Central Valley(CVCY) - 2024 Q3 - Quarterly Report

PART 1: FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS (Unaudited) This section presents the unaudited consolidated financial statements of Community West Bancshares for the periods ended September 30, 2024, reflecting the significant impact of the April 1, 2024 merger Consolidated Balance Sheets The balance sheet shows a significant increase in total assets to $3.53 billion as of September 30, 2024, primarily driven by the merger which expanded loans, goodwill, and deposits Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $3,531,298 | $2,433,426 | | Total cash and cash equivalents | $149,013 | $53,728 | | Loans, net | $2,272,252 | $1,276,144 | | Goodwill | $96,379 | $53,777 | | Total Liabilities | $3,167,783 | $2,226,362 | | Total deposits | $2,921,695 | $2,041,612 | | Total Shareholders' Equity | $363,515 | $207,064 | Consolidated Statements of Income For the third quarter of 2024, net income decreased to $3.4 million, or $0.18 per diluted share, primarily due to increased provision for credit losses and non-interest expenses related to the merger Income Statement Summary (in thousands) | Metric | Q3 2024 | Q3 2023 | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $30,214 | $20,527 | $78,343 | $62,313 | | (Credit) Provision for Credit Losses | ($518) | $186 | $9,889 | $476 | | Non-Interest Income | $1,105 | $1,583 | $4,142 | $4,752 | | Non-Interest Expenses | $27,677 | $13,436 | $71,513 | $40,446 | | Net Income | $3,385 | $6,390 | $771 | $19,642 | | Diluted EPS | $0.18 | $0.54 | $0.05 | $1.67 | Consolidated Statements of Cash Flows For the nine months ended September 30, 2024, net cash provided by operating activities was $21.3 million, with a $95.3 million increase in cash and cash equivalents, bringing the total to $149.0 million Cash Flow Summary for Nine Months Ended Sept 30 (in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | | Net cash provided by operating activities | $21,278 | $23,437 | | Net cash provided by investing activities | $78,634 | $20,851 | | Net cash used in financing activities | ($4,627) | ($883) | | Increase in cash and cash equivalents | $95,285 | $43,405 | | Cash and cash equivalents at end of period | $149,013 | $74,575 | Notes to Consolidated Financial Statements The notes provide detailed explanations of the company's accounting policies and financial statement components, including the April 1, 2024 merger, loan portfolios, and allowance for credit losses - Effective April 1, 2024, Central Valley Community Bancorp merged with Community West Bancshares, with the combined entity renamed Community West Bancshares, accounted for as an acquisition adding significant assets and liabilities[31] Merger Consideration and Net Assets Acquired (in thousands) | Item | Amount | | :--- | :--- | | Total merger consideration | $143,714 | | Total assets acquired | $1,041,385 | | Total liabilities assumed | ($940,276) | | Total net assets acquired | $101,109 | | Goodwill created from transaction | $42,605 | - The allowance for credit losses on loans was $24.9 million as of September 30, 2024, up from $14.7 million at year-end 2023, primarily due to loan growth and provisions related to the acquired loan portfolio[64] - On October 23, 2024, the Board of Directors declared a quarterly cash dividend of $0.12 per share[149] ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses the company's financial performance and condition, emphasizing the transformative impact of the April 1, 2024 merger, which significantly affected earnings due to related expenses and credit loss provisions Financial Highlights The company's financial highlights for the period ending September 30, 2024, are dominated by the merger's effects, including a significant increase in total assets and gross loans, and strong capital ratios despite suppressed net income - Total assets increased by $1.1 billion (45.12%) and total gross loans increased by $1.0 billion (77.96%) compared to December 31, 2023, largely due to the merger[162] - Net interest margin improved to 3.69% for Q3 2024 from 3.65% in Q2 2024[163] - Q3 2024 net income was $3.4 million, or $0.18 per diluted share, impacted by merger-related expenses and a loss on the sale of securities[162] - Capital positions remain strong with a Tier 1 Leverage Ratio of 9.38% and a Total Risk-Based Capital Ratio of 13.55%[163] Results of Operations The company's operating results for Q3 and the first nine months of 2024 were heavily influenced by the merger, leading to increased net interest income but also a significant rise in non-interest expenses and credit loss provisions GAAP to Non-GAAP Net Income Reconciliation (Q3 2024, in thousands) | Description | Amount | | :--- | :--- | | Net income (GAAP) | $3,385 | | Merger and conversion related costs | $3,208 | | Loss on sale of investment securities | $1,853 | | Income tax benefit of non-core expenses | ($1,496) | | Comparable net income (non-GAAP) | $6,950 | Net Interest Margin Analysis | Period | Net Interest Margin (FTE) | | :--- | :--- | | Q3 2024 | 3.69% | | Q3 2023 | 3.47% | | Nine Months 2024 | 3.69% | | Nine Months 2023 | 3.59% | - Non-interest expenses for Q3 2024 increased 106% year-over-year to $27.7 million, driven by higher salaries, occupancy costs, and $3.2 million in merger and acquisition expenses[209][212] Financial Condition As of September 30, 2024, the company's financial condition was robust, with total assets at $3.53 billion, gross loans at $2.3 billion, and a low nonperforming asset ratio, bolstered by the merger Loan Portfolio Composition (in thousands) | Loan Type | September 30, 2024 | % of Total | | :--- | :--- | :--- | | Commercial | $160,816 | 7.0% | | Real estate | $1,726,444 | 75.1% | | Consumer | $407,919 | 17.8% | | Total Gross Loans | $2,297,143 | 100.0% | - The loan-to-deposit ratio increased to 78.62% at September 30, 2024, compared to 63.22% at December 31, 2023, reflecting a more optimized balance sheet post-merger[218] - Nonperforming assets were $3.25 million, or 0.14% of total loans, as of September 30, 2024, compared to zero at the end of 2023[224][228] Capital and Liquidity The company maintained strong capital and liquidity positions, with all regulatory capital ratios well above 'well-capitalized' thresholds and ample available borrowing capacity Regulatory Capital Ratios (Company) | Ratio | September 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Tier 1 Leverage Ratio | 9.38% | 9.18% | | Common Equity Tier 1 Ratio | 11.12% | 12.78% | | Tier 1 Risk-Based Capital Ratio | 11.30% | 13.07% | | Total Risk-Based Capital Ratio | 13.55% | 16.08% | Available Liquidity Sources (in thousands) | Source | Available Capacity | | :--- | :--- | | Unsecured Credit Lines | $110,000 | | Unused FHLB Advances | $565,283 | | Federal Reserve Bank Line | $3,958 | | Total Available | $679,241 | ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section details the company's management of interest rate risk, with simulation models used to monitor exposure of net interest income and equity to rate fluctuations, showing asset-sensitivity within policy limits Interest Rate Sensitivity Analysis (Estimated Change in Net Interest Income) | Rate Shock (bps) | Year 1 Change | Year 2 Change | | :--- | :--- | :--- | | +400 | 3.91% | 3.97% | | +200 | 2.38% | 2.48% | | +100 | 1.99% | 2.34% | | -100 | (3.86)% | (5.06)% | | -200 | (6.00)% | (8.01)% | - The company actively manages its asset and liability structure to correlate the effects of interest rate changes on its assets and liabilities, aiming to minimize exposure to net interest margin and capital[247][248] ITEM 4: CONTROLS AND PROCEDURES Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2024, with no material changes to internal controls over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[252] - No changes in internal controls over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls[253] PART II: OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS The company reported no material legal proceedings during the period - There are no legal proceedings to report for the period[254] ITEM 1A: RISK FACTORS This section refers readers to the detailed discussion of risk factors in the company's 2023 Annual Report on Form 10-K, which could cause actual results to differ materially from expectations - The company directs stakeholders to its 2023 Annual Report on Form 10-K for a comprehensive discussion of risk factors[255] Other Part II Items The company reported no unregistered sales of equity securities, no defaults upon senior securities, no mine safety disclosures, and no other information requiring disclosure under Item 5 for the period - There were no reportable events under Item 2 (Unregistered Sales of Equity Securities), Item 3 (Defaults Upon Senior Securities), Item 4 (Mine Safety Disclosures), or Item 5 (Other Information)[256] ITEM 6: EXHIBITS This section lists the exhibits filed with the quarterly report, including certifications by the CEO and CFO, and XBRL data files - The filing includes required certifications from the Principal Executive Officer and Principal Financial Officer pursuant to SEC rules[258] - Interactive Data Files (XBRL) are included as exhibits to the report[258]