Cashmere Valley Bank : 2021 Annual Audited Report

Cashmere Valley Bank

2021 Annual Report

Financial Highlights

Performance Results				Year Ended December 31,
2021		2020			2019		2018		2017
Return on average equity	12.24%	11.59%	11.55%	12.35%	10.56%
Return on average assets	1.36%	1.41%	1.49%	1.45%	1.23%
Equity to assets	10.75%	11.97%	12.44%	12.33%	11.90%
Earnings per share - Basic	$7.42	$6.43	$5.70	$5.29	$4.49
Dividends per share	$1.55	$3.40	$1.30	$2.70	$1.08
Book value per share	$61.61	$60.09	$51.78	$45.54	$43.90
Year end market value per share	$71.50	$52.61	$63.00	$54.01	$58.00
Average earning assets to average
total assets	95.01%	94.75%	95.56%	95.72%	95.97%
Allowance for credit losses to total
loans at December 31	1.46%	1.44%	1.22%	1.16%	1.19%
Efficiency ratio	53.11%	51.71%	55.02%	53.45%	51.35%
Yield and Cost of Funds
Tax equivalent yield on cash and	1.90%	2.21%	2.94%	2.98%	2.91%
investments
Tax equivalent yield on loans	4.19%	4.08%	4.25%	4.03%	4.05%
Cost of funds	0.35%	0.44%	0.54%	0.39%	0.35%
Tax equivalent net interest margin	2.70%	2.82%	3.27%	3.46%	3.27%
Selected Items (in thousands)
Total cash and cash equivalents	$114,004	$135,725	$141,393	$55,231	$56,686
Total investments	$1,103,232	$856,327	$542,087	$439,952	$516,387
Total loans	$940,802	$950,970	$918,541	$976,619	$894,250
Total assets	$2,224,302	$1,994,288	$1,651,499	$1,520,773	$1,516,014
Total deposits	$1,936,577	$1,719,971	$1,423,347	$1,314,877	$1,314,302
Total equity	$239,098	$238,678	$205,404	$187,503	$180,458

To the shareholders and friends of Cashmere Valley Bank

I am happy to report that 2021 was a record year for Cashmere Valley Bank. We had earnings of $29 million with earnings per share of $7.39 which represents $.97 per share increase. Deposit balances grew by 12.6% which is the second consecutive year of double-digit growth. Credit quality continues to be very good. Capital has been deployed at a faster rate which has kept our historical level of excess capital at bay.

Many one-time factors led to that performance. The federal government largesse contributed to our earnings with the Paycheck Protection Program and lots of stimulus payments. These factors will not be present for 2022. However, core earnings outside of one-time events showed positive growth from 2020.

We continue with the design work on our next branch in Union Gap. That facility will not only be a branch but will also house our ever-expanding property and casualty insurance business (we purchased another good-sized agency in Yakima during 2021). There will also be room to expand our mortgage business. We hope to break ground in the second quarter and open mid-year 2023.

Covid-19 continued to be an issue throughout the year but fortunately we were able to keep all branches open and in full operation. Where possible we have used remote working arrangements, which are finally starting to wind down.

We also launched a $16.00 minimum wage in 2021. While costly, we needed to rise to the competition and take care of our most precious asset: People.

If you have any questions or just want to talk about your bank, please feel free to give me a call at [phone].

We hope you can join us for the telephonic annual meeting on Tuesday May 17, 2022 at 7:00. Simply dial 1 [phone] and enter the access code of 11580. The meeting will be by phone only.

Although we face some headwinds in 2022, we think the future is bright for "the Little Bank with the Big Circle of Friends".

Sincerely,

Greg Oakes,

President and CEO

Report of Independent Auditors

The Board of Directors and Shareholders

Cashmere Valley Bank and its subsidiary

Report on the Audit of the Financial Statements

Opinion

We have audited the consolidated financial statements of Cashmere Valley Bank and its subsidiary, which comprise the consolidated balance sheet as of December 31, 2021, and the related consolidated statements of income and comprehensive income, changes in shareholders' equity, and cash flows for the year then ended, and the related notes to the consolidated financial statements.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Cashmere Valley Bank and its subsidiary as of December 31, 2021, and the results of their operations and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Report on Internal Control Over Financial Reporting

We also have audited, in accordance with auditing standards generally accepted in the United States of America, Cashmere Valley Bank's internal control over financial reporting as of December 31, 2021, based on criteria established in the Internal Control-IntegratedFramework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) relevant to internal reporting objectives for the express purpose of meeting the regulatory requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FIDICIA) and our report dated March 15, 2022 expressed an unmodified opinion.

Basis for Opinion

We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Cashmere Valley Bank and its subsidiary and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about Cashmere Valley Bank and its subsidiary's ability to continue as a going concern within one year after the date that the consolidated financial statements are available to be issued.

Auditor's Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is

not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements.

In performing an audit in accordance with GAAS, we:

• Exercise professional judgment and maintain professional skepticism throughout the audit.
• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Cashmere Valley Bank and its subsidiary's internal control. Accordingly, no such opinion is expressed.
• Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements.
• Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Cashmere Valley Bank and its subsidiary's ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

Other Matter

The consolidated financial statements of Cashmere Valley Bank and its subsidiary for the year ended December 31, 2020, were audited by another auditor, who expressed an unmodified opinion on those statements on March 15, 2021.

Other Information Included in the Annual Report

Management is responsible for the other information included in the annual report. The other information comprises the information included in the annual report but does not include the consolidated financial statements and our auditor's report thereon. Our opinion on the consolidated financial statements does not cover the other information, and we do not express an opinion or any form of assurance thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and consider whether a material inconsistency exists between the other information and the consolidated financial statements, or the other information otherwise appears to be materially misstated. If, based on the work performed, we conclude that an uncorrected material misstatement of the other information exists, we are required to describe it in our report.

Spokane, Washington

March 15, 2022