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 September 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 incorporation (I.R.S. Employer
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 in Rule 12b-2 of the Exchange Act). [_] YES [X] NO
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). [_] YES [X] NO
Number of shares of common stock of the registrant outstanding as of November
10, 2005: 5,745,514.
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 7
STATEMENTS
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 24
ITEM 4. CONTROLS AND PROCEDURES 24
PART II. OTHER INFORMATION
- -------- -----------------
ITEM 1. LEGAL PROCEEDINGS 25
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS 25
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF 25
SECURITY HOLDERS
ITEM 5. OTHER INFORMATION 25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 25
SIGNATURES
- ----------
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
COMMUNITY WEST BANCSHARES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2005 2004
ASSETS (UNAUDITED)
--------------- --------------
(DOLLARS IN THOUSANDS)
Cash and due from banks $ 4,609 $ 8,769
Interest-earning deposits in other financial institutions - 9,700
Federal funds sold 8,020 11,736
--------------- --------------
Cash and cash equivalents 12,629 30,205
Time deposits in other financial institutions 533 647
Investment securities available-for-sale, at fair value; amortized cost of $23,294 at
September 30, 2005 and $22,380 at December 31, 2004 23,155 22,258
Investment securities held-to-maturity, at amortized cost; fair value of $6,967 at
September 30, 2005 and $6,122 at December 31, 2004 6,992 6,094
Federal Home Loan Bank stock, at cost 2,562 1,200
Federal Reserve Bank stock, at cost 812 812
Interest only strips, at fair value 2,033 2,715
Loans:
Loans held for sale, at lower of cost or fair value 54,111 45,988
Loans held for investment, net of allowance for loan losses of $3,222 at
September 30, 2005 and $2,785 at December 31, 2004 284,566 222,153
Securitized loans, net of allowance for loan losses of $723 at
September 30, 2005 and $1,109 at December 31, 2004 15,561 22,365
--------------- --------------
Total loans 354,238 290,506
Servicing rights 3,020 3,258
Other real estate owned, net 65 13
Premises and equipment, net 1,996 1,763
Other assets 6,320 5,732
--------------- --------------
TOTAL ASSETS $ 414,355 $ 365,203
=============== ==============
LIABILITIES
Deposits:
Non-interest-bearing demand $ 35,311 $ 44,384
Interest-bearing demand 85,115 92,395
Savings 17,309 15,370
Time certificates of $100,000 or more 75,711 40,393
Other time certificates 90,323 92,026
--------------- --------------
Total deposits 303,769 284,568
Securities sold under agreements to repurchase - 13,672
Federal Home Loan Bank advances 54,500 10,500
Bonds payable in connection with securitized loans 9,704 13,910
Other liabilities 5,256 4,984
--------------- --------------
Total liabilities 373,229 327,634
--------------- --------------
STOCKHOLDERS' EQUITY
Common stock, no par value; 10,000,000 shares authorized, 5,745,514 shares issued and
outstanding, at September 30, 2005 and 5,729,869 at December 31, 2004 30,143 30,020
Retained earnings 11,065 7,621
Accumulated other comprehensive loss, net (82) (72)
--------------- --------------
Total stockholders' equity 41,126 37,569
--------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 414,355 $ 365,203
=============== ==============
See accompanying notes.
3
COMMUNITY WEST BANCSHARES
CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ----------------------
2005 2004 2005 2004
----------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INTEREST INCOME
Loans $ 7,254 $ 5,360 $ 20,002 $ 15,216
Investment securities 324 274 935 709
Other 73 77 159 192
----------- ---------- ---------- ----------
Total interest income 7,651 5,711 21,096 16,117
----------- ---------- ---------- ----------
INTEREST EXPENSE
Deposits 2,045 1,286 5,294 3,624
Bonds payable and other borrowings 741 668 1,962 2,214
----------- ---------- ---------- ----------
Total interest expense 2,786 1,954 7,256 5,838
----------- ---------- ---------- ----------
NET INTEREST INCOME 4,865 3,757 13,840 10,279
Provision for loan losses (39) 186 396 251
----------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES 4,904 3,571 13,444 10,028
NON-INTEREST INCOME
Gains from loan sales, net 502 861 2,050 3,212
Other loan fees 1,002 730 2,347 2,797
Document processing fees 202 111 614 428
Loan servicing fees, net 178 335 365 1,239
Other 112 120 305 353
----------- ---------- ---------- ----------
Total non-interest income 1,996 2,157 5,681 8,029
----------- ---------- ---------- ----------
NON-INTEREST EXPENSES
Salaries and employee benefits 3,137 2,816 9,121 8,840
Occupancy and equipment expenses 664 537 1,818 1,538
Professional services 253 267 859 682
Other operating expenses 745 466 1,663 2,102
----------- ---------- ---------- ----------
Total non-interest expenses 4,799 4,086 13,461 13,162
----------- ---------- ---------- ----------
Income before provision for income taxes 2,101 1,642 5,664 4,895
Provision for income taxes (50) 675 1,416 2,014
----------- ---------- ---------- ----------
NET INCOME $ 2,151 $ 967 $ 4,248 $ 2,881
=========== ========== ========== ==========
INCOME PER SHARE - BASIC $ .37 $ .17 $ .74 $ .50
=========== ========== ========== ==========
INCOME PER SHARE - DILUTED $ .36 $ .16 $ .72 $ .49
=========== ========== ========== ==========
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 16 83 83
Tax benefit from stock options 40 40
Comprehensive income:
Net income 4,248 4,248
Change in unrealized gain (loss)
on securities available-for-sale,
net (10) (10)
---------------
Comprehensive income 4,238
Cash dividends paid
($.14 per share) (804)
----------- ------------ ------------- --------------- ---------------
BALANCES AT
SEPTEMBER 30, 2005 5,746 $ 30,143 $ 11,065 $ (82) $ 41,126
=========== ============ ============= =============== ===============
See accompanying notes.
5
COMMUNITY WEST BANCSHARES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
2005 2004
----------- -----------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,248 $ 2,881
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 396 251
Provision for losses on real estate owned - 1
Depreciation and amortization 622 971
Net amortization of discounts and premiums for investment securities 29 69
Gains from:
Sale of other real estate owned 35 (2)
Sale of loans held for sale (1,521) (3,212)
Changes in:
Fair value of interest only strips, net of accretion 682 544
Servicing rights, net of amortization and valuation adjustments 238 (845)
Other assets (588) 1,415
Other liabilities 274 1,990
----------- -----------
Net cash provided by operating activities 4,415 4,063
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of held-to-maturity securities (2,237) -
Purchase of available-for-sale securities (2,112) (7,940)
Purchase of Federal Home Loan Bank stock (1,317) (1,189)
Federal Home Loan Bank stock dividend (45) -
Principal pay downs and maturities of held-to-maturity securities 1,321 1,985
Principal pay downs and maturities of available-for-sale securities 1,207 1,032
Unrealized accumulated gains/losses on available-for-sale securities (3) -
Loan originations and principal collections, net (62,762) (31,394)
Proceeds from sale of other real estate owned 96 529
Net decrease in time deposits in other financial institutions 114 400
Purchase of premises and equipment, net (652) (435)
----------- -----------
Net cash used in investing activities (66,390) (37,012)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options 83 146
Cash dividends paid on common stock (804) (457)
Net (decrease) increase in demand deposits and savings accounts (14,414) 23,261
Net increase in time certificates of deposit 33,615 14,844
Proceeds from securities sold under agreements to repurchase - 13,672
Repayments of securities sold under agreements to repurchase (13,672) (10,641)
Proceeds from Federal Home Loan Bank advances 46,000 7,500
Repayment of Federal Home Loan Bank advances (2,000) -
Repayments of bonds payable in connection with securitized loans (4,409) (10,711)
----------- -----------
Net cash provided by financing activities 44,399 37,614
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (17,576) 4,665
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 30,205 22,056
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 12,629 $ 26,721
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 6,440 $ 4,804
Cash paid for income taxes 2,157 840
Supplemental Disclosure of Noncash Investing Activity:
Transfers to other real estate owned 155 89
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 September 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. 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. See Note 6.
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 using
the modified prospective method. 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 NINE MONTHS ENDED
(IN THOUSANDS) SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2005 2004 2005 2004
----------- ---------- ----------- ----------
Net income $ 2,151 $ 967 $ 4,248 $ 2,881
Other comprehensive income, net of tax:
Unrealized gains on investment securities, net of tax (42) 11 (10) 9
----------- ---------- ----------- ----------
Comprehensive income $ 2,109 $ 978 $ 4,238 $ 2,858
=========== ========== =========== ==========
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 and servicing rights. 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, both
the servicing rights and I/O strips 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 September 30, 2005 and December 31, 2004, the Company had approximately
$52.8 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 and create a perfect hedge, there is no interest rate risk to the
Company; therefore, there is no material net income statement effect. At
September 30, 2005, the Company had $7.2 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:
SEPTEMBER 30, DECEMBER 31,
2005 2004
--------------- --------------
(IN THOUSANDS)
Real estate $ 107,229 $ 85,357
Manufactured housing 91,908 66,423
Commercial 42,059 35,265
SBA 39,905 30,893
Securitized 15,976 23,005
Other installment 8,537 8,645
--------------- --------------
305,614 249,588
Less:
Allowance for loan losses 3,945 3,894
Deferred fees, net of costs 52 (180)
Purchased premiums on securitized loans (256) (392)
Discount on SBA loans 1,746 1,748
--------------- --------------
Loans held for investment, net $ 300,127 $ 244,518
=============== ==============
An analysis of the allowance for loan losses for loans held for investment
follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
(IN THOUSANDS)
Balance, beginning of period $ 3,102 $ 2,779 $ 2,785 $ 2,652
Provision for loan losses 171 192 515 380
Loans charged off (54) (43) (173) (173)
Recoveries on loans previously charged off 3 3 95 72
----------- ----------- ----------- -----------
Balance, end of period $ 3,222 $ 2,931 $ 3,222 $ 2,931
=========== =========== =========== ===========
An analysis of the allowance for loan losses for securitized loans follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
(IN THOUSANDS)
Balance, beginning of period $ 898 $ 1,369 $ 1,109 $ 2,024
Provision for loan losses (210) (6) (119) (129)
Loans charged off (137) (324) (699) (1,168)
Recoveries on loans previously charged off 172 70 432 382
----------- ----------- ----------- -----------
Balance, end of period $ 723 $ 1,109 $ 723 $ 1,109
=========== =========== =========== ===========
The recorded investment in loans that is considered to be impaired:
SEPTEMBER 30, DECEMBER 31,
2005 2004
--------------- --------------
(IN THOUSANDS)
Impaired loans without specific valuation allowances $ 81 $ 49
Impaired loans with specific valuation allowances 3,567 3,926
Specific valuation allowances allocated to impaired loans (428) (425)
--------------- --------------
Impaired loans, net $ 3,220 $ 3,550
=============== ==============
Average investment in impaired loans $ 3,781 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Weighted average shares - Basic 5,745 5,720 5,744 5,714
Dilutive effect of options 186 149 181 130
---------- ---------- ---------- ----------
Weighted average shares - Diluted 5,931 5,869 5,925 5,844
========== ========== ========== ==========
Net income $ 2,151 $ 967 $ 4,248 $ 2,881
Earnings per share - Basic .37 .17 .74 .50
Earnings per share - Diluted .36 .16 .72 .49
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Annual dividend yield 1.6% 1.8% 1.6% 1.8%
Expected volatility 33.0% 22.0% 35.0% 32.9%
Risk-free interest rate 4.2% 4.2% 4.2% 4.2%
Expected life (in years) 6.84 6.80 6.84 6.80
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 NINE MONTHS ENDED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Income:
As reported $ 2,151 $ 967 $ 4,248 $ 2,881
Pro forma 2,125 923 4,168 2,759
Income per common share - basic
As reported $ .37 $ .17 $ .74 $ .50
Pro forma .37 .16 .73 .48
Income per common share - diluted
As reported $ .36 $ .16 $ .72 $ .49
Pro forma .36 .16 .70 .47
10
6. BORROWINGS
REPURCHASE AGREEMENTS - As of December 31, 2004, the Company had $13.7 million
of outstanding repurchase agreements as of September 30, 2005 the Company had no
outstanding repurchase agreements. Available-for-sale securities with a
carrying value of $14.0 million were pledged as collateral for short-term
borrowings as of December 31, 2004.
FEDERAL HOME LOAN BANK ADVANCES - The Company has a blanket lien credit line
with the Federal Home Loan Bank ("FHLB"). As of September 30, 2005, the Company
had $50.5 million of outstanding advances with interest rates of 2.75% to 4.28%
and terms of up to five years. The outstanding advances as of September 30,
2005, included $35.0 million borrowed at variable rates which adjust to current
LIBOR rate either monthly or quarterly. As of September 30, 2005, CWB had
available to borrow in FHLB advances approximately $39.7 million.
BONDS PAYABLE - The following is a summary of bonds payable:
SEPTEMBER 30, DECEMBER 31,
2005 2004
-------------- -------------
(IN THOUSANDS)
Series 1998-1 $ - $ 179
Series 1999-1 10,102 14,332
-------------- -------------
10,102 14,511
Less: Bond issuance costs 152 228
Bond discount 246 373
-------------- -------------
Total bonds payable, net $ 9,704 $ 13,910
============== =============
As of September 30, 2005, the outstanding bonds bear interest rates ranging from
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 $11.7 million
and $16.4 million at September 30, 2005 and December 31, 2004, respectively. As
of October 2005, the Company commenced the bondholder notification process in
connection with the exercise of its right to call the remainder of the bonds
payable.
7. INCOME TAXES
The effective income tax rate for the third quarter of 2005 is less than the
effective income tax rate in other periods presented as a tax reserve of
$914,000, or $.16 per share (basic), related to the resolution of potential tax
issues has been reversed due to the resolution in this quarter of the
uncertainty.
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 $2,151,000, or $0.36 per share, diluted, for
the third quarter 2005. This represents a 122.4% increase in net income over
the comparable period of 2004. For the nine months ended September 30, 2005,
the Company earned $4,248,000, or $0.74 per basic share and $0.72 per diluted
share, a 47.4% increase over the same period in 2004. The significant factors
impacting net income for the third quarter 2005 and nine months ended September,
30, 2005 were:
- Net loan growth in the third quarter 2005 of $21.4 million, or 6.4%,
and $63.7 million, or 21.9%, since December 31, 2004, which, combined
with improved net interest margin, has resulted in improved net
interest income. The increase in interest income was only partially
offset by the increase in interest expense on funding sources for both
the three- and nine-month periods, driven by both rate and volume.
Also, the provision for losses is reflective of continued strong
credit quality.
- Decline in non-interest income due to the decline in mortgage-related
fees and gains and the decision to sell fewer SBA loans.
- A credit of $914,000 to income tax expense which resulted from the
reversal of a tax reserve related to the resolution in the third
quarter of 2005 of an uncertain prior period tax matter.
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.
12
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 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. 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 using
the modified prospective method. 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 - THIRD QUARTER COMPARISON
The Company recorded net income of $2,151,000, or $.36 per share diluted, for
the three months ended September 30, 2005, compared to net income of $967,000,
or $.16 per share diluted, for the three months ended September 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
SEPTEMBER 30,
--------------------------------- INCREASE
2005 2004 (DECREASE)
---------------- --------------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Interest income $ 7,651 $ 5,711 $ 1,940
Interest expense 2,786 1,954 832
---------------- --------------- ----------------
Net interest income 4,865 3,757 1,108
---------------- --------------- ----------------
Provision for loan losses (39) 186 (225)
---------------- --------------- ----------------
Net interest income after provision for loan losses 4,904 3,571 1,333
Non-interest income 1,996 2,157 (161)
Non-interest expenses 4,799 4,086 713
---------------- --------------- ----------------
Income before provision for income taxes 2,101 1,642 459
Provision for income taxes (50) 675 (725)
---------------- --------------- ----------------
Net income $ 2,151 $ 967 $ 1,184
================ =============== ================
Earnings per share - Basic $ .37 $ .17 $ .20
================ =============== ================
Earnings per share - Diluted $ .36 $ .16 $ .20
================ =============== ================
Comprehensive income $ 2,109 $ 978 $ 1,131
================ =============== ================
The following table sets forth the changes in interest income and expense
attributable to changes in rate and volume:
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
2005 VERSUS 2004
-------------------------------
CHANGE DUE TO
TOTAL --------------------
CHANGE RATE VOLUME
--------- --------------------
(IN THOUSANDS)
Interest-earning deposits, fed funds sold,
investment securities $ 46 $ 42 $ 4
Loans, net 1,894 661 1,233
--------- --------- ---------
Total interest-earning assets 1,940 703 1,237
--------- --------- ---------
Deposits 759 431 328
Bonds payable (272) (83) (189)
Other borrowings 345 122 223
--------- --------- ---------
Total interest-bearing liabilities 832 470 362
--------- --------- ---------
Net interest income $ 1,108 $ 233 $ 875
========= ========= =========
Interest Income
Total interest income increased by $1.9 million, or 34.0%, for the third quarter
2005 compared to the third quarter 2004. The increase was primarily due to
increased interest income from loans. Interest income from loans increased by
$1.9 million, or 35.3%, for the third quarter 2005 compared to 2004. Average
loans for the third quarter 2005 were $347.4 million compared to $282.3 million
for 2004. Interest income from manufactured housing, commercial real estate,
SBA and commercial loans increased by $663,000, or 49.2%, $635,000, or 46.5%,
$357,000, or 33.6%, and, $363,000, or 85.4%, respectively. Partially offsetting
these increases was a decline in securitized loan interest income of $240,000,
or 28.6%, for the third quarter of 2005 compared to 2004. Interest income from
investments for the third quarter of 2005 increased slightly compared to 2004.
The prime rate increased by 50 basis points during the third 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
14
income for the third quarter 2005 increased by $1.1 million, or 29.5%, compared
to the third quarter 2004. Net interest margin also increased to 4.95% for the
third quarter of 2005 compared to 4.59% for the third quarter 2004.
Interest Expense
Interest expense increased $832,000, or 42.6%, for the third quarter 2005
compared to 2004. Interest expense on deposits increased by $759,000, or 59.0%.
Interest expense on other borrowings increased $73,000, or 10.9%. This net
overall decline resulted from a combination of decreases in interest expense on
bonds payable of $272,000 and net increases in interest expense from other
borrowings, primarily on FHLB advances, of $345,000. Average interest bearing
deposits for the third quarter 2005 were $259.7 million compared to $213.2
million for 2004 while average borrowings from FHLB grew from $7.5 million for
the third quarter 2004 to $51.8 million for the third quarter 2005.
Provision for Loan Losses
The provision for loan losses declined by $225,000 for the third quarter 2005
compared to the same period in 2004. The decline is primarily related to the
securitized loan portfolio which continues to pay-down rapidly. 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 third
quarter of 2005 declined by $161,000, or 7.5%, compared to the same period in
2004. This decline is primarily due to declines in SBA related gains on loan
sales of $357,000 and loan servicing income related to sold SBA loans of
$157,000. These declines were partially offset by increases in other loan fees,
and document processing. The increase in other loan fees of $272,000 was a
combination of an increase in SBA related premiums on 504 loan referrals of
$370,000 offset by the decline in mortgage related loan originations of $98,000.
The majority of the decline in gain on loan sales resulted from a discretionary
management decision to sell fewer SBA 7(a) guaranteed loans.
Non-Interest Expenses
Total non-interest expenses increased $713,000, or 17.4%, for the third quarter
2005 compared to the third quarter 2004. The majority of this increase was
related to increases in salaries and employee benefits, other expenses and
occupancy expenses of $320,000, $279,000 and $125,000, respectively.
Income Taxes
The effective income tax rate for the third quarter of 2005 is less than the
effective income tax rate in other periods presented as a tax reserve of
$914,000, or $.16 per share (basic), related to the resolution of potential tax
issues has been reversed due to the resolution in this quarter of the
uncertainty.
15
RESULTS OF OPERATIONS - NINE MONTH COMPARISON
The Company recorded net income of $4,248,000, or $.72 per share diluted, for
the nine months ended September 30, 2005, compared to net income of $2,881,000,
or $.49 per share diluted, for the nine months ended September 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:
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------- INCREASE
2005 2004 (DECREASE)
--------------- --------------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Interest income $ 21,096 $ 16,117 $ 4,979
Interest expense 7,256 5,838 1,418
--------------- --------------- ----------------
Net interest income 13,840 10,279 3,561
--------------- --------------- ----------------
Provision for loan losses 396 251 145
--------------- --------------- ----------------
Net interest income after provision for loan losses 13,444 10,028 3,416
Non-interest income 5,681 8,029 (2,348)
Non-interest expenses 13,461 13,162 299
--------------- --------------- ----------------
Income before provision for income taxes 5,664 4,895 769
Provision for income taxes 1,416 2,014 (598)
--------------- --------------- ----------------
Net income $ 4,248 $ 2,881 $ 1,367
=============== =============== ================
Earnings per share - Basic $ .74 $ .50 $ .24
=============== =============== ================
Earnings per share - Diluted $ .72 $ .49 $ .23
=============== =============== ================
Comprehensive income $ 4,238 $ 2,858 $ 1,380
=============== =============== ================
The following table sets forth the changes in interest income and expense
attributable to changes in rate and volume:
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
2005 VERSUS 2004
-------------------------------
CHANGE DUE TO
TOTAL --------------------
CHANGE RATE VOLUME
--------- --------------------
(IN THOUSANDS)
Interest-earning deposits, fed funds sold,
investment securities $ 193 $ 178 $ 15
Loans, net 4,786 1,746 3,040
--------- --------- ---------
Total interest-earning assets 4,979 1,924 3,055
--------- --------- ---------
Deposits 1,670 830 840
Bonds payable (991) (251) (740)
Other borrowings 739 246 493
--------- --------- ---------
Total interest-bearing liabilities 1,418 825 593
--------- --------- ---------
Net interest income $ 3,561 $ 1,099 $ 2,462
========= ========= =========
Interest Income
Total interest income increased by $5.0 million, or 30.9%, for the first nine
months of 2005 compared to 2004. The increase was primarily due to a $4.8
million, or 31.5%, increase in interest income from loans. Average loans for
the first nine months of 2005 increased to $327.3 million compared to $268.6
million for 2004. Interest income from manufactured housing, commercial real
estate, commercial loans and SBA increased by $1.8 million, or 52.6%, $1.8
million or 48.8%, $852,000, or 70% and $797,000, or 25.1%, respectively.
Partially offsetting these increases was a decline in interest income from the
securitized loans of $893,000, or 31.3%, for 2005 compared to 2004. Interest
income from investments increased $226,000, or 31.9%, over 2004. The prime rate
has increased 150 basis points during the first nine months of 2005, which along
with loan growth has contributed to the increase in interest income and net
interest income for the first nine months of 2005 compared to 2004. Net
interest income
16
for the first nine months of 2005 increased by $3.6 million, or 34.6%, compared
to 2004. Average net margin also increased to 5.04% compared to 4.43% for the
same period in 2004.
Interest Expense
Total interest expense increased $1.4 million, or 24.3%, for the nine months
ended September 30, 2005 compared to the same period for 2004. Interest paid on
deposits increased by $1.7 million, or 46.1%. Interest expense from bonds
payable related to the securitized loans and other borrowings declined by
$252,000, or 11.4%. The decline in borrowing expense is primarily due to
decreases in bond expense of $991,000, or 50.6%, which was partially offset by
increased interest expense on FHLB advances of $847,000. Average interest
bearing deposits for the nine months ended September 30, 2005 were $247.6
million compared to $202.9 million for 2004 and average borrowings from FHLB
grew from $4.1 million to $37.2 million. Cost of funds increased to 3.21% for
the first nine months of 2005 compared to 3.17% 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 nine months of 2005 increased
$145,000 to $396,000 from $251,000 for 2004. The increase is primarily a result
of volume related provision increases due to portfolio growth. 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
$2.3 million, or 29.2%, for the first nine months of 2005 compared to the same
period in 2004. This decline is primarily due to declines in gains from sale of
loans of $1.2 million, or 36.2%, other loan fess of $450,000, or 16.1%, net loan
servicing of $874,000, or 70.5% and other income of $48,000, or 13.6%. These
declines were partially offset by an 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 nine months of 2005 compared to 2004. As
a result, the net gains on SBA 7(a) loan sales declined by $1.0 million for the
first nine months of 2005 compared to 2004. A decline in mortgage loan sales
volume for the first nine months of 2005 compared to 2004 was responsible for
the remaining decline in gain from sale of loans. The $450,000 net decrease in
other loan fee income was primarily the result of a decline of $690,000 in
mortgage loan originations for the first nine months of 2005 compared to 2004,
which was partly offset by an increase of $240,000 in other loan fees related to
SBA 504 loan premiums. 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 also
reduced the number of loans serviced.
Non-Interest Expenses
Total non-interest expenses increased $299,000, or 2.3%, for the nine months of
2005 compared to the same period for 2004. These increases crossed several
categories and included $321,000 in salaries and employee benefits, $127,000 in
occupancy and equipment expenses, and $279,000 in other expenses. Included in
other expenses were costs related to the decision to outsource data processing
which included losses on sale of assets of $84,000 and disaster recovery
planning costs of $93,000. On a comparative basis, there was a non-recurring
charge in 2004 to other loan expenses of $402,000 related to sub-lease costs
incurred in connection with a former lending relationship.
Income Taxes
The effective income tax rate for the third quarter of 2005 is less than the
effective income tax rate in other periods presented as a tax reserve of
$914,000, or $.16 per share (basic), related to the resolution of potential tax
issues has been reversed due to the resolution in this quarter of the
uncertainty.
17
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 NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ ------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
INTEREST-EARNING ASSETS: (DOLLARS IN THOUSANDS)
Interest-earning deposits in other financial institutions:
Average balance $ 734 $ 8,194 $ 1,165 $ 6,821
Interest income 6 49 24 118
Average yield 3.29% 2.38% 2.81% 2.31%
Federal funds sold:
Average balance $ 7,920 $ 7,699 $ 5,967 $ 8,667
Interest income 67 28 135 74
Average yield 3.39% 1.45% 3.02% 1.14%
Investment securities:
Average balance $ 34,058 $ 27,455 $ 32,717 $ 25,890
Interest income 324 274 935 709
Average yield 3.77% 3.97% 3.82% 3.66%
Gross loans, excluding securitized:
Average balance $ 329,537 $ 254,404 $ 307,015 $ 236,685
Interest income 6,654 4,520 18,044 12,365
Average yield 8.01% 7.07% 7.86% 6.98%
Securitized loans:
Average balance $ 17,861 $ 27,937 $ 20,309 $ 31,923
Interest income 600 840 1,958 2,851
Average yield 13.33% 11.96% 12.89% 11.93%
TOTAL INTEREST-EARNING ASSETS:
Average balance $ 390,110 $ 325,689 $ 367,173 $ 309,986
Interest income 7,651 5,711 21,096 16,117
Average yield 7.78% 6.98% 7.68% 6.95%
18
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ ------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
INTEREST-BEARING LIABILITIES: (DOLLARS IN THOUSANDS)
Interest-bearing demand deposits:
Average balance $ 87,783 $ 49,472 $ 91,066 $ 41,828
Interest expense 590 200 1,720 426
Average cost of funds 2.67% 1.61% 2.52% 1.36%
Savings deposits:
Average balance $ 16,793 $ 16,615 $ 16,231 $ 18,490
Interest expense 91 61 244 180
Average cost of funds 2.16% 1.46% 2.01% 1.30%
Time certificates of deposit:
Average balance $ 155,103 $ 147,121 $ 140,316 $ 142,609
Interest expense 1,364 1,025 3,330 3,019
Average cost of funds 3.49% 2.77% 3.17% 2.83%
Bonds payable:
Average balance $ 10,585 $ 17,768 $ 12,034 $ 21,235
Interest expense 278 550 968 1,958
Average cost of funds 10.41% 12.31% 10.76% 12.32%
Other borrowings:
Average balance $ 52,363 $ 27,197 $ 42,837 $ 21,606
Interest expense 463 118 994 255
Average cost of funds 3.51% 1.73% 3.10% 1.58%
TOTAL INTEREST-BEARING LIABILITIES:
Average balance $ 322,627 $ 258,173 $ 302,484 $ 245,768
Interest expense 2,786 1,954 7,256 5,838
Average cost of funds 3.43% 3.01% 3.21% 3.17%
NET INTEREST INCOME $ 4,865 $ 3,757 $ 13,840 $ 10,279
NET INTEREST SPREAD 4.35% 3.96% 4.47% 3.77%
NET INTEREST MARGIN 4.95% 4.59% 5.04% 4.43%
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 nine months ended September 30, 2005 were $382.1 million
compared to $325.7 million for the nine months ended September 30, 2004.
Average equity increased to $39.1 million for the nine months ended September
30, 2005 from $35.8 million for the same period in 2004. Average gross loans
increased to $327.3 million for the nine months ended September 30, 2005 from
$268.6 million for the nine months ended September 30, 2004. Average deposits
also increased for the nine months ended September 30, 2005 to $282.1 million
from $241.3 million for the nine months ended September 30, 2004.
19
The securitized loans and the associated bonds payable have continued to pay
down at a relatively accelerated rate. The Company has commenced the bondholder
notification process in connection with the exercise of its right to call the
remainder of the bonds payable and expects to complete the payoff in late 2005
or, no later than the first quarter of 2006. The Company intends to keep the
securitized loans until they are paid off.
The book value per share increased to $7.16 at September 30, 2005 from $6.56 at
December 31, 2004.
PERCENT OF
SELECTED BALANCE SHEET ACCOUNTS SEPTEMBER 30, DECEMBER 31, INCREASE INCREASE
(DOLLARS IN THOUSANDS) 2005 2004 (DECREASE) (DECREASE)
-------------- ------------- ----------- -----------
Cash and cash equivalents $ 12,629 $ 30,205 $ (17,576) (58.2%)
Time deposits in other financial institutions 533 647 (114) (17.6%)
Investment securities available-for-sale 23,155 22,258 897 4.0%
Investment securities held-to-maturity 6,992 6,094 898 14.7%
Federal Home Loan Bank stock, at cost 2,562 1,200 1,362 113.5%
Federal Reserve Bank stock, at cost 812 812 - -
I/O strips 2,033 2,715 (682) (25.1%)
Loans-Held for sale 54,111 45,988 8,123 17.7%
Loans-Held for investment, net 284,566 222,153 62,413 28.1%
Securitized loans, net 15,561 22,365 (6,804) (30.4%)
Total Assets 414,355 365,203 49,152 13.5%
Total Deposits 303,769 284,568 19,201 6.7%
Securities sold under agreements to repurchase - 13,672 (13,672) (100%)
Federal Home Loan Bank advances 54,500 10,500 44,000 419.0%
Bonds payable in connection with securitized loans 9,704 13,910 (4,206) (30.2)%
Total Stockholders' Equity 41,126 37,569 3,557 9.5%
The following schedule shows the balance and percentage change in the various
deposits:
PERCENT OF
SEPTEMBER 30, DECEMBER 31, INCREASE INCREASE
2005 2004 (DECREASE) (DECREASE)
-------------- ------------- ----------- -----------
(DOLLARS IN THOUSANDS)
Non-interest-bearing deposits $ 35,311 $ 44,384 $ (9,073) (20.4)%
Interest-bearing deposits 85,115 92,395 (7,280) (7.9)%
Savings 17,309 15,370 1,939 12.6%
Time certificates of $100,000 or more 75,711 40,393 35,318 87.4%
Other time certificates 90,323 92,026 (1,703) (1.9)%
-------------- ------------- ----------- -----------
Total deposits $ 303,769 $ 284,568 $ 19,201 6.7%
============== ============= =========== ===========
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.
20
The recorded investment in loans that is considered to be impaired:
SEPTEMBER 30, DECEMBER 31,
2005 2004
--------------- --------------
(IN THOUSANDS)
Impaired loans without specific valuation allowances $ 81 $ 49
Impaired loans with specific valuation allowances 3,567 3,926
Specific valuation allowances allocated to impaired loans (428) (425)
--------------- --------------
Impaired loans, net $ 3,220 $ 3,550
=============== ==============
Average investment in impaired loans $ 3,781 $ 5,137
=============== ==============
The following schedule reflects recorded investment at the dates indicated in
certain types of loans:
SEPTEMBER 30, DECEMBER 31,
2005 2004
--------------- --------------
(DOLLARS IN THOUSANDS)
Nonaccrual loans $ 7,183 $ 8,350
SBA guaranteed portion of loans included above (4,563) (5,287)
--------------- --------------
Nonaccrual loans, net $ 2,620 $ 3,063
=============== ==============
Troubled debt restructured loans, gross $ 119 $ 124
Loans 30 through 89 days past due with interest accruing 1,936 1,804
Allowance for loan losses to gross loans 1.10% 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 22% and 25% as of September 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 September 30, 2005 and December 31, 2004, the Company had $54.5
million and $10.5 million, respectively, of FHLB advances. As of September 30,
2005, the FHLB advances had interest rates ranging from 2.59% to 4.28% and terms
of up to five years. As of September 30, 2005, $35.0 million of these advances
have variable interest rates that adjust to current LIBOR rate either monthly or
quarterly. As of September 30, 2005, CWB had approximately $39.7 million
available for future borrowing.
21
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 three unsecured federal funds purchased credit lines for a
total of $18.5 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 $41.1 million at September 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
-------- -------- --------- --------- -------- -------- ---------
September 30, 2005
CWBC (Consolidated) $ 44,852 $ 40.906 $ 352,082 $ 408,574 12.74% 11.62% 10.01%
CWB 41,372 37,456 351,931 405,092 11.76 10.64 9.25
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."
22
- --------------------------------------------------------------------------------
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 40% 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
23
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
In most regions, economic activity increased during the third quarter of 2005.
Although damage resulting from hurricanes and the upsurge in energy prices
present near term challenges, the Federal Reserve has continued to raise the
discount rate to address modest perceived inflationary pressures. 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.
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.
There was no 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 covered by this report that has materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.
24
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
- ------- -------------------------------------------
Not applicable
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.
(b) Reports on Form 8-K.
July 26, 2005: The Company furnished a Current Report on Form 8-K to report
that, on July 26, 2005, the Company issued a press release announcing its
financial results for the quarter ended June 30, 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: November 10, 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