Central Valley(CVCY) - 2019 Q4 - Annual Report

Part I Item 1. Business Central Valley Community Bancorp is a bank holding company offering commercial banking services in California's central valley - Central Valley Community Bancorp is a bank holding company for its wholly-owned subsidiary, Central Valley Community Bank, serving nine counties in California's central valley[7] Company Snapshot (as of Dec 31, 2019) | Metric | Value | | :--- | :--- | | Consolidated Total Assets | ~$1,596,755,000 | | Total Loans | $943,380,000 | | Full-Service Banking Offices | 20 | | Employees (as of Mar 1, 2020) | 288 (273 FTE) | Loan Portfolio Composition (as of Dec 31, 2019) | Loan Type | Amount (in thousands) | | :--- | :--- | | Commercial and Industrial | $102,541 | | Agricultural Land and Production | $23,159 | | Real Estate Construction & Land | $73,718 | | Other Real Estate | $634,824 | | Equity Loans and Lines of Credit | $64,841 | | Consumer Installment | $42,782 | - The company's business is highly concentrated in California's central valley, making its performance dependent on local economic conditions, particularly in the residential and commercial real estate markets[10] - The company faces intense competition from major banks and other financial institutions, competing by leveraging local promotion, personal contacts, and personalized service; its deposit market share in its primary counties was 3.31% in 2019, down from 3.42% in 2018[11] - The company and its bank subsidiary are subject to a complex and extensive regulatory framework from multiple agencies, including the Federal Reserve, FDIC, and California Department of Business Oversight (DBO)[13] Item 1A. Risk Factors The company faces material risks from its geographic concentration, real estate loan portfolio, interest rates, and regulations - The company's operations are principally in California's Central Valley, which is heavily dependent on agriculture; a downturn in the agricultural economy could materially harm the business[45] - A significant portion of the loan portfolio, $773 million or 82.00% as of December 31, 2019, is comprised of real estate loans concentrated in California, where negative changes in property values could impair collateral[51] - The company faces liquidity risk, as an inability to raise funds through deposits or borrowings could negatively affect operations and a decrease in customer deposits could increase funding costs[50] - Fluctuations in interest rates could reduce profitability, as the company's income is primarily derived from the net interest spread and its asset/liability management strategy may not prevent adverse effects[63] - The company is subject to stringent capital requirements under Basel III rules, and failure to meet these requirements could result in regulatory limitations on activities and growth[65][67] - Cybersecurity incidents and fraudulent activity pose a significant risk, where a breach could result in financial losses, reputational damage, and increased regulatory scrutiny[71][73] - The upcoming implementation of the Current Expected Credit Loss (CECL) standard is expected to require significantly more data and may increase the allowance for credit losses, thereby decreasing net income[76] Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments - Not applicable[98] Item 2. Properties The company owns six branch office properties and leases all other facilities, which are considered adequate for current operations - The Company owns the property for its branch offices in Clovis (Main office), Prather (Foothill office), Modesto, Kerman, Visalia (Floral office), and Exeter[100] - The principal executive offices in Fresno and all other branch properties are leased, with management considering the facilities adequate for present operations[100] Item 3. Legal Proceedings Management believes that legal proceedings arising in the ordinary course of business will not materially affect the company - In the opinion of management, the amount of ultimate liability with respect to legal actions arising in the ordinary course of business will not materially affect the company's financial position or results[101] Item 4. Mine Safety Disclosures The company reports no mine safety disclosures - None to report[102] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock (CVCY) trades on Nasdaq, with details on dividends, stock prices, and share repurchase activity provided - The company's common stock is listed on the Nasdaq Capital Market under the ticker symbol CVCY[104] Common Stock Prices and Dividends per Share (2019) | Quarter | High ($) | Low ($) | Dividends ($) | | :--- | :--- | :--- | :--- | | Q1 2019 | 20.35 | 18.10 | 0.10 | | Q2 2019 | 21.48 | 19.08 | 0.11 | | Q3 2019 | 21.75 | 18.97 | 0.11 | | Q4 2019 | 22.15 | 19.24 | 0.11 | - Total cash dividends paid were $0.43 per share in 2019 and $0.31 per share in 2018, with payments subject to regulatory policies from the Federal Reserve[105] Issuer Purchases of Equity Securities (2019 Summary) | Metric | Value | | :--- | :--- | | Total Shares Purchased | 768,754 | | Average Price Paid per Share | $20.29 | | Total Cost (approx.) | $15.6 million | Item 6. Selected Financial Data This section presents a five-year summary of key consolidated financial data, showing trends in income, assets, and per-share metrics Selected Consolidated Financial Data (2017-2019) | (In thousands, except per-share amounts) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Income Statement Data | | | | | Net interest income | $63,772 | $62,703 | $56,239 | | Net income | $21,443 | $21,289 | $14,026 | | Diluted earnings per share | $1.59 | $1.54 | $1.10 | | Balance Sheet Data (Year-End) | | | | | Total assets | $1,596,755 | $1,537,836 | $1,661,655 | | Net loans | $934,250 | $909,591 | $891,901 | | Total deposits | $1,333,285 | $1,282,298 | $1,425,687 | | Shareholders' equity | $228,128 | $219,738 | $209,559 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting modest net income growth and improved asset quality in 2019 Overview and Key Performance Metrics The company reported modest net income growth in 2019, with increased EPS and total assets but a slightly higher efficiency ratio Key Performance Metrics (2019 vs. 2018) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Diluted EPS | $1.59 | $1.54 | | Net Income (in thousands) | $21,443 | $21,289 | | Return on Average Equity (ROE) | 9.39% | 10.07% | | Return on Average Assets (ROA) | 1.36% | 1.35% | | Total Assets (in thousands) | $1,596,755 | $1,537,836 | | Nonperforming Assets (in thousands) | $1,693 | $2,740 | - The net interest margin (fully tax equivalent) increased to 4.51% in 2019 from 4.44% in 2018, driven by higher yields on earning assets[131] - The efficiency ratio was 62.77% for 2019, compared to 61.23% for 2018, indicating that growth in non-interest expense outpaced revenue growth[138] Results of Operations Net income increased slightly in 2019, driven by higher net interest income and security gains, offset by a larger credit provision - Net interest income before provision for credit losses increased by $1.07 million (1.70%) in 2019, driven by a higher net interest margin of 4.51%[154] - The company recorded a provision for credit losses of $1,025,000 in 2019, a significant increase from the $50,000 provision in 2018[157] - Non-interest income increased by $2.98 million (28.87%) in 2019, primarily due to a $5.2 million in net realized gains on sales and calls of investment securities[161] - Non-interest expenses rose by $1.03 million (2.29%) in 2019, mainly due to increases in information technology ($1.5 million) and salaries and employee benefits ($0.4 million)[162][164] - The effective income tax rate increased to 28.4% in 2019 from 23.7% in 2018, while the 2017 rate was elevated due to a one-time charge from tax reform[168] Financial Condition Total assets, loans, and deposits all grew in 2019, while asset quality improved and shareholders' equity increased Balance Sheet Summary (in thousands) | Account | Dec 31, 2019 | Dec 31, 2018 | % Change | | :--- | :--- | :--- | :--- | | Total Assets | $1,596,755 | $1,537,836 | 3.83% | | Total Gross Loans | $943,380 | $918,695 | 2.69% | | Total Deposits | $1,333,285 | $1,282,298 | 3.98% | | Shareholders' Equity | $228,128 | $219,738 | 3.82% | - The available-for-sale securities portfolio had a fair value of $470.7 million and an unrealized gain of $4.0 million at year-end 2019, a significant improvement from the $6.3 million unrealized loss at year-end 2018[175][344] - The loan portfolio is heavily concentrated in real estate, which comprised 82.0% of total loans at year-end 2019[180][413] Nonperforming Assets (in thousands) | Category | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Nonaccrual Loans | $1,693 | $2,740 | | Other Real Estate Owned (OREO) | $0 | $0 | | Total Nonperforming Assets | $1,693 | $2,740 | | As a % of Total Assets | 0.11% | 0.18% | - The allowance for credit losses was $9.13 million (0.97% of total loans) at year-end 2019, compared to $9.10 million (0.99% of total loans) at year-end 2018[196][198] Liquidity and Capital Resources The company maintains a strong liquidity position and robust capital levels, with all regulatory ratios exceeding 'well-capitalized' standards - Liquid assets (cash, federal funds sold, and available-for-sale securities) totaled $530.8 million, or 33.24% of total assets, at December 31, 2019[139] Available Borrowing Capacity (as of Dec 31, 2019) | Source | Limit (in thousands) | | :--- | :--- | | Unsecured Correspondent Lines | $70,000 | | Federal Home Loan Bank (FHLB) | $304,987 | | Federal Reserve Bank | $4,931 | Company Regulatory Capital Ratios (as of Dec 31, 2019) | Ratio | Actual | | :--- | :--- | | Common Equity Tier 1 Ratio | 14.55% | | Tier 1 Risk-Based Capital Ratio | 14.98% | | Total Risk-Based Capital Ratio | 15.79% | | Tier 1 Leverage Ratio | 11.38% | Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, which is managed by the ALCO and monitored via simulation modeling - The company's main market risk is interest rate volatility; as of December 31, 2019, 68.59% of the loan portfolio consisted of adjustable-rate loans[229][235] Sensitivity Analysis of Net Interest Income (NII) | Hypothetical Rate Change | Projected % Change in NII | | :--- | :--- | | Up 400 bps | +4.51% | | Up 200 bps | +2.58% | | Up 100 bps | +1.61% | | Down 100 bps | -7.09% | - The simulation results indicate the balance sheet is relatively evenly matched in the short term and slightly asset-sensitive over the longer term, with management considering the risk level acceptable[231] Item 8. Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements and the independent auditor's report for fiscal year 2019 - The independent registered public accounting firm, Crowe LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2019[237][238] Consolidated Balance Sheet Highlights (in thousands) | | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Total cash and cash equivalents | $52,574 | $31,727 | | Net loans | $934,250 | $909,591 | | Total assets | $1,596,755 | $1,537,836 | | Liabilities & Equity | | | | Total deposits | $1,333,285 | $1,282,298 | | Total liabilities | $1,368,627 | $1,318,098 | | Total shareholders' equity | $228,128 | $219,738 | Consolidated Income Statement Highlights (in thousands) | | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Net interest income | $63,772 | $62,703 | $56,239 | | Provision for credit losses | $1,025 | $50 | $(1,150) | | Non-interest income | $13,305 | $10,324 | $10,836 | | Non-interest expenses | $46,100 | $45,068 | $44,406 | | Net income | $21,443 | $21,289 | $14,026 | Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants - Not Applicable[449] Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of year-end 2019 - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report[450] - Management's assessment concluded that the company's internal control over financial reporting was effective as of December 31, 2019, an assessment audited by Crowe LLP[452] - There were no changes in internal control over financial reporting during the fourth quarter of 2019 that materially affected, or are reasonably likely to materially affect, these controls[453] Item 9B. Other Information The company reports no other information - Not Applicable[455] Part III Item 10. Directors, Executive Officers and Corporate Governance Information regarding directors, officers, and corporate governance is incorporated by reference from the 2020 Proxy Statement - Information concerning directors and executive officers is incorporated by reference from the definitive Proxy Statement for the 2020 Annual Meeting of Shareholders[457] - The company believes that for the 2019 fiscal year, all officers and directors complied with Section 16(a) filing requirements[460] Item 11. Executive Compensation Information regarding executive compensation is incorporated by reference from the company's definitive Proxy Statement - The required information is incorporated by reference from the Company's Definitive Proxy Statement under the caption 'Executive Compensation'[461] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the company's definitive Proxy Statement - The required information is incorporated by reference from the Company's Definitive Proxy Statement[462] Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding related transactions and director independence is incorporated by reference from the Proxy Statement - The required information is incorporated by reference from the Company's Definitive Proxy Statement[463] Item 14. Principal Accountant Fees and Services Information regarding accountant fees and services is incorporated by reference from the company's definitive Proxy Statement - The required information is incorporated by reference from the Company's Definitive Proxy Statement[464] Part IV Item 15. Exhibits, Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K report - The Financial Statements of the Company and the Report of Independent Registered Public Accounting Firm are located in Part II, Item 8[464] - All financial statement schedules are omitted because the conditions requiring them are absent or the necessary information is already included in the Financial Statements or notes[465] - An index to exhibits is provided, listing various agreements, articles of incorporation, bylaws, and certifications filed with the report[468]