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 March 31, 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 March 31, 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 (I.R.S. Employer
incorporation 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: 3,345,878 outstanding as of
May 1, 1998
This Form 10-Q contains 14 pages.
<PAGE>
PART 1 - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
COMMUNITY WEST BANCSHARES
CONSOLIDATED BALANCE SHEETS
March 31, 1998 December 31, 1997
--------------- ------------------
<S> <C> <C>
ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,374,000 $ 3,663,000
Federal funds sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,805,000 8,440,000
--------------- ------------------
Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . 18,179,000 12,103,000
Time deposits in other financial institutions . . . . . . . . . . . . . . . . 2,359,000 2,477,000
Federal reserve bank stock. . . . . . . . . . . . . . . . . . . . . . . . . . 251,000 251,000
Investment securities held to maturity, at cost,
fair value of $500,000 at March 31, 1998 and $993,000 at December 31, 1997. 500,000 999,000
Investment securities held for trading, at fair value . . . . . . . . . . . . 2,746,000 2,529,000
Loans
Held for investment, net of allowance for loan losses
of $1,311,000 in 1998 and $1,286,000 in 1997 . . . . . . . . . . . . . . . 58,554,000 56,724,000
Held for sale, at lower of cost or fair value . . . . . . . . . . . . . . . 46,909,000 14,440,000
Other real estate owned, net. . . . . . . . . . . . . . . . . . . . . . . . . 255,000 -
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . 2,816,000 2,725,000
Servicing assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 766,000 664,000
Accrued interest receivable and other assets. . . . . . . . . . . . . . . . . 3,081,000 2,400,000
--------------- ------------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 136,416,000 $ 95,312,000
=============== ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing demand. . . . . . . . . . . . . . . . . . . . . . . . $ 20,043,000 $ 15,133,000
Interest-bearing demand . . . . . . . . . . . . . . . . . . . . . . . . . 17,725,000 13,608,000
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,289,000 12,982,000
Time certificates of $100,000 or more . . . . . . . . . . . . . . . . . . 18,595,000 16,833,000
Other time certificates . . . . . . . . . . . . . . . . . . . . . . . . . 44,295,000 21,696,000
--------------- ------------------
Total deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . 112,947,000 80,252,000
Accrued interest payable and other liabilities. . . . . . . . . . . . . . . 10,031,000 2,931,000
--------------- ------------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 122,978,000 83,183,000
--------------- ------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, no par value: 20,000,000 shares authorized:
3,297,504 and 3,081,316 shares issued and outstanding at March 31, 1998 and
December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,510,000 8,570,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,928,000 3,559,000
--------------- ------------------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . 13,438,000 12,129,000
--------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. . . . . . . . . . . . . . . . . . $ 136,416,000 $ 95,312,000
=============== ------------------
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY WEST BANCSHARES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months
Ended March 31
1998 1997
---------- ----------
<S> <C> <C>
INTEREST INCOME:
Loans, including fees . . . . . . . . . . . . $1,962,000 $1,680,000
Federal funds sold. . . . . . . . . . . . . . 127,000 85,000
Time deposits in other financial institutions 39,000 32,000
Investment securities . . . . . . . . . . . . 18,000 30,000
---------- ----------
Total interest income . . . . . . . . 2,146,000 1,827,000
INTEREST EXPENSE ON DEPOSITS. . . . . . . . . . 820,000 666,000
---------- ----------
NET INTEREST INCOME . . . . . . . . . . . . . . 1,326,000 1,161,000
PROVISION FOR LOAN LOSSES . . . . . . . . . . . 60,000 80,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES. . . . . . . . . . . . . . . . . . . . 1,266,000 1,081,000
OTHER INCOME:
Gains from loan sales . . . . . . . . . . . . 1,350,000 652,000
Loan origination fees . . . . . . . . . . . . 819,000 633,000
Loan servicing income . . . . . . . . . . . . 117,000 209,000
Document processing fees. . . . . . . . . . . 319,000 183,000
Service charges . . . . . . . . . . . . . . . 231,000 181,000
Other income. . . . . . . . . . . . . . . . . 86,000 33,000
---------- ----------
Total other income. . . . . . . . . . 2,922,000 1,891,000
---------- ----------
OTHER EXPENSES:
Salaries and employee benefits. . . . . . . . 2,286,000 1,591,000
Occupancy expenses. . . . . . . . . . . . . . 497,000 330,000
Postage and freight . . . . . . . . . . . . . 191,000 182,000
Advertising . . . . . . . . . . . . . . . . . 151,000 77,000
Professional fees . . . . . . . . . . . . . . 100,000 63,000
Travel expense. . . . . . . . . . . . . . . . 54,000 32,000
Other operating expenses. . . . . . . . . . . 258,000 164,000
---------- ----------
Total other expenses. . . . . . . . . 3,537,000 2,439,000
---------- ----------
INCOME BEFORE PROVISION FOR INCOME
TAXES . . . . . . . . . . . . . . . . . . . . . 651,000 533,000
PROVISION FOR INCOME TAXES. . . . . . . . . . . 282,000 224,000
---------- ----------
NET INCOME. . . . . . . . . . . . . . . . . . . $ 369,000 $ 309,000
========== ==========
NET INCOME PER COMMON SHARE - BASIC . . . . . . $ 0.12 $ 0.10
========== ==========
NET INCOME PER COMMON SHARE - DILUTED . . . . . $ 0.10 $ 0.09
========== ==========
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY WEST BANCSHARES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months
Ended March 31,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 369,000 $ 309,000
Adjustments to reconcile net income to net cash used in operating activities:
Provision for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . 60,000 80,000
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . 193,000 134,000
Gain on sale of other real estate owned. . . . . . . . . . . . . . . . . . . - (3,000)
Gain on sale of loans held for sale. . . . . . . . . . . . . . . . . . . . . (1,350,000) (652,000)
Origination of servicing and interest only strip assets, net of amortization (983,000) (277,000)
Changes in operating assets and liabilities:
Accrued interest receivable and other assets . . . . . . . . . . . . . . . (17,000) 266,000
Accrued interest payable and other liabilities . . . . . . . . . . . . . . (1,917,000) 137,000
Net cash used in operating activities . . . . . . . . . . . . . . . . . (3,645,000) (315,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of held-to-maturity securities . . . . . . . . . . . . . . . . . . 500,000 -
Net decrease in time deposits in other financial institutions . . . . . . . . 118,000 396,000
Net increase in loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,486,000) (6,261,000)
Purchase of loans held for sale . . . . . . . . . . . . . . . . . . . . . . . (23,778,000) -
Proceeds from sale of other real estate owned . . . . . . . . . . . . . . . . - 21,000
Purchase of premises and equipment. . . . . . . . . . . . . . . . . . . . . . (284,000) (164,000)
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . (32,930,000) (6,008,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, and savings accounts. . . . . . . . . . . . . . 7,350,000 5,290,000
Net increase (decrease) in time certificates . . . . . . . . . . . . . . . . . 24,361,000 (385,000)
Net increase in federal funds purchased . . . . . . . . . . . . . . . . . . . . 10,000,000 -
Retirement of Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,000) -
Exercise of Stock Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . 774,000 -
Exercise of Stock Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . 176,000 33,000
Net cash provided by financing activities. . . . . . . . . . . . . . . . . 42,651,000 4,938,000
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . . . . . . . . . . . . 6,076,000 (1,385,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD. . . . . . . . . . . . . . . . . . . 12,103,000 12,792,000
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . $ 18,179,000 $11,407,000
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
COMMUNITY WEST BANCSHARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 1998 and 1997
1. Summary of Significant Accounting Policies. See note 1 of the Notes to
Financial Statements in Community West Bancshares' 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.
<PAGE>
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 basis.
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 March 31, 1998, the Company had entered
into commitments with certain customers amounting to $21.0 million compared to
$20.1 million at December 31, 1997. Letters of credit at March 31, 1998, and
December 31, 1997, were both $30,000.
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 March 31, 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 3,187,721 and
2,951,755 for the three months ended March 31, 1998, and 1997. 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 options, which was 3,868,613 and 3,556,695 for the three months
ended March 31, 1998, and 1997. The March 1997 net income per share amounts
have been retroactively stated to reflect the two-for-one stock split in
February 1998.
<PAGE>
6. Supplemental cash flow information: During the three-month period ended
March 31, 1998, loans amounting to $255,000 were transferred to Other Real
Estate Owned ("OREO") as a result of foreclosure on the real properties held as
collateral.
7. 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 institutions have approved the definitive agreement. It is
anticipated the merger will be consummated during the fourth quarter of 1998.
<PAGE>
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 $369,000 for the three months ended March
31, 1998, an increase of $60,000, or 19.4%, compared to $309,000 for the three
months ended March 31, 1997. Basic earnings per share were $.12 for the three
months ended March 31, 1998, compared to $.10 per share for the three months
ended March 31, 1997. Basic earnings per share is calculated using weighted
average number of shares outstanding for the period. Diluted earnings per share
were $.10 for the three months ended March 31, 1998, compared to $.09 per share
for the three months ended March 31, 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 book value per share increased from $3.93
at December 31, 1997, to $4.08 at March 31, 1998. For the three months ended
March 31, 1998, the annualized return on average assets was 1.3% compared to
1.5% in 1997. The annualized return on average equity was 11.5% for the three
months ended March 31, 1998, and 12.1%, for the three months ended March 31,
1997. Average assets at March 31, 1998, was $115,864,000 compared to $83,576,000
for March 31, 1997; average equity increased to $12,784,000 at March 31, 1998,
from $10,230,000 at March 31, 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 net interest margin was 5.9% for the three months ended March 31, 1998,
compared to a net interest margin of 5.9% for the three months ended March 31,
1997. Net interest income totaled $1,326,000 for the three months ended March
31, 1998. This represented an increase of $165,000, or 14.2%, from net interest
income of $1,161,000 for the three months ended March 31, 1997. Earning assets
averaged $91,720,000 for the three months ended March 31, 1998. This represented
an increase of $13,255,000, or 16.9%, over average earning assets of $78,465,000
for the three months ended March 31, 1997. This increase was due, in part, to a
bulk purchase of $24 million in loans on March 31, 1998. These loans will be
used for a loan securitization the Company has planned. The Company funded this
purchase by increasing the rates on short-term time deposits and utilizing
borrowing lines.
<PAGE>
For the three months ended March 31, 1998, the Company earned interest and fees
of $2,146,000 on average loans of $72,020,000 representing an annualized yield
of 11.9%. For the three months ended March 31, 1997, the Company earned interest
and fees of $1,827,000 on average loans of $60,708,000, for an annualized yield
of 12.0%.
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
$1,311,000 at March 31, 1998, versus $1,286,000 at December 31, 1997. At March
31, 1998, the allowance for credit losses was equal to 1.2% of gross loans
compared to 1.8% of gross loans at December 31, 1997. This percentage decrease
was because of an increase in the gross loan balance during 1998. On March 31,
1998, the Company purchased $24 million in loans. These loans will be used for
a loan securitization pool.
For the three months ended March 31, 1998, the provision for credit losses was
$60,000 representing a decrease of $20,000, or 25.0%, over a provision for
credit losses of $80,000 for the three months ended March 31, 1997. For the
three months ended March 31, 1998, losses charged to the allowance for credit
losses totaled $3,000. Recoveries, also, totaled $3,000 with the net effect
being no loans were charged to the allowance. For the three months ended March
31, 1997, net loans charged to the allowance was $113,000.
Nonaccrual loans decreased to $1,097,000 at March 31, 1998, compared to
$1,259,000 at December 31, 1997. This represented a decrease of $162,000, or
12.9%.
While management believes that the allowance was adequate at March 31, 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 months ended March 31,
1998, was $2,922,000. This represented an increase of $1,031,000, or 54.5%, over
other operating income of $1,891,000 for the three months ended March 31, 1997.
The increase was attributable to continued emphasis by the Company on generating
noninterest income. The Company has opened additional loan production offices
since March 1997, resulting in an increase in loan originations and sales
volume.
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.
<PAGE>
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 $3,537,000 for the three months ended March 31, 1998. This represented
an increase of $1,098,000, or 45.0%, over other operating expenses of $2,439,000
for the three months ended March 31, 1997. 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 on other operating expense of 45.0%
is offset by the 54.5% increase in other operating income. The Company's ratio
on noninterest income to noninterest expense for the first three months of 1998
was 82.6%, versus 77.5% for the same period of 1997.
BALANCE SHEET ANALYSIS
At March 31, 1998, total assets were $136,416,000 representing an increase of
$41,104,000, or 43.1%, from total assets of $95,312,000 at December 31, 1997.
Total deposits of $112,947,000 at March 31, 1998, increased $32,695,000, or
40.7%, from $80,252,000 at December 31, 1997. Net loans increased $34,299,000,
or 48.2%, from $71,164,000 at December 31, 1997, to $105,463,000 at March 31,
1998. This increase was because of a bulk purchase of $24 million in loans on
March 31, 1998. These loans will be used for a loan securitization. The
Company funded this purchase by increasing the rates on short-term time
deposits.
INVESTMENT SECURITIES
At March 31, 1998, investment securities (including federal funds sold) totaled
$20,661,000. This represented an increase of $5,965,000, or 40.6%, over total
investments of $14,696,000 at December 31, 1997. This increase was caused, in
part, by federal funds increasing $6,365,000, or 75.4%, from $8,440,000 at
December 31, 1997, to $14,805,000 at March 31, 1998. This increase was offset by
a decrease in securities, made up of U.S. Treasury Notes and Federal Reserve
Bank stock. Securities decreased $499,000, or 39.9%, from $1,250,000 at December
31, 1997, to $751,000 at March 31, 1998. The decrease is from the maturity of a
$500,000 Treasury Note, which was not replaced.
DEPOSITS AND OTHER BORROWINGS
At March 31, 1998, deposits totaled $112,947,000. This represented an increase
of $32,695,000, or 40.7%, 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; this brought in approximately $22 million, which was
used for funding the bulk purchase of loans.
<PAGE>
Noninterest bearing demand deposits totaled $20,043,000 at March 31, 1998. This
represented an increase of $4,910,000, or 32.4%, over noninterest bearing demand
deposits of $15,133,000 at December 31, 1997. Interest bearing demand deposits
totaled $92,904,000 at March 31, 1998. This represented an increase of
$27,785,000, or 42.7% over interest bearing demand deposits of $65,119,000 at
December 31, 1997.
The Company held $10,000,000 in federal funds purchased at March 31, 1998; there
were no such funds held 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 March 31, 1998, was 35.7% 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 $13,438,000 at March 31, 1998. The primary
source of capital for the Company has been the retention of net income. In
addition, the Company raised $2.8 million through a secondary stock offering in
1996. During the stock offering, 472,653 warrants were issued; these warrants
are exercisable at $8.75 for two shares of common stock and expire June 30,
1998. As of March 31, 1998, 120,304 warrants have been exercised, leaving
352,349 warrants, or $3.1 million in additional capital, that may be exercised.
This increased capital, if obtained, will be used for possible merger or
acquisition activity, as well as to allow continued internal growth.
On January 23, 1998, the Company announced a 2-for-1 stock split. This split
was effective for holders of record on February 3, 1998, and issued February 27,
1998.
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.
<PAGE>
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 March 31, 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 March 31, 1998, and December 31, 1997:
TABLE 1 - REGULATORY CAPITAL RATIOS
<TABLE>
<CAPTION>
MINIMUM
MINIMUM WELL
CAPITAL RATIOS REQUIREMENT CAPITALIZED MARCH 31, 1998 DECEMBER 31, 1997
- -------------------------- ------------ ------------ --------------- ------------------
<S> <C> <C> <C> <C>
Risk-based Capital Ratios:
Tier I. . . . . . . . . 4.00% 6.00% 10.33% 15.95%
Total . . . . . . . . . 8.00% 10.00% 11.55% 17.20%
Leverage Ratio . . . . . . 4.00% 5.00% 11.50% 12.02%
</TABLE>
<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.
Not Applicable
(b) The name of each director elected at the meeting.
Not Applicable
(c) Description of each matter voted upon and the number
of votes cast for, against or withheld.
Not Applicable
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.
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
Not Applicable
(b) Reports on Form 8-K
The Company filed Form 8-Ks for; the reorganization that resulted in the
formation of a bank holding company; and the signing of a definitive agreement
to acquire Palomar Savings and Loan Association.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statement of financial condition, the consolidated statement of
operations and notes thereto found in the Company's Form 10-Q for the quarter
ended March 31, 1998 and is qualified in its entirety by reference to such
financial statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,662,513
<INT-BEARING-DEPOSITS> 2,477,000
<FED-FUNDS-SOLD> 8,440,000
<TRADING-ASSETS> 2,528,587
<INVESTMENTS-HELD-FOR-SALE> 251,300
<INVESTMENTS-CARRYING> 998,451
<INVESTMENTS-MARKET> 0
<LOANS> 72,450,554
<ALLOWANCE> 1,285,852
<TOTAL-ASSETS> 95,312,445
<DEPOSITS> 80,252,439
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,931,142
<LONG-TERM> 0
0
0
<COMMON> 8,570,310
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 95,312,445
<INTEREST-LOAN> 7,349,925
<INTEREST-INVEST> 115,253
<INTEREST-OTHER> 544,254
<INTEREST-TOTAL> 8,009,432
<INTEREST-DEPOSIT> 2,910,450
<INTEREST-EXPENSE> 2,910,450
<INTEREST-INCOME-NET> 5,098,982
<LOAN-LOSSES> 260,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 11,523,906
<INCOME-PRETAX> 2,747,291
<INCOME-PRE-EXTRAORDINARY> 2,747,291
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,588,940
<EPS-PRIMARY> .53
<EPS-DILUTED> .44
<YIELD-ACTUAL> 0
<LOANS-NON> 1,259,107
<LOANS-PAST> 631,000
<LOANS-TROUBLED> 2,375,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,409,321
<CHARGE-OFFS> 400,745
<RECOVERIES> 17,276
<ALLOWANCE-CLOSE> 1,285,852
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
