Filing summary: second quarter 2021
Entity identification: The request names Community West Bancshares, but this filing is for Central Valley Community Bancorp (Nasdaq: CVCY), the holding company for Central Valley Community Bank. Confirm that this is the intended filing. Financial statements are unaudited; amounts below are in U.S. dollars.
Business context and reporting period
The filing covers the quarter and six months ended June 30, 2021. The company provides commercial banking services in California’s Central Valley and Greater Sacramento area. It reports a single operating segment.
Financial performance and condition
| Metric | Q2 2021 | Comparable period |
|---|---|---|
| Total interest income | $18.36 million | $15.98 million in Q2 2020 |
| Net interest income before credit-loss provision | $18.08 million | $15.57 million in Q2 2020 |
| Non-interest income | $2.08 million | $2.05 million in Q2 2020 |
| Net income | $7.56 million | $2.30 million in Q2 2020 |
| Diluted earnings per share | $0.60 | $0.18 in Q2 2020 |
| Net interest margin, fully tax-equivalent | 3.60% | 3.79% in Q2 2020 |
For the first six months, net income was $15.04 million, versus $8.92 million in 2020; diluted EPS was $1.20 versus $0.71. Six-month net interest margin was 3.67%, down from 4.11%. The efficiency ratio improved to 55.96% from 65.00% for the same six-month period.
- Balance sheet at June 30: Assets were $2.28 billion; deposits, $1.98 billion; gross loans, $1.07 billion; net loans, $1.06 billion; and shareholders’ equity, $251.0 million. Compared with December 31, 2020, assets rose 13.8% and deposits rose 14.9%, while gross loans declined 2.9%.
- Liquidity and cash flow: Cash and cash equivalents were $120.7 million. Management reported liquid assets of $1.08 billion, or 47.38% of total assets. For the first six months, operating cash flow was $27.8 million, investing activities used $226.4 million, financing activities provided $249.0 million, and cash increased $50.4 million.
- Debt and funding: Junior subordinated debentures were $5.2 million. The company reported no FHLB advances or federal funds purchased at period-end. Available borrowing capacity included $110 million of correspondent-bank lines, $245.3 million of FHLB capacity, and an $11.5 million Federal Reserve line.
- Capital: The Bank’s common equity Tier 1 ratio was 13.61% and total risk-based capital ratio was 14.40%; management said the Bank exceeded applicable well-capitalized thresholds.
Material changes and notable items
- Q2 earnings benefited substantially from a $1.5 million reversal of credit-loss provision, compared with a $3.0 million provision in Q2 2020. For the first six months, the company recorded a $3.3 million reversal versus a $4.4 million provision in 2020.
- Q2 net interest income before provision increased 16.1% year over year, but margin declined. The six-month margin decline reflected lower yields on investments and loans, partly offset by lower funding costs.
- Six-month non-interest income fell 52.5% to $4.1 million, primarily because 2020 included $4.14 million of realized investment-security gains. The 2021 period recorded a $79,000 net loss on security sales or calls.
- PPP loans outstanding declined to $109.5 million from $192.9 million at year-end 2020. The company reported $1.4 million of pandemic-related loan deferrals at June 30 that were not classified as troubled debt restructurings.
- Nonperforming loans were $2.0 million, or 0.19% of loans, down from $3.3 million and 0.30% at year-end. The allowance for credit losses was $10.4 million, or 0.98% of gross loans, down from $12.9 million and 1.17%.
- The available-for-sale securities portfolio was $952.4 million and had a $18.3 million pretax net unrealized gain. Management estimated that an immediate 200-basis-point rate increase would reduce portfolio market value by approximately $106 million, or 10.25%.
- The company repurchased and retired 239,679 shares for approximately $4.8 million under a $12 million authorization. It paid $0.23 per share in dividends during the first six months and declared a further $0.12 dividend payable in August.
Outlook, commentary, and risks
The filing provides no specific earnings or financial guidance. Management said it expects to manage pandemic-related uncertainty, citing capital levels, underwriting, liquidity, and portfolio diversification, while noting that worsening economic conditions could increase credit losses and provisioning. The company was preparing for CECL adoption, then scheduled for January 1, 2023, and said the adoption impact could not yet be reasonably estimated.
Key risks include COVID-19 and its effects on borrowers and local economies; agricultural and real-estate concentration; credit quality and collateral values; interest-rate changes and securities valuation; maintaining net interest margin; deposit outflows and funding costs; PPP eligibility, forgiveness, and audit requirements; and regulatory, competitive, and acquisition-related risks. Management reported no material change in interest-rate risk exposure from its prior annual filing. Legal proceedings were described as ordinary-course matters not expected to materially affect results; the filing reports no legal proceedings under Part II.
Important facts for investors to verify
- Confirm the registrant: this is Central Valley Community Bancorp, not Community West Bancshares.
- Assess how much earnings growth depended on credit-provision reversals and whether the lower allowance remains appropriate as pandemic effects evolve.
- Review margin pressure, investment-portfolio duration and rate sensitivity, and the potential effect of rising rates on fair value and future income.
- Track PPP forgiveness and runoff, underlying non-PPP loan growth, deposit composition, and any change in deferrals or classified loans.
- Verify capital and liquidity measures against regulatory filings and monitor execution of the remaining share-repurchase authorization.