Cashmere Valley Bank Discusses Impact From Treasury Yield Curve Changes

CASHMERE, WA / ACCESSWIRE / May 25, 2022 / Cashmere Valley Bank (OTCQX: CSHX) ("Bank"), announced an update to shareholders related to the fair value of the bank's investment portfolio. Specifically, those investments classified as available for sale (AFS) and carried at fair value on the Bank's balance sheet. The fair value of these AFS securities have been adversely impacted by the upward movement of the treasury yield curve during the first three months of 2022. The five-year and ten-year treasury yields increased 116 and 80 basis points, respectively. Generally accepted accounting principles (GAAP) require the Bank to adjust the carrying value of its AFS securities portfolio to the portfolio's fair value at each reporting date. As the treasury yield curve increases, the fair value of the Bank's AFS securities tend to decline which creates an unrealized loss on the securities. As the yield curve declines, the fair value of the AFS securities tend to increase, which creates an unrealized gain on the securities. At December 31, 2021, the Bank held a net unrealized gain on its AFS securities of $14.2 million and by March 31, 2022 due to the significant increase in the treasury yield curve the net unrealized gain had become a net unrealized loss of $52.7 million. The net impact on the carrying value of the Bank's AFS portfolio was $66.9 million. Under GAAP the offsetting entry for the change is to an account referred to as accumulated other comprehensive income included in the shareholders' equity of the Bank for GAAP purposes. Because this is an unrealized loss it is not included by the Bank's regulators in calculating regulatory capital ratios.

Greg Oakes, President and CEO stated, "The treasury yield curve movement we witnessed in the early part of 2022 was the fastest rate movement since the early 1980's. Cashmere Valley Bank was affected more than some institutions due to the size of our AFS investment portfolio. While the AFS portfolio is of sound credit quality and the AFS portfolio provides a reliable earnings stream; we determined that the Bank should act to reduce future potential impacts of upward treasury yield curve movements. As such, during the second quarter, we liquidated approximately $54.1 million in AFS treasury and taxable municipal securities at a realized loss of approximately $8.2 million. We further changed the classification of $55.6 million in AFS asset backed and municipal securities from AFS to held to maturity in accordance with GAAP."