2024
ANNUAL REPORT
45 Years of Building Community
1
Earning Trust. Advancing Together.
Shining Brighter.
Community West Bank is celebrating 45 years as a trusted advocate for our clients.
A supporter of growing communities. A beacon of confidence in every financial climate.
While we’re proud of our legacy of lasting impact, we’re even more inspired by our future
of infinite possibility.
A History of Impact. A Future of Possibility.
Ventura
2
Teamwork, Accountability,
Excellence, Integrity,
Caring and Inclusivity
Values
Inspire and empower our
team to enrich and invest in
every relationship
by exceeding expectations.
Mission
Our Mission and Values:
The Heart and Soul of
Our Culture of Community
To our clients, Community West Bank is known for
service that exceeds expectations. To our communities,
we’re known for investing in strength and growth.
To our shareholders, we’re known for sound financial
performance. But to our team of outstanding
employees, Community West Bank is known for
something truly special: our one-of-a-kind workplace
culture. A culture shaped by the Mission and Values
established by our founders, forming a close-knit sense
of community and empowerment that inspire us both
individually and collectively.
Sacramento
3
Where Relationships Flourish,
Communities Trive
Our Reach, Our Impact
Supporting communities isn’t just about investing
financially. It’s also about investing in the relationships
that form the foundation upon which strong
communities are built. At Community West Bank,
we’ve spent 45 years investing in relationships,
providing partnership and commitment to the people
and businesses behind the amazing places we’re proud
to call home.
Proudly serving Central California from
Greater Sacramento in the north,
throughout the San Joaquin Valley and
west to the Central Coast. For a complete
list of communities and Banking Center
locations, see page 69.
Santa Barbara
Financial Performance
As of December 31, 2024, the Company reported assets of
$3.52 billion, while net income for the year was $7.67 million.
Loans reached $2.31 billion by year-end 2024 and total deposits
grew to $2.91 billion.
Te Company's net interest margin continued to increase
quarter-over-quarter during 2024, primarily driven by decreasing
interest expense on deposits while maintaining stable interest income.
Te Board of Directors declared dividends for all four quarters of
2024 totaling $0.48 per share.
Te Company looks forward to 2025 operating results based on the
increased efficiencies and synergies implemented since the close of
the merger during 2024.
We continue to embrace the principles responsible for our
extraordinary long-term strength, including conservative business
practices, a stable, highly-diversified deposit base and a focus on
relationships. Te Company’s liquidity is managed conservatively,
with capital maintained at levels that exceed regulatory thresholds
for additional safety.
Banking Center Growth
In addition to adding seven Central Coast Banking Centers
in April 2024 as a result of the merger, the Bank opened its
first full-service Banking Center in the Bakersfield region in
fall 2024. Tis expansion showcases the Bank’s innovative,
relationship-focused interior design model.
Leadership Evolutions
A leadership realignment aimed at positioning the Bank for future
growth, scalability and efficiency – while enhancing its ability to
adapt to industry and market changes – began in April with the
appointment of T. Joseph Stronks as EVP and Chief Risk Officer.
Teresa Gilio, EVP and Chief Administrative Officer, announced
her retirement, choosing to remain through September to lead the
successful merger systems integration. Teresa dedicated 15 years to
the Bank as part of her 42-year career in financial services.
A Transformative Merger:
Strong Performance Strengthening
Teams & Communities
Te Company’s 45-year journey of investing in relationships laid
the foundation for growth and transformation in 2024, culminating
in the largest merger in our history. On April 1, the Company
successfully completed its merger with Community West Bancshares
(Company) (NASDAQ: CWBC) and Community West Bank
(Bank) in an all-stock transaction valued at approximately $143
million. As a result, the newly combined Company has become
one of the largest premier community banks headquartered in
Central California.
Te Bank’s expanded presence in Central California has strengthened
our mission of serving our clients, community and our team – just as
our founders envisioned. Tis strategic growth has already delivered
value, with benefits that will continue in the years ahead.
Te uniting of two teams of experienced community bankers and two
core banking systems has empowered the Bank like never before,
with enhanced financial expertise, expanded technological capabilities
and broadened product offerings. All of this comes together under a
dynamic new brand identity that seamlessly combines two multi-
billion-dollar organizations into a single, stronger, next generation
bank. It also draws inspiration from our relationship-driven facility
design, underscoring our commitment to personal partnerships and
community focus.
Each milestone in this journey has demonstrated our team’s
dedication, cultivated within a culture of support and guided by
the Company’s Mission and Values. Our team is the driving force
behind the synergy that has made this merger greater than the sum
of its parts, as reflected in our premier deposit base, strong asset
generation and the numerous advantages emerging from our
continued commitment to investing in relationships.
With a clear vision and determined leadership, we are poised for
sustained growth.
4
T O O U R S H A R E H O L D E R S
A Celebration of
Historic Growth
Fresno
5
business growth, a $1 million Equity Equivalent Investment
was made to help reduce economic barriers for small businesses
in need of flexible and affordable loan products across
Central California.
Investing in our communities to help them thrive has long been
one of the Company’s deepest commitments. We are proud to
continue honoring that commitment through dedicated services
and strategic investments in the areas of greatest need —
including small business lending, home mortgage lending,
community development lending and investment to support
long-term affordable housing in Central California.
If it makes a difference in our community, we are here to help
with a giving spirit and exceptional service. Because community
comes first.
A Look Ahead
Just as the Company navigated a year of transformation in 2024,
we believe 2025 will be a year of investment – though not
necessarily in the traditional sense. At Community West Bank,
our greatest investment is in our relationships: with our team,
individuals, businesses, shareholders and the communities we
have proudly served for 45 years, and will continue to serve in
the years ahead.
Together, we will build the future and move forward with
confidence. With our deepest gratitude to our team, clients,
shareholders and communities for a milestone year in 2024,
we look ahead with excitement to all that awaits in 2025
and beyond.
In December 2024, the leadership realignment was completed with
the appointment of existing executive Blaine C. Lauhon as EVP and
Chief Operating Officer. Jeffrey M. Martin, who transitioned to
EVP and Chief Banking Officer, expanded his leadership team to
strengthen client service, Commercial Banking and associated
departments by establishing three distinct regions – North, South
and Coast – each overseen by a locally-based Regional Executive to
manage the Bank’s enlarged 30,000-square-mile territory.
In March 2025, the Bank appointed Hinson M. Tomas as the new
EVP and Chief Credit Officer.
Products & Services
With the completion of the merger, the Bank introduced
Manufactured Housing, Farmer Mac agricultural loans, an online
loan payment system to legacy Central Valley Community Bank
clients and legacy Community West Bank clients gained benefit
from an expanded suite of cash management solutions. In August
2024, the Bank launched its newly branded, user-friendly website
at the updated URL: www.communitywestbank.com. Te website
will continue to evolve in 2025 to include online small business
lending applications and online deposit opening applications,
enhancing convenience for both existing and new individual and
business clients.
Awards & Achievements
Te Company’s dedicated team and strong financial performance
received industry recognition in 2024. Among the highlights:
Receiving a 5-Star Superior rating from Bauer Financial for all
quarters of 2024, based on financial results. Additionally, the
Company was showcased on the NASDAQ Tower in Times
Square to commemorate its 20th year being listed on the NASDAQ
Stock Exchange.
Investing in Our Communities
Investing in communities is a privilege our Company has enjoyed for
45 years. As a community bank, Community West Bank is closely
connected to the people and places we serve, always aiming to help
them grow stronger and more successful. To achieve this, the Bank
supports many community organizations, helping them accomplish
such worthy goals as providing food and housing to those in need,
offering financial education and creating economic impact
opportunities in areas of need. Beyond financial support, our
management supports these organizations by serving in leadership
roles while team members give selflessly of their time and expertise.
In 2024, the Company contributed approximately $570,000 in
financial support to nearly 200 worthy organizations and shared over
2,050 volunteer hours to various groups, exceeding the team’s goals
for the year.
Continuing a long-standing partnership with the Federal Home
Loan Bank of San Francisco, the Bank secured a total of $1.2 million
in an Affordable Housing Program grant aimed at addressing the
affordable housing shortage. Additionally, a total of $200,000 was
secured in Access to Housing and Economic Development grants to
support workforce development programs. To help fuel small
James J. Kim
CEO, Community West Bancshares,
President and CEO,
Community West Bank
Daniel J. Doyle
Chairman of the Board,
Community West Bancshares,
Community West Bank
Board of Directors
Daniel J. Doyle
Chairman of the Board, Community West Bancshares
and Community West Bank
Robert H. Bartlein
Vice Chairman, Community West Bancshares and Community
West Bank, President and CEO, Bartlein & Company, Inc.
James J. Kim
Chief Executive Officer, Community West Bancshares
President and Chief Executive Officer, Community West Bank
Martin E. Plourd
President, Community West Bancshares
Suzanne M. Chadwick
Retired Bank Executive
Daniel N. Cunningham
Retired CFO, Quinn Group, Inc.
Tom L. Dobyns
Retired Bank Executive
F.T. “Tommy” Elliott, IV
Owner, Wileman Bros. & Elliott, Inc.
and Kaweah Container, Inc.
Robert J. Flautt
Retired Bank Executive
Steven D. McDonald
Secretary of the Board, Community West Bancshares
and Community West Bank
President, McDonald Properties, Inc.
James W. Lokey
Retired Bank Executive
Andriana D. Majarian
Executive Director,
Valley Children’s Healthcare Foundation
Dorothea D. Silva
Partner, BPM, LLP
William S. Smittcamp
President and CEO, Wawona Frozen Foods
Kirk B. Stovesand
Partner, Walpole & Co.
Not pictured: Louis C. McMurray, Director Emeritus
6
San Luis Obispo
Our Unifying Journey
Growing Together, Reaching Further.
Elevating Community Banking Since 1979
Established in 1979 to help businesses and communities by exceeding
expectations at every opportunity, Community West Bancshares
(Company) (NASDAQ: CWBC) and Community West Bank (Bank)
are headquartered in Fresno, California. Since opening its first Banking
Center in 1980, the Bank has cultivated a track record of financial
strength, security and stability. Today’s Community West Bank is a
well-capitalized institution with approximately $3.5 billion in assets as
of December 31, 2024, and offers full-service Banking Centers located
throughout Central California. Since its founding, the Bank’s
competitive advantage has been its people – professional bankers
dedicated to client advocacy, exemplary “relationship banking,” strong
community support and a mission to exceed expectations.
Guided By Values & Driven By Mission
Community West Bank has always remained true to its core values
of teamwork, caring, inclusivity, excellence, accountability and
integrity. Te Company believes that accountable corporate behavior
is essential for a community bank, and works hard to contribute to a
more equitable, resilient future for clients, team members, shareholders
and the communities it serves. Community West Bank’s mission
statement helps foster a corporate culture designed to: “Inspire and
empower our team to enrich and invest in every relationship by
exceeding expectations.”
Shaped By History
Founded by a diverse group of business owners and former bankers
who understood how a true community bank would benefit this
unique area, Community West Bank started in Clovis and soon
expanded to the Central Sierra communities of Shaver Lake and
Prather, then to Fresno and along California’s Highway 99 corridor
and to the Central Coast. Today, the Company serves clients from
Greater Sacramento, throughout the San Joaquin Valley and west to
the Coast – all closely connected with the communities where team
members live, work and raise their families, and investing in those
locales to help them thrive and grow stronger. To achieve this,
Community West Bank supports a wide variety of community
organizations with leadership involvement, financial donations,
volunteerism and financial education.
Inspired By The Future
Guided by the Company’s proven leadership and Board of Directors,
Community West Bank’s greatest days lie ahead. Te Company is
honored to share those days with the team members, clients,
investors and communities whose support is appreciated and valued.
Te Company is regulated by the Federal Deposit Insurance Corporation, Federal Reserve Board, Securities and Exchange Commission, and the California
Department of Financial Protection & Innovation.
On April 1, 2024, Central Valley Community Bancorp completed its merger with Community West Bancshares. As a result, Community West Bank, a wholly-owned
subsidiary of Community West Bancshares, merged with and into Central Valley Community Bank, a wholly-owned subsidiary of Central Valley Community Bancorp,
with Central Valley Community Bank being the surviving banking institution. Te corporate names of Central Valley Community Bancorp and Central Valley
Community Bank were changed to Community West Bancshares and Community West Bank, respectively.
7
Our story is written by many hands, but with one vision:
to help our clients and communities succeed. We are proud of our legacy of success,
and just as proud that our story is still being written today…
8
Dawn M. Cagle
Executive Vice President,
Chief Human Resources Officer
Blaine C. Lauhon
Executive Vice President.
Chief Operating Officer
James J. Kim*
President,
Chief Executive Officer
Shannon R. Livingston*
Executive Vice President,
Chief Financial Officer
Jeffrey M. Martin
Executive Vice President,
Chief Banking Officer
Dan Garcia
Executive Vice President,
Regional Executive (North)
A. Ken Ramos
Executive Vice President,
Regional Executive (South)
Gary Henderson
Executive Vice President,
Chief Technology Officer
Brian Schwabecher
Executive Vice President,
Regional Executive (Coast)
From Experienced Professionals
Proven Leadership
Executive Leadership Team
*Holding Company Executive Officers
T. Joseph Stronks
Executive Vice President,
Chief Risk Officer
Hinson M. Thomas
Executive Vice President,
Chief Credit Officer
Sacramento
Corporate Responsibilities
At Community West Bank, we believe that accountable
corporate behavior is essential for a community bank, and work
diligently to ensure a more equitable, resilient future for our
clients, team members, shareholders and the communities where
we live and operate. For that reason, our executive management
team annually reviews and prioritizes the Company’s areas of
focus, which include: community and charitable giving,
responsible lending practices, economic stability, sustainable
practices, environmental and social focuses, vendor management
and employment practices, among others.
Since 1980, we have supported our clients with a full range of
banking and financial services, while supporting initiatives that
provide financial education and improve accessibility of financial
solutions in our communities, champion our environment and
promote transparency, accountability and diversity.
Our governance structure enables us to manage all major aspects
of our business through an integrated process of financial,
strategic, risk and leadership planning. Tis structure and
process also ensures our compliance with laws and regulations
while providing clear lines of authority for decision-making and
accountability. Guided by our core values and high ethical
standards, we strive to operate with integrity that inspires our
clients and community to confidently place their trust in
Community West Bank.
Strength In Diversity
Community West Bank’s policy reflects our commitment to
maintaining a diverse and inclusive workplace in which all team
members are supported, valued for their unique perspectives,
skills and experiences and have the opportunity to contribute to
the organization’s success. Tis commitment is evident
throughout our workplace and our impact on the communities
we serve.
For additional information, visit our website at
www.communitywestbank.com
or contact Shannon Livingston, EVP, Chief Financial Officer
at (800) 298-1775.
9
Goleta
ECONOMIC STABILITY
344
SMALL
BUSINESS
LOANS FOR $91
MILLION
OUTSTANDING
CRA RATING
Helping Regions of Poverty
2019 – 2021 |
RESPECTABLE
WAGES
2024 Highlights
COMMUNITY GIVING
COMMUNITY ORGANIZATIONS
PROVIDED
SUPPORT TO192
185,000
Donations for Food
& Housing Insecurity
2,059
2024 Service Hours
$570,000
Charitable Giving
Corporate Responsibility
For a Better Community
$2,460,358
$1,832,987
$2,267,615
$2,439,394
13.81%
11.50%
14.25%
$7,666
$25,536
$20,347
$28,401
$26,645
$1,263,226
$1,055,712
$1,069,653
$1,133,919
8.85%
$1,978,386
$2,655,928
2.42%
$3,190,361
$0.45
$2.17
$1.62
$2.31
$2.27
10
Net Income (In Tousands)
2020
2021
2022
2023
2024
Average Total Loans (In Tousands)
Average Total Deposits (In Tousands)
Return on Shareholders’ Equity
Diluted Earnings Per Share
Average Total Assets (In Tousands)
Trend Analysis
$2,155,241
$1,568,194
$1,974,576
$2,156,092
2020
2021
2022
2023
2024
2020
2021
2022
2023
2024
2020
2021
2022
2023
2024
2020
2021
2022
2023
2024
2020
2021
2022
2023
2024
Total Return Performance
Index Value
Sources: S&P Global Market Intelligence and NASDAQ
© 2025
Note: Te graph above shows the cumulative total shareholder return on Community West Bancshares common stock compared to
the cumulative total returns for the Russell 2000 Index and the KBW Regional Banking, measured as of the last trading day of each year shown.
Te graph assumes an investment of $100 on December 31, 2019 and reinvestment of dividends on the date of payment without commissions.
Te performance graph represents past performance and should not be considered to be an indication of future stock performance.
11
Comparative Stock
Price Performance
2020
2021
2022
2024
2023
2019
100.00
100.00
100.00
91.32
90.36
119.96
127.55
124.78
137.74
132.20
109.59
116.15
144.64
115.69
128.14
Russell 2000
142.93
130.96
KBW
Regional Banking
Community West
Bancshares
128.08
COMMUNITY WEST BANCSHARES
Consolidated Balance Sheets
December 31, 2024 and 2023 (In thousands, except share amounts)
ASSETS
2024
2023
Cash and due from banks
$
28,029
$
30,017
Interest-earning deposits in other banks
92,369
23,711
Total cash and cash equivalents
120,398
53,728
Available-for-sale debt securities, at fair value, net of allowance for credit losses of $0, with an amortized cost of
$536,334 at December 31, 2024 and $669,646 at December 31, 2023, respectively
477,113
597,196
Held-to-maturity debt securities, at amortized cost less allowance for credit losses of $1,156 at December 31, 2024
and $1,051 at December 31, 2023, respectively
301,359
302,442
Equity securities, at fair value
6,586
6,649
Loans, less allowance for credit losses of $25,803 at December 31, 2024 and $14,653 at December 31, 2023,
respectively
2,308,418
1,276,144
Bank premises and equipment, net
24,469
14,042
Bank owned life insurance
53,319
41,572
Federal Home Loan Bank stock
10,978
7,136
Goodwill
96,828
53,777
Core deposit intangibles
9,268
-
Accrued interest receivable and other assets
113,035
80,740
Total assets
$
3,521,771
$
2,433,426
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Non-interest bearing
$
980,824
$
951,541
Interest bearing
1,929,953
1,090,071
Total deposits
2,910,777
2,041,612
Borrowings
133,442
80,000
Senior debt and subordinated debentures, net
69,889
69,744
Accrued interest payable and other liabilities
44,978
35,006
Total liabilities
3,159,086
2,226,362
Commitments and contingencies (Note 12)
Shareholders’ equity:
Preferred stock, no par value; 10,000,000 shares authorized, none issued and outstanding
-
-
Non-voting common stock, 1,000,000 shares authorized; issued and outstanding: none at December 31, 2024
and December 31, 2023
-
-
Common stock, no par value; 80,000,000 shares authorized; issued and outstanding: 18,974,647 at
December 31, 2024 and 11,818,039 at December 31, 2023
207,816
62,550
Retained earnings
209,984
210,548
Accumulated other comprehensive loss, net of tax
(55,115)
(66,034)
Total shareholders’ equity
362,685
207,064
Total liabilities and shareholders’ equity
$
3,521,771
$
2,433,426
The accompanying notes are an integral part of these consolidated financial statements.
12
COMMUNITY WEST BANCSHARES
Consolidated Statements of Income
For the Years Ended December 31, 2024, 2023, and 2022 (In thousands, except per share amounts)
2024
2023
2022
Interest income:
Interest and fees on loans
$
130,166
$
69,803
$
55,907
Interest on deposits in other banks
4,355
3,576
391
Interest and dividends on investment securities:
Taxable
20,384
23,437
20,011
Exempt from Federal income taxes
5,483
5,602
6,679
Total interest income
160,388
102,418
82,988
Interest expense:
Interest on deposits
40,666
15,527
1,197
Interest on short-term borrowings
5,690
810
254
Interest on senior debt and subordinated debentures
3,665
3,652
1,971
Total interest expense
50,021
19,989
3,422
Net interest income before provision for credit losses
110,367
82,429
79,566
Provision for credit losses
11,113
309
995
Net interest income after provision for credit losses
99,254
82,120
78,571
Non-interest income:
Interchange fees
2,078
1,780
1,847
Service charges
1,798
1,503
2,014
Appreciation in cash surrender value of bank owned life insurance
1,325
1,035
985
Loan placement fees
893
584
899
Federal Home Loan Bank dividends
796
498
367
Net realized gain on sale of assets
7
402
15
Net realized losses on sales and calls of investment securities
(4,199)
(907)
(1,730)
Other income
3,747
2,125
657
Total non-interest income
6,445
7,020
5,054
Non-interest expenses:
Salaries and employee benefits
48,470
31,367
28,917
Merger and acquisition expense
9,614
1,191
-
Occupancy and equipment
9,479
5,726
5,131
Information technology
5,940
3,616
3,344
Professional services
2,825
2,234
1,519
Data processing expense
3,748
2,621
2,245
Regulatory assessments
1,837
1,312
851
ATM/Debit card expenses
1,750
757
809
Directors’ expenses
752
614
282
Advertising
854
542
557
Loan related expenses
802
478
479
Personnel other
345
404
323
Amortization of core deposit intangibles
751
68
454
Other expense
7,534
4,370
3,573
Total non-interest expenses
94,701
55,300
48,484
Income before provision for income taxes
10,998
33,840
35,141
Provision for income taxes
3,332
8,304
8,496
Net income
$
7,666
$
25,536
$
26,645
Basic earnings per common share
$
0.45
$
2.17
$
2.27
Diluted earnings per common share
$
0.45
$
2.17
$
2.27
Cash dividends per common share
$
0.48
$
0.48
$
0.48
The accompanying notes are an integral part of these consolidated financial statements.
13
COMMUNITY WEST BANCSHARES
Consolidated Statements of Comprehensive Income (Loss)
For the Years Ended December 31, 2024, 2023, and 2022 (In thousands)
2024
2023
2022
Net income
$
7,666
$
25,536
$
26,645
Other Comprehensive Income (Loss):
Unrealized gains (losses) on securities:
Unrealized holdings gains (losses) arising during the period
9,028
18,286
(129,527)
Less: reclassification for net losses included in net income
4,199
907
1,730
Amortization of net unrealized losses transferred
2,276
2,376
1,651
Other comprehensive income (loss), before tax
15,503
21,569
(126,146)
Tax (expense) benefit related to items of other comprehensive income (loss)
(4,584)
(6,376)
37,287
Total other comprehensive income (loss)
10,919
15,193
(88,859)
Comprehensive income (loss)
$
18,585
$
40,729
$
(62,214)
The accompanying notes are an integral part of these consolidated financial statements.
14
COMMUNITY WEST BANCSHARES
Consolidated Statements of Changes In Shareholders’ Equity
For the Years Ended December 31, 2024, 2023, and 2022 (In thousands, except share amounts)
Common Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
(Net of Taxes)
Total
Shareholders’
Equity
Shares
Amount
Balance, January 1, 2022
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
Net income
-
-
7,666
-
7,666
Other comprehensive income, net of tax
-
-
-
10,919
10,919
Stock issued for acquisition
7,037,202
143,712
-
-
143,712
Restricted stock granted, net of forfeitures
68,702
-
-
-
-
Stock issued under employee stock purchase plan
15,504
248
-
-
248
Stock-based compensation expense
-
879
-
-
879
Cash dividend ($0.48 per common share)
-
-
(8,230)
-
(8,230)
Stock options exercised
37,289
465
-
-
465
Repurchase and retirement of common stock
(2,089)
(38)
-
-
(38)
Balance, December 31, 2024
18,974,647
$ 207,816
$ 209,984
$
(55,115)
$
362,685
The accompanying notes are an integral part of these consolidated financial statements.
15
COMMUNITY WEST BANCSHARES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2024, 2023, and 2022 (in thousands)
2024
2023
2022
Cash Flows From Operating Activities:
Net income
$
7,666
$
25,536
$
26,645
Adjustments to reconcile net income to net cash provided by operating activities:
Net (increase) decrease in deferred loan costs
(200)
786
(422)
Depreciation
2,206
891
755
Accretion of discounts on investment securities
(1,813)
(1,890)
(1,520)
Amortization of premiums on investment securities
4,198
8,860
9,517
Amortization of debt issuance costs
145
145
145
Accretion of premiums and discounts on acquired loans, net
(9,694)
(325)
(521)
Amortization of fair value marks on liabilities assumed
5,385
-
-
Stock-based compensation
879
858
776
Provision for credit losses
11,113
309
995
Net realized losses on sales and calls of AFS securities
4,199
907
1,730
Net gain on sale and disposal of equipment
(7)
(402)
(15)
Net change in equity investments
63
(91)
858
Appreciation in cash surrender value of bank owned life insurance
(1,325)
(1,035)
(985)
Net decrease (increase) in accrued interest receivable and other assets
1,101
(8,798)
(7,361)
Net (decrease) increase in accrued interest payable and other liabilities
(847)
1,666
(7,148)
(Benefit) provision for deferred income taxes
(867)
110
224
Net cash provided by operating activities
22,202
27,527
23,673
Cash Flows From Investing Activities:
Net cash and cash equivalents acquired in acquisition
58,521
-
-
Purchases of available-for-sale investment securities
-
-
(301,699)
Proceeds from sales or calls of AFS securities
64,230
26,361
252,331
Proceeds from sales or calls of HTM securities
20
35
-
Proceeds from maturity and principal repayment of AFS securities
59,947
38,229
67,795
Proceeds from principal repayments of HTM securities
1,650
2,377
1,421
Net increase in loans
(113,078)
(34,972)
(216,002)
Purchases of premises and equipment
(5,039)
(9,806)
(362)
Purchases of bank owned life insurance
(1,450)
-
-
FHLB stock purchased
(350)
(967)
(574)
Proceeds from sale of premises and equipment
22
3,262
15
Net cash provided by (used in) investing activities
64,473
24,519
(197,075)
Cash Flows From Financing Activities:
Net increase (decrease) in demand, interest-bearing and savings deposits
37,000
(152,178)
(1,041)
Net (decrease) increase in time deposits
(14,450)
94,142
(22,107)
Proceeds from short-term borrowings from Federal Home Loan Bank
972,000
3,411,500
2,452,826
Repayments of short-term borrowings to Federal Home Loan Bank
(962,000)
(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
(45,000)
(71,500)
-
Purchase and retirement of common stock
(38)
(1)
(6,814)
Proceeds from stock issued under employee stock purchase plan
248
206
216
Proceeds from exercise of stock options
465
-
489
Cash dividend payments on common stock
(8,230)
(5,657)
(5,638)
Net cash (used in) provided by financing activities
(20,005)
(29,488)
41,105
Increase (decrease) in cash and cash equivalents
66,670
22,558
(132,297)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
53,728
31,170
163,467
CASH AND CASH EQUIVALENTS AT END OF YEAR
$
120,398
$
53,728
$
31,170
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest
$
48,773
$
20,005
$
2,831
Income taxes
$
2,572
$
7,700
$
8,314
Operating cash flows from operating leases
$
3,120
$
2,484
$
2,221
Non-cash investing and financing activities:
Unrealized gain (loss) on securities available for sale
$
13,227
$
19,193
$
(127,797)
Transfer of securities from AFS to HTM
$
-
$
-
$
332,007
Transfer of unrealized losses on securities from AFS to HTM
$
-
$
-
$
(25,328)
Acquisition:
Assets acquired
$
1,040,939
$
-
$
-
Liabilities assumed
$
(940,276)
$
-
$
-
The accompanying notes are an integral part of these consolidated financial statements.
16
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General - Effective April 1, 2024, Central Valley Community Bancorp, completed
its merger transaction with Community West Bancshares. Shortly thereafter,
Community West Bank, a wholly owned subsidiary of Community West Bancshares,
merged with and into Central Valley Community Bank, a wholly owned subsidiary
of Central Valley Community Bancorp, with Central Valley Community Bank being
the surviving banking institution. Effective with these mergers, the names of
Central Valley Community Bancorp and Central Valley Community Bank were
changed to Community West Bancshares and Community West Bank, respectively.
Community West Bancshares (the “Company”) was incorporated on February 7,
2000 and subsequently obtained approval from the Board of Governors of the Federal
Reserve System to be a bank holding company in connection with its acquisition
of Community West Bank (the “Bank”). The Company became the sole shareholder
of the Bank on November 15, 2000 in a statutory merger, pursuant to which each
outstanding share of the Bank’s common stock was exchanged for one share of
common stock of the Company.
Service 1st Capital Trust I (the Trust) is a business trust formed by Service 1st for
the sole purpose of issuing trust preferred securities. The Company succeeded to all
the rights and obligations of Service 1st in connection with the acquisition of Service
1st. The Trust is a wholly-owned subsidiary of the Company.
The Bank operates 26 full service offices throughout California’s San Joaquin
Valley, Greater Sacramento Region and Central Coast. The Bank’s primary source of
revenue is providing loans to customers who are predominately small and
middle-market businesses and individuals.
The deposits of the Bank are insured by the Federal Deposit Insurance
Corporation (FDIC) up to applicable legal limits. Depositors’ accounts at an insured
depository institution, including all non-interest bearing transactions accounts, will
be insured by the FDIC up to the standard maximum deposit insurance amount of
$250,000 for each deposit insurance ownership category.
The accounting and reporting policies of the Company and the Bank conform
with accounting principles generally accepted in the United States of America and
prevailing practices within the banking industry.
Operating Segments - The Company determines its reporting units in accordance
with the Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 280, Segment Reporting. The Company evaluates a reporting
unit by first identifying its operating segments under ASC 280. The chief operating
decision-maker is responsible for the allocation of resources and assessing the
performance of the operating segment and has been identified as the Chief Executive
Officer of the Company. The chief operating decision maker has determined that
because all of the banking products and services offered by the Company are available
in each branch of the Bank, all branches are located within the same economic
environment and management does not allocate resources based on the performance
of different lending or transaction activities, it is appropriate to aggregate the Bank
branches and report them as a single operating segment. No customer accounts for
more than 10 percent of revenues for the Company or the Bank. The Company
operates as one operating segment which is reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and the consolidated accounts of its wholly-owned
subsidiary, the Bank. Intercompany transactions and balances are eliminated in
consolidation.
For financial reporting purposes, Service 1st Capital Trust I, is a wholly-owned
subsidiary acquired in the merger of Service 1st and formed for the exclusive purpose
of issuing trust preferred securities. The Company is not considered the primary
beneficiary of this trust (variable interest entity), therefore the trust is not consolidated
in the Company’s financial statements, but rather the subordinated debentures are
shown as a liability on the Company’s consolidated financial statements. The
Company’s investment in the common stock of the Trust is included in accrued
interest receivable and other assets on the consolidated balance sheets.
Use of Estimates - The preparation of these financial statements in accordance with
U.S. generally accepted accounting principles requires management to make estimates
and judgments that affect the reported amount of assets, liabilities, revenues and
expenses. On an ongoing basis, management evaluates the estimates used. Estimates
are based upon historical experience, current economic conditions and other
factors that management considers reasonable under the circumstances.
These estimates result in judgments regarding the carrying values of assets and
liabilities when these values are not readily available from other sources, as well as
assessing and identifying the accounting treatments of contingencies and
commitments. These estimates and assumptions affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results may differ
from these estimates under different assumptions.
Cash and Cash Equivalents - For the purpose of the statement of cash flows, cash,
due from banks with original maturities less than 90 days, interest-earning deposits in
other banks, and Federal funds sold are considered to be cash equivalents. Generally,
Federal funds are sold and purchased for one-day periods. Net cash flows are
reported for customer loan and deposit transactions, interest-bearing deposits in
other banks, and Federal funds purchased.
Investment Securities - Investments are classified into the following categories:
•
Available-for-sale securities, reported at fair value, with unrealized gains and
losses excluded from earnings and reported, net of taxes, as accumulated other
comprehensive income (loss) within shareholders’ equity.
•
Held-to-maturity securities, which management has the positive intent and
ability to hold to maturity, reported at amortized cost, adjusted for the accretion
of discounts and amortization of premiums.
Management determines the appropriate classification of its investments at the
time of purchase and may only change the classification in certain limited
circumstances. All transfers between categories are accounted for at fair value in the
period which the transfer occurs.
Gains or losses on the sale of investment securities are computed on the specific
identification method. Interest earned on investment securities is reported in interest
income, net of applicable adjustments for accretion of discounts and amortization
of premiums. Premiums and discounts on securities are amortized or accreted on the
level yield method without anticipating prepayments, except for mortgage backed
securities where prepayments are anticipated.
Allowance for Credit Losses on Available-for-Sale Debt Securities - For
available-for-sale (“AFS”) debt securities in an unrealized loss position, the Company
first assesses whether it intends to sell, or it is more than likely than not that it will
be required to sell the security before recovery of its amortized cost basis. If either of
the criteria regarding intent or requirement to sell is met, the security’s amortized
cost basis is written down to fair value through income. For AFS debt securities that
do not meet the aforementioned criteria, the Company evaluates whether the
decline in fair value has resulted from credit losses or other factors. In making this
assessment, management considers the extent to which fair value is less than amortized
cost, any changes to the rating of the security by a rating agency, and adverse
conditions specifically related to the security, among other factors. If this assessment
indicates that a credit loss exists, the present value of the cash flows expected to be
collected from the security are compared to the amortized cost basis of the security. If
the present value of cash flows expected to be collected is less than the amortized
cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit
loss, limited by the amount that the fair value is less than the amortized cost basis.
Any impairment that has not been recorded through an allowance for credit losses is
recognized in other comprehensive income.
Changes in the allowance for credit losses are recorded as a provision (or credit)
for credit losses. Losses are charged against the allowance when management believes
that the uncollectibility of an available-for-sale security is confirmed or when either
of the criteria regarding intent or requirement to sell is met.
Allowance for Credit Losses on Held-to-Maturity Debt Securities - Management
measures expected credit losses on held-to-maturity (“HTM”) debt securities on a
collective basis by major security type. The estimate of expected credit losses considers
historical credit loss information based on industry data that is adjusted for current
conditions and reasonable and supportable forecasts. Management classifies the
held-to-maturity portfolio into the following major security types: Obligations of
States and Political Subdivisions, U.S. Government sponsored Entities and Agencies
collateralized by Residential Mortgage Obligations, Private Label Mortgage and
Asset Backed Securities, and Corporate Debt Securities.
The Company elected the practical expedient under ASC 326-20-30-5A to
exclude accrued interest from the amortized cost basis when measuring potential
impairment. Additionally, management notes that due to this election, accrued
interest is separately reported from the securities’ amortized cost basis.
Loans - All loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are stated at principal balances
outstanding net of deferred loan fees and costs, and the allowance for credit losses.
Interest is accrued daily based upon outstanding loan principal balances. However,
Notes to Consolidated Financial Statements
17
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
when a loan becomes impaired and the future collectability of interest and principal
is in serious doubt, the loan is placed on nonaccrual status and the accrual of
interest income is suspended. Any loan delinquent 90 days or more is automatically
placed on nonaccrual status. Any interest accrued but unpaid is charged against
income. Subsequent payments on these loans, or payments received on nonaccrual
loans for which the ultimate collectability of principal is not in doubt, are applied first
to principal until fully collected and then to interest.
Interest income on loans is discontinued at the time the loan is 90 days delinquent
unless the loan is well-secured and in process of collection. Consumer and credit card
loans are typically charged off no later than 90 days past due. Past due status is
based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual
or charged-off at an earlier date if collection of principal or interest is considered
doubtful. A loan placed on non-accrual status may be restored to accrual status when
principal and interest are no longer past due and unpaid, or the loan otherwise
becomes both well secured and in the process of collection. When a loan is brought
current, the Company must also have reasonable assurance that the obligor has the
ability to meet all contractual obligations in the future, that the loan will be repaid
within a reasonable period of time, and that a minimum of six months of satisfactory
repayment performance has occurred.
Substantially all loan origination fees, commitment fees, direct loan origination
costs and purchase premiums and discounts on loans are deferred and recognized as
an adjustment of yield, and amortized to interest income over the contractual
term of the loan. The unamortized balance of deferred fees and costs is reported as a
component of net loans.
Acquired Loans and Leases - Loans and leases acquired through purchase or through
a business combination are recorded at their fair value at the acquisition date. At
the time of an acquisition, we evaluate loans to determine if they are purchase credit
deteriorated (“PCD”) loans. PCD loans are those acquired loans with evidence of
more than insignificant credit deterioration since loan origination.This determination
is made by considering past due and nonaccrual status, prior designation of a
troubled debt restructuring, or other factors that may suggest we will not be able to
collect all contractual payments. PCD loans are initially recorded at fair value with a
gross up for the allowance for credit losses, which becomes the initial amortized
cost basis. The difference between the initial amortized cost basis and the par value
of the loan is a noncredit premium or discount which is amortized or accreted over the
life of the loan. Subsequent changes to the allowance for credit losses are recorded
through provision or credit to the allowance for credit losses.
While credit discounts are included in the determination of fair value for
non-credit deteriorated loans, an allowance for loan loss is established at acquisition
using the same methodology as originated loans since these discounts are accreted
or amortized over the life of the loan. Subsequent deterioration or improvements in
expected credit losses are recorded through a provision or credit to the allowance
for credit losses on loans.
Allowance for Credit Losses on Loans - The allowance for credit losses (“ACL”) on
loans is a valuation account that is deducted from the loans’ amortized cost basis to
present the net amount expected to be collected on the loans. The allowance is
established through a provision for credit losses which is charged to expense. Loans
are charged off against the allowance when management believes the uncollectibility
of a loan balance is confirmed. Cash received on previously charged off amounts is
recorded as a recovery to the allowance.
On January 1, 2023, the Company adopted ASU 2016-13, Financial
Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments, as amended, which replaces the incurred loss methodology with an
expected loss methodology that is referred to as the current expected credit loss
(CECL) methodology. The measurement of expected credit losses under the CECL
methodology is applicable to financial assets measured at amortized cost, including
loan receivables and held-to-maturity securities. It also applies to off-balance sheet
credit exposures not accounted for as insurance (loan commitments, standby
letters of credit, financial guarantees, and other similar instruments). In addition,
credit losses recognized on available-for-sale debt securities will be presented as an
allowance as opposed to a write-down, based on management’s intent to sell the
security or the likelihood the Company will be required to sell the security before
recovery of the amortized cost basis.
The Company adopted ASC 326 using the modified retrospective method for all
financial assets measured at amortized cost and off-balance sheet credit exposures.
Results for the reporting periods beginning after January 1, 2023 are presented under
ASC 326 while prior period amounts continue to be reported in accordance with
previously applicable GAAP. The Company recognized an increase in the allowance
for credit losses on loans totaling $3,910,000, a reserve for credit losses for
held-to-maturity securities of $775,000, and an increase to the reserve for unfunded
commitments of $612,000 with a corresponding decrease, net of taxes, in retained
earnings, of $3,731,000 as of January 1, 2023 for the cumulative effect of adopting
ASC 326.
The Company elected the practical expedient under ASC 326-20-30-5A to
exclude accrued interest from the amortized cost basis when measuring potential
impairment. Additionally, management notes that due to this election, accrued
interest is separately reported from the loans’ amortized cost basis.
Management estimates the allowance balance using relevant available information,
from internal and external sources, relating to past events, current conditions and
reasonable and supportable forecasts. Historical credit loss experience from national
and local peer data provides the basis for the estimation of expected credit losses.
Adjustments to historical loss information are made for the differences in the current
loan-specific risk characteristics, such as differences in loan-to-values, portfolio
mix, or term as well as for changes in environmental conditions, such as changes in
unemployment rates, market interest rates, property values, or other relevant factors.
Management may assign qualitative factors to each loan segment if there are
material risks or improvements present but not yet captured in the model environment.
The allowance for credit losses is measured on a collective (pool) basis when
similar risk characteristics exist. The Company segregates the allowance by portfolio
segment. These portfolio segments include commercial, commercial real estate,
1-4 family real estate and consumer loans. The relative significance of risk
considerations vary by portfolio segment. Real estate construction loans, as
summarized by class within the loan footnote, are disaggregated into either the
commercial real estate or 1-4 family real estate allowance segments based on the type
of construction loan due to the varying risks between commercial and consumer
construction.
Commercial:
Commercial and industrial - Commercial and industrial loans are generally
underwritten to existing cash flows of operating businesses. Additionally, economic
trends influenced by unemployment rates and other key economic indicators are
closely correlated to the credit quality of these loans. Past due payments may
indicate the borrower’s capacity to repay their obligations may be deteriorating.
Agricultural production - Loans secured by crop production and livestock are
especially vulnerable to two risk factors that are largely outside the control of
Company and borrowers: commodity prices and weather conditions.
Commercial Real Estate:
Commercial real estate construction and other land loans - Commercial land and
construction loans generally possess a higher inherent risk of loss than other real estate
portfolio segments. A major risk arises from the necessity to complete projects
within specified costs and time lines. Trends in the construction industry significantly
impact the credit quality of these loans, as demand drives construction activity. In
addition, trends in real estate values significantly impact the credit quality of these
loans, as property values determine the economic viability of construction projects.
Commercial real estate—owner-occupied - Real estate collateral secured by
commercial or professional properties with repayment arising from the owner’s
business cash flows. To meet this classification, the owner’s operation must occupy
no less than 50% of the real estate held. Financial profitability and capacity to meet
the cyclical nature of the industry and related real estate market over a significant
timeframe is essential.
Commercial real estate—non-owner occupied - Investor commercial real estate
loans generally possess a higher inherent risk of loss than other real estate portfolio
segments, except land and construction loans. Adverse economic developments or an
overbuilt market impact commercial real estate projects and may result in troubled
loans. Trends in vacancy rates of commercial properties impact the credit quality of
these loans. High vacancy rates reduce operating revenues and the ability for
properties to produce sufficient cash flows to service debt obligations.
Farmland - Agricultural loans secured by real estate generally possess a higher
inherent risk of loss caused by changes in concentration of permanent plantings,
government subsidies, and the value of the U.S. dollar affecting the export of
commodities.
Multi-family - These properties are generally comprised of more than four
rentable units, such as apartment buildings, with each unit intended to be occupied
Notes to Consolidated Financial Statements
18
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
as the primary residence for one or more persons. Multi-family properties are also
subject to changes in general or regional economic conditions, such as unemployment,
ultimately resulting in increased vacancy rates or reduced rents or both. In addition,
new construction can create an oversupply condition and market competition
resulting in increased vacancy, reduced market rents, or both. Due to the nature of
their use and the greater likelihood of tenant turnover, the management of these
properties is more intensive and therefore is more critical to the preclusion of loss.
1-4 Family Real Estate: Including 1-4 family close-ended, revolving real estate
loans, and residential construction loans, the degree of risk in residential real estate
lending depends primarily on the loan amount in relation to collateral value, the
interest rate and the borrower’s ability to repay in an orderly fashion. These loans
generally possess a lower inherent risk of loss than other real estate portfolio segments.
Economic trends determined by unemployment rates and other key economic
indicators are closely correlated to the credit quality of these loans. Weak economic
trends may indicate that the borrowers’ capacity to repay their obligations may be
deteriorating
Consumer:
Manufactured housing - The Company has a financing program for manufactured
housing to provide affordable home ownership. These loans are offered in mobile
home parks throughout California primarily on or near the coast. The manufactured
housing loans are secured by the manufactured home and are retained in the
Company’s loan portfolio. The primary risks of manufactured housing loans include
the borrower’s inability to pay, material decreases in the value of the collateral, and
significant increases in interest rates, which may reduce the borrower’s ability to make
the required principal or interest payments.
Other installment loans - A consumer installment loan portfolio is usually
comprised of a large number of small loans scheduled to be amortized over a specific
period. Most installment loans are made directly for consumer purchases, such as
automobiles. Other consumer loans include other open ended unsecured consumer
loans. Open ended unsecured loans generally have a higher rate of default than all
other portfolio segments and are also impacted by weak economic conditions and
trends.
When loans do not share similar risk characteristics, the Company evaluates the
loan for expected credit losses on an individual basis. Loans evaluated individually
are not included in the collective evaluation. When management determines that
foreclosure is probable or when the borrower is experiencing financial difficulty at the
reporting date and repayment is expected to be provided substantially through the
operation or sale of the collateral, expected credit losses are based on the fair value of
the collateral at the reporting date, adjusted for selling costs as appropriate.
Risk Rating - The Company assigns a risk rating to all loans, and periodically
performs detailed reviews of all such loans over a certain threshold to identify credit
risks and to assess the overall collectability of the portfolio. The most recent
review of risk ratings was completed in December 2024. These risk ratings are also
subject to examination by independent specialists engaged by the Company and the
Company’s regulators. During these internal reviews, management monitors and
analyzes the financial condition of borrowers and guarantors, trends in the industries
in which borrowers operate and the fair values of collateral securing these loans.
These credit quality indicators are used to assign a risk rating to each individual loan.
The risk ratings can be grouped into five major categories, defined as follows:
Pass - A pass loan is a strong credit with no existing or known potential weaknesses
deserving of management’s close attention.
Special Mention - A special mention loan has potential weaknesses that deserve
management’s close attention. If left uncorrected, these potential weaknesses may
result in deterioration of the repayment prospects for the loan or in the Company’s
credit position at some future date. Special mention loans are not adversely classified
and do not expose the Company to sufficient risk to warrant adverse classification.
Substandard - A substandard loan is not adequately protected by the current
sound worth and paying capacity of the borrower or the value of the collateral
pledged, if any. Loans classified as substandard have a well-defined weakness or
weaknesses that jeopardize the liquidation of the debt. Well-defined weaknesses
include a project’s lack of marketability, inadequate cash flow or collateral support,
failure to complete construction on time, or the project’s failure to fulfill economic
expectations. They are characterized by the distinct possibility that the Company
will sustain some loss if the deficiencies are not corrected.
Doubtful - Loans classified as doubtful have all the weaknesses inherent in those
classified as substandard with the added characteristic that the weaknesses make
collection or liquidation in full, on the basis of currently known facts, conditions and
values, highly questionable and improbable. The possibility of loss is extremely
high, but because of certain important and reasonably specific pending factors, which
may work to the advantage and strengthening of the asset, its classification as an
estimated loss is deferred until its more exact status may be determined. Pending
factors include proposed merger, acquisition, or liquidation procedures, capital
injection, perfecting liens on additional collateral, and refinancing plans. Doubtful
classification is considered temporary and short term.
Loss - Loans classified as loss are considered uncollectible and charged off
immediately.
The general reserve component of the allowance for credit losses also consists of
reserve factors that are based on management’s assessment of the following for each
portfolio segment: (1) inherent credit risk, (2) historical losses and (3) other qualitative
factors including economic trends in the Company’s service areas, industry
experience and trends, industry and geographic concentrations, estimated collateral
values, the Company’s underwriting policies, the character of the loan portfolio, and
probable losses inherent in the portfolio taken as a whole. Inherent credit risk and
qualitative reserve factors are inherently subjective and are driven by the repayment
risk associated with each class of loans.
Allowance for Credit Losses on Unfunded Commitments - The Company estimates
expected credit losses over the contractual period in which the Company is
exposed to credit risk via a contractual obligation to extend credit, unless that
obligation is unconditionally cancellable by the Company. The allowance for credit
losses on unfunded commitments is adjusted through provision for credit losses. The
estimate includes consideration of the likelihood that funding will occur and an
estimate of expected credit losses on commitments expected to be funded over its
estimated life.
Bank Premises and Equipment - Land is carried at cost. Bank premises and
equipment are carried at cost less accumulated depreciation. Depreciation is
determined using the straight-line method over the estimated useful lives of the
related assets. The useful lives of Bank premises are estimated to be between 20 and
40 years. The useful lives of improvements to Bank premises, furniture, fixtures and
equipment are estimated to be three to ten years. Leasehold improvements are
amortized over the life of the asset or the term of the related lease, whichever is shorter.
When assets are sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is recognized
in income for the period. The cost of maintenance and repairs is charged to
expense as incurred.
The Bank evaluates premises and equipment for financial impairment as events
or changes in circumstances indicate that the carrying amount of such assets may
not be fully recoverable.
Federal Home Loan Bank (FHLB) Stock - The Bank is a member of the FHLB
system. Members are required to own a certain amount of stock based on the level
of borrowings and other factors, and may invest in additional amounts. FHLB stock
is carried at cost, classified as a restricted security, and periodically evaluated for
impairment based on ultimate recovery of par value. Both cash and stock dividends
are reported as income.
Investments in Low Income Housing Tax Credit Funds - The Bank has invested in
limited partnerships that were formed to develop and operate affordable housing
projects for low or moderate income tenants throughout California. The Company
accounts for the investments in qualified affordable housing tax credit funds using the
proportional amortization method. Under the proportional amortization method,
the initial cost of the investment is amortized in proportion to the tax credits and other
tax benefits received and the net investment performance is recognized as part of
income tax expense (benefit). Each of the partnerships must meet the regulatory
minimum requirements for affordable housing for a minimum 15-year compliance
period to fully utilize the tax credits. If the partnerships cease to qualify during the
compliance period, the credit may be denied for any period in which the project is
not in compliance and a portion of the credit previously taken is subject to recapture
with interest. The Company’s investment in Low Income Housing Tax Credit
(“LIHTC”) partnerships is reported in other assets on the consolidated balance sheets.
Other Real Estate Owned - Other real estate owned (OREO) is comprised of
property acquired through foreclosure proceedings or acceptance of deeds-in-lieu of
Notes to Consolidated Financial Statements
19
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
foreclosure. Losses recognized at the time of acquiring property in full or partial
satisfaction of debt are charged against the allowance for credit losses. OREO, when
acquired, is initially recorded at fair value less estimated disposition costs,
establishing a new cost basis. Fair value of OREO is generally based on an
independent appraisal of the property. Subsequent to initial measurement, OREO is
carried at the lower of the recorded investment or fair value less disposition costs.
If fair value declines subsequent to foreclosure, a valuation allowance is recorded
through noninterest expense. Revenues and expenses associated with OREO are
reported as a component of noninterest expense when incurred. There was no other
real estate owned at December 31, 2024 and at December 31, 2023.
Foreclosed Assets - Assets acquired through or instead of loan foreclosure are initially
recorded at fair value less costs to sell when acquired, establishing a new cost basis.
If fair value declines subsequent to foreclosure, a valuation allowance is recorded
through operations. Operating costs after acquisition are expensed. Gains and
losses on disposition are included in noninterest expense. There were no foreclosed
assets at December 31, 2024 and at December 31, 2023.
Bank Owned Life Insurance - The Company has purchased life insurance policies
on certain key executives. Company owned life insurance is recorded at the amount
that can be realized under the insurance contract at the balance sheet date, which
is the cash surrender value adjusted for other charges or other amounts due that are
probable at settlement.
Servicing Assets - The Company is an approved Federal Agricultural Mortgage
Corporation (“Farmer Mac”) seller/servicer. Servicing assets are recognized as separate
assets as certain servicing requirements are retained. Servicing assets are amortized
over the period of estimated net servicing income. The Company uses Farmer Mac
prepayment statistics in estimating the expected life of the loans. Management
evaluates its servicing assets for impairment quarterly. Servicing assets are evaluated
for impairment based on the fair value of the rights as compared to amortized cost.
Fair value is determined using discounted future cash flows calculated on a
loan-by-loan basis. The initial servicing asset and resulting gain is calculated based
on the contractual net servicing fees. Farmer Mac servicing assets are valued based on
the net servicing fee and estimated life of seven years, and discounted using the
Company’s borrowing rate. Farmer Mac servicing assets measured under the
amortization method were $2.4 million at December 31, 2024 and was acquired as
a result of the merger on April 1, 2024. Servicing assets are recorded in other assets on
the consolidated balance sheets.
Business Combinations - The Company accounts for acquisitions of businesses
using the acquisition method of accounting. Under the acquisition method, assets
and liabilities assumed are recorded at their estimated fair values at the date of
acquisition. Management utilizes various valuation techniques included discounted
cash flow analyses to determine these fair values. Any excess of the purchase price over
amounts allocated to the acquired assets, including identifiable intangible assets,
and liabilities assumed is recorded as goodwill.
Goodwill - Business combinations involving the Bank’s acquisition of the equity
interests or net assets of another enterprise give rise to goodwill. Goodwill represents
the excess of the purchase price of acquired businesses over the net fair value of
assets, including identified intangible assets, acquired and liabilities assumed in the
transactions accounted for under the acquisition method of accounting. The value of
goodwill is ultimately derived from the Bank’s ability to generate net earnings after
the acquisitions. A decline in net earnings could be indicative of a decline in the fair
value of goodwill and result in impairment. For that reason, goodwill is assessed at
least annually for impairment.
The Company has selected September 30 as the date to perform the annual
impairment test. Management assessed qualitative factors including performance
trends and noted no factors indicating goodwill impairment. Goodwill is also tested
for impairment between annual tests if an event occurs or circumstances change
that would more likely than not reduce the fair value of the Company below its
carrying amount. No such events or circumstances arose during the fourth quarter of
2024, so goodwill was not required to be retested. Goodwill is the only intangible
asset with an indefinite life on the balance sheet.
Intangible Assets - The intangible assets at December 31, 2024 represent the
estimated fair value of the core deposit relationships acquired in business combinations.
Core deposit intangibles are being amortized using the straight-line method over
an estimated life of five to ten years from the date of acquisition. Management
evaluates the remaining useful lives quarterly to determine whether events or
circumstances warrant a revision to the remaining periods of amortization. Based on
the evaluation, no changes to the remaining useful lives was required. During
2024 the amortization of the core deposit intangible, from previously completed
acquisitions, was completed. Therefore, Management did not need to perform an
annual impairment test on core deposit intangibles as of September 30, 2024, as no
impairment was possible. Core deposit intangibles could also be tested for
impairment between annual tests if an event occurs or circumstances change that
would more likely than not reduce the fair value below its carrying amount.
Loan Commitments and Related Financial Instruments - Financial instruments
include off-balance sheet credit instruments, such as commitments to make loans
and commercial letters of credit, issued to meet customer financing needs. The face
amount of these items represents the exposure to loss, before considering customer
collateral or ability to repay. Such financial instruments are recorded when they are
funded.
Income Taxes - The Company files its income taxes on a consolidated basis with the
Bank. The allocation of income tax expense represents each entity’s proportionate
share of the consolidated provision for income taxes.
Income tax expense represents the total of the current year income tax due or
refundable and the change in deferred tax assets and liabilities. Deferred tax assets
and liabilities are recognized for the tax consequences of temporary differences between
the reported amounts of assets and liabilities and their tax bases. Deferred tax assets
and liabilities are adjusted for the effects of changes in tax laws and rates on the date of
enactment. On the balance sheet, net deferred tax assets are included in accrued
interest receivable and other assets.
The realization of deferred income tax assets is assessed and a valuation allowance
is recorded if it is “more likely than not” that all or a portion of the deferred tax assets
will not be realized. “More likely than not” is defined as greater than a 50%
chance. All available evidence, both positive and negative is considered to determine
whether, based on the weight of that evidence, a valuation allowance is needed.
Accounting for Uncertainty in Income Taxes - The Company uses a comprehensive
model for recognizing, measuring, presenting and disclosing in the financial statements
tax positions taken or expected to be taken on a tax return. A tax position is
recognized as a benefit only if it is more likely than not that the tax position would
be sustained in a tax examination, with a tax examination being presumed to occur.
The amount recognized is the largest amount of tax benefit that is greater than
50% likely of being realized on examination. For tax positions not meeting the more
likely than not test, no tax benefit is recorded.
Interest expense and penalties associated with unrecognized tax benefits, if any,
are classified as income tax expense in the consolidated statement of income.
Retirement Plans - Employee 401(k) plan expense is the amount of employer
matching contributions. Profit sharing plan expense is the amount of employer
contributions. Contributions to the profit sharing plan are determined at the discretion
of the Board of Directors. Deferred compensation and supplemental retirement
plan expense is allocated over years of service.
Earnings Per Common Share - Basic earnings per common share (EPS), which
excludes dilution, is computed by dividing income available to common shareholders
(net income after deducting dividends, if any, on preferred stock and accretion of
discount) by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock, such as stock options or warrants, result in
the issuance of common stock which shares in the earnings of the Company. All data
with respect to computing earnings per share is retroactively adjusted to reflect
stock dividends and splits and the treasury stock method is applied to determine the
dilutive effect of stock options in computing diluted EPS.
The shares awarded to employees and directors under the restricted stock
agreements vest on applicable vesting dates only to the extent the recipient of the
shares is then an employee or a director of the Company or one of its subsidiaries, and
each recipient will forfeit all of the shares that have not vested on the date his or
her employment or service is terminated. Common stock awards for performance
vest immediately. Holders of restricted stock awards receive non-forfeitable dividends
at the same rate as common stockholders and they both share equally in
undistributed earnings. Therefore, under the two-class method the difference in EPS
is not significant for these participating securities.
Comprehensive Income (Loss) - Comprehensive income consists of net income and
other comprehensive income. Other comprehensive income includes unrealized
gains and losses on securities available for sale which are also recognized as separate
components of equity.
Notes to Consolidated Financial Statements
20
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loss Contingencies - Loss contingencies, including claims and legal actions arising
in the ordinary course of business, are recorded as liabilities when the likelihood of loss
is probable and an amount or range of loss can be reasonably estimated.
Management does not believe there are such matters that will have a material effect
on the financial statements.
Restrictions on Cash - Cash on hand or on deposit with the Federal Reserve Bank
was required to meet regulatory reserve and clearing requirements.
Share-Based Compensation - Compensation cost is recognized for stock options and
restricted stock awards issued to employees, based on the fair value of these awards
at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock
options, while the market price of the Company’s common stock at the date of
grant is used for restricted stock awards. Additionally, the compensation expense for
the Company’s employee stock ownership plan is based on the market price of the
shares as they are committed to be released to participant accounts. Compensation
cost is recognized over the required service period, generally defined as the vesting
period. For awards with graded vesting, compensation cost is recognized on a
straight-line basis over the requisite service period for the entire award.
Dividend Restriction - Banking regulations require maintaining certain capital levels
and may limit the dividends paid by the Bank to the Company or by the Company
to shareholders.
Fair Value of Financial Instruments - Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed in Note 17. Fair value estimates involve uncertainties and matters of
significant judgment regarding interest rates, credit risk, prepayments, and other
factors, especially in the absence of broad markets for particular items. Changes in
assumptions or in market conditions could significantly affect these estimates.
Reclassifications - Certain reclassifications have been made to prior year financial
statements to conform to the classifications used in 2023. None of the reclassifications
had an impact on equity or net income.
Impact of New Financial Accounting Standards Adopted in 2024
In November 2023, the FASB issued ASU 2023-07—Segment Reporting
(Topic 280): Improvements to Reportable Segment Disclosures. The update
enhances disclosures by requiring entities to provide more detailed information
about significant segment expenses, other segment items, and measures of segment
profit or loss used by the chief operating decision makers (CODMs). The guidance
also requires qualitative descriptions of the methods used to determine segment
profit/loss and asset measurement. The adoption of this standard did not have a
material impact on the Company’s consolidated financial statements but resulted in
expanded disclosures within Note 18 on Operating Segments.
On March 28, 2023, the FASB issued ASU 2023-02, “Investments—Equity
Method and Joint Ventures (ASC 323): Accounting for Investments in Tax Credit
Structures Using the Proportional Amortization Method.” ASU 2014-01,
“Investments—Equity method and Joint Ventures (ASC 323): Accounting for
Investments in Qualified Affordable Housing Projects”, previously introduced the
option to apply the proportional amortization method to account for investments
made primarily for the purpose of receiving income tax credits and other income tax
benefits when certain requirements are met; however, this guidance limited the
proportional amortization method to investments in low-income-housing tax credit
(“LIHTC”) structures. The proportional amortization method results in the cost
of the investment being amortized in proportion to the income tax credits and other
income tax benefits received, with the amortization of the investment and the
income tax credits being presented net in the income statement as a component of
net income tax expense (benefit). Equity investments in other tax credit structures are
typically accounted for using the equity method, which results in investment
income, gains and losses, and tax credits being presented gross on the income
statement in their respective line items.
The amendments in this update permit reporting entities to elect to account for
certain tax equity investments, regardless of the tax credit program from which the
income tax credits are received, using the proportional amortization method if certain
conditions are met. Under the proportional amortization method, an entity
amortizes the initial cost of the investment in proportion to the income tax benefits
in the income statement as a component of income tax expense (benefit). To
qualify for the proportional amortization method, all of the following conditions
must be met: (1) It is probable that the income tax credits allocated to the tax equity
investor will be available; (2) The tax equity investor does not have the ability to
exercise significant influence over the operating and financial policies of the underlying
project; (3) Substantially all of the projected benefits are from income tax credits
and other income tax benefits. Projected benefits included income tax credits, other
income tax benefits, and other non-income tax-related benefits. The projected
benefits are determined on a discounted basis, using a discount rate that is consistent
with the cash flow assumptions used by the tax equity investor in making its
decision to invest in the project; (4) The tax equity investor’s projected yield based
solely on the cash flows from the income tax credits and other income tax benefits is
positive; and (5) The tax equity investor is a limited liability investor in the limited
liability entity for both legal and tax purposes, and the tax equity investor’s liability is
limited to its capital investment. An accounting policy election is allowed to apply
the proportional amortization method on a tax-credit-program-by-tax-credit-program
basis rather than electing to apply the proportional amortization method at the
reporting entity level or to individual investments.
The amendments in this update require specific disclosures that must be applied
to all investments that generate income tax credits and other income tax benefits from
a tax credit program for which the entity has elected to apply the proportional
amortization method.The amendments require that a reporting entity disclose certain
information in annual and interim reporting periods that enable investors to
understanding the following information about its investments that generate income
tax credits and other income tax benefits from a tax credit program including:
(1) The nature of its tax equity investments; and (2) The effect of its tax equity
investments and related income tax credits and other income tax benefits on its
financial position and results of operations.
For public business entities, the amendments in this update are effective for
fiscal years beginning after December 31, 2023, including interim periods within
those fiscal years. Early adoption is permitted in any interim period. If early adoption
is elected, the provisions shall be adopted as of the beginning of the fiscal year that
includes the interim period of adoption. The amendments in this update must be
applied on either a modified retrospective or a retrospective basis. The Company
was already recognizing the low-income housing tax credits using the proportional
amortization method and therefore adoption of this ASU on January 1, 2024 had no
impact on the consolidated financial statements.
Accounting Standards Issued But Not Yet Adopted
In October 2023, the FASB issued ASU No. 2023-06, Disclosure
Improvements—Codification Amendments in Response to the SEC’s Disclosure
Update and Simplification Initiative (“ASU 2023-06”), amending disclosure or
presentation requirements related to various subtopics in the FASB’s ASC. ASU
2023-06 was issued in response to the SEC’s initiative to update and simplify disclosure
requirements. The SEC identified 27 disclosure requirements that were incremental
to those in the ASC and referred them to the FASB for potential incorporation
into U.S. GAAP. To avoid duplication, the SEC intended to eliminate those disclosure
requirements from existing SEC regulations as the FASB incorporated them into
the relevant ASC subtopics. ASU 2023-06 adds 14 of the 27 identified disclosure or
presentation requirements to the ASC. ASU 2023-06 is to be applied prospectively,
and early adoption is prohibited. For reporting entities subject to the SEC’s existing
disclosure requirements, the effective dates of ASU 2023-06 will be the date on
which the SEC’s removal of that related disclosure requirement from Regulation S-X
or Regulation S-K becomes effective. If by June 30, 2027, the SEC has not
removed the applicable requirement from Regulation S-X or Regulation S-K, the
pending content of the related amendment will be removed from the ASC and will
not become effective for any entities. ASU 2023-06 is not expected to have a significant
impact on the Company’s consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes
(Topic 740)—Improvements to Income Tax Disclosures (“ASU 2023-09”), which
enhances the transparency and decision usefulness of income tax disclosures.
ASU 2023-09 will require disaggregated information about a reporting entity’s
effective tax rate reconciliation as well as information on income taxes paid. Entities
will also be required to disclose income/(loss) from continuing operations before
income tax expense/(benefit) disaggregated between domestic and foreign, as well as
income tax expense/(benefit) from continuing operations disaggregated by federal,
state, and foreign. The ASU is effective for fiscal years beginning after December 15,
2024, with early adoption permitted, and is to be applied prospectively, with
retrospective application permitted. The Company is currently evaluating the impact
of this ASU on its consolidated financial statements.
On November 4, 2024, the FASB issued ASU 2024-03, Income
Statement—Reporting Comprehensive Income—Expense Disaggregation
Disclosures (“Subtopic 220-40”): Disaggregation of Income Statement Expenses
(“ASU 2024-03”). This standard responds to investor input by requiring public
companies to disclose, in interim and annual reporting periods, additional information
Notes to Consolidated Financial Statements
21
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
about certain expenses in the notes to the financial statements. This standard is
effective for all entities that are subject to Subtopic 220-40, for annual periods
beginning after December 15, 2026, and interim periods within annual reporting
periods beginning after December 15, 2027, but early adoption is permitted. The
Company is currently evaluating the impact of the amendments on our financial
statement disclosures upon adoption.
2.
BUSINESS COMBINATIONS
Effective on April 1, 2024, Central Valley Community Bancorp (“Central Valley”)
completed its merger transaction with Community West Bancshares (“Community
West”). Shortly thereafter Community West Bank (“CWB”), a wholly owned
subsidiary of Community West, merged with and into Central Valley Community
Bank (“CVCB”), a wholly-owned subsidiary of Central Valley, with CVCB being the
surviving banking institution. Effective with these mergers, the names of Central
Valley and CVCB were changed to Community West Bancshares and Community
West Bank, respectively.
Pursuant to the terms of the merger, holders of Community West common stock
received 0.79 of a share of common stock of Central Valley for each share of
Community West common stock held immediately prior to the effective time of the
mergers, with cash to be paid in lieu of any fractional shares of common stock of
Central Valley. As a result of the mergers, Central Valley issued approximately
7,037,202 shares of Central Valley common stock. The financial condition and
results of operation of the combined companies is reported in the second quarter
results.
The acquisition of Community West has been accounted for using the acquisition
method of accounting in accordance with ASC Topic 805. Assets acquired, liabilities
assumed, intangibles recognized and consideration exchanged was recorded at their
respective acquisition date fair values. Determining the fair value of assets and liabilities
involves significant judgment regarding methods and assumptions used to calculate
estimated fair values. We recorded the fair values based on the valuations available as of
reporting date. The Company utilized the discounted cash flow methodology to
determine the fair value of loans, which included significant assumptions relating to
market discount rates using a build-up approach and default and loss rates. In the
determination of the core deposit intangible, the Company utilized a discounted
economic benefit methodology that included significant assumptions related to deposit
runoff rates, cost of deposits, cost of alternative funds, and a discount rate applied.
In accordance with business combination accounting guidance, we will continue
to evaluate these fair values for up to one year following the merger date of April 1,
2024. While management believes the information available and presented below
provide a reasonable basis for estimating fair value, we may obtain additional
information and evidence during the measurement period that could result in changes
to the estimated fair value amounts. Valuation subject to change include, but not
limited to, loans and leases, deposits, deferred tax items, and certain other assets and
liabilities.
The following table summarizes the consideration paid for Community West
Bank and the amounts of assets acquired and liabilities assumed that were recorded
at the acquisition date (in thousands):
Community West
April 1, 2024
Fair value of consideration transferred:
Fair value of shares issued
$
139,970
Cash consideration
2
Fair value of options assumed
3,742
Total merger consideration
$
143,714
Assets acquired:
Cash and cash equivalents
$
58,523
Securities available-for-sale
846
Loans and leases
920,097
Premises and equipment
7,608
Cash value of life insurance
8,971
Other assets
44,894
Total assets acquired
1,040,939
Liabilities assumed:
Deposits
(844,035)
Borrowings
(85,638)
Other liabilities
(10,603)
Total liabilities assumed
(940,276)
Total net assets acquired
100,663
Goodwill created from transaction
$
43,051
The acquisition resulted in goodwill of $43 million, which is nondeductible for
tax purposes, as this acquisition was a nontaxable transaction. Goodwill represents
the premium paid over the fair value of the net tangible and intangible assets acquired
and reflects the related synergies from the combined operations.
The following table presents the fair value and gross contractual amounts
receivable of acquired non-credit deteriorated loans from the recent acquisition on
April 1, 2024, and their respective expected contractual cash flows as of the acquisition
date:
Community West
April 1, 2024
Fair value
$
892,090
Gross contractual amounts receivable
1,124,200
Estimate of contractual cash flows not expected to be
collected (1)
13,375
Estimate of contractual cash flows expected to be collected
1,110,825
(1) Includes interest payments not expected to be collected due to loan prepayments
as well as principal and interest payments not expected to be collected due to
customer default.
The acquisition improves the Company’s footprint in Central California,
expanding to the Central Coast. The acquisition diversifies its commercial banking
business, adds additional revenue enhancing products, improves the Bank’s loan to
deposit ratio, and creates operational efficiencies. Revenues and earnings of the
acquired company since the acquisition date have not been disclosed as it is not
practicable as Community West was merged into the Company and separate financial
information is not readily available.
3.
INVESTMENT SECURITIES
The following tables summarize the amortized cost and fair value of securities
available-for-sale and securities held-for-maturity at December 31, 2024 and 2023
and the corresponding amounts of gross unrealized gains and losses recognized in
Notes to Consolidated Financial Statements
22
3.
INVESTMENT SECURITIES (Continued)
accumulated other comprehensive income (loss) and the allowance for credit losses
on held-to-maturity securities (in thousands):
December 31, 2024
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Allowance
for
Credit
Losses
Available-for-Sale Securities
Debt Securities:
U.S. Treasury securities
$
9,994 $
-
$
(936) $
9,058 $
-
U.S. Government agencies
70
-
(5)
65
-
Obligations of states and
political subdivisions
183,766
-
(19,126)
164,640
-
U.S. Government sponsored
entities and agencies
collateralized by residential
mortgage obligations
76,732
8
(4,438)
72,302
-
Private label mortgage and
asset backed securities
265,302
6
(34,753)
230,555
-
Corporate debt securities
470
23
-
493
-
$
536,334 $
37 $
(59,258) $
477,113 $
-
December 31, 2024
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Allowance
for
Credit
Losses
Held to Maturity Securities
Debt Securities:
Obligations of states and
political subdivisions
$
192,156 $
54 $
(17,392) $
174,818 $
12
U.S. Government sponsored
entities and agencies
collateralized by residential
mortgage obligations
11,095
-
(2,100)
8,995
-
Private label mortgage and
asset backed securities
53,066
-
(5,633)
47,433
8
Corporate debt securities
46,198
-
(2,876)
43,322
1,136
$
302,515 $
54 $
(28,001) $
274,568 $
1,156
December 31, 2023
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Allowance
for
Credit
Losses
Available-for-Sale Securities
Debt Securities:
U.S. Treasury securities
$
9,990 $
-
$
(1,036) $
8,954 $
-
U.S. Government agencies
102
-
(7)
95
-
Obligations of states and
political subdivisions
198,070
-
(17,848)
180,222
-
U.S. Government sponsored
entities and agencies
collateralized by residential
mortgage obligations
88,874
3
(5,525)
83,352
-
Private label mortgage and
asset backed securities
372,610
10
(48,047)
324,573
-
$
669,646 $
13 $
(72,463) $
597,196 $
-
December 31, 2023
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Allowance
for
Credit
Losses
Held to Maturity Securities
Debt Securities:
Obligations of states and
political subdivisions
$
192,070 $
70 $
(14,188) $
177,952 $
20
U.S. Government sponsored
entities and agencies
collateralized by
residential mortgage
obligations
10,758
-
(1,692)
9,066
-
Private label mortgage and
asset backed securities
54,579
-
(5,944)
48,635
11
Corporate debt securities
46,086
-
(4,736)
41,350
1,020
$
303,493 $
70 $
(26,560) $
277,003 $
1,051
Proceeds and gross realized (losses)/gains on investment securities for the years
ended December 31, 2024, 2023, and 2022 are shown below (in thousands):
Years Ended December 31,
2024
2023
2022
Available-for-Sale Securities
Proceeds from sales or calls
$
64,230
$
26,361
$ 252,331
Gross realized gains from sales or calls
$
-
$
-
$
5,235
Gross realized losses from sales or calls
$
(4,199)
$
(907)
$
(6,965)
During the second quarter of 2022, the Company re-designated certain securities
previously classified as available-for-sale to the held-to-maturity classification. The
securities re-designated consisted of obligations of states and political subdivision
securities, U.S. Government sponsored entity and agency securities collateralized
by residential mortgage obligations, private label mortgage and asset backed securities,
and corporate debt securities with a total carrying value of $306.7 million at
April 1, 2022. At the time of re-designation, the securities included $25.3 million of
pretax unrealized losses in other comprehensive income; which is being amortized
over the remaining life of the securities in a manner consistent with the amortization
of a premium or discount.
As market interest rates or risks associated with an available-for-sale security’s
issuer continue to change and impact the actual or perceived values of investment
securities, the Company may determine that selling these securities and using proceeds
to purchase securities that fit with the Company’s current risk profile is appropriate
and beneficial to the Company.
Losses recognized in 2024, 2023, and 2022 were incurred in order to strategically
reposition the investment securities portfolio based on the current rate environment.
The securities sold at a loss were acquired when the rate environment was not as
volatile. The securities sold were primarily purchased to serve a purpose in the rate
environment in which the securities were purchased. The Company addressed risks in
the security portfolio by selling these securities and using the proceeds to fund loan
growth and enhance on-balance sheet liquidity.
The provision for income taxes includes $1,241,000, $268,000, and $511,000
income tax benefit from the reclassification of unrealized net losses on available-for-sale
securities to realized net losses on available-for-sale securities for the years ended
December 31, 2024, 2023, and 2022, respectively.
The amortized cost and estimated fair value of available-for-sale and
held-to-maturity investment securities at December 31, 2024 and 2023 by
contractual maturity are shown in the two tables below (in thousands). Expected
maturities will differ from contractual maturities because the issuers of the securities
Notes to Consolidated Financial Statements
23
3.
INVESTMENT SECURITIES (Continued)
may have the right to call or prepay obligations with or without call or prepayment
penalties. Securities not due at a single maturity date are shown separately.
December 31, 2024
December 31, 2023
Available-for-Sale Securities
Amortized
Cost
Estimated
Fair Value
Amortized
Cost
Estimated
Fair Value
Within one year
$
-
$
-
$
-
$
-
After one year through five years
15,661
14,056
9,992
8,954
After five years through ten years
33,585
29,670
40,264
35,379
After ten years
144,514
129,972
157,804
144,843
193,760
173,698
208,060
189,176
Investment securities not due at a single
maturity date:
U.S. Government agencies
70
65
102
95
U.S. Government sponsored entities
and agencies collateralized by
residential mortgage obligations
76,732
72,302
88,874
83,352
Private label mortgage and asset
backed securities
265,302
230,555
372,610
324,573
Corporate debt securities
470
493
-
-
$
536,334 $
477,113 $
669,646 $
597,196
December 31, 2024
December 31, 2023
Held-to-Maturity Securities
Amortized
Cost
Estimated
Fair Value
Amortized
Cost
Estimated
Fair Value
Within one year
$
-
$
-
$
-
$
-
After one year through five years
24,535
23,368
8,463
8,136
After five years through ten years
60,369
54,685
74,746
68,552
After ten years
107,252
96,765
108,861
101,264
192,156
174,818
192,070
177,952
Investment securities not due at a single
maturity date:
U.S. Government sponsored entities
and agencies collateralized by
residential mortgage obligations
11,095
8,995
10,758
9,066
Private label mortgage and asset
backed securities
53,066
47,433
54,579
48,635
Corporate debt securities
46,198
43,322
46,086
41,350
$
302,515 $
274,568 $
303,493 $
277,003
At December 31, 2024, there were two issuers of private label mortgage securities
in which the Company had holdings of securities in amounts greater than 10% of
shareholders’ equity. Investments with these issuers were in senior tranches or were
rated “AAA” or higher and there were no credit issues identified.
The following table summarizes the Company’s debt securities in an unrealized
loss position for which an allowance for credit losses has not been recorded, aggregated
by major security type and length of time in a continuous unrealized loss position
(in thousands):
December 31, 2024
Less than 12 Months
12 Months or More
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Available-for-Sale Securities
Debt Securities:
U.S. Treasury securities
$
-
$
-
$
9,058 $
(936) $
9,058 $
(936)
U.S. Government agencies
-
-
65
(5)
65
(5)
Obligations of states and
political subdivisions
1,853
(152)
162,787
(18,974)
164,640
(19,126)
U.S. Government sponsored
entities and agencies
collateralized by residential
mortgage obligations
359
(4)
63,401
(4,434)
63,760
(4,438)
Private label residential
mortgage and asset backed
securities
-
-
226,070
(34,753)
226,070
(34,753)
$
2,212 $
(156) $ 461,381 $ (59,102) $ 463,593 $ (59,258)
December 31, 2024
Less than 12 Months
12 Months or More
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Held-to-Maturity Securities
Debt Securities:
Obligations of states and
political subdivisions
$
110 $
(2) $ 172,229 $ (17,390) $ 172,339 $ (17,392)
U.S. Government sponsored
entities and agencies
collateralized by residential
mortgage obligations
-
-
8,995
(2,100)
8,995
(2,100)
Private label residential
mortgage and asset backed
securities
-
-
47,433
(5,633)
47,433
(5,633)
Corporate debt securities
-
-
43,322
(2,876)
43,322
(2,876)
$
110 $
(2) $ 271,979 $ (27,999) $ 272,089 $ (28,001)
December 31, 2023
Less than 12 Months
12 Months or More
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Available-for-Sale Securities
Debt Securities:
U.S. Treasury securities
$
-
$
-
$
8,954 $
(1,036) $
8,954 $
(1,036)
U.S. Government agencies
-
-
95
(7)
95
(7)
Obligations of states and
political subdivisions
-
-
180,222
(17,848)
180,222
(17,848)
U.S. Government sponsored
entities and agencies
collateralized by residential
mortgage obligations
392
(3)
82,760
(5,522)
83,152
(5,525)
Private label residential
mortgage backed securities
-
-
323,655
(48,047)
323,655
(48,047)
$
392 $
(3) $ 595,686 $ (72,460) $ 596,078 $ (72,463)
Notes to Consolidated Financial Statements
24
3.
INVESTMENT SECURITIES (Continued)
December 31, 2023
Less than 12 Months
12 Months or More
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Held-to-Maturity Securities
Debt Securities:
Obligations of states and
political subdivisions
$
108 $
(1) $ 175,309 $ (14,187) $ 175,417 $ (14,188)
U.S. Government sponsored
entities and agencies
collateralized by residential
mortgage obligations
-
-
9,066
(1,692)
9,066
(1,692)
Private label residential
mortgage and asset backed
securities
-
-
48,635
(5,944)
48,635
(5,944)
Corporate debt securities
-
-
41,350
(4,736)
41,350
(4,736)
$
108 $
(1) $ 274,360 $ (26,559) $ 274,468 $ (26,560)
As of December 31, 2024, the Company had a total of 139 AFS debt securities
in a gross unrealized loss position with no credit impairment, consisting of one U.S.
Treasury security and U.S. Government agencies, 42 obligations of states and
political subdivisions, 43 U.S. Government sponsored entities and agencies
collateralized by residential mortgage obligations, and 53 private label mortgage and
asset backed securities.
Allowance for Credit Losses on Available-for-Sale Debt Securities
Each reporting period, the Company assesses each AFS debt security that is in an
unrealized loss position to determine whether the decline in fair value below the
amortized cost basis results from a credit loss or other factors. The Company did not
record an ACL on any available for sale securities at December 31, 2024. The
Company considers the unrealized losses across the classes of major security-type to
be related to fluctuations in market conditions, primarily interest rates, and not
reflective of a deterioration in credit value. In addition, as of December 31, 2024,
the Company determined that it is not more likely than not that the Company would
be required to sell securities.
The gross unrealized losses presented in the preceding tables were primarily
attributable to interest rate increases and liquidity and were mainly comprised of the
following:
•
Obligations of States and Political Subdivisions: The unrealized losses on
investments in obligations of states and political subdivisions are caused by
increases in required yields by investors in these types of securities. It is expected
that the securities would not be settled at a price less than the amortized cost of the
investment.
•
U.S. Treasury and Government Sponsored Entities and Agencies Collateralized
by Residential Mortgage Obligations: The unrealized losses on the Company’s
investments in U.S. treasuries and government sponsored entities and agencies
collateralized by residential mortgage obligations were caused by interest rate
changes. The contractual cash flows of those investments are guaranteed or
supported by an agency or sponsored entity of the U.S. Government. Accordingly,
it is expected that the securities would not be settled at a price less than the
amortized cost of the Company’s investment.
•
Private Label Mortgage and Asset Backed Securities: The Company has invested
exclusively in AA and AAA tranches of various private label mortgage and asset
backed securities. Each purchase is subject to a credit and structure review prior
to their purchase. Ratings are reviewed on a quarterly basis in addition to other
metrics provided through third-party services. Following review of the financial
metrics and ratings, management concluded that the unrealized loss position of the
private label mortgage and asset backed securities related exclusively to the
fluctuation in market conditions and were not reflective of any credit concerns
with the tranches comprising the Company’s investments.
No allowance for credit losses have been recognized on AFS debt securities in an
unrealized loss position, as management does not believe that any of the securities
are impaired due to credit risk factors as of December 31, 2024 and December 31,
2023.
Allowance for Credit Losses on Held-to-Maturity Debt Securities
The Company separately evaluates its HTM debt securities for any credit losses
based on probability of default and loss given default utilizing historical industry data
based on investment category, while also considering reasonable and supportable
forecasts. The probability of default and loss given default are incorporated into the
present value of expected cash flows and compared against amortized cost.
The allowance for credit losses on HTM securities was $1,156,000 as of
December 31, 2024 compared to $1,051,000 as of December 31, 2023. The
allowance for credit losses on HTM securities is driven by economic scenarios,
estimated probabilities of default and loss given default. Economic scenarios are
updated quarterly. The provisions for credit losses for the years ended December 31,
2024 and 2023 were driven solely from the impact of the economic scenarios.
There were no changes to the weightings of the economic scenarios, or the assumptions
used for the the estimated probabilities of default or loss given default.
The following table shows the summary of activities for the allowance for credit
losses related to held-to-maturity debt securities for the twelve months ended
December 31, 2024 and 2023 (in thousands):
For the Twelve Months
Ended December 31,
Debt Securities Held-to-Maturity
2024
2023
Beginning ACL balance
$
1,051 $
-
Impact of adoption of ASU 2016-13
-
775
Provision to credit losses
105
276
Total Ending ACL balance
$
1,156 $
1,051
The Company monitors credit quality of debt securities held-to-maturity
through the use of credit ratings. The Company monitors the credit ratings on a
quarterly basis. For non-rated investment securities, management receives quarterly
performance updates to monitor for any credit concerns. There were no HTM
securities on nonaccrual or past due over 89 days and still on accrual. The following
table summarizes the amortized cost of debt securities held-to-maturity at the
dates indicated, aggregated by credit quality indicator. U.S. Government sponsored
agencies are not included in the below tables as credit ratings are not applicable.
December 31, 2024
December 31, 2023
Debt Securities
Held-to-Maturity
AAA/AA/A
BBB
Unrated
AAA/AA/A BBB/BB/B
Unrated
Obligations of states and
political subdivisions
$ 192,156 $
-
$
-
$ 192,070 $
-
$
-
Private label mortgage and
asset backed securities
51,427
-
1,639
46,334
-
8,245
Corporate debt securities
-
30,218
15,990
-
30,173
15,913
Total debt securities
held-to-maturity
$ 243,583 $
30,218 $
17,629 $ 238,404 $
30,173 $
24,158
Investment securities with amortized costs totaling $476,966,000 and
$343,629,000 and fair values totaling $435,571,000 and $315,069,000 were
pledged as collateral for borrowing arrangements, public funds and for other purposes
at December 31, 2024 and 2023, respectively.
4.
LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS
The majority of the disclosures in this footnote are prepared at the class level, which
is equivalent to the call report or call code classification. The roll forward of the
allowance for credit losses is presented at the portfolio segment level. Accrued interest
receivable on loans of $10,745,000 and $4,752,000 at December 31, 2024 and
December 31, 2023 respectively is not included in the loan tables below and is
Notes to Consolidated Financial Statements
25
4.
LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS
(Continued)
included in other assets on the Company’s balance sheets. Outstanding loans are
summarized by class as follows:
Loan Type (Dollars in thousands)
December 31,
2024
December 31,
2023
Commercial:
Commercial and industrial
$
143,422
$
105,466
Agricultural production
37,323
33,556
Total commercial
180,745
139,022
Real estate:
Construction & other land loans
67,869
33,472
Commercial real estate—owner occupied
323,188
215,146
Commercial real estate—non-owner occupied
913,165
539,522
Farmland
139,815
120,674
Multi-family residential
133,595
61,307
1-4 family—close-ended
123,445
96,558
1-4 family—revolving
35,421
27,648
Total real estate
1,736,498
1,094,327
Consumer:
Manufactured housing
322,263
-
Other installment
92,839
55,606
Total consumer
415,102
55,606
Total loans, net of discount
2,332,345
1,288,955
Net deferred origination costs
1,876
1,842
Loans, net of deferred origination costs
2,334,221
1,290,797
Allowance for credit losses
(25,803)
(14,653)
Total loans, net
$
2,308,418
$
1,276,144
At December 31, 2024 and December 31, 2023, loans originated under Small
Business Administration (SBA) programs totaling $21,618,000 and $18,246,000,
respectively, were included in the real estate and commercial categories, of which,
$16,519,000 or 76% and $13,955,000 or 76%, respectively, are secured by
government guarantees.
Allowance for Credit Losses on Loans
The measurement of the allowance for credit losses on collectively evaluated loans is
based on modeled expectations of lifetime expected credit losses utilizing national
and local peer group historical losses, weighting of economic scenarios, and other
relevant factors. The Company incorporates forward-looking information using
macroeconomic scenarios, which include variables that are considered key drivers of
credit losses within the portfolio. The Company uses a probability-weighted,
multiple scenario forecast approach. These scenarios may consist of a base forecast
representing the most likely outcome, combined with downside or upside scenarios
reflecting possible worsening or improving economic conditions.
When a loan no longer shares similar risk characteristics with other loans, such as
in the case of certain nonaccrual loans, the Company estimates the allowance for
credit losses on an individual loan basis.
The following table shows the summary of activities for the allowance for credit losses as of and for the twelve months ended December 31, 2024, 2023, and 2022 by
portfolio segment (in thousands):
Commercial
Commercial
Real Estate
1-4 Family
Real Estate
Consumer
Total
Allowance for credit losses:
Beginning balance, January 1, 2024
$
1,475
$
9,792
$
2,435
$
951
$
14,653
Allowance for loan loss on purchased credit deteriorated loans (PCD)
375
371
2
73
821
Provision for credit losses (1)
515
7,543
242
2,492
10,792
Charge-offs
(677)
-
-
(132)
(809)
Recoveries
64
60
72
150
346
Ending balance, December 31, 2024
$
1,752
$
17,766
$
2,751
$
3,534
$
25,803
(1) Represents credit losses for loans only. The provision for credit losses on the Consolidated Statements of Income of $11,113 includes a $105 provision for held-to-maturity
securities and a $216 provision for unfunded loan commitments.
Commercial
Commercial
Real Estate
1-4 Family
Consumer
Unallocated
Total
Allowance for credit losses:
Beginning balance, January 1, 2023 prior to adoption of
ASU 2016-13 (CECL)
$
1,820
$
7,803
601
$
284
$
340
$
10,848
Impact of adoption of ASU 2016-13
448
1,693
1,620
489
(340)
3,910
(Credit) provision for credit losses (1)
(766)
296
199
186
-
(85)
Charge-offs
(636)
-
-
(53)
-
(689)
Recoveries
609
-
15
45
-
669
Ending balance, December 31, 2023
$
1,475
$
9,792
$
2,435
$
951
$
-
$
14,653
(1) Represents credit losses for loans only. The provision for credit losses on the Consolidated Statements of Income of $309 includes a $276 provision for held-to-maturity
securities and a $118 provision for unfunded loan commitments.
Notes to Consolidated Financial Statements
26
4.
LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS (Continued)
Commercial
Real Estate
Consumer
Unallocated
Total
Allowance for credit losses:
Beginning balance, January 1, 2022
$
2,011
$
6,741
568
$
280
$
9,600
(Credit) provision for credit losses (1)
(531)
1,062
409
60
1,000
Charge-offs
(27)
-
(151)
-
(178)
Recoveries
367
-
59
-
426
Ending balance, December 31, 2022
$
1,820
$
7,803
$
885
$
340
$
10,848
(1) Represents credit losses for loans only. The provision for credit losses on the Consolidated Statements of Income of $995 includes a $(5) credit for unfunded loan
commitments.
During the twelve month period ended December 31, 2024, the provision for credit losses was primarily driven by the Day 1 provision for expected credit losses related to
the loan portfolio acquired to the merger with Community West Bancshares. As of April 1, 2024, the Company recorded a provision for loan losses for non PCD loans of
$10,877,000 and an allowance for credit losses for PCD loans $821,000 for the loan portfolio with a fair value of $920 million. During 2024, the Company adjusted the
weightings utilized for the most likely, downside, or upside economic scenarios by adding a fourth scenario. The fourth economic scenario added was a downside scenario that
projected less severe economic effects as compared to the existing downside scenario used in the reserve calculation. The more moderate downside scenario was added in
recognition of the risk of a broader economic downturn in the economy occurring in the next twelve months not as severe as the previous downside scenario. Management
believes that the addition of the fourth scenario provides a balanced range for expected credit losses. The Company updated its peer group during the second quarter of 2024,
adding peer banks within the central coast of California and also larger peer banks due to the Company’s expanded footprint and increased asset size. Management believes that
the allowance for credit losses at December 31, 2024 appropriately reflected expected credit losses in the loan portfolio at that date.
The following table presents the composition of nonaccrual loans as of December 31, 2024 (in thousands). There were no loans on nonaccrual as of December 31, 2023.
December 31, 2024
With an ACL
Without an
ACL
Total
Nonaccrual
Commercial real estate—owner occupied
$
-
$
120
$
120
Commercial real estate—non-owner occupied
-
378
378
Farmland
-
2,398
2,398
1-4 family real estate
-
2,335
2,335
Consumer
-
15
15
Manufactured housing
-
1,215
1,215
Total
$
-
$
6,461
$
6,461
The following table presents the amortized cost basis of collateral dependent loans by class of loans and by collateral type as of the dates indicated as of December 31, 2024
(in thousands). As of December 31, 2023, there were no collateral dependent loans.
December 31, 2024
Manufactured
Homes
Real Estate
Machinery &
Equipment
Total
Commercial real estate—owner occupied
$
-
$
120
$
-
$
120
Commercial real estate—non-owner occupied
-
-
378
378
Farmland
-
2,398
-
2,398
1-4 family real estate
-
2,335
-
2,335
Manufactured housing
1,215
-
-
1,215
Total
$
1,215
$
4,853
$
378
$
6,446
Purchased loans and leases that reflect a more-than-significant deterioration of credit quality from origination are considered PCD. At the time of acquisition, the initial
estimate of expected losses is recognized in the ACL. The following table provides a summary of loans and leases purchased as part of the acquisition with credit deterioration
at the time of acquisition of April 1, 2024 (in thousands):
April 1, 2024
Par Value
of Loans
Acquired
Allowance
for Credit
Losses at
Acquisition
Non-Credit
Discount at
Acquisition
Purchase Price
of Loans at
Acquisition
Commercial
$
7,360
$
(375)
$
(416)
$
6,569
Commercial real estate
20,622
(359)
(1,037)
19,226
Farmland
1,617
(12)
(56)
1,549
1-4 family real estate
572
(2)
(24)
546
Manufacturing housing
947
(73)
(11)
863
Total
$
31,118
$
(821)
$
(1,544)
$
28,753
Notes to Consolidated Financial Statements
27
4.
LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS (Continued)
The following table shows the loan portfolio by class, net of deferred costs, allocated by management’s internal risk ratings for the period indicated (in thousands):
Term Loans Amortized Cost Basis by Origination Year As of December 31, 2024
Revolving
Loans
Revolving
Converted to
Term
Total
2024
2023
2022
2021
2020
Prior
Commercial and industrial
Pass/Watch
$
29,768
$
13,064
$
16,231
$
14,639
$
4,518
$
9,457
$
44,199
$
1,022
$
132,898
Special mention
-
-
-
1,498
-
-
-
-
1,498
Substandard
29
-
1,545
-
-
1,106
6,700
-
9,380
Total
$
29,797
$
13,064
$
17,776
$
16,137
$
4,518
$
10,563
$
50,899
$
1,022
$
143,776
Current period gross write-offs
$
120
$
-
$
5
$
-
$
-
$
45
$
-
$
-
$
170
Agricultural production
Pass/Watch
$
5,152
$
284
$
-
$
9
$
-
$
300
$
31,620
$
-
$
37,365
Special mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
-
-
Total
$
5,152
$
284
$
-
$
9
$
-
$
300
$
31,620
$
-
$
37,365
Current period gross write-offs
$
-
$
-
$
507
$
-
$
-
$
-
$
-
$
-
$
507
Construction & other land loans
Pass/Watch
$
12,413
$
20,137
$
19,290
$
14,166
$
701
$
733
$
100
$
-
$
67,540
Special mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
-
-
Total
$
12,413
$
20,137
$
19,290
$
14,166
$
701
$
733
$
100
$
-
$
67,540
Current period gross write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Commercial real estate—owner occupied
Pass/Watch
$
48,191
$
23,314
$
45,741
$
43,354
$
31,354
$
117,466
$
7,086
$
-
$
316,506
Special mention
-
-
-
-
158
2,958
-
-
3,116
Substandard
-
1,765
-
-
946
584
-
-
3,295
Total
$
48,191
$
25,079
$
45,741
$
43,354
$
32,458
$
121,008
$
7,086
$
-
$
322,917
Current period gross write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Commercial real estate—non-owner occupied
Pass/Watch
$
95,131
$
115,292
$
188,516
$
118,773
$
74,762
$
261,586
$
33,453
$
1,250
$
888,763
Special mention
-
-
590
633
-
6,356
-
-
7,579
Substandard
-
-
-
-
-
15,846
-
-
15,846
Total
$
95,131
$
115,292
$
189,106
$
119,406
$
74,762
$
283,788
$
33,453
$
1,250
$
912,188
Current period gross write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Farmland
Pass/Watch
$
7,691
$
4,945
$
21,383
$
12,288
$
29,379
$
42,815
$
5,731
$
-
$
124,232
Special mention
-
4,025
-
-
-
-
1,166
-
5,191
Substandard
-
-
3,312
-
2,029
4,962
-
-
10,303
Total
$
7,691
$
8,970
$
24,695
$
12,288
$
31,408
$
47,777
$
6,897
$
-
$
139,726
Current period gross write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Multi-family residential
Pass/Watch
$
12,844
$
2,950
$
31,070
$
45,835
$
13,591
$
25,555
$
1,671
$
-
$
133,516
Special mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
-
-
Total
$
12,844
$
2,950
$
31,070
$
45,835
$
13,591
$
25,555
$
1,671
$
-
$
133,516
Current period gross write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
1-4 family—close-ended
Pass/Watch
$
2,501
$
5,405
$
63,350
$
13,581
$
6,993
$
24,830
$
3,975
$
-
$
120,635
Special mention
-
-
-
-
-
-
-
-
-
Substandard
78
-
2,257
-
-
551
-
-
2,886
Total
$
2,579
$
5,405
$
65,607
$
13,581
$
6,993
$
25,381
$
3,975
$
-
$
123,521
Current period gross write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
1-4 family—revolving
Pass/Watch
$
-
$
-
$
-
$
-
$
-
$
-
$
29,718
$
5,808
$
35,526
Special mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
116
116
Total
$
-
$
-
$
-
$
-
$
-
$
-
$
29,718
$
5,924
$
35,642
Current period gross write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Manufactured housing
Pass/Watch
$
47,839
$
43,468
$
46,608
$
39,299
$
37,551
$
105,216
$
-
$
-
$
319,981
Special mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
318
464
481
1,015
-
-
2,278
Total
$
47,839
$
43,468
$
46,926
$
39,763
$
38,032
$
106,231
$
-
$
-
$
322,259
Current period gross write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Other installment
Pass/Watch
$
53,869
$
22,700
$
6,254
$
4,987
$
1,371
$
5,740
$
660
$
-
$
95,581
Special mention
-
-
-
-
-
-
-
-
-
Substandard
-
15
62
37
63
13
-
-
190
Total
$
53,869
$
22,715
$
6,316
$
5,024
$
1,434
$
5,753
$
660
$
-
$
95,771
Current period gross write-offs
$
58
$
10
$
50
$
-
$
-
$
13
$
1
$
-
$
132
Total loans outstanding (risk rating):
Pass/Watch
$
315,399
$
251,559
$
438,443
$
306,931
$
200,220
$
593,698
$
158,213
$
8,080
$
2,272,543
Special mention
-
4,025
590
2,131
158
9,314
1,166
-
17,384
Substandard
107
1,780
7,494
501
3,519
24,077
6,700
116
44,294
Grand Total
$
315,506
$
257,364
$
446,527
$
309,563
$
203,897
$
627,089
$
166,079
$
8,196
$
2,334,221
Current period total gross write-offs
$
178
$
10
$
562
$
-
$
-
$
58
$
1
$
-
$
809
Notes to Consolidated Financial Statements
28
4.
LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS (Continued)
Term Loans Amortized Cost Basis by Origination Year As of December 31, 2023
Revolving
Loans
Revolving
Converted to
Term
Total
2023
2022
2021
2020
2019
Prior
Commercial and industrial
Pass/Watch
$
19,886
$
17,129
$
21,050
$
4,643
$
1,561
$
6,980
$
29,391
$
215
$
100,855
Special mention
-
277
139
183
107
272
3,750
-
4,728
Substandard
-
-
-
156
-
66
-
-
222
Total
$
19,886
$
17,406
$
21,189
$
4,982
$
1,668
$
7,318
$
33,141
$
215
$
105,805
Current period gross write-offs
$
241
$
-
$
323
$
-
$
-
$
-
$
-
$
-
$
564
Agricultural production
Pass/Watch
$
153
$
830
$
14
$
-
$
251
$
112
$
30,241
$
999
$
32,600
Special mention
-
-
-
-
-
-
-
-
-
Substandard
-
676
-
-
-
-
300
-
976
Total
$
153
$
1,506
$
14
$
-
$
251
$
112
$
30,541
$
999
$
33,576
Current period gross write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Construction & other land loans
Pass/Watch
$
6,953
$
15,593
$
1,305
$
701
$
1,538
$
3,039
$
4,167
$
-
$
33,296
Special mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
-
-
Total
$
6,953
$
15,593
$
1,305
$
701
$
1,538
$
3,039
$
4,167
$
-
$
33,296
Current period gross write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Commercial real estate-owner occupied
Pass/Watch
$
20,648
$
25,132
$
20,783
$
39,356
$
21,831
$
80,384
$
3,207
$
-
$
211,341
Special mention
-
-
-
-
-
3,026
272
-
3,298
Substandard
-
-
-
-
-
497
-
-
497
Total
$
20,648
$
25,132
$
20,783
$
39,356
$
21,831
$
83,907
$
3,479
$
-
$
215,136
Current period gross write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Commercial real estate-non-owner occupied
Pass/Watch
$
81,153
$
115,031
$
77,375
$
38,307
$
12,181
$
175,419
$
19,218
$
3,216
$
521,900
Special mention
-
600
-
-
-
374
-
-
974
Substandard
-
-
-
-
13,625
2,344
-
-
15,969
Total
$
81,153
$
115,631
$
77,375
$
38,307
$
25,806
$
178,137
$
19,218
$
3,216
$
538,843
Current period gross write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Farmland
Pass/Watch
$
8,382
$
24,063
$
10,873
$
29,770
$
11,155
$
23,324
$
8,695
$
1,955
$
118,217
Special mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
-
2,213
-
200
-
-
2,413
Total
$
8,382
$
24,063
$
10,873
$
31,983
$
11,155
$
23,524
$
8,695
$
1,955
$
120,630
Current period gross write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Multi-family residential
Pass/Watch
$
2,988
$
1,847
$
38,644
$
2,364
$
4,538
$
10,417
$
532
$
-
$
61,330
Special mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
-
-
Total
$
2,988
$
1,847
$
38,644
$
2,364
$
4,538
$
10,417
$
532
$
-
$
61,330
Current period gross write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
1-4 family-close-ended
Pass/Watch
$
1,689
$
64,056
$
7,898
$
2,259
$
1,703
$
18,237
$
-
$
809
$
96,651
Special mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
-
-
Total
$
1,689
$
64,056
$
7,898
$
2,259
$
1,703
$
18,237
$
-
$
809
$
96,651
Current period gross write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
1-4 family-revolving
Pass/Watch
$
-
$
-
$
-
$
-
$
-
$
-
$
21,662
$
6,213
$
27,875
Special mention
-
-
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
-
-
Total
$
-
$
-
$
-
$
-
$
-
$
-
$
21,662
$
6,213
$
27,875
Current period gross write-offs
$
75
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
75
Consumer
Pass/Watch
$
34,866
$
8,745
$
6,503
$
2,265
$
2,007
$
2,398
$
643
$
4
$
57,431
Special mention
-
-
-
-
-
-
-
-
-
Substandard
182
-
42
-
-
-
-
-
224
Total
$
35,048
$
8,745
$
6,545
$
2,265
$
2,007
$
2,398
$
643
$
4
$
57,655
Current period gross write-offs
$
23
$
-
$
-
$
-
$
27
$
-
$
-
$
-
$
50
Total loans outstanding (risk rating):
Pass/Watch
$
176,718
$
272,426
$
184,445
$
119,665
$
56,765
$
320,310
$
117,756
$
13,411
$
1,261,496
Special mention
-
877
139
183
107
3,672
4,022
-
9,000
Substandard
182
676
42
2,369
13,625
3,107
300
-
20,301
Grand Total
$
176,900
$
273,979
$
184,626
$
122,217
$
70,497
$
327,089
$
122,078
$
13,411
$
1,290,797
Current period total gross write-offs
$
339
$
-
$
323
$
-
$
27
$
-
$
-
$
-
$
689
Notes to Consolidated Financial Statements
29
4.
LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS (Continued)
The following table shows an aging analysis of the loan portfolio by class at December 31, 2024 (in thousands):
30-59 Days
Past Due
60-89
Days Past
Due
Greater
Than
89 Days
Past Due
Total Past
Due
Current
Total
Loans
Loans Past
Due > 89
Days, Still
Accruing
Non-accrual
Commercial:
Commercial and industrial
$
272
$
-
$
-
$
272
$
143,150
$
143,422
$
-
$
-
Agricultural production
-
-
-
-
37,323
37,323
-
-
Real estate:
Construction & other land loans
-
-
-
-
67,869
67,869
-
-
Commercial real estate—owner occupied
242
-
-
242
322,946
323,188
-
120
Commercial real estate—non-owner
occupied
-
-
378
378
912,787
913,165
-
378
Farmland
164
-
2,398
2,562
137,253
139,815
-
2,398
Multi-family residential
-
-
-
-
133,595
133,595
-
-
1-4 family—close-ended
2,071
1,909
78
4,058
119,387
123,445
-
2,335
1-4 family—revolving
648
-
-
648
34,773
35,421
-
-
Consumer:
Manufactured housing
535
-
460
995
321,268
322,263
-
1,215
Other installment
656
27
-
683
92,156
92,839
-
15
Deferred costs
-
-
-
-
1,876
1,876
-
-
Total
$
4,588
$
1,936
$
3,314
$
9,838
$ 2,324,383
$ 2,334,221
$
-
$
6,461
The following table shows an aging analysis of the loan portfolio by class at December 31, 2023 (in thousands):
30-59 Days
Past Due
60-89
Days Past
Due
Greater
Than
89 Days
Past Due
Total Past
Due
Current
Total
Loans
Loans Past
Due > 89
Days, Still
Accruing
Non-accrual
Commercial:
Commercial and industrial
$
25
$
-
$
-
$
25
$
105,441
$
105,466
$
-
$
-
Agricultural production
507
-
-
507
33,049
33,556
-
-
Real estate:
-
Construction & other land loans
-
-
-
-
33,472
33,472
-
-
Commercial real estate—owner occupied
-
-
-
-
215,146
215,146
-
-
Commercial real estate-non-owner occupied
-
-
-
-
539,522
539,522
-
-
Farmland
-
-
-
-
120,674
120,674
-
-
Multi-family residential
-
-
-
-
61,307
61,307
-
-
1-4 family—close-ended
2,973
-
-
2,973
93,585
96,558
-
-
1-4 family—revolving
-
-
-
-
27,648
27,648
-
-
Consumer
169
68
-
237
55,369
55,606
-
-
Deferred costs
-
-
-
-
1,842
1,842
-
-
Total
$
3,674
$
68
$
-
$
3,742
$ 1,287,055
$ 1,290,797
$
-
$
-
Foregone interest on nonaccrual loans totaled $234,000, $0 and $132,000 for the years ended December 31, 2024, December 31, 2023 and December 31, 2022,
respectively. Interest income recognized on non-accrual loans for the years ended December 31, 2024, December 31, 2023, and December 31, 2022 was $22,000, $0, and
$210,000, respectively.
Under previous accounting standards, the Company had an average recorded investment in impaired loans of $3.7 million during the year ended December 31, 2022.
Interest income recognized on a cash basis was not considered significant for financial reporting purposes for impaired loans during 2022.
Occasionally, the Company modifies loans to borrowers in financial distress by providing reductions of the stated interest rate of the loan or an extension of the maturity
date at a stated rate of interest lower than the current market rate for new debt with similar risk. There were no loan modifications granted to borrowers experiencing financial
difficulty during the years ended December 31, 2024, 2023 or 2022.
Notes to Consolidated Financial Statements
30
5.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment consisted of the following (in thousands):
December 31,
2024
2023
Land
$
3,552
$
729
Buildings and improvements
7,187
5,020
Furniture, fixtures and equipment
17,710
15,725
Leasehold improvements
15,520
10,218
43,969
31,692
Less accumulated depreciation and
amortization
(19,500)
(17,650)
$
24,469
$
14,042
Depreciation and amortization included in occupancy and equipment expense
totaled $2,206,000, $891,000 and $755,000 for the years ended December 31, 2024,
2023, and 2022, respectively.
6.
GOODWILL AND INTANGIBLE ASSETS
Total goodwill at December 31, 2024 and 2023 was $96,828,000 and $53,777,000
respectively. Total goodwill at December 31, 2024 consisted of $43,051,000,
$13,466,000, $10,394,000, $6,340,000, $14,643,000, and $8,934,000 representing
the excess of the fair value of the consideration transferred of Community West
Bancshares, Folsom Lake Bank, Sierra Vista Bank, Visalia Community Bank, Service
1st Bancorp, and Bank of Madera County, respectively, over the fair value of the
net assets acquired and liabilities assumed as of each acquisition date accounted for
under the purchase method of accounting.
Intangible assets represent the estimated fair value of the core deposit relationships
acquired in the 2024 acquisition of Community West Bancshares. Upon acquisition,
the core deposit intangible asset of Community West Bancshares was recorded as
$10,019,000.
The following table summarizes the changes in the Company’s goodwill and core
deposit intangible assets for the twelve months ended December 31, 2024 and 2023
(in thousands):
Years Ended December 31,
2024
2023
Goodwill
Core
Deposit
Intangibles
Goodwill
Core
Deposit
Intangibles
Beginning Balance
$
53,777 $
-
$
53,777 $
68
Additions
43,051
10,019
-
-
Amortizations
-
(751)
-
(68)
Ending Balance
$
96,828 $
9,268 $
53,777 $
-
The following table presents the estimated amortization expense for core deposit
intangible assets remaining at December 31, 2024 (in thousands):
Estimated
Amortization
2025
$
1,002
2026
1,002
2027
1,002
2028
1,002
2029
1,002
Thereafter
4,258
Total
$
9,268
7.
DEPOSITS
Interest-bearing deposits consisted of the following (in thousands):
December 31,
2024
2023
Savings
$
172,976
$
179,609
Money market
843,145
497,043
NOW accounts
470,548
251,334
Time, $250,000 or more
53,364
24,257
Time, under $250,000
389,920
137,828
$ 1,929,953
$ 1,090,071
Aggregate annual maturities of time deposits are as follows (in thousands):
Years Ending December 31,
2025
$
337,783
2026
85,957
2027
14,867
2028
4,028
2029
649
Thereafter
-
$
443,284
Interest expense recognized on interest-bearing deposits consisted of the
following (in thousands):
Years Ended December 31,
2024
2023
2022
Savings
$
603
$
245
$
25
Money market
20,284
8,910
848
NOW accounts
861
366
207
Time certificates of deposit
18,918
6,006
117
$
40,666
$
15,527
$
1,197
As of December 31, 2024 and December 31, 2023, uninsured deposits totaled
$1,029,929,000 and $821,756,000, respectively.
8.
BORROWING ARRANGEMENTS
Federal Home Loan Bank Advances - As of December 31, 2024, the Company had
$90,000,000 in Federal Home Loan Bank (“FHLB”) of San Francisco long-term
advances outstanding with a weighted average interest rate of 0.86%. The advances
were acquired and recorded at fair value through the merger with Community West
Bancshares on April 1, 2024 and mature in two tranches: $45,000,000 matures in
April 2025 and $45,000,000 matures in June 2025. As of December 31, 2024, the
remaining discount on the acquired FHLB advances was $1,558,000. In addition, the
Company had a short-term advance of $45,000,000 outstanding as of December 31,
2024 with an interest rate of 4.52% and maturity in August 2025. At December 31,
2023, the Company had an overnight borrowing advance with the FHLB for
$35,000,000 with an interest rate of 5.70%.
Approximately $1.1 billion in loans were pledged under a blanket lien as
collateral to the FHLB for the Company’s remaining borrowing capacity of
$576.6 million as of December 31, 2024. FHLB advances are also secured by
investment securities with amortized costs totaling $153.1 million and fair values
totaling $193.4 million at December 31, 2024. The Company’s credit limit varies
according to the amount and composition of the investment and loan portfolios
pledged as collateral.
Lines of Credit - The Company had unsecured lines of credit with its correspondent
banks which, in the aggregate, amounted to $110 million and $110 million at
Notes to Consolidated Financial Statements
31
8.
BORROWING ARRANGEMENTS (Continued)
December 31, 2024 and 2023, respectively, at interest rates which vary with market
conditions. As of December 31, 2024 and 2023, the Company had no advances
with correspondent banks.
Federal Reserve Bank (FRB) Line of Credit and Bank Term Funding Program - The
Company has a line of credit in the amount of $3,669,000 and $4,448,000 with
the Federal Reserve Bank of San Francisco (FRB) at December 31, 2024 and 2023,
respectively, which bears interest at the prevailing discount rate collateralized by
investment securities with amortized costs totaling $4,406,000 and $4,894,000 and
market values totaling $3,828,000 and $4,374,000, respectively.
The Company participated in the Bank Term Funding Program (BTFP) which
offered loans of up to one year in length to banks, savings associations, credit unions,
and other eligible depository institutions pledging any collateral eligible for
purchase by the Federal Reserve Banks in open market operations such as U.S.
Treasuries, U.S. agency securities, and U.S. agency mortgage-backed securities. These
assets were valued at par. The BTFP was an additional source of liquidity against
high-quality securities during the liquidity crisis of 2023.
The Bank had no borrowings with the FRB as of December 31, 2024. At
December 31, 2023, the Company had $45,000,000 outstanding as a short-term
loan with the FRB under the BTFP at an interest rate of 4.81%. The Bank fully repaid
the short-term borrowing in August 2024 and replaced it with a short-term FHLB
advance of $45,000,000, as noted above.
The following table reflects the Company’s credit lines, balances outstanding,
and pledged collateral at December 31, 2024 and December 31, 2023:
Credit Lines (In thousands)
December 31,
2024
December 31,
2023
Unsecured Credit Lines
Credit limit
$
110,000
$
110,000
Balance outstanding
$
-
$
-
Federal Home Loan Bank
Credit limit
$
738,556
$
342,483
Balance outstanding, net of
discount
$
133,442
$
35,000
Collateral pledged
$
1,236,732
$
612,702
Fair value of collateral
$
1,083,041
$
500,972
Federal Reserve Bank Term Funding
Program (1)
Credit limit
$
-
$
46,174
Balance outstanding
$
-
$
45,000
Collateral pledged
$
-
$
53,650
Fair value of collateral
$
-
$
47,603
Federal Reserve Bank
Credit limit
$
3,669
$
4,448
Balance outstanding
$
-
$
-
Collateral pledged
$
4,406
$
4,894
Fair value of collateral
$
3,828
$
4,374
(1) Bank Term Funding Program loan was repaid in the third quarter of 2024 and
replaced with an FHLB short-term advance that matures in August 2025.
9.
LEASES
Leases - The Bank leases certain of its branch facilities and administrative offices
under noncancelable operating leases with terms extending through 2033. Leases with
an initial term of twelve months or less are not recorded on the balance sheet.
Operating lease cost is comprised of lease expense recognized on a straight-line basis,
the amortization of the right-of-use asset and the implicit interest accreted on the
operating lease liability. Operating lease cost is included in occupancy and equipment
expense on our consolidated statements of income. We evaluate the lease term by
assuming the exercise of options to extend that are reasonably assured and those
option periods covered by an option to terminate the lease, if deemed not reasonably
certain to be exercised. The lease term is used to determine the straight-line
expense and limits the depreciable life of any related leasehold improvements.
Certain leases require us to pay real estate taxes, insurance, maintenance and other
operating expenses associated with the leased premises. These expenses are classified
in occupancy and equipment expense on our consolidated statements of income,
consistent with similar costs for owned locations, but is not included in operating
lease cost below. We calculate the lease liability using a discount rate that represents
our incremental borrowing rate at the lease commencement date.
Future undiscounted lease payments for operating leases with initial terms of one
year or more as of December 31, 2024 are as follows (in thousands):
Years Ending December 31,
2025
$
2,998
2026
2,700
2027
1,906
2028
987
2029
621
Thereafter
1,427
Total lease payments
10,639
Less: imputed interest
(324)
Present value of operating lease liabilities
$
10,315
The table below summarizes the total lease cost for the period ending:
(Dollars in thousands)
December 31,
2024
December 31,
2023
December 31,
2022
Operating lease cost
$
2,992
$
2,375
$
2,187
Short-term lease cost
-
-
-
Variable lease cost
94
347
307
Total lease cost
$
3,086
$
2,722
$
2,494
The table below summarizes other information related to our operating leases:
December 31,
2024
December 31,
2023
Weighted average remaining lease
term, in years
4.73
5.91
Weighted average discount rate
2.20%
1.40%
The table below shows operating lease right of use assets and operating lease
liabilities as of :
(Dollars in thousands)
December 31,
2024
December 31,
2023
Operating lease right-of-use assets
$
9,509
$
8,311
Operating lease liabilities
$
10,315
$
9,120
The right-of-use-assets and lease liabilities are included with other assets and
other liabilities on the consolidated balance sheets, respectively.
Notes to Consolidated Financial Statements
32
10.
INCOME TAXES
The provision for income taxes for the years ended December 31, 2024, 2023, and
2022 consisted of the following (in thousands):
Federal
State
Total
2024
Current
$
2,706
$
1,493
$
4,199
Deferred
(463)
(404)
(867)
Provision for income taxes
$
2,243
$
1,089
$
3,332
2023
Current
$
4,692
$
3,502
$
8,194
Deferred
176
(66)
110
Provision for income taxes
$
4,868
$
3,436
$
8,304
2022
Current
$
4,827
$
3,445
$
8,272
Deferred
80
144
224
Provision for income taxes
$
4,907
$
3,589
$
8,496
Deferred tax assets (liabilities) consisted of the following (in thousands):
December 31,
2024
2023
Deferred tax assets:
Unrealized loss on available-for-sale
investment securities
$
23,132
$
27,716
Purchase accounting fair value adjustment
11,218
-
Allowance for credit losses
7,970
4,643
Deferred compensation
4,081
4,152
Net operating loss carryovers
3,175
1,754
Operating lease liabilities
3,049
2,696
Low income housing tax credit carry-forward
942
-
Other deferred tax assets
848
302
Mark-to-market adjustment
411
301
State taxes
253
718
Loan and investment impairment
133
280
Partnership income
128
74
Other-than-temporary impairment
30
30
Bank premises and equipment
-
229
Total deferred tax assets
55,370
42,895
Deferred tax liabilities:
Core deposit intangible
(2,814)
-
Operating lease right-of-use assets
(2,811)
(2,457)
Loan origination costs
(1,643)
(1,166)
Bank premises and equipment
(920)
-
Finance leases
(570)
(625)
FHLB stock
(191)
(191)
Total deferred tax liabilities
(8,949)
(4,439)
Net deferred tax assets
$
46,421
$
38,456
The determination of the amount of deferred income tax assets which are more
likely than not to be realized is primarily dependent on projections of future earnings,
which are subject to uncertainty and estimates that may change given economic
conditions and other factors. The realization of deferred income tax assets is assessed
and a valuation allowance is recorded if it is more likely than not that all or a
portion of the deferred tax asset will not be realized. More likely than not is defined
as greater than a 50% chance. All available evidence, both positive and negative is
considered to determine whether, based on the weight of the evidence, a valuation
allowance is needed.Thus, management concludes no valuation allowance is necessary
against deferred tax assets as of December 31, 2024 and 2023.
The provision for income taxes differs from amounts computed by applying the
statutory Federal income tax rates to operating income before income taxes. The
significant items comprising these differences for the years ended December 31, 2024,
2023, and 2022 consisted of the following:
2024
2023
2022
Federal income tax, at statutory rate
21.0%
21.0%
21.0%
State taxes, net of federal tax benefit
7.8%
8.0%
8.1%
Tax exempt investment security
income, net
(4.0)%
(3.5)%
(3.7)%
Bank owned life insurance, net
(2.4)%
(0.6)%
(0.8)%
Compensation—stock compensation
(0.6)%
-%
(0.2)%
Low income housing tax credits
(2.2)%
(0.6)%
(0.3)%
Nondeductible employee
compensation
1.0%
-%
-%
Nondeductible acquisition-related
expense
3.8%
-%
-%
Other
5.9%
0.2%
0.1%
Effective tax rate
30.3%
24.5%
24.2%
As of December 31, 2024, the Company had federal and California net
operating loss (“NOL”) carry-forwards of $9,670,000 and $13,366,000, respectively.
These NOLs were acquired through business combinations and are subject to
Section 382 of the Internal Revenue Code of 1986, as amended (“IRC 382”).
Approximately $4,490,000 of federal NOLs that were generated after 2017 do not
expire. Remaining federal and California NOLs begin to expire at various dates
between 2033 and 2044, if not used. While they are subject to IRC 382, management
has determined that all of the NOLs are more than likely than not to be utilized
before they expire.
The Company and its subsidiary file income tax returns in the U.S. federal and
California jurisdictions. The Company conducts all of its business activities in the
State of California.There are no pending U.S. federal or state income tax examinations
by those taxing authorities. The Company is no longer subject to the examination
by U.S. federal taxing authorities for the years ended before December 31, 2021 and
by the state taxing authorities for the years ended before December 31, 2020.
The Company’s investments, including amortization, in low income housing tax
credit funds were $18,630,000 and $10,655,000 as of December 31, 2024 and 2023.
The Company had gross commitments of $24,526,000 and $14,526,000 at
December 31, 2024 and 2023, respectively of which $9,289,000 and $4,371,000
were unfunded as of December 31, 2024 and 2023, respectively. These investments
are included in other assets on the consolidated balance sheets and the unfunded
commitments are included in other liabilities. The Company recognized tax credits
and other income tax benefits of $2,216,000 and $1,323,000 for the year ended
December 2024 and 2023, respectively. Amortization of the investments recorded
for the same periods were $1,976,000 and $1,114,000, respectively.
As of December 31, 2024, the Company has no unrecognized tax benefits and
does not expect any material changes in the next 12 months.
During the years ended December 31, 2024 and 2023, the Company recorded
no interest or penalties related to uncertain tax positions.
Notes to Consolidated Financial Statements
33
11.
SENIOR DEBT AND SUBORDINATED DEBENTURES
The following table summarizes the Company’s subordinated debentures:
(Dollars in thousands)
December 31,
2024
December 31,
2023
Fixed—floating rate subordinated debentures,
due 2031
$
35,000
$
35,000
Unamortized debt issuance costs
(266)
(411)
Floating rate senior debt bank loan, due 2032
30,000
30,000
Junior subordinated deferrable interest
debentures, due October 2036
5,155
5,155
Total subordinated debentures
$
69,889
$
69,744
Subordinated Debentures
On November 12, 2021, the Company completed a private placement of
$35.0 million aggregate principal amount of its fixed-to-floating rate subordinated
notes (“Subordinated Debt”) due December 1, 2031. The Subordinated Debt initially
bears a fixed interest rate of 3.13% per year. Commencing on December 1, 2026,
the interest rate on the Subordinated Debt will reset each quarter at a floating interest
rate equal to the then-current three month term SOFR plus 210 basis points. The
Company may at its option redeem in whole or in part the Subordinated Debt on or
after November 12, 2026 without a premium. The Subordinated Debt is treated as
Tier 2 Capital for regulatory purposes.
Interest expense recognized by the Company for the Subordinated Debentures
for the years ended December 31, 2024, 2023, and 2022 was $1,239,000, $1,239,000,
and $1,239,000, respectively.
Senior Debt
On September 15, 2022, the Company entered into a $30.0 million loan agreement
with Bell Bank. Initially, payments of interest only are payable in 12 quarterly
payments commencing December 31, 2022. Commencing December 31, 2025,
27 equal quarterly principal and interest payments are payable based on the
outstanding balance of the loan on August 30, 2025 and an amortization of
48 quarters. A final payment of outstanding principal and accrued interest is due at
maturity on September 30, 2032. Variable interest is payable at the Prime Rate
(published by the Wall Street Journal) less 50 basis points. The loan is secured by the
assets of the Company and a pledge of the outstanding common stock of
Community West Bank, the Company’s banking subsidiary. The Company may
prepay the loan without penalty with one exception. If the loan is prepaid prior to
August 30, 2025 with funds received from a financing source other than Bell Bank,
the Company will incur a 2% prepayment penalty. The loan contains customary
representations, covenants, and events of default.
Interest expense recognized by the Company for the Senior Debt for the years
ended December 31, 2024, 2023, and 2022 was $2,059,000, $2,053,000, and
$544,000, respectively.
Junior Subordinated Debentures
Service 1st Capital Trust I is a Delaware business trust formed by Service 1st. The
Company succeeded to all of the rights and obligations of Service 1st in connection
with the merger with Service 1st as of November 12, 2008. The Trust was formed
on August 17, 2006 for the sole purpose of issuing trust preferred securities fully and
unconditionally guaranteed by Service 1st. Under applicable regulatory guidance,
the amount of trust preferred securities that is eligible as Tier 1 capital is limited to
25% of the Company’s Tier 1 capital on a pro forma basis. At December 31, 2024, all
of the trust preferred securities that have been issued qualify as Tier 1 capital. The
trust preferred securities mature on October 7, 2036, are redeemable at the Company’s
option, and require quarterly distributions by the Trust to the holder of the trust
preferred securities at a variable interest rate which will adjust quarterly to equal the
three month SOFR plus 1.60%.
The Trust used the proceeds from the sale of the trust preferred securities to
purchase approximately $5,155,000 in aggregate principal amount of Service 1st’s
junior subordinated notes (the Notes). The Notes bear interest at the same variable
interest rate during the same quarterly periods as the trust preferred securities. The
Notes are redeemable by the Company on any January 7, April 7, July 7, or
October 7 or at any time within 90 days following the occurrence of certain events,
such as: (i) a change in the regulatory capital treatment of the Notes (ii) in the event
the Trust is deemed an investment company or (iii) upon the occurrence of certain
adverse tax events. In each such case, the Company may redeem the Notes for their
aggregate principal amount, plus any accrued but unpaid interest.
The Notes may be declared immediately due and payable at the election of the
trustee or holders of 25% of the aggregate principal amount of outstanding Notes in
the event that the Company defaults in the payment of any interest following the
nonpayment of any such interest for 20 or more consecutive quarterly periods.
Holders of the trust preferred securities are entitled to a cumulative cash
distribution on the liquidation amount of $1,000 per security. For each January 7,
April 7, July 7 or October 7 of each year, the rate will be adjusted to equal the three
month SOFR plus 1.60%. As of December 31, 2024, the rate was 6.52%. Interest
expense recognized by the Company for the years ended December 31, 2024, 2023,
and 2022 was $367,000, $360,000 and $188,000, respectively.
12.
COMMITMENTS AND CONTINGENCIES
Correspondent Banking Agreements - The Company maintains funds on deposit
with other federally insured financial institutions under correspondent banking
agreements. Uninsured deposits with correspondent banks totaled $14,263,000 at
December 31, 2024.
Financial Instruments With Off-Balance-Sheet Risk - The Company is a party to
financial instruments with off-balance-sheet risk in the normal course of business in
order to meet the financing needs of its customers and to reduce its own exposure
to fluctuations in interest rates. These financial instruments consist of commitments
to extend credit and standby letters of credit. These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the amount
recognized on the balance sheet.
The Company’s exposure to credit loss in the event of nonperformance by the
other party for commitments to extend credit and standby letters of credit is
represented by the contractual amount of those instruments. The Company uses the
same credit policies in making commitments and standby letters of credit as it
does for loans included on the balance sheet.
The following financial instruments represent off-balance-sheet credit risk (in
thousands):
December 31,
2024
2023
Commitments to extend credit
$
399,331
$
274,282
Standby letters of credit
$
14,642
$
1,988
Commitments to extend credit consist primarily of unfunded commercial loan
commitments and revolving lines of credit, single-family residential equity lines of
credit and commercial and residential real estate construction loans. Construction
loans are established under standard underwriting guidelines and policies and are
secured by deeds of trust, with disbursements made over the course of construction.
Commercial revolving lines of credit have a high degree of industry diversification.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being fully drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Standby letters of credit are generally
secured and are issued by the Bank to guarantee the financial obligation or
performance of a customer to a third party. The credit risk involved in issuing
standby letters of credit is essentially the same as that involved in extending loans to
customers. The fair value of the liability related to these standby letters of credit,
which represents the fees received for issuing the guarantees, was not significant at
December 31, 2024 and 2023. The Company recognizes these fees as revenue over the
term of the commitment or when the commitment is used.
At December 31, 2024, commercial loan commitments represent 45% of total
commitments and are generally secured by collateral other than real estate or
unsecured. Real estate loan commitments represent 51% of total commitments and
are generally secured by property with a loan-to-value ratio not to exceed 80%.
Consumer loan commitments represent the remaining 3% of total commitments
and are generally unsecured. In addition, the majority of the Bank’s loan commitments
have variable interest rates.
At December 31, 2024 and 2023, the balance of a contingent allocation for
probable loan loss experience on unfunded obligations was $1,055,000 and
$839,000, respectively. The contingent allocation for probable loan loss experience
on unfunded obligations is calculated by management using an appropriate,
systematic, and consistently applied process. While related to credit losses, this
allocation is not a part of the allowance for credit losses and is considered separately
Notes to Consolidated Financial Statements
34
12.
COMMITMENTS AND CONTINGENCIES (Continued)
as a liability for accounting and regulatory reporting purposes. Changes in this
contingent allocation are recorded in other non-interest expense.
Concentrations of Credit Risk - At December 31, 2024, in management’s judgment,
a concentration of loans existed in commercial loans and real-estate-related loans,
representing approximately 82% of total loans of which 7.7% were commercial and
74.3% were real-estate-related.
At December 31, 2023, in management’s judgment, a concentration of loans
existed in commercial loans and real-estate-related loans, representing approximately
95.5% of total loans of which 10.7% were commercial and 84.8% were
real-estate-related.
Management believes the loans within these concentrations have no more than
the typical risks of collectability. However, in light of the current economic
environment, additional declines in the performance of the economy in general, or a
continued decline in real estate values or drought-related decline in agricultural
business in the Company’s primary market area could have an adverse impact on
collectability, increase the level of real-estate-related nonperforming loans, or have
other adverse effects which alone or in the aggregate could have a material adverse
effect on the financial condition, results of operations and cash flows of the Company.
Contingencies - The Company is subject to legal proceedings and claims which
arise in the ordinary course of business. In the opinion of management, the amount
of ultimate liability with respect to such actions will not materially affect the
consolidated financial position or consolidated results of operations of the Company.
Investments in Low Income Housing Tax Credit Funds - The unfunded
commitments as of December 31, 2024 and 2023 in low income housing tax credit
funds were $9,289,000 and $4,371,000, respectively. All commitments will be
paid by the Company by 2038.
13.
SHAREHOLDERS’ EQUITY
Regulatory Capital - The Company and the Bank are subject to certain regulatory
capital requirements administered by the Board of Governors of the Federal Reserve
System and the FDIC. Failure to meet these minimum capital requirements could
result in mandatory or, discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Company’s consolidated financial statements.
The Company and the Bank each meet specific capital guidelines that involve
quantitative measures of their respective assets, liabilities and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Company’s and the
Bank’s capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings and other factors.
The Bank is also subject to additional capital guidelines under the regulatory
framework for prompt corrective action. To be categorized as well capitalized, the
Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage
ratios as set forth in the following table. The most recent notification from the
FDIC categorized the Bank as well capitalized under these guidelines. Management
knows of no conditions or events since that notification that would change the Bank’s
category.
Capital ratios are reviewed by Management on a regular basis to ensure that
capital exceeds the prescribed regulatory minimums and is adequate to meet our
anticipated future needs. For all periods presented, the Bank’s ratios exceed the
regulatory definition of well capitalized under the regulatory framework for prompt
correct action and the Company’s ratios exceed the required minimum ratios for
capital adequacy purposes.
Bank holding companies with consolidated assets of $3 billion or more including
banks like Community West Bank must comply with minimum capital ratio
requirements which consist of the following: (i) a new common equity Tier 1 capital
to total risk weighted assets ratio of 4.5%; (ii) a Tier 1 capital to total risk weighted
assets ratio of 6%; (iii) a total capital to total risk weighted assets ratio of 8%; and (iv) a
Tier 1 capital to adjusted average total assets (“leverage”) ratio of 4%.
In addition, a “capital conservation buffer” is established which requires
maintenance of a minimum of 2.5% of common equity Tier 1 capital to total risk
weighted assets in excess of the regulatory minimum capital ratio requirements
described above. The 2.5% buffer increases the minimum capital ratios to (i) a
common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and
(iii) a total capital ratio of 10.5%. If the capital ratio levels of a banking organization
fall below the capital conservation buffer amount, the organization will be subject
to limitations on (i) the payment of dividends; (ii) discretionary bonus payments;
(iii) discretionary payments under Tier 1 instruments; and (iv) engaging in share
repurchases.
Management believes that the Company and the Bank met all their capital
adequacy requirements as of December 31, 2024 and 2023. There are no conditions
or events since those notifications that management believes have changed those
categories. The capital ratios for the Company and the Bank are presented in the table
below (exclusive of the capital conservation buffer).
The following table presents the Company’s regulatory capital ratios as of
December 31, 2024 and December 31, 2023:
(Dollars in thousands)
December 31, 2024
Actual Ratio
Minimum regulatory
requirement (1)
Amount
Ratio
Amount
Ratio
Tier 1 Leverage Ratio
$ 316,343
9.17%
$ 138,018
4.00%
Common Equity Tier 1 Ratio
(CET 1)
$ 311,343
11.15%
$ 125,632
4.50%
Tier 1 Risk-Based Capital
Ratio
$ 316,343
11.33%
$ 167,510
6.00%
Total Risk-Based Capital
Ratio
$ 379,091
13.58%
$ 223,346
8.00%
December 31, 2023
Tier 1 Leverage Ratio
$ 222,567
9.18%
$
98,048
4.00%
Common Equity Tier 1 Ratio
(CET 1)
$ 217,567
12.78%
$
75,561
4.50%
Tier 1 Risk-Based Capital
Ratio
$ 222,567
13.07%
$ 100,748
6.00%
Total Risk-Based Capital
Ratio
$ 273,699
16.08%
$ 134,330
8.00%
(1) The minimum regulatory requirement threshold includes the capital conservation
buffer of 2.50%.
The following table presents the Bank’s regulatory capital ratios as of December 31,
2024 and December 31, 2023, as well as the minimum capital ratios for capital
adequacy for the Bank:
(Dollars in thousands)
December 31, 2024
Actual Ratio
Minimum regulatory
requirement (1)
Amount
Ratio
Amount
Ratio
Tier 1 Leverage Ratio
$ 377,411
11.04%
$ 138,031
4.00%
Common Equity Tier 1 Ratio
(CET 1)
$ 377,411
13.54%
$ 125,474
7.00%
Tier 1 Risk-Based Capital
Ratio
$ 377,411
13.54%
$ 167,299
8.50%
Total Risk-Based Capital
Ratio
$ 405,425
14.54%
$ 223,065
10.50%
December 31, 2023
Tier 1 Leverage Ratio
$ 285,099
11.75%
$
97,016
4.00%
Common Equity Tier 1 Ratio
(CET 1)
$ 285,099
16.76%
$
76,526
7.00%
Tier 1 Risk-Based Capital
Ratio
$ 285,099
16.76%
$ 102,035
8.50%
Total Risk-Based Capital
Ratio
$ 301,642
17.74%
$ 136,047
10.50%
(1) The minimum regulatory requirement threshold includes the capital conservation
buffer of 2.50%.
Dividends - During 2024, the Bank declared and paid cash dividends to the
Company in the amount of $14,000,000, in connection with cash dividends declared
to the Company’s shareholders and holding company expenses as approved by the
Company’s Board of Directors.The Company declared and paid a total of $8,230,000
or $0.48 per common share cash dividend to shareholders of record during the
year ended December 31, 2024. During the year ended December 31, 2024, the
Company repurchased and retired common stock in the amount of $38,000 in
connection with amounts withheld for the vesting of equity awards for tax obligations.
Notes to Consolidated Financial Statements
35
13.
SHAREHOLDERS’ EQUITY (Continued)
During 2023, the Bank declared and paid dividends to the Bank in the amount
of $6,963,000 in connection with the senior and subordinated debt proceeds approved
by the Company’s Board of Directors. The Company declared and paid a total of
$5,657,000 or $0.48 per common share cash dividend to shareholders of record
during the year ended December 31, 2023. During the year ended December 31,
2023, the Company repurchased and retired common stock in the amount of
$1,000.
During 2022, the Bank and paid cash dividends to the Company in the amount
of $38,000,000, in connection with cash dividends declared to the Company’s
shareholders and holding company expenses as approved by the Company’s Board of
Directors. The Company declared and paid a total of $5,638,000 or $0.48 per
common share cash dividend to shareholders of record during the year ended
December 31, 2022. During the year ended December 31, 2022, the Company
repurchased and retired common stock in the amount of $6,814,000.
The Company’s primary source of income with which to pay cash dividends is
dividends from the Bank. The California Financial Code restricts the total amount
of dividends payable by a bank at any time without obtaining the prior approval of the
California Department of Business Oversight to the lesser of (1) the Bank’s
retained earnings or (2) the Bank’s net income for its last three fiscal years, less
distributions made to shareholders during the same three-year period. At
December 31, 2024, $50,362,000 of the Bank’s retained earnings were free of these
restrictions.
A reconciliation of the numerators and denominators of the basic and diluted
earnings per common share computations is as follows (in thousands, except share
and per-share amounts):
For the Years Ended December 31,
2024
2023
2022
Basic Earnings Per Common Share:
Net income
$
7,666
$
25,536
$
26,645
Weighted average shares
outstanding
17,077,017
11,728,858
11,715,376
Net income per common share
$
0.45
$
2.17
$
2.27
Diluted Earnings Per Common
Share:
Net income
$
7,666
$
25,536
$
26,645
Weighted average shares
outstanding
17,077,017
11,728,858
11,715,376
Effect of dilutive stock options
and warrants
102,779
24,014
23,698
Weighted average shares of
common stock and common
stock equivalents
17,179,796
11,752,872
11,739,074
Net income per diluted common
share
$
0.45
$
2.17
$
2.27
No outstanding options or restricted stock awards considered were anti-dilutive
at December 31, 2024, 2023, and 2022.
14.
EQUITY-BASED COMPENSATION
In May 2015, the Company adopted the Community West Bancshares 2015
Omnibus Incentive Plan (2015 Plan). The plan provides for awards in the form of
stock options, stock appreciation rights, and restricted stock. The plan also allows for
performance awards that may be in the form of cash or shares of the Company’s
common stock. With respect to stock options and restricted stock the exercise price
in the case of stock options and the grant value in the case of restricted stock may not
be less than the fair market value at the date of the award. The options and awards
under the plan expire on dates determined by the Board of Directors, but not later
than ten years from the date of grant. The vesting period for stock options and
restricted stock rights is determined by the Board of Directors and ranges one to
five years. The maximum number of shares that can be issued with respect to all
awards under the plan is 875,000. Currently under the 2015 Plan, 207,998 shares
remain reserved for future grants as of December 31, 2024.
Share-based compensation cost recognized for the 2015 Plan plans was $879,000,
$858,000, and $776,000 for the years ended December 31, 2024, 2023, and 2022,
respectively. The recognized tax benefit for the exercise of stock options resulted
in the recognition of $81,000, $0, and $87,000 for the years ended December 31,
2024, 2023, and 2022, respectively.
Stock Option Awards
The Company bases the fair value of the stock options granted on the date of grant
using a Black-Scholes Merton option pricing model that uses assumptions based on
expected option life and the level of estimated forfeitures, expected stock volatility,
risk free interest rate, and dividend yield. The expected term and level of estimated
forfeitures of the Company’s stock options are based on the Company’s own
historical experience. Stock volatility is based on the historical volatility of the
Company’s stock. The risk-free interest rate is based on the U. S. Treasury yield
curve for the periods within the contractual life of the stock options in effect at the
time of grant. The compensation cost for stock options granted is based on the
weighted average grant date fair value per share.
A summary of the combined activity of the stock option activity during the years
then ended is presented below (dollars in thousands, except per-share amounts):
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic Value
Options outstanding at
January 1, 2022
52,805 $
9.81
Options granted
-
$
-
Options exercised
(50,205) $
9.74
Options forfeited
(2,600) $
11.12
Options outstanding at
December 31, 2022
-
$
-
-
$
-
Options granted
-
$
-
Options outstanding at
December 31, 2023
-
$
-
-
$
-
Options issued
through acquisition
390,462 $
13.23
Options granted
-
$
-
Options exercised
(37,289) $
12.47
Options forfeited
(54,510) $
13.80
Options outstanding at
December 31, 2024
298,663 $
13.22
3.49 $
1,837,658
The significant assumptions used to estimate fair value of the issued options at
the time of the acquisition included: risk free rate 4.35%; dividend rate 4.31%,
expected volatility 46.95%, and a weighted average expected term of 4.92 years.
Information related to the stock option plan during each year follows (in
thousands):
2024
2023
2022
Intrinsic value of options exercised
$
282
$
-
$
496
Cash received from options exercised
$
465
$
-
$
489
Excess tax benefit realized for option
exercises
$
81
$
-
$
87
As of December 31, 2024, there is no unrecognized compensation cost related to
stock options granted under all Plans. All options are fully vested.
Restricted Stock and Common Stock Awards - The 2015 Plan provides for the
issuance of restricted common stock to directors and officers and common stock
Notes to Consolidated Financial Statements
36
14.
EQUITY-BASED COMPENSATION (Continued)
awards based on the achievement of performance goals as determined by the Board
of Directors or in accordance with executive employment agreements. Restricted
common stock grants typically vest over a one to five-year period. Restricted common
stock is subject to forfeiture if employment terminates prior to vesting. The cost of
these awards is recognized over the vesting period of the awards based on the fair value
of our common stock on the date of the grant.
The shares awarded to employees and directors under the restricted stock
agreements vest on applicable vesting dates only to the extent the recipient of the
shares is then an employee or a director of the Company or one of its subsidiaries, and
each recipient will forfeit all of the shares that have not vested on the date his or
her employment or service is terminated. Outstanding restricted awards related to
these agreements are presented in the table below. Common stock awards for
performance vest immediately. During 2024 and 2023 the Company awarded 0 and
10,347 common stock awards, recognizing compensation expense for these shares
of $0 and $221,000, respectively.
The following table summarizes restricted stock activity for the years ended as
follows:
Shares
Weighted
Average
Grant Date
Fair Value
Nonvested outstanding shares at January 1, 2022
24,177
$
20.50
Granted
56,089
$
17.75
Vested
(33,316)
$
20.39
Forfeited
(244)
$
20.50
Nonvested outstanding shares at December 31, 2022
46,706
$
17.28
Granted
69,692
$
15.86
Vested
(40,387)
$
17.9
Forfeited
(878)
$
15.79
Nonvested outstanding shares at December 31, 2023
75,133
$
15.65
Granted
72,360
$
16.93
Vested
(46,339)
$
15.02
Forfeited
(3,658)
$
15.96
Nonvested outstanding shares at December 31, 2024
97,496
$
16.89
The shares awarded to employees and directors under the restricted stock
agreements vest on applicable vesting dates only to the extent the recipient of the
shares is then an employee or a director of the Company or one of its subsidiaries.
Each recipient will forfeit all of the shares that have not vested on the date his or her
employment or service is terminated.
As of December 31, 2024, there were 97,496 shares of restricted stock that are
nonvested and expected to vest. Share-based compensation cost charged against
income for restricted stock awards was $879,000, $612,000 and $474,000 for the
year ended December 31, 2024, 2023, and 2022 respectively.
As of December 31, 2024, there was $1,097,000 of total unrecognized
compensation cost related to nonvested restricted common stock. Restricted stock
compensation expense is recognized on a straight-line basis over the vesting period.
This cost is expected to be recognized over a weighted average remaining period of
2.15 years and will be adjusted for subsequent changes in estimated forfeitures.
Restricted common stock awards had an intrinsic value of $1,888,000 at December 31,
2024.
15.
EMPLOYEE BENEFITS
401(k) and Profit Sharing Plan - The Bank has established a 401(k) and profit
sharing plan. The 401(k) plan covers substantially all employees who have completed
a one-month employment period. Participants in the profit sharing plan are
eligible to receive employer contributions after completion of two years of service.
Bank contributions to the profit sharing plan are determined at the discretion of the
Board of Directors. Participants are automatically vested 100% in all employer
contributions. The Bank contributed $550,000, $850,000, and $1,000,000 to the
profit sharing plan in 2024, 2023, and 2022, respectively.
Additionally, the Bank may elect to make a matching contribution to the
participants’ 401(k) plan accounts. The amount to be contributed is announced by
the Bank at the beginning of the plan year. For the years ended December 31, 2024,
2023, and 2022, the Bank made a 100% matching contribution on all deferred
amounts up to 5% of eligible compensation. For the years ended December 31, 2024,
2023, and 2022, the Bank made matching contributions totaling $1,623,000,
$1,089,000, and $1,046,000, respectively.
Deferred Compensation Plans - The Bank has a nonqualified Deferred Compensation
Plan which provides directors with an unfunded, deferred compensation program.
Under the plan, eligible participants may elect to defer some or all of their current
compensation or director fees. Deferred amounts earn interest at an annual rate
determined by the Board of Directors (5.32% at December 31, 2024). At
December 31, 2024 and 2023, the total net deferrals included in accrued interest
payable and other liabilities were $4,265,000 and $4,131,000, respectively.
In connection with the above plan, single premium universal life insurance policies
on the life of certain directors were purchased by the Bank, which is the beneficiary
and owner of the policies.The cash surrender value of the policies totaled $11,510,000
and $11,252,000 and at December 31, 2024 and 2023, respectively. Income
recognized on these policies, net of related expenses, for the years ended December 31,
2024, 2023, and 2022, was $258,000, $292,000, and $278,000, respectively.
In October 2015, the Board of Directors of the Company and the Bank adopted
a board resolution to create the Central Valley Community Bank Executive Deferred
Compensation Plan (the Executive Plan). Pursuant to the Executive Plan, all
eligible executives of the Bank may elect to defer up to 50 percent of their
compensation for each deferral year. Deferred amounts earn interest at an annual
rate determined by the Board of Directors (5.32% at December 31, 2024). At
December 31, 2024 and 2023, the total net deferrals included in accrued interest
payable and other liabilities were $238,000 and $271,000, respectively.
Salary Continuation Plans - The Board of Directors has approved salary continuation
plans for certain key executives. Under these plans, the Bank is obligated to provide
the executives with annual benefits for 0-15 years after retirement. In connection with
the acquisitions of Folsom Lake Bank (FLB), Service 1st Bank, and Visalia
Community Bank (VCB), the Bank assumed a liability for the estimated present
value of future benefits payable to former key executives of FLB, Service 1st, and VCB.
The liability relates to change in control benefits associated with their salary
continuation plans. The benefits are payable to the individuals when they reach
retirement age. These benefits are substantially equivalent to those available under
split-dollar life insurance policies purchased by the Bank on the life of the executives.
The expense (benefit) recognized under these plans for the years ended December 31,
2024, 2023, and 2022, totaled $541,000, $186,000, and $(430,000), respectively.
Note, the expense is effected by the changing discount rate used to calculate the
liability. Accrued compensation payable under the salary continuation plans
totaled $8,689,000 and $9,291,000 at December 31, 2024 and 2023, respectively.
These benefits are substantially equivalent to those available under split-dollar life
insurance policies acquired.
In connection with these plans, the Bank purchased single-premium life
insurance policies with cash surrender values totaling $41,809,000 and $30,320,000
at December 31, 2024 and 2023, respectively. Income recognized on these
policies, net of related expense, for the years ended December 31, 2024, 2023, and
2022 totaled $1,068,000, $743,000, and $706,000, respectively.
Employee Stock Purchase Plan - During 2017, the Company adopted an Employee
Stock Purchase Plan which allows employees to purchase the Company’s stock at
a discount to fair market value as of the date of purchase. The Company bears all costs
of administering the plan, including broker’s fees, commissions, postage and other
costs actually incurred.
As of December 31, 2024, the Company had 402,579 shares remaining for
purchase under the plan.
16.
RELATED PARTIES
During the normal course of business, the Bank enters into loans with related
parties, including executive officers and directors. The following is a summary of the
aggregate activity involving related-party borrowers (in thousands):
2024
2023
Balance, January 1
$
24,278
23,727
Disbursements
145
1,383
Amounts repaid
(661)
(832)
Balance, December 31
$
23,762
$
24,278
Undisbursed commitments to related parties,
December 31
$
464
$
547
Notes to Consolidated Financial Statements
37
16.
RELATED PARTIES (Continued)
As of December 31, 2024 and 2023, the Company had $39,669,000 and
$12,921,000 in related party deposits, respectively.
17.
FAIR VALUE MEASUREMENTS
Fair Value Hierarchy
Fair value is the exchange price that would be received for an asset or paid to transfer
a liability (exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the measurement
date. There are three levels of inputs that may be used to measure fair values:
Level 1 - Quoted market prices (unadjusted) for identical instruments traded in
active markets that the entity has the ability to access as of the measurement date.
Level 2 - Significant other observable inputs other than Level 1 prices such as
quoted prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable market
data.
Level 3 - Significant unobservable inputs that reflect an entity’s own assumptions
about the assumptions that market participants would use in pricing an asset or
liability.
Management monitors the availability of observable market data to assess the
appropriate classification of financial instruments within the fair value hierarchy.
Changes in economic conditions or model-based valuation techniques may require
the transfer of financial instruments from one fair value level to another. In such
instances, we report the transfer at the beginning of the reporting period.
The estimated carrying and fair values of the Company’s financial instruments
are as follows (in thousands):
December 31, 2024
Carrying
Amount
Fair Value
Level 1
Level 2
Level 3
Total
Financial assets:
Cash and due from
banks
$
28,029 $
28,029 $
-
$
-
$
28,029
Interest-earning
deposits in other
banks
92,369
92,369
-
-
92,369
Held-to-maturity
investment
securities
301,359
-
274,568
-
274,568
Loans, net
2,308,418
-
-
2,252,462
2,252,462
Financial liabilities:
Time deposits
443,284
-
440,046
-
440,046
Borrowings
133,442
-
133,743
-
133,743
Senior debt and
subordinated
debentures
69,889
-
-
62,535
62,535
December 31, 2023
Carrying
Amount
Fair Value
Level 1
Level 2
Level 3
Total
Financial assets:
Cash and due from
banks
$
30,017 $
30,017 $
-
$
-
$
30,017
Interest-earning
deposits in other
banks
23,711
23,711
-
-
23,711
Held-to-maturity
investment
securities
302,442
-
277,003
-
277,003
Loans, net
1,276,144
-
-
1,213,098
1,213,098
Financial liabilities:
Time deposits
162,085
-
160,839
-
160,839
Short-term
borrowings
80,000
-
79,991
-
79,991
Senior debt and
subordinated
debentures
69,744
-
-
61,121
61,121
The methods and assumptions used to estimate fair values are described as
follows:
(a) Cash and Cash Equivalents - The carrying amounts of cash and due from banks,
interest-earning deposits in other banks, and Federal funds sold approximate fair
values and are classified as Level 1.
(b) Investment securities - The fair values for investment securities are determined
by quoted market prices, if available (Level 1). For securities where quoted prices are
not available, fair values are calculated based on market prices of similar securities
(Level 2), using matrix pricing. Matrix pricing is a mathematical technique commonly
used to price debt securities that are not actively traded, values debt securities
without relying exclusively on quoted prices for the specific securities but rather by
relying on the securities’ relationship to other benchmark quoted securities (Level 2
inputs). For securities where quoted prices or market prices of similar securities are
not available, fair values are calculated using discounted cash flows or other market
indicators (Level 3).
(c) Loans - Fair values of loans are estimated as follows: fixed and variable loans are
estimated using discounted cash flow analyses, taking into consideration various factors
including loan type, credit loss and prepayment expectations. The loan cash flows
are discounted to present value using a combination of existing market rates and
liquidity spreads as well as underlying index rates and margins on variable rate loans
resulting in a Level 3 classification.
(d) Time Deposits - Fair value for fixed and variable rate certificates of deposit are
estimated using discounted cash flow analyses using interest rates offered at each
reporting date by the Company for certificates with similar remaining maturities
resulting in a Level 2 classification.
(e) Short-Term Borrowings - The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short-term borrowings, maturing
within one year, approximate their fair values resulting in a Level 2 classification.
(f) Subordinated Debentures and Senior Debt - The fair values of the Company’s
Subordinated Debentures are estimated using discounted cash flow analyses based on
the current borrowing rates for similar types of borrowing arrangements resulting
in a Level 3 classification.
Assets Recorded at Fair Value
The following tables present information about the Company’s assets and liabilities
measured at fair value on a recurring and non-recurring basis as of December 31, 2024
and 2023:
Recurring Basis
The Company is required or permitted to record the following assets at fair value on
a recurring basis under other accounting pronouncements (in thousands):
Notes to Consolidated Financial Statements
38
17.
FAIR VALUE MEASUREMENTS (Continued)
Fair Value Measurements Using
Fair Value
Level 1
Level 2
Level 3
December 31, 2024
Available-for-sale debt
securities:
U.S. Treasury securities
$
9,058
$
-
$
9,058
$
-
U.S. Government agencies
65
-
65
-
Obligations of states and
political subdivisions
164,640
-
164,640
-
U.S. Government sponsored
entities and agencies
collateralized by residential
mortgage obligations
72,302
-
72,302
-
Private label mortgage and
asset backed securities
230,555
-
230,555
-
Equity Securities
6,586
6,586
-
-
Total assets measured at fair
value on a recurring basis
$
483,206
$
6,586
$
476,620 $
-
Fair Value Measurements Using
Fair Value
Level 1
Level 2
Level 3
December 31, 2023
Available-for-sale debt
securities:
U.S. Treasury securities
$
8,954
$
-
$
8,954
$
-
U.S. Government agencies
95
-
95
-
Obligations of states and
political subdivisions
180,222
-
180,222
-
U.S. Government sponsored
entities and agencies
collateralized by residential
mortgage obligations
83,352
-
83,352
-
Private label residential
mortgage and asset backed
securities
324,573
-
324,573
-
Corporate debt securities
-
-
-
-
Equity Securities
6,649
6,649
-
-
Total assets measured at
fair value on a recurring
basis
$
603,845
$
6,649
$
597,196 $
-
Securities in Level 1 are mutual funds and fair values are based on quoted market
prices for identical instruments traded in active markets. Fair values for
available-for-sale investment securities in Level 2 are based on quoted market prices
for similar securities in active markets. For securities where quoted prices or market
prices of similar securities are not available, fair values are calculated using
discounted cash flows or other market indicators.
Management evaluates the significance of transfers between levels based upon the
nature of the financial instrument and size of the transfer relative to total assets, total
liabilities or total earnings. During the years ended December 31, 2024 and 2023,
no transfers between levels occurred.
There were no Level 3 assets measured at fair value on a recurring basis at
December 31, 2024 or December 31, 2023. Also there were no liabilities measured
at fair value on a recurring basis at December 31, 2024 or December 31, 2023.
Non-Recurring Basis
There were no assets measured on a non-recurring basis at December 31, 2024 and
December 31, 2023.
18.
OPERATING SEGMENTS
The Company has one reportable segment: banking operations. Loans and leases,
investment securities, interest-bearing deposits and non-interest income provide the
revenues of the banking operation. Loans and leases generate a majority of the
Company’s interest and fee income. Interest income earned on investment securities
and interest-bearing deposits are another source of revenue. Non-interest income
is derived from deposit products offered to customers that generate fees and service
charge income. Additional other sources of non-interest income include earnings from
bank owned life insurance, merchant card services, and other investments. Interest
expense, provisions for credit losses, salaries and employee benefits, and data processing
provide the significant expenses in banking operations. These significant expenses
are the same as those disclosed in the Company’s Consolidated Statements of Income
and Consolidated Statements of Cash Flows.
The Company’s chief operating decision maker (CODM) is the Chief Executive
Officer.The CODM is provided with consolidated balance sheets, income statements,
and net interest margin analyses in order to evaluate the revenue streams, significant
expenses, and budget-to-actual results in assessing the Company’s segment and
determining the allocation of resources. Additionally, the CODM reviews performance
of various components of banking operations, such as asset mix, funding sources
for assets, and overhead costs, in order to assess product pricing, profitability and
evaluate return on assets.The CODM uses consolidated net income to benchmark the
Company against its competitors. The benchmarking analysis coupled with
monitoring budget-to-actual results are used in assessing performance and in
establishing compensation.
Years ended December 31,
2024
2023
2022
Interest and dividend income
$
160,388
$
102,418
$
82,988
Reconciliation of revenue:
Other noninterest income
6,445
7,020
5,054
Total consolidated
revenue
166,833
109,438
88,042
Less:
Interest expense
50,021
19,989
3,422
Segment net interest income
and noninterest income
116,812
89,449
84,620
Less:
Provision for credit losses
11,113
309
995
Salaries and employee
benefits
48,470
31,367
28,917
Other segment items (1)
46,231
23,933
19,567
Income tax expense
3,332
8,304
8,496
Consolidated net
income
$
7,666
$
25,536
$
26,645
As of December 31,
2024
2023
Reconciliation of assets
Total assets for reportable segment
$ 3,521,771
$ 2,433,426
Adjustments and reconciling items
-
-
Total consolidated assets
$ 3,521,771
$ 2,433,426
(1) - Other segment items include other non-interest expense such as occupancy
expense, data processing, professional fees, regulatory assessments, and advertising.
Notes to Consolidated Financial Statements
39
19.
PARENT ONLY CONDENSED FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
December 31, 2024 and 2023
(In thousands)
2024
2023
ASSETS
Cash and cash equivalents
$
303
$
776
Investment in Bank subsidiary
428,907
274,596
Other assets
3,564
1,704
Total assets
$
432,774
$
277,076
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Senior debt and subordinated debentures
$
69,889
$
69,744
Other liabilities
200
268
Total liabilities
70,089
70,012
Shareholders’ equity:
Common stock
207,816
62,550
Retained earnings
209,984
210,548
Accumulated other comprehensive loss, net of tax
(55,115)
(66,034)
Total shareholders’ equity
362,685
207,064
Total liabilities and shareholders’ equity
$
432,774
$
277,076
CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
For the Years Ended December 31, 2024, 2023, and 2022
(In thousands)
2024
2023
2022
Income:
Dividends declared by Subsidiary (Company)—eliminated in consolidation
$
14,000
$
6,963
$
(38,000)
Other income
30
11
6
Total income
14,030
6,974
(37,994)
Expenses:
Interest on subordinated debentures and borrowings
3,298
3,652
1,971
Professional fees
514
1,305
239
Other expenses
3,825
283
601
Total expenses
7,637
5,240
2,811
Income (loss) before equity in undistributed net income of Subsidiary
6,393
1,734
(40,805)
Equity in undistributed (deficit in distributed) net income of Subsidiary, net of distributions
(477)
22,256
66,583
Income before income tax benefit
5,916
23,990
25,778
Benefit from income taxes
1,750
1,546
867
Net income
$
7,666
$
25,536
$
26,645
Total other comprehensive income (loss)
10,919
15,193
(88,859)
Comprehensive income (loss)
$
18,585
$
40,729
$
(62,214)
Notes to Consolidated Financial Statements
40
19.
PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2024, 2023, and 2022
(In thousands)
2024
2023
2022
Cash flows from operating activities:
Net income
$
7,666
$
25,536
$
26,645
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Undistributed net income of subsidiary, net of distributions
477
(22,256)
(66,583)
Equity-based compensation
879
858
776
Amortization of unamortized issuance cost
143
145
145
Net (increase) decrease in other assets
(2,015)
(715)
(499)
Net increase (decrease) in other liabilities
(68)
(542)
390
Benefit for deferred income taxes
-
-
15
Net cash provided by (used in) operating activities
7,082
3,026
(39,111)
Cash flows used in investing activities:
Investment in subsidiary
-
-
-
Cash flows from financing activities:
Proceeds from issuance of subordinated and senior debt
-
-
30,000
Cash dividend payments on common stock
(8,230)
(5,657)
(5,638)
Purchase and retirement of common stock
(38)
(1)
(6,814)
Proceeds from exercise of stock options
465
-
489
Proceeds from stock issued under employee stock purchase plan
248
206
216
Net cash (used in) provided by financing activities
(7,555)
(5,452)
18,253
(Decrease) increase in cash and cash equivalents
(473)
(2,426)
(20,858)
Cash and cash equivalents at beginning of year
776
3,202
24,060
Cash and cash equivalents at end of year
$
303
$
776
$
3,202
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest
$
2,756
$
4,180
$
1,431
20.
SUBSEQUENT EVENT
Dividend Declared
On January 22, 2025, the Board of Directors declared a 0.12 per share cash
dividend payable on February 21, 2025 to shareholders of record as of February 7,
2025.
Notes to Consolidated Financial Statements
41
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
Community West Bancshares
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Community West Bancshares and subsidiary (the “Company”) as of
December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income (loss), changes in shareholders’ equity
and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). We also
have audited the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal
Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial
position of the Company as of December 31, 2024 and 2023, and the consolidated results of its operations and its cash flows for the years
then ended, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established
in Internal Control—Integrated Framework (2013) issued by COSO.
Change in Accounting Principle
As discussed in Notes 1 and 4 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 Update No. 2016-13, which established Accounting
Standards Codification Topic 326, Financial Instruments—Credit Losses.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management Report on Internal Control over Financial Reporting included in Item 9A. Our responsibility is to express an opinion on the
Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting 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
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements 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 audits 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. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures
as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
42
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial
statements that were communicated or required to be communicated to the audit committee and that (1) relate 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 matters below, providing a separate opinion on the critical audit matters or on the accounts
or disclosures to which they relate.
Allowance for Credit Losses for Loans
As described in notes 1 and 4 to the consolidated financial statements, the allowance for credit losses on loans is a valuation account
that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. The Company’s
allowance for credit losses on loans was $25.8 million as of December 31, 2024. The measurement of the allowance for credit losses on
collectively evaluated loans is based on modeled expectations of lifetime expected credit losses utilizing national and local peer group historical
losses, weighting of economic scenarios, and other relevant factors. The Company incorporates forward-looking information using
macroeconomic scenarios, which include variables that are considered key drivers of credit losses within the portfolio. The Company uses a
probability-weighted, multiple scenarios forecast approach.These scenarios may 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 selection of national or local peer group historical losses and the selection and weighting of the forecasted 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 subjective judgement
required by management in the selection 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.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion
on the consolidated financial statements. These procedures included evaluating the design and testing the operating effectiveness of internal
controls related to the Company’s selection of national or local peer group historical losses and the selection and weighting of the forecasted
economic scenarios Our audit procedures related to the critical audit matter included the following, among others:
• Testing the completeness and accuracy of key model inputs including loan data.
• Evaluating the reasonableness of the selection and weighting of forecasted economic scenarios.
• Evaluating the reasonableness of selections of national or local peer group historical losses.
Business Combination
As described in notes 1, 2 and 6 to the consolidated financial statements, Central Valley Community Bancorp completed its merger
transaction with Community West Bancshares on April 1, 2024, and changed its name to Community West Bancshares. Total consideration
was $143.7 million. The Company’s estimated fair values of the acquired loans and leases was $920.1 million, and the core deposit
intangible asset was $10.0 million. To estimate the fair value of the acquired loans, the Company utilized a discounted cash flow methodology
that included significant assumptions relating to market discount rates using a build-up approach and default and loss rates. To estimate
the fair value of the core deposit intangible asset, the Company utilized a discounted economic benefit methodology that included significant
assumptions relating to deposit runoff rates, cost of deposits, cost of alternative funds, and a discount rate applied.
We identified the acquisition date valuation of acquired loans and leases and the core deposit intangible asset as a critical audit matter,
due to of the judgment necessary by management to determine the fair value of the loan portfolio acquired and the fair value of the core
deposit intangible asset recorded, and the especially challenging and subjective auditor judgment and the extent of audit effort in testing
management’s significant assumptions used in the fair value estimates, including using individuals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion
on the consolidated financial statements. These procedures included evaluating the design and testing the operating effectiveness of internal
43
controls related to the Company’s fair value estimates of the acquired loans and leases and the core deposit intangible asset, including the
significant assumptions used by the Company’s management. Our audit procedures related to the critical audit matter included the following,
among others:
• Testing management’s process used to estimate the fair value of the acquired loans and leases and core deposit intangible asset.
• Testing the completeness and accuracy of underlying data used.
• Evaluating the reasonableness of the significant assumptions used.
• Utilizing professionals with specialized skill and knowledge to assist in evaluating the methods and the reasonableness of certain
significant assumptions used.
We have served as the Company’s auditor since 2023.
Sacramento, California
March 17, 2025
44
Report of Independent Registered Public Accounting Firm
Shareholders and the Board of Directors of
Community West Bancshares
Fresno, California
Opinion on the Financial Statements
We have audited the accompanying consolidated statement of income, comprehensive income (loss), changes in shareholders’ equity,
and cash flows of Community West Bancshares (formerly known as Central Valley Community Bancorp and Subsidiary) (the “Company”)
for the year 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 results of its operations and its cash flows for the year 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.
We served as the Company’s auditor from 2011 to 2023.
Sacramento, California
March 9, 2023
45
Management’s discussion and analysis should be read in conjunction with the
Company’sauditedConsolidatedFinancialStatements,includingtheNotesthereto,
in Item 8 of this Annual Report.
INTRODUCTION
Effective April 1, 2024, Central Valley Community Bancorp, completed its merger
transaction with Community West Bancshares. Shortly thereafter, Community West
Bank, a wholly owned subsidiary of Community West Bancshares, merged with
and into Central Valley Community Bank, a wholly owned subsidiary of Central
Valley Community Bancorp, with Central Valley Community Bank being the
surviving banking institution. Effective with these mergers, the names of Central
Valley Community Bancorp and Central Valley Community Bank were changed to
Community West Bancshares and Community West Bank, respectively.
Community West Bancshares (NASDAQ: CWBC) (the Company) was
incorporated on February 7, 2000. The formation of the holding company offered
the Company more flexibility in meeting the long-term needs of customers,
shareholders, and the communities it serves. The Company currently has one bank
subsidiary, Community West Bank (the Bank) and one business trust subsidiary,
Service 1st Capital Trust 1. The Company’s market area includes Central California
from Sacramento, California in the north to Bakersfield, California in the south and
west to the Central California Coast.
During 2024, we focused on asset quality, liquidity, and capital adequacy. We
also focused on assuring that competitive products and services were made available
to our clients while adjusting to the many new laws and regulations that affect the
banking industry.
As of December 31, 2024, the Bank operated 26 full-service offices. Additionally,
the Bank maintains an Agribusiness Center, and an SBA Lending Division.
OVERVIEW
Financial Highlights
The significant highlights for the Company as of or for the period ended
December 31, 2024 included the following:
•
Net income for 2024 was $7,666,000 compared to $25,536,000 and
$26,645,000 for the years ended December 31, 2023 and 2022, respectively.
•
Diluted earnings per share (EPS) for the year ended December 31, 2024 was
$0.45, compared to $2.17 and $2.27 for the years ended December 31, 2023
and 2022, respectively.
•
Total assets at December 31, 2024 were $3.52 billion compared to
$2.43 billion at December 31, 2023.
•
Net loans increased $1.03 billion or 81%, and total assets increased
$1.09 billion or 45% at December 31, 2024 compared to December 31,
2023.
•
Total deposits increased 43% to $2.91 billion at December 31, 2024
compared to $2.04 billion at December 31, 2023.
•
Total equity was $363 million at December 31, 2024 compared to
$207 million at December 31, 2023.
•
Total cost of deposits increased to 1.53% for the year ended December 31,
2024 compared to 0.72% for the year ended December 31, 2023.
•
Average non-interest bearing demand deposit accounts as a percentage of total
average deposits was 38.62% and 45.84% for the years ended December 31,
2024 and December 31, 2023, respectively.
•
Net interest margin increased to 3.76% for the year ended December 31,
2024, from 3.58% for the year ended December 31, 2023.
•
Return on average equity (“ROE”) for 2024 was 2.42% compared to 13.81%
and 14.25% for 2023 and 2022, respectively.
•
Return on average assets (“ROA”) for 2024 was 0.24% compared to 1.04%
and 1.09% for 2023 and 2022, respectively.
•
There were $6.46 million non-performing assets for the year ended
December 31, 2024. Additionally, net loan charge-offs were $463,000 and
loans delinquent more than 30 days were $9.84 million, compared to net loan
charge-offs of $20,000 and loans delinquent more than 30 days of
$3.74 million for the year ended December 31, 2023.
•
Capital positions remain strong at December 31, 2024 with a 9.17% Tier 1
Leverage Ratio; a 11.15% Common Equity Tier 1 Ratio; a 11.33% Tier 1
Risk-Based Capital Ratio; and a 13.58% Total Risk-Based Capital Ratio.
Dividend Declared
The Company declared a $0.12 per common share cash dividend, payable on
February 21, 2025 to shareholders of record on February 7, 2025.
Key Factors in Evaluating Financial Condition
and Operating Performance
In evaluating our financial condition and operating performance, we focus on
several key factors including:
•
Return to our shareholders;
•
Return on average assets and net interest margin;
•
Asset quality;
•
Asset growth;
•
Capital adequacy;
•
Operating efficiency; and
•
Liquidity.
Return to Our Shareholders
One measure of our return to our shareholders is the return on average equity
(ROE), which is a ratio that measures net income divided by average shareholders’
equity. Our ROE was 2.42% for the year ended 2024 compared to 13.81% and
14.25% for the years ended 2023 and 2022, respectively.
Our net income for the year ended December 31, 2024 decreased $17,870,000
compared to 2023 and decreased $1,109,000 in 2023 compared to 2022.
Contributing to the decrease during 2024, compared to 2023, was due to merger
related expenses of $20,491,000, including a one-time provision for the expected
credit losses of the acquired portfolio of $10,877,000. During 2023, net income
compared to 2022 was primarily impacted by higher non-interest expenses,
including $1,191,000 in merger related expenses.
Net interest income increased $27,938,000 primarily due to increased volume
and rates from the merger with Community West Bancshares. For 2024, our net
interest margin (NIM) increased 18 basis points to 3.76% compared to 3.58% in
2023 as a result of yield and asset mix changes. Net interest income was positively
impacted by the accretion of the loan marks on acquired loans in the amount of
$9,849,000 and $325,000 for the twelve months ended December 31, 2024 and
2023, respectively. In addition, net interest income before the provision for credit
losses for the twelve months ended December 31, 2024 benefited by approximately
$83,000 in nonrecurring income from prepayment penalties and payoff of loans, as
compared to $165,000 for the twelve months ended December 31, 2023. Excluding
these benefits, net interest income for the twelve months ended December 31, 2024
increased by $18,496,000 compared to the twelve months ended December 31,
2023.
Non-interest income decreased $575,000, or 8.19% in 2024 compared to 2023
primarily due to a $3,292,000 increase in net realized losses on sales and calls of
investment securities partially offset by an increase of $1,629,000 in other income,
an increase in loan placement fees of $309,000 and a increase in service charge income
of $295,000. The increase in other income is primarily attributed to changes in fair
value of other equity investments and increase in certain merchant fee activity.
Non-interest expenses increased $39,401,000 or 71.25% to $94,701,000 in 2024
compared to $55,300,000 in 2023. The net increase year over year was driven by the
merger, which added seven banking centers and 131 additional full-time equivalent
employees on April 1, 2024. The most notable increases were salaries and employee
benefits of $17,103,000, merger related expenses of $8,423,000, occupancy
expenses of $3,753,000, information technology of $2,324,000 and $1,127,000 in
data processing.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
46
OVERVIEW (Continued)
The Company recorded an income tax provision of $3,332,000 for the
twelve months ended December 31, 2024, compared to $8,304,000 for the
twelve months ended December 31, 2023, and $8,496,000 for the twelve months
ended December 31, 2022. Basic EPS was $0.45 for 2024 compared to $2.17 and
$2.27 for 2023 and 2022, respectively. Diluted EPS was $0.45 for 2024 compared to
$2.17 and $2.27 for 2023 and 2022, respectively.
Return on Average Assets and Net Interest Margin
Our ROA is a ratio that measures our performance as a comparable figure with
other banks and bank holding companies. Our ROA for the year ended 2024 was
0.24% compared to 1.04% and 1.09% for the years ended December 31, 2023 and
2022, respectively. The 2024 decrease of 80 basis points in ROA is primarily due
to the decrease in net income due to merger related expenses, including a one-time
provision for the expected credit losses of the acquired portfolio of $10,877,000.
Our net interest margin (fully tax equivalent basis) was 3.76% for the year
ended December 31, 2024, compared to 3.58% and 3.52% for the years ended
December 31, 2023 and 2022, respectively. The increase in 2024 net interest margin
compared to 2023, resulted from the increase in the yield on the Company’s loan
portfolio and an increase in the balance of average interest earning assets. The effective
tax equivalent yield on total earning assets increased 101 basis points. This increase
was partially offset by an increase in the cost of total interest-bearing liabilities, which
increased 117 basis points to 2.76% for the year ended December 31, 2024. Our
cost of total deposits in 2024 and 2023 was 1.53% and 0.72%, respectively, compared
to 0.06% for the same period in 2022. Our net interest income before provision
for credit losses increased $27,938,000 or 33.89% to $110,367,000 for the year ended
2024 compared to $82,429,000 and $79,566,000 for the years ended 2023 and
2022, respectively.
Asset Quality
For all banks and bank holding companies, asset quality has a significant impact on
the overall financial condition and results of operations. Asset quality is measured in
terms of classified and nonperforming loans, and is a key element in estimating the
future earnings of a company. There were $6.46 million nonperforming assets or
nonperforming loans at December 31, 2024. There were no non-performing loans
at December 31, 2023. The increase in nonperforming assets was primarily due to
nonperforming assets acquired as of April 1, 2024 in connection with the merger.
Also during 2024, there were $2.26 million in single family residential mortgages
placed on non-accrual.
The Company had no other real estate owned at December 31, 2024, or
December 31, 2023. No foreclosed assets were recorded at December 31, 2024 or
December 31, 2023. Management maintains certain loans that have been brought
current by the borrower (less than 30 days delinquent) on nonaccrual status until such
time as management has determined that the loans are likely to remain current in
future periods.
The allowance for credit losses as a percentage of outstanding loan balance was
1.11% as of December 31, 2024 and 1.14% as of December 31, 2023. The ratio of
net charge-offs/(recoveries) to average loans was 0.02% as of December 31, 2024
and (0.002)% as of December 31, 2023.
Asset Growth
As revenues from both net interest income and non-interest income are a function
of asset size, the continued growth in assets has a direct impact in increasing net
income and therefore ROE and ROA. The majority of our assets are loans and
investment securities, and the majority of our liabilities are deposits, and therefore
the ability to generate deposits as a funding source for loans and investments is
fundamental to our asset growth. Due to the merger that closed on April 1, 2024,
total assets increased 45% during 2024 to $3,521,771,000 as of December 31, 2024
from $2,433,426,000 as of December 31, 2023. Total loans, net of discount
increased 80.84% to $2,334,221,000 as of December 31, 2024, compared to
$1,290,797,000 at December 31, 2023. Total investment securities decreased
$121,229,000 to $785,058,000 as of December 31, 2024 compared to $906,287,000
as of December 31, 2023. Total deposits increased 43% to $2,910,777,000 as of
December 31, 2024 compared to $2,041,612,000 as of December 31, 2023.
Our loan to deposit ratio at December 31, 2024 was 80.19% compared to 63.22%
at December 31, 2023.
Capital Adequacy
At December 31, 2024, we had a total capital to risk-weighted assets ratio of
13.58%, a Tier 1 risk-based capital ratio of 11.33%, common equity Tier 1 ratio of
11.15%, and a leverage ratio of 9.17%. At December 31, 2023, we had a total capital
to risk-weighted assets ratio of 16.08%, a Tier 1 risk-based capital ratio of 13.07%,
common equity Tier 1 ratio of 12.78%, and a leverage ratio of 9.18%. At
December 31, 2024, on a stand-alone basis, the Bank had a total risk-based capital
ratio of 14.54%, a Tier 1 risk based capital ratio of 13.54%, common equity Tier 1
ratio of 13.54%, and a leverage ratio of 11.04%. At December 31, 2023, the
Bank had a total risk-based capital ratio of 17.74%, Tier 1 risk-based capital of
16.76% and a leverage ratio of 11.75%. Note 13 of the audited Consolidated
Financial Statements provides more detailed information concerning the Company’s
capital amounts and ratios.
As of December 31, 2024, the Bank met or exceeded all of their capital
requirements inclusive of the capital buffer. The Bank’s capital ratios exceeded the
regulatory guidelines for a well-capitalized financial institution under the Basel III
regulatory requirements at December 31, 2024.
Operating Efficiency
Operating efficiency is the measure of how efficiently earnings before taxes are
generated as a percentage of revenue. A lower ratio represents greater efficiency. The
Company’s efficiency ratio (operating expenses divided by net interest income
plus non-interest income) was 81.07% for 2024 compared to 61.82% for 2023 and
57.30% for 2022. The decline in the efficiency ratio in 2024 was due to the
merger related expenses. The combination of the Company’s net interest income
before provision for credit losses, plus non-interest income, increased 30.59% to
$116,812,000 in 2024 compared to $89,449,000 in 2023 and $84,620,000 in 2022,
while operating expenses increased 71.25% in 2024, 14.06% in 2023, and 1.06%
in 2022.
Liquidity
Liquidity management involves our ability to meet cash flow requirements arising
from fluctuations in deposit levels and demands of daily operations, which include
providing for customers’ credit needs, funding of securities purchases, and ongoing
repayment of borrowings. Our liquidity is actively managed on a daily basis and
reviewed periodically by our management and Directors’ Asset/Liability Committee.
This process is intended to ensure the maintenance of sufficient funds to meet our
needs, including adequate cash flows for off-balance sheet commitments. Our primary
sources of liquidity are derived from financing activities which include the
acceptance of customer and, to a lesser extent, broker deposits, Federal funds
facilities and advances from the Federal Home Loan Bank of San Francisco, or the
Federal Reserve. We have available unsecured lines of credit with correspondent banks
totaling approximately $110,000,000 and secured borrowing lines of approximately
$738,556,000 with the Federal Home Loan Bank. These funding sources are
augmented by collection of principal and interest on loans, the routine maturities
and pay downs of securities from our investment securities portfolio, the stability of
our core deposits, and the ability to sell investment securities. Primary uses of
funds include origination and purchases of loans, withdrawals of and interest
payments on deposits, purchases of investment securities, and payment of operating
expenses.
We had liquid assets (cash and due from banks, interest-earning deposits in other
banks, Federal funds sold, equity securities, and available-for-sale securities) totaling
$604,097,000 or 17.15% of total assets at December 31, 2024 and $657,573,000
or 27.02% of total assets as of December 31, 2023.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
47
RESULTS OF OPERATIONS
(In thousands, except share and per-share
amounts)
For the Year Ended
December 31,
2024
December 31,
2023
December 31,
2022
Net interest income before provision for
credit losses
$
110,367 $
82,429 $
79,566
Provision for credit losses
11,113
309
995
Net interest income after provision for credit
losses
99,254
82,120
78,571
Total non-interest income
6,445
7,020
5,054
Total non-interest expenses
94,701
55,300
48,484
Income before provision for income taxes
10,998
33,840
35,141
Provision for income taxes
3,332
8,304
8,496
Net income
$7,666
$25,536
$26,645
Net income was $7,666,000 in 2024 compared to $25,536,000 and $26,645,000
in 2023 and 2022, respectively. Basic earnings per share was $0.45, $2.17, and $2.27
for 2024, 2023, and 2022, respectively. Diluted earnings per share was $0.45,
$2.17, and $2.27 for 2024, 2023, and 2022, respectively. ROE was 2.42% for 2024
compared to 13.81% for 2023 and 14.25% for 2022. ROA for 2024 was 0.24%
compared to 1.04% for 2023 and 1.09% for 2022.
Net income for the year ended December 31, 2024 decreased $17,870,000
compared to 2023 and decreased $1,109,000 in 2023 compared to 2022.
Contributing to the decrease during 2024, compared to 2023, were merger related
expenses, including a one-time provision for the expected credit losses of the acquired
portfolio of $10,877,000. During 2023, net income compared to 2022 was
primarily impacted by higher non-interest expenses, including $1,191,000 of
merger related expenses.
STATEMENT REGARDING USE OF NON-GAAP FINANCIAL MEASURES
Community West Bancshares’s financial results are presented in accordance with
GAAP and refer to certain non-GAAP financial measures. Management believes that
presentation of operating results using non-GAAP financial measures provides
useful supplemental information to investors and facilitates the analysis of the
Company’s core operating results and comparison of operating results across reporting
periods. Management also uses non-GAAP financial measures to establish budgets
and manage the Company’s business. A reconciliation of the GAAP financial measures
to comparable non-GAAP financial measures is presented below.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
48
STATEMENT REGARDING USE OF NON-GAAP FINANCIAL MEASURES (Continued)
Reconciliation of GAAP and Non-GAAP Financial Measures
(In thousands, except share and per-share amounts)
December 31,
2024
December 31,
2023
NET INCOME:
Net income (GAAP)
$
7,666
$
25,536
Merger and conversion related costs:
Provision for credit losses on non-purchased credit deteriorated loans
10,877
-
Personnel and severance
3,639
-
Professional services
2,240
1,191
Data processing and information technology
2,961
-
Other
774
-
Total merger and conversion related costs, net of taxes
20,491
1,191
Loss on sale of investment securities
4,199
907
Income tax benefit of non-core expenses
(7,298)
(620)
Comparable net income (non-GAAP)
$
25,058
$
27,014
DILUTED EARNINGS PER SHARE:
Weighted average diluted shares
17,179,796
11,752,872
Diluted earnings per share (GAAP)
$
0.45
$
2.17
Comparable diluted earnings per share (non-GAAP)
$
1.46
$
2.30
RETURN ON AVERAGE ASSETS
Average assets
$
3,190,361
$2,460,358
Return on average assets (GAAP)
0.24%
1.04%
Comparable return on average assets (non-GAAP)
0.79%
1.10%
RETURN ON AVERAGE EQUITY
Average stockholders’ equity
$
317,142
$
184,878
Return on average equity (GAAP)
2.42%
13.81%
Comparable return on average equity (non-GAAP)
7.90%
14.61%
EFFICIENCY RATIO
Non-interest expense (GAAP)
$
94,701
$
55,300
Merger-related non-interest expenses
(20,491)
(1,191)
Non-interest expense (non-GAAP)
74,210
54,109
Net interest income (GAAP)
110,367
82,429
Non-interest income (GAAP)
6,445
7,020
Loss on sale of investment securities
4,199
907
Non-interest income (non-GAAP)
$
10,644
$
7,927
Efficiency ratio (GAAP)
81.07%
61.82%
Comparable efficiency ratio (non-GAAP)
61.33%
59.88%
Interest Income and Expense
The level of net interest income depends on several factors in combination, including yields on earning assets, the cost of interest-bearing liabilities, the relative volumes of
earning assets and interest-bearing liabilities, and the mix of products which comprise the Company’s earning assets, deposits, and other interest-bearing liabilities. To maintain
its net interest margin, the Company must manage the relationship between interest earned and paid.
The following Distribution, Rate and Yield table presents the average amounts outstanding for the major categories of the Company’s balance sheet, the average interest
rates earned or paid thereon, and the resulting net interest margin on average interest earning assets for the periods indicated. Average balances are based on daily averages.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
49
STATEMENT REGARDING USE OF NON-GAAP FINANCIAL MEASURES (Continued)
SCHEDULE OF AVERAGE
BALANCES, AVERAGE YIELDS
AND RATES
(Dollars in thousands)
Year Ended December 31, 2024
Year Ended December 31, 2023
Year Ended December 31, 2022
Average
Balance
Interest
Income/
Expense
Average
Interest
Rate
Average
Balance
Interest
Income/
Expense
Average
Interest
Rate
Average
Balance
Interest
Income/
Expense
Average
Interest
Rate
ASSETS
Interest-earning deposits in other
banks
$
83,251
$
4,355
5.23%
$
67,749
$
3,576
5.28%
$
48,032
$
391
0.81%
Securities
Taxable securities
663,230
20,384
3.07%
760,140
23,437
3.08%
862,079
20,011
2.32%
Non-taxable securities (1)
249,584
6,940
2.78%
256,196
7,091
2.77%
270,014
8,454
3.13%
Total investment securities
912,814
27,324
2.99%
1,016,336
30,528
3.00%
1,132,093
28,465
2.51%
Total securities and interest-
earning deposits
996,065
31,679
3.18%
1,084,085
34,104
3.15%
1,180,125
28,856
2.45%
Loans (2) (3)
1,978,386
130,166
6.58%
1,263,226
69,803
5.53%
1,133,641
55,907
4.93%
Total interest-earning assets
2,974,451
$
161,845
5.44%
2,347,311
$
103,907
4.43%
2,313,766
$
84,763
3.66%
Allowance for credit losses
(22,635)
(14,312)
(10,005)
Nonaccrual loans
2,421
-
278
Cash and due from banks
29,884
27,671
36,491
Bank premises and equipment
20,297
10,465
8,092
Other assets
185,943
89,223
90,772
Total average assets
$
3,190,361
$
2,460,358
$
2,439,394
LIABILITIES AND
SHAREHOLDERS’ EQUITY
Interest-bearing liabilities:
Savings and NOW accounts
$
481,447
$1,464
0.30%
$
473,102
$611
0.13%
$581,285
$232
0.04%
Money market accounts
759,203
20,284
2.67%
531,013
8,910
1.68%
486,823
848
0.17%
Time certificates of deposit
389,667
18,918
4.85%
163,220
6,006
3.68%
81,473
117
0.14%
Total interest-bearing
deposits
1,630,317
40,666
2.49%
1,167,335
15,527
1.33%
1,149,581
1,197
0.10%
Other borrowed funds
178,627
9,355
5.24%
86,250
4,462
5.17%
63,752
2,225
3.49%
Total interest-bearing liabilities
1,808,944
$
50,021
2.76%
1,253,585
$
19,989
1.59%
1,213,333
$3,422
0.28%
Non-interest bearing demand
deposits
1,025,611
987,906
1,006,511
Other liabilities
38,664
33,989
32,532
Shareholders’ equity
317,142
184,878
187,018
Total average liabilities and
shareholders’ equity
$
3,190,361
$
2,460,358
$
2,439,394
Interest income and rate earned on
average earning assets
$
161,845
5.44%
$
103,907
4.43%
$
84,763
3.66%
Interest expense and interest cost
related to average interest-bearing
liabilities
50,021
2.76%
19,989
1.59%
3,422
0.28%
Net interest income and net interest
margin (4)
$
111,824
3.76%
$
83,918
3.58%
$
81,341
3.52%
(1) Interest income is calculated on a fully tax equivalent basis, which includes Federal tax benefits relating to income earned on municipal bonds totaling $1,457, $1,489, and $1,775 in 2024, 2023,
and 2022, respectively.
(2) Loan interest income includes loan (costs)fees of $(622) in 2024, $(11) in 2023, and $274 in 2022.
(3) Average loans do not include nonaccrual loans.
(4) Net interest margin is computed by dividing net interest income by total average interest-earning assets.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
50
STATEMENT REGARDING USE OF NON-GAAP FINANCIAL MEASURES
(Continued)
The following table sets forth a summary of the changes in interest income and
interest expense due to changes in average asset and liability balances (volume) and
changes in average interest rates for the periods indicated. The change in interest due
to both rate and volume has been allocated to the change in rate.
Changes in Volume/Rate
(In thousands)
For the Years Ended
December 31, 2024
Compared to 2023
For the Years Ended
December 31, 2023
Compared to 2022
Volume
Rate
Net
Volume
Rate
Net
Increase (decrease) due to
changes in:
Interest income:
Interest-earning
deposits in other
banks
$
818 $
(39) $
779
$
160 $
3,025 $
3,185
Investment securities:
Taxable
(2,988)
(65)
(3,053)
(2,366)
5,792
3,426
Non-taxable (1)
(183)
32
(151)
(432)
(931)
(1,363)
Total investment
securities
(3,171)
(33)
(3,204)
(2,798)
4,861
2,063
Loans
39,518
20,845
60,363
6,390
7,506
13,896
Total earning
assets (1)
37,165
20,773
57,938
3,752
15,392
19,144
Interest expense:
Deposits:
Savings, NOW and
MMA
3,838
8,389
12,227
33
8,408
8,441
Time certificate of
deposits
8,332
4,580
12,912
117
5,772
5,889
Total interest-
bearing deposits
12,170
12,969
25,139
150
14,180
14,330
Other borrowed funds
4,778
115
4,893
785
1,452
2,237
Total interest bearing
liabilities
16,948
13,084
30,032
935
15,632
16,567
Net interest income (1)
$ 20,217 $
7,689 $ 27,906
$
2,817 $
(240) $
2,577
(1) Computed on a tax equivalent basis for securities exempt from federal income taxes.
Interest and fee income from loans increased $60,363,000 or 86.48% in 2024
compared to 2023. Interest and fee income from loans increased $13,896,000 or
24.86% in 2023 compared to 2022. The increase in 2024 is attributable to rate
increases and an increase of $717,581,000 in average total loans outstanding.
Average total loans, including nonaccrual loans, for 2024 increased $717,581,000
to $1,980,807,000 compared to $1,263,226,000 for 2023 and $1,133,919,000 for
2022. The yield on loans for 2024 was 6.58% compared to 5.53% and 4.93% for
2023 and 2022, respectively. The impact to interest income from the accretion of
the loan marks on acquired loans was an increase to $9,849,000 from $325,000 for
the years ended December 31, 2024 and 2023, respectively.
Interest income from total investment securities decreased $3,204,000 in the
twelve months ended December 31, 2024 to $27,324,000 compared to $30,528,000
for 2022 and $28,465,000 for 2022. The yield on average total investment
securities decreased one basis point to 2.99% for the twelve months ended
December 31, 2024 compared to 3.00% for 2023 and 2.51% for 2022. Average
total amortized cost of investment securities for the twelve months ended
December 31, 2024 decreased $103,522,000 or 10.19% to $912,814,000 compared
to $1,016,336,000 for 2023 and $1,132,093,000 for 2022.
A significant portion of the investment portfolio is mortgage-backed securities
(MBS) and collateralized mortgage obligations (CMOs). At December 31, 2024, we
held $302,857,000 or 38.90% of the total market value of the investment portfolio
in MBS and CMOs with an average book yield of 2.94%. We invested in CMOs and
MBS as part of our overall strategy to increase our net interest margin. CMOs and
MBS by their nature are affected by prepayments which are impacted by changes in
interest rates. In a normal declining rate environment, prepayments from MBS
and CMOs would be expected to increase and the expected life of the investment
would be expected to shorten. However, as interest rates have increased, prepayments
have declined and the average life of the MBS and CMOs have extended. Premium
amortization and discount accretion of these investments affects our net interest
income. Management monitors the prepayment trends of these investments and
adjusts premium amortization and discount accretion based on several factors. These
factors include the type of investment, the investment structure, interest rates,
interest rates on new mortgage loans, expectation of interest rate changes, current
economic conditions, the level of principal remaining on the bond, the bond coupon
rate, the bond origination date, and volume of available bonds in market. The
calculation of premium amortization and discount accretion is by its nature inexact,
and represents management’s best estimate of principal pay downs inherent in the
total investment portfolio.
The cumulative net-of-tax effect of the change in market value of the available-for-
sale investment portfolio as of December 31, 2024 was an unrealized loss of
$55,115,000 and is reflected in the Company’s equity. At December 31, 2024, the
effective duration of the available-for-sale investment portfolio was 4.02 years and the
market value reflected a pre-tax unrealized loss of $59,221,000. Management
reviews market value declines on individual investment securities to determine
whether there is a need to record impairment. For the years ended December 31,
2024, 2023, and 2022, no impairment was recorded. Future deterioration in the
market values of our investment securities may require the Company to recognize
unrealized losses.
Total interest income in 2024 increased $57,970,000 to $160,388,000 compared
to $102,418,000 in 2023 and $82,988,000 in 2022, respectively. The increase in
2024 was the result of the merger, yield changes and asset mix changes. The tax-
equivalent yield on interest earning assets increased to 5.44% for the year ended
December 31, 2024 from 4.43% for the year ended December 31, 2023. Average
interest earning assets increased to $2,974,451,000 for the year ended December 31,
2024 compared to $2,347,311,000 for the year ended December 31, 2023.
Average interest-earning deposits in other banks increased $15,502,000 in 2024
compared to 2023. Average yield on these deposits was 5.23% compared to 5.28%
on December 31, 2024 and December 31, 2023 respectively. Average investments and
interest-earning deposits decreased $88,020,000 and the tax equivalent yield on
those assets increased three basis points. Average total loans increased $717,581,000
while the yield on average loans increased 105 basis points.
Interest expense on deposits in 2024 increased $25,139,000 or 161.91% to
$40,666,000 compared to $15,527,000 in 2023 and increased $39,469,000 as
compared to 2022. The yield on interest-bearing deposits increased to 2.49% for the
year ended December 31, 2024, compared to 1.33% for the year ended
December 31, 2023. The yield on interest-bearing deposits increased 123 basis
points from 0.10% when comparing 2023 to 2022. Average interest-bearing deposits
were $1,630,317,000 for 2024 compared to $1,167,335,000 and $1,149,581,000
for 2023 and 2022, respectively.
Average other borrowings were $178,627,000 with an effective rate of 5.24% for
2024 compared to $86,250,000 with an effective rate of 5.17% for 2023. Included
in other borrowings are the junior subordinated debentures acquired from Service 1st
Bancorp (“Service 1st”), subordinated debt, senior debt, advances on lines of
credit, advances from the Federal Home Loan Bank (FHLB), and overnight
borrowings. The junior subordinated debentures carry a floating rate based on the
three month SOFR plus a margin of 1.60%. The rate was 6.52% for 2024 and 7.26%
for 2023. The subordinated debt, issued in 2021, bears a fixed interest rate of
3.130% per year. The senior debt has an interest rate cap of 6.75% which was reached
in 2022. The FHLB long-term advances were recorded at fair value as of April 1,
2024 and included a discount of $4.4 million that is being amortized over the
remaining life of the advances, which mature in April and June 2025. Additionally,
there was one short-term FHLB advance outstanding as of December 31, 2024 with
an interest rate of 4.52%.
The cost of all interest-bearing liabilities was 2.76% for 2024, compared to
1.59% and 0.28% for 2023 and 2022, respectively. The cost of total deposits was
1.53% for the year ended December 31, 2024, compared to 0.72% and 0.06% for
the years ended December 31, 2023 and 2022, respectively. Average non-interest
bearing demand deposits increased $37,705,000 to $1,025,611,000 in 2024
compared to $987,906,000 for 2023 and $1,006,511,000 for 2022. The ratio of
average non-interest demand deposits to average total deposits decreased to 38.62%
for 2024 compared to 45.84% and 46.68% for 2023 and 2022, respectively.
NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES
Net interest income before provision for credit losses for 2024 increased $27,938,000
or 33.89% to $110,367,000 compared to $82,429,000 for 2023. The increase in
Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
51
NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES
(Continued)
2024 was a result of yield changes, asset mix changes, and an increase in average
earning assets, offset by an increase in average interest bearing liabilities. The increase
in average earnings assets and liabilities was due to the merger with Community
West Bank. The net interest margin (NIM) increased eighteen basis points. Yield on
interest earning assets increased 101 basis points. The increase in net interest
margin in the period-to-period comparison resulted primarily from the increase in
yield and volume of loans partially offset by increase in the yield and volume of interest-
bearing liabilities.
Net interest income before provision for credit losses increased $7,012,000 in
2023 compared to 2022, primarily due yield changes and asset mix changes. Average
interest-earning assets were $2,974,451,000 for the year ended December 31, 2024
with a NIM of 3.76% compared to $2,347,311,000 with a NIM of 3.58% in 2023,
and $2,313,766,000 with a NIM of 3.52% in 2022. For a discussion of the
repricing of our assets and liabilities, refer to Quantitative and Qualitative Disclosure
about Market Risk.
NON-INTEREST INCOME
Non-interest income is comprised of customer service charges, gains (losses) on sales
and calls of investment securities, income from appreciation in cash surrender
value of bank owned life insurance, loan placement fees, Federal Home Loan Bank
dividends, and other income. Non-interest income was $6,445,000 in 2024 compared
to $7,020,000 and $5,054,000 in 2023 and 2022, respectively. The $575,000 or
8.19% decrease in non-interest income in 2024 was driven by an increase in net
realized losses on sales and calls of investment securities, partially offset by an increase
in other income, increase in loan placement fees and an increase in service charge
income. The $1,966,000 or 39% improvement in non-interest income in 2023 was
driven by a decrease in net realized losses on sales and calls of investment securities,
an increase in other income, gain on sale of assets, partially offset by a decrease in loan
placement fees and service charges.
Customer service charges increased $295,000 to $1,798,000 in 2024 compared
to $1,503,000 in 2023. The increase in service charge fees in 2024 was due to the
merger and increased customer base. Service charges were $2,014,000 in 2022. The
decrease in our 2023 fees compared to 2022 was the result of lower NSF and
analysis service charges.
During the year ended December 31, 2024, we realized net losses on sales and
calls of investment securities of $4,199,000, compared to net losses of $907,000 and
$1,730,000 in 2023 and 2022, respectively. The net losses in all years were the
results of partial restructuring of the investment portfolio designed to improve the
future performance of the portfolio. Realized losses recorded in 2024 and 2023 were
the result of strategic decisions to reduce the overall impact of the Company’s
investment portfolio and fund loan growth. See Note 3 to the audited Consolidated
Financial Statements for more detail.
Income from the appreciation in cash surrender value of bank owned life
insurance (BOLI) totaled $1,325,000 in 2024 compared to $1,035,000 and
$985,000 in 2023 and 2022, respectively. The Bank’s salary continuation and
deferred compensation plans and the related BOLI are used as retention tools for
directors and key executives of the Bank.
Interchange fees totaled $2,078,000 in 2024 compared to $1,780,000 and
$1,847,000 in 2023 and 2022, respectively.
The Company earns loan placement fees from the brokerage of single-family
residential mortgage loans provided for the convenience of our customers. Loan
placement fees increased $309,000 in 2024 to $893,000 compared to $584,000 in
2023 and $899,000 in 2022.
The Bank holds stock from the Federal Home Loan Bank in relationship with its
borrowing capacity and generally receives quarterly dividends. As of December 31,
2024 and 2023, we held FHLB stock totaling $10,978,000 and $7,136,000,
respectively. Dividends in 2024 increased to $796,000 compared to $498,000 in
2023 and $367,000 in 2022.
Other income increased to $3,747,000 in 2024 compared to $2,125,000 and
$657,000 in 2023 and 2022, respectively. The increase in other income is primarily
attributed to changes in fair value of other equity investments and increase in
certain merchant fee activity.
NON-INTEREST EXPENSES
Salaries and employee benefits, occupancy and equipment, regulatory assessments,
acquisition and integration-related expenses, data processing expenses, ATM/Debit
card expenses, license and maintenance contract expenses, information technology,
and professional services (consisting of audit, accounting, consulting and legal fees)
are the major categories of non-interest expenses. Non-interest expenses increased
$39,401,000 or 71.25% to $94,701,000 in 2024 compared to $55,300,000 in
2023, and $48,484,000 in 2022.
Our efficiency ratio, measured as the percentage of non-interest expenses
(exclusive of amortization of core deposit intangibles, other real estate owned, and
repossessed asset expenses) to net interest income before provision for credit losses plus
non-interest income (exclusive of realized gains or losses on sale and calls of
investments) was 81.07% for 2024 compared to 61.82% for 2023 and 57.30% for
2022. The increase in the efficiency ratio in 2024 compared to 2023 was due to the
increase in non-interest expense, primarily due to merger related expenses.
Salaries and employee benefits increased $17,103,000 or 54.53% to $48,470,000
in 2024 compared to $31,367,000 in 2023 and $28,917,000 in 2022. Full time
equivalents were 346 for the year ended December 31, 2024 compared to 246 for the
year ended December 31, 2023. The increase in salaries and employee benefits in
2024 compared to 2023 was from the increased headcount from the merger as well
as increases in salary to reflect current market conditions.
For the years ended December 31, 2024, 2023, and 2022, the compensation cost
recognized for equity-based compensation was $879,000, $858,000 and $776,000,
respectively. As of December 31, 2024, there was $1,097,000 of total unrecognized
compensation cost related to non-vested equity-based compensation arrangements
granted under all plans. The cost is expected to be recognized over a weighted average
period of 2.15 years. See Notes 1 and 14 to the audited Consolidated Financial
Statements for more detail. The Company issued 390,462 options to purchase
common stock to previous option holders of Community West Bancshares as part of
the merger. No options to purchase shares of the Company’s common stock were
issued during the years ending December 31, 2023 and 2022. Restricted common
stock awards of 72,360, 69,692, and 56,089 shares were awarded in 2024, 2023, and
2022, respectively.
Occupancy and equipment expense increased $3,753,000 or 65.54% to
$9,479,000 in 2024 compared to $5,726,000 in 2023 and $5,131,000 in 2022.
The Company made no changes in its depreciation expense methodology. The
Company operated 26 full-service offices at December 31, 2024 and 19 full-service
offices at December 31, 2023. During 2024, the Company acquired seven banking
centers through the merger and opened one new banking center.
Regulatory assessments were $1,837,000 in 2024 compared to $1,312,000 and
$851,000 in 2023 and 2022, respectively. The assessment base for calculating the
amount owed is based on the formula of average assets minus average tangible equity.
Information technology expense increased $2,324,000 to $5,940,000 for the
year ended December 31, 2024 compared to $3,616,000 and $3,344,000 in 2023
and 2022, respectively. Data processing expenses were $3,748,000 in 2024 compared
to $2,621,000 in 2023 and $2,245,000 in 2022. Professional services increased
$591,000 in 2024 compared to 2023 due to higher audit fees, legal expenses and
consulting fees.
The following table shows significant components of other non-interest expense
for the periods indicated:
Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
52
NON-INTEREST EXPENSES (Continued)
For the Twelve Months
Ended December 31,
(Dollars in thousands)
2024
2023
2022
Telephone expenses
$787
$439
$376
Donations, including Community Reinvestment
Act (CRA) donations
701
326
225
Business development and entertainment
618
210
122
Travel expense
537
162
114
Armored car and courier service
507
266
257
Meetings and meals
382
184
144
Operating losses
375
214
253
Stationery and supplies
331
153
155
Internet banking expense
319
158
134
General insurance
278
255
211
Alarm and security service expense
267
146
121
Education and training
263
220
191
Remote deposit capture
218
163
123
Association expense
145
121
133
Risk management expense
99
142
99
Service charge fee expense
85
101
99
Other
1,622
1,110
816
Total other non-interest expense
$7,534
$4,370
$3,573
PROVISION FOR INCOME TAXES
Our effective income tax rate was 30.3% for 2024 compared to 24.5% for 2023 and
24.2% for 2022. The increase in the effective tax rate during 2024 was due to non-
deductible merger expenses, non-deductible salary expenses, increased meals and
entertainment expenses, and tax return true-ups. The Company reported an income
tax provision of $3,332,000, $8,304,000, and $8,496,000 for the years ended
December 31, 2024, 2023, and 2022, respectively.
Some items of income and expense are recognized in different years for tax
purposes than when applying generally accepted accounting principles leading to
timing differences between the Company’s actual tax liability, and the amount accrued
for this liability based on book income. These temporary differences comprise the
“deferred” portion of the Company’s tax expense or benefit, which is accumulated on
the Company’s books as a deferred tax asset or deferred tax liability until such time
as they reverse.
Realization of the Company’s deferred tax assets is primarily dependent upon the
Company generating sufficient future taxable income to obtain benefit from the
reversal of net deductible temporary differences and the utilization of tax credit
carryforwards and the net operating loss carryforwards for Federal and California
state income tax purposes. The amount of deferred tax assets considered realizable is
subject to adjustment in future periods based on estimates of future taxable
income. Under generally accepted accounting principles, a valuation allowance is
required to be recognized if it is “more likely than not” that the deferred tax assets will
not be realized. The determination of the realization of the deferred tax assets is
highly subjective and dependent upon judgment concerning management’s evaluation
of both positive and negative evidence, including forecasts of future income,
cumulative losses, applicable tax-planning strategies, and assessments of current and
future economic and business conditions.
The Company had net deferred tax assets of $46,421,000 and $38,456,000 at
December 31, 2024 and 2023, respectively. After consideration of the matters in the
preceding paragraph, the Company determined that it is more likely than not that
the net deferred tax assets at December 31, 2024 and 2023 will be fully realized in
future years.
FINANCIAL CONDITION
SUMMARY OF CHANGES IN CONSOLIDATED BALANCE SHEETS
Total assets were $3,521,771,000 as of December 31, 2024, compared to
$2,433,426,000 as of December 31, 2023, an increase of 44.7% or $1,088,345,000.
Total loans, net of discount and origination costs, were $2,334,221,000 as of
December 31, 2024, compared to $1,290,797,000 as of December 31, 2023, an
increase of $1,043,424,000 or 80.8%. The total investment portfolio decreased
13.38% or $121,229,000 to $785,058,000. Total deposits increased 42.6% or
$869,165,000 to $2,910,777,000 as of December 31, 2024, compared to
$2,041,612,000 as of December 31, 2023. Shareholders’ equity increased
$155,621,000 or 75% to $362,685,000 as of December 31, 2024, compared to
$207,064,000 as of December 31, 2023. The increase in shareholders’ equity was
driven by the issuance of common stock of $143,712,000 in relation to the merger
with Community West Bancshares, the decrease in net unrealized losses on the
investment portfolio, net of estimated taxes, in accumulated other comprehensive
income (AOCI), supported by the retention of earnings, net of dividends paid.
Accrued interest payable and other liabilities were $44,978,000 as of December 31,
2024, compared to $35,006,000 as of December 31, 2023, an increase of $9,972,000.
FAIR VALUE
The Company measures the fair value of its financial instruments utilizing a
hierarchical framework associated with the level of observable pricing scenarios
utilized in measuring financial instruments at fair value. The degree of judgment
utilized in measuring the fair value of financial instruments generally correlates to the
level of the observable pricing scenario. Financial instruments with readily available
actively quoted prices or for which fair value can be measured from actively quoted
prices generally will have a higher degree of observable pricing and a lesser degree
of judgment utilized in measuring fair value. Conversely, financial instruments rarely
traded or not quoted will generally have little or no observable pricing and a higher
degree of judgment utilized in measuring fair value. Observable pricing scenarios are
impacted by a number of factors, including the type of financial instrument,
whether the financial instrument is new to the market and not yet established and
the characteristics specific to the transaction.
See Note 17 of the Notes to Consolidated Financial Statements for additional
information about the level of pricing transparency associated with financial
instruments carried at fair value.
INVESTMENTS
The following table reflects the balances for each category of securities at year end
(in thousands):
Available-for-Sale Securities
Amortized Cost at December 31,
2024
2023
2022
U.S. Treasury securities
$
9,994 $
9,990 $
9,990
U.S. Government agencies
70
102
107
Obligations of states and political subdivisions
183,766
198,070
201,638
U.S. Government sponsored entities and agencies
collateralized by residential mortgage obligations
76,732
88,874
117,292
Private label mortgage and asset backed securities
265,302
372,610
411,441
Corporate debt securities
470
-
-
Total Available-for-Sale Securities
$
536,334 $
669,646 $
740,468
Held-to-Maturity Securities
Amortized Cost at December 31,
2024
2023
2022
Obligations of states and political subdivisions
$
192,156 $
192,070 $
192,004
U.S. Government sponsored entities and agencies
collateralized by residential mortgage obligations
11,095
10,758
10,430
Private label mortgage and asset backed securities
53,066
54,579
56,691
Corporate debt securities
46,198
46,086
45,982
Total Held-to-Maturity Securities
$302,515
$303,493
$305,107
Our investment portfolio consists of U.S. Government sponsored entities and
agencies collateralized by mortgage backed obligations and obligations of states and
political subdivision securities and are classified at the date of acquisition as available-
for-sale or held-to-maturity. As of December 31, 2024, investment securities with a
fair value of $430,714,000, or 54.86% of our investment securities portfolio, were
Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
53
INVESTMENTS (Continued)
held as collateral for public funds, short and long-term borrowings, treasury, tax,
and for other purposes. Our investment policies are established by the Board of
Directors and implemented by our Investment/Asset Liability Committee. They are
designed primarily to provide and maintain liquidity, to enable us to meet our
pledging requirements for public money and borrowing arrangements, to generate a
favorable return on investments without incurring undue interest rate and credit
risk, and to complement our lending activities.
The total investment portfolio decreased 13.38% or $121,229,000 to
$785,058,000 at December 31, 2024, from $906,287,000 at December 31, 2023.
The market value of the portfolio reflected an unrealized loss of $59,221,000 at
December 31, 2024, compared to an unrealized loss of $72,450,000 at
December 31, 2023.
Losses recognized in 2024, 2023, and 2022 were incurred in order to reposition
the investment securities portfolio based on the current rate environment. As market
interest rates or risks associated with a security’s issuer continue to change and
impact the actual or perceived values of investment securities, the Company may
determine that selling these securities and using proceeds to purchase securities that
fit with the Company’s current risk profile is appropriate and beneficial to the
Company.
The Board and management have had periodic discussions about our strategy for
risk management in dealing with potential losses as interest rates rise. We have been
managing the portfolio with an objective of optimizing risk and return in various
interest rate scenarios. We do not attempt to predict future interest rates, but we
analyze the cash flows of our investment portfolio in different interest rate scenarios in
connection with the rest of our balance sheet to design an investment portfolio
that optimizes performance.
The Company periodically evaluates each investment security for other-than-
temporary impairment, relying primarily on industry analyst reports, observation of
market conditions and interest rate fluctuations. The portion of the impairment
that is attributable to a shortage in the present value of expected future cash flows
relative to the amortized cost should be recorded as a current period charge to earnings.
The discount rate in this analysis is the original yield expected at time of purchase.
For those bonds that met the evaluation criteria, management obtained and
reviewed the most recently published national credit ratings for those bonds. For
those bonds that were obligations of states and political subdivisions with an
investment grade rating by the rating agencies, management also evaluated the
financial condition of the municipality and any applicable municipal bond insurance
provider and concluded that no credit related impairment existed. There were no
impairment losses recorded during the years ended December 31, 2024, 2023, or
2022.
The amortized cost, maturities and weighted average yield of investment securities at December 31, 2024 are summarized in the following table.
(Dollars in thousands)
Available-for-Sale Securities
In one year or less
After one through five
years
After five through
ten years
After ten years
Total
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Debt securities (1)
U.S. Treasury securities
$
-
-%
$ 9,994
1.27%
$
-
-%
$
-
-%
$
9,994
1.27%
U.S. Government agencies
-
-
-
-
-
-
70
3.95%
70
3.95%
Obligations of states and political subdivisions (2)
-
-
5,667
1.49%
33,585
2.01%
144,514
2.03%
183,766
2.01%
U.S. Government sponsored entities and agencies
collateralized by residential mortgage obligations
-
-
12
1.27%
6,392
2.06%
70,328
4.70%
76,732
4.11%
Private label residential mortgage and asset backed
securities
19,938
6.81%
3,079
2.59%
4,974
3.15%
237,311
2.19%
265,302
2.56%
Corporate Debt Securities
$
-
-
470
6.36%
$
470
6.36%
$ 19,938
6.81%
$18,752
1.56%
$ 45,421
2.19%
$ 452,223
2.53%
$536,334
2.63%
(Dollars in thousands)
Held-to-Maturity Securities
In one year or less
After one through five
years
After five through
ten years
After ten years
Total
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Debt securities (1)
Obligations of states and political subdivisions (2)
$
-
-%
$24,536
3.40%
$ 60,369
3.43%
$107,251
3.20%
$192,156
3.30%
U.S. Government sponsored entities and agencies
collateralized by residential mortgage obligations
-
-
-
-
-
-
11,095
3.10%
11,095
3.10%
Private label residential mortgage and asset backed
securities
-
-
-
-
-
-
53,066
3.84%
53,066
3.84%
Corporate Debt Securities
-
-
4,000
9.09%
42,198
4.64%
-
-
46,198
5.30%
$
-
-%
$28,536
4.20%
$102,567
3.16%
$171,412
3.39%
$302,515
3.65%
(1) Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment
penalties. Expected maturities will also differ from contractual maturities due to unscheduled principal pay downs.
(2) Not computed on a tax equivalent basis.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
54
LOANS
Total loans, net of discount and deferred costs, increased $1,043,424,000 or 80.8% to $2,334,221,000 as of December 31, 2024, compared to $1,290,797,000 as of
December 31, 2023.
The following table sets forth information concerning the composition of our loan portfolio as of December 31, 2024, 2023, 2022, 2021, and 2020.
2024
2023
2022
2021
2020
Loan Type
(Dollars in thousands)
Amount
% of Gross
Loans
Amount
% of Total
Loans
Amount
% of Total
Loans
Amount
% of Total
Loans
Amount
% of Total
Loans
Commercial:
Commercial and industrial
$
143,422
6.1% $
105,466
8.2% $
141,197
11.3% $
136,600
13.2% $
273,431
24.7%
Agricultural production
37,323
1.6%
33,556
2.6%
37,007
2.9%
40,860
3.9%
21,971
2.0%
Total commercial
180,745
7.7%
139,022
10.8%
178,204
14.2%
177,460
17.1%
295,402
26.7%
Real estate:
Construction & other land loans
67,869
2.9%
33,472
2.6%
109,175
8.7%
61,586
5.9%
55,419
5.0%
Commercial real estate—owner occupied
323,188
13.9%
215,146
16.7%
194,663
15.5%
212,234
20.4%
208,843
18.9%
Commercial real estate—non-owner
occupied
913,165
39.2%
539,522
41.9%
464,809
37.0%
369,529
35.6%
338,888
30.7%
Farmland
139,815
6.0%
120,674
9.4%
119,648
9.5%
98,481
9.5%
84,258
7.6%
Multi-family residential
133,595
5.7%
61,307
4.8%
24,586
2.0%
26,084
2.5%
28,718
2.6%
1-4 family—close-ended
123,445
5.3%
96,558
7.5%
93,510
7.5%
33,377
3.2%
34,245
3.1%
1-4 family—revolving
35,421
1.5%
27,648
2.1%
30,071
2.4%
22,246
2.1%
21,393
1.9%
Total real estate
1,736,498
74.5%
1,094,327
84.9%
1,036,462
82.6%
823,537
79.3%
771,764
69.8%
Consumer:
Manufactured housing
322,263
13.8%
-
-%
-
-%
-
-%
-
-%
Other installment
92,839
4.0%
55,606
4.3%
40,252
3.2%
37,243
3.6%
37,793
3.4%
Total consumer
415,102
17.8%
55,606
4.3%
40,252
3.2%
37,243
3.6%
37,793
3.4%
Total loans, net of discount
2,332,345
100.0%
1,288,955
100.0%
1,254,918
100.0%
1,038,240
100.0%
1,104,959
100.0%
Net deferred origination fees
1,876
1,842
1,386
871
(2,612)
Loans, net of discount and deferred
origination fees
2,334,221
1,290,797
1,256,304
1,039,111
1,102,347
Allowance for credit losses
(25,803)
(14,653)
(10,848)
(9,600)
(12,915)
Total loans, net (1)
$2,308,418
$1,276,144
$1,245,456
$1,029,511
$1,089,432
(1) Includes nonaccrual loans of:
$
6,461
$
-
$
-
$
946
$
3,278
At December 31, 2024, loans acquired in the CWB, FLB, SVB, and VCB acquisitions had a balance of $1,054,668,000, of which $39,237,000 were commercial loans,
$654,181,000 were real estate loans, and $361,250,000 were consumer loans. At December 31, 2023, the acquired loans had a balance of $58,983,000, of which $1,633,000
were commercial loans, $53,591,000 were real estate loans, and $3,759,000 were consumer loans.
At December 31, 2024, in management’s judgment, a concentration of loans existed in real estate-related loans, representing 74.3% of total loans. This level of concentration
is consistent with a concentration of 84.8% at December 31, 2023. The reduction in the concentration of real-estate related loans was primarily due to the merger which added
more diversification of loan types through the acquired manufactured housing portfolio, which is a non-real estate consumer product. We believe that our commercial real
estate loan underwriting policies and practices result in prudent extensions of credit, but recognize that our lending activities result in relatively high reported commercial real
estate lending levels. Although we believe the loans within this real estate concentration have no more than the normal risk of collectability, a substantial decline in the performance
of the economy in general or a decline in real estate values in our primary market areas, in particular, could have an adverse impact on collectability, increase the level of real estate-
related nonperforming loans, or have other adverse effects which alone or in the aggregate could have a material adverse effect on our business, financial condition, results of
operations and cash flows.
In order to mitigate these risks, the Board reviews and approves concentration limits proposed by management. Exceptions to limitations of concentrations are reported to
the Board of Directors at least quarterly. Additionally, the Company maintains policy guidelines for maximum loan to value ratios to mitigate the risk of general declines in real
estate values. The Company performs regular risk assessments, portfolio monitoring of loans, and stress tests as part of its risk management policies to identify any negative
trends within the portfolio. Within the commercial real estate portfolio, there is diversification of collateral type and geography throughout our footprint. The Company did
not engage in any sub-prime mortgage lending activities during the years ended December 31, 2024 and 2023.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
55
LOANS (Continued)
The following table presents the commercial real estate owner and non-owner occupied loan balances, associated percentage of commercial real estate concentrations of
those sub-categories by collateral type as of the dates indicated.
December 31, 2024
December 31, 2023
(In thousands)
Loan Balance
% of
Commercial
Real Estate
Loan Balance
% of
Commercial
Real Estate
Commercial real estate—owner occupied
Office
$
59,952
18.55%
52,952
24.61%
Industrial & warehouse
86,873
26.88%
58,472
27.18%
Retail
35,042
10.84%
13,185
6.13%
Gas Stations
60,503
18.72%
28,072
13.05%
Restaurants
15,534
4.81%
16,917
7.86%
Other
65,284
20.20%
45,548
21.17%
Total
$
323,188
100.00%
215,146
100.00%
Commercial real estate—non-owner occupied
Office
$
253,883
27.80%
187,613
34.77%
Industrial & warehouse
153,192
16.78%
82,550
15.30%
Retail
188,464
20.64%
109,144
20.23%
Hospitality
163,961
17.96%
69,670
12.91%
Other
153,665
16.83%
90,545
16.79%
Total
$
913,165
100.00%
539,522
100.00%
LOAN MATURITIES
The following table presents information concerning loan maturities and sensitivity to changes in interest rates of the indicated categories of our loan portfolio, as well as loans
in those categories maturing after one year that have fixed or floating interest rates at December 31, 2024.
(In thousands)
One Year or
Less
After One
Through Five
Years
After Five
Through Fifteen
Years
After Fifteen
Years
Total
Loan Maturities:
Commercial and agricultural
$
64,355
$
81,510
$
33,065
$
1,815
$
180,745
Real estate construction and other land loans
52,554
14,972
215,000
128
67,869
Other real estate
62,496
418,706
942,246
245,181
1,668,629
Manufactured Housing
254,000
2,113
31,884
288,012
322,263
Other Installment
1,489
4,905
86,225
220
92,839
Total loans, net of discount
$
181,148
$
522,206
$
1,093,635
$
535,356
$
2,332,345
Sensitivity to Changes in Interest Rates:
Loans with fixed interest rates
$
32,757
$
301,694
$
444,000
$
198,927
$
977,378
Loans with floating interest rates (1)
148,391
220,512
649,635
336,429
1,354,967
Total loans, net of discount
$
181,148
$
522,206
$
1,093,635
$
535,356
$
2,332,345
(1) Includes floating rate loans which are currently at their floor rate in
accordance with their respective loan agreement
$
48,546
$
77,787
$
407,484
$
203,455
$
737,272
Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
56
NONPERFORMING ASSETS
Nonperforming assets consist of nonperforming loans, other real estate owned
(OREO), and repossessed assets. Nonperforming loans are those loans which have
(i) been placed on nonaccrual status; (ii) been classified as doubtful under our asset
classification system; or (iii) become contractually past due 90 days or more with
respect to principal or interest and have not been restructured or otherwise placed
on nonaccrual status. A loan is classified as nonaccrual when 1) it is maintained on a
cost recovery method because of deterioration in the financial condition of the
borrower; 2) payment in full of principal or interest under the original contractual
terms is not expected; or 3) principal or interest has been in default for a period of
90 days or more unless the loan is both well secured and in the process of collection.
We measure all loans placed on nonaccrual status for impairment based on the fair
value of the underlying collateral or the net present value of the expected cash
flows.
Our consolidated financial statements are prepared on the accrual basis of
accounting, including the recognition of interest income on loans. Interest income
from nonaccrual loans is recorded only if collection of principal in full is not in doubt
and when cash payments, if any, are received.
Loans are placed on nonaccrual status and any accrued but unpaid interest
income is reversed and charged against income when the payment of interest or
principal is 90 days or more past due. Loans in the nonaccrual category are treated
as nonaccrual loans even though we may ultimately recover all or a portion of the
interest due. These loans return to accrual status when the loan becomes
contractually current, future collectability of amounts due is reasonably assured, and
a minimum of six months of satisfactory principal repayment performance has
occurred. See Note 4 of the Company’s audited Consolidated Financial Statements
in Item 8 of this Annual Report.
At December 31, 2024, there were $6.46 million nonperforming assets. There
were no non-performing assets as of December 31, 2023. Total nonperforming assets
at December 31, 2024, included $6.46 million nonaccrual loans, no OREO, and
no repossessed assets. See Note 4 of the Company’s audited Consolidated Financial
Statements in Item 8 of this Annual Report concerning our recorded investment in
loans for which impairment has been recognized.
A summary of nonaccrual, restructured, and past due loans at December 31,
2024, 2023, 2022, 2021, and 2020 is set forth below. The Company had no loans
past due more than 90 days and still accruing interest at December 31, 2024 and
2023. Management is not aware of any potential problem loans, which were
current and accruing at December 31, 2024, where serious doubt existed as to the
ability of the borrower to comply with the present repayment terms. Management can
give no assurance that nonaccrual and other nonperforming loans will not increase
in the future.
Composition of Nonaccrual, Past Due and Restructured Loans
(As of December 31, Dollars in thousands)
2024
2023
2022
2021
2020
Nonaccrual loans:
Commercial:
Commercial and industrial
$
120
$
-
$
-
$
312
752
Agricultural production
-
-
-
634
-
Real estate:
Construction and other land loans
2,398
-
-
-
1,556
Commercial real estate – owner occupied
2,335
-
-
-
370
Commercial real estate – non-owner occupied
378
-
-
-
512
Farmland
-
-
-
-
-
1-4 family
-
-
-
-
-
Consumer:
Manufactured housing
1,215
-
-
-
-
Consumer and installment
15
-
-
-
88
Restructured loans (non-accruing):
Equity loans and line of credit
-
-
-
-
-
Total nonaccrual
6,461
-
-
946
3,278
Accruing loans past due 90 days or more
-
-
-
-
-
Total nonperforming loans
$
6,461
$
-
$
-
$
946
$
3,278
Interest foregone
$
234
$
-
$
132
$
99
$
177
Ratio of nonaccrual/nonperforming loans to total loans
0.28%
-%
-%
0.09%
0.30%
Ratio of allowance for credit losses to nonaccrual/nonperforming loans
399.37%
NM
NM
539.28%
30.10%
OREO represents real property taken either through foreclosure or through a
deed in lieu thereof from the borrower. OREO is carried at the lesser of cost or fair
market value less selling costs. As of December 31, 2024 and 2023, the Bank had no
OREO properties. The Company held no repossessed assets at December 31, 2024
and 2023, which would be included in other assets on the consolidated balance sheets.
ALLOWANCE FOR CREDIT LOSSES
We have established a methodology for determining the adequacy of the allowance
for credit losses made up of collective and individually evaluated loans. The
methodology is set forth in a formal policy and takes into consideration the need for
an overall allowance for credit losses as well as specific allowances for individually
evaluated loans. The allowance for credit losses is an estimate of expected credit losses
in the Company’s loan portfolio.
The measurement of the allowance for credit losses on collectively evaluated
loans is based on modeled expectations of lifetime expected credit losses utilizing
national and local peer group historical losses, weighting of economic scenarios, and
other relevant factors. The Company incorporates forward-looking information
using macroeconomic scenarios, which include variables that are considered key
drivers of credit losses within the portfolio.The Company uses a probability-weighted,
multiple scenario forecast approach. These scenarios may consist of a base forecast
representing the most likely scenario, or baseline, combined with downside and upside
scenarios reflecting possibly worsening or improving economic conditions.
In originating loans, we recognize that losses will be experienced and that the risk
of loss will vary with, among other things, the type of loan being made, the
creditworthiness of the borrower over the term of the loan, general economic
conditions and, in the case of a secured loan, the quality of the collateral securing
the loan. The allowance is increased by provisions charged against earnings and
Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
57
ALLOWANCE FOR CREDIT LOSSES (Continued)
recoveries, and reduced by net loan charge-offs. Loans are charged off when they are
deemed to be uncollectible, or partially charged off when portions of a loan are
deemed to be uncollectible. Recoveries are generally recorded only when cash
payments are received.
The allowance for credit losses is maintained to cover lifetime expected credit
losses in the loan portfolio. The responsibility for the review of our assets and the
determination of the adequacy lies with management and our Audit/Compliance
Committee. They delegate the authority to the Chief Credit Officer (CCO) to
determine the loss reserve ratio for each type of asset and to review, at least quarterly,
the adequacy of the allowance based on an evaluation of the portfolio, past
experience, prevailing market conditions, economic scenarios, amount of government
guarantees, concentration in loan types and other relevant factors.
Management adheres to an internal asset review system designed to provide for
timely recognition of problem assets and adequate valuation allowances of collateral
dependent loans. The Company’s asset monitoring process includes the use of
asset classifications to segregate the assets, largely loans and real estate, into various
risk categories. The Company uses the various asset classifications as a means of
measuring risk and determining the adequacy of valuation allowances by using a nine-
grade system to classify assets. In general, all credit facilities exceeding 90 days of
delinquency require classification and are placed on nonaccrual.
The following table summarizes the Company’s loan loss experience, as well as provisions and recoveries (charge-offs) to the allowance and certain pertinent ratios for the
periods indicated:
(Dollars in thousands)
2024
2023
2022
2021
2020
Gross loans outstanding at December 31,
$
2,332,345
$
1,288,955
$
1,254,918
$
1,038,240
$
1,104,959
Average loans outstanding during the year
$
1,978,386
$
1,263,226
$
1,133,919
$
1,069,653
$
1,055,712
Allowance for credit losses:
Balance at beginning of year
$
14,653
$
10,848
$
9,600
$
12,915
$
9,130
Impact of adoption of ASU 2016-13
-
3,910
-
-
-
Allowance for PCD loans
821
-
-
-
-
Loans charged off:
Commercial
(170)
(636)
(27)
(46)
(121)
Agricultural production
(507)
-
-
-
-
Real estate construction and other land loans
-
-
-
-
-
Consumer
(132)
(53)
(151)
(221)
(108)
Total loans charged off
(809)
(689)
(178)
(267)
(229)
Recoveries of loans previously charged off:
Commercial
64
609
367
701
612
Commercial real estate
60
-
-
319
-
1-4 family real estate
72
15
-
-
-
Consumer
150
45
59
232
127
Total recoveries
346
669
426
1,252
739
Net (charge-offs) recoveries
(463)
(20)
248
985
510
Provision (credit) for credit losses
10,792
(85)
1,000
(4,300)
3,275
Balance at end of year
$
25,803
$
14,653
$
10,848
$
9,600
$
12,915
Allowance for credit losses as a percentage of outstanding
loan balance
1.11%
1.14%
0.86%
0.92%
1.17%
Net (charge-offs) recoveries to average loans outstanding
(0.02)%
-%
0.02%
0.09%
0.05%
Managing credits identified through the risk evaluation methodology includes
developing a business strategy with the customer to mitigate our losses. Management
continues to monitor these credits with a view to identifying as early as possible
when, and to what extent, additional provisions may be necessary.
The allowance for credit losses is reviewed at least quarterly by the Company’s
Board of Directors’ Audit/Compliance Committee. Reserves are allocated to loan
portfolio segments using percentages which are based on both historical risk elements
such as delinquencies and losses and predictive risk elements such as economic,
competitive and environmental factors. We have adopted the specific reserve
approach to allocate reserves to each individually analyzed asset for the purpose of
estimating potential loss exposure. Although the allowance for credit losses is allocated
to various portfolio categories, it is general in nature and available for the loan
portfolio in its entirety. Additions may be required based on the results of independent
loan portfolio examinations, regulatory agency examinations, or our own internal
review process. Additions are also required when, in management’s judgment, the
reserve does not properly reflect the potential loss exposure.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
58
ALLOWANCE FOR CREDIT LOSSES (Continued)
The allocation of the allowance for credit losses is set forth below:
2024
2023
2022
2021
2020
Loan Type
(Dollars in thousands)
Amount
Percent
of Loans
to Total
Loans
Amount
Percent
of Loans
to Total
Loans
Amount
Percent
of Loans
to Total
Loans
Amount
Percent
of Loans
to Total
Loans
Amount
Percent
of Loans
to Total
Loans
Commercial:
Commercial and industrial
$
1,363
6.10%
$
948
8.20%
$
1,585
11.20%
$
1,689
13.10%
$
1,757
24.80%
Agricultural production
389
1.60%
527
2.60%
229
2.90%
320
3.90%
255
2.10%
Real estate:
Construction & other land loans
2,060
2.90%
848
2.60%
1,678
8.70%
812
5.90%
1,204
5.00%
Commercial real estate—owner
occupied
3,253
13.80%
1,945
16.70%
814
15.50%
1,355
20.40%
2,128
18.90%
Commercial real estate—non-owner
occupied
10,014
39.10%
5,574
41.80%
4,388
37.00%
3,805
35.60%
4,781
30.70%
Farmland
1,393
6.00%
1,254
9.30%
863
9.50%
697
9.50%
838
7.60%
Multi-family residential
1,486
5.70%
642
4.70%
60
2.00%
72
2.50%
223
2.30%
1-4 family—close-ended
1,625
5.30%
1,444
7.50%
465
7.40%
138
3.20%
248
3.10%
1-4 family—revolving
686
1.50%
520
2.20%
142
2.40%
118
2.10%
209
1.90%
Consumer:
Manufactured housing
2,147
13.80%
-
-%
-
-%
-
-%
-
-%
Other installment
1,387
4.20%
951
4.41%
284
3.40%
314
3.80%
641
3.60%
Unallocated reserves
-
-%
-
-%
340
-%
280
-%
631
-%
Total allowance for credit losses
$
25,803
100.00%
$
14,653
100.00%
$
10,848
100.00%
$
9,600
100.00%
$
12,915
100.00%
Loans are charged to the allowance for credit losses when the loans are deemed
uncollectible. It is the policy of management to make additions to the allowance so
that it remains adequate to cover all expected lifetime loan losses that exist in the
portfolio at that time.
As of December 31, 2024, the allowance for credit losses (ACL) was $25,803,000,
compared to $14,653,000 at December 31, 2023, a net increase of $11,150,000. The
net increase of $11,150,000 in the ACL was primarily attributed to the one-time
provision for credit losses on acquired loans related to the merger with Community
West Bancshares. This provision resulted in an increase to the ACL effective April 1,
2024 of $10,877,000. Net charge-offs totaled $463,000 for the twelve months
ended December 31, 2024.
The balance of classified loans and loans graded special mention totaled
$44,294,000 and $17,384,000 at December 31, 2024 and $20,301,000 and
$9,000,000 at December 31, 2023, respectively. The balance of undisbursed
commitments to extend credit on construction and other loans and letters of credit
was $413,973,000 as of December 31, 2024, compared to $276,270,000 as of
December 31, 2023. At December 31, 2024 and 2023, the balance of a contingent
allocation for probable loan loss experience on unfunded obligations was $1,055,000
and $839,000, respectively. The contingent allocation for probable loan loss
experience on unfunded obligations is calculated by management using appropriate,
systematic, and consistently applied processes. While related to credit losses, this
allocation is not a part of ACL and is considered separately as a liability for accounting
and regulatory reporting purposes. Risks and uncertainties exist in all lending
transactions and our management and Directors’ Loan Committee have established
reserve levels based on economic uncertainties and other risks that exist as of each
reporting period.
The ACL as a percentage of total loans was 1.11% at December 31, 2024, and
1.14% at December 31, 2023. Total loans include CWBC, FLB, SVB and VCB
loans that were recorded at fair value in connection with the acquisitions of
$1.05 billion at December 31, 2024 and $59.0 million at December 31, 2023.
Assumptions regarding the collateral value of various under-performing loans may
affect the level and allocation of the allowance for credit losses in future periods. The
allowance may also be affected by trends in the amount of charge-offs experienced
or expected trends within different loan portfolios. However, the total reserve rates on
collectively evaluated loan pools include quantitative factors which are systematically
derived and consistently applied to reflect conservatively estimated losses at the
date of the financial statements. Based on the above considerations and given recent
changes in historical charge-off rates included in the ACL modeling and the
changes in other factors, management determined that the ACL was appropriate as
of December 31, 2024.
There were $6.46 million non-performing loans as of December 31, 2024 or
December 31, 2023. The Company had no other real estate owned at December 31,
2024 or December 31, 2023. No foreclosed assets were recorded at December 31,
2024 or December 31, 2023. Management believes the ACL at December 31, 2024
is adequate based upon its ongoing analysis of the loan portfolio, historical loss
trends and other factors. However, no assurance can be given that the Company may
not sustain charge-offs which are in excess of the allowance in any given period.
GOODWILL AND INTANGIBLE ASSETS
Business combinations involving the Bank’s acquisition of the equity interests or net
assets of another enterprise give rise to goodwill. Total goodwill at December 31,
2024 was $96,828,000 consisting of $43,051,000, $13,466,000, $10,394,000,
$6,340,000, $14,643,000 and $8,934,000 representing the excess of the cost of
CWBC, FLB, SVB, VCB, Service 1st, and Bank of Madera County, respectively, over
the net amounts assigned to assets acquired and liabilities assumed in the transactions
accounted for under the purchase method of accounting. The value of goodwill is
ultimately derived from the Company’s ability to generate net earnings after the
acquisitions and is not deductible for tax purposes. The fair values of assets acquired
and liabilities assumed are subject to adjustment during the first twelve months
after the acquisition date if additional information becomes available to indicate a
more accurate or appropriate value for an asset or liability. A significant decline in net
earnings, among other factors, could be indicative of a decline in the fair value of
goodwill and result in impairment. For that reason, goodwill is assessed at least
annually for impairment.
Management performed an annual impairment test in the third quarter of 2024
utilizing various qualitative factors. Management believes these factors are sufficient
and comprehensive and as such, no further factors need to be assessed at this
time. Based on management’s analysis performed, no impairment was required.
Goodwill is also assessed for impairment between annual tests if a triggering event
occurs or circumstances change that may cause the fair value of a reporting unit to
Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
59
GOODWILL AND INTANGIBLE ASSETS (Continued)
decline below its carrying amount. Management considers the entire Company to
be one reporting unit. No such events or circumstances arose during for the
twelve months ended December 31, 2024. Changes in the economic environment,
operations of the reporting unit or other adverse events could result in future
impairment charges which could have a material adverse impact on the Company’s
operating results.
Intangible assets were represented by the estimated fair value of the core deposit
relationships acquired in the 2024 acquisition of CWBC of $10,019,000. Core
deposit intangibles were being amortized using the straight-line method over an
estimated life of ten years from the date of acquisition.The carrying value of intangible
assets at December 31, 2024 was $9,268,000, net of $751,000 in accumulated
amortization expense. There were no intangible assets as of December 31, 2023.
Management evaluates the remaining useful life to determine whether events or
circumstances warrant a revision to the remaining periods of amortization. Based on
prior evaluations, no changes to the remaining useful life was required. Amortization
expense recognized was $751,000 for 2024, $68,000 for 2023 and $454,000 for 2022.
DEPOSITS AND BORROWINGS
The Bank’s deposits are insured by the Federal Deposit Insurance Corporation
(FDIC) up to applicable legal limits. All of a depositor’s accounts at an insured
depository institution, including all non-interest bearing transactions accounts, will
be insured by the FDIC up to the standard maximum deposit insurance amount of
$250,000 for each deposit insurance ownership category.
Total deposits increased $869,165,000 or 43% to $2,910,777,000 as of
December 31, 2024, compared to $2,041,612,000 as of December 31, 2023. Interest-
bearing deposits increased $839,882,000 or 77.0% to $1,929,953,000 as of
December 31, 2024, compared to $1,090,071,000 as of December 31, 2023. Non-
interest bearing deposits increased $29,283,000 or 3.1% to $980,824,000 as of
December 31, 2024, compared to $951,541,000 as of December 31, 2023. The
Company’s deposit balances for the twelve months ended December 31, 2024
increased primarily from the merger. Average non-interest bearing deposits to average
total deposits was 38.62% for the twelve months ended December 31, 2024
compared to 45.84% for the same period in 2023. Based on FDIC deposit market
share information published as of June 2024, our total market share of deposits in
Fresno, Madera, San Joaquin, and Tulare counties was 4.10% in 2024 compared
to 4.15% in 2023. Our total market share of deposits in San Luis Obispo, Santa
Barbara, and Ventura counties was 1.61% in 2024. Our total market share of deposits
in Merced County was 1.66% as of June 2024. Our total market share in the other
counties as of June 2024 and 2023 we operate in (Kern, Placer, Sacramento, and
Stanislaus) was less than 1.00%.
The composition of the deposits and average interest rates paid at December 31,
2024 and December 31, 2023 is summarized in the table below.
(Dollars in thousands)
December 31,
2024
% of
Total
Deposits
Effective
Rate
December 31,
2023
% of
Total
Deposits
Effective
Rate
NOW accounts
$
470,548
16.2%
0.28% $
251,334
12.3%
0.13%
MMA accounts
843,145
29.0%
2.67%
497,043
24.4%
1.68%
Time deposits
443,284
15.2%
4.85%
162,085
7.9%
3.68%
Savings deposits
172,976
5.9%
0.49%
179,609
8.8%
0.12%
Total interest-bearing
1,929,953
66.3%
2.49%
1,090,071
53.4%
1.33%
Non-interest bearing
980,824
33.7%
951,541
46.6%
Total deposits
$
2,910,777 100.0%
$
2,041,612 100.0%
We have no known foreign deposits. The following table sets forth the average
amount of and the average rate paid on certain deposit categories which were in
excess of 10% of average total deposits for the years ended December 31, 2024, 2023,
and 2022.
2024
2023
2022
(Dollars in
thousands)
Balance
Rate
Balance
Rate
Balance
Rate
Savings and NOW
accounts
$
481,447
0.30% $
473,102
0.26% $
581,285
0.03%
Money market
accounts
$
759,203
2.67% $
531,013
1.68% $
486,823
0.15%
Non-interest
bearing demand
$ 1,025,611
- $
987,906
- $ 1,006,511
-
Total deposits
$ 2,655,928
1.53% $ 2,155,241
0.72% $ 2,156,092
0.05%
The following table sets forth the maturity of time certificates of deposit and
other time deposits of $250,000 or more at December 31, 2024.
(In thousands)
Three months or less
$
13,820
Over 3 through 6 months
16,142
Over 6 through 12 months
14,822
Over 12 months
8,580
$
53,364
As of December 31, 2024, the Company had $329,761,000 in brokered time
deposits compared to $93,134,000 as of December 31, 2023. The increase in
brokered time deposits was due to the brokered time deposits held by Community
West Bank, which we acquired in April 2024.
As of December 31, 2024 and December 31, 2023, uninsured deposits totaled
$1,029,929,000 and $821,756,000, respectively.
As of December 31, 2024, the Company had $135 million in Federal Home
Loan Bank (FHLB) of San Francisco advances, of which $90 million was issued
pursuant to the merger and recorded at fair value as of April 1, 2024. There were
$35 million in short-term FHLB advances and $45 million in short-term advances
from the Federal Reserve’s Bank Term Funding Program (BTFP) as of December 31,
2023. We maintain a line of credit with the FHLB collateralized by government
securities and loans. Refer to Liquidity section below for further discussion of FHLB
advances. The Bank had unsecured lines of credit with its correspondent banks
which, in the aggregate, amounted to $110,000,000 at December 31, 2024 and 2023,
at interest rates which vary with market conditions. As of December 31, 2024 and
2023, the Company had no overnight borrowings outstanding under these credit
facilities.
The Company’s uninsured balances with correspondent banks totaled
$14,263,000 and $3,813,000 at December 31, 2024 and 2023, respectively.
CAPITAL RESOURCES
Capital serves as a source of funds and helps protect depositors and shareholders
against potential losses. Historically, the primary sources of capital for the Company
have been internally generated capital through retained earnings and the issuance
of common and preferred stock.
The Company has historically maintained substantial levels of capital. The
assessment of capital adequacy is dependent on several factors including asset
quality, earnings trends, liquidity and economic conditions. Maintenance of adequate
capital levels is integral to providing stability to the Company. The Company
needs to maintain substantial levels of regulatory capital to give it maximum flexibility
in the changing regulatory environment and to respond to changes in the market
and economic conditions.
Our shareholders’ equity was $362,685,000 as of December 31, 2024, compared
to $207,064,000 as of December 31, 2023. The increase in shareholders’ equity is the
result of issuance of common stock of $143,712,000 in relation to the merger with
Community West Bancshares, comprehensive income of $10,919,000, from the
decrease in the unrealized loss recorded on the Company’s investment portfolio, the
increase in retained earnings from our net income of $7,666,000, the effect of share-
based compensation expense of $879,000, proceeds from stock options exercised of
$465,000, and stock issued under our employee stock purchase plan of $248,000.
These increases were partially offset by the payment of common stock cash dividends
of $8,230,000 and repurchase of common stock of $38,000.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
60
CAPITAL RESOURCES (Continued)
During 2024, the Bank declared and paid cash dividends to the Company in the
amount of $14,000,000 in connection with the cash dividends to the Company’s
shareholders, and expenditures paid by the Company, approved by the Company’s
Board of Directors. The Company declared and paid a total of $8,230,000 or $0.48
per common share cash dividend to shareholders of record during the year ended
December 31, 2024. During the year ended December 31, 2024, the Company
repurchased and retired common stock in the amount of $38,000 in connection with
amounts withheld for the vesting of equity awards for tax obligations.
The Company declared and paid a total of $5,657,000 or $0.48 per common
share cash dividend to shareholders of record during the year ended December 31,
2023. During the year ended December 31, 2023, the Company repurchased and
retired common stock in the amount of $1,000.
During 2022, the Company made a capital contribution to the Bank in the
amount of $38,000,000 in connection with the senior and subordinated debt
proceeds approved by the Company’s Board of Directors. The Company declared
and paid a total of $5,638,000 or $0.48 per common share cash dividend to
shareholders of record during the year ended December 31, 2022. During the year
ended December 31, 2022, the Company repurchased and retired common stock in
the amount of $6,814,000.
The following table sets forth certain financial ratios for the years ended
December 31, 2024, 2023, and 2022.
2024
2023
2022
Net income:
To average assets
0.24%
1.04%
1.09%
To average shareholders’ equity
2.42%
13.81%
14.25%
Dividends declared per share to net
income per share
118.81%
22.21%
21.14%
Average shareholders’ equity to
average assets
9.94%
7.51%
7.67%
Management considers capital requirements as part of its strategic planning
process. The strategic plan calls for continuing increases in assets and liabilities, and
the capital required may therefore be in excess of retained earnings. The ability to
obtain capital is dependent upon the capital markets as well as our performance.
Management regularly evaluates sources of capital and the timing required to meet its
strategic objectives.
The Board of Governors, the FDIC and other federal banking agencies have
issued risk-based capital adequacy guidelines intended to provide a measure of
capital adequacy that reflects the degree of risk associated with a banking organization’s
operations for both transactions reported on the balance sheet as assets, and
transactions, such as letters of credit and recourse arrangements, which are reported
as off-balance-sheet items.
The following table presents the Company’s regulatory capital ratios as of
December 31, 2024 and December 31, 2023:
Actual Ratio
Minimum regulatory
requirement (1)
(Dollars in
thousands)
Amount
Ratio
Amount
Ratio
December 31, 2024
Tier 1 Leverage Ratio
$ 316,343
9.17%
138,018
4.00%
Common Equity Tier
1 Ratio (CET 1)
$ 311,343
11.15%
125,632
4.50%
Tier 1 Risk-Based
Capital Ratio
$ 316,343
11.33%
167,510
6.00%
Total Risk-Based
Capital Ratio
$ 379,091
13.58%
223,346
8.00%
December 31, 2023
Tier 1 Leverage Ratio
$ f222,567
9.18%
98,048
4.00%
Common Equity Tier
1 Ratio (CET 1)
$ 217,567
12.78%
75,561
4.50%
Tier 1 Risk-Based
Capital Ratio
$ 222,567
13.07%
100,748
6.00%
Total Risk-Based
Capital Ratio
$ 273,699
16.08%
134,330
8.00%
The following table presents the Bank’s regulatory capital ratios as of December 31,
2024 and December 31, 2023:
Actual Ratio
Minimum regulatory
requirement (1)
Minimum requirement
for “Well-Capitalized”
Institution
(Dollars in
thousands)
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2024
Tier 1 Leverage
Ratio
$ 377,411
11.04%
$138,031
4.00%
$165,267
5.00%
Common Equity
Tier 1 Ratio
(CET 1)
$ 377,411
13.54%
$125,474
7.00%
$178,264
6.50%
Tier 1 Risk-Based
Capital Ratio
$ 377,411
13.54%
$167,299
8.50%
$219,402
8.00%
Total Risk-Based
Capital Ratio
$ 405,425
14.54%
$223,065
10.50%
$274,252
10.00%
December 31, 2023
Tier 1 Leverage
Ratio
$ 285,099
11.75%
$97,016
4.00%
$121,271
5.00%
Common Equity
Tier 1 Ratio
(CET 1)
$ 285,099
16.76%
$76,526
7.00%
$110,538
6.50%
Tier 1 Risk-Based
Capital Ratio
$ 285,099
16.76%
$102,035
8.50%
$136,047
8.00%
Total Risk-Based
Capital Ratio
$ 301,642
17.74%
$136,047
10.50%
$170,058
10.00%
(1) The minimum regulatory requirement threshold includes the capital conservation buffer of
2.50%.
The Company succeeded to all of the rights and obligations of the Service 1st
Capital Trust I, a Delaware business trust, in connection with the acquisition of
Service 1st as of November 12, 2008. The Trust was formed on August 17, 2006 for
the sole purpose of issuing trust preferred securities fully and unconditionally
Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
61
CAPITAL RESOURCES (Continued)
guaranteed by Service 1st. Under applicable regulatory guidance, the amount of
trust preferred securities that is eligible as Tier 1 capital is limited to 25% of the
Company’s Tier 1 capital on a pro forma basis. At December 31, 2024, all of the trust
preferred securities that have been issued qualify as Tier 1 capital. The trust
preferred securities mature on October 7, 2036, are redeemable at the Company’s
option beginning five years after issuance, and require quarterly distributions by the
Trust to the holder of the trust preferred securities at a variable interest rate which
will adjust quarterly to equal the three-month SOFR plus 1.60%.
The Trust used the proceeds from the sale of the trust preferred securities to
purchase approximately $5,155,000 in aggregate principal amount of Service 1st’s
junior subordinated notes (the Notes). The Notes bear interest at the same variable
interest rate during the same quarterly periods as the trust preferred securities. The
Notes are redeemable by the Company on any January 7, April 7, July 7, or
October 7 on or after October 7, 2012 or at any time within 90 days following the
occurrence of certain events, such as: (i) a change in the regulatory capital treatment of
the Notes (ii) in the event the Trust is deemed an investment company or (iii) upon
the occurrence of certain adverse tax events. In each such case, the Company may
redeem the Notes for their aggregate principal amount, plus any accrued but unpaid
interest.
The Notes may be declared immediately due and payable at the election of the
trustee or holders of 25% of the aggregate principal amount of outstanding Notes in
the event that the Company defaults in the payment of any interest following the
nonpayment of any such interest for 20 or more consecutive quarterly periods. Holders
of the trust preferred securities are entitled to a cumulative cash distribution on the
liquidation amount of $1,000 per security. For each January 7, April 7, July 7 or
October 7 of each year, the rate will be adjusted to equal the three month SOFR
plus 1.60%. As of December 31, 2024, the rate was 6.52%. Interest expense recognized
by the Company for the years ended December 31, 2024, 2023, and 2022 was
$367,000, $360,000 and $188,000, respectively.
On November 12, 2021, the Company completed a private placement of
$35.0 million aggregate principal amount of its fixed-to-floating rate subordinated
notes (“Subordinated Debt”) due December 1, 2031. The Subordinated Debt initially
bears a fixed interest rate of 3.130% per year. Commencing on December 1, 2026,
the interest rate on the Subordinated Debt will reset each quarter at a floating interest
rate equal to the then-current three month term SOFR plus 210 basis points. The
Company may at its option redeem in whole or in part the Subordinated Debt on or
after November 12, 2026 without a premium. The Subordinated Debt is treated as
Tier 2 Capital for regulatory purposes.
On September 15, 2022, the Company entered into a $30 million loan
agreement with Bell Bank. Initially, payments of interest only are payable in 12
quarterly payments commencing December 31, 2022. As of December 31, 2024 the
rate had reached its interest rate cap of 6.75%. Commencing December 31, 2025,
27 equal quarterly principal and interest payments are payable based on the
outstanding balance of the loan on August 30, 2025 and an amortization of 48
quarters. A final payment of outstanding principal and accrued interest is due at
maturity on September 30, 2032. Variable interest is payable at the Prime Rate
(published by the Wall Street Journal) less 50 basis points. The loan is secured by the
assets of the Company and a pledge of the outstanding common stock of
Community West Bank, the Company’s banking subsidiary. The Company may
prepay the loan without penalty with one exception. If the loan is prepaid prior to
August 30, 2025 with funds received from a financing source other than Bell Bank,
the Company will incur a 2% prepayment penalty. The loan contains customary
representations, covenants, and events of default.
LIQUIDITY
Liquidity management involves our ability to meet cash flow requirements arising
from fluctuations in deposit levels and demands of daily operations, which include
funding of securities purchases, providing for customers’ credit needs and ongoing
repayment of borrowings. Our liquidity is actively managed on a daily basis and
reviewed periodically by our management and Directors’ Asset/Liability Committees.
This process is intended to ensure the maintenance of sufficient funds to meet our
needs, including adequate cash flows for off-balance sheet commitments.
Our primary sources of liquidity are derived from financing activities which
include the acceptance of customer and, to a lesser extent, broker deposits, Federal
funds facilities and advances from the Federal Home Loan Bank of San Francisco
(FHLB). These funding sources are augmented by payments of principal and
interest on loans, the routine maturities and pay downs of securities from the securities
portfolio, the stability of our core deposits and the ability to sell investment
securities. As of December 31, 2024, the Company had unpledged securities totaling
$354,344,000 available as a secondary source of liquidity and total cash and cash
equivalents of $120,398,000. Cash and cash equivalents at December 31, 2024
increased 124% compared to December 31, 2023. Primary uses of funds include
withdrawal of and interest payments on deposits, origination and purchases of
loans, purchases of investment securities, and payment of operating expenses.
To augment our liquidity, we have established Federal funds lines with various
correspondent banks. At December 31, 2024, our available borrowing capacity
includes approximately $110,000,000 in Federal funds lines with our correspondent
banks and $576,556,000 in unused FHLB advances. At December 31, 2024, we
were not aware of any information that was reasonably likely to have a material effect
on our liquidity position.
The following table reflects the Company’s credit lines, balances outstanding,
and pledged collateral at December 31, 2024 and 2023:
Credit Lines (In thousands)
December 31,
2024
December 31,
2023
Unsecured Credit Lines
Credit limit
$
110,000 $
110,000
Balance outstanding
$
- $
-
Federal Home Loan Bank
Credit limit
$
738,556 $
342,483
Balance outstanding, net of discount
$
133,442 $
35,000
Collateral pledged
$ 1,236,732 $
612,702
Fair value of collateral
$ 1,083,041 $
500,972
Federal Reserve Bank Term Loan Funding Program
Credit limit
$
- $
46,174
Balance outstanding
$
- $
45,000
Collateral pledged
$
- $
53,650
Fair value of collateral
$
- $
47,603
Federal Reserve Bank
Credit limit
$
3,669 $
4,448
Balance outstanding
$
- $
-
Collateral pledged
$
4,406 $
4,894
Fair value of collateral
$3,828
$4,374
The liquidity of our parent company, Community West Bancshares, is primarily
dependent on the payment of cash dividends by its subsidiary, Community West
Bank, subject to limitations imposed by state and federal regulations.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with the accounting
principles generally accepted in the United States (“U.S. GAAP”) requires
management to make a number of judgments, estimates and assumptions that affect
the reported amount of assets, liabilities, income and expense in the financial
statements. Various elements of our accounting policies, by their nature, involve the
application of highly sensitive and judgmental estimates and assumptions. Some
of these policies and estimates relate to matters that are highly complex and contain
inherent uncertainties. It is possible that, in some instances, different estimates
and assumptions could reasonably have been made and used by management, instead
of those we applied, which might have produced different results that could have
had a material effect on the financial statements.
We have identified the following accounting policies and estimates that, due to
the inherent judgments and assumptions and the potential sensitivity of the financial
statements to those judgments and assumptions, are critical to an understanding of
our financial statements. We believe that the judgments, estimates and assumptions
used in the preparation of the Company’s financial statements are appropriate. For
a further description of our accounting policies, see Note 1 — Summary of Significant
Accounting Policies in the financial statements included in this Form 10-K.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
62
CRITICAL ACCOUNTING ESTIMATES (Continued)
estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Allowance for Credit Losses
The measurement of expected credit losses under the CECL methodology is
applicable to financial assets measured at amortized cost, including loan receivables
and held-to-maturity securities. It also applies to off-balance sheet credit exposures not
accounted for as insurance (loan commitments, standby letters of credit, financial
guarantees, and other similar instruments). In addition, credit losses recognized on
available-for-sale debt securities will be presented as an allowance as opposed to a write-
down, based on management’s intent to sell the security or the likelihood the
Company will be required to sell the security before recovery of the amortized cost
basis. Our accounting for estimated loan losses is discussed and disclosed primarily in
Note 1 and 4 to the consolidated financial statements under the heading “Allowance
for Credit Losses”.
In determining the ACL for loans, accruing loans with similar risk characteristics
are generally evaluated collectively. To estimate expected losses the Company generally
utilizes historical loss trends and the remaining contractual lives of the loan
portfolios to determine estimated credit losses through a reasonable and supportable
forecast period. The Company utilized a reasonable and supportable forecast
period obtained the forecast data from Moody’s Analytics. Individual loan credit
quality indicators, including historical credit losses, have been statistically correlated
with various econometrics. Model forecasts may be adjusted for inherent limitations
or biases that have been identified through independent validation and back-testing of
model performance to actual realized results. The Company also considered the
impact of portfolio concentrations, changes in underwriting practices, imprecision
in its economic forecasts, and other risk factors that might influence its loss estimation
process. Increases in external risk factors due to more pessimistic business and
economic conditions could potentially increase estimated losses on existing loan
balances within the ACL. While management utilizes its best judgment and
information available, the ultimate adequacy of our allowance accounts is dependent
upon a variety of factors beyond our control, including the performance of our
portfolios, the economy and changes in interest rates.
Business Combinations
Business combinations are recorded using the acquisition method. We assign the
value of the consideration transferred to acquire a business to the tangible assets,
identifiable intangible assets acquired, and liabilities assumed on the basis of their fair
values at the date of acquisition. Any excess purchase price over the fair value of the
net tangible and intangible assets acquired is allocated to goodwill.
The Company assesses the fair value of assets, including intangible assets, using a
variety of methods, and each asset is measured at fair value from the perspective of a
market participant. The method used to estimate the fair values of intangible
assets incorporates significant assumptions regarding the estimates a market participant
would make in order to evaluate an asset, including a market participant’s use of
the asset. Some of the most significant assumptions used include the discount rate,
forward-looking financial information, and estimated customer attrition rates. A
change in one of these assumptions could have material changes on the value of the
intangible assets and goodwill which will impact the amortization expense in future
periods and the goodwill impairment evaluation.
INFLATION
The impact of inflation on a financial institution differs significantly from that
exerted on other industries primarily because the assets and liabilities of financial
institutions consist largely of monetary items. However, financial institutions are
affected by inflation in part through non-interest expenses, such as salaries and
occupancy expenses, and to some extent by changes in interest rates.
At December 31, 2024, we are aware that inflation may have an adverse impact
on our consolidated financial position or results of operations. However, in the short
term increased rates may continue to be a benefit by repricing a portion of our
loan portfolio. Higher long term inflation rates may drive increases in operating
expenses or have other adverse effects on our borrowers, making collection on
extensions of credit more difficult for us. Refer to Quantitative and Qualitative
Disclosures About Market Risk for further discussion.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
63
Interest rate risk (IRR) and credit risk constitute the two greatest sources of financial
exposure for insured financial institutions that operate like we do. IRR represents
the impact that changes in absolute and relative levels of market interest rates may
have upon our net interest income (NII). Changes in the NII are the result of changes
in the net interest spread between interest-earning assets and interest-bearing
liabilities (timing risk), the relationship between various rates (basis risk), and changes
in the shape of the yield curve.
We realize income principally from the differential or spread between the interest
earned on loans, investments, other interest-earning assets and the interest incurred
on deposits and borrowings.The volumes and yields on loans, deposits and borrowings
are affected by market interest rates. As of December 31, 2024, 58.09% of our
loan portfolio was tied to adjustable-rate indices. Of loans tied to adjustable rate
indices, 33.08% were tied to prime lending rate, 31.43% were tied to the five-year
Treasury, 17.76% tied to the ten-year Treasury, with the remaining 17.73% tied to
other indices. There were no loans tied to prime with current rates below their
floor as of December 31, 2024. Our time deposits have a fixed rate of interest. As of
December 31, 2024, 78.99% of our time deposits mature within one year or less.
Changes in the market level of interest rates directly and immediately affect our
interest spread, and therefore profitability. Sharp and significant changes to market
rates can cause the interest spread to shrink or expand significantly in the near term,
principally because of the timing differences between the adjustable rate loans and
the maturities (and therefore repricing) of the deposits and borrowings.
Our management and Board of Directors’ Asset/Liability Committee (ALCO)
are responsible for managing our assets and liabilities in a manner that balances
profitability, IRR and various other risks including liquidity. The ALCO operates
under policies and within risk limits prescribed, reviewed, and approved by the Board
of Directors.
The ALCO seeks to stabilize our NII by matching rate-sensitive assets and
liabilities through maintaining the maturity and repricing of these assets and
liabilities at appropriate levels given the interest rate environment. When the amount
of rate-sensitive liabilities exceeds rate-sensitive assets within specified time periods,
NII generally will be negatively impacted by an increasing interest rate environment
and positively impacted by a decreasing interest rate environment. Conversely,
when the amount of rate-sensitive assets exceeds the amount of rate-sensitive liabilities
within specified time periods, net interest income will generally be positively
impacted by an increasing interest rate environment and negatively impacted by a
decreasing interest rate environment. Our mix of assets consists primarily of loans and
securities, none of which are held for trading purposes. The value of these securities
is subject to interest rate risk, which we must monitor and manage successfully in
order to prevent declines in value of these assets if interest rates rise in the future.
The speed and velocity of the repricing of assets and liabilities will also contribute to
the effects on our NII, as will the presence or absence of periodic and lifetime
interest rate caps and floors.
Simulation of earnings is the primary tool used to measure the sensitivity of
earnings to interest rate changes. Earnings simulations are produced using a software
model that is based on actual cash flows and repricing characteristics for all of our
financial instruments and incorporates market-based assumptions regarding the
impact of changing interest rates on current volumes of applicable financial
instruments.
Interest rate simulations provide us with an estimate of both the dollar amount
and percentage change in NII under various rate scenarios. All assets and liabilities
are normally subjected to up to 400 basis point increases and decreases in interest rates
in 100 basis point increments. Under each interest rate scenario, we project our net
interest income. From these results, we can then develop alternatives in dealing with
the tolerance thresholds.
The assets and liabilities of a financial institution are primarily monetary in
nature. As such they represent obligations to pay or receive fixed and determinable
amounts of money that are not affected by future changes in prices. Generally, the
impact of inflation on a financial institution is reflected by fluctuations in interest
rates, the ability of customers to repay their obligations and upward pressure on
operating expenses. Although inflationary pressures are not considered to be of any
particular hindrance in the current economic environment, they may have an
impact on the company’s future earnings in the event those pressures become more
prevalent.
As a financial institution, the Company’s primary component of market risk is
interest rate volatility. Fluctuations in interest rates will ultimately impact both the
level of interest income and interest expense recorded on a large portion of the
Company’s assets and liabilities, and the market value of all interest earning assets
and interest bearing liabilities, other than those which possess a short term to maturity.
Virtually all of the Company’s interest earning assets and interest bearing liabilities
are located at the Bank level. Thus, virtually all of the Company’s interest rate risk
exposure lies at the Bank level other than $69.9 million in senior debt and
subordinated notes issued by the Company. As a result, all significant interest rate
risk procedures are performed at the Bank level.
The fundamental objective of the Company’s management of its assets and
liabilities is to maximize the Company’s economic value while maintaining adequate
liquidity and an exposure to interest rate risk deemed by management to be
acceptable. Management believes an acceptable degree of exposure to interest rate
risk results from the management of assets and liabilities through maturities, pricing
and mix to attempt to neutralize the potential impact of changes in market
interest rates. The Company’s profitability is dependent to a large extent upon its
net interest income, which is the difference between its interest income on interest
earning assets, such as loans and investments, and its interest expense on interest
bearing liabilities, such as deposits and borrowings. The Company is subject to
interest rate risk to the degree that its interest earning assets re-price differently than
its interest bearing liabilities. The Company manages its mix of assets and liabilities
with the goals of limiting its exposure to interest rate risk, ensuring adequate liquidity,
and coordinating its sources and uses of funds.
The Company seeks to control interest rate risk exposure in a manner that will
allow for adequate levels of earnings and capital over a range of possible interest rate
environments. The Company has adopted formal policies and practices to monitor
and manage interest rate risk exposure. Management believes historically it has
effectively managed the effect of changes in interest rates on its operating results and
believes that it can continue to manage the short-term effects of interest rate
changes under various interest rate scenarios.
Management employs asset and liability management software and engages
consultants to measure the Company’s exposure to future changes in interest rates.
The software measures the expected cash flows and re-pricing of each financial asset/
liability separately in measuring the Company’s interest rate sensitivity. Based on
the results of the software’s output, management believes the Company’s balance sheet
is evenly matched over the short term and slightly asset sensitive over the longer
term as of December 31, 2024. This means that the Company would expect (all other
things being equal) to experience a limited change in its net interest income if rates
rise or fall. The level of potential or expected change indicated by the tables below is
considered acceptable by management and is compliant with the Company’s
ALCO policies. Management plans to continue to perform this analysis each quarter.
The hypothetical impacts of sudden interest rate movements applied to the
Company’s asset and liability balances are modeled quarterly. The results of these
models indicate how much of the Company’s net interest income is “at risk” from
various rate changes over a one-year horizon. This exercise is valuable in identifying
risk exposures. Management believes the results for the Company’s December 31,
2024 balances indicate that the net interest income at risk over a one year time
horizon for a 100 basis points (“bps”), 200 bps, 300 bps, and 400 bps rate increase
and a 100 bps, 200 bps, 300 bps, and 400 bps rate decrease is acceptable to
management and within policy guidelines at this time.
Quantitative and Qualitative Disclosures About Market Risk
64
The results in the table below indicate the change in net interest income and the
estimated change in the market value of equity the Company would expect to see as
of December 31, 2024, if interest rates were to instantaneously change in the
amounts set forth:
Sensitivity Analysis of Impact of Rate Changes on Interest Income
Hypothetical Change in Rates
(Dollars in thousands)
Estimated
Change in
Net Interest
Income
(NII) in Year 1
(as a
% of NII)
Estimated
Change in
Net Interest
Income
(NII) in Year 2
(as a
% of NII)
Estimated
Change in
Market Value of
Equity (MVE)
(as a
% of MVE)
Up 400 bps (shock)
2.33%
3.14%
(6.40)%
Up 300 bps (shock)
2.23%
2.94%
(4.50)%
Up 200 bps (shock)
2.11%
2.70%
(2.80)%
Up 100 bps (shock)
2.37%
3.04%
0.20%
Unchanged
-%
-%
-
Down 100 bps (shock)
(2.14)%
(3.35)%
(1.90)%
Down 200 bps (shock)
(3.38)%
(5.37)%
(3.40)%
Down 300 bps (shock)
(4.09)%
(6.87)%
(6.20)%
Down 400 bps (shock)
(4.07)%
(7.71)%
(10.80)%
It is important to note that the above table is a summary of several forecasts and
actual results may vary from any of the forecasted amounts and such difference may
be material and adverse. The forecasts are based on estimates and assumptions
made by management, and that may turn out to be different, and may change over
time. Factors affecting these estimates and assumptions include, but are not limited to:
1) competitor behavior, 2) economic conditions both locally and nationally, 3)
actions taken by the Federal Reserve Board, 4) customer behavior and 5) management’s
responses to each of the foregoing. Factors that vary significantly from the
assumptions and estimates may have material and adverse effects on the Company’s
net interest income; therefore, the results of this analysis should not be relied upon as
indicative of actual future results.
The following table shows management’s estimates of how the loan portfolio is
segregated between variable and fixed rate loans, and estimates of re-pricing
opportunities for the entire loan portfolio at December 31, 2024 and 2023:
December 31, 2024
December 31, 2023
Rate Type
(Dollars in thousands)
Balance
Percent of
Total
Balance
Percent of
Total
Variable rate
$ 1,354,967
58.09%
$
729,260
56.58%
Fixed rate
977,378
41.91%
559,695
43.42%
Total loans, net of discount $ 2,332,345
100.00%
$ 1,288,955
100.00%
Approximately 58.09% of our loan portfolio is tied to adjustable rate indices. Of
those loans, 33.08% are tied to prime, 31.43% tied to the five year Treasury, 17.76%
tied to the ten year Treasury, and 17.73% tie to other indices. As of December 31,
2024, we had 1,359 commercial and real estate loans totaling $1,176,742 with floors
ranging from 1.00% to 13.25% or ceilings ranging from 2.50% to 25.00%.
The following table shows the repricing categories of the Company’s loan portfolio
at December 31, 2024 and 2023:
December 31, 2024
December 31, 2023
Repricing
(Dollars in thousands)
Balance
Percent of
Total
Balance
Percent of
Total
< 1 Year
$
548,884
23.53%
$
661,552
51.32%
1-3 Years
392,992
16.85%
45,254
3.51%
3-5 Years
596,838
25.59%
458,312
35.56%
> 5 Years
793,631
34.03%
123,837
9.61%
Total loans, net of discount $ 2,332,345
100.00%
$ 1,288,955
100.00%
Assumptions are inherently uncertain, and, consequently, the model cannot
precisely measure net interest income or precisely predict the impact of changes in
interest rates on net interest income. Actual results will differ from simulated results
due to timing, magnitude and frequency of interest rate changes, as well as
changes in market conditions and management strategies which might moderate the
negative consequences of interest rate deviations.
Quantitative and Qualitative Disclosures About Market Risk
65
66
Te Company paid common share cash dividends of $0.48 per share in 2024 and 2023. Te Company’s primary source of income with which to pay cash dividends
are dividends from the Bank. See Note 13 in the audited Consolidated Financial Statements in Item 8 of this Annual Report.
Te Company’s common stock is listed for trading on the NASDAQ Capital Market under the ticker symbol CWBC.
Te following table shows the high and low closing sales prices for the common stock for each quarter as reported by NASDAQ.
Sales Prices for the Company’s Common Stock
Quarter Ended
Low
High
SHAREHOLDER INQUIRIES
March 31, 2023
25.95
June 30, 2023
12.75
September 30, 2023
14.11
13.73
20.12
17.40
22.44
December 31, 2023
20.39
$
$
Inquiries regarding Community West Bancshares’ accounting, internal accounting controls or auditing concerns should be directed to Steven D. McDonald,
Chairman of the Board of Directors’ Audit Committee, at steve.mcdonald@communitywestbank.com, anonymously at www.hotline-services.com or Compliance Hotline
at 1-855-252-7606. General inquiries about the Company or the Bank should be directed to Amanda Kelley, Assistant Corporate Secretary at (800) 298-1775.
March 31, 2024
17.30
22.33
June 30, 2024
16.49
19.90
September 30, 2024
17.81
21.50
17.94
22.30
December 31, 2024
Stock Price
Information
Access Plus Capital
Alzheimer's Association
American Heart Association
American Legion Cecil Cox Post #147 (Clovis)
Arte Americas
Asian, Inc.
Assistance League of Fresno
Bakersfield Sikh Women's Association
Better Business Bureau (Central California and Sacramento)
Beyond Housing Foundation
Beyond the Barracks
Boys & Girls Club (Lodi and Sequoias)
Cal Poly Athletics
California 9/11 Memorial
California Agricultural Leadership Foundation
California Mid-State Fair
California State University, Fresno
California Women For Agriculture
Caring Veterans of America, Inc.
Center For Human Services
Central California Food Bank
Central California Women's Conference
Central Valley Community Resources
Charities for Central California Veterans, Inc.
Children's Crisis Center of Stanislaus County
City of Kerman Almond Festival
Clovis Chamber of Commerce
Clovis Rodeo Association
Clovis Veterans Memorial District
Commercial Real Estate Women Network Foundation
Community Health Systems Office of Philanthropy
Community Hospice & Health Services Foundation
Court Appointed Special Advocates of Fresno & Madera Counties
Downtown Fresno Partnership
Downtown Paso Robles Main Street Association
Downtown Visalia Foundation
Economic Development Corporation (Fresno and Visalia Counties)
Education Foundation of Stanislaus County
El Camino Homeless Organization
Exceptional Parents Unlimited Children's Center
Exeter Chamber of Commerce
Fair Oaks Recreation & Park District
Folsom Historic District Association
Folsom Police Foundation
Folsom's Hope
Food Share of Ventura County
Foundation For Clovis Schools
Fresno American Indian Health Project
Fresno Athletic Hall of Fame
Fresno Building Healthy Communities
Fresno Chamber Of Commerce
Fresno Metro Black Chamber of Commerce
67
Central Sierra Nevada
Impacting
Communities
In Every Region We Serve
For 45 years, Community West Bank has proudly invested
in our communities - a legacy that continued in 2024
with our support of worthwhile organizations and programs
like these.
Fresno Mission
Friends of the Merced County Fair
Gallo Center for the Arts, Inc.
Girl Scouts Central California South
Greater Santa Barbara Hispanic Chamber of Commerce
Greater Stockton Chamber of Commerce
Habitat For Humanity (Greater Fresno and Santa Barbara)
Haven Women's Center of Stanislaus
Health Education Council
Homeless Assistance Resource Team of Folsom
Hospice of San Joaquin
Junior Achievement of Sacramento
Kaweah Health Foundation
Kerman Chamber of Commerce
Kerman Police Department Crime Prevention Unit
Kids Discovery Station
Kings County Deputy Sheriff's Association
Kings River Land Trust
Kiwanis International (Atascadero, Greater Madera,
Sierra Oakhurst, Tulare and West Visalia)
Launching Fore Charity
Leadership Counsel for Justice & Accountability
Leadership Stockton
Lodi Chamber of Commerce
Lodi Police Foundation
Love Inc. of Merced
Madera Chamber of Commerce
Madera County Farm Bureau
Madera Police Officers Association
Make-A-Wish (Northeastern & Central California and
Northern Nevada and Tri Counties)
Marjaree Mason Center
Merced College Foundation
Merced County Community Law Enforcement Organization
Merced County Rescue Mission
Modesto Chamber of Commerce
Modesto Junior College Foundation
National Diversity Coalition
Neighborhood Industries
North County Rape Crisis & Child Protection Center
Oakhurst Area Chamber of Commerce
Old Spanish Days in Santa Barbara, Inc.
Orangevale-Fair Oaks Community Foundation
Oxnard College Foundation
Oxnard Community K-9 Foundation
People's Self-Help Housing
Placer Society for Prevention of Cruelty to Animals
Poverello House
Rio Americano Athletic Boosters
Ronald McDonald House Charities of the Central Valley
Roseville Area Chamber of Commerce
Rotary International (Fresno, Goleta, Kerman, Lodi Tokay,
Madera, Oakhurst Sierra and Visalia)
Sacramento Asian Pacific Chamber of Commerce
Sacramento Children's Home
Sacramento Metropolitan Chamber of Commerce
Sacramento Region Community Foundation
San Luis Obispo Chamber of Commerce
Santa Barbara New House, Inc.
Santa Barbara South Coast Chamber of Commerce
Santa Paula Art Museum
Second Harvest of the Greater Valley
Sequoia Council of the Boy Scouts of America
Shaver Lake Fishing Club
Shaver Lake Volunteer Fire Department
Sierra Meadows Foundation
Sierra Resource Conservation District
Soroptimist International (Kerman and Visalia)
Southwest Fresno Development Corporation
Special Olympics Southern California - San Luis Obispo County
Stanislaus County Fair
Stanislaus County Police Activities League
Stockton Athletic Hall of Fame
Stocktonians Taking Action to Neutralize Drugs
Sutter Club Foundation
Templeton Education Foundation
Te African-American Historical & Cultural Museum of the San Joaquin Valley
Te First Tee of Greater Sacramento
Te Heart Foundation
Te Leukemia & Lymphoma Society
Te Midsole Project
Te Salvation Army (Lodi and Sacramento)
Tulare Chamber of Commerce
Twin Lakes Food Bank
United Boys & Girls Club of Santa Barbara County
United Health Centers Foundation
United Way (Fresno and Madera, Northern Santa Barbara, San Joaquin, Tulare
and Ventura Counties)
Valley Children’s Healthcare Foundation
Valley Crime Stoppers
Valley Recovery Resources Redwood Family Treatment Center
Valley Teen Ranch
Ventura County Fair
Ventura County Medical Resource Foundation
Visalia Breakfast Lions Club
Visalia Chamber of Commerce
Visalia Police Activities League
Wayfinder Family Services
Westmont College
Yo Soy Media Inc.
Yosemite Unified School District
Youth Voice Impact Inc.
68
69
Investing in Relationships
Customer Service
(800) 298-1775
(559) 298-1775
Corporate Office
7100 North Financial Drive,
Suite 101
Fresno, CA 93720
(559) 298-1775
Bakersfield
9201 Camino Media,
Suite 100
Bakersfield, CA 93311
(661) 469-3558
Cameron Park ATM
3311 Coach Lane
Suite A
Cameron Park, CA 95682
ATM ONLY
Clovis
600 Pollasky Avenue
Clovis, CA 93612
(559) 323-3480
Clovis Herndon
1795 Herndon Avenue,
Suite 101
Clovis, CA 93611
(559) 323-2200
Exeter
300 East Pine Street
Exeter, CA 93221
(559) 594-9919
Folsom Downtown
905 Sutter Street,
Suite 100
Folsom, CA 95630
(916) 985-8700
Fresno Downtown
2404 Tulare Street
Fresno, CA 93721
(559) 268-6806
Fresno Fig Garden
5180 North Palm Avenue,
Suite 105
Fresno, CA 93704
(559) 221-2760
Fresno River Park
8375 North Fresno Street
Fresno, CA 93720
(559) 447-3350
Goleta
5827 Hollister Avenue
Goleta, CA 93117
(805) 683-4944
Kerman
360 South Madera Avenue
Kerman, CA 93630
(559) 842-2265
Lodi
1901 West Kettleman Lane,
Suite 100
Lodi, CA 95242
(209) 333-5000
Madera
1919 Howard Road
Madera, CA 93637
(559) 673-0395
Merced
3337 G Street,
Suite B
Merced, CA 95340
(209) 725-2820
Modesto
1700 Standiford Avenue,
Suite A
Modesto, CA 95350
(209) 576-1402
Oakhurst
40004 Highway 41,
Suite 101
Oakhurst, CA 93644
(559) 642-2265
Oxnard
300 E. Esplanade Drive
Oxnard, CA 93036
(805) 597-4140
Paso Robles
541 Spring Street
Paso Robles, CA 93446
(805) 597-7778
Prather
29430 Auberry Road
Prather, CA 93651
(559) 855-4100
Roseville*
2999 Douglas Boulevard,
Suite 160
Roseville, CA 95661
(916) 859-2550
Sacramento Point West*
1435 River Park Drive,
Suite 100
Sacramento, CA 95815
(916) 235-4601
San Luis Obispo
4464 Broad Street
San Luis Obispo, CA 93401
(805) 597-3655
Santa Barbara
1501 State Street
Santa Barbara, CA 93101
(805) 962-7420
Santa Maria
122 E. Betteravia Road
Santa Maria, CA 93454
(805) 938-1690
Stockton
2800 West March Lane,
Suite 120
Stockton, CA 95219
(209) 956-7800
Ventura
1463 S. Victoria Avenue
Ventura, CA 93003
(805) 650-1901
Visalia Downtown
126 West Center Avenue
Visalia, CA 93291
(559) 625-8733
Commercial Lending
Agribusiness
(559) 323-3319
SBA
(559) 323-3472
Greater Sacramento
(916) 859-2556
Mid-Valley
(209) 956-1105
Central Valley
(559) 323-3481
South Valley
(559) 594-9919 Ext. 6504
Central Coast
(805) 597-4390
Bakersfield
(661) 246-8999
*ATM not available at this location
communitywestbank.com • (800) 298-1775
Investing in Relationships