Filing summary
Entity clarification: The supplied 10-Q is for Central Valley Community Bancorp and its subsidiary, Central Valley Community Bank (ticker CVCY), for the quarter ended September 30, 2023. It is not a quarterly filing by Community West Bancshares; Community West is identified as the merger counterparty.
Business context and reporting period
Central Valley Community Bancorp is a California bank holding company serving businesses and individuals in central California. The filing presents unaudited third-quarter and nine-month results through September 30, 2023, compared primarily with the corresponding 2022 periods; balance-sheet changes are compared with December 31, 2022.
Financial performance and position
| Metric | 2023 | Comparison |
|---|---|---|
| Q3 net income / diluted EPS | $6.39 million / $0.54 | $6.384 million / $0.55 in Q3 2022 |
| Nine-month net income / diluted EPS | $19.642 million / $1.67 | $19.012 million / $1.62 in 2022 |
| Net interest income before credit-loss provision | $20.527 million Q3; $62.313 million nine months | Q3 increased 1.8%; nine months increased 8.2% year over year |
| Net interest margin, fully tax-equivalent | 3.47% Q3; 3.59% nine months | 3.57% and 3.42%, respectively, in 2022 |
| Assets / gross loans | $2.435 billion / $1.275 billion | Assets up 0.5%; gross loans up 1.5% from year-end 2022 |
| Deposits | $2.149 billion | Up 2.3% from year-end; interest-bearing deposits rose while non-interest-bearing deposits fell |
| Cash and cash equivalents | $74.6 million | Up from $31.2 million at year-end |
| Shareholders’ equity | $181.7 million | Up from $174.7 million at year-end |
For the first nine months, operating cash flow was $23.4 million and cash increased $43.4 million. Total interest expense rose materially as deposit and borrowing costs increased. Q3 deposit cost was 0.90%; average non-interest-bearing deposits were 44.54% of average deposits, down from 48.50% a year earlier.
Long-term senior and subordinated debt, net of issuance costs, was $69.7 million. There were no FHLB advances outstanding at September 30, 2023, compared with $46.0 million at year-end 2022. The company reported $74.6 million in cash, $574.5 million in unpledged securities, and available borrowing capacity including $340.2 million at the FHLB and $110 million in unsecured lines.
Regulatory capital ratios for the holding company were 8.70% Tier 1 leverage, 12.51% common equity Tier 1, 12.81% Tier 1 risk-based, and 15.81% total risk-based. The bank’s reported ratios exceeded applicable “well-capitalized” thresholds.
Material changes and credit quality
- Q3 net income was nearly flat year over year: higher interest income and lower credit-loss provision were largely offset by higher expenses and taxes. Nine-month net income increased 3.3%.
- For the first nine months, interest income rose $17.0 million, while interest expense rose $12.2 million. Non-interest expense increased $4.1 million, including higher compensation, professional services, and regulatory assessments.
- Q3 net interest margin declined 10 basis points year over year, although the nine-month margin rose 17 basis points. Management noted that higher market rates lifted asset yields but also increased deposit and borrowing costs.
- Commercial real estate represented approximately 63.2% of loans. Non-owner-occupied CRE was the largest loan category. Management cited weakening economic forecasts and growth in CRE and multifamily balances as factors in credit-loss provisioning.
- There were no nonperforming assets, nonaccrual loans, or loans more than 89 days past due at September 30. Past-due loans over 30 days totaled $236,000. Classified loans were $24.7 million; net loan charge-offs were $194,000 for Q3 and $191,000 for the nine months.
- The loan allowance was $15.5 million, or 1.22% of gross loans. Adoption of CECL on January 1, 2023 increased the loan allowance by $3.91 million and reduced retained earnings, net of tax, by $3.731 million. CECL also established reserves for HTM securities and unfunded commitments.
- Available-for-sale securities had $101.3 million of gross unrealized losses, which management attributed primarily to market interest rates rather than credit deterioration. The filing states the company did not intend, and was not more likely than not required, to sell these securities before recovery.
Outlook, risks, contingencies, and unusual items
The filing provides no quantified earnings or margin guidance. Management says liquidity sources are stable and adequate and considers the loan allowance appropriate, while highlighting interest-rate exposure, deposit retention, credit quality, and economic and real-estate conditions as important uncertainties. Uninsured deposits were $883.5 million, or 41.12% of deposits; the top 100 client relationships accounted for 23.08% of deposits. Management warns that withdrawals could require more expensive funding and that sales of securities to meet liquidity needs could realize losses.
On October 10, 2023, after quarter-end, the company agreed to an all-stock merger with Community West Bancshares. Community West shares are to convert at a fixed exchange ratio of 0.79 CVCY share per share; the filing estimated aggregate consideration of approximately $99.4 million using the October 10 share price. Closing was expected in Q2 2024, subject to shareholder, regulatory, and other conditions. The parties may terminate if the transaction is not completed by June 30, 2024, subject to a possible 90-day extension. The filing identifies integration, approval, delay, transaction-cost, and fixed-exchange-ratio risks; no merger benefits or final costs are assured.
Other subsequent events: the company declared a $0.12-per-share dividend; sold branch-relocation property for a reported $371,000 gain on October 3; and sold $10 million of AFS securities on October 26 for a $365,000 net loss. The filing reports no legal proceedings expected to materially affect results. Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Key investor verification points
- Confirm the filing entity and transaction status: this 10-Q is CVCY’s, and the announced Community West merger remained subject to approvals and closing conditions.
- Track deposit mix, uninsured and concentrated balances, deposit pricing, and the cost and availability of alternate funding.
- Monitor CRE and multifamily exposures, criticized/classified loans, charge-offs, and changes to CECL assumptions and reserves.
- Assess securities’ unrealized losses, liquidity needs, and any realized gains or losses from subsequent portfolio sales.
- Reconcile margin and earnings trends against continuing rate changes, operating expenses, and merger-related costs; the filing gives no formal forward earnings guidance.