Central Valley(US:CVCY)2025-03-17 20:26Part I ITEM 1 - DESCRIPTION OF BUSINESS Community West Bancshares, a bank holding company, expanded its Central California footprint via a 2024 merger, offering diverse commercial banking services with a real estate-heavy loan portfolio, operating under extensive federal and state regulations General Overview Central Valley Community Bancorp merged with Community West Bancshares on April 1, 2024, adopting its name and operating as a bank holding company with $3.52 billion in total assets - Central Valley Community Bancorp completed its merger with Community West Bancshares on April 1, 2024, and changed its name to Community West Bancshares15 - The company is a registered bank holding company for its wholly-owned subsidiary, Community West Bank16 Company Snapshot (as of Dec 31, 2024) | Metric | Value | | :--- | :--- | | Consolidated Total Assets | ~$3.52 billion | | Full-time Equivalent Employees (as of Mar 1, 2025) | 346 | The Bank's Operations Community West Bank operates 26 California offices, offering diverse commercial banking services, with its $2.33 billion loan portfolio heavily concentrated (74.3%) in real estate as of December 31, 2024 - The Bank operates 26 full-service banking offices in California, offering commercial banking, real estate, agribusiness, and SBA lending services21 Loan Portfolio Composition (as of Dec 31, 2024) | Loan Category | Amount (in thousands) | | :--- | :--- | | Total Loans | $2,334,221 | | Commercial and Industrial | $143,422 | | Agricultural Land and Production | $37,323 | | Real Estate | $1,736,498 | | Consumer | $415,102 | - The loan portfolio is heavily concentrated in real estate, with loans secured by real estate comprising approximately 74.3% of the total portfolio held for investment at year-end 202424 - The bank's business is primarily concentrated in Fresno, Kern, Madera, Merced, Placer, Sacramento, San Joaquin, San Luis Obispo, Santa Barbara, Stanislaus, Tulare, and Ventura Counties in California, making its performance dependent on the local economy and real estate markets24 Competition Operating in a highly competitive California banking market, the company competes with large national banks and non-bank entities through personalized service, holding a relatively small market share - The banking business in California is highly competitive, dominated by a few major banks with significant advantages in advertising and asset allocation25 Deposit Market Share (2024) | County Group | Market Share | | :--- | :--- | | Fresno, Madera, San Joaquin, Tulare | 4.10% | | San Luis Obispo, Santa Barbara, Ventura | 1.61% | | Other Counties (Kern, Merced, Placer, etc.) | < 1.00% | - Competition has intensified due to technological innovation, allowing non-depository institutions to offer traditional banking products, and legislative changes permitting interstate banking2930 Human Capital Resources As of December 31, 2024, the company employed 346 full-time staff (72% female, 4.58 years average tenure), fostering teamwork and offering competitive benefits to attract and retain talent Workforce Demographics (as of Dec 31, 2024) | Metric | Value | | :--- | :--- | | Total Employees | 356 | | Full-time Employees | 346 | | Female Workforce | 72% | | Male Workforce | 28% | | Average Tenure | 4.58 years | - The company offers a comprehensive benefits package, including an Employee Stock Ownership Plan, a matched 401(k) Plan, healthcare benefits, paid time off, and an education reimbursement program to attract and retain employees34 Supervision and Regulation The company and its bank subsidiary operate under extensive federal and state regulations, primarily for depositor protection, covering capital, lending, dividends, and consumer privacy - The Company is regulated by the Federal Reserve, while the Bank is regulated by the California Department of Financial Protection and Innovation (DFPI) and the FDIC1837 - Federal and state banking laws impose a comprehensive system of supervision intended primarily for the protection of the FDIC's Deposit Insurance Fund and bank customers, not shareholders38 - The regulatory framework subjects the company to regular examinations that assess compliance, capital levels, asset quality, management, earnings, and liquidity39 ITEM 1A - RISK FACTORS The company faces diverse risks including economic downturns in its agriculture-dependent Central California markets, interest rate fluctuations, credit risks from real estate and agribusiness lending, cybersecurity threats, and intense competition General Economic, Market, Investment Risks The company's performance is highly dependent on Central California's agriculture-reliant economy, facing risks from inflation, Federal Reserve policy changes, heightened liquidity scrutiny, and unrealized losses in its securities portfolio - The company's banking operations are principally in Central California, a region largely dependent on agriculture. A downturn in the agricultural economy could have a material adverse effect on the business112 - Recent bank failures have led to increased focus on liquidity management, the composition of deposits (especially uninsured amounts), and interest rate risk. An inability to manage these factors could materially harm financial condition116118119 - As of December 31, 2024, the company had a net unrealized loss of $59,221,000 on its available-for-sale investment securities portfolio, which totaled $785,058,000, or 22.3% of total assets122 Risks Related to Lending Activities Lending risks include agribusiness (1.6% of portfolio) and a significant concentration (74.3%) in California real estate loans, alongside higher-risk commercial loans (6.1%) and dependence on the SBA program - At December 31, 2024, 74.3% of the total loan portfolio ($1.74 billion) consisted of real estate related loans concentrated in California, exposing the company to risks from local economic conditions and real estate value fluctuations127 - Agribusiness loans, totaling $37.3 million (1.6% of the portfolio), present unique risks related to commodity prices, weather, and government regulations126 - The SBA lending program is an important part of the business and is dependent on the U.S. federal government. Loss of SBA Preferred Lender status or changes to the program could materially harm financial results130 Credit Risks The company faces inherent credit risk, with its 1.11% allowance for credit losses potentially insufficient, and increased non-performing assets (0.18% of total assets) posing a threat to net income - The allowance for credit losses on loans was 1.11% of total loans at December 31, 2024. This allowance is an estimate and may be insufficient to cover actual future losses, which could materially affect financial results134 Non-Performing Assets (NPA) Trend | Metric | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Non-performing loans to total loans | 0.28% | 0.00% | | Non-performing assets to total assets | 0.18% | 0.00% | - Lending to small and mid-sized businesses may increase credit risk, as these borrowers are often more vulnerable to adverse economic conditions139 Strategic Risks Strategic risks include inability to sustain growth, integration challenges and dilution from acquisitions, potential goodwill impairment, and uncertainties associated with branch expansion and new business lines - The company may not be able to sustain its historical rate of asset growth due to economic conditions, competition, or an inability to find suitable acquisition candidates145 - Future acquisitions involve significant risks, including integration challenges, loss of key employees, and unforeseen liabilities that could negatively affect the organization146147 - Goodwill from past acquisitions is reviewed for impairment annually. A future impairment charge could have a material adverse effect on financial condition and results of operations150 ITEM 1C - CYBERSECURITY The company manages cybersecurity risks through a formal Information Security Program and Incident Response Plan, overseen by the ISO and Board, with ongoing third-party assessments and increasing regulatory scrutiny - The company manages cybersecurity risk through a formal Information Security Program, which includes a dedicated Cybersecurity Incident Response Plan (CIRP)194 - The Information Security Officer (ISO) oversees the program, reporting to the Senior Risk Officer and providing annual reports to the Board of Directors. The Board has ultimate oversight of cybersecurity-related risk198201 - The company is subject to new SEC rules requiring disclosure of material cybersecurity incidents within four business days of determination204 - To date, risks from cybersecurity threats have not materially affected the company, though it has experienced incidents in the past203 Part II ITEM 5 - MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The company's common stock trades on Nasdaq (CWBC), paid $0.48 dividends in 2024, with future dividends subject to regulatory policy, and utilizes equity compensation plans - The company's common stock is listed on the Nasdaq Capital Market under the ticker symbol CWBC213 Dividend Information | Year | Cash Dividend per Share | | :--- | :--- | | 2024 | $0.48 | | 2023 | $0.48 | - The company's ability to pay dividends is influenced by Federal Reserve policy, which requires that holding companies act as a source of strength to their banking subsidiaries and generally pay dividends only out of recent income214 - No shares were repurchased under publicly announced plans during the fourth quarter of 2024218219 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The 2024 merger significantly increased assets and loans but sharply reduced net income to $7.7 million due to $20.5 million in merger-related expenses, while net interest margin improved and capital ratios remained strong Overview The 2024 merger significantly boosted assets and loans but reduced net income to $7.7 million due to one-time expenses, while net interest margin improved and capital ratios remained strong Key Financial Highlights (2024 vs. 2023) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net Income | $7,666,000 | $25,536,000 | | Diluted EPS | $0.45 | $2.17 | | Total Assets | $3.52 billion | $2.43 billion | | Net Loans | $2.33 billion | $1.29 billion | | Total Deposits | $2.91 billion | $2.04 billion | | Net Interest Margin | 3.76% | 3.58% | | Return on Average Assets (ROA) | 0.24% | 1.04% | | Return on Average Equity (ROE) | 2.42% | 13.81% | - The decrease in 2024 net income was primarily due to merger-related expenses of $20,491,000, which included a one-time provision of $10,877,000 for expected credit losses on the acquired loan portfolio236 - Capital ratios remain strong, with a Tier 1 Leverage Ratio of 9.17% and a Total Risk-Based Capital Ratio of 13.58% at December 31, 2024237 Results of Operations Net income for 2024 decreased to $7.7 million due to a $39.4 million surge in non-interest expenses and an $11.1 million provision for credit losses, despite a 33.9% increase in net interest income Consolidated Results of Operations (in thousands) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net Interest Income | $110,367 | $82,429 | $79,566 | | Provision for Credit Losses | $11,113 | $309 | $995 | | Total Non-interest Income | $6,445 | $7,020 | $5,054 | | Total Non-interest Expenses | $94,701 | $55,300 | $48,484 | | Net Income | $7,666 | $25,536 | $26,645 | - Non-interest expenses increased by $39.4 million (71.25%) in 2024, driven by the merger. Key increases were in salaries and benefits (+$17.1M), merger-related expenses (+$8.4M), and occupancy (+$3.8M)241285 - Net interest income before provision for credit losses increased by $27.9 million (33.9%) in 2024, primarily due to increased loan volume and rates from the merger. This includes $9.8 million from the accretion of loan marks on acquired loans239276 - The company's efficiency ratio deteriorated to 81.07% in 2024 from 61.82% in 2023, primarily due to the surge in merger-related operating expenses252 Financial Condition As of December 31, 2024, total assets grew 44.7% to $3.52 billion due to the merger, with strong capital ratios and robust liquidity despite a decrease in the investment portfolio Balance Sheet Summary (in thousands) | Account | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Total cash and cash equivalents | $120,398 | $53,728 | | Total loans, net | $2,308,418 | $1,276,144 | | Goodwill | $96,828 | $53,777 | | Total Assets | $3,521,771 | $2,433,426 | | Liabilities & Equity | | | | Total deposits | $2,910,777 | $2,041,612 | | Borrowings | $133,442 | $80,000 | | Total Liabilities | $3,159,086 | $2,226,362 | | Total Shareholders' Equity | $362,685 | $207,064 | - The loan to deposit ratio increased to 80.19% at year-end 2024 from 63.22% at year-end 2023249 - The allowance for credit losses (ACL) increased to $25.8 million (1.11% of loans) from $14.7 million (1.14% of loans) in 2023, primarily due to a one-time provision of $10.9 million for acquired non-PCD loans338340 - The company's liquidity position is strong, with liquid assets of $604.1 million and available borrowing capacity of approximately $576.6 million from the FHLB and $110 million from correspondent banks254375 ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company's primary market risk is interest rate volatility, managed by ALCO, with 58.09% of loans adjustable-rate; simulation models show NII is relatively neutral to rate changes within policy limits - The company's primary market risk is interest rate volatility, which impacts net interest income. This risk is managed by the Asset/Liability Committee (ALCO)387390 - As of December 31, 2024, approximately 58.09% of the loan portfolio consisted of adjustable-rate loans388403 Interest Rate Sensitivity Analysis (as of Dec 31, 2024) | Hypothetical Rate Change | Estimated Change in NII (Year 1) | Estimated Change in MVE | | :--- | :--- | :--- | | Up 200 bps | +2.11% | -2.80% | | Up 100 bps | +2.37% | +0.20% | | Down 100 bps | -2.14% | -1.90% | | Down 200 bps | -3.38% | -3.40% | ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This section presents the company's audited consolidated financial statements for 2024 and 2023, including balance sheets, income statements, and comprehensive notes detailing accounting policies, the 2024 merger, and key financial components Consolidated Financial Statements Consolidated financial statements show total assets at $3.52 billion (up from $2.43 billion in 2023) and net income of $7.7 million (down from $25.5 million) for 2024, reflecting merger impacts Consolidated Balance Sheet Highlights (in thousands) | | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Total cash and cash equivalents | $120,398 | $53,728 | | Total loans, net | $2,308,418 | $1,276,144 | | Goodwill | $96,828 | $53,777 | | Total Assets | $3,521,771 | $2,433,426 | | Liabilities & Equity | | | | Total deposits | $2,910,777 | $2,041,612 | | Borrowings | $133,442 | $80,000 | | Total Liabilities | $3,159,086 | $2,226,362 | | Total Shareholders' Equity | $362,685 | $207,064 | Consolidated Income Statement Highlights (in thousands) | | 2024 | 2023 | | :--- | :--- | :--- | | Net Interest Income | $110,367 | $82,429 | | Provision for Credit Losses | $11,113 | $309 | | Non-interest Income | $6,445 | $7,020 | | Non-interest Expenses | $94,701 | $55,300 | | Net Income | $7,666 | $25,536 | Notes to Consolidated Financial Statements Notes detail accounting policies, the 2024 merger ($43.1 million goodwill), loan portfolio analysis (non-accrual loans at $6.46 million), and confirm the company's well-capitalized status - The company adopted the CECL methodology for credit losses on January 1, 2023, resulting in a $3.7 million decrease to retained earnings470471 - The merger with Community West Bancshares on April 1, 2024, involved total consideration of $143.7 million and resulted in the creation of $43.1 million in goodwill531532535 - Nonaccrual loans increased to $6.46 million as of December 31, 2024, from zero at the end of 2023562563 Company Regulatory Capital Ratios (Dec 31, 2024) | Ratio | Actual | Minimum Requirement | | :--- | :--- | :--- | | Tier 1 Leverage | 9.17% | 4.00% | | Common Equity Tier 1 | 11.15% | 4.50% | | Tier 1 Risk-Based Capital | 11.33% | 6.00% | | Total Risk-Based Capital | 13.58% | 8.00% | ITEM 9A - CONTROLS AND PROCEDURES Management and independent auditors concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2024, with no material changes reported - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report686 - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2024688 - The independent auditor, Moss Adams LLP, issued an unqualified report on the effectiveness of the company's internal control over financial reporting689 Part III ITEMS 10-14 Information for Items 10-14, covering directors, executive compensation, security ownership, and related transactions, is incorporated by reference from the forthcoming 2025 Proxy Statement - Information regarding directors, executive officers, corporate governance, executive compensation, security ownership, related transactions, and principal accounting fees is incorporated by reference from the forthcoming 2025 Proxy Statement695698699 Part IV ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES This section lists financial statements, schedules, and exhibits filed with the 10-K, including merger agreements, corporate documents, and various certifications - The financial statements are located in Part II, Item 8 of this report703 - A comprehensive list of exhibits is provided, including the Agreement and Plan of Reorganization and Merger with Community West Bancshares, various employment agreements, and certifications required by the Sarbanes-Oxley Act705