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 Quarter Ended June 30, 1999 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: 5,409,568 outstanding as of
June 30, 1999
This Form 10-Q contains 22 pages.
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
COMMUNITY WEST BANCSHARES
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------------
ASSETS June 30, 1999 December 31, 1998
(unaudited) (audited)
<S> <C> <C>
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,281,000 $ 6,124,000
Federal funds sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,127,000 43,355,000
--------------- -------------------
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . 70,408,000 49,479,000
Time deposits in other financial institutions . . . . . . . . . . . . . . 4,000,000 1,500,000
Federal Reserve Bank and Federal Home Loan Bank stock, at cost. . . . . . 763,000 810,000
Investment securities held to maturity, at amortized cost; fair value
of $500,000 at June 30, 1999 and $503,000 at December 31, 1998. . . . . 500,000 501,000
Investment securities available for sale, at fair value (cost $5,979,000) 5,873,000 8,295,000
Investment securities held for trading, at fair value . . . . . . . . . . 24,486,000 10,915,000
Servicing assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,405,000 1,472,000
Loans
Held for investment, net of allowance for loan
losses of $2,492,000 in 1999 and $2,129,000 in 1998 . . . . . . . . 105,310,000 107,099,000
Available for sale, at lower of cost or fair value . . . . . . . . . . 95,485,000 58,836,000
Other real estate owned, net. . . . . . . . . . . . . . . . . . . . . . . 403,000 241,000
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . 4,924,000 4,539,000
Accrued interest receivable and other assets. . . . . . . . . . . . . . . 10,513,000 8,347,000
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 325,070,000 $ 252,034,000
=============== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing demand . . . . . . . . . . . . . . . . . . . . . . $ 19,946,000 $ 19,487,000
Interest-bearing demand. . . . . . . . . . . . . . . . . . . . . . . . 23,391,000 19,976,000
Savings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,629,000 26,861,000
Time certificates of $100,000 or more. . . . . . . . . . . . . . . . . 89,648,000 61,742,000
Other time certificates. . . . . . . . . . . . . . . . . . . . . . . . 133,756,000 95,479,000
--------------- -------------------
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . 293,370,000 223,545,000
Accrued interest payable and other liabilities. . . . . . . . . . . . . . 5,425,000 3,936,000
--------------- -------------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 298,795,000 227,481,000
--------------- -------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, no par value; 10,000,000 shares authorized;
5,547,005 and 5,479,710 shares issued and outstanding at
June 30, 1999 and December 31, 1998 . . . . . . . . . . . . . . . . . . 17,518,000 17,304,000
Less: Treasury stock, at cost 137,437 shares at June 30, 1999
and 14,807 shares at December 31, 1998. . . . . . . . . . . . . . . . . (1,236,000) (141,000)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,055,000 7,393,000
Accumulated other comprehensive loss. . . . . . . . . . . . . . . . . . . (62,000) (3,000)
--------------- -------------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . 26,275,000 24,553,000
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 325,070,000 $ 252,034,000
=============== ===================
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY WEST BANCSHARES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
- -------------------------------------------------------------------------------------------------
For the Three Months For the Six Months
Ended June 30 Ended June 30
1999 1998 1999 1998
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees. . . . . . . . . . . . . $7,241,000 $4,785,000 $12,452,000 $7,856,000
Federal funds sold . . . . . . . . . . . . . . 368,000 174,000 552,000 358,000
Time deposits in other financial institutions. 5,000 37,000 20,000 91,000
Investment securities. . . . . . . . . . . . . 531,000 242,000 922,000 486,000
---------- ---------- ----------- ----------
Total interest income. . . . . . . . . 8,145,000 5,238,000 13,946,000 8,791,000
INTEREST EXPENSE ON DEPOSITS . . . . . . . . . . 3,588,000 2,302,000 6,152,000 3,976,000
---------- ---------- ----------- ----------
NET INTEREST INCOME. . . . . . . . . . . . . . . 4,557,000 2,936,000 7,794,000 4,815,000
PROVISION FOR LOAN LOSSES. . . . . . . . . . . . 1,080,000 103,000 1,420,000 164,000
---------- ---------- ----------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES . . . . . . . . . . . . . . . . . . . . 3,477,000 2,833,000 6,374,000 4,651,000
OTHER INCOME:
Gains from loan sales. . . . . . . . . . . . . 6,131,000 1,332,000 9,488,000 2,781,000
Loan origination fees - sold or brokered loans 750,000 1,005,000 1,605,000 1,827,000
Document processing fees . . . . . . . . . . . 569,000 388,000 1,173,000 707,000
Service charges. . . . . . . . . . . . . . . . 140,000 256,000 267,000 493,000
Other income . . . . . . . . . . . . . . . . . 347,000 574,000 463,000 840,000
---------- ---------- ----------- ----------
Total other income . . . . . . . . . . 7,937,000 3,555,000 12,996,000 6,648,000
---------- ---------- ----------- ----------
OTHER EXPENSES:
Salaries and employee benefits . . . . . . . . 5,262,000 3,168,000 9,514,000 5,703,000
Occupancy expense. . . . . . . . . . . . . . . 998,000 667,000 1,814,000 1,231,000
Other operating expenses . . . . . . . . . . . 860,000 417,000 1,289,000 749,000
Professional services. . . . . . . . . . . . . 272,000 207,000 475,000 339,000
Advertising expense. . . . . . . . . . . . . . 200,000 153,000 402,000 315,000
Data processing/ ATM processing. . . . . . . . 148,000 79,000 259,000 143,000
Postage and freight. . . . . . . . . . . . . . 105,000 123,000 176,000 322,000
Office supply expense. . . . . . . . . . . . . 81,000 50,000 144,000 102,000
---------- ---------- ----------- ----------
Total other expenses . . . . . . . . . 7,926,000 4,864,000 14,073,000 8,904,000
---------- ---------- ----------- ----------
INCOME BEFORE PROVISION FOR INCOME
TAXES . . . . . . . . . . . . . . . . . . . . 3,488,000 1,524,000 5,297,000 2,395,000
PROVISION FOR INCOME TAXES . . . . . . . . . . . 1,449,000 562,000 2,202,000 879,000
---------- ---------- ----------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . . $2,039,000 $ 962,000 $ 3,095,000 $1,516,000
========== ========== =========== ==========
NET INCOME PER SHARE (Note 5):
BASIC . . . . . . . . . . . . . . . . . . . . $ .38 $ .20 $ .57 $ .32
========== ========== =========== ==========
DILUTED . . . . . . . . . . . . . . . . . . . $ .37 $ .19 $ .56 $ .31
========== ========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY WEST BANCSHARES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------
For the Six Months
Ended June 30,
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,095,000 $ 1,516,000
Adjustments to reconcile net income to net cash used in operating activities:
Provision for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . 1,420,000 164,000
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . 748,000 491,000
Provisions for deferred income taxes . . . . . . . . . . . . . . . . . . . . - (152,000)
Loss on disposal of fixed assets . . . . . . . . . . . . . . . . . . . . . . 22,000 -
Loss (Gain) on sale / write down of other real estate owned. . . . . . . . . 135,000 (26,000)
Gain on sale of loans held for sale. . . . . . . . . . . . . . . . . . . . . (9,488,000) (2,781,000)
Origination of servicing and interest only strip assets, net of amortization (13,883,000) (1,197,000)
Gain on early retirement of debt . . . . . . . . . . . . . . . . . . . . . . - (14,000)
FRB/FHLB stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . (15,000) (19,000)
Changes in operating assets and liabilities:
Accrued interest receivable and other assets . . . . . . . . . . . . . . . (2,744,000) (1,535,000)
Accrued interest payable and other liabilities . . . . . . . . . . . . . . 1,489,000 (1,611,000)
------------- -------------
Net cash used in operating activities . . . . . . . . . . . . . . . . . (19,221,000) (5,164,000)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of held-to-maturity securities . . . . . . . . . . . . . . . . . . . - (516,000)
Purchase of available-for-sale securities . . . . . . . . . . . . . . . . . . - (3,029,000)
Purchase of FRB stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . (38,000) -
Paydown of principal on available-for-sale securities . . . . . . . . . . . . 2,302,000 1,469,000
Maturities of held-to-maturity securities . . . . . . . . . . . . . . . . . . - 1,000,000
Redemption of FHLB stock. . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 -
Net (increase) decrease in time deposits in other financial institutions. . . (2,500,000) 1,901,000
Net increase in loans and loans held for sale . . . . . . . . . . . . . . . . (27,089,000) (49,785,000)
Proceeds from sale of other real estate owned . . . . . . . . . . . . . . . . - 113,000
Proceeds from early retirement of debt. . . . . . . . . . . . . . . . . . . . - 750,000
Purchase of premises and equipment. . . . . . . . . . . . . . . . . . . . . . (1,136,000) (802,000)
------------- -------------
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . (28,361,000) (48,899,000)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, and savings accounts. . . . . . . . . . . . . . 3,642,000 3,667,000
Net increase in time certificates. . . . . . . . . . . . . . . . . . . . . . . . 66,183,000 49,098,000
Retirement of stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (10,000)
Exercise of stock warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . - 3,807,000
Exercise of stock options. . . . . . . . . . . . . . . . . . . . . . . . . . . . 214,000 193,000
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,095,000) -
Cash dividends paid in lieu of stock dividend. . . . . . . . . . . . . . . . . . - (1,000)
Cash dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (433,000) -
------------- -------------
Net cash provided by financing activities. . . . . . . . . . . . . . . . . 68,511,000 56,754,000
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS. . . . . . . . . . . . . . . . . . . . . 20,929,000 2,691,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD. . . . . . . . . . . . . . . . . . . 49,479,000 18,837,000
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . $ 70,408,000 $ 21,528,000
============= =============
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,650,000 $ 3,171,000
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,579,000 $ 692,000
Supplemental Disclosure of Noncash Investing Activity:
Transfers to other real-estate owned . . . . . . . . . . . . . . . . . . . . . . . $ 297,000 $ -
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
COMMUNITY WEST BANCSHARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 1999
1. 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, 1999, are
not necessarily indicative of results which may be expected for any other
interim period or for the year as a whole. Certain reclassifications have been
made in the 1998 financial information to conform to the presentation used in
1999.
2. Summary of Significant Accounting Policies. See Note 1 of the Notes to
Financial Statements in Community West Bancshares' (the "Company") 1998 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 and its subsidiaries, 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 - Loans that are originated and are intended for sale in the
secondary market, are carried at the lower of cost or fair value on an aggregate
basis. Funding for SBA 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.
Investment Securities - The Company classifies as held to maturity those
debt securities it has the positive intent and ability to hold to maturity.
Securities held to maturity are accounted for at cost and adjusted for
amortization of premiums and accretion of discounts. Securities to be held for
indefinite periods of time, but not necessarily to be held-to-maturity or on a
long term basis are classified as available-for-sale and carried at fair value
with unrealized gains or losses reported as a separate component of accumulated
other comprehensive income, net of any applicable income taxes. Realized gains
or losses on the sale of securities available-for-sale, if any, are determined
on a specific identification basis.
5
<PAGE>
Investment Securities, Held for Trading-Interest Only Strips - The Company
originates certain loans for the purpose of selling either a portion or all of
the loan into either the secondary market or a securitization. The guaranteed
portion of SBA loans and FHA Title 1 loans may be sold into the secondary
market, servicing retained. Second mortgages ("HLTV") loans may be sold into
securitizations. On these sales, the Company retains interest only ("I/O")
strips, which represent 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. Loan sales are discussed in detail in Note 3.
The I/O Strips are subject to significant prepayment risk, and accordingly
have an undetermined maturity date; and therefore cannot be classified as held
to maturity. The Company has chosen to classify these assets 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 or losses 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 marked to market on a quarterly basis. The Company may retain the
right to service loans it originates, or purchases, and subsequently sells.
3. Loan Sales
HLTV Loan Sales
- -----------------
During June 1999, the Company completed the securitization of a $122 million
pool of HLTV loans. The Company retained a residual participation interest in
the investor trust, reflecting the excess of the total amount of loans
transferred to the trust over the portion represented by certificates sold to
investors. As a result of the securitization, the Company also recorded
interest-only strips (I/O Strips). The present value of these assets was
calculated assuming a 13% discount rate, annual losses of 2.25%, and an 18.25%
conditional prepayment rate (CPR). As of June 30, 1999, the Company had
recorded a receivable from the underwriter of the securitization for $3 million,
which represents the amount due to the Company upon the final sale of the
remaining bonds.
As of December 31, 1998, the Company had $24 million in HLTV loans held for
sale. As of June 30, 1999, the Company had $77 million in HLTV loans held for
sale.
6
<PAGE>
SBA Loan Sales
- ----------------
The Company sells the guaranteed portion of Small Business Administration
("SBA") loans into the secondary market in exchange for cash premium, servicing
assets, and I/O strips. The Company retains the servicing rights. The present
value of the interest only strips and servicing assets was calculated assuming
an 11% discount rate, and an 8% CPR.
As of December 31, 1998, the Company had approximately $5 million in SBA loans
held for sale. As of June 30, 1999, the Company had approximately
$6 million in SBA loans held for sale.
FHA Title 1 Loan Sales
- --------------------------
Since 1995, the Company has sold FHA Title 1 loans into the secondary market, on
a whole loan basis, in exchange for cash premium, servicing assets, and I/O
strips. The Company retains the servicing rights. In 1999, the present value
of the interest only strips was calculated assuming a 11% discount rate, and a
15% CPR.
As of December 31, 1998, and June 30, 1999, the Company had approximately
$1 million in FHA Title 1 loans held for sale.
Traditional Mortgages
- ----------------------
Amount represents servicing purchased in 1998.
The balances of these assets are as follows:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------------------- -------------------------
Servicing Servicing
Asset I/O Strip Asset I/O Strip
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
HLTV. . . . . . . . . . . $ 620,000 $ 20,658,000 $ - $ 8,150,000
Guaranteed Portion of SBA 1,566,000 2,549,000 1,194,000 1,030,000
FHA Title 1 . . . . . . . 3,000 1,279,000 22,000 1,735,000
Traditional Mortgages . . 216,000 - 256,000 -
---------- ------------- ---------- -------------
Total . . . . . . . . . . $2,405,000 $ 24,486,000 $1,472,000 $ 10,915,000
========== ============= ========== =============
</TABLE>
7
<PAGE>
4. 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, 1999, the Company had entered
into commitments with certain customers amounting to $17.3 million compared to
$20.5 million at December 31, 1998. There were $78,000 of letters of credit
outstanding at June 30, 1999; there were no letters of credit outstanding at
December 31, 1998.
5. Net income per share - Basic, has been computed based on the weighted
average number of shares outstanding during each period. 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 granted options.
Earnings per share were computed as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
----------------------
June 30, June 30,
1999 1998
---------- ----------
<S> <C> <C>
Basic weighted average shares outstanding . 5,372,534 4,832,673
Dilutive effect of options. . . . . . . . . 109,280 212,819
---------- ----------
Diluted weighted average shares outstanding 5,481,814 5,045,492
========== ==========
Net income. . . . . . . . . . . . . . . . . $2,039,000 $ 962,000
Net income per share - Basic. . . . . . . . $ 0.38 $ 0.20
Net income per share - Diluted. . . . . . . $ 0.37 $ 0.19
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended
----------------------
June 30, June 30,
1999 1998
---------- ----------
<S> <C> <C>
Basic weighted average shares outstanding . 5,383,622 4,694,798
Dilutive effect of options. . . . . . . . . 96,063 212,819
---------- ----------
Diluted weighted average shares outstanding 5,479,685 4,907,617
========== ==========
Net income. . . . . . . . . . . . . . . . . $3,095,000 $1,516,000
Net income per share - Basic. . . . . . . . $ 0.57 $ 0.32
Net income per share - Diluted. . . . . . . $ 0.56 $ 0.31
</TABLE>
On April 26, 1999, the Company paid a quarterly dividend of $0.04 for
shareholders of record as of April 12, 1999. The Company also declared a
quarterly dividend of $0.04 for shareholders of record on July 9, 1999, payable
on July 20, 1999. Each quarterly dividend totaled approximately $220,000.
8
<PAGE>
6. The Company adopted Statement of Financial Accounting Standards No. 131
("SFAS 131"), Disclosures about Segments of an Enterprise and Related
Information in 1998. SFAS 131 established standards for reporting information
about operating segments. The June 30, 1999, and 1998 information is presented
in the following table.
The Company's management, while managing the overall company, also, looks at
individual areas considered "significant" to revenue and net income. These
significant areas, or segments, are: SBA Lending, Alternative Lending, the
Mortgage Division, Goleta National Bank Branch Operations, and Palomar Savings
and Loan. For this discussion, the remaining divisions are considered immaterial
and are consolidated into "Other." The Other segment includes the administration
areas, human resources, and tech support, along with others. The accounting
policies of the individual segments are the same as those described in the
summary of significant accounting policies.
The SBA Lending, Alternative Lending, and Mortgage Divisions from Goleta
National Bank are considered individual segments because of the different loan
products involved and the significance of the associated revenue. Goleta
National Bank Branch Operation, includes the deposits and commercial lending.
Management analyzes Palomar separately from Goleta National Bank, as they are
two different subsidiaries under Community West Bancshares.
All of the Company's assets and operations are located within the United States.
The assets shown for each segment are estimates.
9
<PAGE>
The following table sets forth various revenue and expense items that management
relies on in decision making.
<TABLE>
<CAPTION>
Goleta National Palomar
Six Months Ended SBA Alternative Mortgage Bank Branch Savings Consolidated
JUNE 30, 1999 Lending Lending Division Operations and Loan Other Total
---------------- ------------ ---------- ------------ ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income. . . . . . $ 1,339,000 $ 6,593,000 $ 410,000 $ 2,589,000 $ 3,015,000 $ - $ 13,946,000
Interest Expense . . . . . 557,000 2,744,000 171,000 1,077,000 1,603,000 - 6,152,000
---------------- ------------ ---------- ------------ ----------- -------------- ------------
Net Interest Income. . . . 782,000 3,849,000 239,000 1,512,000 1,412,000 - 7,794,000
Provision For Loan Losses 168,000 826,000 51,000 325,000 50,000 - 1,420,000
Noninterest Income . . . . 2,991,000 4,520,000 2,557,000 202,000 521,000 2,205,000 12,996,000
Noninterest Expense. . . . 1,518,000 2,861,000 2,331,000 1,118,000 1,471,000 4,774,000 14,073,000
---------------- ------------ ---------- ------------ ----------- -------------- ------------
Segment Profit . . . . . . $ 2,087,000 $ 4,682,000 $ 414,000 $ 271,000 $ 412,000 $ (2,569,000) $ 5,297,000
================ ============ ========== ============ =========== ============== ============
JUNE 30, 1999
Segment Assets . . . . . . $ 33,954,000 $106,295,000 $7,549,000 $ 94,516,000 $78,315,000 $ 4,441,000 $325,070,000
================ ============ ========== ============ =========== ============== ============
</TABLE>
<TABLE>
<CAPTION>
Goleta National Palomar
Six Months Ended SBA Alternative Mortgage Bank Branch Savings Consolidated
JUNE 30, 1998 Lending Lending Division Operations and Loan Other Total
---------------- ------------ ----------- ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income. . . . . . $ 1,302,000 $ 1,374,000 $ 360,000 $ 2,978,000 $ 2,777,000 $ - $ 8,791,000
Interest Expense . . . . . 491,000 518,000 136,000 1,121,000 1,710,000 - 3,976,000
---------------- ------------ ----------- ------------ ------------ -------------- ------------
Net Interest Income. . . . 811,000 856,000 224,000 1,857,000 1,067,000 - 4,815,000
Provision For Loan Losses 61,000 64,000 17,000 138,000 (116,000) - 164,000
Noninterest Income . . . . 1,700,000 1,503,000 2,374,000 239,000 440,000 392,000 6,648,000
Noninterest Expense. . . . 820,000 1,680,000 2,073,000 502,000 1,050,000 2,779,000 8,904,000
---------------- ------------ ----------- ------------ ------------ -------------- ------------
Segment Profit . . . . . . $ 1,630,000 $ 615,000 $ 508,000 $ 1,456,000 $ 573,000 $ (2,387,000) $ 2,395,000
================ ============ =========== ============ ============ ============== ============
JUNE 30, 1998
Segment Assets . . . . . . $ 29,175,000 $ 54,719,000 $12,275,000 $ 51,797,000 $79,491,000 $ 24,577,000 $252,034,000
================ ============ =========== ============ ============ ============== ============
</TABLE>
7. In October 1998, FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise." SFAS No. 134 amends SFAS No.
65, "Accounting for Certain Mortgage Banking Activities," which establishes
accounting and reporting standards for certain activities of mortgage banking
enterprises and other enterprises that conduct operations that are substantially
similar. SFAS No. 134 requires that after the securitization of mortgage loans
held for sale, the resulting mortgage-backed securities and other retained
interests should be classified in accordance with SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," based on the company's
ability and intent to sell or hold those investments. SFAS No. 134 is effective
for the first fiscal quarter beginning after December 15, 1998. The adoption of
SFAS No. 134 did not have a material impact on the Bank's results of operations
or financial position.
10
<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
For the Second Quarter Ended June 30
- ------------------------------------------
The following table sets forth for the periods indicated, certain items in the
consolidated statements of income of the Company and the related changes between
those periods:
<TABLE>
<CAPTION>
For the Three Months Ended
----------------------
June 30, June 30, Amount of Percent of
1999 1998 Increase Increase
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Interest Income. . . . . . . $8,145,000 $5,238,000 $2,907,000 55.5%
Interest Expense . . . . . . 3,588,000 2,302,000 1,286,000 55.9%
---------- ---------- ----------
Net Interest Income . . . 4,557,000 2,936,000 1,621,000 55.2%
Provision for Loan Losses. . 1,080,000 103,000 977,000 948.5%
---------- ---------- ----------
Net Interest Income after
Provision for Loan Losses 3,477,000 2,833,000 644,000 22.7%
Other Income . . . . . . . . 7,937,000 3,555,000 4,382,000 123.3%
Other Expense. . . . . . . . 7,926,000 4,864,000 3,062,000 63.0%
---------- ---------- ----------
Income before Provision
for Income Taxes. . . . . 3,488,000 1,524,000 1,964,000 128.9%
Provision for Income Taxes . 1,449,000 562,000 887,000 157.8%
---------- ---------- ----------
Net Income. . . . . . . . $2,039,000 $ 962,000 $1,077,000 112.0%
========== ========== ==========
Net Income Per Share - Basic $ 0.38 $ 0.20 $ 0.18 90.0%
========== ========== ==========
Net Income Per Share -
Diluted . . . . . . . . . $ 0.37 $ 0.19 $ 0.18 94.7%
========== ========== ==========
</TABLE>
Net Income Per Share -- Basic is calculated using weighted average number of
shares outstanding for the period. Net Income Per Share -- Diluted 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 32.1% for the three months ended
June 30, 1999, and 18.9% for the three months ended June 30, 1998.
11
<PAGE>
For the Six Months Ended June 30
- --------------------------------------
The following table sets forth for the periods indicated, certain items in the
consolidated statements of income of the Company and the related changes between
those periods:
<TABLE>
<CAPTION>
For the Six Months Ended
-----------------------
June 30, June 30, Amount of Percent of
1999 1998 Increase Increase
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Interest Income. . . . . . . $13,946,000 $8,791,000 $5,155,000 58.6%
Interest Expense . . . . . . 6,152,000 3,976,000 2,176,000 54.7%
----------- ---------- ----------
Net Interest Income . . . 7,794,000 4,815,000 2,979,000 61.9%
Provision for Loan Losses. . 1,420,000 164,000 1,256,000 765.9%
----------- ---------- ----------
Net Interest Income after
Provision for Loan Losses 6,374,000 4,651,000 1,723,000 37.0%
Other Income . . . . . . . . 12,996,000 6,648,000 6,348,000 95.5%
Other Expense. . . . . . . . 14,073,000 8,904,000 5,169,000 58.1%
----------- ---------- ----------
Income before Provision
for Income Taxes. . . . . 5,297,000 2,395,000 2,902,000 121.2%
Provision for Income Taxes . 2,202,000 879,000 1,323,000 150.5%
----------- ---------- ----------
Net Income. . . . . . . . $ 3,095,000 $1,516,000 $1,579,000 104.2%
=========== ========== ==========
Net Income Per Share - Basic $ 0.57 $ 0.32 $ 0.25 78.1%
=========== ========== ==========
Net Income Per Share -
Diluted . . . . . . . . . $ 0.56 $ 0.31 $ 0.25 80.6%
=========== ========== ==========
</TABLE>
The annualized return on average equity was 24.4% for the six months ended June
30, 1999, and 14.9% for the six months ended June 30, 1998.
The book value per share increased from $4.48 at December 31, 1998, to $4.86 at
June 30, 1999.
Average assets for the six months ended June 30, 1999, were $288,552,000
compared to $202,261,000 for the same period in 1998; average equity increased
to $25,414,000 for the six months ended June 30, 1999, from $20,414,000 for the
same period in 1998.
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 6.7% for the three months ended June 30,
1999, compared to an annualized net interest margin of 6.1% for the three months
ended June 30, 1998. The annualized net interest margin was 5.7% for the six
months ended June 30, 1999, compared to an annualized net interest margin of
5.0% for the six months ended June 30, 1998. Earning assets averaged
$272,130,000 for the six months ended June 30, 1999. This represented an
increase of $78,578,000, or 40.6%, over average earning assets of $193,552,000
for the six months ended June 30, 1998. The increase was primarily a result of a
206% increase in cash and federal funds sold at June 30, 1999, from June 30,
1998. During the second quarter of 1999, the Company completed the
securitization of $122 million in HLTV loans. While holding these loans the
Company recognizes substantial interest income that has had the effect of
increasing the Company's net interest margin.
12
<PAGE>
The net interest income figures above include income from the Company's
securities. The following table shows the interest and fees and corresponding
yields for loans only.
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Interest and Fees $ 7,241,000 $ 4,785,000 $ 12,452,000 $ 7,856,000
Average Loans . . 183,365,000 154,445,000 183,365,000 154,445,000
Annualized Yield. 15.8% 12.4% 13.6% 10.2%
</TABLE>
CREDIT LOSS EXPERIENCE
As a natural corollary to the Company's lending activities, some loan losses are
experienced. The risk of loss varies with the type of loan being made and the
creditworthiness of the borrower over the term of the loan. The degree of
perceived risk is taken into account in establishing the structure of, and
interest rates and security for, specific loans and for various types of loans.
The Company attempts to minimize its credit risk exposure by use of thorough
loan application and approval procedures.
The Company maintains a program of systematic review of its existing loans.
Loans are graded for their overall quality. Those loans which the Company's
management determines require further monitoring and supervision are segregated
and reviewed on a periodic basis. Significant problem loans are reviewed on a
monthly basis by the Company's Loan Committee.
The Company charges off that portion of any loan which management considers to
represent a loss. A loan is generally considered by management to represent a
loss in whole or in part when an exposure beyond any collateral value is
apparent, servicing of the unsecured portion has been discontinued or collection
is not anticipated based on the borrower's financial condition and general
economic conditions in the borrower's industry. The principal amount of any loan
which is declared a loss is charged against the Company's allowance for loan
losses.
The Company's allowance for loan losses is designed to provide for loan losses
which can be reasonably anticipated. The allowance for loan losses is
established through charges to operating expenses in the form of provisions for
loan losses. Actual loan losses or recoveries are charged or credited, directly
to the allowance for loan losses. The amount of the allowance is determined by
management of the Company. Among the factors considered in determining the
allowance for loan losses are the current financial condition of the Company's
borrowers and the value of the security, if any, for their loans. Estimates of
future economic conditions and their impact on various industries and individual
borrowers are also taken into consideration, as are the Company's historical
13
<PAGE>
loan loss experience and reports of banking regulatory authorities. Because
these estimates, factors and evaluations are primarily judgmental, no assurance
can be given as to whether or not the Company will sustain loan losses
substantially higher in relation to the size of the allowance for loan losses or
that subsequent evaluation of the loan portfolio may not require substantial
changes in such allowance.
The following table summarizes the Company's allowance for loan loss for the
dates indicated:
<TABLE>
<CAPTION>
Amount of Percent of
December Increase Increase
June 30, 1999 31, 1998 (Decrease) (Decrease)
--------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
BALANCES:
Gross loans. . . . . . . . . . . . . . . . . . $ 203,287,000 $168,064,000 $35,223,000 21.0%
Allowance for loan losses. . . . . . . . . . . 2,492,000 2,129,000 363,000 17.1%
Nonaccrual loans . . . . . . . . . . . . . . . 2,166,000 2,971,000 (805,000) (27.1%)
RATIOS:
Allowance for loan losses to gross loans . . . 1.23% 1.27%
Net loans charged to allowance for loan losses 26.4% 17.2%
</TABLE>
The provision for loan losses was $1,420,000 for the six months ended June 30,
1999. This is an increase of $1,256,000, or 765.9%, over the $164,000 for the
six months ended June 1998, primarily to reflect the classification of two loans
in the commercial portfolio, which management believes were isolated
occurrences. Gross loans outstanding increased 11.4% from June 1998 to June
1999. For the six months ended June 30, 1999, losses charged to the allowance
for loan losses totaled $1,064,000. This was offset by $7,000 recovery; with
the net effect being $1,057,000 loans were charged to the allowance.
Management of the Company reviews with the Board of Directors the adequacy of
the allowance for possible loan losses on a quarterly basis. The loan loss
provision is adjusted when specific items reflect a need for such an adjustment.
Management believes that there were no material loan losses during the last
fiscal year that has not been charged off. Management also believes that the
Company has adequately provided for all individual items in its portfolio which
may result in a material loss to the Company.
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 June 30, 1999,
increased 123.3% over the three months ended June 30, 1998. Other operating
income for the six months ended June 30, 1999, increased 95.5% over the six
months ended June 30, 1998. A significant part of this increase was from gains
on the sale of loans; which increased 241.2%. This increase was primarily
because the Company completed the securitization of $122 million in HLTV loans
in the second quarter of 1999. The Company continued to emphasize the generation
of noninterest income. The Company's percentage coverage of other expenses with
other income was 92.3% for the six months ended June 30, 1999, an increase from
74.7% for the same period in 1998.
14
<PAGE>
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, increasing the cost of occupying the Company's offices.
Although compensation expenses have grown, 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 for the three months ended June 30, 1999, increased
63.0% over the three months ended June 30, 1998. Other operating expenses for
the six months ended June 30, 1999, increased 58.1% over the six months ended
June 30, 1998. The increase in other expenses for the periods compared was
primarily because of compensation related to loan originations and sales, the
continued upgrading of data processing hardware and software, and an increase in
occupancy costs. The increase in other operating expense of 58.1% was offset by
the 95.5% increase in other operating income.
<TABLE>
<CAPTION>
BALANCE SHEET ANALYSIS
Amount of Percent of
June 30, December Increase Increase
1999 31 , 1998 (Decrease) (Decrease)
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents. $ 70,408,000 $ 49,479,000 $20,929,000 42.3%
Investment Securities. . . 35,622,000 22,021,000 13,601,000 61.8%
Loans, held for investment 105,310,000 107,099,000 (1,789,000) (1.7%)
Loans, held for sale . . . 95,485,000 58,836,000 36,649,000 62.3%
Total Assets . . . . . . . 325,070,000 252,034,000 73,036,000 29.0%
Total Deposits . . . . . . 293,370,000 223,545,000 69,825,000 31.2%
Total Stockholders' Equity 26,275,000 24,553,000 1,722,000 7.0%
</TABLE>
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are made up of cash and federal funds sold. The
increase of 42.3% is because the Company completed the securitization of $122
million in HLTV loans in the second quarter of 1999, increasing the available
cash.
INVESTMENT SECURITIES
The investment securities are made up of time deposits held in other financial
institutions, Federal Reserve Bank and Federal Home Loan Bank stock, U.S.
Treasury Notes and Bills, mortgage-backed securities and interest only strips.
The increase of 61.8% is from the loan securitization completed in June 1999.
The securitization created another interest only strip of $12 million.
15
<PAGE>
LOANS
The 58.4% increase in loans held for sale is because of increased demand for
loans offered by the Company.
DEPOSITS
The following shows the balance and percentage change in the various deposits:
<TABLE>
<CAPTION>
Amount of Percent of
June 30, December Increase Increase
1999 31, 1998 (Decrease) (Decrease)
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Noninterest-Bearing Deposits. . $ 19,946,000 $ 19,487,000 $ 459,000 2.4%
Interest-Bearing Deposits . . . 23,391,000 19,976,000 3,415,000 17.1%
Savings . . . . . . . . . . . . 26,629,000 26,861,000 (232,000) (0.9%)
Time Certificates over $100,000 89,648,000 61,742,000 27,906,000 45.2%
Other Time Certificates . . . . 133,756,000 95,479,000 38,277,000 40.1%
------------ ------------ ------------ -----------
Total Deposits. . . . . . . . . $293,370,000 $223,545,000 $69,825,000 31.2%
============ ============ ============ ===========
</TABLE>
The increase in deposits is a result of the Company using short-term time
deposits, along with available cash, to fund the planned increase in loans
available for sale.
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, 1999, was 61.3% and at December 31, 1998, was 51.7%, based on liquid
assets (consisting of cash and due from banks, federal funds sold, deposits in
other financial institutions, investments, and loans held for sale) divided by
total assets. Management believes it maintains adequate liquidity levels.
At times when the Company has more funds than it needs for its reserve
requirements or short term liquidity needs, the Company increases its securities
investments and sells federal funds. It is management's policy to maintain a
substantial portion of its portfolio of assets and liabilities on a short-term
or highly liquid basis in order to maintain rate flexibility and to meet loan
funding and liquidity needs. The Company has two federal funds lines of credit
with its correspondent banks totaling $14,500,000. In addition, the Company has
a line of credit with the Federal Home Loan Bank. This line had $20,100,000
available at June 30, 1999.
CAPITAL RESOURCES
The Company's equity capital was $26,275,000 at June 30, 1999. The primary
source of capital for the Company has been the retention of net income.
On April 26, 1999, the Company paid a quarterly cash divided of $.04 per share
for shareholders of record on April 12, 1999. Also, on January 20, 1999, the
Company paid a quarterly cash divided of $.04 per share for shareholders of
record on January 5, 1999. On December 28, 1998, the Board of Directors of the
16
<PAGE>
Company authorized a stock buy-back plan. Under this plan management is
authorized to repurchase up to $2,000,000 worth of the outstanding shares of its
common stock . As of June 30, 1999, management had repurchased 137,437 shares of
common stock at a cost of $1,236,000. As of December 31, 1998, management had
repurchased 14,807 shares of common stock at a cost of $141,000. Additionally,
on June 24, 1999, the Company declared a quarterly cash divided of $.04 per
share for shareholders of record on July 9, 1999, to be paid on July 20, 1999.
Since the Company acquired a 70% interest in Electronic Paycheck (EP) during the
fourth quarter of 1997, EP has continued to develop its proprietary software and
card systems. The software, based on internet protocol, is currently being
utilized for payments in the payroll, cruise line, network marketing, bill
paying and check cashing industries. In addition, EP is now in the testing
phase of a process to use its software and cards as part of a national loyalty
card program, whereby customers earn reward points by patronizing participating
merchants. EP has recently announced major contracts in the network marketing
and loyalty card industries. EP is now in the process of converting from a
development stage company to an operational company. As this transition is made
it is expected that EP will need additional capital in order to finance the
anticipated growth. The Company is currently exploring the various methods
available to supply the needed cash. EP may need to tap the equity markets,
possibly in the form of an IPO, although management of the Company may very well
consider a private placement of EP debt or equity first. The actual timing or
nature of any potential offering has not been determined at this time.
Management is consulting with its financial and legal advisors to best address
these cash needs.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios of Total and Tier I
capital (primarily common stock and retained earnings less goodwill) to
risk-weighted assets, and of Tier I capital to average assets. Management
believes, as of June 30, 1999, that the Company meets all capital adequacy
requirements to which it is subject.
The Company's actual capital amounts and ratios for the periods indicated are as
follows:
17
<PAGE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999: To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- ------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted assets)
CONSOLIDATED . . . . . . . . . . . . . . . $28,178,000 11.48% $19,636,000 8.00% $24,545,000 10.00%
Goleta National Bank . . . . . . . . . . . $20,240,000 10.60% $15,275,000 8.00% $19,094,000 10.00%
Palomar Savings and Loan . . . . . . . . . $ 6,687,000 13.09% $ 4,087,000 8.00% $ 5,108,000 10.00%
Tier I Capital (to Risk Weighted assets)
CONSOLIDATED . . . . . . . . . . . . . . . $25,686,000 10.46% $ 9,823,000 4.00% $14,734,000 6.00%
Goleta National Bank . . . . . . . . . . . $18,328,000 9.60% $ 7,637,000 4.00% $11,455,000 6.00%
Palomar Savings and Loan . . . . . . . . . $ 6,107,000 11.95% N/A N/A $ 3,066,000 6.00%
Tier I Capital (to Average Assets)
CONSOLIDATED . . . . . . . . . . . . . . . $25,686,000 8.92% $11,518,000 4.00% $14,398,000 5.00%
Goleta National Bank . . . . . . . . . . . $18,328,000 8.39% $ 8,738,000 4.00% $10,923,000 5.00%
Core Capital (to Adjusted Tangible Assets)
Palomar Savings and Loan . . . . . . . . . $ 6,107,000 7.79% $ 3,136,000 4.00% $ 3,920,000 5.00%
Tangible Capital (to Tangible Assets)
Palomar Savings and Loan . . . . . . . . . $ 6,107,000 7.79% $ 1,176,000 1.50% N/A N/A
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998: To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- ------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted assets)
CONSOLIDATED . . . . . . . . . . . . . . . $26,110,000 15.27% $13,675,000 8.00% $17,094,000 10.00%
Goleta National Bank . . . . . . . . . . . $16,153,000 13.88% $ 9,310,000 8.00% $11,637,000 10.00%
Palomar Savings and Loan . . . . . . . . . $ 6,492,000 12.45% $ 4,172,000 8.00% $ 5,215,000 10.00%
Tier I Capital (to Risk Weighted assets)
CONSOLIDATED . . . . . . . . . . . . . . . $23,973,000 14.02% $ 6,837,000 4.00% $10,256,000 6.00%
Goleta National Bank . . . . . . . . . . . $14,698,000 12.63% $ 4,655,000 4.00% $ 6,982,000 6.00%
Palomar Savings and Loan . . . . . . . . . $ 5,865,000 11.25% N/A N/A $ 3,128,000 6.00%
Tier I Capital (to Average Assets)
CONSOLIDATED . . . . . . . . . . . . . . . $23,973,000 9.49% $10,102,000 4.00% $12,628,000 5.00%
Goleta National Bank . . . . . . . . . . . $14,698,000 8.07% $ 7,285,000 4.00% $ 9,107,000 5.00%
Core Capital (to Adjusted Tangible Assets)
Palomar Savings and Loan . . . . . . . . . $ 5,865,000 7.11% $ 3,299,000 4.00% $ 4,124,000 5.00%
Tangible Capital (to Tangible Assets)
Palomar Savings and Loan . . . . . . . . . $ 5,865,000 7.11% $ 1,237,000 1.50% N/A N/A
</TABLE>
18
<PAGE>
YEAR 2000
As the year 2000 approaches, a critical issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. In brief, many existing application software products in the marketplace
were designed to only accommodate a two digit date position which represents the
year (for example, '98' is stored on the system and represents the year as
1998). As a result, the year 1999 could be the maximum date value these systems
will be able to accurately process. A time-sensitive software may recognize a
date using "00" as the year 1900 rather than year 2000. This could result in a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions or engage in
similar normal business activities. The Company believes it has adequately
tested all its systems and is extremely well prepared for the year 2000.
However, unexpected issues could arise as a result of the date change which
might result in operational delays.
The Company has adopted a plan of action to minimize the risk of the year 2000
event including the establishment of an oversight committee. This plan is fully
supported by management and the Board of Directors. The committee's goal is to
achieve a year 2000 date conversion with no effect on customers or disruption to
business operations. The plan consists of five phases; awareness, assessment,
renovation, validation, and implementation. In the awareness phase, the
committee was formed consisting of members from all departments within the
Company. This team defined the Year 2000 issue, how and where it would impact
the Company. The assessment phase determined the size of the issue and which
systems were determined as critical to the operations of the Company. During the
renovation phase, systems, hardware, and software were tested for compliance and
any non-compliant systems were replaced. Nothing determined as critical needed
replacement. The Company is currently in the validation phase, where further
testing is being done on any new equipment or systems installed. At the end of
1998, the Company re-tested all systems in a mock exercise as if it was January
2000. During 1999, customer awareness of the Year 2000 issue and what the
Company has done to address the issue has intensified. This includes, but is not
limited to, mailings to our customers, public announcements, and training for
Company employees to address customer concerns.
The Company has initiated formal communications with all of its vendors,
including the U.S. Government, to determine their Year 2000 compliance
readiness. The Company is reviewing the extent the interface systems are
vulnerable to any third parties' year 2000 issues. There can be no guarantee
that the systems of other companies on which the Company systems rely will be
timely converted and would not have an adverse effect on the Company's systems.
Many of the Company's systems include new hardware and software purchased from
vendors who have represented that these systems are already year 2000 compliant.
The Company is in the process of obtaining assurances from vendors that timely
updates will be made available to make all remaining systems compliant.
19
<PAGE>
Management does not anticipate the Company will be required to purchase any
additional hardware or software to be year 2000 compliant. However, management
has incurred and will continue to incur some administrative costs relative to
the identification and testing of the Company's electronic data processing
systems. The costs and timing of the year 2000 project is based on management's
best estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources, third party
modification plans and other factors. As of June 30, 1999, the Company had
incurred $209,715 in expenses getting Year 2000 compliant and anticipates
spending another $66,300 in 1999. However, there can be no guarantee that these
estimates will be achieved and actual results could differ from these plans.
COMMUNITY WEST BANCSHARES
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 end of December 31, 1998. For detials, reference the
Company's annual filing on Form 10-K.
20
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Not Applicable
Item 2 - Changes in 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 Holders
(a) The date of the meeting and whether it was an annual or
special meeting.
May 27, 1999 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
James Rady
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 - Election of
Directors.
For Withheld
Michael A. Alexander 4,970,072 46,379
Dr. Mounir R. Ashamalla 4,965,072 51,379
Robert H. Bartlein 4,970,072 46,379
Jean W. Blois 4,970,072 46,379
John D. Illgen 4,965,148 51,303
John D. Markel 4,970,072 46,379
Michel Nellis 4,970,072 46,379
William R. Peeples 4,970,072 46,379
James Rady 4,977,958 38,493
C. Randy Shaffer 4,958,072 58,379
James R. Sims 4,952,420 64,031
Llewellyn W. Stone 4,958,072 58,379
Item 5 - Other Information
Not Applicable
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
Not Applicable
21
<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 9, 1999 C. Randy Shaffer
Executive Vice President
22
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 4281
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 66127
<TRADING-ASSETS> 24486
<INVESTMENTS-HELD-FOR-SALE> 5873
<INVESTMENTS-CARRYING> 500
<INVESTMENTS-MARKET> 500
<LOANS> 203287
<ALLOWANCE> 2492
<TOTAL-ASSETS> 325070
<DEPOSITS> 293370
<SHORT-TERM> 0
<LIABILITIES-OTHER> 5425
<LONG-TERM> 0
0
0
<COMMON> 17518
<OTHER-SE> 8757
<TOTAL-LIABILITIES-AND-EQUITY> 325070
<INTEREST-LOAN> 12452
<INTEREST-INVEST> 942
<INTEREST-OTHER> 552
<INTEREST-TOTAL> 13946
<INTEREST-DEPOSIT> 6152
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 7794
<LOAN-LOSSES> 1420
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 14073
<INCOME-PRETAX> 5297
<INCOME-PRE-EXTRAORDINARY> 5297
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3095
<EPS-BASIC> .57
<EPS-DILUTED> .56
<YIELD-ACTUAL> 6.70
<LOANS-NON> 2166
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2129
<CHARGE-OFFS> 1064
<RECOVERIES> 7
<ALLOWANCE-CLOSE> 2492
<ALLOWANCE-DOMESTIC> 2492
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
