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Community West Bancshares Earns $2.6 Million in Third Quarter Highlighted by 26% Decline in Nonaccrual Loans

GOLETA, Calif., Oct. 24, 2013 (GLOBE NEWSWIRE) -- Community West Bancshares (Community West or the Company), (Nasdaq:CWBC), parent company of Community West Bank (Bank), today reported net income increased to $2.6 million in the third quarter of 2013 (3Q13) compared to $2.1 million in the second quarter of 2013 (2Q13) and $613,000 in the third quarter a year ago (3Q12). In the first nine months of the year, Community West earned $5.9 million compared to $841,000 in the first nine months of 2012.

"Our third quarter results marked our fifth consecutive quarter of profitability, and showed meaningful progress with credit quality improvements, and continued net interest margin expansion," stated Martin E. Plourd, President and Chief Executive Officer. "Nonaccrual loans were down 26% compared to three months earlier, and our capital ratios continue to strengthen. As we look forward, we continue to focus on growing lending, strengthening operations and increasing our marketing outreach in the communities we serve."

3Q13 Financial Highlights

  • Net income of $2.6 million.
  • Earnings of $0.29 per diluted share.
  • Net interest margin expanded to 4.89% in 3Q13, an eight basis point improvement compared to 4.81% in 2Q13 and a 24 basis point improvement compared to 4.65% in 3Q12.
  • Nonaccrual loans declined 26.1% to $15.3 million at September 30, 2013, compared to $20.7 million at June 30, 2013 and decreased 54.2% compared to $33.3 million at September 30, 2012.
  • Net real estate owned (REO) and repossessed assets, excluding USDA/SBA guarantees, totaled $1.7 million at September 30, 2013, compared to $1.5 million three months earlier and $3.8 million a year earlier.
  • The total allowance for loan losses equaled 3.01% of total loans held for investment at September 30, 2013, compared to 3.14% at June 30, 2013 and 3.65% a year ago.
  • Community West Bank's capital ratios continue to strengthen - Total risk-based capital ratio was 17.16% and Tier 1 leverage ratio was 12.06% at September 30, 2013. Both ratios are well above the minimum levels of 12% and 9%, respectively, called for in the Bank's regulatory agreement.

Including $262,000 of dividends and accretion on preferred stock, the net income available to common stockholders was $2.4 million, or $0.29 per diluted share, in 3Q13 compared to $1.9 million, or $0.23 per diluted share, in 2Q13 and $360,000, or $0.06 per diluted share, in 3Q12. In the first nine months of the year, including $786,000 of dividends and accretion on preferred stock, the net income available to common stockholders was $5.1 million, or $0.60 per diluted share, compared to $56,000, or $0.01 per diluted share, in the first nine months of 2012. Book value per common share was $6.24 at September 30, 2013, compared to $5.98 at June 30, 2013 and $5.93 at September 30, 2012.

Credit Quality

"Our asset quality continues to strengthen on virtually every metric, with nonaccrual loans, REO and repossessed assets and net loan charge-off levels all declining compared to the prior quarter end," said Plourd. "Recoveries on several previously charged-off loans totaling $1.5 million, as well as substantial reserves already in place, allowed us to release $1.6 million in reserves in the third quarter, bringing the released reserve provision for the first nine months of 2013 to $2.8 million. Of the release, net loan recoveries for 3Q13 were $761,000. This compares to a $1.3 million increase in the reserve recorded in 3Q12 and a $5.2 million increase to the reserve recorded in the first nine months of 2012."

The allowance for loan losses totaled $11.7 million at September 30, 2013, equal to 3.01% of total loans held for investment, compared to 3.14% at June 30, 2013 and 3.65% a year ago.

Nonaccrual loans improved 26.1% to $15.3 million, or 3.39% of total loans at September 30, 2013 compared to $20.7 million, or 4.48% of total loans, three months earlier, and $33.3 million, or 7.01% of total loans, a year ago. The decrease in nonaccrual loans compared to the preceding quarter end was primarily due to the continuing efforts to work with borrowers and achieving successful resolutions, including payoffs and paydowns. The short-term effect of this is to decrease total Company loans.

Of the $15.3 million in nonaccrual loans, $5.3 million (34.9%) were manufactured housing loans, $3.2 million (20.8%) were commercial real estate loans, $4.0 million (26.3%) were commercial loans, $1.5 million (10.1%) were SBA loans, $693,000 (4.5%) were other installment loans and $522,000 (3.4%) were home equity line of credit loans.

REO and repossessed assets stood at $4.0 million at September 30, 2013 compared to $4.1 million three months earlier and $3.8 million a year earlier. This amount consists of $3.5 million in REO and $500,000 from repossessed manufactured housing loans. REO consists of four properties for which $2.3 million is guaranteed by the SBA/USDA. Nonaccrual loans plus REO and repossessed assets, net of SBA/USDA guarantees, totaled $17.0 million, or 3.2% of total assets, at September 30, 2013 compared to $22.1million, or 4.1% of total assets, three months earlier and $37.1 million, or 6.7% of total assets, a year ago.

Net charge-offs continued to improve with third quarter net loan recoveries of $761,000, compared to net charge-offs of $410,000 in 2Q13 and net charge-offs of $1.7 million in 3Q12.

Income Statement

Community West's third quarter net interest income was $6.0 million compared to $5.9 million in 2Q13 and $6.1 million in 3Q12. The third quarter net interest margin improved eight basis points to 4.89%, compared to 4.81% in 2Q13 and expanded 24 basis points compared to 4.65% in 3Q12. In the first nine months of the year, the net interest margin expanded 19 basis points to 4.82% compared to 4.63% in the first nine months of 2012.

"Having a high-yielding mix of loan products and a deposit base that has more than 72% in low-cost core deposits continues to keep our net interest margin healthy and above peer levels," said Charles G. Baltuskonis, Executive Vice President and Chief Financial Officer. "Also, the debenture conversion near the end of 2Q13 decreased the cost of funds for 3Q13 and going forward. Our 3Q13 net interest margin of 4.89% is well above the average for the SNL U.S. Bank Index of 2.92% for 2Q13."

Non-interest income was $684,000 in 3Q13 compared to $802,000 in 2Q13 and $1.1 million in 3Q12. In the first nine months of 2013 non-interest income was $2.3 million compared to $3.5 million in the first nine months of 2012, which included a $1.25 million gain on sale of SBA loans.

3Q13 operating or non-interest expenses stood at $5.6 million, the same as in 2Q13. In 3Q12 non-interest expenses were $5.3 million. Year-to-date non-interest expenses were $16.9 million compared to $16.6 million in the first nine months of 2012. Salaries and employee benefits increased due to the additions to staff, primarily lenders and credit administration, and the 2013 payroll tax increase.

Balance Sheet

Mr. Plourd commented, "While net loan growth has been flat in recent quarters, and down slightly due to moving several problem loans off the books, we are encouraged by new loan originations in the pipeline." Net loans were $439.4 million at September 30, 2013 compared to $448.4 million at June 30, 2013 and $459.9 million a year ago. Manufactured housing loans were down 4.4% from year ago levels to $172.1 million and represent 38.2% of total loans. Commercial real estate loans outstanding were down 3.8% from year ago levels to $132.0 million at September 30, 2013 and comprise 29.3% of the total loan portfolio. SBA loans decreased 15.8% from a year ago to $74.3 million and represent 16.5% of the total loan portfolio and commercial loans increased 33.0% from year ago levels to $45.6 million and represent 10.1% of the total loan portfolio.

"Non-interest-bearing deposit accounts increased 4.4% compared to the prior quarter end. We continue to change the deposit mix by focusing on growing low cost deposits and letting higher cost interest-bearing certificates of deposit run off," said Baltuskonis.

Non-interest-bearing deposit accounts increased 4.4% to $55.5 million at September 30, 2013, compared to $53.1 million at June 30, 2013 and $54.5 million a year ago. Interest-bearing deposit accounts decreased to $254.0 million at the end of September, compared to $257.8 million at June 30, 2013 and $274.9 million a year ago. Total deposits were $431.1 million at September 30, 2013 compared to $434.9 million at June 30, 2013 and $460.0 million a year ago. Core deposits, defined as non-interest-bearing checking, interest-bearing checking, money market accounts, savings accounts and retail certificates of deposit totaled $355.3 million at September 30, 2013 compared to $356.7 million at June 31, 2013, and $377.2 million a year ago.

Total assets were $535.5 million at September 30, 2013 compared to $536.1 million at June 30, 2013, and $556.8 million a year ago. Stockholders' equity improved to $64.6 million at September 30, 2013, compared to $62.1 million at June 30, 2012 and $50.8 million a year ago. Book value per common share increased 4.3% to $6.24 at September 30, 2013, compared to $5.98 at the end of June, and increased 5.2% compared to $5.93 a year earlier.

Company Overview

Community West Bancshares is a financial services company with headquarters in Goleta, California. The Company is the holding company for Community West Bank, which has five full-service California branch banking offices, in Goleta, Santa Barbara, Santa Maria, Ventura and Westlake Village. The principal business activities of the Company are Relationship banking, Mortgage lending and SBA lending.

The Company is prohibited from paying dividends on its common or preferred stock without the prior approval of the Federal Reserve Board (FRB). The FRB has denied payment of the quarterly $195,000 dividend on the preferred shares that were due from May 15, 2012 to August 15, 2013. Such amounts continue to be accrued as incurred and deducted from capital.

Safe Harbor Disclosure

This release contains forward-looking statements that reflect management's current views of future events and operations. These forward-looking statements are based on information currently available to the Company as of the date of this release. It is important to note that these forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including, but not limited to, the ability of the Company to implement its strategy and expand its lending operations.

COMMUNITY WEST BANCSHARES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited)
(in 000's, except per share data)
Three Months Ended Nine Months Ended
September 30, June 30, September 30, September 30, September 30,
2013 2013 2012 2013 2012
Interest income
Loans, including fees $ 6,871 $ 6,850 $ 7,324 $ 20,515 $ 23,236
Investment securities and other 187 175 188 532 631
Total interest income 7,058 7,025 7,512 21,047 23,867
Interest expense
Deposits 719 760 970 2,238 3,287
Other borrowings and convertible debt 328 401 433 1,136 1,386
Total interest expense 1,047 1,161 1,403 3,374 4,673
Net interest income 6,011 5,864 6,109 17,673 19,194
Provision for credit losses (1,563) (1,084) 1,293 (2,843) 5,176
Net interest income after provision for credit losses 7,574 6,948 4,816 20,516 14,018
Non-interest income
Other loan fees 229 385 302 844 847
Gains from loan sales, net 62 111 366 334 1,521
Document processing fees 114 145 109 369 283
Service Charges 75 85 98 245 327
Loan servicing, net 70 24 105 169 180
Other 134 52 77 292 300
Total non-interest income 684 802 1,057 2,253 3,458
Non-interest expenses
Salaries and employee benefits 3,114 3,371 2,899 9,999 8,526
Occupancy expense, net 452 458 451 1,365 1,365
Loan servicing and collection 511 347 366 1,111 1,257
Professional services 308 290 372 913 993
FDIC assessment 283 261 311 809 1,046
Advertising and marketing 94 187 59 374 218
Depreciation 78 74 78 226 231
Net loss on sales/write-downs of foreclosed real estate and repossessed assets 168 22 189 274 969
Data processing 128 125 127 403 407
Other 487 489 408 1,445 1,623
Total non-interest expenses 5,623 5,624 5,260 16,919 16,635
Income before provision for income taxes 2,635 2,126 613 5,850 841
Income tax expense -- -- -- -- --
Net Income $ 2,635 $ 2,126 $ 613 $ 5,850 $ 841
Dividends and accretion on preferred stock 262 262 253 786 785
Net income available to common stockholders $ 2,373 $ 1,864 $ 360 $ 5,064 $ 56
Earnings per share:
Basic $ 0.30 $ 0.30 $ 0.06 $ 0.75 $ 0.01
Diluted $ 0.29 $ 0.23 $ 0.06 $ 0.60 $ 0.01
COMMUNITY WEST BANCSHARES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in 000's, except per share data)
September 30, June 30, September 30, December 31,
2013 2013 2012 2012
Cash and cash equivalents $ 42,570 $ 34,072 $ 32,306 $ 27,891
Time and interest-earning deposits in other financial institutions 3,282 3,311 3,890 3,653
Investment securities 25,585 25,671 24,823 24,040
Loans:
Commercial 45,623 42,658 34,291 37,266
Commercial real estate 132,034 138,393 137,230 126,676
SBA 74,327 78,648 88,257 85,957
Manufactured housing 172,126 172,365 180,105 177,391
Single family real estate 10,011 9,873 9,953 9,945
HELOC 15,616 17,036 19,018 17,852
Consumer 186 195 250 232
Mortgage loans held for sale 1,088 1,526 5,733 8,223
Deferred fees 88 112 156 123
Total loans 451,099 460,806 474,993 463,665
Loans, net
Held for sale 64,187 64,133 62,894 68,694
Held for investment 386,912 396,673 412,099 394,971
Less: Allowance (11,654) (12,456) (15,055) (14,464)
Net held for investment 375,258 384,217 397,044 380,507
NET LOANS 439,445 448,350 459,938 449,201
Other assets 24,599 24,694 35,839 27,316
TOTAL ASSETS $ 535,481 $ 536,098 $ 556,796 $ 532,101
Deposits
Non-interest-bearing demand $ 55,462 $ 53,124 $ 54,466 $ 53,605
Interest-bearing demand 253,978 257,785 274,894 269,466
Savings 16,176 16,273 16,443 16,351
CDs over 100K 92,351 94,397 98,362 80,710
CDs under 100K 13,124 13,292 15,801 14,088
Total Deposits 431,091 434,871 459,966 434,220
Other borrowings 35,442 35,667 41,852 41,852
Other liabilities 4,300 3,474 4,165 2,980
TOTAL LIABILITIES 470,833 474,012 505,983 479,052
Stockholders' equity 64,648 62,086 50,813 53,049
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 535,481 $ 536,098 $ 556,796 $ 532,101
Shares outstanding 7,865 7,800 5,990 5,995
Book value per common share $ 6.24 $ 5.98 $ 5.93 $ 6.29
ADDITIONAL FINANCIAL INFORMATION
(Dollars in thousands except per share amounts)(Unaudited)
Quarter Ended Quarter Ended Quarter Ended Nine Months Ended
PERFORMANCE MEASURES AND RATIOS Sep. 30, 2013 Jun. 30, 2013 Sep. 30, 2012 Sep. 30, 2013 Sep. 30, 2012
Return on average common equity 21.91% 21.15% 6.89% 18.62% 4.72%
Return on average assets 1.95% 1.60% 0.43% 1.47% 0.28%
Efficiency ratio 83.99% 84.37% 73.40% 84.91% 73.44%
Net interest margin 4.89% 4.81% 4.65% 4.82% 4.63%
Quarter Ended Quarter Ended Quarter Ended Nine Months Ended
AVERAGE BALANCES Sep. 30, 2013 Jun. 30, 2013 Sep. 30, 2012 Sep. 30, 2013 Sep. 30, 2012
Average assets $ 535,552 $ 530,607 $ 564,609 $ 530,284 $ 593,091
Average earning assets 487,755 489,278 522,819 489,762 553,382
Average total loans 455,646 456,783 484,944 457,705 511,646
Average deposits 432,725 430,770 469,236 429,977 489,888
Average equity (including preferred stock) 63,214 55,632 50,796 57,439 50,789
Average common equity (excluding preferred stock) 47,716 40,201 35,564 42,007 35,632
EQUITY ANALYSIS Sep. 30, 2013 Jun. 30, 2013 Sep. 30, 2012
Total equity $ 64,648 $ 62,086 $ 50,813
Less: senior preferred stock 15,542 15,475 15,275
Total common equity $ 49,106 $ 46,611 $ 35,538
Common stock outstanding 7,866 7,800 5,990
Book value per common share $ 6.24 $ 5.98 $ 5.93
ASSET QUALITY Sep. 30, 2013 Jun. 30, 2013 Sep. 30, 2012
Nonaccrual loans $ 15,277 $ 20,660 $ 33,320
Nonaccrual loans/total loans 3.39% 4.48% 7.01%
REO and repossessed assets $ 3,975 $ 4,100 $ 3,761
Less: SBA/USDA-guaranteed amounts 2,282 2,640 0
Net REO and repossessed assets $ 1,693 $ 1,460 $ 3,761
Nonaccrual loans plus net REO 16,970 22,120 37,081
Nonaccrual loans plus net REO/total assets 3.17% 4.13% 6.66%
Net loan charge-offs in the quarter $ (761) $ 410 $ 1,684
Net charge-offs in the quarter/total loans -0.17% 0.09% 0.35%
Allowance for loan losses $ 11,654 $ 12,456 $ 15,055
Plus: Reserve for undisbursed loan commitments 73 76 127
Total allowance for credit losses $ 11,727 $ 12,532 $ 15,182
Total allowance for loan losses/total loans held for investment 3.01% 3.14% 3.65%
Total allowance for loan losses/nonaccrual loans 76.28% 60.29% 45.18%
Community West Bancshares
Tier 1 leverage ratio 12.10% 11.71% 8.98%
Tier 1 risk-based capital ratio 16.05% 15.00% 11.59%
Total risk-based capital ratio 17.68% 16.68% 14.66%
Community West Bank
Tier 1 leverage ratio 12.06% 11.65% 9.84%
Tier 1 risk-based capital ratio 15.89% 14.83% 12.62%
Total risk-based capital ratio 17.16% 16.10% 13.89%
INTEREST SPREAD ANALYSIS Sep. 30, 2013 Jun. 30, 2013 Sep. 30, 2012
Yield on interest-bearing deposits 0.76% 0.80% 0.93%
Yield on total loans 5.98% 6.01% 6.01%
Yield on investments 2.56% 2.40% 2.22%
Yield on earning assets 5.74% 5.76% 5.72%
Cost of deposits 0.66% 0.71% 0.82%
Cost of FHLB advances 2.93% 2.93% 2.93%
Cost of interest-bearing liabilities 1.01% 1.11% 1.22%

CONTACT: Charles G. Baltuskonis, EVP & CFO 805.692.5821 www.communitywestbank.comSource:Community West Bancshares