Filing summary
Important entity note: The supplied filing is Central Valley Community Bancorp’s Form 10-Q for the quarter ended September 30, 2018, not a filing under the name Community West Bancshares. Verify the issuer before relying on this summary.
Business context and reporting period
Central Valley Community Bancorp is a California bank holding company operating Central Valley Community Bank, serving businesses and individuals in central California. The filing reports unaudited results for the three and nine months ended September 30, 2018. The October 2017 Folsom Lake Bank acquisition affected year-over-year comparisons; the company also consolidated branches during 2018.
Financial performance and position
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Net interest income before credit-loss provision | $15.91 | $13.58 | $46.73 | $40.67 |
| Provision for (reversal of) credit losses | $0 | ($0.90) | $0.05 | ($1.15) |
| Non-interest income | $2.46 | $2.55 | $7.92 | $8.90 |
| Non-interest expense | $10.79 | $10.39 | $33.66 | $31.30 |
| Net income | $5.75 | $4.49 | $16.01 | $13.69 |
| Diluted EPS | $0.42 | $0.36 | $1.16 | $1.11 |
| Net interest margin, fully tax-equivalent | 4.53% | 4.39% | 4.40% | 4.42% |
For the quarter, net income increased 28% year over year, reflecting stronger net interest income and lower income-tax expense, partly offset by higher operating expenses and lower non-interest income. For the nine-month period, net income rose 17%; growth in net interest income and a lower tax provision offset reduced securities gains and higher expenses. Nine-month diluted EPS was $1.16, compared with $1.11.
At September 30, 2018, total assets were $1,519.4 million, net loans $902.9 million, deposits $1,275.5 million, and shareholders’ equity $213.4 million. Compared with December 31, 2017, assets declined 8.6%, deposits declined 10.5%, and gross loans grew 1.2%. Cash and cash equivalents were $47.3 million, down from $100.4 million; available-for-sale securities were $434.7 million, down from $535.3 million. The loan-to-deposit ratio rose to 71.49% from 63.18%.
Nine-month operating cash flow was $22.2 million. Investing activities provided $77.0 million, while financing activities used $152.3 million, principally reflecting a $150.2 million net decline in deposits. The company had no short-term borrowings or FHLB advances outstanding at quarter-end; junior subordinated debentures were $5.2 million. It reported $359.9 million of unpledged securities, $40 million of available unsecured correspondent-bank lines, $304.9 million of unused FHLB capacity, and a $4.9 million Federal Reserve line. Management described liquidity sources as stable and adequate.
The allowance for credit losses was $9.0 million, or 0.99% of gross loans, versus $8.8 million, or 0.97%, at year-end 2017. Nonaccrual loans were $4.1 million, up from $2.9 million at year-end; nonperforming assets were 0.27% of assets. The bank reported $37.0 million of classified loans, down from $50.0 million at year-end, with $23.7 million related to agricultural real estate. Management considered the allowance adequate but cautioned that actual charge-offs could exceed it.
At September 30, the bank’s regulatory capital ratios included a 15.51% Common Equity Tier 1 ratio and a 16.37% total risk-based capital ratio; the company reported that both it and the bank were well capitalized. The nine-month efficiency ratio improved to 61.61% from 62.49%. Annualized nine-month ROA was 1.34% and ROE was 10.16%.
Material changes, outlook, and risks
- Net interest income growth reflected higher average loan balances, including the Folsom Lake Bank acquisition and organic growth. Nine-month fully tax-equivalent margin edged down two basis points as investment and loan yields softened; deposit and other funding costs rose.
- Non-interest income fell 11% for the first nine months, mainly because securities gains declined to $1.28 million from $2.81 million. The company recognized a $462,000 net gain on the credit-card portfolio sale for the nine months, offset in Q3 by $116,000 of conversion expense.
- Available-for-sale securities had a $10.4 million pretax net unrealized loss at September 30, versus a $4.1 million gain at year-end 2017; accumulated other comprehensive loss, net of tax, was $7.3 million. Management attributed declines mainly to interest rates, stated it could hold the securities, and recorded no other-than-temporary impairment during the first nine months. A modeled immediate 200-basis-point rate increase would reduce portfolio market value by an estimated $32.0 million.
- Deposits fell amid seasonal patterns, runoff of higher-rate acquired accounts, and branch consolidations. The company closed or consolidated several offices and incurred approximately $245,000 in consolidation/closing costs during the first nine months.
- The board authorized a common-stock repurchase program of up to $10 million, running through July 18, 2019; no shares had been repurchased by September 30. A $0.09-per-share dividend was declared October 17, payable November 15, 2018.
- No earnings or operating guidance was provided. Forward-looking risks include competition, interest-rate movements, economic conditions in the Central Valley, credit quality, real estate values, deposit and margin pressures, regulation, and acquisition integration. Management noted potential tariff-related pressure on farmers and was monitoring impacts.
- Management expects the new lease standard to increase recognized assets and liabilities but does not expect a material effect on results or cash flows. The company was evaluating CECL, effective for it beginning in 2020, but could not estimate its impact; a one-time allowance adjustment is expected on adoption.
Key facts for investors to verify
- Confirm the issuer identity: this filing names Central Valley Community Bancorp, not Community West Bancshares.
- Reconcile the substantial deposit and cash declines with seasonality, acquired-account runoff, branch actions, and subsequent-period funding trends.
- Monitor nonaccrual loans, classified agricultural real-estate exposures, allowance coverage, and any tariff or local economic effects on borrowers.
- Assess the securities portfolio’s unrealized losses, interest-rate sensitivity, and whether any future liquidity needs could require sales before recovery.
- Track the sustainability of earnings growth apart from acquisition effects, loan-mark accretion, prepayment-related income, securities gains, and the lower 2018 tax rate.
- Check execution of the repurchase program, dividend capacity, capital buffers, and the eventual financial impact of CECL and lease-standard adoption.