Add
CVCY to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| CVCY > SEC Filings for CVCY > Form 10-Q on 31-Jul-2009 | All Recent SEC Filings |
31-Jul-2009
Quarterly Report
Certain matters discussed in this report constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained herein that are not historical facts, such as statements regarding the Company's current business strategy and the Company's plans for future development and operations, are based upon current expectations. These statements are forward-looking in nature and involve a number of risks and uncertainties. Such risks and uncertainties include, but are not limited to (1) significant increases in competitive pressure in the banking industry; (2) the impact of changes in interest rates, a decline in economic conditions at the international, national or local level on the Company's results of operations, the Company's ability to continue its internal growth at historical rates, the Company's ability to maintain its net interest margin, and the quality of the Company's earning assets; (3) changes in the regulatory environment; (4) fluctuations in the real estate market; (5) changes in business conditions and inflation; (6) changes in securities markets; and (7) risks associated with acquisitions, relating to difficulty in integrating combined operations and related negative impact on earnings, and incurrence of substantial expenses. Therefore, the information set forth in such forward-looking statements should be carefully considered when evaluating the business prospects of the Company.
When the Company uses in this Quarterly Report on Form 10-Q the words "anticipate," "estimate," "expect," "project," "intend," "commit," "believe" and similar expressions, the Company intends to identify forward-looking statements. Such statements are not guarantees of performance and are subject to certain risks, uncertainties and assumptions, including those described in this Quarterly Report on Form 10-Q. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected, projected, intended, committed or believed. The future results and shareholder values of the Company may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results and values are beyond the Company's ability to control or predict. For those statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
The Securities and Exchange Commission (SEC) maintains a web site which contains reports, proxy statements, and other information pertaining to registrants that file electronically with the SEC, including the Company. The internet address is: www.sec.gov. In addition, our periodic and current reports are available free of charge on our website at www.cvcb.com as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In April 2009, the Financial Accounting Standards Board (FASB) issued the following three FASB Staff Positions (FSPs) intended to provide additional guidance and enhance disclosures regarding fair value measurements and impairment of securities:
FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset or liability have decreased significantly. FSP FAS 157-4 also provides guidance on identifying circumstances that indicate a transaction is not orderly. The provisions of FSP FAS 157-4 were adopted by the Company on January 1, 2009 and did not have a significant effect on the Company's financial position or results of operations.
FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, requires disclosures about fair value of financial instruments in interim reporting periods of publicly traded companies that were previously only required to be disclosed in annual financial statements. The provisions of FSP FAS 107-1 and APB 28-1 are effective for the Company's interim period ending on June 30, 2009. As FSP FAS 107-1 and APB 28-1 amends only the disclosure requirements about fair value of financial instruments in interim periods, the adoption of FSP FAS 107-1 and APB 28-1 is not expected to affect the Company's condensed consolidated financial statements.
FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments, amends current other-than-temporary impairment
guidance in GAAP for debt securities to make the guidance more operational and
to improve the presentation and disclosure of other-than-temporary impairments
on debt and equity securities in the financial statements. This FSP does not
amend existing recognition and measurement guidance related to
other-than-temporary impairments of equity securities. The provisions of FSP
FAS 115-2 and FAS 124-2 were adopted by the Company on January 1, 2009.
Management has determined that there was no material effect on the Company's
financial position or results of operations from the adoption of the standards.
On May 28, 2009, the FASB issued SFAS No. 165, Subsequent Events("SFAS 165"). Under SFAS 165, companies are required to evaluate events and transactions that occur after the balance sheet date but before the date the financial statements are issued, or available to be issued in the case of non-public entities. SFAS 165 requires entities to recognize in the financial statements the effect of all events or transactions that provide additional evidence of conditions that existed at the balance sheet date, including the estimates inherent in the financial preparation process. Entities shall not recognize the impact of events or transactions that provide evidence about conditions that did not exist at the balance sheet date but arose after that date. SFAS 165 also requires entities to disclose the date through which subsequent events have been evaluated. SFAS 165 was effective for interim and annual reporting periods ending after June 15, 2009. The Company adopted the provisions of SFAS 165 for the quarter ended June 30, 2009, as required, and adoption did not have a material impact on the Company's financial statements taken as a whole. The Company evaluated all events or transactions that occurred from June 30, 2009 to July 31, 2009, the date the Company issued these financial statements. During this period the Company did not have any material recognizable or non recognizable subsequent events.
On June 12, 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets ("SFAS 166"), and SFAS No.167, Amendments to FASB Interpretation No. 46(R) ("SFAS 167"), which change the way entities account for securitizations and special-purpose entities as follows:
SFAS 166 is a revision to FASB SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and will require more information about transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. SFAS 166 also eliminates the concept of a "qualifying special-purpose entity", changes the requirements for derecognizing financial assets and requires additional disclosures.
SFAS 167 is a revision to FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, and changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity's purpose and design and a company's ability to direct the activities of the entity that most significantly impact the entity's economic performance.
Both SFAS 166 and SFAS 167 will be effective as of the beginning of each reporting entity's first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. The recognition and measurement provisions of SFAS 166 shall be applied to transfers that occur on or after the effective date. The Company will adopt both SFAS 166 and SFAS 167 on January 1, 2010, as required. Management has not determined the impact adoption may have on the Company's consolidated financial statements.
On June 29, 2009, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 168, The FASB Accounting Standards CodificationTM and the Hierarchy
of Generally Accepted Accounting Principles-a replacement of FASB Statement No.
162 ("SFAS 168"). SFAS 168 establishes the FASB Accounting Standards
CodificationTM as the source of authoritative accounting principles recognized
by the FASB to be applied by nongovernmental entities in the preparation of
financial statements in conformity with US GAAP. SFAS 168 will be effective for
financial statements issued for interim and annual periods ending after
September 15, 2009, for most entities. On the effective date, all non-SEC
accounting and reporting standards will be superseded. The Company will adopt
SFAS 168 for the quarterly period ended September 30, 2009, as required, and
adoption is not expected to have a material impact on the Company's financial
statements taken as a whole.
There have been no other changes to the Company's critical accounting policies from those discussed in the Company's 2008 Annual Report to Shareholders on Form 10-K.
This discussion should be read in conjunction with our unaudited condensed consolidated financial statements, including the notes thereto, appearing elsewhere in this report.
OVERVIEW
Second Quarter 2009
On November 12, 2008, the Company completed its acquisition of Service 1st Bancorp with total assets of $224 million (the "Service 1st merger"). The Company paid cash of $5,972,000 inclusive of a $3,500,000 escrow amount related to litigation on one Service 1st loan and issued 1,628,397 new shares of common stock in conjunction with this acquisition, adding full-service branches in Stockton, Lodi and Tracy, $192 million in deposits and $123 million in loans. In connection with the transaction, Service 1st Bank was merged with and into Central Valley Community Bank. The results of operations for the quarter and six months ended June 30, 2009 include the operating results of Service 1st for the full periods.
In the second quarter of 2009, our consolidated net income was $464,000 compared to net income of $1,315,000 for the same period in 2008. Diluted EPS was $0.04 for the second quarter 2009 compared to $0.21 for the second quarter 2008. The decrease in net income was principally due to increases in the provision for loan losses and non-interest expenses, partially offset by decreasing rates paid on interest bearing liabilities outpacing the decreases in yields on earning assets. Our net interest margin increased 47 basis points for the second quarter of 2009 compared to the same period in 2008. Additionally, average total loans increased 38.7% and average total interest-bearing liabilities increased 57.4%.
Annualized return on average equity for the second quarter of 2009 was 2.28% compared to 9.71% for the same period in 2008. Total average equity was $81,537,000 for the second quarter 2009 compared to $54,136,000 for the second quarter 2008. Equity increased primarily as a result of the net income included in retained earnings and proceeds from the issuance of preferred stock offset by an increase in other comprehensive loss.
First Six Months of 2009
For the six months ended June 30, 2009, our consolidated net income was $1,723,000 compared to net income of $2,620,000 for the same period in 2008. Diluted EPS was $0.20 for the first six months of 2009 compared to $0.42 for the first six months of 2008. The decrease in net income was primarily due to an increase in the provision for loan losses and an increase in FDIC insurance assessments. The decrease in interest rates reflective of the 500 basis point decline in rates by the Federal Reserve Bank since September 2007 was also a factor. During the first half of 2009, the Company has reduced interest rates on deposits while maintaining the yield on interest-earning assets, and as a result our net interest margin has increased. Net interest income increased $5,658,000 or 48.9%. Non-interest income also increased $627,000 or 25.0%, however the provision for credit losses increased $4,417,000 and non-interest expense increased $4,031,000 in the first six months of 2009 compared to 2008.
Annualized return on average equity for the six months ended June 30, 2009 was 4.21% compared to 9.63% for the same period in 2008. Annualized return on average assets for the six months ended June 30, 2009 was 0.46% compared to 1.06% for the same period in 2008. Total average equity was $81,819,000 for the six months ended June 30, 2009 compared to $54,400,000 for the same period in 2008. Equity increased primarily as a result of the Service 1st acquisition, issuance of preferred stock and common stock warrants to the US Treasury, and our net income included in retained earnings.
In comparing the first half of 2009 to the first half of 2008, our balance sheet increased primarily as a result of the Service 1st acquisition. Average total assets increased $257,994,000 or 52.0%. Average total loans increased $141,433,000 or 40.8% in the first six months of 2009 compared to the same period in 2008 while average interest-bearing liabilities increased $201,746,000 or 65.3% over the same period. Our net interest margin for the first six months of 2009 was 5.37% compared to 5.22% for the same period in 2008. The margin increased principally due to the decrease in rates on interest-bearing liabilities outpacing the decrease in yield on earning assets. For the six months ended June 30, 2009, the effective yield on loans decreased 94 basis points reflecting the declining interest rates since September 2007. The effective yield on investment securities including Federal funds sold increased 171 basis points. This resulted in the effective yield on interest earning assets decreasing 34 basis points to 6.47% compared to 6.81% for the same period in 2008. The cost of total interest-bearing liabilities decreased 88 basis points to 1.46% compared to 2.34% for the same period in 2008. The cost of total deposits decreased 53 basis points to 1.05% for the six months ended June 30, 2009 compared to 1.58% for the same period in 2008. Net interest income for the first half of 2009 was $17,233,000, compared to $11,575,000 for the same period in 2008, an increase of $5,658,000 or 48.9%. Net interest income increased as a result of the increased levels of earning assets partially offset by the increased levels of interest-bearing liabilities. The increases were primarily from the Service 1st acquisition and also from our organic growth. The Bank had non-accrual loans totaling $14,524,000 at June 30, 2009, compared to $15,750,000 at December 31, 2008 and $366,000 at June 30, 2008. The Company had other real estate owned at June 30, 2009 totaling $2,550,000, compared to none at December 31, 2008, or June 30, 2008.
We participated in the U. S. Treasury Capital Purchase Program (CPP) under the Emergency Economic Stabilization Act. The Company issued preferred stock and warrants to issue common stock and received $7,000,000 in cash under this program. The Company agreed to restrict dividend payments on common stock to no more than historic levels while our preferred stock is owned by the U. S. Treasury. See Note 11 to the unaudited Financial Statements for a more detailed discussion.
Central Valley Community Bancorp (Company)
We are a central California-based bank holding company for a one-bank subsidiary, Central Valley Community Bank (Bank). We provide traditional commercial banking services to small and medium-sized businesses and individuals in the communities along the Highway 99 corridor in the Fresno, Madera, Sacramento, Stanislaus, and San Joaquin Counties of central California. Additionally, we have a private banking office in Sacramento County, a loan production office in Modesto, and a planned branch opening in Merced, California. As a bank holding company, the Company is subject to supervision, examination and regulation by the Federal Reserve Bank.
At June 30, 2009, we had total loans of $492,098,000, total assets of $747,623,000, total deposits of $621,719,000, and shareholders' equity of $80,753,000.
Central Valley Community Bank (Bank)
The Bank commenced operations in January 1980 as a state-chartered bank. As a state-chartered bank, the Bank is subject to primary supervision, examination and regulation by the Department of Financial Institutions. The Bank's deposits are insured by the Federal Deposit Insurance Corporation up to the applicable limits thereof, and the Bank is subject to supervision, examination and regulations of the FDIC.
The Bank operates 15 branches which serve the communities of Fresno, Clovis, Kerman, Prather, Oakhurst, Madera, Tracy, Stockton, Lodi, and Sacramento, California; and a loan production office which serves the Modesto, California community. A new office (the Bank's 16th branch) is planned to open in Merced, California during the third quarter of 2009 Additionally the Bank operates Real Estate, Agribusiness and SBA departments that originate loans in California. According to the June 30, 2008 FDIC data, the Bank's branches in Fresno, Madera and San Joaquin Counties had a 2.40% combined deposit market share of all depositories including credit unions, thrifts, and savings banks.
As a publicly traded community bank holding company, we focus on several key factors including:
† Return to our stockholders;
† Return on average assets;
† Return on average equity;
† Asset quality;
† Asset growth;
† Operating efficiency; and
† Liquidity.
Return to Our Stockholders
Our return to our stockholders is measured in the form of return on average equity (ROE). Our annualized ROE was 4.21% for the six months ended June 30, 2009 compared to 8.82% for the year ended December 31, 2008 and 9.63% for the six months ended June 30, 2008. Our net income for the six months ended June 30, 2009 decreased $897,000 or 34.2% to $1,723,000 compared to $2,620,000 for the six months ended June 30, 2008. Net income decreased due to increases in the provision for credit losses and non-interest expenses, offset by increases in net interest income, and non-interest income. Net interest margin (NIM) increased 15 basis points comparing the six month periods ended June 30, 2009 and 2008. Diluted EPS was $0.20 for the six months ended June 30, 2009 and $0.42 for the same period in 2008.
Return on Average Assets
Our return on average assets (ROA) is a measure we use to compare our performance with other banks and bank holding companies. Our annualized ROA for the six months ended June 30, 2009 was 0.46% compared to 0.95% for the year ended December 31, 2008 and 1.06% for the six months ended June 30, 2008. The decrease in ROA compared to December 2008 is due to the decrease in net income relative to our increase in average assets. Average assets for the six months ended June 30, 2009 were $753,938,000 compared to $541,789,000 for the year ended December 31, 2008. ROA for our peer group was -0.37% at March 31, 2009. Peer group from SNL Financial data includes certain bank holding companies in central California with assets from $300 million to $1 billion.
Development of Core Earnings
Over the past several years, we have focused on not only improving net income, but improving the consistency of our revenue streams in order to create more predictable future earnings and reduce the effect of changes in our operating environment on our net income. Specifically, we have focused on net interest income through a variety of processes, including increases in average interest earning assets as a result of loan generation and retention, and minimizing the effects of the recent interest rate decline on our net interest margin by focusing on core deposits and managing the cost of funds. The Company's net interest margin (fully tax equivalent basis) was 5.37% for the first half of 2009, compared to 5.22 % for the same period in 2008. The increase in net interest margin is principally due to a decrease in the Company's cost of funds which was greater than the decrease in our yield on earning assets. In comparing the two periods, the effective yield on total earning assets decreased 34 basis points, while the cost of total interest bearing liabilities decreased 88 basis points and the cost of total deposits decreased 53 basis points. The Company's total cost of deposits for the six months ended June 30, 2009 was 1.05% compared to 1.58% for the same period in 2008. The Company has less exposure than many of its competitors to interest rate risk as 24.5% of its average deposits are non-interest bearing. Net interest income for the first half of 2009 was $17,233,000 compared to $11,575,000 for the same period in 2008.
Our non-interest income is generally made up of service charges and fees on deposit accounts, fee income from loan placements and other services, and gains from sales of investment securities. Non-interest income for the first six months of 2009 increased $627,000 or 25.0% to $3,139,000 compared to $2,512,000 for the six months ended June 30, 2008 mainly due to increases in gains from sales and calls of investment securities, service charge income, loan placement fees, and other income, partially offset by a decrease in FHLB stock dividends. Further detail of non-interest income is provided below.
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 non-performing loans as a percentage of total loans and total assets, and is a key element in estimating the future earnings of a company. The Company had non-performing loans totaling $14,524,000 or 2.95% of total loans as of June 30, 2009, $15,750,000 or 3.25% of total loans at December 31, 2008, and $366,000 or 0.10% of total loans as of June 30, 2008. Management maintains certain loans that have been brought current by the borrower (less than 30 days delinquent) on non-accrual status until such time as management has determined that the loans are likely to remain current in future periods and collectibility has been reasonably assured. The Company had other real estate owned at June 30, 2009 totaling $2,550,000, and none at December 31, 2008, or June 30, 2008.
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. Total assets decreased slightly by 0.7% during the first six months of 2009 to $747,623,000 as of June 30, 2009 from $752,713,000 as of December 31, 2008. Total gross loans increased 1.6% to $492,098,000 as of June 30, 2009 compared to $484,238,000 as of December 31, 2008. Total deposits decreased 2.1% to $621,719,000 as of June 30, 2009 compared to $635,058,000 as of December 31, 2008. Our loan to deposit ratio at June 30, 2009 was 79.2% compared to 76.3% at December 31, 2008. The loan to deposit ratio of our peers was 93.5% at March 31, 2009. Further discussion of loans and deposits is below.
Operating Efficiency
Operating efficiency is the measure of how efficiently earnings before taxes are generated as a percentage of revenue. The Company's efficiency ratio (operating expenses, excluding amortization of intangibles, divided by net interest income plus non-interest income, excluding gains from sales of securities) was 69.3% for the first six months of 2009 compared to 69.8% for the six months ended June 30, 2008. The improvement in the efficiency ratio is due to an increase in net interest income partially offset by an increase in operating expenses. The Company's net interest income before provision for credit losses plus non-interest income increased 44.6% to $20,372,000 for the six months ended June 30, 2009 compared to $14,087,000 for the same period in 2008, while operating expenses increased 40.6% to $13,969,000 from $9,938,000 for the same period in 2008.
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 Committee. This process is intended to ensure the maintenance of sufficient liquidity to meet our funding needs, including adequate cash flow 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. 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 withdrawals of and interest payments on deposits, origination and purchases of loans, purchases of investment securities, and payment of operating expenses.
RESULTS OF OPERATIONS
Net Income for the First Six Months of 2009 Compared to the Six months ended June 30, 2008:
Net income decreased to $1,723,000 for the six months ended June 30, 2009 compared to $2,620,000 for the six months ended June 30, 2008. Basic earnings per share were $0.20 and $0.44 for the six months ended June 30, 2009 and 2008, respectively. Diluted earnings per share were $0.20 for the six months ended June 30, 2009 and $0.42 for the same period in 2008. Annualized ROE was 4.21% for the six months ended June 30, 2009 compared to 9.63% for the six months ended June 30, 2008. Annualized ROA for the six months ended June 30, 2009 was 0.46% compared to 1.06% for the six months ended June 30, 2008.
Net income for the six months ended June 30, 2009 compared to the same period in the prior year decreased due mainly to increases in the provision for credit losses and non-interest expenses, partially offset by increases in net interest income and non-interest income, and a decrease in the provision for income taxes. Net interest income increased due to an increase in the level of . . .
|
|