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Monday, July 30, 2012
Community West Bancshares Reports Second Quarter Results, Highlighted by Improved Credit Quality and Net Interest Margin Expansion
Goleta, California, July 30, 2012 – Community West Bancshares (Community West or the Company), (NASDAQ: CWBC), parent company of Community West Bank (Bank), today reported a net loss of $591,000 in the second quarter of 2012 (2Q12) compared to net income of $819,000 in the first quarter of 2012 (1Q12) and a net loss of $221,000 in the second quarter a year ago (2Q11). In the first six months of 2012, Community West reported net income of $228,000 compared to net income of $375,000 in the first six months of 2011.
This quarter’s loss included a $431,000 prepayment penalty resulting from paying off $17.0 million of borrowings from the Federal Home Loan Bank (FHLB) as part of the planned streamlining of the Company’s balance sheet.
“Our second quarter was highlighted by a continued reduction in deposit costs which resulted in an expansion of our net interest margin during the second quarter of 2012 to 4.78%, an increase of 30 basis points compared to the preceding quarter and an increase of 20 basis points compared to the same quarter a year ago,” stated Martin E. Plourd, President and Chief Executive Officer. “Our efforts have been focused on improving our core banking strategy while orderly reducing the balance sheet and diligently working to improve asset quality. This operational plan is aimed at continued stability to the organization by strengthening the balance sheet and returning the Bank to sustainable profitability and we believe we have made meaningful progress in all of these areas during the quarter, with non-performing assets and related credit costs declining compared to the preceding quarter. The majority of the discretionary reductions of the balance sheet were performed in the first six months of 2012.”
2Q12 Financial Highlights
Including $268,000 of dividends and accretion on preferred stock, the net loss applicable to common stockholders was $859,000, or $0.14 per diluted share, in 2Q12 compared a net loss applicable to common stockholders of $483,000, or $0.08 per diluted share, in 2Q11.
- Net interest margin was 4.78% in 2Q12, an increase of 6.7%, compared to 4.48% in 1Q12 and up from 4.58% in 2Q11.
- Nonaccrual loans were $32.8 million, or 6.7% of total loans at June 30, 2012, down 14.4% from $38.3 million, or 7.4% of total loans at March 31, 2012.
- Net real estate owned (REO), after subtracting the SBA guarantee, and repossessed assets decreased 58.2% to $2.1 million at June 30, 2012 compared to $4.9 million three months earlier and decreased 70.7% compared to $7.0 million a year earlier.
- The total allowance for loan losses equaled 3.59% of total loans held for investment at June 30, 2012, compared to 3.19% at March 31, 2012 and 3.09% a year ago.
- Community West Bank’s Total risk-based capital ratio was 13.41% and Tier 1 leverage ratio was 9.38% at June 30, 2012, an increase compared to the Bank’s Total risk-based capital ratio of 12.43% and Tier 1 leverage ratio of 8.52% at March 31, 2012. Under the Bank’s regulatory agreement, ratios of 12% and 9%, respectively, are required to be maintained.
Nonaccrual loans decreased 14.4% to $32.8 million, or 6.7% of total loans at June 30, 2012 compared to $38.3 million, or 7.4% of total loans at March 31, 2012. Nonaccrual loans were $29.7 million, or 5.2% of total loans at June 30, 2011.
Of the $32.8 million in nonaccrual loans, $21.6 million, or 65.9% were real estate loans, $1.3 million, or 4.1% were SBA loans, $8.8 million, or 26.9% were manufactured housing loans, $920,000, or 2.8% were commercial loans and $104,000, or 0.03% were other installment loans.
Net real estate owned (REO) and repossessed assets decreased 58.2% to $2.1 million at June 30, 2012 compared to $4.9 million three months earlier and decreased 70.7% compared to $7.0 million a year earlier.
Nonaccrual loans plus net REO and repossessed assets decreased to $34.9 million, or 6.1% of total assets, at June 30, 2012 compared to $43.2 million, or 6.9% of total assets, three months earlier and $36.8 million, or 5.7% of total assets, a year ago. Net charge-offs totaled $1.2 million in 2Q12, a decrease of 54.5%, compared to $2.5 million in 1Q12.
Community West’s loan loss provision was $1.90 million in 2Q12 compared to $1.98 million in 1Q12 and $3.16 million in 2Q11. The allowance for loan losses totaled $15.4 million at June 30, 2012, equal to 3.59% of total loans held for investment, compared to 3.19% at March 31, 2012 and 3.09% at June 30, 2011.
Income Statement Review
Second quarter net interest income was $6.6 million compared to $6.5 million in 1Q12 and $7.1 million in 2Q11. In the first half of 2012, net interest income was $13.1 million compared to $14.2 million in the first half of 2011. The second quarter net interest margin improved 30 basis points to 4.78%, compared to 4.48% in 1Q12 and improved 20 basis points compared to 4.58% in 2Q11. In the first six months of 2012, the net interest margin increased eight basis points to 4.63% compared to 4.55% in the first six months of 2011. Comparatively fewer loans were placed on nonaccrual in 2Q12.
Non-interest income was $513,000 in 2Q12 compared to $1.9 million in 1Q12 and $815,000 in 2Q11. In the first six months of 2012, non-interest income was $2.4 million compared to $1.6 million in the first six months of 2011. First quarter 2012 non-interest income included a $973,000 gain on sale of SBA loans.
Non-interest expenses were $5.8 million in 2Q12 compared to $5.6 million in 1Q12 and $5.1 million in 2Q11. The slight increase compared to the preceding quarter was primarily due to the FHLB advance prepayment fee of $431,000. In the first six months of 2012, non-interest expenses were $11.4 million compared to $10.9 million in the first six months of 2011.
“In an effort to strengthen the Bank and enhance our capital ratios, we continued in 2Q12 with an orderly reduction of the balance sheet,” said Charles G. Baltuskonis, Executive Vice President and Chief Financial Officer. “As a result, we again used excess cash to prepay FHLB advances and we are letting the higher interest-bearing certificates of deposit run off as we focus our efforts on growing low-cost core deposits.”
Net loans were $477.2 million at June 30, 2012 compared to $504.6 million at March 31, 2012 and $553.4 million at June 30, 2011. Community West sold $10.1 million of SBA loans during 1Q12. Commercial real estate loans outstanding were down 16.5% from year ago levels to $144.8 million at June 30, 2012 and comprise 29.4% of the total loan portfolio. Manufactured housing loans were down 5.0% from year ago levels to $183.3 million and represent 37.2% of total loans. Commercial loans were down 20.6% compared to a year ago and represent 7.6% of the total loan portfolio and SBA loans decreased 24.2% from a year ago and now represent 18.5% of the total loan portfolio.
Total deposits were $478.3 million at June 30, 2012 compared to $510.8 million at March 31, 2012, and $511.1 million at June 30, 2011. Non-interest-bearing accounts were $51.3 million at June 30, 2012 compared to $54.4 million at June 30, 2011. Interest-bearing accounts increased 2.0% to $280.6 million at June 30, 2012, compared to $275.1 million at June 30, 2011. Core deposits, defined as non-interest-bearing checking, interest-bearing checking, money market accounts, savings accounts and retail certificates of deposit totaled $380.8 million at June 30, 2012 compared to $390.3 million at June 30, 2011.
Total assets were $572.9 million at June 30, 2012 compared to $623.2 million at March 31, 2012, and $643.8 million at June 30, 2011. In addition to prepaying FHLB advances, the Bank received payoff on two large loans and has been active in working and reducing problem assets. Stockholders’ equity was $50.3 million at June 30, 2012, compared to $51.1 million at March 31, 2012 and $61.8 million at June 30, 2011. Book value per common share was $5.87 at June 30, 2012, compared to $6.01 at March 31, 2012 and $7.84 at June 30, 2011.
Management believes that the Bank has made substantial progress on addressing points noted by its regulators as part of its ongoing efforts to strengthen the Bank’s operations.
Community West Bank completed the following actions within the last 180 days to streamline the balance sheet and enhance its capital position:
Among other actions that will require prior Federal Reserve Board (FRB) approval, the Company will not be allowed to pay any dividends on its capital and preferred stock. The FRB has denied approving payment of the dividends on the Preferred Shares. $195,000 was due on May 15, 2012 and $195,000 will be due on August 15, 2012. Such amounts continue to be accrued as incurred and deducted from capital.
- Closed remaining out-of-state (CO, OR, UT and WA) SBA lending operations in February 2012.
- Sold $10.1 million of guaranteed SBA loans in March 2012, generating a net gain of $973,000.
- Prepaid $5.0 million of FHLB advances in March 2012 and another $17.0 million in April 2012.
- Sold $4.0 million of investment securities in March 2012 at a net gain of $121,000.
- Sold $3.0 million in REO and repossessed assets in 1Q12 and another $4.3 million in 2Q12.
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.
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.
Charles G. Baltuskonis, EVP & CFO