CWBC - Community West Bancshares Earnings Increase 206% to $3.6 Million or $0.41 Per Diluted Share in 2Q21 Compared to 2Q20; Declares Quarterly Cash Dividend of $0.07 Per Common Share

GOLETA, Calif., Aug. 02, 2021 (GLOBE NEWSWIRE) -- Community West Bancshares (Community West or the Company), (NASDAQ: CWBC), parent company of Community West Bank (the “Bank”), today reported net income increased 17.5% to $3.6 million, or $0.41 per diluted share, for the second quarter of 2021 (2Q21), compared to $3.0 million, or $0.35 per diluted share, for the first quarter of 2021 (1Q21), and increased 206.1% compared to $1.2 million, or $0.14 per diluted share, for the second quarter of 2020 (2Q20). For the first six months of 2021, the Company reported net income of $6.6 million, or $0.76 per diluted share, an increase of 138.3% compared to $2.8 million, or $0.32 per diluted share, for the first six months of 2020.

“We reported strong second quarter and year-to-date earnings, with focused revenue generation and balance sheet management, which resulted in net interest margin expansion,” stated Martin E. Plourd, President and Chief Executive Officer. “We are extremely proud of our entire team, who have stepped up to meet the challenges of the last 15 months. Overall, these factors contributed to an annualized return on average assets of 1.37% and an annualized return on average equity of 15.18% for the current quarter. Our focus for the second half of the year remains on deploying excess liquidity through increased lending activity, while maintaining our strong net interest margin and managing asset quality. As the vaccine rollout continues, and COVID-19 restrictions continue to lift in the markets which we serve, we remain optimistic for growth during the second half of 2021.”

Second Quarter 2021 Financial Highlights:

• Net income was $3.6 million, or $0.41 per diluted share in 2Q21, compared to $3.0 million, or $0.35 per diluted share in 1Q21, and $1.2 million, or $0.14 per diluted share in 2Q20.
• Net interest income increased to $10.7 million for 2Q21, compared to $10.0 million for 1Q21 and $8.8 million in 2Q20.
• A provision credit for loan losses of $41,000 was booked for 2Q21, compared to a provision credit for loan losses of $173,000 for 1Q21, and a provision for loan losses of $762,000 for 2Q20. The resulting allowance was 1.18% of total loans held for investment at June 30, 2021, and 1.29% of total loans held for investment, excluding the $71.1 million of Paycheck Protection Program (“PPP”) loans at June 30, 2021, which are 100% guaranteed by the Small Business Administration (“SBA”).*
• Net interest margin improved to 4.24% for 2Q21, compared to 4.19% for 1Q21, and 3.72% for 2Q20.
• Total demand deposits increased $14.8 million to $651.9 million at June 30, 2021, compared to $637.1 million at March 31, 2021, and increased $147.9 million compared to $504.1 million at June 30, 2020.
• Total loans increased $5.4 million to $893.3 million at June 30, 2021, compared to $887.8 million at March 31, 2021, and increased $37.2 million compared to $856.0 million at June 30, 2020.
• Book value per common share increased to $11.11 at June 30, 2021, compared to $10.77 at March 31, 2021, and $9.93 at June 30, 2020.
• The Bank’s community bank leverage ratio (CBLR) was 8.94% at June 30, 2021, compared to 8.97% at March 31, 2021, and 8.94% at June 30, 2020.
• Net non-accrual loans were $1.8 million at June 30, 2021 and March 31, 2021, respectively, and $2.6 million at June 30, 2020.
• Other assets acquired through foreclosure, net, was $2.6 million at June 30, 2021 and March 31, 2021, respectively, and $2.7 million at June 30, 2020.

*Non GAAP

COVID-19 Pandemic and PPP loan Update

“Contributing to our success in the first half of 2021, and previously in 2020, was our participation in the SBA’s PPP program,” said Plourd. “As of June 30, 2021, we had 450 PPP loans totaling $71.1 million remaining on our balance sheet from both the first and second rounds of funding. During the second quarter of 2021, $21.8 million of the PPP loans were forgiven by the SBA. We recognized $0.9 million of income in net fees related to PPP loans during 2Q21, compared to $0.8 million of income in net fees during 1Q21, and have $2.1 million remaining in net unrecognized fees related to PPP loans that will be recognized as income through amortization or once the loans are paid off or forgiven by the SBA. As these loans are forgiven, we will use the liquidity to pursue new lending opportunities as well as focus on further reduction in funding costs.”

“During the first and second quarters of 2021 we generated 433 second round PPP loans totaling $50 million to our clients. We remained focused on delivering an exceptional client experience throughout the PPP process, and this approach, along with our client’s referrals to others, helped bring new clients into the Bank,” said Plourd.

“We remain focused on assessing the risks in our loan portfolio and working with our clients who are experiencing financial hardship,” said William F. Filippin, Chief Credit and Chief Administrative Officer. At our peak in July 2020, the Company had 269 loans on payment deferral for a total of $158.5 million. As of June 30, 2021, one loan remained on deferral for a total of $610,000.

The Company continues to closely monitor high-risk industry loans. The industries most heavily impacted include retail, healthcare, hospitality, schools and energy. The Company continues to evaluate loans related to affected industries, and at June 30, 2021, the Bank’s loans to these industries were $166 million, which is 18.6% of its $893.3 million loan portfolio.

Of the selected industry loans, $1.4 million, or 0.84%, are on non-accrual. Also, of the selected industry loans, the classified loans are $15.2 million, or 9.18%. Additional detail by industry at June 30, 2021 is included in the table below.

Income Statement

Net interest income improved to $10.7 million in 2Q21, compared to $10.0 million in 1Q21, and $8.8 million in 2Q20. In the first six months of 2021, net interest income increased 20.2% to $20.7 million, compared to $17.2 million in the first six months of 2020.

“Due to the change in loan mix in the second quarter and positive migration out of “Watch” or worse loan risk rating categories in the loan portfolio, as well as $48,000 of net loan recoveries, we recorded a provision credit for loan losses of $41,000 during 2Q21. This compares to a provision credit for loan losses of $173,000 in 1Q21 and a provision for loan losses of $762,000 in 2Q20. We feel that we are well positioned as we navigate through the recovery from the residual effects of the pandemic, with loan loss reserves, excluding PPP loans, of 1.29% at June 30, 2021,” said Susan C. Thompson, Chief Financial Officer.

Non-interest income totaled $872,000 in 2Q21, compared to $897,000 in 1Q21, and $640,000 in 2Q20. Other loan fees were $310,000 for 2Q21, compared to $313,000 in 1Q21, and $283,000 in 2Q20. Gain on sale of loans was $130,000 in 2Q21, compared to $118,000 in 1Q21, and $97,000 in 2Q20. Service charge fee income for 2Q21 was $74,000, compared to $67,000 in 1Q21 and $62,000 in 2Q20. Non-interest income increased 11.3% to $1.8 million in the first six months of 2021, compared to $1.6 million in the first six months of 2020.

Net interest margin was 4.24% for 2Q21, a 5-basis point improvement compared to 1Q21, and a 52-basis point improvement compared to 2Q20. “PPP loan payoffs, and our continued focus on reducing our cost of funds rate contributed to the net interest margin expansion during the second quarter,” said Thompson. The cost of funds for 2Q21 also improved 5-basis points to 0.41%, compared to 0.46% for 1Q21, and improved by 50 basis points compared to 0.91% for 2Q20. PPP loans included fees accounting for 10 basis points of 2Q21 net interest margin, and 9 basis points of 1Q21 net interest margin. In the first six months of 2021, the net interest margin improved 38 basis points to 4.22%, compared to the first six months of 2020. “We will continue to look for opportunities for further reduction in our cost of funds,” said Thompson.

Non-interest expense totaled $6.7 million in 2Q21, compared to $6.9 million in 1Q21, and $7.0 million in 2Q20. The Company’s efficiency ratio was 57.70% for the second quarter of 2021, compared to 62.71% for the first quarter of 2021 and 74.33% for the second quarter of 2020. In the first six months of 2021, non-interest expense was $13.5 million, compared to $13.7 million in the first six months of 2020. The Company has continued to focus on expense control and gaining efficiencies through use of technology and process improvement.

Balance Sheet

Total assets increased $45.0 million, or 4.4%, to $1.06 billion at June 30, 2021, compared to $1.02 billion at March 31, 2021, and remained unchanged compared to June 30, 2020. Total loans increased $5.4 million, to $893.3 million at June 30, 2021, compared to $887.8 million at March 31, 2021, and increased $37.2 million, or 4.4%, compared to $856.0 million at June 30, 2020.

“Loan growth was solid during the quarter, primarily from growth in commercial real estate and manufactured housing loan portfolios which outweighed the $21.8 million decline in PPP loan balances due to loan forgiveness,” said Thompson. Commercial real estate loans outstanding (which include SBA 504, construction and land) were up 13.1% from year ago levels to $444.1 million at June 30, 2021, and comprise 49.7% of the total loan portfolio. Manufactured housing loans were up 7.2% from year ago levels to $286.6 million, and represent 32.1% of total loans. PPP loans were $71.1 million at June 30, 2021, and represent 8.0% of total loans down from $94.5 million at March 31, 2021 and $75.1 million at June 30, 2020. Commercial loans (which include agriculture loans) were down 27.9% from year ago levels to $68.5 million, and represent 7.7% of the total loan portfolio. The majority of this decrease was in the agriculture loan portfolio as the Bank continues to focus on off-balance sheet Farmer Mac lending.

Total deposits increased $60.1 million, or 7.5%, to $864.6 million at June 30, 2021, compared to $804.5 million at March 31, 2021, and increased $114.4 million, or 15.3% compared to $750.2 million at June 30, 2020. Non-interest-bearing demand deposits were $202.3 million at June 30, 2021, a $5.7 million increase compared to $196.6 million at March 31, 2021, and a $9.5 million increase compared to $192.8 million at June 30, 2020. Interest-bearing demand deposits increased $9.1 million to $449.6 million at June 30, 2021, compared to $440.5 million at March 31, 2021, and increased $138.4 million compared to $311.3 million at June 30, 2020. “Demand deposit balances remained at record levels, with a second round of PPP lending, federal stimulus payments and new relationships established from our business development efforts,” said Thompson.

Certificates of deposit (CDs), which include brokered deposits, increased $45.4 million during the quarter to $192.9 million at June 30, 2021, compared to $147.5 million at March 31, 2021, and decreased $35.3 million compared to $228.2 million at June 30, 2020. The increase in CDs compared to the prior quarter-end was due to $50.8 million of new low cost broker deposits strategically structured to lengthen the Bank’s liabilities to match fund longer term fixed rate assets and protect the margin against potential future rising rates. The decrease in CD’s at June 30, 2021 compared to a year ago was due to divesting some high-priced municipal and brokered deposits to lower cost, core funding.

Stockholders’ equity increased to $95.5 million at June 30, 2021, compared to $91.8 million at March 31, 2021, and $84.1 million at June 30, 2020. Book value per common share increased to $11.11 at June 30, 2021, compared to $10.77 at March 31, 2021, and $9.93 at June 30, 2020. The increase in capital will be utilized to support balance sheet growth and support dividend payments.

Credit Quality

“While all asset quality metrics improved or remained unchanged during the quarter, we continue to monitor our loan portfolio and asset quality metrics very closely,” added Plourd. “Our discipline of managing loans as soon as a problem is indicated has helped to keep us from incurring a loss. This strategy is testament to our loan grading system, and is reflective in our historic low loss ratio.”

At June 30, 2021, asset quality reflected improvement due to positive loan risk rating migrations during the second quarter. Total classified loans increased year-over-year due to proactive risk rating of loans showing signs of financial stress during the pandemic, while net non-accrual loans decreased year over year. Although criticized and classified loans increased during the year, the increase was not systemic or indicative of broader risk within the portfolio. All loans rated “Watch” or worse are monitored monthly and proactive measures are taken when any signs of deterioration to the credit are discovered.

Due to positive loan risk rating migrations and $48,000 of net loan recoveries, the Company recorded a provision credit for loan losses of $41,000 in 2Q21. This compared to a provision credit for loan losses of $173,000 in 1Q21, and a provision for loan losses of $762,000 in 2Q20. The allowance for credit losses, including the reserve for undisbursed loans, was $10.3 million, or 1.18% of total loans held for investment, at June 30, 2021, and 1.29% of total loans held for investment excluding PPP loans. Net non-accrual loans, plus net other assets acquired through foreclosure, was $4.4 million at June 30, 2021 and March 31, 2021, respectively, and decreased 18.3% compared to $5.3 million at June 30, 2020.

There was $1.8 million in net non-accrual loans as of June 30, 2021 and March 31, 2021, respectively compared to $2.6 million at June 30, 2020. Of the $1.8 million of net non-accrual loans at June 30, 2021, $1.4 million were SBA 504 loans, $0.1 million were manufactured housing loans and $0.3 million were single family real estate loans.

There was $2.6 million in other assets acquired through foreclosure as of June 30, 2021 and March 31, 2021, respectively, and $2.7 million at June 30, 2020. The majority of this balance relates to one property in the amount of $2.3 million.

Cash Dividend Declared

The Company’s Board of Directors declared a quarterly cash dividend of $0.07 per common share, payable August 31, 2021 to common shareholders of record on August 12, 2021.

Stock Repurchase Program

The Company has authorized $4.5 million under the repurchase program and has $1.4 million remaining for repurchases.
The Company did not repurchase stock during the first six months of 2021.

Company Overview

Community West Bancshares is a financial services company with headquarters in Goleta, California. The Company is the holding company for Community West Bank, the largest publicly traded community bank serving California’s Central Coast area of Ventura, Santa Barbara and San Luis Obispo counties. Community West Bank has seven full-service California branch banking offices in Goleta, Santa Barbara, Santa Maria, Ventura, San Luis Obispo, Oxnard and Paso Robles. The principal business activities of the Company are Relationship Banking, Manufactured Housing lending and Government Guaranteed lending.

Industry Accolades

In April 2021, Community West Bank was awarded a “Super Premier Performance” rating by The Findley Reports. For 52 years, The Findley Reports has been recognizing the financial performance of banking institutions in California and the Western United States. In making their selections, The Findley Reports focuses on these four ratios: growth, return on beginning equity, net operating income as a percentage of average assets, and loan losses as a percentage of gross loans. We are also rated 5 star Superior by Bauer Financial.

Safe Harbor Disclosure

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