UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED ~~June~~September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 000-31977

CENTRAL VALLEY COMMUNITY BANCORP

(Exact name of registrant as specified in its charter)


California						77-0539125
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


7100 N. Financial Dr., Suite 101, Fresno, California						93720
(Address of principal executive offices)						(Zip code)

Registrant’s telephone number (559) 298-1775

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

Common Stock, no par value

CVCY

NASDAQ Capital Market

(Title of Each Class)

(Trading Symbol)

(Name of Each Exchange on which Registered)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Small reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~August 2,~~November 1, 2021 there were ~~11,984,214~~11,988,004 shares of the registrant’s common stock outstanding.

CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY

2021 QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


PART 1	FINANCIAL INFORMATION	2

ITEM 1	FINANCIAL STATEMENTS (Unaudited)	3

ITEM 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	31

ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	6160

ITEM 4	CONTROLS AND PROCEDURES	6160

PART II	OTHER INFORMATION	6261

ITEM 1	LEGAL PROCEEDINGS	6261

ITEM 1A	RISK FACTORS	6261

ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	6261

ITEM 3	DEFAULTS UPON SENIOR SECURITIES	6261

ITEM 4	MINE SAFETY DISCLOSURES	6261

ITEM 5	OTHER INFORMATION	6261

ITEM 6	EXHIBITS	6362

SIGNATURES		6463

PART 1: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In thousands, except share amounts)	(In thousands, except share amounts)	June 30, 2021		December 31, 2020		(In thousands, except share amounts)	September 30, 2021		December 31, 2020

ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	39,346	$	34,175	Cash and due from banks	$	32,634	$	34,175
Interest-earning deposits in other banks	Interest-earning deposits in other banks	81,320		36,103		Interest-earning deposits in other banks	35,059		36,103

Total cash and cash equivalents	Total cash and cash equivalents	120,666		70,278		Total cash and cash equivalents	67,693		70,278
Available-for-sale debt securities	Available-for-sale debt securities	952,416		710,092		Available-for-sale debt securities	1,060,362		710,092
Equity securities	Equity securities	7,522		7,634		Equity securities	7,486		7,634

Loans, less allowance for credit losses of $10,439 at June 30, 2021 and $12,915 at December 31, 2020		1,059,506		1,089,432
Loans, less allowance for credit losses of $10,061 at September 30, 2021 and $12,915 at December 31, 2020						Loans, less allowance for credit losses of $10,061 at September 30, 2021 and $12,915 at December 31, 2020	1,073,436		1,089,432
Bank premises and equipment, net	Bank premises and equipment, net	8,465		8,228		Bank premises and equipment, net	8,429		8,228

Bank-owned life insurance	Bank-owned life insurance	39,062		28,713		Bank-owned life insurance	39,309		28,713
Federal Home Loan Bank stock	Federal Home Loan Bank stock	5,595		5,595		Federal Home Loan Bank stock	5,595		5,595
Goodwill	Goodwill	53,777		53,777		Goodwill	53,777		53,777
Core deposit intangibles	Core deposit intangibles	835		1,183		Core deposit intangibles	662		1,183
Accrued interest receivable and other assets	Accrued interest receivable and other assets	32,706		29,164		Accrued interest receivable and other assets	31,628		29,164
Total assets	Total assets	$	2,280,550	$	2,004,096	Total assets	$	2,348,377	$	2,004,096
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:	Deposits:					Deposits:
Non-interest bearing	Non-interest bearing	$	899,406	$	824,889	Non-interest bearing	$	934,249	$	824,889
Interest bearing	Interest bearing	1,079,688		897,821		Interest bearing	1,123,843		897,821
Total deposits	Total deposits	1,979,094		1,722,710		Total deposits	2,058,092		1,722,710

Junior subordinated deferrable interest debentures	Junior subordinated deferrable interest debentures	5,155		5,155		Junior subordinated deferrable interest debentures	5,155		5,155
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	45,252		31,210		Accrued interest payable and other liabilities	38,582		31,210
Total liabilities	Total liabilities	2,029,501		1,759,075		Total liabilities	2,101,829		1,759,075
Commitments and contingencies (Note 7)	Commitments and contingencies (Note 7)	0		0		Commitments and contingencies (Note 7)	0		0
Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:

Preferred stock, no par value; 10,000,000 shares authorized, none issued and outstanding	Preferred stock, no par value; 10,000,000 shares authorized, none issued and outstanding	0		0		Preferred stock, no par value; 10,000,000 shares authorized, none issued and outstanding	—		—
Common stock, no par value; 80,000,000 shares authorized; issued and outstanding: 12,329,089 at June 30, 2021 and 12,509,848 at December 31, 2020		75,265		79,416
Common stock, no par value; 80,000,000 shares authorized; issued and outstanding: 11,987,904 at September 30, 2021 and 12,509,848 at December 31, 2020						Common stock, no par value; 80,000,000 shares authorized; issued and outstanding: 11,987,904 at September 30, 2021 and 12,509,848 at December 31, 2020	68,265		79,416

Retained earnings	Retained earnings	162,910		150,749		Retained earnings	167,993		150,749
Accumulated other comprehensive income, net of tax	Accumulated other comprehensive income, net of tax	12,874		14,856		Accumulated other comprehensive income, net of tax	10,290		14,856
Total shareholders’ equity	Total shareholders’ equity	251,049		245,021		Total shareholders’ equity	246,548		245,021
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	2,280,550	$	2,004,096	Total liabilities and shareholders’ equity	$	2,348,377	$	2,004,096

See notes to unaudited consolidated financial statements.

CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


		For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(In thousands, except share and per-share amounts)	(In thousands, except share and per-share amounts)	2021		2020		2021		2020		(In thousands, except share and per-share amounts)	2021		2020		2021		2020
INTEREST INCOME:	INTEREST INCOME:									INTEREST INCOME:
Interest and fees on loans	Interest and fees on loans	$	13,556	$	12,600	$	27,321	$	25,498	Interest and fees on loans	$	13,208	$	13,190	$	40,529	$	38,688
Interest on deposits in other banks	Interest on deposits in other banks	29		13		61		196		Interest on deposits in other banks	28		26		89		222

Interest and dividends on investment securities:	Interest and dividends on investment securities:									Interest and dividends on investment securities:
Taxable	Taxable	3,361		2,959		6,094		6,225		Taxable	3,844		2,771		9,938		8,996
Exempt from Federal income taxes	Exempt from Federal income taxes	1,409		412		2,726		571		Exempt from Federal income taxes	1,417		444		4,143		1,015
Total interest income	Total interest income	18,355		15,984		36,202		32,490		Total interest income	18,497		16,431		54,699		48,921
INTEREST EXPENSE:	INTEREST EXPENSE:									INTEREST EXPENSE:
Interest on deposits	Interest on deposits	252		374		520		806		Interest on deposits	263		363		783		1,169
Interest on junior subordinated deferrable interest debentures	Interest on junior subordinated deferrable interest debentures	22		36		46		81		Interest on junior subordinated deferrable interest debentures	24		25		70		106

Total interest expense	Total interest expense	274		410		566		887		Total interest expense	287		388		853		1,275
Net interest income before provision for credit losses	Net interest income before provision for credit losses	18,081		15,574		35,636		31,603		Net interest income before provision for credit losses	18,210		16,043		53,846		47,646
(REVERSAL OF) PROVISION FOR CREDIT LOSSES	(REVERSAL OF) PROVISION FOR CREDIT LOSSES	(1,500)		3,000		(3,300)		4,375		(REVERSAL OF) PROVISION FOR CREDIT LOSSES	(500)		600		(3,800)		4,975
Net interest income after provision for credit losses	Net interest income after provision for credit losses	19,581		12,574		38,936		27,228		Net interest income after provision for credit losses	18,710		15,443		57,646		42,671
NON-INTEREST INCOME:	NON-INTEREST INCOME:									NON-INTEREST INCOME:
Service charges	Service charges	467		447		899		1,093		Service charges	487		463		1,386		1,556
Appreciation in cash surrender value of bank-owned life insurance	Appreciation in cash surrender value of bank-owned life insurance	176		176		349		358		Appreciation in cash surrender value of bank-owned life insurance	247		178		596		536
Interchange fees	Interchange fees	471		307		841		640		Interchange fees	472		355		1,313		995

Net realized gains (losses) on sales of investment securities		(79)		(58)		(79)		4,140
Net realized gains on sales and calls of investment securities										Net realized gains on sales and calls of investment securities	117		57		38		4,197

Federal Home Loan Bank dividends	Federal Home Loan Bank dividends	83		75		153		182		Federal Home Loan Bank dividends	84		71		237		253
Loan placement fees	Loan placement fees	510		561		1,167		860		Loan placement fees	467		685		1,634		1,545
Other income	Other income	449		537		746		1,315		Other income	274		262		1,020		1,577
Total non-interest income	Total non-interest income	2,077		2,045		4,076		8,588		Total non-interest income	2,148		2,071		6,224		10,659
NON-INTEREST EXPENSES:	NON-INTEREST EXPENSES:									NON-INTEREST EXPENSES:
Salaries and employee benefits	Salaries and employee benefits	6,979		6,812		13,917		14,324		Salaries and employee benefits	7,091		6,729		21,008		21,053
Occupancy and equipment	Occupancy and equipment	1,201		1,139		2,314		2,283		Occupancy and equipment	1,224		1,196		3,538		3,479
Professional services	Professional services	475		522		831		980		Professional services	507		715		1,338		1,695
Data processing	Data processing	625		554		1,242		890		Data processing	599		594		1,841		1,484
Regulatory assessments	Regulatory assessments	172		146		333		193		Regulatory assessments	219		147		552		340
ATM/Debit card expenses	ATM/Debit card expenses	191		187		416		481		ATM/Debit card expenses	199		144		615		625
Information technology	Information technology	611		602		1,170		1,210		Information technology	891		594		2,061		1,804
Directors’ expenses	Directors’ expenses	113		136		154		328		Directors’ expenses	152		140		306		468
Advertising	Advertising	128		167		257		340		Advertising	129		167		386		507
Internet banking expense	Internet banking expense	84		182		208		378		Internet banking expense	54		167		262		545

Amortization of core deposit intangibles	Amortization of core deposit intangibles	173		173		347		347		Amortization of core deposit intangibles	174		174		521		521

Other	Other	878		878		1,829		1,823		Other	823		961		2,652		2,784
Total non-interest expenses	Total non-interest expenses	11,630		11,498		23,018		23,577		Total non-interest expenses	12,062		11,728		35,080		35,305
Income before provision for income taxes	Income before provision for income taxes	10,028		3,121		19,994		12,239		Income before provision for income taxes	8,796		5,786		28,790		18,025
Provision for income taxes	Provision for income taxes	2,465		820		4,952		3,315		Provision for income taxes	2,275		1,442		7,227		4,757

Net income	Net income	$	7,563	$	2,301	$	15,042	$	8,924	Net income	$	6,521	$	4,344	$	21,563	$	13,268
Earnings per common share:	Earnings per common share:									Earnings per common share:
Basic earnings per share	Basic earnings per share	$	0.61	$	0.18	$	1.20	$	0.71	Basic earnings per share	$	0.54	$	0.35	$	1.75	$	1.06
Weighted average common shares used in basic computation	Weighted average common shares used in basic computation	12,498,809		12,449,283		12,497,217		12,592,126		Weighted average common shares used in basic computation	12,007,689		12,471,070		12,332,248		12,551,480
Diluted earnings per share	Diluted earnings per share	$	0.60	$	0.18	$	1.20	$	0.71	Diluted earnings per share	$	0.54	$	0.35	$	1.74	$	1.05
Weighted average common shares used in diluted computation	Weighted average common shares used in diluted computation	12,548,044		12,486,681		12,548,101		12,646,403		Weighted average common shares used in diluted computation	12,044,896		12,496,174		12,378,591		12,596,172
Cash dividend per common share	Cash dividend per common share	$	0.12	$	0.11	$	0.23	$	0.22	Cash dividend per common share	$	0.12	$	0.11	$	0.35	$	0.33

See notes to unaudited consolidated financial statements.

CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


		For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(In thousands)	(In thousands)	2021		2020		2021		2020		(In thousands)	2021		2020		2021		2020
Net income	Net income	$	7,563	$	2,301	$	15,042	$	8,924	Net income	$	6,521	$	4,344	$	21,563	13,268
Other Comprehensive Income:	Other Comprehensive Income:									Other Comprehensive Income:
Unrealized gains (losses) on securities:	Unrealized gains (losses) on securities:									Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period	Unrealized holding gains (losses) arising during the period	10,729		12,366		(2,892)		10,679		Unrealized holding gains (losses) arising during the period	(3,552)		5,798		(6,444)		16,477
Reclassification of net (gains) losses included in net income		79		58		79		(4,140)
Reclassification of net gains included in net income										Reclassification of net gains included in net income	(117)		(57)		(38)		(4,197)

Other comprehensive income, before tax		10,808		12,424		(2,813)		6,539
Other comprehensive income (loss), before tax										Other comprehensive income (loss), before tax	(3,669)		5,741		(6,482)		12,280
Tax effect	Tax effect	(3,196)		(3,673)		831		(1,933)		Tax effect	1,085		(1,698)		1,916		(3,631)
Total other comprehensive loss		7,612		8,751		(1,982)		4,606
Total other comprehensive income (loss)										Total other comprehensive income (loss)	(2,584)		4,043		(4,566)		8,649
Comprehensive income	Comprehensive income	$	15,175	$	11,052	$	13,060	$	13,530	Comprehensive income	$	3,937	$	8,387	$	16,997	$	21,917

See notes to unaudited consolidated financial statements.

CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

THREE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2021 AND 2020

(Unaudited)


		Common Stock						Accumulated Other Comprehensive Income (Loss) (Net of Taxes)				Total Shareholders’ Equity												Common Stock						Accumulated Other Comprehensive Income (Loss) (Net of Taxes)				Total Shareholders’ Equity
		Retained Earnings		Accumulated Other Comprehensive Income (Loss) (Net of Taxes)	Total Shareholders’ Equity																Retained Earnings		Accumulated Other Comprehensive Income (Loss) (Net of Taxes)	Total Shareholders’ Equity
(In thousands, except share amounts)	(In thousands, except share amounts)		Amount				Total Shareholders’ Equity										(In thousands, except share amounts)					Retained Earnings				Shares	Accumulated Other Comprehensive Income (Loss) (Net of Taxes)										Total Shareholders’ Equity
Balance, March 31, 2020										$	141,147			$	(1,328)		$	218,673
Balance, June 30, 2020																Balance, June 30, 2020									12,494,597					$	79,059			$	142,076			$	228,558
Net income	Net income			—	—					2,301				—					2,301	Net income										—				—				4,344				—			4,344
Other comprehensive income	Other comprehensive income			—	—			—				8,751					8,751		Other comprehensive income										—				—				—				4,043			4,043
Restricted stock granted net of forfeitures	Restricted stock granted net of forfeitures			14,090	—			—				—					0		Restricted stock granted net of forfeitures									392				—				—				—			—
Stock issued under employee stock purchase plan	Stock issued under employee stock purchase plan			4,348	58												58		Stock issued under employee stock purchase plan								4,319			47												47

Stock-based compensation expense	Stock-based compensation expense			—	128			—				—					128		Stock-based compensation expense								—			113				—				—				113
Cash dividend	Cash dividend			—	—			(1,372)				—					(1,372)		Cash dividend								—			—				(1,375)				—				(1,375)
Stock options exercised	Stock options exercised			3,220	19			—				—					19		Stock options exercised								8,350			50				—				—				50

Balance, June 30, 2020				12,494,597	$	79,059		$	142,076			$	7,423				$	228,558
Balance, September 30, 2020																Balance, September 30, 2020									12,507,658			$	79,269			$	145,045			$	11,466			$	235,780

Balance, March 31, 2021				12,524,609	$	79,732		$	156,851			$	5,262				$	241,845
Balance, June 30, 2021																Balance, June 30, 2021									12,329,089			$	75,265			$	162,910			$	12,874			$	251,049
Net income	Net income			—	—			7,563				—					7,563		Net income								—			—				6,521				—				6,521
Other comprehensive income	Other comprehensive income			—	—			—				7,612					7,612		Other comprehensive income								—			—				—				(2,584)				(2,584)
Restricted stock granted net of forfeitures				20,967	—			—				—					—

Stock issued under employee stock purchase plan	Stock issued under employee stock purchase plan			3,292	54			—				—					54		Stock issued under employee stock purchase plan								2,470			48				—				—				48

Stock-based compensation expense	Stock-based compensation expense			—	109			—				—					109		Stock-based compensation expense								—			100				—				—				100
Cash dividend	Cash dividend			—	—			(1,504)				—					(1,504)		Cash dividend								—			—				(1,438)				—				(1,438)
Stock options exercised	Stock options exercised			19,900	212			—				—					212		Stock options exercised								1,285			10				—				—				10
Repurchase and retirement of common stock	Repurchase and retirement of common stock			(239,679)	(4,842)			—				—					(4,842)		Repurchase and retirement of common stock								(344,940)			(7,158)				—				—				(7,158)
Balance, June 30, 2021				12,329,089	$	75,265		$	162,910			$	12,874				$	251,049
Balance, September 30, 2021																Balance, September 30, 2021									11,987,904			$	68,265			$	167,993			$	10,290			$	246,548

See notes to unaudited consolidated financial statements.

CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2021 AND 2020


		Common Stock	Retained Earnings	Accumulated Other Comprehensive Income (Loss) (Net of Taxes)	Total Shareholders’ Equity												Common Stock	Retained Earnings		Accumulated Other Comprehensive Income (Loss) (Net of Taxes)	Total Shareholders’ Equity
(In thousands, except share amounts)	(In thousands, except share amounts)						Shares			Amount				(In thousands, except share amounts)					Retained Earnings			Accumulated Other Comprehensive Income (Loss) (Net of Taxes)		Total Shareholders’ Equity			Shares					Amount
Balance, January 1, 2020	Balance, January 1, 2020			13,052,407	$	89,379		$	135,932		$	2,817		228,128		Balance, January 1, 2020														$	135,932				$	2,817				228,128
Net income	Net income			—	—			8,924			—			8,924		Net income								—			—					13,268					—				13,268
Other comprehensive income	Other comprehensive income			—	—			—			4,606			4,606		Other comprehensive income								—			—					—					8,649				8,649

Stock issued under employee stock purchase plan	Stock issued under employee stock purchase plan			7,981	115			—			—			115		Stock issued under employee stock purchase plan								12,300			162					—					—				162
Stock awarded to employees	Stock awarded to employees			6,548	141			—			—			141		Stock awarded to employees								6,548			141					—					—				141
Restricted stock granted net of forfeitures	Restricted stock granted net of forfeitures			14,090	—			—			—			—		Restricted stock granted net of forfeitures								14,482			—					—					—				—

Stock-based compensation expense	Stock-based compensation expense			—	248			—			—			248		Stock-based compensation expense								—			362					—					—				362
Cash dividend	Cash dividend			—	—			(2,780)			—			(2,780)		Cash dividend								—			—					(4,155)					—				(4,155)
Repurchase and retirement of common stock	Repurchase and retirement of common stock			(621,379)	(11,052)			—			—			(11,052)		Repurchase and retirement of common stock								(621,379)			(11,052)					—					—				(11,052)
Stock options exercised	Stock options exercised			34,950	228			—			—			228		Stock options exercised								43,300			277					—					—				277
Balance, June 30, 2020				12,494,597	$	79,059		$	142,076		$	7,423		$	228,558
Balance, September 30, 2020													Balance, September 30, 2020										12,507,658		$	79,269			$	145,045				$	11,466				$	235,780

Balance, January 1, 2021	Balance, January 1, 2021			12,509,848	$	79,416		$	150,749		$	14,856		$	245,021	Balance, January 1, 2021								12,509,848			$	79,416				$	150,749				$	14,856			$	245,021
Net income	Net income			—	—			15,042			—			15,042		Net income								—			—					21,563					—				21,563
Other comprehensive income	Other comprehensive income			—	—			—			(1,982)			(1,982)		Other comprehensive income								—			—					—					(4,566)				(4,566)

Restricted stock granted net of forfeitures	Restricted stock granted net of forfeitures			20,720	—			—			—			—		Restricted stock granted net of forfeitures								20,720			—					—					—				—
Stock issued under employee stock purchase plan	Stock issued under employee stock purchase plan			7,671	110			—			—			110		Stock issued under employee stock purchase plan								10,141			159					—					—				159
Stock awarded to employees	Stock awarded to employees			10,529	158			—			—			158		Stock awarded to employees								10,529			158					—					—				158
Stock-based compensation expense	Stock-based compensation expense			—	210			—			—			210		Stock-based compensation expense								—			310					—					—				310
Cash dividend	Cash dividend			—	—			(2,881)			—			(2,881)		Cash dividend								—			—					(4,319)					—				(4,319)
Stock options exercised	Stock options exercised			20,000	213			—			—			213		Stock options exercised								21,285			222					—					—				222
Repurchase and retirement of common stock	Repurchase and retirement of common stock			(239,679)	(4,842)			—			—			(4,842)		Repurchase and retirement of common stock								(584,619)			(12,000)					—					—				(12,000)
Balance, June 30, 2021				12,329,089	$	75,265		$	162,910		$	12,874		$	251,049
Balance, September 30, 2021													Balance, September 30, 2021										11,987,904		$	68,265			$	167,993				$	10,290				$	246,548

See notes to unaudited consolidated financial statements.

CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		For the Six Months Ended June 30,					For the Nine Months Ended September 30,
(In thousands)	(In thousands)	2021		2020		(In thousands)	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	Net income	$	15,042	$	8,924	Net income	$	21,563	$	13,268
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Net (increase) decrease in deferred loan fees		1,222		(5,975)
Net decrease (increase) in deferred loan fees						Net decrease (increase) in deferred loan fees	2,203		(5,304)
Depreciation	Depreciation	467		462		Depreciation	688		668
Accretion	Accretion	(693)		(666)		Accretion	(1,050)		(994)
Amortization	Amortization	3,578		2,128		Amortization	5,752		3,328
Stock-based compensation	Stock-based compensation	210		248		Stock-based compensation	310		362

(Reversal of) provision for credit losses	(Reversal of) provision for credit losses	(3,300)		4,375		(Reversal of) provision for credit losses	(3,800)		4,975

Net realized losses (gains) on sales and calls of available-for-sale investment securities		79		(4,140)
Net realized gains on sales and calls of available-for-sale investment securities						Net realized gains on sales and calls of available-for-sale investment securities	(38)		(4,197)

Net gain on disposal of premises and equipment	Net gain on disposal of premises and equipment	(8)		(6)		Net gain on disposal of premises and equipment	(8)		(6)

Net change in equity securities	Net change in equity securities	112		(183)		Net change in equity securities	148		(183)

Increase in bank-owned life insurance, net of expenses	Increase in bank-owned life insurance, net of expenses	(349)		(198)		Increase in bank-owned life insurance, net of expenses	(596)		(376)
Net gain on bank-owned life insurance	Net gain on bank-owned life insurance	0		(462)		Net gain on bank-owned life insurance	—		(462)

Net increase in accrued interest receivable and other assets	Net increase in accrued interest receivable and other assets	(3,767)		(1,418)		Net increase in accrued interest receivable and other assets	(1,878)		(1,394)

Net increase in accrued interest payable and other liabilities		14,199		417
Net increase (decrease) in accrued interest payable and other liabilities						Net increase (decrease) in accrued interest payable and other liabilities	7,529		(1,636)
Benefit (provision) for deferred income taxes	Benefit (provision) for deferred income taxes	983		(1,735)		Benefit (provision) for deferred income taxes	1,256		(1,227)
Net cash provided by operating activities	Net cash provided by operating activities	27,775		1,771		Net cash provided by operating activities	32,079		6,822
CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of available-for-sale investment securities	Purchases of available-for-sale investment securities	(271,930)		(202,390)		Purchases of available-for-sale investment securities	(410,308)		(319,707)
Proceeds from sales or calls of available-for-sale investment securities	Proceeds from sales or calls of available-for-sale investment securities	590		122,151		Proceeds from sales or calls of available-for-sale investment securities	10,760		147,811

Proceeds from maturity and principal repayments of available-for-sale investment securities	Proceeds from maturity and principal repayments of available-for-sale investment securities	23,660		16,103		Proceeds from maturity and principal repayments of available-for-sale investment securities	38,727		25,536

Net decrease (increase) in loans	Net decrease (increase) in loans	32,004		(176,105)		Net decrease (increase) in loans	17,593		(160,653)

Purchases of premises and equipment	Purchases of premises and equipment	(704)		(101)		Purchases of premises and equipment	(889)		(307)
Purchases of bank-owned life insurance	Purchases of bank-owned life insurance	(10,000)		(250)		Purchases of bank-owned life insurance	(10,000)		(250)
FHLB stock redeemed	FHLB stock redeemed	0		467		FHLB stock redeemed	—		467
Proceeds from bank-owned life insurance	Proceeds from bank-owned life insurance	0		1,550		Proceeds from bank-owned life insurance	—		1,550
Proceeds from sale of premises and equipment	Proceeds from sale of premises and equipment	9		6		Proceeds from sale of premises and equipment	9		6
Net cash used in investing activities	Net cash used in investing activities	(226,371)		(238,569)		Net cash used in investing activities	(354,108)		(305,547)
CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:					CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand, interest bearing and savings deposits	Net increase in demand, interest bearing and savings deposits	256,426		319,263		Net increase in demand, interest bearing and savings deposits	335,370		353,622
Net decrease in time deposits		(42)		(2,993)
Net increase (decrease) in time deposits						Net increase (decrease) in time deposits	12		(5,693)

Purchase and retirement of common stock	Purchase and retirement of common stock	(4,842)		(11,052)		Purchase and retirement of common stock	(12,000)		(11,052)
Proceeds from stock issued under employee stock purchase plan	Proceeds from stock issued under employee stock purchase plan	110		115		Proceeds from stock issued under employee stock purchase plan	159		162
Proceeds from exercise of stock options	Proceeds from exercise of stock options	213		228		Proceeds from exercise of stock options	222		277

Cash dividend payments on common stock	Cash dividend payments on common stock	(2,881)		(2,780)		Cash dividend payments on common stock	(4,319)		(4,155)

Net cash provided by financing activities	Net cash provided by financing activities	248,984		302,781		Net cash provided by financing activities	319,444		333,161
Increase in cash and cash equivalents		50,388		65,983
(Decrease) increase in cash and cash equivalents						(Decrease) increase in cash and cash equivalents	(2,585)		34,436
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	70,278		52,574		CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	70,278		52,574
CASH AND CASH EQUIVALENTS AT END OF PERIOD	CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	120,666	$	118,557	CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	67,693	$	87,010


		For the Six Months Ended June 30,					For the Nine Months Ended September 30,
(In thousands)	(In thousands)	2021		2020		(In thousands)	2021		2020
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:	SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:					SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for:	Cash paid during the period for:					Cash paid during the period for:
Interest	Interest	$	576	$	937	Interest	$	866	$	1,354
Income taxes	Income taxes	$	6,105	$	2,810	Income taxes	$	6,755	$	5,120
Operating cash flows from operating leases	Operating cash flows from operating leases	$	1,124	$	1,120	Operating cash flows from operating leases	$	1,688	$	1,678

See notes to unaudited consolidated financial statements.

Note 1. Basis of Presentation

The interim unaudited condensed consolidated financial statements of Central Valley Community Bancorp and subsidiary have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). These interim condensed consolidated financial statements include the accounts of Central Valley Community Bancorp and its wholly owned subsidiary Central Valley Community Bank (the Bank) (collectively, the Company). All significant intercompany accounts and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been omitted. The Company believes that the disclosures are adequate to make the information presented not misleading. These interim unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s 2020 Annual Report to Shareholders on Form 10-K. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company’s financial position at ~~June~~September 30, 2021, and the results of its operations and its cash flows for the ~~six-month~~nine-month interim periods ended ~~June~~September 30, 2021 and 2020 have been included. The results of operations for interim periods are not necessarily indicative of results for the full year.

The preparation of these interim unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Management has determined that since all of the banking products and services offered by the Company are available in each branch of the Bank, all branches are located within the same economic environment, and management does not allocate resources based on the performance of different lending or transaction activities, it is appropriate to aggregate the Bank branches and report them as a single operating segment. No customer accounts for more than 10 percent of revenues for the Company or the Bank.

Impact of New Financial Accounting Standards:

FASB Accounting Standards Update (ASU) 2016-13 - Measurement of Credit Losses on Financial Instruments (Subtopic 326): Financial Instruments - Credit Losses, commonly referred to as “CECL,” was issued June 2016. The provisions of the update eliminate the probable initial recognition threshold under current GAAP which requires reserves to be based on an incurred loss methodology. Under CECL, reserves required for financial assets measured at amortized cost will reflect an organization’s estimate of all expected credit losses over the contractual term of the financial asset and thereby require the use of reasonable and supportable forecasts to estimate future credit losses. Because CECL encompasses all financial assets carried at amortized cost, the requirement that reserves be established based on an organization’s reasonable and supportable estimate of expected credit losses extends to held to maturity (“HTM”) debt securities. Under the provisions of the update, credit losses recognized on available for sale (“AFS”) debt securities will be presented as an allowance as opposed to a write-down. In addition, CECL will modify the accounting for purchased loans, with credit deterioration since origination, so that reserves are established at the date of acquisition for purchased loans. Under current GAAP a purchased loan’s contractual balance is adjusted to fair value through a credit discount and no reserve is recorded on the purchased loan upon acquisition. Since under CECL, reserves will be established for purchased loans at the time of acquisition, the accounting for purchased loans is made more comparable to the accounting for originated loans. Finally, increased disclosure requirements under CECL require organizations to present the currently required credit quality disclosures disaggregated by the year of origination or vintage. The FASB expects that the evaluation of underwriting standards and credit quality trends by financial statement users will be enhanced with the additional vintage disclosures. On August 15, 2019, the FASB issued a proposed Accounting Standards Update (ASU), “Financial Instruments -Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates,” that would provide private entities and certain small public companies additional time to implement the standards on CECL, leases, and hedging. The final ASU extends the effective date for SEC filers, such as the Company, that are classified as smaller reporting companies to January 1, 2023.

The Company has formed an internal task force that is responsible for oversight of the Company’s implementation strategy for compliance with provisions of the new standard. The Company has also established a project management governance process to manage the implementation across affected disciplines. An external provider specializing in community bank loss driver and CECL reserving model design as well as other related consulting services has been retained, and we have begun to evaluate potential CECL modeling alternatives. As part of this process, the Company has determined potential loan pool segmentation and sub-segmentation under CECL, as well as begun to evaluate the key economic loss drivers for each segment. Further, the Company has begun developing internal controls around the CECL process, data, calculations and implementation. The Company presently plans to generate and evaluate model scenarios under CECL in tandem with its current reserving processes for interim and annual reporting periods during 2022 due to the fact the Company elected to delay

implementation of the CECL process as allowed by FASB. While the Company is currently unable to reasonably estimate the impact of adopting this new guidance, management expects the impact of adoption will be significantly influenced by the composition and quality of the Company’s loans as well as the economic conditions as of the date of adoption. The Company also anticipates changes to the processes and procedures for calculating the reserve for credit losses and continues to evaluate the potential impact on our consolidated financial statements.

FASB Accounting Standards Update (ASU) 2020-04 - Reference Rate Reform (Subtopic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, was issued March 2020. This ASU provides optional expedients and exceptions for contracts, hedging relationships, and other transactions that reference LIBOR or other reference rates expected to be discontinued because of reference rate reform. The ASU is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is in the process of evaluating the provisions of this ASU and its effects on our consolidated financial statements. The Company believes the adoption of this guidance on activities subsequent to ~~June~~September 30, 2021 through December 31, 2022 will not have a material impact on the consolidated financial statements.

In April 2020, various regulatory agencies, including the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, (“the agencies”) issued a revised interagency statement encouraging financial institutions to work with customers affected by COVID-19 and providing additional information regarding loan modifications. The revised interagency statement clarifies the interaction between the interagency statement issued on March 22, 2020 and the temporary relief provided by Section 4013 of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. Section 4013 allows financial institutions to suspend the requirements to classify certain loan modifications as troubled debt restructurings (“TDRs”). The revised statement also provides supervisory interpretations on past due and nonaccrual regulatory reporting of loan modification programs and regulatory capital. This interagency guidance is expected to reduce the number of TDRs that will be reported in future periods; however, the amount is indeterminable and will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.

Note 2. Fair Value Measurements

Fair Value Hierarchy

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1 — Quoted market prices (unadjusted) for identical instruments traded in active markets that the entity has the ability to access as of the measurement date.

Level 2 —Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. Management monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, we report the transfer at the beginning of the reporting period. The estimated carrying and fair values of the Company’s financial instruments are as follows (in thousands):


		June 30, 2021																September 30, 2021
		Carrying Amount			Fair Value													Carrying Amount			Fair Value
(In thousands)	(In thousands)			Level 1			Level 2			Level 3			Total	(In thousands)						Level 1			Level 2			Level 3			Total
Financial assets:	Financial assets:																Financial assets:
Cash and due from banks	Cash and due from banks	$	39,346		$	39,346		$	0		$	0		$	39,346	Cash and due from banks		$	32,634		$	32,634		$	—		$	—		$	32,634
Interest-earning deposits in other banks	Interest-earning deposits in other banks	81,320			81,320			0			0			81,320		Interest-earning deposits in other banks		35,059			35,059			—			—			35,059

Available-for-sale debt securities	Available-for-sale debt securities	952,416			0			952,416			0			952,416		Available-for-sale debt securities		1,060,362			—			1,060,362			—			1,060,362
Equity securities	Equity securities	7,522			7,522			0			0			7,522		Equity securities		7,486			7,486			—			—			7,486

Loans, net	Loans, net	1,059,506			0			0			1,053,137			1,053,137		Loans, net		1,073,436			—			—			1,065,575			1,065,575
Federal Home Loan Bank stock	Federal Home Loan Bank stock	5,595			N/A			N/A			N/A			N/A		Federal Home Loan Bank stock		5,595			N/A			N/A			N/A			N/A
Accrued interest receivable	Accrued interest receivable	9,417			10			5,754			3,653			9,417		Accrued interest receivable		9,170			8			5,587			3,575			9,170
Financial liabilities:	Financial liabilities:															Financial liabilities:
Deposits	Deposits	1,979,094			1,898,736			89,843			0			1,988,579		Deposits		2,058,092			1,952,489			89,877			—			2,042,366

Junior subordinated deferrable interest debentures	Junior subordinated deferrable interest debentures	5,155			0			0			4,234			4,234		Junior subordinated deferrable interest debentures		5,155			—			—			4,322			4,322
Accrued interest payable	Accrued interest payable	55			0			33			22			55		Accrued interest payable		52			—			29			23			52


		December 31, 2020																December 31, 2020
		Carrying Amount			Fair Value													Carrying Amount			Fair Value
(In thousands)	(In thousands)			Level 1			Level 2			Level 3			Total	(In thousands)						Level 1			Level 2			Level 3			Total
Financial assets:	Financial assets:																Financial assets:
Cash and due from banks	Cash and due from banks	$	34,175		$	34,175		$	0		$	0		$	34,175	Cash and due from banks		$	34,175		$	34,175		$	—		$	—		$	34,175
Interest-earning deposits in other banks	Interest-earning deposits in other banks	36,103			36,103			0			0			36,103		Interest-earning deposits in other banks		36,103			36,103			—			—			36,103

Available-for-sale debt securities	Available-for-sale debt securities	710,092			0			710,092			0			710,092		Available-for-sale debt securities		710,092			—			710,092			—			710,092
Equity securities	Equity securities	7,634			7,634			0			0			7,634		Equity securities		7,634			7,634			—			—			7,634

Loans, net	Loans, net	1,089,432			0			0			1,087,124			1,087,124		Loans, net		1,089,432			—			—			1,087,124			1,087,124
Federal Home Loan Bank stock	Federal Home Loan Bank stock	5,595			N/A			N/A			N/A			N/A		Federal Home Loan Bank stock		5,595			N/A			N/A			N/A			N/A
Accrued interest receivable	Accrued interest receivable	8,834			9			3,617			5,208			8,834		Accrued interest receivable		8,834			9			3,617			5,208			8,834
Financial liabilities:	Financial liabilities:															Financial liabilities:
Deposits	Deposits	1,722,710			1,691,647			90,008			0			1,781,655		Deposits		1,722,710			1,691,647			90,008			—			1,781,655

Junior subordinated deferrable interest debentures	Junior subordinated deferrable interest debentures	5,155			0			0			3,693			3,693		Junior subordinated deferrable interest debentures		5,155			—			—			3,693			3,693
Accrued interest payable	Accrued interest payable	65			0			41			24			65		Accrued interest payable		65			—			41			24			65

These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates.

These estimates are made at a specific point in time based on relevant market data and information about the financial instruments. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the fair values presented.

The methods and assumptions used to estimate fair values are described as follows:

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

(b) Investment Securities — Investment securities in Level 1 are mutual funds and fair values are based on quoted market prices for identical instruments traded in active markets. Fair values for investment securities classified in Level 2 are based on quoted market prices for similar securities in active markets. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators.

(c) Loans — Fair values of loans are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Purchased credit

impaired (PCI) loans are measured at estimated fair value on the date of acquisition. Carrying value is calculated as the present value of expected cash flows and approximates fair value and included in Level 3. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are initially valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for credit losses. For collateral dependent real estate loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. The estimated fair values of financial instruments disclosed above follow the guidance in ASU 2016-01 which prescribes an “exit price” approach in estimating and disclosing fair value of financial instruments incorporating discounts for credit, liquidity, and marketability factors.

(d) FHLB Stock — It is not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability.

(e) Deposits — Fair value of demand deposit, savings, and money market accounts are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. Fair value for fixed and variable rate certificates of deposit are estimated using discounted cash flow analyses using interest rates offered at each reporting date by the Company for certificates with similar remaining maturities resulting in a Level 2 classification.

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

(g) Accrued Interest Receivable/Payable — The fair value of accrued interest receivable and payable is based on the fair value hierarchy of the related asset or liability.

(h) Off-Balance Sheet Instruments — Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not considered significant for financial reporting purposes.

Assets Recorded at Fair Value

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of ~~June~~September 30, 2021:

Recurring Basis

The Company is required or permitted to record the following assets at fair value on a recurring basis as of ~~June~~September 30, 2021 (in thousands).


Description	Description	Fair Value		Level 1		Level 2		Level 3		Description	Fair Value		Level 1		Level 2		Level 3
Available-for-sale debt securities:	Available-for-sale debt securities:									Available-for-sale debt securities:
U.S. Treasury securities	U.S. Treasury securities	$	19,994	$	0	$	19,994	$	0	U.S. Treasury securities	$	10,010	$	—	$	10,010	$	—
U.S. Government agencies	U.S. Government agencies	653		0		653		0		U.S. Government agencies	505		—		505		—
Obligations of states and political subdivisions	Obligations of states and political subdivisions	473,658		0		473,658		0		Obligations of states and political subdivisions	507,920		—		507,920		—
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	227,042		0		227,042		0		U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	228,045		—		228,045		—
Private label mortgage and asset backed securities	Private label mortgage and asset backed securities	180,781		0		180,781		0		Private label mortgage and asset backed securities	253,756		—		253,756		—
Corporate debt securities	Corporate debt securities	50,288		0		50,288		0		Corporate debt securities	60,126		—		60,126		—
Equity securities	Equity securities	7,522		7,522		0		0		Equity securities	7,486		7,486		—		—
Total assets measured at fair value on a recurring basis	Total assets measured at fair value on a recurring basis	$	959,938	$	7,522	$	952,416	$	0	Total assets measured at fair value on a recurring basis	$	1,067,848	$	7,486	$	1,060,362	$	—

Securities in Level 1 are mutual funds and fair values are based on quoted market prices for identical instruments traded in active markets. Fair values for available-for-sale debt securities in Level 2 are based on quoted market prices for similar securities in active markets. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators.

Management evaluates the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total assets, total liabilities or total earnings. During the ~~six~~nine months ended ~~June~~September 30, 2021, no transfers between levels occurred.

There were no Level 3 assets measured at fair value on a recurring basis at or during the ~~six~~nine months ended ~~June~~September 30, 2021. Also there were no liabilities measured at fair value on a recurring basis at ~~June~~September 30, 2021.

Non-recurring Basis

The Company may be required, from time to time, to measure certain assets and liabilities at fair value on a non-recurring basis. These include assets and liabilities that are measured at the lower of cost or fair value that were recognized at

fair value which was below cost at ~~June~~September 30, 2021.


	Fair Value		Level 1		Level 2		Level 3
Impaired loans:




Real estate:

Real estate-construction and other land loans	$	262	$	—	$	—	$	262

At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for credit losses. For collateral dependent real estate loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. The fair value of impaired loans is based on the fair value of the collateral. Impaired loans were determined to be collateral dependent and categorized as Level 3 due to ongoing real estate market conditions resulting in inactive market data, which in turn required the use of unobservable inputs and assumptions in fair value measurements. Impaired loans evaluated under the discounted cash flow method are excluded from the table above. The discounted cash flow methods as prescribed by ASC Topic 310 is not a fair value measurement since the discount rate utilized is the loan’s effective interest rate which is not necessarily a market rate. There were no changes in valuation techniques used during the ~~six~~nine months ended ~~June~~September 30, 2021.

Appraisals for collateral-dependent impaired loans are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value is compared with independent data sources such as recent market data or industry-wide statistics. ~~As of June 30, 2021, there were no~~

Impaired loans that are measured for impairment using the fair value of the collateral for ~~the~~ collateral dependent loans had a principal balance of $304,000 with a valuation allowance of $42,000 at September 30, 2021, and a resulting fair value of $262,000. The valuation allowance represent specific allocations for the allowance for credit losses for impaired loans.

There were 0no charge-offs related to loans carried at fair value during the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020. Activity related to changes in the allowance for loan losses related to impaired loans for the three months ended ~~June~~September 30, 2021 and 2020 was not considered significant for disclosure purposes. There were 0no liabilities measured at fair value on a non-recurring basis at ~~June~~September 30, 2021.

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring and nonrecurring basis as of December 31, 2020:

Recurring Basis

The Company is required or permitted to record the following assets at fair value on a recurring basis as of December 31, 2020 (in thousands).


Description	Description	Fair Value		Level 1		Level 2		Level 3		Description	Fair Value		Level 1		Level 2		Level 3
Available-for-sale debt securities:	Available-for-sale debt securities:									Available-for-sale debt securities:
U.S. Government agencies	U.S. Government agencies	$	680	$	0	$	680	$	0	U.S. Government agencies	$	680	$	—	$	680	$	—
Obligations of states and political subdivisions	Obligations of states and political subdivisions	379,565		0		379,565		0		Obligations of states and political subdivisions	379,565		—		379,565		—
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	216,298		0		216,298		0		U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	216,298		—		216,298		—
Private label mortgage and asset backed securities	Private label mortgage and asset backed securities	83,508		0		83,508		0		Private label mortgage and asset backed securities	83,508		—		83,508		—
Corporate debt securities	Corporate debt securities	30,041		0		30,041		0		Corporate debt securities	30,041		—		30,041		—
Equity securities	Equity securities	7,634		7,634		0		0		Equity securities	7,634		7,634		—		—
Total assets measured at fair value on a recurring basis	Total assets measured at fair value on a recurring basis	$	717,726	$	7,634	$	710,092	$	0	Total assets measured at fair value on a recurring basis	$	717,726	$	7,634	$	710,092	$	—

Management evaluates the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total assets, total liabilities or total earnings. During the year ended December 31, 2020, no transfers between levels occurred.

There were no Level 3 assets measured at fair value on a recurring basis at or during the year ended December 31, 2020. Also there were no liabilities measured at fair value on a recurring basis at December 31, 2020.

Non-recurring Basis

The Company may be required, from time to time, to measure certain assets and liabilities at fair value on a non-recurring basis. These include the following assets and liabilities that are measured at the lower of cost or fair value that were recognized at fair value which was below cost at December 31, 2020 (in thousands):


		Fair Value		Level 1		Level 2		Level 3			Fair Value		Level 1		Level 2		Level 3
Impaired loans:	Impaired loans:									Impaired loans:

Real estate:	Real estate:									Real estate:

Real estate-construction and other land loans	Real estate-construction and other land loans	$	1,260	$	0	$	0	$	1,260	Real estate-construction and other land loans	$	1,260	$	—	$	—	$	1,260

Impaired loans that are measured for impairment using the fair value of the collateral for collateral dependent loans

had a principal balance of $1,528,000 with a valuation allowance of $268,000 at December 31, 2020, and a resulting fair value

of $1,260,000. The valuation allowance represents specific allocations for the allowance for credit losses for impaired loans.

There were 0no liabilities measured at fair value on a non-recurring basis at December 31, 2020.

Note 3. Investments

The investment portfolio consists primarily of U.S. Government sponsored entity and agency securities collateralized by residential mortgage obligations, private label mortgage and asset backed securities (PLMABS), corporate debt securities, and obligations of states and political subdivisions securities. As of ~~June~~September 30, 2021, ~~$191,882,000~~$262,024,000 of these securities were held as collateral for borrowing arrangements, public funds, and for other purposes.

The fair value of the available-for-sale investment portfolio reflected a net unrealized gain of ~~$18,278,000~~$14,609,000 at ~~June~~September 30, 2021 compared to an unrealized gain of $21,091,000 at December 31, 2020. The unrealized gain/(loss) recorded is net of ~~$5,404,000,000~~$4,319,000,000 and $6,235,000 in tax liabilities (benefits) as accumulated other comprehensive income (loss) within shareholders’ equity at ~~June~~September 30, 2021 and December 31, 2020, respectively.

The following table sets forth the carrying values and estimated fair values of our investment securities portfolio at the dates indicated (in thousands):


		June 30, 2021									September 30, 2021
Available-for-Sale Securities	Available-for-Sale Securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Available-for-Sale Securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Debt securities:	Debt securities:									Debt securities:
U.S. Treasury securities	U.S. Treasury securities	$	19,987	$	10	$	(3)	$	19,994	U.S. Treasury securities	$	9,988	$	22	$	—	$	10,010
U.S. Government agencies	U.S. Government agencies	637		16		0		653		U.S. Government agencies	489		16		—		505
Obligations of states and political subdivisions	Obligations of states and political subdivisions	458,250		17,447		(2,039)		473,658		Obligations of states and political subdivisions	494,425		15,844		(2,349)		507,920
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	224,920		3,131		(1,009)		227,042		U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	226,027		2,837		(819)		228,045
Private label mortgage and asset backed securities	Private label mortgage and asset backed securities	180,844		1,293		(1,356)		180,781		Private label mortgage and asset backed securities	255,324		1,184		(2,752)		253,756
Corporate debt securities	Corporate debt securities	49,500		883		(95)		50,288		Corporate debt securities	59,500		878		(252)		60,126
Total available-for-sale	Total available-for-sale	$	934,138	$	22,780	$	(4,502)	$	952,416	Total available-for-sale	$	1,045,753	$	20,781	$	(6,172)	$	1,060,362


		December 31, 2020									December 31, 2020
Available-for-Sale Securities	Available-for-Sale Securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Available-for-Sale Securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Debt securities:	Debt securities:									Debt securities:

U.S. Government agencies	U.S. Government agencies	$	651	$	29	$	0	$	680	U.S. Government agencies	$	651	$	29	$	—	$	680
Obligations of states and political subdivisions	Obligations of states and political subdivisions	361,734		18,170		(339)		379,565		Obligations of states and political subdivisions	361,734		18,170		(339)		379,565
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	214,203		3,575		(1,480)		216,298		U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	214,203		3,575		(1,480)		216,298
Private label mortgage and asset backed securities	Private label mortgage and asset backed securities	82,413		1,337		(242)		83,508		Private label mortgage and asset backed securities	82,413		1,337		(242)		83,508
Corporate debt securities	Corporate debt securities	30,000		260		(219)		30,041		Corporate debt securities	30,000		260		(219)		30,041
Total available-for-sale	Total available-for-sale	$	689,001	$	23,371	$	(2,280)	$	710,092	Total available-for-sale	$	689,001	$	23,371	$	(2,280)	$	710,092

Proceeds and gross realized gains (losses) from the sales or calls of investment securities for the periods ended ~~June~~September 30, 2021 and 2020 are shown below (in thousands):


		For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Available-for-Sale Securities	Available-for-Sale Securities	2021		2020		2021		2020		Available-for-Sale Securities	2021		2020		2021		2020
Proceeds from sales or calls	Proceeds from sales or calls	$	590	$	16,114	$	590	$	122,151	Proceeds from sales or calls	$	10,170	$	25,442	$	10,760	$	147,811
Gross realized gains from sales or calls	Gross realized gains from sales or calls	0		306		0		4,504		Gross realized gains from sales or calls	117		1,035		117		5,539
Gross realized losses from sales or calls	Gross realized losses from sales or calls	(79)		(364)		(79)		(364)		Gross realized losses from sales or calls	—		(978)		(79)		(1,342)

As market interest rates or risks associated with a security’s issuer continue to change and impact the actual or perceived values of investment securities, the Company may determine that selling these securities and using proceeds to purchase securities that fit with the Company’s current risk profile is appropriate and beneficial to the Company.

The provision for income taxes includes ~~$1,224,000~~$11,000 and $1,241,000 income tax impact from the reclassification of unrealized net gains on securities to realized net gains on securities for the ~~six~~nine months ended ~~June~~ended September 30, ~~2020.~~2021 and 2020, respectively. The provision for income taxes includes $35,000 and $17,000 income tax impact from the reclassification of unrealized net gains on available-for-sale securities to realized net gains on available-for-sale securities for the three months ended September 30, 2021 and 2020, respectively.

Investment securities, aggregated by investment category, with unrealized losses as of the dates indicated are summarized and classified according to the duration of the loss period as follows (in thousands):


		June 30, 2021													September 30, 2021
		Less than 12 Months				12 Months or More				Total					Less than 12 Months				12 Months or More				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized			Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Available-for-Sale Securities	Available-for-Sale Securities	Value		Losses		Value		Losses		Value		Losses		Available-for-Sale Securities	Value		Losses		Value		Losses		Value		Losses
Debt securities:	Debt securities:													Debt securities:
U.S. Treasury securities		$	9,997	$	(3)	$	0	$	0	$	9,997	$	(3)

Obligations of states and political subdivisions	Obligations of states and political subdivisions	79,759		(2,039)		0		0		79,759		(2,039)		Obligations of states and political subdivisions	$	126,701	$	(2,349)	$	—	$	—	126,701		(2,349)
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	47,184		(573)		52,818		(436)		100,002		(1,009)		U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	74,656		(509)		42,022		(310)		116,678		(819)
Private label mortgage and asset backed securities	Private label mortgage and asset backed securities	91,811		(1,327)		4,203		(29)		96,014		(1,356)		Private label mortgage and asset backed securities	152,197		(2,438)		12,891		(314)		165,088		(2,752)
Corporate debt securities	Corporate debt securities	16,405		(95)		0		0		16,405		(95)		Corporate debt securities	27,248		(252)		—		—		27,248		(252)
Total available-for-sale	Total available-for-sale	$	245,156	$	(4,037)	$	57,021	$	(465)	$	302,177	$	(4,502)	Total available-for-sale	$	380,802	$	(5,548)	$	54,913	$	(624)	$	435,715	$	(6,172)


		December 31, 2020													December 31, 2020
		Less than 12 Months				12 Months or More				Total					Less than 12 Months				12 Months or More				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized			Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Available-for-Sale Securities	Available-for-Sale Securities	Value		Losses		Value		Losses		Value		Losses		Available-for-Sale Securities	Value		Losses		Value		Losses		Value		Losses
Debt securities:	Debt securities:													Debt securities:

Obligations of states and political subdivisions	Obligations of states and political subdivisions	$	36,209	$	(339)	$	0	$	0	$	36,209	$	(339)	Obligations of states and political subdivisions	$	36,209	$	(339)	$	—	$	—	$	36,209	$	(339)
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	30,755		(385)		77,337		(1,095)		108,092		(1,480)		U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	30,755		(385)		77,337		(1,095)		108,092		(1,480)
Private label mortgage and asset backed securities	Private label mortgage and asset backed securities	25,407		(242)		0		0		25,407		(242)		Private label mortgage and asset backed securities	25,407		(242)		—		—		25,407		(242)
Corporate debt securities	Corporate debt securities	12,881		(119)		3,900		(100)		16,781		(219)		Corporate debt securities	12,881		(119)		3,900		(100)		16,781		(219)
Total available-for-sale	Total available-for-sale	$	105,252	$	(1,085)	$	81,237	$	(1,195)	$	186,489	$	(2,280)	Total available-for-sale	$	105,252	$	(1,085)	$	81,237	$	(1,195)	$	186,489	$	(2,280)

The Company periodically evaluates each investment security for other-than-temporary impairment, relying primarily on industry analyst reports, observation of market conditions, and interest rate fluctuations. The portion of the impairment that is attributable to a shortage in the present value of expected future cash flows relative to the amortized cost should be recorded as a current period charge to earnings. The discount rate in this analysis is the original yield expected at time of purchase.

As of ~~June~~September 30, 2021, the Company performed an analysis of the investment portfolio to determine whether any of the investments held in the portfolio had an other-than-temporary impairment (OTTI). The Company evaluated all individual available-for-sale investment securities with an unrealized loss at ~~June~~September 30, 2021 and identified those that had an unrealized loss for at least a consecutive 12 month period, which had an unrealized loss at ~~June~~September 30, 2021 greater than 10% of the recorded book value on that date, or which had an unrealized loss of more than $75,000. The Company also analyzed any securities that may have been downgraded by credit rating agencies.

For those investment securities that met the evaluation criteria, management obtained and reviewed the most recently published national credit ratings for those investment securities. There were 0no OTTI losses recorded during the ~~six~~nine months ended ~~June~~September 30, 2021.

U.S. Treasury Securities

At ~~June~~September 30, 2021, the Company held 21 U.S. Treasury ~~securities of~~security which ~~1 security~~ was in a loss position for less than 12 months. The unrealized loss on the Company’s investment in direct obligations of U.S. Treasury securities is associated with the general fluctuation of market interest rates and are not an indication of any deterioration in the credit quality of the security issuer. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized costs of the investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold, and it is more likely than not that it will not be required to sell, those investments until a recovery of fair value, which may be the maturity date, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2021.

gain position.

U.S. Government Agencies

At ~~June~~September 30, 2021, the Company held 1 U.S. Government agency security which was in a gain position.

Obligations of States and Political Subdivisions

At ~~June~~September 30, 2021, the Company held ~~122~~129 obligations of states and political subdivision securities of which 1625 were in a loss position for less than 12 months. The unrealized losses on the Company’s investments in obligations of states and political subdivision securities were caused by interest rate changes. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell, and it is more likely than not that it will not be required to sell those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at ~~June~~September 30, 2021.

U.S. Government Sponsored Entities and Agencies Collateralized by Residential Mortgage Obligations

At ~~June~~September 30, 2021, the Company held ~~115~~119 U.S. Government sponsored entity and agency securities collateralized by residential mortgage obligations of which 814 were in a loss position for less than 12 months and 119 have been in a loss position for more than 12 months. The unrealized losses on the Company’s investments in U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations were caused by interest rate changes. The contractual cash flows of those investments are guaranteed or supported by an agency or sponsored entity of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability to hold and does not intend to sell, and it is more likely than not that it will not be required to sell those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at ~~June~~September 30, 2021.

Private Label Mortgage and Asset Backed Securities

At ~~June~~September 30, 2021, the Company had a total of 4963 Private Label Mortgage and Asset Backed Securities (PLMABS). 1831 of the PLMABS securities were in a loss position for less than 12 months and 24 have been in loss for more than 12 months at ~~June~~September 30, 2021. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold, and it is more likely than not that it will not be required to sell, those investments until a recovery of fair value, which may be the maturity date, the Company does not consider those investments to be other-than-temporarily impaired at ~~June~~September 30, 2021. The Company continues to monitor these securities for indications that declines in value, if any, may be other-than-temporary.

Corporate Debt Securities

At ~~June~~September 30, 2021, the Company held 1415 corporate debt securities of which 58 were in a loss position for less than 12 months. The unrealized loss on the Company’s investments in corporate debt security was caused by interest rate changes. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell, and it is more likely than not that it will not be required to sell those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at ~~June~~September 30, 2021.

The amortized cost and estimated fair value of available-for-sale investment securities at ~~June~~September 30, 2021 by contractual maturity is shown below (in thousands). Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.


		June 30, 2021					September 30, 2021
Available-for-Sale Securities	Available-for-Sale Securities	Amortized Cost		Estimated Fair Value		Available-for-Sale Securities	Amortized Cost		Estimated Fair Value
Within one year	Within one year	$	304	$	305	Within one year	$	—	$	—
After one year through five years	After one year through five years	3,317		3,627		After one year through five years	3,349		3,659
After five years through ten years	After five years through ten years	84,162		86,564		After five years through ten years	94,640		97,424
After ten years	After ten years	390,454		403,156		After ten years	406,424		416,847
		478,237		493,652			504,413		517,930
Investment securities not due at a single maturity date:	Investment securities not due at a single maturity date:					Investment securities not due at a single maturity date:

U.S. Government agencies	U.S. Government agencies	637		653		U.S. Government agencies	489		505
U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	224,920		227,042		U.S. Government sponsored entities and agencies collateralized by residential mortgage obligations	226,027		228,045
Private label mortgage and asset backed securities	Private label mortgage and asset backed securities	180,844		180,781		Private label mortgage and asset backed securities	255,324		253,756
Corporate debt securities	Corporate debt securities	49,500		50,288		Corporate debt securities	59,500		60,126
Total available-for-sale	Total available-for-sale	$	934,138	$	952,416	Total available-for-sale	$	1,045,753	$	1,060,362

Note 4. Loans and Allowance for Credit Losses

Outstanding loans are summarized as follows:


Loan Type (Dollars in thousands)	Loan Type (Dollars in thousands)	June 30, 2021		% of Total Loans		December 31, 2020		% of Total Loans		Loan Type (Dollars in thousands)	September 30, 2021		% of Total Loans		December 31, 2020		% of Total Loans
Commercial:	Commercial:									Commercial:
Commercial and industrial	Commercial and industrial	$	208,919	19.4	%	$	273,994	24.9	%	Commercial and industrial	$	184,830	17.0	%	$	273,994	24.9	%
Agricultural production	Agricultural production	32,918		3.1	%	21,971		2.0	%	Agricultural production	32,178		3.0	%	21,971		2.0	%
Total commercial	Total commercial	241,837		22.5	%	295,965		26.9	%	Total commercial	217,008		20.0	%	295,965		26.9	%
Real estate:	Real estate:									Real estate:
Owner occupied	Owner occupied	200,232		18.7	%	208,843		18.9	%	Owner occupied	210,577		19.4	%	208,843		18.9	%
Real estate construction and other land loans	Real estate construction and other land loans	65,282		6.1	%	55,419		5.0	%	Real estate construction and other land loans	65,912		6.1	%	55,419		5.0	%
Commercial real estate	Commercial real estate	357,519		33.4	%	338,886		30.7	%	Commercial real estate	365,564		33.7	%	338,886		30.7	%
Agricultural real estate	Agricultural real estate	88,110		8.2	%	84,258		7.6	%	Agricultural real estate	98,150		9.1	%	84,258		7.6	%
Other real estate	Other real estate	29,750		2.8	%	28,718		2.6	%	Other real estate	33,612		3.1	%	28,718		2.6	%
Total real estate	Total real estate	740,893		69.2	%	716,124		64.8	%	Total real estate	773,815		71.4	%	716,124		64.8	%
Consumer:	Consumer:									Consumer:
Equity loans and lines of credit	Equity loans and lines of credit	51,364		4.8	%	55,634		5.0	%	Equity loans and lines of credit	54,833		5.1	%	55,634		5.0	%
Consumer and installment	Consumer and installment	37,241		3.5	%	37,236		3.3	%	Consumer and installment	38,250		3.5	%	37,236		3.3	%
Total consumer	Total consumer	88,605		8.3	%	92,870		8.3	%	Total consumer	93,083		8.6	%	92,870		8.3	%
Net deferred origination (fees) costs		(1,390)				(2,612)
Net deferred origination fees										Net deferred origination fees	(409)				(2,612)
Total gross loans	Total gross loans	1,069,945		100.0	%	1,102,347		100.0	%	Total gross loans	1,083,497		100.0	%	1,102,347		100.0	%
Allowance for credit losses	Allowance for credit losses	(10,439)				(12,915)				Allowance for credit losses	(10,061)				(12,915)
Total loans	Total loans	$	1,059,506			$	1,089,432			Total loans	$	1,073,436			$	1,089,432

At ~~June~~September 30, 2021 and December 31, 2020, loans originated under Small Business Administration (SBA) programs totaling ~~$23,685,000~~$24,499,000 and $24,220,000, respectively, were included in the real estate and commercial categories, of which, ~~$18,029,000~~$18,826,000 or ~~76%~~77% and $18,180,000 or 75%, respectively, are secured by government guarantees. In addition, the Company participated in the SBA Paycheck Protection Program (PPP) to help provide loans to our business customers to provide them with additional working capital. At ~~June~~September 30, 2021, ~~630~~341 PPP loans totaling ~~$109,502,000~~$64,260,000 were outstanding and included in the commercial and industrial line item above. At December 31, 2020, 989 PPP loans totaling $192,916,000 were outstanding and included in the commercial and industrial line item above.

Allowance for Credit Losses

The allowance for credit losses (the “Allowance”) is a valuation allowance for probable incurred credit losses in the Company’s loan portfolio. The Allowance is established through a provision for credit losses which is charged to expense. Additions to the Allowance are expected to maintain the adequacy of the total Allowance after credit losses and loan growth. Credit exposures determined to be uncollectible are charged against the Allowance. Cash received on previously charged-off credits is recorded as a recovery to the Allowance. The overall Allowance consists of 2 primary components, specific reserves related to impaired loans and general reserves for probable incurred losses related to loans that are not impaired.

The following table shows the summary of activities for the Allowance as of and for the three months ended ~~June~~September 30, 2021 and 2020 by portfolio segment (in thousands):


		Commercial		Real Estate		Consumer		Unallocated		Total			Commercial		Real Estate		Consumer		Unallocated		Total
Allowance for credit losses:	Allowance for credit losses:											Allowance for credit losses:
Beginning balance, April 1, 2021		$	2,483	$	8,352	$	888	$	333	$	12,056
Beginning balance, July 1, 2021												Beginning balance, July 1, 2021	$	2,210	$	7,050	$	828	$	351	$	10,439
(Reversal) provision charged to operations	(Reversal) provision charged to operations	(307)		(1,302)		91		18		(1,500)		(Reversal) provision charged to operations	118		(434)		(230)		46		(500)
Charge-offs	Charge-offs	0		0		(171)		0		(171)		Charge-offs	(15)		—		(19)		—		(34)
Recoveries	Recoveries	34		0		20		0		54		Recoveries	21		—		135		—		156
Ending balance, June 30, 2021		$	2,210	$	7,050	$	828	$	351	$	10,439
Ending balance, September 30, 2021												Ending balance, September 30, 2021	$	2,334	$	6,616	$	714	$	397	$	10,061

Allowance for credit losses:	Allowance for credit losses:											Allowance for credit losses:
Beginning balance, April 1, 2020		$	1,657	$	7,555	$	1,236	$	98	$	10,546
Provision charged to operations		7		2,834		76		83		3,000
Beginning balance, July 1, 2020												Beginning balance, July 1, 2020	$	2,087	$	10,389	$	1,280	$	181	$	13,937
Provision (reversal) charged to operations												Provision (reversal) charged to operations	(30)		267		60		303		600
Charge-offs	Charge-offs	0		0		(80)		0		(80)		Charge-offs	(43)		—		(2)		—		(45)
Recoveries	Recoveries	423		0		48		0		471		Recoveries	146		—		19		—		165
Ending balance, June 30, 2020		$	2,087	$	10,389	$	1,280	$	181	$	13,937
Ending balance, September 30, 2020												Ending balance, September 30, 2020	$	2,160	$	10,656	$	1,357	$	484	$	14,657

The following table shows the summary of activities for the Allowance as of and for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 by portfolio segment (in thousands):


		Commercial		Real Estate		Consumer		Unallocated		Total			Commercial		Real Estate		Consumer		Unallocated		Total
Allowance for credit losses:	Allowance for credit losses:											Allowance for credit losses:
Beginning balance, January 1, 2021	Beginning balance, January 1, 2021	$	2,019	$	9,174	$	1,091	$	631	$	12,915	Beginning balance, January 1, 2021	$	2,019	$	9,174	$	1,091	$	631	$	12,915
Reversal charged to operations	Reversal charged to operations	(439)		(2,443)		(138)		(280)		(3,300)		Reversal charged to operations	(321)		(2,877)		(368)		(234)		(3,800)
Charge-offs	Charge-offs	(31)		0		(197)		0		(228)		Charge-offs	(46)		—		(215)		—		(261)
Recoveries	Recoveries	661		319		72		0		1,052		Recoveries	682		319		206		—		1,207
Ending balance, June 30, 2021		$	2,210	$	7,050	$	828	$	351	$	10,439
Ending balance, September 30, 2021												Ending balance, September 30, 2021	$	2,334	$	6,616	$	714	$	397	$	10,061

Allowance for credit losses:	Allowance for credit losses:											Allowance for credit losses:
Beginning balance, January 1, 2020	Beginning balance, January 1, 2020	$	1,428	$	6,769	$	897	$	36	$	9,130	Beginning balance, January 1, 2020	$	1,428	$	6,769	$	897	$	36	$	9,130
Provision charged to operations	Provision charged to operations	233		3,620		377		145		4,375		Provision charged to operations	203		3,887		437		448		4,975
Charge-offs	Charge-offs	(29)		0		(94)		0		(123)		Charge-offs	(72)		—		(97)		—		(169)
Recoveries	Recoveries	455		0		100		0		555		Recoveries	601		—		120		—		721
Ending balance, June 30, 2020		$	2,087	$	10,389	$	1,280	$	181	$	13,937
Ending balance, September 30, 2020												Ending balance, September 30, 2020	$	2,160	$	10,656	$	1,357	$	484	$	14,657

The following is a summary of the Allowance by impairment methodology and portfolio segment as of ~~June~~September 30, 2021 and December 31, 2020 (in thousands):


		Commercial		Real Estate		Consumer		Unallocated		Total			Commercial		Real Estate		Consumer		Unallocated		Total
Allowance for credit losses:	Allowance for credit losses:											Allowance for credit losses:
Ending balance, June 30, 2021		$	2,210	$	7,050	$	828	$	351	$	10,439
Ending balance, September 30, 2021												Ending balance, September 30, 2021	$	2,334	$	6,616	$	714	$	397	$	10,061
Ending balance: individually evaluated for impairment	Ending balance: individually evaluated for impairment	$	865	$	10	$	5	$	0	$	880	Ending balance: individually evaluated for impairment	$	877	$	50	$	4	$	—	$	931
Ending balance: collectively evaluated for impairment	Ending balance: collectively evaluated for impairment	$	1,345	$	7,040	$	823	$	351	$	9,559	Ending balance: collectively evaluated for impairment	$	1,457	$	6,566	$	710	$	397	$	9,130

Ending balance, December 31, 2020	Ending balance, December 31, 2020	$	2,019	$	9,174	$	1,091	$	631	$	12,915	Ending balance, December 31, 2020	$	2,019	$	9,174	$	1,091	$	631	$	12,915
Ending balance: individually evaluated for impairment	Ending balance: individually evaluated for impairment	$	339	$	271	$	21	$	0	$	631	Ending balance: individually evaluated for impairment	$	339	$	271	$	21	$	—	$	631
Ending balance: collectively evaluated for impairment	Ending balance: collectively evaluated for impairment	$	1,680	$	8,903	$	1,070	$	631	$	12,284	Ending balance: collectively evaluated for impairment	$	1,680	$	8,903	$	1,070	$	631	$	12,284

The following table shows the ending balances of loans as of ~~June~~September 30, 2021 and December 31, 2020 by portfolio segment and by impairment methodology (in thousands):


		Commercial		Real Estate		Consumer		Total			Commercial		Real Estate		Consumer		Total
Loans:	Loans:									Loans:
Ending balance, June 30, 2021		$	241,837	$	740,893	$	88,605	$	1,071,335
Ending balance, September 30, 2021										Ending balance, September 30, 2021	$	217,008	$	773,815	$	93,083	$	1,083,906
Ending balance: individually evaluated for impairment	Ending balance: individually evaluated for impairment	$	6,503	$	971	$	1,065	$	8,539	Ending balance: individually evaluated for impairment	$	8,051	$	952	$	1,057	$	10,060
Ending balance: collectively evaluated for impairment	Ending balance: collectively evaluated for impairment	$	235,334	$	739,922	$	87,540	$	1,062,796	Ending balance: collectively evaluated for impairment	$	208,957	$	772,863	$	92,026	$	1,073,846

Loans:	Loans:									Loans:
Ending balance, December 31, 2020	Ending balance, December 31, 2020	$	295,965	$	716,124	$	92,870	$	1,104,959	Ending balance, December 31, 2020	$	295,965	$	716,124	$	92,870	$	1,104,959
Ending balance: individually evaluated for impairment	Ending balance: individually evaluated for impairment	$	7,402	$	2,616	$	1,168	$	11,186	Ending balance: individually evaluated for impairment	$	7,402	$	2,616	$	1,168	$	11,186
Ending balance: collectively evaluated for impairment	Ending balance: collectively evaluated for impairment	$	288,563	$	713,508	$	91,702	$	1,093,773	Ending balance: collectively evaluated for impairment	$	288,563	$	713,508	$	91,702	$	1,093,773

The following table shows the loan portfolio by class allocated by management’s internal risk ratings at ~~June~~September 30, 2021 (in thousands):


		Pass		Special Mention		Sub-Standard		Doubtful		Total			Pass		Special Mention		Sub-Standard		Doubtful		Total
Commercial:	Commercial:											Commercial:
Commercial and industrial	Commercial and industrial	$	196,108	$	745	$	12,066	$	0	$	208,919	Commercial and industrial	$	173,016	$	667	$	11,147	$	—	$	184,830
Agricultural production	Agricultural production	28,520		1,430		2,968		0		32,918		Agricultural production	27,732		1,170		3,276		—		32,178
Real Estate:	Real Estate:											Real Estate:
Owner occupied	Owner occupied	189,898		3,360		6,974		0		200,232		Owner occupied	202,100		2,993		5,484		—		210,577
Real estate construction and other land loans	Real estate construction and other land loans	60,603		4,679		0		0		65,282		Real estate construction and other land loans	60,180		5,732		—		—		65,912
Commercial real estate	Commercial real estate	341,805		6,161		9,553		0		357,519		Commercial real estate	349,831		13,785		1,948		—		365,564
Agricultural real estate	Agricultural real estate	84,870		2,087		1,153		0		88,110		Agricultural real estate	94,985		2,021		1,144		—		98,150
Other real estate	Other real estate	29,589		0		161		0		29,750		Other real estate	33,612		—		—		—		33,612
Consumer:	Consumer:											Consumer:
Equity loans and lines of credit	Equity loans and lines of credit	51,116		248		0		0		51,364		Equity loans and lines of credit	54,589		244		—		—		54,833
Consumer and installment	Consumer and installment	37,178		0		63		0		37,241		Consumer and installment	38,184		—		66		—		38,250
Total	Total	$	1,019,687	$	18,710	$	32,938	$	0	$	1,071,335	Total	$	1,034,229	$	26,612	$	23,065	$	—	$	1,083,906

The following table shows the loan portfolio by class allocated by management’s internally assigned risk grade ratings at December 31, 2020 (in thousands):


		Pass		Special Mention		Sub-Standard		Doubtful		Total			Pass		Special Mention		Sub-Standard		Doubtful		Total
Commercial:	Commercial:											Commercial:
Commercial and industrial	Commercial and industrial	$	258,587	$	5,004	$	10,403	$	0	$	273,994	Commercial and industrial	$	258,587	$	5,004	$	10,403	$	—	$	273,994
Agricultural production	Agricultural production	18,289		377		3,305		0		21,971		Agricultural production	18,289		377		3,305		—		21,971
Real Estate:	Real Estate:											Real Estate:
Owner occupied	Owner occupied	197,721		3,870		7,252		0		208,843		Owner occupied	197,721		3,870		7,252		—		208,843
Real estate construction and other land loans	Real estate construction and other land loans	50,560		1,622		3,237		0		55,419		Real estate construction and other land loans	50,560		1,622		3,237		—		55,419
Commercial real estate	Commercial real estate	314,710		14,537		9,639		0		338,886		Commercial real estate	314,710		14,537		9,639		—		338,886
Agricultural real estate	Agricultural real estate	72,875		10,195		1,188		0		84,258		Agricultural real estate	72,875		10,195		1,188		—		84,258
Other real estate	Other real estate	28,557		161		0		0		28,718		Other real estate	28,557		161		—		—		28,718
Consumer:	Consumer:											Consumer:
Equity loans and lines of credit	Equity loans and lines of credit	54,034		640		960		0		55,634		Equity loans and lines of credit	54,034		640		960		—		55,634
Consumer and installment	Consumer and installment	37,084		0		152		0		37,236		Consumer and installment	37,084		—		152		—		37,236
Total	Total	$	1,032,417	$	36,406	$	36,136	$	0	$	1,104,959	Total	$	1,032,417	$	36,406	$	36,136	$	—	$	1,104,959

The following table shows an aging analysis of the loan portfolio by class and the time past due at ~~June~~September 30, 2021 (in thousands):


		30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days Accruing		Non-accrual			30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days Accruing		Non-accrual
Commercial:	Commercial:																	Commercial:
Commercial and industrial	Commercial and industrial	$	16	$	0	$	0	$	16	$	208,903	$	208,919	$	0	$	347	Commercial and industrial	$	1	$	—	$	—	$	1	$	184,829	$	184,830	$	—	$	333
Agricultural production	Agricultural production	0		0		0		0		32,918		32,918		0		1,205		Agricultural production	—		—		—		—		32,178		32,178		—		779
Real estate:	Real estate:	—								—								Real estate:	—								—
Owner occupied	Owner occupied	0		0		0		0		200,232		200,232		0		0		Owner occupied	161		—		—		161		210,416		210,577		—		—
Real estate construction and other land loans	Real estate construction and other land loans	0		0		0		0		65,282		65,282		0		0		Real estate construction and other land loans	—		—		—		—		65,912		65,912		—		—
Commercial real estate	Commercial real estate	294		0		0		294		357,225		357,519		0		483		Commercial real estate	—		—		—		—		365,564		365,564		—		485
Agricultural real estate	Agricultural real estate	0		0		0		0		88,110		88,110		0		0		Agricultural real estate	—		—		—		—		98,150		98,150		—		—
Other real estate	Other real estate	0		0		0		0		29,750		29,750		0		0		Other real estate	—		—		—		—		33,612		33,612		—		—
Consumer:	Consumer:									—								Consumer:									—
Equity loans and lines of credit	Equity loans and lines of credit	0		0		0		0		51,364		51,364		0		0		Equity loans and lines of credit	104		—		—		104		54,729		54,833		—		—
Consumer and installment	Consumer and installment	81		0		0		81		37,160		37,241		0		0		Consumer and installment	47		—		—		47		38,203		38,250		—		—
Total	Total	$	391	$	0	$	0	$	391	$	1,070,944	$	1,071,335	$	0	$	2,035	Total	$	313	$	—	$	—	$	313	$	1,083,593	$	1,083,906	$	—	$	1,597

The following table shows an aging analysis of the loan portfolio by class and the time past due at December 31, 2020 (in thousands):


		30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days Accruing		Non- accrual			30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days Accruing		Non- accrual
Commercial:	Commercial:																	Commercial:
Commercial and industrial	Commercial and industrial	$	0	$	0	$	60	$	60	$	273,934	$	273,994	$	0	$	752	Commercial and industrial	$	—	$	—	$	60	$	60	$	273,934	$	273,994	$	—	$	752
Agricultural production	Agricultural production	0		0		0		0		21,971		21,971		0		0		Agricultural production	—		—		—		—		21,971		21,971		—		—
Real estate:	Real estate:	—																Real estate:	—
Owner occupied	Owner occupied	0		0		0		0		208,843		208,843		0		370		Owner occupied	—		—		—		—		208,843		208,843		—		370
Real estate construction and other land loans	Real estate construction and other land loans	0		0		0		0		55,419		55,419		0		1,556		Real estate construction and other land loans	—		—		—		—		55,419		55,419		—		1,556
Commercial real estate	Commercial real estate	0		0		0		0		338,886		338,886		0		512		Commercial real estate	—		—		—		—		338,886		338,886		—		512
Agricultural real estate	Agricultural real estate	0		0		0		0		84,258		84,258		0		0		Agricultural real estate	—		—		—		—		84,258		84,258		—		—
Other real estate	Other real estate	0		0		0		0		28,718		28,718		0		0		Other real estate	—		—		—		—		28,718		28,718		—		—
Consumer:	Consumer:																	Consumer:
Equity loans and lines of credit	Equity loans and lines of credit	0		24		0		24		55,610		55,634		0		0		Equity loans and lines of credit	—		24		—		24		55,610		55,634		—		—
Consumer and installment	Consumer and installment	5		0		0		5		37,231		37,236		0		88		Consumer and installment	5		—		—		5		37,231		37,236		—		88
Total	Total	$	5	$	24	$	60	$	89	$	1,104,870	$	1,104,959	$	0	$	3,278	Total	$	5	$	24	$	60	$	89	$	1,104,870	$	1,104,959	$	—	$	3,278

The following table shows information related to impaired loans by class at ~~June~~September 30, 2021 (in thousands):


		Recorded Investment		Unpaid Principal Balance		Related Allowance			Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:	With no related allowance recorded:							With no related allowance recorded:

Real estate:	Real estate:							Real estate:

Real estate construction and other land loans		$	316	$	316	$	—

Commercial real estate	Commercial real estate	483		544		—		Commercial real estate	$	486	$	553	$	—

Total real estate		799		860		—

Consumer:	Consumer:							Consumer:
Equity loans and lines of credit	Equity loans and lines of credit	140		176		—		Equity loans and lines of credit	138		174		—

Total with no related allowance recorded	Total with no related allowance recorded	939		1,036		—		Total with no related allowance recorded	624		727		—

With an allowance recorded:	With an allowance recorded:							With an allowance recorded:
Commercial:	Commercial:							Commercial:
Commercial and industrial	Commercial and industrial	5,298		5,328		659		Commercial and industrial	7,272		7,307		772
Agricultural production	Agricultural production	1,205		1,248		206		Agricultural production	779		843		105
Total commercial	Total commercial	6,503		6,576		865		Total commercial	8,051		8,150		877
Real estate:	Real estate:							Real estate:

Real estate construction and other land loans	Real estate construction and other land loans	0		0		0		Real estate construction and other land loans	305		305		42
Commercial real estate	Commercial real estate	142		143		3		Commercial real estate	140		141		3
Agricultural real estate	Agricultural real estate	30		30		7		Agricultural real estate	21		21		5

Total real estate	Total real estate	172		173		10		Total real estate	466		467		50
Consumer:	Consumer:							Consumer:
Equity loans and lines of credit	Equity loans and lines of credit	925		925		5		Equity loans and lines of credit	919		919		4

Total with an allowance recorded	Total with an allowance recorded	7,600		7,674		880		Total with an allowance recorded	9,436		9,536		931
Total	Total	$	8,539	$	8,710	$	880	Total	$	10,060	$	10,263	$	931

The recorded investment in loans excludes accrued interest receivable and net loan origination fees, due to immateriality.

The following table shows information related to impaired loans by class at December 31, 2020 (in thousands):


		Recorded Investment		Unpaid Principal Balance		Related Allowance			Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:	With no related allowance recorded:							With no related allowance recorded:
Commercial:	Commercial:							Commercial:
Commercial and industrial	Commercial and industrial	$	60	$	61	$	—	Commercial and industrial	$	60	$	61	$	—

Real estate:	Real estate:							Real estate:
Owner occupied	Owner occupied	370		409		—		Owner occupied	370		409		—
Real estate construction and other land loans	Real estate construction and other land loans	28		28		—		Real estate construction and other land loans	28		28		—
Commercial real estate	Commercial real estate	512		561		—		Commercial real estate	512		561		—

Total real estate	Total real estate	910		998		—		Total real estate	910		998		—
Consumer:	Consumer:							Consumer:
Equity loans and lines of credit	Equity loans and lines of credit	144		180		—		Equity loans and lines of credit	144		180		—

Total with no related allowance recorded	Total with no related allowance recorded	1,114		1,239		—		Total with no related allowance recorded	1,114		1,239		—

With an allowance recorded:	With an allowance recorded:							With an allowance recorded:
Commercial:	Commercial:							Commercial:
Commercial and industrial	Commercial and industrial	7,342		7,373		339		Commercial and industrial	7,342		7,373		339

Real estate:	Real estate:							Real estate:

Real estate construction and other land loans	Real estate construction and other land loans	1,528		1,552		268		Real estate construction and other land loans	1,528		1,552		268
Commercial real estate	Commercial real estate	148		149		3		Commercial real estate	148		149		3
Agricultural real estate	Agricultural real estate	30		29		0		Agricultural real estate	30		29		—

Total real estate	Total real estate	1,706		1,730		271		Total real estate	1,706		1,730		271
Consumer:	Consumer:							Consumer:
Equity loans and lines of credit	Equity loans and lines of credit	936		936		9		Equity loans and lines of credit	936		936		9
Consumer and installment	Consumer and installment	88		93		12		Consumer and installment	88		93		12
Total consumer	Total consumer	1,024		1,029		21		Total consumer	1,024		1,029		21
Total with an allowance recorded	Total with an allowance recorded	10,072		10,132		631		Total with an allowance recorded	10,072		10,132		631
Total	Total	$	11,186	$	11,371	$	631	Total	$	11,186	$	11,371	$	631

The recorded investment in loans excludes accrued interest receivable and net loan origination fees, due to immateriality.

The following tables present by class, information related to the average recorded investment and interest income recognized on impaired loans for the three months ended ~~June~~September 30, 2021 and 2020 (in thousands).


		Three Months Ended June 30, 2021				Three Months Ended June 30, 2020					Three Months Ended September 30, 2021				Three Months Ended September 30, 2020
		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized			Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:	With no related allowance recorded:									With no related allowance recorded:
Commercial:	Commercial:									Commercial:
Commercial and industrial	Commercial and industrial	$	0	$	0	$	7	$	0	Commercial and industrial	$	123	$	—	$	4,157	$	—
Agricultural production		0		0		212		0
Total commercial		0		0		219		0

Real estate:	Real estate:									Real estate:
Owner occupied	Owner occupied	0		0		401		0		Owner occupied	—		—		385		—
Real estate construction and other land loans	Real estate construction and other land loans	333		5		0		0		Real estate construction and other land loans	234		—		7		—
Commercial real estate	Commercial real estate	490		0		848		0		Commercial real estate	365		—		689		—
Agricultural real estate	Agricultural real estate	0		0		199		0		Agricultural real estate	—		—		120		—

Total real estate	Total real estate	823		5		1,448		0		Total real estate	599		—		1,201		—
Consumer:	Consumer:									Consumer:
Equity loans and lines of credit	Equity loans and lines of credit	142		3		232		3		Equity loans and lines of credit	139		3		178		3

Total with no related allowance recorded	Total with no related allowance recorded	965		8		1,899		3		Total with no related allowance recorded	861		3		5,536		3

With an allowance recorded:	With an allowance recorded:									With an allowance recorded:
Commercial:	Commercial:									Commercial:
Commercial and industrial	Commercial and industrial	5,831		67		11,516		171		Commercial and industrial	5,538		129		5,440		138
Agricultural production	Agricultural production	1,328		0		619		12		Agricultural production	1,063		—		778		11
Total commercial	Total commercial	7,159		67		12,135		183		Total commercial	6,601		129		6,218		149
Real estate:	Real estate:									Real estate:

Real estate construction and other land loans	Real estate construction and other land loans	746		0		95		0		Real estate construction and other land loans	76		5		656		—
Commercial real estate	Commercial real estate	144		2		331		2		Commercial real estate	141		2		150		3
Agricultural real estate	Agricultural real estate	30		1		28		1		Agricultural real estate	28		—		28		1

Total real estate	Total real estate	920		3		454		3		Total real estate	245		7		834		4
Consumer:	Consumer:									Consumer:
Equity loans and lines of credit	Equity loans and lines of credit	928		14		957		14		Equity loans and lines of credit	922		14		944		14
Consumer and installment	Consumer and installment	0		0		38		0		Consumer and installment	—		—		70		—
Total consumer	Total consumer	928		14		995		14		Total consumer	922		14		1,014		14
Total with an allowance recorded	Total with an allowance recorded	9,007		84		13,584		200		Total with an allowance recorded	7,768		150		8,066		167
Total	Total	$	9,972	$	92	$	15,483	$	203	Total	$	8,629	$	153	$	13,602	$	170

The following tables present by class, information related to the average recorded investment and interest income recognized on impaired loans for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 (in thousands).


		Six Months Ended June 30, 2021				Six Months Ended June 30, 2020					Nine Months Ended September 30, 2021				Nine Months Ended September 30, 2020
		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized			Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:	With no related allowance recorded:									With no related allowance recorded:
Commercial:	Commercial:									Commercial:
Commercial and industrial	Commercial and industrial	$	9	$	0	$	71	$	0	Commercial and industrial	$	56	$	—	$	1,712	$	—
Agricultural land and production	Agricultural land and production	0		0		121		0		Agricultural land and production	—		—		85		—
Total commercial	Total commercial	9		0		192		0		Total commercial	56		—		1,797		—
Real estate:	Real estate:									Real estate:
Owner occupied	Owner occupied	103		0		407		0		Owner occupied	72		—		400		—
Real estate construction and other land loans	Real estate construction and other land loans	201		11		0		0		Real estate construction and other land loans	203		—		3		—
Commercial real estate	Commercial real estate	498		0		959		0		Commercial real estate	446		—		860		—
Agricultural real estate	Agricultural real estate	0		0		228		0		Agricultural real estate	—		—		189		—

Total real estate	Total real estate	802		11		1,594		0		Total real estate	721		—		1,452		—
Consumer:	Consumer:									Consumer:
Equity loans and lines of credit	Equity loans and lines of credit	142		6		264		6		Equity loans and lines of credit	141		9		237		9

Total with no related allowance recorded	Total with no related allowance recorded	953		17		2,050		6		Total with no related allowance recorded	918		9		3,486		9

With an allowance recorded:	With an allowance recorded:									With an allowance recorded:
Commercial:	Commercial:									Commercial:
Commercial and industrial	Commercial and industrial	6,475		153		6,589		344		Commercial and industrial	6,217		282		5,743		482
Agricultural land and production	Agricultural land and production	969		0		354		24		Agricultural land and production	983		—		481		36
Total commercial	Total commercial	7,444		153		6,943		368		Total commercial	7,200		282		6,224		518
Real estate:	Real estate:									Real estate:

Real estate construction and other land loans	Real estate construction and other land loans	1,077		0		54		0		Real estate construction and other land loans	785		16		281		—
Commercial real estate	Commercial real estate	145		5		254		5		Commercial real estate	144		7		223		8
Agricultural real estate	Agricultural real estate	30		1		26		1		Agricultural real estate	29		1		26		2

Total real estate	Total real estate	1,252		6		334		6		Total real estate	958		24		530		10
Consumer:	Consumer:									Consumer:
Equity loans and lines of credit	Equity loans and lines of credit	931		27		1,052		28		Equity loans and lines of credit	928		40		1,019		41
Consumer and installment	Consumer and installment	25		0		24		0		Consumer and installment	18		—		45		—
Total consumer	Total consumer	956		27		1,076		28		Total consumer	946		40		1,064		41
Total with an allowance recorded	Total with an allowance recorded	9,652		186		8,353		402		Total with an allowance recorded	9,104		346		7,818		569
Total	Total	$	10,605	$	203	$	10,403	$	408	Total	$	10,022	$	355	$	11,304	$	578

Foregone interest on nonaccrual loans totaled ~~$72,000~~$101,000 and ~~$74,000~~$135,000 for the ~~six~~nine month period ended ~~June~~September 30, 2021 and 2020, respectively. Foregone interest on nonaccrual loans totaled ~~34,000~~30,000 and ~~55,000~~82,000 for the three month period ended ~~June~~September 30, 2021 and 2020, respectively.

Troubled Debt Restructurings:

As of ~~June~~September 30, 2021 and December 31, 2020, the Company has a recorded investment in troubled debt restructurings of ~~$6,504,000~~$8,463,000 and $7,908,000, respectively. The Company has allocated ~~$515,000~~$678,000 and $20,000 of specific reserves to loans whose terms have been modified in troubled debt restructurings as of ~~June~~September 30, 2021 and December 31, 2020, respectively.

During the ~~six~~nine months ended ~~June~~September 30, 2021, ~~1 loan was~~2 loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan or an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with

similar risk. During the same period, there were no troubled debt restructurings in which the amount of principal or accrued interest owed from the borrower was forgiven or which resulted in a charge-off or change to the allowance for loan losses.

As discussed in Note 1 to these financial statements, Section 4013 of the CARES Act and the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised)” provided banks an option to elect to not account for certain loan modifications related to COVID-19 as TDRs as long as the borrowers were not more than 30 days past due as of December 31, 2019 or at the time of modification program implementation, respectively, and the borrowers meet other applicable criteria. The remaining TDRs disclosed below were not related to COVID-19 modifications. The Company executed loan deferrals on outstanding balances of ~~approximately $1.37 million~~$335,950 resulting from the COVID-19 pandemic that were not classified as a TDRs at ~~June~~September 30, 2021.

The following table presents loans by class modified as troubled debt restructurings that occurred during the ~~six~~nine months ended ~~June~~September 30, 2021 (in thousands):


Troubled Debt Restructurings:	Troubled Debt Restructurings:	Number of Loans	Pre-Modification Outstanding Recorded Investment (1)		Principal Modification (2)		Post Modification Outstanding Recorded Investment (3)		Outstanding Recorded Investment		Troubled Debt Restructurings:	Number of Loans	Pre-Modification Outstanding Recorded Investment (1)		Principal Modification (2)		Post Modification Outstanding Recorded Investment (3)		Outstanding Recorded Investment

Commercial:											Commercial:
Commercial and industrial											Commercial and industrial	1	$	2,989	$	—	$	2,489	$	2,489

Real Estate:	Real Estate:										Real Estate:

Real estate-construction and other land loans	Real estate-construction and other land loans	1	$	333	$	0	$	333	$	317	Real estate-construction and other land loans	1	333		—		333		305

Total											Total	2	$	3,322	$	—	$	2,822	$	2,794

(1)Amounts represent the recorded investment in loans before recognizing effects of the Troubled Debt Restructurings, if any.

(2)Principal modification includes principal forgiveness at the time of modification, contingent principal forgiveness granted over the life of the loan based on borrower performance, and principal that has been legally separated and deferred to the end of the loan, with zero percent contractual interest rate.

(3)Balance outstanding after principal modification, if any borrower reduction to recorded investment.

The following table presents loans by class modified as troubled debt restructurings that occurred during the ~~six~~nine months ended ~~June~~September 30, 2020 (in thousands):


Troubled Debt Restructurings:	Troubled Debt Restructurings:	Number of Loans	Pre-Modification Outstanding Recorded Investment (1)		Principal Modification (2)		Post Modification Outstanding Recorded Investment (3)		Outstanding Recorded Investment		Troubled Debt Restructurings:	Number of Loans	Pre-Modification Outstanding Recorded Investment (1)		Principal Modification (2)		Post Modification Outstanding Recorded Investment (3)		Outstanding Recorded Investment
Commercial:	Commercial:										Commercial:
Commercial and Industrial	Commercial and Industrial	1	$	12,925	$	0	$	12,925	$	9,725	Commercial and Industrial	1	$	12,925	$	—	$	12,925	$	7,175
Agricultural production	Agricultural production	1	850		0		850		775		Agricultural production	1	850		—		850		779

Total	Total	2	$	13,775	$	0	$	13,775	$	10,500	Total	2	$	13,775	$	—	$	13,775	$	7,954

The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ended September 30, 2021 (in thousands):


Troubled Debt Restructurings:	Number of Loans	Pre-Modification Outstanding Recorded Investment (1)		Principal Modification (2)		Post Modification Outstanding Recorded Investment (3)		Outstanding Recorded Investment
Commercial:
Commercial and Industrial	1	$	2,989	$	—	$	2,489	$	2,489









Total	1	$	2,989	$	—	$	2,489	$	2,489

During the ~~quarters~~quarter ended ~~June~~September 30, ~~2021 and~~ 2020, no loans were modified as troubled debt restructurings.

Consumer:

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. There were 0no defaults on troubled debt restructurings, within twelve months following the modification, during the ~~six~~nine months ended and three months ended ~~June~~September 30, 2021 or ~~June~~September 30, 2020.

Note 5. Goodwill

Business combinations involving the Company’s acquisition of the equity interests or net assets of another enterprise give rise to goodwill. Total goodwill at ~~June~~September 30, 2021, was $53,777,000 consisting of $8,934,000, $14,643,000, $6,340,000, $10,394,000, and $13,466,000 representing the excess of the cost of Bank of Madera County, Service 1st Bancorp, Visalia Community Bank, Sierra Vista Bank, and Folsom Lake Bank, respectively, over the net of the amounts assigned to assets acquired and liabilities assumed in the transactions accounted for under the acquisition method of accounting. The value of goodwill is ultimately derived from the Company’s ability to generate net earnings after the acquisitions and is not deductible for tax purposes. A significant decline in net earnings, among other factors, could be indicative of a decline in the fair value of goodwill and result in impairment. For that reason, goodwill is assessed at least annually for impairment. The Company’s annual goodwill test is completed as of September 30 each year.

Goodwill is also tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the Company below its carrying amount. No such events or circumstances arose during the first ~~six~~nine months of 2021.

Note 6. Borrowing Arrangements

As of ~~June~~September 30, 2021 and December 31, 2020, the Company had 0no Federal Home Loan Bank (“FHLB”) of San Francisco advances.

Approximately ~~$447,170,000~~$462,491,000 in loans were pledged under a blanket lien as collateral to the FHLB for the Bank’s remaining borrowing capacity of ~~$245,311,000~~$262,091,000 as of ~~June~~September 30, 2021. FHLB advances are also secured by investment securities with amortized costs totaling ~~$151,000~~$121,000 and $169,000 and market values totaling ~~$159,000~~$127,000 and $178,000 at ~~June~~September 30, 2021 and December 31, 2020, respectively. The Bank’s credit limit varies according to the amount and composition of the investment and loan portfolios pledged as collateral. As of ~~June~~September 30, 2021, and December 31, 2020 the Company had 0 Federal funds purchased.

Note 7. Commitments and Contingencies

Financial Instruments With Off-Balance-Sheet Risk - In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. The contract or notional amounts of these instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for loans.

Commitments to extend credit amounting to ~~$316,702,000~~$332,875,000 and $326,179,000 were outstanding at ~~June~~September 30, 2021 and December 31, 2020, respectively. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract unless waived by the Bank. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.

Included in commitments to extend credit are undisbursed lines of credit totaling ~~$306,144,000~~$322,441,000 and $314,774,000 at ~~June~~September 30, 2021 and December 31, 2020, respectively. Undisbursed lines of credit include credits whereby customers can repay principal and request principal advances during the term of the loan at their discretion and most expire between one and 12 months.

Included in undisbursed lines of credit are commitments for the undisbursed portions of construction loans totaling ~~$52,007,000~~$90,269,000 and $79,669,000 as of ~~June~~September 30, 2021 and December 31, 2020, respectively. These commitments are agreements to lend to customers, subject to meeting certain construction progress requirements established in the contracts. The underlying construction loans have fixed expiration dates.

Standby letters of credit and financial guarantees amounting to ~~$10,558,000~~$10,434,000 and $11,405,000 were outstanding at ~~June~~September 30, 2021 and December 31, 2020, respectively. Standby letters of credit and financial guarantees are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private financial arrangements. ~~Most standby~~Standby letters of credit and guarantees carry a one year term or ~~less.~~less, many have auto-renewal features. The fair value of the liability related to these standby letters of credit, which represents the fees received for their issuance, was not significant at ~~June~~September 30, 2021 or December 31, 2020. The Company recognizes these fees as revenue over the term of the commitment or when the commitment is used.

The Company generally requires collateral or other security to support financial instruments with credit risk. Management does not anticipate any material loss will result from the outstanding commitments to extend credit, standby letters of credit and financial guarantees. At ~~June~~September 30, 2021 and December 31, 2020, the balance of a contingent allocation for probable loan loss experience on unfunded obligations was ~~$250,000.~~$150,000 and $250,000, respectively. The contingent allocation for probable loan loss experience on unfunded obligations is calculated by management using an appropriate, systematic, and consistently applied process. While related to credit losses, this allocation is not a part of the allowance for credit losses and is considered separately as a liability for accounting and regulatory reporting purposes, and is included in Other Liabilities on the Company’s balance sheet.

In 2018, the Company sold its credit card portfolio to a third party vendor. Part of the sale of the portfolio was to provide a guarantee of certain accounts which, as of ~~June~~September 30, 2021, ~~the total guarantee~~ was ~~$2,475,000.~~$2,975,000.

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

Note 8. Earnings Per Share

Basic earnings per share (EPS), which excludes dilution, is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options or restricted stock awards, result in the

issuance of common stock which shares in the earnings of the Company. A reconciliation of the numerators and denominators of the basic and diluted EPS computations is as follows:


Basic Earnings Per Share	Basic Earnings Per Share	For the Three Months Ended June 30,				For the Six Months Ended June 30,				Basic Earnings Per Share	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(In thousands, except share and per share amounts)	(In thousands, except share and per share amounts)	2021		2020		2021		2020		(In thousands, except share and per share amounts)	2021		2020		2021		2020

Net income	Net income	$	7,563	$	2,301	$	15,042	$	8,924	Net income	$	6,521	$	4,344	$	21,563	$	13,268
Weighted average shares outstanding	Weighted average shares outstanding	12,498,809		12,449,283		12,497,217		12,592,126		Weighted average shares outstanding	12,007,689		12,471,070		12,332,248		12,551,480
Basic earnings per share	Basic earnings per share	$	0.61	$	0.18	$	1.20	$	0.71	Basic earnings per share	$	0.54	$	0.35	$	1.75	$	1.06


Diluted Earnings Per Share	Diluted Earnings Per Share	For the Three Months Ended June 30,				For the Six Months Ended June 30,				Diluted Earnings Per Share	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(In thousands, except share and per share amounts)	(In thousands, except share and per share amounts)	2021		2020		2021		2020		(In thousands, except share and per share amounts)	2021		2020		2021		2020

Net income	Net income	$	7,563	$	2,301	$	15,042	$	8,924	Net income	$	6,521	$	4,344	$	21,563	$	13,268
Weighted average shares outstanding	Weighted average shares outstanding	12,498,809		12,449,283		12,497,217		12,592,126		Weighted average shares outstanding	12,007,689		12,471,070		12,332,248		12,551,480
Effect of dilutive stock options		49,235		37,398		50,884		54,277
Effect of diluted stock options and restricted stock										Effect of diluted stock options and restricted stock	37,207		25,104		46,343		44,692
Weighted average shares of common stock and common stock equivalents	Weighted average shares of common stock and common stock equivalents	12,548,044		12,486,681		12,548,101		12,646,403		Weighted average shares of common stock and common stock equivalents	12,044,896		12,496,174		12,378,591		12,596,172
Diluted earnings per share	Diluted earnings per share	$	0.60	$	0.18	$	1.20	$	0.71	Diluted earnings per share	$	0.54	$	0.35	$	1.74	$	1.05

~~NaN~~No outstanding options ~~or restricted stock~~ awards were anti-dilutive for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020.

Note 9. Share-Based Compensation

The Company has 4 share-based compensation plans as described below. Share-based compensation cost recognized for those plans was ~~$210,000~~$310,000 and ~~$248,000~~$362,000 for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively. The recognized tax expense ~~(benefits)~~(benefit) for the share-based compensation expense, forfeitures of restricted stock, and exercise of stock options, resulted in the recognition of ~~$46,000~~$50,000 and ~~$72,000,~~$78,000, respectively, for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020.

The Central Valley Community Bancorp 2005 Omnibus Incentive Plan (2005 Plan) was adopted in May 2005 and expired March 16, 2015. In October 2017, the Company assumed the Folsom Lake Bank 2007 Equity Incentive Plan (2007 Plan). While outstanding arrangements to issue shares under ~~this plan,~~these plans, including options, continue in force until their expiration, no new options will be granted under ~~this plan.~~these plans.

The Central Valley Community Bancorp 2015 Omnibus Incentive Plan (2015 Plan) was adopted in May 2015. ~~In October 2017, the Company assumed the Folsom Lake Bank 2007 Equity Incentive Plan (2007 Plan).~~ The ~~plans provide~~plan provides for awards in the form of incentive stock options, non-statutory stock options, stock appreciation rights, and restricted stock. ~~Both plans allow~~The plan also allows for performance awards that may be in the form of cash or shares of the Company,

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

Effective June 2, 2017, the Company adopted an Employee Stock Purchase Plan (ESPP) whereby our employees may purchase Company common stock through payroll deductions of between 1 percent and 15 percent of pay in each pay period. Shares are purchased at the end of each of the three-month offering periods at a 10 percent discount from the lower of the closing market price on the Offering Date (first trading day of each offering period) or the Investment Date (last trading day of each offering period). The Company reserved 500,000 common shares to be set aside for the ESPP, and there were ~~450,257~~447,787 shares available for future purchase under the plan as of ~~June~~September 30, 2021.

Stock Option Plan

The Company bases the fair value of the stock options granted on the date of grant using a Black-Scholes Merton option pricing model that uses assumptions based on expected option life and the level of estimated forfeitures, expected stock volatility, risk free interest rate, and dividend yield. The expected term and level of estimated forfeitures of the Company’s stock options are based on the Company’s own historical experience. Stock volatility is based on the historical volatility of the Company’s stock. The risk-free interest rate is based on the U. S. Treasury yield curve for the periods within the contractual life of the stock options in effect at the time of grant. The compensation cost for stock options granted is based on the weighted average grant date fair value per share.

~~NaN~~No options to purchase shares of the Company’s common stock were granted during the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020.

A summary of the combined activity of the Company’s stock option compensation plans for the ~~six~~nine months ended ~~June~~September 30, 2021 follows (in thousands, except per share amounts):

Shares Weighted
Average
Exercise Price Weighted
Average
Remaining
Contractual
Term (Years) Aggregate
Intrinsic Value
Options outstanding at December 31, 2020 77,070 $ 10.06
Options exercised (20,000) $ 10.63
Options outstanding at June 30, 2021 57,070 $ 9.86 1.06 $ 587
Options vested or expected to vest at June 30, 2021 57,070 $ 9.86 1.06 $ 587
Options exercisable at June 30, 2021 57,070 $ 9.86 1.06 $ 587


	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Options outstanding at December 31, 2020	77,070	$	10.06

Options exercised	(21,285)	$	10.44

Options outstanding at September 30, 2021	55,785	$	9.92	0.82	$	650

Options exercisable at September 30, 2021	55,785	$	9.92	0.82	$	650

Information related to the stock option plan is as follows (in thousands):


		For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020

Intrinsic value of options exercised	Intrinsic value of options exercised	$	204	$	32	$	206	$	381	Intrinsic value of options exercised	$	19	$	51	$	225	$	432
Cash received from options exercised	Cash received from options exercised	$	212	$	19	$	213	$	228	Cash received from options exercised	$	10	$	50	$	222	$	277
Excess tax benefit realized for option exercises	Excess tax benefit realized for option exercises	$	46	$	0	$	46	$	72	Excess tax benefit realized for option exercises	$	4	$	6	$	50	$	78

As of ~~June~~September 30, 2021, there was 0no remaining unrecognized compensation cost related to stock options granted under all plans.

Restricted and Performance Common Stock Awards

The 2015 Plan provides for the issuance of restricted common stock to directors and officers. In addition, performance awards may be granted in the form of cash or shares. Restricted common stock grants typically vest over a one to five-year period. Restricted common stock (all of which are shares of our common stock) is subject to forfeiture if employment terminates prior to vesting. The cost of these awards is recognized over the vesting period of the awards based on the fair value of our common stock on the date of the grant.

The following table summarizes restricted stock and performance award activity for the ~~six~~nine months ended ~~June~~September 30, 2021 as follows:


		Shares	Weighted Average Grant-Date Fair Value			Shares	Weighted Average Grant-Date Fair Value
Nonvested outstanding shares at December 31, 2020	Nonvested outstanding shares at December 31, 2020	30,013	$	15.60	Nonvested outstanding shares at December 31, 2020	30,013	$	15.60
Granted	Granted	31,496	$	18.83	Granted	31,496	$	18.83
Vested	Vested	(30,834)	$	15.18	Vested	(37,085)	$	15.12
Forfeited	Forfeited	(247)	$	20.26	Forfeited	(247)	$	20.26
Nonvested outstanding shares at June 30, 2021		30,428	$	19.33
Nonvested outstanding shares at September 30, 2021					Nonvested outstanding shares at September 30, 2021	24,177	$	20.50

The shares awarded to employees and directors under the restricted stock agreements vest on applicable vesting dates only to the extent the recipient of the shares is then an employee or a director of the Company or one of its subsidiaries, and each recipient will forfeit all of the shares that have not vested on the date his or her employment or service is terminated. Performance common stock awards vest immediately.

As of ~~June~~September 30, 2021, there were ~~30,428~~24,177 shares of restricted stock that are nonvested and expected to vest. As of ~~June~~September 30, 2021, there was ~~$458,000~~$363,000 of total unrecognized compensation cost related to nonvested restricted common stock awards. Restricted stock compensation expense is recognized on a straight-line basis over the vesting period. This cost is expected to be recognized over a weighted-average remaining period of ~~1.72~~1.61 years and will be adjusted for subsequent changes in estimated forfeitures. Restricted common stock awards had an intrinsic value of ~~$2,880,000~~$2,975,000 at ~~June~~September 30, 2021.

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain matters discussed in this report constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained herein that are not historical facts, such as statements regarding the Company’s current business strategy and the Company’s plans for future development and operations, are based upon current expectations. These statements are forward-looking in nature and involve a number of risks and uncertainties. Such risks and uncertainties include, but are not limited to (1) significant increases in competitive pressure in the banking industry; (2) the impact of changes in interest rates; (3) a decline in economic conditions in the Central Valley and the Greater Sacramento Region; (4) the Company’s ability to continue its internal growth at historical rates; (5) the Company’s ability to maintain its net interest margin; (6) the decline in quality of the Company’s earning assets; (7) a decline in credit quality; (8) changes in the regulatory environment; (9) fluctuations in the real estate market; (10) changes in business conditions and inflation; (11) changes in securities markets (12) risks associated with acquisitions, relating to difficulty in integrating combined operations and related negative impact on earnings, and incurrence of substantial expenses; (13) political developments, uncertainties or instability, catastrophic events, acts of war or terrorism, or natural disasters, such as earthquakes, drought, pandemic diseases or extreme weather events, any of which may affect services we use or affect our customers, employees or third parties with which we conduct business; (14) the uncertainties related to the Covid-19 pandemic including, but not limited to, the potential adverse effect of the pandemic on the economy, our employees and customers, and our financial performance; and (15) the impact of the federal CARES Act and the significant additional lending activities undertaken by the Company in connection with the Small Business Administration’s Paycheck Protection Program enacted thereunder, including risks to the Company with respect to the uncertain application by the Small Business Administration of new borrower and loan eligibility, forgiveness and audit criteria. Therefore, the information set forth in such forward-looking statements should be carefully considered when evaluating the business prospects of the Company.

When the Company uses in this Quarterly Report on Form 10-Q the words “anticipate,” “estimate,” “expect,” “project,” “intend,” “commit,” “believe,” and similar expressions, the Company intends to identify forward-looking statements. Such statements are not guarantees of performance and are subject to certain risks, uncertainties and assumptions, including those described in this Quarterly Report on Form 10-Q. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected, projected, intended, committed or believed. The future results and shareholder values of the Company may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results and values are beyond the Company’s ability to control or predict. For those statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

The Securities and Exchange Commission (SEC) maintains a web site which contains reports, proxy statements, and other information pertaining to registrants that file electronically with the SEC, including the Company. The

Internet address is: www.sec.gov. In addition, our periodic and current reports are available free of charge on our website at www.cvcb.com as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. We believe that the Company’s most critical accounting policies are those which the Company’s financial condition depends upon, and which involve the most complex or subjective decisions or assessments.

There have been no material changes to the Company’s critical accounting policies during the ~~six~~nine months ended ~~June~~September 30, 2021. Please refer to the Company’s 2020 Annual Report to Shareholders on Form 10-K for a complete listing of critical accounting policies.

This discussion should be read in conjunction with our unaudited condensed consolidated financial statements, including the notes thereto, appearing elsewhere in this report.

OVERVIEW

Central Valley Community Bancorp (Company)

We are a central California-based bank holding company for a one-bank subsidiary, Central Valley Community Bank (Bank). We provide traditional commercial banking services to small and medium-sized businesses and individuals in the communities along the Highway 99 corridor in the Fresno, El Dorado, Madera, Merced, Placer, Sacramento, Stanislaus, San Joaquin, and Tulare Counties of central California. As a bank holding company, the Company is subject to supervision, examination and regulation by the Federal Reserve Bank.

Central Valley Community Bank (Bank)

The Bank commenced operations in January 1980 as a state-chartered bank. As a state-chartered bank, the Bank is subject to primary supervision, examination and regulation by the California Department of Financial Protection and Innovation (DFPI). The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to the applicable limits thereof, and the Bank is subject to supervision, examination and regulations of the FDIC.

The Bank is a member of the FDIC, which currently insures customer deposits in each member bank to a maximum of $250,000 per depositor. For this insurance, the Bank is subject to the rules and regulations of the FDIC, and, as is the case with all insured banks, may be required to pay a quarterly statutory assessment.

The Bank operates 20 full-service branches which serve the communities of Cameron Park, Clovis, Exeter, Folsom, Fresno, Gold River, Kerman, Lodi, Madera, Merced, Modesto, Oakhurst, Prather, Roseville, Sacramento, Stockton, and Visalia, California. Additionally, the Bank operates Real Estate, Agribusiness and SBA departments that originate loans in California. According to the June 30, ~~2020~~2021 FDIC data, the Bank’s branches in Fresno, Madera, San Joaquin, and Tulare Counties had a ~~3.40%~~3.83% combined deposit market share of all insured depositories. Our total market share in the other counties we operate in (El Dorado, Merced, Placer, Sacramento, and Stanislaus Counties), was less than 1.00% in ~~2020.~~2021.

Dividend Declared

On ~~July 21,~~October 20, 2021, the Board of Directors declared a $0.12 per share cash dividend payable on ~~August 20,~~November 19, 2021 to shareholders of record as of ~~August 6,~~November 5, 2021.

Impact and Response to COVID-19 Pandemic

The spread of COVID-19 has created a global public health crisis that has resulted in unprecedented volatility and disruption in financial markets and deterioration in economic activity and market conditions in the markets we serve. The pandemic has ~~impacted~~affected our customers and the ~~local economy in~~communities we serve and depending on the ~~San Joaquin Valley~~duration of the crisis and ~~greater Sacramento area. Federal, State~~government actions, the adverse impact on our financial position and ~~local shelter-in-place recommendations were enacted in our markets in March 2020, causing many businesses~~results of operations could be significant. In response to close and workers to be furloughed or lose jobs. Essential purpose entities such as medical professionals, food and agricultural businesses, and transportation and logistical businesses were exempted from the closures; however, unemployment rates are increasing in our local market area as compared to the prior quarter end.

~~The Company is closely monitoring~~ the effects of the pandemic on ~~our loan and deposit customers. Our management team is focused on assessing~~ the ~~risks in our loan portfolio and working with our customers to minimize our losses. While some industry segments are being more impacted by~~U.S. economy, the ~~COVID-19 pandemic than others, we believe that our credit risk related to the loans outstanding to customers in the higher risk categories is well managed. This is primarily due to the existence~~Board of ~~SBA and other loan guarantee programs, personal guarantees, and adequate collateralization.~~

~~Congress, the President, and~~Governors of the Federal Reserve ~~have~~System (“FRB”) has taken ~~several~~significant actions, ~~designed~~including a reduction in the target range of the federal funds rate to ~~cushion the economic fallout. Most notably,~~0.0% to 0.25% and an indeterminate amount of purchases of Treasury and mortgage-backed securities.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into ~~law at~~law. It contains substantial tax and spending provisions intended to address the ~~end~~impact of ~~March 2020 as a $2 trillion legislative package.~~the COVID-19 pandemic. The CARES Act provides that a qualified loan modification is exempt by law from classification as a Troubled Debt Restructuring pursuant to U.S. Generally Accepted Accounting Principles (GAAP). Pursuant to these new capabilities, we have implemented a loan program to allow customers who may be negatively impacted by the COVID-19 pandemic to defer loan principal and interest payments for up to 90 days.

~~The CARES Act established a $349 billion loan program administered through the U.S. Small Business Administration (“SBA”), referred to as~~includes the Paycheck Protection Program (“PPP”). Under the PPP, small businesses, sole proprietorships, independent contractors, and self-employed individuals may apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. After the initial, a $349 billion ~~in funds for the PPP was exhausted, an additional $310 billion in funding for PPP loans was authorized. As a preferred SBA lender, we are participating in the PPP~~program designed to help provide loans to our business customers to provide them with additional working capital. The Company has worked diligently with the SBA to qualify clients to receive PPP loans. PPP borrowers who can demonstrate that the funding received has been used for certain purposes such as to cover payrollaid small- and ~~rent costs and meet certain other requirements, can qualify for partial or full federal relief on loan principal and interest.~~medium-sized businesses

~~Nonqualifying borrowers or borrowers who have not applied for forgiveness, who received~~through 100% Small Business Administration (“SBA”) guaranteed loans ~~under~~distributed through banks. These loans were intended to guarantee 24 weeks of payroll and other costs to help those businesses remain viable and keep their workers employed. Legislation passed on April 24, 2020 provided additional PPP funds of $310 billion. During 2020, we originated and funded approximately 1,089 loans, totaling $217.2 million. In response to the COVID-19 pandemic and the CARES Act, ~~are contractually obligated~~we also implemented a short-term loan modification program to ~~begin making monthly repayments on principal and interest six months after their loans have funded.~~

provide temporary payment relief to certain of our borrowers who meet the program’s qualifications. On January 13, 2021, the SBA reopened the PPP for ~~second draw~~Second Draw loans to small businesses and non-profit organizations that ~~did receive~~received a loan through the initial PPP phase. At least $25 billion has been set aside for ~~second draw~~Second Draw (“round two”) PPP loans to eligible borrowers with a maximum of 10 employees or for loans of $250,000 or less to eligible borrowers in low or moderate income neighborhoods. Generally speaking, businesses with more than 300 employees and/or less than a 25% reduction in gross receipts between comparable quarters in 2019 and 2020 are not eligible for ~~second draw~~Second Draw loans. Further, maximum loan amounts have been increased for accommodation and food service businesses. As of ~~June~~September 30, 2021, we have ~~received~~originated approximately 512 ~~applications~~round two loans totaling ~~$78 million.~~$78.5 million in outstanding borrowings. The Paycheck Protection Program officially ended on May 31, 2021.

The ~~federal~~first nine months of 2021 included $3.8 million in recapture of provision for credit losses, as a result of a modest improvement in our economic forecast. In comparison, the first nine months of 2020 included a $5.0 million provision. The Company’s allowance for credit losses at September 30, 2021 of $10.1 million, compares to the pre-pandemic allowance of $9.5 million at December 31, 2019. We continue to monitor the impact of COVID-19 closely. The extent to which the COVID-19 pandemic will impact our operations and financial results during 2021 is highly uncertain, but we may experience continued volatility in the provision for credit losses if this pandemic results in economic stress greater than forecasted on our borrowers and loan portfolios and lower interest income if the current low interest rate environment continues.

We only conduct business in the state of California. California placed significant restrictions on businesses and individuals at the outset of the COVID-19 pandemic. While many of these initial restrictions have been lifted, there is still the possibility that certain restrictions could be re-imposed or extended to contain further spread if the rate of infection were to surge again in any of these states, including as a result of the Delta variant that has recently caused an uptick in infections particularly among non-vaccinated individuals. As a financial institution, we are considered an essential business and we have therefore continued to operate on a modified basis throughout the pandemic to comply with governmental restrictions and public health authority guidelines.

We remain focused on keeping our employees safe and our bank ~~regulatory agencies, along with their state counterparts,~~running effectively to serve our customers and continue to monitor the continued spread of COVID-19 and its Delta variant. Our branches have ~~issued guidance~~been reopened across our footprint.

Furthermore, the onset and continuation of the COVID-19 pandemic has significantly heightened the level of challenges, risks and uncertainties facing our business and continuation of operations, including the following:

• Market interest rates have declined significantly and remain near historic lows, and these reductions, especially if prolonged, could adversely affect our net interest income, net interest margin, and earnings;

• We have experienced and continue to anticipate a slowdown in demand for our products and services, including the demand for traditional loans. Although the decline has been offset, in part, due to PPP loans under the CARES Act and other governmental programs established in response to the ~~COVID-19~~ pandemic, and have taken a number of unprecedented steps to help banks navigate the pandemic and mitigate its impact. These include, without limitation: requiring banks to focus on business continuity and pandemic planning; adding pandemic scenarios to stress testing; encouraging bank use of capital buffers and reserves in lending programs; permitting certain regulatory reporting extensions; reducing margin requirements on swaps; permitting certain otherwise prohibited investments in investment funds; issuing guidance to encourage banks to work with customers affected by the pandemic and encourage loan workouts; and providing credit under the Community Reinvestment Act (“CRA”) for certain pandemic related loans, investments and public service. Moreover, because of the need for social distancing measures, the agencies revamped the manner in which they conducted periodic examinations of their regular institutions, including making greater use of off-site reviews. The Federal Reserve also issued guidance encouraging banking institutions to utilize its discount window for loans and intraday credit extended by its Reserve Banks to help households and businesses impacted by the pandemic and announced numerous funding facilities. The FDIC has also acted to mitigate the deposit insurance assessment effects of participating in the PPP ~~and~~forgiveness process will continue to lessen the ~~Federal Reserve’s PPP Liquidity Facility and Money Market Mutual Fund Liquidity Facility.~~positive impact of these programs;

Management is closely monitoring credit metrics. Additional resources have been shifted to credit administration to closely analyze higher risk segments within the loan portfolio, monitor and track loan payment deferrals and customer liquidity, and provide timely reporting to management and the board of directors. The management team continues to analyze• Volatility in economic conditions in our geographic markets and perform stress testing of our investment portfolio as well as our loan portfolio. Based on the Company’s capital levels, conservative underwriting policies, low loan-to-deposit ratio, loan concentration diversification, and suburban geographical marketplace, management expects to be able to manage the economic risks and uncertainties associated withforecasts caused by the COVID-19 pandemic create wider uncertainty in the outlook for future net charge off activity resulting in the potential for changing levels of reserves in the allowance for credit losses; and ~~remain adequately capitalized.~~

• Declines in fair value of investment securities in our portfolio due to economic uncertainties could reduce the unrealized gains reported as part of our consolidated comprehensive income (loss).

~~Capital and liquidity~~

While the Company believes that it has sufficient capital to withstand an extended economic recession brought about by COVID-19, its reported and regulatory capital ratios could be adversely impacted by further credit losses. The Company relies on cash on hand as well as dividends from its subsidiary bank to service its debt. If the Company’s capital deteriorates such that its subsidiary bank is unable to pay dividends to it for an extended period of time, the Company may not be able to service its debt.

The Company maintains access to multiple sources of liquidity. Wholesale funding markets have remained open to us, but rates for short term funding have recently been volatile. If funding costs are elevated for an extended period of time, it could have an adverse effect on the Company’s net interest margin. If an extended recession caused large numbers of the Company’s deposit customers to withdraw their funds, the Company might become more reliant on volatile or more expensive sources of funding.

~~Asset valuation~~

Currently, the Company does not expect COVID-19 to affect its ability to account timely for the assets on its balance sheet; however, this could change in future periods. While certain valuation assumptions and judgments will change to account for pandemic-related circumstances such as widening credit spreads, the Company does not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP.

COVID-19 could cause a further and sustained decline in the Company’s stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to perform a goodwill impairment test and result in an impairment charge being recorded for that period. In the event that the Company concludes that all or a portion of its goodwill is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital. Management considered the COVID-19 related economic downturn to be such a triggering event and therefore performed qualitative assessments at the end of the first, second and fourth quarters of 2020. Given the continued economic impact of the pandemic, management determined it appropriate to perform a quantitative test as of September 30, 2020. Management engaged a third party valuation specialist to assist with the performance of the quantitative goodwill impairment test in the third quarter of 2020. Based on this quantitative test, it was determined that the fair value of the reporting unit exceeded the carrying value as of September 30, 2020.

~~Processes, controls and business continuity plan~~

The Company has invoked its Board approved Pandemic Preparedness Plan that includes a remote working strategy. The Company does not anticipate incurring additional material cost related to its continued deployment of the remote working strategy. No material operational or internal control challenges or risks have been identified to date. The Company does not anticipate significant challenges to its ability to maintain its systems and controls in light of the measures the Company has taken to prevent the spread of COVID-19. The Company does not currently face any material resource constraint through the implementation of its business continuity plans.

~~Lending operations and accommodations to borrowers~~

In keeping with regulatory guidance to work with borrowers during this unprecedented situation and as outlined in the CARES Act, the Company is executing a payment deferral program for its borrowing clients that are adversely affected by the pandemic. Depending on the demonstrated need of the client, the Company is deferring either the full loan payment or the principal component of the loan payment for up to 90 days. As of June 30, 2021, based on the Bank’s discussion with these customers, loan customers with deferred payments of principal, interest, or both on loans totaling approximately $1.4 million were outstanding. In accordance with interagency guidance issued in March 2020 and Section 4013 of the Cares Act, these short-term deferrals are not considered troubled debt restructurings.

With the passage of the PPP administered by the SBA, the Company is actively participating in assisting its customers with applications for resources through the program. PPP loans have a two-year term and earn interest at 1%. The Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. During the year ended December 31, 2020 and the six months ended June 30, 2021, the Company closed 1,601 PPP loans representing $295,644,000 in funding. It is the Company’s understanding that loans funded through the PPP program are fully guaranteed by the U.S. government. Should those circumstances change, the Company could be required to establish additional allowance for credit losses through additional provision for credit losses charged to earnings.

~~Credit~~

The Company is working with customers directly affected by COVID-19. The Company is prepared to offer short-term assistance in accordance with regulatory guidelines. As a result of the current economic environment caused by COVID-19, the Company is engaging in more frequent communication with borrowers to better understand their situation and the challenges faced, allowing it to respond proactively as needs and issues arise. Should economic conditions worsen, the Company could experience further increases in its required allowance for credit losses and record additional provisions for credit losses. It is possible that the Company’s asset quality measures could worsen at future measurement periods if the effects of COVID-19 are prolonged.

~~Second~~Third Quarter of 2021

For the ~~second~~third quarter of 2021, our consolidated net income was ~~$7,563,000~~$6,521,000 compared to ~~$2,301,000~~$4,344,000 for the same period in 2020. Diluted EPS was ~~$0.60~~$0.54 for the quarter ended ~~June~~September 30, 2021 compared to ~~$0.18~~$0.35 for the same period in 2020. The increase in net income during the ~~second~~third quarter of 2021 compared to the same period in 2020 is primarily driven by a decrease in provision for credit losses of ~~$4,500,000,~~$1,100,000, an increase in net interest income of ~~$2,507,000,~~$2,167,000, and an increase in non-interest income of ~~$32,000,~~$77,000, partially offset by an increase in total non-interest expenses of ~~$132,000,~~$334,000, and an increase in the provision for income taxes of ~~$1,645,000.~~$833,000. During the quarter ended ~~June~~September 30, 2021, the Company recorded a ~~$1,500,000~~$500,000 reversal of provision for credit losses, compared to a ~~$3,000,000~~$600,000 provision during the quarter ended ~~June~~September 30, 2020. Throughout 2020 and the first ~~six~~nine months of of 2021, we adjusted the economic risk factor methodology to incorporate the current economic implications from the COVID-19 pandemic.

Net interest margin (fully tax equivalent basis) decreased to ~~3.60%~~3.47% for the quarter ended ~~June~~September 30, 2021 compared to ~~3.79%~~3.63% for the same period in 2020. The net interest margin period-to-period comparisons were impacted by the ~~decrease~~increase in the yield on the average investment securities, including interest-earning deposits in other banks and Federal funds sold, offset by the increase in the yield on the loan portfolio ~~the increase in the effective yield on interest earning deposits in other banks and Federal Funds sold,~~ and the decrease in the cost of total interest-bearing liabilities. The effective yield on average investment securities, including interest-earning deposits in other banks and Federal funds sold, ~~decreased~~increased to ~~2.11%~~2.14% for the three months ended ~~June~~September 30, 2021, compared to ~~2.37%~~2.07% for the three months ended ~~June~~

September 30, 2020. The effective yield on average loans increased to ~~5.04%~~4.91% for the three months ended ~~June~~September 30, 2021, compared to ~~4.71%~~4.68% for the three months ended ~~June~~September 30, 2020. The increase in the loan yield was impacted by Company’s issuance of PPP loans. Total average PPP loans, which have an annual interest rate of 1.00%, were ~~$158,490,000~~$84,292,000 and ~~$160,392,000~~$211,559,000 for the three months ended ~~June~~September 30, 2021 and 2020, respectively. The cost of deposits (calculated by dividing annualized interest

expense on interest bearing deposits by total deposits), decreased to 0.05% for the quarter ended ~~June~~September 30, 2021 compared to ~~0.10%~~0.09% for the same period in 2020.

Non-interest income increased ~~$32,000~~$77,000 or ~~1.56%~~3.72% to ~~$2,077,000~~$2,148,000 for the quarter ended ~~June~~September 30, 2021 compared to ~~$2,045,000~~$2,071,000 for the same period in 2020, primarily driven by an increase in interchange fees of ~~$164,000,~~$117,000, an increase of $60,000 in net realized gains on sales and calls of investment securities, an increase in service charge income of ~~$20,000, and a~~$24,000, an increase in Federal Home Loan Bank (“FHLB”) dividends of ~~$8,000, offset by a decrease~~$13,000, and an increase of ~~$88,000~~$12,000 in other income, offset by a decrease in loan placement fees of ~~$51,000, and a decrease of $21,000 in net realized gains on sales and calls of investment securities.~~$218,000. Non-interest expense for the quarter ended ~~June~~September 30, 2021 increased ~~$132,000~~$334,000 or ~~1.15%~~2.85% from the comparable period due to increases in salaries and employee benefits, data processing, occupancy and equipment, personnel, regulatory assessments, appraisal fees, alarm monitoring, operating losses, information technology expenses, tax provision, postage, donations, education and training, ~~armored courier fees,~~ directors’ expenses, telephone expenses, ~~loan related expenses, and~~ ATM/debit card expenses, mileage and travel, and amortization of software, partially offset by decreases in professional services, internet banking expenses, risk management expenses, advertising, armored courier fees,stationery and supplies, ~~directors’ expenses,~~ check printing, and ~~mileage and travel,~~ ~~and amortization of software.~~loan related expenses.

Annualized return on average equity (ROE) for the ~~second~~third quarter of 2021 increased to ~~12.25%~~10.41% compared to ~~4.14%~~7.50% for the same period in 2020. The increase in ROE reflects the increase in net income, as well as the increase in average shareholders’ equity compared to the prior year. Annualized return on average assets (ROA) was ~~1.36%~~1.13% and ~~0.51%~~0.90% for the ~~quarter~~quarters ended ~~June~~September 30, 2021 and 2020, respectively. Total average equity increased to ~~$246,959,000~~$250,520,000 for the ~~second~~third quarter of 2021 compared to ~~$222,479,000~~$231,656,000 for the ~~second~~third quarter of 2020. The Company declared and paid $0.12 per share in cash dividends to holders of common stock during the ~~second~~third quarter of 2021, compared to $0.11 in dividends declared and paid during the ~~second~~third quarter of 2020.

Our average total assets increased ~~$413,767,000~~$389,578,000 or ~~22.81%~~20.20% to ~~$2,227,632,000~~$2,318,172,000 during the ~~second~~third quarter of 2021 compared to the same period in 2020. Total average interest-earning assets increased ~~$393,188,000~~$356,622,000 or ~~23.62%~~20.14% in the ~~second~~third quarter of 2021 compared to the same period of 2020. Total average loans, including nonaccrual loans, ~~increased $3,217,000~~decreased $53,361,000 or ~~0.30%~~4.75% in the ~~second~~third quarter of 2021 compared to the same period in 2020. Average total investments and interest-earning deposits in other banks increased ~~$391,002,000~~$409,167,000 or ~~66.35%~~62.95% in the ~~period~~quarter ended ~~June~~September 30, 2021 compared to the same period in 2020. Average interest-bearing liabilities increased ~~$251,149,000~~$250,724,000 or ~~31.06%~~29.15% in the ~~period~~quarter ended ~~June~~September 30, 2021 compared to the same period in 2020. Average non-interest bearing demand deposits increased ~~18.61%~~13.47% to ~~$893,441,000~~$915,742,000 in the third quarter of 2021 compared to ~~$753,265,000~~$807,052,000 during the same period in 2020. The ratio of average non-interest bearing demand deposits to average total deposits was ~~45.86%~~45.30% in the ~~second~~third quarter of 2021 compared to ~~48.39%~~48.56% in 2020.

First ~~Six~~Nine Months of 2021

For the ~~six~~nine months ended ~~June~~September 30, 2021, our consolidated net income was ~~$15,042,000~~$21,563,000 compared to ~~$8,924,000~~$13,268,000 for the same period in 2020. Diluted EPS was ~~$1.20~~$1.74 for the first ~~six~~nine months of 2021 compared to ~~$0.71~~$1.05 for the first ~~six~~nine months of 2020. Net income for the ~~six-month~~nine-month period ended ~~June~~September 30, 2021 increased ~~68.56%~~62.52%, compared to the ~~six-month~~nine-month period ended ~~June~~September 30, 2020, primarily driven by an increase in net interest income, an increase in loan placement fees, a decrease in non-interest expense, and a decrease in the provision for credit losses, partially offset by a decrease in net realized gains on sales and calls of investment securities, a decrease in service charge income, and an increase in provision for income taxes. Net interest income before the provision for credit losses increased ~~$4,033,000~~$6,200,000 or ~~12.76%~~13.01%. The impact to interest income from the accretion of the loan marks on acquired loans was $579,000 and $1,039,000 for the nine months ended September 30, 2021 and 2020, respectively. Net interest income during the first ~~six~~nine months of 2021 and 2020 benefited by approximately ~~$434,000~~$438,000 and ~~$453,000,~~$505,000, respectively, in nonrecurring income from loan prepayment penalties. Excluding ~~these benefits,~~the loan mark accretion and prepayment penalties, net interest income for the ~~six~~nine months ended ~~June~~September 30, 2021, ~~decreased~~increased by ~~$4,570,000~~$6,727,000 compared to the ~~six-month~~nine-month period ended ~~June~~September 30, 2020. Non-interest income decreased ~~$4,512,000~~$4,435,000 or ~~52.54%~~41.61%, and non-interest expense decreased ~~$559,000~~$225,000 or ~~2.37%~~0.64% in the first ~~six~~nine months ~~ended~~ of 2021 compared to the first ~~six~~nine months ~~ended~~ of 2020. During the ~~six~~nine months ended ~~June~~September 30, 2021, the Company recorded a reversal of provision for credit losses of ~~$3,300,000~~$3,800,000 compared to ~~$4,375,000~~$4,975,000 provision during same period in 2020. Net recoveries of previously charged-off loans totaling ~~$824,000~~$946,000 and ~~$432,000~~$552,000 were recorded during the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively.

Annualized return on average equity for the ~~six~~nine months ended ~~June~~September 30, 2021 increased to ~~12.21%~~11.60% compared to ~~7.92%~~7.78% for the same period in 2020. The increase in ROE reflects the increase in net income, notwithstanding the increase in average shareholders’ equity compared to the prior year. Annualized return on average assets was ~~1.39%~~1.30% and ~~1.05%~~0.99% for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively. Total average equity was ~~$246,439,000~~$247,814,000 for the ~~six~~nine months ended ~~June~~September 30, 2021 compared to ~~$225,240,000~~$227,394,000 for the same period in 2020. The change in shareholders’ equity was

driven by the retention of earnings, net of dividends paid, the decrease in net unrealized gains on available-for-sale (AFS) securities, and share repurchases.

Our average total assets increased ~~$460,232,000~~$436,695,000 or ~~26.98%~~24.52% in the first ~~six~~nine months of 2021 compared to the same period in 2020. Total average interest-earning assets increased ~~$441,383,000~~$413,076,000 or ~~28.39%~~25.38% comparing the first ~~six~~nine months of 2021 to the same period in 2020. Average total loans, including nonaccrual loans, increased ~~$79,727,000~~$35,028,000 or ~~7.97%~~3.36% comparing the first ~~six~~nine months of 2021 to the same period in 2020. The effective yield on average loans ~~decreased~~increased to ~~5.11%~~5.04% for the ~~six~~nine months ~~June~~September 30, 2021, compared to ~~5.13%~~4.97% for the ~~six~~nine months ~~June~~September 30, 2020. Total average PPP loans ~~which yield 1.00%,~~

were ~~$169,553,000~~$140,883,000 and ~~$80,196,000~~$124,303,000 for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively. Excluding PPP loans from total average loans, the effective yield on average loans for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 was ~~4.99%~~4.90% and ~~5.42%~~5.34%, respectively. Average total investments (securities and interest-earning deposits) increased ~~$363,326,000,~~$378,890,000, or ~~65.41%~~64.52% in the ~~six-month~~nine-month period ended ~~June~~September 30, 2021 compared to the same period in ~~2020, with average~~2020. Average interest-bearing liabilities ~~decreasing $242,059,000~~increased $245,080,000 or ~~31.07%~~30.40% on a ~~period to period~~period-to-period comparison.

Our net interest margin (fully tax equivalent basis) for the first ~~six~~nine months ended ~~June~~September 30, 2021 decreased to ~~3.67%~~3.60% compared to ~~4.11%~~3.93% for the same period in 2020. The decrease in net interest margin in the period-to-period comparison resulted primarily from a decrease in the effective yield on the Company’s average investment securities, the ~~decrease~~increase in the yield on the loan portfolio, and the decrease in the effective yield on interest-earning deposits in other banks and Federal funds sold, partially offset by the decrease in the cost of total interest-bearing liabilities. The effective yield on interest-earning assets decreased 4938 basis points to ~~3.73%~~3.66% for the ~~six-month~~nine-month period ended ~~June~~September 30, 2021 compared to ~~4.22%~~4.04% for the same period in 2020. For the ~~six-month~~nine-month period ended ~~June~~September 30, 2021, the effective yield on investment securities, including Federal funds sold and interest-earning deposits in other banks, decreased 4827 basis points, compared to the same period in the prior year, and the effective yield on loans ~~decreased 2~~increased seven basis points. The cost of total interest-bearing liabilities decreased 1210 basis points to 0.11% compared to ~~0.23%~~0.21% for the same period in 2020. The cost of total deposits, including noninterest bearing accounts decreased to ~~0.06%~~0.05% compared to ~~0.11%~~0.10% for the ~~six~~nine months ended ~~June~~September 30, 2021 and ~~2020.~~2020, respectively.

Net interest income before the reversal of provision for credit losses for the ~~six~~nine months ended ~~June~~September 30, 2021 was ~~$35,636,000~~$53,846,000 compared to ~~$31,603,000~~$47,646,000 for the same period in 2020, an increase of ~~$4,033,000~~$6,200,000 or ~~12.76%~~13.01%. Net interest income increased as a result of yield changes, and asset mix changes, ~~and an increase in interest-bearing liabilities,~~ offset by an increase in average earning ~~assets.~~assets and an increase in interest-bearing liabilities. The Bank recovered ~~$434,000~~$438,000 and ~~$453,000,~~$505,000, of foregone interest income and prepaid payment penalties in 2021 and 2020, respectively. The impact to interest income from the accretion of the loan marks on acquired loans was $579,000 and $1,039,000 for the nine months ended September 30, 2021 and 2020, respectively. The Bank had non-accrual loans totaling ~~$2,035,000~~$1,597,000 at ~~June~~September 30, 2021, compared to $3,278,000 at December 31, 2020 and ~~$2,406,000~~$3,458,000 at ~~June~~September 30, 2020. The Company had no other real estate owned or repossessed assets at ~~June~~September 30, 2021, December 31, 2020, or ~~June~~September 30, 2020.

At ~~June~~September 30, 2021, we had total net loans of ~~$1,059,506,000,~~$1,073,436,000, total assets of ~~$2,280,550,000,~~$2,348,377,000, total deposits of ~~$1,979,094,000,~~$2,058,092,000, and shareholders’ equity of ~~$251,049,000.~~$246,548,000.

Key Factors in Evaluating Financial Condition and Operating Performance

As a publicly traded community bank holding company, we focus on several key factors including:

· Return to our shareholders;

· Return on average assets;

· Development of revenue streams, including net interest income and non-interest income;

· Asset quality;

· Asset growth;

· Capital adequacy;

· Operating efficiency; and

· Liquidity

Return to Our Shareholders

Our return to shareholders is determined in a ratio that measures the return on average equity (ROE)~~. ROE~~, which is ~~a ratio that measures~~ net income divided by average shareholders’ equity. Our annualized ROE was ~~12.21%~~11.60% for the ~~six~~nine months ended ~~June~~September 30, 2021 compared to 8.85% for the year ended December 31, 2020 and ~~7.92%~~7.78% for the ~~six~~nine months ended ~~June~~September 30, 2020. Our net income for the ~~six~~nine months ended ~~June~~September 30, 2021 increased ~~$6,118,000~~$8,295,000 or ~~68.56%~~62.52% to ~~$15,042,000~~$21,563,000 compared to ~~$8,924,000~~$13,268,000 for the ~~six~~nine months ended ~~June~~September 30, 2020, primarily driven by an increase in net interest income, a decrease in non-interest expenses, a reversal of the provision for credit losses, and an increase in loan placement fees, offset by a decrease in net realized gains on sales and calls of investment securities, an increase in provision for income taxes, and a decrease in service charge income. Net interest margin (NIM) decreased 4433 basis points for the ~~six-month~~nine-month period ended ~~June~~

September 30, 2021 compared to the ~~six~~nine months ended ~~June~~September 30, 2020. Diluted EPS was ~~$1.20~~$1.74 for the ~~six~~nine months ended ~~June~~September 30, 2021 and ~~$0.71~~$1.05 for the same period in 2020.

Return on Average Assets

Our return on average assets (ROA) is a ratio that we use to compare our performance with other banks and bank holding companies. Our annualized ROA for the ~~six~~nine months ended ~~June~~September 30, 2021 was ~~1.39%~~1.30% compared to 1.11% for the year ended December 31, 2020 and ~~1.05%~~0.99% for the ~~six~~nine months ended ~~June~~September 30, 2020. The increase in ROA for the ~~six~~nine months ended ~~June~~September 30, 2021 compared to ~~June~~September 30, 2020 was due to the increase in net income, notwithstanding the increase in average assets. Average assets for the ~~six~~nine months ended ~~June~~September 30, 2021 was ~~$2,166,196,000~~$2,217,411,000 compared to $1,832,987,000 for the year ended December 31, 2020. Median ROA for our peer group was 1.06% for the year ended December 31, 2020. Peer group data from S&P Global Market Intelligence includes bank holding companies in central California with assets from $1 billion to $3.5 billion.

Development of Revenue Streams

Over the past several years, we have focused on not only improving net income, but improving the consistency of our revenue streams in order to create more predictable future earnings and reduce the effect of changes in our operating environment on our net income. Specifically, we have focused on net interest income through a variety of processes, including increases in average interest earning assets, and minimizing the effects of the recent interest rate changes on our net interest margin. The Company’s net interest margin (fully tax equivalent basis) decreased to ~~3.67%~~3.60% for the ~~six~~nine months ended ~~June~~September 30, 2021, compared to ~~4.11%~~3.93% for the same period in 2020. The decrease in net interest margin in the period-over-period comparison resulted primarily from the decrease in the effective yield on average investment securities (including interest-earning deposits in other banks and Federal funds sold), ~~and a decrease~~offset by an increase in the yield on the Company’s loan portfolio. Interest-bearing liabilities continue to benefit from low interest rates. In comparing the two periods ending ~~June~~September 30, 2021 and 2020, the effective yield on total earning assets decreased 4938 basis points, while the cost of total interest-bearing liabilities decreased 1210 basis points and the cost of total deposits decreased to ~~0.06%~~0.05% compared to ~~0.11%~~0.10%. Net interest income before the reversal of provision for credit losses for the ~~six-month~~nine-month period ended ~~June~~September 30, 2021 was ~~$35,636,000~~$53,846,000 compared to ~~$31,603,000~~$47,646,000 for the same period in 2020.

Our non-interest income generally consists of service charges and fees on deposit accounts, fee income from loan placements and other services, appreciation in cash surrender value of bank-owned life insurance, net gains from sales of investment securities, FHLB dividends, and other income. Non-interest income for the ~~six~~nine months ended ~~June~~September 30, 2021 decreased ~~$4,512,000~~$4,435,000 or ~~52.54%~~41.61%, to ~~$4,076,000~~$6,224,000 compared to ~~$8,588,000~~$10,659,000 for the ~~six~~nine months ended ~~June~~September 30, 2020. The decrease resulted primarily from decreases in net realized gains on sales and calls of investment securities, service charge income, gain related to the collection of life insurance proceeds, and FHLB dividends; offset by increases in loan placement fees, and interchange fees, compared to the comparable 2020 period. Further detail of non-interest income is provided below.

Asset Quality

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 percentage of total loans and total assets and is a key element in estimating the future earnings of a company. Total nonperforming assets were ~~$2,035,000~~$1,597,000 and $3,278,000 at ~~June~~September 30, 2021 and December 31, 2020, respectively. Nonperforming assets totaled ~~0.19%~~0.15% of gross loans as of ~~June~~September 30, 2021 and 0.30% of gross loans as of December 31, 2020. The ratio of nonperforming assets to total assets was ~~0.09%~~0.07% as of ~~June~~September 30, 2021 and 0.16% as of December 31, 2020. The nonperforming assets at ~~June~~September 30, 2021 and December 31, 2020 consisted of nonaccrual loans of ~~$2,035,000~~$1,597,000 and $3,278,000, respectively. The Company had no other real estate owned (OREO) or repossessed assets at ~~June~~September 30, 2021 or December 31, 2020. Management maintains certain loans that have been brought current by the borrower (less than 30 days delinquent) on nonaccrual status until such time as management has determined that the loans are likely to remain current in future periods.

The allowance for credit losses as a percentage of the outstanding loan balance was ~~0.98%~~0.93% as of ~~June~~September 30, 2021 and 1.17% as of December 31, 2020. The ratio of net charge-off (recovery) to average loans was ~~(0.15)~~(0.12)% ~~as of June~~for the nine months ended September 30, 2021 and (0.05)% as of December 31, 2020.

Asset Growth

As revenues from both net interest income and non-interest income are a function of asset size, the growth in assets has a direct impact in increasing net income and therefore ROE and ROA. 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 by ~~$276,454,000~~$344,281,000 or ~~13.79%~~17.18% during the ~~six~~nine months

ended ~~June~~September 30, 2021 to ~~$2,280,550,000~~$2,348,377,000 compared to $2,004,096,000 as of December 31, 2020, primarily due to the ~~Company’s participation~~increase in ~~the PPP.~~deposit balances. Total gross loans decreased by ~~2.94%~~1.71% or ~~$32,402,000~~$18,850,000 to ~~$1,069,945,000~~$1,083,497,000 as of ~~June~~September 30, 2021 compared to $1,102,347,000 as of December 31, 2020. The gross loan decrease consisted of a decrease of ~~$83,414,000~~$128,656,000 in the PPP loans, offset by an increase of ~~$51,012,000~~$109,806,000 in non-PPP loan ~~growth.Total~~growth. Total deposits increased ~~14.88%~~19.47% to ~~$1,979,094,000~~$2,058,092,000 as

of ~~June~~September 30, 2021 compared to $1,722,710,000 as of December 31, 2020. The Company’s deposit balances for the ~~six~~nine months ended ~~June~~September 30, 2021 increased through organic growth and PPP loan proceeds retained in customer deposit accounts. Our loan-to-deposit ratio at ~~June~~September 30, 2021 was ~~54.06%~~52.65% compared to 63.99% at December 31, 2020. The loan-to-deposit ratio of our peers was 80.00% at December 31, 2020. Further discussion of loans and deposits is below.

Capital Adequacy

Capital serves as a source of funds and helps protect depositors and shareholders against potential losses. The Company has historically maintained substantial levels of capital. The assessment of capital adequacy is dependent on several factors including asset quality, earnings trends, liquidity and economic conditions. Maintenance of adequate capital levels is integral to providing stability to the Company. The Company needs to maintain substantial levels of regulatory capital to give it flexibility in the changing regulatory environment and to respond to changes in the market and economic conditions including acquisition opportunities.

The Company and the Bank are each subject to regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements may cause certain mandatory and discretionary actions by regulators that, if undertaken, could have a material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative and qualitative measures. These measures were established by bank regulatory agencies to ensure capital adequacy. As of August 30, 2018, bank holding companies with consolidated assets of less than $3 billion and banks like Central Valley Community Bank became subject to new capital requirements, and certain provisions of the new rules were phased in through 2019 under the Dodd-Frank Act and Basel III. As of ~~June~~September 30, 2021, the Bank met or exceeded all regulatory 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 ~~June~~September 30, 2021. The Company’s regulatory capital ratios are presented in the table in the “Capital” section below.

Operating Efficiency

Operating efficiency is the measure of how efficiently earnings before provision for credit losses and taxes are generated as a percentage of revenue. When measuring operating efficiency, a lower ratio is more favorable. The Company’s efficiency ratio (operating expenses, excluding amortization of intangibles and foreclosed property expense, divided by net interest income before provision for credit losses (computed on a tax equivalent basis) plus non-interest income, excluding gains and losses from sales of securities and OREO, and gains related to the collection of life insurance proceeds) was ~~55.96%~~56.46% for the ~~six~~nine months ended ~~June~~September 30, 2021 compared to ~~65.00%~~64.52% for the ~~six~~nine months ended ~~June~~September 30, 2020. The improvement in the efficiency ratio was due to the growth in non-interest income along with the decrease in non-interest expense. Further discussion of the change in net interest income and decrease in operating expenses is below.

The Company’s net interest income before provision for credit losses on a non tax-equivalent basis plus non-interest income, net of investment securities related gains, increased ~~13.36%~~13.53% to ~~$40,516,000~~$61,209,000 for the first ~~six~~nine months of 2021 compared to ~~$35,740,000~~$53,914,000 for the same period in 2020, while operating expenses, net of losses on sale of assets, and amortization of core deposit intangibles, decreased ~~2.41%~~0.65% to ~~$22,671,000~~$34,559,000 from ~~$23,230,000~~$34,784,000 for the same period in 2020.

Liquidity

Liquidity management involves the Bank’s ability to meet cash flow requirements arising from fluctuations in deposit levels and demands of daily operations, which include providing for customers’ credit needs, funding of securities purchases, and ongoing repayment of borrowings. 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 liquidity to meet our funding needs, including adequate cash flow 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 (“FHLB”). We have available unsecured lines of credit with correspondent banks totaling approximately $110,000,000 and secured borrowing lines of approximately ~~$245,311,000~~$262,091,000 with the FHLB. These funding sources are augmented by collection of principal and interest on loans, the routine maturities and pay downs of securities from our investment securities portfolio, the stability of our core deposits, and the ability to sell investment securities. Primary uses of funds include origination and purchases of loans, withdrawals of and interest payments on deposits, purchases of investment securities, and payment of operating expenses.

We had liquid assets (cash and due from banks, interest-earning deposits in other banks, Federal funds sold, available-for-sale securities, and equity securities) totaling ~~$1,080,604,000~~$1,135,541,000 or ~~47.38%~~48.35% of total assets at ~~June~~September 30, 2021 and $788,004,000 or 39.32% of total assets as of December 31, 2020.

RESULTS OF OPERATIONS

Net Income for the ~~Six~~Nine Months Ended ~~June~~September 30, 2021 Compared to the ~~Six~~Nine Months Ended ~~June~~September 30, 2020

Net income increased to ~~$15,042,000~~$21,563,000 for the ~~six~~nine months ended ~~June~~September 30, 2021 compared to ~~$8,924,000~~$13,268,000 for the ~~six~~nine months ended ~~June~~September 30, 2020. Basic and diluted earnings per share for ~~June~~September 30, 2021 were ~~$1.20~~$1.75 and ~~$1.20,~~$1.74, respectively. Basic and diluted earnings per share for the same period in 2020 were ~~$0.71~~$1.06 and ~~$0.71,~~$1.05, respectively. Annualized ROE was ~~12.21%~~11.60% for the ~~six~~nine months ended ~~June~~September 30, 2021 compared to ~~7.92%~~7.78% for the ~~six~~nine months ended ~~June~~September 30, 2020. Annualized ROA for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 was ~~1.39%~~1.30% and ~~1.05%~~0.99%, respectively.

The increase in net income for the ~~six~~nine months ended ~~June~~September 30, 2021 compared to the same period in 2020 was primarily driven by an increase in net interest income, a decrease in non-interest expense, a reversal of provision for credit losses, and an increase in loan placement fees, partially offset by a decrease in net realized gains on sales and calls of investment securities, an increase in provision for income taxes, and a decrease in service charge income. During the ~~six~~nine months ended ~~June~~September 30, 2021, the Company recorded a ~~$3,300,000~~$3,800,000 reversal of provision for credit losses, compared to a ~~$4,375,000~~$4,975,000 provision during the ~~six~~nine months ended ~~June~~September 30, 2020. The reversal of provision ~~to the allowance~~ for credit losses resulted from our assessment of the overall adequacy of the allowance for credit losses considering a number of factors as discussed in the “Allowance for Credit Losses” section. During the ~~six~~nine months ended ~~June~~September 30, 2021, the Company adjusted the economic risk factor methodology to incorporate the current economic implications from the COVID-19 pandemic.

Interest Income and Expense

Net interest income is the most significant component of our income from operations. Net interest income (the “interest rate spread”) is the difference between the gross interest and fees earned on the loan and investment portfolios and the interest paid on deposits and other borrowings. Net interest income depends on the volume of and interest rate earned on ~~interest earning~~interest-earning assets and the volume of and interest rate paid on interest-bearing liabilities.

The following table sets forth a summary of average balances with corresponding interest income and interest expense as well as average yield and cost information for the periods presented. Average balances are derived from daily balances, and nonaccrual loans are not included as interest earning assets for purposes of this table.

3938

CENTRAL VALLEY COMMUNITY BANCORP

SCHEDULE OF AVERAGE BALANCES AND AVERAGE YIELDS AND RATES


		For the Six Months Ended June 30, 2021						For the Six Months Ended June 30, 2020							For the Nine Months Ended September 30, 2021						For the Nine Months Ended September 30, 2020
(Dollars in thousands)	(Dollars in thousands)	Average Balance		Interest Income/ Expense		Average Interest Rate		Average Balance		Interest Income/ Expense		Average Interest Rate		(Dollars in thousands)	Average Balance		Interest Income/ Expense		Average Interest Rate		Average Balance		Interest Income/ Expense		Average Interest Rate
ASSETS	ASSETS													ASSETS
Interest-earning deposits in other banks	Interest-earning deposits in other banks	$	121,848	$	61	0.10	%	$	56,037	$	196	0.70	%	Interest-earning deposits in other banks	$	104,705	$	89	0.11	%	$	70,418	$	222	0.42	%
Securities:	Securities:													Securities:
Taxable securities	Taxable securities	570,132		6,094		2.14	%	466,498		6,225		2.67	%	Taxable securities	629,710		9,937		2.10	%	478,238		8,996		2.51	%
Non-taxable securities (1)	Non-taxable securities (1)	226,843		3,450		3.04	%	32,962		723		4.39	%	Non-taxable securities (1)	231,690		5,244		3.02	%	38,559		1,284		4.44	%
Total investment securities	Total investment securities	796,975		9,544		2.40	%	499,460		6,948		2.78	%	Total investment securities	861,400		15,181		2.35	%	516,797		10,280		2.65	%

Total securities and interest-earning deposits	Total securities and interest-earning deposits	918,823		9,605		2.09	%	555,497		7,144		2.57	%	Total securities and interest-earning deposits	966,105		15,270		2.11	%	587,215		10,502		2.38	%
Loans (2) (3)	Loans (2) (3)	1,077,455		27,321		5.11	%	999,398		25,498		5.13	%	Loans (2) (3)	1,074,302		40,529		5.04	%	1,040,116		38,688		4.97	%
Total interest-earning assets	Total interest-earning assets	1,996,278		$	36,926	3.73	%	1,554,895		$	32,642	4.22	%	Total interest-earning assets	2,040,407		$	55,799	3.66	%	1,627,331		$	49,190	4.04	%
Allowance for credit losses	Allowance for credit losses	(12,687)						(10,013)						Allowance for credit losses	(11,969)						(11,439)
Nonaccrual loans	Nonaccrual loans	3,182						1,512						Nonaccrual loans	2,736						1,894

Cash and due from banks	Cash and due from banks	35,356						24,784						Cash and due from banks	36,776						25,526
Bank premises and equipment	Bank premises and equipment	8,349						7,455						Bank premises and equipment	8,421						7,412
Other assets	Other assets	135,718						127,331						Other assets	141,040						129,992
Total average assets	Total average assets	$	2,166,196					$	1,705,964					Total average assets	$	2,217,411					$	1,780,716
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY													LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities:	Interest-bearing liabilities:													Interest-bearing liabilities:
Savings and NOW accounts	Savings and NOW accounts	$	507,143	$	93	0.04	%	$	396,465	$	184	0.09	%	Savings and NOW accounts	$	522,122	$	143	0.04	%	$	417,075	$	273	0.09	%
Money market accounts	Money market accounts	418,781		320		0.15	%	286,653		281		0.20	%	Money market accounts	434,204		486		0.15	%	293,764		417		0.19	%
Time certificates of deposit	Time certificates of deposit	89,955		107		0.24	%	90,702		341		0.76	%	Time certificates of deposit	89,842		154		0.23	%	90,249		479		0.71	%

Total interest-bearing deposits	Total interest-bearing deposits	1,015,879		520		0.10	%	773,820		806		0.21	%	Total interest-bearing deposits	1,046,168		783		0.10	%	801,088		1,169		0.19	%
Other borrowed funds	Other borrowed funds	5,155		46		1.78	%	5,155		81		3.14	%	Other borrowed funds	5,155		70		1.81	%	5,155		106		2.74	%
Total interest-bearing liabilities	Total interest-bearing liabilities	1,021,034		$	566	0.11	%	778,975		$	887	0.23	%	Total interest-bearing liabilities	1,051,323		$	853	0.11	%	806,243		$	1,275	0.21	%
Non-interest bearing demand deposits	Non-interest bearing demand deposits	869,386						671,723						Non-interest bearing demand deposits	885,008						717,162
Other liabilities	Other liabilities	29,337						30,026						Other liabilities	33,266						29,917
Shareholders’ equity	Shareholders’ equity	246,439						225,240						Shareholders’ equity	247,814						227,394
Total average liabilities and shareholders’ equity	Total average liabilities and shareholders’ equity	$	2,166,196					$	1,705,964					Total average liabilities and shareholders’ equity	$	2,217,411					$	1,780,716
Interest income and rate earned on average earning assets	Interest income and rate earned on average earning assets			$	36,926	3.73	%			$	32,642	4.22	%	Interest income and rate earned on average earning assets			$	55,799	3.66	%			$	49,190	4.04	%
Interest expense and interest cost related to average interest-bearing liabilities	Interest expense and interest cost related to average interest-bearing liabilities			566		0.11	%			887		0.23	%	Interest expense and interest cost related to average interest-bearing liabilities			853		0.11	%			1,275		0.21	%
Net interest income and net interest margin (4)	Net interest income and net interest margin (4)			$	36,360	3.67	%			$	31,755	4.11	%	Net interest income and net interest margin (4)			$	54,946	3.60	%			$	47,915	3.93	%

(1)Calculated on a fully tax equivalent basis, which includes Federal tax benefits relating to income earned on municipal bonds totaling ~~$724~~$1,101 and ~~$152~~$269 in 2021 and 2020, respectively.

(2)Loan interest income includes loan fees of ~~$3,890~~$4,966 in 2021 and ~~$226~~$884 in 2020.

(3)Average loans do not include nonaccrual loans but do include interest income recovered from previously charged off loans.

(4)Net interest margin is computed by dividing net interest income by total average interest-earning assets.

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Changes in Volume/Rate	Changes in Volume/Rate	For the Six Months Ended June 30, 2021 and 2020						Changes in Volume/Rate	For the Nine Months Ended September 30, 2021 and 2020
(In thousands)	(In thousands)	Volume		Rate		Net		(In thousands)	Volume		Rate		Net
Increase (decrease) due to changes in:	Increase (decrease) due to changes in:							Increase (decrease) due to changes in:
Interest income:	Interest income:							Interest income:
Interest-earning deposits in other banks	Interest-earning deposits in other banks	$	230	$	(365)	$	(135)	Interest-earning deposits in other banks	$	108	$	(241)	$	(133)
Investment securities:	Investment securities:							Investment securities:
Taxable	Taxable	1,382		(1,513)		(131)		Taxable	2,849		(1,908)		941
Non-taxable (1)	Non-taxable (1)	4,252		(1,525)		2,727		Non-taxable (1)	6,431		(2,471)		3,960
Total investment securities	Total investment securities	5,634		(3,038)		2,596		Total investment securities	9,280		(4,379)		4,901
Federal funds sold	Federal funds sold	—		—		—		Federal funds sold	—		—		—
Loans	Loans	1,991		(168)		1,823		Loans	1,271		570		1,841

Total earning assets (1)	Total earning assets (1)	7,855		(3,571)		4,284		Total earning assets (1)	10,659		(4,050)		6,609
Interest expense:	Interest expense:							Interest expense:
Deposits:	Deposits:							Deposits:
Savings, NOW and MMA	Savings, NOW and MMA	180		(232)		(52)		Savings, NOW and MMA	267		(328)		(61)
Time certificate of deposits	Time certificate of deposits	(2)		(232)		(234)		Time certificate of deposits	(2)		(323)		(325)

Total interest-bearing deposits	Total interest-bearing deposits	178		(464)		(286)		Total interest-bearing deposits	265		(651)		(386)
Other borrowed funds	Other borrowed funds	(1)		(34)		(35)		Other borrowed funds	(1)		(35)		(36)
Total interest-bearing liabilities	Total interest-bearing liabilities	177		(498)		(321)		Total interest-bearing liabilities	264		(686)		(422)
Net interest income (1)	Net interest income (1)	$	7,678	$	(3,073)	$	4,605	Net interest income (1)	$	10,395	$	(3,364)	$	7,031

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

Interest and fee income from loans increased ~~$1,823,000~~$1,841,000 or ~~7.15%~~4.76% for the ~~six~~nine months ended ~~June~~September 30, 2021 compared to the same period in 2020. Net interest income during the first ~~six~~nine months of 2021 was positively impacted by an increase in average total loans of ~~$78,057,000~~$34,186,000 or ~~7.81%~~3.29% to ~~$1,077,455,000~~$1,074,302,000 compared to ~~$999,398,000~~$1,040,116,000 for the same period in 2020. The yield on average loans, excluding nonaccrual loans, was ~~5.11%~~5.04% for the ~~six~~nine months ended ~~June~~September 30, 2021 compared to ~~5.13%~~4.97% for the same period in 2020. Net interest income for the period ending ~~June~~September 30, 2021 was benefited by approximately ~~$434,000~~$438,000 in nonrecurring income from prepayment penalties, compared to ~~$453,000~~$505,000 recorded in the same period in 2020. The impact to interest income from the accretion of the loan marks on acquired loans was ~~$349,000~~$579,000 and ~~$867,000~~$1,039,000 for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively. The remaining balance of accretable loan marks on acquired loans as of ~~June~~September 30, 2021 was ~~$2,247,000.~~$2,016,000.

Interest income from total investments on a non tax-equivalent basis (total investments include investment securities, Federal funds sold, interest bearing deposits in other banks, and other securities) increased ~~$1,889,000~~$3,937,000 in the first ~~six~~nine months of 2021 to ~~$8,881,000~~$14,170,000 compared to ~~$6,992,000~~$10,233,000 for the same period in 2020. The yield on average total investments (total securities and interest-earning deposits) decreased 4827 basis points to ~~2.09%~~2.11% for the ~~six~~nine month period ended ~~June~~September 30, 2021 compared to ~~2.57%~~2.38% for the same period in 2020. Average total securities and interest-earning deposits for the first ~~six~~nine months of 2021 increased ~~$363,326,000~~$378,890,000 or ~~65.41%~~64.52% to ~~$918,823,000~~$966,105,000 compared to ~~$555,497,000~~$587,215,000 for the same period in 2020. Income from investments represents ~~24.92%~~26.32% of net interest income for the first ~~six~~nine months of 2021 compared to ~~22.12%~~21.48% for the same period in 2020.

In an effort to increase yields, without accepting unreasonable risk, a significant portion of the investment portfolio is in mortgage-backed securities (MBS) and collateralized mortgage obligations (CMOs). At ~~June~~September 30, 2021, we held ~~$407,823,000~~$481,801,000 or ~~42.82%~~45.44% of the total fair value of the investment portfolio in CMOs with an average yield of ~~1.57%~~1.56% as compared to $299,806,000 and ~~$254,338,000~~$272,504,000 with average yields of 2.15% and ~~2.57%~~2.30% at December 31, 2020 and ~~June~~September 30, 2020, respectively. We invest in CMOs and MBS as part of our overall strategy to increase our net interest margin. CMOs and MBS by their nature react to changes in interest rates. In a normal declining rate environment, prepayments from CMOs and MBS would be expected to increase and the expected life of the investment would be expected to shorten. Conversely, if interest rates increase, prepayments normally would be expected to decline and the average life of the CMOs and MBS would be expected to extend. However, in the current economic environment, prepayments may not behave according to historical norms. Premium amortization and discount accretion of these investments affects our net interest income. Management monitors the prepayment speed of these investments and adjusts premium amortization and discount accretion based on several factors. These factors include the type of investment, the investment structure, interest rates, interest ~~rates on new mortgage~~

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rates on new mortgage loans, expectation of interest rate changes, current economic conditions, the level of principal remaining on the bond, the bond coupon rate, the bond origination date, and volume of available bonds in market. The calculation of premium amortization and discount accretion represents management’s reasonable estimate of principal pay downs inherent in the total investment portfolio.

The net-of-tax unrealized gain on the investment portfolio was ~~$12,874,000~~$10,290,000 at ~~June~~September 30, 2021 and is reflected in the Company’s equity. At ~~June~~September 30, 2021, the average life of the investment portfolio was ~~5.22~~5.43 years and the fair value of the portfolio reflected a net pre-tax unrealized gain of ~~$18,278,000.~~$14,609,000. Management reviews fair value declines on individual investment securities to determine whether they represent an other-than-temporary impairment (OTTI). Refer to Note 3 of the Notes to Consolidated Financial Statements (unaudited) for more detail. For the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, no OTTI was recorded. Additional deterioration in the market values of our investment securities, if any, may require the Company to recognize OTTI losses in future periods.

A component of the Company’s strategic plan has been to use its investment portfolio to offset, in part, its interest rate risk relating to variable rate loans. At ~~June~~September 30, 2021, we estimate an immediate rate increase of 200 basis points would result in an estimated decrease in the market value of the investment portfolio by approximately ~~$106,000,000~~$118,000,000 or ~~10.25%~~10.77%. Conversely, with an immediate rate decrease of 200 basis points, the estimated increase in the market value of the investment portfolio would be ~~$107,000,000~~$120,000,000 or ~~10.35%~~10.95%. Our modeling environment assumes management would take no action during an immediate shock of 200 basis points. However, the Company uses those increments to measure its interest rate risk in accordance with regulatory requirements and risk tolerance policy limits established by the Board of Directors to measure the possible future risk in the investment portfolio.

Management’s review of all investments before purchase includes an analysis of how the security will perform under several interest rate scenarios to monitor whether investments are consistent with our investment policy. The policy addresses issues of average life, duration, concentration guidelines, prohibited investments, impairment, and prohibited practices.

Total interest income on a non-tax equivalent basis for the ~~six~~nine months ended ~~June~~September 30, 2021 increased ~~$3,712,000~~$5,778,000 or ~~11.43%~~11.81% to ~~$36,202,000~~$54,699,000 compared to ~~$32,490,000~~$48,921,000 for the ~~six~~nine months ended ~~June~~September 30, 2020. The yield on interest earning assets decreased 4938 basis points to ~~3.73%~~3.66% on a fully tax equivalent basis for the ~~six~~nine months ended ~~June~~September 30, 2021 from ~~4.22%~~4.04% for the period ended ~~June~~September 30, 2020. The decrease was the result of yield changes, decrease in interest rates, and asset mix changes. Average interest earning assets increased to ~~$1,996,278,000~~$2,040,407,000 for the ~~six~~nine months ended ~~June~~September 30, 2021 compared to ~~$1,554,895,000~~$1,627,331,000 for the ~~six~~nine months ended ~~June~~September 30, 2020. The ~~$441,383,000~~$413,076,000 increase in average earning assets was attributed to the ~~$363,326,000~~$378,890,000 increase in average investments and a ~~$78,057,000~~$34,186,000 or ~~7.81%~~3.29% increase in average loans.

Interest expense on deposits for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 was ~~$520,000~~$783,000 and ~~$806,000,~~$1,169,000, respectively. The average interest rate on interest bearing deposits decreased to 0.10% for the ~~six~~nine months ended ~~June~~September 30, 2021 compared to ~~0.21%~~0.19% for the same period ended ~~June~~September 30, 2020. Average interest-bearing deposits increased ~~31.28%~~30.59% or ~~$242,059,000~~$245,080,000 to ~~$1,015,879,000~~$1,046,168,000 for the ~~six~~nine months ended ~~June~~September 30, 2021 compared to ~~$773,820,000~~$801,088,000 for the same period ended ~~June~~September 30, 2020.

Average other borrowed funds were $5,155,000 with an effective rate of ~~1.78%~~1.81% for the ~~six~~nine months ended ~~June~~September 30, 2021 compared to $5,155,000 with an effective rate of ~~3.14%~~2.74% for the ~~six~~nine months ended ~~June~~September 30, 2020. Total interest expense on other borrowed funds was ~~$46,000~~$70,000 for the ~~six~~nine months ended ~~June~~September 30, 2021 and ~~$81,000~~$106,000 for the ~~six~~nine months ended ~~June~~September 30, 2020. Other borrowings include advances from the Federal Home Loan Bank (“FHLB”), advances on available unsecured lines of credit with correspondent banks, and junior subordinated deferrable interest debentures. The debentures were acquired in the merger with Service 1st and carry a floating rate based on the three month LIBOR plus a margin of 1.60%. The rates were ~~1.78%~~1.73% and 3.90% at ~~June~~September 30, 2021 and 2020, respectively. See the section on “Financial Condition” for more detail.

The cost of interest-bearing liabilities decreased 1210 basis points to 0.11% for the ~~six-month~~nine-month period ended ~~June~~September 30, 2021 compared to ~~0.23%~~0.21% for the same period in 2020. The cost of total deposits decreased to ~~0.06%~~0.05% compared to ~~0.11%~~0.10% for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2021 and ~~2020.~~2020, respectively. Average non-interest bearing demand deposits increased ~~29.43%~~23.40% to ~~$869,386,000~~$885,008,000 in 2021 compared to ~~$671,723,000~~$717,162,000 for 2020. The ratio of average non-interest bearing demand deposits to average total deposits decreased to ~~46.11%~~45.83% in the ~~six-month~~nine-month period ended ~~June~~September 30, 2021 compared to ~~46.47%~~47.24% for the same period in 2020.

Net Interest Income before Provision for Credit Losses

Net interest income before the reversal of provision for credit losses for the ~~six~~nine months ended ~~June~~September 30, 2021 increased by ~~$4,033,000~~$6,200,000 or ~~12.76%~~13.01% to ~~$35,636,000~~$53,846,000 compared to ~~$31,603,000~~$47,646,000 for the same period in 2020. The increase was a result of yield changes, asset mix changes, and an increase in average earning assets, partially offset by an increase in average interest bearing liabilities. The impact to interest income from the accretion of the loan marks on acquired loans was ~~$349,000~~$579,000 and ~~$867,000~~$1,039,000 for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively. In addition, net interest income before the provision for credit losses for the ~~six~~nine months ended ~~June~~September 30, 2021 was benefited by approximately ~~$434,000~~$438,000 in nonrecurring income from prepayment penalties, as compared to ~~$453,000~~$505,000 in nonrecurring income for the ~~six~~nine months ended ~~June~~

September 30, 2020. Excluding these reversals and benefits, net interest income for the ~~six~~nine months ended ~~June~~September 30, 2021 increased by ~~$4,570,000~~$6,727,000 compared to the ~~six~~nine months ended ~~June~~September 30, 2020. Average interest earning assets were ~~$1,996,278,000~~$2,040,407,000 for the ~~six~~nine months ended ~~June~~September 30, 2021 ~~with a net~~

~~interest margin (fully tax equivalent basis) of 3.67% compared to $1,554,895,000~~ with a net interest margin (fully tax equivalent basis) of ~~4.11%~~3.60% compared to $1,627,331,000 with a net interest margin (fully tax equivalent basis) of 3.93% for the ~~six~~nine months ended ~~June~~September 30, 2020. The ~~$441,383,000~~$413,076,000 increase in average earning assets was attributed to the ~~$363,326,000~~$378,890,000 increase in average total investments and the ~~$78,057,000~~$34,186,000 or ~~7.81%~~3.29% increase in average loans. For the ~~six~~nine months ended ~~June~~September 30, 2021, the effective yield on investment securities including Federal funds sold and interest-earning deposits in other banks decreased 4827 basis points. The effective yield on loans ~~decreased 2~~increased seven basis points. Average interest bearing liabilities increased ~~31.07%~~30.40% to ~~$1,021,034,000~~$1,051,323,000 for the ~~six~~nine months ended ~~June~~September 30, 2021, compared to ~~$778,975,000~~$806,243,000 for the same period in 2020.

Provision for Credit Losses

We provide for probable incurred credit losses through a charge to operating income based upon the composition of the loan portfolio, delinquency levels, historical losses, and nonperforming assets, economic and environmental conditions and other factors which, in management’s judgment, deserve recognition in estimating credit losses. Credit risk is inherent in the business of making loans. The Company establishes an allowance for credit losses on loans through charges to earnings, which are presented in the statements of income as the provision for credit losses on loans. Specifically identifiable and quantifiable known losses are promptly charged off against the allowance. Loans are charged off when they are considered uncollectible or when continuance as an active earning bank asset is not warranted.

The establishment of an adequate credit allowance is based on an allowance model that utilizes qualitative and quantitative factors, historical losses, loan level risk ratings and portfolio management tools. The Board of Directors has established initial responsibility for the accuracy of credit risk ratings with the individual credit officer and oversight from Credit Administration who ensures the accuracy of the risk ratings. Quarterly, the credit officers must certify the current risk ratings of the loans in their portfolio. Credit Administration reviews the certifications and reports to the Board of Directors Audit Committee. At least annually, the loan portfolio, including risk ratings, is reviewed by a third party credit reviewer. Regulatory agencies also review the loan portfolio on a periodic basis. See “Allowance for Credit Losses” for more information on the Company’s Allowance for Loan Loss.

Quarterly, the Chief Credit Officer (CCO) reviews the specific reserve calculations for all impaired credits. Additionally, the CCO is responsible to ensure that the general reserves on non-impaired loans are properly set each quarter. This process includes the utilization of loan delinquency reports, classified asset reports, collateral analysis and portfolio concentration reports to assist in accurately assessing credit risk and establishing appropriate reserves.

The allowance for credit losses is reviewed at least quarterly by the Board of ~~Directors~~Directors’ Audit Committee and by the Board of Directors. General reserves are allocated to loan portfolio categories using percentages which are based on both historical risk elements such as delinquencies and losses and predictive risk elements such as economic, competitive and environmental factors. We have adopted the specific reserve approach to allocate reserves to each impaired credit for the purpose of estimating potential loss exposure. Although the allowance for credit losses is allocated to various portfolio categories, it is general in nature and available for the loan portfolio in its entirety. Changes in the allowance for credit losses may be required based on the results of independent loan portfolio examinations, regulatory agency examinations, or our own internal review process. Additions are also required when, in management’s judgment, the allowance does not properly reflect the portfolio’s probable loss exposure. Management believes that all adjustments, if any, to the allowance for credit losses are supported by the timely and consistent application of methodologies and processes resulting in detailed documentation of the allowance calculation and other portfolio trending analysis.

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The allocation of the allowance for credit losses is set forth below (in thousands):


Loan Type	Loan Type	June 30, 2021		December 31, 2020		Loan Type	September 30, 2021		December 31, 2020
Commercial:	Commercial:					Commercial:
Commercial and industrial	Commercial and industrial	$	1,753	$	1,764	Commercial and industrial	$	2,028	$	1,764
Agricultural production	Agricultural production	457		255		Agricultural production	306		255
Total commercial	Total commercial	2,210		2,019		Total commercial	2,334		2,019
Real estate:	Real estate:					Real estate:
Owner occupied	Owner occupied	1,396		2,128		Owner occupied	1,358		2,128
Real estate construction and other land loans	Real estate construction and other land loans	1,101		1,204		Real estate construction and other land loans	992		1,204
Commercial real estate	Commercial real estate	3,794		4,781		Commercial real estate	3,477		4,781
Agricultural real estate	Agricultural real estate	625		838		Agricultural real estate	643		838
Other real estate	Other real estate	134		223		Other real estate	146		223
Total real estate	Total real estate	7,050		9,174		Total real estate	6,616		9,174
Consumer:	Consumer:					Consumer:
Equity loans and lines of credit	Equity loans and lines of credit	332		457		Equity loans and lines of credit	294		457
Consumer and installment	Consumer and installment	496		634		Consumer and installment	420		634
Total consumer	Total consumer	828		1,091		Total consumer	714		1,091
Unallocated reserves	Unallocated reserves	351		631		Unallocated reserves	397		631
Total allowance for credit losses	Total allowance for credit losses	$	10,439	$	12,915	Total allowance for credit losses	$	10,061	$	12,915

Loans are charged to the allowance for credit losses when the loans are deemed uncollectible. It is the policy of management to make additions to the allowance so that it remains adequate to cover all probable incurred credit losses that exist in the portfolio at that time. We assign qualitative and environmental factors (Q factors) to each loan category. Q factors include reserves held for the effects of lending policies, economic trends, and portfolio trends along with other dynamics which may cause additional stress to the portfolio.

Managing high-risk credits includes developing a business strategy with the customer to mitigate our potential losses. Management continues to monitor these credits with a view to identifying as early as possible when, and to what extent, additional provisions may be necessary. Management believes that the level of allowance for loan losses allocated to commercial and real estate loans has been adjusted accordingly.

During the ~~six~~nine months ended ~~June~~September 30, 2021, the Company recorded a ~~$3,300,000~~$3,800,000 reversal of provision for credit losses, compared to a ~~$4,375,000~~$4,975,000 provision during the ~~six~~nine months ended ~~June~~September 30, 2020. The reversal of provision ~~to the allowance~~ for credit losses resulted from our assessment of the overall adequacy of the allowance for credit losses considering a number of factors as discussed in the “Allowance for Credit Losses” section. During the ~~six~~nine months ended ~~June~~September 30, 2021, the Company adjusted the economic risk factor methodology to incorporate the current economic implications from the COVID-19 pandemic.

The Company had net recoveries totaling ~~$824,000~~$946,000 for the ~~six~~nine months ended ~~June~~September 30, 2021, and ~~$432,000~~$552,000 for the same period in 2020.

Nonperforming loans, consisting entirely of nonaccrual loans, were ~~$2,035,000~~$1,597,000 and $3,278,000 at ~~June~~September 30, 2021 and December 31, 2020, respectively, and ~~$2,406,000~~$3,458,000 at ~~June~~September 30, 2020. Nonperforming loans as a percentage of total loans were ~~0.19%~~0.15% at ~~June~~September 30, 2021 compared to 0.30% at December 31, 2020 and ~~0.21%~~0.31% at ~~June~~September 30, 2020. The Company had no other real estate owned (OREO) at ~~June~~September 30, 2021 or December 31, 2020. The Company held no repossessed assets at ~~June~~September 30, 2021 or December 31, 2020.

The annualized net charge-off (recovery) ratio, which reflects net charge-offs (recoveries) to average loans was ~~(0.15)~~(0.12)% for the ~~six~~nine months ended ~~June~~September 30, 2021, and ~~(0.09)~~(0.07)% for the same period in 2020.

Economic pressures may negatively impact the financial condition of borrowers to whom the Company has extended credit and as a result, when negative economic conditions are anticipated, we may be required to make significant provisions to the allowance for credit losses. The Bank conducts banking operations 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 business, financial performance and results of operations. 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 our business, results of operations and financial condition. The agricultural industry has been affected by declines in prices and the changes in yields on various crops and other agricultural commodities. Similarly, weaker prices could reduce the cash flows generated by farms and the value of agricultural land in our local markets and thereby increase the risk of default by our borrowers or reduce the foreclosure value of agricultural land and equipment that serve as collateral offor our loans. Further declines in commodity prices or collateral values may increase the

4443

incidence of default by our borrowers. Moreover, weaker prices might threaten farming operations in the Central Valley, reducing market demand for agricultural lending. In particular, farm income has seen recent declines, and in line with the downturn in farm income, farmland prices are coming under pressure.

We have been and will continue to be proactive in looking for signs of deterioration within the loan portfolio in an effort to manage credit quality and work with borrowers where possible to mitigate losses. As of ~~June~~September 30, 2021, there were ~~$32.9~~$23.1 million in classified loans of which ~~$1.2~~$1.1 million related to agricultural real estate, ~~$12.1~~$11.1 million to commercial and industrial loans, ~~$3.0~~$3.3 million to agricultural production, ~~$7.0~~$5.5 million to owner occupied real estate, ~~owner occupied, $9.6~~and $1.9 million in commercial real estate. This compares to $36.1 million in classified loans of which $1.2 million related to agricultural real estate, $10.4 million to commercial and industrial loans, $3.3 million to agricultural production, $7.3 million to owner occupied real estate, ~~owner occupied,~~ $9.6 million to commercial real estate, $1.0 million to consumer equity and lines of credit, and $3.2 million to real estate construction and other land loans as of December 31, 2020.

As of ~~June~~September 30, 2021, we believe, based on all current and available information, the allowance for credit losses is adequate to absorb probable incurred losses within the loan portfolio. However, no assurance can be given that we may not sustain charge-offs which are in excess of the allowance in any given period. Refer to the “Allowance for Credit Losses” section for further information.

Net Interest Income after Provision for Credit Losses

Net interest income, after the provision for credit losses, was ~~$38,936,000~~$57,646,000 for the ~~six~~nine months period ended ~~June~~September 30, 2021 and ~~$27,228,000~~$42,671,000 for the same period in 2020.

Non-Interest Income

Non-interest income is comprised of customer service charges, loan placement fees, net gains on sales and calls of investment securities, appreciation in cash surrender value of bank-owned life insurance, FHLB dividends, and other income. Non-interest income was ~~$4,076,000~~$6,224,000 for the ~~six~~nine months ended ~~June~~September 30, 2021 compared to ~~$8,588,000~~$10,659,000 for the same period in 2020. The ~~$4,512,000~~$4,435,000 or ~~52.54%~~41.61% decrease in non-interest income during the ~~six~~nine months ended ~~June~~September 30, 2021 was primarily driven by a decrease of ~~$4,219,000~~$4,159,000 in net realized gains on sales and calls of investment securities, a decrease in service charge income of ~~$194,000,~~$170,000, a decrease of ~~$569,000~~$557,000 in other income, and a decrease in FHLB dividends of ~~$29,000,~~$16,000, offset by an increase in loan placement fees of ~~$307,000~~$89,000 and an increase of ~~$201,000~~$318,000 in interchange fees.

During the ~~six~~nine months ended ~~June~~September 30, 2021, we realized a net ~~loss~~gain on sales and calls of investment securities of ~~$79,000~~$38,000 compared to a ~~$4,140,000~~$4,197,000 net gain for the same period in 2020. The net gains realized on sales and calls of investment securities in 2021 and 2020 were the result of a partial restructuring of the investment portfolio designed to improve the future performance of the portfolio.

Customer service charges decreased ~~$194,000~~$170,000 or ~~17.75%~~10.93% to ~~$899,000~~$1,386,000 for the first ~~six~~nine months of 2021 compared to ~~$1,093,000~~$1,556,000 for the same period in 2020. Interchange fees increased ~~$201,000~~$318,000 to ~~$841,000~~$1,313,000 the first ~~six~~nine months of 2021 compared to ~~$640,000~~$995,000 for the same period in 2020. Loan placement fees increased ~~$307,000~~$89,000 or ~~35.70%~~5.76% to ~~$1,167,000~~$1,634,000 for the first ~~six~~nine months of 2021 compared to ~~$860,000~~$1,545,000 for the same period in 2020. Other income decreased ~~$569,000~~$557,000 the first ~~six~~nine months of 2021 compared to the same period in 2020. The decrease in other income resulted from a $463,000 gain recorded the first ~~six~~nine months of 2020 related to the collection of tax-exempt life insurance proceeds.

The Bank holds stock from the Federal Home Loan Bank (“FHLB”) of San Francisco in conjunction with our borrowing capacity and generally earns quarterly dividends. We currently hold $5,595,000 in FHLB stock. We received dividends totaling ~~$153,000~~$237,000 in the ~~six~~nine months ended ~~June~~September 30, 2021, compared to ~~$182,000~~$253,000 for the same period in 2020.

Non-Interest Expenses

Salaries and employee benefits, occupancy and equipment, information technology, regulatory assessments, professional services, Internet banking, and data processing are the major categories of non-interest expenses. Non-interest expenses decreased ~~$559,000~~$225,000 or ~~2.37%~~0.64% to ~~$23,018,000~~$35,080,000 for the ~~six~~nine months ended ~~June~~September 30, 2021, compared to ~~$23,577,000~~$35,305,000 for the ~~six~~nine months ended ~~June~~September 30, 2020. The net decrease for the first ~~six~~nine months of 2021 was primarily the result of decreases in salaries and employee benefits of ~~$407,000,~~$45,000, directors’ expenses of ~~$174,000,~~$162,000, internet banking of ~~$170,000,~~$283,000, professional services of ~~$149,000,~~$357,000, advertising of ~~$83,000,~~$121,000, ATM/Debit card expenses of ~~$65,000, information technology of $40,000,~~$10,000, amortization of software of ~~$47,000,~~$43,000, stationary and supplies of ~~$44,000,~~$62,000, armored courier of $14,000, and operating losses of ~~$19,000,~~$9,000, partially offset by increases in data processing expenses of ~~$352,000,~~$357,000, information technology of $257,000, regulatory assessments of ~~$140,000,~~$212,000, personnel of ~~$131,000,~~$132,000, occupancy and equipment expenses of ~~$31,000, and~~$59,000, donations of ~~$26,000.~~$39,000, general insurance of $20,000, telephone of $14,000, and postage of $9,000.

The Company’s efficiency ratio, measured as the percentage of non-interest expenses (exclusive of amortization of core deposit intangible assets and foreclosure expenses) to net interest income before provision for credit losses (calculated on a

fully tax equivalent basis) plus non-interest income (exclusive of net realized gains on sales and calls of investments, OREO

related gains and losses, and gains related to the collection of life insurance proceeds) was ~~55.96%~~56.46% for the ~~six~~nine months ended ~~June~~September 30, 2021 compared to ~~65.00%~~64.52% for the ~~six~~nine months ended ~~June~~September 30, 2020. The ~~decrease~~improvement in the efficiency ratio was due to the decrease in non-interest expense as well as the growth in non-interest income.

Salaries and employee benefits decreased ~~$407,000~~$45,000 or ~~2.84%~~0.21% to ~~$13,917,000~~$21,008,000 for the first ~~six~~nine months of 2021 compared to ~~$14,324,000~~$21,053,000 for the ~~six~~nine months ended ~~June~~September 30, 2020. Full time equivalent employees were ~~261~~258 for the ~~six~~nine months ended ~~June~~September 30, 2021, compared to ~~270~~271 for the ~~six~~nine months ended ~~June~~September 30, 2020. The decrease in total salaries and employee benefits was the result of a decrease of ~~$1,286,000~~$1,186,000 in officers’ expenses related to the change in the discount rate used to calculate the liability for salary continuation, deferred compensation, and split dollar plans; offset by an increase of approximately ~~$879,000~~$429,000 in salaries and benefits and a decrease in loan issuance costs of ~~$769,000. A portion of the salaries and benefits increase was related to $172,000 paid and/or accrued for severance pay.~~$731,000.

Occupancy and equipment expense increased ~~$31,000~~$59,000 or ~~1.36%~~1.70% to ~~$2,314,000~~$3,538,000 for the ~~six~~nine months ended ~~June~~September 30, 2021 compared to ~~$2,283,000~~$3,479,000 for the ~~six~~nine months ended ~~June~~September 30, 2020. The Company made no changes in its depreciation expense methodology. The Company operated 20 full-service offices at ~~June~~September 30, 2021 and at ~~June~~September 30, 2020.

Data processing expense increased to ~~$1,242,000~~$1,841,000 for the ~~six~~nine months ended ~~June~~September 30, 2021 compared to ~~$890,000~~$1,484,000 for the same period in 2020. Regulatory assessments increased to ~~$333,000~~$552,000 for the ~~six~~nine months ended ~~June~~September 30, 2021 compared to ~~$193,000~~$340,000 for the same period in 2020. The assessment base for calculating ~~the amount owed~~regulatory assessments is average assets ~~minus~~less average tangible equity.

Professional services decreased by ~~$149,000~~$357,000 in the first ~~six~~nine months of 2021 compared to the same period in 2020. Personnel expense included ~~an accrual of $136,000~~$151,000 for an executive search firm to find a replacement for our retiring ~~chief executive officer.~~President & CEO.

The following table shows significant components of other non-interest expense as a percentage of average assets.


		For the Six Months Ended June 30,									For the Nine Months Ended September 30,
		2021				2020					2021				2020
(Dollars in thousands)	(Dollars in thousands)	Other Expense		% Average Assets		Other Expense		% Average Assets		(Dollars in thousands)	Other Expense		% Average Assets		Other Expense		% Average Assets

Stationery/supplies	Stationery/supplies	$	83	0.01	%	$	127	0.01	%	Stationery/supplies	$	123	0.01	%	$	185	0.01	%

Amortization of software	Amortization of software	41		—	%	88		0.01	%	Amortization of software	64		—	%	107		0.01	%
Postage	Postage	98		0.01	%	98		0.01	%	Postage	156		0.01	%	147		0.01	%
Risk management expense	Risk management expense	51		—	%	94		0.01	%	Risk management expense	78		—	%	126		0.01	%

Shareholder services	Shareholder services	61		0.01	%	65		0.01	%	Shareholder services	84		0.01	%	87		0.01	%
Personnel other	Personnel other	207		0.02	%	76		0.01	%	Personnel other	236		0.01	%	104		0.01	%
Armored courier fees	Armored courier fees	141		0.01	%	140		0.02	%	Armored courier fees	199		0.01	%	213		0.02	%

Telephone	Telephone	99		0.01	%	98		0.01	%	Telephone	161		0.01	%	147		0.01	%
Alarm	Alarm	73		0.01	%	43		0.01	%	Alarm	100		0.01	%	73		0.01	%
Donations	Donations	104		0.01	%	78		0.01	%	Donations	142		0.01	%	103		0.01	%

Education/training	Education/training	66		0.01	%	77		0.01	%	Education/training	123		0.01	%	115		0.01	%
Loan related expenses	Loan related expenses	23		—	%	24		—	%	Loan related expenses	46		—	%	50		—	%
General insurance	General insurance	92		0.01	%	82		0.01	%	General insurance	145		0.01	%	125		0.01	%
Travel and mileage expense	Travel and mileage expense	25		—	%	87		0.01	%	Travel and mileage expense	59		—	%	101		0.01	%

Operating losses	Operating losses	47		—	%	66		0.01	%	Operating losses	77		—	%	86		0.01	%

Other	Other	618		0.06	%	580		0.07	%	Other	859		0.05	%	1,015		0.08	%
Total other non-interest expense	Total other non-interest expense	$	1,829	0.17	%	$	1,823	0.21	%	Total other non-interest expense	$	2,652	0.16	%	$	2,784	0.22	%

Provision for Income Taxes

Our effective income tax rate was ~~24.77%~~25.10% for the ~~six~~nine months ended ~~June~~September 30, 2021 compared to ~~27.09%~~26.39% for the ~~six~~nine months ended ~~June~~September 30, 2020. The Company reported an income tax provision of ~~$4,952,000~~$7,227,000 for the ~~six~~nine months ended ~~June~~September 30, 2021, compared to ~~$3,315,000~~$4,757,000 for the ~~six~~nine months ended ~~June~~September 30, 2020. The effective tax rate was affected by the increase in tax-exempt interest. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of tax expense in the consolidated statements of income. If deemed necessary, the Company maintains a reserve for uncertain income taxes where the merits of the position taken or the amount of the position that would ~~be ultimately sustained upon~~

4645

be ultimately sustained upon examination do not meet a more-likely-than-not criteria. As of ~~June~~September 30, 2021 and December 31, 2020, there was no reserve for uncertain tax positions.

Net Income for the ~~Second~~Third Quarter of 2021 Compared to the ~~Second~~Third Quarter of 2020

Net income increased to ~~$7,563,000~~$6,521,000 for the quarter ended ~~June~~September 30, 2021 compared to ~~$2,301,000~~$4,344,000 for the quarter ended ~~June~~September 30, 2020. Basic earnings per share was ~~$0.61~~$0.54 for the quarter ended ~~June~~September 30, 2021 compared to ~~$0.18~~$0.35 for the same period in 2020. Diluted earnings per share was ~~$0.60~~$0.54 for the quarter ended ~~June~~September 30, 2021 compared to ~~$0.18~~$0.35 for the same period in 2020. Annualized ROE was ~~12.25%~~10.41% for the quarter ended ~~June~~September 30, 2021 compared to ~~4.14%~~7.50% for the quarter ended ~~June~~September 30, 2020. Annualized ROA for the three months ended ~~June~~September 30, 2021 was ~~1.36%~~1.13% compared to ~~0.51%~~0.90% for the quarter ended ~~June~~September 30, 2020.

The increase in net income during the ~~second~~third quarter of 2021 compared to the same period in 2020 is primarily due to a decrease in provision for credit losses of ~~$4,500,000,~~$1,100,000, an increase in net interest income before the provision for credit losses of ~~$2,507,000,~~$2,167,000, and an increase in total non-interest income of ~~$32,000,~~$77,000, partially offset by an increase in the provision for income taxes of ~~$1,645,000~~$833,000 and an increase in non-interest expenses of ~~$132,000.~~$334,000. During the quarter ended ~~June~~September 30, 2021, the Company recorded a ~~$1,500,000~~$500,000 reversal of provision for credit losses, compared to a ~~$3,000,000~~$600,000 provision during the quarter ended ~~June~~September 30, 2020. Non-interest income increased ~~$32,000~~$77,000 or ~~1.56%~~3.72% to ~~$2,077,000~~$2,148,000 for the quarter ended ~~June~~September 30, 2021 compared to ~~$2,045,000~~$2,071,000 in the same period in 2020. During the ~~second~~third quarter of 2021 interchange fees increased $164,000, service charge income increased $20,000 and Federal Home Loan Bank dividends increased $8,000, offset by a decrease in placement fees of $51,000, a decrease in other income of $88,000, and a decrease in$117,000, net realized gains on sales and calls of investment securities increased $60,000, service charge income increased $24,000, Federal Home Loan Bank dividends increased $13,000, and other income increased $12,000, offset by a decrease in loan placement fees of ~~$21,000,~~$218,000, compared to the same period in 2020. ~~For the quarter ended June 30, 2020, non-interest income included a $166,000 gain related to the collection of tax-exempt life insurance proceeds.~~

Interest Income and Expense

The following table sets forth a summary of average balances with corresponding interest income and interest expense as well as average yield and cost information for the periods presented. Average balances are derived from daily balances, and non-accrual loans are not included as interest earning assets for purposes of this table.

4746

CENTRAL VALLEY COMMUNITY BANCORP

SCHEDULE OF AVERAGE BALANCES AND AVERAGE YIELDS AND RATES


		For the Three Months Ended June 30, 2021						For the Three Months Ended June 30, 2020							For the Three Months Ended September 30, 2021						For the Three Months Ended September 30, 2020
(Dollars in thousands)	(Dollars in thousands)	Average Balance		Interest Income/ Expense		Average Interest Rate		Average Balance		Interest Income/ Expense		Average Interest Rate		(Dollars in thousands)	Average Balance		Interest Income/ Expense		Average Interest Rate		Average Balance		Interest Income/ Expense		Average Interest Rate
ASSETS	ASSETS													ASSETS
Interest-earning deposits in other banks	Interest-earning deposits in other banks	$	114,590	$	29	0.10	%	$	58,277	$	13	0.09	%	Interest-earning deposits in other banks	$	70,980	$	29	0.16	%	$	98,869	$	26	0.11	%
Securities	Securities													Securities
Taxable securities	Taxable securities	629,284		3,361		2.14	%	481,439		2,960		2.46	%	Taxable securities	746,923		3,842		2.06	%	501,462		2,771		2.21	%
Non-taxable securities (1)	Non-taxable securities (1)	236,455		1,784		3.02	%	49,611		522		4.21	%	Non-taxable securities (1)	241,225		1,794		2.97	%	49,630		561		4.52	%
Total investment securities	Total investment securities	865,739		5,145		2.38	%	531,050		3,482		2.62	%	Total investment securities	988,148		5,636		2.28	%	551,092		3,332		2.42	%

Total securities and interest-earning deposits	Total securities and interest-earning deposits	980,329		5,174		2.11	%	589,327		3,495		2.37	%	Total securities and interest-earning deposits	1,059,128		5,665		2.14	%	649,961		3,358		2.07	%
Loans (2) (3)	Loans (2) (3)	1,077,774		13,556		5.04	%	1,075,588		12,600		4.71	%	Loans (2) (3)	1,068,111		13,208		4.91	%	1,120,656		13,190		4.68	%

Total interest-earning assets	Total interest-earning assets	2,058,103		$	18,730	3.65	%	1,664,915		$	16,095	3.89	%	Total interest-earning assets	2,127,239		$	18,873	3.52	%	1,770,617		$	16,548	3.72	%
Allowance for credit losses	Allowance for credit losses	(11,928)						(10,783)						Allowance for credit losses	(10,558)						(14,261)
Non-accrual loans	Non-accrual loans	2,651						1,620						Non-accrual loans	1,844						2,660

Cash and due from banks	Cash and due from banks	35,997						23,963						Cash and due from banks	39,566						26,993
Bank premises and equipment	Bank premises and equipment	8,416						7,358						Bank premises and equipment	8,562						7,327
Other assets	Other assets	134,393						126,792						Other assets	151,519						135,258
Total average assets	Total average assets	$	2,227,632					$	1,813,865					Total average assets	$	2,318,172					$	1,928,594
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY													LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities:	Interest-bearing liabilities:													Interest-bearing liabilities:
Savings and NOW accounts	Savings and NOW accounts	$	522,209	$	45	0.03	%	$	415,793	$	83	0.08	%	Savings and NOW accounts	$	551,590	$	50	0.04	%	$	457,848	$	89	0.08	%
Money market accounts	Money market accounts	441,623		160		0.15	%	297,725		137		0.19	%	Money market accounts	464,546		166		0.14	%	307,832		136		0.18	%
Time certificates of deposit	Time certificates of deposit	90,735		47		0.21	%	89,900		154		0.69	%	Time certificates of deposit	89,621		47		0.21	%	89,353		138		0.61	%

Total interest-bearing deposits	Total interest-bearing deposits	1,054,567		252		0.10	%	803,418		374		0.19	%	Total interest-bearing deposits	1,105,757		263		0.09	%	855,033		363		0.17	%
Other borrowed funds	Other borrowed funds	5,155		22		1.71	%	5,155		36		2.79	%	Other borrowed funds	5,155		22		1.71	%	5,155		25		1.94	%
Total interest-bearing liabilities	Total interest-bearing liabilities	1,059,722		$	274	0.10	%	808,573		$	410	0.20	%	Total interest-bearing liabilities	1,110,912		$	285	0.10	%	860,188		$	388	0.18	%
Non-interest bearing demand deposits	Non-interest bearing demand deposits	893,441						753,265						Non-interest bearing demand deposits	915,742						807,052
Other liabilities	Other liabilities	27,510						29,548						Other liabilities	40,998						29,698
Shareholders’ equity	Shareholders’ equity	246,959						222,479						Shareholders’ equity	250,520						231,656
Total average liabilities and shareholders’ equity	Total average liabilities and shareholders’ equity	$	2,227,632					$	1,813,865					Total average liabilities and shareholders’ equity	$	2,318,172					$	1,928,594
Interest income and rate earned on average earning assets	Interest income and rate earned on average earning assets			$	18,730	3.65	%			$	16,095	3.89	%	Interest income and rate earned on average earning assets			$	18,873	3.52	%			$	16,548	3.72	%
Interest expense and interest cost related to average interest-bearing liabilities	Interest expense and interest cost related to average interest-bearing liabilities			274		0.10	%			410		0.20	%	Interest expense and interest cost related to average interest-bearing liabilities			285		0.10	%			388		0.18	%
Net interest income and net interest margin (4)	Net interest income and net interest margin (4)			$	18,456	3.60	%			$	15,685	3.79	%	Net interest income and net interest margin (4)			$	18,588	3.47	%			$	16,160	3.63	%

(1)Calculated on a fully tax equivalent basis, which includes Federal tax benefits relating to income earned on municipal bonds totaling ~~$375~~$377 and ~~$109~~$118 in 2021 and 2020, respectively.

(2)Loan interest income includes loan fees of ~~$1,821~~$1,076 in 2021 and ~~$291~~$658 in 2020.

(3)Average loans do not include non-accrual loans but do include interest income recovered from previously charged off loans.

(4)Net interest margin is computed by dividing net interest income by total average interest-earning assets.

The following table sets forth a summary of the changes in interest income and interest expense due to changes in average asset and liability balances (volume) and changes in average interest rates for the periods indicated. ~~The change in interest due to both rate and volume has been allocated to the change in rate.~~

4847


Changes in Volume/Rate	Changes in Volume/Rate	For the Three Months Ended June 30, 2021 and 2020						Changes in Volume/Rate	For the Three Months Ended September 30, 2021 and 2020
(In thousands)	(In thousands)	Volume		Rate		Net		(In thousands)	Volume		Rate		Net
Increase (decrease) due to changes in:	Increase (decrease) due to changes in:							Increase (decrease) due to changes in:
Interest income:	Interest income:							Interest income:
Interest-earning deposits in other banks	Interest-earning deposits in other banks	$	12	$	4	$	16	Interest-earning deposits in other banks	$	(7)	$	10	$	3
Investment securities:	Investment securities:							Investment securities:
Taxable	Taxable	908		(507)		401		Taxable	1,356		(285)		1,071
Non-taxable (1)	Non-taxable (1)	1,965		(703)		1,262		Non-taxable (1)	2,165		(932)		1,233
Total investment securities	Total investment securities	2,873		(1,210)		1,663		Total investment securities	3,521		(1,217)		2,304
Federal funds sold	Federal funds sold	—		—		—		Federal funds sold	—		—		—
Loans	Loans	25		931		956		Loans	(618)		636		18

Total earning assets (1)	Total earning assets (1)	2,910		(275)		2,635		Total earning assets (1)	2,896		(571)		2,325
Interest expense:	Interest expense:							Interest expense:
Deposits:	Deposits:							Deposits:
Savings, NOW and MMA	Savings, NOW and MMA	87		(102)		(15)		Savings, NOW and MMA	87		(96)		(9)
Time certificate of deposits	Time certificate of deposits	1		(108)		(107)		Time certificate of deposits	—		(91)		(91)
Total interest-bearing deposits	Total interest-bearing deposits	88		(210)		(122)		Total interest-bearing deposits	87		(187)		(100)
Other borrowed funds	Other borrowed funds	—		(14)		(14)		Other borrowed funds	—		(3)		(3)
Total interest-bearing liabilities	Total interest-bearing liabilities	88		(224)		(136)		Total interest-bearing liabilities	87		(190)		(103)
Net interest income (1)	Net interest income (1)	$	2,822	$	(51)	$	2,771	Net interest income (1)	$	2,809	$	(381)	$	2,428

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

Interest and fee income from loans increased ~~$956,000~~$18,000 or ~~7.59%~~0.14% to ~~$13,556,000~~$13,208,000 for the ~~second~~third quarter of 2021 compared to ~~$12,600,000~~$13,190,000 for the same period in 2020. Total average loans, including nonaccrual loans, for the ~~second~~third quarter of 2021 ~~increased $3,217,000~~decreased $53,361,000 or ~~0.30%~~4.75% to ~~$1,080,425,000~~$1,069,955,000 compared to ~~$1,077,208,000~~$1,123,316,000 for the same period in ~~2020.~~2020, due to a decrease of $127,267,000 in PPP loans, offset by an increase of $73,906 in non-PPP loans. Yield on the loan portfolio, excluding nonaccrual loans, was ~~5.04%~~4.91% and ~~4.71%~~4.68% for the ~~second~~third quarters ending ~~June~~September 30, 2021 and 2020, respectively. Net interest income during the ~~second~~third quarters of 2021 and 2020 benefited by approximately $4,000 and ~~$288,000,~~$52,000, respectively, in nonrecurring income from prepayment penalties and payoff of loans previously on nonaccrual status. The accretion of the loan marks on acquired loans increased interest income by ~~$176,000~~$231,000 and ~~$174,000~~$172,000 during the quarters ended ~~June~~September 30, 2021 and 2020, respectively.

Income from investments represents ~~26.54%~~29.04% of net interest income for the ~~second~~third quarter of 2021 compared to ~~21.73%~~20.20% for the same quarter in 2020. Interest income from total investments on a non tax equivalent basis (total investments include investment securities, Federal funds sold, interest bearing deposits with other banks, and other securities) increased ~~$1,415,000~~$2,048,000 in the ~~second~~third quarter of 2021 to ~~$4,799,000~~$5,289,000 compared to ~~$3,384,000,~~$3,241,000, for the same period in 2020. The yield on average total investments ~~decreased 26~~increased seven basis points to ~~2.11%~~2.14% on a fully tax equivalent basis for the ~~second~~third quarter of 2021 compared to ~~2.37%~~2.07% on a fully tax equivalent basis for the ~~second~~third quarter of 2020. Average total investments and interest bearing deposits in other banks for the ~~second~~third quarter of 2021 increased ~~$391,002,000~~$409,167,000 or ~~66.35%~~62.95% to ~~$980,329,000~~$1,059,128,000 compared to ~~$589,327,000~~$649,961,000 for the ~~second~~third quarter of 2020.

Total interest income for the ~~second~~third quarter of 2021 increased ~~$2,371,000~~$2,066,000 or ~~14.83%~~12.57% to ~~$18,355,000~~$18,497,000 compared to ~~$15,984,000~~$16,431,000 for the ~~second~~third quarter ended ~~June~~September 30, 2020. The yield on interest earning assets decreased to ~~3.65%~~3.52% on a fully tax equivalent basis for the ~~second~~third quarter ended ~~June~~September 30, 2021 from ~~3.89%~~3.72% on a fully tax equivalent basis for the ~~second~~third quarter ended ~~June~~September 30, 2020. Average interest earning assets increased to ~~$2,058,103,000~~$2,127,239,000 for the ~~second~~third quarter ended ~~June~~September 30, 2021 compared to ~~$1,664,915,000~~$1,770,617,000 for the ~~second~~third quarter ended ~~June~~September 30, 2020. The ~~$393,188,000~~$356,622,000 increase in average earning assets was attributed to the ~~$2,186,000 increase in average loans and~~ the ~~$391,002,000~~$409,167,000 increase in total ~~investments.~~investments, offset by $52,545,000 decrease in average loans.

Interest expense on deposits for the quarter ended ~~June~~September 30, 2021 decreased ~~$122,000~~$100,000 or ~~32.62%~~27.55% to ~~$252,000~~$263,000 compared to ~~$374,000~~$363,000 for the quarter ended ~~June~~September 30, 2020. The cost of deposits, calculated by dividing annualized interest expense on interest bearing deposits by total deposits, was 0.05% and ~~0.10%~~0.09% for the quarters ended ~~June~~September 30, 2021 and 2020, respectively. Average interest bearing deposits increased ~~31.26%~~29.32% or ~~$251,149,000~~$250,724,000 in the ~~second~~third quarter of 2021 compared to the same period in 2020. Average interest-bearing deposits were ~~$1,054,567,000~~$1,105,757,000 for the quarter ended ~~June~~September 30, 2021, with an effective rate paid of ~~0.10%~~0.09%, compared to ~~$803,418,000~~$855,033,000 for the same period in 2020, with an effective rate paid of ~~0.19%~~0.17%.

Average other borrowed funds totaled $5,155,000 for the quarter ended ~~June~~September 30, 2021, with an effective rate of 1.71% for the quarter ended ~~June~~September 30, 2021 compared to $5,155,000 and ~~2.79%~~1.94% for the quarter ended ~~June~~September 30, 2020. As a result, interest expense on borrowed funds decreased ~~$14,000~~$3,000 to $22,000 for the quarter ended ~~June~~September 30, 2021, from ~~$36,000~~$25,000 for the

quarter ended ~~June~~September 30, 2020. Other borrowings are comprised of advances from the Federal Home Loan Bank, junior subordinated deferrable interest debentures and advances on available unsecured lines of credit with correspondent banks.

The cost of our interest bearing liabilities was 0.10% and ~~0.20%~~0.18% for the quarters ended ~~June~~September 30, 2021 and 2020. The cost of total deposits was 0.05% and ~~0.10%~~0.09% for the quarters ended ~~June~~September 30, 2021 and 2020. Average non-interest bearing demand deposits increased ~~18.61%~~13.47% to ~~$893,441,000~~$915,742,000 for the quarter ended ~~June~~September 30, 2021 compared to ~~$753,265,000~~$807,052,000 for the quarter ended ~~June~~September 30, 2020. The ratio of average non-interest bearing demand deposits to average total deposits was ~~45.86%~~45.30% in the ~~second~~third quarter of 2021 compared to ~~48.39%~~48.56% for the same period in 2020.

Net Interest Income before Provision for Credit Losses

Net interest income before provision for credit losses for the quarter ended ~~June~~September 30, 2021, increased ~~$2,507,000~~$2,167,000 or ~~16.10%~~13.51% to ~~$18,081,000~~$18,210,000 compared to ~~$15,574,000~~$16,043,000 for the quarter ended ~~June~~September 30, 2020. The increase was due to asset mix changes, and the increase in average interest earning assets, partially offset by an increase in average interest-bearing liabilities. Average interest earning assets were ~~$2,058,103,000~~$2,127,239,000 for the quarter ended ~~June~~September 30, 2021, with a net interest margin (fully tax equivalent basis) of ~~3.60%~~3.47% compared to ~~$1,664,915,000~~$1,770,617,000 with a net interest margin (fully tax equivalent basis) of ~~3.79%~~3.63% for the quarter ended ~~June~~September 30, 2020. The ~~$393,188,000~~$356,622,000 increase in average earning assets can be attributed to the ~~$3,217,000 increase in loans, and the $391,002,000~~$409,167,000 increase in total ~~investments.~~investments, offset by the $53,361,000 decrease in loans. Average interest bearing liabilities increased ~~31.06%~~29.15% to ~~$1,059,722,000~~$1,110,912,000 for the quarter ended ~~June~~September 30, 2021 compared to ~~$808,573,000~~$860,188,000 for the same period in 2020.

Provision for Credit Losses

During the quarter ended ~~June~~September 30, 2021, the Company recorded a ~~$1,500,000~~$500,000 reversal of provision for credit losses, compared to ~~$3,000,000~~$600,000 provision during the quarter ended ~~June~~September 30, 2020. The annualized net charge-off (recovery) ratio, which reflects net charge-offs (recoveries) to average loans, was ~~0.04% for the quarter ended June 30, 2021 compared to (0.15)~~(0.05)% for the quarter ended ~~June~~September 30, 2021 compared to (0.04)% for the quarter ended September 30, 2020. During the quarter ended ~~June~~September 30, 2021, the Company had net ~~charge-offs~~recoveries totaling ~~$117,000~~$122,000 compared to net recoveries of ~~$391,000~~$120,000 for the same period in 2020. Gross recoveries of previously charged off loan balances during the quarters ended ~~June~~September 30, 2021 and 2020 were ~~$54,000~~$156,000 and ~~$471,000,~~$165,000, respectively. Gross charge-offs during the quarters ended ~~June~~September 30, 2021 and 2020 were ~~$171,000~~$34,000 and ~~$80,000,~~$45,000, respectively. The majority of the loans charged off were previously classified and sufficient specific reserves related to these impaired credits were held in the allowance for credit losses in reporting periods prior to the date of charge-off.

Non-Interest Income

Non-interest income was ~~$2,077,000~~$2,148,000 for the quarter ended ~~June~~September 30, 2021 compared to ~~$2,045,000~~$2,071,000 for the same period ended ~~June~~September 30, 2020. The ~~$32,000~~$77,000 or ~~1.56%~~3.72% increase in non-interest income for the quarter ended ~~June~~September 30, 2021 was primarily due to recording a ~~$164,000~~$117,000 increase in interchange fees, a ~~$20,000~~$60,000 increase in service charge income, and a $8,000 increase in Federal Home Loan Bank dividends, partially offset by a $88,000 decrease in other income, a $51,000 decrease in loan placement fees, and a $21,000 decrease in net realized gains on sales and calls of investment securities, a $24,000 increase in service charge income, a $13,000 increase in Federal Home Loan Bank dividends, and a $12,000 increase in other income, partially offset by a $218,000 decrease in loan placement fees.

Customer service charges increased ~~$20,000~~$24,000 or ~~4.47%~~5.18% to ~~$467,000~~$487,000 for the ~~second~~third quarter of 2021 compared to ~~$447,000~~$463,000 for the same period in 2020, due primarily to an increase in overdraft fee income. Other income ~~decreased $88,000~~increased $12,000 or ~~16.39%~~4.58% to ~~$449,000~~$274,000 for the ~~second~~third quarter of 2021 compared to ~~$537,000~~$262,000 for the same period in 2020. ~~For the quarter ended June 30, 2020, other income included a $166,000 gain related to the collection of tax-exempt life insurance proceeds.~~

Non-Interest Expenses

Salaries and employee benefits, occupancy and equipment, regulatory assessments, data processing, acquisition and integration expenses, Internet banking, license and maintenance contracts, and professional services are the major categories of non-interest expenses. Non-interest expenses increased ~~$132,000~~$334,000 or ~~1.15%~~2.85% to ~~$11,630,000~~$12,062,000 for the quarter ended ~~June~~September 30, 2021 compared to ~~$11,498,000~~$11,728,000 for the same period in 2020. The net increase quarter over quarter was a result of a increases in salaries and employee benefits of ~~$167,000,~~$362,000, increases in ~~data processing expense~~information technology expenses of ~~$71,000,~~$297,000, increases in occupancy and equipment expenses of ~~$62,000,~~$28,000, increases in regulatory assessments of ~~$26,000,~~$72,000, increases in appraisal fees of ~~$25,000,~~$67,000, increases in ~~alarm monitoring~~ATM/Debit card expenses of ~~15,000,~~$55,000, increases in education and training of $20,000, increases in mileage and travel of $20,000, increases in telephone expenses of $13,000, increases in directors’ expenses of $12,000, increases in operating losses of $10,000, increases in data processing expense of $5,000, and increases in ~~Information technology expenses~~amortization of ~~$9,000.~~software of $2,000. The increases were partially offset by ~~the decreases~~a decrease in Internet banking expenses of ~~$98,000, the decreases~~$113,000, a decrease in professional services of ~~$47,000, the decreases~~$208,000, a decrease in advertising expenses of ~~$39,000, the decreases~~$38,000, a decrease in stationery and supplies of ~~$29,000, the decreases~~$18,000, a decrease of $15,000 in ~~directors’~~armored courier fees, and a decrease in alarm monitoring expenses of ~~$23,000, and the decreases in amortization of software of $14,000 .~~$2,000. During the quarter ended ~~June~~September 30, 2021, nonrecurring expenses included ~~$106,000~~$98,000 related to PPP loan forgiveness processing.

The Company’s efficiency ratio decreased to ~~55.58%~~57.66% for the ~~second~~third quarter of 2021 compared to ~~64.27%~~63.58% for the ~~second~~third quarter of 2020. The improvement in the efficiency ratio is due to the growth in operating revenue outpacing the increase in non-interest expense.

Salaries and employee benefits increased ~~$167,000~~$362,000 or ~~2.45%~~5.38% to ~~$6,979,000~~$7,091,000 for the ~~second~~third quarter of 2021 compared to ~~$6,812,000~~$6,729,000 for the ~~second~~third quarter of 2020. The increase in total salaries and employee benefits was the result of an increase of approximately $319,000 in salaries and benefits, and an increase of $100,000 in officers’ expenses related to the change in the discount rate used to calculate the liability for salary continuation, deferred compensation, and split dollar plans; offset by a decrease in loan origination costs of $57,000. The number of full time equivalent (FTE) employees as of ~~June~~September 30, 2021, December 31, 2020 and ~~June~~September 30, 2020 was ~~247,~~246, 273, and ~~265,~~269, respectively.

Other non-interest expenses included increases of $20,000 in donations, $18,000 in personnel expenses, $8,000 in education/training expenses, $4,000 in telephone expenses, and $3,000 in armored courier expenses, partially offset by decreases of $29,000 in stationary and supplies, $14,000 in amortization of software, $13,000 in risk management expense, and $13,000 in check printing expense, as compared to the same period in 2020.

Provision for Income Taxes

The effective income tax rate was ~~24.58%~~25.86% for the ~~second~~third quarter of 2021 compared to ~~26.27%~~24.92% for the same period in 2020. Provision for income taxes totaled ~~$2,465,000~~$2,275,000 and ~~$820,000~~$1,442,000 for the quarters ended ~~June~~September 30, 2021 and 2020, respectively. The 2021 effective tax rate was affected by the increase in tax-exempt interest, as well as the reversal of provision for credit losses. The 2020 effective tax rate was affected by the large provision for credit losses which resulted in lower pretax and taxable income, as well as the gain related to the collection of life insurance proceeds.

FINANCIAL CONDITION

Summary of Changes in Consolidated Balance Sheets

~~June~~September 30, 2021 compared to December 31, 2020

Total assets were ~~$2,280,550,000~~$2,348,377,000 as of ~~June~~September 30, 2021, compared to $2,004,096,000 at December 31, 2020, an increase of ~~13.79%~~17.18% or ~~$276,454,000.~~$344,281,000. Total gross loans were ~~$1,069,945,000~~$1,083,497,000 at ~~June~~September 30, 2021, compared to $1,102,347,000 at December 31, 2020, a decrease of ~~$32,402,000~~$18,850,000 or ~~2.94%~~1.71%. The total investment portfolio (including Federal funds sold and interest-earning deposits in other banks) increased ~~38.13%~~46.31% or ~~$287,429,000~~$349,078,000 to ~~$1,041,258,000~~$1,102,907,000 at ~~June~~September 30, 2021 compared to $753,829,000 at December 31, 2020. Total deposits increased ~~14.88%~~19.47% or ~~$256,384,000~~$335,382,000 to ~~$1,979,094,000~~$2,058,092,000 at ~~June~~September 30, 2021, compared to $1,722,710,000 at December 31, 2020. Shareholders’ equity increased ~~$6,028,000~~$1,527,000 or ~~2.46%~~0.62% to ~~$251,049,000~~$246,548,000 at ~~June~~September 30, 2021, compared to $245,021,000 at December 31, 2020. The increase in shareholders’ equity was driven by the retention of earnings, net of dividends paid, the decrease in unrealized gains on available-for-sale (AFS) securities, and share repurchases. Accrued interest payable and other liabilities was ~~$45,252,000~~$38,582,000 at ~~June~~September 30, 2021, compared to $31,210,000 at December 31, 2020, aan increase of ~~$14,042,000.~~$7,372,000.

Fair Value

The Company measures the fair values of its financial instruments utilizing a hierarchical framework associated with the level of observable pricing scenarios utilized in measuring financial instruments at fair value. The degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of the observable pricing scenario. Financial instruments with readily available actively quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of observable pricing and a lesser degree of judgment utilized in measuring fair value. Conversely, financial instruments rarely traded or not quoted will generally have little or no observable pricing and a higher degree of judgment utilized in measuring fair value. Observable pricing scenarios are impacted by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established and the characteristics specific to the transaction. See Note 2 of the Notes to Consolidated Financial Statements (unaudited) for additional information about the level of pricing transparency associated with financial instruments carried at fair value.

Investments

Our investment portfolio consists primarily of U.S. Government sponsored entities and agencies collateralized by residential mortgage backed obligations, private label mortgage and asset backed securities (PLMABS), corporate debt securities, and obligations of states and political subdivision securities and are classified at the date of acquisition as available for sale or held to maturity. As of ~~June~~September 30, 2021, investment securities with a fair value of ~~$191,882,000,~~$262,024,000, or ~~20.15%~~24.71% of our investment securities portfolio, were held as collateral for public funds, short and long-term borrowings, treasury, tax, and for other purposes. Our investment policies are established by the Board of Directors and implemented by management. Our policies are designed primarily to provide and maintain liquidity, to enable us to meet our pledging requirements for public money and borrowing arrangements, to generate a favorable return on investments without incurring undue interest rate and credit risk, and to complement our lending activities.

The level of our investment portfolio as a percentage of our total earning assets is generally considered higher than our peers due primarily to a comparatively low loan-to-deposit ratio. Our loan-to-deposit ratio at ~~June~~September 30, 2021 was ~~54.06%~~

52.65% compared to 63.99% at December 31, 2020. The loan-to-deposit ratio of our peers was 80.00% at December 31, 2020. The total investment portfolio, including Federal funds sold and interest-earning deposits in other banks, increased ~~38.13%~~46.31% or ~~$287,429,000~~$349,078,000 to ~~$1,041,258,000~~$1,102,907,000 at ~~June~~September 30, 2021, from $753,829,000 at December 31, 2020. The fair value of the available-for-sale investment portfolio reflected a net unrealized gain of ~~$18,278,000~~$14,609,000 at ~~June~~September 30, 2021, compared to a net unrealized gain of $21,091,000 at December 31, 2020.

The Board and management have had periodic discussions about our strategy for risk management in dealing with potential losses should interest rates begin to rise. We have been managing the portfolio with an objective of optimizing risk and return in various interest rate scenarios. We do not attempt to predict future interest rates, but we analyze the cash flows of our investment portfolio in different interest rate scenarios in connection with the rest of our balance sheet to design an investment portfolio that optimizes performance.

Management evaluated all available-for-sale investment securities with an unrealized loss at ~~June~~September 30, 2021 and identified those that had an unrealized loss for at least a consecutive 12 month period, which had an unrealized loss at ~~June~~September 30, 2021 greater than 10% of the recorded book value on that date, or which had an unrealized loss of more than $75,000. Management also analyzed any securities that may have been downgraded by credit rating agencies.

For those securities that met the evaluation criteria, management obtained and reviewed the most recently published national credit ratings for those securities. There were no OTTI losses recorded during the ~~six~~nine months ended ~~June~~September 30, 2020.

At ~~June~~September 30, 2021, the Company held ~~two~~one U.S. Treasury securities of which ~~one security~~ was in a loss position for less than 12 months. The unrealized loss on the Company’s investment in direct obligations of U.S. Treasury securities is associated with the general fluctuation of market interest rates and are not an indication of any deterioration in the credit quality of the security issuer. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized costs of the investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold, and it is more likely than not that it will not be required to sell, those investments until a recovery of fair value, which may be the maturity date, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2021.gain position.

At ~~June~~September 30, 2021, the Company held one U.S. Government agency security which was in a gain position.

At ~~June~~September 30, 2021, the Company held ~~122~~129 obligations of states and political subdivision securities of which 1625 were in a loss position for less than 12 months. The unrealized losses on the Company’s investments in obligations of states and political subdivision securities and corporate debt securities were caused by interest rate changes. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell, and it is more likely than not that it will not be required to sell those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at ~~June~~September 30, 2021.

and agencies collateralized by residential mortgage obligations were caused by interest rate changes. The contractual cash flows of those investments are guaranteed by an agency or sponsored entity of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability to hold and does not intend to sell, and it is more likely than not that it will not be required to sell those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at ~~June~~September 30, 2021.

At ~~June~~September 30, 2021, the Company had a total of 4963 Private Label Mortgage and Asset Backed Securities (PLMABS) with a remaining principal balance of ~~$180,844,000~~$255,324,000 and a net unrealized loss of approximately ~~$63,000. 18~~$1,568,000. 31 of the PLMABS securities were in a loss position for less than 12 months and ~~two~~four has been in loss for more than 12 months at ~~June~~September 30, 2021. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold, and it is more likely than not that it will not be required to sell those investments until a recovery of fair value, which may be the maturity date, the Company does not consider those investments to be other-than-temporarily impaired at ~~June~~September 30, 2021. The Company continues to monitor these securities for indications that declines in value, if any, may be other-than-temporary.

At ~~June~~September 30, 2021, the Company held 1415 corporate debt securities of which ~~five~~eight were in a loss position for less than 12 months. The unrealized loss on the Company’s investments in corporate debt security was caused by interest rate changes. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell, and it is more likely than not that it will not be required to sell those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at ~~June~~September 30, 2021.

See Note 3 of the Notes to Consolidated Financial Statements (unaudited) included in this report for carrying values and estimated fair values of our investment securities portfolio.

Loans

Total gross loans decreased ~~$32,402,000~~$18,850,000 or ~~2.94%~~1.71% to ~~$1,069,945,000~~$1,083,497,000 as of ~~June~~September 30, 2021, compared to $1,102,347,000 as of December 31, 2020.

The following table sets forth information concerning the composition of our loan portfolio at the dates indicated:


Loan Type (Dollars in thousands)	Loan Type (Dollars in thousands)	June 30, 2021		% of Total Loans		December 31, 2020		% of Total Loans		Loan Type (Dollars in thousands)	September 30, 2021		% of Total Loans		December 31, 2020		% of Total Loans
Commercial:	Commercial:									Commercial:
Commercial and industrial	Commercial and industrial	$	208,919	19.4	%	$	273,994	24.9	%	Commercial and industrial	$	184,830	17.0	%	$	273,994	24.9	%
Agricultural production	Agricultural production	32,918		3.1	%	21,971		2.0	%	Agricultural production	32,178		3.0	%	21,971		2.0	%
Total commercial	Total commercial	241,837		22.5	%	295,965		26.9	%	Total commercial	217,008		20.0	%	295,965		26.9	%
Real estate:	Real estate:									Real estate:
Owner occupied	Owner occupied	200,232		18.7	%	208,843		18.9	%	Owner occupied	210,577		19.4	%	208,843		18.9	%
Real estate construction and other land loans	Real estate construction and other land loans	65,282		6.1	%	55,419		5.0	%	Real estate construction and other land loans	65,912		6.1	%	55,419		5.0	%
Commercial real estate	Commercial real estate	357,519		33.4	%	338,886		30.7	%	Commercial real estate	365,564		33.7	%	338,886		30.7	%
Agricultural real estate	Agricultural real estate	88,110		8.2	%	84,258		7.6	%	Agricultural real estate	98,150		9.1	%	84,258		7.6	%
Other real estate	Other real estate	29,750		2.8	%	28,718		2.6	%	Other real estate	33,612		3.1	%	28,718		2.6	%
Total real estate	Total real estate	740,893		69.2	%	716,124		64.8	%	Total real estate	773,815		71.4	%	716,124		64.8	%
Consumer:	Consumer:									Consumer:
Equity loans and lines of credit	Equity loans and lines of credit	51,364		4.8	%	55,634		5.0	%	Equity loans and lines of credit	54,833		5.1	%	55,634		5.0	%
Consumer and installment	Consumer and installment	37,241		3.5	%	37,236		3.3	%	Consumer and installment	38,250		3.5	%	37,236		3.3	%
Total consumer	Total consumer	88,605		8.3	%	92,870		8.3	%	Total consumer	93,083		8.6	%	92,870		8.3	%
Net deferred origination costs		(1,390)				(2,612)
Net deferred origination fees										Net deferred origination fees	(409)				(2,612)
Total gross loans	Total gross loans	1,069,945		100.0	%	1,102,347		100.0	%	Total gross loans	1,083,497		100.0	%	1,102,347		100.0	%
Allowance for credit losses	Allowance for credit losses	(10,439)				(12,915)				Allowance for credit losses	(10,061)				(12,915)
Total loans	Total loans	$	1,059,506			$	1,089,432			Total loans	$	1,073,436			$	1,089,432

As of ~~June~~September 30, 2021, in management’s judgment, a concentration of loans existed in commercial loans and loans collateralized by real estate, representing approximately 96.5% of total loans. This level of concentration of commercial loans

and loans collateralized by real estate is consistent with 96.7% of total loans at December 31, 2020. Although management believes the loans within this concentration have no more than the normal risk of ~~collectibility,~~collectability, a substantial decline in the performance of the economy in general or a decline in real estate values in our primary market areas, in particular, could have an adverse impact on ~~collectibility,~~collectability, increase the level of real estate-related non-performing loans, or have other adverse effects which alone or in the aggregate could have a material adverse effect on our business, financial condition, results of operations and cash flows. The Company does not engage in any sub-prime mortgage lending activities.

At ~~June~~September 30, 2021, loans acquired in the Folsom Lake Bank (FLB), Sierra Vista Bank (SVB) and Visalia Community Bank (VCB) acquisitions had a balance of ~~$109,932,000,~~$99,020,000, of which ~~$2,374,000~~$2,305,000 were commercial loans, ~~$98,912,000~~$88,552,000 were real estate loans, and ~~$8,646,000~~$8,163,000 were consumer loans. At December 31, 2020, loans acquired in the FLB, SVB and VCB acquisitions had a balance of $127,186,000, of which $2,529,000 were commercial loans, $110,616,000 were real estate loans, and $14,041,000 were consumer loans.

We believe that our commercial real estate loan underwriting policies and practices result in prudent extensions of credit, but recognize that our lending activities result in relatively high reported commercial real estate lending levels. Commercial real estate loans include certain loans which represent low to moderate risk and certain loans with higher risks. Contributing to the commercial and industrial loan growth was the issuance of PPP loans. As of ~~June~~September 30, 2021, gross loans included ~~$109,502,000~~$64,260,000 in PPP loans which are fully guaranteed by the SBA.

The Board of Directors review and approve concentration limits and exceptions to limitations of concentration are reported to the Board of Directors at least quarterly.

Nonperforming Assets

Nonperforming assets consist of nonperforming loans, other real estate owned (OREO), and repossessed assets. Nonperforming loans are those loans which have (i) been placed on nonaccrual status; (ii) been classified as doubtful under our asset classification system; or (iii) become contractually past due 90 days or more with respect to principal or interest and have not been restructured or otherwise placed on nonaccrual status. A loan is classified as nonaccrual when (i) it is maintained on a cash basis because of deterioration in the financial condition of the borrower; (ii) payment in full of principal or interest under the original contractual terms is not expected; or (iii) principal or interest has been in default for a period of 90 days or more unless the loan is both well secured and in the process of collection.

At ~~June~~September 30, 2021, total nonperforming assets totaled ~~$2,035,000,~~$1,597,000, or ~~0.09%~~0.07% of total assets, compared to $3,278,000, or 0.16% of total assets at December 31, 2020. Total nonperforming assets at ~~June~~September 30, 2021, included nonaccrual loans totaling ~~$2,035,000,~~$1,597,000, no OREO, and no other repossessed assets. Nonperforming assets at December 31, 2020 consisted of $3,278,000 in nonaccrual loans, no OREO, and no other repossessed assets. At ~~June~~September 30, 2021 and December 31, 2020, we had no loan considered to be a troubled debt restructuring (“TDRs”) included in nonaccrual loans.

A summary of nonperforming loans at ~~June~~September 30, 2021 and December 31, 2020 is set forth below. The Company had no loans past due more than 90 days and still accruing interest at ~~June~~September 30, 2021 or at December 31, 2020. Management can give no assurance that nonaccrual and other nonperforming loans will not increase in the future.

Composition of Nonperforming Loans


(In thousands)	(In thousands)	June 30, 2021			December 31, 2020			(In thousands)	September 30, 2021			December 31, 2020
Nonaccrual loans:	Nonaccrual loans:							Nonaccrual loans:
Commercial and industrial	Commercial and industrial	$	348		$	752		Commercial and industrial	$	333		$	752
Owner occupied real estate	Owner occupied real estate	—			370			Owner occupied real estate	—			370
Real estate construction and other land loans	Real estate construction and other land loans	—			1,556			Real estate construction and other land loans	—			1,556

Agricultural real estate		1,204			—
Agricultural production								Agricultural production	779			—

Commercial real estate	Commercial real estate	483			512			Commercial real estate	485			512

Consumer and installment	Consumer and installment	—			88			Consumer and installment	—			88

Total nonaccrual	Total nonaccrual	2,035			3,278			Total nonaccrual	1,597			3,278
Accruing loans past due 90 days or more	Accruing loans past due 90 days or more	—			—			Accruing loans past due 90 days or more	—			—
Total nonperforming loans	Total nonperforming loans	$	2,035		$	3,278		Total nonperforming loans	$	1,597		$	3,278
Ratio of nonperforming loans to total loans	Ratio of nonperforming loans to total loans	0.19		%	0.30		%	Ratio of nonperforming loans to total loans	0.15		%	0.30		%
Ratio of allowance for credit losses to nonperforming loans	Ratio of allowance for credit losses to nonperforming loans	513.0		%	394.0		%	Ratio of allowance for credit losses to nonperforming loans	630.0		%	394.0		%
Loans considered to be impaired	Loans considered to be impaired	$	8,539		$	11,186		Loans considered to be impaired	$	10,060		$	11,186
Related allowance for credit losses on impaired loans	Related allowance for credit losses on impaired loans	$	880		$	631		Related allowance for credit losses on impaired loans	$	931		$	631

—

We measure our impaired loans by using the fair value of the collateral if the loan is collateral dependent and the present value of the expected future cash flows discounted at the loan’s original contractual interest rate if the loan is not collateral dependent. As of ~~June~~September 30, 2021 and December 31, 2020, we had impaired loans totaling ~~$8,539,000~~$10,060,000 and $11,186,000, respectively. For collateral dependent loans secured by real estate, we obtain external valuations which are updated at least annually to determine the fair value of the collateral, and we record a charge-off for the difference between the book value of the loan and the appraised value less selling costs value of the collateral, unless there is an extenuating circumstance that may positively affect the amount collected. We perform quarterly internal reviews on substandard loans. We place loans on nonaccrual status and classify them as impaired when it becomes probable that we will not receive interest and principal under the original contractual terms, or when loans are delinquent 90 days or more unless the loan is both well secured and in the process of collection. Management maintains certain loans that have been brought current by the borrower (less than 30 days delinquent) on nonaccrual status until such time as management has determined that the loans are likely to remain current in future periods.

The following table provides a reconciliation of the change in nonaccrual loans for the first ~~six~~nine months of 2021.


(In thousands)	(In thousands)	Balance, December 31, 2020		Additions to Nonaccrual Loans		Net Pay Downs		Transfers to Foreclosed Collateral and OREO		Returns to Accrual Status		Charge- Offs		Balance, June 30, 2021		(In thousands)	Balance, December 31, 2020		Additions to Nonaccrual Loans		Net Pay Downs		Transfers to Foreclosed Collateral and OREO		Returns to Accrual Status		Charge- Offs		Balance, September 30, 2021
Nonaccrual loans:	Nonaccrual loans:															Nonaccrual loans:
Commercial and industrial	Commercial and industrial	$	752	$	—	$	(350)	$	—	$	(55)	$	—	$	347	Commercial and industrial	$	752	$	—	$	(364)	$	—	$	(55)	$	—	$	333
Agricultural land and industrial	Agricultural land and industrial	—		2,141		(936)		—		—		—		1,205		Agricultural land and industrial	—		2,141		(1,362)		—		—		—		779
Real estate	Real estate	882		—		(225)		—		(174)		—		483		Real estate	882		17		(240)		—		(174)		—		485
Real estate construction and other land loans	Real estate construction and other land loans	1,556		—		(1,531)		—		(25)		—		—		Real estate construction and other land loans	1,556		—		(1,531)		—		(25)		—		—

Consumer	Consumer	88		—		(2)		—		(86)		—		—		Consumer	88		—		(2)		—		(86)		—		—

Total nonaccrual	Total nonaccrual	$	3,278	$	2,141	$	(3,044)	$	—	$	(340)	$	—	$	2,035	Total nonaccrual	$	3,278	$	2,158	$	(3,499)	$	—	$	(340)	$	—	$	1,597

OREO represents real property taken either through foreclosure or through a deed in lieu thereof from the borrower. OREO is initially recorded at fair value less costs to sell and thereafter carried at the lower of cost or fair value, less selling costs. We had no OREO properties at ~~June~~September 30, 2021 or December 31, 2020. The Company held no repossessed assets at ~~June~~September 30, 2021 or December 31, 2020.

Allowance for Credit Losses

We have established a methodology for determining the adequacy of the allowance for credit losses made up of general and specific allocations. The methodology is set forth in a formal policy and takes into consideration the need for an overall allowance for credit losses as well as specific allowances that are tied to individual loans. The allowance for credit losses is an estimate of probable incurred credit losses in the Company’s loan portfolio. The allowance consists of two primary components, specific reserves related to impaired loans and general reserves for probable incurred losses related to loans that are not impaired.

For all portfolio segments, the determination of the general reserve for loans that are not impaired is based on estimates made by management, including but not limited to, consideration of historical losses by portfolio segment (and in certain cases peer loss data) over the most recent 5051 quarters, and qualitative factors including economic trends in the Company’s service areas, industry experience and trends, geographic concentrations, estimated collateral values, the Company’s underwriting policies, the character of the loan portfolio, and probable losses incurred in the portfolio taken as a whole. Management has determined that the most recent 5051 quarters was an appropriate look back period based on several factors including the current global economic uncertainty and various national and local economic indicators, and a time period sufficient to capture enough data due to the size of the portfolio to produce statistically accurate historical loss calculations. We believe this period is an appropriate look back period.

In originating loans, we recognize that losses will be experienced and that the risk of loss will vary with, among other things, the type of loan being made, the creditworthiness of the borrower over the term of the loan, general economic conditions and, in the case of a secured loan, the quality of the collateral securing the loan. The allowance is increased by provisions charged against earnings and recoveries, and reduced by net loan charge-offs. Loans are charged off when they are deemed to be uncollectible, or partially charged off when portions of a loan are deemed to be uncollectible. Recoveries are generally recorded only when cash payments are received.

The allowance for credit losses is maintained to cover probable incurred credit losses in the loan portfolio. The responsibility for the review of our assets and the determination of the adequacy lies with management and our Audit Committee. They delegate the authority to the Chief Credit Officer (CCO) to determine the loss reserve ratio for each type of

asset and to review, at least quarterly, the adequacy of the allowance based on an evaluation of the portfolio, past experience, prevailing market conditions, amount of government guarantees, concentration in loan types and other relevant factors.

The allowance for credit losses is an estimate of the probable incurred credit losses in our loan and lease portfolio. The allowance is based on principles of accounting: (i) losses accrued for on loans when they are probable of occurring and can be reasonably estimated and (ii) losses accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance.

Management adheres to an internal asset review system and loss allowance methodology designed to provide for timely recognition of problem assets and adequate valuation allowances to cover probable incurred losses. The Bank’s asset monitoring process includes the use of asset classifications to segregate the assets, largely loans, into various risk categories. The Bank uses the various asset classifications as a means of measuring risk and determining the adequacy of valuation allowances by using a nine-grade system to classify assets. In general, all credit facilities exceeding 90 days of delinquency require classification and are placed on nonaccrual.

The following table sets forth information regarding our allowance for credit losses at the dates and for the periods indicated:


		For the Six Months Ended June 30,			For the Year Ended December 31,			For the Six Months Ended June 30,				For the Nine Months Ended September 30,			For the Year Ended December 31,			For the Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2021			2020			2020			(Dollars in thousands)	2021			2020			2020
Balance, beginning of period	Balance, beginning of period	$	12,915		$	9,130		$	9,130		Balance, beginning of period	$	12,915		$	9,130		$	9,130
(Reversal of) provision for credit losses	(Reversal of) provision for credit losses	(3,300)			3,275			4,375			(Reversal of) provision for credit losses	(3,800)			3,275			4,975
Losses charged to allowance	Losses charged to allowance	(228)			(229)			(123)			Losses charged to allowance	(261)			(229)			(169)
Recoveries	Recoveries	1,052			739			555			Recoveries	1,207			739			721
Balance, end of period	Balance, end of period	$	10,439		$	12,915		$	13,937		Balance, end of period	$	10,061		$	12,915		$	14,657
Allowance for credit losses to total loans at end of period	Allowance for credit losses to total loans at end of period	0.98		%	1.17		%	1.24		%	Allowance for credit losses to total loans at end of period	0.93		%	1.17		%	1.32		%

Managing credits identified through the risk evaluation methodology includes developing a business strategy with the customer to mitigate our losses. Our management continues to monitor these credits with a view to identifying as early as possible when, and to what extent, additional provisions may be necessary. Risks and uncertainties exist in all lending transactions and our management and Board of Directors’ Loan Committee have established reserve levels based on economic uncertainties and other risks that exist as of each reporting period.

The allowance for credit losses is reviewed at least quarterly by the Bank’s and our Board of Directors’ Audit Committee. Reserves are allocated to loan portfolio segments using percentages which are based on both historical risk elements such as delinquencies and losses and predictive risk elements such as economic, competitive and environmental factors. We have adopted the specific reserve approach to allocate reserves to each impaired asset for the purpose of estimating potential loss exposure. At the onset of COVID we established a dedicated qualitative factor to address the lagging effect on our quantitative data. We have ~~begun reducing~~materially reduced that factor’s impact on the ALLL given the passage of ~~time. We adjusted the economic risk factor methodology to incorporate the~~time and improving economic conditions ~~and decreasing unemployment rate.~~from mid-2020. Although the allowance for credit losses is allocated to various portfolio categories, it is general in nature and available for the loan portfolio in its entirety. Additions may be required based on the results of independent loan portfolio examinations, regulatory agency examinations, or our own internal review process. Additions are also required when, in management’s judgment, the reserve does not properly reflect the potential loss exposure.

As of ~~June~~September 30, 2021, the balance in the allowance for credit losses (ALLL) was ~~$10,439,000~~$10,061,000 compared to $12,915,000 as of December 31, 2020. The decrease is attributed to the reversal of provision for credit losses of ~~$3,300,000~~$3,800,000 during the ~~six~~nine months ended ~~June~~September 30, 2021. The balance of undisbursed commitments to extend credit on construction and other loans and letters of credit was ~~$316,702,000~~$332,875,000 as of ~~June~~September 30, 2021, compared to $326,179,000 as of December 31, 2020. At ~~June~~September 30, 2021 and December 31, 2020, the balance of a contingent allocation for probable loan loss experience on unfunded obligations was ~~$250,000.~~$150,000 and $250,000, respectively. The contingent allocation for probable loan loss experience on unfunded obligations is calculated by management using appropriate, systematic, and consistently applied processes. While related to credit losses, this allocation is not a part of the ALLL and is considered separately as a liability for accounting and regulatory reporting purposes.

As of ~~June~~September 30, 2021, the ALLL was ~~0.98%~~0.93% of total gross loans compared to 1.17% as of December 31, 2020. Total loans include FLB, SVB and VCB loans that were recorded at fair value in connection with the acquisitions, with values of ~~$109,932,000~~$99,020,000 at ~~June~~September 30, 2021 and $127,186,000 at December 31, 2020. Excluding these FLB, SVB and VCB loans from the calculation, the ALLL to total gross loans was ~~1.09%~~1.02% and 1.32% at ~~June~~September 30, 2021 and December 31, 2020, respectively and general reserves associated with non-impaired loans to total non-impaired loans was ~~1.13%~~1.00% and 1.41%, respectively. As of ~~June~~September 30, 2021, gross loans included ~~$109,502,000~~$64,260,000 related to PPP loans which are fully guaranteed by the SBA. Excluding PPP loans and the acquired loans from the calculation, the allowance for credit losses to total gross loans was ~~1.23%~~1.09% and 1.65% as of ~~June~~September 30, 2021 and December 31, 2020, respectively. The Company believes the allowance for credit losses is adequate to provide for probable incurred credit losses within the loan portfolio at ~~June~~September 30, 2021. The

loan portfolios acquired in the mergers were booked at fair value with no associated allocation in the ALLL. The size of the fair value discount remains adequate for all non-impaired acquired loans.

The Company’s loan portfolio balances for the ~~six~~nine months ended ~~June~~September 30, 2021 increased through organic growth. Management believes that the change in the allowance for credit losses to total loans ratio is directionally consistent with the composition of loans and the level of nonperforming and classified loans, and by the general economic conditions experienced in the central California communities serviced by the Company, partially offset by recent improvements in real estate collateral values.

Assumptions regarding the collateral value of various under-performing loans may affect the level and allocation of the allowance for credit losses in future periods. The allowance may also be affected by trends in the amount of charge-offs experienced or expected trends within different loan portfolios. However, the total reserve rates on non-impaired loans include qualitative factors which are systematically derived and consistently applied to reflect conservatively estimated losses from loss contingencies at the date of the financial statements. Based on the above considerations and given recent changes in historical

charge-off rates included in the ALLL modeling and the changes in other factors, management determined that the ALLL was appropriate as of ~~June~~September 30, 2021. However, no assurance can be given that the Company may not sustain charge-offs which are in excess of the allowance in any given period.

The following table illustrates and sets forth additional analysis which portrays the trends that are occurring in the loan portfolio.


		June 30, 2021				December 31, 2020				June 30, 2020					September 30, 2021				December 31, 2020				September 30, 2020
(Dollars in thousands)	(Dollars in thousands)	Balance		% to Total Loans		Balance		% to Total Loans		Balance		% to Total Loans		(Dollars in thousands)	Balance		% to Total Loans		Balance		% to Total Loans		Balance		% to Total Loans
Impaired loans with specific reserves	Impaired loans with specific reserves	$	7,600	0.71	%	$	10,072	0.91	%	$	12,555	1.12	%	Impaired loans with specific reserves	$	9,436	0.87	%	$	10,072	0.91	%	$	4,450	0.40	%
Past due loans	Past due loans	391		0.04	%	89		0.01	%	853		0.08	%	Past due loans	313		0.03	%	89		0.01	%	256		0.02	%
Nonaccrual loans	Nonaccrual loans	2,035		0.19	%	3,278		0.30	%	2,406		0.21	%	Nonaccrual loans	1,597		0.15	%	3,278		0.30	%	3,458		0.31	%

Goodwill and Intangible Assets

Business combinations involving the Company’s acquisition of the equity interests or net assets of another enterprise give rise to goodwill. Total goodwill at ~~June~~September 30, 2021, was $53,777,000 consisting of $8,934,000, $14,643,000, $6,340,000, $10,394,000, and $13,466,000 representing the excess of the cost of Bank of Madera County, Service 1st Bancorp, Visalia Community Bank, Sierra Vista Bank, and Folsom Lake Bank, respectively, over the net of the amounts assigned to assets acquired and liabilities assumed in the transactions accounted for under the purchase method of accounting. The value of goodwill is ultimately derived from the Company’s ability to generate net earnings after the acquisitions and is not deductible for tax purposes. The fair values of assets acquired and liabilities assumed are subject to adjustment during the first twelve months after the acquisition date if additional information becomes available to indicate a more accurate or appropriate value for an asset or liability. A significant decline in net earnings, among other factors, could be indicative of a decline in the fair value of goodwill and result in impairment. For that reason, goodwill is assessed at least annually for impairment.

During March 2020, the COVID-19 pandemic emerged and began impacting the state and local economies in our market due to local shelter-in-place orders and restrictions on businesses which caused many nonessential businesses to close and workers to be temporarily unemployed. COVID-19 could cause a further and sustained decline in the The Company’s ~~stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to perform a~~annual goodwill ~~impairment~~ test ~~and result in an impairment charge being recorded for that period. In the event that the Company concludes that all or a portion of its goodwill~~ is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital. Management considered the COVID-19 related economic downturn to be such a triggering event and therefore performed qualitative assessments at the end of the first, second and fourth quarters of 2020. Given the continued economic impact of the pandemic, management determined it appropriate to perform a quantitative testcompleted as of September 30 ~~2020.~~ each year.

Management ~~engaged a third party valuation specialist to assist with the performance of the quantitative goodwill~~performed an annual impairment test in the third quarter of ~~2020. Significant assumptions inherent in the valuation methodologies for goodwill that were employed~~2021 utilizing various qualitative factors. Management believes these factors are sufficient and ~~included, but were not limited~~comprehensive and as such, no further factors need to ~~prospective financial information, growth rates, terminal value, discount rates, and comparable multiples from publicly traded companies in our industry.~~be assessed at this time. Based on ~~this quantitative test, it~~management’s analysis performed, no impairment was ~~determined that the fair value of the reporting unit exceeded the carrying value as of September 30, 2020.~~required.

Goodwill is assessed for impairment between annual tests if a triggering event occurs or circumstances change that may cause the fair value of a reporting unit to decline below its carrying amount. Management considers the entire Company to be one reporting unit. No such events or circumstances arose during the first ~~six~~nine months of 2021. Changes in the economic environment, operations of the reporting unit or other adverse events could result in future impairment charges which could have a material adverse impact on the Company’s operating results.

The intangible assets represent the estimated fair value of the core deposit relationships acquired in the 2017 acquisition of Folsom Lake Bank of $1,879,000, the 2016 acquisition of Sierra Vista Bank of $508,000, and the 2013 acquisition of Visalia Community Bank of $1,365,000. Core deposit intangibles are being amortized using the straight-line method (which approximates the effective interest method) over estimated lives of five to 10 years from the date of acquisition. The carrying value of intangible assets at ~~June~~September 30, 2021 was ~~$835,000,~~$662,000, net of ~~$2,744,000~~$3,090,000 in accumulated amortization expense. The carrying value at December 31, 2020 was $1,183,000, net of $2,569,000 accumulated amortization expense. We evaluate the remaining useful lives quarterly to determine whether events or circumstances warrant a revision to the remaining periods of amortization. Based on the evaluation, no changes to the remaining useful lives was required in the first ~~six~~nine months of 2021. Amortization expense recognized was ~~$347,000~~$521,000 and ~~$347,000~~$521,000 for the ~~six~~nine months ended ~~June~~September 30, 2021 and ~~June~~September 30, 2020, respectively.

5756

The following table summarizes the Company’s estimated remaining core deposit intangible amortization expense for each of the next five years (in thousands):


Years Ended	Years Ended	Estimated Core Deposit Intangible Amortization		Years Ended	Estimated Core Deposit Intangible Amortization

2021	2021	$	314	2021	$	141
2022	2022	455		2022	455
2023	2023	66		2023	66

		$	835		$	662

Deposits and Borrowings

The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to applicable legal limits. All of a depositor’s accounts at an insured depository institution, including all non-interest bearing transactions accounts, are insured by the FDIC up to standard maximum deposit insurance amount of $250,000 for each deposit insurance ownership category.

Total deposits increased ~~$256,384,000~~$335,382,000 or ~~14.88%~~19.47% to ~~$1,979,094,000~~$2,058,092,000 as of ~~June~~September 30, 2021, compared to $1,722,710,000 as of December 31, 2020. Interest-bearing deposits increased ~~$181,867,000~~$226,022,000 or ~~20.26%~~25.17% to ~~$1,079,688,000~~$1,123,843,000 as of ~~June~~September 30, 2021, compared to $897,821,000 as of December 31, 2020. Non-interest bearing deposits increased ~~$74,517,000~~$109,360,000 or ~~9.03%~~13.26% to ~~$899,406,000~~$934,249,000 as of ~~June~~September 30, 2021, compared to $824,889,000 as of December 31, 2020. Average non-interest bearing deposits to average total deposits was ~~46.11%~~45.83% for the ~~six~~nine months ended ~~June~~September 30, 2021 compared to ~~46.47%~~47.24% for the same period in 2020. The Company’s deposit balances for the ~~six~~nine months ended ~~June~~September 30, 2021 increased through organic growth and PPP loan proceeds retained in customer deposit accounts.

The composition of the deposits and average interest rates paid at ~~June~~September 30, 2021 and December 31, 2020 is summarized in the table below.


(Dollars in thousands)	(Dollars in thousands)	June 30, 2021		% of Total Deposits		Average Effective Rate		December 31, 2020		% of Total Deposits		Average Effective Rate		(Dollars in thousands)	September 30, 2021		% of Total Deposits		Average Effective Rate		December 31, 2020		% of Total Deposits		Average Effective Rate
NOW accounts	NOW accounts	$	354,820	17.9	%	0.05	%	$	310,697	18.0	%	0.11	%	NOW accounts	$	357,602	17.4	%	0.05	%	$	310,697	18.0	%	0.11	%
MMA accounts	MMA accounts	444,083		22.4	%	0.15	%	341,088		19.8	%	0.18	%	MMA accounts	482,251		23.4	%	0.15	%	341,088		19.8	%	0.18	%
Time deposits	Time deposits	89,805		4.5	%	0.24	%	89,846		5.2	%	0.65	%	Time deposits	89,858		4.4	%	0.23	%	89,846		5.2	%	0.65	%
Savings deposits	Savings deposits	190,980		9.7	%	0.01	%	156,190		9.1	%	0.02	%	Savings deposits	194,132		9.4	%	0.01	%	156,190		9.1	%	0.02	%
Total interest-bearing	Total interest-bearing	1,079,688		54.5	%	0.11	%	897,821		52.1	%	0.18	%	Total interest-bearing	1,123,843		54.6	%	0.10	%	897,821		52.1	%	0.18	%
Non-interest bearing	Non-interest bearing	899,406		45.5	%			824,889		47.9	%			Non-interest bearing	934,249		45.4	%			824,889		47.9	%
Total deposits	Total deposits	$	1,979,094	100.0	%			$	1,722,710	100.0	%			Total deposits	$	2,058,092	100.0	%			$	1,722,710	100.0	%

Other Borrowings

As of ~~June~~September 30, 2021 and December 31, 2020, the Company had no Federal Home Loan Bank (“FHLB”) of San Francisco advances. We maintain a line of credit with the FHLB collateralized by government securities and loans. Refer to the Liquidity section below for further discussion of FHLB advances.

Capital

Capital serves as a source of funds and helps protect depositors and shareholders against potential losses. Historically, the primary source of capital for the Company has been through retained earnings.

The Company has historically maintained substantial levels of capital. The assessment of capital adequacy is dependent on several factors including asset quality, earnings trends, liquidity and economic conditions. Maintenance of adequate capital levels is integral to providing stability to the Company. The Company needs to maintain substantial levels of regulatory capital to give it maximum flexibility in the changing regulatory environment and to respond to changes in the market and economic conditions.

Our shareholders’ equity was ~~$251,049,000~~$246,548,000 at ~~June~~September 30, 2021, compared to $245,021,000 at December 31, 2020. The increase from December 31, 2020 in shareholders’ equity is the result of a an increase in retained earnings from net income of ~~$15,042,000,~~$21,563,000, the exercise of stock options of ~~$213,000,~~$222,000, stock issued under the employee stock purchase plan of ~~$110,000,~~$159,000, the effect of ~~share based~~share-based compensation expense of ~~$210,000,~~$310,000, and stock awarded to employees of $158,000, offset by a decrease in accumulated other comprehensive income (AOCI) of ~~$1,982,000,~~$4,566,000, common stock cash dividends of ~~$2,881,000,~~$4,319,000, and stock repurchases of ~~$4,842,000.~~$12,000,000.

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On March 17, 2021, the Board of Directors of the Company approved the adoption of a program to effect repurchases of the Company’s common stock with the intent to purchase up to $12 million worth of the Company’s outstanding common stock. During the ~~six~~nine months ended ~~June~~September 30, 2021, the Company repurchased and retired ~~239,679~~584,619 shares at ~~an approximate~~a cost of ~~$4,842,000. The share~~$12,000,000, completing the stock repurchase ~~plan began on March 18, 2021 and will end on March 17, 2022.~~program.

During the first ~~six~~nine months of 2021, the Company declared and paid ~~$2,881,000~~$4,319,000 in cash dividends ($~~0.23~~0.35 per common share) to holders of common stock. The Company declared and paid a total of $5,530,000 in cash dividends ($0.44 per common share) to holders of common stock during the year ended December 31, 2020.

Management considers capital requirements as part of its strategic planning process. The strategic plan calls for continuing increases in assets and liabilities, and the capital required may therefore be in excess of retained earnings. The ability to obtain capital is dependent upon the capital markets as well as our performance. Management regularly evaluates sources of capital and the timing required to meet its strategic objectives.

The Board of Governors, the FDIC and other federal banking agencies have issued risk-based capital adequacy

guidelines intended to provide a measure of capital adequacy that reflects the degree of risk associated with a banking

organization’s operations for both transactions reported on the balance sheet as assets, and transactions, such as letters of

credit and recourse arrangements, which are reported as off-balance-sheet items.

The following table presents the Company’s regulatory capital ratios as of ~~June~~September 30, 2021 and December 31, 2020.


(Dollars in thousands)	(Dollars in thousands)					(Dollars in thousands)
June 30, 2021		Amount		Ratio
September 30, 2021						September 30, 2021	Amount		Ratio
Tier 1 Leverage Ratio	Tier 1 Leverage Ratio	$	186,712	8.63	%	Tier 1 Leverage Ratio	$	184,942	8.24	%
Common Equity Tier 1 Ratio (CET 1)	Common Equity Tier 1 Ratio (CET 1)	$	181,712	13.43	%	Common Equity Tier 1 Ratio (CET 1)	$	179,942	12.34	%
Tier 1 Risk-Based Capital Ratio	Tier 1 Risk-Based Capital Ratio	$	186,712	13.80	%	Tier 1 Risk-Based Capital Ratio	$	184,942	12.68	%
Total Risk-Based Capital Ratio	Total Risk-Based Capital Ratio	$	197,401	14.58	%	Total Risk-Based Capital Ratio	$	195,153	13.39	%

December 31, 2020	December 31, 2020					December 31, 2020
Tier 1 Leverage Ratio	Tier 1 Leverage Ratio	$	178,407	9.28	%	Tier 1 Leverage Ratio	$	178,407	9.28	%
Common Equity Tier 1 Ratio (CET 1)	Common Equity Tier 1 Ratio (CET 1)	$	173,407	14.10	%	Common Equity Tier 1 Ratio (CET 1)	$	173,407	14.10	%
Tier 1 Risk-Based Capital Ratio	Tier 1 Risk-Based Capital Ratio	$	178,407	14.50	%	Tier 1 Risk-Based Capital Ratio	$	178,407	14.50	%
Total Risk-Based Capital Ratio	Total Risk-Based Capital Ratio	$	191,572	15.58	%	Total Risk-Based Capital Ratio	$	191,572	15.58	%

The following table presents the Bank’s regulatory capital ratios as of ~~June~~September 30, 2021 and December 31, 2020.


(Dollars in thousands)	(Dollars in thousands)	Actual Ratio				Minimum regulatory requirement (1)				Minimum requirement for “Well-Capitalized” Institution				(Dollars in thousands)	Actual Ratio				Minimum regulatory requirement (1)				Minimum requirement for “Well-Capitalized” Institution
June 30, 2021		Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2021														September 30, 2021	Amount		Ratio		Amount		Ratio		Amount		Ratio
Tier 1 Leverage Ratio	Tier 1 Leverage Ratio	$	184,081	8.51	%	$	86,499	4.00	%	$	108,124	5.00	%	Tier 1 Leverage Ratio	$	183,529	8.18	%	$	89,783	4.00	%	$	112,229	5.00	%
Common Equity Tier 1 Ratio (CET 1)	Common Equity Tier 1 Ratio (CET 1)	$	184,081	13.61	%	$	60,868	4.50	%	$	87,921	6.50	%	Common Equity Tier 1 Ratio (CET 1)	$	183,529	12.59	%	$	65,589	4.50	%	$	94,740	6.50	%
Tier 1 Risk-Based Capital Ratio	Tier 1 Risk-Based Capital Ratio	$	184,081	13.61	%	$	81,158	6.00	%	$	108,210	8.00	%	Tier 1 Risk-Based Capital Ratio	$	183,529	12.59	%	$	87,453	6.00	%	$	116,604	8.00	%
Total Risk-Based Capital Ratio	Total Risk-Based Capital Ratio	$	194,770	14.40	%	$	108,210	8.00	%	$	135,263	10.00	%	Total Risk-Based Capital Ratio	$	193,740	13.29	%	$	116,604	8.00	%	$	145,754	10.00	%

December 31, 2020	December 31, 2020													December 31, 2020
Tier 1 Leverage Ratio	Tier 1 Leverage Ratio	$	177,269	9.23	%	$	76,852	4.00	%	$	96,065	5.00	%	Tier 1 Leverage Ratio	$	177,269	9.23	%	$	76,852	4.00	%	$	96,065	5.00	%
Common Equity Tier 1 Ratio (CET 1)	Common Equity Tier 1 Ratio (CET 1)	$	177,269	14.41	%	$	55,346	7.00	%	$	79,945	6.50	%	Common Equity Tier 1 Ratio (CET 1)	$	177,269	14.41	%	$	55,346	7.00	%	$	79,945	6.50	%
Tier 1 Risk-Based Capital Ratio	Tier 1 Risk-Based Capital Ratio	$	177,269	14.41	%	$	73,795	8.50	%	$	98,394	8.00	%	Tier 1 Risk-Based Capital Ratio	$	177,269	14.41	%	$	73,795	8.50	%	$	98,394	8.00	%
Total Risk-Based Capital Ratio	Total Risk-Based Capital Ratio	$	190,434	15.48	%	$	98,394	10.50	%	$	122,992	10.00	%	Total Risk-Based Capital Ratio	$	190,434	15.48	%	$	98,394	10.50	%	$	122,992	10.00	%
(1) The minimum regulatory requirement threshold includes the capital conservation buffer of 2.50%.	(1) The minimum regulatory requirement threshold includes the capital conservation buffer of 2.50%.													(1) The minimum regulatory requirement threshold includes the capital conservation buffer of 2.50%.

The Company succeeded to all of the rights and obligations of the Service 1st Capital Trust I, a Delaware business trust, in connection with the acquisition of Service 1st as of November 12, 2008. The Trust was formed on August 17, 2006 for the sole purpose of issuing trust preferred securities fully and unconditionally guaranteed by Service 1st. Under applicable regulatory guidance, the amount of trust preferred securities that is eligible as Tier 1 capital is limited to 25% of the Company’s Tier 1 capital on a pro forma basis. At ~~June~~September 30, 2021, all of the trust preferred securities that have been issued qualify as

Tier 1 capital. The trust preferred securities mature on October 7, 2036, are redeemable at the Company’s option beginning five years

after issuance, and require quarterly distributions by the Trust to the holder of the trust preferred securities at a variable interest rate which will adjust quarterly to equal the three month LIBOR plus 1.60%.

The Trust used the proceeds from the sale of the trust preferred securities to purchase approximately $5,155,000 in aggregate principal amount of Service 1st’s junior subordinated notes (the Notes). The Notes bear interest at the same variable interest rate during the same quarterly periods as the trust preferred securities. The Notes are redeemable by the Company on any January 7, April 7, July 7, or October 7 on or after October 7, 2012 or at any time within 90 days following the occurrence of certain events, such as: (i) a change in the regulatory capital treatment of the Notes; (ii) in the event the Trust is deemed an investment company; or (iii) upon the occurrence of certain adverse tax events. In each such case, the Company may redeem the Notes for their aggregate principal amount, plus any accrued but unpaid interest.

The Notes may be declared immediately due and payable at the election of the trustee or holders of 25% of the aggregate principal amount of outstanding Notes in the event that the Company defaults in the payment of any interest following the nonpayment of any such interest for 20 or more consecutive quarterly periods. Holders of the trust preferred securities are entitled to a cumulative cash distribution on the liquidation amount of $1,000 per security. For each January 7, April 7, July 7 or October 7 of each year, the rate will be adjusted to equal the three month LIBOR plus 1.60%. As of ~~June~~September 30, 2021, the rate was ~~1.78%~~1.73%.

Liquidity

Liquidity management involves our ability to meet cash flow requirements arising from fluctuations in deposit levels and demands of daily operations, which include funding of securities purchases, providing for customers’ credit needs and ongoing repayment of borrowings. Our liquidity is actively managed on a daily basis and reviewed periodically by our management and Board of Director’s Asset/Liability Committees. This process is intended to ensure the maintenance of sufficient funds to meet our needs, including adequate cash flow 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 with correspondent banks, and advances from the Federal Home Loan Bank of San Francisco. These funding sources are augmented by payments of principal and interest on loans, the routine maturities and pay downs of securities from the securities portfolio, the stability of our core deposits and the ability to sell investment securities. As of ~~June~~September 30, 2021, the Company had unpledged securities totaling ~~$768,056,000~~$805,824,000 available as a secondary source of liquidity and total cash and cash equivalents of ~~$120,666,000.~~$67,693,000. Cash and cash equivalents at ~~June~~September 30, 2021 ~~increased 71.70%~~decreased 3.68% compared to $70,278,000 at December 31, 2020. Primary uses of funds include withdrawal of and interest payments on deposits, originations and purchases of loans, purchases of investment securities, and payment of operating expenses.

As a means of augmenting our liquidity, we have established federal funds lines with our correspondent banks. At ~~June~~September 30, 2021, our available borrowing capacity includes approximately $110,000,000 in unsecured credit lines with our correspondent banks, ~~$245,311,000~~$262,091,000 in unused FHLB secured advances and a ~~$11,480,000~~$10,691,000 secured credit line at the Federal Reserve Bank. We believe our liquidity sources to be stable and adequate. At ~~June~~September 30, 2021, we were not aware of any information that was reasonably likely to have a material effect on our liquidity position.

6059

The following table reflects the Company’s credit lines, balances outstanding, and pledged collateral at ~~June~~September 30, 2021 and December 31, 2020:


Credit Lines (In thousands)	Credit Lines (In thousands)	June 30, 2021		December 31, 2020		Credit Lines (In thousands)	September 30, 2021		December 31, 2020
Unsecured Credit Lines	Unsecured Credit Lines					Unsecured Credit Lines
(interest rate varies with market):	(interest rate varies with market):					(interest rate varies with market):
Credit limit	Credit limit	$	110,000	$	110,000	Credit limit	$	110,000	$	110,000
Balance outstanding	Balance outstanding	$	—	$	—	Balance outstanding	$	—	$	—
Federal Home Loan Bank	Federal Home Loan Bank					Federal Home Loan Bank
(interest rate at prevailing interest rate):	(interest rate at prevailing interest rate):					(interest rate at prevailing interest rate):
Credit limit	Credit limit	$	245,311	$	235,371	Credit limit	$	262,091	$	235,371
Balance outstanding	Balance outstanding	$	—	$	—	Balance outstanding	$	—	$	—
Collateral pledged	Collateral pledged	$	447,321	$	435,152	Collateral pledged	$	462,612	$	435,152
Fair value of collateral	Fair value of collateral	$	390,874	$	379,831	Fair value of collateral	$	417,729	$	379,831
Federal Reserve Bank	Federal Reserve Bank					Federal Reserve Bank
(interest rate at prevailing discount interest rate):	(interest rate at prevailing discount interest rate):					(interest rate at prevailing discount interest rate):
Credit limit	Credit limit	$	11,480	$	13,323	Credit limit	$	10,691	$	13,323
Balance outstanding	Balance outstanding	$	—	$	—	Balance outstanding	$	—	$	—
Collateral pledged	Collateral pledged	$	11,892	$	13,538	Collateral pledged	$	11,045	$	13,538
Fair value of collateral	Fair value of collateral	$	11,804	$	13,703	Fair value of collateral	$	10,988	$	13,703

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

OFF-BALANCE SHEET ITEMS

In the ordinary course of business, the Company is a party to financial instruments with off-balance risk. These financial instruments include commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received. For an expanded discussion of these financial instruments, refer to Note 7of the Notes to Consolidated Financial Statements included herein and Note 13 of the Notes to Consolidated Financial Statements in the Company’s 2020 Annual Report on Form 10-K.

In the ordinary course of business, the Company is party to various operating leases. For a fuller discussion of these financial instruments, refer to Note 10 of the Notes to Consolidated Financial Statements in the Company’s 2020 Annual Report on Form 10-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our results of operations are highly dependent upon our ability to manage interest rate risk. We consider interest rate risk to be a significant market risk that could have a material effect on our financial condition and results of operations. Interest rate risk is measured and assessed on a quarterly basis. In our opinion, there has not been a material change in our interest rate risk exposure since the information disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, management, including the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures with respect to the information generated for use in this Quarterly Report. The evaluation was based in part upon reports provided by a number of executives. Based upon, and as of the date of the evaluation of the disclosure controls and procedures, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to provide reasonable assurances that information required to be disclosed in the reports the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that information required to be disclosed by the Company in the reports that it files or submits is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

6160

There was no change in the Company’s internal controls over financial reporting during the quarter ended ~~June~~September 30, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

In designing and evaluating disclosure controls and procedures, the Company’s management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurances of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None to report.

ITEM 1A. RISK FACTORS

In addition to the other information contained in this Quarterly Report on Form 10-Q, ~~the following risk factors represent material updates and additions~~we refer to the risk factors previously disclosed in our Annual Report on Form 10- K for the fiscal year ended December 31, 2020 as filed with the Securities and Exchange Commission. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the cautionary statement identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

A summary of the repurchase activity of the Company’s common stock for the ~~six~~nine months ended ~~June~~September 30, 2021 follows.


Period	Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans (1) (2)	Approximate dollar value of shares that may yet be purchased under current plans (in thousands)		Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans (1) (2)	Approximate dollar value of shares that may yet be purchased under current plans (in thousands)

06/1/2021 - 06/30/2021	06/1/2021 - 06/30/2021	239,679	$	20.17	239,679	$	7,158,000	06/1/2021 - 06/30/2021	239,679	$	20.17	239,679	$	7,158,000

07/1/2021 - 07/31/2021								07/1/2021 - 07/31/2021	344,940	$	20.72	344,940	$	—

Total	Total	239,679	$	20.17	239,679			Total	584,619	$	20.50	584,619

(1) The Company approved a stock repurchase program effective March 17, 2021 with the intent to purchase up to $12,000,000 of the Company’s outstanding common stock, or approximately 636,943 shares. During the ~~six~~nine months ended ~~June~~September 30, 2021, the Company repurchased and retired a total of ~~239,679~~584,619 shares at an approximate cost of ~~$20.17~~$20.50 per ~~share.~~share, completing the stock repurchase plan.

(2) All share repurchases were effected in accordance with the safe harbor provisions of Rule 10b-18 of the Securities Exchange Act.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None to report.

ITEM 4. MINE SAFETY DISCLOSURES

None to report.

ITEM 5. OTHER INFORMATION

None to report.

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ITEM 6 EXHIBITS



3.1						Amended and Restated Articles of Incorporation of Central Valley Community Bancorp (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 16, 2010).

3.2						Bylaws of the Company as amended (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on May 6, 2016).

~~10.93~~						~~Executive Salary Continuation Agreement by and between Central Valley Community Bank and~~ ~~PatrickLuis, dated~~ ~~July~~ ~~1, 202~~1 .*

~~10.94~~						~~Life Insurance Endorsement Method Split Dollar Plan Agreement by and between Central Valley Community Bank and~~ ~~Patrick Luis, dated~~ ~~July~~ ~~1, 202~~1 .*

31.1						Certification of Principal Executive Officer Pursuant to Rule 13a-14(d) / 15d-14(a) of the Securities Exchange Act of 1934.

31.2						Certification of Principal Financial Officer Pursuant to Rule 13a-14(d) / 15d-14(a) of the Securities Exchange Act of 1934.

32.1						Certification of Principal Executive Officer Pursuant to Rule 13a-14(b) / 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.

32.2						Certification of Principal Financial Officer Pursuant to Rule 13a-14(b) / 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.

101.INS						XBRL Instance Document

101.SCH						XBRL Taxonomy Extension Schema Document

101.CAL						XBRL Taxonomy Extension Calculation document

101.DEF						XBRL Taxonomy Extension Definition Linkbase

101.LAB						XBRL Taxonomy Extension labels Linkbase Document

101.PRE						XBRL Taxonomy Extension Presentation Link Document

•Management contract and compensatory plans.

6362

SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Central Valley Community Bancorp

Date: ~~August 4,~~November 3, 2021			/s/ James ~~M. Ford~~J. Kim
			James ~~M. Ford~~J.Kim
			President and Chief Executive Officer

Date: ~~August 4,~~November 3, 2021			/s/ David A. Kinross
			David A. Kinross
			Executive Vice President and Chief Financial Officer

6463