Central Valley(CVCY) - 2024 Q2 - Quarterly Results

Earnings Release Overview Second Quarter 2024 Financial Highlights Community West Bancshares reported a $6.29 million net loss in Q2 2024, driven by merger-related expenses and a $9.83 million provision for credit losses, alongside 42.8% asset growth Q2 2024 Key Financial Results | Metric | Q2 2024 (in millions) | Q1 2024 (in millions) | Q2 2023 (in millions) | | :--- | :--- | :--- | :--- | | Net (Loss) Income | ($6.29) | $3.68 | $6.28 | | Diluted (Loss) EPS | ($0.33) | $0.31 | $0.54 | | Provision for Credit Losses | $9.83 | $0.58 | ($0.34) | | Net Interest Margin | 3.65% | 3.42% | 3.46% | - The net loss in Q2 was directly caused by merger-related expenses, a provision for loan losses on the acquired portfolio, and a realized loss on securities sales[4] - Total assets grew by $1.04 billion (42.83%) compared to December 31, 2023, primarily due to the merger[23] Key Operational and Strategic Developments The company completed its merger on April 1, 2024, adding $920.9 million in loans and $844.0 million in deposits, and declared a $0.12 per share cash dividend - On April 1, 2024, the company completed its acquisition of Community West Bancshares and adopted its name to reflect the expanded Central California territory[20] - The merger added loans with a fair value of $920.9 million and deposits with a fair value of $844.0 million[5][6] - The company is repositioning its balance sheet by selling lower-earning investment securities to fund strong organic loan growth of $49 million (8.89% annualized) for the quarter[2][11][22] - A cash dividend of $0.12 per common share was declared, payable on August 16, 2024[10] Results of Operations Net Interest Income and Net Interest Margin Net interest income increased 43.8% year-over-year to $29.06 million in Q2 2024, with net interest margin expanding to 3.65%, despite a rise in the cost of total deposits to 1.71% Net Interest Income and Margin Performance | Metric | Q2 2024 (in millions) | Q1 2024 (in millions) | Q2 2023 (in millions) | | :--- | :--- | :--- | :--- | | Net Interest Income | $29.06 | $19.07 | $20.21 | | Net Interest Margin (FTE) | 3.65% | 3.42% | 3.46% | | Yield on Earning Assets | 5.50% | 4.58% | 4.43% | | Cost of Total Deposits | 1.71% | 0.98% | 0.88% | - Net interest margin increased to 3.65% for Q2 2024, with fair value accretion from the merger contributing 12 basis points to the 23 basis point sequential increase[21] - The effective yield on average loans increased to 6.54% in Q2 2024, up from 5.74% in Q1 2024 and 5.54% in Q2 2023[58] Provision for Credit Losses The company recorded a significant $9.83 million provision for credit losses in Q2 2024, primarily due to establishing an allowance for the acquired loan portfolio from the merger Provision for Credit Losses Comparison | Period | Provision (Credit) for Credit Losses (in millions) | | :--- | :--- | | Q2 2024 | $9.83 | | Q1 2024 | $0.58 | | Q2 2023 | ($0.34) | - The provision for credit losses on non-purchased credit deteriorated loans related to the merger was $10.9 million[31] Non-Interest Income Total non-interest income decreased 12.2% to $1.40 million in Q2 2024, primarily due to a $1.97 million net realized loss on securities sales for strategic balance sheet repositioning Non-Interest Income Components (Q2 2024 vs Q2 2023) | Component | Q2 2024 (in thousands) | Q2 2023 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Service charges | $480 | $367 | 30.8% | | Net realized losses on sales of securities | ($1,974) | ($39) | 4961.5% | | Other income | $1,508 | $276 | 446.4% | | Total non-interest income | $1,400 | $1,594 | (12.2)% | - Proceeds from the sale of securities were used to fund loan growth as part of a strategic balance sheet repositioning to improve future earnings[17][22] Non-Interest Expense Non-interest expenses surged 106.5% to $28.50 million in Q2 2024, primarily driven by $5.56 million in merger expenses and increased operational costs from expanded operations Non-Interest Expense Components (Q2 2024 vs Q2 2023) | Component | Q2 2024 (in thousands) | Q2 2023 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Salaries and employee benefits | $13,451 | $7,976 | 68.6% | | Merger and acquisition expense | $5,556 | $177 | 3039.0% | | Occupancy and equipment | $2,423 | $1,264 | 91.7% | | Total non-interest expenses | $28,503 | $13,805 | 106.5% | - The increase in non-interest expense was due to the merger completed on April 1, 2024, which added 131 full-time equivalent employees and seven banking centers[37] - Management expects elevated non-interest expenses to continue through Q3 2024 due to merger-related systems integration, with operational efficiencies anticipated to begin in Q4 2024[11] Balance Sheet Analysis Assets, Loans, and Deposits The merger significantly expanded the balance sheet, with total assets reaching $3.48 billion (42.8% increase), gross loans $2.26 billion (74.8% increase), and total deposits $2.87 billion (40.5% increase) Balance Sheet Growth (June 30, 2024 vs. Dec 31, 2023) | Metric (in billions) | June 30, 2024 | Dec 31, 2023 | % Change | | :--- | :--- | :--- | :--- | | Total Assets | $3.48 | $2.43 | 42.8% | | Total Gross Loans | $2.26 | $1.29 | 74.8% | | Total Deposits | $2.87 | $2.04 | 40.5% | - Excluding the $920.9 million in acquired loans, gross loans increased organically by $44.9 million (3.48%) year-to-date[5] - The ratio of average non-interest bearing deposits to total deposits decreased to 37.36% for Q2 2024, compared to 45.30% for Q1 2024, reflecting the composition of acquired deposits[8][41] Liquidity and Capital The company maintains strong liquidity with $1.1 billion in available sources and capital ratios well above regulatory requirements, including a 9.14% Tier 1 Leverage Ratio Key Capital Ratios (June 30, 2024) | Ratio | Value | | :--- | :--- | | Tier 1 Leverage Ratio | 9.14% | | Common Equity Tier 1 Ratio | 11.36% | | Tier 1 Risk-Based Capital Ratio | 11.55% | | Total Risk-Based Capital Ratio | 13.87% | Liquidity Sources (in thousands) | Source | June 30, 2024 (in thousands) | | :--- | :--- | | Cash and cash equivalents | $109,723 | | Unpledged investment securities | $519,693 | | FHLB borrowing availability | $253,850 | | Unsecured lines of credit availability | $110,000 | | Total | $1,104,883 | Credit Quality Non-performing Assets and Loan Quality Credit quality metrics shifted post-merger, with non-performing assets reaching $2.81 million and increases in special mention and substandard loans, while net loan charge-offs remained minimal at $41 thousand - Non-performing assets totaled $2.81 million for the quarter ended June 30, 2024, as a result of acquired loans from the merger[9] Loan Risk Rating (in thousands) | Rating | June 30, 2024 (in thousands) | March 31, 2024 (in thousands) | | :--- | :--- | :--- | | Pass | $2,191,348 | $1,262,046 | | Special mention | $25,576 | $5,595 | | Substandard | $39,647 | $18,968 | - Net loan charge-offs were minimal at $41 thousand for the quarter, with a charge-off ratio of 0.01%[9][43] Allowance for Credit Losses The allowance for credit losses (ACL) increased to $24.94 million at June 30, 2024, reflecting the acquired loan portfolio, with ACL as a percentage of total loans at 1.11% - The allowance for credit losses was $24.94 million at June 30, 2024, compared to $14.65 million at December 31, 2023[71] - The allowance for credit losses as a percentage of total loans was 1.11% at June 30, 2024, compared to 1.14% at December 31, 2023[71] Company Information and Forward-Looking Statements Company Overview Community West Bancshares, headquartered in Fresno, California, operates full-service banking centers across Central California, offering diverse financial services post-merger - Effective April 1, 2024, Central Valley Community Bancorp merged with Community West Bancshares and adopted its name[73] - The company is headquartered in Fresno, California and operates full-service Banking Centers across California's Central Valley and Central Coast[46] Forward-Looking Statements This section contains forward-looking statements, cautioning that actual results may differ materially due to economic conditions, interest rate changes, credit quality, competition, and merger integration risks - The report includes forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially[49] - Key risks include economic conditions, interest rate environment, credit quality, competition, and challenges related to merger integration, such as failing to achieve projected expansion or experiencing higher-than-expected costs[49] Consolidated Financial Statements Consolidated Balance Sheets The consolidated balance sheet shows total assets of $3.48 billion as of June 30, 2024, driven by increased loans and goodwill, with total deposits at $2.87 billion and shareholders' equity at $350.2 million Consolidated Balance Sheets (in thousands) | Account | June 30, 2024 (in thousands) | Dec 31, 2023 (in thousands) | | :--- | :--- | :--- | | Total Assets | $3,475,764 | $2,433,426 | | Total cash and cash equivalents | $109,723 | $53,728 | | Total loans, net | $2,231,631 | $1,276,144 | | Goodwill | $96,379 | $53,777 | | Total Liabilities | $3,125,522 | $2,226,362 | | Total deposits | $2,869,300 | $2,041,612 | | Total Shareholders' Equity | $350,242 | $207,064 | Consolidated Statements of Income The consolidated statement of income for Q2 2024 shows a $6.29 million net loss, with $29.06 million in net interest income, a $9.83 million provision for credit losses, and $28.50 million in non-interest expenses Consolidated Statements of Income (Three Months Ended June 30, in thousands) | Account | 2024 (in thousands) | 2023 (in thousands) | | :--- | :--- | :--- | | Net interest income | $29,057 | $20,205 | | Provision for credit losses | $9,831 | ($343) | | Total non-interest income | $1,400 | $1,594 | | Total non-interest expenses | $28,503 | $13,805 | | (Loss) income before income taxes | ($7,877) | $8,337 | | Net (loss) income | ($6,290) | $6,282 | Selected Financial Highlights (Quarterly) Quarterly financial highlights show a $6.29 million net loss in Q2 2024, an efficiency ratio spike to 93.58%, and a loan-to-deposit ratio increase to 78.65%, reflecting merger impacts Quarterly Performance Ratios | Metric | Q2 2024 (in thousands) | Q1 2024 (in thousands) | Q4 2023 (in thousands) | Q2 2023 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net (loss) income | ($6,290) | $3,676 | $5,893 | $6,282 | | Diluted (loss) EPS | ($0.33) | $0.31 | $0.50 | $0.54 | | Return on average assets | (0.73)% | 0.61% | 0.98% | 1.00% | | Return on average equity | (7.39)% | 7.08% | 12.78% | 13.60% | | Efficiency ratio | 93.58% | 74.04% | 66.37% | 65.24% | | Loan to deposit ratio | 78.65% | 63.34% | 63.33% | 57.07% | Average Balances and Yields Average interest-earning assets increased to $3.25 billion in Q2 2024, with average loans at $2.23 billion and a net interest margin of 3.65% Average Balances and Rates (Three Months Ended June 30, 2024) | Category | Average Balance (in thousands) | Interest Income/Expense (in thousands) | Average Rate | | :--- | :--- | :--- | :--- | | Total interest-earning assets | $3,246,454 | $44,368 | 5.50% | | Average Loans | $2,226,858 | $36,197 | 6.54% | | Total interest-bearing liabilities | $2,013,444 | $14,940 | 2.98% | | Average Interest-bearing deposits | $1,806,336 | $12,266 | 2.73% | | Net interest income (FTE) | | $29,428 | 3.65% (Margin) |