What changed in this filing

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Item 1A. Risk Factors

2023-11-02 compared with 2023-08-03 · 63 added, 3 removed, 34 unchanged (66% of the section changed)

15 unchanged sentences

The loss of our deposit clients or substantial reduction of our deposit balances could force us to fund our business with more expensive and less stable funding sources.

As of June 30, 2023, deposits from our top 100 client relationships accounted for, in the aggregate, 21.93% of our total deposits.

The deposits not insured by the FDIC (approximately $776.1 million of uninsured deposits, or 35.27%, of our total deposits of $2.2 billion at June 30, 2023) could present a heightened risk of withdrawal, if such depositors materially decreased the volume of those deposits and it could reduce our liquidity.

As of September 30, 2023, deposits from our top 100 client relationships accounted for, in the aggregate, 23.08% of our total deposits.

The deposits not insured by the FDIC (approximately $883.5 million of uninsured deposits, or 41.12%, of our total deposits of $2.1 billion at September 30, 2023) could present a heightened risk of withdrawal, if such depositors materially decreased the volume of those deposits and it could reduce our liquidity.

We have traditionally obtained funds through deposits for use in lending and investment activities.

7 unchanged sentences

The global economic impact from the geopolitical events in Europe that is contributing to rising energy and commodity prices, as well as the on-going supply chain disruptions have resulted in inflationary pressures and increases to prevailing interest rates.

The Federal Reserve’s Open Market Committee (“FOMC”) raised the target range for the federal funds rate from 5.00% - 5.25% to 5.25% - 5.50% on July 26, 2023, resulting in a cumulative increase of 375 basis points from July of 2022.

The Federal Reserve’s Open Market Committee (“FOMC”) last raised the target range for the federal funds rate from 5.00% - 5.25% to 5.25% - 5.50% on July 26, 2023, resulting in a cumulative increase of 375 basis points from July of 2022.

These recent increases in prevailing interest rates and the expectation that further increases are likely will impact both our customers and many aspects of our business.

1 unchanged sentence

Rising interest rates, higher commodity prices, and supply chain issues and an overall slowdown in economic growth could also impact the fair value of our assets and adversely impact our asset quality.

The occurrence of fraudulent activity, breaches or failures of information security controls or cybersecurity-related incidents to either our information systems or information systems provided by third party vendors could have a material adverse effect on our business, financial condition and results of operations.

As a financial institution, we are susceptible to fraudulent activity, information security breaches and other cybersecurity-related incidents and attacks that may be committed against us, our customers or our key vendors and business partners, which in turn may result in financial losses or increased costs to us, our customers, or our key vendors and business partners, disclosure or misuse of our information or our customer information, theft or misappropriation of assets (including bank or customer funds), privacy breaches against us or our customers, litigation, regulatory enforcement action, and damage to our reputation.

government has warned financial institutions of the potential increase in the frequency and severity of malicious cyber-attacks and other activities involving critical infrastructure, specifically including the financial sector, and has encouraged the banking sector to enhance cyber-defenses, and these risks have increased in connection with the current conflict in Europe initiated by Russia against Ukraine.

While the Company has taken measures to protect its own and customer funds and confidential information against cyber-attacks, as well as other malicious activities, there can be no assurance that such measures will be successful in thwarting such attacks and activities.

Risks Related to our Recently Announced Merger Agreement

Failure to consummate our announced merger with Community West, or a delay in consummating the merger, could negatively impact the market price of our common stock and could have a material adverse effect on our business, financial condition and results of operations.

On October 10, 2023, we entered into an into an agreement and plan of reorganization and merger with Community West providing for the merger of Community West with and into the Company, with the Company as the surviving entity, (the “Merger”).

Immediately following the Merger CWB will merge with and into CVCB, with CVCB surviving the Merger (the “Bank Merger”).

In connection with the Merger and Bank Merger, the Company and CVCB will be re-named Community West and Community West Bank, respectively, to reflect the combined companies.

The transaction is expected to be completed in the second quarter of 2024 pending shareholder and regulatory approvals and the satisfaction of other customary closing

We have incurred substantial expenses in connection with the negotiation and preparations for completion of the transactions contemplated by the Merger.

If the Merger is not completed, we will have incurred these expenses without realizing the expected benefits of the Merger.

If the Merger and Bank Merger are not consummated for any reason, our ongoing business, financial condition and results of operations may be materially adversely affected and the market price of our common stock may decline significantly, particularly to the extent that the current market price reflects a market assumption that the Merger will be consummated.

If the consummation of the Merger is delayed, including by the receipt of a competing acquisition proposal or by reason of litigation, our business, financial condition and results of operations may also be materially adversely affected.

In addition, our business may have been impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the Merge, without realizing any of the anticipated benefits of completing the Merger.

We may fail to realize the anticipated benefits of the Merger.

The success of the Merger will depend on, among other things, our ability to combine our business with those of Community West and CWB.

If we are not able to successfully achieve this objective, the anticipated benefits of the Merger may not be realized fully, or at all, or may take longer to realize than expected.

Each of the Company, Community West, CVCB and CWB have operated and, until the consummation of the Merger, will continue to operate independently.

It is possible that the integration process or other factors could result in the disruption of our ongoing business or inconsistencies in standards, controls, procedures and policies.

It is also possible that clients, customers, depositors and counterparties of CVCB and CWB could choose to discontinue their relationships with the combined company post-merger, which would adversely affect the future performance of the combined company.

These transition matters could have an adverse effect on the Company, Community West, CVCB and CWB during the pre-merger period and for an undetermined time after the consummation of the Merger.

The Company, CVCB, Community West and CWB will be subject to business uncertainties and contractual restrictions while the Merge is pending that could adversely affect their respective businesses.

The parties’ efforts to complete the Merger could cause substantial disruptions in the Company’s, CVCB’s, Community West’s and CWB’s respective businesses, which could have an adverse effect on their respective financial results.

Among other things, uncertainty as to whether the Merger will be completed may affect the ability of each of the parties to recruit prospective employees or to retain and motivate existing employees.

Employee retention may be particularly challenging while the merger is pending because employees may experience uncertainty about their future roles with the combined company.

Uncertainty as to the future could adversely affect the Company’s, CVCB’s, Community West and/or CWB respective businesses, reputation and relationships with potential depositors, borrowers and vendors.

For example, vendors, customers and others who deal with the Company, CVCB, Community West, or CWB could defer decisions concerning working with such company, or seek to change existing business relationships with such company.

Further, a substantial amount of the attention of management and employees of each company is being directed toward the completion of the Merger and thus is being diverted from such company’s day-to-day operations because matters related to the Merger (including integration planning) require substantial commitments of time and resources.

In addition, the merger agreement restricts the Company and Community West from taking certain actions without the other party’s consent while the Merger is are pending.

These restrictions may, among other matters, prevent the Company and Community West from pursuing otherwise attractive business opportunities, selling assets, changing the capital structure, entering into other transactions or making other changes to its respective business prior to consummation of the Merger or termination of the merger agreement.

These restrictions could have a material adverse effect on the Company’s, CVCB’s, Community West’s and CWB’s business, financial condition and results of operations.

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or cannot be met.

Before the transactions contemplated in the merger agreement may be completed, various approvals must be obtained from the bank regulatory and other governmental authorities.

These governmental entities may impose conditions on the granting of such approvals.

Such conditions or changes and the process of obtaining regulatory approvals could have the effect of delaying completion of the Merger or of imposing additional costs or limitations on us following the Merger.

The regulatory approvals may not be received at any time, may not be received in a timely fashion, or may contain conditions on the completion of the Merger that are not anticipated or cannot be met.

It is a condition to closing of the Merger that no regulatory approval shall

contain or shall have resulted in, or reasonably be expected to result in the imposition of, any burdensome condition on the combined company following the merger.

The merger agreement may be terminated in accordance with its terms and the merge may not be completed.

The merger agreement and Merger is subject to a number of conditions which must be fulfilled in order to complete the Merger.

Those conditions include:

approval of the merger agreement by the respective shareholders of the Company and Community West, receipt of requisite regulatory approvals subject to certain limitations set forth in the merger agreement, absence of orders prohibiting completion of the mergers, effectiveness of the registration statement relating to our common stock to be issued in the merger and listing of such shares on the Nasdaq Capital Market, issuance of favorable tax opinions, the continued accuracy of the representations and warranties by the parties, the absence of a material adverse effect on the parties, and the performance by the parties of their covenants and agreements.

These conditions to the closing of the Merger may not be fulfilled and, accordingly, the Merger may not be completed.

Under the merger agreement, if the merger is not completed by June 30, 2024 (subject to up to a 90 day extension to obtain regulatory approval), either party to the Merger agreement may choose not to proceed with the merger, and the parties can mutually decide to terminate the merger agreement at any time, before or after shareholder approval.

In addition, under the merger agreement the Company and Community West, as applicable may elect to terminate the merger agreement in certain other circumstances.

If the merger agreement is terminated under these circumstances, Community West may be required to pay a termination fee of $4.0 million to us.

We expect to incur substantial expenses related to the Merger.

We expect to incur substantial expenses in connection with consummation of the Merger and combining the business, operations, networks, systems, technologies, policies and procedures of Community West and CWB.

Although we have assumed that a certain level of transaction and combination expenses would be incurred, there are a number of factors beyond our control that could affect the total amount or the timing of our expenses.

Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time.

Due to these factors, the transaction and combination expenses associated with the Merger could, particularly in the near term, exceed the savings that we expect to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings related to the combination of the businesses following the consummation of the Merger.

As a result of these expenses, we expect to take charges against our earnings before and after the completion of the Merger.

The charges taken in connection with the Merger are expected to be significant, although the aggregate amount and timing of such charges are uncertain at present.

The merger agreement with Community West provides for a fixed exchange ratio and will not adjust in the event of changes in the price of either the Company’s or Community West common stock and, therefore, the value of the merger consideration in the Merger is subject to change.

The merger agreement provides that each Community West common share will be converted into the right to receive a fixed exchange ratio of a share of our common stock upon completion of the Merger.

The exchange ratio is fixed.

No adjustments to the exchange ratio will be made based on changes in the price of Community West or our common stock prior to the completion of the Merger.

Changes in stock prices may result from a variety of factors, including, among others, general market and economic conditions, changes in our respective businesses, operations and prospects, market assessment of the likelihood that the Merger will be completed as anticipated or at all, and regulatory considerations.

Many of these factors are uncertain and beyond the parties control.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors