20192022, was an increase in salary and employee benefits and non-interest expenses primarily attributed to increases in professional services. During 2022, net income compared to 2021 was primarily impacted by a provision for credit losses of $995,000 in 2022, compared to a decreasecredit to credit losses of $4,435,000 in net realized gains on sales2021.

Net interest income increased primarily due to loan and calls of investment securities, a decrease in service chargefee income and an increaseincreases in non-interest expense,interest income on investments, partially offset by an increase in interest expense. For 2023, our net interest income, an increase in loan placement fees, and a decrease in the provision for income taxes. During 2019, net incomemargin (NIM) increased 6 basis points to 3.58% compared to 2018 was positively impacted by an increase in net2022 as a result of yield and asset mix changes. Net interest income and an increase in net realized gains on sales and calls of investment securities.  During 2018 net income was positively impacted by the decrease in tax expense.

Non-interest income increased 3.70%38.90% in 20202023 compared to 20192022 primarily due to an increase in loan placement fees of $1,313,000, an increase of $1,059,000 in other income, partially offset by a $947,000$823,000 decrease in net realized gainslosses on sales and calls of investment securities and an increase of $1,468,000 in other income, offset by a decrease in loan placement fees of $315,000 and a decrease in service charge income of $685,000, and a $132,000 decrease in Federal Home Loan Bank dividends.$511,000. The increase in other income resulted from a $1,167,000 gain relatedis primarily attributed to the collectionchanges in fair value of tax-exempt life insurance proceeds.other equity investments and increase in certain merchant fee activity.

Non-interest expenses increased $1,584,000$6,816,000 or 3.44%14.06% to $47,684,000$55,300,000 in 20202023 compared to $46,100,000$48,484,000 in 2019.2022. The net increase year over year resulted from increases inincreased salaries and employee benefits of $1,949,000,$2,450,000 and $1,906,000 in professional services. The increase in salaries and benefits, including director expenses, was primarily due to credits of $550,000 in post-retirement costs recorded in the prior year, a result of changes in the discount rate, compared to expense of $910,000 recorded in the current year. Additionally, increases in salaries and benefits were a reflection of salary adjustments due to market conditions. The increase in professional services of $1,093,000, data processing of $489,000, regulatory assessments of $239,000,was due to non-recurring legal and operating losses of $40,000, offset by decreases in occupancy and equipment expenses of $813,000, information technology of $220,000, amortization of software of $227,000, internet banking of $166,000, credit card expenses of $114,000, and directors’ expenses of $95,000, in 2020 comparedprofessional fees, including $1,191,000 related to 2019. the announced merger.

The Company recorded an income tax provision of $6,914,000$8,304,000 for the year ended December 31, 2020,2023, compared to $8,509,000$8,496,000 for the year ended December 31, 2019,2022, and $6,620,000$9,616,000 for the year ended December 31, 2018.2021. Basic EPS was $1.62$2.17 for 20202023 compared to $1.60$2.27 and $1.55$2.32 for 20192022 and 2018,2021, respectively.  Diluted EPS was $1.62$2.17 for 20202023 compared to $1.59$2.27 and $1.54$2.31 for 20192022 and 2018,2021, respectively. 

Our ROA is a ratio that measures our performance comparedas a comparable figure with other banks and bank holding companies.  Our ROA for the year ended 20202023 was 1.11%1.04% compared to 1.36%1.09% and 1.35%1.25% for the years ended December 31, 20192022 and 2018,2021, respectively.  The 20202023 decrease in ROA is primarily due to the decrease in net income and ancoupled with the increase in average assets.assets.  Annualized ROA for our peer group was 1.06%1.04% at December 31, 2020.2023.  Peer group information from S&P Global Market Intelligence data includes bank holding companies in central California with assets from $1 billion to $3.5 billion.

 

 

For all banks and bank holding companies, asset quality has a significant impact on the overall financial condition and results of operations.  Asset quality is measured in terms of classified and nonperforming loans, and is a key element in estimating the future earnings of a company. TotalThere were no nonperforming assets were $3,278,000 and $1,693,000or nonperforming loans at December 31, 2020 and 2019, respectively.  Nonperforming assets totaled 0.30% of gross loans as of2023 or December 31, 2020 and 0.18% of gross loans as of December 31, 2019. Nonperforming loans were $3,278,000 and $1,693,000 at December 31, 2020 and 2019, respectively.  2022. 

The Company had no other real estate owned at December 31, 2020,2023, or December 31, 2019.2022. No foreclosed

The allowance for credit losses as a percentage of outstanding loan balance was 1.17%1.14% as of December 31, 20202023 and 0.97%0.86% as of December 31, 2019.2022. The ratio of net recoveries (charge-offs)charge-offs/(recoveries) to average loans was 0.05%0.002% as of December 31, 20202023 and (0.11)(0.02)% as of December 31, 2019.2022.

 

As revenues from both net interest income and non-interest income are a function of asset size, the continued growth in assets has a direct impact in increasing net income and therefore ROE and ROA.  The majority of our assets are loans and investment securities, and the majority of our liabilities are deposits, and therefore the ability to generate deposits as a funding source for loans and investments is fundamental to our asset growth.  Total assets increased 25.51%0.45% during 20202023 to $2,004,096,000$2,433,426,000 as of December 31, 20202023 from $1,596,755,000$2,422,519,000 as of December 31, 2019.2022.  Total gross loans increased 16.85%2.75% to $1,102,347,000$1,290,797,000 as of December 31, 2020,2023, compared to $943,380,000$1,256,304,000 at December 31, 2019.2022.  Total investment securities increased 50.08%decreased 5.64% to $717,726,000$906,287,000 as of December 31, 20202023 compared to $478,218,000$960,490,000 as of December 31, 2019.2022.  Total deposits increased 29.21%decreased 2.76% to $1,722,710,000$2,041,612,000 as of December 31, 20202023 compared to $1,333,285,000$2,099,649,000 as of December 31, 2019.  2022. 

Our loan to deposit ratio at December 31, 20202023 was 63.99%63.22% compared to 70.76%59.83% at December 31, 2019.2022.  The loan to deposit ratio of our peers was 80.00%78.00% at December 31, 2020.2023. Peer group information from S&P Global Market Intelligence data includes bank holding companies in central California with assets from $1 billion to $3.5 billion.

As of December 31, 2020,2023, the Bank met or exceeded all of their capital requirements inclusive of the capital buffer. The Bank’s capital ratios exceeded the regulatory guidelines for a well-capitalized financial institution under the Basel III regulatory requirements at December 31, 2020.2023.

Operating efficiency is the measure of how efficiently earnings before taxes are generated as a percentage of revenue.  A lower ratio represents greater efficiency.  The Company’s efficiency ratio (operating expenses, excluding amortization of intangibles and foreclosed property expense, divided by net interest income plus non-interest income, excluding net gains and losses from sale of securities) was 64.08%60.49% for 20202023 compared to 62.77%54.51% for 20192022 and 61.23%57.16% for 2018.2021.  The slight increasedecline in the efficiency ratiosratio in 2020 and 20192023 was due to the growth in non-interest expense outpacing the growthincrease in non-interest income. The combination of the Company’s net interest income before provision for credit losses, plus non-interest income, increased 1.48%5.71% to $78,220,000$89,449,000 in 20202023 compared to $77,077,000$84,620,000 in 20192022 and $73,027,000$81,559,000 in 2018,2021, while operating expenses increased 3.44%14.06% in 2020, 2.29%2023, 1.06% in 2019,2022, and 1.49%0.33% in 2018.2021.

 

Liquidity management involves our ability to meet cash flow requirements arising from fluctuations in deposit levels and demands of daily operations, which include providing for customers’ credit needs, funding of securities purchases, and ongoing repayment of borrowings. Our liquidity is actively managed on a daily basis and reviewed periodically by our management and Directors’ Asset/Liability Committee. This process is intended to ensure the maintenance of sufficient funds to meet our needs, including adequate cash flows for off-balance sheet commitments. Our primary sources of liquidity are derived from financing activities which include the acceptance of customer and, to a lesser extent, broker deposits, Federal funds facilities and advances from the Federal Home Loan Bank of San Francisco.Francisco, the Federal Reserve, or the Federal Reserve’s Bank Term Funding Program.  We have available unsecured lines of credit with correspondent banks totaling approximately $110,000,000 and secured borrowing lines of approximately $235,371,000

We had liquid assets (cash and due from banks, interest-earning deposits in other banks, Federal funds sold, equity securities, and available-for-sale securities) totaling $788,004,000$657,573,000 or 39.32%27.02% of total assets at December 31, 20202023 and $530,792,000$686,553,000 or 33.24%28.34% of total assets as of December 31, 2019.