Business context and reporting period
This unaudited Form 10-Q covers the three months ended March 31, 2021. The filing identifies the registrant as Central Valley Community Bancorp (NASDAQ: CVCY), parent of Central Valley Community Bank, serving businesses and individuals in central California. This differs from the requested company name, Community West Bancshares; verify the intended filing.
Financial results and position
- Earnings: Net income was $7.479 million, up 12.9% from $6.623 million in Q1 2020. Diluted EPS rose to $0.60 from $0.52. Net interest income before credit-loss provision was $17.555 million, up 9.5%.
- Revenue and margins: Interest income increased to $17.847 million from $16.506 million. Non-interest income fell to $1.999 million from $6.541 million, mainly because Q1 2020 included $4.198 million of securities-sale gains. Fully tax-equivalent net interest margin declined to 3.76% from 4.47%; the efficiency ratio improved to 56.34% from 65.71%.
- Credit costs and asset quality: The company recorded a $1.800 million reversal of credit-loss provision, versus a $1.375 million provision in Q1 2020. The allowance was $12.056 million, or 1.11% of gross loans, compared with $12.915 million, or 1.17%, at year-end 2020. Nonperforming loans were $3.783 million (0.35% of loans), up from $3.278 million (0.30%) at year-end; there were no loans over 90 days past due and accruing.
- Cash flow and liquidity: Operating cash flow was $6.379 million versus $5.931 million in Q1 2020. Cash and cash equivalents increased to $214.841 million from $70.278 million at year-end, and reported liquid assets were $991.060 million. Deposits rose 11.6% to $1.922 billion; the loan-to-deposit ratio declined to 56.72% from 63.99%.
- Balance sheet and funding: Total assets increased 9.8% from year-end to $2.201 billion. Gross loans declined 1.1% to $1.090 billion; available-for-sale securities were $768.719 million. Total liabilities were $1.959 billion. Junior subordinated debentures were $5.155 million; the company reported no FHLB advances or federal funds purchased. Unused borrowing capacity included $244.763 million of FHLB capacity, $110 million of unsecured correspondent lines, and a $12.845 million Federal Reserve line.
- Capital and shareholder returns: Shareholders’ equity was $241.845 million, down from $245.021 million, primarily reflecting a $9.594 million after-tax decline in accumulated other comprehensive income. The Bank’s total risk-based capital ratio was 15.66%, above the 10.00% well-capitalized threshold. The company paid a $0.11 per-share quarterly dividend and declared a $0.12 dividend payable in May. It authorized up to $12 million of share repurchases through March 17, 2022; no shares had been repurchased by quarter-end.
Material changes versus comparable periods
Year over year, net income and EPS improved despite lower non-interest income, as higher net interest income, lower expenses, and the credit-provision reversal more than offset the absence of the prior-year securities gains. NIM and asset yields weakened, partly reflecting low rates and the 1%-yielding PPP loan portfolio. Compared with December 31, 2020, deposits and cash rose substantially while loans edged lower. Securities’ net unrealized gain fell to $7.470 million from $21.091 million, contributing to the quarter’s $9.594 million other comprehensive loss.
Outlook, commentary, risks, and unusual items
- No specific earnings or financial guidance is provided. Management said it believed capital and liquidity were adequate and the allowance was sufficient for probable incurred losses, while cautioning that future charge-offs and credit deterioration remain possible.
- COVID-19-related deferrals outstanding were approximately $2.8 million at March 31, 2021. The company had 994 PPP loans totaling $190.9 million outstanding; management said PPP loans were government-guaranteed and expected most to be forgiven, while noting potential allowance and SBA eligibility, forgiveness, and audit risks.
- Key exposures include economic and pandemic uncertainty, interest-rate changes, commercial real estate and agricultural lending, local economic conditions, and possible deposit outflows or higher funding costs. A 200-basis-point immediate rate increase was estimated to reduce investment-portfolio market value by approximately $88 million, or 9.23%, under the company’s no-action model.
- There were no OTTI losses on securities in Q1, and management’s qualitative goodwill review concluded no quantitative impairment test was required. The filing reports no material pending legal proceedings. The company is preparing for CECL adoption, scheduled for January 1, 2023, but could not reasonably estimate its effect.
- Unusual quarter items include the $1.8 million credit-provision reversal and a $9.594 million after-tax securities-related other comprehensive loss. The filing also reports a $135,000 executive-search accrual and $214,000 severance accrual.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is for Central Valley Community Bancorp (CVCY), not Community West Bancshares.
- Assess whether earnings growth is sustainable without a credit-provision reversal and with no repeat of Q1 2020 securities-sale gains.
- Review NIM sensitivity to rates, PPP loan forgiveness and runoff, deposit growth, and the potential effect of changing funding costs.
- Track nonperforming loans, classified credits, allowance adequacy, and the impact of COVID-19 and agricultural or real-estate conditions on borrowers.
- Monitor unrealized securities losses, capital and liquidity ratios, and execution of the $12 million repurchase authorization.