UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2005
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 000-23575
COMMUNITY WEST BANCSHARES
(Exact name of registrant as specified in its charter)
California 77-0446957
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
445 Pine Avenue, Goleta, California 93117
(Address of principal executive offices) (Zip Code)
(805) 692-5821
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] YES [_] NO
Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Exchange Act). [_] YES [X] NO
The aggregate value of the Common Stock of the registrant held by
non-affiliates as of June 30, 2005 was $48,857,694 based on the last closing
price on a share of Common Stock of $12.20 as of June 30, 2005.
Number of shares of common stock of the registrant outstanding as of August
11, 2005: 5,745,014.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
- ------ --------------------- ----
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 3
CONSOLIDATED INCOME STATEMENTS 4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY 5
CONSOLIDATED STATEMENTS OF CASH FLOWS 6
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 7
The financial statements included in this Form 10-Q should be read with
reference to Community West Bancshares' Annual Report on Form 10-K for the
fiscal year ended December 31, 2004.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 23
ITEM 4. CONTROLS AND PROCEDURES 23
PART II. OTHER INFORMATION
- -------- -----------------
ITEM 1. LEGAL PROCEEDINGS 24
ITEM 2. UREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS 24
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF 24
SECURITY HOLDERS
ITEM 5. OTHER INFORMATION 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 24
SIGNATURES
- ----------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
COMMUNITY WEST BANCSHARES
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2005 2004
(UNAUDITED)
-------------- --------------
(DOLLARS IN THOUSANDS)
Cash and due from banks $ 6,415 $ 8,769
Interest-earning deposits in other financial institutions - 9,700
Federal funds sold 7,130 11,736
-------------- --------------
Cash and cash equivalents 13,545 30,205
Time deposits in other financial institutions 640 647
Investment securities available-for-sale, at fair value; amortized cost of $21,716 at
June 30, 2005 and $22,380 at December 31, 2004 21,648 22,258
Investment securities held-to-maturity, at amortized cost; fair value of $7,807 at
June 30, 2005 and $6,122 at December 31, 2004 7,789 6,094
Federal Home Loan Bank stock, at cost 2,386 1,200
Federal Reserve Bank stock, at cost 812 812
Interest only strips, at fair value 2,158 2,715
Loans:
Loans held for sale, at lower of cost or fair value 47,385 45,988
Loans held for investment, net of allowance for loan losses of $3,102 at
June 30, 2005 and $2,785 at December 31, 2004 267,476 222,153
Securitized loans, net of allowance for loan losses of $898 at
June 30, 2005 and $1,109 at December 31, 2004 17,950 22,365
-------------- --------------
Total loans 332,811 290,506
Servicing rights 3,230 3,258
Other real estate owned, net 65 13
Premises and equipment, net 2,087 1,763
Other assets 5,627 5,732
-------------- --------------
TOTAL ASSETS $ 392,798 $ 365,203
============== ==============
LIABILITIES
Deposits:
Non-interest-bearing demand $ 34,842 $ 44,384
Interest-bearing demand 91,467 92,395
Savings 16,093 15,370
Time certificates of $100,000 or more 57,122 40,393
Other time certificates 82,684 92,026
-------------- --------------
Total deposits 282,208 284,568
Securities sold under agreements to repurchase 3,065 13,672
Federal Home Loan Bank advances 50,500 10,500
Bonds payable in connection with securitized loans 11,134 13,910
Other liabilities 6,592 4,984
-------------- --------------
Total liabilities 353,499 327,634
-------------- --------------
STOCKHOLDERS' EQUITY
Common stock, no par value; 10,000,000 shares authorized; shares issued and outstanding,
5,745,014 at June 30, 2005 and 5,729,869 at December 31, 2004 30,139 30,020
Retained earnings 9,200 7,621
Accumulated other comprehensive loss, net (40) (72)
-------------- --------------
Total stockholders' equity 39,299 37,569
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 392,798 $ 365,203
============== ==============
See accompanying notes.
3
COMMUNITY WEST BANCSHARES
CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- --------------------------
2005 2004 2005 2004
------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INTEREST INCOME
Loans $ 6,757 $ 4,962 $ 12,748 $ 9,856
Investment securities 310 228 612 435
Other 50 55 85 115
------------ ------------- ------------ ------------
Total interest income 7,117 5,245 13,445 10,406
------------ ------------- ------------ ------------
INTEREST EXPENSE
Deposits 1,741 1,185 3,250 2,338
Bonds payable and other borrowings 670 760 1,221 1,546
------------ ------------- ------------ ------------
Total interest expense 2,411 1,945 4,471 3,884
------------ ------------- ------------ ------------
NET INTEREST INCOME 4,706 3,300 8,974 6,522
Provision for loan losses 264 (30) 434 65
------------ ------------- ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES 4,442 3,330 8,540 6,457
NON-INTEREST INCOME
Gains from loan sales, net 789 1,422 1,549 2,351
Other loan fees 753 1,437 1,345 2,067
Document processing fees 223 172 412 317
Loan servicing fees, net 39 387 187 903
Other 57 20 192 233
------------ ------------- ------------ ------------
Total non-interest income 1,861 3,438 3,685 5,871
------------ ------------- ------------ ------------
NON-INTEREST EXPENSES
Salaries and employee benefits 3,046 3,227 5,983 6,024
Occupancy and equipment expenses 573 496 1,154 1,001
Professional services 322 229 606 416
Other operating expenses 465 1,048 919 1,634
------------ ------------- ------------ ------------
Total non-interest expenses 4,406 5,000 8,662 9,075
------------ ------------- ------------ ------------
Income before provision for income taxes 1,897 1,768 3,563 3,253
Provision for income taxes 778 728 1,466 1,339
------------ ------------- ------------ ------------
NET INCOME $ 1,119 $ 1,040 $ 2,097 $ 1,914
============ ============= ============ ============
INCOME PER SHARE - BASIC $ .19 $ .18 $ .37 $ .34
============ ============= ============ ============
INCOME PER SHARE - DILUTED $ .19 $ .18 $ .35 $ .33
============ ============= ============ ============
See accompanying notes.
4
COMMUNITY WEST BANCSHARES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
ACCUMULATED
COMMON COMMON OTHER TOTAL
STOCK STOCK RETAINED COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT EARNINGS INCOME (LOSS) EQUITY
------ ------- ---------- --------------- ---------------
(IN THOUSANDS)
BALANCES AT
JANUARY 1, 2005 5,730 $30,020 $ 7,621 $ (72) $ 37,569
Exercise of stock options 15 79 79
Tax benefit from stock options 40 40
Comprehensive income:
Net income 2,097 2,097
Change in unrealized gain (loss)
on securities available-for-sale,
net 32 32
---------------
Comprehensive income 2,129
Cash dividends paid
($.09 per share) (518) (518)
------ ------- ---------- --------------- ---------------
BALANCES AT
JUNE 30, 2005 5,745 $30,139 $ 9,200 $ (40) $ 39,299
====== ======= ========== =============== ===============
See accompanying notes.
5
COMMUNITY WEST BANCSHARES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------------
2005 2004
------------ ------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,097 $ 1,914
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 434 65
Depreciation and amortization 432 676
Net amortization of discounts and premiums for investment securities (93) 132
Gains from:
Sale of other real estate owned 31 (2)
Sale of loans held for sale (1,171) (2,351)
Changes in:
Fair value of interest only strips, net of accretion 557 373
Servicing rights, net of amortization and valuation adjustments 28 (705)
Other assets 105 1,723
Other liabilities 1,653 1,907
------------ ------------
Net cash provided by operating activities 4,073 3,732
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of held-to-maturity securities (2,227) -
Purchase of available-for-sale securities - (7,940)
Purchase of Federal Home Loan Bank stock (1,162) (1,175)
Federal Home Loan Bank stock dividend (24) -
Principal pay downs and maturities of held-to-maturity securities 532 1,879
Principal pay downs and maturities of available-for-sale securities 672 612
Unrealized accumulated gains/losses on available-for-sale securities 31 (44)
Loan originations and principal collections, net (41,680) (27,105)
Proceeds from sale of other real estate owned 57 529
Net decrease in time deposits in other financial institutions 7 297
Purchase of premises and equipment, net (610) (205)
------------ ------------
Net cash used in investing activities (44,404) (33,152)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options 79 48
Cash dividends paid on common stock (518) (229)
Net (decrease) increase in demand deposits and savings accounts (9,747) 7,862
Net increase in time certificates of deposit 7,387 21,641
Proceeds from securities sold under agreements to repurchase - 10,724
Repayments of securities sold under agreements to repurchase (10,607) (5,219)
Proceeds from Federal Home Loan Bank advances 42,000 7,500
Repayment of Federal Home Loan Bank advances (2,000) -
Repayments of bonds payable in connection with securitized loans (2,923) (7,182)
------------ ------------
Net cash provided by financing activities 23,671 35,145
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (16,660) 5,725
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 30,205 22,056
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,545 $ 27,781
============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 3,883 $ 3,059
Cash paid for income taxes 1,165 300
Supplemental Disclosure of Noncash Investing Activity:
Transfers to other real estate owned 112 83
See accompanying notes.
6
COMMUNITY WEST BANCSHARES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The interim consolidated financial statements reflect all adjustments and
reclassifications that, in the opinion of management, are necessary for the fair
presentation of the results of operations and financial condition for the
interim periods. The unaudited consolidated financial statements include
Community West Bancshares ("CWBC") and its wholly-owned subsidiary, Community
West Bank N.A. ("CWB"). CWBC and CWB are referred to herein as "the Company".
All adjustments and reclassifications in the periods presented are of a normal
and recurring nature. Results for the period ended June 30, 2005 are not
necessarily indicative of results that may be expected for any other interim
period or for the year as a whole.
These unaudited consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto of Community West
Bancshares included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2004.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ALLOWANCE FOR LOAN LOSSES - The Company maintains a detailed, systematic
analysis and procedural discipline to determine the amount of the allowance for
loan losses ("ALL"). The ALL is based on estimates and is intended to be
adequate to provide for probable losses inherent in the loan portfolio. This
process involves estimating probable losses that are based on individual loan
loss, migration analysis/historical loss rates and management's judgment.
The Company employs several methodologies for estimating probable losses.
Methodologies are determined based on a number of factors, including type of
asset, risk rating, concentrations, collateral value and the input of the
Special Assets group, functioning as a workout unit.
The Company calculates the required ALL on a monthly basis. Any differences
between estimated and actual observed losses from the prior month are reflected
in the current period ALL calculation and adjusted as deemed necessary. The
Company's ALL is maintained at a level believed adequate by management to absorb
known and inherent probable losses on existing loans.
INTEREST ONLY STRIPS AND SERVICING RIGHTS - The guaranteed portion of certain
SBA loans can be sold into the secondary market. Servicing rights are
recognized at fair market value as separate assets when loans are sold with
servicing retained. Servicing rights are amortized in proportion to, and over
the period of, estimated future net servicing income. Also, at the time of the
loan sale, it is the Company's policy to recognize the related gain on the loan
sale in accordance with generally accepted accounting principles ("GAAP"). The
Company uses industry prepayment statistics and its own prepayment experience in
estimating the expected life of the loans. Management periodically evaluates
servicing rights for impairment. Servicing rights are evaluated for impairment
based upon the fair value of the rights as compared to amortized cost on a
loan-by-loan basis. Fair value is determined using discounted future cash flows
calculated on a loan-by-loan basis and aggregated to the total asset level.
Impairment to the asset is recorded if the aggregate fair value calculation
drops below the net book value of the asset. The initial servicing rights and
resulting gain on sale are calculated based on the difference between the best
actual par and premium bids on an individual loan basis. Additionally, on
certain SBA loan sales that occurred prior to 2003, the Company retained
interest only strips ("I/O Strips"), which represent the present value of excess
net cash flows generated by the difference between (a) interest at the stated
rate paid by borrowers and (b) the sum of (i) pass-through interest paid to
third-party investors and (ii) contractual servicing fees.
The I/O strips are classified as trading securities. Accordingly, the Company
records the I/O strips at fair value with the resulting increase or decrease in
fair value being recorded through operations in the current period. Quarterly,
the Company verifies the reasonableness of its valuation estimates by comparison
to the results of an independent third party valuation analysis.
SECURITIZED LOANS AND BONDS PAYABLE - In 1999 and 1998, respectively, the
Company transferred $122 million and $81 million in loans to special purpose
trusts ("Trusts"). The transfers have been accounted for as secured borrowings
and, accordingly, the mortgage loans and related bonds issued are included in
the Company's consolidated balance sheets. Such loans are accounted for in the
same manner as loans held to maturity. Deferred debt issuance costs and bond
discount related to the bonds are amortized on a method that approximates the
level yield method over the estimated life of the bonds. The bonds related to
the 1998 issue have been paid off and the remaining balance relates to the 1999
issue.
OTHER REAL ESTATE OWNED - Other real estate owned ("OREO") is real estate
acquired through foreclosure on the collateral property and is recorded at fair
value at the time of foreclosure less estimated costs to sell. Any excess of
loan balance over the fair value of the OREO is charged-off against the
allowance for loan losses. Subsequent to foreclosure, management periodically
performs a new valuation and the asset is carried at the lower of carrying
7
amount or fair value. Operating expenses or income, and gains or losses on
disposition of such properties, are charged to current operations.
RECENT ACCOUNTING PRONOUNCEMENTS - On December 16, 2004, the Financial
Accounting Standards Board ("FASB") issued FASB Statement No. 123 (revised
2004), Share-Based Payment, which is a revision of FASB Statement No. 123,
Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No.
95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is
similar to the approach described in Statement 123. However, Statement 123(R)
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the income statement based on their fair
values. Pro forma disclosure will no longer be an alternative. Statement 123(R)
must be adopted no later than the first fiscal year beginning after June 15,
2005. The Company expects to adopt Statement 123(R) as of January 1, 2006. While
the ultimate impact of adoption of this guidance is unknown at this time, the
Company does not expect the impact to be significantly different from the
proforma disclosures presented in Note 5.
COMPREHENSIVE INCOME
The following schedule reflects comprehensive income for the periods indicated:
THREE MONTHS ENDED SIX MONTHS ENDED
(IN THOUSANDS) JUNE 30, JUNE 30,
--------------------------- ---------------------------
2005 2004 2005 2004
------------ ------------- ------------ -------------
Net income $ 1,119 $ 1,040 $ 2,097 $ 1,914
Other comprehensive income, net of tax:
Unrealized gains on investment securities, net of tax 48 (119) 32 (34)
------------ ------------- ------------ -------------
Comprehensive income $ 1,167 $ 921 $ 2,129 $ 1,880
============ ============= ============ =============
2. LOAN SALES AND SERVICING
SBA LOAN SALES - The Company sells the guaranteed portion of selected SBA loans
into the secondary market, on a servicing retained basis, in exchange for a
combination of a cash premium, servicing rights and/or I/O strips. A portion of
the proceeds is recognized as servicing fee income as it occurs and the
remainder is capitalized as excess servicing and is included in the gain on sale
calculation. The Company retains the unguaranteed portion of these loans and
services the loans as required under the SBA programs to retain specified yield
amounts. The SBA program stipulates that the Company retains a minimum of 5% of
the loan balance, which is unguaranteed. The percentage of each unguaranteed
loan in excess of 5% may be periodically sold to a third party for a cash
premium. The Company records servicing liabilities for the unguaranteed loans
sold calculated based on the present value of the estimated future servicing
costs associated with each loan. A portion of this cost is included as a
reduction to the premium collected on the loan sale, and the remainder is
accrued and recognized as a reduction of servicing expense as it occurs. The
balance of all servicing rights and obligations is subsequently amortized over
the estimated life of the loans using an estimated prepayment rate of 25-30%.
Quarterly, the servicing and I/O strip assets are analyzed for impairment.
The Company also periodically sells SBA loans originated under the 504 loan
program into the secondary market, on a servicing released basis, in exchange
for a cash premium.
As of June 30, 2005 and December 31, 2004, the Company had approximately $45.5
million and $43.6 million, respectively, in SBA loans held for sale.
MORTGAGE LOAN SALES - In the normal course of business, the Company enters into
mortgage loan rate lock commitments with potential borrowers. Simultaneously,
the Company enters into a "best efforts" forward sale commitment to sell the
locked loans to a third party investor. Since the two commitments directly
offset, there is no interest rate risk to the Company, therefore there is no
material net income statement effect. At June 30, 2005, the Company had $10.1
million in outstanding mortgage loan commitments.
8
3. LOANS HELD FOR INVESTMENT AND SECURITIZED LOANS
The composition of the Company's loans held for investment and securitized loan
portfolio follows:
JUNE 30, DECEMBER 31,
2005 2004
----------- --------------
(IN THOUSANDS)
Real estate $ 103,234 $ 85,357
Manufactured housing 84,037 66,423
SBA 39,756 35,265
Commercial 35,259 30,893
Securitized 18,493 23,005
Other installment 10,171 8,645
----------- --------------
290,950 249,588
Less:
Allowance for loan losses 4,000 3,894
Deferred fees, net of costs 28 (180)
Purchased premiums on securitized loans (296) (392)
Discount on SBA loans 1,792 1,748
----------- --------------
Loans held for investment, net $ 285,426 $ 244,518
=========== ==============
An analysis of the allowance for loan losses for loans held for investment
follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
2005 2004 2005 2004
-------------- -------------- -------------- --------------
(IN THOUSANDS)
Balance, beginning of period $ 2,964 $ 2,858 $ 2,785 $ 2,652
Provision for loan losses 204 36 344 188
Loans charged off (67) (129) (119) (130)
Recoveries on loans previously charged off 1 14 92 69
-------------- -------------- -------------- --------------
Balance, end of period $ 3,102 $ 2,779 $ 3,102 $ 2,779
============== ============== ============== ==============
An analysis of the allowance for loan losses for securitized loans follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
2005 2004 2005 2004
-------------- -------------- -------------- --------------
(IN THOUSANDS)
Balance, beginning of period $ 1,122 $ 1,515 $ 1,109 $ 2,024
Provision for loan losses 60 (66) 90 (123)
Loans charged off (315) (265) (561) (844)
Recoveries on loans previously charged off 31 185 260 312
-------------- -------------- -------------- --------------
Balance, end of period $ 898 $ 1,369 $ 898 $ 1,369
============== ============== ============== ==============
The recorded investment in loans that is considered to be impaired:
JUNE 30, DECEMBER 31,
2005 2004
---------- --------------
(IN THOUSANDS)
Impaired loans without specific valuation allowances $ 84 $ 49
Impaired loans with specific valuation allowances 3,607 3,926
Specific valuation allowances allocated to impaired loans (415) (425)
---------- --------------
Impaired loans, net $ 3,276 $ 3,550
========== ==============
Average investment in impaired loans $ 3,814 $ 5,137
========== ==============
4. EARNINGS PER SHARE
Earnings per share - Basic has been computed based on the weighted average
number of shares outstanding during each period. Earnings per share - Diluted
has been computed based on the weighted average number of shares
9
outstanding during each period plus the dilutive effect of granted options.
Earnings per share were computed as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Weighted average shares - Basic 5,745 5,714 5,743 5,711
Dilutive effect of options 200 120 198 123
------------ ------------ ------------ ------------
Weighted average shares - Diluted 5,945 5,834 5,941 5,834
============ ============ ============ ============
Net income $ 1,119 $ 1,040 $ 2,097 $ 1,914
Earnings per share - Basic .19 .18 .37 .34
Earnings per share - Diluted .19 .18 .35 .33
5. STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION - GAAP permits the Company to use either of two
methodologies to account for compensation cost in connection with employee stock
options. The first method requires issuers to record compensation expense over
the period the options are expected to be outstanding prior to exercise,
expiration or cancellation. The amount of compensation expense to be recognized
over this term is the "fair value" of the options at the time of the grant as
determined by the Black-Scholes valuation model. Black-Scholes computes fair
value of the options based on the length of their term, the volatility of the
stock price in past periods and other factors. Under this method, the issuer
recognizes compensation expense regardless of whether or not the employee
eventually exercises the options.
Under the second methodology, if options are granted at an exercise price equal
to the market value of the stock at the time of the grant, no compensation
expense is recognized. The Company believes that this method better reflects
the motivation for its issuance of stock options, as they are intended as
incentives for future performance rather than compensation for past performance.
GAAP requires that issuers electing the second method must present pro forma
disclosure of net income and earnings per share as if the first method had been
elected.
The fair value of each stock option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Annual dividend yield 1.6% 1.9% 1.6% 1.9%
Expected volatility 35.0% 43.2% 35.0% 37.2%
Risk-free interest rate 4.0% 4.6% 4.1% 4.2%
Expected life (in years) 6.8 6.8 6.8 6.8
Statement of Financial Accounting Standards No. 123 requires pro forma
disclosure of net income and earnings per share using the fair value method. If
the computed fair values of the awards had been amortized to expense over the
vesting period of the awards, the Company's net income, basic net income per
share and diluted net income per share would have been reduced to the pro forma
amounts following:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Income:
As reported $ 1,119 $ 1,040 $ 2,097 $ 1,914
Pro forma 1,093 998 2,043 1,836
Income per common share - basic
As reported $ .19 $ .18 $ .37 $ .34
Pro forma .19 .17 .36 .32
Income per common share - diluted
As reported $ .19 $ .18 $ .35 $ .33
Pro forma .18 .17 .34 .31
10
6. BORROWINGS
REPURCHASE AGREEMENTS - As of June 30, 2005 and December 31, 2004, the Company
had $3.1 million and $13.7 million, respectively, of outstanding repurchase
agreements, with an interest rate on the June 30, 2005 balance of 2.35%, which
mature in July 2005. Available-for-sale securities with a carrying value of
$3.1 million and $14.0 million were pledged as collateral for short-term
borrowings as of June 30, 2005 and December 31, 2004, respectively.
FEDERAL HOME LOAN BANK ADVANCES - The Company has a blanket lien credit line
with the Federal Home Loan Bank ("FHLB"). As of June 30, 2005, the Company had
$50.5 million of outstanding advances with interest rates of 2.59% to 4.05% and
terms of up to three years. The outstanding advances as of June 30, 2005,
included $35.0 million borrowed at variable rates which adjust to current LIBOR
rate either monthly or quarterly. As of June 30, 2005, CWB had available to
borrow in FHLB advances approximately $33.8 million.
BONDS PAYABLE - The following is a summary of bonds payable:
JUNE 30, DECEMBER 31,
2005 2004
--------- -------------
(IN THOUSANDS)
Series 1998-1 $ - $ 179
Series 1999-1 11,588 14,332
--------- -------------
11,588 14,511
Less: Bond issuance costs 173 228
Bond discount 281 373
--------- -------------
Total bonds payable, net $ 11,134 $ 13,910
========= =============
As of June 30, 2005, the outstanding bonds bear interest rates ranging form
7.85% - 8.75% with stated maturity of May 25, 2025. The Series 1999-1 bonds are
collateralized by securitized loans with an outstanding balance of $13.3 million
and $16.4 million at June 30, 2005 and December 31, 2004, respectively.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion is designed to provide insight into management's assessment of
significant trends related to the Company's consolidated financial condition,
results of operations, liquidity, capital resources and interest rate
sensitivity. It should be read in conjunction with the unaudited interim
consolidated financial statements and notes thereto and the other financial
information appearing elsewhere in this report. See discussion under "Factors
That May Affect Future Results of Operations" for further information on risks
and uncertainties as well as information on the strategies adopted by the
Company to address these risks.
FORWARD LOOKING STATEMENTS
This Report on Form 10-Q contains statements that constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Those forward-looking statements include statements regarding the intent, belief
or current expectations of the Company and its management. Any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and actual results may differ materially from those
projected in the forward-looking statements. The Company does not undertake any
obligation to revise or update publicly any forward-looking statements for any
reason.
The following discussion should be read in conjunction with the Company's
financial statements and the related notes provided under "Item 1-Financial
Statements" above.
OVERVIEW OF EARNINGS PERFORMANCE
The Company earned net income of $1,119,000, or $0.19 per share, basic and
diluted, for the second quarter 2005. This represents a 7.6% increase in net
income over the comparable period of 2004. For the six months ended June 30,
2005, the Company earned $2,097,000, or $0.37 per basic share and $0.35 per
diluted share, a 9.6% increase over the same period in 2004. The significant
factors impacting net income for the second quarter 2005 and six months ended
June, 30, 2005 were:
- Net loan growth in the second quarter 2005 of $23.4 million, or 7.5%,
and $42.4 million, or 14.4%, since December 31, 2004, which positively
impacts net interest income.
- Continued prepayments of the securitized loans and the related bonds
which declined $4.4 million and $2.8 million, respectively, from
December 31, 2004 to June 30, 2005.
- Decline in non-interest income of 45.9%, primarily due to declines in
gains from sale of loans and other loan fees as a result of decreased
mortgage loan volume and a discretionary management decision to sell
fewer SBA 7(a) guaranteed loans. This decline was partially offset by
a decline in non-interest expenses of 11.9%.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions about future events that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
significantly from those estimates. The Company believes that the following
discussion addresses the Company's most critical accounting policies, which are
those that are most important to the portrayal of the Company's financial
condition and results of operations and require management's most difficult,
subjective and complex judgments.
ALLOWANCE FOR LOAN LOSSES - The Company maintains a detailed, systematic
analysis and procedural discipline to determine the amount of the allowance for
loan losses ("ALL"). The ALL is based on estimates and is intended to be
adequate to provide for probable losses inherent in the loan portfolio. This
process involves estimating probable losses that are based on individual loan
loss, migration analysis/historical loss rates and management's judgment.
The Company employs several methodologies for estimating probable losses.
Methodologies are determined based on a number of factors, including type of
asset, risk rating, concentrations, collateral value and the input of the
Special Assets group, functioning as a workout unit.
The Company calculates the required ALL on a monthly basis. Any differences
between estimated and actual observed losses from the prior month are reflected
in the current period ALL calculation and adjusted as deemed necessary. The
Company's ALL is maintained at a level believed adequate by management to absorb
known and inherent probable losses on existing loans.
INTEREST ONLY STRIPS AND SERVICING RIGHTS - The guaranteed portion of certain
SBA loans can be sold into the secondary market. Servicing rights are
recognized at fair market value as separate assets when loans are sold with
12
servicing retained. Servicing rights are amortized in proportion to, and over
the period of, estimated future net servicing income. Also, at the time of the
loan sale, it is the Company's policy to recognize the related gain on the loan
sale in accordance with GAAP. The Company uses industry prepayment statistics
and its own prepayment experience in estimating the expected life of the loans.
Management periodically evaluates servicing rights for impairment. Servicing
rights are evaluated for impairment based upon the fair value of the rights as
compared to amortized cost on a loan-by-loan basis. Fair value is determined
using discounted future cash flows calculated on a loan-by-loan basis and
aggregated to the total asset level. Impairment to the asset is recorded if the
aggregate fair value calculation declines below the net book value of the asset.
The initial servicing rights and resulting gain on sale are calculated based on
the difference between the best actual par and premium bids on an individual
loan basis. Additionally, on certain SBA loan sales that occurred prior to
2003, the Company retained interest only strips ("I/O Strips"), which represent
the present value of excess net cash flows generated by the difference between
(a) interest at the stated rate paid by borrowers and (b) the sum of (i)
pass-through interest paid to third-party investors and (ii) contractual
servicing fees.
The I/O strips are classified as trading securities. Accordingly, the Company
records the I/O strips at fair value with the resulting increase or decrease in
fair value being recorded through operations in the current period. Quarterly,
the Company verifies the reasonableness of its valuation estimates by comparison
to the results of an independent third party valuation analysis.
SECURITIZED LOANS AND BONDS PAYABLE - In 1999 and 1998, respectively, the
Company transferred $122 million and $81 million in loans to special purpose
trusts ("Trusts"). The transfers have been accounted for as secured borrowings
and, accordingly, the mortgage loans and related bonds issued are included in
the Company's consolidated balance sheets. Such loans are accounted for in the
same manner as loans held to maturity. Deferred debt issuance costs and bond
discount related to the bonds are amortized on a method that approximates the
level yield method over the estimated life of the bonds.
OTHER REAL ESTATE OWNED - Other real estate owned ("OREO") is real estate
acquired through foreclosure on the collateral property and is recorded at fair
value at the time of foreclosure less estimated costs to sell. Any excess of
loan balance over the fair value of the OREO is charged-off against the
allowance for loan losses. Subsequent to foreclosure, management periodically
performs a new valuation and the asset is carried at the lower of carrying
amount or fair value. Operating expenses or income, and gains or losses on
disposition of such properties, are charged to current operations.
STOCK-BASED COMPENSATION - GAAP permits the Company to use either of two
methodologies to account for compensation cost in connection with employee stock
options. The first method requires issuers to record compensation expense over
the period the options are expected to be outstanding prior to exercise,
expiration or cancellation. The amount of compensation expense to be recognized
over this term is the "fair value" of the options at the time of the grant as
determined by the Black-Scholes valuation model. Black-Scholes computes fair
value of the options based on the length of their term, the volatility of the
stock price in past periods and other factors. Under this method, the issuer
recognizes compensation expense regardless of whether or not the employee
eventually exercises the options.
Under the second methodology, if options are granted at an exercise price equal
to the market value of the stock at the time of the grant, no compensation
expense is recognized. The Company believes that this method better reflects
the motivation for its issuance of stock options, as they are intended as
incentives for future performance rather than compensation for past performance.
GAAP requires that issuers electing the second method must present pro forma
disclosure of net income and earnings per share as if the first method had been
elected.
RECENT ACCOUNTING PRONOUNCEMENTS - On December 16, 2004, the Financial
Accounting Standards Board ("FASB") issued FASB Statement No. 123 (revised
2004), Share-Based Payment, which is a revision of FASB Statement No. 123,
Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No.
95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is
similar to the approach described in Statement 123. However, Statement 123(R)
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the income statement based on their fair
values. Pro forma disclosure will no longer be an alternative. Statement 123(R)
must be adopted no later than the first fiscal year beginning after June 15,
2005. The Company expects to adopt Statement 123(R) as of January 1, 2006. While
the ultimate impact of adoption of this guidance is unknown at this time, the
Company does not expect the impact to be significantly different from the
proforma disclosures presented in Note 5 to the Consolidated Financial
Statements.
13
RESULTS OF OPERATIONS - SECOND QUARTER COMPARISON
The Company recorded net income of $1,119,000, or $.19 per share diluted, for
the three months ended June 30, 2005, compared to net income of $1,040,000, or
$.18 per share diluted, for the three months ended June 30, 2004. The following
table sets forth for the periods indicated, certain items in the consolidated
income statements of the Company and the related changes between those periods:
THREE MONTHS ENDED
JUNE 30,
----------------------------- INCREASE
2005 2004 (DECREASE)
------------- -------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Interest income $ 7,117 $ 5,245 $ 1,872
Interest expense 2,411 1,945 466
------------- -------------- --------------
Net interest income 4,706 3,300 1,406
------------- -------------- --------------
Provision for loan losses 264 (30) 294
------------- -------------- --------------
Net interest income after provision for loan losses 4,442 3,330 1,112
Non-interest income 1,861 3,438 (1,577)
Non-interest expenses 4,406 5,000 (594)
------------- -------------- --------------
Income before provision for income taxes 1,897 1,768 129
Provision for income taxes 778 728 50
------------- -------------- --------------
Net income $ 1,119 $ 1,040 $ 79
============= ============== ==============
Earnings per share - Basic $ .19 $ .18 $ .01
============= ============== ==============
Earnings per share - Diluted $ .19 $ .18 $ .01
============= ============== ==============
Comprehensive income $ 1,167 $ 921 $ 246
============= ============== ==============
Interest Income
Total interest income increased by $1.9 million, or 35.7%, for the second
quarter 2005 compared to the second quarter 2004. The increase was primarily due
to increases in interest income from loans. Interest income from loans increased
by $1.8 million, or 36.2%, for the second quarter 2005 compared to 2004. Average
loans for the second quarter 2005 were $326.5 million compared to $269.3 million
for 2004. Interest income from commercial real estate, manufactured housing, SBA
and commercial loans increased by $700,000, or 55.5%, $626,000, or 54.2%,
$427,000, or 33.5%, and, $250,000, or 51.1%, respectively. Partially offsetting
these increases was a decline in securitized loan interest income of $243,000,
or 25.9%, for the second quarter of 2005 compared to 2004. Interest income from
investments for the second quarter of 2005 increased slightly by $82,000, or
36.0% compared to 2004. The prime rate increased by 50 basis points during the
second quarter 2005. These rate increases, along with the growth in interest
earning assets, were the primary factors in the increase in interest income and
net interest income. Net interest income for the second quarter 2005 increased
by $1.4 million, or 42.6%, compared to the second quarter 2004. Net interest
margin also increased to 5.16% for the second quarter of 2005 compared to 4.29%
for the second quarter 2004.
Interest Expense
Interest expense increased $466,000, or 24%, for the second quarter 2005
compared to 2004. Interest paid on deposits increased by $556,000, or 46.9%.
Interest expense from bonds payable and other borrowings declined by $90,000, or
11.9%, primarily due to decreases in the bonds expense of $350,000, or 52.2%,
and repurchase borrowing expense of $36,000, or 52.9%, partially offset by
increased interest expense on FHLB borrowings of $296,000. Average interest
bearing deposits for the second quarter 2005 were $244 million compared to $201
million for 2004 and average borrowings from FHLB grew from $4.7 million for the
second quarter 2004 to $40.5 million for the second quarter 2005.
Provision for Loan Losses
The provision for loan losses increased by $294,000 for the second quarter 2005
compared to the same period in 2004. The increase is primarily a result of
volume related provision increases due to portfolio growth and the securitized
loan charge-offs. The overall loan portfolio credit quality remained
substantially unchanged.
Non-Interest Income
Non-interest income includes gains from sale of loans, loan document fees,
service charges on deposit accounts, loan servicing fees and other revenues not
derived from interest on earning assets. Non-interest income for the second
quarter of 2005 declined by $1.6 million, or 45.9%, compared to the same period
in 2004. This decline is primarily due to declines in other loan fees of
$684,000, or 47.6%, net gains on loan sales of $633,000, or 44.5%,
14
and, loan servicing of $348,000, or 89.9%. These declines were partially offset
by slight increases in document processing fees and other income. The decline
in other loan fees for the comparable second quarters was primarily related to
mortgage loan origination volume and SBA 504 referral premiums, which had
declines of $354,000 and $299,000 respectively. The majority of the decline in
gain on loan sales resulted from a discretionary management decision to sell
fewer SBA 7(a) guaranteed loans, which contributed $428,000 to the decrease.
Also contributing $133,000 of the decrease in net gains on loan sales was a
decline in mortgage loan sales for the second quarter 2005 compared to 2004.
Net loan servicing income was impacted for the second quarter 2005 compared to
2004 by the increased prepayment speeds in the SBA loan portfolio that resulted
in $262,000 of increased amortization of the related financial assets.
Non-Interest Expenses
Total non-interest expenses decreased $594,000, or 11.9%, for the second quarter
2005 compared to the second quarter 2004. The majority of this decline relates
to other operating expenses which declined by $583,000, or 55.6%, for the second
quarter 2005 compared to 2004. Of this decline, $463,000 relates to a decline
in other loan expenses.
RESULTS OF OPERATIONS - SIX MONTH COMPARISON
The Company recorded net income of $2,097,000, or $.35 per share diluted, for
the six months ended June 30, 2005, compared to net income of $1,914,000, or
$.33 per share diluted, for the six months ended June 30, 2004. The following
table sets forth for the periods indicated, certain items in the consolidated
income statements of the Company and the related changes between those periods:
THREE MONTHS ENDED
JUNE 30,
------------------------------- INCREASE
2005 2004 (DECREASE)
--------------- -------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Interest income $ 13,445 $ 10,406 $ 3,039
Interest expense 4,471 3,884 587
--------------- -------------- ---------------
Net interest income 8,974 6,522 2,452
--------------- -------------- ---------------
Provision for loan losses 434 65 369
--------------- -------------- ---------------
Net interest income after provision for loan losses 8,540 6,457 2,083
Non-interest income 3,685 5,871 (2,186)
Non-interest expenses 8,662 9,075 (413)
--------------- -------------- ---------------
Income before provision for income taxes 3,563 3,253 310
Provision for income taxes 1,466 1,339 127
--------------- -------------- ---------------
Net income $ 2,097 $ 1,914 $ 183
=============== ============== ===============
Earnings per share - Basic $ .37 $ .34 $ .03
=============== ============== ===============
Earnings per share - Diluted $ .35 $ .33 $ .02
=============== ============== ===============
Comprehensive income $ 2,129 $ 1,880 $ 249
=============== ============== ===============
15
The following table sets forth the changes in interest income and expense
attributable to changes in rate and volume:
SIX MONTHS ENDED
JUNE 30,
---------------------------
2005 VERSUS 2004
---------------------------
CHANGE DUE TO
TOTAL -----------------
CHANGE RATE VOLUME
-------- ------- --------
(IN THOUSANDS)
Interest-earning deposits in other financial
institutions (including time deposits) $ (51) $ 11 $ (62)
Federal funds sold 21 78 (57)
Investment securities 177 44 133
Loans, net 3,544 1,016 2,528
Securitized loans (652) 241 (893)
-------- ------- --------
Total interest-earning assets 3,039 1,390 1,649
-------- ------- --------
Interest-bearing demand 906 238 668
Savings 34 67 (33)
Time certificates of deposit (28) 83 (111)
Fed funds purchased 1 - 1
Bonds payable (718) (165) (553)
Other borrowings 392 125 267
-------- ------- --------
Total interest-bearing liabilities 587 348 239
-------- ------- --------
Net interest income $ 2,452 $1,042 $ 1,410
======== ======= ========
Interest Income
Total interest income increased by $3.0 million, or 29.2%, for the first six
months of 2005 compared to 2004. The increase was primarily due to a $2.9
million, or 29.3%, increase in interest income from loans. Average loans for
the first six months of 2005 increased to $317.2 million compared to $261.6
million for 2004. Interest income from manufactured housing, commercial real
estate, SBA and commercial loans increased by $1.2 million, or 54.4%, $795,000,
or 26.9%, $661,000, or 25.8%, and $403,000, or 40.6%, respectively. Partially
offsetting these increases was a decline in interest income from the securitized
loans of $653,000, or 32.5%, for 2005 compared to 2004. Interest income from
investments increased $177,000, or 40.7%, over 2004. The prime rate has
increased 100 basis points during the first six months of 2005, which along with
loan growth has contributed to the increase in interest income and net interest
income for the first six months of 2005 compared to 2004. Net interest income
for the first six months of 2005 increased by $2.5 million, or 37.6%, compared
to 2004. Average net margin also increased to 5.09% compared to 4.34% for the
same period in 2004.
Interest Expense
Total interest expense increased $587,000, or 15.1%, for the six months ended
June 30, 2005 compared to the same period for 2004. Interest paid on deposits
increased by $912,000, or 39.0%. Interest expense from bonds payable related to
the securitized loans and other borrowings declined by $326,000, or 21.1%. The
decline in borrowing expense is primarily due to decreases in bond expense of
$718,000, or 50.9%, and, repurchase agreement borrowing expense of $31,000, or
26.8%, partially offset by increased interest expense on FHLB advances of
$423,000. Average interest bearing deposits for the six months ended June 30,
2005 were $241.5 million compared to $197.8 million for 2004 and average
borrowings from FHLB grew from $2.3 million for the second quarter of 2004 to
$29.8 million for the second quarter 2005. Cost of funds declined to 3.08% for
the first six months of 2005 compared to 3.26% for the same period in 2004.
Since becoming an FHLB member in 2004, the Company has taken advantage of using
the advances availability at comparatively favorable rates to help fund growth.
Provision for Loan Losses
The provision for loan losses for the first six months of 2005 increased
$369,000 to $434,000 from $65,000 for 2004. The increase is primarily a result
of volume related provision increases due to portfolio growth and securitized
loan charge offs. The overall loan portfolio credit quality remained
substantially unchanged.
Non-Interest Income
Non-interest income includes gains from sale of loans, loan document fees,
service charges on deposit accounts, servicing fees and other revenues not
derived from interest on earning assets. Total non-interest income declined by
$2.2 million, or 37.2%, for the first six months of 2005 compared to the same
period in 2004. This decline is primarily due to declines in non-interest
income from gains from sale of loans of $802,000, or 34.1%, other loan fess of
$722,000, or 34.9%, net loan servicing of $716,000, or 79.3% and other income of
$41,000, or 17.6%. These
16
declines were partially offset by a slight increase in document processing fees.
The decrease in gains from loan sales income primarily resulted from a
discretionary management decision to grow the Company's SBA 7(a) portfolio and
sell fewer SBA 7(a) guaranteed loans during the first six months of 2005
compared to 2004. As a result the net gains on SBA 7(a) loan sales declined by
$524,000 for the first six months of 2005 compared to 2004. A decline in
mortgage loan sales volume for the first six months of 2005 compared to 2004
contributed another $133,000 to the decline in gain from sale of loans. The
decrease in other loan fee income was primarily the result of a decline of
$791,000 in mortgage loan origination fees resulting from a $53.2 million
decline in mortgage loan origination volume for the first six months of 2005
compared to 2004. Also contributing to the decline in other loan fee income was
a $129,000 decline in SBA 504 loan referral fees for the first six months of
2005 compared to 2004. Net loan servicing income decreased as a result of
increased prepayments within the SBA 7(a) loan portfolio which increased the
rate of amortization and accretion of the related financial assets and reduced
the number of loans serviced.
Non-Interest Expenses
Total non-interest expenses decreased $413,000, or 4.6%, for the six months of
2005 compared to the same period for 2004. This decrease is primarily due to a
decrease in other operating expenses of $715,000, or 43.8%. The decrease in
other operating expenses primarily relates to declines in loan servicing,
insurance, loan collection and other loan expense of $70,000, $87,000, $117,000
and $432,000, respectively. This decline was partially offset by increases in
professional services of $190,000 and occupancy and equipment of $154,000. The
increase in professional services was primarily due to an increase in consulting
services of $257,000 related to a systems conversion project.
INTEREST RATES AND DIFFERENTIALS
The following table illustrates average yields on our interest-earning assets
and average rates on our interest-bearing liabilities for the periods indicated.
These average yields and rates are derived by dividing interest income by the
average balances of interest-earning assets and by dividing interest expense by
the average balances of interest-bearing liabilities for the periods indicated.
Amounts outstanding are averages of daily balances during the applicable
periods.
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- --------------------
2005 2004 2005 2004
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS:
Interest-earning deposits in other financial institutions:
Average balance $ 414 $ 6,480 $ 1,384 $ 6,132
Interest income 3 37 18 69
Average yield 2.69% 2.30% 2.68% 2.26%
Federal funds sold:
Average balance $ 6,629 $ 7,388 $ 4,971 $ 9,157
Interest income 47 18 67 46
Average yield 2.86% .98% 2.72% 1.01%
Investment securities:
Average balance $ 32,333 $ 26,418 $ 32,033 $ 25,098
Interest income 310 228 612 435
Average yield 3.85% 3.47% 3.85% 3.49%
Gross loans, excluding securitized:
Average balance $306,078 $237,102 $295,614 $227,713
Interest income 6,062 4,025 11,390 7,845
Average yield 7.94% 6.83% 7.77% 6.93%
Securitized loans:
Average balance $ 20,460 $ 32,176 $ 21,548 $ 33,930
Interest income 695 937 1,358 2,011
Average yield 13.62% 11.71% 12.70% 11.92%
TOTAL INTEREST-EARNING ASSETS:
Average balance $365,914 $309,564 $355,550 $302,030
Interest income 7,117 5,245 13,445 10,406
Average yield 7.80% 6.81% 7.63% 6.93%
17
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- --------------------
2005 2004 2005 2004
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits:
Average balance $ 91,957 $ 38,163 $ 92,716 $ 37,998
Interest expense 601 121 1,129 226
Average cost of funds 2.62% 1.28% 2.46% 1.20%
Savings deposits:
Average balance $ 16,329 $ 19,130 $ 15,948 $ 19,438
Interest expense 82 61 152 119
Average cost of funds 2.02% 1.28% 1.92% 1.23%
Time certificates of deposit:
Average balance $135,721 $143,704 $132,843 $140,319
Interest expense 1,059 1,003 1,969 1,994
Average cost of funds 3.13% 2.81% 2.99% 2.86%
Bonds payable:
Average balance $ 12,149 $ 21,307 $ 12,768 $ 22,981
Interest expense 320 671 691 1,408
Average cost of funds 10.58% 12.67% 10.91% 12.32%
Other borrowings:
Average balance $ 46,099 $ 23,192 $ 38,006 $ 18,778
Interest expense 349 89 530 137
Average cost of funds 3.04% 1.54% 2.81% 1.47%
TOTAL INTEREST-BEARING LIABILITIES:
Average balance $302,255 $245,496 $292,281 $239,514
Interest expense 2,411 1,945 4,471 3,884
Average cost of funds 3.20% 3.19% 3.08% 3.26%
NET INTEREST INCOME $ 4,706 $ 3,300 $ 8,974 $ 6,522
NET INTEREST SPREAD 4.60% 3.62% 4.54% 3.67%
NET INTEREST MARGIN 5.16% 4.29% 5.09% 4.34%
Nonaccrual loans are included in the average balance of loans outstanding.
Net interest income is the difference between the interest and fees earned on
loans and investments and the interest expense paid on deposits and other
liabilities. The amount by which interest income will exceed interest expense
depends on the volume or balance of earning assets compared to the volume or
balance of interest-bearing deposits and liabilities and the interest rate
earned on those interest-earning assets compared to the interest rate paid on
those interest-bearing liabilities.
Net interest margin is net interest income expressed as a percentage of average
earning assets. It is used to measure the difference between the average rate
of interest earned on assets and the average rate of interest that must be paid
on liabilities used to fund those assets. To maintain its net interest margin,
the Company must manage the relationship between interest earned and paid.
FINANCIAL CONDITION
Average assets for the six months ended June 30, 2005 were $370.3 million
compared to $317.5 million for the six months ended June 30, 2004. Average
equity increased to $38.6 million for the six months ended June 30, 2005 from
$35.4 million for the same period in 2004. Average gross loans increased to
$317.2 million for the six months ended June 30, 2005 from $261.6 million for
the six months ended June 30, 2004. Average deposits also increased for the six
months ended June 30, 2005 to $275.2 million from $235.2 million for the six
months ended June 30, 2004.
The book value per share increased to $6.84 at June 30, 2005 from $6.56 at
December 31, 2004.
18
PERCENT OF
SELECTED BALANCE SHEET ACCOUNTS DECEMBER 31, INCREASE INCREASE
(DOLLARS IN THOUSANDS) JUNE 30, 2005 2004 (DECREASE) (DECREASE)
-------------- ------------- ----------- -----------
Cash and cash equivalents $ 13,545 $ 30,205 $ (16,660) (55.2%)
Time deposits in other financial institutions 640 647 (7) (1.1%)
Investment securities available-for-sale 21,648 22,258 (610) (2.7%)
Investment securities held-to-maturity 7,789 6,094 1,695 27.8%
Federal Home Loan Bank stock, at cost 2,386 1,200 1,186 98.8%
Federal Reserve Bank stock, at cost 812 812 - -
I/O strips 2,158 2,715 (557) (20.5%)
Loans-Held for sale 47,385 45,988 1,397 3.0%
Loans-Held for investment, net 267,476 222,153 45,323 20.4%
Securitized loans, net 17,950 22,365 (4,415) (19.7%)
Total Assets 392,798 365,203 27,595 7.6%
Total Deposits 282,208 284,568 (2,360) (0.8%)
Securities sold under agreements to repurchase 3,065 13,672 (10,607) (77.6%)
Federal Home Loan Bank advances 50,500 10,500 40,000 381.0%
Bonds payable in connection with securitized loans 11,134 13,910 (2,776) (20.0%)
Total Stockholders' Equity 39,299 37,569 1,730 4.6%
The securitized loans are paying off at a current annualized rate of
approximately 40%. The Company has effectively focused on replacing these loans
with growth in the manufactured housing, SBA, commercial and commercial real
estate loan portfolios.
The following schedule shows the balance and percentage change in the various
deposits:
PERCENT OF
JUNE 30, DECEMBER 31, INCREASE INCREASE
2005 2004 (DECREASE) (DECREASE)
--------- ------------- ----------- -----------
(DOLLARS IN THOUSANDS)
Non-interest-bearing deposits $ 34,842 $ 44,384 $ (9,542) (21.5%)
Interest-bearing deposits 91,467 92,395 (928) (1.0%)
Savings 16,093 15,370 723 4.7%
Time certificates of $100,000 or more 57,122 40,393 16,729 41.4%
Other time certificates 82,684 92,026 (9,342) (10.2%)
--------- ------------- ----------- -----------
Total deposits $ 282,208 $ 284,568 $ (2,360) (0.8%)
========= ============= =========== ===========
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
A loan is considered impaired when, based on current information, it is probable
that the Company will be unable to collect the scheduled payments of principal
or interest under the contractual terms of the loan agreement. Factors
considered by management in determining impairment include payment status,
collateral value and the probability of collecting scheduled principal and
interest payments. Loans that experience insignificant payment delays or payment
shortfalls generally are not classified as impaired. Management determines the
significance of payment delays or payment shortfalls on a case-by-case basis.
When determining the possibility of impairment, management considers the
circumstances surrounding the loan and the borrower, including the length of the
delay, the reasons for the delay, the borrower's prior payment record and the
amount of the shortfall in relation to the principal and interest owed. For
collateral-dependent loans, the Company uses the fair value of collateral method
to measure impairment. All other loans, except for securitized loans, are
measured for impairment based on the present value of future cash flows.
Impairment is measured on a loan-by-loan basis for all loans in the portfolio
except for the securitized loans, which are evaluated for impairment on a
collective basis.
19
The recorded investment in loans that is considered to be impaired:
JUNE 30, DECEMBER 31,
2005 2004
----------- ------------
(IN THOUSANDS)
Impaired loans without specific valuation allowances $ 84 $ 49
Impaired loans with specific valuation allowances 3,607 3,926
Specific valuation allowances allocated to impaired loans (415) (425)
------------ ------------
Impaired loans, net $ 3,276 $ 3,550
============ ============
Average investment in impaired loans $ 3,814 $ 5,137
============ ============
The following schedule reflects recorded investment at the dates indicated in
certain types of loans:
JUNE 30, DECEMBER 31,
2005 2004
---------- ------------
(DOLLARS IN THOUSANDS)
Nonaccrual loans $ 7,476 $ 8,350
SBA guaranteed portion of loans included above (4,981) (5,287)
---------- ------------
Nonaccrual loans, net $ 2,495 $ 3,063
========== ============
Troubled debt restructured loans, gross $ 121 $ 124
Loans 30 through 89 days past due with interest accruing 1,125 1,804
Allowance for loan losses to gross loans 1.19% 1.32%
CWB generally repurchases the guaranteed portion of SBA loans from investors
when those loans become past due 120 days. After the foreclosure and collection
process is complete, the SBA reimburses CWB for this principal balance.
Therefore, although these balances do not earn interest during this period, they
generally do not result in a loss of principal to CWB.
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
LIQUIDITY MANAGEMENT
The Company has established policies as well as analytical tools to manage
liquidity. Proper liquidity management ensures that sufficient funds are
available to meet normal operating demands in addition to unexpected customer
demand for funds, such as high levels of deposit withdrawals or increased loan
demand, in a timely and cost effective manner. The most important factor in the
preservation of liquidity is maintaining public confidence that facilitates the
retention and growth of core deposits. Ultimately, public confidence is gained
through profitable operations, sound credit quality and a strong capital
position. The Company's liquidity management is viewed from both a long-term
and short-term perspective as well as from an asset and liability perspective.
Management monitors liquidity through regular reviews of maturity profiles,
funding sources and loan and deposit forecasts to minimize funding risk. The
Company has asset/liability committees ("ALCO") at the Board and CWB management
level to review asset/liability management and liquidity issues. The Company
maintains strategic liquidity and contingency plans. The liquidity ratio of the
Company was 21% and 27% as of June 30, 2005 and December 31, 2004, respectively.
The liquidity ratio consists of cash and due from banks, deposits in other
financial institutions, available for sale investments, federal funds sold and
loans held for sale, divided by total assets.
As a member of the Federal Home Loan Bank of San Francisco ("FHLB"), the Company
established a credit line under which the borrowing capacity is determined using
a percentage of its total assets, subject to collateralization from the pledging
option under requirements of FHLB's "Blanket Lien". Approval in the first
quarter of 2005 for FHLB's "Blanket Lien" option represented an enhancement of
the Bank's borrowing capacity with FHLB, which was previously based on "delivery
status". Advances are collateralized in the aggregate by CWB's eligible
mortgage loans and securities of the U.S. Government and its agencies. The
maximum amount of credit available to CWB will adjust in accordance with FHLB
policies. As of June 30, 2005 and December 31, 2004, the Company had $50.5
million and $10.5 million, respectively, of FHLB advances. As of June 30, 2005,
the FHLB advances had interest rates ranging from 2.59% to 4.05% and terms of up
to three years. As of June 30, 2005, $35.0 million of these advances have
variable interest rates that adjust to current LIBOR rate either monthly or
quarterly. As of June 30, 2005, CWB had approximately $33.8 million available
for future borrowing.
20
The Company, through the bank, also has the ability as a member of the Federal
Reserve System to borrow at the discount window up to 50% of what is pledged at
the Federal Reserve Bank. The facility is available on a short-term basis,
typically overnight. CWB qualifies for primary credit as it has been deemed to
be in sound financial condition. The rate on primary credit will be 50 basis
points less than the secondary credit rate and will generally be granted on a
"no questions asked basis" at a rate that initially will be at 100 basis points
above the target federal funds rate. As the rate is currently not attractive,
it is unlikely it will be used as a regular source of funding, but is noted as
available as an alternative funding source.
CWB also maintains two unsecured federal funds purchased credit lines for a
total of $13.5 million from other financial institutions, which it may
periodically use for short-term liquidity needs.
CWBC's routine funding requirements primarily consist of certain operating
expenses. Normally, CWBC obtains funding to meet its obligations from dividends
collected from its subsidiary and has the capability to issue debt securities.
Federal banking laws regulate the amount of dividends that may be paid by
banking subsidiaries without prior approval.
CAPITAL RESOURCES
The Company's equity capital was $39.3 million at June 30, 2005. Under the
Prompt Corrective Action provisions of the Federal Deposit Insurance Act
("FDICIA"), national banks are assigned regulatory capital classifications based
on the specified capital ratios of the institutions. The capital classifications
are "well capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized" and "critically undercapitalized".
To be considered "well capitalized", an institution must have a core capital
ratio of at least 5% and a total risk-based capital ratio of at least 10%.
Additionally, FDICIA imposed in 1994 a new Tier 1 risk-based capital ratio of at
least 6% to be considered "well capitalized". Tier I risk-based capital is,
defined as common stock and retained earnings net of goodwill and other
intangible assets.
To be categorized as "well capitalized" or "adequately capitalized", CWB must
maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios
and values as set forth in the tables below:
Risk Adjusted Total Tier 1 Tier 1
(dollars in thousands) Total Tier 1 Weighted Average Capital Capital Leverage
Capital Capital Assets Assets Ratio Ratio Ratio
-------- -------- --------- --------- -------- -------- ---------
June 30, 2005
CWBC (Consolidated) $ 43,016 $ 39,016 $ 335,717 $ 384,155 12.82% 11.63% 10.16%
CWB 40,431 36,462 335,556 380,622 12.06 10.87 9.58
December 31, 2004
CWBC (Consolidated) 41,047 37,315 298,359 358,623 13.76% 12.51% 10.41%
CWB 38,550 34,819 298,309 354,889 12.92 11.67 9.81
Well capitalized ratios 10.00 6.00 5.00
Minimum capital ratios 8.00 4.00 4.00
- --------------------------------------------------------------------------------
SUPERVISION AND REGULATION
- --------------------------------------------------------------------------------
Banking is a complex, highly regulated industry. The banking regulatory scheme
serves not to protect investors, but is designed to maintain a safe and sound
banking system, to protect depositors and the FDIC insurance fund and to
facilitate the conduct of sound monetary policy. In furtherance of these goals,
Congress and the states have created several largely autonomous regulatory
agencies and enacted numerous laws that govern banks, bank holding companies and
the banking industry. Consequently, the Company's growth and earnings
performance, as well as that of CWB, may be affected not only by management
decisions and general economic conditions, but also by the requirements of
applicable state and federal statutes and regulations and the policies of
various governmental regulatory authorities, including the Board of Governors of
the Federal Reserve Bank ("FRB"), the FDIC, the Office of the Comptroller of the
Currency ("OCC") and the California Department of Financial Institutions
("DFI"). For a detailed discussion of the regulatory scheme governing the
Company and CWB, please see the discussion in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2004 under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operation - Supervision and Regulation."
21
- --------------------------------------------------------------------------------
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The Company's short and long-term success is subject to many factors that are
beyond its control. Shareholders and prospective investors in the Company
should carefully consider the following risk factors, in addition to other
information contained in this report. This Report on Form 10-Q contains
forward-looking statements. Those forward-looking statements include statements
regarding the intent, belief or current expectations of the Company and its
management. Any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and actual results may differ
materially from those projected in the forward-looking statements. Such risks
and uncertainties include:
INTEREST RATE RISK
The Company is exposed to different types of interest rate risks. These risks
include: lag, repricing, basis and prepayment risk.
- Lag Risk- lag risk results from the inherent timing difference between
the repricing of the Company's adjustable rate assets and liabilities.
For instance, certain loans tied to the prime rate index may only
reprice on a quarterly basis. However, at a community bank such as
CWB, when rates are rising, funding sources tend to reprice more
slowly than the loans. Therefore, for CWB, the effect of this timing
difference is generally favorable during a period of rising interest
rates and unfavorable during a period of declining interest rates.
This lag can produce some short-term volatility, particularly in times
of numerous prime rate changes.
- Repricing Risk - repricing risk is caused by the mismatch in the
maturities / repricing periods between interest-earning assets and
interest-bearing liabilities. If CWB was perfectly matched, the net
interest margin would expand during rising rate periods and contract
during falling rate periods. This is so since loans tend to reprice
more quickly than do funding sources. Typically, since CWB is somewhat
asset sensitive, this would also tend to expand the net interest
margin during times of interest rate increases.
- Basis Risk - item pricing tied to different indices may tend to react
differently, however, all CWB's variable products are priced off the
prime rate index.
- Prepayment Risk - prepayment risk results from borrowers paying down /
off their loans prior to maturity. Prepayments on fixed-rate products
increase in falling interest rate environments and decrease in rising
interest rate environments. Since a majority of CWB's loan
originations are adjustable rate and set based on prime, and there is
little lag time on the reset, CWB does not experience significant
prepayments. However, CWB does have more prepayment risk on its
securitized and manufactured housing loans and its mortgage-backed
investment securities. Offsetting the prepayment risk on the
securitized loans are the related bonds payable, which were issued at
a fixed rate. When the bonds payable prepay, given the current
interest rate environment, this reduces CWB's interest expense as a
higher, fixed rate is, in effect, traded for a lower, variable rate
funding source.
MANAGEMENT OF INTEREST RATE RISK
To mitigate the impact of changes in market interest rates on the Company's
interest-earning assets and interest-bearing liabilities, the amounts and
maturities are actively managed. Short-term, adjustable-rate assets are
generally retained as they have similar repricing characteristics as our funding
sources. CWB sells mortgage products and a portion of its SBA loan originations.
While the Company has some interest rate exposure in excess of five years, it
has internal policy limits designed to minimize risk should interest rates rise.
Currently, the Company does not use derivative instruments to help manage risk,
but will consider such instruments in the future if the perceived need should
arise.
The Company's ability to originate, purchase and sell loans is impacted by
changes in interest rates. Increases in interest rates may also reduce the
amount of loan and commitment fees received by CWB. A significant decline in
interest rates could also decrease the size of the CWB's servicing portfolio and
the related servicing income by increasing the level of prepayments.
DEPENDENCE ON REAL ESTATE
Approximately 43% of the loan portfolio of the Company is secured by various
forms of real estate, including residential and commercial real estate. A
decline in current economic conditions or rising interest rates could have an
adverse effect on the demand for new loans, the ability of borrowers to repay
outstanding loans and the value of real estate and other collateral securing
loans. The real estate securing the Company's loan portfolio is concentrated in
California. If real estate values decline significantly, especially in
California, the change could harm the financial
22
condition of the Company's borrowers, the collateral for its loans will provide
less security and the Company would be more likely to suffer losses on defaulted
loans.
CURTAILMENT OF GOVERNMENT GUARANTEED LOAN PROGRAMS COULD AFFECT A SEGMENT OF THE
COMPANY'S BUSINESS
A major segment of the Company's business consists of originating government
guaranteed loans, in particular those guaranteed by the SBA. From time to time,
the government agencies that guarantee these loans reach their internal limits
and cease to guarantee loans. In addition, these agencies may change their
rules for loans or Congress may adopt legislation that would have the effect of
discontinuing or changing the programs. Non-governmental programs could replace
government programs for some borrowers, but the terms might not be equally
acceptable. Therefore, if these changes occur, the volume of loans to small
business, industrial and agricultural borrowers of the types that now qualify
for government guaranteed loans could decline. Also, the profitability of these
loans could decline. As the funding of the guaranteed portion of 7(a) loans is
an integral portion of the Company's business, the long-term resolution to the
funding for the 7(a) loan program may have an unfavorable impact on the
Company's future performance and results of operations.
ECONOMIC CONDITIONS
The economy remained strong in the second quarter 2005. The retail, housing and
manufacturing sectors of the economy all showed strength as did travel and
tourism. Banks have reported strong lending activity, particularly in commercial
lending, while the Federal Reserve has continued to raise the discount rate,
which directly influences the federal funds target rate. These rate increases
tend to enhance net interest margin for asset-sensitive financial institutions
but may be tempered by a lending environment that remains very competitive.
COMPETITION
The banking industry is highly competitive. The Company faces competition not
only from other financial institutions within the markets it serves, but
deregulation has resulted in competition from companies not typically associated
with financial services as well as companies accessed through the internet. As
a community bank, the Company attempts to combat this increased competition by
developing and offering new products and increased quality of services.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in the Company's market risk since the end of
the last fiscal year. For information about the Company's market risk, see the
information contained in the Company's Annual Report on Form 10-K under the
caption "Item 7A. Quantitative and Qualitative Disclosure about Market Risk,"
which is incorporated herein by this reference.
ITEM 4. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer, with the
participation of the Company's management, carried out an evaluation of the
effectiveness of the Company's disclosure controls and procedures pursuant to
Exchange Act Rule 13a-15(e). Based upon that evaluation, the Chief Executive
Officer and the Chief Financial Officer believe that, as of the end of the
period covered by this report, the Company's disclosure controls and procedures
are effective in making known to them material information relating to the
Company (including its consolidated subsidiaries) required to be included in
this report.
Disclosure controls and procedures, no matter how well designed and implemented,
can provide only reasonable assurance of achieving an entity's disclosure
objectives. The likelihood of achieving such objections is affected by
limitations inherent in disclosure controls and procedures. These include the
fact that human judgment in decision-making can be faulty and that breakdowns in
internal control can occur because of human failures such as simple errors or
mistakes or intentional circumvention of the established process.
On June 20, 2005, the Company transferred the warehousing and processing of
certain data, which was previously performed internally, to a third party
vendor. As part of the Company's assessment of control risk, we have obtained
and will subsequently obtain annually, an independent service auditors' report
of the data center's computer operations.
Other than the change noted above, there was no other change in the Company's
internal control over financial reporting, known to the Chief Executive Officer
or the Chief Financial Officer that occurred during the period
23
covered by this report that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------ -----------------
The Company is involved in various litigation of a routine nature that is being
handled and defended in the ordinary course of the Company's business. In the
opinion of management, based in part on consultation with legal counsel, the
resolution of these litigation matters will not have a material impact on the
Company's financial position or results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
- ------- -----------------------------------------------------------
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ------- -------------------------------
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
- ------- -------------------------------------------
The Company held its 2005 annual meeting of shareholders ("Meeting") on May
26, 2005. At the Meeting, the Company's shareholders considered and voted
on the following matter:
1. Election of Directors. The Election of the following eight persons to
------------------------
the Board of Directors to serve until the 2006 Meeting and until their
successors are elected and have qualified:
VOTES
VOTES FOR WITHHELD
--------- --------
Robert H. Bartlein 4,838,437 73,517
Jean W. Blois 4,848,125 63,829
John D. Illgen 4,835,513 76,441
Lynda J. Nahra 4,840,437 71,517
William R. Peeples 4,825,037 86,917
James R. Sims, Jr. 4,848,025 63,929
Kirk B. Stovesand 4,849,025 62,929
C. Richard Whiston 4,848,925 63,029
ITEM 5. OTHER INFORMATION
- ------- -----------------
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) Exhibits.
31.1 Certification by the Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification by the Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification Pursuant to 18 U.S.C. 1350 adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
24
(b) Reports on Form 8-K.
April 26, 2005: The Company furnished a Current Report on Form 8-K to
report that, on April 25, 2005, the Company issued a press release
announcing its financial results for the quarter ended March 31, 2005
and declared a cash dividend.
25
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMUNITY WEST BANCSHARES
-------------------------
(Registrant)
Date: August 11, 2005 /s/Charles G. Baltuskonis
-------------------------
CHARLES G. BALTUSKONIS
Executive Vice President and
Chief Financial Officer
On Behalf of Registrant and as
Principal Financial and Accounting
Officer
26
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
======= ======================================================================
31.1 Certification of Chief Executive Officer of the Registrant pursuant to
Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities and Exchange
Act of 1934, as amended.
31.2 Certification of Chief Financial Officer of the Registrant pursuant to
Rule 13a-14(a) and Rule 15d- 14(a), promulgated under the Securities and
Exchange Act of 1934, as amended.
32.1* Certification of Chief Executive Officer and Chief Financial Officer
of the Registrant pursuant to Rule 13a-13(b) and Rule 15d-14(b), promulgated
under the Securities Exchange Act of 1934, as amended, and 18 U.S.C.1350.
====================
* This certification is furnished to, but not filed, with the Commission. This
certification shall not be deemed to be incorporated by reference into any
filing under the Securities Act of 1933 or the Securities Exchange Act of 1934,
except to the extent that the Registrant specifically incorporates it by
reference.
27