COMMUNITY WEST BANCSHARES / - Annual Report: 2014 (Form 10-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2014

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 incorporation or organization)		(I.R.S. Employer Identification No.)
445 Pine Avenue, Goleta, California		93117
(Address of principal executive offices)		(Zip code)

(805) 692-5821

(Registrant’s telephone number, including area code)

 

Securities registered under Section 12(b) of the Exchange Act:

 

Title of each class		Name of each exchange on which registered
Common Stock, No Par Value		Nasdaq Global Market

 

Securities registered under Section 12(g) of the Exchange Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes ☐ No ☒

 

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 during the past 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 ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer (Do not check if smaller reporting company) ☐	Smaller reporting company ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ☐ No ☒

 

The aggregate market value of common stock, held by non-affiliates of the registrant was $32,756,869 based on the June 30, 2014 closing price of $6.41 per common share, as reported on the Nasdaq Global Market.  For purposes of the foregoing computation, all executive officers, directors and five percent beneficial owners of the registrant are deemed to be affiliates.  Such determination should not be deemed to be an admission that such executive officers, directors or five percent beneficial owners are, in fact, affiliates of the registrant.

 

As of February 28, 2015, 8,203,658 shares of the registrant’s common stock were outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the 2015 Annual Meeting of Shareholders to be held on or about May 28, 2015 are incorporated by reference into Part III of this Report.  The proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the registrant's fiscal year ended December 31, 2014.

 

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INDEX

PART I			Page
	Forward-Looking Statements		3
	Item 1.	Business	3
	Item 1A.	Risk Factors	5
	Item 1B.	Unresolved Staff Comments	12
	Item 2.	Properties	12
	Item 3.	Legal Proceedings	12
	Item 4.	Mine Safety Disclosures (Not Applicable)	13
PART II
	Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	14
	Item 6.	Selected Financial Data	15
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
	Item 7A	Quantitative and Qualitative Disclosures About Market Risk	50
	Item 8.	Financial Statements and Supplementary Data	51
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	97
	Item 9A.	Controls and Procedures	97
	Item 9B.	Other Information	97
PART III
	Item 10.	Directors, Executive Officers and Corporate Governance	97
	Item 11.	Executive Compensation	98
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	98
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	98
	Item 14.	Principal Accountant Fees and Services	98
PART IV
	Item 15.	Exhibits and Financial Statement Schedules	98
SIGNATURES			101
CERTIFICATIONS			115

 

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PART I

 

Forward-Looking Statements

 

Certain statements contained in this Annual Report on Form 10-K (“Form 10-K”) are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  The Company intends such forward-looking statements be covered by the safe harbor provisions for forward-looking statements.  All statements other than statements of historical fact are “forward-looking statements” for purposes of Federal and State securities laws, including statements that related to or are dependent on estimates or assumptions relating to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts.

 

The forward-looking statements contained in this Form 10-K reflect our current views about future events and financial performance and involve certain risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from historical results and those expressed in any forward-looking statement, including those risks discussed under the heading “Risk Factors” in this Form 10-K.  Risks and uncertainties include those set forth in our filings with the Securities and Exchange Commission and the following factors that could cause actual results to differ materially from those presented: 1) reserve for loan losses may not be adequate to cover actual loan losses; 2) all of our lending involves underwriting risks; 3) dependency on real estate and events that negatively impact real estate; 4) future regulatory reforms from legislation will continue to have an impact on our business; 5) curtailment of government guaranteed loan programs could affect a segment of our business; 6) dependence on low-cost deposits; 7) ability to borrow from Federal Home Loan Bank (“FHLB”) or Federal Reserve Bank (“FRB”); 8) risk associated with changes in internal controls and processes; 9) our ability to compete in a highly competitive market; 10) our ability to recruit and retain qualified employees, especially seasoned relationship bankers; 11) the effects of terrorist attacks or threats of war; 12) perpetration of internal fraud; 13) risk of operating in a highly regulated industry and our ability to remain in compliance; 14) the effects of interest rates and interest rate policy; 15) exposure to environmental liabilities related to the properties we acquire title; 16) cyber security risks; and 17) risks related to ownership of our common stock and ability to raise capital.

 

For more information regarding risks that may cause our actual results to differ materially from any forward-looking statements, see “Risk Factors” beginning on page 5.  Forward-looking statements speak only as of the date they are made, the Company does not undertake any obligations to update forward-looking statements to reflect circumstances and or events that occur after the date the forward-looking statements are made.

 

Purpose

 

The following discussion is designed to provide insight on the financial condition and results of operations of Community West Bancshares and its wholly owned subsidiary Community West Bank N.A.  Unless otherwise stated, “the Company” refers to this consolidated entity.  This discussion should be read in conjunction with the Company’s Consolidated Financial Statements and notes to the Consolidated Financial Statements for the years ended December 31, 2014 and 2013, herein referred to as the “Consolidated Financial Statements”.  These Consolidated Financial Statements are presented beginning on page 53 of this Form 10-K.

ITEM 1.

BUSINESS

 

GENERAL

 

Community West Bancshares (“CWBC”), incorporated under the laws of the state of California, is a bank holding company providing full service banking through its wholly-owned subsidiary Community West Bank, N.A. (“CWB” or the “Bank”).  These entities are collectively referred to herein as the “Company”.

 

PRODUCTS AND SERVICES

 

Through its wholly owned bank, the Company provides a variety of financial products and services to customers including lending and deposit products.  The Company has primarily focused on meeting the needs of professionals, small to mid-sized businesses and individual households.

 

Relationship Banking

 

Relationship banking is conducted at the community level through five full-service branch offices in the cities of Goleta, Santa Barbara, Santa Maria, Ventura and Westlake Village, California.  The primary customers are small to mid-sized businesses in these communities and their owners and managers.

 

Through CWB the Company provides a variety of financial products and services to customers.  These products and services include deposit products such as checking accounts, savings accounts, money market accounts and fixed rate, fixed maturity certificates of deposits and lending products including; commercial, commercial real estate and consumer loans.

 

The competition in our markets is strong.  The Company has historically been successful due to its focus on high quality customer service and our experienced relationship bankers who have strong relationships within the communities we serve.

 

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Agricultural Loans for Real Estate and Operating Lines

 

The Company has an agricultural lending program for agricultural land, agricultural operational lines, and agricultural term loans for crops, equipment and livestock.  The primary product is supported by guarantees issued from the U.S. Department of Agriculture (“USDA”), Farm Service Agency (“FSA”), and the USDA Business and Industry loan program.  The FSA loans typically issue a 90% guarantee up to $1,392,000 (amount adjusted annually based on inflation) for up to 40 years.

 

CWB is an approved Federal Agricultural Mortgage Corporation (“Farmer Mac”) lender under the Farmer Mac I and Farmer Mac II Programs.  Under the Farmer Mac I Program, loans are sourced by CWB, underwritten, funded and serviced by Farmer Mac.  CWB receives an origination fee and an ongoing field servicing fee for maintaining the relationship with the borrower and performing certain loan compliance monitoring, and other duties as directed by the Central Servicer.  The Farmer Mac II Program was authorized by Congress in 1991 to establish a uniform national secondary market for originators and investors using the USDA guaranteed loan programs.  Under this program, CWB will sell the guaranteed portions of USDA loans directly to Farmer Mac’s subsidiary, Farmer Mac II LLC, services the loans, and retains the unguaranteed portions of those loans in accordance with the terms of the existing USDA guaranteed loan programs.  Eligible loans include FSA and Business and Industrial loans.  To participate in the program, CWB was subject to the requirement of purchasing 2,000 shares of Farmer Mac Class A Stock (“AGM”).

 

Mortgage Lending

 

The Company originates residential real estate loans primarily in the Central Coast of California.   At origination, the majority of these loans are classified as loans held for sale and sold into the secondary market.

 

Manufactured Housing

 

The Company has a financing program for manufactured housing to provide affordable home ownership generally to low-to-moderate income families that are purchasing or refinancing their manufactured house.  These loans are offered in approved mobile home parks throughout California primarily on the coast.  The parks must meet specific criteria.  The manufactured housing loans are secured by the manufactured home and are generally retained in the Company’s loan portfolio.

 

Small Business Administration Lending

 

CWB has been a preferred lender/servicer of loans guaranteed by the Small Business Administration (“SBA”) since 1990.  The Company originates SBA loans which can be sold into the secondary market.  The Company continues to service these loans after sale and is required under the SBA programs to retain specified amounts.  The two primary SBA loan programs that CWB offers are the basic 7(a) Loan Guaranty (“SBA 7(a)”) and the Certified Development Company (“CDC”), a Section 504 (“504”) program.

 

The SBA 7(a) serves as the SBA’s primary business loan program to help qualified small businesses obtain financing when they might not be eligible for business loans through normal lending channels.  Loan proceeds under this program can be used for most business purposes including working capital, machinery and equipment, furniture and fixtures, land and building (including purchase, renovation and new construction), leasehold improvements and debt refinancing.  Loan maturity is generally up to 10 years for working capital and up to 25 years for fixed assets.  The 7(a) loan is approved and funded by a qualified lender, guaranteed by the SBA and subject to applicable regulations.  In general, the SBA guarantees up to 85% of the loan amount depending on loan size.  The Company is required by the SBA to retain a contractual minimum of 5% on all SBA 7(a) loans.  The SBA 7(a) loans are typically variable interest rate loans.

 

The 504 program is an economic development-financing program providing long-term, low down payment loans to expanding businesses.  Typically, a 504 project includes a loan secured from a private-sector lender with a senior lien, a loan secured from a CDC (funded by a 100% SBA-guaranteed debenture) with a junior lien covering up to 40% of the total cost, and a contribution of at least 10% equity from the borrower.  Debenture limits are $5.0 million for regular 504 loans and $5.5 million for those 504 loans that meet a public policy goal.

 

CWB also offers Business & Industry ("B & I") loans.  These loans are similar to the SBA product, except they are guaranteed by the U.S. Department of Agriculture.  The guaranteed amount is generally 80%.  B&I loans are made to businesses in designated rural areas and are generally larger loans to larger businesses than the 7(a) loans.  Similar to the SBA 7(a) product, they can be sold into the secondary market.

 

The SBA has designated CWB as a "Preferred Lender".  As a Preferred Lender, CWB has been delegated the loan approval, closing and most servicing and liquidation authority responsibility from the SBA.

 

Loans to One Borrower

 

State banking law generally limits the amount of funds that a bank may lend to a single borrower.  Under federal law, the unsecured obligations of any one borrower to a national bank generally may not exceed 15% of the sum of the bank’s unimpaired capital and unimpaired surplus; and the secured and unsecured obligations of any one borrower to a bank generally may not exceed 25% of the unimpaired capital and unimpaired surplus of a national bank.

 

Foreign Operations

 

The Company has no foreign operations.  The bank provides loans, letters of credit and other trade-related services to commercial enterprises that conduct business outside the United States.

 

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Customer Concentration

 

The Company does not have any customer relationships that individually account for 10% of consolidated or segment revenues, respectively.

 

COMPETITION

 

The financial services industry is highly competitive.  Many of our competitors are much larger in total assets and capitalization, have greater access to capital markets, and offer a broader range of financial services than we can offer and may have lower cost structures.

 

This increasingly competitive environment is primarily a result of long term changes in regulation that made mergers and geographic expansion easier; changes in technology and product delivery systems and web-based tools; the accelerating pace of consolidation among financial services providers; and the flight of deposit customers to perceived increased safety.  We compete for loans, deposits and customers with other banks, credit unions, securities and brokerage companies, mortgage companies, insurance companies, finance companies, and other non-bank financial services providers.  This strong competition for deposit and loan products directly affects the rates of those products and the terms on which they are offered to consumers.

 

Technological innovation continues to contribute to greater competition in domestic and international financial services markets.

 

Mergers between financial institutions have placed additional pressure on banks to consolidate their operations, reduce expenses and increase revenues to remain competitive.  The competitive environment is also significantly impacted by federal and state legislation that makes it easier for non-bank financial institutions to compete with the Company.

 

EMPLOYEES

 

As of December 31, 2014, the Company had 116 full-time equivalent team members.  The Company's employees are not represented by a union or covered by a collective bargaining agreement.  Management believes that its employee relations are good.

 

GOVERNMENT POLICIES

 

The Company’s operations are affected by various state and federal legislative changes and by regulations and policies of various regulatory authorities, including those of the states in which it operates and the U.S. government.  These laws, regulations and policies include, for example, statutory maximum legal lending rates, domestic monetary policies by the Board of Governors of the Federal Reserve System which impact interest rates, U.S. fiscal policy, anti-terrorism and money laundering legislation and capital adequacy and liquidity constraints imposed by bank regulatory agencies.  Changes in these laws, regulations and policies may greatly affect our operations.  See “Item 1A Risk Factors – Curtailment of government guaranteed loan programs could affect a segment of our business” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Supervision and Regulation.”

 

Additional Available Information

 

The Company maintains an Internet website at http://www.communitywestbank.com.  The Company makes available its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended.  Other information related to the Company is available free of charge, through this website as soon as reasonably practicable after it has been electronically filed or furnished to the Securities Exchange Commission (“SEC”).  The SEC maintains an Internet site, http://www.sec.gov, in which all forms filed electronically may be accessed.  The Company’s internet website and the information contained therein are not intended to be incorporated in this Form 10-K.  In addition, copies of the Company’s annual report will be made available, free of charge, upon written request.

 

ITEM 1A.

RISK FACTORS

 

Investing in our common stock involves various risks which are specific to the Company.  Several of these risks and uncertainties, are discussed below and elsewhere in this report.  This listing should not be considered as all-inclusive.  These factors represent risks and uncertainties that could have a material adverse effect on our business, results of operations and financial condition.  Other risks that we do not know about now, or that we do not believe are significant, could negatively impact our business or the trading price of our securities.  In addition to common business risks such as theft, loss of market share and disasters, the Company is subject to special types of risk due to the nature of its business.  See additional discussions about credit, interest rate, market and litigation risks in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this report beginning on page 16 and additional information regarding legislative and regulatory risks in the “Supervision and Regulation” section beginning on page 39.

 

Difficult economic and market conditions have adversely affected our industry.

The financial performance of CWBC and CWB generally, and the ability of borrowers to pay interest on and repay the principal of outstanding loans and the value of the collateral securing those loans, are highly dependent upon the business and economic conditions in the market in which they operate and in the United States as a whole.  Although the U.S. and local economy continue to show modest signs of improvement, certain sectors remain soft, and unemployment remains relatively high in general and in the markets in which they operate.  Local governments and many businesses are still experiencing serious difficulties.  In addition, concerns about the performance of international economies, including potential impact of European debt, can impact the economy in the United States.  These economic pressures on consumers and businesses may adversely affect their business, financial condition, results of operations and stock prices.

 

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U.S. financial markets and economic conditions could adversely affect liquidity, results of operations and financial condition.

In the past, the impact of adverse economic events has been particularly acute in the financial sector.  Although CWBC and CWB are deemed to be “well-capitalized” and have not suffered any liquidity issues as a result of these events, the cost and availability of funds may be adversely impacted, and the demand for their products and services may decline, if the recovery from the recession does not continue. In view of the concentration of their operations and the collateral securing their loan portfolio in California, CWBC and CWB may be particularly susceptible to adverse economic conditions in the State of California.

 

Reserve for loan losses may not be adequate to cover actual loan losses.

 

The risk of nonpayment of loans is inherent in all lending activities, and nonpayment, if it occurs, may have an adverse effect on our financial condition and/or results of operations.  We maintain a reserve for loan losses to absorb estimated probable losses inherent in the loan and commitment portfolios as of the balance sheet date.  After a provision for loan losses of ($5.1 million) for the year, as of December 31, 2014, our allowance for loan losses was $7.9 million, or 1.84% of loans held for investment.  In addition, as of December 31, 2014, we had $17.9 million in loans on nonaccrual, $6.9 million of which are government guaranteed.  In determining the level of the reserve for loan losses, Management makes various assumptions and judgments about the loan portfolio.  We rely on an analysis of the loan portfolio based on historical loss experience, volume and types of loans, trends in classifications, volume and trends in delinquencies and non-accruals, national and local economic conditions and other pertinent information known at the time of the analysis.  If Management’s assumptions are incorrect, the reserve for loan losses may not be sufficient to cover losses, which could have a material adverse effect on our financial condition and/or results of operations.  While the allowance for loan losses was determined to be adequate at December 31, 2014, based on the information available to us at the time, there can be no assurance that the allowance will be adequate in the future.

 

On December 20, 2012, the FASB issued for public comment a Proposed ASU, Financial Instruments-Credit Losses (Subtopic 825-15) (the “Credit Loss Proposal”), that would substantially change the accounting for credit losses under U.S. GAAP. Under U.S. GAAP’s current standards, credit losses are not reflected in the financial statements until it is probable that the credit loss has been incurred. Under the Credit Loss Proposal, an entity would reflect in its financial statements its current estimate of credit losses on financial assets over the expected life of each financial asset.  The Credit Loss Proposal, if adopted as proposed, may have a negative impact on reported earnings, capital, regulatory capital ratios, as well as on regulatory limits which are based on capital of CWB since it would accelerate the recognition of estimated credit losses.

 

All of our lending involves underwriting risks.

 

Lending, even when secured by the assets of a business, involves considerable risk of loss in the event of failure of the business.  To reduce such risk, the Company typically takes additional security interests in other collateral of the borrower, such as real property, certificates of deposit, life insurance, and/or obtains personal guarantees.  Despite efforts to reduce risk of loss, additional measures may not prove sufficient as the value of the additional collateral or personal guarantees may be significantly reduced.  There can be no assurances that collateral values will be sufficient to repay loans should borrowers become unable to repay loans in accordance with their original terms.

Our dependence on real estate concentrated in the State of California.

 

As of December 31, 2014, approximately $213.0 million, or 43%, of our loan portfolio is secured by various forms of real estate, including residential and commercial real estate.  A decline in current economic conditions or rising interest rates could have an adverse effect on the demand for new loans, the ability of borrowers to repay outstanding loans and the value of real estate and other collateral securing loans.  The real estate securing our loan portfolio is concentrated in California.  A decline in the real estate market could materially and adversely affect the business of CWB because a significant portion of its loans are secured by real estate.  The ability to recover on defaulted loans by selling the real estate collateral would then be diminished and CWB would be more likely to suffer losses on loans.  Substantially all of the real property collateral is located in California.  If there is an additional decline in real estate values, especially in California, the collateral for their loans would provide less security.  Real estate values could be affected by, among other things, a worsening of economic conditions, an increase in foreclosures, a decline in home sale volumes, an increase in interest rates, continued high levels of unemployment, drought, earthquakes, brush fires and other natural disasters particular to California.

 

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California’s current drought may impact the economy.

At June 30, 2014, California was experiencing a severe drought in all areas of the state.  The DBO has indicated that University of California models indicate the 2014 drought could cause revenue losses of $1.6 billion with the overall impact on the economy exceeding $5 billion.  While CWB does not have a large portfolio of agricultural loans which would be most impacted by the drought, it is possible that the overall economy of California may be negatively impacted by this drought as the cost of water will rise thereby increasing the operating costs for businesses which could negatively affect their operating results, loan quality and collateral.

 

We operate in a highly regulated industry and the laws and regulations that govern our operations, corporate governance, executive compensation and financial accounting or reporting, including changes in them, or our failure to comply with them, may adversely affect us.

 

We are subject to extensive regulation and supervision that govern almost all aspects of our operations.  Intended to protect customers, depositors, consumers, deposit insurance funds and the stability of the U.S. financial system, these laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on our business activities, limit the dividend or distributions that we can pay, restrict the ability of institutions to guarantee our debt and impose certain specific accounting requirements that may be more restrictive and may result in greater or earlier charges to earnings or reductions in our capital than accounting principles generally accepted in the United States (“GAAP”).  Compliance with laws and regulations can be difficult and costly and changes to laws and regulations often impose additional compliance costs.  We are currently facing increased regulation and supervision of our industry as a result of the financial crisis in the banking and financial markets.  Such additional regulation and supervision may increase our costs and limit our ability to pursue business opportunities.  Further, our failure to comply with these laws and regulations, even if the failure was inadvertent or reflects a difference in interpretation, could subject us to restrictions on our business activities, fines and other penalties, any of which could adversely affect our results of operations, capital base and the price of our securities.  Further, any new laws, rules and regulations could make compliance more difficult or expensive or otherwise adversely affect our business and financial condition.

We are periodically subject to examination and scrutiny by a number of banking agencies and, depending upon the findings and determinations of these agencies, we may be required to make adjustments to our business that could adversely affect us.

 

Federal and state banking agencies periodically conduct examinations of our business, including compliance with applicable laws and regulations.  If, as a result of an examination, a federal banking agency were to determine that the financial condition, capital resources, asset quality, asset concentration, earnings prospects, management, liquidity sensitivity to market risk or other aspects of any of our operations has become unsatisfactory, or that we or our management is in violation of any law or regulation, it could take a number of different remedial actions as it deems appropriate.  These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative actions to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to change the asset composition of our portfolio or balance sheet, to assess civil monetary penalties against our officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance.  If we become subject to such regulatory actions, our business, results of operations and reputation may be negatively impacted.

 

Additional requirements imposed by the Dodd-Frank Act and related regulation could have an adverse effect on CWBC and CWB.

Recent government efforts to strengthen the U.S. financial system have resulted in the imposition of additional regulatory requirements. The Dodd-Frank Act provides for sweeping regulatory changes, including the following:

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the establishment of strengthened capital and liquidity requirements for banks and bank holding companies, including minimum leverage and risk-based capital requirements no less than the strictest requirements in effect for depository institutions as of the date of enactment;

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the requirement by statute that bank holding companies serve as a source of financial strength for their depository institution subsidiaries;

·

enhanced regulation of financial markets, including the derivative and securitization markets, and the elimination of certain proprietary trading activities by banks;

·

additional corporate governance and executive compensation requirements; enhanced financial institution safety and soundness regulations,

·

revisions in FDIC insurance assessment fees and a permanent increase in FDIC deposit insurance coverage to $250,000;

·

authorization for financial institutions to pay interest on business checking accounts; and

·

the establishment of new regulatory bodies, such as the Bureau of Consumer Financial Protection and the Financial Services Oversight Counsel, to identify emerging systemic risks and improve interagency cooperation.

Many of the provisions remain subject to final rulemaking and/or implementation.  Accordingly, CWBC and CWB cannot fully assess its impact on their respective operations and costs until final regulations are adopted and implemented.

 

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Current and future legal and regulatory requirements, restrictions, and regulations, including those imposed under Dodd-Frank, may adversely impact profitability of CWBC and CWB and may have a material and adverse effect on their business, financial condition, and results of operations.  They may also be required to invest significant management attention and resources to evaluate and make changes required by the legislation and related regulations and may make it more difficult for them to attract and retain qualified executive officers and employees.

The short-term and long-term impact of the new regulatory capital standards and the new capital rules is uncertain.

 

The federal banking agencies recently revised capital guidelines to reflect the requirements of the Dodd-Frank Act and to effect the implementation of the Basel III Accords.  The quantitative measures, established by the regulators to ensure capital adequacy, require that a bank holding company maintain minimum ratios of capital to risk-weighted assets.  These minimums are outlined above.  Various provisions of the Dodd-Frank Act increase the capital requirements of bank holding companies, such as the Company, and non-bank financial companies that are supervised by the Federal Reserve.  For CWBC, a bank holding company, common equity Tier 1 capital, a new category, includes only common stock, related surplus, retained earnings and qualified minority investments.  For further discussion of the capital rules, see “SUPERVISION AND REGULATION” herein.

 

Curtailment of government guaranteed loan programs could affect a segment of our business.

 

A segment of our business consists of originating and periodically selling government guaranteed loans, in particular those guaranteed by the USDA and the SBA.  From time to time, the government agencies that guarantee these loans reach their internal limits and cease to guarantee loans.  In addition, these agencies may change their rules for loans or Congress may adopt legislation that would have the effect of discontinuing or changing the loan programs.  Non-governmental programs could replace government programs for some borrowers, but the terms might not be equally acceptable.  Therefore, if these changes occur, the volume of loans to small business, industrial and agricultural borrowers of the types that now qualify for government guaranteed loans could decline.  Also, the profitability of these loans could decline.  As the funding of the guaranteed portion of 7(a) loans has historically been a portion of our business, the long-term resolution to the funding for the 7(a) loan program may have an unfavorable impact on our future performance and results of operations.

 

Our small business customers may lack the resources to weather a downturn in the economy.

 

One of the primary focal points of our business development and marketing strategy is serving the banking and financial services needs of small to medium-sized businesses and professional organizations.  Small businesses generally have fewer financial resources in terms of capital or borrowing capacity than do larger entities.  If economic conditions are generally unfavorable in our service areas, the businesses of our lending clients and their ability to repay outstanding loans may be negatively affected.  As a consequence, our results of operations and financial condition may be adversely affected.

 

 

 

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Changes in interest rates could adversely affect our profitability, business and prospects

 

Most of the Company’s assets and liabilities are monetary in nature, which subjects us to significant risks from changes in interest rates and can impact our net income and the valuation of our assets and liabilities.  Increases or decreases in prevailing interest rates could have an adverse effect on our business, asset quality and prospects.  The Company’s operating income and net income depend to a great extent on our net interest margin.  Net interest margin is the difference between the interest yields we receive on loans, securities and other earning assets and the interest rates we pay on interest-bearing deposits, borrowings and other liabilities.  These rates are highly sensitive to many factors beyond our control, including competition, general economic conditions and monetary and fiscal policies of various governmental and regulatory authorities, including the Federal Reserve.  If the rate of interest we pay on our interest-bearing deposits, borrowings and other liabilities increases more than the rate of interest we receive on loans, securities and other earning assets increases, our net interest income, and therefore our earnings, would be adversely affected.  The Company’s earnings also could be adversely affected if the rates on our loans and other investments fall more quickly than those on our deposits and other liabilities.

 

In addition, loan volumes are affected by market interest rates on loans.  Rising interest rates generally are associated with a lower volume of loan originations while lower interest rates are usually associated with higher loan originations.  Conversely, in rising interest rate environments, loan repayment rates will decline and in falling interest rate environments, loan repayment rates will increase.  The Company cannot guarantee that it will be able to minimize interest rate risk.  In addition, an increase in the general level of interest rates may adversely affect the ability of certain borrowers to pay the interest on and principal of their obligations.

 

Because of the geographic concentration of our assets, our business is highly susceptible to local economic conditions

 

Our business is primarily concentrated in Santa Barbara and Ventura counties in the State of California.  As a result of this geographic concentration, our financial condition and results of operations depend largely upon economic conditions in these market areas.  Deterioration in economic conditions in the markets we serve could result in one or more of the following: an increase in loan delinquencies; an increase in problem assets and foreclosures; a decrease in the demand for our products and services; and a decrease in the value of collateral for loans, especially real estate, in turn reducing customers’ borrowing power, the value of assets associated with problem loans and collateral coverage.

 

The Company faces substantial competition in all phases of our operations from a variety of different competitors.  Our competitors, including commercial banks, community banks, savings and loan associations, mutual savings banks, credit unions, consumer finance companies, insurance companies, securities dealers, brokers, mortgage bankers, investment advisors, money market mutual funds and other financial institutions, compete with lending and deposit-gathering services offered by us.  Increased competition in our markets may result in reduced loans and deposits.

 

There is very strong competition for financial services in the market areas in which we conduct our businesses from many local commercial banks as well as numerous national and commercial banks and regionally based commercial banks.  Many of these competing institutions have much greater financial and marketing resources than we have.  Due to their size, many competitors can achieve larger economies of scale and may offer a broader range of products and services than us.  If we are unable to offer competitive products and services, our business may be negatively affected.

 

---

If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired, which could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.

 

 

 

Terrorist attacks in the United States, as well as future events occurring in response or in connection to them including, without limitation, future terrorist attacks against United States targets, rumors or threats of war, actual conflicts involving the United States or its allies or military or trade disruptions, may impact our operations.  Any of these events could cause consumer confidence and savings to decrease or result in increased volatility in the United States and worldwide financial markets and economy.  Any of these occurrences could have an adverse impact on the Company’s operating results, revenues and costs and may result in the volatility of the market price for our securities, including our common stock, and impair their future price.

 

We may experience interruptions or breaches in our information system security.

 

We rely heavily on communications and information systems to conduct our business. Any failure, interruption or breach in the security of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan and other systems.  While we have policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of these information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed.  The occurrence of any failures, interruptions or security breaches of these information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.

 

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A failure in or breach of our operational or security systems or infrastructure, or those of our third party vendors and other service providers, including as a result of cyber attacks, could disrupt our businesses, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and cause losses

 

As a financial institution, we are susceptible to fraudulent activity that may be committed against us or our clients, which may result in financial losses to us or our clients, privacy breaches against our clients, or damage to our reputation.  Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, and other dishonest acts.  In recent periods, there has been a rise in electronic fraudulent activity within the financial services industry, especially in the commercial banking sector, due to cyber criminals targeting commercial bank accounts.  Consistent with industry trends, we have also experienced an increase in attempted electronic fraudulent activity in recent periods.

 

In addition, our operations rely on the secure processing, storage and transmission of confidential and other information on our computer systems and networks.  Although we take numerous protective measures to maintain the confidentiality, integrity and availability of our and our clients’ information across all geographic and product lines, and endeavor to modify these protective measures as circumstances warrant, the nature of the threats continues to evolve.  As a result, our computer systems, software and networks and those of our customers may be vulnerable to unauthorized access, loss or destruction of data (including confidential client information), account takeovers, unavailability of service, computer viruses or other malicious code, cyber attacks and other events that could have an adverse security impact and result in significant losses by us and/or our customers.  Despite the defensive measures we take to manage our internal technological and operational infrastructure, these threats may originate externally from third parties, such as foreign governments, organized crime and other hackers, and outsource or infrastructure-support providers and application developers, or the threats may originate from within our organization.  Given the increasingly high volume of our transactions, certain errors may be repeated or compounded before they can be discovered and rectified.

 

We also face the risk of operational disruption, failure, termination or capacity constraints of any of the third parties that facilitate our business activities, including exchanges, clearing agents, clearing houses or other financial intermediaries.  Such parties could also be the source of an attack on, or breach of, our operational systems, data or infrastructure.  In addition, as interconnectivity with our clients grows, we increasingly face the risk of operational failure with respect to our clients’ systems.

 

Although to date we have not experienced any material losses relating to cyber attacks or other information security breaches, there can be no assurance that we will not suffer such losses in the future.  Our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, the outsourcing of some of our business operations, and the continued uncertain global economic environment.  As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.

 

We maintain an insurance policy which we believe provides sufficient coverage at a manageable expense for an institution of our size and scope with similar technological systems.  However, we cannot assure that this policy will afford coverage for all possible losses or would be sufficient to cover all financial losses, damages, penalties, including lost revenues, should we experience any one or more of our or a third party’s systems failing or experiencing attack.

 

Litigation risks may have a material impact on our assets or results of operations.

 

We are involved in various matters of litigation in the ordinary course of business which, historically, have not been material to our assets or results of operations.  No assurances can be given that future litigation may not have a material impact on our assets or results of operations.

 

The Series A Preferred Stock impacts net income available to our common shareholders and earnings per common share and the Warrant may be dilutive to holders of our common stock.

The dividends on the Series A Preferred Stock reduce the net income available to common shareholders and our earnings per common share.  The Series A Preferred Stock also receives preferential treatment in the event of liquidation, dissolution or winding up of the Company.  Additionally, the ownership interest of the existing holders of our common stock will be diluted to the extent the outstanding warrant  (“Warrant”) issued  in conjunction with the Series A Preferred Stock is exercised.  The shares of common stock underlying the Warrant represent approximately 6.0% of the shares of our common stock outstanding as of December 31, 2014 (including the shares issuable upon exercise of the Warrant in total shares outstanding).  Although the Warrant holders have agreed not to vote any of the shares of common stock received upon exercise of the Warrant, a transferee of any portion of the Warrant or of any shares of common stock acquired upon exercise of the Warrant is not bound by this restriction.

 

---

We may be required to raise capital in the future, but that capital may not be available or may not be on acceptable terms when it is needed.

 

We are required by federal regulatory authorities to maintain adequate capital levels to support operations.  Our ability to raise additional capital is dependent on capital market conditions at that time and on our financial performance and outlook.  Pending regulatory changes, such as regulations to implement Basel III and the Dodd-Frank Act, may require us to have more capital than was previously required.  If we cannot raise additional capital when needed, we may not be able to meet these requirements, and our ability to further expand our operations through organic growth or through acquisitions may be adversely affected.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 2.

PROPERTIES

 

At December 31, 2014, the Company is headquartered at 445 Pine Avenue in Goleta, California.  This facility houses the Company's corporate offices and the mortgage loan division.  The Company operates five domestic branches one of which is owned.  All other properties are leased by the Company, including the corporate headquarters.

 

The Company continually evaluates the suitability and adequacy of its offices.  Management believes that the existing facilities are adequate for its present and anticipated future use.

 

ITEM 3.

LEGAL PROCEEDINGS

 

 

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ITEM 4.

MINE SAFETY DISCLOSURES (NOT APPLICABLE)

 

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PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

The Company’s common stock is traded on the Nasdaq Global Market (“NASDAQ”) under the symbol CWBC.  The following table sets forth the high and low sales prices on a per share basis for the Company’s common stock as reported by NASDAQ for the period indicated:

 

		2014 Quarters																2013 Quarters
		Fourth				Third				Second				First				Fourth				Third				Second				First
Range of stock prices:
High		$	6.90			$	7.00			$	7.20			$	8.30			$	6.73			$	5.97			$	5.00			$	5.10
Low			6.00				6.00				6.50				6.28				5.35				4.50				4.00				2.80
Cash Dividends Declared		$	0.02			$	0.02			$	-			$	-			$	-			$	-			$	-			$	-

 

There were no common dividends declared in the first and second quarters of 2014 and all of 2013.

 

Holders

 

As of February 27, 2015 the closing price of our common stock on NASDAQ was $6.73 per share.  As of that date, based on the records of our transfer agent, the company had approximately 259 stockholders of record of its common stock.

 

Preferred Stock Dividends

 

The Company’s Series A Preferred Stock paid cumulative dividends at a rate of 5% per year until February 15, 2014 then increased to a rate of 9% per year.  The Series A Preferred Stock has no maturity date and ranks senior to the common stock with respect to the payment of dividends and distributions and amounts payable upon liquidation, dissolution and winding up of the Company.

 

Common Stock Dividends

 

It is the Company’s intention to review its dividend policy on a quarterly basis.  The Company’s resumed paying cash dividends in the third quarter of 2014.  As a holding company with limited significant assets other than the capital stock of our subsidiary bank, CWBC’s ability to pay dividends depends primarily on the receipt of dividends from its subsidiary bank, CWB.  CWB’s ability to pay dividends to the Company is limited by California law and federal banking law.  See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Supervision and Regulation – CWBC – Limitations on Dividend Payments.”

 

Repurchases of Securities

 

As of December 31, 2014, the Company has completed redemption of 55% of the Series A Preferred Stock.  The Company redeemed 8,586 shares of preferred stock for $8.4 million and recognized a discount on the partial redemption of $0.2 million.  None of the shares of Series A Preferred Stock have been registered by the Company pursuant to Section 12 of the Exchange Act.

 

The Company did not repurchase any of its common securities during 2014 and does not currently have any publicly announced repurchase plan.  The Company's ability to repurchase shares of its common stock is subject to prior approval of the FRB.

 

Securities Authorized for Issuance under Equity Compensation Plans

The following table summarizes the securities authorized for issuance as of December 31, 2014:

Plan Category		Number of securities to be issued upon exercise of outstanding options, warrants and rights				Weighted-average exercise price of outstanding options, warrants and rights				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
		(a)				(b)				(c)
Plans approved by shareholders			456,550			$	5.61				520,475
Plans not approved by shareholders			-				-				-
Total			456,550			$	5.61				520,475

 

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ITEM 6.

SELECTED FINANCIAL DATA

 

The following summary presents selected financial data as of and for the periods indicated. You should read the selected financial data presented below in conjunction with “Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” and our consolidated financial statements and the related notes appearing elsewhere in this Form 10-K.

 

		Year Ended December 31,
		2014				2013				2012				2011				2010
		(in thousands, except per share amounts)
Results of Operations:
Interest income		$	28,004			$	27,866			$	31,368			$	36,542			$	39,234
Interest expense			3,275				4,332				5,949				8,250				9,957
Net interest income			24,729				23,534				25,419				28,292				29,277
Provision for loan losses			(5,135	)			(1,944	)			4,281				14,591				8,743
Net interest income after provision for loan losses			29,864				25,478				21,138				13,701				20,534
Non-interest income			2,197				2,831				4,281				3,211				4,015
Non-interest expenses			20,081				22,135				22,246				23,320				20,991
Income (loss) before income taxes			11,980				6,174				3,173				(6,408	)			3,558
Provision (benefit) for income taxes			4,934				(2,812	)			-				4,077				1,467
Net income (loss)		$	7,046			$	8,986			$	3,173			$	(10,485	)		$	2,091
Dividends and accretion on preferred stock			778				1,039				1,046				1,047				1,047
Net income (loss) available to common stockholders		$	6,268			$	7,947			$	2,127			$	(11,532	)		$	1,044
Per Share Data:
Income (loss) per common share - basic		$	0.77			$	1.13			$	0.36			$	(1.93	)		$	0.18
Income (loss) per common share - diluted		$	0.75			$	0.98			$	0.31			$	(1.93	)		$	0.18
Weighted average shares outstanding - basic			8,141				7,017				5,990				5,980				5,915
Weighted average shares outstanding - diluted			8,505				8,390				8,233				5,980				6,833
Shares outstanding at period end			8,203				7,867				5,995				5,990				5,916
Dividends declared per common share		$	0.04				-				-				-				-
Book value per common share		$	7.31			$	6.60			$	6.29			$	5.94			$	7.92
Selected Balance Sheet Data:
Net loans			487,256				462,005				449,201				532,716				580,632
Allowance for loan losses			7,887				12,208				14,464				15,270				13,302
Total assets			557,318				539,000				532,101				633,348				667,604
Total deposits			477,084				436,135				434,220				511,262				529,893
Total liabilities			490,311				471,444				479,052				582,722				605,962
Total stockholders' equity			67,007				67,556				53,049				50,626				61,642
Selected Financial and Liquidity Ratios:
Net interest margin			4.50	%			4.51	%			4.49	%			4.47	%			4.50	%
Return on average assets			1.25	%			1.69	%			0.55	%			-1.60	%			0.31	%
Return on average stockholders' equity			10.42	%			15.15	%			6.22	%			-16.98	%			3.42	%
Equity to assets ratio			12.02	%			12.53	%			9.97	%			7.99	%			9.23	%
Loan to deposit ratio			103.79	%			108.73	%			106.78	%			107.18	%			112.09	%
Capital Ratios:
Tier 1 leverage ratio			11.86	%			12.68	%			9.72	%			7.91	%			9.08	%
Tier 1 risk-based capital ratio			14.94	%			15.65	%			12.81	%			10.08	%			11.40	%
Total risk-based capital ratio			16.19	%			17.26	%			15.98	%			12.92	%			14.16	%
Selected Asset Quality Ratios:
Net charge-offs to average loans			-0.16	%			0.70	%			1.02	%			2.21	%			1.52	%
Allowance for loan losses to total loans			1.59	%			2.57	%			3.12	%			2.83	%			2.24	%
Allowance for loan losses to nonaccrual loans			71.52	%			72.51	%			64.50	%			53.26	%			104.98	%
Nonaccrual loans to gross loans			2.23	%			3.55	%			4.84	%			5.23	%			2.13	%
Nonaccrual loans and repossessed assets to total loans			2.25	%			4.35	%			5.24	%			6.45	%			3.56	%
Loans past due 90 days or more and still accruing interest to total loans			0.00	%			0.01	%			0.00	%			0.11	%			0.03	%

 

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ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis should be read in conjunction with “Item 8–Financial Statements and Supplementary Data.”  This discussion and analysis contains forward-looking statements that involve risk, uncertainties and assumptions.  Certain risks, uncertainties and other factors, including but not limited to those set forth under “ Forward-Looking Statements,” on page 3 of this Form 10-K, may cause actual results to differ materially from those projected in the forward-looking statements.

 

Financial Overview and Highlights

 

Community West Bancshares is a financial services company headquartered in Goleta, California that provides full service banking and lending through its wholly-owned subsidiary Community West Bank (“CWB”), which has five California branch banking offices in Goleta, Santa Barbara, Santa Maria, Ventura and Westlake Village.

 

Financial Result Highlights of 2014

 

Net income available to common stockholders for the Company of $6.3 million, or $0.75 per diluted share for 2014, compared to $7.9 million, or $0.98 per diluted share for 2013 and $2.1 million or $0.31 per diluted share for 2012.

 

The significant factors impacting earnings of the Company during 2014 were:

·

Net income of $7.0 million for 2014 compared to a net income of $9.0 million for 2013 and $3.2 million for 2012.

·

Net interest margin for the twelve months ended December 31, 2014 declined to 4.50% compared to 4.51% for the year ended 2013.

·

Provision for loan losses was ($5.1 million) for 2014 compared to ($1.9 million) in 2013 and $4.3 million in 2012, resulting from reduced loss factors and net charge-offs along with continued improvement in credit quality.  Net charge-offs were ($0.8 million) for 2014 compared to $0.3 million in 2013 and $5.1 million in 2012.

·

Income tax expense of $4.9 million for 2014 compared to income tax benefit of $2.8 million due to a reversal of deferred tax assets valuation allowance at December 31, 2013.

·

Net nonaccrual loans decreased to $11.0 million at December 31, 2014, compared to $16.8 million at December 31, 2013.

·

Allowance for loan losses was $7.9 million at December 31, 2014, or 1.84% of total loans held for investment compared to 2.98% at December 31, 2013.

·

Other assets acquired through foreclosure decreased to $0.1 million at December 31, 2014 from $3.8 million at December 31, 2013 primarily due to sales and the decreased volume of new foreclosed assets.

·

During 2014, the remaining $1.4 million of debentures were converted to 317,550 shares of common stock and $34,000 to cash.

·

Total loans increased 4.4% to $495.1 million at December 31, 2014 compared to $474.2 million at December 31, 2013.

·

During 2014, the Company redeemed 8,586 shares of Series A Preferred Stock for $8.4 million and recognized discount on partial redemption of $0.2 million.

The impact to the Company from these items, and others of both a positive and negative nature, will be discussed in more detail as they pertain to the Company’s overall comparative performance for the year ended December 31, 2014 throughout the analysis sections of this report.

A summary of our results of operations and financial condition and select metrics is included in the following table:

 

		Year Ended December 31,
		2014				2013				2012
		(in thousands, except per share amounts)
Net income available to common stockholders		$	6,268			$	7,947			$	2,127
Basic earnings per share			0.77				1.13				0.36
Diluted earnings per share			0.75				0.98				0.31
Total assets			557,318				539,000				532,101
Gross loans			495,143				474,213				463,665
Total deposits			477,084				436,135				434,220
Net interest margin			4.50	%			4.51	%			4.49	%
Return on average assets			1.25	%			1.69	%			0.55	%
Return on average stockholders' equity			10.42	%			15.15	%			6.22	%

 

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As a bank holding company, management focuses on key ratios in evaluating the Company’s financial condition and results of operations.  In the current economic environment, key ratios regarding asset credit quality and efficiency are more informative as to the financial condition of the Company than those utilized in a more normal economic period such as return on equity and return on assets.

 

Asset Quality

 

For all banks and bank holding companies, asset quality plays a significant role in the overall financial condition of the institution and results of operations.  The Company measures asset quality in terms of nonaccrual loans as a percentage of gross loans, and net charge-offs as a percentage of average loans.  Net charge-offs are calculated as the difference between charged-off loans and recovery payments received on previously charged-off loans.  The following table summarizes asset quality metrics:

		Year Ended December 31,
		2013				2013				2012
		(in thousands)
Non-accrual loans (net of guaranteed portion)		$	11,027			$	16,837			$	22,425
Non-performing assets			16,212				23,997				31,548
Non-accrual loans to gross loans			2.23	%			3.55	%			4.84	%
Net charge-offs to average loans			(0.16	)%			0.07	%			1.02	%

Asset and Deposit Growth

The ability to originate new loans and attract new deposits is fundamental to the Company’s asset growth.  The Company’s assets and liabilities are comprised primarily of loans and deposits.  Total assets increased to $557.3 million at December 31, 2014 from $539.0 million at December 31, 2013.  Total loans including net deferred fees and unearned income increased by $20.9 million, or 4.4%, to $495.1 million as of December 31, 2014 compared to December 31, 2013.  Total deposits increased to $477.1 million as of December 31, 2014 from $436.1 million as of December 31, 2013.

RESULTS OF OPERATIONS

The following table sets forth a summary financial overview for the comparable years:

		Year Ended December 31,								Increase				Year Ended December 31,								Increase
		2014				2013				(Decrease)				2013				2012				(Decrease)
		(in thousands, except per share amounts)
Consolidated Income Statement Data:
Interest income		$	28,004			$	27,866			$	138			$	27,866			$	31,368			$	(3,502	)
Interest expense			3,275				4,332				(1,057	)			4,332				5,949				(1,617	)
Net interest income			24,729				23,534				1,195				23,534				25,419				(1,885	)
Provision for credit losses			(5,135	)			(1,944	)			(3,191	)			(1,944	)			4,281				(6,225	)
Net interest income after provision for credit losses			29,864				25,478				4,386				25,478				21,138				4,340
Non-interest income			2,197				2,831				(634	)			2,831				4,281				(1,450	)
Non-interest expenses			20,081				22,135				(2,054	)			22,135				22,246				(111	)
Income before income taxes			11,980				6,174				5,806				6,174				3,173				3,001
Income taxes			4,934				(2,812	)			7,746				(2,812	)			-				(2,812	)
Net income		$	7,046			$	8,986			$	(1,940	)		$	8,986			$	3,173			$	5,813
Dividends and accretion on preferred stock			778				1,039				(261	)			1,039				1,046				(7	)
Net income available to common stockholders		$	6,268			$	7,947			$	(1,679	)		$	7,947			$	2,127			$	5,820
Income per share - basic		$	0.77			$	1.13			$	(0.36	)		$	1.13			$	0.36			$	0.78
Income per share - diluted		$	0.75			$	0.98			$	(0.23	)		$	0.98			$	0.31			$	0.67

 

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Interest Rates and Differentials

 

The following table illustrates average yields on interest-earning assets and average rates on interest-bearing liabilities for the periods indicated:

		Year Ended December 31,
		2014												2013
		Average Balance				Interest				Average Yield/Cost				Average Balance				Interest				Average Yield/Cost
Interest-Earning Assets		(in thousands)
Federal funds sold and interest-earning deposits		$	26,296			$	76				0.29	%		$	34,810			$	81				0.23	%
Investment securities			33,242				762				2.29	%			29,213				714				2.44	%
Loans (1)			489,598				27,166				5.55	%			457,847				27,071				5.91	%
Total earnings assets			549,136				28,004				5.10	%			521,870				27,866				5.34	%
Nonearning Assets
Cash and due from banks			1,642												1,122
Allowance for loan losses			(10,778	)											(13,240	)
Other assets			22,474												21,586
Total assets		$	562,474											$	531,338
Interest-Bearing Liabilities
Interest-bearing demand deposits			271,744				1,064				0.39	%			258,345				1,185				0.46	%
Savings deposits			15,923				202				1.27	%			16,334				290				1.78	%
Time deposits			123,354				1,397				1.13	%			102,495				1,441				1.41	%
Total interest-bearing deposits			411,021				2,663				0.65	%			377,174				2,916				0.77	%
Convertible debentures			241				30				12.45	%			4,354				442				10.15	%
Other borrowings			21,235				582				2.74	%			33,474				974				2.91	%
Total interest-bearing liabilities			432,497				3,275				0.76	%			415,002				4,332				1.04	%
Noninterest-Bearing Liabilities
Noninterest-bearing demand deposits			58,456												53,278
Other liabilities			3,921												3,755
Stockholders' equity			67,600												59,303
Total Liabilities and Stockholders' Equity		$	562,474											$	531,338
Net interest income and margin (2)						$	24,729				4.50	%						$	23,534				4.51	%
Net interest spread (3)											4.34	%											4.30	%

(1)

Includes nonaccrual loans.

(2)

Net interest income is the difference between the interest and fees earned on loans and investments and the interest expense paid on deposits and liabilities. The amount by which interest income will exceed interest expense depends on the volume or balance of earning assets compared to the volume or balance of interest-bearing deposits and liabilities and the interest rate earned on those interest-earning assets compared to the interest rate paid on those interest-bearing liabilities. Net interest margin is computed by dividing net interest income by total average earning assets. It is used to measure the difference between the average rate of interest earned on assets and the average rate of interest that must be paid on liabilities used to fund those assets. To maintain its net interest margin, the Company must manage the relationship between interest earned and paid.

(3)	Net interest spread represents average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities.

 

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		Year Ended December 31,
		2013												2012
		Average Balance				Interest				Average Yield/Cost				Average Balance				Interest				Average Yield/Cost
Interest-Earning Assets		(in thousands)
Federal funds sold and interest-earning deposits		$	34,810			$	81				0.23	%		$	31,237			$	71				0.23	%
Investment securities			29,213				714				2.44	%			35,093				807				2.30	%
Loans (1)			457,847				27,071				5.91	%			500,273				30,490				6.09	%
Total earnings assets			521,870				27,866				5.34	%			566,603				31,368				5.54	%
Nonearning Assets
Cash and due from banks			1,122												979
Allowance for loan losses			(13,240	)											(15,208	)
Other assets			21,586												28,590
Total assets		$	531,338											$	580,964
Interest-Bearing Liabilities
Interest-bearing demand deposits			258,345				1,185				0.46	%			280,831				1,839				0.65	%
Savings deposits			16,334				290				1.78	%			17,683				325				1.84	%
Time deposits			102,495				1,441				1.41	%			128,605				1,966				1.53	%
Total interest-bearing deposits			377,174				2,916				0.77	%			427,119				4,130				0.97	%
Convertible debentures			4,354				442				10.15	%			7,852				717				9.13	%
Other borrowings			33,474				974				2.91	%			40,090				1,102				2.75	%
Total interest-bearing liabilities			415,002				4,332				1.04	%			475,061				5,949				1.25	%
Noninterest-Bearing Liabilities
Noninterest-bearing demand deposits			53,278												52,196
Other liabilities			3,755												2,652
Stockholders' equity			59,303												51,055
Total Liabilities and Stockholders' Equity		$	531,338											$	580,964
Net interest income and margin (2)						$	23,534				4.51	%						$	25,419				4.49	%
Net interest spread (3)											4.30	%											4.29	%

(1)	Includes nonaccrual loans.

(2)

Net interest income is the difference between the interest and fees earned on loans and investments and the interest expense paid on deposits and liabilities. The amount by which interest income will exceed interest expense depends on the volume or balance of earning assets compared to the volume or balance of interest-bearing deposits and liabilities and the interest rate earned on those interest-earning assets compared to the interest rate paid on those interest-bearing liabilities..  Net interest margin is computed by dividing net interest income by total average earning assets. It is used to measure the difference between the average rate of interest earned on assets and the average rate of interest that must be paid on liabilities used to fund those assets. To maintain its net interest margin, the Company must manage the relationship between interest earned and paid.

(3)	Net interest spread represents average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities.

 

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The table below sets forth the relative impact on net interest income of changes in the volume of earning assets and interest-bearing liabilities and changes in rates earned and paid by the Company on such assets and liabilities.  For purposes of this table, nonaccrual loans have been included in the average loan balances.

		Year Ended December 31,												Year Ended December 31,
		2014 versus 2013												2013 versus 2012
		Increase (Decrease) Due to Changes in (1)												Increase (Decrease) Due to Changes in (1)
		Volume				Rate				Total				Volume				Rate				Total
		(in thousands)												(in thousands)
Interest income:
Investment securities		$	92			$	(44	)		$	48			$	(142	)		$	49			$	(93	)
Federal funds sold and other			(26	)			21				(5	)			10				-				10
Loans, net			1,743				(1,648	)			95				(2,519	)			(900	)			(3,419	)
Total interest income			1,809				(1,671	)			138				(2,651	)			(851	)			(3,502	)
Interest expense:
Interest checking			52				(173	)			(121	)			(103	)			(551	)			(654	)
Savings			(5	)			(83	)			(88	)			(24	)			(11	)			(35	)
Time deposits			236				(280	)			(44	)			(368	)			(157	)			(525	)
Other borrowings			(335	)			(57	)			(392	)			(193	)			65				(128	)
Convertible debentures			(512	)			100				(412	)			(355	)			80				(275	)
Total interest expense			(564	)			(493	)			(1,057	)			(1,043	)			(574	)			(1,617	)
Net increase		$	2,373			$	(1,178	)		$	1,195			$	(1,608	)		$	(277	)		$	(1,885	)

(1)

Changes due to both volume and rate have been allocated to volume changes.

Comparison of interest income, interest expense and net interest margin

 

The Company’s primary source of revenue is interest income.  Interest income for the year ended December 31, 2014 was $28.0 million, a slight increase from $27.9 million and a decrease from $31.4 million, respectively, for the years ended December 31, 2013 and 2012.  The interest income was impacted by decreased yields on earning assets in 2014 which declined to 5.1% compared to 5.34% for 2013 and 5.54% for 2012.  An increase in average earning assets to $549.1 million for 2014 compared to 2013 helped partially offset the declined yield.  The largest decrease was in yields on loans which declined to 5.55% for 2014 compared to 5.91% for 2013 and 6.09% for 2012.  Strong competition for quality new loans continued in 2014 which resulted in further margin compression.

 

Interest expense for the year ended December 31, 2014 compared to 2013 and 2012 decreased by $1.0 million and $2.6 million, respectively, to $3.3 million.  This decline was primarily due to decreased average cost of deposits and repayment and conversion of debt.  Average cost of deposits declined 11 basis points to 57 basis points in 2014 compared to the same period in 2013 and declined 29 basis points compared to 2012.  Interest expense on the convertible debentures and other borrowings decreased in 2014 compared to 2013 and 2012 due to the debenture conversions and repayment of higher cost Federal Home Loan Bank (“FHLB”) advances.

 

The net impact of the changes in yields on interest-earning assets and interest-bearing liabilities was to maintain the margin relatively flat.  The net interest margin was 4.50% for 2014 compared to 4.51% for 2013 and 4.49% in 2012.

 

Net interest income increased by $1.2 million for 2014 compared to 2013 and declined by $0.7 million, compared to 2013.

 

Total interest income declined by $3.5 million, or 11.1%, in 2013 compared to 2012.  The majority of the decline in interest income resulted from lower average earning assets and decreased yields in 2013 compared to 2012.  Total interest expense decreased by $1.6 million in 2013 compared to 2012 primarily due to decreased average cost of interest-bearing deposits.

 

Provision for loan losses

 

The provision for loan losses in each period is reflected as a charge against earnings in that period.  The provision for loan losses is equal to the amount required to maintain the allowance for loan losses at a level that is adequate to absorb probable losses inherent in the loan portfolio.  The provision (benefit) for loan losses was $(5.1 million) in 2014 compared to ($1.9 million) in 2013 and $4.3 million in 2012.  The provision benefit for 2014 resulted from $3.2 million from reduced historical loss factors, $0.8 million net recoveries, $0.7 million reduced credit qualitative factors and $0.6 million from improvements in impaired loans partially offset by $0.2 million provision due to loan growth and grade changes.  The result of the improvements in credit quality, historical loss rates and net recoveries was the ratio of the allowance for loan losses to loans held for investment decreased from 2.98% at December 31, 2013 to 1.84% at December 31, 2014.

 

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The following schedule summarizes the provision, charge-offs (recoveries) by loan category for the year ended December 31, 2014, 2013 and 2012:

		For the Year Ended December 31,
		Manufactured Housing				Commercial Real Estate				Commercial				SBA				HELOC				Single Family Real Estate				Consumer				Total
2014		(in thousands)
Beginning balance		$	5,114			$	2,552			$	2,064			$	1,951			$	280			$	245			$	2			$	12,208
Charge-offs			(543	)			(16	)			-				(171	)			-				(36	)			-				(766	)
Recoveries			143				857				149				393				24				4				-				1,570
Net charge-offs			(400	)			841				149				222				24				(32	)			-				804
Provision			(682	)			(1,934	)			(1,227	)			(1,107	)			(164	)			(21	)			-				(5,135	)
Ending balance		$	4,032			$	1,459			$	986			$	1,066			$	140			$	192			$	2			$	7,877
2013
Beginning balance		$	5,945			$	2,627			$	2,325			$	2,733			$	634			$	198			$	2			$	14,464
Charge-offs			(1,294	)			(349	)			(149	)			(547	)			(39	)			(179	)			(37	)			(2,594	)
Recoveries			257				1,243				212				559				3				8				-				2,282
Net charge-offs			(1,037	)			894				63				12				(36	)			(171	)			(37	)			(312	)
Provision			206				(969	)			(324	)			(794	)			(318	)			218				37				(1,944	)
Ending balance		$	5,114			$	2,552			$	2,064			$	1,951			$	280			$	245			$	2			$	12,208
2012
Beginning balance		$	4,629			$	3,528			$	2,734			$	3,877			$	349			$	150			$	3			$	15,270
Charge-offs			(3,652	)			(1,687	)			(656	)			(623	)			(76	)			(314	)			(8	)			(7,016	)
Recoveries			144				756				131				837				50				6				5				1,929
Net charge-offs			(3,508	)			(931	)			(525	)			214				(26	)			(308	)			(3	)			(5,087	)
Provision			4,824				30				116				(1,358	)			311				356				2				4,281
Ending balance		$	5,945			$	2,627			$	2,325			$	2,733			$	634			$	198			$	2			$	14,464

The percentage of net non-accrual loans to the total loan portfolio has decreased to 2.23% as of December 31, 2014 from 3.55% at December 31, 2013.

 

The allowance for loan losses compared to net non-accrual loans has decreased to 71.4% as of December 31, 2014 from 72.5% as of December 31, 2013.  Total past due loans declined to $1.4 million as of December 31, 2014 from $2.6 million as of December 31, 2013.  As of December 31, 2013, $0.4 million were guaranteed by the SBA.

 

Non-interest Income

 

The Company earned non-interest income primarily through fees related to services provided to loan and deposit customers, gains from loan sales, investment securities gains and other.

 

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The following tables present a summary of non-interest income for the periods presented:

		Year Ended December 31,								Increase				Year Ended December 31,								Increase
		2014				2013				(Decrease)				2013				2012				(Decrease)
		(in thousands)
Other loan fees		$	904			$	1,033			$	(129	)		$	1,033			$	1,124			$	(91	)
Gains from loan sales, net			186				361				(175	)			361				1,660				(1,299	)
Document processing fees			394				463				(69	)			463				407				56
Loan servicing, net			127				198				(71	)			198				268				(70	)
Service charges			284				318				(34	)			318				410				(92	)
Gains from sales of available-for-sale securities			-				-				-				-				121				(121	)
Other			302				458				(156	)			458				291				167
Total non-interest income		$	2,197			$	2,831			$	(634	)		$	2,831			$	4,281			$	(1,450	)

Total non-interest income declined by $0.6 million, or 22.4%, for 2014 compared to 2013. The decline in 2014 of other loan fees, gains from loan sales, net and document processing fees is mostly due to decreased mortgage and manufactured housing loan originations.  Loan servicing continued to decline as the related SBA loans had payments and prepayments during the year.  The Company had no SBA loan sales in 2014 or 2013.  Service charges declined slightly for 2014 compared to 2013, primarily from decreased fees received for insufficient fund checks.  Other income declined in 2014 compared to 2013 due to decreased deficiency judgment gains and one-time income at the holding company in 2013 for a sale of an equity investment.

 

Non-interest income decreased by $1.5 million to $2.8 million for 2013 compared to $4.3 million in 2012 primarily due to gains of $1.4 million in 2012 resulting from the sale of SBA and USDA loans and investment securities.  There were no such sales in 2013.

 

Non-Interest Expenses

 

The following tables present a summary of non-interest expenses for the periods presented:

		Year Ended December 31,								Increase				Year Ended December 31,								Increase
		2014				2013				(Decrease)				2013				2012				(Decrease)
		(in thousands)
Salaries and employee benefits		$	12,154			$	12,783			$	(629	)		$	12,783			$	11,514			$	1,269
Occupancy expense, net			1,852				1,814				38				1,814				1,829				(15	)
Professional services			1,551				1,219				332				1,219				1,484				(265	)
Loan servicing and collection			845				1,444				(599	)			1,444				1,492				(48	)
Advertising and marketing			608				512				96				512				367				145
Data processing			570				549				21				549				533				16
FDIC assessment			338				1,046				(708	)			1,046				1,342				(296	)
Depreciation			324				300				24				300				306				(6	)
Stock option expense			308				59				249				59				117				(58	)
Net (gain) loss on sales/write-downs of foreclosed real estate and repossessed assets			(435	)			388				(823	)			388				1,161				(773	)
Other			1,966				2,021				(55	)			2,021				2,101				(80	)
Total non-interest expenses		$	20,081			$	22,135			$	(2,054	)		$	22,135			$	22,246			$	(111	)

Total non-interest expenses for the year ended December 31, 2014 compared to 2013 decreased by $2.1 million, or 9.3% primarily due to decreased loan collection and related costs as a result of improved credit quality.  Net (gain) loss on sales/write-downs of foreclosed real estate and repossessed assets improved by $0.8 million in 2014 compared to 2013 due to improved asset values.  The FDIC insurance assessment was reduced by $0.7 million in 2014 compared to 2013 due to the improvement in the Company and release from regulatory agreements.  Loan servicing and collection expenses declined by $0.6 million in 2014 compared to 2013 as the volume of loans in collection and foreclosure declined. Salaries and benefits were $0.6 million lower in 2014 compared to 2013 mostly due to severance and commissions paid in 2013 when the Roseville office was closed.  Partially offsetting these declined expenses were increased costs associated with professional services of $0.3 million mostly from increased legal and consulting expenses.  Stock option expense also increased by $0.2 million as more options were granted in 2014 than in 2013 and the Company’s stock price has improved.  Advertising and marketing increased by $0.1 million in 2014 compared to 2013 as the Company shifted more resources to business development and customer focused events.

 

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Non-interest expenses decreased slightly to $22.1 million in 2013 compared to $22.2 million for 2012.  Salaries and benefits increased by $1.3 million in 2013 compared to 2012 due to increased staffing in the loan production and credit administration as well as severance paid on the closure of the Roseville SBA production office in the second quarter 2013.  In addition, advertising and marketing expense increased $0.1 million for the comparable periods mostly due to increased print media advertising.  These increases were mostly offset by decreased losses on sales and write-downs of foreclosed assets of $0.8 million, decreased professional services of $0.3 million and FDIC insurance of $0.3 million mostly the result of the decline in problem assets.

 

Income Taxes

 

The income tax provision for 2014 was $4.9 million compared to a benefit of $2.8 million in 2013 and no income tax expense in 2012.  The effective income tax rate was 41.2%, (45.5)% and 0%, respectively for 2014, 2013 and 2012.

 

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts and their respective tax bases including operating losses and tax credit carryforwards.  Net deferred tax assets are reported in the consolidated balance sheet as a component of total assets.

 

Accounting standards Codification Topic 740, Income Taxes, requires that companies assess whether a valuation allowance should be established against their deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard.

 

A valuation allowance is established for deferred tax assets if, based on weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets may not be realized.  Management evaluates the Company’s deferred tax assets for recoverability using a consistent approach which considers the relative impact of negative and positive evidence, including the Company’s historical profitability and projections of future taxable income.  The Company is required to establish a valuation allowance for deferred tax assets and record a charge to income if management determines, based on available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax assets may not be realized.

 

There was no valuation allowance on deferred tax assets at December 31, 2014 and 2013.  At December 31, 2013, the Company reversed $2.8 million of valuation allowance on its net deferred tax assets.

 

The Company is subject to the provisions of ASC 740, Income Taxes (ASC 740).  ASC 740 prescribes a more-likely-than-not threshold for the financial statement recognition of uncertain tax positions.  ASC 740 clarifies the accounting for income taxes by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  On a quarterly basis, the Company undergoes a process to evaluate whether income tax accruals are in accordance with ASC 740 guidance on uncertain tax positions.

 

Additional information regarding income taxes, including a reconciliation of the differences between the recorded income tax provision and the amount of tax computed by applying statutory federal and state income tax rates before income taxes, can be found in Note 7 “Income Taxes” to the consolidated financial statements of this annual report on Form 10-K beginning on page 80.

BALANCE SHEET ANALYSIS

 

Total assets increased $18.3 million to $557.3 million at December 31, 2014 compared to $539.0 million at December 31, 2013.  The majority of the increase was in total loans of $20.9 million, or 4.4%, to $495.1 million.  Investment securities increased by $2.5 million as the Company invested excess liquidity.

Total liabilities increased $18.9 million, or 4.0% to $490.3 million at December 31, 2014 from $471.4 million at December 31, 2013.  Total deposits increased by $41 million to $477.1 million at December 31, 2014 from $436.1 million at December 31, 2013.  The majority of this increase was due to deposit growth.  Non-interest bearing demand deposits increased by $4.9 million to $57.4 million at December 31, 2014 from $52.5 million at December 31, 2013.  Interest bearing demand deposits increased by $17.2 million to $275.6 million at December 31, 2014 compared to $258.4 million at December 31, 2013.  Certificates of deposit increased by $19.7 million to $128.8 million at December 31, 2014 compared to $109.1 million at December 31, 2013.  Partially offsetting these increases was a decrease in savings deposits of $0.9 million to $15.3 million at December 31, 2014 compared to $16.2 million at December 31, 2013.  Other borrowings and convertible debentures decreased by $21.4 million in 2014 as the Company converted the debentures to equity and repaid the majority of the outstanding FHLB advances.

Total stockholders’ equity declined slightly to $67.0 million at December 31, 2014 from $67.6 million at December 31, 2013.  This decrease was mostly from the redemption of $8.6 million of the preferred stock offset by net income for the year of $7.0 million.  In addition, the Company reinstated a quarterly dividend to common stockholders in the third quarter of 2014.

 

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The following tables present the Company’s average balances as of the dates indicated:

		December 31,
		2014								2013								2012
		Amount				Percent				Amount				Percent				Amount				Percent
ASSETS:		(dollars in thousands)
Cash and due from banks		$	1,642				0.3	%		$	1,122				0.2	%		$	979				0.2	%
Interest-earning deposits in other institutions			26,273				4.7	%			34,786				6.5	%			30,330				5.2	%
Federal funds sold			23				0.0	%			24				0.0	%			907				0.2	%
Investment securities available-for-sale			21,118				3.8	%			14,339				2.7	%			16,541				2.9	%
Investment securities held-to-maturity			9,008				1.6	%			10,862				2.0	%			13,393				2.3	%
FRB and FHLB stock			3,116				0.6	%			4,012				0.8	%			5,159				0.9	%
Loans - held for sale, net			67,361				12.0	%			64,259				12.1	%			62,906				10.8	%
Loans - held for investment, net			422,237				75.0	%			380,348				71.6	%			422,159				72.7	%
Servicing rights			479				0.1	%			654				0.1	%			732				0.1	%
Other assets acquired through foreclosure, net			1,961				0.3	%			3,821				0.7	%			3,869				0.7	%
Premises and equipment, net			2,977				0.5	%			3,013				0.6	%			3,070				0.5	%
Other assets			6,279				1.1	%			14,098				2.7	%			20,919				3.6	%
TOTAL ASSETS		$	562,474				100.0	%		$	531,338				100.0	%		$	580,964				100.0	%
LIABILITIES:
Deposits:
Non-interest bearing demand		$	58,456				10.4	%		$	53,278				10.0	%		$	52,196				9.0	%
Interest-bearing demand			271,744				48.3	%			258,345				48.6	%			280,831				48.3	%
Savings			15,923				2.8	%			16,334				3.1	%			17,683				3.0	%
Time certificates of $100,000 or more			103,633				18.4	%			86,810				16.3	%			99,831				17.2	%
Other time certificates			19,721				3.5	%			15,685				3.0	%			28,774				5.0	%
Total deposits			469,477				83.5	%			430,452				81.0	%			479,315				82.5	%
Other borrowings			21,476				3.8	%			37,828				7.1	%			47,942				8.2	%
Other liabilities			3,921				0.7	%			3,755				0.7	%			2,652				0.5	%
Total liabilities			494,874				88.0	%			472,035				88.8	%			529,909				91.2	%
STOCKHOLDERS' EQUITY
Preferred stock			11,287				2.0	%			15,466				2.9	%			15,193				2.6	%
Common stock			41,590				7.4	%			37,159				7.0	%			33,440				5.8	%
Retained earnings			14,840				2.6	%			6,759				1.3	%			2,369				0.4	%
Accumulated other comprehensive (loss) income			(117	)			(0.0	)%			(81	)			0.0	%			53				0.0	%
Total stockholders' equity			67,600				12.0	%			59,303				11.2	%			51,055				8.8	%
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	562,474				100.0	%		$	531,338				100.0	%		$	580,964				100.0	%