Cashmere Valley Bank discusses impact of Treasury yield curve changes


CASHMERE, WA/ACCESSWIRE/May 25, 2022/ Cashmere Valley Bank (OTCQX: CSHX) (“Bank”), has announced an update to shareholders regarding the fair value of the bank’s investment portfolio. Specifically, 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 was negatively affected by the upward movement of the Treasury yield curve in the first three months of 2022. Five-year and ten-year Treasury yields increased of 116 and 80 basis points, respectively. Generally accepted accounting principles (GAAP) require the Bank to adjust the carrying value of its available-for-sale securities portfolio to the fair value of the portfolio at each reporting date. As the Treasury bill yield curve rises, the fair value of the Bank’s available-for-sale securities tends to decline, creating an unrealized loss on the securities. As the yield curve decreases, the fair value of AFS securities tends to increase, creating an unrealized gain on the securities. As at December 31, 2021, the Bank held a net unrealized gain on its available-for-sale securities of $14.2 million and as at March 31, 2022, due to the significant increase in the Treasury bill yield curve, the unrealized net gain had become an unrealized net loss of $52.7 million. The net impact on the carrying value of the Bank’s available-for-sale portfolio was $66.9 million. Under GAAP, the offsetting entry for the change is made to an account called accumulated other comprehensive income included in the Bank’s equity for GAAP purposes. As this is an unrealized loss, the Bank’s regulators do not include it in the calculation of regulatory capital ratios.

Greg Oakes, President and CEO, said, “The movement in the Treasury yield curve that we saw in early 2022 was the fastest rate movement since the early 1980s. Cashmere Valley Bank was more affected than some institutions due to the size of our AFS investment portfolio. While the AFS portfolio is of good credit quality and the AFS portfolio provides a reliable stream of income; we have determined that the Bank should take steps to reduce the potential future impacts of upward movements in the Treasury yield curve. Thus, during the second quarter, we liquidated approximately $54.1 million in AFS treasury bills and taxable municipal securities for a realized loss of approximately $8.2 million. We have also changed the classification of $55.6 million in AFS asset-backed securities and AFS municipal securities to held to maturity in accordance with GAAP.

“The sale and held-to-maturity transfer does not eliminate our unrealized loss, but the actions taken help limit our exposure if the Treasury yield curve continues to rise. We will continue to evaluate alternatives to moderate the impact of future increases in the yield curve through hold-to-maturity, selling and hedging,” said Greg Oakes, President and Chief Executive Officer.

Greg Oakes added: “Proceeds from sales have been partially absorbed by higher rate loans which should contribute to our future revenue streams. The remainder of the proceeds are currently held in overnight cash to further increase our liquidity position. »

About Cashmere Valley Bank

Cashmere Valley Bank was established on September 24, 1932 and now has 11 retail offices in Chelan, Douglas, Kittitas and Yakima counties and a municipal loan office in King County. The Bank offers corporate and personal banking services, commercial lending, insurance services through its wholly owned subsidiary Mitchell, Reed & Schmitten Insurance, investment services, mortgage services, financing equipment rentals, automotive and marine dealership financing and municipal loans. Cashmere Valley Bank’s success is the result of maintaining a high level of personal service and controlling expenses so that our fees and charges provide our customers with the best value available. We remain committed to these principles, which we believe can best be summed up as “the small bank with the big circle of friends”.

Forward-looking statements

This news release may contain certain forward-looking statements based on management’s current expectations regarding economic, legislative and regulatory matters that may affect the Bank’s earnings in future periods. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include the words ‘believe’, ‘expect’, ‘intend’, ‘anticipate’, ‘estimate’, ‘will’, ‘would’, ‘should’, ‘could’ or ‘could’ “. Factors that could cause future results to differ materially from management’s current expectations include, but are not limited to, general economic conditions, economic uncertainty in the United States and abroad, changes in interest rates, interest, deposit flows, real estate values, costs or effects of acquisitions, competition, changes in accounting principles, policies or guidelines, laws or regulations, and other economic, competitive factors , governmental, regulatory and technology affecting the Bank’s operations. The Bank undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this press release or to reflect the occurrence of unforeseen events.

Greg Oakes, CEO, (509) 782-2092
Mike Lundstrom, CFO, (509) 782-5495

THE SOURCE: Kashmir Valley Bank

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