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 March 31, 2000 Commission File Number: 000-23575
COMMUNITY WEST BANCSHARES
(Exact name of registrant as specified in its charter)
California 77-0446957
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
445 Pine 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: 6,241,793 outstanding as of
March 31, 2000
This Form 10-Q contains 19 pages.
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
COMMUNITY WEST BANCSHARES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
- -----------
ASSETS March 31, 2000 December 31, 1999
---------------- -------------------
<S> <C> <C>
Cash and due from banks. . . . . . . . . . . . . . . . . . . . . . . . . $ 8,595,000 $ 27,396,000
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,497,000 8,707,000
---------------- -------------------
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . 80,092,000 36,103,000
Time deposits in other financial institutions. . . . . . . . . . . . . . 1,677,000 -
Federal Reserve Bank and Federal Home Loan Bank stock, at cost . . . . . 782,000 776,000
Investment securities held to maturity, at amortized cost; fair value
of $496,000 at March 31, 2000 and $494,000 at December 31, 1999 . . . . 498,000 497,000
Investment securities available for sale, at fair value; cost
of $5,716,000 at March 31, 2000 and $4,986,000 at December 31, 1999. . 5,633,000 4,897,000
Investment Securities held for trading, at fair value. . . . . . . . . . 6,140,000 5,383,000
Servicing assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,838,000 1,956,000
Loans:
Held for investment, net of allowance for loan losses of $2,499,000
at March 31, 2000 and $2,013,000 at December 31, 1999. . . . . . . . . 105,393,000 109,122,000
Held for sale, at lower of cost or fair value . . . . . . . . . . 78,398,000 158,274,000
Securitized loans, net of allowance for loan losses of $3,685,000. . . - -
for March 31, 2000 and $3,516,000 for December 31, 1999. . . . . . . 177,532,000 184,268,000
Other real estate owned, net . . . . . . . . . . . . . . . . . . . . . . 178,000 346,000
Premises and equipment, net. . . . . . . . . . . . . . . . . . . . . . . 3,992,000 4,466,000
Intangible Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,815,000 6,250,000
Accrued interest receivable and other assets . . . . . . . . . . . . . . 14,076,000 11,509,000
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 482,044,000 $ 523,847,000
================ ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing demand . . . . . . . . . . . . . . . . . . . . . . $ 27,778,000 $ 19,391,000
Interest-bearing demand. . . . . . . . . . . . . . . . . . . . . . . . 24,309,000 24,887,000
Savings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,925,000 27,944,000
Time certificates of $100,000 or more. . . . . . . . . . . . . . . . . 83,411,000 100,757,000
Other time certificates. . . . . . . . . . . . . . . . . . . . . . . . 113,015,000 140,152,000
---------------- -------------------
Total deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . 277,438,000 313,131,000
Bond payable in connection with securitized loans. . . . . . . . . . . . 159,284,000 167,332,000
Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,286,000 7,307,000
Accrued interest payable and other liabilities . . . . . . . . . . . . . 1,642,000 2,145,000
---------------- -------------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 445,650,000 489,915,000
---------------- -------------------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
STOCKHOLDERS' EQUITY
COMMON STOCK, NO PAR VALUE; 10,000,000 SHARES AUTHORIZED; 6,241,793
shares issued and outstanding at March 31, 2000 and December 31, 1999. 33,728,000 33,728,000
Less: Treasury stock, at cost; 137,437 shares at
March 31,2000 and at December 31, 1999. . . . . . . . . (1,236,000) (1,236,000)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,950,000 1,495,000
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . (48,000) (55,000)
---------------- -------------------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . 36,394,000 33,932,000
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 482,044,000 $ 523,847,000
================ ===================
<FN>
See notes to consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY WEST BANCSHARES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
- -----------
For the Three Months
Ended March 31
2000 1999
As restated,
INTEREST INCOME: see Note 8
------------ --------------
<S> <C> <C>
Loans, including fees. . . . . . . . . . . . . . . . . $13,360,000 $ 5,709,000
Federal funds sold . . . . . . . . . . . . . . . . . . 351,000 184,000
Time deposits in other financial institutions. . . . . 24,000 15,000
Investment securities. . . . . . . . . . . . . . . . . 109,000 391,000
------------ --------------
Total interest income. . . . . . . . . . . . . 13,844,000 6,299,000
INTEREST EXPENSE . . . . . . . . . . . . . . . . . . . . 6,641,000 2,564,000
------------ --------------
NET INTEREST INCOME. . . . . . . . . . . . . . . . . . . 7,203,000 3,735,000
PROVISION FOR LOAN LOSSES. . . . . . . . . . . . . . . . 896,000 271,000
------------ --------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES . . . . . . . . . . . . . . . . . . . . . . . . 6,307,000 3,464,000
OTHER INCOME:
Income from sale of investment in subsidiary . . . . . 2,080,000 -
Gains from loan sales. . . . . . . . . . . . . . . . . 1,017,000 1,443,000
Loan servicing income. . . . . . . . . . . . . . . . . 642,000 91,000
Loan origination fees - sold or brokered loans . . . . 416,000 855,000
Document processing fees . . . . . . . . . . . . . . . 255,000 604,000
Service charges. . . . . . . . . . . . . . . . . . . . 111,000 127,000
Other income . . . . . . . . . . . . . . . . . . . . . 74,000 140,000
------------ --------------
Total other income . . . . . . . . . . . . . . 4,595,000 3,260,000
------------ --------------
OTHER EXPENSES:
Salaries and employee benefits . . . . . . . . . . . . 3,576,000 4,093,000
Occupancy expense. . . . . . . . . . . . . . . . . . . 795,000 816,000
Loan servicing and collection expense. . . . . . . . . 726,000 71,000
Other operating expenses . . . . . . . . . . . . . . . 405,000 317,000
Professional services. . . . . . . . . . . . . . . . . 240,000 203,000
Advertising expense. . . . . . . . . . . . . . . . . . 132,000 202,000
Office supply expense. . . . . . . . . . . . . . . . . 120,000 63,000
Amortization of goodwill . . . . . . . . . . . . . . . 110,000 79,000
Postage and freight. . . . . . . . . . . . . . . . . . 67,000 71,000
Data processing/ ATM processing. . . . . . . . . . . . 59,000 111,000
------------ --------------
Total other expenses . . . . . . . . . . . . . 6,230,000 6,026,000
------------ --------------
INCOME BEFORE PROVISION FOR INCOME
TAXES . . . . . . . . . . . . . . . . . . . . . . . . 4,672,000 698,000
PROVISION FOR INCOME TAXES . . . . . . . . . . . . . . . 1,995,000 244,000
------------ --------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . $ 2,677,000 $ 454,000
============ ==============
EARNINGS PER SHARE (Note 5):
BASIC . . . . . . . . . . . . . . . . . . . . . . . . $ 0.44 $ 0.08
============ ==============
DILUTED . . . . . . . . . . . . . . . . . . . . . . . $ 0.44 $ 0.08
============ ==============
<FN>
See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY WEST BANCSHARES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- -----------
For the Three Months
Ended March 31,
2000 1999
As restated,
see Note 8
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 2,677,000 $ 454,000
Adjustments to reconcile net income to net cash used in operating activities:
Provision for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . 896,000 271,000
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . 368,000 403,000
Loss on sale / write down of other real estate owned. . . . . . . . . - 59,000
Gain on sale of loans held for sale. . . . . . . . . . . . . . . . . . . . . (1,017,000) (1,443,000)
Origination of servicing and interest only strip assets, net of amortization (639,000) (397,000)
FRB/FHLB stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . (6,000) (8,000)
Changes in operating assets and liabilities:
Accrued interest receivable and other assets . . . . . . . . . . . . . . . (36,000) (2,796,000)
Accrued interest payable and other liabilities . . . . . . . . . . . . . . (2,030,000) 1,377,000
------------- -------------
Net cash provided by (used in) operating activities . . . . . . . . . . 213,000 (2,080,000)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale securities. . . . . . . . . . . . . . . . . . . (1,000,000) -
Paydown of principal on available-for-sale securities. . . . . . . . . . . . . 270,000 1,054,000
Maturities of available-for-sale securities. . . . . . . . . . . . . . . . . . - 250,000
Net (increase) decrease in time deposits in other financial institutions . . . (1,677,000) 1,500,000
Net decrease (increase) in loans and loans held for sale . . . . . . . . . . . 90,462,000 (96,792,000)
Proceeds from sale of other real estate owned. . . . . . . . . . . . . . . . . 168,000 -
Purchase of premises and equipment . . . . . . . . . . . . . . . . . . . . . . (484,000) (605,000)
------------- -------------
Net cash provided by (used in) investing activities . . . . . . . . . . 87,739,000 (94,593,000)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, and savings accounts. . . . . . . . . . . . . 8,790,000 7,821,000
Net (decrease) increase in time certificates . . . . . . . . . . . . . . . . . (44,483,000) 52,106,000
Net (decrease) increase in bonds payable . . . . . . . . . . . . . . . . . . . (8,048,000) (2,556,000)
Exercise of stock options. . . . . . . . . . . . . . . . . . . . . . . . . . . - 13,000
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . - (1,039,000)
Cash dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (222,000) (220,000)
------------- -------------
Net cash provided by (used in) financing activities . . . . . . . . . . (43,963,000) 56,125,000
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS. . . . . . . . . . . . . . . . . . . . 43,989,000 (40,548,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . 36,103,000 49,479,000
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD. . . . . . . . . . . . . . . . . . . . $ 80,092,000 $ 8,931,000
============= =============
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,101,000 $ 4,073,000
Cash paid for (received from) income taxes . . . . . . . . . . . . . . . . . . $ 996,000 $ (507,000)
Supplemental Disclosure of Noncash Investing Activity:
Transfers to other real-estate owned . . . . . . . . . . . . . . . . . . . . . $ 87,000 $ -
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
COMMUNITY WEST BANCSHARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2000
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. The unaudited consolidated financial
statements include the accounts of Community West Bancshares ("the Company") and
its wholly owned subsidiaries Goleta National Bank ("GNB") and Palomar Community
Bank ("Palomar"). All adjustments and reclassifications are of a normal and
recurring nature. Results for the period ending March 31, 2000, 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 1999 financial information to conform to the presentation used in 2000.
2. Summary of Significant Accounting Policies. See Note 1 of the Notes to
Financial Statements in Community West Bancshares' (the "Company") 1999 Annual
Report on Form 10-K.
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 that 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.
Investment Securities, Held for Trading - The Company originates certain
loans for the purpose of selling either a portion or all of the loan into the
secondary market. The guaranteed portion of SBA loans and FHA Title 1 loans are
typically sold into the secondary market servicing retained. Second mortgages
("HLTV") loans are typically sold into the secondary market servicing released.
On some of 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 and is based on 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.
5
<PAGE>
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 same basis as when valued at
transaction close.
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.
3. Loan Sales
HLTV Loan Sales As of December 31, 1999, the Company had $152 million in HLTV
- -----------------
loans held for sale. As of March 31, 2000, the Company had $65 million in HLTV
loans held for sale. The Company typically sells these loans in the secondary
market with servicing released.
SBA Loan Sales
- ----------------
The Company sells the guaranteed portion of Small Business Administration
("SBA") loans into the secondary market in exchange for a combination of 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, 1999, the Company had approximately $7 million in SBA
Loans held for sale. As of March 31, 2000, the Company had approximately
$10 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 in exchange for cash premiums, servicing assets, and I/O strips. The
Company retains the servicing rights. The present value of the interest only
strips is currently calculated assuming an 11% discount rate and a 30% CPR.
As of December 31, 1999 and March 31, 2000, the Company had less than $1
million in FHA Title 1 loans held for sale. During 1999, the related servicing
asset was fully amortized.
6
<PAGE>
Traditional Mortgages
- ----------------------
The amounts in the table below represent servicing purchased by Palomar
Community Bank, in 1998.
The balances of servicing assets are as follows:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
---------------------- ----------------------
Servicing Servicing
Asset I/O Strip Asset I/O Strip
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Guaranteed Portion of SBA 1,665,000 5,525,000 1,771,000 4,836,000
FHA Title 1 . . . . . . . - 1,615,000 - 547,000
Traditional Mortgages . . 173,000 - 185,000 -
Total . . . . . . . . . . $1,838,000 $6,140,000 $1,956,000 $5,383,000
---------- ---------- ----------
</TABLE>
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 March 31, 2000, the Company had entered
into commitments with certain customers amounting to $14.35 million compared to
$18.96 million at December 31, 1999. There were $582,000 of letters of credit
outstanding at March 31, 2000; there were $713,000 of letters of credit
outstanding at December 31, 1999.
5. Earnings per share - Basic, has been computed based on the weighted
average number of shares outstanding during each period. Earnings per share -
Diluted, has been computed based on the weighted average number of shares
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
--------------------------
March 31 March 31
2000 1999
---------- ----------
<S> <C> <C>
As restated, see Note 8
Basic weighted average shares outstanding . 6,104,356 5,394,833
Dilutive effect of options. . . . . . . . . 35,882 113,533
---------- ----------
Diluted weighted average shares outstanding 6,140,238 5,508,336
========== ==========
Net Income. . . . . . . . . . . . . . . . . $2,677,000 $ 454,000
Net income per share - Basic. . . . . . . . $ 0.44 $ 0.08
Net income per share - Diluted. . . . . . . $ 0.44 $ 0.08
</TABLE>
The Company declared a quarterly dividend of $0.04 a share for shareholders
of record on January 4, 2000, payable January 20, 2000.
7
<PAGE>
6. The below listed table denotes the financial performance of the Company's
operational segments for its periods ending March 31, 2000 and March 31, 1999 in
compliance with Statement of Financial Accounting Standards No. 131.
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, Mortgage
Division, Goleta National Bank Branch Operations, and Palomar Community Bank.
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. The Goleta
National Bank Branch operations includes 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.
The following table sets forth various revenue and expense items that
management relies on in decision making.
<TABLE>
<CAPTION>
Goleta
National
Bank Palomar
Three Months Ended SBA Alternative Mortgage Branch Community Consolidated
MARCH 31, 2000 Lending Lending Division Operations Bank Other Total
----------- ------------ ------------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income. . . . . . $ 718,000 $ 5,697,000 $ 94,000 $ 5,942,000 $ 1,393,000 $ - $ 13,844,000
Interest Expense . . . . . 348,000 2,761,000 46,000 2,880,000 607,000 - 6,641,000
Net Interest Income. . . . 370,000 2,936,000 48,000 3,062,000 786,000 - 7,203,000
----------- ------------ ------------ ------------ ----------- ---------- -------------
Provision For Loan Losses 50,000 396,000 7,000 413,000 30,000 - 896,000
Noninterest Income . . . . 1,215,000 481,000 605,000 107,000 52,000 2,135,000 4,595,000
Noninterest Expense. . . . 910,000 1,860,000 675,000 1,523,000 634,000 628,000 6,230,000
Segment Profit . . . . . . $ 625,000 $ 1,161,000 $ (29,000) $ 1,233,000 $ 174,000 $1,507,000 $ 4,672,000
MARCH 31, 2000
Segment Assets . . . . . . $36,334,000 $246,288,000 $16,499,000 $100,981,000 $76,986,000 $4,956,000 $ 482,044,000
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Goleta
National
Bank Palomar
Three Months Ended SBA Alternative Mortgage Branch Community Consolidated
MARCH 31, 1999 Lending Lending Division Operations Bank Other Total
----------- ------------ ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income. . . . . . $ 591,000 $ 2,778,000 $ 257,000 $ 618,000 $ 1,465,000 $ 590,000 $ 6,299,000
Interest Expense . . . . . 239,000 920,000 104,000 468,000 830,000 3,000 2,564,000
Net Interest Income. . . . 352,000 1,858,000 153,000 150,000 635,000 587,000 3,735,000
----------- ------------ ----------- ----------- ----------- ------------ -------------
Provision For Loan Losses 145,000 37,000 - 69,000 20,000 - 271,000
Noninterest Income . . . . 1,018,000 158,000 1,391,000 334,000 277,000 82,000 3,260,000
Noninterest Expense. . . . 226,000 1,082,000 1,198,000 272,000 667,000 2,581,000 6,026,000
Segment Profit . . . . . . $ 999,000 $ 897,000 $ 346,000 $ 143,000 $ 225,000 $(1,912,000) $ 698,000
MARCH 31, 1999
Segment Assets . . . . . . $28,819,000 $194,792,000 $12,778,000 $60,495,000 $80,564,000 $ 8,051,000 $ 385,499,000
</TABLE>
7. On March 30, 2000, ePacific.com redeemed 1,800,000 of the Company's 2,100,000
shares and repaid a loan from the Company with a balance of $3,725,000 for
$4,500,000 in cash. As a result of this, the Company reversed previously
consolidated losses and now reflects the remaining 10% investment at cost.
8. Subsequent to the issuance of the Company's 1999 first quarter 10-Q, the
Company's management determined that (1) the acquisition of Palomar Community
Bank in December 1998, which was previously accounted for under the
pooling-of-interests method of accounting, should have been accounted for under
the purchase method of accounting, (2) the securitization of loans completed in
December 1998, which was previously accounted for as a sale should have been
accounted for as a secured borrowing with a pledge of collateral, (3) as a
result of the reclass of loan sales to a collateralized borrowing, as mentioned
in (1) and (2), certain costs related to second mortgage loans which were
previously capitalized, should have been charged to expense as incurred, (4) as
a result of the reclass of loan sales to a collateralized borrowing, certain
loan fees which were previously recognized, should have been deferred and
amortized, and (5) as a result of (1) through (4), the calculation of
regulatory capital amounts and ratios as March 31, 1999 was incorrect. In
addition, management also identified certain other insignificant errors in the
March 31, 1999 10-Q. As a result, the March 31, 1999 financial statements have
been restated from amounts previously reported to properly account for these
transactions.
9
<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").
Statements 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.
RESULTS OF OPERATIONS
For the First Quarter Ended March 31, 2000
- -------------------------------------------------
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
--------------------------
Amount Percent
March 31, March 31, of of
2000 1999 Increase Increase
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income. . . . . . . . . $13,844,000 $ 6,299,000 $7,545,000 119.8%
Interest Expense . . . . . . . . 6,641,000 2,564,000 4,077,000 159.0%
Net Interest Income . . . . . 7,203,000 3,735,000 3,468,000 92.9%
----------- ----------- -----------
Provision for Loan Losses. . . . 896,000 271,000 625,000 230.6%
Net Interest Income after
Provision for Loan Losses . . 6,307,000 3,464,000 2,843,000 82.1%
----------- ----------- -----------
Other Income . . . . . . . . . . 2,515,000 3,260,000 (745,000) -22.9%
Sale of Investment in Subsidiary 2,080,000 - 2,808,000 - %
Other Expense. . . . . . . . . . 6,230,000 6,026,000 204,000 3.4%
----------- ----------- -----------
Income before Provision
for Income Taxes. . . . . . . 4,672,000 698,000 3,974,000 569.3%
----------- ----------- -----------
Provision for Income Taxes . . . 1,995,000 244,000 1,751,000 717.6%
Net Income. . . . . . . . . . $ 2,677,000 $ 454,000 $2,223,000 489.6%
Net Income Per Share - Basic . . $ 0.44 $ 0.08 $ 0.36 450.0%
=========== =========== ===========
Net Income Per Share -
Diluted . . . . . . . . . . . $ 0.44 $ 0.08 $ 0.36 450.0%
=========== =========== ===========
</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 stock options using the treasury stock method.
10
<PAGE>
The annualized return on average equity was 30.6% for the three months ended
March 31, 2000, and 7.4% for the three months ended March 31, 1999.
Average assets for the three months ended March 31, 2000, were $502,001,000
compared to $281,995,000 for the same period in 1999; average equity increased
to $34,972,000 for the three months ended March 31, 2000, from $24,446,000 for
the same period in 1999. The book value per share rose from $5.56 at Dec. 31,
1999, to $5.96 at March 31, 2000.
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 6.3% for the three months ended March 31,
2000, compared to an annualized net interest margin of 4.9% for the three months
ended March 31, 1999. Earning assets averaged $443,139,000 for the three
months ended March 31, 2000. This represented an increase of $176,773,000, or
66.4%, over average earning assets of $266,366,000 for the three months ended
March 31, 1999.
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
----------------------------
March 31, March 31,
2000 1999
------------- -------------
<S> <C> <C>
Interest and Fees $ 13,360,000 $ 5,709,000
Average Loans . . 406,476,000 216,319,000
Annualized Yield. 13.1% 9.6%
</TABLE>
The increase in interest and fees is due to an 87.9% increase in average loans.
In addition, an increased proportion of the Company's loans were in higher
yielding loan products during the three months ended March 31, 2000.
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 required 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.
11
<PAGE>
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 inherent loan
losses which can be reasonably estimated. 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
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
March 31, December 31, Increase Increase
2000 1999 (Decrease) (Decrease)
------------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
BALANCES:
Gross loans. . . . . . . . . . . . . . . . . . $367,507,000 $ 457,193,000 $(89,686,000) (19.6%)
Allowance for loan losses. . . . . . . . . . . 6,184,000 5,529,000 655,000 11.8%
Nonaccrual loans . . . . . . . . . . . . . . . 2,872,000 3,091,000 (219,000) (7.1%)
RATIOS:
Allowance for loan losses to gross loans . . . 1.7% 1.2%
Net loans charged to allowance for loan losses 8.0% 71.9%
</TABLE>
The provision for loan losses was $896,000 for the three months ended March 31,
2000. This is an increase of $625,000, or 230.6%, over the $271,000 for the
three months ended March 31, 1999, primarily due to an increase in the Company's
loan portfolio. Gross loans outstanding decreased 19.6% from December 1999 to
March 2000. For the three months ended March 31, 2000, losses charged to the
allowance for loan losses totaled $534,000. This was offset by $42,000
recovery; with the net effect being $492,000 loans were charged to the
allowance. The increase in the ratio of allowance for loan losses to gross
loans was due to the decrease in loans available for sale which are carried at
the lower of cost or market and as such no allowance is recorded.
12
<PAGE>
Management of the Company reviews with the Board of Directors the adequacy of
the allowance for 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 have 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 INCOME
Other 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 income for the three months ended March 31, 2000, increased 41.0%
over the three months ended March 31, 1999. This increase was due to a
$2,080,000 gain on the sale of a portion of th e Company's ownership interest in
a subsidiary.
OTHER EXPENSES Other expenses include salaries and employee benefits, occupancy
and equipment, and other operating expenses. Other expenses for the three months
ended March 31, 2000, increased 3.3% over the three months ended March 31, 1999.
The increase in other expenses for the periods compared was primarily because of
increased costs to service the securitized loan portfolio, which was partially
offset by decreases due to the deconsolidation of ePacific.com.
<TABLE>
<CAPTION>
BALANCE SHEET ANALYSIS
Amount of Percent of
March 31, December 31, Increase Increase
2000 1999 (Decrease) (Decrease)
------------ ------------- -------------- -----------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents. $ 81,769,000 $ 36,103,000 $ 45,666,000 126.5%
Investment Securities. . . 13,053,000 11,553,000 1,500,000 13.0%
Loans, held for investment 105,393,000 109,122,000 (3,729,000) (3.4%)
Loans, held for sale . . . 78,398,000 158,274,000 (79,8876,000) (50.5%)
Securitized Loans. . . . . 177,532,000 184,268,000 (6,736,000) (3.7%)
Total Assets . . . . . . . 482,044,000 523,847,000 (41,803,000) (8.0%)
Total Deposits . . . . . . 277,438,000 313,131,000 (35,693,000) (11.4%)
Total Stockholders' Equity 36,394,000 33,932,000 2,462,000 7.25
</TABLE>
13
<PAGE>
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are made up of cash and federal funds sold. The 127%
increase is a result of HLTV Loan sales of approximately $60 million during
the month of March , 2000.
INVESTMENT SECURITIES
Investment securities are made up of
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 13% is from an increase in interest only strips created through
the sale of loans.
LOANS
The 51% decrease in loans held for sale is because of planned sales of HLTV
Loans.
DEPOSITS
The following shows the balance and percentage change in the various deposits:
<TABLE>
<CAPTION>
Amount of Percent of
March 31, December 31 Increase Increase
2000 1999 (Decrease) (Decrease)
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
Noninterest-Bearing Deposits. . $ 27,778,000 $ 19,391,000 $ 8,387,000 43.3%
Interest-Bearing Deposits . . . 24,309,000 24,887,000 (578,000) (2.3%)
Savings . . . . . . . . . . . . 28,925,000 27,944,000 981,000 3.5%
Time Certificates over $100,000 83,411,000 100,757,000 (17,346,000) (17.2%)
Other Time Certificates . . . . 113,015,000 140,152,000 (27,137,000) (19.4%)
Total Deposits. . . . . . . . . $277,438,000 $313,131,000 $(35,693,000) (11.4%)
</TABLE>
The decrease in deposits is a result of the maturity of short-term time deposits
which were used to fund HLTV loans held for sale, which were sold during the
period.
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, 2000 was 34.2% and at December 31, 1999, was 38.1%, 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 $6,500,000. In addition, the Company has a
line of credit with the Federal Home Loan Bank. This line had $18,920,000
available at March 31, 2000.
14
<PAGE>
CAPITAL RESOURCES
The Company's equity capital was $36,394,000 at March 31, 2000. The primary
source of capital for the Company has been the retention of net income.
The Company declared a quarterly dividend of $0.04 a share for shareholders of
record on January 4, 2000 payable January 20, 2000.
On December 28, 1998, the Board of Directors of the 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 December
31, 1999 and March 31, 2000 management had repurchased 137,437 shares of common
stock at a cost of $1,236,000. No additional shares were purchased in 2000.
Under the Prompt Corrective Action provisions of the Federal Deposit Insurance
Act, national banks are assigned regulatory capital classifications based on
specified capital ratios of the institutions. The capital classifications are
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized."
The relevant capital ratios of the institution in this determination are (i) the
ratio of Tier I capital (primarily common stock and retained earnings less
goodwill and other intangible assets) to adjusted average total assets (the
"Tier I capital to average assets ratio"), (ii) the ratio of Tier I capital to
risk-weighted assets (the "Tier I risk-based capital ratio"), and (iii) the
ratio of qualifying total capital to risk-weighted assets (the "total risk-based
capital ratio"). To be considered "well capitalized," an institution must have
a Tier I capital to average assets ratio of at least 5%, a Tier I risk-based
capital ratio of at least 6%, and a total risk-based capital ratio of at least
10%. Generally, for an institution to be considered "adequately capitalized"
these three ratios must be at least 4%, 4% and 8%, respectively. An institution
will generally be considered (1) "undercapitalized" if any one of these three
ratios is less than 4%, 4% and 8%, respectively, and (2) "significantly
undercapitalized" if any one of these three ratios is less than 3%, 3% and 6%,
respectively.
Goleta's actual capital amounts and ratios at March 31, 2000 and December 31,
1999 are as follows:
15
<PAGE>
<TABLE>
<CAPTION>
To Be Well
For Capitalized
Capital Under Prompt
CAPITAL AMOUNTS AND Adequacy Corrective Action
RATIOS AS OF MARCH 31, 2000: Actual Purposes Provisions
------------------- ------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted assets)
CONSOLIDATED. . . . . . . . . . . . . . . $43,902,000 10.95% $32,073,000 8.00% $40,091,000 10.00%
Goleta National Bank. . . . . . . . . . . $34,158,000 10.01% $27,311,000 8.00% $34,139,000 10.00%
Palomar Community Bank. . . . . . . . . . $ 6,881,000 12.91% $ 4,265,000 8.00% $ 5,331,000 10.00%
Tier I Capital (to Risk Weighted assets)
CONSOLIDATED. . . . . . . . . . . . . . . $37,733,000 9.41% $16,037,000 4.00% $24,055,000 6.00%
Goleta National Bank. . . . . . . . . . . $29,709,000 8.70% $13,656,000 4.00% $20,483,000 6.00%
Palomar Community Bank. . . . . . . . . . $ 6,235,000 11.70% $ 2,132,000 4.00% $ 3,198,000 6.00%
Tier I Capital (to Average Assets)
CONSOLIDATED. . . . . . . . . . . . . . . $37,732,000 7.61% $19,824,000 4.00% $24,781,000 5.00%
Goleta National Bank . . . .. . . . . . . $29,709,000 7.23% $16,445,000 4.00% $20,556,000 5.00%
Palomar Community Bank. . . . . . . . . . $ 6,235,000 8.40% $ 2,969,000 4.00% $ 3,712,000 5.00%
</TABLE>
<TABLE>
<CAPTION>
To Be Well
For Capitalized
Capital Under Prompt
Adequacy Corrective Action
AS OF DECEMBER 31, 1999: Actual Purposes Provisions
------------------- ------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted assets)
CONSOLIDATED. . . . . . . . . . . . . . . $39,475,000 8.34% $37,857,000 8.00% $47,321,000 10.00%
Goleta National Bank. . . . . . . . . . . $33,100,000 8.01% $33,047,000 8.00% $41,309,000 10.00%
Palomar Savings and Loan. . . . . . . . . $ 7,185,000 11.94% $ 4,814,000 8.00% $ 6,018,000 10.00%
Tier I Capital (to Risk Weighted assets)
CONSOLIDATED. . . . . . . . . . . . . . . $33,945,000 7.17% $18,928,000 4.00% $28,393,000 6.00%
Goleta National Bank. . . . . . . . . . . $28,182,000 6.82% $16,523,000 4.00% $24,785,000 6.00%
Palomar Savings and Loan. . . . . . . . . $ 6,573,000 10.92% $ 2,407,000 4.00% $ 3,611,000 6.00%
Tier I Capital (to Average Assets)
CONSOLIDATED. . . . . . . . . . . . . . . $33,945,000 7.52% $18,061,000 4.00% $22,576,000 5.00%
Goleta National Bank. . . . . . . . . . . $28,182,000 7.27% $15,499,000 4.00% $19,374,000 5.00%
Palomar Savings and Loan. . . . . . . . . $ 6,573,000 12.22% $ 2,151,000 4.00% $ 2,689,000 5.00%
</TABLE>
YEAR 2000
Management does not anticipate the Company will be required to purchase any
further hardware or software to be Year 2000 compliant. As of March 31, 2000,
the Company has incurred $467,000 in expenses becoming Year 2000 compliant. As
of March 31, 2000, the Company has not experienced any major or material Year
2000 conversion problems.
16
<PAGE>
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, 1999. For details, reference the
Company's annual filing on Form 10K.
17
<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
Not Applicable
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
On May 16, 2000 the Company filed a current report
on Form 8-K regarding a change in auditors.
18
<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)
Date: May 22, 2000 /S/ Lynda Pullon Radke
------------ -------------------------
Senior Vice President
Chief Financial Officer
19
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 8595
<INT-BEARING-DEPOSITS> 1677
<FED-FUNDS-SOLD> 71497
<TRADING-ASSETS> 6140
<INVESTMENTS-HELD-FOR-SALE> 5633
<INVESTMENTS-CARRYING> 498
<INVESTMENTS-MARKET> 782
<LOANS> 361323
<ALLOWANCE> 6184
<TOTAL-ASSETS> 482044
<DEPOSITS> 277438
<SHORT-TERM> 0
<LIABILITIES-OTHER> 168212
<LONG-TERM> 0
0
0
<COMMON> 33728
<OTHER-SE> 2666
<TOTAL-LIABILITIES-AND-EQUITY> 482044
<INTEREST-LOAN> 13360
<INTEREST-INVEST> 109
<INTEREST-OTHER> 375
<INTEREST-TOTAL> 13844
<INTEREST-DEPOSIT> 6641
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 7203
<LOAN-LOSSES> 896
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6230
<INCOME-PRETAX> 4672
<INCOME-PRE-EXTRAORDINARY> 4672
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2677
<EPS-BASIC> .44
<EPS-DILUTED> .44
<YIELD-ACTUAL> 6
<LOANS-NON> 2919
<LOANS-PAST> 2521
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5529
<CHARGE-OFFS> 534
<RECOVERIES> 42
<ALLOWANCE-CLOSE> 6184
<ALLOWANCE-DOMESTIC> 6184
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
