Business context and reporting period
Important entity discrepancy: The request identifies Community West Bancshares, but the supplied Form 10-K is for Central Valley Community Bancorp (Nasdaq: CVCY), the parent of Central Valley Community Bank. Confirm the intended issuer before relying on this summary.
This is the audited annual report for the fiscal year ended December 31, 2022, not a standalone fourth-quarter report. The company operates a California community bank serving Central Valley and Greater Sacramento markets, with 19 full-service offices. Its lending is concentrated in commercial and real-estate-related credit.
Financial performance and condition
| Metric | 2022 | 2021 |
|---|---|---|
| Total assets | $2.423 billion | $2.450 billion |
| Net interest income before credit-loss provision | $79.566 million | $72.554 million |
| Net income | $26.645 million | $28.401 million |
| Diluted earnings per share | $2.27 | $2.31 |
| Net interest margin | 3.52% | 3.54% |
| Return on average assets / equity | 1.09% / 14.25% | 1.25% / 11.50% |
| Gross loans | $1.256 billion | $1.039 billion |
| Deposits | $2.100 billion | $2.123 billion |
| Shareholders’ equity | $174.660 million | $247.845 million |
- Earnings and margins: Net interest income before provision rose 9.7%, while the net interest margin edged down 2 basis points. Net income fell 6.2%. The $1.0 million provision for credit losses in 2022 compared with a $4.3 million provision reversal in 2021; 2022 also included $1.73 million of net realized securities losses versus $0.50 million of gains in 2021. Non-interest income declined 43.9% to $5.054 million; non-interest expense rose 1.3% to $48.479 million. The reported efficiency ratio improved to 54.51% from 57.16%.
- Cash flow: Operating activities provided $24.194 million; investing activities used $197.596 million; financing activities provided $41.105 million. Cash and cash equivalents decreased $132.297 million to $31.170 million.
- Credit quality: The allowance for credit losses was $10.848 million, or 0.86% of loans, versus $9.600 million, or 0.92%, a year earlier. There were no nonperforming assets at year-end, compared with $946,000 in nonperforming loans in 2021. Classified loans rose to $27.785 million from $8.540 million; special-mention loans declined to $31.023 million from $40.845 million.
- Liquidity and funding: Deposits decreased 1.1%; non-interest-bearing deposits increased to $1.057 billion, or 50.3% of deposits. The loan-to-deposit ratio rose to 59.83% from 48.95%. Reported liquid assets were $686.553 million, or 28.34% of assets, versus $1.280 billion, or 52.25%, in 2021. The company reported $110 million of unused correspondent-bank lines and $319.309 million of unused FHLB capacity; $46 million of FHLB advances were outstanding.
- Capital and debt: The bank remained “well capitalized”; its total risk-based capital ratio was 16.53%, CET1 was 15.87%, and leverage ratio was 10.86%. Consolidated shareholders’ equity fell 29.5%, principally due to an $88.859 million after-tax decline in accumulated other comprehensive income (AOCI), reflecting securities valuation losses, along with dividends and share repurchases. At year-end, senior debt and subordinated debentures totaled $69.599 million, with $46 million of short-term FHLB borrowings also outstanding.
Material changes versus the prior comparable period
- Loans grew 20.9%, while total deposits declined 1.1% and total assets declined 1.1%.
- The securities portfolio recorded a $91.643 million pretax unrealized loss at year-end, compared with a $10.835 million unrealized gain in 2021. AOCI decreased $88.859 million after tax.
- During 2022, the company reclassified securities with approximately $306.7 million of carrying value from available-for-sale to held-to-maturity; $25.3 million of pretax unrealized losses at reclassification will be amortized over the securities’ remaining lives.
- Net interest income increased, but the credit-loss provision shifted from a substantial reversal to an expense, and securities results shifted from net gains to net losses. These changes contributed to lower net income.
- The company issued $30 million of senior debt in 2022, in addition to $35 million of subordinated notes issued in 2021. It repurchased and retired 300,761 shares for $6.814 million during 2022, completing its announced repurchase program.
Outlook, risks, contingencies and unusual items
- The filing gives no numerical earnings or revenue guidance. Management describes focus on asset quality, loan growth, capital adequacy, competitive products and services, and liquidity.
- Management states that the company was not aware of information reasonably likely to have a material effect on its liquidity at year-end. Nevertheless, cash and cash equivalents fell sharply, and liquidity depends on deposits, securities, loan collections, and access to borrowing lines.
- Key exposures include rising or changing interest rates, securities valuation and duration, real-estate concentration, California agricultural conditions and water availability, inflation, deposit competition, and local economic deterioration. About 82.5% of loans were real-estate-related; management also noted pressure on farm income and farmland prices.
- Management expected adoption of CECL on January 1, 2023 to change credit-loss estimation and potentially increase reserves, but said the effect could not yet be reasonably estimated. The filing also notes that credit-loss assumptions and qualitative reserve factors involve significant judgment.
- Unrealized securities losses were attributed primarily to interest-rate changes; management reported no other-than-temporary impairment charges in 2022. The portfolio included substantial mortgage-backed and collateralized mortgage securities whose cash flows and duration can change with prepayments and rates.
- The company reported $286.925 million of commitments to extend credit and $1.216 million of standby letters of credit. It also had $4.949 million of unfunded low-income housing tax-credit commitments, payable through 2038. Management said ordinary-course legal proceedings were not expected to materially affect financial position or results.
- The independent auditor issued an unqualified opinion on the financial statements. The audit identified allowance-for-credit-loss qualitative factors as a critical audit matter. Management concluded disclosure controls and internal control over financial reporting were effective as of year-end.
Most important facts for investors to verify
- Confirm the issuer: the supplied filing is for Central Valley Community Bancorp, not Community West Bancshares.
- Review the composition, valuation, duration, and liquidity implications of securities with large unrealized losses, including the available-for-sale/held-to-maturity reclassification.
- Assess whether rapid loan growth, higher classified balances, real-estate concentration, and agricultural exposures are adequately covered by the allowance, particularly after CECL adoption.
- Track deposit trends, cash balances, borrowing usage and capacity, and the effect of funding costs on net interest margin.
- Review the terms and interest-rate exposure of the senior debt, subordinated notes, and trust-preferred-related obligations, as well as constraints on dividends and capital distributions.