FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 AND 12CFR16.3
For the quarterly period ended June 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
For the Quarter Ended June 30, 1998 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.)
5638 Hollister Ave., Goleta, California 93117
(Address of Principal Executive Offices) (Zip Code)
(Registrant's telephone number, including area code) (805) 692-1862
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 and 12CFR16.3 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.
YES X NO
Number of shares of common stock of the registrant: 4,006,444 outstanding as of
August 10, 1998
This Form 10-Q contains 15 pages.
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PART 1 - FINANCIAL INFORMATION
COMMUNITY WEST BANCSHARES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, 1998 December 31, 1997
-------------- ------------------
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A45
ASSETS
Cash and due from banks $ 4,297,000 $ 3,663,000
Federal funds sold 6,215,000 8,440,000
-------------- ------------------
Total cash and cash equivalents 10,512,000 12,103,000
Time deposits in other financial institutions 576,000 2,477,000
Federal reserve bank stock 264,000 251,000
Investment securities held to maturity, at cost,
fair value of $502,000 at June 30, 1998 and $993,000 at December 31, 1997 502,000 999,000
Investment securities held for trading, at fair value 2,814,000 2,529,000
Loans
Held for investment, net of allowance for loan losses
of $1,313,000 in 1998 and $1,286,000 in 1997 68,468,000 56,724,000
Held for sale, at lower of cost or fair value 59,411,000 14,440,000
Other real estate owned, net 210,000 -
Premises and equipment, net 3,040,000 2,725,000
Servicing assets 912,000 664,000
Accrued interest receivable 1,333,000 514,000
Other assets 3,038,000 1,886,000
-------------- ------------------
TOTAL ASSETS $ 151,080,000 $ 95,312,000
============== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing demand $ 21,465,000 $ 15,133,000
Interest-bearing demand 12,279,000 13,608,000
Savings 13,335,000 12,982,000
Time certificates of $100,000 or more 31,436,000 18,142,000
Other time certificates 54,018,000 20,387,000
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Total deposits 132,533,000 80,252,000
Accrued interest payable and other liabilities 1,361,000 2,931,000
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Total liabilities 133,894,000 83,183,000
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COMMITMENTS AND CONTINGENCIES
[Note 3 and 8]
STOCKHOLDERS' EQUITY
Common stock, no par value: 20,000,000 shares authorized:
3,984,500 and 3,081,316 shares issued and outstanding at June 30, 1998 and
December 31, 1997 12,560,000 8,570,000
Retained earnings 4,626,000 3,559,000
-------------- ------------------
Total stockholders' equity 17,186,000 12,129,000
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 151,080,000 $ 95,312,000
============== ==================
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See notes to consolidated financial statements.
2
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COMMUNITY WEST BANCSHARES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the Three Months For the Six Months
Ended June 30 Ended June 30
1998 1997 1998 1997
--------------------- ------------------- ---------- ----------
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INTEREST INCOME:
Loans, including fees $ 3,735,000 $ 1,873,000 $5,697,000 $3,553,000
Federal funds sold 100,000 79,000 227,000 163,000
Time deposits in other financial institutions 21,000 31,000 60,000 64,000
Investment securities 11,000 31,000 29,000 61,000
--------------------- ------------------- ---------- ----------
Total interest income 3,867,000 2,014,000 6,013,000 3,841,000
INTEREST EXPENSE ON DEPOSITS 1,446,000 674,000 2,266,000 1,340,000
--------------------- ------------------- ---------- ----------
NET INTEREST INCOME 2,421,000 1,340,000 3,747,000 2,501,000
PROVISION FOR LOAN LOSSES 220,000 80,000 280,000 160,000
--------------------- ------------------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES 2,201,000 1,260,000 3,467,000 2,341,000
OTHER INCOME:
Gains from loan sales 1,133,000 977,000 2,483,000 1,630,000
Loan origination fees 999,000 828,000 1,818,000 1,461,000
Document processing fees 388,000 221,000 707,000 404,000
Loan servicing income 437,000 156,000 554,000 365,000
Service charges 250,000 194,000 481,000 375,000
Other income 80,000 56,000 166,000 88,000
--------------------- ------------------- ---------- ----------
Total other income 3,287,000 2,432,000 6,209,000 4,323,000
--------------------- ------------------- ---------- ----------
OTHER EXPENSES:
Salaries and employee benefits 2,896,000 1,856,000 5,182,000 3,448,000
Occupancy expenses 594,000 385,000 1,091,000 715,000
Postage and freight 115,000 163,000 306,000 345,000
Advertising 137,000 182,000 288,000 259,000
Professional fees 167,000 71,000 267,000 134,000
Travel expense 59,000 44,000 113,000 76,000
Other operating expenses 350,000 294,000 608,000 457,000
--------------------- ------------------- ---------- ----------
Total other expenses 4,318,000 2,995,000 7,855,000 5,434,000
--------------------- ------------------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME
TAXES 1,170,000 697,000 1,821,000 1,230,000
PROVISION FOR INCOME TAXES 471,000 293,000 753,000 517,000
--------------------- ------------------- ---------- ----------
NET INCOME $ 699,000 $ 404,000 $1,068,000 $ 713,000
===================== =================== ========== ==========
NET INCOME PER COMMON SHARE - BASIC $ 0.20 $ 0.13 $ 0.32 $ 0.24
===================== =================== ========== ==========
NET INCOME PER COMMON SHARE - DILUTED $ 0.19 $ 0.11 $ 0.30 $ 0.20
===================== =================== ========== ==========
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See notes to consolidated financial statements.
3
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COMMUNITY WEST BANCSHARES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months
Ended June 30,
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,068,000 $ 713,000
Adjustments to reconcile net income to net cash used in operating activities:
Provision for loan losses 280,000 160,000
Depreciation and amortization 441,000 276,000
Gain on sale of other real estate owned (25,000) (3,000)
Gain on sale of loans held for sale (2,483,000) (1,630,000)
Origination of servicing and interest only strip assets, net of amortization (1,197,000) (315,000)
Changes in operating assets and liabilities:
Accrued interest receivable (819,000) (8,000)
Other assets (499,000) (309,000)
Accrued interest payable and other liabilities (1,562,000) 1,015,000
-------------------- ------------
Net cash used in operating activities (4,796,000) (101,000)
-------------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of held-to-maturity securities (516,000) (1,086,000)
Maturities of held-to-maturity securities 1,000,000 1,000,000
Net decrease in time deposits in other financial institutions 1,901,000 296,000
Net increase in loans and loans held for sale (54,808,000) (3,589,000)
Proceeds from sale of other real estate owned 113,000 62,000
Purchase of premises and equipment (756,000) (370,000)
-------------------- ------------
Net cash used in investing activities (53,066,000) (3,687,000)
-------------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, and savings accounts 5,356,000 1,385,000
Net increase in time certificates 46,925,000 1,523,000
Retirement of Stock (10,000) -
Exercise of Stock Warrants 3,807,000 185,000
Exercise of Stock Options 193,000 101,000
-------------------- ------------
Net cash provided by financing activities 56,271,000 3,194,000
-------------------- ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,591,000) (594,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 12,103,000 12,792,000
-------------------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,512,000 $12,198,000
==================== ============
See notes to consolidated financial statements.
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 1,447,000 $ 1,332,000
Cash paid for income taxes $ 575,000 $ 200,000
Supplemental Disclosure of Noncash Investing Activity:
Transfers to other real-estate owned $ 297,000 $ 332,000
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4
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COMMUNITY WEST BANCSHARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 1998 and 1997
1. Summary of Significant Accounting Policies. See note 1 of the Notes to
Financial Statements in Community West Bancshares' (the "Company") 1997 Annual
Report on Form 10-K.
Statements concerning future performance, developments or events, concerning
expectations for growth and market forecasts, and any other guidance on future
periods, constitute forward-looking statements which are subject to a number of
risks and uncertainties which might cause actual results to differ materially
from stated expectations. These factors include, but are not limited to, the
approval of regulatory agencies and shareholders, the effect of interest rate
changes, the expansion of the Company, changes in SBA policy or funding,
competition in the financial services market for both deposits and loans, and
general economic conditions.
Loans Held for Sale - The guaranteed portion of loans insured by the SBA and FHA
Title I home improvement loans and 125 loan-to-value loans, which are originated
and are intended for sale in the secondary market, are carried at the lower of
cost or fair value. Funding for SBA and FHA programs depends on annual
appropriations by the U.S. Congress, and accordingly, the sale of loans under
these programs is dependent on the continuation of such programs.
The Company sells SBA and FHA Title I loans with servicing retained. The Company
retains an interest only ("I/O") strip, which represents the present value of
the right to the excess cash flows generated by the serviced loans which
represents 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, (ii) trustee fees, (iii) FHA insurance fees (if applicable), (iv)
third-party credit enhancement fees (if applicable), and (v) stipulated
servicing fees. The Company determines the present value of this anticipated
cash flow stream at the time each loan sale transaction closes, utilizing
valuation assumptions appropriate for each particular transaction.
The significant valuation assumptions are related to the anticipated average
lives of the loans sold, including the anticipated prepayment speeds and the
anticipated credit losses related thereto. In order to determine the present
value of this excess cash flow, the Company currently applies an estimated
market discount rate of 11% to the expected pro forma gross cash flows, which is
calculated utilizing the constant prepayment rate of the serviced loans, which
was 8% and 15% for SBA and Title I loans, respectively, for the six months ended
June 30, 1998.
5
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The I/O Strips are accounted for under Statement of Financial Accounting
Standards ("SFAS") No. 115 "Accounting for Investments in Certain Debt and
Equity Marketable Securities." As an I/O Strip is subject to significant
prepayment risk, and therefore has an undetermined maturity date, it cannot be
classified as held to maturity. The Company has chosen to classify its I/O
Strips as trading securities. Based on this classification, the Company is
required to mark these securities to fair value with the accompanying increases
or decreases in fair value being recorded as earnings in the current period. The
determination of fair value is based on the previously mentioned methodology.
As the gain recognized in the year of sale is equal to the net estimated future
cash flows from the I/O Strips, discounted at a market interest rate, the amount
of cash actually received over the lives of the loans is expected to exceed the
gain previously recognized at the time the loans are sold. The I/O Strips are
amortized based on an accelerated method against the cash flows resulting in
income recognition that is not materially different from the interest method.
The Company generally retains the right to service loans it originates or
purchases and subsequently sells.
2. Certain reclassifications have been made in the 1997 financial
information to conform to the presentation used in 1998.
3. In the ordinary course of business, the Company enters into commitments
to extend credit to its customers. These commitments are not reflected in the
accompanying financial statements. As of June 30, 1998, the Company had entered
into commitments with certain customers amounting to $23.0 million compared to
$20.4 million at December 31, 1997. There were no letters of credit outstanding
at June 30, 1998, compared to $30,000 at December 31, 1997.
4. The interim consolidated financial statements are unaudited and reflect
all adjustments and reclassifications which, in the opinion of management, are
necessary for a fair presentation of the results of operations and financial
condition for the interim period. All adjustments and reclassifications are of a
normal and recurring nature. Results for the period ending June 30, 1998, are
not necessarily indicative of results which may be expected for any other
interim period or for the year as a whole.
5. Net income per share -- basic has been computed based on the weighted
average number of shares outstanding during each period, which was 3,465,003 and
3,012,660 for the three months and 3,327,128 and 2,982,376 for the six months
ended June 30, 1998, and 1997, respectively. Net income per share -- diluted has
been computed based on the weighted average number of shares outstanding during
each period plus the dilutive effect of outstanding warrants and granted
options. The number of shares used for the net income per share - diluted
calculation was 3,677,822 and 3,591,664 for the three months and 3,539,947 and
3,556,494 for the six months ended June 30, 1998, and 1997, respectively. The
outstanding warrants expired on June 30, 1998. The net income per share amounts
for 1997 have been retroactively stated to reflect the two-for-one stock split
in February 1998.
6
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6. Supplemental cash flow information: During the six-month period ended
June 30, 1998, loans amounting to $297,000 were transferred to Other Real Estate
Owned ("OREO") as a result of foreclosure on the real properties held as
collateral. During the six-month period ending June 30, 1998, the Company sold
OREO with a book value of $87,000.
7. In an effort to provide more specific guidance to businesses on
accounting for internal software development, the Accounting Standards Executive
Committee has issued Statement of Position (SOP) 98-1. SOP 98-1 requires
companies to capitalize and amortize many of the costs associated with
developing or obtaining software for internal use. The Company adopted SOP 98-1
as of June 30, 1998; and has capitalized approximately $80,000 in development
costs for the three-month period ended June 30, 1998.
8. On April 23, 1998, the Company announced the signing of a definitive
agreement whereby Community West Bancshares will acquire Palomar Savings and
Loan Association in a tax-free exchange, which will be accounted for as a
pooling of interests. Palomar will retain its name and become a wholly owned
subsidiary of Community West.
The definitive agreement is subject to approval of the shareholders of Community
West and Palomar, as well as the various regulatory agencies. The boards of
directors of both companies have approved the definitive agreement. It is
anticipated the merger will be consummated during the fourth quarter of 1998.
7
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COMMUNITY WEST BANCSHARES
MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's discussion and analysis is written to provide greater insight into
the results of operations and the financial condition of Community West
Bancshares, (the "Company").
RESULTS OF OPERATIONS
The Company reported net earnings of $699,000 for the three months ended June
30, 1998, an increase of $295,000, or 73.0%, compared to $404,000 for the three
months ended June 30, 1997. Basic earnings per share were $.20 for the three
months ended June 30, 1998, compared to $.13 per share for the three ended June
30, 1997. Basic earnings per share is calculated using weighted average number
of shares outstanding for the period. Diluted earnings per share were $.19 per
share for the three months ended June 30, 1998, compared to $.11 per share for
the three months ended June 30, 1997. Diluted earnings per share is calculated
using the weighted average number of shares outstanding for the period, plus the
net effect of outstanding warrants and granted stock options using the treasury
stock method. The annualized return on average equity was 18.2% for the three
months ended June 30, 1998, and 15.1% for the three months ended June 30, 1997.
The Company reported net earnings of $1,068,000 for the six months ended June
30, 1998, an increase of $355,000, or 49.8%, compared to $713,000, for the six
months ended June 30, 1997. Basic earnings per share were $.32 for the six
months ended June 30, 1998, compared to $.24 per share for the six months ended
June 30, 1997. Diluted earnings per share were $.30 per share for the six
months ended June 30, 1998, compared to $.20 per share for the six months ended
June 30, 1997. The annualized return on average equity was 15.0% for the six
months ended June 30, 1998, and 13.6%, for the six months ended June 30, 1997
The book value per share increased from $3.93 at December 31, 1997, to $4.31 at
June 30, 1998. Average assets for the six months ended June 30, 1998, were
$127,603,000 compared to $84,319,000 for the six months ended June 30, 1997;
average equity increased to $14,251,000 for the six months ended June 30, 1998,
from $10,506,000 for the six months ended June 30, 1997.
NET INTEREST INCOME/NET INTEREST MARGIN
One component of the Company's earnings is net interest income, which is the
difference between the interest and fees earned on loans and investments and the
interest paid for deposits and borrowed funds. The net interest margin is net
interest income expressed as a percentage of average earning assets.
The annualized net interest margin was 7.1% for the three months ended June 30,
1998, compared to an annualized net interest margin of 6.6% for the three months
ended June 30, 1997. Net interest income totaled $2,421,000 for the three months
ended June 30, 1998. This represented an increase of $1,081,000, or 80.7%, from
net interest income of $1,340,000 for the three months ended June 30, 1997.
Earning assets averaged $136,023,000 for the three months ended June 30, 1998.
This represented an increase of $54,335,000, or 66.5%, over average earning
assets of $81,688,000 for the three months ended June 30, 1997. The increase was
because the Company increased loans held. The Company increased its balance of
125LTV loans through retail, brokers, and bulk purchases in the second quarter.
It is anticipated these loans will be used for a loan securitization the Company
has planned. The Company funded these purchases by increasing the rates on
short-term time deposits.
8
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For the three months ended June 30, 1998, the Company earned interest and fees
of $3,735,000 on average loans of $116,671,000 representing an annualized yield
of 12.8%. For the three months ended June 30, 1997, the Company earned interest
and fees of $1,873,000 on average loans of $63,101,000, for an annualized yield
of 11.9%.
The annualized net interest margin was 6.2% for the six months ended June 30,
1998, compared to an annualized net interest margin of 6.3% for the six months
ended June 30, 1997. Net interest income totaled $3,747,000 for the six months
ended June 30, 1998. This represented an increase of $1,246,000, or 49.8%, from
net interest income of $2,501,000 for the six months ended June 30, 1997.
Earning assets averaged $120,523,000 for the six months ended June 30, 1998.
This represented an increase of $41,156,000, or 51.9%, over average earning
assets of $79,366,000 for the six months ended June 30, 1997.
For the six months ended June 30, 1998, the Company earned interest and fees of
$5,697,000 on average loans of $101,502,000 representing an annualized yield of
11.2%. For the six months ended June 30, 1997, the Company earned interest and
fees of $3,553,000 on average loans of $61,201,000, for an annualized yield of
11.6%.
CREDIT LOSS EXPERIENCE
The Company maintains an allowance for potential credit losses. The allowance is
increased by a provision for credit losses charged against operating results and
from recoveries on loans previously charged off. The allowance is reduced by
loan losses charged to the allowance. The allowance for credit losses was
$1,313,000 at June 30, 1998, versus $1,286,000 at December 31, 1997. At June 30,
1998, the allowance for credit losses was equal to 1.0% of gross loans compared
to 1.8% of gross loans at December 31, 1997. This percentage decrease was
because the Company increased its balance of 125LTV loans through retail,
brokers, and bulk purchases in the second quarter, which are being held for a
future loan securitization.
During the second quarter of 1998, the provision for credit losses was charged
$220,000 representing an increase of $140,000, or 175.0%, over a provision for
credit losses of $80,000 for the three months ended June 30, 1997. The
provision was charged $280,000 for the six months ended June 30, 1998, an
increase of $120,000, or 75.0%, over a provision for credit losses of $160,000
for the six months ended June 30, 1997.
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Losses charged to the allowance for credit losses, net of recoveries, totaled
$253,000 for both the three and six months ended June 30, 1998. This represents
an increase of $99,000, or 64.3%, over a net charge-off of $154,000 for the
three months ended June 30, 1997. For the six months ended June 30, 1998, there
was a decrease of $14,000, or 5.2%, from the June 1997 net charge-off of
$267,000.
Nonaccrual loans decreased to $949,000 at June 30, 1998, compared to $1,259,000
at December 31, 1997. This represented a decrease of $310,000, or 24.6%.
While management believes that the allowance was adequate at June 30, 1998, to
absorb losses from any known or inherent risks in the portfolio; no assurance
can be given that economic conditions which adversely affect the Company's
service areas or other circumstances will not be reflected in increased
provisions or credit losses in the future.
OTHER OPERATING INCOME
Other operating income includes service charges on deposit accounts, gains on
sale of loans, servicing fees, and other revenues not derived from interest on
earning assets. Other operating income for the three and six months ended June
30, 1998, was $3,287,000 and $6,209,000, respectively. This represented an
increase of $855,000, or 35.2%, and $1,886,000, or 43.6%, over other operating
income of $2,432,000 and $4,323,000 for the three and six months ended June 30,
1997, respectively. The increase was attributable to continued emphasis by the
Company on generating noninterest income.
OTHER OPERATING EXPENSES
Other expenses include salaries and employee benefits, occupancy and equipment,
and other operating expenses. The continued growth of the Company required
additional staff and overhead expense to support the continued high level of
customer service, which increased the cost of occupying the Company's offices.
Although compensation expenses have grown significantly, approximately 40% of
the Company's personnel derive some or all of their compensation based on income
production. This means that a significant portion of compensation is tied to
increases in revenues instead of being a fixed expense. Other operating expenses
totaled $4,318,000 and $7,855,000 for the three and six months ended June 30,
1998, respectively. This represented an increase of $1,323,000, or 44.2%, and
$2,421,000, or 44.6%, over other operating expenses of $2,995,000 and $5,434,000
for the three and six months ended June 30, 1997, respectively. The increase in
other expenses for the periods compared was primarily because of compensation
related to loan originations and sales, the upgrading of data processing
hardware and software, and an increase in advertising. The increase in other
operating expense of 44.6% was partially offset by the 43.6% increase in other
operating income. The Company's ratio on noninterest income to noninterest
expense for the first six months of 1998 was 79.0%, versus 79.6% for the same
period of 1997. This ratio has decreased because of additional expenses
incurred from several projects the Company is working on for the second half of
the year. These include a loan securitization, expanding the SBA lending in the
southeast, opening a new branch office in Ventura, California, and acquiring
Palomar Savings of Escondido, California.
10
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BALANCE SHEET ANALYSIS
At June 30, 1998, total assets were $151,080,000 representing an increase of
$55,768,000, or 58.5%, from total assets of $95,312,000 at December 31, 1997.
Total deposits of $132,533,000 at June 30, 1998, increased $52,281,000, or
65.1%, from $80,252,000 at December 31, 1997. Net loans increased $56,715,000,
or 79.7%, from $71,164,000 at December 31, 1997, to $127,879,000 at June 30,
1998. The Company planned these increases in deposits and loans. It is
anticipated the Company will complete a loan securitization in the second half
of 1998; and the loan portfolio was increased through retail, brokers, and bulk
purchases. The rates on short-term time deposits were raised to help fund the
loan increase.
INVESTMENT SECURITIES
At June 30, 1998, investment securities totaled $4,156,000. This represented a
decrease of $2,100,000, or 33.6%, over total investments of $6,256,000 at
December 31, 1997. This decrease was caused, in part, by time deposits in other
institutions decreasing $1,901,000, or 76.7%, from $2,477,000 at December 31,
1997, to $576,000 at June 30, 1998. The Company intentionally did not renew
several time deposits at maturity.
DEPOSITS AND OTHER BORROWINGS
At June 30, 1998, deposits totaled $132,533,000. This represented an increase of
$52,281,000, or 65.1%, over total deposits of $80,252,000 at December 31, 1997.
The increase in deposits is a result of the Company raising the rates on
short-term time deposits to fund the planned increase in loans.
Noninterest bearing demand deposits totaled $21,465,000 at June 30, 1998. This
represented an increase of $6,332,000, or 41.8%, over noninterest bearing demand
deposits of $15,133,000 at December 31, 1997. Interest bearing deposits totaled
$111,068,000 at June 30, 1998. This represented an increase of $45,949,000, or
70.6%, over interest bearing deposits of $65,119,000 at December 31, 1997.
LIQUIDITY
The Company has an asset and liability management program that aids management
in maintaining its interest margins during times of both rising and falling
interest rates and in maintaining sufficient liquidity. Liquidity of the Company
at June 30, 1998, was 48.9% and at December 31, 1997, was 37.4%, based on liquid
assets (consisting of cash and due from banks, deposits in other financial
institutions, investments, federal funds sold and loans available for sale)
divided by total assets. Management believes it maintains adequate liquidity
levels.
CAPITAL RESOURCES
The Company's equity capital was $17,186,000 at June 30, 1998. The primary
source of capital for the Company has been the retention of net income. During a
stock offering in 1996, 472,653 warrants were issued; these warrants were
exercisable at $8.75 for two shares of common stock and expired June 30, 1998.
On June 30, 1998, 468,302 warrants had been exercised, which left 4,351 expired.
The exercised warrants brought in $4,098,000 in additional capital. This
additional capital will be used for possible merger or acquisition activity, as
well as to allow continued internal growth.
11
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On April 23, 1998, the Company announced the signing of a definitive agreement
whereby Community West Bancshares will acquire Palomar Savings and Loan
Association in a tax-free exchange, which will be accounted for as a pooling of
interests. The acquisition is expected to be immediately accretive to earnings
per share. Palomar will retain its name and become a wholly owned subsidiary of
Community West.
The definitive agreement is subject to approval of the shareholders of Community
West and Palomar, as well as the various regulatory agencies. The boards of
directors of both institutions have approved the definitive agreement. It is
anticipated the merger will be consummated by December 31, 1998.
The Company's subsidiary, Goleta National Bank, is required to meet risk-based
capital standards set by the respective regulatory authorities. The risk-based
capital standards require the achievement of a minimum ratio of total capital to
risk-weighted assets of 8.0% (of which at least 4.0% must be Tier 1 capital). In
addition, the regulatory authorities require the highest rated institutions to
maintain a minimum leverage ratio of 4.0%. At June 30, 1998, Goleta National
Bank exceeded the minimum risk-based capital ratio and leverage ratio required
to be considered "Well Capitalized."
Table 1 below presents Goleta National Bank's risk-based leverage capital ratios
as of June 30, 1998, and December 31, 1997:
TABLE 1 - REGULATORY CAPITAL RATIOS
<TABLE>
<CAPTION>
MINIMUM
MINIMUM WELL
CAPITAL RATIOS REQUIREMENT CAPITALIZED JUNE 30, 1998 DECEMBER 31, 1997
- -------------------------- ------------ ------------ -------------- ------------------
<S> <C> <C> <C> <C>
Risk-based Capital Ratios:
Tier I 4.00% 6.00% 9.20% 15.95%
Total 8.00% 10.00% 10.23% 17.20%
Leverage Ratio 4.00% 5.00% 8.33% 12.02%
</TABLE>
12
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Not Applicable
Item 2 - Changes in Securities
Not Applicable
Item 3 - Defaults upon Senior Securities
Not Applicable
Item 4 - Submission of Matters to a Vote of Security Holders
(a) The date of the meeting and whether it
was an annual or special meeting.
May 28, 1998 Annual Meeting
(b) The name of each director elected at the
meeting.
Michael A. Alexander
Dr. Mounir R. Ashamalla
Robert H. Bartlein
Jean W. Blois
John D. Illgen
John D. Markel
Michel Nellis
William R. Peeples
C. Randy Shaffer
James R. Sims
Llewellyn W. Stone
(c) Description of each matter voted upon and the
number of votes cast for, against or
withheld.
For Withheld
Michael A. Alexander 2,188,052 -
Dr. Mounir R. Ashamalla 2,188,052 -
Robert H. Bartlein 2,188,052 -
Jean W. Blois 2,188,052 -
John D. Illgen 2,169,788 18,264
John D. Markel 2,186,260 1,792
Michel Nellis 2,188,052 -
William R. Peeples 2,182,632 5,420
C. Randy Shaffer 2,187,652 400
James R. Sims 2,155,124 32,928
Llewellyn W. Stone 2,188,052 -
Item 5 - Other Information
On April 23, 1998, the Company announced the
signing of a definitive agreement whereby Community
West Bancshares will acquire Palomar Savings and
Loan Association in a tax-free exchange, which will
be accounted for as a pooling of interests. Palomar
will retain its name and become a wholly owned
subsidiary of Community West.
13
<PAGE>
Shareholders of Palomar will receive shares of
Community West equal to 2.2 times the book value of
Palomar, determined as of the month end immediately
Preceding the closing date of the transaction. The
number of shares of Community West stock received by
Palomar shareholders will be determined by the
average price of Community West stock for the 30 day
period immediately preceding the closing date.
The definitive agreement is subject to approval of
the shareholders of Community West and Palomar, as
well as the various regulatory agencies. The boards
of directors of both institutions have approved the
definitive agreement. It is anticipated the merger
will be consummated during the fourth quarter of
1998.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Form 8-K filed on 7/23/98
(b) Reports on Form 8-K
Not Applicable
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
12CFR16.3, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
COMMUNITY WEST BANCSHARES
-------------------------
(Registrant)
/S/ C. Randy Shaffer
---------------------------
Date: August 10, 1998 C. Randy Shaffer
Executive Vice President
15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 4297000
<INT-BEARING-DEPOSITS> 576000
<FED-FUNDS-SOLD> 6215000
<TRADING-ASSETS> 2814000
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 502000
<INVESTMENTS-MARKET> 0
<LOANS> 129192000
<ALLOWANCE> 1313000
<TOTAL-ASSETS> 151080000
<DEPOSITS> 132533000
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1361000
<LONG-TERM> 0
0
0
<COMMON> 12560000
<OTHER-SE> 4626000
<TOTAL-LIABILITIES-AND-EQUITY> 151080000
<INTEREST-LOAN> 5697000
<INTEREST-INVEST> 29000
<INTEREST-OTHER> 287000
<INTEREST-TOTAL> 6013000
<INTEREST-DEPOSIT> 2266000
<INTEREST-EXPENSE> 2266000
<INTEREST-INCOME-NET> 3747000
<LOAN-LOSSES> 280000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7855000
<INCOME-PRETAX> 1821000
<INCOME-PRE-EXTRAORDINARY> 1821000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1068000
<EPS-PRIMARY> .32
<EPS-DILUTED> .30
<YIELD-ACTUAL> 0
<LOANS-NON> 949000
<LOANS-PAST> 424000
<LOANS-TROUBLED> 1338000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1286000
<CHARGE-OFFS> 267000
<RECOVERIES> 15000
<ALLOWANCE-CLOSE> 1313000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
