Business context and reporting period
Central Valley Community Bancorp (NASDAQ: CVCY), a California bank holding company operating Central Valley Community Bank, filed this unaudited Form 10-Q for the quarter ended September 30, 2021. The filing describes commercial banking operations in California’s Central Valley and Greater Sacramento area. Entity check: the request metadata names Community West Bancshares, but the filing is for Central Valley Community Bancorp.
Financial performance and condition
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net interest income before credit-loss provision | $18.2 million | $16.0 million | $53.8 million | $47.6 million |
| Net income | $6.5 million | $4.3 million | $21.6 million | $13.3 million |
| Diluted EPS | $0.54 | $0.35 | $1.74 | $1.05 |
| Fully tax-equivalent net interest margin | 3.47% | 3.63% | 3.60% | 3.93% |
Third-quarter earnings rose about 50%, supported by higher net interest income and a $500,000 reversal of credit-loss provision, versus a $600,000 provision in Q3 2020. For the first nine months, net income increased 62.5%; the company recorded a $3.8 million provision reversal, compared with a $5.0 million provision in 2020. The nine-month comparison also reflects sharply lower securities gains: $38,000 versus $4.2 million.
At September 30, 2021, total assets were $2.35 billion, up 17.2% from year-end 2020. Deposits were $2.06 billion, up 19.5%; gross loans were $1.08 billion, down 1.7%, as a $128.7 million reduction in PPP loans outweighed $109.8 million of non-PPP loan growth. The loan-to-deposit ratio was 52.65%. Total shareholders’ equity was $246.5 million. Cash and cash equivalents were $67.7 million; available-for-sale securities were $1.06 billion.
For the first nine months, operating cash flow was $32.1 million, investing cash outflow was $354.1 million and financing cash inflow was $319.4 million. Cash and cash equivalents declined $2.6 million to $67.7 million. The company reported $5.2 million of junior subordinated debentures and no FHLB advances or federal funds purchased. Available borrowing capacity included $110 million in unsecured correspondent-bank lines, $262.1 million in unused FHLB capacity and $10.7 million at the Federal Reserve; unpledged securities were $805.8 million.
Material changes and credit quality
- The investment portfolio expanded materially as deposits grew; available-for-sale securities rose from $710.1 million at December 2020 to $1.06 billion. Its net unrealized gain declined from $21.1 million to $14.6 million, contributing to lower accumulated other comprehensive income.
- The allowance for credit losses fell to $10.1 million from $12.9 million at year-end, and to 0.93% of gross loans from 1.17%. Nonaccrual loans declined to $1.6 million from $3.3 million; classified loans declined to $23.1 million from $36.1 million. Management said the allowance was adequate, while cautioning that future charge-offs could exceed it.
- Capital remained above regulatory minimums. The Bank’s September 30 total risk-based capital ratio was 13.29%, compared with the 10.00% well-capitalized threshold. The company repurchased and retired 584,619 shares for $12.0 million, completing its repurchase program; it paid $0.35 per share in dividends during the nine-month period.
Outlook, risks and unusual items
The filing gives no quantitative earnings or revenue guidance. Management said the COVID-19 pandemic, its Delta variant and related economic uncertainty could affect borrowers, loan demand, credit provisions and results. Low interest rates may pressure net interest income and margin. Other cited risks include competition, inflation, local agricultural and real-estate conditions, regulatory changes, securities-market volatility and execution risks from acquisitions.
Interest-rate exposure is significant. Management estimated that an immediate 200-basis-point rate increase would reduce investment-portfolio market value by approximately $118 million, or 10.77%; this is a modeled shock assuming no management action, not a forecast. The filing reported no other-than-temporary impairment losses on securities in the nine months. COVID-related loan deferrals outstanding at September 30 were approximately $336,000 and were not classified as troubled debt restructurings. Two loans were modified as TDRs during the nine-month period; no principal or accrued interest was forgiven.
Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The Board declared a $0.12-per-share dividend on October 20, 2021, payable November 19 to holders of record November 5.
Important facts for investors to verify
- Confirm the issuer: this filing is for Central Valley Community Bancorp, not the company named in the request metadata.
- Assess whether earnings growth is sustainable given provision reversals, the much smaller securities-gain contribution, and the continued decline in net interest margin.
- Review the adequacy of the credit-loss allowance, loan concentrations in commercial and real estate lending, and subsequent trends in classified, impaired and nonaccrual loans.
- Evaluate sensitivity of the large securities portfolio to rising rates, including unrealized losses, portfolio duration and potential liquidity needs.
- Monitor deposit growth and composition, PPP forgiveness and runoff, and the funding implications of the low loan-to-deposit ratio and undisbursed credit commitments.
- Consider the effect of the completed $12 million share repurchase, ongoing dividends and capital-ratio trends on future capital flexibility.