FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 AND 12CFR16.3
For the fiscal year ended December 31, 1997
Commission File Number: 000-23575
COMMUNITY WEST BANCSHARES
(Exact name of registrant as specified in its charter)
California 77-0446957
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5638 Hollister Avenue, Goleta, California 93117
(Address of Principal Executive Offices) (Zip Code)
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(Registrant's telephone number, including area code) (805) 692-1862
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 National Market tier of The NASDAQ Stock Market
Securities registered under Section 12(g) of the Exchange Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act and 12CFR16.3 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 [X] NO[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained, 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. [X]
There were 3,171,364 shares of common stock for the registrant issued and outstanding as of March 2, 1998. The aggregate market value of the voting stock, based on the closing price of the stock on the NASDAQ National Market on March 2, 1998, held by nonaffiliates of the registrant was approximately $31,000,000.
This Form 10-K contains 65 pages.
COMMUNITY WEST BANCSHARES
FORM 10-K
INDEX
PART I PAGES
ITEM 1. Description of Business 3
ITEM 2. Description of Property 5
ITEM 3. Legal Proceedings 6
ITEM 4. Submission of Matters to a Vote of Security Holders 6
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters 7
ITEM 6. Selected Financial Data 8
ITEM 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
ITEM 8. Consolidated Financial Statements 40
PART III
ITEM 9. Changes in and Disagreements with Accountants on 60
Accounting and Financial Disclosure
ITEM 10. Directors and Executive Officers of the Registrant 60
ITEM 11. Executive Compensation 61
ITEM 12. Security Ownership of Certain Beneficial Owners and Management 62
ITEM 13. Certain Relationships and Related Transactions 63
PART IV
ITEM 14. Exhibits and Reports of Form 8-K 63
SIGNATURES 65
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PART I
General
Community West Bancshares was incorporated in the State of California on November 26, 1996, for the purpose of forming a single bank holding company. On December 31, 1997, Community West Bancshares ("the Holding Company") acquired a 100% interest in Goleta National Bank ("the Bank"). Effective that date, shareholders of the Bank (NASDAQ:GLTB) became shareholders of the Holding Company (NASDAQ:CWBC) in a one-for-one exchange.
The Company opened for business as a national banking association on August 21, 1989. The deposits of the Company are insured up to the applicable limits by the FDIC, and the Company is a member of the Federal Reserve System. The Company's main office is located at 5827 Hollister Avenue, Goleta, California.
The Company offers a full range of commercial banking services, including the acceptance of demand, savings and time deposits, and the origination of commercial, U.S. Small Business Administration ("SBA"), accounts receivable, real estate, construction, home improvement, and other installment and term loans. It also offers cash management, remittance processing, electronic banking, merchant credit card processing, and other customary bank services to its customers.
The banking industry as a whole offers a broad range of products and services. Few companies today can effectively offer every product and service available. Accordingly, the Company continually investigates products and services with which it can attain a competitive advantage over others in the banking industry. In this way, management positions the Company to offer those products and services requested by its customers ahead of its competition.
The Company has been an approved lender/servicer of loans guaranteed by the SBA since late 1990. The Company originates SBA loans, sells the guaranteed portion into the secondary market, and services the loans. During 1995, the Company was designated as a Preferred Lender by the SBA. As a Preferred Lender, the Company has the ability to move loans through the approval process at the SBA much more quickly than financial institutions which do not have such a designation. As of December 31, 1997, the Company was the only SBA Preferred Lender head quartered in Santa Barbara County. In early 1998, the Company, through the Bank, was granted SBA Preferred Lender status in Georgia and Florida.
During 1994, the Company established a Mortgage Loan Processing Center. Through the Mortgage Loan Processing Center, the Company takes applications for residential real estate loans and processes those loans for a fee for lenders located throughout the nation. At any point in time, the Company processes loans for 50-70 such lenders. Because it has so many lenders for which it processes, the Company can offer many more loan programs than normally offered by any single institution. By virtue of the large number of loan programs being offered, the Company has developed the ability to remain ahead of its competition.
Also in 1994, the Company began offering home improvement loans under Title I of FHA regulations. This is the oldest government insured loan program in existence, having begun in 1934. The Company originates Title I loans and sells them into the secondary market and retains the servicing. In early 1995, the Company was approved as one of a small number of financial institutions to be able to sell Title I loans directly to the Federal National Mortgage Association ("FNMA"). This approval has given the Company a competitive advantage over nonapproved lenders because it can price loans at lower rates to customers and reduce or eliminate fees normally charged to customers, while at the same time increasing the profitability to the Company.
During 1996, the Company began offering 125 Loan-to-Value ( LTV') loans. These loans allow the borrower to receive up to 125% of their home value for debt consolidation, home improvement, school tuition, or any worthwhile cash outlay. There is an upper limit on these loans of $100,000. The Company relies principally on the creditworthiness of the borrower, and to a lesser extent on the underlying collateral, for repayment of these LTV loans; even though, the loans are secured primarily by a second lien on the property. The loan terms under the
program range from one to 25 years. In 1997, the Company sold these loans at a premium to third-parties. Goleta National Company is one of the few national banks offering the LTV loans; the competition is mainly mortgage and financing companies.
In 1996, the Company began accounts receivable financing, providing working capital to small and mid-sized manufacturers, distributors and merchants throughout Southern California. This division complements the Company's SBA and commercial lending products, in addition to generating a high annual yield.
Because of the development costs involved, most small community banks have difficulty providing electronic banking services to their customers. From its inception, the Company has invested heavily in the hardware and software necessary to offer today's electronic banking services. In addition to the normal banking services, the Company offers such services as on-line cash management, automated clearinghouse origination, electronic data interchange, remittance processing, draft preparation and processing, and merchant credit card processing. Not only do these services generate significant fee income, they attract companies with large deposit balances. These services have helped the Company remain at a competitive advantage over most institutions its size and many which are significantly larger than the Company.
On October 16, 1997, the Company paid $570,000 for a 70% interest in Electronic Paycheck, LLC, a California company that has developed systems to allow companies to pay their employees by issuing them a card or "electronic paycheck". The systems were originally developed to pay factory workers in Kazakhstan. The card is currently being used by companies in the agricultural sector to pay their workers, many of whom do not have bank accounts. The Company provides access to ATM and Point-of-Sale (POS) networks so that the cardholders have access to their cash at thousands of locations virtually worldwide.
Competition and Service Area
The banking business in California is highly competitive with respect to both loans and deposits; and is dominated overall by a relatively small number of major banks with many offices operating over wide geographic areas. Some of the major commercial banks operating in the communities nearby the Company's service area offer certain services such as trust and investment services and international banking which are not offered directly by the Company, and by virtue of their greater total capitalization, such banks have substantially higher lending limits than the Bank. To help offset the numerous branch offices of banks, thrifts, and credit unions, as well as competition from mortgage brokers, insurance companies, credit card companies, and brokerage houses within the Bank's service area, the Company has established loan production offices in Fresno, Bakersfield, Costa Mesa, Modesto, Santa Maria, Santa Barbara, Ventura/Oxnard, and West Covina in California, and in Las Vegas, Nevada, Atlanta, Georgia and Jacksonville, Pensacola, and Panama City Beach, Florida. The Company's on-line capabilities allow it to support these offices from its main computer center in Goleta, California. Part of the Company's strategy is to establish loan production offices in areas where there is high demand for the loan products which it originates.
In order to compete for loans and deposits within its primary service area, the Company uses to the fullest extent possible the flexibility which its independent status permits. This includes an emphasis on meeting the specialized banking needs of its customers, including personal contact by the Company's directors, officers, and employees, newspaper publications, direct mailings and other local advertising, and by providing experienced management and staff trained to deal with the specific banking needs of the Company's customers. Management has established a highly personal banking relationship with the Company's customers and is attuned and responsive to their financial and service requirements. In the event there are customers whose loan demands exceed the Company's lending limits, the Company seeks to arrange for such loans on a participation basis with other financial institutions and intermediaries. The Company also assists those few customers requiring highly specialized services not offered by the Company to obtain such services from correspondent institutions.
Employees
As of December 31, 1997, the Company employed 157 persons, including 2 principal officers. The Company's employees are not represented by a union or covered by a collective bargaining agreement. Management of the Company believes that, in general, its employee relations are excellent.
The Company owns the following property:
The Goleta National Bank Branch office, located at 5827 Hollister Avenue, Goleta, California. This 4,000 square foot facility houses the Company's main office. An adjacent 200 square foot buiding provides additional office space.
The Company leases the following properties:
The Company leases, under three separate leases, four suites in an office building at 5638 Hollister Avenue, Goleta, California, from an independent third party. The leases are for a term expiring May 31, 1998, with a current monthly rent of $8,188 per month for all four suites. The leases also provide the Company with two additional consecutive options of three years each to extend the leases. The suites consist of approximately 5,435 square feet of office space. These suites house the company's Corporate Office, Finance, Data Processing, Compliance, and Electronic Business Services departments of the Company, as well as the offices of the Company's subsidiary, Electronic Paycheck, LLC.
The Company leases approximately 1,500 square feet of office space located at 310 South Pine Avenue, Goleta, California, from an independent third party. The lease is for a term expiring October 1, 1998, with a current monthly rent of $800 per month. The lease also provides the company with two additional consecutive options of three years each to extend the lease. This facility houses the Special Assets and Loan Collection departments of the Company .
The Company leases under two separate leases approximately 2,718 square feet of office space located at 3891 State Street, Santa Barbara, California, from an independent third party. The lease is for a term expiring March 31, 2001, with a current monthly rent of $6,691 per month for both leases. The lease also provides the Company with two additional consecutive options of three years each to extend the lease. This facility houses the Retail and Wholesale Mortgage Lending departments of the Company.
The Company leases approximately 1,500 square feet of office space located at 1300 Eastman Avenue, Ventura, California, from an independent third party. The lease is for a term expiring August 31, 1998, with a current monthly rent of $2,506 per month. The lease also provides the Company with one option of three years to extend the lease. This facility houses the Ventura County Loan Production office and the Accounts Receivable Financing department of the Company.
The Company leases approximately 630 square feet of storefront space located at 2222 South Broadway, Suite E, Santa Maria, California, from an independent third party. The lease is for a term expiring October 31, 1998, with a current monthly rent of $900 per month. The lease also provides the Company with one option of 12 months to extend the lease. This facility houses the Santa Maria Loan Production office of the Company.
The Company leases approximately 1,032 square feet of storefront space located at 4170 South Decatur, Unit D-4, Las Vegas, Nevada, from an independent third party. The lease is for a term expiring February 28, 2000, with a current monthly rent of $1,806 per month. This facilitiy houses the Las Vegas, Nevada Loan Production office of the Company.
The Company leases approximately 6,380 square feet of space located at 5383 Hollister Avenue, 2nd Floor, Goleta, California, from an independent third party. The lease is for a term expiring November 30, 2002, with a current monthly rent of $8,613 per month. The lease also provides the Company with two options of
36 months to extend the lease. This facility houses the Alternative Mortgage lending, SBA lending, and Human Resources departments of the Company.
The Company also leases small executive suites on a month-to-month basis in Bakersfield, Fresno, Modesto, West Covina and Costa Mesa, California. The Company also has executive suites in Woodstock, Georgia, and Jacksonville, Pensacola, and Panama City Beach, Florida. These offices allow the Company to have a local presence for the production of loans while controlling the underwriting and funding of the loans at the main office in Goleta. The Company also leases on a month-to-month basis a storage unit and a portion of a parking lot, both, are located in Goleta.
The Company's total occupancy expense, exclusive of furniture and equipment expense, for the year ended December 31, 1997, was $774,000. Management believes that its existing facilities are adequate for its present purposes.
From time to time the Company is party to claims and legal proceedings arising in the ordinary course of business. After taking into consideration information furnished by counsel to the Company, management believes that the ultimate aggregate liability represented thereby, if any, will not have a material adverse effect on the Company's financial position or results of operations.
A special meeting of security holders of the Company was held October 30, 1997. The security holders voted on and passed a plan for a Company reorganization and consolidation. Under this plan, the Company became a wholly owned subsidiary of the newly formed holding company, Community West Bancshares in a one-for-one exchange of stock; for each share of Goleta National Bank held, they received a share of Community West Bancshares. This applied to both common stock and the outstanding common stock warrants. There was a total of 1,118,602, or 73.52%, proxies voted out of 1,521,423 possible votes. The following shows how the votes were cast:
FOR AGAINST ABSTAIN NON-VOTES
Number of Votes Received 1,073,838 19,932 24,832 402,821
Percentage of Total Shares 70.58% 1.31% 1.63% 26.48%
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As prospective shareholders of Community West Bancshares, the security holders also voted and passed the proposed Stock Option Plan for Community West Bancshares. This proposal received 1,118,602, or 73.52%, votes out of 1,521,423 possible votes. The following shows how the votes were cast:
FOR AGAINST ABSTAIN NON-VOTES
Number of Votes Received 1,102,128 2,431 14,043 402,821
Percentage of Total Shares 72.44% 0.16% 0.92% 26.48%
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PART II.
As of the close of business December 31, 1997, the common stock and warrants for Goleta National Bank, symbol "GLTB" and "GLTBW", respectively, were converted to Community West Bancshares common stock and warrants, symbol "CWBC" and "CWBCW" respectively. On January 5, 1998, NASDAQ National Market ("NASDAQ") listed the new common stock symbol "CWBC" for trading and the old symbol "GLTB" was removed. The outstanding warrants, "CWBCW" continue to trade Over-the-Counter ("OTC").
Prior to listing on NASDAQ, the stock was traded OTC under the symbol "GLTB". OTC quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. The common stock was listed on NASDAQ on November 19, 1996, under the symbol "GLTB". During the secondary stock offering which took place in the third quarter of 1996, warrants were issued. Each warrant entitles the holder to purchase two shares of common stock at an exercise price of $4.375 per share. The warrants expire on June 30, 1998, and are traded OTC under the new symbol "CWBCW". The following table sets forth the high and low sales prices on a per share basis for the common stock and a per warrant basis for the warrants, as reported by the respective exchanges for the period indicated:
Common Stock(1) Warrants
Low High Low High
--------------- -------- ---------- ----------
1996 First Quarter 3 3 7/32 Not Issued Not Issued
Second Quarter 3 1/2 3 1/2 Not Issued Not Issued
Third Quarter 3 5/8 4 1/2 1/2 1 1/8
Fourth Quarter 4 3/8 5 3/8 2 4
1997 First Quarter 5 1/4 8 1/4 3 1/2 7 1/2
Second Quarter 6 5/8 7 5/8 7 1/2 7 1/2
Third Quarter 6 3/8 9 3/4 5 3/4 7
Fourth Quarter 8 3/8 9 1/2 6 1/2 10 1/2
1998 First Quarter 8 7/8 14 9 5/8 16 1/2
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(1) As adjusted for the 1996 and 1998 2-for-1 stock splits.
On March 20, 1998, the last reported sale price per share for the Company's stock and warrants was $13 5/16 and $17 1/2 respectively.
The Company has declared and paid cash dividends per share of $.03, $.03, and $.04 in 1994, 1995 and 1996, respectively. The Company declared and issued a 10% stock dividend in 1995, and effected a 2-for-1 stock split in 1996. On January 23, 1998, the holding company, Community West Bancshares, announced a 2-for-1 stock split. This was effective for holders of record on February 3, 1998, and paid February 27, 1998.
The Company had approximately 423 shareholders of record of its common stock as of March 2, 1998.
SUMMARY OF EARNINGS
The following Summary of Earnings of the Company for the five years ended December 31, 1997, has been derived from the audited financial statements included elsewhere in this document. This summary should be read in conjunction with Financial Statements and Notes relating thereto which appear herein.
YEAR ENDED DECEMBER 31,(1)
----------------------------------------------------------
(Dollars in thousands, except per share data) 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
Interest income $ 8,009 $ 6,812 $ 6,504 $ 5,180 $ 3,682
Interest expense 2,910 2,425 2,451 1,680 1,104
---------- ---------- ---------- ---------- ----------
Net interest income 5,099 4,387 4,053 3,500 2,578
Provision for possible loan losses 260 435 360 700 305
---------- ---------- ---------- ---------- ----------
Net interest income after provision for
possible loan losses 4,839 3,952 3,693 2,800 2,273
Other operating income 9,432 6,620 4,481 2,514 828
Other operating expense 11,524 8,667 6,436 4,204 2,590
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Earnings before income taxes 2,747 1,905 1,738 1,110 511
Provision for income taxes 1,158 800 730 463 0
---------- ---------- ---------- ---------- ----------
Net income $ 1,589 $ 1,105 $ 1,008 $ 647 $ 511
========== ========== ========== ========== ==========
Earnings per common share - Basic $ 0.53 $ 0.47 $ .50 $ .35 $ 0.28
Earnings per common share - Diluted $ 0.44 $ 0.44 $ .47 $ .31 $ 0.25
Number of shares used in earnings per share
calculation (2) 3,016,208 2,356,162 2,013,830 1,829,284 1,825,284
Net Loans $ 59,315 $ 54,206 $ 46,472 $ 40,752 $ 43,263
Total Assets 87,468 72,718 64,245 57,136 57,392
Deposits 75,962 65,032 58,256 51,712 52,346
Total Liabilities 76,623 65,169 58,610 52,223 52,908
Total Equity 10,845 7,549 5,635 4,913 4,484
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(1) See Notes to Financial Statements for a summary of significant accounting policies and other related data.
(2) Earnings per common share information is based on the weighted average number of common shares outstanding during each period. Earnings per share amounts have been restated to reflect the 10% stock dividend issued in 1995 and the 2-for-1 stock splits in 1996 and 1998.
The following table sets forth selected ratios for the periods indicated:
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995 1994 1993
-------- ------ ------ ------ ------
Net earnings to average stockholder equity 14.64% 13.67% 17.89% 13.17% 12.86%
Net earnings to average total assets 1.82% 1.52% 1.57% 1.13% 1.10%
Total interest expense to total interest income 36.33% 35.59% 37.69% 32.43% 29.98%
Other operating income to other operating expense 81.85% 76.39% 69.63% 59.78% 31.97%
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The following is management's discussion and analysis of the significant changes in income and expense accounts presented in the Summary of Earnings for the three years ended December 31, 1997, 1996, and 1995.
This discussion is designed to provide a better understanding of significant trends related to the Company's financial condition, results of operations, liquidity, capital resources, and interest rate sensitivity. It should be read in conjunction with the audited financial statements and notes thereto and the other financial information appearing elsewhere in this filing.
Total interest income increased from $6,812,072 in 1996 to $8,009,432 in 1997, representing a 17.6% increase in 1997 over 1996. This increase in 1997 over 1996 was reflected by a 21.0% increase because of an increase in interest-earning assets offset by a 3.4% decrease because of lower rates. Total interest expense increased from $2,424,730 in 1996 to $2,910,450 in 1997, representing a 20.0% increase in 1997 compared to 1996. This increase was reflected by a 15.9% increase in interest-bearing liabilities and a 4.1% increase in rates paid on deposits. The result of these changes was net interest income increased from $4,387,342 in 1996 to $5,098,982 in 1997.
Total interest income increased from $6,504,315 in 1995 to $6,812,072 in 1996, representing a 4.7% increase in 1996 over 1995. This increase in 1996 over 1995 was reflected by a 7.1% increase because of an increase in interest-earning assets offset by a 2.4% decrease because of lower interest rates. Total interest expense decreased from $2,451,472 in 1995 to $2,424,730 in 1996, representing a 1.1% decrease in 1996 over 1995. This decrease was reflected by a 6.0% increase because of an increase in interest-bearing liabilities offset by a 7.1% decrease because of lower rates paid on deposits. The result of these changes was net interest income increased from $4,052,843 in 1995 to $4,387,342 in 1996.
1997 1996 1995
----------- ----------- -----------
Interest Income $8,009,432 $6,812,072 $6,504,315
Interest Expense 2,910,450 2,424,730 2,451,472
Net Interest Income 5,098,982 4,387,342 4,052,843
Net Interest Margin 6.6% 6.8% 7.0%
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The net interest margin (net interest income divided by average interest-earning assets) was 7.0% in 1995, 6.8% in 1996, and 6.6% in 1997. The difference in net interest margins in 1996 vs. 1995, and in 1997 vs. 1996, was primarily because of increases in volumes of earning assets. It should be noted, as a benchmark rate, the prime rate quoted in the Wall Street Journal was 9.0% at midyear 1995, by 1995 year-end, prime had fallen to 8.5%. In 1996, prime decreased slightly to 8.25%. Early in 1997, prime increased to 8.5% and has held steady at that rate.
The following table sets forth the changes in interest income and expense attributable to changes in rates and volumes:
Analysis of Changes in Net Interest Income
------------------------------------------------
Year Ended December 31,
-----------------------
(Dollars in thousands) 1997 Versus 1996 1996 Versus 1995 1995 Versus 1994
---------------------------- ---------------------------- ---------------------------
Change Change Change Change Change Change
Total Due to Due to Total Due to Due to Total Due to Due to
Change Rate Volume Change Rate Volume Change Rate Volume
-------- -------- -------- -------- -------- -------- ------- -------- --------
Time deposits in other
financial institutions $ 33 $ - $ 33 $ (86) $ (15) $ (71) $ 24 $ 53 $ (29)
Federal Funds sold 141 11 130 (22) (28) 6 105 81 24
Investment securities 15 (32) 47 52 (6) 58 33 3 30
Loans, net 1,008 3 1,005 364 (150) 514 1,163 388 775
-------- -------- -------- -------- -------- -------- ------- -------- --------
Total interest-earnings
assets 1,197 (18) 1,215 308 (199) 507 1,324 525 800
-------- -------- -------- -------- -------- -------- ------- -------- --------
Interest bearing demand
(NOW, MMDA) 8 (14) 22 (21) (24) 3 107 89 18
Savings (23) (12) (11) (27) (62) 35 184 62 122
Time certificates of deposit 500 66 434 22 (93) 115 481 435 46
-------- -------- -------- -------- -------- -------- ------- -------- --------
Total interest-bearing
liabilities 485 40 445 (26) (179) 153 772 586 186
-------- -------- -------- -------- -------- -------- ------- -------- --------
Net interest income $ 712 ($58) $ 770 $ 334 $ (20) $ 354 $ 553 $ (61) $ 614
======== ======== ======== ======== ======== ======== ======= ======== ========
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The change in interest income or interest expense that is attributable to both changes in rate and changes in volume has been allocated to the change due to rate and the change due to volume in proportion to the relationship of the absolute amounts of changes in each.
The following is a summary of changes in earnings of the Company for the years ended December 31, 1997, 1996, and 1995. This summary of changes in earnings should be read in conjunction with the Financial Statements and Notes relating thereto appearing elsewhere herein.
Year Ended December 31,
(Dollars in thousands) 1997 over 1996 1996 over 1995 1995 over 1994
--------------------- --------------------- --------------------
Amount Amount Amount
of % of of % of of % of
Change(1) Change(1) Change(1) Change(1) Change(1) Change(1)
---------- --------- ---------- --------- ---------- ---------
INTEREST INCOME
Interest and fees on loans $ 1,008 15.9% $ 364 6.1% $ 1,163 24.2%
Interest on federal funds sold 141 49.6 (22) (7.2) 105 51.7
Interest on time deposits in other
financial institutions 33 37.4 (86) (49.4) 24 16.0
Interest on investment securities 15 14.9 52 108.3 33 200.0
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Year Ended December 31,
(Dollars in thousands) 1997 over 1996 1996 over 1995 1995 over 1994
Amount Amount Amount
of % of of % of of % of
Change(1) Change(1) Change(1) Change(1) Change(1) Change(1)
---------- --------- ---------- --------- ---------- ---------
Total interest income 1,197 17.6 308 4.7 1,325 25.5
INTEREST EXPENSE
Interest on deposits 485 20.0 (26) (1.1) 772 45.9
---------- --------- ---------- --------- ---------- ---------
Net interest income 712 16.2 334 8.2 553 15.8
PROVISION FOR LOAN
LOSSES (175) (40.2) 75 20.8 (340) (48.6)
---------- --------- ---------- --------- ---------- ---------
Net interest income after
provision for loan losses 887 22.4 259 7.0 893 31.9
OTHER INCOME
Gains from loan sales 2,980 265.8 (313) (21.8) 63 4.7
Servicing from loan sales (1,493) (100.0) 405 37.1 1,089 100.0
Loan origination fees - sold or
brokered loans 903 43.9 1,326 181.4 477 187.8
Loan servicing fees (43) (6.4) 96 16.6 95 19.6
Service charges 306 51.9 218 58.6 85 29.6
Document processing fees 309 60.8 426 507.1 35 71.4
Other income (150) (86.2) (19) (9.8) 124 179.7
---------- --------- ---------- --------- ---------- ---------
Total other income 2,812 42.5 2,139 47.7 1,969 78.2
OTHER EXPENSE
Salaries and employee benefits 1,862 34.2 1,528 38.9 1,532 64
Occupancy expenses 323 27.2 199 20.2 269 37.5
Other operating expenses 71 (9.0) 139 21.5 197 43.5
Postage & freight 279 51.4 378 229.1 110 200.0
Advertising expense 166 53.3 29 10.3 117 70.9
Professional services 180 73.3 (72) (22.6) (8) (2.5)
Office supplies (24) (16.3) 31 27.9 15 15.6
---------- --------- ---------- --------- ---------- ---------
Total other expenses 2,857 33.0 2,231 34.7 2,232 53.1
Income before provision for
income taxes 842 44.2 167 9.7 629 56.7
---------- --------- ---------- --------- ---------- ---------
PROVISION FOR INCOME
TAXES 358 44.7 70 9.6 267 57.7
---------- --------- ---------- --------- ---------- ---------
NET INCOME $ 484 43.7% $ 97 9.6% $ 362 55.8%
========== ========= ========== ========= ========== =========
(1) Increase or (decrease) over previous year amount.
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Other income increased from $4,481,256 in 1995, to $6,620,491 in 1996, and to $9,432,215 in 1997, representing a 47.7% increase in 1996 over 1995 and a 42.5% increase in 1997 over 1996. The increase was because of continued emphasis by the Company on generating noninterest income. These year to year gains are a reflection of the increases in SBA loan originations, sales, and servicing, as well as increased growth in mortgage loan processing over the years, and the significant growth in the origination, sales, and servicing of home equity loans started in 1995. In addition, fees from electronic banking services have increased dramatically over the last three years. The Company's percentage coverage of other expenses with other income rose from 69.6% in 1995 to 76.4% in 1996 and 81.8% in 1997.
Other expenses include salaries and employee benefits, occupancy and equipment, and other operating expenses. The continued growth of the Company required additional staff and overhead expense to support the continued high level of customer service and increased the cost of occupying the Company's offices. Although compensation expenses have grown significantly, approximately 40% of the Company personnel derive some or all of their compensation based on income production. This means that a significant portion of compensation is tied to increases in revenues instead of being a fixed expense. Other expenses increased from $6,436,271 in 1995 to $8,666,933 in 1996 and to $11,523,906 in 1997, representing a 34.7% in 1996 over 1995 and a 33.0% increase in 1997 over 1996. The increases in other expenses for the periods compared were primarily because of compensation related to loan originations and sales, the increase in the number of loan production and processing offices, the upgrading of data processing hardware and software, and increased advertising.
The following table compares the various elements of other expenses as a percentage of average assets for the three years ended December 31, (in thousands except percentage amounts.)
Salaries Other
Average and Employee Occupancy Operating
Period Assets(1) Benefits Expenses Expenses
1997 $ 87,468 8.36% 1.72% 3.09%
1996 72,718 7.50% 1.63% 2.79%
1995 64,245 6.11% 1.54% 2.37%
(1) Based on the average of daily balances.
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Management allocated $260,000 as a provision for loan losses in 1997, $435,000 in 1996 and $360,000 in 1995. Loans charged off, net of recoveries, in 1997 were $383,469, in 1996 were $488,618 and in 1995 were $288,377. The ratio of the allowance for loan losses to total gross loans was 1.8% at December 3l, 1997, 2.4% at December 31, 1996, and 2.7% at December 31, 1995.
In management's opinion, the balance of the allowance for loan losses at December 31, 1997, was sufficient to sustain any foreseeable losses in the loan portfolio at that time.
Income taxes were $1,158,351 in 1997, $800,478 in 1996, and $730,000 in 1995.
The net income of the Company was $1,588,940 in 1997, $1,105,422 in 1996, and $1,007,828 in 1995. Earnings per share were $0.53 basic and $.44 diluted in 1997; $.47 basic and $.44 diluted in 1996; and $.50 basic and $.47 diluted in 1995; as adjusted to reflect the 1996 and 1998 2-for-1 stock splits and the 1995 10% stock dividend. The increases in net income for the past three years were the result of several factors. First, the earning assets of the Company have increased, resulting in an increase in net interest income. Second, the origination and sale of SBA loans has continued to grow, resulting in increased gains on sales and increased servicing income. Third, the increased volume of business in the Mortgage Loan Processing Center and Home Improvement Lending Department increased fee income, income from loan sales, and servicing income. Offsetting the income increase was an overall increase in expenses related to the production of income.
The Company has an asset and liability management program allowing the Company to maintain its interest margins during times of both rising and falling interest rates and to maintain sufficient liquidity. Liquidity of the Company at December 31, 1997, was 37.4%, at December 31, 1996, was 29.7%, and at December 31, 1995, was 23.8% based on liquid assets (consisting of cash and due from banks, deposits in other financial institutions, security investments, federal funds sold and loans available for sale) divided by total assets. Management believes it maintains adequate liquidity levels.
The shareholders' equity accounts of the Company increased from $6,113,041 at December 31, 1995, to $10,059,141 at December 31, 1996, and to $12,128,864 at December 31, 1997. In 1996, the Company raised approximately $2,800,000 through a secondary stock offering. This increased capital may be used for merger or acquisition activity, as well as to allow continued internal growth. As part of the secondary offering, 472,653 warrants were issued which entitle each holder to acquire two shares of common stock at an exercise price of $4.375 per share. The warrants expire on June 30, 1998. As of December 31, 1997, 33,770 warrants had been exercised, leaving 438,883 warrants outstanding, or $3,840,226 in potential additional capital.
The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total and Tier 1 capital (primarily common stock and retained earnings less goodwill) to risk-weighted assets, and of Tier 1 capital to average assets. Management believes, as of December 31, 1997, that the Company exceeds all capital adequacy requirements to which it is subject.
As of December 31, 1997 and 1996, the most recent notification from the FDIC categorized the Company as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since that notification which management believes have changed the Company's category.
The Company's actual capital ratios are presented below.
TO BE CATEGORIZED
AS WELL CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE ACTION
ACTUAL ADEQUACY PURPOSES PROVISIONS
------ ----------------- -------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
AS OF DECEMBER 31, 1997:
Total Capital (to Risk
Weighted Assets) $12,357,179 17.20% $5,746,643 >= 8% $7,183,304 >=10%
Tier I Capital (to Risk
Weighted Assets) $11,454,477 15.95% $2,873,321 >=4% $4,309,982 >=6%
Tier I Capital (to Average
Assets) $11,454,477 12.02% $3,812,315 >=4% $4,765,393 >=5%
AS OF DECEMBER 31, 1996:
Total Capital (to Risk
Weighted Assets) $ 9,406,022 14.88% $5,057,001 >= 8% $ 6,321,21 >=10%
Tier I Capital (to Risk
Weighted Assets) $ 8,608,032 13.61% $2,529,914 >=4% $3,794,871 >=6%
Tier I Capital (to Average
Assets) $ 8,608,032 11.33% $3,039,023 >=4% $3,798,778 >=5%
AS OF DECEMBER 31, 1995:
Total Capital (to Risk
Weighted Assets) $ 6,149,829 10.99% $4,476,673 >= 8% $5,595,841 >=10%
Tier I Capital (to Risk
Weighted Assets) $ 5,441,181 9.73% $2,236,868 >=4% $3,355,302 >=6%
Tier I Capital (to Average
Assets) $ 5,441,181 7.62% $2,856,263 >=4% $3,570,329 >=5%
|
The following schedule shows the average balances of the Company's assets, liabilities and shareholders' equity accounts and the percentage distribution of the items, computed using the daily a average balances, for the periods indicated.
Year Ended December 31,
-----------------------
1997 1996 1995
------- ---------- -------
Amount Percent(1) Amount Percent(1) Amount Percent(1)
------- ---------- ------- ---------- ------- ----------
ASSETS
--------------------------------
Cash and due from banks $ 3,203 3.7% $ 2,726 3.7% $ 2,378 3.7%
Federal funds sold 8,129 9.3 5,632 7.7 5,506 8.6
Time deposits in other financial
institutions 2,092 2.4 1,524 2.1 2,763 4.3
Investment Securities 3,887 4.4 1,636 2.2 672 1.0
|
Year Ended December 31,
-----------------------
1997 1996 1995
-------- ---------- --------
Amount Percent(1) Amount Percent(1) Amount Percent(1)
-------- ---------- -------- ---------- -------- ----------
Loans:
Commercial $13,637 15.6% $14,300 19.7% $13,821 21.5%
Real estate 20,612 23.6 19,418 26.7 14,546 22.6
Unguaranteed portions of loans
insured by the SBA 21,345 24.4 15,617 21.5 15,886 24.7
Installment 4,239 4.8 5,925 8.1 3,532 5.5
Loan participations purchased - real
estate 1,333 1.5 746 1.0 876 1.4
Less allowance for loan losses (1,333) (1.5) (1,351) (1.9) (1,484) (2.3)
Less net deferred loan fees and
premiums (30) - (26) - (41) (.1)
Less discount on loan pool purchase (488) (.6) (423) (.6) (664) (1.0)
-------- ---------- -------- ---------- -------- ----------
Net Loans 59,315 67.8 54,206 74.5 46,472 72.3
Loans held for sale 5,428 6.2 1,682 2.3 2,668 4.2
Other real estate owned 216 0.3 173 0.2 408 0.6
Premises and equipment, net 2,547 2.9 1,856 2.6 1,384 2.2
Excess servicing asset 788 .9 1,705 2.2 271 0.4
Accrued interest receivable and other
assets 1,863 2.1 1,578 2.2 1,994 2.7
-------- ---------- -------- ---------- -------- ----------
TOTAL ASSETS $87,468 100.0% $72,718 100.0% $64,245 100.0%
======== ========== ======== ========== ======== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $16,915 19.3% $13,862 19.1% $10,292 16.0%
Interest-bearing demand 12,936 14.8 12,277 16.9 12,185 19.0
Savings 10,413 11.9 10,699 14.7 9,703 15.1
Time certificates, $100,000 or more 14,533 16.6 10,336 14.2 7,651 11.9
Other time certificates 21,165 24.2 17,858 24.6 18,425 28.7
-------- ---------- -------- ---------- -------- ----------
Total deposits 75,962 86.8 65,032 89.4 58,256 90.7
Accrued interest payable and other
liabilities 661 0.8 137 0.2 354 0.5
-------- ---------- -------- ---------- -------- ----------
Total Liabilities 76,623 87.6 65,169 89.6 58,610 91.2
|
Year Ended December 31,
1997 1996 1995
Amount Percent(1) Amount Percent(1) Amount Percent(1)
------- ---------- ------- ---------- ------- ----------
Stockholders' equity
Common Stock 8,332 9.5 6,207 8.6 4,787 7.5
Retained earnings 2,513 2.9 1,342 1.8 848 1.3
------- ---------- ------- ---------- ------- ----------
Total stockholders' equity 10,845 12.4 7,549 10.4 5,635 8.8
------- ---------- ------- ---------- ------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $87,468 100.0% $72,718 100.0% $64,245 100.0%
======= ========== ======= ========== ======= ==========
|
One Year After One Year
or Less to Five Years Total
--------- ---------------- -------
December 31, 1997 Amount Yield Amount Yield Amount Yield
--------- ---------------- ------- ------ ------- ------
U.S. Treasury & Government Agencies $ 998 5.59% $ - N/A $ 998 5.59%
FRB Stock $ - $ - $ 251 5.99% $ 251 5.99%
--------- ---------------- ------- ------ ------- ------
Total $ 998 5.59% $ 251 5.99% $ 1,249 5.64%
========= ================ ======= ====== ======= ======
|
In addition to the above, the Company holds Interest-Only strip assets in the amount of $2,528,587. These Interest-Only strips represent the present value of the right to the excess cash flows generated by the sold loans that represent the difference between (a) interest at the stated rate paid by borrowers and (b) the sum of (i) pass-through interest paid to third-party investors, (ii) stipulated servicing fees and (iii) estimated loan portfolio losses. The Company determines the present value of this anticipated cash flow stream at the time of the loan sale close, utilizing valuation assumptions appropriate for each particular transaction.
The signnificant valuation assumptions are related to the anticipated average lives of the loans sold, the anticipated prepayment speeds and the anticipated credit losses related thereto. In order to determine the present value of this excess cash flow, the Company currently applies an estimated market discount rate of 11% to the expected pro forma gross cash flows, which are calculated utilizing the weighted average lives of the loans,. Accordingly, the overall effective discount rate utilized on the cash flows, net of expected credit losses is approximatley 11%. The annual prepayment rate of the loans is a function of full and partial prepayments and defaults. In the Interest-Only Strips' fair value estimates, the Company makes assumptions of the prepayment rates of the underlying loans, which the Company believes are reasonable. During fiscal 1997, the Company utilized proprietary prepayment curves generated by the Company (reaching an approximate maximum annual rate of 15%)
The following table summarizes the year-end balances and distributions of the Company's investment securities held on December 31, 1997, 1996, and 1995. (Dollars in thousands):a
December 31,
-------------
1997 1996 1995
------------- ------ ------
U.S. Treasury & Government Agencies $ 998 $1,998 $ 994
FRB Stock 251 156 137
------------- ------ ------
Total $ 1,249 $2,154 $1,131
============= ====== ======
|
LOAN PORTFOLIO
The Company's largest lending categories are commercial loans, real estate loans, unguaranteed portion of loans insured by the SBA, installment loans, loans held for sale and real estate loan participations purchased. These categories accounted for approximately 23.1%, 34.9%, 25.3%, 6.1%, 6.6% and 4.0%, respectively, of the Company's total loan portfolio at December 31, 1997, and approximately 26.8%, 36.6%, 15.1%, 7.2%, 13.0% and 1.3%, respectively, at December 31, 1996. Loans are carried at face amount, less payments collected, the allowance for possible loan losses, deferred loan fees and discounts on loans purchased. Interest on all loans is accrued daily on primarily a simple interest basis. It is generally the Company's policy to place loans on nonaccrual status when they are 90 days past due. Thereafter, interest income is no longer recognized and the full amount of all payments received, whether principal or interest, are applied to the principal balance of the loan. Problem loans are maintained on accrual status only when management of the Company is confident of full repayment within a very short period of time.
The rates of interest charged on variable rate loans are set at specified increments in relation to the Company's published prime lending rate or other appropriate indices and vary as those indices vary. At December 31, 1997, approximately 72% of the Company's loan portfolio was comprised of variable interest rate loans. At December 31, 1996, variable rate loans comprised approximately 62% of the Company's loan portfolio.
The distribution of the Company's total loans by type of loan as of the dates indicated is shown in the following table (dollars in thousands):
December 31,
--------------
Type of loan 1997 1996 1995
---------------------------------------------------- -------------- ------- -------
Commercial $ 13,195 $14,017 $14,615
Real estate 19,924 19,172 17,442
Unguaranteed portion of loans insured by SBA 19,602 14,708 13,581
Installment 3,467 3,777 4,345
Loan participations purchased 2,247 709 833
-------------- ------- -------
TOTAL 58,435 52,383 50,816
-------------- ------- -------
Less:
Allowance for loan losses 1,286 1,409 1,463
Deferred loan fees and premiums (3) 39 32
Discount on loan pool purchase 428 344 490
-------------- ------- -------
NET LOANS $ 56,724 $50,591 $48,831
============== ======= =======
Guaranteed and unguaranteed portion of certain loans
insured by SBA and FHA Title I loans held-for-sale $ 14,440 $ 6,809 $ 2,743
============== ======= =======
|
In addition to traditional commercial loans made to business customers, the Company occasionally extends lines of credit. On business credit lines, the Company specifies a maximum amount which it stands ready to lend to the customer during a specified period, in return for which the customer agrees to maintain its primary banking relationship with the Company. The purpose for which such loans will be used and the security therefor, if any, are generally determined before the Company's commitment is extended. Normally, the Company does not make loan commitments in material amounts for periods in excess of one year.
Real estate loans are primarily made for the purpose of purchasing, improving or constructing single family residences, and commercial and industrial properties.
Approximately 67% of the Company's real estate construction loans consist of loans secured by first trust deeds on the construction of owner-occupied single family dwellings and approximately 13% of the Company's construction loans consist of loans secured by second trust deeds on the construction of owner-occupied single family dwellings. Approximately 7% of the Company's construction loans consist of first trust deeds on commercial properties, and approximately 13% of the Company's construction loans consist of second trust deeds on commercial properties. Construction loans are generally written with terms of six to twelve months and usually do not exceed a loan to appraised value of 80%.
The Company is approved as a Preferred Lender by the SBA. Loans made by the Company under programs offered by the SBA are generally made to small businesses for the purchase of businesses, purchase or construction of facilities, purchase of equipment or working capital. The loans generally carry guarantees from the SBA ranging from 75% - 90% of the balance loaned. Borrowers usually are required to provide adequate collateral for these loans, similar to other commercial loans. The SBA does allow less-collateralized loans for its "Low Doc" program, loans of less than $100,000. When the Company originates SBA loans, it sells the guaranteed portion of the loans into the secondary market. The Company retains the unguaranteed portion of the loans, as well as the servicing on the loans, for which it is paid a fee. The loans are all variable rate based upon the Wall Street Journal Prime Rate. The servicing spread is a minimum of 1.00% on all loans. The gains recognized by the Company on the sales of the guaranteed portion of these loans and the ongoing servicing income received, are significant revenue streams for the Company.
While not a large portion of its loan portfolio, the Company does originate installment loans. These loans are comprised of automobile, small equity lines of credit and general personal loans. These loans are primarily variable rate with terms of five years or less.
The following table sets forth the amount of gross loans outstanding, of the Company as of December 31, 1997, 1996, and 1995, which, based on the remaining scheduled repayments of principal, have the ability to be repriced or are due in less than one year, in one to five years, or in more than five years.
1997 1996 1995
------- ---- ---------
(Dollars in Thousands) Fixed Variable Fixed Variable Fixed Variable
------- --------- ------- --------- ------- ---------
Less than One Year $ 8,319 $ 43,676 $ 6,269 $ 37,011 $ 3,345 $ 37,622
One Year to Five Years 7,996 - 9,011 - 9,964 -
After Five Years 12,884 - 6,901 - 1,615 -
Total $29,199 $ 43,676 $22,181 $ 37,011 $14,924 $ 37,622
======= ========= ======= ========= ======= =========
Yearly Total 1997 $ 72,875 1996 $ 59,192 1995 $ 52,546
|
The following table shows the Company's loan commitments outstanding at the dates indicated:
December 31,
-------------
(Dollars in thousands) 1997 1996 1995
------------- ------- ------
Commercial $ 12,298 $ 7,412 $6,077
Real estate 2,015 2,781 2,349
Loans insured by the SBA 4,177 1,195 142
Installment loans 1,171 1,429 1,304
Standby letters of credit 30 50 96
------------- ------- ------
Total commitments $ 20,391 $12,867 $9,968
============= ======= ======
|
Based upon prior experience and prevailing economic conditions, it is anticipated that approximately 90% of the commitments at December 31, 1997, will be exercised during 1998. All commercial commitments in the preceding table are commitments to grant such loans.
As a natural corollary to the Company's lending activities, some loan losses are experienced. The risk of loss varies with the type of loan being made and the creditworthiness of the borrower over the term of the loan. The degree of perceived risk is taken into account in establishing the structure of, and interest rates and security for, specific loans and for various types of loans. The Company attempts to minimize its credit risk exposure by use of thorough loan application and approval procedures.
The Company maintains a program of systematic review of its existing loans. Loans are graded for their overall quality. Those loans which the Company's management determines require further monitoring and supervision are segregated and reviewed on a periodic basis. Significant problem loans are reviewed on a monthly basis by the Company's Loan Committee.
The recorded investment in loans that are considered to be impaired under SFAS No. 114 was as follows:
DECEMBER 31,
1997 1996 1995
Impaired loans without specific valuation allowances $ 1,547,168 $ 764,388 $1,531,318
Impaired loans with specific valuation allowances 1,250,964 1,178,435 1,432,783
Specific Valuation allowance allocated to impaired loans (505,994) (432,853) (583,600)
-------------- ----------- -----------
Impaired loans, net $ 2,292,138 $1,509,970 $2,380,501
============== =========== ===========
Average investment in impaired loans $ 1,901,054 $1,945,236 $1,805,251
============== =========== ===========
Interest Income recognized on impaired loans $ 287,309 $ 85,559 $ 66,919
============== =========== ===========
|
It is generally the Company's policy to place loans on nonaccrual status when they are 90 days past due. Thereafter, interest income is no longer recognized and the full amount of all payments received, whether principal or interest, are applied to the principal balance of the loan. As such, interest income may be recognized on impaired loans to the extent they are not past due by 90 days or more.
At December 31, 1997, loans on nonaccrual status totaled $1,259,107, compared to $618,095 and $1,036,782 at December 31, 1996 and 1995. Upon the adoption of SFAS No. 114, the Company classified all loans on nonaccrual status as impaired. Accordingly, the impaired loans disclosed above include all loans that were on nonaccrual status as of December 31, 1997, 1996 and 1995.
Financial difficulties encountered by certain borrowers may cause the Company to restructure the terms of their loans to facilitate loan payments. As of December 31, 1997, 1996 and 1995, gross troubled debt restructured loans totaled $2,375,000, $843,000, and $436,000. In accordance with the provisions of SFAS No. 114, a troubled loan that is restructured subsequent to the adoption of SFAS No. 114 would generally be considered impaired, while a loan restructured prior to adoption would not be considered impaired if, at the date of measurement, it was probable that the Company would collect all amounts due under the restructured terms. Accordingly, the balance of impaired loans disclosed above includes all troubled debt restructured loans that, as of December 31, 1997, 1996, and 1995 are considered impaired.
Interest foregone on nonaccrual loans and troubled debt restructurings outstanding during the years ended December 31, 1997, 1996, and 1995 amounted to approximately $190,750, $225,955, and $96,036, respectively.
The Company charges off that portion of any loan which management considers to represent a loss. A loan is generally considered by management to represent a loss in whole or in part when an exposure beyond any collateral value is apparent, servicing of the unsecured portion has been discontinued or collection is not anticipated based on the borrower's financial condition and general economic conditions in the borrower's industry. The principal amount of any loan which is declared a loss is charged against the Company's allowance for loan losses.
The following table sets forth the amount of loans which were 30 to 89 days past due at the dates indicated:
December 31,
(Dollars in thousands) 1997 1996 1995
------------- ----- ------
Commercial $ 631 $ 786 $ 567
Real estate - 52 468
------------- ----- ------
Total $ 631 $ 838 $1,035
============= ===== ======
|
The following table sets forth the amount of loans which were on nonaccrual status at the dates indicated:
December 31,
(Dollars in thousands) 1997 1996 1995
------------- ----- ------
Commercial $ 1,259 $ 618 $ 595
Real estate - - 442
------------- ----- ------
Total $ 1,259 $ 618 $1,037
============= ===== ======
|
Year Ended December 31,
(Dollars in thousands) 1997 1996 1995
-------- -------- --------
BALANCES
Loans:
Average gross loans $66,595 $57,688 $51,329
Gross loans at end of period 72,875 59,192 53,559
Loans charged off 401 510 308
Recoveries of loans previously charged off 17 22 20
-------- -------- --------
Net loans charged off 384 489 288
-------- -------- --------
Allowance for possible loan losses 1,286 1,409 1,463
Provisions for possible loan losses 260 435 360
Ratios:
Net loan charge-offs to average loans .6% .8% .6%
Net loan charge-offs to loans at end of period .5% .9% .5%
Allowance for possible loan losses to average loans 1.9% 2.4% 2.9%
Allowance for possible loan losses to loans at end of period 1.8% 2.4% 2.7%
Net loan charge-offs to allowance for possible loan losses at
end of period 29.9% 34.7% 19.7%
Net loan charge-offs to provision for possible loan losses at
end of period 147.7% 112.4% 80.0%
|
The Company's allowance for loan losses is designed to provide for loan losses which can be reasonably anticipated. The allowance for loan losses is established through charges to operating expenses in the form of provisions for loan losses. Provisions for possible loan losses amounted to $260,000 in 1997, $435,000 in 1996 and $360,000 in 1995. Actual loan losses or recoveries are charged or credited, directly to the allowance for loan losses. The amount of the allowance is determined by management of the Company. Among the factors considered in determining the allowance for loan losses are the current financial condition of the Company's borrowers and the value of the security, if any, for their loans. Estimates of future economic conditions and their impact on various industries and individual borrowers are also taken into consideration, as are the Company's historical loan loss experience and reports of banking regulatory authorities. Because these estimates, factors and evaluations are primarily judgmental, no assurance can be given as to whether or not the Company will sustain loan losses substantially higher in relation to the size of the allowance for loan losses or that subsequent evaluation of the loan portfolio may not require substantial changes in such allowance.
At December 31, 1997, 1996, and 1995, the allowance was 1.8%, 2.4%, and 2.7% respectively, of the gross loans then outstanding, respectively. Although the current level of the allowance is deemed adequate by management, future provisions will be subject to continuing reevaluation of risks in the loan portfolio.
Management of the Company reviews with the Board of Directors the adequacy of the allowance for possible loan losses on a quarterly basis. The loan loss provision is adjusted when specific items reflect a need for such an adjustment. Management of the Company charged off loans totaling $400,745 in 1997, $510,494 in 1996, and $308,287 in 1995. Recoveries of loans previously charged off were $17,276 in 1997, $21,876 in 1996, and $19,910 in 1995. Management believes that there were no material loan losses during the last fiscal year that have not been charged off. Management also believes that the Company has adequately reserved for all individual items in its portfolio which may result in a material loss to the Company. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE SUMMARY OF EARNINGS - Provision for Loan Losses".
The Investment Policy of the Company sets forth the types and maturities of investments the Company may hold. The policy is quite conservative and allows no derivative type investments. As a practical matter, because the Company originates such a high volume of loans and, therefore uses most of its resources to fund those loans, the Company's investment portfolio is short term in nature and of high quality. As of December 31, 1997, the only investment securities held by the Company were the Federal Reserve Bank stock required to be held by the Company and two $500,000 U.S. Treasury Notes pledged as collateral for the Company's Treasury, Tax & Loan Account. The Company's investment portfolio is reviewed by the Chief Financial Officer of the Company on a daily basis and by the Investment Committee of the Board of Directors on a quarterly basis.
Certain information concerning interest-earning assets and interest-bearing liabilities and yields thereon is set forth in the following table. Amounts outstanding are daily average balances:
(DOLLARS IN THOUSANDS) YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
-------- -------- --------
INTEREST-EARNING ASSETS:
Time deposits in other
financial institutions:
Average outstanding $ 2,092 $ 1,524 $ 2,763
Average yield 5.8% 5.8% 6.3%
Interest income $ 121 $ 88 $ 174
Federal funds sold:
Average outstanding $ 8,129 $ 5,632 $ 5,506
Average yield 5.2% 5.0% 5.5%
Interest income $ 424 $ 283 $ 305
U.S. Government Investment
securities:
Average outstanding $ 1,830 $ 1,489 $ 535
Average yield 5.6% 6.1% 7.5%
Interest income $ 102 $ 91 $ 40
Federal Reserve Bank Stock
Investment securities:
Average outstanding $ 215 $ 147 $ 137
Average yield 6.0% 6.1% 5.8%
Interest income $ 13 $ 9 $ 8
22
|
Loans:
Average net outstanding $64,743 $55,888 $49,140
Average yield 11.4% 11.3% 12.2%
Interest income $ 7,350 $ 6,341 $ 5,977
TOTAL INTEREST-EARNING ASSETS:
Average outstanding $77,009 $64,680 $58,081
Average Yield 10.4% 10.5% 11.2%
Interest income $ 8,009 $ 6,812 $ 6,504
INTEREST-BEARING LIABILITIES:
Interest-bearing demand
accounts:
Average outstanding $12,936 $12,277 $12,185
Average yield 3.4% 3.5% 3.7%
Interest expense $ 442 $ 434 $ 455
Savings deposits:
Average outstanding $10,413 $10,699 $ 9,703
Average yield 3.8% 3.9% 4.5%
Interest expense $ 391 $ 414 $ 441
Time certificates of deposit:
Average outstanding $35,698 $28,194 $26,076
Average yield 5.8% 5.6% 6.0%
Interest expense $ 2,077 $ 1,577 $ 1,555
TOTAL INTEREST-BEARING
LIABILITIES:
Average outstanding $59,047 $51,170 $47,964
Average yield 4.9% 4.7% 5.1%
1997 1996 1995
-------- -------- --------
Interest expense $ 2,910 $ 2,425 $ 2,451
Net interest income 5099 4387 4053
AVERAGE NET INTEREST MARGIN
ON INTEREST-EARNING ASSETS 6.6% 6.8% 7.0%
|
The Company has two federal funds lines of credit with its correspondent banks, of $2,700,000. This line has never been used. At times when the Company has more funds than it needs for its reserve requirements or short term liquidity needs, the Company increases its securities investments and sells federal funds. It is management's policy to maintain a substantial portion of its portfolio of assets and liabilities on a short-term or highly liquid basis in order to maintain rate flexibility and to meet loan funding and liquidity needs.
The following table shows the Company's average deposits for each of the periods indicated below, based upon average daily balances:
Year Ended December 31,
-----------------------
(Dollars in thousands) 1997 1996 1995
-------- --------- --------
Average Percent Average Percent Average Percent
Balance of Total Balance of Total Balance of Total
-------- --------- -------- --------- -------- ---------
Non-interest-bearing demand $ 16,915 22.3% $ 13,853 21.3% $ 10,292 17.7%
Interest-bearing demand 12,936 17.0% 12,277 18.9% 12,185 20.9%
Savings 10,413 13.7% 10,699 16.5% 9,703 16.7%
TCDs of $100,000 or more 14,533 19.1% 10,336 15.9% 7,651 13.1%
Other TCDs 21,165 27.9% 17,858 27.4% 18,425 31.6%
-------- --------- -------- --------- -------- ---------
Total deposits $ 75,962 100.0% $ 65,023 100.0% $ 58,256 100.0%
======== ========= ======== ========= ======== =========
|
The maturities of time certificates of deposit ("TCDs") were as follows:
December 31, 1997 December 31, 1996
----------------- -----------------
(Unaudited) TCDs TCDs
over Other over Other
$100,000 TCDs $100,000 TCDs
-------- ------- -------- -------
(Dollars in thousands)
Less than three months $ 8,643 $ 8,336 $ 5,512 $ 9,704
Over three months
through six months 2,257 2,917 2,796 7,439
Over six months
through twelve months 5,833 9,960 2,941 4,188
Over twelve months
through five years 100 483 100 749
-------- ------- -------- -------
Total $ 16,833 $21,696 $ 11,349 $22,080
======== ======= ======== =======
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While the deposits of the Company may fluctuate up and down somewhat with local and national economic conditions, management of the Company does not believe that such deposits, or the business of the Company in general, are seasonal in nature. Liability management is monitored by the Chief Financial Officer daily and by the Asset/Liability Committee of the Company's Board of Directors which meets quarterly,
As the year 2000 approaches, a critical issue has emerged regarding how existing application software programs and operating systems can accommodate this date value. In brief, many existing application software products in the marketplace were designed to only accommodate a two digit date position which represents the year (for example, '97' is stored on the system and represents the year as 1997). As a result, the year 1999 could be the maximum date value these systems will be able to accurately process. A time-sensitive software may recognize a date using "00" as the year 1900 rather than year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions or engage in similar normal business activities.
The Company has adopted a plan of action to minimize the risk of the year 2000 event including the establishment of an oversight committee. The committee will coordinate the identification, evaluation, and implementation of changes to computer systems and software. The committee's goal is to achieve a year 2000 date conversion with no effect on customers or disruption to business operations. The Company plans on completing the testing process of all significant applications by December 31, 1998.
The Company has initiated formal communications with all of its vendors, including the U.S. Government, to determine their Year 2000 compliance readiness. The Company is reviewing the extent the interface systems are vulnerable to any third parties' year 2000 issues. There can be no guarantee that the systems of other companies on which the Company systems rely will be timely converted and would not have an adverse effect on the Company's systems. Many of the Company's systems include new hardware and software purchased from vendors who have represented that these systems are already year 2000 compliant. The Company is in the process of obtaining assurances from vendors that timely updates will be made available to make all remaining systems compliant.
Management does not anticipate the Company will be required to purchase any additional hardware or sftware to be year 2000 compliant. However, management does anticipate some administrative costs relative to the identification and testing of the Company's electronic data processing systems. The costs and timing of the year 2000 project is based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ from these plans.
SUPERVISION AND REGULATION
Community West Bancshares (the "Company") is a bank holding company registered under the Bank Holding Company Act of 1956, as amended (the "Act"), and is subject to supervision by the Federal Reserve Board (the "FRB"). As a bank holding company, the Company is required to file with the FRB an annual report and such other additional information as the FRB may require pursuant to the Act. The FRB may also make examinations of the Company and its subsidiaries.
The Act requires prior approval by the FRB for, among other things, the acquisition by a bank holding company of direct or indirect ownership or control of more than 5% of the voting shares, or substantially all the assets, of any bank or for a merger or consolidation by a bank holding company with any other bank holding company.
Goleta National Bank (the "Bank") is a wholly-owned subsidiary of the Company. The Company and any subsidiaries it may organize are deemed to be affiliates of the Bank within the meaning of the Act. Pursuant thereto, loans by the Bank to affiliates, investments by the Bank in affiliates' stock, and taking affiliates' stock by the Bank as collateral for loans to any borrower will be limited to 10% of the Bank's capital, in the case of any one affiliate, and will be limited to 20% of the Bank's capital in the case of all affiliates. In addition, such transactions must be on terms and conditions that are consistent with safe and sound banking practices; in particular, a bank and its subsidiaries generally may not purchase from an affiliate a low-quality asset, as defined in the Act. Such restrictions also prevent a bank holding company and its other affiliates from borrowing from a banking subsidiary of the bank holding company unless the loans are secured by marketable collateral of designated amounts. The Company and the Bank are also subject to certain restrictions with respect to engaging in the underwriting, public sale and distribution of securities.
With certain limited exceptions, a bank holding company is prohibited from
acquiring direct or indirect ownership or control of more than 5% of the voting
shares of any company which is not a bank or bank holding company and from
engaging directly or indirectly in any activity other than banking or managing
or controlling banks or furnishing services to or performing services for its
authorized subsidiaries. A bank holding company may, however, engage or acquire
an interest in a company that engages in activities which the FRB has determined
to be closely related to banking or managing or controlling banks as to be
properly incident thereto. In making such a determination, the FRB is required
to consider whether the performance of such activities can reasonably be
expected to produce benefits to the public, such as greater convenience,
increased competition, or gains in efficiency, that outweigh possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interests, or unsound banking practices. Although the
future scope of permitted activities is uncertain and cannot be predicted, some
of the activities that the FRB has determined by regulation to be closely
related to banking are: (i) making or acquiring loans or other extensions of
credit for its own account or for the account of others; (ii) servicing loans
and other extensions of credit for any person; (iii) operating an industrial
bank, Morris Plan bank, or industrial loan company, as authorized under state
law, so long as the institution is not a bank; (iv) operating a trust company in
the manner authorized by federal or state law, so long as the institution is not
a bank and does not make loans or investments or accept deposits, except as
permitted under the FRB's Regulation Y; (v) subject to certain limitations,
acting as an investment or financial adviser to investment companies and other
persons; (vi) leasing personal and real property or acting as agent, broker, or
adviser in leasing such property in accordance with various restrictions imposed
by Regulation Y, including a restriction that it is reasonably anticipated that
each lease will compensate the lessor for not less than the lessor's full
investment in the property; (vii) making equity and debt investments in
corporations or projects designed primarily to promote community welfare; (viii)
providing financial, banking, or economic data processing and data transmission
services, facilities, data bases, or providing access to such services,
facilities, or data bases; (ix) acting as principal, agent, or broker for
insurance directly related to extensions of credit which are limited to assuring
the repayment of debts in the event of death, disability, or involuntary
unemployment of the debtor; (x) acting as agent or broker for insurance directly
related to extensions of credit by a finance company subsidiary; (xi) owning,
controlling, or operating a savings association provided that the savings
association engages only in activities permitted for bank holding companies
under Regulation Y; (xii) providing courier services of limited character;
(xiii) providing management consulting advice to non-affiliated bank and nonbank
depository institutions, subject to the limitations imposed by Regulation Y;
(xiv) selling money orders, travelers' checks and U.S. Savings Bonds; (xv)
appraisal of real estate and personal property; (xvi) acting as an intermediary
for the financing of commercial or industrial income-producing real estate;
(xvii) providing securities brokerage services, related securities credit
activities pursuant to Regulation T, and other incidental activities; (xiii)
underwriting and dealing in obligations of the U.S., general obligations of
states and their political subdivisions, and other obligations authorized for
state member banks under federal law; and (xix) providing general information
and statistical forecasting, advisory and transactional services with respect to
foreign exchange through a separately incorporated subsidiary.
Federal law prohibits a holding company and any subsidiary banks from engaging in certain tie-in arrangements in connection with the extension of credit. Thus, for example, the Bank may not extend credit, lease or sell property, or furnish any services, or fix or vary the consideration for any of the foregoing on the condition that: (i) the customer must obtain or provide some additional credit, property or services from or to the Bank other than a loan, discount, deposit or trust service; or (ii) the customer must obtain or provide some additional credit, property or service from or to the Company or any other subsidiary of the Company; or (iii) the customer may not obtain some other credit, property or services from competitors, except reasonable requirements to assure soundness of credit extended.
The FRB's risk-based capital adequacy guidelines for bank holding companies and state member banks, discussed in more detail below (see "SUPERVISION AND REGULATION - THE BANK - RECENT LEGISLATION AND REGULATORY CHANGES - 3. Risk-Based Capital Guidelines"), assign various risk percentages to different categories of assets, and capital is measured as a percentage of risk assets. While in many cases total risk assets calculated in accordance with the guidelines is less than total assets calculated absent the rating, certain non- balance sheet assets, including loans sold with recourse, legally binding loan commitments and standby letters of credit, are treated as risk assets, with the assigned rate varying with the type of asset. As a result, it is possible that total risk assets for purposes of the guidelines exceeds total assets under generally accepted accounting principles, thereby reducing the capital-to-assets ratio. Under the terms of the guidelines, bank holding companies are expected to meet capital adequacy guidelines based both on total assets and on total risk assets.
The Company is also a bank holding company within the meaning of Section 3700 of the California Financial Code. As such, the Company and its subsidiaries are subject to examination by, and may be required to file reports with, the Commissioner. Regulations have not yet been proposed or adopted or steps otherwise taken to implement the Commissioner's powers under this statute.
SUPERVISION AND REGULATION - THE BANK
Other legislation has been proposed or is pending before the United States Congress which would effect the financial institutions industry. Such legislation includes wide-ranging proposals to further alter the structure, regulation and competitive relationships of the nation's financial institutions, to reorganize the federal regulatory structure of the financial institutions industry, to subject banks to increased disclosure and reporting requirements, and to expand the range of financial services which banks and bank holding companies can provide. Other proposals which have been introduced or are being discussed would equalize the relative powers of savings and loan holding companies and bank holding companies, and authorize such holding companies to engage in insurance underwriting and brokerage, real estate development and brokerage, and certain securities activities, including underwriting and dealing in United States Government securities and municipal securities, sponsoring and managing investment companies and underwriting the securities thereof. It cannot be predicted whether or in what form any of these proposals will be adopted, or to what extent they will effect the various entities comprising the financial institutions industry.
Certain of the potentially significant changes which have been enacted in the past several years are discussed below.
The Riegle-Neal Act permitted interstate banking to begin effective September 29, 1995. The amendment to the Bank Holding Company Act permits bank holding companies to acquire banks in other states provided that the acquisition does not result in the bank holding company controlling more than 10 percent of the deposits in the United States, or 30 percent of the deposits in the state in which the bank to be acquired is located. However, the Riegle-Neal Act also provides that states have the authority to waive the state concentration limit. Individual states may also require that the bank being acquired be in existence for up to five years before an out-of-state bank or bank holding company may acquire it.
The Riegle-Neal Act provides that, since June 1, 1997, interstate branching and merging of existing banks is permitted, provided that the banks are at least adequately capitalized and demonstrate good management. Interstate mergers and branch acquisitions were permitted at an earlier time if the state choose to enact a law allowing such activity. The states were also authorized to enact laws to permit interstate banks to branch de novo.
On September 28, 1995, the California Interstate Banking and Branching Act of 1995 ("CIBBA") was enacted and signed into law. CIBBA authorized out-of-state banks to enter California by the acquisition of or merger with a California bank that has been in existence for at least 5 years, unless the California bank is in danger of failing or in certain other emergency situations. CIBBA allows a California state bank to have agency relationships with affiliated and unaffiliated insured depository institutions and allows a bank subsidiary of a bank holding company to act as an agent to receive deposits, renew time deposits, service loans and receive payments for a depository institution affiliate.
In August 1997, the FASB issued SFAS No. 129, "Disclosure of Information about Capital Structure." This statement establishes standards for disclosing information about capital structure, including pertinent rights and privileges of various securities outstanding. SFAS No. 129 is effective for financial statements for periods ending after December 15, 1997. The Company adopted this statement for the year ended December 31, 1997, and is reflected in the Company's consolidated financial statements. the adoption of this statement did not have a material impact on the Company's consolidated financial statements for the year ended December 31, 1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," effective for fiscal years beginning after December 15, 1997. This statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. This Statement further requires that an entity display an amount representing total comprehensive income for the period in that financial statement. This Statement also requires that an entity classify items of other comprehensive income by their nature in a financial statement. For example, other comprehensive income may include foreign currency items, minimum pension liability adjustments, and unrealized gains and losses on certain debt and equity securities. Reclassification of financial statements for earlier periods, provided for comparative purposes, is required. Based on current accounting standards, this Statement is not expected to have a material impact on the Company's consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," effective for financial statements for periods beginning after December 15, 1997. This statement establishes standards for reporting information about operating segments in annual financial statements and requires that enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. This statement is not expected to have a material impact on the Company's financial statements.
Reclassifications - Certain amounts in the accompanying financial statements for 1996 and 1995 have been reclassified to conform to the 1997 presentation.
Under FIRREA, the Federal Savings and Loan Insurance Corporation ("FSLIC") and the Federal Home Loan Bank Board were abolished and the FDIC was authorized to insure savings associations, including federal savings associations, state chartered savings and loans and other corporations determined to be operated in substantially the same manner as a savings association. FIRREA established two deposit insurance funds to be administered by the FDIC. The money in these two funds is separately maintained and not commingled. The FDIC Permanent Insurance Fund was replaced by the Bank Insurance Fund (the "BIF") and the FSLIC deposit insurance fund was replaced by the Savings Association Insurance Fund (the "SAIF").
Effective January 1, 1994, the FDIC implemented a risk-based assessment system, under which an institution's premium assessment is based on the probability that the deposit insurance fund will incur a loss with respect to the institution, the likely amount of such loss, and the revenue needs of the deposit insurance fund. As long as BIF's reserve ratio is less than a specified "designated reserve ratio," 1.25%, the total amount raised from BIF members by the risk-based assessment system may not be less than the amount that would be raised if the assessment rate for all BIF members were 23 per $100 in insured deposits. The FDIC determined that the designated reserve ratio was achieved on May 31, 1995. Accordingly, on August 8, 1995, the FDIC issued final regulations adopting an assessment rate schedule for BIF members of 4 to 31 per $100 in insured deposits that became effective June 1, 1995. On November 14, 1995, the FDIC further reduced the BIF assessment rates by 4 so that effective January 1, 1996, the premiums ranged from zero to 27 per $100 in insured deposits, but in any event not less than $2,000 per year.
Under the risk-based assessment system, a BIF member institution such as the Bank is categorized into one of three capital categories (well capitalized, adequately capitalized, and undercapitalized) and one of three categories based on supervisory evaluations by its primary federal regulator (in the Bank's case, the Comptroller). The three supervisory categories are: financially sound with only a few minor weaknesses (Group A), demonstrates weaknesses that could result in significant deterioration (Group B), and poses a substantial probability of loss (Group C). The capital ratios used by the Comptroller to define well-capitalized, adequately capitalized and undercapitalized are the same as in the Comptroller's prompt corrective action regulations (discussed below). The BIF assessment rates since January 1, 1997 are summarized below; assessment figures are expressed in terms of cents per $100 in insured deposits.
Supervisory Group
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Capital Group Group A Group B Group C
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Well Capitalized . . . 0 3 17
Adequately Capitalized 3 10 24
Undercapitalized . . . 10 24 27
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The Deposit Insurance Funds Act of 1996, signed into law on September 30, 1996, eliminated the minimum assessment, commencing with the fourth quarter of 1996. In addition, after December 31, 1996, banks are required to share in the payment of interest on Financing Corp. ("FICO") bonds. Previously, the FICO debt was paid out of the SAIF assessment base. The assessments imposed on insured depository institutions with respect to any BIF-assessable deposit will be assessed at a rate equal to 1/5 of the rate of the assessments imposed on insured depository institutions with respect to any SAIF-assessable deposit. Although the FICO assessment rates are annual rates, they are subject to change quarterly. For the first quarter of 1997, the SAIF-FICO assessment rate was 6.48 per $100 in insured deposits. Accordingly, the BIF-FICO assessment rate was 1.296 per $100 in insured deposits. For the second quarter of 1997, the SAIF-FICO assessment rate was 6.5 per $100 in insured deposits and the BIF-FICO assessment rate was 1.3 per $100 in insured deposits. For the third quarter of 1997, the SAIF- FICO assessment rate was 6.3 and the BIF-FICO assessment rate was 1.26 . For the fourth quarter of 1997, the SAIF-FICO assessment rate was 6.32 and the BIF-FICO assessment rate was 1.264 . Since the FICO bonds do not mature until the year 2019, it is conceivable that banks will continue to share in the payment of the interest on the bonds until then.
With certain limited exceptions, FIRREA prohibits a bank from changing its status as an insured depository institution with the BIF to the SAIF and prohibits a savings association from changing its status as an insured depository institution with the SAIF to the BIF, without the prior approval of the FDIC.
As a receiver of any insured depository institution, the FDIC may liquidate such institution in an orderly manner and make such other disposition of any matter concerning such institution as the FDIC determines is in the best interests of such institution, its depositors and the FDIC. Further, the FDIC shall as the conservator or receiver, by operation of law, succeed to all rights, titles, powers and privileges of the insured institution, and of any stockholder, member, account holder, depositor, officer or director of such institution with respect to the institution and the assets of the institution; may take over the assets of and operate such institution with all the powers of the members or shareholders, directors and the officers of the institution and conduct all business of the institution; collect all obligations and money due to the institution and preserve; and conserve the assets and property of such institution.
The federal banking agencies have established risk-based capital guidelines. The risk- based capital guidelines include both a new definition of capital and a framework for calculating risk weighted assets by assigning assets and off-balance sheet items to broad credit risk categories. A bank's risk-based capital ratio is calculated by dividing its qualifying capital (the numerator of the ratio) by its risk weighted assets (the denominator of the ratio).
A bank's qualifying total capital consists of two types of capital components:
"core capital elements" (comprising Tier 1 capital) and "supplementary capital
elements" (comprising Tier 2 capital). The Tier 1 component of a bank's
qualifying capital must represent at least 50% of qualifying total capital and
may consist of the following items that are defined as core capital elements:
(i) common stockholders' equity; (ii) qualifying noncumulative perpetual
preferred stock (including related surplus); and (iii) minority interest in the
equity accounts of consolidated subsidiaries. The Tier 2 component of a bank's
qualifying total capital may consist of the following items: (i) allowance for
loan and lease losses (subject to limitations); (ii) perpetual preferred stock
and related surplus (subject to conditions); (iii) hybrid capital instruments
(as defined) and mandatory convertible debt securities; and (iv) term
subordinated debt and intermediate-term preferred stock, including related
surplus (subject to limitations).
Assets and credit equivalent amounts of off-balance sheet items are assigned to one of several broad risk categories, according to the obligor, or, if relevant, the guarantor or the nature of collateral. The aggregate dollar value of the amount in each category is then multiplied by the risk weight associated with that category. The resulting weighted values from each of the risk categories are added together, and this sum is the bank's total risk weighted assets that comprise the denominator of the risk-based capital ratio.
Risk weights for all off-balance sheet items are determined by a two-step process. First, the "credit equivalent amount" of off-balance sheet items such as letters of credit and recourse arrangements is determined, in most cases by multiplying the off-balance sheet item by a credit conversion factor. Second, the credit equivalent amount is treated like any balance sheet asset and generally is assigned to the appropriate risk category according to the obligor, or, if relevant, the guarantor or the nature of the collateral.
The supervisory standards set forth below specify minimum supervisory ratios based primarily on broad risk considerations. The risk-based ratios do not take explicit account of the quality of individual asset portfolios or the range of other types of risks to which banks may be exposed, such as interest rate, liquidity, market or operational risks. For this reason, banks are generally expected to operate with capital positions above the minimum ratios.
All banks are required to meet a minimum ratio of qualifying total capital to risk weighted assets of 8%, of which at least 4% should be in the form of Tier 1 capital net of goodwill, and a minimum ratio of Tier 1 capital to risk weighted assets of 4%. The maximum amount of supplementary capital elements that qualifies as Tier 2 capital is limited to 100% of Tier 1 capital net of goodwill. In addition, the combined maximum amount of subordinated debt and intermediate-term preferred stock that qualifies as Tier 2 capital is limited to 50% of Tier 1 capital. The maximum amount of the allowance for loan and lease losses that qualifies as Tier 2 capital is limited to 1.25% of gross risk weighted assets. Allowance for loan and lease losses in excess of this limit may, of course, be maintained, but would not be included in a bank's risk-based capital calculation.
In addition to the risk-based guidelines, the federal banking agencies require all banks to maintain a minimum amount of Tier 1 capital to total assets, referred to as the leverage ratio. For a bank rated in the highest of the five categories used by regulators to rate banks, the minimum leverage ratio of Tier 1 capital to total assets is 3%. For all banks not rated in the highest category, the minimum leverage ratio must be at least 4% to 5%. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios.
In December, 1993, the federal banking agencies issued an interagency policy statement on the allowance for loan and lease losses which, among other things, establishes certain benchmark ratios of loan loss reserves to classified assets. The benchmark set forth by the policy statement is the sum of: (a) assets classified loss; (b) 50% of assets classified doubtful; (c) 15% of assets classified substandard; and (d) estimated credit losses on other assets over the upcoming twelve months.
The federal banking agencies have recently revised their risk-based capital rules to take account of concentrations of credit and the risks of non-traditional activities. Concentrations of credit refers to situations where a lender has a relatively large proportion of loans involving one borrower, industry, location, collateral or loan type. Non-traditional activities are considered those that have not customarily been part of the banking business but that start to be conducted as a result of developments in, for example, technology or financial markets. The regulations require institutions with high or inordinate levels of risk to operate with higher minimum capital standards. The federal banking agencies also are authorized to review an institution's management of concentrations of credit risk for adequacy and consistency with safety and soundness standards regarding internal controls, credit underwriting or other operational and managerial areas.
Further, the banking agencies recently have adopted modifications to the risk-based capital rules to include standards for interest rate risk exposures. Interest rate risk is the exposure of a bank's current and future earnings and equity capital arising from adverse movements in interest rates. While interest rate risk is inherent in a bank's role as financial intermediary, it introduces volatility to bank earnings and to the economic value of the bank. The banking agencies have addressed this problem by implementing changes to the capital standards to include a bank's exposure to declines in the economic value of its capital due to changes in interest rates as a factor that the banking agencies will consider in evaluating an institution's capital adequacy. Bank examiners consider a bank's historical financial performance and its earnings exposure to interest rate movements as well as qualitative factors such as the adequacy of a bank's internal interest rate risk management. The federal banking agencies recently considered adopting a uniform supervisory framework for all institutions to measure and assess each bank's exposure to interest rate risk and establish an explicit capital charge based on the assessed risk, but ultimately elected not to adopt such a uniform framework. Even without such a uniform framework, however, each bank's interest rate risk exposure is assessed by its primary federal regulator on an individualized basis, and it may be required by the regulator to hold additional capital for interest rate risk if it has a significant exposure to interest rate risk or a weak interest rate risk management process.
Effective April 1, 1995, the federal banking agencies issued rules which limit the amount of deferred tax assets that are allowable in computing a bank's regulatory capital. The standard had been in effect on an interim basis since March, 1993. Deferred tax assets that can be realized for taxes paid in prior carryback years and from future reversals of existing taxable temporary differences are generally not limited. Deferred tax assets that can only be realized through future taxable earnings are limited for regulatory capital purposes to the lesser of: (i) the amount that can be realized within one year of the quarter-end report date; or (ii) 10% of Tier 1 capital. The amount of any deferred tax in excess of this limit would be excluded from Tier 1 capital, total assets and regulatory capital calculations.
The federal banking agencies have promulgated substantially similar regulations to implement this system of prompt corrective action. Under the regulations, a bank shall be deemed to be: (i) "well capitalized" if it has a total risk-based capital ratio of 10.0% or more, has a Tier 1 risk-based capital ratio of 6.0% or more, has a leverage capital ratio of 5.0% or more and is not subject to specified requirements to meet and maintain a specific capital level for any capital measure; (ii) "adequately capitalized" if it has a total risk-based capital ratio of 8.0% or more, a Tier 1 risk-based capital ratio of 4.0% or more and a leverage capital ratio of 4.0% or more (3.0% under certain circumstances) and does not meet the definition of "well capitalized"; (iii) "undercapitalized" if it has a total risk-based capital ratio that is less than 8.0%, a Tier 1 risk- based capital ratio that is less than 4.0%, or a leverage capital ratio that is less than 4.0% (3.0% under certain circumstances); (iv) "significantly undercapitalized" if it has a total risk-based capital ratio that is less than 6.0%, a Tier 1 risk-based capital ratio that is less than 3.0% or a leverage capital ratio that is less than 3.0%; and (v) "critically undercapitalized" if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%.
FDICIA and the implementing regulations also provide that a federal banking agency may, after notice and an opportunity for a hearing, reclassify a well capitalized institution as adequately capitalized and may require an adequately capitalized institution or an undercapitalized institution to comply with supervisory actions as if it were in the next lower category if the institution is in an unsafe or unsound condition or engaging in an unsafe or unsound practice. (The federal banking agency may not, however, reclassify a significantly undercapitalized institution as critically undercapitalized.)
The Riegle Community Development and Regulatory Improvement Act of 1994 (the "1994 Act"), which has been viewed as the most important piece of banking legislation since the enactment of FDICIA, was signed into law on September 23, 1994. In addition to providing funding for the establishment of a Community Development Financial Institutions Fund (the "Fund"), which provides assistance to new and existing community development lenders to help to meet the needs of low- and moderate-income communities and groups, the 1994 Act mandated changes to a wide range of banking regulations. These changes included modifications to the publication requirements for Call Reports, less frequent regulatory examination schedules for small institutions, small business and commercial real estate loan securitization, amendments to the money laundering and currency transaction reporting requirements of the Bank Secrecy Act, clarification of the coverage of the Real Estate Settlement Procedures Act for business, commercial and agricultural real estate secured transactions, amendments to the national flood insurance program, and amendments to the Truth in Lending Act to provide greater protection for consumers by reducing discrimination against the disadvantaged.
The "Paperwork Reduction and Regulatory Improvement Act," Title III of the 1994 Act, required the federal banking agencies to consider the administrative burdens that new regulations will impose before their adoption and requires a transition period in order to provide adequate time for compliance. This Act also requires the federal banking agencies to work together to establish uniform regulations and guidelines as well as to work together to eliminate duplicative or unnecessary requests for information in connection with applications or notices. This act reduces the frequency of examinations for well-rated institutions, simplifies the quarterly Call Reports and eliminated the requirement that financial institutions publish their Call Reports in local newspapers. This Act also established an internal regulatory appeal process and independent ombudsman to provide a means for review of material supervisory determinations. The Paperwork Reduction and Regulatory Improvement Act also amended the Bank Holding Company Act and Securities Act of 1933 to simplify the formation of bank holding companies.
Title IV of the 1994 Act amended the Bank Secrecy Act by reducing the reporting requirements imposed on financial institutions for large currency transactions, expanding the ability of financial institutions to provide exemptions to the reporting requirements for businesses that regularly deal in large amounts of currency, and providing for the delegation of civil money penalty enforcement from the Treasury Department to the individual federal banking agencies.
In July, 1995, the federal banking agencies adopted final guidelines establishing standards for safety and soundness, as required by FDICIA and the 1994 Act. The guidelines set forth operational and managerial standards relating to internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation, fees and benefits. Guidelines for asset quality and earnings standards will be adopted in the future. The guidelines establish the safety and soundness standards that the agencies will use to identify and address problems at insured depository institutions before capital becomes impaired. If an institution fails to comply with a safety and soundness standard, the appropriate federal banking agency may require the institution to submit a compliance plan. Failure to submit a compliance plan or to implement an accepted plan may result in enforcement action.
The federal banking agencies issued regulations prescribing uniform guidelines for real estate lending. The regulations require insured depository institutions to adopt written policies establishing standards, consistent with such guidelines, for extensions of credit secured by real estate. The policies must address loan portfolio management, underwriting standards and loan to value limits that do not exceed the supervisory limits prescribed by the regulations.
Appraisals for "real estate related financial transactions" must be conducted by either state certified or state licensed appraisers for transactions in excess of certain amounts. State certified appraisers are required for all transactions with a transaction value of $1,000,000 or more; for all nonresidential transactions valued at $250,000 or more; and for "complex" 1- 4 family residential properties of $250,000 or more. A state licensed appraiser is required for all other appraisals. However, appraisals performed in connection with "federally related transactions" must now comply with the agencies' appraisal standards. Federally related transactions include the sale, lease, purchase, investment in, or exchange of, real property or interests in real property, the financing or refinancing of real property, and the use of real property or interests in real property as security for a loan or investment, including mortgage-backed securities.
The bank regulatory agencies are focusing greater attention on compliance with consumer protection laws and their implementing regulations. Examination and enforcement have become more intense in nature, and insured institutions have been advised to monitor carefully compliance with various consumer protection laws and their implementing regulations. Banks are subject to many federal consumer protection laws and their regulations including, but not limited to, the Community Reinvestment Act (the "CRA"), the Truth in Lending Act (the "TILA"), the Fair Housing Act (the "FH Act"), the Equal Credit Opportunity Act (the "ECOA"), the Home Mortgage Disclosure Act ("HMDA"), and the Real Estate Settlement Procedures Act ("RESPA").
The CRA, enacted into law in 1977, is intended to encourage insured depository institutions, while operating safely and soundly, to help meet the credit needs of their communities. The CRA specifically directs the federal bank regulatory agencies, in examining insured depository institutions, to assess their record of helping to meet the credit needs of their entire community, including low- and moderate-income neighborhoods, consistent with safe and sound banking practices. The CRA further requires the agencies to take a financial institution's record of meeting its community credit needs into account when evaluating applications for, among other things, domestic branches, consummating mergers or acquisitions, or holding company formations.
The federal banking agencies have adopted regulations which measure a bank's compliance with its CRA obligations on a performance-based evaluation system. This system bases CRA ratings on an institution's actual lending service and investment performance rather than the extent to which the institution conducts needs assessments, documents community outreach or complies with other procedural requirements. The ratings range from "outstanding" to a low of "substantial noncompliance."
The ECOA, enacted into law in 1974, prohibits discrimination in any credit transaction, whether for consumer or business purposes, on the basis of race, color, religion, national origin, sex, marital status, age (except in limited circumstances), receipt of income from public assistance programs, or good faith exercise of any rights under the Consumer Credit Protection Act. In March, 1994, the Federal Interagency Task Force on Fair Lending issued a policy statement on discrimination in lending. The policy statement describes the three methods that federal agencies will use to prove discrimination: overt evidence of discrimination, evidence of disparate treatment and evidence of disparate impact. This means that if a creditor's actions have had the effect of discriminating, the creditor may be held liable - even when there is no intent to discriminate.
The FH Act, enacted into law in 1968, regulates may practices, including making
it unlawful for any lender to discriminate in its housing-related lending
activities against any person because of race, color, religion, national origin,
sex, handicap, or familial status. The FH Act is broadly written and has been
broadly interpreted by the courts. A number of lending practices have been
found to be, or may be considered, illegal under the FH Act, including some that
are not specifically mentioned in the FH Act itself. Among those practices that
have been found to be, or may be considered, illegal under the FH Act are:
declining a loan for the purposes of racial discrimination; making excessively
low appraisals of property based on racial considerations; pressuring,
discouraging, or denying applications for credit on a prohibited basis; using
excessively burdensome qualifications standards for the purpose or with the
effect of denying housing to minority applicants; imposing on minority loan
applicants more onerous interest rates or other terms, conditions or
requirements; and racial steering, or deliberately guiding potential purchasers
to or away from certain areas because of race.
The TILA, enacted into law in 1968, is designed to ensure that credit terms are disclosed in a meaningful way so that consumers may compare credit terms more readily and knowledgeably. As a result of the TILA, all creditors must use the same credit terminology and expressions of rates, the annual percentage rate, the finance charge, the amount financed, the total payments and the payment schedule.
HMDA, enacted into law in 1975, grew out of public concern over credit shortages in certain urban neighborhoods. One purpose of HMDA is to provide public information that will help show whether financial institutions are serving the housing credit needs of the neighborhoods and communities in which they are located. HMDA also includes a "fair lending" aspect that requires the collection and disclosure of data about applicant and borrower characteristics as a way of identifying possible discriminatory lending patterns and enforcing anti-discrimination statutes. HMDA requires institutions to report data regarding applications for one-to-four family loans, home improvement loans, and multifamily loans, as well as information concerning originations and purchases of such types of loans. Federal bank regulators rely, in part, upon data provided under HMDA to determine whether depository institutions engage in discriminatory lending practices.
RESPA, enacted into law in 1974, requires lenders to provide borrowers with disclosures regarding the nature and costs of real estate settlements. Also, RESPA prohibits certain abusive practices, such as kickbacks, and places limitations on the amount of escrow accounts.
Violations of these various consumer protection laws and regulations can result in civil liability to the aggrieved party, regulatory enforcement including civil money penalties, and even punitive damages.
As a result of the recent federal and California legislation, there has been a
competitive impact on commercial banking. There has been a lessening of the
historical distinction between the services offered by banks, savings and loan
associations, credit unions, and other financial institutions, banks have
experienced increased competition for deposits and loans which may result in
increases in their cost of funds, and banks have experienced increased costs.
Further, the federal banking agencies have increased enforcement authority over
banks and their directors and officers.
Future legislation is also likely to impact the Bank's business. Consumer
legislation has been proposed in Congress which may require banks to offer
basic, low-cost, financial services to meet minimum consumer needs. Various
proposals to restructure the federal bank regulatory agencies are currently
pending in Congress, some of which include proposals to expand the ability of
banks to engage in previously prohibited businesses. Further, the regulatory
agencies have proposed and may propose a wide range of regulatory changes,
including the calculation of capital adequacy and limiting business dealings
with affiliates. These and other legislative and regulatory changes may have
the impact of increasing the cost of business or otherwise impacting the
earnings of financial institutions. However, the degree, timing and full extent
of the impact of these proposals cannot be predicted.
A derivative financial instrument includes futures, forwards, interest rate swaps, option contracts, and other financial instruments with similar characteristics. The Company currently does not enter into derivative financial instruments. The Company's primary market risk is interest rate risk. Interest rate risk is the potential of economic losses caused by future interest rate change. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the risks. Community West Bancshares' exposure to market risk is reviewed on a regular basis by the Asset/Liability committee. Tools used by management include the standard GAP report. The Company has no market risk instruments held for trading purposes except for its interest only strip. Management believes the Company's market risk is reasonable at this time.
See "Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations - Asset and Liability Management".
The table below provides information about the Company's non-derivative financial instruments that are sensitive to changes in interest rates. For all outstanding financial instruments, the table presents the principle outstanding balance at December 31, 1997 and the weighted average interest yield/rate of the instruments by either the date the instrument can be repriced for variable rate financial instruments or the expected maturity date for fixed rate financial instruments,
At December 31, 1997
Expected maturity dates or repricing dates by year
Fair
Value
at
(Dollars in thousands) 1998 1999 2000 2001 2002 Total 12/31/97
-------- ----- ----- ----- ----- -------- ---------
Balance sheet financial
instruments:
ASSETS:
Federal Funds Sold $ 8,440 - - - - $ 8,440 $ 8,440
Average Yield 5.2% - - - - 5.2% -
Time deposits in other
financial institutions 2,477 - - - - 2,477 2,477
Average Yield 5.8% - - - - 5.8% -
Investment securities
-held to maturity 998 - - - - 998 993
Average yield 6.0% - - - - 6.0% -
Interest only strip 2,529 - - - - 2,529 2,529
Average Yield 11% - - - - 11% -
Servicing Assets 664 - - - - 664 664
Average yield 11% - - - - 11% -
LIABILITIES:
Non-interest bearing
demand $15,133 - - - - $15,133 $ 15,133
Average Yield 0% - - - - 0% -
Interest- bearing
demand 13,608 - - - - 13,608 13,608
Average yield 3.4% - - - - 3.4% -
Savings 12,983 - - - - 12,983 12,983
Average Yield 3.8% - - - - 3.8% -
Time certificates of
deposit 37,105 522 47 11 3 38,529 38,683
Average yield 5.8% 5.8% 5.3% 5.3% 5.1% 5.8% -
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders Community West Bancshares:
We have audited the consolidated balance sheets of Community West Bancshares and its wholly-owned subsidiary, Goleta National Bank, (together, known as the "Company") as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity and cash flows, for the three years ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted accounting standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatements. An audit includes the examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Community West Bancshares at December 31, 1997 and 1996 and the results of their operations and their cash flows for the three years ended December 31, 1997 in conformity with generally accepted accounting principles.
February 6, 1998
Los Angeles, California
COMMUNITY WEST BANCSHARES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS 1997 1996
Cash and due from banks. . . . . . . . . . . . . . . . . . . . . . . . . $ 3,662,513 $ 3,776,649
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,440,000 9,015,000
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . 12,102,513 12,791,649
Time deposits in other financial institutions. . . . . . . . . . . . . . 2,477,000 2,378,000
Federal reserve bank stock . . . . . . . . . . . . . . . . . . . . . . . 251,300 155,650
Investment securities held to maturity, at cost; fair value of $992,851
in 1997 and $1,988,450 in 1996 (Note 2). . . . . . . . . . . . . . . . 998,451 1,997,705
Interest Only Strip, held for trading, at fair value . . . . . . . . . . 2,528,587 -
Loans (Notes 3 and 4):
Held for investment, net of allowance for loan losses of $1,285,852
in 1997 and $1,409,321 in 1996 . . . . . . . . . . . . . . . . . . . 56,724,346 50,590,863
Held for sale, at lower of cost or fair value. . . . . . . . . . . . . 14,440,356 6,808,800
Other real estate owned, net . . . . . . . . . . . . . . . . . . . . . . - 59,524
Premises and equipment, net (Note 5) . . . . . . . . . . . . . . . . . . 2,725,465 2,406,837
Servicing assets (Note 3). . . . . . . . . . . . . . . . . . . . . . . . 664,402 2,233,641
Accrued interest receivable and other assets (Note 7). . . . . . . . . . 2,400,025 1,460,877
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $95,312,445 $80,883,546
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits: (Note 6)
Noninterest-bearing demand . . . . . . . . . . . . . . . . . . . . . . $15,132,830 $15,235,335
Interest-bearing demand. . . . . . . . . . . . . . . . . . . . . . . . 13,607,852 11,578,510
Savings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,982,741 10,361,875
Time certificates of $100,000 or more. . . . . . . . . . . . . . . . . 16,832,753 11,349,493
Other time certificates. . . . . . . . . . . . . . . . . . . . . . . . 21,696,263 22,080,385
Total deposits. . . . . . . . . . . . . . . . . . . . . . . . . . 80,252,439 70,605,598
Accrued interest payable and other liabilities (Note 7). . . . . . . . . 2,931,142 218,807
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . 83,183,581 70,824,405
COMMITMENTS AND CONTINGENCIES (NOTE 9)
STOCKHOLDERS' EQUITY (Notes 8 and 10)
Common stock, no par value; 20,000,000 shares authorized;
3,081,316, and 2,946,984 shares issued and outstanding at
December 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . 8,570,310 8,089,527
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,558,554 1,969,614
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . 12,128,864 10,059,141
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $95,312,445 $80,883,546
See notes to consolidated financial statements.
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COMMUNITY WEST BANCSHARES
CONSOLIDATED STATEMENTS OF INCOME
THREE YEARS ENDED DECEMBER 31, 1997
1997 1996 1995
INTEREST INCOME:
Loans, including fees . . . . . . . . . . . . . $ 7,349,925 $6,340,842 $5,977,282
Federal funds sold. . . . . . . . . . . . . . . 423,666 283,137 305,249
Time deposits in other financial institutions . 120,588 87,793 173,571
Investment securities . . . . . . . . . . . . . 115,253 100,300 48,213
Total interest income. . . . . . . . . . 8,009,432 6,812,072 6,504,315
INTEREST EXPENSE ON DEPOSITS . . . . . . . . . . . 2,910,450 2,424,730 2,451,472
NET INTEREST INCOME. . . . . . . . . . . . . . . . 5,098,982 4,387,342 4,052,843
PROVISION FOR LOAN LOSSES (Note 3) . . . . . . . . 260,000 435,000 360,000
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES. . . . . . . . . . . . . . . . . . . . . 4,838,982 3,952,342 3,692,843
OTHER INCOME:
Gains from loan sales . . . . . . . . . . . . . 4,101,222 2,614,360 2,522,355
Loan origination fees - sold or brokered loans. 2,960,385 2,057,282 731,249
Loan servicing fees . . . . . . . . . . . . . . 631,551 674,598 578,943
Service charges . . . . . . . . . . . . . . . . 896,295 590,239 371,511
Document processing fees. . . . . . . . . . . . 819,355 509,650 83,786
Other income . . . . . . . . . . . . . . . . . . 23,407 174,362 193,412
Total other income . . . . . . . . . . . 9,432,215 6,620,491 4,481,256
OTHER EXPENSES:
Salaries and employee benefits (Note 11). . . . 7,315,447 5,452,981 3,925,434
Occupancy expenses (Note 9) . . . . . . . . . . 1,508,435 1,185,502 986,986
Other operating expenses. . . . . . . . . . . . 714,119 787,064 647,967
Postage & Freight. . . . . . . . . . . . . . . 822,162 542,890 165,110
Advertising Expense . . . . . . . . . . . . . . 582,636 311,187 281,561
Professional Services . . . . . . . . . . . . . 425,828 245,766 317,920
Office Supplies . . . . . . . . . . . . . . . . 155,279 141,543 111,293
Total other expenses . . . . . . . . . . 11,523,906 8,666,933 6,436,271
INCOME BEFORE PROVISION FOR INCOME TAXES . . . . . 2,747,291 1,905,900 1,737,828
PROVISION FOR INCOME TAXES (Note 7). . . . . . . . 1,158,351 800,478 730,000
NET INCOME . . . . . . . . . . . . . . . . . . . . $ 1,588,940 $1,105,422 $1,007,828
NET INCOME PER SHARE -- BASIC. . . . . . . . . . . $ 0.53 $ 0.47 $ 0.50
NET INCOME PER SHARE -- DILUTED. . . . . . . . . . $ 0.44 $ 0.44 $ 0.47
See notes to consolidated financial statements.
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COMMUNITY WEST BANCSHARES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1997
TOTAL
STOCK-
COMMON STOCK RETAINED HOLDERS'
SHARES AMOUNT EARNINGS EQUITY
BALANCE, JANUARY 1, 1995 . . . . . . . . . . . . . 1,829,284 $4,573,210 $ 522,316 $ 5,095,526
Stock dividend. . . . . . . . . . . . . . . . . 182,904 548,724 (548,724) -
Cash dividend . . . . . . . . . . . . . . . . . - - (45,793) (45,793)
Exercise of stock options . . . . . . . . . . . 24,412 55,480 - 55,480
Net income. . . . . . . . . . . . . . . . . . . - - 1,007,828 1,007,828
BALANCE, DECEMBER 31, 1995 . . . . . . . . . . . . 2,036,600 5,177,414 935,627 6,113,041
Secondary offering of common stock and warrants 859,368 2,788,048 - 2,788,048
Cash dividend . . . . . . . . . . . . . . . . . - - (71,435) (71,435)
Exercise of warrants. . . . . . . . . . . . . . 3,848 16,835 - 16,835
Exercise of stock options . . . . . . . . . . . 47,168 107,230 - 107,230
Net income. . . . . . . . . . . . . . . . . . . - - 1,105,422 1,105,422
BALANCE, DECEMBER 31, 1996 . . . . . . . . . . . . 2,946,984 8,089,527 1,969,614 10,059,141
Issuance of founders stock. . . . . . . . . . . - 10,000 - 10,000
Exercise of warrants. . . . . . . . . . . . . . 63,692 278,653 - 278,653
Exercise of stock options . . . . . . . . . . . 70,640 192,130 - 192,130
Net income. . . . . . . . . . . . . . . . . . . - - 1,588,940 1,588,940
BALANCE, DECEMBER 31, 1997 . . . . . . . . . . . . 3,081,316 $8,570,310 $3,558,554 $12,128,864
See notes to consolidated financial statements.
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COMMUNITY WEST BANCSHARES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1997
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,588,940 $ 1,105,422 $ 1,007,828
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . 260,000 435,000 360,000
Deferred income taxes provision (benefit) . . . . . . . . . . . . . . . 77,892 203,094 (117,174)
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 593,433 477,101 309,154
(Gain) loss on sale of other real estate owned. . . . . . . . . . . . . (38,707) (41,430) 27,106
Gain on sale of loans held for sale . . . . . . . . . . . . . . . . . . (4,101,222) (1,121,312) (1,433,737)
(Transfer) origination of servicing assets, net of amortization. . . . 2,233,641 (1,191,149) (1,042,492)
Origination of interest-only strip assets, net of amortization. . . . . (2,528,588) - -
Net change in deferred loan fees and premiums . . . . . . . . . . . . . (42,059) 6,549 (33,708)
Changes in operating assets and liabilities:
Accrued interest receivable and other assets. . . . . . . . . . . . . (1,561,491) 800,155 (552,770)
Accrued interest payable and other liabilities. . . . . . . . . . . . 2,634,443 (394,009) (372,409)
Net cash provided by (used in) operating activities. . . . . . . . (883,718) 279,421 (1,848,202)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of held-to-maturity investment securities
and Federal Reserve Bank stock. . . . . . . . . . . . . . . . . . . . . (1,096,395) (2,022,218) (993,581)
Maturities of held-to-maturity investment securities. . . . . . . . . . . 2,000,000 1,000,000 485,052
Net (increase) decrease in time deposits in other financial institutions. (99,000) (1,000,000) 2,474,000
Net increase in loans . . . . . . . . . . . . . . . . . . . . . . . . . (10,196,186) (5,551,129) (5,120,625)
Proceeds from sale of other real estate owned . . . . . . . . . . . . . . 370,600 393,430 625,964
Purchase of premises and equipment. . . . . . . . . . . . . . . . . . . . (912,061) (1,308,297) (658,263)
Net cash used in investing activities. . . . . . . . . . . . . . . (9,933,042) (8,488,214) (3,187,453)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits, and savings accounts . . . . 4,547,703 (600,306) 10,499,382
Net increase (decrease) in time certificates. . . . . . . . . . . . . . . 5,099,138 7,613,846 (1,811,112)
Proceeds from the secondary offering of common stock and warrants . . . . - 2,788,048 -
Proceeds from the exercise of stock options and warrants. . . . . . . . . 480,783 124,065 55,480
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . - (71,435) (45,793)
Net cash provided by financing activities. . . . . . . . . . . . . 10,127,624 9,854,218 8,697,957
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . (689,136) 1,645,425 3,662,302
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR . . . . . . . . . . . . . . . . 12,791,649 11,146,224 7,483,922
CASH AND CASH EQUIVALENTS, END OF YEAR . . . . . . . . . . . . . . . . . . . $ 12,102,513 $12,791,649 $11,146,224
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION -
Cash paid during the year for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,869,088 $ 2,386,367 $ 2,483,069
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 789,956 460,000 1,469,000
NONCASH INVESTING ACTIVITY -
Loans transferred to other real estate owned. . . . . . . . . . . . . . . 272,369 411,524 -
See notes to consolidated financial statements.
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COMMUNITY WEST BANCSHARES
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Community West Bancshares (the "Company") and its wholly-owned subsidiary, Goleta National Bank are in accordance with generally accepted accounting principles and general practices within the financial services industry. All material intercompany transactions and accounts have been eliminated. The following are descriptions of the more significant of those policies.
Nature of Operations - The Company's primary operations are related to traditional banking activities, including the acceptance of deposits and the lending and investing of money. In addition, the Company also engages in electronic services. The Company's customers consist of small to mid-sized businesses and individuals located in California, Georgia, Nevada and Florida. The Company also originates and sells U. S. Small Business Administration ("SBA"), FHA Title I and 125 LTV loans through its normal operations and thirteen loan production offices.
Cash and Cash Equivalents - For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks and federal funds sold. Generally, federal funds are purchased for one day periods.
Loans - Generally, loans are stated at amounts advanced less payments collected. Interest on loans is accrued daily on a simple-interest basis, except where serious doubt exists as to collectibility of the loan, in which case the accrual of interest income is discontinued.
Loans Held for Sale - The guaranteed portion on loans insured by the SBA and FHA Title I home improvement loans and 125 loan-to-value loans, which are originated and are intended for sale in the secondary market, are carried at the lower of cost or fair value. Funding for SBA and FHA programs depends on annual appropriations by the U.S. Congress, and accordingly, the sale of loans under these programs is dependent on the continuation of such programs.
Investment Securities - The Company classifies as held to maturity those debt securities it has the positive intent and ability to hold to maturity. Securities held to maturity are accounted for at cost and adjusted for amortization of premiums and accretion of discounts.
Provision and Allowance for Loan Losses - The allowance for loan losses is maintained at a level believed adequate by management to absorb possible losses on existing loans through a provision for loan losses charged to expense. The allowance is charged for losses when management believes that full recovery on loans is unlikely. Management's determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio, which take into consideration such factors as changes in the growth, size and composition of the loan portfolio, overall portfolio quality, review of specific problem loans, collateral, guarantees and economic conditions that may affect the borrowers' ability to pay and/or the value of the underlying collateral. These estimates depend on the outcome of future events and, therefore, contain inherent uncertainties.
Management believes the level of the allowance for loan losses as of December 31, 1997, is adequate to absorb future losses; however, changes in the local economy, the ability of borrowers to repay amounts borrowed and other factors may result in the need to increase the allowance through charges to earnings.
Loan Fees and Costs - Loan origination fees and costs are deferred and recognized as an adjustment to the loan yield over the life of the loan using the straight-line method, which approximates the interest method.
Interest Only Strips - The Company retains an interest only ("I/O") strip, which represents the present value of the right to the excess cash flows generated by the serviced loans which represents the difference between (a) interest at the stated rate paid by borrowers and (b) the sum of (i) pass-through interest paid to third-party investors, (ii) trustee fees, (iii) FHA insurance fees (if applicable), (iv) third-party credit enhancement fees (if applicable), and (v) stipulated servicing fees. The Company determines the present value of this anticipated cash flow stream at the time each loan sale transaction closes, utilizing valuation assumptions appropriate for each particular transaction.
The significant valuation assumptions are related to the anticipated average lives of the loans sold, including the anticipated prepayment speeds and the anticipated credit losses related thereto. In order to determine the present value of this excess cash flow, the Company currently applies an estimated market discount rate of 11% to the expected pro forma gross cash flows, which is calculated utilizing the weighted average lives of the serviced loans.
The I/O Strips are accounted for under Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for Investments in Certain Debt and Equity Marketable Securities." As an I/O Strip is subject to significant prepayment risk, and therefore has an undetermined maturity date, it cannot be classified as held to maturity. The Company has chosen to classify its I/O Strips as trading securities. Based on this classification, the Company is required to mark these securities to fair value with the accompanying increases or decreases in fair value being recorded as earnings in the current period. The determination of fair value is based on the previously mentioned basis.
As the gain recognized in the year of sale is equal to the net estimated future cash flows from the I/O Strips, discounted at a market interest rate, the amount of cash actually received over the lives of the loans is expected to exceed the gain previously recognized at the time the loans are sold. The I/O Strips are amortized based on an accelerated method against the cash flows resulting in income recognition that is not materially different from the interest method. The Company generally retains the fight to service loans it originates or purchases and subsequently sales.
Other Real Estate Owned - Real estate acquired by foreclosure is recorded at fair value at the time of foreclosure, less estimated selling costs. Any subsequent operating expenses or income, reduction in estimated values, and gains or losses on disposition of such properties are charged to current operations.
Premises and Equipment - Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from 2 to 31.5 years. Leasehold improvements are amortized over the term of the lease or the estimated useful lives, whichever is shorter.
Income Taxes - Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.
Net Income per Share and Share Equivalent - Net income per share - basic has been computed based on the weighted average number of shares outstanding during each year, which was 3,016,208, 2,356,162 and 2,013,830 in 1997, 1996, and 1995. Net income per share - diluted has been computed based on the weighted average number of shares outstanding during each year plus the dilutive effect of outstanding warrants and options, which was 3,588,477, 2,510,352, and 2,128,212 in 1997, 1996, and 1995. Net income per share amounts have been retroactively restated to reflect the 10% stock dividend issued in 1995 and the two-for-one stock splits in 1996 and 1998.
Reserve Requirements - All depository institutions are required by law to maintain reserves on transaction accounts and nonpersonal time deposits in the form of cash balances at the Federal Reserve Bank. These reserve requirements can be offset by cash balances held at the Company. At December 31, 1997, the Company's cash balance was sufficient to offset the Federal Reserve requirement.
Use of Estimates in the Preparation of Financial Statements - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Current Accounting Pronouncements - In March 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128, "Earnings per Share." This statement establishes standards for computing and presenting earnings per share ("EPS") and applies to all entities with publicly held common stock or potential common stock. This statement replaces the presentation of primary EPS and fully diluted EPS with a presentation of basic EPS and diluted EPS, respectively. Basic EPS excludes dilution and is computed by dividing net income applicable to common stockholders by the weighted -average number of common shares outstanding for the period. Similar to fully diluted EPS, diluted EPS reflects the potential dilution of securities that could share in the earnings. Restatement of all prior period EPS data presented is required. This statement was adopted for the year ended December 31, 1997, and is reflected in the Company's consolidated financial statements. The adoption of this statement did not have a material impact on the Company's consolidated financial statements for the year ended December 31, 1997.
In August 1997, the FASB issued SFAS No. 129, "Disclosure of Information about Capital Structure." This statement establishes standards for disclosing information about capital structure, including pertinent rights and privileges of various securities outstanding. SFAS No. 129 is effective for financial statements for periods ending after December 15, 1997. The Company adopted this statement for the year ended December 31, 1997, and is reflected in the Company's consolidated financial statements. the adoption of this statement did not have a material impact on the Company's consolidated financial statements for the year ended December 31, 1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," effective for fiscal years beginning after December 15, 1997. This statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. This Statement further requires that an entity display an amount representing total comprehensive income for the period in that financial statement. This Statement also requires that an entity classify items of other comprehensive income by their nature in a financial statement. For example, other comprehensive income may include foreign currency items, minimum pension liability adjustments, and unrealized gains and losses on certain debt and equity securities. Reclassification of financial statements for earlier periods, provided for comparative purposes, is required. Based on current accounting standards, this Statement is not expected to have a material impact on the Company's consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," effective for financial statements for periods beginning after December 15, 1997. This statement establishes standards for reporting information about operating segments in annual financial statements and requires that enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. This statement is not expected to have a material impact on the Company's financial statements.
Reclassifications - Certain amounts in the accompanying financial statements for 1996 and 1995 have been reclassified to conform to the 1997 presentation.
2. INVESTMENT SECURITIES
The amortized cost and estimated fair value of investment securities at December 31 were as follows:
1997 AMORTIZED COST GROSS UNREALIZED GAIN GROSS UNREALIZED LOSS
Held to maturity:
Due in less than one year:
U.S. Treasury note, par value $500,000, 5.125%, due 2/28/98 $ 499,700 $ - $ 3,200
U.S. Treasury note, par value $500,000, 5.125%, due 6/30/98 498,751 - 2,400
--------------- ---------------------- ----------------------
$ 998,451 $ - $ 5,600
=============== ====================== ======================
1996 AMORTIZED COST GROSS UNREALIZED GAIN GROSS UNREALIZED LOSS
Held to maturity:
Due in less than one year:
U.S. Treasury note, par value $500,000, 4.75%, due 2/15/97. $ 499,632 $ - $ 3,232
U.S. Treasury note, par value $500,000, 5.625%, due 6/30/97 499,531 519 -
U.S. Treasury note, par value $500,000, 5.625%, due 8/31/97 499,792 - 3,392
U.S. Treasury note, par value $500,000, 5.25%, due 12/31/97 498,750 - 3,150
--------------- ---------------------- ----------------------
$ 1,997,705 $ 519 $ 9,774
=============== ====================== ======================
1997 FAIR VALUE
-----------
Held to maturity:
Due in less than one year:
U.S. Treasury note, par value $500,000, 5.125%, due 2/28/98
$ 496,500
U.S. Treasury note, par value $500,000, 5.125%, due 6/30/98
496,351
-----------
$ 992,851
===========
1996 FAIR VALUE
-----------
Held to maturity:
Due in less than one year:
U.S. Treasury note, par value $500,000, 4.75%, due 2/15/97. $ 496,400
U.S. Treasury note, par value $500,000, 5.625%, due 6/30/97 500,050
U.S. Treasury note, par value $500,000, 5.625%, due 8/31/97 496,400
U.S. Treasury note, par value $500,000, 5.25%, due 12/31/97 495,600
-----------
$ 1,988,450
===========
|
3. LOANS
The composition of the Company's loan portfolio at December 31 was as follows:
1997 1996
Installment . . . . . . . . . . . . . . . . $ 3,466,774 $ 3,776,425
Commercial. . . . . . . . . . . . . . . . . 13,195,325 14,017,173
Real estate . . . . . . . . . . . . . . . . 19,924,139 19,172,017
Loan participations purchased - real estate 2,246,855 709,040
Unguaranteed portion of SBA loans . . . . . 19,602,136 14,708,048
------------ -----------
58,435,229 52,382,703
Less:
Allowance for loan losses . . . . . . . . 1,285,852 1,409,321
Net deferred loan fees and premiums . . . (3,245) 38,813
Other discount on SBA loans . . . . . . . 428,276 343,706
------------ -----------
Loans held for investment, net. . . . . . . $56,724,346 $50,590,863
============ ===========
Loans held for sale . . . . . . . . . . . . $14,440,356 $ 6,808,800
============ ===========
|
Loans held for sale include the guaranteed and unguaranteed portion of loans insured by the SBA and FHA Title I, first and second mortgages, and high loan to value loans. Loans are held for sale and are recorded at the lower of cost or fair value.
The Company generates substantial revenues from the origination of home improvement loans under Title I of FHA regulations. This is the oldest government insured loan program in existence, having begun in 1934. The Company originates Title I loans and sells them into the secondary market and retains the servicing. In early 1995, the Company was approved as one of a small number of financial institutions to be able to sell Title I loans directly to the Federal National Mortgage Association ("FNMA").
The Company also offers 125 Loan-to-Value ('LTV') loans. These loans allow the borrower to receive up to 125% of their home value for debt consolidation, home improvement, school tuition, or any worthwhile cash outlay. There is an upper limit on these loans of $100,000. In 1997, the Bank sold these loans at a premium to third-parties.
The Company retains a servicing spread on Title I and SBA loan sales that creates servicing assets. The servicing spread is separated into two assets. A servicing asset is recorded for the present value of the excess of the contractual servicing spread over the expected cost of servicing the portfolio for the expected life of the loans sold. An interest-only asset is recorded for the present value of the servicing spread less the contractual servicing for the estimated expected life of the loans. The Company uses industry prepayment statistics and its own prepayment experience in estimating the expected life of the loans. The present value asset is amortized as an offset to loan servicing income over the estimated expected life of the loans.
The significant valuation assumptions are related to the anticipated average lives of the loans sold, the anticipated prepayment speeds and the anticipated credit losses related thereto. In order to determine the present value of this excess cash flow, the Company currently applies an estimated market discount rate of 11% to the expected pro forma gross cash flows, which are calculated utilizing the weighted average lives of the loans,. Accordingly, the overall effective discount rate utilized on the cash flows, net of expected credit losses is approximatley 11%. The annual prepayment rate of the loans is a function of full and partial prepayments and defaults.
The Company monitors actual prepayment experience on a monthly basis. When actual experience differs materially from the original assumptions, the Company makes a new estimate of the expected remaining life of the loans, and adjusts the amortization of the present value asset.
The Company makes loans to borrowers in a number of different industries. No single industry comprises 10% or more of the Company's loan portfolio. Although the Company has a diversified loan portfolio, the ability of the Company's customers to honor their loan agreements is dependent upon, among other things, the general economy of the Company's market area.
Transactions in the allowance for loan losses for the years ended December 31 are summarized as follows:
1997 1996 1995
Balance, beginning of year . . . . . . . . $1,409,321 $1,462,939 $1,391,316
Provision for loan losses. . . . . . . . . 260,000 435,000 360,000
Loans charged off. . . . . . . . . . . . . (400,745) (510,494) (308,287)
Recoveries on loans previously charged off 17,276 21,876 19,910
----------- ----------- -----------
Balance, end of year . . . . . . . . . . . $1,285,852 $1,409,321 $1,462,939
=========== =========== ===========
|
The recorded investment in loans that are considered to be impaired under SFAS No. 114 was as follows:
DECEMBER 31,
------------------------------
1997 1996 1995
Impaired loans without specific valuation allowances . . $1,547,168 $ 764,388 $1,531,318
Impaired loans with specific valuation allowances. . . . 1,250,964 1,178,435 1,432,783
Specific valuation allowance allocated to impaired loans (505,994) (432,853) (583,600)
----------- ----------- -----------
Impaired loans, net. . . . . . . . . . . . . . . . . . . $2,292,138 $1,509,970 $2,380,501
=========== =========== ===========
Average investment in impaired loans . . . . . . . . . . $1,901,054 $1,945,235 $1,805,251
=========== =========== ===========
Interest income recognized on impaired loans . . . . . . $ 287,309 $ 85,559 $ 66,919
=========== =========== ===========
|
It is generally the Company's policy to place loans on nonaccrual status when they are 90 days past due. Thereafter, interest income is no longer recognized and the full amount of all payments received, whether principal or interest, is applied to the principal balance of the loan. As such, interest income may be recognized on impaired loans to the extent they are not past due by 90 days or more.
At December 31, 1997, loans on nonaccrual status totaled $1,259,107 compared to $618,095 and $1,036,782 at December 31, 1996, and 1995. Upon the adoption of SFAS No. 114, the Company classified all loans on nonaccrual status as impaired. Accordingly, the impaired loans disclosed above include all loans that were on nonaccrual status as of December 31, 1997, 1996, and 1995.
Financial difficulties encountered by certain borrowers may cause the Company to restructure the terms of their loans to facilitate loan payments. As of December 31, 1997, 1996, and 1995, gross troubled debt restructured loans totaled $2,375,000, $843,000 and $436,000. In accordance with the provisions of SFAS No. 114, a troubled loan that is restructured subsequent to the adoption of SFAS No. 114 would generally be considered impaired, while a loan restructured prior to adoption would not be considered impaired if, at the date of measurement, it was probable that the Company will collect all amounts due under the restructured terms. Accordingly, the balance of impaired loans disclosed above includes all troubled debt restructured loan that, as of December 31, 1997, 1996, and 1995, are considered impaired.
Interest foregone on nonaccrual loans and troubled debt restructurings outstanding during the years ended December 31, 1997, 1996, and 1995 amounted to approximately $190,000, $226,000 and $96,000.
4. TRANSACTIONS INVOLVING DIRECTORS AND EMPLOYEES
In the ordinary course of business, the Company has extended credit to directors and employees of the Company. Such loans are subject to approval by the Loan Committee and ratification by the Board of Directors, exclusive of the borrowing director. The following is an analysis of the activity of all such loans:
1997 1996 1995
Outstanding balance, beginning of year $2,253,822 $1,326,111 $2,007,151
Credit granted, including renewals . . 751,534 957,883 57,723
Repayments . . . . . . . . . . . . . . (796,236) (30,172) (738,763)
----------- ----------- -----------
Outstanding balance, end of year . . . $2,209,120 $2,253,822 $1,326,111
=========== =========== ===========
|
5. PREMISES AND EQUIPMENT
Premises and equipment as of December 31 was as follows:
1997 1996
Furniture, fixtures and equipment. . . . . . . $3,105,026 $2,368,402
Building & land. . . . . . . . . . . . . . . . 782,423 782,423
Leasehold improvements . . . . . . . . . . . . 757,566 648,845
Construction in progress . . . . . . . . . . . 65,657 39,786
---------- ----------
4,710,672 3,839,456
Less accumulated depreciation and amortization 1,985,207 1,432,619
---------- ----------
Premises and equipment, net. . . . . . . . . . $2,725,465 $2,406,837
========== ==========
|
6. DEPOSITS
At December 31, 1997, the scheduled maturities of time certificates of deposits are as follows:
1998. . . . . . . . $37,945,985
1999. . . . . . . . 521,596
2000. . . . . . . . 47,329
2001. . . . . . . . 11,000
2002 and thereafter 3,106
-----------
$38,529,016
===========
|
7. INCOME TAXES
Significant components of the Company's net deferred tax account at December 31, are as follows:
1997 1996
-------------- -----------------
FEDERAL STATE FEDERAL STATE
Deferred tax assets:
Provision for loan losses . . . . . . . . . . . $ 361,455 $ 113,033 $ 349,734 $ 105,430
State taxes . . . . . . . . . . . . . . . . . . 101,589 - 63,114 -
Depreciation. . . . . . . . . . . . . . . . . . - 2,914 - -
Deferred loan fees. . . . . . . . . . . . . . . - - - -
Other . . . . . . . . . . . . . . . . . . . . . 7,900 2,518 - -
---------- ---------- ---------- ----------
Total deferred tax assets . . . . . . . . . . . . 470,944 118,465 412,848 105,430
---------- ---------- ---------- ----------
Deferred tax liabilities:
Depreciation. . . . . . . . . . . . . . . . . . (11,002) - (38,994) (3,617)
Section 481 -
deferred loan fees (109,995) (35,069) (65,349) (21,719)
Cash to accrual adjustment
Adjustment (12,295) (3,398) (24,591) (7,608)
Deferred loan fees. . . . . . . . . . . . . . . (237,427) (75,697) (135,018) (44,874)
Capitalized loan costs . . . . . . . . . . . . . (26,404) (8,418) (20,552) (6,831)
Prepaid expenses. . . . . . . . . . . . . . . . (75,331) (24,017) (75,699) (25,159)
---------- ---------- ---------- ----------
Total deferred tax
Liabilities (472,454) (146,599) (360,203) (109,808)
---------- ---------- ---------- ----------
Net deferred tax asset
(liability) $ (1,510) $ (28,134) $ 52,645 $ (4,378)
========== ========== ========== ==========
|
The provision for income taxes for the years ended 1997, 1996 and 1995 consists of the following:
1997 1996 1995
Current:
Federal. . . . . . . . $ 828,398 $456,370 $ 634,761
State. . . . . . . . . 252,061 141,014 212,413
---------- -------- ----------
Total current. . . . . . 1,080,459 597,384 847,174
Deferred:
Federal. . . . . . . . 54,155 153,518 (103,797)
State . . . . . . . . 23,737 49,576 (13,377)
---------- -------- ----------
Total deferred . . . . . 77,892 203,094 (117,174)
---------- -------- ----------
Total income tax expense $1,158,351 $800,478 $ 730,000
========== ======== ==========
|
The reasons for the difference between income tax expense and the amount computed by applying the federal statutory income tax rate to income before income taxes are as follows:
1997 1996 1995
Tax expense at federal statutory rate. . . . . . . . . 35% 35% 35%
State franchise tax, net of federal income tax benefit 7 7 8
Other, net . . . . . . . . . . . . . . . . . . . . . . - - (1)
----- ----- -----
Actual tax expense . . . . . . . . . . . . . . . . . . 42% 42% 42%
===== ===== =====
|
8. STOCKHOLDERS' EQUITY
Common Stock
In 1996 and 1995, cash dividends of $.04 and $.03 per share, respectively, were declared and paid. In 1995, the Company declared and issued a 10% stock dividend.
In the first quarter of 1996, the shareholders of the Company approved a two-for-one stock split effective for shareholders of record on February 18, 1996.
During the third quarter of 1996, the Company successfully completed a secondary stock offering which resulted in the issuance of 472,653 warrants and 859,368 additional shares of common stock. Net proceeds of $2,788,048 were realized on this offering after issuance costs of $219,740. Each warrant entitles the holder to purchase two shares of common stock for $4.375 per share, and expires on June 30, 1998. In conjunction with the secondary stock offering, the Company listed its common stock on the NASDAQ National Market under the symbol 'CWBC'.
Stock Options
Under the terms of the Company's stock option plan, full-time salaried employees may be granted nonqualified stock options or incentive stock options, and directors may be granted nonqualified stock options. Options may be granted at a price not less than 100% of the fair market value of the stock on the date of grant. Options are generally exercisable in cumulative 20% installments. However, in certain circumstances, the vesting of these options may be adjusted, as determined by the Board of Directors. All options expire no later than ten years from the date of grant. As of December 31, 1997, all options are outstanding at prices of $2.28 - $9.125 per share with 280,132 options exercisable and 564,743 options available for future grant. Stock option activity is as follows:
1997 1996 1995
Options outstanding, January 1, . 427,812 398,680 350,992
Granted . . . . . . . . . . . . . 20,000 93,740 58,000
Increase for stock dividend . . . - - 35,700
Canceled. . . . . . . . . . . . . (17,520) (17,440) (21,600)
Exercised . . . . . . . . . . . . (70,640) (47,168) (24,412)
-------- -------- --------
Options outstanding, December 31, 359,652 427,812 398,680
======== ======== ========
|
The estimated fair value of options granted ranged from $3.78 - $5.11 per share in 1997, $2.34 - $3.05 per share in 1996 and was $2.00 per share in 1995. The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock option plan. Accordingly, no compensation cost has been recognized for its stock option plan. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant dates for awards under the plan consistent with the method prescribed by SFAS No. 123, the Company's net income and earnings per share for the ended December 31, 1997, 1996, and 1995 would have been reduced to the pro forma amounts indicated below:
Net income. . . . . . . . . . . . . . . . . . . 1997 1996 1995 As reported . . . . . . . . . . . . . . . . . . $1,588,940 $1,105,422 $1,007,828 Pro forma . . . . . . . . . . . . . . . . . . . 1,553,592 997,562 999,428 Net income per common share - Basic As reported . . . . . . . . . . . . . . . . . . $ .53 $ .47 $ .50 Pro forma . . . . . . . . . . . . . . . . . . . $ .52 $ .42 $ .50 Net income per common share - assuming dilution As reported . . . . . . . . . . . . . . . . . . $ .44 $ .44 $ .47 Pro forma . . . . . . . . . . . . . . . . . . . $ .43 $ .40 $ .47 |
The fair value of options granted under the Company's fixed stock option plan during 1997, 1996 and 1995 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used: 8.5% annual dividend yield, expected volatility of 53%, risk free interest rate of 6.5%, and expected lives of 6 years.
9. COMMITMENTS AND CONTINGENCIES
The Company leases twelve office facilities under various operating lease agreements with terms that expire at various dates between March 1998, and November 2002, plus options to extend the lease terms for periods of up to six years. The minimum lease commitments as of December 31, 1997, under all operating lease agreements are as follows:
FOR THE YEAR ENDING DECEMBER 31,
1998. . . . . . . . . . . . . . $291,643
1999. . . . . . . . . . . . . . 199,994
2000. . . . . . . . . . . . . . 126,620
2001. . . . . . . . . . . . . . 110,273
2002 . . . . . . . . . . . . . . 97,443
--------
TOTAL. . . . . . . . . . . . . . $825,973
========
|
Rent expense for the years ended December 31, 1997, 1996 and 1995 was $294,230, $219,587 and $283,219.
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The Company's exposure to credit loss in the event of nonperformance by the other party to commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. At December 31, 1997, the Company had commitments to extend credit of $20,361,000 and obligations under standby letters of credit of $30,000.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements. All guarantees are short term and expire within one year.
The Company uses the same credit policies in making commitments and conditional obligations as it does for extending loan facilities to customers. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment; and income-producing commercial properties.
The Company has sold loans that are guaranteed or insured by government
agencies for which the Company retains all servicing rights and
responsibilities. The Company is required to perform certain monitoring
functions in connection with these loans to preserve the guarantee by the
government agency and prevent loss to the Company in the event of nonperformance
by the borrower. Management believes that the Company is in compliance with
these requirements. The outstanding balance of the sold portion of such loans
was approximately $78,000,000 at December 31, 1997.
The Company is involved in various litigation through the normal course of
business. In the opinion of management, based upon the advice of the Company's
legal counsel, the disposition of all pending litigation should not have a
material effect on the Company's financial position or results of operations.
10. REGULATORY MATTERS
The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company's assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total and Tier I capital (primarily common stock and retained earnings less goodwill) to risk-weighted assets, and of Tier I capital to average assets. Management believes, as of December 31, 1997, that the Company meets all capital adequacy requirements to which it is subject.
As of December 31, 1997 and 1996, the most recent notification from the Federal Deposit Insurance Corporation ("FDIC") categorized the Company as "well capitalized" under the regulatory framework for prompt corrective action. To be categorized as "well capitalized" the Company must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table below. There are no conditions or events since that notification which management believes have changed the Company's category.
The Company's actual capital amounts and ratios at December 31 are as follows:
TO BE CATEGORIZED
WELL CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE ACTION
ACTUAL ADEQUACY PURPOSES: PROVISIONS:
------------------- ----------------- ---------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
AS OF DECEMBER 31, 1997:
Total Capital (to Risk Weighted Assets). $12,357,179 17.20% $5,746,643 >= 8% $7,183,304 >=10%
Tier I Capital (to Risk Weighted Assets) 11,454,477 15.95% 2,873,321 >=4% 4,309,982 >=6%
Tier I Capital (to Average Assets) . . . . . . . 11,454,477 12.02% 3,812,315 >=4% 4,765,393 >=5%
|
TO BE CATEGORIZED
WELL CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE ACTION
ACTUAL ADEQUACY PURPOSES: PROVISIONS:
------------------- ----------------- ---------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
AS OF DECEMBER 31, 1996:
Total Capital (to Risk Weighted Assets) 14.88% $5,057,001 >= 8% 6,321,251 >=10%
9,406,022
Tier I Capital (to Risk Weighted Assets) 8,608,032 13.61% 2,529,914 >=4% 3,794,871 >=6%
Tier I Capital (to Average Assets) . . . . . . . 8,608,032 11.33% 3,039,023 >=4% 3,798,778 >=5%
|
11. EMPLOYEE PROFIT SHARING PLAN On September 1, 1995, the Company established a 401(k) plan for benefit of its employees. Employees are eligible to participate in the plan if they were employed by the Company on September 1, 1995, or after 6 months of consecutive service. Employees may make contributions to the plan under the plan's 401(k) component, and the Company may make contributions under the plan's profit sharing component, subject to certain limitations. The Company's contributions are determined by the Board of Directors and amounted to $112,592, $39,132, and $15,315 in 1997, 1996, and 1995, respectively.
12. FAIR VALUES OF FINANCIAL INSTRUMENTS SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires the Company disclose estimated fair values for its financial instruments. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair amounts.
(in thousands) DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------------------- --------------------------------------
CARRYING AMOUNT ESTIMATED FAIR VALUE CARRYING AMOUNT ESTIMATED FAIR VALUE
Assets:
Cash and cash equivalents $ 12,103 $ 12,103 $ 12,791 $ 12,791
Time deposits in
other financial institutions 2,477 2,477 2,378 2,378
U.S. Treasury Notes 998 998 1,998 1,988
FRB Stock 251 251 156 156
Interest Only Strip 2,529 2,529 - -
Loans 71,165 73,382 57,400 58,952
Servicing Assets 664 664 2,234 2,234
Liabilities:
Deposits 80,252 80,661 70,606 70,602
|
The methods and assumptions used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value are explained below:
Cash and cash equivalents and time deposits in other financial institutions - The carrying amounts approximate fair values because of short-term nature of these investments.
Investment securities - The fair value is based on quoted market prices from security brokers or dealers if available. If a quoted market price is not available, fair value is estimated using the quoted market price for similar securities. It is not practicable to estimate the fair value of Federal Reserve Company Stock.
Loans held for investment and for sale - Fair values are estimated for portfolios of loans with similar financial characteristics, primarily fixed and adjustable rate interest terms. The fair values of fixed rate mortgage loans are based upon discounted cash flows utilizing the rate that the Company currently offers as well as anticipated prepayment schedules. The fair values of adjustable rate loans are also based upon discounted cash flows utilizing discount rates that the Company currently offers, as well as anticipated prepayment schedules. No adjustments have been made for changes in credit within the loan portfolio. It is management's opinion that the allowance for estimated loan losses pertaining to performing and nonperforming loans results in a fair valuation of such loans. Fair values of commitments to extend credit are not materially different than the amounts of deferred fees associated with such commitments and reflected in the accompanying balance sheets.
Deposits - The fair values of deposits are estimated based upon the type of deposit products. Demand accounts, which include savings and transaction accounts, are presumed to have equal book and fair values, since the interest rates paid on these accounts are based on prevailing market rates. The estimated fair values of time deposits are determined by discounting the cash flows of segments of deposits that have similar maturities and rates, utilizing a yield curve that approximates the prevailing rates offered to depositors as of the measurement date.
The fair value estimates presented herein are based on pertinent information available to management as of December 31, 1997 and 1996. Although management is not aware of any factors that would significantly effect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since those dates, and therefore, current estimates of fair value may differ significantly from the amounts presented herein.
13. QUARTERLY FINANCIAL DATA (unaudited)
Summarized quarterly financial data follows:
(All amounts in thousands except per share data)
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------------------------------------------
1997
Net interest income . . . . . . . . . . . . . $ 1,161 $1,340 $ 1,306 $ 1,292
Provision for loan losses . . . . . . . . . . 80 80 100 -
Net income. . . . . . . . . . . . . . . . . . 309 404 438 438
Net income per share - basic . . . . . . . . $ .10 $ .13 $ .15 $ .15
- diluted $ .09 $ .11 $ .12 $ .12
|
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------------------------------------------
1996
Net interest income . . . . . . . . . . . . . $1,016 $1,082 $ 1,168 $ 1,121
Provision for loan losses . . . . . . . . . . 120 105 110 100
Net income. . . . . . . . . . . . . . . . . . 232 270 305 298
Net income per share - basic . . . . . . . . $ .10 $ .11 $ .13 $ .13
- diluted $ .09 $ .11 $ .12 $ .12
|
14. SUBSEQUENT EVENT
On January 22, 1998, the Company declared a two-for-one stock split for shareholders of record on February 3, 1998, to be paid on February 27, 1998. All share and per share amounts included in the accompanying financial statements and related notes have been retroactively restated for the effect of this split.
15. COMMUNITY WEST BANCSHARES (PARENT COMPANY ONLY)
(dollars in thousands)
DECEMBER 31, 1997
ASSETS
Cash and equivalents. . . . . . . . . . . . $ 255
Investment in the Bank. . . . . . . . . . . 12,358
Other Assets. . . . . . . . . . . . . . . . 21
------------------
TOTAL ASSETS. . . . . . . . . . . . . . . $ 12,634
==================
LIABILITIES AND SHAREHOLDER EQUITY
Other Liabilities . . . . . . . . . . . . . $ 266
Common Stock. . . . . . . . . . . . . . . . 8,810
Retained Earnings . . . . . . . . . . . . . 3,558
------------------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $ 12,634
==================
|
Community West Bancshares was created for the purposes of forming a bank holding company. Prior to the acquisition of Goleta National Bank, which became effective on December 31, 1997, the Company had minimal activity.
******
PART III
None
YEAR FIRST
APPOINTED PRINCIPAL OCCUPATION
DIRECTOR DURING THE
NAME AND TITLE AGE OR OFFICER PAST FIVE YEARS
-------------- --- ---------- ---------------
Michael A. Alexander. . . . . . . . . 67 Re-elected Chief Executive Officer of
Chairman of the Board 1992 Utilicom Corp. since 1994.
Prior to that time, Director
of Programs of Delco
Electronics.
Mounir R. Ashamalla . . . . . . . . . 60 1989 Oral-Maxillo-Facial
Director Surgeon
Robert H. Bartlein. . . . . . . . . . 50 1989 President of Bartlein
Director and Vice Chairman Group, Inc. and President
of the Board of Bartlein & Company,
Inc.
Jean W. Blois . . . . . . . . . . . . 70 1989 Independent consultant.
Director
John D. Illgen. . . . . . . . . . . . 53 1989 President and Chairman of
Director Illgen Simulation
Technologies, Inc.
John D. Markel. . . . . . . . . . . . 54 1989 Private investor
Director
Michel Nellis . . . . . . . . . . . . 51 1989 Partner with Nellis
Director Associates.
William R. Peeples. . . . . . . . . . 54 1989 Private investor.
Director
C. Randy Shaffer. . . . . . . . . . . 51 1992 Executive Vice President
Director and Executive Vice President and Chief Financial Officer
of the Company.
James R. Sims, Jr.. . . . . . . . . . 62 1989 Realtor.
Director
Llewellyn W. Stone. . . . . . . . . . 55 1989 President and Chief
President, Chief Executive Executive Officer of the
Officer and Director Company.
|
None of the directors or executive officers were selected pursuant to any arrangement or understanding other than with the directors and executive officers of the Bank acting within their capacities as such. There are no family relationships between any of the directors and executive officers ot the Bank.
Annual Compensation Long Term Compensation
-------------------------------- --------------------------------------
Awards Payouts
(a). . . . . . . . . . . . . . . . . . (b) (c) (d) (e) (f) (g) (h) (i)
All
Other Restricted Op- LTIP Other
Name and Annual Stock tions/ PayOuts Compen-
Principal Compen- Award(s) SARs sation
Position . . . . . . . . . . . . . . . Year Salary Bonus sation
($) ($) ($) ($) ($) ($)
Llewellyn W. Stone . . . . . . . . . . 1997 179,250 51,000 - - - - -
President and Chief Executive Officer. 1996 127,123 51,000 - - - - -
1995 124,600 51,000 - - - - 636
C. Randy Shaffer . . . . . . . . . . . 1997 118,605 30,000 - - - - -
Executive Vice . . . . . . . . . . . . 1996 90,973 30,000 - - - - -
President. . . . . . . . . . . . . . . 1995 87,744 25,000 - - - - 1,867
|
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION/SAR
VALUE
(a) (b) (c) (d) (e)
Value of
Number of Unexercised In-
Unexercised the-Money
Options/SARs at Options/SARs at
Year-end (#) Year-End ($)
Exercisable/ Exercisable/
Name Shares Acquired on Exercise (#) Value Realized($) Unexercisable Unexercisable
------------------- ------------------------------- ----------------- ---------------- -----------------
Llewellyn W. Stone. N/A N/A Options Only Options Only
79,000/- $ 496,460/-
C. Randy Shaffer. . 43,000 $ 138,620 Options Only Options Only
-/- -/-
|
The following table sets forth, as of February 27, 1998, the number and percentage of shares of the Company's Common Stock beneficially owned, directly or indirectly, by each of the Company's directors, named officers and principal shareholders , and by the directors and named officers of the Company as a group. The shares "beneficially owned " are determined under Securities and Exchange Commission Rules, and do not necessarily indicate ownership for any other purpose, In general, beneficial ownership includes shares over which the director, named officer or principal shareholder has sole or shared voting or investment power and shares which such person has the right to acquire within 60 days of February 27, 1998. Unless otherwise indicated, the persons listed below have sole voting and investment powers of the shares beneficially owned. Management is not aware of any arrangements which may, at a subsequent date, result in a change of control of the Company.
Beneficial Amount and Nature Percent
Owner of Beneficial Ownership of Class(1)
Michael A. Alexander. . . . . . . . . . . . . . . . . . 74,370(2) 2.3%
Mounir R. Ashamalla . . . . . . . . . . . . . . . . . . 74,856(3) 2.3%
Robert H. Bartlein. . . . . . . . . . . . . . . . . . . 86,472(4) 2.7%
Jean W. Blois . . . . . . . . . . . . . . . . . . . . . 51,068(5) 1.6%
John D. Illgen. . . . . . . . . . . . . . . . . . . . . 42,080(6) 1.3%
John D. Markel. . . . . . . . . . . . . . . . . . . . . 314,664(7) 9.5%
Michel Nellis . . . . . . . . . . . . . . . . . . . . . 40,952(8) 1.3%
William R. Peeples. . . . . . . . . . . . . . . . . . . 309,588(9) 9.7%
C. Randy Shaffer. . . . . . . . . . . . . . . . . . . . 44,230(10) 1.4%
James R. Sims, Jr.. . . . . . . . . . . . . . . . . . . 17,400(11) .6%
Llewellyn W. Stone. . . . . . . . . . . . . . . . . . . 85,424(12) 2.7%
All Directors and Named Officers as a Group (11 in all)
1,141,104(1) 32.4%
======================== ===========
(1) Includes shares subject to options held by each director and named officer and the
directors and named officers as a group that are exercisable within 60 days of February 27,
1998. These are treated as issued and outstanding for the purpose of computing the percentage
of each director and the directors and named officers as a group but not for the purpose of
computing the percentage of class of any other person.
(2) Mr. Alexander has shared voting and investment powers as to 39,632 of these shares, has
9,460 shares acquirable by exercise of stock options, and has 13,538 shares acquirable by
exercise of stock warrants.
(3) Dr. Ashamalla has 10,164 shares acquirable by exercise of stock options and has 12,986
shares acquirable by exercise of stock warrants.
(4) Mr. Bartlein has 23,804 shares acquirable by exercise of stock options and has 13,822
shares acquirable by exercise of stock warrants.
(5) Ms. Blois has 24,244 shares acquirable by exercise of stock options.
(6) Mr. Illgen has 15,444 shares acquirable by exercise of stock options and has 5,574
shares acquirable by exercise of stock warrants.
(7) Mr. Markel has shared voting and investment powers as to 27,720 of these shares, has
15,840 shares acquirable by exercise of stock options and has 120,652 shares acquirable by
exercise of stock warrants.
(8) Ms. Nellis has shared voting and investment powers as to 7,246 of these shares, has
15,444 shares acquirable by exercise of stock options and has 1,990 shares acquirable by
exercise of stock warrants.
(9) Mr. Peeples has 2,860 shares acquirable by exercise of stock options and has 28,000
shares acquirable by exercise of stock warrants.
(10) Mr. Shaffer has shared and voting investment powers as 1,300 of these shares.
(11) Mr. Sims has 9,152 shares acquirable by exercise of stock options and 464 shares
acquirable by exercise of stock warrants.
(12) Mr. Stone has shared voting and investment powers as to 1,584 of these shares and has
24,000 shares acquirable by exercise of stock options.
|
Some of the directors and executive officers of the Company, members of their immediate families, and the companies with which they are associated are customers of the Bank, and have banking transactions with the Bank in the ordinary course of the Bank's business, and the Bank expects to continue to have such banking transactions with such persons in the future. In management's opinion, all loans and commitments to lend included in such transactions have been made in the ordinary course of the Bank's business, have been made on substantially the same terms, including interest rates and collateral as those prevailing at the Bank at the time for comparable transactions with other persons of similar credit worthiness and, in the opinion of the management of the Company, have not involved more than the normal risk of collectibility or presented any other unfavorable features. The maximum aggregate amount of all such loans during the period January 1, 1997 to December 31, 1997 was approximately $2,200,000, which represented approximately 18% of the Company's total equity as of that date.
PART IV.
(a)(1) The following financial statements of Community West Bancshares are filed as part of this Annual Report. Report of Independent Accountants 40 Balance Sheets as of December 31, 1997 and 1996 41 Statements of Operations for the three years ended December 31, 1997 42 Statements of Shareholders' Equity for the three years ended December 31, 1997 43 Statements of Cash Flows for the three years ended December 31, 1997 44 Notes to Consolidated Financial Statements 45 (a)(2) |
Fianancial statement schedues other than those listed above have been omitted because they are either not required, not applicable or the information is otherwise included.
(a)(3) Exhibits
(2) Plan of Reorganization (1)
(3)(i) Articles of Incorporation
(3)(ii) By-laws
(4)(i) Common Stock Certificate (2)
(4)(ii) Warrant Certificate (2)
(10)(i) 1997 Stock Option Plan and Form of Stock Option Agreement (1)
(10)(ii) Employment Contract between Goleta National Bank and Llewellyn Stone, President & CEO
(10)(iii) Salary Continuation Agreement between Goleta National Bank and Llewellyn Stone, President & CEO
(10)(iv) Lease Agreements between Goleta National Bank and Santa Barbara Commercial Properties (3)
(10)(v) Lease Agreement between Goleta National Bank and GRC, International
(10)(vi) Lease Agreement between Goleta National Bank and Festival Professional Park (3)
(10)(vii) Employee Profit Sharing Plan (3)
(21) Subsidiaries of the Registrant
(23) Consent of Deloitte & Touche
(27) Financial Data Schedule
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-8 filed with the Commission on 12-31-97 and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's Amendment to Registration Statement on Form 8-A filed with the Commission on 3-12-98 and incorporated herein by reference.
(3) The Registrant has submitted a request to the Commission for a continuing hardship exemption persuant to Rule 202 of Regulation S-T with respect to this exhibit. If the request is granted, a paper copy of the exhibit shall be filed with the Commission. If the request is not granted, the exhibit shall be filed as part of an amendment to the Report on form 10-K.
(b) There were no reports on Form 8-K filed by the Registrant during the fourth quarter of the fiscal year ended December 31, 1997.
Pursuant to the requirements of Section 13 or 15 (d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 26th day of March, 1998.
COMMUNITY WEST BANCSHARES
(Registrant)
By /S/ Llewellyn W. Stone ------------------------- Llewellyn W. Stone President and Chief Executive Officer |
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
Signature Title Date
/S/ Chairman of the Board March 26, 1998
--------------------
Michael A. Alexander
/S/Mounir R. Ashamalla Director March 26, 1998
--------------------
Mounir R. Ashamalla
/S/Robert H. Bartlein Director and Vice Chairman of the Board March 26, 1998
--------------------
Robert H. Bartlein
/S/Jean W. Blois Director March 26, 1998
--------------------
Jean W. Blois
/S/John D. Illgen Director March 26, 1998
--------------------
John D. Illgen
/S/John D. Markel Director March 26, 1998
--------------------
John D. Markel
/S/Michel Nellis Director and Secretary March 26, 1998
--------------------
Michel Nellis
/S/William R. Peeples Director March 26, 1998
--------------------
William R. Peeples
Director,Executive Vice President and Chief March 26, 1998
Financial Officer (Principal Financial and
/S/C. Randy Shaffer Accounting Officer)
--------------------
C. Randy Shaffer
/S/James R. Sims Jr. Director March 26, 1998
--------------------
James R. Sims Jr.
Director, President and Chief Executive Officer March 26, 1998
/S/Llewellyn W. Stone (Principal Executive Officer)
--------------------
Llewellyn W. Stone
|
Exhibit (3)(i) Articles of Incorporation
ARTICLES OF INCORPORATION
OF
COMMUNITY WEST BANCSHARES
ARTICLE I
The name of this corporation is:
COMMUNITY WEST BANCSHARES
ARTICLE II
The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code.
ARTICLE III
The name and complete business address in the State of California of this corporation's initial agent for service of process is:
C. RANDY SHAFFER
COMMUNITY WEST BANCSHARES
5827 HOLLISTER AVENUE
GOLETA, CALIFORNIA 93117
ARTICLE IV
This corporation is authorized to issue only one class of shares of stock which shall be designated common stock, no par value per share; and the total number of shares which the corporation is authorized to issue is 10,000,000.
ARTICLE V
(a) The liability of directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law.
(b) The corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the California Corporations Code) through
bylaw provisions, agreements with agents, vote of shareholders or disinterested
directors, or otherwise, in excess of the indemnification otherwise permitted by
Section 317 of California Corporations Code subject only to the applicable
limits set forth in Section 204 of the California Corporations Code with respect
to actions for breach of duty to the corporation and its shareholders.
(c) The corporation is authorized to purchase and maintain insurance on behalf of its agents against any liability asserted against or incurred by the agent in such capacity or arising out of the agent's status as such from a company, the shares of which are owned in whole or in part by the corporation, provided that any policy issued by such company is limited to the extent provided by applicable law.
(d) Any amendment, repeal or modification of any provision of this Article V shall not adversely affect any right or protection of an agent of this corporation existing at the time of such amendment, repeal or modification.
/S/Arthur A. Coren, Incorporator -------------------------------- Arthur A. Coren, Incorporator |
Exhibit (3)(ii) By-Laws
BYLAWS
OF
COMMUNITY WEST BANCSHARES
a California corporation
BYLAWS OF
COMMUNITY WEST BANCSHARES
TABLE OF CONTENTS
Page
----
ARTICLE I - CORPORATE OFFICES 1
1.1 PRINCIPAL OFFICE 1
1.2 OTHER OFFICES 1
ARTICLE II - MEETINGS OF SHAREHOLDERS 1
2.1 PLACE OF MEETINGS 1
2.2 ANNUAL MEETING 1
2.3 SPECIAL MEETINGS 1
2.4 NOTICE OF SHAREHOLDERS' MEETINGS 2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE 2
2.6 QUORUM 2
2.7 ADJOURNED MEETING; NOTICE 3
2.8 VOTING 3
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT 4
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING 4
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS 4
2.12 PROXIES 5
2.13 INSPECTORS OF ELECTION 5
2.14 NOMINATIONS OF DIRECTORS 6
ARTICLE III - DIRECTORS 6
3.1 POWERS 6
3.2 NUMBER OF DIRECTORS 6
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS 7
3.4 REMOVAL 7
3.5 RESIGNATION AND VACANCIES 7
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE 8
3.7 REGULAR MEETINGS 8
3.8 SPECIAL MEETINGS; NOTICE 8
3.9 QUORUM 8
3.10 WAIVER OF NOTICE 8
3.11 ADJOURNMENT 9
3.12 NOTICE OF ADJOURNMENT 9
3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING 9
3.14 FEES AND COMPENSATION OF DIRECTORS 9
ARTICLE IV - COMMITTEES 9
4.1 COMMITTEES OF DIRECTORS 9
4.2 MEETINGS AND ACTION OF COMMITTEES 10
|
ARTICLE V - OFFICERS 10
5.1 OFFICERS 10
5.2 APPOINTMENT OF OFFICERS 10
5.3 SUBORDINATE OFFICERS 10
5.4 REMOVAL AND RESIGNATION OF OFFICERS 10
5.5 VACANCIES IN OFFICES 11
5.6 CHAIRMAN OF THE BOARD 11
5.7 VICE CHAIRMAN 11
5.8 PRESIDENT 11
5.9 VICE PRESIDENTS 11
5.10 SECRETARY 11
5.11 CHIEF FINANCIAL OFFICER 12
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS 12
6.1 INDEMNIFICATION OF DIRECTORS 12
6.2 INDEMNIFICATION OF OTHERS 12
6.3 PAYMENT OF EXPENSES IN ADVANCE 12
6.4 INDEMNITY NOT EXCLUSIVE 13
6.5 INSURANCE INDEMNIFICATION 13
6.6 CONFLICTS 13
6.7 RIGHT TO BRING SUIT 13
6.8 INDEMNITY AGREEMENTS 13
6.9 AMENDMENT, REPEAL OR MODIFICATION 14
ARTICLE VII - RECORDS AND REPORTS 14
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER 14
7.2 MAINTENANCE AND INSPECTION OF BYLAWS 14
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS 14
7.4 INSPECTION BY DIRECTORS 15
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER 15
7.6 FINANCIAL STATEMENTS 15
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS 16
ARTICLE VIII - GENERAL MATTERS 16
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING 16
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS 16
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED 16
8.4 CERTIFICATES FOR SHARES 16
8.5 LOST CERTIFICATES 17
8.6 CONSTRUCTION; DEFINITIONS 17
ARTICLE IX - AMENDMENTS 17
9.1 AMENDMENT BY SHAREHOLDERS 17
9.2 AMENDMENT BY DIRECTORS 17
9.3 RECORD OF AMENDMENTS 17
ARTICLE X - INTERPRETATION 18
|
BYLAWS
OF
COMMUNITY WEST BANCSHARES
(a California corporation)
ARTICLE I
The Board of Directors shall fix the location of the principal executive office of the corporation at any place within or outside the State of California. If the principal executive office is located outside California and the corporation has one or more business offices in California, then the Board of Directors shall fix and designate a principal business office in California.
The Board of Directors may at any time establish branch or subordinate offices at any place or places.
ARTICLE II
Meetings of shareholders shall be held at any place within or outside the State of California designated by the Board of Directors. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation or at any place consented to in writing by all persons entitled to vote at such meeting, given before or after the meeting and filed with the Secretary of the corporation.
An annual meeting of shareholders shall be held each year on a date and at a time designated by the Board of Directors. At that meeting, directors shall be elected. Any other proper business may be transacted at the annual meeting of shareholders.
Special meetings of the shareholders may be called at any time, subject to the provisions of Sections 2.4 and 2.5 of these Bylaws, by the Board of Directors, the Chairman of the Board, the President or the holders of shares entitled to cast not less than ten percent (10%) of the votes at that meeting.
If a special meeting is called by anyone other than the Board of Directors or the President or the Chairman of the Board, then the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by other written communication to the Chairman of the Board, the President, any Vice President or the Secretary of the corporation. The officer receiving the request forthwith shall cause notice to be given to the shareholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of these Bylaws, that a meeting will be held at the time requested by the person or persons calling the meeting, so long as that time is not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, then the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the Board of Directors may be held.
All notices of meetings of shareholders shall be sent or otherwise given in accordance with Section 2.5 of these Bylaws not less than ten (10) (or, if sent by third-class mail pursuant to Section 2.5 of these Bylaws, not less than thirty (30)) nor more than sixty (60) days before the date of the meeting to each shareholder entitled to vote thereat. Such notice shall state the place, date, and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted, and no business other than that specified in the notice may be transacted, or (ii) in the case of the annual meeting, those matters which the Board of Directors, at the time of the mailing of the notice, intends to present for action by the shareholders, but, subject to the provisions of the next paragraph of this Section 2.4, any proper matter may be presented at the meeting for such action. The notice of any meeting at which Directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by the Board for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the California Corporations Code (the
"Code"), (ii) an amendment of the Articles of Incorporation, pursuant to Section
902 of the Code, (iii) a reorganization of the corporation, pursuant to Section
1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code, or (v) a distribution in dissolution other than in
accordance with the rights of any outstanding preferred shares, pursuant to
Section 2007 of the Code, then the notice shall also state the general nature of
that proposal.
Notice of a shareholders' meeting shall be given either personally or by first-class mail, or, if the corporation has outstanding shares held of record by five hundred (500) or more persons (determined as provided in Section 605 of the Code) on the record date for the shareholders' meeting, notice may be sent by third-class mail, or other means of written communication, addressed to the shareholder at the address of the shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice; or if no such address appears or is given, at the place where the principal executive office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the principal executive office is located. The notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication.
If any notice (or any report referenced in Article VII of these Bylaws) addressed to a shareholder at the address of such shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the shareholder upon written demand of the shareholder at the principal executive office of the corporation for a period of one (1) year from the date of the giving of the notice.
An affidavit of mailing of any notice or report in accordance with the provisions of this Section 2.5, executed by the Secretary, Assistant Secretary or any transfer agent, shall be prima facie evidence of the giving of the notice or report.
Unless otherwise provided in the Articles of Incorporation of the corporation, a majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of the shareholders. The shareholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum.
In the absence of a quorum, any meeting of shareholders may be adjourned from time to time by the vote of a majority of the shares represented either in person or by proxy, but no other business may be transacted, except as provided in the last sentence of the preceding paragraph.
Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at that meeting, either in person or by proxy.
When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if its time and place are announced at the meeting at which the adjournment is taken. However, if the adjournment is for more than forty-five (45) days from the date set for the original meeting or if a new record date for the adjourned meeting is fixed, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 2.4 and 2.5 of these Bylaws. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting.
The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 2.11 of these Bylaws, subject to the provisions of Sections 702 through 704 of the Code (relating to voting shares held by a fiduciary, in the name of a corporation, or in joint ownership).
Elections for directors and voting on any other matter at a shareholders' meeting need not be by ballot unless a shareholder demands election by ballot at the meeting and before the voting begins.
Except as provided in the last paragraph of this Section 2.8, or as may be otherwise provided in the Articles of Incorporation, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote of the shareholders. Any holder of shares entitled to vote on any matter may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or may vote them against the proposal other than elections to office, but, if the shareholder fails to specify the number of shares such shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares which the shareholder is entitled to vote.
The affirmative vote of the majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by the Code or by the Articles of Incorporation.
At a shareholders' meeting at which directors are to be elected, a shareholder shall be entitled to cumulate votes either (i) by giving one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder's shares are normally entitled or (ii) by distributing the shareholder's votes on the same principle among as many candidates as the shareholder thinks fit, if the candidate or candidates' names have been placed in nomination prior to the voting and the shareholder has given notice prior to the voting of the shareholder's intention to cumulate the shareholder's votes. If any one shareholder has given such a notice, then every shareholder entitled to vote may cumulate votes for candidates in nomination. The candidates receiving the highest number of affirmative votes, up to the number of directors to be elected, shall be elected; votes against any candidate and votes withheld shall have no legal effect.
The transactions of any meeting of shareholders, either annual or special, however called and noticed, and wherever held, are as valid as though they had been taken at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. Neither the business to be transacted at nor the purpose of any annual or special meeting of shareholders need be specified in any written waiver of notice or consent to the holding of the meeting or approval of the minutes thereof, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 2.4 of these Bylaws, the waiver of notice or consent or approval shall state the general nature of the proposal. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting.
Attendance of a person at a meeting shall constitute a waiver of notice of and presence at that meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by the Code to be included in the notice of such meeting but not so included, if such objection is expressly made at the meeting.
Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
Directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors. However, a director may be elected at any time to fill any vacancy on the Board of Directors, provided that it was not created by removal of a director and that it has not been filled by the directors, by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors.
All such consents shall be maintained in the corporate records. Any shareholder giving a written consent, or the shareholder's proxy holders, or a transferee of the shares, or a personal representative of the shareholder, or their respective proxy holders, may revoke the consent by a writing received by the Secretary of the corporation before written consents of the number of shares required to authorize the proposed action have been filed with the Secretary.
If the consents of all shareholders entitled to vote have not been solicited in writing, the Secretary shall give prompt notice of any corporate action approved by the shareholders without a meeting by less than unanimous written consent to those shareholders entitled to vote who have not consented in writing. Such notice shall be given in the manner specified in Section 2.5 of these Bylaws. In the case of approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Code, (ii) indemnification of a corporate "agent," pursuant to Section 317 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code, and (iv) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code, the notice shall be given at least ten (10) days before the consummation of any action authorized by that approval, unless the consents of all shareholders entitled to vote have been solicited in writing.
In order that the corporation may determine the shareholders entitled to notice of any meeting or to vote, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days prior to the date of such meeting nor more than sixty (60) days before any other action. Shareholders at the close of business on the record date are entitled to notice and to vote, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Articles of Incorporation or the Code.
A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting, but the Board of Directors shall fix a new record date if the meeting is adjourned for more than forty-five (45) days from the date set for the original meeting.
If the Board of Directors does not so fix a record date:
(a) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held.
(b) The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, (i) when no prior action by the Board has been taken, shall be the day on which the first written consent is given, or (ii) when prior action by the Board has been taken, shall be at the close of business on the day on which the Board adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later.
The record date for any other purpose shall be as provided in Section 8.1 of these Bylaws.
Every person entitled to vote for directors, or on any other matter, shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the Secretary of the corporation. A proxy shall be deemed signed if the shareholder's name or other authorization is placed on the proxy (whether by manual signature, typewriting, telegraphic or electronic transmission or otherwise) by the shareholder or the shareholder's attorney-in-fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) the person who executed the proxy revokes it prior to the time of voting by delivering a writing to the corporation stating that the proxy is revoked or by executing a subsequent proxy and presenting it to the meeting or by attendance at such meeting and voting in person, or (ii) written notice of the death or incapacity of the maker of that proxy is received by the corporation before the vote pursuant to that proxy is counted; provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date thereof, unless otherwise provided in the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of the Code.
In advance of any meeting of shareholders, the Board of Directors may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed or designated or if any persons so appointed fail to appear or refuse to act, then the Chairman of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election (or persons to replace those who so fail to appear) at the meeting. The number of inspectors shall be either one (1) or three (3). If appointed at a meeting on the request of one (1) or more shareholders or proxies, the majority of shares represented in person or by proxy shall determine whether one (1) or three (3) inspectors are to be appointed.
The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies, receive votes, ballots or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result and do any other acts that may be proper to conduct the election or vote with fairness to all shareholders.
Nominations for election of members of the board of directors may be made by the board of directors or by any shareholder of any outstanding class of capital stock of the corporation entitled to vote for the election of directors. Notice of intention to make any nominations (other than for persons named in the notice of the meeting at which such nomination is to be made) shall be made in writing and shall be delivered or mailed to the president of the corporation no more than sixty (60) days prior to any meeting of shareholders called for the election of directors and no more than ten (10) days after the date the notice of such meeting is sent to shareholders pursuant to Section 2.4 of these Bylaws; provided, however, that if ten (10) days notice of such meeting is sent to shareholders, such notice of intention to nominate must be received by the president of the corporation not later than the time fixed in the notice of the meeting for the opening of the meeting. Such notification shall contain the following information to the extent known to the notifying shareholder: (a) the name and address of each proposed nominee; (b) the principal occupation of each proposed nominee; (c) the number of shares of capital stock of the corporation owned by each proposed nominee; (d) the name and residence address of the notifying shareholder; (e) the number of shares of capital stock of the corporation owned by the notifying shareholder; (f) with the written consent of the proposed nominee, a copy of which shall be furnished with the notification, whether the proposed nominee has ever been convicted of or pleaded nolo contendere to any criminal offense involving dishonesty or breach of trust, filed a petition in bankruptcy, or been adjudged a bankrupt. The notice shall be signed by the nominating shareholder and by the nominee. Nominations not made in accordance herewith shall be disregarded by the chairman of the meeting and, upon his instructions, the inspectors of election shall disregard all votes cast for each such nominee. The restrictions set forth in this paragraph shall not apply to nomination of a person to replace a proposed nominee who has died or otherwise become incapacitated to serve as a director between the last day for giving notice hereunder and the date of election of directors if the procedure called for in this paragraph was followed with respect to the nomination of the proposed nominee. A copy of the preceding paragraph shall be set forth in the notice to shareholders of any meeting at which directors are to be elected.
ARTICLE III
Subject to the provisions of the Code and any limitations in the Articles of Incorporation and these Bylaws relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. The Board may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board.
The authorized number of directors of the corporation shall be not less than six (6) nor more than eleven (11) and the exact number of directors shall be ten (10) until changed, within the limits specified above, by a resolution amending such exact number, duly adopted by the Board of Directors or by the shareholders. The minimum and maximum number of directors may be changed, or a definite number may be fixed without provision for an indefinite number, by a duly adopted amendment to the Articles of Incorporation or by an amendment to this Bylaw duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that once the number of directors equals or exceeds five (5) an amendment reducing the fixed number or the minimum number of directors to a number less than five (5) cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of an action by written consent, are equal to more than sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to vote thereon.
No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires.
At each annual meeting of shareholders, directors shall be elected to hold office until the next annual meeting. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified, except in the case of the death, resignation, or removal of such a director.
The entire Board of Directors or any individual director may be removed from office without cause by the affirmative vote of a majority of the outstanding shares entitled to vote on such removal; provided, however, that unless the entire Board is removed, no individual director may be removed when the votes cast against such director's removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election at which the same total number of votes cast were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such director's most recent election were then being elected.
Any director may resign effective upon giving oral or written notice to the Chairman of the Board, the President, the Secretary or the Board of Directors, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation of a director is effective at a future time, the Board of Directors may elect a successor to take office when the resignation becomes effective.
Vacancies on the Board of Directors may be filled by a majority of the remaining directors, or if the number of directors then in office is less than a quorum by (i) unanimous written consent of the directors then in office, (ii) the affirmative vote of a majority of the directors then in office at a meeting held pursuant to notice or waivers of notice, or (iii) a sole remaining director; however, a vacancy created by the removal of a director by the vote or written consent of the shareholders or by court order may be filled only by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum), or by the unanimous written consent of all shares entitled to vote thereon. Each director so elected shall hold office until the next annual meeting of the shareholders and until a successor has been elected and qualified, or until his or her death, resignation or removal.
A vacancy or vacancies in the Board of Directors shall be deemed to exist
(i) in the event of the death, resignation or removal of any director, (ii) if
the Board of Directors by resolution declares vacant the office of a director
who has been declared of unsound mind by an order of court or convicted of a
felony, (iii) if the authorized number of directors is increased, or (iv) if the
shareholders fail, at any meeting of shareholders at which any director or
directors are elected, to elect the full authorized number of directors to be
elected at that meeting.
The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election by written consent, other than to fill a vacancy created by removal, shall require the consent of the holders of a majority of the outstanding shares entitled to vote thereon. A director may not be elected by written consent to fill a vacancy created by removal except by unanimous consent of all shares entitled to vote for the election of directors.
Regular meetings of the Board of Directors may be held at any place within or outside the State of California that has been designated from time to time by resolution of the Board. In the absence of such a designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the Board may be held at any place within or outside the State of California that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the corporation.
Members of the Board may participate in a meeting through the use of conference telephone or similar communications equipment, so long as all directors participating in such meeting can hear one another. Participation in a meeting pursuant to this paragraph constitutes presence in person at such meeting.
Regular meetings of the Board of Directors may be held without notice if the time and place of such meetings are fixed by the Board of Directors.
Subject to the provisions of the following paragraph, special meetings of the Board of Directors for any purpose or purposes may be called at any time by the Chairman of the Board, the President, any Vice President, the Secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
telegram, charges prepaid, or by telecopier, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone or by telecopier or telegram, it shall be
delivered personally or by telephone or by telecopier or to the telegraph
company at least forty-eight (48) hours before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the director who the
person giving the notice has reason to believe will promptly communicate it to
the director. The notice need not specify the purpose of the meeting.
A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 3.11 of these Bylaws. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present is the act of the Board of Directors, subject to the provisions of Section 310 of the Code (as to approval of contracts or transactions in which a director has a direct or indirect material financial interest), Section 311 of the Code (as to appointment of committees), Section 317(e) of the Code (as to indemnification of directors), the Articles of Incorporation, and other applicable law.
A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting.
Notice of a meeting need not be given to any director who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. A waiver of notice need not specify the purpose of any regular or special meeting of the Board of Directors.
A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place.
If the meeting is adjourned for more than twenty-four (24) hours, notice of any adjournment to another time and place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment.
Any action required or permitted to be taken by the Board of Directors may be taken without a meeting, if all members of the Board individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board. Such action by written consent shall have the same force and effect as a unanimous vote of the Board of Directors.
Directors and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the Board of Directors. This Section 3.14 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation for those services.
ARTICLE IV
The Board of Directors may, by resolution adopted by a majority of the authorized number of directors, designate one (1) or more committees, each consisting of two (2) or more directors, to serve at the pleasure of the Board. The Board may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. Any such committee shall have authority to act in the manner and to the extent provided in the resolution of the Board and may have all the authority of the Board, except with respect to:
(a) The approval of any action which, under the Code, also requires shareholders' approval or approval of the outstanding shares.
(b) The filling of vacancies on the Board of Directors or in any committee.
(c) The fixing of compensation of the directors for serving on the Board or on any committee.
(d) The amendment or repeal of these Bylaws or the adoption of new Bylaws.
(e) The amendment or repeal of any resolution of the Board of Directors which by its express terms is not so amendable or repealable.
(f) A distribution to the shareholders of the corporation, except at a rate, in a periodic amount or within a price range set forth in the Articles of Incorporation or determined by the Board of Directors.
(g) The appointment of any other committees of the Board of Directors or the members thereof.
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these Bylaws, Section 3.6
(place of meetings), Section 3.7 (regular meetings), Section 3.8 (special
meetings and notice), Section 3.9 (quorum), Section 3.10 (waiver of notice),
Section 3.11 (adjournment), Section 3.12 (notice of adjournment), and Section
3.13 (action without meeting), with such changes in the context of those Bylaws
as are necessary to substitute the committee and its members for the Board of
Directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the Board of Directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the Board of Directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The Board of Directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these Bylaws.
ARTICLE V
The officers of the corporation shall be a President, a Secretary, and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 5.3 of these Bylaws. Any number of offices may be held by the same person.
The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of these Bylaws, shall be chosen by the Board and serve at the pleasure of the Board, subject to the rights, if any, of an officer under any contract of employment.
The Board of Directors may appoint, or may empower the Chairman of the Board or the President to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the Board of Directors may from time to time determine.
Subject to the rights, if any, of an officer under any contract of employment, all officers serve at the pleasure of the Board of Directors and any officer may be removed, either with or without cause, by the Board of Directors at any regular or special meeting of the Board or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.
A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these Bylaws for regular appointments to that office.
The Chairman of the Board, if such an officer be elected, shall, if
present, preside at meetings of the Board of Directors and shareholders and
shall exercise and perform such other powers and duties as may from time to time
be assigned by the Board of Directors or as may be prescribed by these Bylaws.
If there is no President, and in the absence of the Executive and Senior Vice
Presidents, then the Chairman of the Board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.8 of these Bylaws.
The Vice Chairman of the Board, if such officer be elected, shall, if present and the Chairman of the Board is not present, preside at meetings of the Board of Directors and shareholders and shall exercise and perform such other powers and duties as may from time to time be assigned by the Board of Directors or as may be prescribed by these Bylaws. If there is no President, and in the absence of the Executive and Senior Vice Presidents and Chairman of the Board, then the Vice Chairman of the Board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.8 of these Bylaws.
Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, and Vice Chairman of the Board, if there be such an officer (s), the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the corporation. In the absence or nonexistence of a Chairman and Vice Chairman of the Board, the President shall preside at all meetings of the shareholders and at all meetings of the Board of Directors. The President shall have the general powers and duties of management usually vested in the office of President of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.
In the absence or disability of the President, the Executive and Senior Vice Presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a Vice President designated by the Board of Directors, shall perform all the duties of the President and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, these Bylaws, the President, the Chairman of the Board or Vice Chairman of the Board.
The Secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of Directors, committees of directors and shareholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the Board of Directors required to be given by law or by these Bylaws. The Secretary shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws.
The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director.
The Chief Financial Officer shall deposit all money and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors. The Chief Financial Officer shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all of his or her transactions as Chief Financial Officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or these Bylaws.
ARTICLE VI
The corporation shall, to the maximum extent and in the manner permitted by
the Code, indemnify each of its directors against expenses (as defined in
Section 317(a) of the Code), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding (as defined
in Section 317(a) of the Code), arising by reason of the fact that such person
is or was a director of the corporation. For purposes of this Article VI, a
"director" of the corporation includes any person (i) who is or was a director
of the corporation, (ii) who is or was serving at the request of the corporation
as a director of another foreign or domestic corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director of a corporation
which was a predecessor corporation of the corporation or of another enterprise
at the request of such predecessor corporation.
The corporation shall have the power, to the maximum extent and in the manner permitted by the Code, to indemnify each of its employees, officers, and agents (other than directors) against expenses (as defined in Section 317(a) of the Code), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an employee, officer, or agent of the corporation. For purposes of this Article VI, an "employee" or "officer" or "agent" of the corporation (other than a director) includes any person (i) who is or was an employee, officer, or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee, officer, or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee, officer, or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation.
Expenses and attorneys' fees incurred in defending any civil or criminal action or proceeding for which indemnification is required pursuant to Section 6.1, or if otherwise authorized by the Board of Directors, shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article VI.
The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any Bylaw, agreement, vote of shareholders or directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. The rights to indemnity hereunder shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of the person.
The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation against any liability asserted against or incurred by such person in such capacity or arising out of that person's status as such, whether or not the corporation would have the power to indemnify that person against such liability under the provisions of this Article VI.
No indemnification or advance shall be made under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears:
(1) That it would be inconsistent with a provision of the Articles of Incorporation, these Bylaws, a resolution of the shareholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement.
If a claim under this Article is not paid in full by the corporation within 90 days after a written claim has been received by the corporation (either because the claim is denied or because no determination is made), the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall also be entitled to be paid the expenses of prosecuting such claim. The corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the Code for the corporation to indemnify the claimant for the claim. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is permissible in the circumstances because he or she has met the applicable standard of conduct, if any, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its shareholders) that the claimant has not met the applicable standard of conduct, shall be a defense to such action or create a presumption for the purposes of such action that the claimant has not met the applicable standard of conduct.
The Board of Directors is authorized to enter into a contract with any director, officer, employee or agent of the corporation, or any person who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, or any person who was a director, officer, employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation, providing for indemnification rights equivalent to or, if the Board of Directors so determines and to the extent permitted by applicable law, greater than, those provided for in this Article VI.
Any amendment, repeal or modification of any provision of this Article VI shall not adversely affect any right or protection of a director or agent of the corporation existing at the time of such amendment, repeal or modification.
ARTICLE VII
The corporation shall keep either at its principal executive office or at the office of its transfer agent or registrar (if either be appointed), as determined by resolution of the Board of Directors, a record of its shareholders listing the names and addresses of all shareholders and the number and class of shares held by each shareholder.
A shareholder or shareholders of the corporation holding at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation or who hold at least one percent (1%) of such voting shares and have filed a Schedule 14B with the United States Securities and Exchange Commission relating to the election of directors, shall have an absolute right to do either or both of the following (i) inspect and copy the record of shareholders' names, addresses, and shareholdings during usual business hours upon five (5) days' prior written demand upon the corporation, or (ii) obtain from the transfer agent for the corporation, upon written demand and upon the tender of such transfer agent's usual charges for such list (the amount of which charges shall be stated to the shareholder by the transfer agent upon request), a list of the shareholders' names and addresses who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which it has been compiled or as of a date specified by the shareholder subsequent to the date of demand. The list shall be made available on or before the later of five (5) business days after the demand is received or the date specified therein as the date as of which the list is to be compiled.
The record of shareholders shall also be open to inspection and copying by any shareholder or holder of a voting trust certificate at any time during usual business hours upon written demand on the corporation, for a purpose reasonably related to the holder's interests as a shareholder or holder of a voting trust certificate.
Any inspection and copying under this Section 7.1 may be made in person or by an agent or attorney of the shareholder or holder of a voting trust certificate making the demand.
The corporation shall keep at its principal executive office or, if its principal executive office is not in the State of California, at its principal business office in California, the original or a copy of these Bylaws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California and the corporation has no principal business office in such state, then it shall, upon the written request of any shareholder, furnish to such shareholder a copy of these Bylaws as amended to date.
The accounting books and records and the minutes of proceedings of the shareholders and the Board of Directors, and committees of the Board of Directors shall be kept at such place or places as are designated by the Board of Directors or, in absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form, and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to inspection upon the written demand on the corporation of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to such holder's interests as a shareholder or as the holder of a voting trust certificate. Such inspection by a shareholder or holder of a voting trust certificate may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts. Such rights of inspection shall extend to the records of each subsidiary corporation of the corporation.
Every director shall have the absolute right at any reasonable time to inspect and copy all books, records, and documents of every kind and to inspect the physical properties of the corporation and each of its subsidiary corporations, domestic or foreign. Such inspection by a director may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts.
The Board of Directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close of the
fiscal year adopted by the corporation. Such report shall be sent to the
shareholders at least fifteen (15) (or, if sent by third-class mail, thirty-five
(35)) days prior to the annual meeting of shareholders to be held during the
next fiscal year and in the manner specified in Section 2.5 of these Bylaws for
giving notice to shareholders of the corporation.
The annual report shall contain a balance sheet as of the end of the fiscal year and an income statement and statement of changes in financial position for the fiscal year, accompanied by any report thereon of independent accountants or, if there is no such report, the certificate of an authorized officer of the corporation that the statements were prepared without audit from the books and records of the corporation.
The foregoing requirement of an annual report shall be waived so long as the shares of the corporation are held by fewer than one hundred (100) holders of record.
If no annual report for the fiscal year has been sent to shareholders, then the corporation shall, upon the written request of any shareholder made more than one hundred twenty (120) days after the close of such fiscal year, deliver or mail to the person making the request, within thirty (30) days thereafter, a copy of a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year.
A shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of the corporation may make a written request to
the corporation for an income statement of the corporation for the three-month,
six-month or nine-month period of the current fiscal year ended more than thirty
(30) days prior to the date of the request and a balance sheet of the
corporation as of the end of that period. The statements shall be delivered or
mailed to the person making the request within thirty (30) days thereafter. A
copy of the statements shall be kept on file in the principal office of the
corporation for twelve (12) months and it shall be exhibited at all reasonable
times to any shareholder demanding an examination of the statements or a copy
shall be mailed to the shareholder. If the corporation has not sent to the
shareholders its annual report for the last fiscal year, the statements referred
to in the first paragraph of this Section 7.6 shall likewise be delivered or
mailed to the shareholder or shareholders within thirty (30) days after the
request.
The quarterly income statements and balance sheets referred to in this section shall be accompanied by the report thereon, if any, of any independent accountants engaged by the corporation or the certificate of an authorized officer of the corporation that the financial statements were prepared without audit from the books and records of the corporation.
The Chairman of the Board, the President, any Vice President, the Chief Financial Officer, the Secretary or Assistant Secretary of this corporation, or any other person authorized by the Board of Directors or the President or a Vice President, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority herein granted may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.
ARTICLE VIII
For purposes of determining the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action (other than with respect to notice or voting at a shareholders meeting or action by shareholders by written consent without a meeting), the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days prior to any such action. Only shareholders of record at the close of business on the record date are entitled to receive the dividend, distribution or allotment of rights, or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Articles of Incorporation or the Code.
If the Board of Directors does not so fix a record date, then the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto or the sixtieth (60th) day prior to the date of that action, whichever is later.
From time to time, the Board of Directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments.
The Board of Directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
A certificate or certificates for shares of the corporation shall be issued to each shareholder when any of such shares are fully paid. The Board of Directors may authorize the issuance of certificates for shares partly paid provided that these certificates shall state the total amount of the consideration to be paid for them and the amount actually paid. All certificates shall be signed in the name of the corporation by the Chairman of the Board or the Vice Chairman of the Board or the President or a Vice President and by the Chief Financial Officer or an Assistant Treasurer or the Secretary or an Assistant Secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be by facsimile.
In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if that person were an officer, transfer agent or registrar at the date of issue.
Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation or its transfer agent or registrar and canceled at the same time. The Board of Directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed (as evidenced by a written affidavit or affirmation of such fact), authorize the issuance of replacement certificates on such terms and conditions as the Board may require; the Board may require indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of the certificate or the issuance of the replacement certificate.
Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Code shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person.
ARTICLE IX
New Bylaws may be adopted or these Bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the Articles of Incorporation of the corporation set forth the number of authorized Directors of the corporation, then the authorized number of Directors may be changed only by an amendment of the Articles of Incorporation.
Subject to the rights of the shareholders as provided in Section 9.1 of these Bylaws, Bylaws, other than a Bylaw or an amendment of a Bylaw changing the authorized number of directors (except to fix the authorized number of directors pursuant to a Bylaw providing for a variable number of directors), may be adopted, amended or repealed by the Board of Directors.
Whenever an amendment or new Bylaw is adopted, it shall be copied in the book of minutes with the original Bylaws. If any Bylaw is repealed, the fact of repeal, with the date of the meeting at which the repeal was enacted or written consent was filed, shall be stated in said book.
ARTICLE X
Reference in these Bylaws to any provision of the California Corporations Code shall be deemed to include all amendments thereof.
SECRETARY'S CERTIFICATE OF ADOPTION OF BYLAWS
OF
COMMUNITY WEST BANCSHARES
I, the undersigned, do hereby certify that:
1. I am the duly elected and acting Secretary of Community West Bancshares, a California corporation.
2. The foregoing Bylaws constitute the Bylaws of said corporation as adopted by the Directors of said corporation at a duly called and held meeting of the Board of Directors on January 23, 1997.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 23rd day of January, 1997.
/S/Michel Nellis, Secretary --------------------------- Michel Nellis, Secretary |
EXHIBIT (10)(ii)
EMPLOYMENT AGREEMENT FOR LLEWELLYN STONE
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made this 16th day of November, 1993, between GOLETA NATIONAL BANK (the "Bank"), having a principal business at 5827 Hollister Avenue, Goleta, California 93117, and LLEWELLYN W. STONE ("Executive"), whose residence address is 6560 Camino Venturoso, Goleta, California 93117.
WHEREAS, the Bank is a California national banking association duly organized, validly existing, and in good standing under the laws of the United States of America, with power to own property and carry on business as its business as it is now being conducted:
WHEREAS, the Bank desires to avail itself of the skill, knowledge and experience of Executive in order to insure the successful management of its business:
WHEREAS the parties hereto desire to specify the terms of Executive's employment by the Bank as controlling Executive's employment with the Bank;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth it is agreed that as of November 16, 1997, (the "Effective Date"), the following terms and conditions shall apply to Executive's said employment:
4. Group Medical and Life Insurance Benefits. The Bank shall provide for Executive, at the Bank's expense, participation in medical, accident and health, income continuation and life insurance benefits equivalent to the normal and customary benefits available from time to time under the California Bankers Association group Insurance Program for an employee of Executive's salary level. Said coverage shall be in existence or shall take e effect as of the Effective Date hereof and shall continue throughout the Term. The Bank's liability to Executive for any breach of this paragraph shall be limited to the amount of premiums payable by the Bank to obtain the coverage contemplated herein.
For purposes of this Agreement only, physical or mental disability shall be defined as Executive being unable to fully perform under this Agreement for a continuous period of ninety (90) days or a cumulative period of one hundred twenty (120) days in any one calendar year. If there should be a dispute between the Bank and Executive as to the Executive's physical or mental disability for purposes of this Agreement, the question shall be settled by the opinion of an impartial reputable physician or psychiatrist agreed upon by the parties or their representatives, or if the parties cannot agree within ten (10) days after a request for designation of such party, then by a physician or psychiatrist designated by the Santa Barbara County Medical Association. The certification of such physician or psychiatrist as to the question in dispute shall be final and binding upon the parties hereto.
G. GENERAL PROVISIONS
1. Trade secrets. During the Term, Executive will have access to and
become acquainted with what Executive and the Bank acknowledge are trade
secrets, to wit, knowledge or data concerning the Bank, including its operations
and business, and the identity of customers of the Bank, including knowledge of
their financial condition, their financial needs, as well as their methods of
doing business. Executive shall not disclose any of the aforesaid trade secrets,
directly or indirectly, or use them in any way, either during the Term or for a
period of three (3) years after the termination of this agreement, except as
required in the course of Executive's employment with the Bank.
2. Covenant Not to Compete. Executive hereby covenants and agrees that for a period of three (3) years after termination of this Agreement and for any period during which Executive receives any compensation from the Bank, Executive shall not engage in the business of banking within the cities of Santa Barbara or Goleta or any where else in Santa Barbara County.
3. Indemnification. To the extent permitted by law, applicable statutes and the Articles of Association, Bylaws or resolutions of the Bank in effect from time to time, the Bank shall indemnify Executive against liability or loss arising out of Executive's actual or asserted misfeasance or non-feasance in the performance of Executive's duties or out of any actual or asserted wrongful act against, or by, the Bank including but not limited to judgments, fines, settlements and expenses incurred in the defense of actions, proceedings and appeals herefrom. The Bank shall endeavor to apply for and obtain Bank and Executive from and against the aforesaid liabilities. The provisions of this paragraph shall apply to the estate, executor, administrator, heirs, legatees or devisees of Executive.
4. Return of Documents. Executive expressly agrees that all manuals, documents, files, reports, studies, instruments or other materials used and/or developed by Executive during the Term are solely the property of the Bank, and that Executive has no right, title or interest therein. Upon termination of this Agreement, Executive or Executive's representative shall promptly deliver possession of all of said property to the Bank in good condition.
5. Notices. Any notice, request, demand or other communication required or permitted hereunder shall be deemed to be properly given when personally served in writing, when deposited in the United States mail, postage prepaid, or when communicated to a public telegraph company for transmittal, addressed to the party at the address appearing at the beginning of this Agreement. Either party may change its address by written notice in accordance with this paragraph.
6. Applicable Law. Except to the extent governed by the laws of the United States, this Agreement is to be governed by and construed under the laws of the State of California.
7. Captions and Paragraph Headings. Captions and paragraph headings used herein are for convenience only and are not a part of this Agreement and shall not be used in construing it.
8. Invalid Provisions. Should any provision of this Agreement for any reason be declared invalid, void, or unenforceable by a court of competent jurisdiction, the validity and binding effect of any remaining portion shall not be affected, and the remaining portions of this Agreement shall remain in full force and effect as if this Agreement had been executed with said provision eliminated.
9. Entire Agreement. This Agreement contains the entire agreement of the parties. It supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the employment of Executive by the Bank. Each party to this Agreement acknowledges that no representations, inducements, promises, or acting on behalf of any party, which are not embodied herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding. This Agreement may not be modified or amended by oral agreement, but only by an agreement in writing signed by the Bank and Executive.
10. Receipt of Agreement. Each of the parties hereto acknowledges that he has read this Agreement in its entirety and does hereby acknowledge receipt of a fully executed copy thereof. A fully executed copy shall be an original for all purposes, and is a duplicate original.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
GOLETA NATIONAL BANK
BY /S/Michael A. Alexander
___________________
Michael A. Alexander
BY /S/Robert H. Bartlein
____________________
Robert H. Bartlein
BY /S/Gerard Bradley
_____________________
Gerard Bradley
/S/LLewellyn W. Stone
__________________
LLewellyn W. Stone
|
SEPARATE AGREEMENT
The undersigned agree to the following arrangement pertaining to La Cumbre Country Club membership purchased by the Bank for Lew Stone, CEO.
If for any reason, Lew Stone, CEO of Goleta National Bank, shall leave the employ of the Bank, the membership purchased by the Bank in the La Cumbre Country Club shall be sold and the net proceeds shall revert to the Bank.
/S/Lew Stone /S/Michael A. Alexander
Signed:________________ Signed:_______________________
Lew Stone Michael A. Alexander
luding a directorelect
|
Exhibit: (10)(iii) Salary Continuation Agreement between Goleta National Bank and Llewelyn Stone, President & CEO
THIS AGREEMENT made and entered into this 1st day of January, 1994, by and between GOLETA NATIONAL BANK, a coporation organized and existing under the laws of the United States (hereinafter feferred to as the "Executive")
WITNESSETH:
WHEREAS, the Executive is in the Coporation serving as its President and Chief Executive Officer; and
WHEREAS, the experience of the Executive, his knowledge of the affairs of the Corporation, his reputation and contacts in the industry are so valuable that assurance of his continued service is essential for the future growth and profits of the Corporation and it is in the best interests of the Corporation to arrange terms of continued employment fro the Executive so as to reasonably assure his remaining in the Corporation's employment during his lifetime or until the age of retirement; and
WHEREAS, it is the desire of the Corporation that his services be retained as herein provided; and
WHEREAS, the Executive is willing to continue in the employ of the Corporation provided the Corporation agrees to pay him, or has beneficiaries, certain benefits in accordance with the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the services to be performed in the future as well as the mutual promises and covenants herein contained it is agreed as follow:
4.3 If the Executive wishes to retire before the attainment of age sixty-one (61), the Executive shall give the Bank one year's notice in order to allow a suitable transition of management.
If the Bank should require the acquisition of additional assets due to a failing financial condition, the Board of Directors shall have the option of terminating this agreement such that the Executive shall receive upon retirement only the amount commensurate with the amount the Executive was vested at the time of the financial crisis.
class mail, registered or certified, postage prepaid and return receipt requested, and addressed to the party at the address given below for the receipt of notices, or such changed address as may be requested in writing by a party.
If to Corporation: ATTN: Randy Shaffer
If to Executive: Llewellyn Stone
6560 Camino Venturoso, Goleta, California 93117
|
IN WITNESS WHEREOF, the Corporation and the Executive have executed this Agreement in the offices of Goleta National Bank, in Goleta, California, on the date first above written.
Dated /S/ LLEWELLYN STONE
_____________ ______________________________
LLEWELLYN STONE
|
Dated: /S/Michael A. Alexander
_____________ _______________________________
Michael A. Alexander
CHAIRMAN OF THE BOARD
|
To the Administrator of the LLEWELLYN STONE Executive Salary Continuation Agreement:
Pursuant to the provisions of my Executive Salary Continuation Agreement with GOLETA NATIONAL BANK, permitting the designation of the beneficiary or beneficiaries by a participant, I hereby designate the following persons and/or entities as primary and secondary beneficiaries of any benefit under said Agreement payable by reason of my death:
PRIMARY BENEFICIARY: SECONDARY BENEFICIARY:
Name: Norma Stone Name: Brian Roberts
Present Address: 6560 Camino Venturoso Present Address: 542 Everglades
Goleta, California 93117 Jacksonville,
Florida
Relationship: Spouse Relationship: Son
|
THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED. ALL PRIOR DESIGNATIONS, IF ANY, OF PRIMARY BENEFICIARIES AND SECONDARY BENEFICIARIES ARE HEREBY REVOKED.
The Administrator shall pay all sums payable under the Agreement by reason of my death to the Primary Beneficiary, if he or she survives me, then to the Secondary Beneficiary, and if no named beneficiary survives me, then the Administrator shall pay all amounts in accordance with the terms of the Executive Salary Continuation Agreement. In the event that a named beneficiary survives me and dies prior to receiving the entire benefit payable under said Agreement, then the remaining unpaid benefit payable according to the terms of the Agreement, shall be payable to the Secondary Beneficiary. In the event that the named Primary Beneficiary and Secondary Beneficiary die before receivng the entire benefit payable under the Agreement, then the remaining unpaid benefit payable according to the terms of the Agreement shall revert to Goleta National Bank.
DATED: /S/LLEWELLYN STONE/EXECUTIVE
_______________ ________________________________
LLEWELLYN STONE/EXECUTIVE
|
January 1, 1995 Ten Percent (10%) vested January 1, 1996 Twenty Percent (20%) vested January 1, 1996 Thirty Percent (30%) vested January 1, 1997 Forty Percent (40%) vested January 1, 1998 Fifty Percent (50%) vested January 1, 1999 Sixty Percent (60%) vested January 1, 2000 Seventy Percent (70%) vested January 1, 2001 Eighty Percent (80%) vested January 1, 2002 Ninety Percent (90%) vested January 1, 2003 One Hundred Percent (100%) vested |
Exhibit 21 - Subsidiaries of the Registrant
Community West Bancshares owns 100% of Goleta National Bank, a national banking association.
Goleta National Bank owns 70% of Electronic Paycheck, a limited liability corporation. Electronic Paycheck, LLC is incorporated in the State of California.
Exhibit (23) Consent of Deloitte & Touche
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement No. 333-43531 of Community West Bancshares on Form S-8 of our report dated February 6, 1998, appearing in this Annual Report on Form 10-K of Community West Bancshares for the year ended December 31, 1997.
Los Angeles, California
March 30, 1998
| ARTICLE 9 |
| This schedule contains summary financial information extracted from the consolidated statement of financial condition, the consolidated statement of operations and notes thereto found in the Company's Form 10-k for the year ended December 31, 1997 and is qualified in its entirety by reference to such financial statements |
| RESTATED: |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | DEC 31 1997 |
| PERIOD END | DEC 31 1997 |
| CASH | 3,662,513 |
| INT BEARING DEPOSITS | 2,477,000 |
| FED FUNDS SOLD | 8,440,000 |
| TRADING ASSETS | 2,528,587 |
| INVESTMENTS HELD FOR SALE | 251,300 |
| INVESTMENTS CARRYING | 998,451 |
| INVESTMENTS MARKET | 0 |
| LOANS | 72,450,554 |
| ALLOWANCE | 1,285,852 |
| TOTAL ASSETS | 95,312,445 |
| DEPOSITS | 80,252,439 |
| SHORT TERM | 0 |
| LIABILITIES OTHER | 2,931,142 |
| LONG TERM | 0 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 8,570,310 |
| OTHER SE | 3,558,554 |
| TOTAL LIABILITIES AND EQUITY | 95,312,445 |
| INTEREST LOAN | 7,349,925 |
| INTEREST INVEST | 115,253 |
| INTEREST OTHER | 544,254 |
| INTEREST TOTAL | 8,009,432 |
| INTEREST DEPOSIT | 2,910,450 |
| INTEREST EXPENSE | 2,910,450 |
| INTEREST INCOME NET | 5,098,982 |
| LOAN LOSSES | 260,000 |
| SECURITIES GAINS | 0 |
| EXPENSE OTHER | 11,523,906 |
| INCOME PRETAX | 2,747,291 |
| INCOME PRE EXTRAORDINARY | 2,747,291 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 1,588,940 |
| EPS PRIMARY | .53 |
| EPS DILUTED | .44 |
| YIELD ACTUAL | 6.6 |
| LOANS NON | 1,259,107 |
| LOANS PAST | 631,000 |
| LOANS TROUBLED | 2,375,000 |
| LOANS PROBLEM | 0 |
| ALLOWANCE OPEN | 1,409,321 |
| CHARGE OFFS | 400,745 |
| RECOVERIES | 17,276 |
| ALLOWANCE CLOSE | 1,285,852 |
| ALLOWANCE DOMESTIC | 1,285,852 |
| ALLOWANCE FOREIGN | 0 |
| ALLOWANCE UNALLOCATED | 0 |