CENTRAL VALLEY COMMUNITY BANCORP
For the period ended Dec 31, 2023. Filed Mar 15, 2024.
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FY2023 · Filed Mar 15, 2024
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ITEM 8. -FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
To the Shareholders and the Board of Directors of
Central Valley Community Bancorp
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Central Valley Community Bancorp and subsidiary (the “Company”) as of December 31, 2023, the related consolidated statements of income, comprehensive income (loss), changes in shareholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Notes 1, 2, and 3 to the consolidated financial statements, the Company changed its method of accounting for allowance for credit losses as of January 1, 2023, due to the adoption of Accounting Standards Updated No. 2016-13, which established Accounting Standards Codification Topic 326, Financial Instruments – Credit Losses.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with the standards of the PCAOB. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting in accordance with the standards of the PCAOB. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses for Loans
As described in Notes 1 and 3 to the consolidated financial statements, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as of January 1, 2023, using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Upon adoption, the Company recorded a decrease to retained earnings of $3.7 million, net of taxes, for the cumulative effect. As further discussed in Note 3 to the consolidated financial statements, the Company’s allowance for credit losses for loans was $14.7 million as of December 31, 2023. The allowance for credit losses is maintained to cover lifetime expected credit losses in the loan portfolio. The Company estimates its allowance for credit losses based on modeled expectations of lifetime expected credit losses utilizing national and local peer group historical losses and weighting of economic scenarios. The Company incorporates forward-looking information using macroeconomic scenarios, which include variables that are considered key drivers of credit losses within the portfolio. These scenarios consist of a base forecast representing the most likely outcome, combined with downside or upside scenarios reflecting possible worsening or improving economic conditions.
We identified the elections and key assumptions involved in the adoption of Topic 326, and the selection and weighting of economic scenarios used by the Company’s management in the estimate of the allowance for credit losses for loans as a critical audit matter. The principal consideration for our determination of the allowance for credit losses for loans as a critical audit matter is the subjectivity required by management in the elections of national or local peer group historical losses and selection and weighting of the forecasted economic scenarios. Auditing management’s judgments regarding modeled expectations applied to the allowance for credit losses for loans involved significant audit effort, as well as especially challenging and subjective auditor judgment when performing audit procedures and evaluating the results of those procedures.
The primary procedures we performed to address this critical audit matter included:
Testing the process used by management and evaluating the appropriateness of the methodology used to estimate the allowance for credit losses.
Evaluating the appropriateness of the Company’s elections and key assumptions involved in the adoption of Topic 326.
Evaluating the reasonableness of significant assumptions used by management, including the modeled economic scenarios selected and weighting applied.
Evaluating the relevance and reliability of the data used by management in the economic scenarios, such as the use of national or local peer group historical losses by loan portfolio segment.
Testing the completeness and accuracy of key model inputs including loan data.
/s/ Moss Adams LLP
We have served as the Company’s auditor since 2023.
Sacramento, California
March 15, 2024
Shareholders and the Board of Directors of
Central Valley Community Bancorp and Subsidiary
Fresno, California
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Central Valley Community Bancorp and Subsidiary (the "Company") as of December 31, 2022, the related consolidated statements of income, comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Crowe LLP
We served as the Company's auditor from 2011 to 2023.
Sacramento, California
March 15, 2024
December 31, 2023 and 2022
| (In thousands, except share amounts) | 2023 | 2022 |
|---|---|---|
| ASSETS | ||
| Cash and due from banks | $30,017 | $25,485 |
| Interest-earning deposits in other banks | 23,711 | 5,685 |
| Total cash and cash equivalents | 53,728 | 31,170 |
| Available-for-sale debt securities, at fair value, net of allowance for credit losses of $0, with an amortized cost of $669,646 at December 31, 2023 and $740,468 at December 31, 2022 | 597,196 | 648,825 |
| Held-to-maturity debt securities, at amortized cost less allowance for credit losses of $1,051 at December 31, 2023 and $0 at December 31, 2022 | 302,442 | 305,107 |
| Equity securities, at fair value | 6,649 | 6,558 |
| Loans, less allowance for credit losses of $14,653 at December 31, 2023 and $10,848 at December 31, 2022 | 1,276,144 | 1,245,456 |
| Bank premises and equipment, net | 14,042 | 7,987 |
| Bank owned life insurance | 41,572 | 40,537 |
| Federal Home Loan Bank stock | 7,136 | 6,169 |
| Goodwill | 53,777 | 53,777 |
| Accrued interest receivable and other assets | 80,740 | 76,933 |
| Total assets | $2,433,426 | $2,422,519 |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||
| Deposits: | ||
| Non-interest bearing | $951,541 | $1,056,567 |
| Interest bearing | 1,090,071 | 1,043,082 |
| Total deposits | 2,041,612 | 2,099,649 |
| Short-term borrowings | 80,000 | 46,000 |
| Senior debt and subordinated debentures, net | 69,744 | 69,599 |
| Accrued interest payable and other liabilities | 35,006 | 32,611 |
| Total liabilities | 2,226,362 | 2,247,859 |
| Commitments and contingencies (Note 11) | ||
| Shareholders’ equity: | ||
| Preferred stock, no par value; 10,000,000 shares authorized, none issued and outstanding | — | — |
| Common stock, no par value; 80,000,000 shares authorized; issued and outstanding: 11,818,039 at December 31, 2023 and 11,735,291 at December 31, 2022 | 62,550 | 61,487 |
| Retained earnings | 210,548 | 194,400 |
| Accumulated other comprehensive loss, net of tax | (66,034) | (81,227) |
| Total shareholders’ equity | 207,064 | 174,660 |
| Total liabilities and shareholders’ equity | $2,433,426 | $2,422,519 |
| (In thousands, except per share amounts) | 2023 | 2022 | 2021 |
|---|---|---|---|
| Interest income: | |||
| Interest and fees on loans | $69,803 | $55,907 | $54,077 |
| Interest on deposits in other banks | 3,576 | 391 | 129 |
| Interest and dividends on investment securities: | |||
| Taxable | 23,437 | 20,011 | 14,044 |
| Exempt from Federal income taxes | 5,602 | 6,679 | 5,606 |
| Total interest income | 102,418 | 82,988 | 73,856 |
| Interest expense: | |||
| Interest on deposits | 15,527 | 1,197 | 1,036 |
| Interest on short-term borrowings | 810 | 254 | — |
| Interest on senior debt and subordinated debentures | 3,652 | 1,971 | 266 |
| Total interest expense | 19,989 | 3,422 | 1,302 |
| Net interest income before provision (credit) for credit losses | 82,429 | 79,566 | 72,554 |
| Provision (credit) for credit losses | 309 | 995 | (4,435) |
| Net interest income after provision (credit) for credit losses | 82,120 | 78,571 | 76,989 |
| Non-interest income: | |||
| Interchange fees | 1,780 | 1,847 | 1,784 |
| Service charges | 1,503 | 2,014 | 1,901 |
| Appreciation in cash surrender value of bank owned life insurance | 1,035 | 985 | 840 |
| Loan placement fees | 584 | 899 | 1,974 |
| Federal Home Loan Bank dividends | 498 | 367 | 321 |
| Net realized gain on sale of assets | 402 | 15 | 8 |
| Net realized (losses) gains on sales and calls of investment securities | (907) | (1,730) | 501 |
| Other income | 2,125 | 657 | 1,676 |
| Total non-interest income | 7,020 | 5,054 | 9,005 |
| Non-interest expenses: | |||
| Salaries and employee benefits | 31,367 | 28,917 | 28,720 |
| Occupancy and equipment | 5,726 | 5,131 | 4,882 |
| Information technology | 3,616 | 3,344 | 2,868 |
| Professional services | 3,425 | 1,519 | 1,665 |
| Data processing expense | 2,621 | 2,245 | 2,394 |
| Regulatory assessments | 1,312 | 851 | 831 |
| ATM/Debit card expenses | 757 | 809 | 818 |
| Directors’ expenses | 614 | 282 | 422 |
| Advertising | 542 | 557 | 527 |
| Loan related expenses | 478 | 479 | 516 |
| Personnel other | 404 | 323 | 374 |
| Amortization of core deposit intangibles | 68 | 454 | 661 |
| Other expense | 4,370 | 3,573 | 3,299 |
| Total non-interest expenses | 55,300 | 48,484 | 47,977 |
| Income before provision for income taxes | 33,840 | 35,141 | 38,017 |
| Provision for income taxes | 8,304 | 8,496 | 9,616 |
| Net income | $25,536 | $26,645 | $28,401 |
| Basic earnings per common share | $2.17 | $2.27 | $2.32 |
| Diluted earnings per common share | $2.17 | $2.27 | $2.31 |
| Cash dividends per common share | $0.48 | $0.48 | $0.47 |
| (In thousands) | 2023 | 2022 | 2021 |
|---|---|---|---|
| Net income | $25,536 | $26,645 | $28,401 |
| Other Comprehensive Income (Loss): | |||
| Unrealized gains (losses) on securities: | |||
| Unrealized holdings gains (losses) arising during the period | 18,286 | (129,527) | (9,755) |
| Less: reclassification for net losses (gains) included in net income | 907 | 1,730 | (501) |
| Amortization of net unrealized losses transferred | 2,376 | 1,651 | — |
| Other comprehensive income (loss), before tax | 21,569 | (126,146) | (10,256) |
| Tax (expense) benefit related to items of other comprehensive income (loss) | (6,376) | 37,287 | 3,032 |
| Total other comprehensive income (loss) | 15,193 | (88,859) | (7,224) |
| Comprehensive income (loss) | $40,729 | $(62,214) | $21,177 |
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
| AccumulatedOtherComprehensive Income (Loss) (Net of Taxes) · Total Shareholders’ Equity | |||||
|---|---|---|---|---|---|
| Common Stock · Retained Earnings | |||||
| (In thousands, except share amounts) · Shares · Amount | |||||
| Balance, January 1, 2021 | 12,509,848 | $79,416 | $150,749 | $14,856 | $245,021 |
| Net income | — | — | 28,401 | — | 28,401 |
| Other comprehensive loss, net of tax | — | — | — | (7,224) | (7,224) |
| Restricted stock granted, net of forfeitures | 20,720 | — | — | — | — |
| Stock issued under employee stock purchase plan | 12,521 | 204 | — | — | 204 |
| Stock awarded to employees | 10,529 | — | — | — | — |
| Stock-based compensation expense | — | 562 | — | — | 562 |
| Cash dividend ($0.47 per common share) | — | — | (5,757) | — | (5,757) |
| Stock options exercised | 24,265 | 257 | — | — | 257 |
| Repurchase and retirement of common stock | (661,232) | (13,619) | — | — | (13,619) |
| Balance, December 31, 2021 | 11,916,651 | 66,820 | 173,393 | 7,632 | 247,845 |
| Net income | — | — | 26,645 | — | 26,645 |
| Other comprehensive loss, net of tax | — | — | — | (88,859) | (88,859) |
| Restricted stock granted, net of forfeitures | 42,399 | — | — | — | — |
| Stock issued under employee stock purchase plan | 13,351 | 216 | — | — | 216 |
| Stock awarded to employees | 13,446 | — | — | — | — |
| Stock-based compensation expense | — | 776 | — | — | 776 |
| Cash dividend ($0.48 per common share) | — | — | (5,638) | — | (5,638) |
| Stock options exercised | 50,205 | 489 | — | — | 489 |
| Repurchase and retirement of common stock | (300,761) | (6,814) | — | — | (6,814) |
| Balance, December 31, 2022 | 11,735,291 | 61,487 | 194,400 | (81,227) | 174,660 |
| Implementation of ASU 2016-13, Current Expected Credit Loss (CECL) Day 1 Adjustment | — | — | (3,731) | — | (3,731) |
| Adjusted Balance, January 1, 2023 | 11,735,291 | 61,487 | 190,669 | (81,227) | 170,929 |
| Net income | — | — | 25,536 | — | 25,536 |
| Other comprehensive income, net of tax | — | — | — | 15,193 | 15,193 |
| Restricted stock granted, net of forfeitures | 58,467 | — | — | — | — |
| Stock issued under employee stock purchase plan | 13,973 | 206 | — | — | 206 |
| Stock awarded to employees | 10,347 | — | — | — | — |
| Stock-based compensation expense | — | 858 | — | — | 858 |
| Cash dividend ($0.48 per common share) | — | — | (5,657) | — | (5,657) |
| Repurchase and retirement of common stock | (39) | (1) | — | — | (1) |
| Balance, December 31, 2023 | 11,818,039 | $62,550 | $210,548 | $(66,034) | $207,064 |
| CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARYCONSOLIDATED STATEMENTS OF CASH FLOWSFor the Years Ended December 31, 2023, 2022, and 2021 | |||
|---|---|---|---|
| (In thousands) | 2023 | 2022 | 2021 |
| Cash flows from operating activities: | |||
| Net income | $25,536 | $26,645 | $28,401 |
| Adjustments to reconcile net income to net cash provided by operating activities: | |||
| Net decrease (increase) in deferred loan costs | 786 | (422) | 3,483 |
| Depreciation | 891 | 755 | 897 |
| Accretion | (1,890) | (1,520) | (1,404) |
| Amortization | 9,005 | 9,662 | 8,102 |
| Stock-based compensation | 858 | 776 | 562 |
| Provision (reversal) for credit losses | 309 | 995 | (4,435) |
| Net realized losses (gains) on sales and calls of available-for-sale investment securities | 907 | 1,730 | (501) |
| Net gain on sale and disposal of equipment | (402) | (15) | (8) |
| Net change in equity investments | (91) | 858 | 218 |
| Appreciation in cash surrender value of bank owned life insurance | (1,035) | (985) | (840) |
| Net increase in accrued interest receivable and other assets | (8,798) | (7,361) | (2,209) |
| Net increase (decrease) in accrued interest payable and other liabilities | 1,666 | (7,148) | 9,124 |
| (Benefit) provision for deferred income taxes | 110 | 224 | 1,465 |
| Net cash provided by operating activities | 27,852 | 24,194 | 42,855 |
| Cash Flows From Investing Activities: | |||
| Purchases of available-for-sale investment securities | — | (301,699) | (495,879) |
| Proceeds from sales or calls of available-for-sale investment securities | 26,361 | 252,331 | 26,222 |
| Proceeds from sales or calls of held-to-maturity investment securities | 35 | — | — |
| Proceeds from maturity and principal repayment of available-for-sale investment securities | 38,229 | 67,795 | 54,822 |
| Proceeds from principal repayments of held-to-maturity investment securities | 2,377 | 1,421 | — |
| Net (increase) decrease in loans | (35,297) | (216,523) | 60,738 |
| Purchases of premises and equipment | (9,806) | (362) | (1,049) |
| Purchases of bank owned life insurance | — | — | (10,000) |
| FHLB stock purchased | (967) | (574) | — |
| Proceeds from sale of premises and equipment | 3,262 | 15 | 9 |
| Net cash provided by (used in) investing activities | 24,194 | (197,596) | (365,137) |
| Cash Flows From Financing Activities: | |||
| Net (decrease) increase in demand, interest-bearing and savings deposits | (152,178) | (1,041) | 399,903 |
| Net increase (decrease) in time deposits | 94,142 | (22,107) | 184 |
| Proceeds from issuance of subordinated debt | — | — | 34,299 |
| Proceeds from short-term borrowings from Federal Home Loan Bank | 3,411,500 | 2,452,826 | — |
| Repayments of short-term borrowings to Federal Home Loan Bank | (3,422,500) | (2,406,826) | — |
| Proceeds of issuance of senior debt | — | 30,000 | — |
| Proceeds of borrowings from other financial institutions | 116,500 | — | — |
| Repayments of borrowings from other financial institutions | (71,500) | — | — |
| Purchase and retirement of common stock | (1) | (6,814) | (13,619) |
| Proceeds from stock issued under employee stock purchase plan | 206 | 216 | 204 |
| Proceeds from exercise of stock options | — | 489 | 257 |
| Cash dividend payments on common stock | (5,657) | (5,638) | (5,757) |
| Net cash (used in) provided by financing activities | (29,488) | 41,105 | 415,471 |
| Increase (decrease) in cash and cash equivalents | 22,558 | (132,297) | 93,189 |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | 31,170 | 163,467 | 70,278 |
| CASH AND CASH EQUIVALENTS AT END OF YEAR | $53,728 | $31,170 | $163,467 |
| CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARYCONSOLIDATED STATEMENTS OF CASH FLOWSFor the Years Ended December 31, 2023, 2022, and 2021 | |||
|---|---|---|---|
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||
| Cash paid during the year for: | |||
| Interest | $20,005 | $2,831 | $1,166 |
| Income taxes | $7,700 | $8,314 | $8,155 |
| Operating cash flows from operating leases | $2,484 | $2,221 | $2,259 |
| Non-cash investing and financing activities: | |||
| Unrealized gain (loss) on securities available for sale | $19,193 | $(127,797) | $(10,256) |
| Transfer of securities from available-for-sale to held-to-maturity | $— | $332,007 | $— |
| Transfer of unrealized losses on securities from available-for-sale to held-to-maturity | $— | $(25,328) | $— |
Central Valley Community Bancorp and Subsidiary
Notes to Consolidated Financial Statements
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.