Business context and reporting period
Central Valley Community Bancorp (ticker CVCY), a California bank holding company operating Central Valley Community Bank, filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2022. The filing identifies the registrant as Central Valley Community Bancorp, not Community West Bancshares; verify the intended issuer.
Key financial metrics
Unless otherwise noted, amounts are in millions of dollars.
| Metric | Q3 2022 | Prior comparable period |
|---|---|---|
| Net interest income before credit-loss provision | $20.164 | $18.210 in Q3 2021 |
| Net income | $6.384 | $6.521 in Q3 2021 |
| Diluted EPS | $0.55 | $0.54 in Q3 2021 |
| Net interest margin, fully tax-equivalent | 3.57% | 3.47% in Q3 2021 |
| Return on average assets | 1.06% | 1.13% in Q3 2021 |
| Return on average equity | 14.42% | 10.41% in Q3 2021 |
For the first nine months of 2022, net interest income before provision was $57.571 million, up 6.9%; net income was $19.012 million, down 11.8%; and diluted EPS was $1.62 versus $1.74. Fully tax-equivalent net interest margin was 3.42%, down from 3.60%. The efficiency ratio was 56.29% versus 56.46%.
At September 30, total assets were $2,425.7 million, deposits $2,139.1 million, gross loans $1,225.3 million, and shareholders’ equity $158.8 million. Cash and cash equivalents were $41.6 million. The company reported $25.0 million of short-term FHLB borrowings and $69.6 million of senior debt and subordinated debentures. The Bank’s total risk-based capital ratio was 16.03%; management reported that it exceeded well-capitalized requirements.
Nine-month operating cash flow was $13.9 million, investing cash outflow was $196.8 million, and financing cash inflow was $61.0 million. Cash and cash equivalents declined $121.9 million from year-end 2021. The loan-to-deposit ratio was 57.28%, up from 48.95% at December 31, 2021. The company cited additional available funding capacity, including $110 million in unsecured correspondent-bank lines and $277.1 million in unused FHLB capacity.
Material changes versus prior periods
- Q3 net income decreased 2.1% year over year, despite higher net interest income, as lower non-interest income, a $500,000 credit-loss provision (versus a $500,000 reversal in Q3 2021), and higher expenses offset revenue growth.
- Nine-month earnings fell as the current period included a $500,000 credit-loss provision versus a $3.8 million reversal in the prior-year period. Non-interest income fell 34.4% to $4.084 million, while non-interest expense rose 3.6% to $36.326 million.
- Gross loans increased 17.9% from year-end, including $204.4 million of non-PPP growth; deposits rose 0.8%. Non-interest-bearing deposits increased to 48.8% of deposits.
- Shareholders’ equity fell $89.0 million from year-end, principally reflecting a $98.3 million after-tax decline in accumulated other comprehensive income, largely related to securities valuation losses. Available-for-sale securities had a $104.4 million pretax unrealized loss at quarter-end, compared with a $10.8 million unrealized gain at year-end 2021.
- The company reclassified securities with a carrying value of $306.7 million from available-for-sale to held-to-maturity in Q2; $25.3 million of pretax unrealized losses at transfer are being amortized over the securities’ remaining lives.
Outlook, risks, contingencies and unusual items
The filing provides no specific earnings or financial guidance. Management described risks from interest-rate changes, inflation, weaker regional economic conditions, credit deterioration, real estate values, and Central Valley drought and water availability, including effects on agricultural borrowers. Management said it believed liquidity sources were stable and adequate and the allowance for credit losses was adequate, while cautioning that future charge-offs could exceed the allowance.
Nonperforming assets were $251,000, or 0.01% of assets; nonaccrual loans were $251,000 and there were no loans more than 90 days past due and accruing, no OREO, and no repossessed assets. Classified loans increased to $22.7 million from $8.5 million at year-end. The allowance was $10.4 million, or 0.85% of gross loans. The company cited a concentrated commercial and real-estate lending profile and ongoing monitoring of classified credits.
Unusual or notable items included $777,000 of net realized securities losses for the first nine months, associated with a portfolio restructuring intended to improve future performance and provide liquidity for loan growth; nonrecurring severance and overtime expenses; and a $30 million variable-rate senior loan entered into in September, secured by company assets and the Bank’s common stock. The company had $319.3 million of commitments to extend credit and $987,000 of standby letters of credit; management did not expect material losses from these commitments. Management reported no material legal proceedings and no material change in interest-rate risk exposure from the prior annual report.
The company was preparing for CECL adoption on January 1, 2023, but said it could not yet reasonably estimate the effect. It planned to evaluate model scenarios alongside existing reserving processes in Q4 2022. The board also declared a $0.12-per-share dividend payable November 18, 2022.
Most important facts for investors to verify
- Confirm issuer identity: the supplied request names Community West Bancshares, while the filing identifies Central Valley Community Bancorp (CVCY).
- Review the securities portfolio’s interest-rate sensitivity, unrealized losses, AFS-to-HTM reclassification, and potential effect on equity and liquidity if securities must be sold.
- Assess whether loan growth, higher classified balances, regional agricultural and real-estate risks, and the 0.85% allowance remain consistent with credit quality.
- Monitor margin trends and funding costs as rates change, including the variable-rate senior debt and FHLB borrowing capacity.
- Track CECL adoption impact and the sustainability of earnings excluding securities losses, loan-placement fee changes, and identified nonrecurring expenses.