NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Community West Bancshares (“CWBC”), incorporated under the laws of the state of California, is a bank holding company providing full-service banking through its ~~wholly-owned~~wholly owned subsidiary Community West Bank, N.A. (“CWB” or the “Bank”) which includes 445 Pine, LLC, the Bank’s ~~wholly-owned~~wholly owned limited liability company. Unless indicated otherwise or unless the context suggests otherwise, these entities are referred to herein collectively and on a consolidated basis as the “Company.”

Basis of Presentation

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States (“GAAP”) and conform to practices within the ~~financial services~~banking industry. The accounts of the Company and its consolidated subsidiary are included in these consolidated financial statements. All significant intercompany balances and transactions have been eliminated.

Interim Financial Information

The accompanying unaudited consolidated financial statements as of September 30, ~~2022~~2023 and for the three and nine months ended September 30 ~~2022~~, 2023 and ~~2021~~2022, have been prepared in a condensed format, and therefore do not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited consolidated financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied to the Company’s audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

The information furnished in these interim statements reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for each respective period presented. Such adjustments are of a normal recurring nature. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter or for the full year. The interim financial information should be read in conjunction with the Company’s audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for ~~loan~~credit losses and the fair value of securities available-for-sale. Although management believes these estimates to be reasonably accurate, actual amounts may differ. In the opinion of management, all necessary adjustments have been reflected in the financial statements during their preparation.

Reclassifications

Certain amounts in the consolidated financial statements as of December 31, ~~2021~~2022 and for the three and nine months ended September 30 ~~2021~~, 2022 have been reclassified to conform to the current presentation. The reclassifications have no effect on net income, comprehensive income, or stockholders’ equity as previously reported.

Allowance for Credit Losses - Available-For-Sale (“AFS”) and Held-To-Maturity (“HTM”) Debt Securities

Effective January 1, 2023, the allowance for credit losses on investment securities is determined for both HTM and AFS investments in accordance with Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) - “Financial Instruments-Credit Losses.”

The allowance for credit losses for HTM investment securities is determined on a collective basis, based on shared risk characteristics, and is determined at the individual security level when the Company deems a security to no longer possess shared risk characteristics. For investment securities where the Company has reason to believe the credit loss exposure is remote, a zero-credit loss assumption is applied. Such investment securities typically consist of those guaranteed by the U.S. government or government agencies, where there is an explicit or implicit guarantee by the U.S. government, that are highly rated by rating agencies, and historically have had no credit loss experience.

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For AFS securities, the Company performs a quarterly qualitative evaluation for securities in an unrealized loss position to determine if the decline in fair value below the security’s amortized cost is credit related or non-credit related. In determining whether a security’s decline in fair value is credit related, the Company considers a number of factors including, but not limited to: (i) the extent to which the fair value of the investment is less than its amortized cost; (ii) the financial condition and near-term prospects of the issuer; (iii) downgrades in credit ratings; (iv) payment structure of the security; (v) the ability of the issuer of the security to make scheduled principal and interest payments; and (vi) general market conditions which reflect prospects for the economy as a whole, including interest rates and sector credit spreads. If it is determined that the unrealized loss, or a portion thereof, is credit related, the Company records the amount of credit loss through a charge to provision for credit losses in current period earnings. However, the amount of credit loss recorded in the current period’s earnings is limited to the amount of the total unrealized loss on the security, which is measured as the amount by which the security’s fair value is below its amortized cost. If the Company intends to sell, or if it is more likely than not that the Company will be required to sell a security in an unrealized loss position before the recovery of its amortized cost basis, the total amount of the unrealized loss is recognized in the current period’s earnings. Unrealized losses deemed non-credit related are recorded, net of tax, through accumulated other comprehensive income (loss).

A debt security is placed on nonaccrual status at the time any principal or interest payments become greater than 90 days delinquent. Interest accrued but not received when a security is placed on nonaccrual status is reversed against interest income. Accrued interest receivable on available-for-sale securities is excluded from the estimate of the required allowance for credit losses.

Loans Held ~~For~~for Sale

Loans which are originated and intended for sale in the secondary market are carried at the lower of their amortized cost or estimated fair value determined on an aggregate basis. Valuation adjustments, if any, are recognized through a valuation allowance by charges to the lower of cost or fair value provision. Loans held for sale are ~~mostly~~ comprised of commercial agriculture loans guaranteed by the USDA Farm Service Agency (“FSA”) and Small Business Association (“SBA”) loans. The Company did not incur any lower of cost or fair value provision expense in the three and nine months ended September30 ~~2022~~, 2023 and ~~2021~~2022.

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Loans Held for Investment~~and Interest and Fees from Loans~~

Loans are recorded at the principal amount outstanding, net of unearned income, loan participations, and amounts charged off. Unearned income includes deferred loan origination fees reduced by loan origination costs.

Interest income on loans is accrued daily using the effective interest method and recognized over the terms of the loans. Loan fees collected for the origination of loans less direct loan origination costs (net deferred loan fees) are amortized over the contractual life of the loan through interest income. If the loan has scheduled payments, the amortization of the net deferred loan fee is calculated using the interest method over the contractual life of the loan. If the loan does not have scheduled payments, such as a line of credit, the net deferred loan fee is recognized as interest income on a straight-line basis over the contractual life of the loan commitment. Commitment fees based on a percentage of a client’s unused line of credit and fees related to standby letters of credit are recognized over the commitment period.

When loans are repaid, any remaining unamortized balances of unearned fees, deferred fees and costs, and premiums and discounts paid on purchased loans are accounted for through interest income.

~~Nonaccrual loans:~~
~~For all loan types, when~~

When a borrower discontinues making payments as contractually required by the note, the Company must determine whether it is appropriate to continue to accrue interest. Generally, the Company places loans in a nonaccrual status and ceases recognizing interest income when the loan has become delinquent by more than 90 days or when management determines that the full repayment of principal and collection of interest is unlikely. The Company may decide to continue to accrue interest on certain loans more than 90 days delinquent if they are well secured by collateral and in the process of collection.

When a loan is placed on nonaccrual status, all interest accrued but uncollected is reversed against interest income in the period in which the status is changed. Subsequent payments received from the ~~client~~borrower are applied to principal and no further interest income is recognized until the principal has been paid in full or until circumstances have changed such that payments are again consistently received as contractually required. The Company occasionally recognizes income on a cash basis for non-accrual loans in which the collection of the remaining principal balance is not in doubt.

Allowance for Credit Losses - Loans (Subsequent to the Adoption of ASC 326 on January 1, 2023)

Effective January 1, 2023, the Company accounts for credit losses on loans in accordance with ASC 326 – “Financial Instruments-Credit Losses”. The allowance for credit losses for loans (“ACL”) is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. The Company has elected to exclude accrued interest receivable from the amortized cost basis in the estimate of the ACL. The provision for credit losses on loans (which is a component of the provision for credit losses on the consolidated income statements) reflects the amount required to maintain the ACL at an appropriate level based upon management’s evaluation of the adequacy of collective and individual loss reserves. The Company’s methodologies for determining the adequacy of ACL are set forth in a formal policy and take into consideration the need for an ACL for loans evaluated on a collective pool basis which have similar risk characteristics, as well as allowances that are tied to individual loans that do not share risk characteristics and are individually evaluated. The Company increases its ACL by charging the provision for credit losses on its consolidated income statements. Losses related to specific assets are applied as a reduction of the carrying value of the assets and charged against the ACL when management believes the non-collectability of a loan balance is confirmed. Recoveries on previously charged off loans are credited to the ACL.

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Management conducts an assessment of the ACL on a monthly basis and undertakes a more comprehensive evaluation quarterly. The ACL is estimated using relevant information from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts and is maintained at a level sufficient to provide for expected credit losses over the life of the loan, including expected prepayments, based on evaluating historical credit loss experience and making adjustments to historical loss information for differences in the specific risk characteristics in the current loan portfolio and economic conditions.

The ACL is measured on a collective pool basis when similar risk characteristics exist. In estimating the component of the ACL for loans that share common risk characteristics, loans are pooled based on the loan types and areas of risk concentration. For loans evaluated collectively as a pool, the ACL is calculated using the weighted average remaining maturity (“WARM”) method. The WARM method utilizes a historical average annual charge-off rate containing loan loss information over a historical lookback period that is used as a foundation for estimating the ACL for the remaining outstanding balances of loans in a segment at a particular consolidated balance sheet date. The WARM methodology was chosen because each of the loan segments have had loan loss histories dating back as far as 2006 and therefore capture the Company’s historical losses and recoveries and thus established reliable loan loss rates for each loan segment. In the events where there was insufficient historical loan data to establish a reliable loan loss rate, California peer bank data has been utilized to establish loan loss rates.

The Company established a general forecast loan policy to calculate the loan loss rates for each loan segment. The general forecast policy projects that the next four quarters will be similar to the Company’s loan loss rates from 2009 to 2016, and then revert to the long-term average over one quarter.

The calculation of the ACL is adjusted using qualitative factors for current conditions and for reasonable and supportable forecast periods. These qualitative factors serve to compensate for additional areas of uncertainty inherent in the portfolio that are not directly reflected in the Company’s historical loan losses and may include adjustments for changes in environmental and economic conditions, such as changes in unemployment rates, changes in Gross Domestic Product,~~Impaired~~ the impact of droughts in the Company’s lending areas, and other relevant factors in near to medium term of time.

Portfolio segmentation is defined as the level at which an entity develops and documents a systematic methodology to determine its ACL. The method for determining the ACL described above is used to determine the ACL in each portfolio segment in the Company’s loan portfolio. The Company has designated the following portfolio segments of loans:

Manufactured Housing: The Company has a financing program for manufactured housing to provide affordable home ownership. These loans are offered in approved mobile home parks throughout California primarily on or near the coast. The parks must meet specific criteria. The manufactured housing loans are secured by the manufactured home and are retained in the Company’s loan portfolio. The primary risks of manufactured housing loans include the borrower’s inability to pay, material decreases in the value of the collateral, and significant increases in interest rates, which may reduce the borrower’s ability to make the required principal and/or interest payments.

Commercial Real Estate (“CRE”): CRE loans are those for which the Company holds commercial real estate property as collateral. This category of loans also includes loans secured by agriculture/farmland and construction loans. These loans are primarily underwritten based on the cash flows of the business and secondarily on the real estate. The primary risks associated with CRE loans include the borrower’s inability to pay, material decreases in the value of the real estate that is being held as collateral, and significant increases in interest rates, which may make the real estate loan unprofitable to the borrower. Real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy.

Commercial: Commercial loans are loans that are secured by business assets including inventory, receivables, machinery, and equipment. Risk associated with commercial loans arises primarily due to the difference between expected and actual cash flows of the borrowers. In addition, the recoverability of the Company’s investment in these loans is also dependent on other factors primarily dictated by the type of collateral securing these loans, and occasionally upon other borrower assets and guarantor assets. The fair value of the collateral securing these loans may fluctuate as market conditions change. In the case of loans secured by accounts receivable, the recovery of the Company’s investment is dependent upon the borrower’s ability to collect amounts due from its customers.

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Small Business Administration (SBA): These are the unguaranteed portion of loans that are partially guaranteed by the SBA. SBA loans are similar to commercial business loans. The Company originates SBA loans with the intent to sell the guaranteed portion into the secondary market on a quarterly basis. Certain loans classified as SBA are secured by commercial real estate property which are included in the commercial real estate category above. SBA loans secured by all other forms of real estate are included in the business loans secured by real estate segment. All other SBA loans are secured by business assets and have similar risks to those discussed in the commercial category above.

Single Family Real Estate and Home Equity Lines of Credit (“HELOC”): These loans are made to consumers and are secured by residential real estate. The primary risks of single family real estate and HELOC loans include the borrower’s inability to pay, material decreases in the value of the real estate that is being held as collateral, and significant increases in interest rates, which may reduce the borrower’s ability to make the required principal and/or interest payments.

Consumer:The Company has a limited number of consumer loans. Risk arises with these loans in the borrower’s inability to pay and decreases in the fair value of the underlying collateral, if any.

Loans that do not share risk characteristics with other loans in the portfolio are individually evaluated for a required ACL and are not included in the collective evaluation. Factors involved in determining whether a loan should be individually evaluated include, but are not limited to, the financial condition of the borrower and the value of the underlying collateral. Expected credit losses for loans evaluated individually are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, when the Company determines that foreclosure is probable, the expected credit loss is measured based on the fair value of the collateral as of the reporting date, less estimated selling costs. Collateral may consist of various types of real estate including residential properties, commercial properties, agriculture land, vacant land, and manufactured housing. The Company assesses these loans on each reporting date to determine whether repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty.

If the fair value of the collateral is less than the amortized cost basis of the loan, the Company will recognize an ACL or partial charge off as the difference between the fair value of the collateral, less costs to sell, and the amortized cost basis of the loan. If the fair value of the collateral exceeds the amortized cost basis of the loan, any expected recovery added to the amortized cost basis will be limited to the amount previously charged off. Subsequent changes in the expected credit losses for loans evaluated individually are included within the provision for credit losses in the same manner in which the expected credit loss initially was recognized or as a reduction in the provision that would otherwise be reported.

The process of assessing the adequacy of the ACL is necessarily subjective. Further, and particularly in times of economic downturns, it is reasonably possible that future credit losses may exceed historical loss levels and may also exceed management’s current estimates of expected credit losses within the loan portfolio. As such, there can be no assurance that future charge offs will not exceed management’s current estimate of what constitutes a reasonable ACL.

Allowance for Loan Losses (Prior to the Adoption of ASC 326 on January 1, 2023)

Prior to the adoption of ASC 326 on January 1, 2023, the allowance for loan losses was intended to be appropriate to provide for probable losses that were considered inherent in the loan portfolio. This process involved deriving probable loss estimates that were based on migration analyses and historical loss rates, in addition to qualitative factors that were based on management’s judgment. The migration analysis and historical loss rate calculations were based on annualized loss rates. Migration analysis was utilized for the commercial real estate, commercial, commercial agriculture, SBA, HELOC, single family residential, and consumer portfolios. The historical loss rate method was utilized primarily for the manufactured housing portfolio. The migration analysis considered the risk rating of loans that were charged off in each loan category.

The Company’s allowance for loan losses was maintained at a level believed appropriate by management to absorb known and inherent probable losses on existing loans. The allowance was charged for losses when management believed that full recovery on the loan was unlikely.

The allowance for loan losses calculation for the different loan portfolios consisted of the following:

•

Commercial real estate, commercial, commercial agriculture, SBA, HELOC, single family residential, and consumer: Migration analysis combined with risk rating of the loans was used to determine the required allowance for loan losses for all non-impaired loans. In addition, the migration results were adjusted based upon qualitative factors that affect the specific portfolio category. Reserves on impaired loans were determined based upon the individual characteristics of the loan.

•

Manufactured housing: The allowance for loan losses was calculated on the basis of loss history and risk rating, which was primarily a function of delinquency. In addition, the loss results were adjusted based upon qualitative factors that affected this specific portfolio.

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A loan iswas considered impaired when, based on current information, it iswas probable that the Company ~~will~~would be unable to collect the scheduled payments of principal and/or interest under the contractual terms of the loan agreement. Factors considered by management in determining impairment ~~include~~included payment status, collateral value, and the probability of collecting scheduled principal and/or interest payments. Loans that ~~experience~~experienced insignificant payment delays or payment shortfalls generally ~~are~~were not classified as impaired. Management ~~determines~~determined the significance of payment delays or payment shortfalls on a case-by-case basis. When determining the possibility of impairment, management ~~considers~~considered the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. For collateral-dependent loans, the Company ~~uses~~used the fair value of collateral method to measure impairment. The collateral-dependent loans that ~~recognize~~recognized impairment ~~are~~were charged down to the fair value of the collateral less costs to sell. All other loans ~~are~~were measured for impairment either based on the present value of future cash flows or the loan’s observable market price.

~~Troubled debt restructured loan (“TDR”):~~ A TDR is a loan for which the Company, for reasons related to the borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise consider. These concessions include but are not limited to term extensions, rate reductions and principal reductions. Forgiveness of principal is rarely granted and modifications for all classes of loans are predominately term extensions. A TDR loan is also considered impaired. Generally, a loan that is modified at an effective market rate of interest may no longer be disclosed as a troubled debt restructuring in years subsequent to the restructuring if it is not impaired based on the terms specified by the restructuring agreement.

~~Allowance for Loan Losses~~

The Company ~~maintains a detailed, systematic analysis and procedural discipline to determine the amount of the Allowance for Loan Losses (“ALL”).~~ ~~The ALL~~ is based on estimates and is intended to be appropriate to provide for probable losses inherent in the loan portfolio. This process involves deriving probable loss estimates that are based on migration analysis and historical loss rates, in addition to qualitative factors that are based on management’s judgment. The migration analysis and historical loss rate calculations are based on the annualized loss rates. Migration analysis is utilized for the Commercial Real Estate (“CRE”), Commercial, Commercial Agriculture, Small Business Administration (“SBA”), Home Equity Line of Credit (“HELOC”), Single Family Residential, and Consumer portfolios. The historical loss rate method is utilized primarily for the Manufactured Housing portfolio. The migration analysis considers the risk rating of loans that are charged off in each loan category. The following is a description of the characteristics of ~~loan ratings. Loan ratings are reviewed as part of the Company’s normal loan monitoring process, but, at a minimum, updated on an annual basis.~~

~~Substantially Risk Free –~~ These borrowers have virtually no probability of default or loss given default and present no identifiable or potential adverse risk to the Company. Documented repayment is either backed by the full faith and credit of the United States Government or secured by cash collateral of the principal borrowed. The collateral must be in the possession of the Company and free from potential claim. In addition, these credits will conform in all aspects to established loan policies and procedures, laws, rules, and regulations.

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~~Nominal Risk –~~ This rating is for the highest quality borrowers with nominal probability of default or loss given default from the transaction. Typically, this is a borrower with a well-established record of financial performance, a strong equity position, abundant liquidity, and excellent debt service ability. The Borrower’s financial outlook is stable due to a broad range of operations or products and is able to weather an economic downturn without significant impact to liquidity or net worth. Typically, this borrower will be publicly owned or have access to public debt or equity, all investment grade. In addition, these credits will conform in all aspects to established loan policies and procedures, laws, rules, and regulations.

~~Pass/Watch~~ – The loans in the four remaining pass categories range from minimal risk to moderate risk to acceptable risk to Watch risk rating. Loans rated in the first three categories are acceptable loans, appropriately underwritten, bearing an ordinary risk of loss to the Company. Loans in the minimal and moderate risk categories are loans to quality borrowers with financial statements presenting a good primary source as well as an adequate secondary source of repayment. In the case of individuals, borrowers with this rating are quality borrowers demonstrating a reasonable level of secure income, a net worth adequate to support the loan and presenting a good primary source as well as an adequate secondary source of repayment. Loans rated Watch indicate that although the borrower meets the criteria for a rating of acceptable risk or better, the credit possesses an identified and elevated risk level that should be resolved in a short period of time. Technical risks include, but are not limited to, inadequate or improperly executed documentation, which may be material, serious delays in the submission of financial reporting or covenant violations that are not indicative of a protracted trend.

~~Special Mention -~~ A Special Mention loan has potential weaknesses that require management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Company’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

~~Substandard -~~ A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. These loans have a well-defined weakness or weaknesses that jeopardize full collection of amounts due. They are characterized by the distinct possibility that the Company will sustain some loss if the borrower’s deficiencies are not corrected.

~~Doubtful -~~ A loan classified Doubtful has all the weaknesses inherent in one classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may work to the advantage and strengthening of the loan, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans.

~~Loss -~~ Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable loans is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this loan even though partial recovery may be realized in the future. Losses are taken in the period in which they are considered uncollectible.

The Company’s ALL is maintained at a level believed appropriate by management to absorb known and inherent probable losses on existing loans. The allowance is charged for losses when management believes that full recovery on the loan is unlikely. The following is the Company’s policy regarding charging off loans.

~~Commercial, CRE (which includes SBA 504, Land, and Construction) and SBA 7 (a) Loans~~

Charge-offs on these loan categories are taken as soon as all or a portion of any loan balance is deemed to be uncollectible. A loan is considered impaired when, based on current information, it is probable that the Company will be unable to collect the scheduled payments of principal and/or interest under the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and/or interest payments. Loans that experience insignificant payment delays or payment shortfalls generally are not classified as impaired. Generally, loan balances are charged-down to the fair value of the collateral, if, based on a current assessment of the value, an apparent deficiency exists. In the event there is no perceived equity, the loan is charged-off in full. Unsecured loans which are delinquent over 90 days are, without clear support, also charged-off in full.

~~Single Family Real Estate, HELOC’s and Manufactured Housing Loans~~

~~Residential mortgages secured by one-to-four family residential properties, HELOC and manufactured housing loans in which principal or interest is due and unpaid for 90 days, are~~ evaluated for impairment. Loan balances are charged-off to the fair value of the property, less estimated selling costs, if, based on a current appraisal or valuation, an apparent deficiency exists. In the event there is no perceived equity, the loan is generally fully charged-off.

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~~Consumer Loans~~

~~Consumer loans are charged-off or charged-down to net recoverable value before becoming 120 days or five payments delinquent.~~

~~The ALL calculation for the different loan portfolios is as follows:~~

•

Commercial Real Estate, Commercial, Commercial Agriculture, SBA, HELOC, Single Family Residential, and Consumer – Migration analysis combined with risk rating is used to determine the required ALL for all non-impaired loans. In addition, the migration results are adjusted based upon qualitative factors that affect the specific portfolio category. Reserves on impaired loans are determined based upon the individual characteristics of the loan.

•

Manufactured Housing – The ALL is calculated on the basis of loss history and risk rating, which is primarily a function of delinquency. In addition, the loss results are adjusted based upon qualitative factors that affect this specific portfolio.

~~The Company evaluates~~ and individually ~~assesses~~assessed for impairment loans either on nonaccrual, ~~considered~~those that were classified as a ~~TDR~~troubled debt restructuring, or when other conditions ~~exist~~existed which ~~lead~~led management to review for possible impairment. Measurement of impairment on impaired loans iswas determined on a loan-by-loan basis and in total ~~establishes~~established a specific reserve for impaired loans. ~~The amount of impairment is determined by comparing the recorded investment in each loan with its value measured by one of three methods:~~

•

~~The expected future cash flows are estimated and then discounted at the loan’s effective interest rate.~~

•

The value of the underlying collateral net of selling costs. Selling costs are estimated based on industry standards, the Company’s actual experience or actual costs incurred as appropriate. When evaluating real estate collateral, the Company typically uses appraisals or valuations, no more than twelve months old at time of evaluation. When evaluating non-real estate collateral securing the loan, the Company will use financial statements prepared by an accountant or appraisals no more than twelve months old at time of evaluation. Additionally, for both real estate and non-real estate collateral, the Company may use other sources to determine value as deemed appropriate.

•

~~The loan’s observable market price.~~

Interest income iswas not recognized on impaired loans except for limited circumstances in which a loan, although impaired, ~~continues~~continued to perform in accordance with the loan contract and the borrower ~~provides~~provided financial information to support maintaining the loan on accrual.

The Company ~~determines~~determined the appropriate ~~ALL~~allowance for loan losses on a monthly basis. Any differences between estimated and actual observed losses from the prior month ~~are~~were reflected in the current period in determining the appropriate ~~ALL~~allowance for loan losses determination and adjusted as deemed necessary. The review of the appropriateness of the allowance ~~takes~~took into consideration such factors as concentrations of credit, changes in the growth, size, and composition of the loan portfolio, overall and individual portfolio quality, review of specific problem loans, collateral, guarantees and economic and environmental conditions that may ~~affect the~~have affected borrowers’ ability to pay and/or the value of the underlying collateral. Additional factors considered ~~include~~included geographic location of borrowers, changes in the Company’s product-specific credit policy, and lending staff experience. These estimates ~~depend~~depended on the outcome of future events and, therefore, ~~contain~~contained inherent uncertainties.

Another component of the ~~ALL considers~~allowance for loan losses considered qualitative factors related to non-impaired loans. The qualitative portion of the allowance on each of the loan pools iswas based on changes in any of the following factors:

Concentrations of credit

Trends in volume, maturity, and composition of loans

Volume and trend in delinquency, nonaccrual, and classified assets

Economic conditions

Policy and procedures or underwriting standards

Staff experience and ability

Value of underlying collateral

Competition, legal, or regulatory environment

Results of outside exams and quality of loan review and Board oversight

•

~~Concentrations of credit~~

•

~~Trends in volume, maturity, and composition of loans~~

•

~~Volume and trend in delinquency, nonaccrual, and classified assets~~

•

~~Economic conditions~~

•

~~Policy and procedures or underwriting standards~~

•

~~Staff experience and ability~~

•

~~Value of underlying collateral~~

•

~~Competition, legal, or regulatory environment~~

•

~~Results of outside exams and quality of loan review and Board oversight~~

Modified Loans to Troubled Borrowers

From time to time, the Company will modify certain loans in order to alleviate temporary difficulties in a borrower’s financial condition and/or constraints on a borrower’s ability to repay the loan, and to minimize potential losses to the Company. Such modifications may include changes in the amortization terms of the loan, reductions in interest rates, acceptance of interest only payments, and in limited cases, reductions to the outstanding loan balance. Such loans are typically placed on nonaccrual status when there is doubt concerning the full repayment of principal and interest or the loan has been in default for a period of 90 days or more. These loans may be returned to accrual status when all contractual amounts past due have been brought current, and the borrower’s performance under the modified terms of the loan agreement and the ultimate collectability of all contractual amounts due under the modified terms is no longer in doubt. The Company typically measures the ACL on these loans on an individual basis when the loans are deemed to no longer share risk characteristics that are similar with other loans in the portfolio. The determination of the ACL for these loans is based on a discounted cash flow approach, unless the loan is deemed collateral dependent, which requires measurement of the ACL based on the estimated fair value of the underlying collateral, less estimated selling costs. In addition, GAAP requires the Company to make certain disclosures related to these loans, including certain types of modifications, as well as how such loans have performed since their modifications. See Note 4 - Loans Held for Investment for additional information concerning modified loans to troubled borrowers.

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Off-Balance Sheet ~~and~~ Credit Exposure

In the ordinary course of business, the Company has entered into off-balance sheet financial instruments consisting of commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the consolidated financial statements when they are funded. They involve, to varying degrees, elements of credit risk in excess of amounts recognized in the consolidated balance sheets. Losses would be experienced when the Company is contractually obligated to make a payment under these instruments and must seek repayment from the borrower, which may not be as financially sound in the current period as they were when the commitment was originally made. Commitments to extend credit are agreements to lend to a ~~client~~customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Company enters into credit arrangements that generally provide for the termination of advances in the event of a covenant violation or other event of default. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each ~~client’s~~customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the party. The commitments are collateralized by the same types of assets used as loan collateral.

After the adoption of ASC 326 on January 1, 2023, the estimate of the ACL for off-balance sheet commitments provides for current estimated credit losses for the unused portion of collective pools of off-balance sheet credit exposures expected to be funded, except for unconditionally cancellable commitments for which no allowance for credit losses is required under ASC 326. The ACL for off-balance sheet commitments includes factors that are consistent with ~~outstanding~~the ACL methodology for loans using the expected loss factors and an estimated utilization or probability of draw factor, which are based on historical experience. Changes in the ACL for off-balance sheet commitments are reported as a component of provision for credit losses in the consolidated income statements and the allowance for credit losses for off-balance sheet commitments is included in other liabilities in the consolidated balance sheets.

Prior to the adoption of ASC 326 on January 1, 2023, the Company ~~applies~~applied qualitative factors to its off-balance sheet obligations in determining an estimate of losses inherent in these contractual obligations. The estimate for ~~loan~~ losses on off-balance sheet instruments is included within other liabilities and the charge to income that ~~establishes~~established this liability is included in other expense on the consolidated income statement.

~~Other Assets Acquired Through Foreclosure, Net~~

Other assets acquired through foreclosure are recorded at fair value at the time of foreclosure less estimated costs to sell. Any excess of loan balance over the fair value less estimated costs to sell of the other assets is charged-off against the allowance for loan losses. Any excess of the fair value less estimated costs to sell over the loan balance is recorded as a loan loss recovery to the extent of the loan loss previously charged-off against the allowance for loan losses; and, if greater, recorded as a gain on foreclosed assets. Subsequent to the legal ownership date, the Company periodically obtains a new valuation, and the asset is carried at the lower of carrying amount or fair value less estimated costs to sell. Operating expenses or income, and gains or losses on disposition of such properties, are recorded in current operations.

Income Taxes

The Company uses the asset and liability method, which recognizes an asset or liability representing the tax effects of future deductible or taxable amounts that have been recognized in the consolidated financial statements. Due to tax regulations, certain items of income and expense are recognized in different periods for tax return purposes than for financial statement reporting. These items represent “temporary differences.” Deferred income taxes are recognized for the tax effect of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is established for deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets may not be realized. Any interest or penalties assessed by the taxing authorities are classified ~~in the financial statements~~ as income tax ~~expense.~~expense in the consolidated income statements. Deferred tax assets are included in other assets on the consolidated balance ~~sheets.~~sheets.

Management evaluates the Company’s deferred tax asset for recoverability using a consistent approach, which considers the relative impact of negative and positive evidence, including the Company’s historical profitability and projections of future taxable income. The Company is required to establish a valuation allowance for deferred tax assets and record a charge to income if management determines, based on available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax assets may not be realized.

The Company is subject to the provisions of ASC 740, Income Taxes (“ASC 740”). ASC 740 prescribes a more likely than not threshold for the financial statement recognition of uncertain tax positions. ASC 740 clarifies the accounting for income taxes by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. On a quarterly basis, the Company evaluates income tax accruals in accordance with ASC 740 guidance on uncertain tax positions.

Earnings Per Share

Basic earnings per common share is computed using the weighted average number of common shares outstanding for the period. Diluted earnings per share includes the effect of all dilutive potential common shares for the period. Potentially dilutive common shares include outstanding stock options. Restricted stock awards are considered to be outstanding common shares for the purpose of computing basic and diluted earnings per share.

The components of basic and diluted earnings per share are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(dollars in thousands, except per share amounts)
Net income available to common stockholders	$	2,252	$	3,478	$	6,837	$	10,073

Weighted average number of common shares outstanding - basic		8,849,831		8,748,308		8,834,961		8,708,805
Add: Dilutive effects of assumed exercises of stock options		131,403		166,403		133,520		173,934
Weighted average number of common shares outstanding - diluted		8,981,234		8,914,711		8,968,481		8,882,739

Earnings per share:
Basic	$	0.25	$	0.40	$	0.77	$	1.16
Diluted	$	0.25	$	0.39	$	0.76	$	1.13

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~~Recent~~Stock options for 113,131 and 96,450 shares of common stock were not considered in computing diluted earnings per share for the three months ended September 30, 2023 and 2022, respectively, because they were antidilutive. Stock options for 129,276 and 90,243 shares of common stock were not considered in computing diluted earnings per share for the nine months endedSeptember 30, 2023 and 2022, respectively, because they were antidilutive.

Recently Adopted Accounting Pronouncements

In June 2016, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ~~updated guidance codified within ASU-2016-13,~~Accounting Standards Update (“ASU”) 2016-13 - “Financial Instruments –- Credit Losses (Topic 326),: Measurement of Credit Losses on Financial Instruments”. This ASU replaces the incurred loss impairment model in current GAAP with a model that reflects current expected credit losses (“CECL”). The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. CECL also requires credit losses on available-for-sale debt securities to be measured through an allowance for credit losses when the fair value is less than the amortized cost basis. It also applies to off-balance sheet credit exposures. The ASU requires that all expected credit losses for financial assets held at the reporting date be measured based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU also requires enhanced disclosure, including qualitative and quantitative disclosures that provide additional information about significant estimates and judgments used in estimating credit losses. The provisions of this Update became effective for the Company for all annual and interim periods beginning January 1, 2023.

In April 2019, the FASB issued ASU 2019-04 - “Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”. This ASU was issued as part of an ongoing project on the FASB’s agenda for improving the Codification or correcting for its unintended application. The FASB issued this ASU, which is specific to ASUs: 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” ~~which amends~~2016-01 - “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” and 2017-12 - “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” The amendments in this Update became effective for all interim and annual reporting periods for the ~~guidance for recognizing~~Company on January 1, 2023. The Company adopted the provisions within this ASU in conjunction with the implementation of ASC 326 - “Financial Instruments - Credit Losses,” including: (i) the election to not measure credit losses ~~from~~on accrued interest receivable when such balances are written-off in a timely manner when deemed uncollectable and (ii) the election to not include the balance of accrued interest receivable as part of the amortized cost of a loan, but rather to present it separately in the consolidated balance sheets.

In May 2019, the FASB issued ASU 2019-05 - “Financial Instruments - Credit Losses (Topic 326) - Targeted Transition Relief.” This ASU was issued to allow entities that have certain financial instruments within the scope of ASC 326-20 - “Financial Instruments - Credit Losses - Measured at Amortized Cost” to make an ~~“incurred loss” methodology that delays recognition~~irrevocable election to elect the fair value option for those instruments in ASC 825-10 - “Financial Instruments - Overall” upon the adoption of ~~credit losses until it~~ASC 326, which for the Company was January 1, 2023. The fair value option is ~~probable a loss~~not applicable to held-to-maturity debt securities. Entities are required to make this election on an instrument-by-instrument basis. The Company did not elect the fair value option for any of its financial assets upon the adoption of ASC 326 on January 1, 2023.

The Company has ~~been incurred to~~developed an expected credit loss ~~methodology.~~estimation model in accordance with ASC 326. The ~~guidance~~Company established a committee comprised of executive management and members of Accounting and Credit Administration and utilizes a third-party software provider specializing in CECL loss modeling. For loans evaluated collectively as a pool, the allowance for credit losses is calculated using the weighted average remaining maturity (“WARM”) method, as described more fully above. The Company’s model incorporates reasonable and supportable economic forecasts into the estimate of expected credit losses, which requires significant judgment.

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Effective January 1, 2023, the ~~use~~Company adopted the provisions of ASC 326 through the application of the modified retrospective transition ~~method by means~~approach, and recorded a net decrease of ~~a cumulative-effect adjustment~~$1.6 million to ~~equity as of~~ the beginning balance of ~~the period in which the guidance is adopted. The standard is effective for the Company~~retained earnings as of January 1, ~~2023.~~ 2023, for the cumulative effect adjustment. The ~~Company has formed a subcommittee of its allowance for loan losses committee which is currently evaluating~~following table illustrates the impact of ~~the amended guidance. In addition, the Company has analyzed its historical data and is running parallel calculations under different methods in order to refine its final methodology.~~

~~In March 2020, the FASB issued updated guidance codified within ASU-2020-04, “Reference Rate Reform (Topic 848): Facilitation~~adoption of the Effects of Reference Rate Reform on Financial Reporting,” which provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. In response to the risk of cessation of the London Interbank Offered Rate (“LIBOR”), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable, or transaction based and less susceptible to manipulation. The Company has limited exposure to LIBOR. The amendments in ASU 2020-04 were effective for all entities as of March 12, 2020 and may be applied prospectively to contract modifications made on or before December 31, 2022. The adoption of this standard is not anticipated to have a material impactCECL methodology on the Company’s consolidated ~~financial~~ ~~statements.~~

balance sheet as of January 1, 2023:

	Pre-CECL Adoption		Impact of CECL Adoption			As Reported Under CECL
	(in thousands)
Assets:
Allowance for credit losses on securities:
Available-for-sale	$	—	$	—		$	—
Held-to-maturity		—		—			—
Allowance for credit losses - loans		10,765		1,811			12,576
Deferred tax assets		5,053		659			5,712

Liabilities:
Allowance for credit losses for off-balance sheet commitments		94		421			515

Stockholders’ equity:
Retained earnings		67,727		(1,573	)		66,154

The Company’s assessment of held-to-maturity and available-for-sale investment securities as of January 1, 2023, indicated that an allowance for credit losses was not required. The Company determined the likelihood of default on held-to-maturity investment securities was remote, and the amount of expected non-repayment on those investments was zero. The Company also analyzed available-for-sale investment securities that were in an unrealized loss position as of January 1, 2023, and determined the decline in fair value for those securities was not related to credit, but rather related to changes in interest rates and general market conditions. As such, no allowance for credit losses was recorded for held-to-maturity and available-for-sale securities as of January 1, 2023.

In February 2019, the U.S. federal bank regulatory agencies approved a final rule modifying their regulatory capital rules and providing an option to phase in over a three-year period the Day 1 adverse regulatory capital effects of ASU 2016-13. As a result, entities have the option to gradually phase in the full effect of CECL on regulatory capital over a three-year transition period. The Company elected to phase in the full effect of CECL on regulatory capital over the three-year transition period.

In March 2022, the FASB issued ASU No. 2022-02, “Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”). ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial ~~difficulty that assess~~difficulty. Under the provisions of this ASU, an entity must determine whether a modification ~~has created~~results in a new loan or the continuation of an existing loan. ~~Additionally,~~Further, the amendments in this ASU ~~2022-02 requires~~require that an entity disclose ~~current-period~~current period gross ~~write-offs~~charge-offs on loans by year of origination ~~for~~and class of financing ~~receivables and net investments in leases. For entities that have not yet adopted ASC 326, the amendments in the ASU are~~receivable. This guidance became effective when the requirements of ASC 326 are effective (which is for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years). The impact of ASU 2022-02 should be applied prospectively, or, for the ~~recognition and measurement of TDRs, with a modified retrospective transition method.~~Company on January 1, 2023. The new guidance isdid not ~~expected to~~ have a material impact on the Company’s consolidated financial ~~statements,~~statements; however, the required disclosures ~~will be~~were added to the consolidated financial ~~statements when the standard is adopted on January 1, 2023.~~
statements.

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2.	INVESTMENT SECURITIES

The amortized cost and estimated fair value of investment securities are as follows:

	September 30, 2022									September 30, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value		Amortized Cost		Allowance for Credit Losses			Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available-for-sale	(in thousands)									(in thousands)
U.S. government agency notes	$	4,445	$	35	$	—		$	4,480	$	3,478	$	—		$	15	$	—		$	3,493
U.S. government agency collateralized mortgage obligations (“CMO”)		4,567		4		(101	)		4,470		4,196		—			—		(218	)		3,978
U.S. Treasury securities		39,930		—		(135	)		39,795
Corporate debt securities		9,250		—		(880	)		8,370		9,250		(103	)		—		(1,494	)		7,653
Total	$	58,192	$	39	$	(1,116	)	$	57,115	$	16,924	$	(103	)	$	15	$	(1,712	)	$	15,124

Securities held-to-maturity
U.S. government agency mortgage-backed securities (“MBS”)	$	2,596	$	6	$	(150	)	$	2,452	$	2,158		—		$	2	$	(173	)	$	1,987
Total	$	2,596	$	6	$	(150	)	$	2,452	$	2,158		—		$	2	$	(173	)	$	1,987

Securities measured at fair value
Equity securities: Farmer Mac class A stock	$	66	$	132	$	—		$	198
Total	$	66	$	132	$	—		$	198

	September 30, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value
Securities measured at fair value		(in thousands)
Equity securities: Farmer Mac class A stock	$	66	$	243	$	—	$	309
Total	$	66	$	243	$	—	$	309

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	December 31, 2021									December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Securities available-for-sale	(in thousands)									(in thousands)
U.S. government agency notes	$	5,476	$	32	$	—		$	5,508	$	4,081	$	26	$	—		$	4,107
U.S. government agency CMO		4,862		31		(10	)		4,883		4,475		—		(179	)		4,296
U.S. Treasury securities											9,984		—		(14	)		9,970
Corporate debt securities		9,250		102		(32	)		9,320		9,250		—		(935	)		8,315
Total	$	19,588	$	165	$	(42	)	$	19,711	$	27,790	$	26	$	(1,128	)	$	26,688

Securities held-to-maturity
U.S. government agency MBS	$	2,815	$	159	$	—		$	2,974	$	2,557	$	3	$	(137	)	$	2,423
Total	$	2,815	$	159	$	—		$	2,974	$	2,557	$	3	$	(137	)	$	2,423

Securities measured at fair value
Equity securities: Farmer Mac class A stock	$	66	$	182	$	—		$	248	$	66	$	159	$	—		$	225
Total	$	66	$	182	$	—		$	248	$	66	$	159	$	—		$	225

At September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, securities with carrying values of ~~$51.2~~$9.5 million and ~~$13.2~~$21.1 million, respectively, were pledged to the Federal Home Loan Bank (“FHLB”) as collateral for current and future advances.

At September 30, 2023 and December 31, 2022, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

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The maturity periods and weighted average yields of investment securities available-for-sale and held-to-maturity at the period ends indicated were as follows:

	September 30, 2022																								September 30, 2023
	Less than One Year					One to Five Years				Five to Ten Years					Over Ten Years					Total					Less than One Year				One to Five Years				Five to Ten Years					Over Ten Years					Total
	Amount		Yield			Amount		Yield		Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield		Amount		Yield		Amount		Yield			Amount		Yield			Amount		Yield
Securities available-for-sale	(dollars in thousands)																								(dollars in thousands)
U.S. government agency notes	$	—		—		$	—		—	$	533		2.09	%	$	3,947		2.92	%	$	4,480		2.82	%	$	—		—	$	—		—	$	482		5.60	%	$	3,011		6.35	%	$	3,493		6.25	%
U.S. government agency CMO		—		—			—		—		—		—			4,470		3.40	%		4,470		3.40	%		—		—		—		—		429		3.69	%		3,549		5.64	%		3,978		5.43	%
U.S. Treasury securities		39,795		1.61	%		—		—		—		—			—		—			39,795		1.61	%
Corporate debt securities		—		—			—		—		8,370		3.74	%		—		—			8,370		3.74	%		—		—		—		—		7,653		3.74	%		—		—			7,653		3.74	%
Total	$	39,795		1.61	%	$	—		—	$	8,903		3.64	%	$	8,417		3.17	%	$	57,115		2.16	%	$	—		—	$	—		—	$	8,564		3.84	%	$	6,560		5.97	%	$	15,124		4.76	%

Securities held-to-maturity
U.S. government agency MBS	$	—		—		$	—		—	$	751		3.60	%	$	1,845		3.39	%	$	2,596		3.45	%	$	—		—	$	—		—	$	731		3.60	%	$	1,427		4.28	%	$	2,158		4.05	%
Total	$	—		—		$	—		—	$	751		3.60	%	$	1,845		3.39	%	$	2,596		3.45	%	$	—		—	$	—		—	$	731		3.60	%	$	1,427		4.28	%	$	2,158		4.05	%

	December 31, 2021																							December 31, 2022
	Less than One Year				One to Five Years					Five to Ten Years					Over Ten Years				Total					Less than One Year					One to Five Years				Five to Ten Years					Over Ten Years					Total
	Amount		Yield		Amount		Yield			Amount		Yield			Amount		Yield		Amount		Yield			Amount		Yield			Amount		Yield		Amount		Yield			Amount		Yield			Amount		Yield
Securities available-for-sale	(dollars in thousands)																							(dollars in thousands)
U.S. government agency notes	$	—		—	$	661		0.59	%	$	4,847		1.30	%	$	—		—	$	5,508		1.16	%	$	—		—		$	—		—	$	519		3.59	%	$	3,588		4.40	%	$	4,107		4.30	%
U.S. government agency CMO		—		—		3,905		0.50	%		978		0.83	%		—		—		4,883		0.60	%		—		—			—		—		—		—			4,296		4.63	%		4,296		4.63	%
U.S. Treasury securities																									9,970		2.06	%		—		—		—		—			—		—			9,970		2.06	%
Corporate debt securities		—		—		9,320		3.70	%		—		—			—		—		9,320		3.70	%		—		—			—		—		8,315		3.74	%		—		—			8,315		3.74	%
Total	$	—		—	$	13,886		2.70	%	$	5,825		1.20	%	$	—		—	$	19,711		2.20	%	$	9,970		2.06	%	$	—		—	$	8,834		3.73	%	$	7,884		4.53	%	$	26,688		3.34	%

Securities held-to-maturity
U.S. government agency MBS	$	—		—	$	2,065		2.90	%	$	750		3.58	%	$	—		—	$	2,815		3.06	%	$	—		—		$	—		—	$	746		3.60	%	$	1,811		3.68	%	$	2,557		3.66	%
Total	$	—		—	$	2,065		2.90	%	$	750		3.58	%	$	—		—	$	2,815		3.06	%	$	—		—		$	—		—	$	746		3.60	%	$	1,811		3.68	%	$	2,557		3.66	%

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The amortized cost and fair value of available-for-sale and held-to-maturity investment securities maturities as of the periods presented are as shown below:

	September 30, 2022				December 31, 2021				September 30, 2023				December 31, 2022
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Securities available-for-sale	(in thousands)								(in thousands)
Due in less than one year	$	39,930	$	39,795	$	—	$	—	$	—	$	—	$	9,984	$	9,970
After one year through five years		—		—		13,786		13,886		—		—		—		—
After five years through ten years		9,781		8,903		5,802		5,825		10,220		8,564		9,768		8,834
After ten years		8,481		8,417		—		—		6,704		6,560		8,038		7,884
Total	$	58,192	$	57,115	$	19,588	$	19,711	$	16,924	$	15,124	$	27,790	$	26,688

Securities held-to-maturity
Due in less than one year	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
After one year through five years		—		—		2,065		2,137		—		—		—		—
After five years through ten years		751		707		750		837		731		662		746		705
After ten years		1,845		1,745		—		—		1,427		1,325		1,811		1,718
Total	$	2,596	$	2,452	$	2,815	$	2,974	$	2,158	$	1,987	$	2,557	$	2,423

Actual maturities may differ from contractual maturities as borrowers or issuers have the right to prepay or call the investment securities. Changes in interest rates may also impact prepayments.

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As of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, securities that are in an unrealized loss position and length of time that individual securities have been in a continuous loss position are summarized as follows:

	September 30, 2022															September 30, 2023
	Less Than Twelve Months					More Than Twelve Months					Total					Less Than Twelve Months					More Than Twelve Months					Total
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
Securities available-for-sale	(in thousands)															(in thousands)
U.S. government agency CMO	$	(87	)	$	3,122	$	(14	)	$	640	$	(101	)	$	3,762	$	(23	)	$	607	$	(195	)	$	3,371	$	(218	)	$	3,978
U.S. Treasury securities		(135	)		39,795		—			—		(135	)		39,795
Corporate debt securities		(724	)		7,026		(156	)		1,344		(880	)		8,370		—			—		(1,494	)		7,653		(1,494	)		7,653
Total	$	(946	)	$	49,943	$	(170	)	$	1,984	$	(1,116	)	$	51,927	$	(23	)	$	607	$	(1,689	)	$	11,024	$	(1,712	)	$	11,631

Securities held-to-maturity
U.S. government agency MBS	$	(150	)	$	2,116	$	—		$	—	$	(150	)	$	2,116	$	(2	)	$	134	$	(171	)	$	1,694	$	(173	)	$	1,828
Total	$	(150	)	$	2,116	$	—		$	—	$	(150	)	$	2,116	$	(2	)	$	134	$	(171	)	$	1,694	$	(173	)	$	1,828

	December 31, 2021															December 31, 2022
	Less Than Twelve Months					More Than Twelve Months					Total					Less Than Twelve Months					More Than Twelve Months					Total
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
Securities available-for-sale	(in thousands)															(in thousands)
U.S. government agency CMO	$	—		$	—	$	(10	)	$	977	$	(10	)	$	977	$	(130	)	$	3,690	$	(49	)	$	606	$	(179	)	$	4,296
U.S. Treasury securities																	(14	)		9,970		—			—		(14	)		9,970
Corporate debt securities		(32	)		2,968		—			—		(32	)		2,968		(764	)		6,986		(171	)		1,329		(935	)		8,315
Total	$	(32	)	$	2,968	$	(10	)	$	977	$	(42	)	$	3,945	$	(908	)	$	20,646	$	(220	)	$	1,935	$	(1,128	)	$	22,581

Securities held-to-maturity
U.S. government agency MBS																$	(137	)	$	2,115	$	—		$	—	$	(137	)	$	2,115
Total																$	(137	)	$	2,115	$	—		$	—	$	(137	)	$	2,115

As of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, there were 3936 and 437 securities, respectively, in an unrealized loss position. ~~Declines~~

At September 30, 2023 and December 31, 2022, there were no available-for-sale or held-to-maturity securities that were on nonaccrual status. All securities in the portfolio were current with their contractual principal and interest payments. Accrued interest receivable related to available-for-sale and held-to-maturity securities was $124 thousand and $7 thousand, respectively, at September 30, 2023. Accrued interest receivable related to available-for-sale and held-to-maturity securities was $69 thousand and $8 thousand, respectively, at December 31, 2022. Accrued interest receivable is included in other assets on the consolidated balance sheets.

There were no collateral dependent available-for-sale or held-to-maturity securities at September 30, 2023 or December 31, 2022.

The Company reviews individual securities classified as available-for-sale to determine whether a decline in fair value below the amortized cost basis is deemed credit related or due to other factors such as changes in interest rates and general market conditions. An ACL on available-for-sale investment securities is recorded when the fair value of the investment is below its amortized cost and the decline in fair value has been deemed, through the Company’s qualitative assessment, to be credit-related. Non-credit-related declines in fair value of available-for-sale investment securities, which may be attributed to changes in interest rates and other market related factors, are not recorded through an ACL. Such declines are recorded as an adjustment to accumulated other comprehensive income (loss), net of tax. In the event the Company is required to sell or has the intent to sell an available-for-sale security that has experienced a decline in fair value below its amortized cost, the Company writes the amortized cost of the security down to fair value in the current period.

During the three and nine months ended September 30, 2023, the Company recorded a provision for credit losses for certain corporate debt securities classified as available-for-sale in the amount of $103 thousand. The need for ACL for these securities was in response to downgrades of the credit ratings of the issuers. The ACL was determined using the discounted cash flow method, using estimated loss rates that were derived from averages for corporate debt securities with similar credit ratings. There were no charge offs of any balances of corporate debt securities. The ending allowance for credit losses for securities at September 30, 2023 was $103 thousand.

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The Company did not record an allowance for credit losses for held-to-maturity securities as of September 30, 2023, because the likelihood of non-repayment was considered to be remote as the issuers of those securities were U.S. Federal government agencies. There was no provision for credit losses recognized related to any held-to-maturity investment securities during the three and nine months ended September 30, 2023.

Prior to the adoption of ASC 326, declines in the fair value of held-to-maturity and available-for-sale securities below their cost that ~~are~~were deemed to be other-than-temporary ~~are~~were reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management ~~considers,~~considered, among other things: (i) the length of time and the extent to which the fair value ~~has~~had been less than cost; (ii) the financial condition and near-term prospects of the issuer; and (iii) the Company’s intent to sell an impaired security and if it ~~is not~~was more likely than not that it ~~will be~~would have been required to sell the security before the recovery of its amortized basis.

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The unrealized losses are primarily due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date, repricing date or if market yields for such investments decline. Management ~~does not believe any~~concluded that none of the Company’s securities ~~are~~were impaired due to reasons of credit ~~quality. Accordingly,~~quality as of ~~September 30,~~December 31, 2022, and ~~December 31, 2021,~~therefore management believes the impairments detailed in the table above ~~are~~were temporary and no other-than-temporary impairment loss ~~has been realized~~was recorded in the Company’s consolidated income statements.

3.	LOANS HELD FOR SALE AND LOANS SERVICED FOR OTHERS

As of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company had approximately ~~$5.3~~$4.7 million and ~~$6.3~~$5.2 million of SBA loans included in loans held for sale, respectively. The Company’s agricultural lending program includes loans for agricultural land, agricultural operational lines, and agricultural term loans for crops, equipment, and livestock. The primary products are supported by guarantees issued from the United States Department of Agriculture (“USDA”), USDA Farm Service Agency (“FSA”), and the USDA Business and Industry loan program. As of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company had ~~$16.8~~$13.7 million and ~~$17.1~~$15.9 million of USDA loans included in loans held for sale, respectively.

The unpaid balance of loan serviced for others as of the periods presented are as shown below:

	September 30, 2022		December 31, 2021		September 30, 2023		December 31, 2022
	(in thousands)				(in thousands)
SBA	$	2,112	$	2,709	$	1,438	$	1,926
USDA, FSA, and USDA Business and Industry		735		745		—		735
Farmer Mac		154,006		142,677		159,450		155,522
Total loans serviced for others	$	156,853	$	146,131	$	160,888	$	158,183

4.	LOANS HELD FOR INVESTMENT

The composition of the Company’s loans held for investment loan portfolio follows:

	September 30,			December 31,			September 30,			December 31,
	2022			2021			2023			2022
	(in thousands)						(in thousands)
Manufactured housing	$	309,989		$	297,363		$	325,068		$	315,825
Commercial real estate		544,373			480,801			556,945			545,317
Commercial		54,042			55,287			38,232			59,070
SBA		3,468			23,659			1,687			3,482
HELOC		3,373			3,579			2,556			2,613
Single family real estate		8,981			8,749			10,615			8,709
Consumer		323			109			52			107
Gross loans held for investment		924,549			869,547			935,155			935,123
Deferred fees, net		(920	)		(838	)		(883	)		(787	)
Discount on SBA loans		(31	)		(34	)		(25	)		(27	)
Loans held for investment		923,598			868,675			934,247			934,309
Allowance for loan losses		(11,113	)		(10,404	)
Allowance for credit losses								(12,135	)		(10,765	)
Loans held for investment, net	$	912,485		$	858,271		$	922,112		$	923,544

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The following table presents the contractual aging of the recorded investment in past due held for investment loans by class of loans:

	September 30, 2022																	September 30, 2023
	Current		30-59 Days Past Due		60-89 Days Past Due			Over 90 Days Past Due		Total Past Due		Nonaccrual		Total		Recorded Investment Over 90 Days and Accruing		Current		30-59 Days Past Due		60-89 Days Past Due		Over 90 Days Past Due		Total Past Due		Total
	(in thousands)																	(in thousands)
Manufactured housing	$	309,468	$	389	$	47		$	—	$	436	$	85	$	309,989	$	—	$	324,276	$	615	$	—	$	177	$	792	$	325,068
Commercial real estate:
Commercial real estate		486,802		1,173		—			—		1,173		—		487,975		—		484,172		—		1,576		—		1,576		485,748
SBA 504 1st trust deed		13,107		—		—			—		—		—		13,107		—		12,335		—		—		—		—		12,335
Land		12,433		—		—			—		—		—		12,433		—		8,025		—		—		—		—		8,025
Construction		30,858		—		—			—		—		—		30,858		—		48,887		—		1,950		—		1,950		50,837
Commercial		53,960		82		—	��		—		82		—		54,042		—		37,985		—		247		—		247		38,232
SBA		2,703		—		765			—		765		—		3,468		—		1,613		73		—		1		74		1,687
HELOC		3,373		—		—			—		—		—		3,373		—		2,556		—		—		—		—		2,556
Single family real estate		8,827		—		—			—		—		154		8,981		—		10,615		—		—		—		—		10,615
Consumer		323		—		—			—		—		—		323		—		52		—		—		—		—		52
Total	$	921,854	$	1,644	$	812		$	—	$	2,456	$	239	$	924,549	$	—	$	930,516	$	688	$	3,773	$	178	$	4,639	$	935,155

	December 31, 2021																December 31, 2022
	Current		30-59 Days Past Due		60-89 Days Past Due		Over 90 Days Past Due		Total Past Due		Nonaccrual		Total		Recorded Investment Over 90 Days and Accruing		Current		30-59 Days Past Due		60-89 Days Past Due		Over 90 Days Past Due		Total Past Due		Total
	(in thousands)																(in thousands)
Manufactured housing	$	296,715	$	342	$	—	$	—	$	342	$	306	$	297,363	$	—	$	315,058	$	665	$	102	$	—	$	767	$	315,825
Commercial real estate:
Commercial real estate		431,062		—		—		—		—		—		431,062		—		481,599		1,160		—		—		1,160		482,759
SBA 504 1st trust deed		16,961		—		—		—		—		—		16,961		—		12,947		—		—		—		—		12,947
Land		7,185		—		—		—		—		—		7,185		—		11,237		—		—		—		—		11,237
Construction		25,593		—		—		—		—		—		25,593		—		38,374		—		—		—		—		38,374
Commercial		55,287		—		—		—		—		—		55,287		—		59,070		—		—		—		—		59,070
SBA		23,296		223		139		—		362		1		23,659		—		2,529		953		—		—		953		3,482
HELOC		3,579		—		—		—		—		—		3,579		—		2,613		—		—		—		—		2,613
Single family real estate		8,491		—		—		—		—		258		8,749		—		8,709		—		—		—		—		8,709
Consumer		109		—		—		—		—		—		109		—		107		—		—		—		—		107
Total	$	868,278	$	565	$	139	$	—	$	704	$	565	$	869,547	$	—	$	932,243	$	2,778	$	102	$	—	$	2,880	$	935,123

The following table presents the composition of nonaccrual loans as of September 30, 2023, and December 31, 2022:

	September 30, 2023						December 31, 2022
	With an ACL		Without an ACL		Total Nonaccrual		With an Allowance		Without an Allowance		Total Nonaccrual
	(in thousands)
Manufactured housing	$	100	$	627	$	727	$	—	$	61	$	61
Commercial real estate		—		327		327		—		—		—
Construction		—		1,950		1,950		—		—		—
Commercial		—		50		50		—		—		—
HELOC		—		141		141		—		—		—
Single family real estate		—		—		—		—		150		150
Total	$	100	$	3,095	$	3,195	$	—	$	211	$	211

There were $1 thousand of loans past due by 90 days or more that were not on nonaccrual status at September 30, 2023. There were no loans past due by 90 days or more that were not on nonaccrual status at December 31, 2022.

The accrual of interest is discontinued when substantial doubt exists as to collectability of the loan; generally, at the time the loan is 90 days delinquent. Any unpaid but accrued interest is reversed from interest income at that time. Thereafter, interest income is no longer recognized on the loan. Interest income may be recognized on impaired loans to the extent they are not past due by 90 days. Interest on nonaccrual loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all of the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Foregone interest on nonaccrual ~~and TDR~~ loans for the three months ended September 30, 2023 and 2022, ~~and 2021,~~ was $9$117 thousand and ~~$35~~$9 thousand, respectively. Foregone interest on nonaccrual ~~and TDR~~ loans for the nine months ended September 30, 2023 and 2022, was $296 thousand and ~~2021, was~~ $32 thousand, ~~and $122 thousand,~~ respectively.

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Accrued interest receivable related to loans was $5.3 million and $5.1 million at September 30, 2023 and December 31, 2022, respectively. Accrued interest receivable is included in other assets on the consolidated balance sheets.

Allowance for ~~Loan~~Credit Losses for Loans

The Company adopted the CECL requirements of ASC 326 on January 1, 2023. As discussed further in Note 1 - Summary of Significant Accounting Policies, the Company uses the WARM method as the basis for the estimation of expected credit losses under CECL. The calculation of the ACL is adjusted using qualitative factors for current conditions and for reasonable and supportable forecast periods. Loans that do not share risk characteristics with other loans in the portfolio are individually evaluated for a required ACL and are not included in the collective evaluation. Expected credit losses for loans evaluated individually are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, when the Company determines that foreclosure is probable, the fair value of the collateral securing the loan, less estimated selling costs.

During the three months ended September 30, 2023, the ACL for loans decreased by $13 thousand to $12.1 million. The decline in the ACL was primarily due to a decline in the required allowance for loans evaluated on a collective basis of $140 thousand due to a decrease in net loan balances. This decrease was partially offset by an increase in the ACL for the qualitative factor related to the levels of substandard loans.

During the nine months ended September 30, 2023, the allowance for credit losses on loans increased by $1.4 million from $10.8 million at December 31, 2022. When the Company adopted the provisions of ASC 326 on January 1, 2023, it recorded the required $1.8 million increase directly to retained earnings (net of tax). During the first nine months of 2023, the Company recorded a provision (credit) for credit losses for loans of $(680) thousand.This decrease in allowance for credit losses during the nine months ended September 30, 2023 (after the adjustment for the adoption of ASC 326) was primarily due to a reduction in the qualitative factor related to the percentage of the state of California that was experiencing a drought. In addition, the allowance for credit losses also declined due to a reduction in the portion of the allowance derived from historical losses. Offsetting these decreases was an increase in the qualitative factor related to substandard loans, discussed above.

The following tables summarize the changes in the allowance for ~~loan~~credit losses by portfolio ~~type:~~type. Prior to the adoption of ASC 326 on January 1, 2023, the allowance for loan losses was determined in accordance with ASC 450 and ASC 310.

	For the Three Months Ended September 30,
	Manufactured Housing			Commercial Real Estate		Commercial			SBA			HELOC			Single Family Real Estate		Consumer		Total
2023	(in thousands)
Beginning balance	$	5,519		$	5,896	$	515		$	5		$	41		$	171	$	1	$	12,148
Charge-offs		—			—		—			—			—			—		—		—
Recoveries		8			20		13			4			—			—		—		45
Net recoveries		8			20		13			4			—			—		—		45
Provision (credit) for credit losses		(54	)		44		(46	)		(4	)		1			1		—		(58	)
Ending balance	$	5,473		$	5,960	$	482		$	5		$	42		$	172	$	1	$	12,135

2022
Beginning balance	$	3,976		$	6,120	$	594		$	23		$	37		$	115	$	1	$	10,866
Charge-offs		—			—		—			(182	)		—			—		—		(182	)
Recoveries		88			20		13			4			6			—		—		131
Net recoveries (charge-offs)		88			20		13			(178	)		6			—		—		(51	)
Provision (credit) for credit losses		(77	)		182		24			174			(6	)		—		1		298
Ending balance	$	3,987		$	6,322	$	631		$	19		$	37		$	115	$	2	$	11,113

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	For the Nine Months Ended September 30,
	Manufactured Housing			Commercial Real Estate			Commercial			SBA			HELOC			Single Family Real Estate		Consumer			Total
2023	(in thousands)
Beginning balance, prior to adoption of ASC 326	$	3,879		$	5,980		$	747		$	21		$	27		$	107	$	4		$	10,765
Impact of adoption of ASC 326		1,671			31			70			(15	)		17			39		(2	)		1,811
Charge-offs		—			—			—			—			—			—		—			—
Recoveries		74			59			37			69			—			—		—			239
Net recoveries		74			59			37			69			—			—		—			239
Provision (credit) for credit losses		(151	)		(110	)		(372	)		(70	)		(2	)		26		(1	)		(680	)
Ending balance	$	5,473		$	5,960		$	482		$	5		$	42		$	172	$	1		$	12,135

2022
Beginning balance	$	2,606		$	6,729		$	923		$	22		$	18		$	105	$	1		$	10,404
Charge-offs		—			—			—			(182	)		—			—		—			(182	)
Recoveries		123			60			183			246			12			—		1			625
Net recoveries		123			60			183			64			12			—		1			443
Provision (credit) for credit losses		1,258			(467	)		(475	)		(67	)		7			10		—			266
Ending balance	$	3,987		$	6,322		$	631		$	19		$	37		$	115	$	2		$	11,113

For the Three Months Ended September 30,

Manufactured
Housing

Commercial
Real Estate
Commercial SBA HELOC
Single Family
Real Estate
Consumer Total
2022
(in thousands)
Beginning balance $ 3,976 $ 6,120 $ 594 $ 23 $ 37 $ 115 $ 1 $ 10,866
Charge-offs — — — (182 ) — — — (182 )
Recoveries 88 20 13 4 6 — — 131
Net (charge-offs) recoveries 88 20 13 (178 ) 6 — — (51 )
Provision (credit) for loan losses (77 ) 182 24 174 (6 ) — 1 298
Ending balance $ 3,987 $ 6,322 $ 631 $ 19 $ 37 $ 115 $ 2 $ 11,113

2021

Beginning balance $ 2,630 $ 6,328 $ 1,020 $ 114 $ 25 $ 122 $ 1 $ 10,240
Charge-offs — — — — — — — —
Recoveries 4 20 10 1 1 — — 36
Net recoveries 4 20 10 1 1 — — 36
Provision (credit) for loan losses (25 ) 149 (15 ) (87 ) (2 ) (13 ) — 7
Ending balance $ 2,609 $ 6,497 $ 1,015 $ 28 $ 24 $ 109 $ 1 $ 10,283

For the Nine Months Ended September 30,

Manufactured
Housing

Commercial
Real Estate
Commercial SBA HELOC
Single Family
Real Estate
Consumer Total
2022
(in thousands)
Beginning balance $ 2,606 $ 6,729 $ 923 $ 22 $ 18 $ 105 $ 1 $ 10,404
Charge-offs — — — (182 ) — — — (182 )
Recoveries 123 60 183 246 12 — 1 625
Net recoveries 123 60 183 64 12 — 1 443
Provision (credit) for loan losses 1,258 (467 ) (475 ) (67 ) 7 10 — 266
Ending balance $ 3,987 $ 6,322 $ 631 $ 19 $ 37 $ 115 $ 2 $ 11,113

2021

Beginning balance $ 2,612 $ 5,950 $ 1,379 $ 118 $ 25 $ 108 $ 2 $ 10,194
Charge-offs — — — — — — — —
Recoveries 155 60 30 46 4 1 — 296
Net recoveries 155 60 30 46 4 1 — 296
Provision (credit) for loan losses (158 ) 487 (394 ) (136 ) (5 ) — (1 ) (207 )
Ending balance $ 2,609 $ 6,497 $ 1,015 $ 28 $ 24 $ 109 $ 1 $ 10,283

As of September 30, ~~2022~~2023, and December 31, ~~2021,~~2022, the Company had ~~reserves~~an allowance for credit losses ~~on undisbursed loans~~ for off-balance sheet commitments of ~~$96~~$424 thousand and $94 thousand, respectively, which ~~were~~was included in other liabilities on the consolidated balance ~~sheet.~~sheets. The provision (credit) for credit losses associated with the allowance for off-balance sheet commitments was $(2) thousand and $(90) thousand for the three and nine months ended September 30, 2023, respectively.

Beginning on January 1, 2023, the Company evaluates loans collectively for purposes of determining the allowance for credit losses in accordance with ASC 326. Collective evaluation is based on aggregating loans deemed to possess similar risk characteristics. In certain instances, the Company may identify loans that it believes no longer possess risk characteristics similar to other loans in the loan portfolio. These loans are typically identified as those that have exhibited deterioration in credit quality, since the specific attributes and risks associated with such loans tend to become unique as the credit deteriorates. Such loans are typically nonperforming, have undergone a significant modification, have been downgraded to substandard or worse, and/or are deemed collateral dependent, where the ultimate repayment of the loan is expected to come from the operation of or eventual sale of the collateral. Loans that are deemed by management to no longer possess risk characteristics similar to other loans in the portfolio, or that have been identified as collateral dependent, are evaluated individually for purposes of determining an appropriate lifetime allowance for credit losses. The Company uses a discounted cash flow approach, using the loan’s effective interest rate, for determining the allowance for credit losses on individually evaluated loans, unless the loan is deemed collateral dependent, which requires evaluation based on the estimated fair value of the underlying collateral, less estimated costs to sell. The Company may increase or decrease the allowance for credit losses for collateral dependent loans based on changes in the estimated fair value of the collateral. Changes in the allowance for credit losses for all other individually evaluated loans are based substantially on the Company’s evaluation of cash flows expected to be received from such loans.

The following ~~tables present~~table presents the amortized cost basis and the associated allowance for credit losses by portfolio segment for loans that were individually evaluated as of September 30, 2023:

	Manufactured Housing		Commercial Real Estate		Commercial		SBA		HELOC		Single Family Real Estate		Consumer		Total Loans
	(in thousands)
Amortized Cost Basis:
Individually evaluated loans with an allowance for credit losses recorded	$	853	$	—	$	—	$	—	$	—	$	—	$	—	$	853
Individually evaluated loans with no allowance for credit losses recorded		1,359		2,277		1,210		—		—		141		—		4,987
Total individually evaluated loans		2,212		2,277		1,210		—		—		141		—		5,840
Collectively evaluated loans		322,856		554,668		37,022		1,687		2,556		10,474		52		929,315
Total loans held for investment	$	325,068	$	556,945	$	38,232	$	1,687	$	2,556	$	10,615	$	52	$	935,155

Allowance for Credit Losses:
Individually evaluated loans	$	16	$	—	$	—	$	—	$	—	$	—	$	—	$	16
Collectively evaluated loans		5,457		5,960		482		5		42		172		1		12,119
Total allowance for credit losses	$	5,473	$	5,960	$	482	$	5	$	42	$	172	$	1	$	12,135

Prior to the adoption of ASC 326 on January 1, 2023, the Company classified loans as impaired when, based on current information and events, it was probable that the Company would be unable to collect all amounts due according to the contractual terms of the loan agreement or it was determined that the likelihood of the Company receiving all scheduled payments, including interest, when due was remote. Credit losses on impaired loans were determined separately based on the guidance in ASC 310. Beginning January 1, 2023, the Company accounts for credit losses on all loans in accordance with ASC 326, which eliminates the concept of an impaired loan within the context of determining credit losses.

The following table presents impairment method information related to loans and allowance for loan losses by loan portfolio ~~segment:~~segment as of December 31, 2022:

Manufactured
Housing

Commercial
Real Estate
Commercial SBA HELOC
Single Family
Real Estate
Consumer
Total
Loans

Loans Held for Investment as of September 30, 2022:
(in thousands)
Recorded Investment:
Impaired loans with an allowance recorded $ 3,058 $ 212 $ 72 $ 43 $ — $ 213 $ — $ 3,598
Impaired loans with no allowance recorded 1,120 — 1,331 18 — 153 — 2,622
Total loans individually evaluated for impairment 4,178 212 1,403 61 — 366 — 6,220
Loans collectively evaluated for impairment 305,811 544,161 52,639 3,407 3,373 8,615 323 918,329
Total loans held for investment $ 309,989 $ 544,373 $ 54,042 $ 3,468 $ 3,373 $ 8,981 $ 323 $ 924,549
Unpaid Principal Balance
Impaired loans with an allowance recorded $ 3,058 $ 212 $ 72 $ 43 $ — $ 213 $ — $ 3,598
Impaired loans with no allowance recorded 1,120 — 1,331 18 — 153 — 2,622
Total loans individually evaluated for impairment 4,178 212 1,403 61 — 366 — 6,220
Loans collectively evaluated for impairment 305,811 544,161 52,639 3,407 3,373 8,615 323 918,329
Total loans held for investment $ 309,989 $ 544,373 $ 54,042 $ 3,468 $ 3,373 $ 8,981 $ 323 $ 924,549
Related Allowance for Loan Losses
Loans individually evaluated for impairment 166 17 1 1 — 9 — 194
Loans collectively evaluated for impairment 3,821 6,305 630 18 37 106 2 10,919
Total allowance for loan losses $ 3,987 $ 6,322 $ 631 $ 19 $ 37 $ 115 $ 2 $ 11,113

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	Manufactured Housing		Commercial Real Estate		Commercial		SBA		HELOC		Single Family Real Estate		Consumer		Total Loans
	(in thousands)
Recorded Investment:
Impaired loans with an allowance recorded	$	2,918	$	209	$	67	$	41	$	—	$	208	$	—	$	3,443
Impaired loans with no allowance recorded		1,166		—		1,297		—		—		151		—		2,614
Total loans individually evaluated for impairment		4,084		209		1,364		41		—		359		—		6,057
Loans collectively evaluated for impairment		311,741		545,108		57,706		3,441		2,613		8,350		107		929,066
Total loans held for investment	$	315,825	$	545,317	$	59,070	$	3,482	$	2,613	$	8,709	$	107	$	935,123

Related Allowance for Loan Losses
Loans individually evaluated for impairment		157		18		—		1		—		8		—		184
Loans collectively evaluated for impairment		3,722		5,962		747		20		27		99		4		10,581
Total allowance for loan losses	$	3,879	$	5,980	$	747	$	21	$	27	$	107	$	4	$	10,765

Manufactured
Housing

Commercial
Real Estate
Commercial SBA HELOC
Single Family
Real Estate
Consumer
Total
Loans

Loans Held for Investment as of December 31, 2021:
(in thousands)
Recorded Investment:
Impaired loans with an allowance recorded $ 3,563 $ 220 $ 85 $ 194 $ — $ 425 $ — $ 4,487
Impaired loans with no allowance recorded 1,358 1,402 1,505 226 — 258 — 4,749
Total loans individually evaluated for impairment 4,921 1,622 1,590 420 — 683 — 9,236
Loans collectively evaluated for impairment 292,442 479,179 53,697 23,239 3,579 8,066 109 860,311
Total loans held for investment $ 297,363 $ 480,801 $ 55,287 $ 23,659 $ 3,579 $ 8,749 $ 109 $ 869,547
Unpaid Principal Balance
Impaired loans with an allowance recorded $ 3,563 $ 220 $ 85 $ 194 $ — $ 683 $ — $ 4,745
Impaired loans with no allowance recorded 1,358 1,402 1,505 226 — — — 4,491
Total loans individually evaluated for impairment 4,921 1,622 1,590 420 — 683 — 9,236
Loans collectively evaluated for impairment 292,442 479,179 53,697 23,239 3,579 8,066 109 860,311
Total loans held for investment $ 297,363 $ 480,801 $ 55,287 $ 23,659 $ 3,579 $ 8,749 $ 109 $ 869,547
Related Allowance for Loan Losses
Loans individually evaluated for impairment 210 17 — 1 — 12 — 240
Loans collectively evaluated for impairment 2,396 6,712 923 21 18 93 1 10,164
Total allowance for loan losses $ 2,606 $ 6,729 $ 923 $ 22 $ 18 $ 105 $ 1 $ 10,404

~~Included~~The recorded investment in impaired loans ~~were $0.3 million~~approximated the unpaid balance of the loans ~~guaranteed by government agencies at~~as of December 31, ~~2021. There were no impaired loans guaranteed by government agencies at September 30,~~ 2022.

Prior to the adoption of ASC 326, a valuation allowance iswas established for an impaired loan when the fair value of the loan iswas less than the recorded investment. In certain cases, portions of impaired loans ~~are~~were charged-off to realizable value instead of establishing a valuation allowance and ~~are~~were included, when applicable, in the table ~~below~~above as “Impaired loans without specific valuation ~~allowance under ASC 310.~~allowance.” The valuation allowance disclosed above is included in the allowance for loan losses reported in the consolidated balance sheets as of ~~September 30, 2022 and~~ December 31, ~~2021.~~

2022.

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The following ~~tables summarize average investment in impaired~~table presents the amortized cost basis of collateral dependent loans by class of loans and by collateral type as of the ~~related interest income recognized:~~

dates indicated :

Three Months Ended September 30,
2022
2021

Average Investment
in Impaired Loans

Interest
Income

Average Investment
in Impaired Loans

Interest
Income

(in thousands)
Manufactured housing $ 4,198 $ 88 $ 4,961 $ 95
Commercial real estate: SBA 504 1st trust deed 213 4 1,533 4
Commercial 1,423 24 1,622 24
SBA 85 7 593 4
Single family real estate 488 6 1,512 10
Total $ 6,407 $ 129 $ 10,221 $ 137

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	Nine Months Ended September 30,								Manufactured Homes		Single Family Residence		Machinery & Equipment		Total
	2022				2021
	Average Investment in Impaired Loans		Interest Income		Average Investment in Impaired Loans		Interest Income
	(in thousands)
September 30, 2023									(in thousands)
Manufactured housing	$	4,503	$	261	$	5,683	$	277	$	1,014	$	—	$	—	$	1,014
Commercial real estate: SBA 504 1st trust deed		525		12		1,615		48
Commercial real estate										2,277		—		—		2,277
Commercial		1,489		67		1,645		78		—		—		1,210		1,210
SBA		164		19		480		11
Single family real estate		577		19		1,913		91		—		141		—		141
Total	$	7,258	$	378	$	11,336	$	505	$	3,291	$	141	$	1,210	$	4,642

~~The Company is not committed~~

	Manufactured Homes		Single Family Residence		Machinery & Equipment		Total
December 31, 2022	(in thousands)
Manufactured housing	$	574	$	—	$	—	$	574
Commercial		—		—		1,297		1,297
Single family real estate		—		150		—		150
Total	$	574	$	150	$	1,297	$	2,021

There was no associated allowance for credit losses (or allowance for loan losses prior to ~~lend additional funds~~the adoption of ASC 326 on ~~these impaired loans.~~January 1, 2023) for collateral dependent loans as of September 30, 2023, or December 31, 2022.

The Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans. Loan ratings are reviewed as part of the Company’s normal loan monitoring process, but, at a minimum, updated on an annual basis. Under the Company’s risk rating system, the Company rates loans with potential problems as “Special Mention,” “Substandard,” ~~“Doubtful”~~“Doubtful,” and “Loss”. For a detailed discussion on these risk classifications see “Note 1 - Summary of Significant Accounting Policies - Allowance for Loan Losses”. Risk ratings are updated as part of our normal loan monitoring process, at a minimum, annually.

The following ~~tables present gross loans by risk rating:~~

is a description of the characteristics of loan ratings.

September 30, 2022

Pass Special Mention Substandard Doubtful Total
(in thousands)
Manufactured housing $ 308,897 $ — $ 1,092 $ — $ 309,989
Commercial real estate:
Commercial real estate 478,397 225 8,084 — 486,706
SBA 504 1st trust deed 12,632 — 475 — 13,107
Land 12,433 — — — 12,433
Construction 30,858 — — — 30,858
Commercial 47,439 2,787 2,670 — 52,896
SBA 839 — — — 839
HELOC 3,373 — — — 3,373
Single family real estate 8,823 — 158 — 8,981
Consumer 323 — — — 323
Total, net 904,014 3,012 12,479 — 919,505
Government guaranteed loans
4,384 — 660 — 5,044
Total $ 908,398 $ 3,012 $ 13,139 $ — $ 924,549

Special Mention - A Special Mention loan has potential weaknesses that require management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Company’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

December 31, 2021

Pass Special Mention Substandard Doubtful Total
(in thousands)
Manufactured housing $ 295,810 $ — $ 1,553 $ — $ 297,363
Commercial real estate:
Commercial real estate 415,471 3,043 11,255 — 429,769
SBA 504 1st trust deed 14,646 — 2,315 — 16,961
Land 7,185 — — — 7,185
Construction 25,593 — — — 25,593
Commercial 50,372 26 2,265 — 52,663
SBA 1,891 — 114 — 2,005
HELOC 3,579 — — — 3,579
Single family real estate 8,487 — 262 — 8,749
Consumer 109 — — — 109
Total, net 823,143 3,069 17,764 $ — 843,976
Government guaranteed loans
23,610 — 1,961 — 25,571
Total $ 846,753 $ 3,069 $ 19,725 $ — $ 869,547

Substandard - A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. These loans have a well-defined weakness or weaknesses that jeopardize the full collection of amounts due. They are characterized by the distinct possibility that the Company will sustain some loss if the borrower’s deficiencies are not corrected.

Doubtful - A loan classified Doubtful has all the weaknesses inherent in one classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may work to the advantage and strengthening of the loan, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans.

Loss - Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable loans is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this loan even though partial recovery may be realized in the future. Losses are taken in the period in which they are considered uncollectible.

Loans not meeting the criteria above are considered to be pass-rated loans.

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The following tables present the risk categories for gross loans by class of loans and by year of origination as of the dates indicated:

	Term Loans Amortized Cost Basis by Origination Year
	2023		2022		2021		2020		2019		Prior		Revolving		Total
September 30, 2023	(in thousands)
Manufactured housing:
Pass	$	38,199	$	57,135	$	49,553	$	46,564	$	24,731	$	106,655	$	—	$	322,837
Substandard		—		—		101		219		—		1,911		—		2,231
Total		38,199		57,135		49,654		46,783		24,731		108,566		—		325,068

Commercial real estate:
Pass		34,298		152,500		122,794		58,350		49,489		121,401		—		538,832
Special mention		—		—		464		211		4,145		1,014		—		5,834
Substandard		—		—		500		2,993		—		8,786		—		12,279
Total		34,298		152,500		123,758		61,554		53,634		131,201		—		556,945

Commercial:
Pass		1,589		5,497		2,663		1,094		738		13,418		8,176		33,175
Special mention		—		—		1,996		407		—		—		—		2,403
Substandard		—		—		—		—		—		2,654		—		2,654
Total		1,589		5,497		4,659		1,501		738		16,072		8,176		38,232

SBA:
Pass		—		—		—		192		—		1,454		—		1,646
Special mention		—		—		—		—		—		40		—		40
Loss		—		—		—		—		—		1		—		1
Total		—		—		—		192		—		1,495		—		1,687

HELOC:
Pass		—		—		—		—		—		2,556		—		2,556
Total		—		—		—		—		—		2,556		—		2,556

Single family real estate:
Pass		2,242		826		1,997		1,989		748		2,667		—		10,469
Substandard		—		—		—		—		—		146		—		146
Total		2,242		826		1,997		1,989		748		2,813		—		10,615

Consumer:
Pass		52		—		—		—		—		—		—		52
Total		52		—		—		—		—		—		—		52

Total loans	$	76,380	$	215,958	$	180,068	$	112,019	$	79,851	$	262,703	$	8,176	$	935,155

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	Term Loans Amortized Cost Basis by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving		Total
December 31, 2022	(in thousands)
(Manufactured housing:
Pass	$	62,591	$	54,403	$	51,158	$	26,745	$	25,768	$	94,106	$	—	$	314,771
Substandard		—		—		—		—		121		933		—		1,054
Total		62,591		54,403		51,158		26,745		25,889		95,039		—		315,825

Commercial real estate:
Pass		161,023		125,074		57,441		50,134		32,662		95,174		—		521,508
Special mention		—		—		10,092		4,206		1,033		—		—		15,331
Substandard		—		—		1,056		—		—		7,422		—		8,478
Total		161,023		125,074		68,589		54,340		33,695		102,596		—		545,317

Commercial:
Pass		8,804		2,924		1,505		1,107		6,956		10,889		20,699		52,884
Special mention		—		2,723		—		—		—		—		—		2,723
Substandard		—		—		—		—		—		3,463		—		3,463
Total		8,804		5,647		1,505		1,107		6,956		14,352		20,699		59,070

SBA:
Pass		—		690		1,083		—		—		1,709		—		3,482
Total		—		690		1,083		—		—		1,709		—		3,482

HELOC:
Pass		—		—		—		—		—		—		2,613		2,613
Total		—		—		—		—		—		—		2,613		2,613

Single family real estate:
Pass		817		2,187		2,028		761		364		2,398		—		8,555
Substandard		—		—		—		—		150		4		—		154
Total		817		2,187		2,028		761		514		2,402		—		8,709

Consumer:
Pass		13		—		—		—		—		94		—		107
Total		13		—		—		—		—		94		—		107

Total loans	$	233,248	$	188,001	$	124,363	$	82,953	$	67,054	$	216,192	$	23,312	$	935,123

Loan Modifications

In certain instances, the Company may make modifications to the terms of loans to borrowers that are experiencing financial distress by providing a term extension, a payment deferral, a reduction of the contractual interest rate on the loan, or a partial forgiveness of principal (or a combination of these modifications). When principal forgiveness is provided to a borrower, the amount of forgiveness is charged off against the ACL.

The following table presents the amortized cost basis of loans at September 30, 2023, that were both experiencing financial difficulty and were modified during the nine months ended September 30, 2023, by loan class and by type of modification; the only type of modification that was granted to borrowers that were experiencing financial difficulty during the nine months ended September 30, 2023, was a term extension. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the total amortized cost basis of the loan class, as well as the financial effects of the modifications, is presented below.

	For the Nine Months Ended September 30, 2023
	Amortized Cost of Modified Loans		% of Total Class of Loans			Term Extension (Weighted Average years)
	(dollars in thousands)
Commercial real estate	$	500		0.09	%		5.00
Commercial		1,417		2.40	%		60.00
Total	$	1,917		0.20	%		45.65

The Company does not have any commitments to lend any additional amounts to the borrowers included in the previous table. All of the loans listed in the previous table were considered to be current as of September 30, 2023.

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The ACL for a loan to a borrower that was experiencing financial difficulty and was granted a modification (and included in the table above) is measured on a collective basis, as with other loans in the loan portfolio, unless management determines that such loans no longer possess risk characteristics similar to others in the loan portfolio. In those instances, the ACL for such a loan is determined through individual evaluation. There were no defaults on loans ~~classified as “Loss” at September 30, 2022 or December 31, 2021.~~to borrowers that were experiencing financial difficulty that had been modified since January 1, 2023.

Troubled Debt Restructured Loan (TDR)

Prior to the adoption of ASU 2022-02 on January 1, 2023, the Company, in infrequent situations would modify or restructure loans as a TDR. A TDR is a loan on which the ~~Bank,~~Company, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the ~~Bank~~bank would not otherwise consider. The loan terms that have been modified or restructured due to a borrower’s financial situation include, but are not limited to, a reduction in the stated interest rate, an extension of the maturity or renewal of the loan at an interest rate below current market, a reduction in the face amount of the debt, a reduction in the accrued interest, extensions, deferrals, renewals, and rewrites. The majority of the ~~Bank’s~~Company’s modifications ~~are~~were extensions in terms or deferral of payments which result in no lost principal or interest followed by reductions in interest rates or accrued ~~interest. A TDR is also considered impaired. Generally, a loan that is modified at an effective market rate of~~ interest ~~may no longer be disclosed as a troubled debt restructuring in years subsequent to the restructuring if it is not impaired based on the terms specified by the restructuring agreement.~~

The total carrying amount of loans that were classified as TDRs at ~~September 30, 2022 and~~ December 31, ~~2021~~2022, was ~~$6.3~~$6.0 million; of these, $5.8 million ~~and $8.6 million, respectively. TDRs that~~ were performing according to their modified terms as of September 30, 2022 and December 31, 2021 were $6.2 million and $8.4 million, respectively. For the three and nine months ended September 30, 2022, there was one new TDR loan with a balance of $122 thousand. This TDR had an immaterial impact on the allowance and provision for loan losses for the quarter and year-to-date periods. There ~~were no new TDR loans during the three and nine months ended September 30, 2021.~~terms.

A TDR loan is deemed to have a payment default when the borrower fails to make two consecutive payments or the collateral is transferred to repossessed assets. The Company had no TDR loans with payment defaults for the three or nine months ended September 30, 2022 or 2021.

~~At September 30, 2022 there were no material loan commitments outstanding on TDR loans.~~

5.	OTHER ASSETS ACQUIRED THROUGH FORECLOSURE

Other assets acquired through foreclosure consist primarily of properties acquired as a result of, or in-lieu-of, foreclosure. Properties or other assets (primarily manufactured housing) are reported at fair value at the time of foreclosure less estimated costs to sell. Costs relating to development or improvement of the assets are capitalized to the extent that they are deemed to be recoverable and increase the value of the property; otherwise, those costs are expensed. Costs related to holding the assets are charged to expense. ~~The balance of other assets acquired through foreclosure at September 30, 2022 and December 31, 2021 is primarily attributable to a single commercial agricultural relationship.~~

The following table summarizes the changes in other assets acquired through ~~foreclosure:~~foreclosure for the periods indicated:

	Three Months Ended September 30,				Nine Months Ended September 30,						Three Months Ended September 30,					Nine Months Ended September 30,
	2022		2021		2022			2021			2023			2022		2023			2022
	(in thousands)										(in thousands)
Balance, beginning of period	$	2,250	$	2,572	$	2,518		$	2,614		$	65		$	2,250	$	2,250		$	2,518
Additions		—		—		—			136			1,511			—		1,576			—
Proceeds from dispositions		—		—		(372	)		—			(46	)		—		(2,551	)		(372	)
Gain (loss) on sales, net		—		—		104			(178	)
(Loss)/gain on sales, net												(19	)		—		236			104
Balance, end of period	$	2,250	$	2,572	$	2,250		$	2,572		$	1,511		$	2,250	$	1,511		$	2,250

Gains or losses on sale are included in other non-interest income on the consolidated income statements.

6.	FAIR VALUE MEASUREMENT

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities. ~~FASB~~ ASC 820 - Fair Value Measurements and Disclosures (“ASC 820”) established a framework for measuring fair value using a three-level valuation hierarchy for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. ASC 820 maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would consider in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs, as follows:

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•

Level 1— Observable quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

•

Level 2— Observable quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, matrix pricing, or model-based valuation techniques where all significant assumptions are observable, either directly or indirectly in the market.

•

Level 3— Model-based techniques where significant assumptions are not observable, either directly or indirectly, in the market. These unobservable assumptions reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques may include use of discounted cash flow models and similar techniques.

The availability of observable inputs varies based on the nature of the specific financial instrument. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent limitations in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction at September 30, ~~2022~~2023, or December 31, ~~2021.~~2022. The estimated fair value amounts for September 30, ~~2022~~2023, and December 31, ~~2021~~2022, have been measured as of period-end, and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those dates. As such, the estimated fair values of these financial instruments subsequent to the reporting date may be different than the amounts reported at the period-end.

This information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only required for a limited portion of the Company’s assets and liabilities.

Due to the wide range of valuation techniques and the degree of subjectivity used in making the estimate, comparisons between the Company’s disclosures and those of other companies or banks may not be meaningful.

The following tables summarize the fair value of assets measured on a recurring basis:

	Fair Value Measurements at the End of the Reporting Period Using:								Fair Value Measurements at the End of the Reporting Period Using:
September 30, 2022	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
September 30, 2023									Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
Assets:	(in thousands)								(in thousands)
Investment securities measured at fair value	$	198	$	—	$	—	$	198
Investment securities available-for-sale
Investment securities - measured at fair value									$	309	$	—	$	—	$	309
Investment securities - available-for-sale:
U.S. government agency notes		—		4,480		—		4,480		—		3,493		—		3,493
U.S. government agency collateralized mortgage obligations		—		4,470		—		4,470
U.S. Treasury securities		—		39,795		—		39,795
U.S. government agency CMO										—		3,978		—		3,978
Corporate debt securities		—		8,370		—		8,370		—		7,653		—		7,653
Interest only strips		—		—		9		9		—		—		5		5
Servicing assets		—		—		34		34		—		—		40		40
Total	$	198	$	57,115	$	43	$	57,356	$	309	$	15,124	$	45	$	15,478

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	Fair Value Measurements at the End of the Reporting Period Using:								Fair Value Measurements at the End of the Reporting Period Using:
December 31, 2021	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
December 31, 2022									Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
Assets:	(in thousands)								(in thousands)
Investment securities measured at fair value	$	248	$	—	$	—	$	248
Investment securities available-for-sale
Investment securities - measured at fair value									$	225	$	—	$	—	$	225
Investment securities - available-for-sale:
U.S. government agency notes		—		5,508		—		5,508		—		4,107		—		4,107
U.S. government agency collateralized mortgage obligations		—		4,883		—		4,883
U.S. government agency CMO										—		4,296		—		4,296
U.S. Treasury securities										—		9,970		—		9,970
Corporate debt securities		—		9,320		—		9,320		—		8,315		—		8,315
Interest only strips		—		—		15		15		—		—		7		7
Servicing assets		—		—		1,600		1,600		—		—		26		26
Total	$	248	$	19,711	$	1,615	$	21,574	$	225	$	26,688	$	33	$	26,946

The change in servicing assets that are measured using Level 3 ~~assets measured~~inputs and are carried at fair value on a recurring basis ~~included in income~~ was as follows:

											Three Months Ended September 30,					Nine Months Ended September 30,
	Three Months Ended September 30,					Nine Months Ended September 30,					2023		2022			2023		2022
	2022			2021		2022			2021		(in thousands)
Servicing Assets:	(in thousands)
Balance, beginning of period	$	36			35	$	44		$	43	$	3	$	36		$	26	$	44
Additions		—			—		—			—
Amortization		—			—		—			—
Valuation adjustments		(2	)		9		(10	)		1		37		(2	)		14		(10	)
Balance, end of period	$	34			44	$	34		$	44	$	40	$	34		$	40	$	34

Market valuations of ~~our~~the Company’s investment securities, which are classified as Level 2, are provided by an independent third party. The fair values are determined by using several sources for valuing fixed income securities. Their techniques include pricing models that vary based on the type of asset being valued and incorporate available trade, bid, and other market information. In accordance with the fair value hierarchy, the market valuation sources include observable market inputs and are therefore considered Level 2 inputs for purposes of determining the fair values.

On certain SBA loan sales, the Company retained interest only strip assets (“I/O strips”) which represent the present value of excess net cash flows generated by the difference between (a) interest at the stated rate paid by borrowers and (b) the sum of (i) pass-through interest paid to third-party investors and (ii) contractual servicing fees. I/O strips are classified as Level 3 in the fair value hierarchy. The fair value is determined on a quarterly basis through a discounted cash flow analysis prepared by an independent third-party using industry prepayment speeds. I/O strip valuation adjustments are recorded as additions or offsets to loan servicing income.

For certain servicing assets, the Company had elected to use the amortization method for the treatment of servicing assets and had measured for impairment on a periodic basis through a discounted cash flow analysis prepared by an independent third-party using industry prepayment speeds and discount rates. In connection with the sale of certain SBA and USDA loans, the Company recorded servicing assets and elected to measure those assets at fair value in accordance with ASC 825-10. Significant assumptions in the valuation of servicing assets include estimated loan repayment rates, the discount rate, and servicing costs, among others. Servicing assets are classified as Level 3 measurements due to the use of significant unobservable inputs, as well as significant management judgment and estimation.

The Company also has assets that, under certain conditions, are subject to measurement at fair value on a non-recurring basis. These assets include ~~loans held for sale,~~ assets acquired through foreclosure and certain loans that are ~~considered impaired per generally accepted accounting principles.~~collateral dependent and recorded at the fair value of collateral (less costs to sell).

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The following summarizes the fair value measurements of assets measured on a non-recurring basis:

			Fair Value Measurements at the End of the Reporting Period Using:								Fair Value Measurements at the End of the Reporting Period Using:
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Active Markets for Similar Assets (Level 2)		Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Active Markets for Similar Assets (Level 2)		Unobservable Inputs (Level 3)
	(in thousands)								(in thousands)
September 30, 2022:
Impaired loans	$	3,404	$	—	$	3,404	$	—
September 30, 2023:
Other assets acquired through foreclosure		2,250		—		2,250		—	$	1,511	$	—	$	1,511	$	—
Total	$	5,654	$	—	$	5,654	$	—	$	1,511	$	—	$	1,511	$	—

			Fair Value Measurements at the End of the Reporting Period Using:								Fair Value Measurements at the End of the Reporting Period Using:
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Active Markets for Similar Assets (Level 2)		Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Active Markets for Similar Assets (Level 2)		Unobservable Inputs (Level 3)
	(in thousands)								(in thousands)
December 31, 2021:
December 31, 2022:
Impaired loans	$	3,785	$	—	$	3,785	$	—	$	3,805	$	—	$	3,805	$	—
Other assets acquired through foreclosure		2,518		—		2,518		—		2,250		—		2,250		—
Total	$	6,303	$	—	$	6,303	$	—	$	6,055	$	—	$	6,055	$	—

The Company records certain loans at fair value on a non-recurring basis. When a loan is considered ~~impaired~~collateral dependent, the need for an ~~allowance for a loan loss~~ACL is established. The fair value measurement and disclosure requirement applies to loans measured for impairment using the practical expedients method permitted by accounting guidance for impaired loans. Impairedevaluated. Such loans are measured ~~at an observable market price, if available, or~~ at the fair value of the loan’s ~~collateral, if the loan is collateral dependent.~~collateral. The fair value of the loan’s collateral is determined by appraisals or independent ~~valuation. When the fair value of the loan’s collateral is based on an observable market price or current appraised value, the appraisals~~valuations which may contain a wide range of values and ~~accordingly,~~therefore the Company classifies the fair value of the ~~impaired~~collateral dependent loans as a non-recurring valuation within Level 2 of the valuation hierarchy. Loans held for sale are carried at the lower of cost or fair value. For loans in which impairment is determined based on the net present value of cash flows, the Company classifies these as a non-recurring valuation within Level 3 of the valuation hierarchy.

Other assets acquired through foreclosure are carried at the lower of book value or fair value less estimated costs to sell. Fair value is based upon independent market prices obtained from certified appraisers or the current listing price, if lower. When the fair value of the collateral is based on a current appraised value, the Company reports the fair value of the foreclosed collateral as non-recurring valuation within Level 2.2 of the valuation hierarchy. When a current appraised value is not available or if management determines the fair value of the collateral is further impaired, the Company reports the foreclosed collateral as non-recurring Level 3.3.

Fair Values of Financial Instruments

The estimated fair values of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

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The estimated fair value of the Company’s financial instruments are as follows:

	September 30, 2022										September 30, 2023
	Carrying		Fair Value								Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Total		Amount		Level 1		Level 2		Level 3		Total
Financial assets:	(in thousands)										(in thousands)
Cash and cash equivalents	$	51,295	$	51,295	$	—	$	—	$	51,295	$	140,619	$	140,619	$	—	$	—	$	140,619
FHLB and FRB stock		4,533		—		4,533		—		4,533		4,865		—		4,865		—		4,865
Investment securities - available-for-sale		57,115		—		57,115		—		57,115		15,124		—		15,124		—		15,124
Investment securities - held-to-maturity		2,596		—		2,452		—		2,452		2,158		—		1,987		—		1,987
Investment securities - measured at fair value		198		198		—		—		198		309		309		—		—		309
Loans, net and loans held for sale		934,581		—		894,582		3,404		897,986		940,547		—		884,199		—		884,199
Accrued interest receivable		5,328		—		5,328		—		5,328		5,626		—		5,626		—		5,626
Servicing assets		1,555		—		—		2,635		2,635		1,323		—		—		2,439		2,439
Interest only strips		9		—		—		9		9		5		—		—		5		5
Financial liabilities:
Deposits		852,189		—		847,583		—		847,583		916,093		—		912,521		—		912,521
FHLB advances		110,000		—		102,609		—		102,609		90,000		—		83,876		—		83,876
Accrued interest payable		45		—		45		—		45		2,501		—		2,501		—		2,501

	December 31, 2021										December 31, 2022
	Carrying		Fair Value								Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Total		Amount		Level 1		Level 2		Level 3		Total
Financial assets:	(in thousands)										(in thousands)
Cash and cash equivalents	$	208,375	$	208,375	$	—	$	—	$	208,375	$	64,690	$	64,690	$	—	$	—	$	64,690
FHLB and FRB stock		4,441		—		4,441		—		4,441		4,533		—		4,533		—		4,533
Investment securities - available-for-sale		19,711		—		19,711		—		19,711		26,688		—		26,688		—		26,688
Investment securities - held-to-maturity		2,815		—		2,974		—		2,974		2,557		—		2,423		—		2,423
Investment securities - measured at fair value		248		248		—		—		248		225		225		—		—		225
Loans, net and loans held for sale		881,679		—		870,868		5,452		876,320		944,577		—		892,134		3,805		895,939
Accrued interest receivable		5,841		—		5,841		—		5,841		5,295		—		5,295		—		5,295
Servicing assets		1,600		—		—		2,254		2,254		1,480		—		—		2,646		2,646
Interest only strips		15		—		—		15		15		7		—		—		7		7
Financial liabilities:
Deposits		950,131		—		948,648		—		948,648		875,084		—		867,697		—		867,697
FHLB advances		90,000		—		88,409		—		88,409		90,000		—		83,322		—		83,322
Accrued interest payable		58		—		58		—		58		126		—		126		—		126

7.	BORROWINGS

Federal Home Loan Bank Advances – The Company, through the Bank, has a blanket lien credit line with ~~the~~ FHLB. FHLB advances are collateralized in the aggregate by CWB’s eligible loans and securities. ~~Total~~ FHLB advances ~~were $110.0 million~~ at September 30, ~~2022, with~~2023 had fixed rates of interest ~~rates ranging from 0.76% to 3.18%.~~ ~~Total FHLB advances were $90.0~~ ~~million at December 31, 2021, with interest rates~~ ranging from 0.76% to 0.95%. The advances mature between April and June of 2025. The Company also had ~~$29.0~~$27.0 million of letters of credit with FHLB at September 30, ~~2022~~2023 to secure public funds. At September 30, ~~2022,~~2023, CWB had pledged to the FHLB ~~$51.2~~$9.5 million of securities and ~~$237.2~~$382.7 million of loans. At September 30, ~~2022,~~2023, CWB had ~~$36.4~~$124.8 million available for additional borrowing. At December 31, ~~2021,~~2022, CWB had pledged to the FHLB ~~$13.2~~$21.1 million of securities and ~~$286.6~~$232.6 million of loans.

Total FHLB interest expense was ~~$203~~$198 thousand and ~~$593~~$695 thousand for the three and nine months ended September 30, ~~2022,~~2023, respectively, and was ~~$198~~$203 thousand and $663 thousand for the three and nine months ended ~~September~~ ~~30, 2021, respectively.~~

~~The following table presents the contractual maturities by year of FHLB advances as of~~ September 30, 2022, ~~(in thousands):~~respectively.

Within one year $ 20,000
After one through two years —
After two through three years 90,000
Total $ 110,000

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Federal Reserve Bank – The Company has established a credit line with the FRB. Advances are collateralized in the aggregate by eligible loans for up to 28 days. At September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, there were ~~$260.2~~$289.3 million and ~~$259.5~~$248.6 million, respectively, of loans pledged to the FRB. There were no outstanding FRB advances as of September 30, ~~2022~~2023 and December 31, ~~2021.~~2022. Available borrowing capacity was ~~$88.9 million and $119.0~~$98.0 million as of September 30, ~~2022 and December 31, 2021, respectively.~~2023.

Federal Funds Purchased Lines – The Company has federal funds borrowing lines at correspondent banks totaling $20.0 million. There were no amounts outstanding as of September 30, ~~2022~~2023 and December 31, ~~2021.~~2022.

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Line of Credit - ~~In September of 2021, the~~The Company ~~entered into~~has an unsecured line of credit agreement ~~for~~to borrow up to ~~$5.0~~$10.0 million at Prime + 0.25%. The Company must maintain a compensating deposit with the lender of $1.0 million. In addition, the Company must maintain a minimum debt service coverage ratio of 1.65 to 1, a minimum Tier 1 leverage ratio of 7.0%, a minimum total risked based capital ratio of 10.0% and a maximum net non-accrual ratio of not more than 3%. The line of credit matured in September ~~2022~~2023 and the Company renewed the line of credit for an additional ~~one-year~~two-year term ~~and increased the amount available to $10.0 million~~ with no other changes to the financial terms or covenants. As of September 30, ~~2022~~2023 and December 31, 2021, there were no outstanding balances on the revolving line of credit.

8.	STOCKHOLDERS’ EQUITY

The following table summarizes the changes in accumulated other comprehensive income (loss) by component, net of tax for the period indicated:

Three Months Ended
September 30,

Nine Months Ended
September 30,

2022

2021
2022

2021

Unrealized holding
gains (losses) on AFS

Unrealized holding
gains (losses) on AFS

(in thousands)
Beginning balance $ (447 )
$
150
$ 92
$
35

Other comprehensive (loss) income before reclassifications (307 )
(12
)
(846 )
103

Amounts reclassified from accumulated other comprehensive income
—
—
—
—

Net current-period other comprehensive (loss) income
(307 )
(12
)
(846 )
103

Ending Balance $ (754 )
$
138
$ (754 )
$
138

	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
	Unrealized holding gains (losses) on AFS						Unrealized holding gains (losses) on AFS
	(in thousands)
Beginning balance	$	(1,680	)	$	(447	)	$	(771	)	$	92
Other comprehensive income (loss) before reclassifications		489			(307	)		(420	)		(846	)
Amounts reclassified from accumulated other comprehensive income		—			—			—			—
Net current-period other comprehensive income (loss)		489			(307	)		(420	)		(846	)
Ending balance	$	(1,191	)	$	(754	)	$	(1,191	)	$	(754	)

Common Stock

On February 28, 2019, the Board of Directors increased the common stock repurchase program to $4.5 million and extended the repurchase program until August 31, 2023. On August 30, 2023, the Board of Directors approved an extension of the expiration date of the repurchase program to August 31, 2025. Under this program the Company has repurchased 350,189 common stock shares for $3.0 million at an average price of $8.71 per share. There were no repurchased shares of common stock under this program during the three and nine months ended September 30, ~~2022.~~2023.

During the three and nine months ended September 30, 2023, the Company declared and paid common stock dividends of $0.7 million and $2.1 million, respectively. During the three and nine months ended September 30, 2022, the Company declared and paid common stock dividends of $0.7 ~~million~~ and $1.9 million, respectively. ~~During the three and nine months ended September 30, 2021, the Company declared and paid common stock dividends of $0.6 and $1.7 million, respectively.~~

~~On October 28, 2022, the Company’s Board of Directors declared a $0.075 per share dividend payable on November 30, 2022, to stockholders of record on November 14, 2022.~~

9.	CAPITAL ~~REQUIREMENT~~REQUIREMENTS

At September 30, 2023 and December 31, 2022, the Company qualified for treatment under the Small Bank Holding Company Policy Statement (Regulation Y, Appendix C) and, therefore, is not subject to consolidated capital rules at the holding company level.

CWB is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements could trigger certain mandatory or discretionary actions that, if undertaken, could have a material effect on the Company’s business and financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, CWB must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgements by the regulators about components, risk weightings and other factors.

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In 2019, the federal banking agencies jointly issued a final rule, which provides for an additional optional, simplified measure of capital adequacy, the community bank leverage ratio framework. Under this framework, the Bank would choose the option of using the community bank leverage ratio (CBLR). A CBLR bank may opt out of the framework at any time, without restriction, by reverting to the generally applicable risk-based capital rules. As of the fourth quarter 2021, the Company rescinded its CBLR election.

The following tables illustrate the Bank’s regulatory ratios and the Federal Reserve’s current adequacy guidelines as of September 30, ~~2022~~2023 and December 31, ~~2021.~~2022.

	Total Capital (To Risk- Weighted Assets)			Tier 1 Capital (To Risk- Weighted Assets)			Common Equity Tier 1 (To Risk- Weighted Assets)			Leverage Ratio/Tier 1 Capital (To Average Assets)			Total Capital (To Risk- Weighted Assets)			Tier 1 Capital (To Risk- Weighted Assets)			Common Equity Tier 1 (To Risk- Weighted Assets)			Leverage Ratio/Tier 1 Capital (To Average Assets)
September 30, 2022
September 30, 2023
CWB’s actual regulatory ratios		12.46	%		11.30	%		11.30	%		9.83	%		13.27	%		12.09	%		12.09	%		10.84	%
Minimum capital requirements		8.00	%		6.00	%		4.50	%		4.00	%		8.00	%		6.00	%		4.50	%		4.00	%
Well-capitalized requirements		10.00	%		8.00	%		6.50	%		N/A			10.00	%		8.00	%		6.50	%		5.00	%

	Total Capital (To Risk- Weighted Assets)			Tier 1 Capital (To Risk- Weighted Assets)			Common Equity Tier 1 (To Risk- Weighted Assets)			Leverage Ratio/Tier 1 Capital (To Average Assets)			Total Capital (To Risk- Weighted Assets)			Tier 1 Capital (To Risk- Weighted Assets)			Common Equity Tier 1 (To Risk- Weighted Assets)			Leverage Ratio/Tier 1 Capital (To Average Assets)
December 31, 2021
December 31, 2022
CWB’s actual regulatory ratios		12.19	%		11.02	%		11.02	%		8.56	%		12.56	%		11.44	%		11.44	%		10.34	%
Minimum capital requirements		8.00	%		6.00	%		4.50	%		4.00	%		8.00	%		6.00	%		4.50	%		4.00	%
Well-capitalized requirements		10.00	%		8.00	%		6.50	%		N/A			10.00	%		8.00	%		6.50	%		5.00	%

The adoption of CECL on January 1,2023 resulted in a $1.6 million reduction to stockholders’ equity, net of $0.7 million in taxes. Banking organizations that experienced a reduction in retained earnings from the adoption of CECL have the option to elect a phase-in approach for up to 3 years of the “day 1” adverse impact to regulatory capital. The Company made this election and will phase in the impact of the transition to CECL over a three-year period, starting with the first quarter of 2023.

There are no conditions or events since September 30, ~~2022~~2023 that management believes have changed the Company’s or the Bank’s risk-based capital category.

10.	REVENUE RECOGNITION

ASC 606 requires recognition of revenue at an amount that reflects the consideration to which the Company expects to be entitled to in exchange for transferring goods or services to a customer. The majority of the Company’s revenue is from sources outside of the scope of ASC 606. Revenue from service charges and fees and interchange fees on credit and debit cards are within the scope of ASC 606.

Service Charges on Deposit Accounts

Service charges on deposit accounts consist of monthly service fees, check orders, account analysis fees, and other deposit account related fees. The Company’s performance obligation for monthly service fees and account analysis fees is generally satisfied, and the related income recognized, over the period in which the service is provided. Check orders and other ~~deposit related~~deposit-related fees are largely transactional based and, therefore, the Company’s performance obligation is satisfied, and related income recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.

Exchange Fees and Other Service Charges

Exchange fees and other service charges are primarily comprised of debit and credit card income, merchant services income, ATM fees, and other service charges. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa or MasterCard. Merchant services income is primarily fees charged to merchants to process their debit and credit card transactions. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM, or a non-Company cardholder uses a Company ATM. Other service charges include fees from processing wire transfers, cashier’s checks, and other services. The Company’s performance ~~obligation~~obligations for exchange and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.

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The following table presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for periods indicated.

Non-interest income	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021		2023		2022		2023		2022
In-scope of Topic 606:	(in thousands)								(in thousands)
Service charges on deposit accounts	$	87	$	59	$	225	$	171	$	275	$	87	$	408	$	225
Exchange fees and other service charges		129		125		379		345		231		129		337		379
Non-interest income (in-scope of ASC 606)		216		184		604		516		506		216		745		604
Non-interest income (out-of-scope of ASC 606)		656		856		2,610		2,293		575		656		2,244		2,610
Total	$	872	$	1,040	$	3,214	$	2,809	$	1,081	$	872	$	2,989	$	3,214

Contract Balances

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s non-interest income streams are largely based on transactional activity. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and income is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company did not have any signficant contract balances.

~~Contract Acquisition Costs~~

~~In connection with the adoption of ASC 606, an entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a~~ ~~customer~~ if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained. The Company utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. Upon adoption of ASC 606, the Company did not capitalize any contract acquisition cost.

11.

LEASES

The Company has operating leases for office space. The Company’s office leases are typically for terms of between 2 and 10 years. Rents usually increase annually in accordance with defined rent steps or based on current year consumer price index adjustments. When renewal options exist, the Company generally does not deem them to be reasonably certain to be exercised, and therefore the amounts are not recognized as part of the lease liability nor the right-of-use asset until after exercise of the renewal option. As of September 30, ~~2022~~2023, and December 31, ~~2021,~~2022, the balance of the right-of-use assets was ~~$5.4~~$4.5 million and ~~$5.1~~$5.2 million, respectively, and the balance of lease liabilities ~~were $5.5~~was $4.6 million and ~~$5.1~~$5.3 million, respectively. The right-of-use assets are included in other assets and the lease liabilities are included in other liabilities in the accompanying consolidated balance sheets.

							Nine Months Ended September 30,
	Nine Months Ended September 30,						2023			2022
	2022			2021			(in thousands)
Lease cost:	(in thousands)
Operating lease cost	$	1,008		$	1,000		$	765		$	1,008
Sublease income		—			—			—			—
Total lease cost	$	1,008		$	1,000		$	765		$	1,008

Other information:
Operating cash flows from operating leases	$	999		$	1,068		$	762		$	999
Weighted average remaining lease term - operating leases	7.21 years			8.93 years				6.49			7.21
Weighted average discount rate - operating leases		3.25	%		3.22	%		3.66	%		3.25	%

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Future minimum operating lease payments for the years shown are as follows (in thousands):

2022	$	252
2023		1,014	$	260
2024		1,026		1,041
2025		976		991
2026		876		891
2027				488
Thereafter		2,011		1,554
Total future minimum lease payments	$	6,155		5,225
Less remaining imputed interest		685		606
Total lease liabilities	$	5,470	$	4,619

12. SUBSEQUENT EVENTS

On October 10, 2023, the Company announced the signing of an Agreement of Reorganization and Merger with Central Valley Community Bancorp (NASDAQ: CVCY), headquartered in Fresno, California, together with its banking subsidiary, Central Valley Community Bank, pursuant to which the companies will combine in an all-stock merger transaction. Under the terms of the agreement, Community West Bancshares will merge with and into Central Valley Community Bancorp and Community West Bank will merge with and into Central Valley Community Bank. The Central Valley Community Bancorp and Community West Bancshares Boards of Directors have unanimously approved the transaction, which is expected to close in the second quarter of 2024. The resulting merged company will be named Community West Bancshares, and the merged Bank will be Community West Bank.

On October 27, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $0.08 per common share, payable on November 30, 2023, to common shareholders of record on November 14, 2023.

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ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion is designed to provide insight into management’s assessment of significant trends related to the Company's consolidated financial condition, results of operations, liquidity, capital resources, and interest rate sensitivity. It should be read in conjunction with the Company’s unaudited interim consolidated financial statements and notes thereto included herein and the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, and the other financial information appearing elsewhere in this report.

Forward Looking Statements

This Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2022~~2023 (this “Form 10-Q”) contains certain forward-looking statements about the Company and the Bank that are intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. Statements that are not historical or current facts, including statements about future financial and operational results, expectations, or intentions are forward-looking statements. Such statements reflect management's current views of future events and operations. These forward-looking statements are based on information currently available to the Company as of the date of this Form 10-Q. It is important to note that these forward-looking statements are not guarantees of future performance and involve and are subject to significant risks, contingencies, and uncertainties, many of which are difficult to predict and are generally beyond our control ~~including, but not limited to, risks from the ongoing COVID-19 pandemic; wars~~ and ~~international conflicts including the current military actions involving the Russian Federation and Ukraine; the strength of the United States economy in general and of the local economies in~~ which we conduct operations; the effect of, and changes in, trade, monetary and fiscal policies and laws, including changes in interest rate policies of the Board of Governors of the Federal Reserve System; inflation, including the rising costs of oil and gas; supply chain interruptions; weather, natural disasters, climate change; increased unemployment; deterioration in credit quality of our loan portfolio and/or the value of the collateral securing the repayment of those loans; reduction in the value of our investment securities; the costs and effects of litigation and of adverse outcomes of such litigation; the cost and ability to attract and retain key employees; a breach of our operational or security systems, policies or procedures including cyber-attacks on us or third party vendors or service providers; regulatory or legal developments; United States tax policies, including our effective income tax rate; and our ability to implement and execute our business plan and strategy and expand our operations as provided therein. Actual results may differ materially from those set forth or implied in the forward-looking statements as a result of a variety of factors including the risk factors contained in documents filed by the Company with the Securities and Exchange Commission and are available in the “Investor Relations” section of our website, https://www.communitywest.com/sec-filings/documents. The Company is under no obligation (and expressly disclaims any obligation) to update or alter such forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

Forward-looking statements contained in this Quarterly Report on Form 10-Q involve substantial risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company and may cause our actual results ~~to differ significantly from historical results~~ and those expressed in any forward-looking statement. Risks and uncertainties include those set forth in our filings with the Securities and Exchange Commission and the following factors that could cause actual resultsperformance to differ materially from anticipated results or performance or those ~~presented:~~contained or implied by such forward-looking statements including, but not limited to:

general economic conditions, either nationally or locally in some or all areas in which business is conducted, or conditions in the real estate or securities markets or the banking industry which could affect liquidity in the capital markets, the volume of loan origination, deposit flows, real estate values, the levels of non-interest income and the amount of loan losses;

~~COVID-19 pandemic~~liquidity of banking institutions both domestically and ~~measures~~internationally, including sources and availability of funds, depositor behavior in response adverse economic developments, and the ability to ~~prevent its spread may continue~~attract and retain deposits and manage liquidity;

the reduction in the value of securities portfolios due to ~~have an effect on our business;~~rising interest rates;

recent bank failures and other adverse developments in the financial sector that affects customer and investor confidence and resulting deposit volatility and uncertainty and disruption in capital markets;

changes in existing loan portfolio composition and credit quality, and changes in loan loss requirements;

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legislative or regulatory changes which may adversely affect the Company’s ~~business;~~business, including the interest rate policies of the Board of Governors of the Federal Reserve and regulatory pressure to increase capital levels;

continued inflation, including the ~~water shortage in certain areas~~rising cost of ~~California~~oil and gas, and its impact on our customers’ businesses and ability to repay loans;

climate conditions, including the drought experienced in California over the past several years followed by the flooding due to the unusually large amounts of precipitation experienced this past winter, and their impact on the economy;

the Company’s success in implementing its ~~new~~ business initiatives, including expanding its product line, adding new branches, and successfully building its brand image;

changes in interest rates which may reduce or increase net interest margin and net interest income;

increases in competitive pressure among financial institutions or non-financial institutions;

technological changes which may be more difficult to implement or more expensive than anticipated;

changes in borrowing facilities, capital markets, and investment opportunities which may adversely affect the business;

changes in accounting principles, policies, or guidelines which may cause conditions to be perceived differently;

litigation or other matters before regulatory agencies, whether currently existing or commencing in the future, which may delay the occurrence or non-occurrence of events longer than ~~anticipated;~~anticipated along with the costs and effects of litigation and of adverse outcomes of such litigation;

the occurrence or non-occurrence of events longer than anticipated;

the ability to originate loans with attractive terms and acceptable credit quality;

the ability to attract and retain key members of management;

the ability to realize cost efficiencies;

a failure or breach of our operational or security systems or ~~infrastructure;~~infrastructure, including cyber-attacks on us or third party vendors or service providers;

a return of recessionary conditions and increased unemployment that could result in ~~increases~~deterioration in credit quality of our ~~level~~loan portfolio and/or the value of ~~non-performing~~the collateral securing the repayment of those loans, and/or reduce demand for our products and services;

United States tax policies, including our effective income tax rate;

loss of key personnel;

~~sources of liquidity;~~

possible impact by the transition from ~~Libor~~London Inter-bank Offering Rate (“LIBOR”) to the Secured Overnight Financing Rate (“SOFR”) or other indices as a reference rate; ~~and,~~

~~risks related to natural disasters, terrorist attacks, threats of war or actual war and health epidemics may impact our operations, revenues, costs, and stock price.~~

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•

risks related to natural disasters, earthquakes, wildfires, terrorist attacks, threats of war or actual war, including the current military actions involving the Russian Federation and Ukraine and the recent conflict in the Middle East, supply chain interruptions, and health epidemics may impact our operations, revenues, costs, and stock price; and

•

risks related to the transaction that is the subject of the Agreement of Reorganization and Merger dated October 10, 2023, by and among Central Valley Community Bancorp and Community West Bancshares (the “Reorganization Agreement”) pursuant to which the companies will combine in an all-stock merger transaction not satisfying the conditions to closing the transaction, including the companies not receiving the regulatory approvals and the shareholder approvals of the transaction and as a result not completing the transaction in accordance with the terms of the Reorganization Agreement.

For additional information regarding risks that may cause our actual results to differ materially from any forward-looking statements, see “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2021 and~~2022, available in ~~item 1A~~the “Investor Relations” section of ~~Part II~~our website, https://www.communitywest.com/sec-filings/documents. The Company is under no obligation (and expressly disclaims any obligation) to update or alter such forward-looking statements, whether as a result of ~~this Quarterly Report.~~new information, future events, or otherwise, except as required by law.

Financial Overview and Highlights

Community West Bancshares (“CWBC”) incorporated under the laws of the state of California, is a bank holding company headquartered in Goleta, California providing full-service banking and lending through its wholly-owned subsidiary Community West Bank (“CWB” or the “Bank”), which has seven California branch banking offices in Goleta, Ventura, Santa Maria, Santa Barbara, San Luis Obispo, Oxnard, and Paso Robles and one ~~wholly owned~~wholly-owned subsidiary, 445 Pine LLC which was formed to hold certain repossessed property. These entities are collectively referred to herein as the ~~“Company”.~~

~~COVID-19 Update~~

Although the COVID-19 pandemic continues to persist, we believe that the pandemic has not adversely affected our primary objective of providing our clients with financial services they need to conduct their operations and that we have been able to successfully navigate the challenges of the COVID-19 pandemic to date. The future trajectory of COVID-19 cases and timing of when the virus will be fully controlled or abated remain uncertain. We cannot predict the potential future impact that COVID-19 may have on our operations and financial performance.“Company.”

Financial Result Highlights for the Third Quarter of ~~2022~~2023

The ~~significant factors impacting~~Company’s financial results for the ~~Company’s~~ third quarter ~~earnings performance were:~~were as follows:

Net income was $2.3 million, or $0.25 per diluted share in the third quarter of 2023, compared to $3.5 million, or $0.39 per diluted share in the third quarter of ~~2022, compared to $3.6 million, or $0.41 per diluted share in the third quarter of 2021.~~2022.

Net interest income ~~increased to $11.9~~was $10.5 million for the third quarter of ~~2022~~2023, compared to ~~$10.9~~$11.9 million in the third quarter of ~~2021.~~2022.

A provision (credit) for ~~loan~~credit losses of ~~$298~~$43 thousand was recorded for the third quarter of ~~2022,~~2023, compared to ~~a provision for loan losses of $7~~$298 thousand for the third quarter of ~~2021.~~2022.

Net interest margin was 3.98% for the third quarter of 2023, compared to 4.39% for the third quarter of ~~2022, compared to 3.97% for the third quarter of 2021.~~2022.

Return on average assets was 0.83% for the third quarter of 2023, compared to 1.25% for the third quarter of ~~2022 compared to 1.28%~~2022.

Return on average common equity was 7.72% for the third quarter of ~~2021.~~

~~Return on average equity was~~2023, compared to 12.65% for the third quarter ~~of 2022 compared to 14.77% for the third quarter 2021.~~2022.

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~~Loans, net~~Cash and cash equivalents increased ~~$54.9~~$75.9 million to ~~$923.6~~$140.6 million at September 30, ~~2022, compared to $868.7~~2023 from $64.7 million at December 31, ~~2021.~~2022 as management took steps to increase on-balance sheet liquidity during 2023.

~~Total assets decreased by $68.8~~

Loans held for investment were $934.2 million at September 30, ~~2022~~2023, compared to ~~$1.09~~$934.3 million at December 31, 2022.

Total assets increased by $48.8 million at September 30, 2023 to $1.14 billion, compared to ~~$1.16~~$1.09 billion at December 31, ~~2021.~~2022.

Total demand deposits decreased ~~$64.7~~$3.6 million to ~~$706.4~~$664.5 million at September 30, ~~2022,~~2023, compared to ~~$771.1~~$668.2 million at December 31, ~~2021. However, during~~2022. During the same period, ~~non-interest bearing demand deposits~~certificates of deposit balances increased ~~by $33.2~~$44.6 million to ~~$243.1 million.~~$251.6 million at September 30, 2023 from $206.9 million at December 31, 2022.

Book value per common share increased to ~~$12.54~~$13.11 at September 30, ~~2022,~~2023, compared to ~~$11.72~~$12.80 at December 31, ~~2021.~~2022.

~~Net non-accrual loans were $239 thousand~~

The Bank remains well-capitalized with a Tier 1 leverage ratio of 10.84% at September 30, ~~2022,~~2023, compared to ~~$565 thousand~~10.34% at December 31, ~~2021.~~2022.

The impact to the Company from these items, and others of both a positive and negative nature, will be discussed in more detail as they pertain to the Company’s overall comparative performance for the three and nine months ended September 30, ~~2022~~2023 throughout the analysis sections of this report on Form 10-Q.

Critical Accounting Estimates

The Company's significant accounting policies conform with generally accepted accounting Principles ("GAAP") and are described in ~~"Note~~Note 1 - Summary of Significant Accounting Policies of the Notes to Financial Statements section in the Company’s Annual Report on Form ~~10-K"~~10-K for the fiscal year ended December 31, ~~2021.~~2022. In applying those accounting policies, management of the Company is required to exercise judgment in determining many of the methodologies, assumptions and estimates to be utilized. Certain of the critical accounting estimates are more dependent on such judgement and in some cases may contribute to volatility in the Company's reported financial performance should the assumptions and estimates used change over time due to changes in circumstances. The more significant areas in which management of the Company applies critical assumptions and estimates include the following:

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The Company ~~maintains an allowance~~adopted the CECL requirements of ASC 326 on January 1, 2023. The Company adopted the provisions of ASC 326 using the modified retrospective transition approach, and recorded a net decrease of $1.6 million to the beginning balance of retained earnings as of January 1, 2023, for ~~loan~~the cumulative effect adjustment (net of tax effects). The Company uses the WARM method as the basis for the estimation of expected credit losses ~~("ALL") at a level deemed appropriate by management to provide~~under CECL. The calculation of the ACL is adjusted using qualitative factors for ~~known or probable incurred losses~~current conditions and for reasonable and supportable forecast periods. Loans that do not share risk characteristics with other loans in the portfolio are individually evaluated for a required ACL and are not included in the collective evaluation. Expected credit losses for loans evaluated individually are measured based on the present value of expected future cash flows discounted at the ~~consolidated balance sheet date.The determination of ALL requires estimates and assumptions in~~loan’s effective interest rate or, when the ~~preparation of the Company’s financial statements~~Company determines that can be particularly susceptible to significant change. The Company has implemented and adheres to an internal loan review system and loss allowance methodology designed to provide for the detection of problem loans and maintenance of an adequate allowance to cover loan losses. Management’s determination of the adequacy of ALLforeclosure is based on an evaluation of the composition of the portfolio, actual loss experience, industry charge-off experience on loans, current economic conditions, and other relevant factors in the areas in which the Company’s lending activities are based. These factors may affect the borrowers’ ability to pay and the value of the underlying collateral. The allowance is calculated by applying loss factors to loans held for investment according to loan type and loan credit classification. The loss factors are evaluated on a quarterly basis and established based primarily upon the Bank’s historical loss experience. Various regulatory agencies, as an integral part of their examination process, periodically review the Company’s ALL. Such agencies may require the Bank to recognize additions to the allowance based on judgments different from those of management. In the opinion of management, and in accordance with the credit loss allowance methodology, the present allowance is considered adequate to absorb estimable and probable, incurred credit losses. Additions and reductions to the allowance are reflected in current operations. Charge-offs to the allowance are made when specific loans (or portions thereof) are considered uncollectible or are transferred to other assets acquired through foreclosure and the fair value of the ~~property is~~collateral securing the loan, less ~~than the loan’s recorded investment. Recoveries are credited to the allowance.~~estimated selling costs.

Although management uses the best information available to make these estimates, future adjustments to the allowance may be necessary due to economic, operating, regulatory, and other conditions that may be beyond the Company’s control. Changes in the circumstances considered when determining management's estimates and assumptions could result in changes in those estimates and assumptions, which could result in adjustment of the ~~allowance for loan losses~~ACL in future periods. A discussion of facts and circumstances considered by management in determining the ~~allowance for loan losses~~ACL is included in ~~"Note~~Note 1 - Summary of Significant Accounting ~~Policies"~~Policies and ~~"Note~~Note 4 - Loans Held for ~~Investment"~~Investment in our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022 and in Note 1 - Summary of Significant Accounting Policies in Item 1 - Financial Statements in this Form 10-Q.

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RESULTS OF OPERATIONS

A summary of our results of operations and financial condition and select metrics is included in the following table:

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021			2023			2022			2023			2022
	(in thousands, except per share amounts)												(in thousands, except per share amounts)

Net income	$	3,478		$	3,635		$	10,073		$	10,207		$	2,252		$	3,478		$	6,837		$	10,073
Basic earnings per share	$	0.40		$	0.42		$	1.16		$	1.19		$	0.25		$	0.40		$	0.77		$	1.16
Diluted earnings per share	$	0.39		$	0.41		$	1.13		$	1.17		$	0.25		$	0.39		$	0.76		$	1.13
Net interest margin		4.39	%		3.97	%		4.09	%		4.13	%		3.98	%		4.39	%		4.07	%		4.09	%
Return on average assets		1.25	%		1.28	%		1.19	%		1.29	%		0.83	%		1.25	%		0.84	%		1.19	%
Return on average stockholders' equity		12.65	%		14.77	%		12.66	%		14.49	%
Return on average common equity														7.72	%		12.65	%		8.01	%		12.66	%

The following table sets forth a summary financial overview for the comparable three and nine months ended September 30, ~~2022~~2023 and ~~2021:~~2022:

	Three Months Ended September 30,				Increase			Nine Months Ended September 30,					Increase			Three Months Ended September 30,				Increase			Nine Months Ended September 30,					Increase
	2022		2021		(Decrease)			2022		2021			(Decrease)			2023		2022		(Decrease)			2023			2022		(Decrease)
	(in thousands, except per share amounts)															(in thousands, except per share amounts)
Consolidated Income Statement Data:
Interest and dividend income	$	12,654	$	11,835	$	819		$	35,860	$	34,541		$	1,319		$	14,553	$	12,654	$	1,899		$	42,853		$	35,860	$	6,993
Interest expense		731		906		(175	)		2,191		2,884			(693	)		4,034		731		3,303			10,587			2,191		8,396
Net interest income		11,923		10,929		994			33,669		31,657			2,012			10,519		11,923		(1,404	)		32,266			33,669		(1,403	)
Provision (credit) for loan losses		298		7		291			266		(207	)		473
Net interest income after provision (credit) for loan losses		11,625		10,922		703			33,403		31,864			1,539
Provision (credit) for credit losses																	43		298		(255	)		(667	)		266		(933	)
Net interest income after provision (credit) for credit losses																	10,476		11,625		(1,149	)		32,933			33,403		(470	)
Non-interest income		872		1,040		(168	)		3,214		2,809			405			1,081		872		209			2,989			3,214		(225	)
Non-interest expenses		7,610		6,860		750			22,693		20,389			2,304			8,363		7,610		753			26,051			22,693		3,358
Income before provision for income taxes		4,887		5,102		(215	)		13,924		14,284			(360	)		3,194		4,887		(1,693	)		9,871			13,924		(4,053	)
Provision for income taxes		1,409		1,467		(58	)		3,851		4,077			(226	)		942		1,409		(467	)		3,034			3,851		(817	)
Net income	$	3,478	$	3,635	$	(157	)	$	10,073	$	10,207		$	(134	)	$	2,252	$	3,478	$	(1,226	)	$	6,837		$	10,073	$	(3,236	)
Earnings per share - basic	$	0.40	$	0.42	$	(0.02	)	$	1.16	$	1.19		$	(0.03	)	$	0.25	$	0.40	$	(0.15	)	$	0.77		$	1.16	$	(0.39	)
Earnings per share - diluted	$	0.39	$	0.41	$	(0.02	)	$	1.13	$	1.17		$	(0.04	)	$	0.25	$	0.39	$	(0.14	)	$	0.76		$	1.13	$	(0.37	)

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Interest Rates and Differentials

The following table illustrates average yields on interest earning assets and average rates on interest bearing liabilities for the periods indicated:

	Three Months Ended September 30,																Three Months Ended September 30,
	2022								2021								2023								2022
	Average Balance			Interest		Average Yield/Cost⁽²⁾			Average Balance			Interest		Average Yield/Cost⁽²⁾			Average Balance			Interest		Average Yield/Cost⁽¹⁾			Average Balance			Interest		Average Yield/Cost⁽¹⁾
Interest Earning Assets	(in thousands)
Federal funds sold and interest earning deposits	$	76,265		$	401		2.09	%	$	182,182		$	73		0.16	%
Interest-Earning Assets																	(in thousands)
Federal funds sold and interest-earning deposits																	$	70,564		$	903		5.08	%	$	76,265		$	401		2.09	%
Investment securities		65,148			386		2.35	%		27,552			186		2.68	%		22,568			319		5.61	%		65,148			386		2.35	%
Loans ⁽¹⁾⁽²⁾		935,169			11,867		5.03	%		882,058			11,576		5.21	%		955,609			13,331		5.53	%		935,169			11,867		5.03	%
Total interest earning assets		1,076,582			12,654		4.66	%		1,091,792			11,835		4.30	%
Total interest-earning assets																		1,048,741			14,553		5.51	%		1,076,582			12,654		4.66	%
Nonearning Assets
Cash and due from banks		2,177								2,162								2,114								2,177
Allowance for loan losses		(11,031	)							(10,174	)
Allowance for credit losses																		(12,107	)							(11,031	)
Other assets		38,022								39,818								35,121								38,022
Total Assets	$	1,105,750							$	1,123,598							$	1,073,869							$	1,105,750
Interest Bearing Liabilities
Interest bearing demand deposits		465,317			325		0.28	%		499,301			411		0.33	%
Interest-Bearing Liabilities
Interest-bearing demand deposits																		388,385			1,908		1.95	%		465,317			325		0.28	%
Savings deposits		25,133			14		0.22	%		21,335			18		0.33	%		17,797			13		0.29	%		25,133			14		0.22	%
Time deposits		151,130			189		0.50	%		188,512			279		0.59	%		242,794			1,909		3.12	%		151,130			189		0.50	%
Total interest bearing deposits		641,580			528		0.33	%		709,148			708		0.40	%
FHLB advances		90,764			203		0.89	%		90,000			198		0.87	%
Total interest bearing liabilities		732,344			731		0.40	%		799,148			906		0.45	%
Non-interest Bearing Liabilities
Non-interest bearing demand deposits		248,538								211,017
Total interest-bearing deposits																		648,976			3,830		2.34	%		641,580			528		0.33	%
FHLB advances and other borrowings																		90,217			204		0.90	%		90,764			203		0.89	%
Total interest-bearing liabilities																		739,193			4,034		2.17	%		732,344			731		0.40	%
Noninterest-Bearing Liabilities
Noninterest-bearing demand deposits																		200,804								248,538
Other liabilities		15,789								15,797								18,209								15,789
Stockholders' equity		109,079								97,636								115,663								109,079
Total Liabilities and Stockholders' Equity	$	1,105,750							$	1,123,598							$	1,073,869							$	1,105,750
Net interest income and margin ⁽³⁾				$	11,923		4.39	%				$	10,929		3.97	%				$	10,519		3.98	%				$	11,923		4.39	%
Net interest spread ⁽⁴⁾							4.26	%							3.85	%							3.34	%							4.26	%
Total cost of funds (including the effect of non-interest bearing demand deposits) ⁽⁵⁾							0.30	%							0.36	%							1.70	%							0.30	%

(1)	Annualized.

(2)	Includes nonaccrual loans and loans held for ~~sale.~~

~~(2)~~

~~Annualized.~~sale, and is net of deferred fees, related direct costs, premiums, and discounts, but excludes the ACL. Interest income includes net accretion/(amortization) of deferred fees, costs, premiums, and discounts of $70 thousand and $112 thousand for the three months ended September 30, 2023 and 2022, respectively.

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

(4)	Net interest spread represents the average yield earned on ~~interest earning~~interest-earning assets less the average rate paid on ~~interest bearing~~interest-bearing liabilities.

(5)	Total cost of funds (including the effect of ~~non-interest bearing~~noninterest-bearing demand deposits) is calculated by dividing total interest expense by the sum of total ~~interest bearing~~interest-bearing liabilities and ~~non-interest bearing~~noninterest-bearing demand deposits.

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Nine Months Ended September 30,
2022 2021

Average
Balance
Interest
Average
Yield/Cost⁽²⁾

Average
Balance
Interest
Average
Yield/Cost⁽²⁾

Interest Earning Assets (in thousands)
Federal funds sold and interest earning deposits $ 143,455 $ 812 0.76 % $ 115,265 $ 146 0.17 %
Investment securities 45,903 858 2.50 % 26,792 530 2.64 %
Loans ⁽¹⁾
912,414 34,190 5.01 % 883,280 33,865 5.13 %
Total interest earning assets 1,101,772 35,860 4.35 % 1,025,337 34,541 4.50 %
Nonearning Assets
Cash and due from banks 2,177 2,148
Allowance for loan losses (10,805 ) (10,221 )
Other assets 38,195 39,904
Total Assets $ 1,131,339 $ 1,057,168
Interest Bearing Liabilities
Interest bearing demand deposits 493,332 917 0.25 % 449,019 1,359 0.40 %
Savings deposits 24,827 47 0.25 % 20,244 58 0.38 %
Time deposits 163,666 634 0.52 % 182,267 804 0.59 %
Total interest bearing deposits 681,825 1,598 0.31 % 651,530 2,221 0.46 %
FHLB advances 90,257 593 0.88 % 95,806 663 0.93 %
Total interest bearing liabilities 772,082 2,191 0.38 % 747,336 2,884 0.52 %
Non-interest Bearing Liabilities
Non-interest bearing demand deposits 236,531 199,861
Other liabilities 16,352 15,822
Stockholders' equity 106,374 94,149
Total Liabilities and Stockholders' Equity $ 1,131,339 $ 1,057,168
Net interest income and margin ⁽³⁾
$ 33,669 4.09 % $ 31,657 4.13 %
Net interest spread ⁽⁴⁾
3.97 % 3.98 %
Total cost of funds (including the effect of non-interest bearing demand deposits) ⁽⁵⁾
0.29 % 0.41 %

The following table illustrates average yields on interest earning assets and average rates on interest bearing liabilities for the periods indicated:

	Nine Months Ended September 30,
	2023								2022
	Average Balance			Interest		Average Yield/Cost⁽¹⁾			Average Balance			Interest		Average Yield/Cost⁽¹⁾
Interest-Earning Assets	(in thousands)
Federal funds sold and interest-earning deposits	$	81,525		$	2,924		4.80	%	$	143,455		$	812		0.76	%
Investment securities		24,911			948		5.09	%		45,903			858		2.50	%
Loans ⁽²⁾		953,511			38,981		5.47	%		912,414			34,190		5.01	%
Total interest-earning assets		1,059,947			42,853		5.41	%		1,101,772			35,860		4.35	%
Nonearning Assets
Cash and due from banks		2,037								2,177
Allowance for credit losses		(12,199	)							(10,805	)
Other assets		36,848								38,195
Total Assets	$	1,086,633							$	1,131,339
Interest-Bearing Liabilities
Interest-bearing demand deposits		401,262			5,032		1.68	%		493,332			917		0.25	%
Savings deposits		20,148			38		0.25	%		24,827			47		0.25	%
Time deposits		235,437			4,788		2.72	%		163,666			634		0.52	%
Total interest-bearing deposits		656,847			9,858		2.01	%		681,825			1,598		0.31	%
FHLB advances and other borrowings		93,352			729		1.04	%		90,257			593		0.88	%
Total interest-bearing liabilities		750,199			10,587		1.89	%		772,082			2,191		0.38	%
Noninterest-Bearing Liabilities
Noninterest-bearing demand deposits		204,719								236,531
Other liabilities		17,535								16,352
Stockholders' equity		114,180								106,374
Total Liabilities and Stockholders' Equity	$	1,086,633							$	1,131,339
Net interest income and margin ⁽³⁾				$	32,266		4.07	%				$	33,669		4.09	%
Net interest spread ⁽⁴⁾							3.52	%							3.97	%
Total cost of funds (including the effect of non-interest bearing demand deposits) ⁽⁵⁾							1.48	%							0.29	%

(1)	Annualized.

(2)	Includes nonaccrual loans and loans held for ~~sale.~~

~~(2)~~

~~Annualized.~~sale, and is net of deferred fees, related direct costs, premiums, and discounts, but excludes the ACL. Interest income includes net accretion/(amortization) of deferred fees, costs, premiums, and discounts of $316 thousand and $784 thousand for the nine months ended September 30, 2023 and 2022, respectively.

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

(4)	Net interest spread represents the average yield earned on ~~interest earning~~interest-earning assets less the average rate paid on ~~interest bearing~~interest-bearing liabilities.

(5)	Total cost of funds (including the effect of ~~non-interest bearing~~noninterest-bearing demand deposits) is calculated by dividing total interest expense by the sum of total ~~interest bearing~~interest-bearing liabilities and ~~non-interest bearing~~noninterest-bearing demand deposits.

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The table below sets forth the relative impact on net interest income of changes in the volume of ~~interest earning~~interest-earning assets and ~~interest bearing~~interest-bearing liabilities and changes in rates earned and paid by the Company on such assets and liabilities. For purposes of this table, nonaccrual loans have been included in the average loan balances.

	Three Months Ended September 30,									Nine Months Ended September 30,
	2023 versus 2022									2023 versus 2022
	Increase (Decrease) Due to Changes in ⁽¹⁾									Increase (Decrease) Due to Changes in ⁽¹⁾
	Volume			Rate			Total			Volume			Rate			Total
	(in thousands)									(in thousands)
Interest income:
Federal funds sold and interest-earning deposits	$	(30	)	$	532		$	502		$	(352	)	$	2,464		$	2,112
Investment securities		(252	)		185			(67	)		(393	)		483			90
Loans, net		259			1,205			1,464			1,530			3,261			4,791
Total interest income		(23	)		1,922			1,899			785			6,208			6,993

Interest expense:
Interest-bearing demand deposits		(54	)		1,637			1,583			(172	)		4,287			4,115
Savings deposits		(4	)		3			(1	)		(9	)		—			(9	)
Time deposits		116			1,604			1,720			279			3,875			4,154
FHLB advances and other borrowings		(1	)		2			1			21			115			136
Total interest expense		57			3,246			3,303			119			8,277			8,396
Net increase	$	(80	)	$	(1,324	)	$	(1,404	)	$	666		$	(2,069	)	$	(1,403	)

~~Page 36~~

~~Table of Contents~~

Three Months Ended September 30,
2022 versus 2021

Nine Months Ended September 30,
2022 versus 2021

Increase (Decrease)
Due to Changes in ⁽¹⁾

Increase (Decrease)
Due to Changes in ⁽¹⁾

Volume Rate Total Volume Rate Total
(in thousands) (in thousands)
Interest income:
Federal funds sold and interest earning deposits $ (249 ) $ 577 $ 328 $ 134 $ 532 $ 666
Investment securities 248 (48 ) 200 374 (46 ) 328
Loans, net 699 (408 ) 291 1,122 (797 ) 325
Total interest income 698 121 819 1,630 (311 ) 1,319

Interest expense:
Interest bearing demand deposits (25 ) (61 ) (86 ) 87 (529 ) (442 )
Savings deposits 2 (6 ) (4 ) 10 (21 ) (11 )
Time deposits (52 ) (38 ) (90 ) (77 ) (93 ) (170 )
FHLB advances 1 4 5 (36 ) (34 ) (70 )
Total interest expense (74 ) (101 ) (175 ) (16 ) (677 ) (693 )
Net increase $ 772 $ 222 $ 994 $ 1,646 $ 366 $ 2,012

(1)

Changes due to both volume and rate have been allocated proportionately between changes in volume and rate.

Comparison of interest income, interest expense, and net interest margin

The Company’s primary source of revenue is interest income. Interest income for the three and nine months ended September 30, ~~2022~~2023 was $14.6 million and $42.9 million, respectively, compared to $12.7 million and $35.9 ~~million, respectively, compared to $11.8 million and $34.5~~ million for three and nine months ended September 30, ~~2021,~~2022, respectively. Total interest income in the three and nine months ended September 30, ~~2022~~2023 was positively impacted by an increase in the rates earned on the average outstanding ~~balance~~balances of ~~total~~interest-earning assets. The average rate earned on loans ~~as well as the purchase of $40.0 million of additional U.S. Treasury securities classified as available for sale~~ during the ~~second quarter.~~three and nine months ended September 30, 2023, was 5.53% and 5.47%, respectively, compared to 5.03% and 5.01% for the three and nine months ended September 30, 2022, respectively. This increase in the rates earned on loans resulted from increased loan rates on new originations, loan prepayment revenue, and the impact of higher benchmark interest rates for variable rate loans. Interest income was also positively impacted by increases of ~~1.93%~~2.99% and ~~0.59%~~4.04% in the yield received on federal funds sold and interest earning deposits for the three and nine months ended September 30, ~~2022,~~2023, respectively, compared to the same periods in the prior year. These ~~effects~~increases were ~~partially offset by a decrease~~attributable to higher rates earned for overnight deposits and money market deposits due to increases in the rates earned on outstanding loans, in part due to lower accretion of deferred fees related to PPP loans. The Company recognized $29 thousand and $0.6 million of income in interest and net fees related to PPP loans during the three and nine months ended September 30, 2022, compared to $1.1 million and $3.3 million for the three and nine months ended September 30, 2021.federal funds rate. The annualized yield on interest-earning assets for the third quarter ~~2022~~of 2023 was ~~4.66%~~5.51% compared to ~~4.30%~~4.66% for the third quarter of ~~2021.~~2022. The annualized yield on interest-earning assets for the nine months ended September 30, ~~2022~~2023 was ~~4.35%~~5.41% compared to ~~4.50%~~4.35% for the nine months ended September 30, ~~2021.~~2022.

Interest expense for the third quarter and year-to-date periods ending September 30, ~~2022~~2023 was ~~$0.7~~$4.0 million and ~~$2.2~~$10.6 million, respectively. These amounts represented ~~decreases~~increases of ~~$0.2~~$3.3 million and ~~$0.7~~$8.4 million, respectively, when compared to the ~~comparable~~same periods in ~~2021.~~2022. The ~~decreases~~increase in interest ~~expense~~expenses compared to the prior year periods was primarily due to ~~a decrease~~an increase in the rates paid on deposit accounts. For the three and nine months ended September 30, ~~2022,~~2023, the cost of interest bearing deposits was ~~0.33%~~2.34% and ~~0.31%~~2.01%, respectively, compared to ~~0.40%~~0.33% and ~~0.46%~~0.31% during the comparable periods in the prior ~~years. The decreases in rates reflect the Company's disciplined approach to deposit pricing.~~

The cost of borrowings was 0.89% and 0.87% for the three months ended September 30, 2022 and 2021, respectively. The increased cost of borrowings was the result of new and repricing advances from the FHLB during the period at higher rates. For the nine months ended September 30, 2022 and 2021, the cost of borrowings was 0.88% and 0.93%, respectively. The decrease in the cost of funds between the year to date periods was due to the maturity of advances with a higher interest rate, which were replaced by lower-costing advances.

year. Including the impact of non-interest bearing deposits, the total cost of ~~funds~~deposits was ~~0.30% for the third quarter 2022 compared to 0.36%~~1.79% for the third quarter of ~~2021.~~2023 compared to 0.24% for the third quarter of 2022. Year-to-date total cost of ~~funds~~deposits (including the impact of non-interest bearing deposits) for the nine months ended September 30, ~~2022~~2023 was ~~0.29%~~1.53% compared to ~~0.41%~~0.23% for the ~~first~~ nine months ended September 30, 2022. These increases reflect competitive pricing pressures and the Company’s decision to increase wholesale funding in response to the current operating environment.

The cost of ~~2021.~~other borrowings was 0.90% and 0.89% for the three months ended September 30, 2023 and 2022, respectively. For the nine months ended September 30, 2023 and 2022, the cost of other borrowings was 1.04% and 0.88%, respectively. The increased cost of other borrowings in the year-to-date period was the result of the use of overnight advances from FHLB and an advance on the Company’s line of credit to support the Company's liquidity during the first quarter of 2023. These amounts were repaid during the second quarter of 2023.

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Table of Contents

The total cost of funds for the quarter and year to date periods ended September 30, 2023, were 2.17% and 1.89%, respectively. The total cost of funds for the quarter and year to date periods ended September 30, 2022, were 0.40% and 0.38%, respectively.

The net impact of the changes in yields on interest earning assets and the rates paid on interest-bearing liabilities was ~~an increase~~a decrease in the net interest margin for the three months ended September 30, ~~2022~~2023, to ~~4.39%~~3.98% compared to ~~3.97%~~4.39% for the three months ended September 30, ~~2021.~~2022. The net impact of the changes in yields on interest earning assets and the rates paid on interest bearing liabilities was a decrease in the net interest margin for the nine months ended September 30, ~~2022~~2023, to ~~4.09%~~4.07% compared to ~~4.13%~~4.09% for the nine months ended September 30, ~~2021.~~2022.

~~Page 37~~

~~Table of Contents~~

Provision for ~~loan~~credit losses

The provision (or credit) for loan losses in each period is reflected as a charge against earnings in that period. The provision for loan losses is equal to the amount required to maintain the allowance for loan losses at a level that is adequate to absorb probable losses inherent in the loan portfolio. The provision for loan losses was $298 thousand and $7 thousand for the three months ended September 30, 2022 and 2021, respectively. The increase in the provision for loan losses expense for the third quarter 2022 compared to the third quarter of 2021 was primarily due to an increase in the outstanding balance of loans and the increase in net charge offs during the period. The Company’s allowance was 1.20% of loans held for investment at September 30, 2022 compared to 1.20% at December 31, 2021.

The provision for credit losses consisted of the following components for the periods indicated:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2023			2022		2023			2022
	(in thousands, except per share amounts)
Provision (credit) for credit losses for:
Loans	$	(58	)	$	298	$	(680	)	$	266
Available-for-sale securities		103			-		103			-
Off-balance sheet commitments		(2	)		2		(90	)		2
Total provision (credit) for credit losses⁽¹⁾	$	43		$	300	$	(667	)	$	268

(1) In accordance with the applicable GAAP rules in place at the time, the only item reported on the Provision (credit) for ~~loan~~credit losses ~~for~~line on the nine months ended September 30, 2022 was $266 thousand compared to $(207) thousand for the nine months ended September 30, 2021. The change during the periods was primarily due to an increase in the outstanding balance of loans and the increase in net charge offs during the period.

~~The following schedule summarizes the provision, charge-offs, and recoveries by loan category~~consolidated income statements for the three and nine months ended September 30, 2022 ~~and 2021:~~was the provision for credit losses for loans. The provision for credit losses for off-balance sheet commitments for those periods was recorded in other non-interest expense.

For the Three Months Ended September 30,

Manufactured
Housing

Commercial
Real Estate
Commercial SBA HELOC
Single Family
Real Estate
Consumer Total
2022 (in thousands)
Beginning balance $ 3,976 $ 6,120 $ 594 $ 23 $ 37 $ 115 $ 1 $ 10,866
Charge-offs — — — (182 ) — — — (182 )
Recoveries 88 20 13 4 6 — — 131
Net recoveries 88 20 13 (178 ) 6 — — (51 )
Provision (credit) (77 ) 182 24 174 (6 ) — 1 298
Ending balance $ 3,987 $ 6,322 $ 631 $ 19 $ 37 $ 115 $ 2 $ 11,113

2021
Beginning balance $ 2,630 $ 6,328 $ 1,020 $ 114 $ 25 $ 122 $ 1 $ 10,240
Charge-offs — — — — — — — —
Recoveries 4 20 10 1 1 — — 36
Net recoveries 4 20 10 1 1 — — 36
Provision (credit) (25 ) 149 (15 ) (87 ) (2 ) (13 ) — 7
Ending balance $ 2,609 $ 6,497 $ 1,015 $ 28 $ 24 $ 109 $ 1 $ 10,283

For the Nine Months Ended September 30,

Manufactured
Housing

Commercial
Real Estate
Commercial SBA HELOC
Single Family
Real Estate
Consumer Total
2022 (in thousands)
Beginning balance $ 2,606 $ 6,729 $ 923 $ 22 $ 18 $ 105 $ 1 $ 10,404
Charge-offs — — — (182 ) — — — (182 )
Recoveries 123 60 183 246 12 — 1 625
Net recoveries 123 60 183 64 12 — 1 443
Provision (credit) 1,258 (467 ) (475 ) (67 ) 7 10 — 266
Ending balance $ 3,987 $ 6,322 $ 631 $ 19 $ 37 $ 115 $ 2 $ 11,113

2021
Beginning balance $ 2,612 $ 5,950 $ 1,379 $ 118 $ 25 $ 108 $ 2 $ 10,194
Charge-offs — — — — — — — —
Recoveries 155 60 30 46 4 1 — 296
Net recoveries 155 60 30 46 4 1 — 296
Provision (credit) (158 ) 487 (394 ) (136 ) (5 ) — (1 ) (207 )
Ending balance $ 2,609 $ 6,497 $ 1,015 $ 28 $ 24 $ 109 $ 1 $ 10,283

~~Page 38~~

~~Table~~The Company recorded net loan recoveries of ~~Contents~~

$45 thousand net loan charge-offs of $51 thousand for the three months ended September 30, 2023 and 2022, respectively. The Company recorded net loan recoveries of $239 thousand and $443 thousand for the nine months ended September 30, 2023 and 2022, respectively. The percentage of nonaccrual loans to the total loan portfolio ~~has decreased to 0.03%~~was 0.34% as of September 30, ~~2022 from 0.06%~~2023, compared to 0.02% at December 31, ~~2021.~~

2022. The ~~allowance for loan losses~~ACL compared to net nonaccrual loans ~~has increased to 4,650%~~was 380% as of September 30, ~~2022 from 1,841%~~2023, compared to 5,102% as of December 31, ~~2021.~~2022. Total past due loans increased to ~~$2.5~~$4.6 million as of September 30, ~~2022~~2023, from ~~$0.7~~$2.9 million as of December 31, ~~2021. The majority of~~2022.

During the ~~increase in past due loans during the period between December 31, 2021 and~~quarter ended September 30, ~~2022 is~~2023, the Company recorded a $103 thousand provision for credit losses for corporate debt securities classified as available-for-sale due to downgrades in the ~~30-59 days past due bucket. During this same period, the balance~~credit ratings of ~~loans that were graded as special mention, substandard, or doubtful decreased by $6.6 million and nonaccrual loans decreased by $0.3 million.~~certain issuers of those debt securities.

Non-Interest Income

~~The Company earned non-interest income primarily through fees related to services provided to loan and deposit customers.~~

The following table summarizes the Company's non-interest income for the periods indicated:

	Three Months Ended September 30,				Increase			Nine Months Ended September 30,				Increase			Three Months Ended September 30,				Increase			Nine Months Ended September 30,				Increase
	2022		2021		(Decrease)			2022		2021		(Decrease)			2023		2022		(Decrease)			2023		2022		(Decrease)
	(in thousands)														(in thousands)
Other loan fees	$	292	$	383	$	(91	)	$	915	$	1,006	$	(91	)	$	248	$	292	$	(44	)	$	703	$	915	$	(212	)
Gains from loan sales, net		49		118		(69	)		245		366		(121	)		24		49		(25	)		110		245		(135	)
Document processing fees		114		145		(31	)		337		389		(52	)		88		114		(26	)		268		337		(69	)
Service charges		114		77		37			295		218		77			149		114		35			470		295		175
Other		303		317		(14	)		1,422		830		592			572		303		269			1,438		1,422		16
Total non-interest income	$	872	$	1,040	$	(168	)	$	3,214	$	2,809	$	405		$	1,081	$	872	$	209		$	2,989	$	3,214	$	(225	)

Total non-interest income ~~decreased~~increased by ~~$0.2 million~~$209 thousand for the three months ended September 30, ~~2022~~2023, compared to the same period in ~~2021. Other~~2022. The increase in other income for the period was primarily the result of a $278 thousand gain (included in other income) from the valuation of two parcels (related to one borrower) which were repossessed and transferred to other assets acquired through foreclosure during the quarter. This increase was partially offset by a decrease in other loan fees, which decreased by $44 thousand for the three months ended September 30, ~~2022~~2023, due to ~~lower fee income related to~~a decrease in the ~~origination~~volume of new originations of Farmer Mac loans. ~~In addition, the decrease in other income between the periods was a result~~

Page 42

Table of ~~lower gains from loan sales during the period as a result of a lower volume of loans sold compared to the same period in the prior year.~~ Contents

Total non-interest income for the nine months ended September 30, ~~2022~~2023, was ~~$3.2~~$3.0 million, ~~an increase~~a decrease of ~~$0.4~~$0.2 million compared to ~~$2.8~~$3.2 million for the nine months ended September 30, ~~2021.~~2022. The ~~increase~~decrease was primarily due to ~~the recognition of $0.5 million of proceeds~~lower origination fee income from ~~a bank owned life insurance policy~~Farmer Mac loans and ~~a $104 thousand gain on~~lower loan sale ~~of other assets acquired through foreclosure that was recognized in other income~~gains due to lower loan sales volume during the nine months ended September 30, ~~2022.~~2023. These decreases were partially offset by an increase in service charges due to an increase in the volume of nonsufficient funds and account analysis charges during the period.

Non-Interest Expenses

The following table summarizes the Company's non-interest expenses for the periods indicated:

	Three Months Ended September 30,				Increase			Nine Months Ended September 30,				Increase			Three Months Ended September 30,				Increase			Nine Months Ended September 30,				Increase
	2022		2021		(Decrease)			2022		2021		(Decrease)			2023		2022		(Decrease)			2023		2022		(Decrease)
	(in thousands)														(in thousands)
Salaries and employee benefits	$	4,823	$	4,541	$	282		$	14,784	$	13,611	$	1,173		$	5,114	$	4,823	$	291		$	15,864	$	14,784	$	1,080
Occupancy, net		1,046		802		244			3,064		2,361		703			1,093		1,046		47			3,326		3,064		262
Professional services		653		434		219			1,687		1,204		483			672		653		19			2,442		1,687		755
Data processing		302		292		10			919		964		(45	)		349		302		47			1,075		919		156
Depreciation		173		191		(18	)		535		594		(59	)		180		173		7			543		535		8
FDIC assessment		131		127		4			466		339		127			331		131		200			789		466		323
Advertising and marketing		196		189		7			687		536		151			179		196		(17	)		671		687		(16	)
Other		286		284		2			551		780		(229	)		445		286		159			1,341		551		790
Total non-interest expenses	$	7,610	$	6,860	$	750		$	22,693	$	20,389	$	2,304		$	8,363	$	7,610	$	753		$	26,051	$	22,693	$	3,358

Total non-interest expenses increased by $0.8 million ~~and $2.3 million in~~during the three ~~and nine~~ months ended September 30, ~~2022, respectively,~~2023, compared to the same ~~periods~~period in ~~2021.~~2022. The increase in non-interest expenses for the periods presented is primarily due to increases in salaries and employee benefits, ~~occupancy expenses,~~FDIC assessments, and ~~professional services.~~other expenses. Salaries and employee benefits increased in the three ~~and nine~~ months ended September 30, ~~2022~~2023, due to increased pressure on wages and benefits as a result of increased inflation and low ~~unemployment. Occupancy costs~~unemployment as well as increases in benefits and ~~professional services also increased~~insurance costs. The increase in the assessment fees paid to the FDIC was the result of a change in the Company's funding mix. The increase in other expenses was mainly the result of collection and legal expense recoveries during the three ~~and nine month periods~~months ended September 30, ~~2022~~ 2022.

During the first nine months of 2023, total non-interest expenses increased by $3.4 million to $26.1 million for the nine months ended September 30, 2023, compared to $22.7 million for the nine months ended September 30, 2022. The increase over the prior year was due to a $1.1 million increase in salaries and benefits due to wage competition, increased benefit and insurance costs, and an increase in stock based compensation expense. During the first nine months of 2023, professional services expenses increased by $755 thousand due to increased ~~costs associated with contracted services~~accounting and ~~expenses~~consulting costs related to testing the ~~Company's~~effectiveness of the Company’s internal control structure and procedures for financial reporting as required for institutions over $1 billion in total assets and to support strategic ~~outsourcing of many of its information~~and technology ~~department services and functions.~~

~~Page 39~~

~~Table of Contents~~

~~During the year-to-date period ended September 30, 2022, the Company recorded~~initiatives. The increase in other expenses ~~of $0.6 million compared~~is primarily related to ~~other expenses of $0.8 million for the-year-to-date period ended September 30, 2021. The three and nine month periods in 2022 were impacted by recaptured loan~~$992 thousand collection and legal ~~expenses of $132 thousand and $1.1 million, respectively, received from the settlement of a long-standing lawsuit with a former borrower. This~~ expense ~~recapture was partially offset by a decrease~~recovery in the ~~deferral~~first nine months of ~~loan origination costs of $522 thousand associated with lower new loan origination volume in the current period.~~2022.

Income Taxes

Income tax provision for the three and nine months ended September 30, ~~2022~~2023, was $0.9 million and $3.0 million, respectively, compared to $1.4 million and $3.9 ~~million, respectively, compared to $1.5 million and $4.1~~ million in the same periods during ~~2021.~~2022. The combined state and federal effective income tax rates for the three months ended September 30, 2023 and 2022, ~~and 2021~~ were ~~28.8%~~29.5% and 28.8%, respectively, and for the nine months ended September 30, 2023 and 2022, were 30.7% and ~~2021 were~~ 27.7% ~~and 28.5%~~, respectively. The lower effective tax rate for the year-to-date period in 2022 was the result of the fact that the income recorded from the proceeds from a bank owned life insurance policy in the first quarter of 2022 was non-taxable to the Company.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts and their respective tax basis including operating losses and tax credit carryforwards. Net deferred tax assets of ~~$4.6~~$5.7 million and ~~$4.4~~$5.1 million at September 30, ~~2022~~2023, and December 31, ~~2021,~~2022, respectively, are reported in other assets onin the consolidated balance ~~sheet.~~sheets.

Accounting standards Codification Topic 740, Income Taxes, requires that companies assess whether a valuation allowance should be established against their deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. A valuation allowance is established for deferred tax assets if, based on weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets may not be realized. Management evaluates the Company’s deferred tax assets for recoverability using a consistent approach which considers the relative impact of negative and positive evidence, including the Company’s historical profitability and projections of future taxable income. The Company is required to establish a valuation allowance for deferred tax assets and record a charge to income if management determines, based on available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax assets may not be realized. There was no valuation allowance on ~~our~~ deferred tax assets at September 30, ~~2022~~2023, or December 31, ~~2021.~~2022.

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The Company is subject to the provisions of ASC 740 ~~also~~- "Income Taxes" ("ASC 740"). ASC 740 prescribes a more likely than not threshold for the financial statement recognition of uncertain tax positions. ASC 740 clarifies the accounting for income taxes by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. On a quarterly basis, the Company undergoes a process to evaluate whether income tax accruals are in accordance with ASC 740 guidance on uncertain tax positions. There were no uncertain tax positions at September 30, ~~2022~~2023, and December 31, ~~2021.~~2022.

BALANCE SHEET ANALYSIS

Total assets ~~decreased $68.8~~increased $48.8 million to ~~$1.1~~$1.14 billion at September 30, ~~2022~~2023, from ~~$1.2~~$1.09 billion at December 31, ~~2021.~~2022. The ~~decrease~~increase in total assets was mainly due to ~~a decrease~~an increase of ~~$157.1~~$75.9 million in cash and cash equivalents that were used to pay down higher cost interest bearing deposits. However, partially offsetting this decrease, net loans held for investment increased by $54.2 million as of September 30, 2022. The majority of the increase in loans held for investment was a result ofresulted from an increase in ~~commercial real estate loans~~total deposits and proceeds from the maturities of ~~$63.6~~securities. The increase in cash and cash equivalents was part of management's plans during the first nine months of 2023 to solidify the Company's on-balance sheet liquidity position.

Total liabilities increased $45.4 million to $1.02 billion at September 30, 2023, from $0.98 billion at December 31, 2022, mostly due to an increase in deposits of $41.0 million. The increase in total deposits was the result of increases in the balances of interest-bearing deposits of $28.6 million to $456.8 million at September 30, 2023, and ~~manufactured housing loans~~in certificate of ~~$12.6~~deposit account balances of $44.6 million to $251.6 million at September 30, 2023. These increases were primarily due to an increase in wholesale funding accounts obtained by the Company. These increases were partially offset by a decrease ~~of $20.2 million~~ in ~~SBA loans primarily due to SBA forgiveness and payoff of PPP loans.~~

Total liabilities decreased $77.2 million to $978.5 million at September 30, 2022 from $1.1 billion at December 31, 2021, mostly due to a decrease in deposits of $97.9 million. Interest bearing demand deposits decreased by $98.1 million and total certificates of deposits decreased by $33.3 million during the nine months ended September 30, 2022. These decreases were partially offset by an increase in non-interest bearingnoninterest-bearing demand deposits of ~~$33.2 million during the same time period.~~$25.7 million.

Total stockholders’ equity increased ~~$8.4~~$3.4 million to ~~$109.8~~$116.1 million at September 30, ~~2022~~2023, from ~~$101.4~~$112.7 million at December 31, ~~2021.~~2022. The ~~$10.1~~$6.8 million increase in retained earnings from net income was partially offset by the $1.6 million charge to retained earnings from the adoption of ASC 326 on January 1, 2023, a ~~$1.9~~$2.1 million decrease as a result of dividends paid on common stock, and a decrease in the fair value of available for sale securities, net of tax, of $420 thousand during the nine months ended September 30, ~~2022.~~2023. Book value per common share was ~~$12.54~~$13.11 at September 30, ~~2022~~2023, compared to ~~$11.72~~$12.80 at December 31, ~~2021.~~2022.

Selected Balance Sheet Accounts

	September 30, 2023		December 31, 2022		Increase (Decrease)			Percent Increase (Decrease)
	(dollars in thousands)
Cash and cash equivalents	$	140,619	$	64,690	$	75,929			117.4	%
Investment securities available-for-sale		15,124		26,688		(11,564	)		(43.3	)%
Investment securities held-to-maturity		2,158		2,557		(399	)		(15.6	)%
Loans held for sale		18,435		21,033		(2,598	)		(12.4	)%
Loans held for investment, net		922,112		923,544		(1,432	)		(0.2	)%
Total assets		1,140,299		1,091,502		48,797			4.5	%
Total deposits		916,093		875,084		41,009			4.7	%
FHLB advances and other borrowings		90,000		90,000		—			0.0	%
Total stockholder's equity		116,062		112,650		3,412			3.0	%

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~~Selected Balance Sheet Accounts~~

September 30,
2022

December 31,
2021

Increase
(Decrease)

Percent
Increase
(Decrease)

(dollars in thousands)
Cash and cash equivalents $ 51,295 $ 208,375 $ (157,080 ) (75.4 )%
Investment securities available-for-sale 57,115 19,711 37,404 189.8 %
Investment securities held-to-maturity 2,596 2,815 (219 ) (7.8 )%
Loans held for sale 22,096 23,408 (1,312 ) (5.6 )%
Loans held for investment, net 912,485 858,271 54,214 6.3 %
Total assets 1,088,278 1,157,052 (68,774 ) (5.9 )%
Total deposits 852,189 950,131 (97,942 ) (10.3 )%
FHLB advances 110,000 90,000 20,000 22.2 %
Total stockholder's equity 109,821 101,375 8,446 8.3 %

The table below summarizes the distribution of the Company’s loans held for investment at the end of each of the periods indicated.

	September 30, 2022			December 31, 2021			September 30, 2023			December 31, 2022
	(in thousands)						(in thousands)
Manufactured housing	$	309,989		$	297,363		$	325,068		$	315,825
Commercial real estate		544,373			480,801			556,945			545,317
Commercial		54,042			55,287			38,232			59,070
SBA		3,468			23,659			1,687			3,482
HELOC		3,373			3,579			2,556			2,613
Single family real estate		8,981			8,749			10,615			8,709
Consumer		323			109			52			107
Gross loans held for investment		924,549			869,547			935,155			935,123
Deferred costs, net		(920	)		(838	)		(883	)		(787	)
Discount on SBA loans		(31	)		(34	)		(25	)		(27	)
Loans held for investment		923,598			868,675			934,247			934,309
Allowance for loan losses		(11,113	)		(10,404	)
Allowance for credit losses								(12,135	)		(10,765	)
Loans held for investment, net	$	912,485		$	858,271		$	922,112		$	923,544

The Company had ~~$22.1~~$18.4 million and $21.0 million of loans held for sale at September 30, ~~2022 compared to $23.4 million at~~2023, and December 31, ~~2021.~~2022, respectively. Loans held for sale at September 30, ~~2022~~2023, consisted of ~~$5.3~~$4.7 million of SBA loans and ~~$16.8~~$13.7 million of commercial agriculture FSA guaranteed loans. Loans held for sale at December 31, ~~2021, were $6.3~~2022, consisted of $5.2 million in SBA loans and ~~$17.1~~$15.9 million of commercial agriculture FSA guaranteed loans.

Concentrations of Lending Activities

The Company’s lending activities are primarily driven by the customers served in the market areas where the Company has branch offices inon the Central Coast of California. The Company monitors concentrations within selected categories such as geography and product. The Company originates manufactured housing, commercial, SBA, construction, real estate, and consumer loans to customers through branch offices located in the Company’s primary markets. The Company’s business is concentrated in these areas and the loan portfolio includes significant credit exposure to the manufactured housing and commercial real estate markets of these areas. As of September 30, ~~2022~~2023, and December 31, ~~2021,~~2022, manufactured housing loans comprised ~~33.5%~~34.8% and ~~34.2%~~33.8%, respectively, of ~~total loans.~~gross loans held for investment. As of September 30, ~~2022~~2023, and December 31, ~~2021,~~2022, commercial real estate loans accounted for approximately ~~58.9%~~59.6% and ~~55.3%~~58.3% of ~~total~~gross loans held for investment, respectively. Approximately ~~27.0%~~27.5% and ~~28.9%~~24.5% of these commercial real estate loans were owner-occupied at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. Substantially all of these loans are secured by first liens with average loan to value ratios at origination of ~~50.9%~~49.8% and ~~53.8%~~50.4% at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The Company was within internally established concentration policy limits at September 30, ~~2022~~2023, and December 31, ~~2021.~~2022.

Asset Quality

For all banks and bank holding companies, asset quality plays a significant role in the overall financial condition of the institution and results of operations. The Company measures asset quality in terms of nonaccrual loans as a percentage of gross loans, and net charge-offs as a percentage of average loans. Net charge-offs are calculated as the difference between charged-off loans and recovery payments received on previously charged-off loans.

	September 30, 2023			December 31, 2022
	(in thousands)
Nonaccrual loans	$	3,195		$	211
Nonaccrual loans to gross loans		0.34	%		0.02	%
Net charge-offs (recoveries) (annualized) to average loans		(0.03	)%		(0.06	)%
Allowance for credit losses to nonaccrual loans (net of government guaranteed portion)		380	%		5,102	%
Allowance for credit losses to gross loans		1.30	%		1.15	%

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September 30,
2022

December 31,
2021

(in thousands)
Nonaccrual loans (net of government guaranteed portion) $ 239 $ 565
Troubled debt restructured loans, gross 6,317 8,565
Nonaccrual loans (net of government guaranteed portion) to gross loans 0.03 % 0.06 %
Net charge-offs (recoveries) (annualized) to average loans (0.06 )% (0.04 )%
Allowance for loan losses to nonaccrual loans (net of government guaranteed portion) 4,650 % 1,841 %
Allowance for loan losses to gross loans 1.20 % 1.20 %

The following table summarizes nonaccrual loans by loan segment:

	At September 30, 2023								At December 31, 2022
	Nonaccrual Balance		% of Total Nonaccrual			% of Total Loans			Nonaccrual Balance		% of Total Nonaccrual			% of Total Loans
	(dollars in thousands)
Manufactured housing	$	727		22.76	%		0.08	%	$	61		28.91	%		0.01	%
Commercial real estate		2,277		71.27	%		0.24	%		—		0.00	%		0.00	%
Commercial		50		1.56	%		0.01	%		—		0.00	%		0.00	%
HELOC		141		4.41	%		0.02	%		—		0.00	%		0.00	%
Single family real estate		—		0.00	%		0.00	%		150		71.09	%		0.01	%
Total nonaccrual loans	$	3,195		100.00	%		0.35	%	$	211		100.00	%		0.02	%

The following table reflects the recorded investment in certain types of loans at the dates indicated:

September 30,
2022

December 31,
2021

(in thousands)
Loans 30 through 89 days past due with interest accruing $ 2,456 $ 704
Loans 90 days or more past due with interest accruing $ — $ —

	September 30, 2023		December 31, 2022
	(in thousands)
Loans 30 through 89 days past due	$	4,461	$	2,880
Loans 90 days or more past due		178		—
Total past due loans	$	4,639	$	2,880

~~Impaired loans~~Collateral Dependent Loans

Beginning on January 1, 2023, the Company evaluates loans collectively for purposes of determining the ACL in accordance with ASC 326. Collective evaluation is based on aggregating loans deemed to possess similar risk characteristics. In certain instances, the Company may identify loans that it believes no longer possess risk characteristics similar to other loans in the portfolio. Loans that are deemed by management to no longer possess risk characteristics similar to other loans in the portfolio, or that have been identified as collateral dependent, are evaluated individually for purposes of determining an appropriate lifetime ACL. The Company uses a discounted cash flow approach, using the loan’s effective interest rate, for determining the ACL on individually evaluated loans, unless the loan is deemed collateral dependent, which requires evaluation based on the estimated fair value of the underlying collateral, less estimated costs to sell. The Company may increase or decrease the ACL for collateral dependent loans based on changes in the estimated fair value of the collateral. Changes in the ACL for all other individually evaluated loans are based substantially on the Company’s evaluation of cash flows expected to be received from such loans.

AThe following table presents the amortized cost basis of collateral dependent loans by class of loans and by collateral type as of September 30, 2023:

	Manufactured Homes		Single Family Residence		Machinery & Equipment		Total

Manufactured housing	$	1,014	$	—	$	—	$	1,014
Commercial real estate		2,277		—		—		2,277
Commercial		—		—		1,210		1,210
Single family real estate		—		141		—		141
Total	$	3,291	$	141	$	1,210	$	4,642

Prior to the adoption of ASC 326, a loan iswas considered impaired when, based on current information, it iswas probable that the Company ~~will be~~would have been unable to collect the scheduled payments of principal and/or interest under the contractual terms of the loan agreement. Factors considered by management in determining impairment ~~include~~included payment status, collateral value, and the probability of collecting scheduled principal and/or interest payments. Loans that ~~experience~~experienced insignificant payment delays or payment shortfalls generally ~~are~~were not classified as impaired. Management ~~determines~~determined the significance of payment delays or payment shortfalls on a case-by-case basis. When determining the possibility of impairment, management ~~considers~~considered the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal and interest owed. For collateral-dependent loans, the Company ~~uses~~used the fair value of collateral method to measure impairment. All other loans ~~are~~were measured for impairment based on the present value of future cash flows. ~~Impairment is measured on a loan-by-loan basis for all loans in the portfolio.~~

A loan is considered a TDR when concessions have been made to the borrower and the borrower is in financial difficulty. These concessions include but are not limited to term extensions, rate reductions and principal reductions. Forgiveness

Page 46

Table of ~~principal is rarely granted and modifications for all classes of loans are predominantly term extensions. TDR loans are also considered impaired.~~Contents

The following schedule summarizes impaired loans and specific reserves by loan class as of December 31, 2022:

	Manufactured Housing		Commercial Real Estate		Commercial		SBA		HELOC		Single Family Real Estate		Consumer		Total Loans
Recorded Investment:	(in thousands)
Impaired loans with an allowance recorded	$	2,918	$	209	$	67	$	41	$	—	$	208	$	—	$	3,443
Impaired loans with no allowance recorded		1,166		—		1,297		—		—		151		—		2,614
Total loans individually evaluated for impairment		4,084		209		1,364		41		—		359		—		6,057

Related allowance for impaired loans		157		18		—		1		—		8		—		184
Total impaired loans, net	$	3,927	$	191	$	1,364	$	40	$	—	$	351	$	—	$	5,873

Allowance For Credit Losses

The Company adopted the ~~periods indicated:~~CECL requirements of ASC 326 on January 1, 2023. The Company uses the WARM method as the basis for the estimation of expected credit losses under CECL. The WARM method utilizes a historical average annual charge-off rate over a historical lookback period as a foundation for estimating credit losses for the remaining outstanding balances of loans in a segment at a particular consolidated balance sheet date. The calculation of the ACL is adjusted using qualitative factors for current conditions and for reasonable and supportable forecast periods. Loans that do not share risk characteristics with other loans in the portfolio are individually evaluated for a required allowance for credit loss and are not included in the collective evaluation, as discussed above.

Manufactured
Housing

Commercial
Real Estate
Commercial SBA HELOC
Single Family
Real Estate
Consumer
Total
Loans

Impaired Loans as of
September 30, 2022:
(in thousands)
Recorded Investment:
Impaired loans with an allowance recorded $ 3,058 $ 212 $ 72 $ 43 $ — $ 213 $ — $ 3,598
Impaired loans with no allowance recorded 1,120 — 1,331 18 — 153 — 2,622
Total loans individually evaluated for impairment 4,178 212 1,403 61 — 366 — 6,220

Related allowance for impaired loans 166 17 1 1 — 9 — 194
Total impaired loans, net $ 4,012 $ 195 $ 1,402 $ 60 $ — $ 357 $ — $ 6,026

During the three months ended September 30, 2023, the allowance for credit losses decreased by $13 thousand to $12.1 million. This decrease in the required ACL during the quarter was primarily due to a decline in the required allowance for loans evaluated on a collective basis of $140 thousand due to a decrease in net loan balances. This decrease was partially offset by an increase in the ACL that is derived from qualitative factors related to substandard loans during the period.

During the nine months ended September 30, 2023, the allowance for credit losses on loans increased by $1.4 million from $10.8 million at December 31, 2022. When the Company adopted the provisions of ASC 326 on January 1, 2023, it recorded the required $1.8 million increase in the ACL directly to retained earnings (net of tax). During the first nine months of 2023, the Company recorded a provision (credit) for credit losses for loans of $(680) thousand. This decrease in allowance for credit losses during the nine months ended September 30, 2023 (after the adjustment for the adoption of ASC 326) was primarily due to a reduction in the qualitative factor related to the percentage of the state of California that was experiencing a drought. In addition, the allowance for credit losses also declined due to a reduction in the portion of the allowance derived from historical losses. Offsetting these decreases was an increase in the qualitative factor related to substandard loans, discussed above.

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Manufactured
Housing

Commercial
Real Estate
Commercial SBA HELOC
Single Family
Real Estate
Consumer
Total
Loans

Impaired Loans as of
December 31, 2021:
(in thousands)
Recorded Investment:
Impaired loans with an allowance recorded $ 3,563 $ 220 $ 85 $ 194 $ — $ 425 $ — $ 4,487
Impaired loans with no allowance recorded 1,358 1,402 1,505 226 — 258 — 4,749
Total loans individually evaluated for impairment 4,921 1,622 1,590 420 — 683 — 9,236

Related allowance for impaired loans 210 17 — 1 — 12 — 240
Total impaired loans, net $ 4,711 $ 1,605 $ 1,590 $ 419 $ — $ 671 $ — $ 8,996

Total impaired loans decreased $3.0 million as of September 30, 2022 compared to December 31, 2021. This decrease was primarily in impaired commercial real estate and manufactured housing categories, which decreased by $1.4 million and $0.7 million, respectively.

~~The following table summarizes nonaccrual loans by loan segment:~~

At September 30, 2022 At December 31, 2021

Nonaccrual
Balance
%
Percent of
Total Loans

Nonaccrual
Balance
%
Percent of
Total Loans

(dollars in thousands)
Manufactured housing $ 85 35.56 % 0.01 % $ 306 54.16 % 0.03 %
SBA — 0.00 % 0.00 % 1 0.18 % 0.00 %
Single family real estate 154 64.44 % 0.02 % 258 45.66 % 0.03 %
Total nonaccrual loans $ 239 100.00 % 0.03 % $ 565 100.00 % 0.06 %

~~Nonaccrual loans decreased $0.3 million, or 58.0%, from $0.6 million at December 31, 2021 to $0.2 million at September 30, 2022.~~

CWB or the SBA repurchases the guaranteed portion of SBA loans from investors when those loans become past due 120 days. After the foreclosure and collection process is complete, the SBA reimburses CWB for this principal balance. Therefore, although these balances do not earn interest during this period, they generally do not result in a loss of principal to CWB.

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~~Table of Contents~~

~~Allowance For Loan Losses~~

The following table summarizes the activity in the ~~allowance for loan losses~~ACL by loan type. ~~Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories:~~

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021			2023			2022			2023			2022
Allowance for loan losses:							(in thousands)
Allowance for credit losses:													(in thousands)
Balance at beginning of period	$	10,866		$	10,240		$	10,404		$	10,194		$	12,148		$	10,866		$	10,765		$	10,404
Provision (credit) charged to operating expenses:
Impact of adoption of ASC 326														—			—			1,811			—
Provision (credit) for credit losses:
Manufactured housing		(77	)		(25	)		1,258			(158	)		(54	)		(77	)		(151	)		1,258
Commercial real estate		182			149			(467	)		487			44			182			(110	)		(467	)
Commercial		24			(15	)		(475	)		(394	)		(46	)		24			(372	)		(475	)
SBA		174			(87	)		(67	)		(136	)		(4	)		174			(70	)		(67	)
HELOC		(6	)		(2	)		7			(5	)		1			(6	)		(2	)		7
Single family real estate		—			(13	)		10			—			1			—			26			10
Consumer		1			—			—			(1	)		—			1			(1	)		—
Total Provision (credit)		298			7			266			(207	)
Total provision (credit) for credit losses														(58	)		298			(680	)		266
Recoveries of loans previously charged-off:
Manufactured housing		88			4			123			155			8			88			74			123
Commercial real estate		20			20			60			60			20			20			59			60
Commercial		13			10			183			30			13			13			37			183
SBA		4			1			246			46			4			4			69			246
HELOC		6			1			12			4			—			6			—			12
Single family real estate		—			—			—			1			—			—			—			—
Consumer		—			—			1			—			—			—			—			1
Total recoveries		131			36			625			296			45			131			239			625
Loans charged-off:
Manufactured housing		—			—			—			—			—			—			—			—
Commercial real estate		—			—			—			—			—			—			—			—
Commercial		—			—			—			—			—			—			—			—
SBA		182			—			182			—			—			182			—			182
HELOC		—			—			—			—			—			—			—			—
Single family real estate		—			—			—			—			—			—			—			—
Consumer		—			—			—			—			—			—			—			—
Total charged-off		182			—			182			—			—			182			—			182
Net charge-offs (recoveries)		51			(36	)		(443	)		(296	)		(45	)		51			(239	)		(443	)
Balance at end of period	$	11,113		$	10,283		$	11,113		$	10,283		$	12,135		$	11,113		$	12,135		$	11,113

Investment Securities

The investment securities portfolio of the Company is utilized as collateral for borrowings, required collateral for public deposits, and to manage liquidity, capital, and interest rate risk.

~~Page 44~~

~~Table of Contents~~

The carrying value of investment securities was as follows:

	September 30, 2022		December 31, 2021		September 30, 2023		December 31, 2022
	(in thousands)				(in thousands)
Securities available for sale (at fair value)
Securities available-for-sale (at fair value)
U.S. government agency notes	$	4,480	$	5,508	$	3,493	$	4,107
U.S. government agency CMO		4,470		4,883		3,978		4,296
U.S. Treasury securities		39,795		-		—		9,970
Corporate debt securities		8,370		9,320		7,653		8,315
Total securities available for sale		57,115		19,711		15,124		26,688

Securities held to maturity (at amortized cost): US government agency MBS		2,596		2,815
Securities held-to-maturity (at amortized cost): US government agency MBS						2,158		2,557
Equity securities (at fair value): Farmer Mac class A stock		198		248		309		225
Total investment securities	$	59,909	$	22,774	$	17,591	$	29,470

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During the three and nine months ended September 30, 2023, we recorded an allowance for credit losses for available-for-sale securities (through the provision for credit losses) of $103 thousand related to corporate debt securities whose issuers experienced downgrades in their credit ratings to below what is considered to be investment grade during the quarter. The ACL was determined using the discounted cash flow method, using estimated loss rates that were derived from averages for corporate debt securities with similar credit ratings. To date, none of the issuers of these debt securities have missed an interest payment. Management monitors the credit ratings of the corporate debt issuers on a monthly basis and will make appropriate adjustments to the ACL as necessary.

Other Assets Acquired Through Foreclosure

The following table represents the changes in other assets acquired through foreclosure:

	Three Months Ended September 30,				Nine Months Ended September 30,						Three Months Ended September 30,					Nine Months Ended September 30,
	2022		2021		2022			2021			2023			2022		2023			2022
	(in thousands)										(in thousands)
Balance, beginning of period	$	2,250	$	2,572	$	2,518		$	2,614		$	65		$	2,250	$	2,250		$	2,518
Additions		—		—		—			136			1,511			—		1,576			—
Proceeds from dispositions		—		—		(372	)		—			(46	)		—		(2,551	)		(372	)
Gain (loss) on sales, net		—		—		104			(178	)
(Loss)/gain on sales, net												(19	)		—		236			104
Balance, end of period	$	2,250	$	2,572	$	2,250		$	2,572		$	1,511		$	2,250	$	1,511		$	2,250

Other assets acquired through foreclosure consist primarily of properties acquired as a result of, or in-lieu-of, foreclosure. Properties or other assets (primarily manufactured housing) are classified as other real estate owned and other repossessed assets and are reported at fair value at the time of foreclosure less estimated costs to sell. Costs relating to development or improvement of the assets are capitalized to the extent that they are deemed to be recoverable and increase the value of the property; otherwise, those costs are expensed. Costs related to holding the assets are charged to expense. The Company did not have any valuation allowances against foreclosed assets as of September 30, ~~2022~~2023 or December 31, ~~2021.~~2022.

Deposits

The following table provides the balance and percentage change in the Company’s deposits:

September 30,
2022

December 31,
2021

Increase
(Decrease)

Percent
Increase
(Decrease)

(dollars in thousands)
Non-interest bearing demand deposits $ 243,100 $ 209,893 $ 33,207 15.8 %
Interest bearing demand deposits 439,455 537,508 (98,053 ) (18.2 )%
Savings 23,865 23,675 190 0.8 %
Certificates of deposit ($250,000 or more) 9,909 17,612 (7,703 ) (43.7 )%
Other certificates of deposit 135,860 161,443 (25,583 ) (15.8 )%
Total deposits $ 852,189 $ 950,131 $ (97,942 ) (10.3 )%

Total deposits decreased to $852.2 million at September 30, 2022 from $950.1 million at December 31, 2021. This decrease was primarily from a decrease in interest bearing demand deposits and certificates of deposit. These decreases were largely the result of depositors that moved their accounts to institutions that were advertising higher rates on these types of accounts. Decreases in these categories were partially offset by an increase in non-interest bearing demand deposits.

	September 30, 2023		December 31, 2022		Increase (Decrease)			Percent Increase (Decrease)
	(dollars in thousands)
Noninterest-bearing demand deposits	$	190,817	$	216,494	$	(25,677	)		(11.9	)%
Interest-bearing demand deposits		456,808		428,173		28,635			6.7	%
Savings		16,905		23,490		(6,585	)		(28.0	)%
Certificates of deposit ($250,000 or more)		14,911		6,693		8,218			122.8	%
Other certificates of deposit		236,652		200,234		36,418			18.2	%
Total deposits	$	916,093	$	875,084	$	41,009			4.7	%

Deposits are the primary source of funding the Company’s asset growth. ~~In addition, the~~Total deposits increased 4.7% to $916.1 million at September 30, 2023, from $875.1 million at December 31, 2022. Noninterest-bearing demand deposits were $190.8 million at September 30, 2023, a $25.7 million decrease compared to $216.5 million at December 31, 2022. Interest-bearing demand deposits increased $28.6 million to $456.8 million at September 30, 2023, compared to $428.2 million at December 31, 2022. Certificates of deposit, which include brokered deposits, increased $44.6 million to $251.6 million at September 30, 2023, compared to $206.9 million at December 31, 2022. Total brokered deposits increased by $60.5 million to $191.1 million at September 30, 2023 from $130.6 million at December 31, 2022.

The Bank is a member of Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep ("ICS"). CDARS and ICS provide a mechanism for obtaining FDIC insurance for large deposits. At September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company had ~~$73.9~~$209.3 million and ~~$109.3~~$120.3 million, respectively, of CDARS and ICS deposits.

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Liquidity and Capital Resources

Liquidity

Liquidity for a bank is the ongoing ability to fund asset growth and business operations, to accommodate liability maturities, and deposit withdrawals and meet contractual obligations through unconstrained access to funding at reasonable market rates. Liquidity management involves forecasting funding requirements and maintaining sufficient capacity to meet the needs and accommodate fluctuations in asset and liability levels due to changes in our business operations or unanticipated events.

The ability to have readily available funds sufficient to repay fully maturing liabilities is of primary importance to depositors, creditors, and regulators. CWB's available liquidity is represented by cash and amounts due from banks ~~federal funds sold~~ and non-pledged marketable securities. CWB manages its liquidity risk through operating, investing, and financing activities. Liquidity requirements can also be met through short-term borrowings or the disposition of short-term assets. In order to ensure funds are available, when necessary, on at least a quarterly basis CWB projects the amount of funds that will be required.

The Company has established policies as well as analytical tools to manage liquidity. Proper liquidity management ensures that sufficient funds are available to meet normal operating demands in addition to unexpected customer demand for funds, such as high levels of deposit withdrawals or increased loan demand, in a timely and cost-effective manner. CWB’s liquidity management is viewed from a long-term and short-term perspective, as well as from an asset and liability perspective. Management monitors liquidity through regular reviews of maturity profiles, funding sources, and loan and deposit forecasts to minimize funding risk. The Bank has asset/liability committees (“ALCO”) at the Board and Bank management level to review asset/liability management and liquidity issues.

The Company, through CWB, has a blanket lien credit line with ~~the Federal Home Loan Bank (“FHLB”).~~FHLB. FHLB advances are collateralized in the aggregate by CWB’s eligible loans and securities. Total ~~FHLB~~ fixed rate FHLB advances were ~~$110.0~~$90.0 million at September 30, ~~2022~~2023, and ~~$90.0 million at~~ December 31, ~~2021.~~2022. The Company also had ~~$29.0~~$27.0 million of letters of credit with FHLB at September 30, ~~2022~~2023 to secure public funds. At September 30, ~~2022,~~2023, CWB had pledged to the FHLB ~~$51.2~~$9.5 million of securities and ~~$237.2~~$382.7 million of loans. At September 30, ~~2022,~~2023, based on the amounts of loans and securities pledged, CWB had ~~$36.4~~$124.8 million available for additional borrowing. At December 31, ~~2021,~~2022, CWB had pledged to the FHLB securities with a carrying value of ~~$13.2~~$21.1 million and ~~$286.6~~$232.6 million of loans.

CWB has established a credit line with the ~~Federal Reserve Bank (“FRB”).~~FRB. There were no outstanding FRB advances as of September 30, ~~2022~~2023, and December 31, ~~2021.~~2022. At September 30, ~~2022~~2023, and December 31, ~~2021,~~2022, there were ~~$260.2~~$289.3 million and ~~$259.5~~$248.6 million of loans pledged to the ~~FRB.~~FRB, respectively. CWB had ~~$88.9 million and $119.0~~$98.0 million in borrowing capacity as of September 30, ~~2022~~2023.

CWBC has a $10.0 million revolving line of credit which matures in September of 2025, unless renewed. During the first quarter of 2023, the Company advanced $10.0 million from the line of credit which was subsequently repaid during the second quarter of 2023. The Company must maintain a compensating deposit account with the lender of $1 million. In addition, the Company must maintain a minimum debt service coverage ratio of 1.65 to one, a minimum Tier 1 leverage ratio of 7.0%, a minimum total risked based capital ratio of 10.0% and ~~December 31, 2021, respectively.~~a maximum net non-accrual ratio of not more than 3.0%. The Company was in compliance with all of the required debt covenants at September 30, 2023. As of September 30, 2023, there were no outstanding balances on the revolving line of credit.

The Company has federal funds purchased lines at correspondent banks with a total borrowing capacity of $20.0 million. There were no borrowings outstanding under these agreements as of September 30, ~~2022~~2023, and December 31, ~~2021.~~2022.

The Company continues to face strong competition for core deposits. The liquidity ratio of the Company was ~~12.0%~~15.3% and ~~21.7%~~10.4% at September 30, ~~2022~~2023, and December 31, ~~2021,~~2022, respectively. The Company’s liquidity ratio fluctuates in conjunction with loan funding demands. The liquidity ratio consists of the sum of cash and due from banks, deposits in other financial institutions, available-for-sale investments, ~~federal funds sold,~~ and loans held for sale, divided by total assets.

As a legal entity, separate and distinct from the Bank, CWBC must rely on its own resources for its liquidity. CWBC’s routine funding requirements primarily consisted of certain operating expenses, common stock dividends, and interest payments on the other borrowings. CWBC obtains funding to meet its obligations from dividends collected from CWB and fees charged for services provided to CWB and has the capability to issue equity and debt securities. Federal banking laws and regulatory requirements regulate the amount of dividends that may be paid by a banking subsidiary without prior regulatory approval. During the three and nine months ended September 30, ~~2022,~~2023, CWBC declared and paid dividends of $0.7 million and ~~$1.9~~$2.1 million, respectively. On October ~~28, 2022,~~27, 2023, the Company's Board of Directors declared a ~~$0.075~~$0.08 per share dividend payable on November 30, ~~2022,~~2023, to stockholders of record on November 14, ~~2022.~~2023. The Company anticipates that it will continue to pay quarterly cash dividends in the future, although there can be no assurance that ~~payment~~payments of such dividends will continue or that they will not be reduced.

~~Page 46~~

~~Table of Contents~~

CWBC has a $10.0 million revolving line of credit. The Company must maintain a compensating deposit account with the lender of $1 million. In addition, the Company must maintain a minimum debt service coverage ratio of 1.65 to one, a minimum Tier 1 leverage ratio of 7.0%, a minimum total risked based capital ratio of 10.0% and a maximum net non-accrual ratio of not more than 3.0%. At September 30, 2022, and December 31, 2021, the line of credit balance was zero. The Company was in compliance with all of the required debt covenants at September 30, 2022 and December 31, 2021.

Our material cash requirements may include funding existing loan commitments, funding equity investments, withdrawal/maturity of existing deposits, repayment of borrowings, operating lease payments, and expenditures necessary to maintain current operations.

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The Company enters into contractual obligations in the normal course of business as a source of funds for its asset growth and to meet required capital needs. The following schedule summarizes maturities and principal payments due on our contractual obligations excluding interest:

	At September 30, 2022						At September 30, 2023
	Less than 1 year		More than 1 year		Total		Less than 1 year		More than 1 year		Total
	(dollars in thousands)						(dollars in thousands)
Time deposits	$	19,812	$	125,957	$	145,769	$	183,127	$	68,436	$	251,563
FHLB advances		20,000		90,000		110,000
FHLB advances and other borrowings								—		90,000		90,000
Operating lease obligations		1,013		5,143		6,155		1,040		4,185		5,225
Total	$	40,825	$	221,100	$	261,924	$	184,167	$	162,621	$	346,788

In the ordinary course of business, we enter into various transactions to meet the financing needs of our customers, which, in accordance with generally accepted accounting principles, are not included in our consolidated balance sheets. These transactions include off-balance sheet commitments, including commitments to extend credit and standby letters of credit. The following table presents a summary of the Company's commitments to extend credit by expiration period.

	At September 30, 2022						At September 30, 2023
	Less than 1 year		More than 1 year		Total		Less than 1 year		More than 1 year		Total
	(dollars in thousands)						(dollars in thousands)
Loan commitments to extend credit	$	49,720		54,364	$	104,084	$	59,960	$	37,112	$	97,072
Standby letters of credit		-		-		-		—		—		—
Total	$	49,720		54,364	$	104,084	$	59,960	$	37,112	$	97,072

Capital Resources

Maintaining capital strength continues to be a long-term objective for the Company. Capital is necessary to sustain growth, provide protection against unanticipated declines in asset values, and to safeguard depositor funds. Capital is also a source of funds for loan demand and enables the Company to effectively manage its assets and liabilities. The Company has the capacity to issue 60,000,000 total shares of common stock, of which ~~8,755,363~~8,850,312 have been issued at September 30, ~~2022.~~2023. Conversely, the Company may decide to repurchase shares of its outstanding common stock, depending on the market price and other relevant factors.

CWB is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements could trigger certain mandatory or discretionary actions that, if undertaken, could have a material effect on the Company's business and financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, CWB must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgements by the regulators about components, risk weightings and other factors.

In 2019, the federal banking agencies jointly issued a final rule, which provides for an additional optional, simplified measure of capital adequacy, the community bank leverage ratio framework. Under this framework, the bank would choose the option of using the community bank leverage ratio (CBLR). A CBLR bank may opt out of the framework at any time, without restriction, by reverting to the generally applicable risk-based capital rules. As of the fourth quarter 2021, the Company rescinded its CBLR election.

Page 4751

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The following tables illustrate the Bank’s regulatory ratios and the Federal Reserve’s current adequacy guidelines as of September 30, ~~2022~~2023 and December 31, ~~2021.~~2022.

	Total Capital (To Risk-Weighted Assets)			Tier 1 Capital (To Risk- Weighted Assets)			Common Equity Tier 1 (To Risk- Weighted Assets)			Leverage Ratio/Tier 1 Capital (To Average Assets)			Total Capital (To Risk- Weighted Assets)			Tier 1 Capital (To Risk- Weighted Assets)			Common Equity Tier 1 (To Risk- Weighted Assets)			Leverage Ratio/Tier 1 Capital (To Average Assets)
September 30, 2022
September 30, 2023
CWB's actual regulatory ratios		12.46	%		11.30	%		11.30	%		9.83	%		13.27	%		12.09	%		12.09	%		10.84	%
Minimum capital requirements		8.00	%		6.00	%		4.50	%		4.00	%		8.00	%		6.00	%		4.50	%		4.00	%
Well-capitalized requirements		10.00	%		8.00	%		6.50	%		N/A			10.00	%		8.00	%		6.50	%		5.00	%

December 31, 2021
December 31, 2022
CWB's actual regulatory ratios		12.19	%		11.02	%		11.02	%		8.56	%		12.56	%		11.44	%		11.44	%		10.34	%
Minimum capital requirements		8.00	%		6.00	%		4.50	%		4.00	%		8.00	%		6.00	%		4.50	%		4.00	%
Well-capitalized requirements		10.00	%		8.00	%		6.50	%		N/A			10.00	%		8.00	%		6.50	%		5.00	%

The adoption of CECL on January 1, 2023, resulted in a $1.6 million reduction to stockholders’ equity, net of $0.7 million in taxes. Banking organizations that experienced a reduction in retained earnings from the adoption of CECL have the option to elect a phase-in approach for up to 3 years of the “day 1” adverse impact to regulatory capital. The Company made this election and will phase in the impact of the transition to CECL over a three-year period, starting with the first quarter of 2023.

There are no conditions or events since September 30, ~~2022~~2023 that management believes have changed the Company’s or the Bank’s risk-based capital category. ~~The Company is closely monitoring capital levels in light of the COVID-19 pandemic, and the potential impact of its effect upon earnings.~~

Supervision and Regulation

Banking is a complex, highly regulated industry. The primary goals of the regulatory scheme are to maintain a safe and sound banking system, protect depositors and the Federal Deposit Insurance Corporation’s (“FDIC”) insurance fund, and facilitate the conduct of sound monetary policy. In furtherance of these goals, Congress and the states have created several largely autonomous regulatory agencies and enacted numerous laws that govern banks, bank holding companies, and the financial services industry. Consequently, the growth and earnings performance of the Company can be affected not only by management decisions and general economic conditions but also by the requirements of applicable state and federal statutes, regulations, and the policies of various governmental regulatory authorities, including the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency (“OCC”), and FDIC.

The system of supervision and regulation applicable to financial services businesses governs most aspects of the business of CWBC and CWB, including: (i) the scope of permissible business; (ii) investments; (iii) reserves that must be maintained against deposits; (iv) capital levels that must be maintained; (v) the nature and amount of collateral that may be taken to secure loans; (vi) the establishment of new branches; (vii) mergers and consolidations with other financial institutions; and (viii) the payment of dividends.

Laws or regulations are enacted which may have the effect of increasing the cost of doing business, limiting, or expanding the scope of permissible activities, or changing the competitive balance between banks and other financial and non-financial institutions. Proposals to change the laws and regulations governing the operations of banks and bank holding companies are frequently made in Congress and by various bank and other regulatory agencies. Future changes in the laws, regulations or policies that impact the Company cannot necessarily be predicted, but they may have a material effect on the Company’s business and earnings.

For a detailed discussion of the regulatory scheme governing the Company and CWB, please see the discussion in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021~~2022, under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operation – Supervision and Regulation."

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Certain qualitative and quantitative disclosures about market risk are set forth in Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. There has been no material change in these disclosures as previously disclosed in the Company’s Form 10-K. For further discussion of interest rate risk, see Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity - Interest Rate Risk.”

Page 52

Table of Contents

The Company expects to see continued volatility in the economic markets and government responses to inflation, rising interest rates, the threat of a pending recession in the U.S. economy, and the conflict involving the Russian Federation ~~invasion of Ukraine.~~and Ukraine and the unrest resulting from the recent conflict in the Middle East. These changing conditions and governmental responses could have impacts on the consolidated balance sheets and consolidated income statements of the Company.

~~Page 48~~

~~Table of Contents~~

ITEM 4.

CONTROLS AND PROCEDURES

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e). Based upon that evaluation, the Company’s management, which includes the Company's Chief Executive Officer and the Chief Financial Officer, has concluded that, as of the end of the period covered by this report, disclosure controls and procedures are effective in ensuring that information relating to the Company (including its consolidated subsidiary) required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an entity’s disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors or mistakes or intentional circumvention of the established process.

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated whether there was any change in internal control over financial reporting that occurred during the quarter ended September 30, ~~2022~~2023, and determined that there was no change in internal control over financial reporting that occurred during the quarter ended September 30, ~~2022~~2023, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

The Company is involved in various other litigation matters of a routine nature that are being handled and defended in the ordinary course of the Company’s business. In the opinion of management, based in part on consultation with legal counsel, the resolution of these litigation matters is not expected to have a material impact on the Company’s financial position or results of operations.

ITEM 1A.

RISK FACTORS

Investing in our common stock involves various risks which are particular to our Company, our industry, and our market area. Several risk factors that may have a material adverse impact on our business, operating results and financial condition are discussed in Item 1A of Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021. There~~2022.

As previously noted, the Company has entered into the Reorganization Agreement pursuant to which the Company and Central Valley Community Bancorp (Fresno, California) will combine in an all-stock merger transaction. While the Company has historically been successful on a standalone basis, the Company does have risk related to failing to successfully satisfy the conditions to close the transaction and closing the transaction in accordance with the terms of the Reorganization Agreement which include the companies not receiving the regulatory approvals and the shareholder approvals of the transaction as required by the Reorganization Agreement. The failure to close the transaction could have an adverse effect on the Company’s reputation, ability to attract and maintain deposit and/or loan customers, retain employees (including key personnel), and maintain investor confidence. The occurrence of any such events could have a material adverse effect on the Company’s results of operations, financial condition, and stock trading value.

Other than as identified above, there has been no material change in the Company’s risk factors as previously disclosed in the Company’s Form 10-K.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company made no repurchases of its common stock during the quarter ended September 30, 2022 and there was approximately $1.4 million that may yet be purchased under the Company's repurchase program.None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

None.

Page 5054

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ITEM 6.

EXHIBITS

The following Exhibits are filed herewith.

Exhibit Number

31.1	Certification of Chief Executive Officer of the Registrant pursuant to Rule 13a-14(a) or Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.

31.2	Certification of Chief Financial Officer of the Registrant pursuant to Rule 13a-14(a) or Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.

32.1*	Certification of Chief Executive Officer and Chief Financial Officer of the Registrant pursuant to Rule 13a-14(b) or Rule 15d-14(b), promulgated under the Securities Exchange Act of 1934, as Amended, and 18 U.S.C. 1350.

101.INS	Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
101.SCH	Inline XBRL Taxonomy Extension Schema
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase
104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

This certification is furnished to, but shall not be deemed filed, with the Commission. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Registrant specifically incorporates it by reference.

~~EXHIBIT INDEX~~

~~Exhibit Number~~

~~31.1~~	~~Certification of Chief Executive Officer of the Registrant pursuant to Rule 13a-14(a) or Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.~~

~~31.2~~	~~Certification of Chief Financial Officer of the Registrant pursuant to Rule 13a-14(a) or Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.~~

32.1*	Certification of Chief Executive Officer and Chief Financial Officer of the Registrant pursuant to Rule 13a-14(b) or Rule 15d-14(b), promulgated under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. 1350.

~~101.INS~~	~~Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).~~
~~101.SCH~~	~~Inline XBRL Taxonomy Extension Schema~~
~~101.CAL~~	~~Inline XBRL Taxonomy Extension Calculation Linkbase~~
~~101.DEF~~	~~Inline XBRL Taxonomy Extension Definition Linkbase~~
~~101.LAB~~	~~Inline XBRL Taxonomy Extension Label Linkbase~~
~~101.PRE~~	~~Inline XBRL Taxonomy Extension Presentation Linkbase~~
~~104~~	~~Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).~~

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

COMMUNITY WEST BANCSHARES

(Registrant)

Date: November ~~10, 2022~~13, 2023

BY:

/s/ Richard Pimentel

	Richard Pimentel
	Executive Vice President and Chief Financial Officer

	On Behalf of Registrant and as a Duly Authorized Officer
	and as Principal Financial and Accounting Officer

Page 5256

California		77-0446957
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

445 Pine Avenue, Goleta, California		93117
(Address of principal executive offices)		(Zip Code)

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, no par value	CWBC	The Nasdaq Stock Market, LLC

Index			Page
Part I. Financial Information
	Item 1 – Financial Statements
		Consolidated Balance Sheets as of September 30, ~~2022~~2023 (unaudited) and December 31, ~~2021~~2022	3
		Consolidated Income Statements for the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 (unaudited)	4
		Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 (unaudited)	5
		Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 (unaudited)	6
		Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 (unaudited)	7
		Notes to Unaudited Consolidated Financial Statements	8
	The financial statements included in this Form 10-Q should be read in conjunction with Community West Bancshares’ Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021.~~2022.

	Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		3136
	Item 3 – Quantitative and Qualitative Disclosures About Market Risk		4852
	Item 4 – Controls and Procedures		4953

Part II. Other Information
	Item 1 – Legal Proceedings		5054
	Item 1A – Risk Factors		5054
	Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		5054
	Item 3 – Defaults Upon Senior Securities		5054
	Item 4 – Mine Safety Disclosures		5054
	Item 5 – Other Information		5054
	Item 6 – Exhibits		5155

Signatures			5256

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2023			2022
	(in thousands)						(in thousands)
Cash flows from operating activities:
Net income	$	10,073		$	10,207		$	6,837		$	10,073
Adjustments to reconcile net income to cash provided by operating activities:
Provision (credit) for loan losses		266			(207	)
Provision (credit) for credit losses								(667	)		266
Depreciation		535			594			543			535
Stock based compensation		215			189			395			215
Deferred income taxes		124			(299	)
Deferred taxes								(906	)		124
Net (amortization) accretion of discounts and premiums for investment securities		(33	)		54			(33	)		(33	)
Gains on:
Sale of other assets acquired through foreclosure, net		(104	)		178			(236	)		(104	)
Sale of loans, net		(245	)		(366	)		(110	)		(245	)
Loans originated for sale, net of collections on loans held for sale		1,312			6,829
Loans originated for sale								(7,620	)		(14,701	)
Proceeds from sales of loans held for sale								7,717			14,629
Proceeds from principal paydowns on loans held for sale								3,346			1,384
Changes in:
Investment securities measured at fair value		50			(68	)		(84	)		50
Servicing assets, net		45			(110	)		14			45
Other assets		1,496			(202	)		12,329			1,496
Other liabilities		722			209			4,045			722
Net cash provided by operating activities		14,456			17,008			25,570			14,456
Cash flows from investing activities:
Principal pay downs and maturities of available-for-sale securities		1,791			3,189			20,868			1,791
Purchase of available-for-sale securities		(40,360	)		(6,250	)		(9,964	)		(40,360	)
Principal pay downs and maturities of held-to-maturity securities		217			1,657			394			217
Purchase of FHLB stock								(332	)		(92	)
Loan originations and principal collections, net		(54,235	)		(39,322	)		(2,010	)		(54,235	)
Purchase of FHLB stock		(92	)		—
Redemption of FHLB stock		—			192
Purchase of premises and equipment, net		(291	)		(97	)		(330	)		(291	)
Proceeds from sale of other assets acquired through foreclosure, net		372			—			2,551			372
Net cash used in investing activities		(92,598	)		(40,631	)
Net cash provided by (used in) investing activities								11,177			(92,598	)
Cash flows from financing activities:
Net (decrease) increase in deposits		(97,942	)		165,757
Net increase (decrease) in deposits								41,009			(97,942	)
Proceeds from FHLB advances		20,000			—			20,000			20,000
Repayment of FHLB advances		—			(15,000	)
Repayments of FHLB advances								(20,000	)		—
Proceeds from advances from line of credit								10,000			—
Repayments of advances from line of credit								(10,000	)		—
Proceeds from exercise of stock options		920			970			292			920
Cash dividends paid on common stock		(1,916	)		(1,709	)		(2,119	)		(1,916	)
Net cash (used in) provided by financing activities		(78,938	)		150,018
Net (decrease) increase cash and cash equivalents		(157,080	)		126,395
Net cash provided by (used in) financing activities								39,182			(78,938	)
Net increase (decrease) in cash and cash equivalents								75,929			(157,080	)
Cash and cash equivalents at beginning of period		208,375			60,540			64,690			208,375
Cash and cash equivalents at end of period	$	51,295		$	186,935		$	140,619		$	51,295
Supplemental disclosure:
Cash paid during the period for:
Interest	$	2,204		$	3,033		$	8,212		$	2,204
Income taxes		3,945			4,107			1,420			3,945
Non-cash investing and financing activity:
Transfers of loans to other assets acquired through foreclosure, net		—			136
Noncash items:
Transfers from loans to loans held for sale								735			—
Transfers from loans to other assets acquired through foreclosure, net								1,576			—

Three Months Ended September 30, 2022	Common Stock				Accumulated Other Comprehensive			Retained			Total Stockholders’
Three Months Ended September 30, 2023														Common Stock				Accumulated Other Comprehensive			Retained			Total Stockholders’
	Shares		Amount		(Loss) Income			Earnings			Equity			Shares		Amount		Loss			Earnings			Equity
	(in thousands)													(in thousands)
Balance, July 1, 2022		8,744	$	45,402	$	(447	)	$	62,187		$	107,142
Balance, July 1, 2023															8,849	$	46,293	$	(1,680	)	$	69,328		$	113,941
Net income		—		—		—			3,478			3,478			—		—		—			2,252			2,252
Exercise of stock options		11		93		—			—			93			3		13		—			—			13
Stock based compensation		—		71		—			—			71			—		75		—			—			75
Dividends on common stock		—		—		—			(656	)		(656	)		—		—		—			(708	)		(708	)
Other comprehensive loss, net		—		—		(307	)		—			(307	)
Balance, September 30, 2022		8,755	$	45,566	$	(754	)	$	65,009		$	109,821
Other comprehensive income, net															—		—		489			—			489
Balance, September 30, 2023															8,852	$	46,381	$	(1,191	)	$	70,872		$	116,062

Three Months Ended September 30, 2021	Common Stock				Accumulated Other Comprehensive			Retained			Total Stockholders’
Three Months Ended September 30, 2022														Common Stock				Accumulated Other Comprehensive			Retained			Total Stockholders’
	Shares		Amount		(Loss) Income			Earnings			Equity			Shares		Amount		Loss			Earnings			Equity
	(in thousands)													(in thousands)
Balance, July 1, 2021		8,589	$	43,780	$	150		$	51,527		$	95,457
Balance, July 1, 2022															8,744	$	45,402	$	(447	)	$	62,187		$	107,142
Net income		—		—		—			3,635			3,635			—		—		—			3,478			3,478
Exercise of stock options		27		225		—			—			225			11		93		—			—			93
Stock based compensation		—		63		—			—			63			—		71		—			—			71
Dividends on common stock		—		—		—			(601	)		(601	)		—		—		—			(656	)		(656	)
Other comprehensive loss, net		—		—		(12	)		—			(12	)		—		—		(307	)		—			(307	)
Balance, September 30, 2021		8,616	$	44,068	$	138		$	54,561		$	98,767
Balance, September 30, 2022															8,755	$	45,566	$	(754	)	$	65,009		$	109,821

Nine Months Ended September 30, 2023	Common Stock				Accumulated Other Comprehensive			Retained			Total Stockholders’
	Shares		Amount		Loss			Earnings			Equity
	(in thousands)
Balance, January 1, 2023		8,798	$	45,694	$	(771	)	$	67,727		$	112,650
Cumulative effect of change in accounting principle (net of taxes of $659) ⁽¹⁾		—		—		—			(1,573	)		(1,573	)
Net income		—		—		—			6,837			6,837
Exercise of stock options		54		292		—			—			292
Stock based compensation		—		395		—			—			395
Dividends on common stock		—		—		—			(2,119	)		(2,119	)
Other comprehensive loss, net		—		—		(420	)		—			(420	)
Balance, September 30, 2023		8,852	$	46,381	$	(1,191	)	$	70,872		$	116,062

Nine Months Ended September 30, 2022	Common Stock				Accumulated Other Comprehensive			Retained			Total Stockholders’
	Shares		Amount		(Loss) Income			Earnings			Equity
	(in thousands)
Balance, January 1, 2022		8,650	$	44,431	$	92		$	56,852		$	101,375
Net income		—		—		—			10,073			10,073
Exercise of stock options		105		920		—			—			920
Stock based compensation		—		215		—			—			215
Dividends on common stock		—		—		—			(1,916	)		(1,916	)
Other comprehensive loss, net		—		—		(846	)		—			(846	)
Balance, September 30, 2022		8,755	$	45,566	$	(754	)	$	65,009		$	109,821

Nine Months Ended September 30, 2021	Common Stock				Accumulated Other Comprehensive		Retained			Total Stockholders’
	Shares		Amount		(Loss) Income		Earnings			Equity
	(in thousands)
Balance, January 1, 2021		8,473	$	42,909	$	35	$	46,063		$	89,007
Net income		—		—		—		10,207			10,207
Exercise of stock options		143		970		—		—			970
Stock based compensation		—		189		—		—			189
Dividends on common stock		—		—		—		(1,709	)		(1,709	)
Other comprehensive income, net		—		—		103		—			103
Balance, September 30, 2021		8,616	$	44,068	$	138	$	54,561		$	98,767

Within one year	$	20,000
After one through two years		—
After two through three years		90,000
Total	$	110,000

	Three Months Ended September 30, 2022 versus 2021									Nine Months Ended September 30, 2022 versus 2021
	Increase (Decrease) Due to Changes in ⁽¹⁾									Increase (Decrease) Due to Changes in ⁽¹⁾
	Volume			Rate			Total			Volume			Rate			Total
	(in thousands)									(in thousands)
Interest income:
Federal funds sold and interest earning deposits	$	(249	)	$	577		$	328		$	134		$	532		$	666
Investment securities		248			(48	)		200			374			(46	)		328
Loans, net		699			(408	)		291			1,122			(797	)		325
Total interest income		698			121			819			1,630			(311	)		1,319

Interest expense:
Interest bearing demand deposits		(25	)		(61	)		(86	)		87			(529	)		(442	)
Savings deposits		2			(6	)		(4	)		10			(21	)		(11	)
Time deposits		(52	)		(38	)		(90	)		(77	)		(93	)		(170	)
FHLB advances		1			4			5			(36	)		(34	)		(70	)
Total interest expense		(74	)		(101	)		(175	)		(16	)		(677	)		(693	)
Net increase	$	772		$	222		$	994		$	1,646		$	366		$	2,012

	At September 30, 2022								At December 31, 2021
	Nonaccrual Balance		%			Percent of Total Loans			Nonaccrual Balance		%			Percent of Total Loans
	(dollars in thousands)
Manufactured housing	$	85		35.56	%		0.01	%	$	306		54.16	%		0.03	%
SBA		—		0.00	%		0.00	%		1		0.18	%		0.00	%
Single family real estate		154		64.44	%		0.02	%		258		45.66	%		0.03	%
Total nonaccrual loans	$	239		100.00	%		0.03	%	$	565		100.00	%		0.06	%