Community West Bancshares annual report, FY2020

Business context and reporting period

This is Central Valley Community Bancorp’s Form 10-K for the fiscal year ended December 31, 2020, filed March 10, 2021. The company is a California bank holding company operating Central Valley Community Bank, serving businesses and individuals across California’s Central Valley and Greater Sacramento Region. The filing does not identify Community West Bancshares as the registrant; confirm the company name before relying on this summary. Quarterly data includes the three months ended December 31, 2020.

Financial results and condition

Metric	FY 2020	FY 2019
Total interest income	$66.0 million	$66.3 million
Net interest income before provision	$64.4 million	$63.8 million
Provision for credit losses	$3.3 million	$1.0 million
Non-interest income	$13.8 million	$13.3 million
Non-interest expense	$47.7 million	$46.1 million
Net income	$20.3 million	$21.4 million
Diluted EPS	$1.62	$1.59
Net interest margin	3.87%	4.51%

At year-end, total assets were $2.00 billion, up 25.5%; deposits were $1.72 billion, up 29.2%; gross loans were reported as $1.10 billion, up 16.9%; and shareholders’ equity was $245.0 million, up 7.4%.
Average return on assets declined to 1.11% from 1.36%; return on average equity declined to 8.85% from 9.39%. The efficiency ratio rose to 64.08% from 62.77%.
Operating cash flow was $17.0 million; investing cash flow was a $372.6 million outflow and financing cash flow was a $373.3 million inflow. Cash and cash equivalents ended the year at $70.3 million.
Liquidity included $788.0 million of liquid assets, $532.7 million of unpledged securities, $110.0 million of available correspondent-bank lines, and $235.4 million of unused FHLB capacity. No FHLB or other line borrowings were outstanding at year-end.
Debt included $5.2 million of junior subordinated debentures, due in 2036 and carrying a floating rate; the year-end rate was 1.84%.
The Bank’s year-end capital ratios were 15.48% total risk-based capital, 14.41% CET1, and 9.23% leverage. The filing states the Bank exceeded well-capitalized requirements.

Material changes versus the prior comparable period

Net income fell 5.1% from 2019, despite diluted EPS increasing from $1.59 to $1.62, reflecting the lower share count following repurchases.
Net interest margin declined 64 basis points. Lower asset yields—including on PPP loans—were partly offset by lower funding costs and growth in average earning assets.
The credit-loss provision increased to $3.3 million, primarily reflecting management’s increased qualitative reserves for COVID-19-related economic uncertainty. Net recoveries were $510,000, versus $999,000 of net charge-offs in 2019.
Nonperforming loans rose to $3.3 million, or 0.30% of loans, from $1.7 million, or 0.18%. Classified loans increased to $36.1 million from $33.8 million; special-mention loans increased to $36.4 million from $28.2 million.
Deposits grew substantially, including non-interest-bearing deposits, and the loan-to-deposit ratio declined to 63.99% from 70.76%.
The company repurchased and retired $11.1 million of shares in 2020 and paid $0.44 per share in dividends. It declared a further $0.11 per-share dividend payable in February 2021.

Outlook, commentary, risks and unusual items

The filing provides no specific earnings or revenue guidance. Management emphasizes uncertainty from the COVID-19 pandemic and its effects on borrowers, local economic conditions, credit quality, and demand.
PPP loans outstanding were $192.9 million at year-end and are described as fully SBA-guaranteed. The company flags possible SBA guarantee disputes, borrower or third-party litigation, and processing-related reputational and financial exposure.
Credit exposure is concentrated in California commercial and real-estate-related lending: management estimates 69.8% of loans were real-estate-related and 26.9% commercial. Agriculture and local real estate conditions are additional risk factors.
Management reported $25 million of COVID-related loan deferrals that were not classified as troubled debt restructurings at year-end. It also reported $7.9 million of recorded troubled debt restructurings, described as unrelated to COVID-19 modifications.
The company recorded a $1.167 million gain from collecting tax-exempt life-insurance proceeds. No goodwill impairment or other-than-temporary investment-security impairment was recorded in 2020; goodwill was $53.8 million.
Interest-rate modeling estimated one-year net interest income would change by +0.48% for a 100-basis-point increase, +0.32% for 200 basis points, and −4.94% for 400 basis points; a 100-basis-point decrease was estimated to reduce it by 2.55%. Management cautions that modeled results depend on assumptions and may differ materially from actual outcomes.
CECL adoption is scheduled for 2023. Management could not reasonably estimate its impact and noted that the required allowance could increase.
Management reported effective disclosure controls and internal control over financial reporting as of year-end. The independent auditor gave an unqualified opinion on the financial statements and identified the allowance for credit losses and goodwill impairment evaluation as critical audit matters.

Important facts for investors to verify

Confirm the registrant: the request names Community West Bancshares, while this filing is for Central Valley Community Bancorp (ticker CVCY).
Reconcile the loan balances and related definitions in the filing, including gross loans, loans outstanding, PPP balances, and the allowance for credit losses.
Track COVID-related deferrals, PPP forgiveness and SBA guarantee performance, classified and nonperforming loans, and changes in credit-loss provisions.
Assess the sustainability of earnings given margin compression, loan-placement and securities gains, the life-insurance proceeds gain, and higher operating costs.
Monitor liquidity and deposit trends, real-estate and agricultural concentrations, capital ratios, and the potential effect of CECL implementation.