CWBC - Community West Bancshares Earns $1.2 Million or $0.14 Per Diluted Share in 2Q20; Declares Quarterly Cash Dividend of $0.045 Per Common Share; Provides COVID-19 Response Update

GOLETA, Calif., July 24, 2020 (GLOBE NEWSWIRE) -- Community West Bancshares (Community West or the Company), (NASDAQ: CWBC), parent company of Community West Bank (Bank), today reported net income of $1.2 million, or $0.14 per diluted share, for the second quarter of 2020 (2Q20), compared to $1.6 million, or $0.19 per diluted share, for the first quarter of 2020 (1Q20), and $1.6 million, or $0.18 per diluted share, for the second quarter of 2019 (2Q19).  For the first six months of 2020, Community West reported net income of $2.8 million, or $0.32 per diluted share, compared to $3.1 million, or $0.36 per diluted share, for the first six months of 2019.

COVID-19 Pandemic Update

“Our second quarter earnings were affected by a number of items, including the impact of the Coronavirus pandemic on the economy, and the subsequent increase in our loan loss reserve,” stated Martin E. Plourd, President and Chief Executive Officer.  “Highlighting the quarter was net interest income growth and increased core deposits.  Additionally, we generated over 500 Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans to our customers for $75.1 million during the quarter which had a meaningful impact on loan and related deposit growth.  Gross PPP loan fees are estimated to be $2.8 million based on current loan forgiveness expectations.  The PPP income will be recorded as loans are repaid.”  

“The effect of the pandemic on our employees, customers and communities remains our primary concern and we believe the full economic impact has yet to be realized” Plourd continued. “Since the start of the pandemic, we have maintained all branch activity, taking conservative measures to keep our employees, customers, and communities safe.  Currently, approximately 40% of our employees are working remotely while keeping our high level of customer service.  We are intently focused on assessing the risks in our loan portfolio and working with our customers to minimize losses. We have implemented a loan modification program, in line with regulatory guidance, allowing impacted customers to defer loan payments.”  As of June 30, 2020, requests to defer loan payments totaled approximately $156 million or 18% of the Bank’s total loan portfolio. 

The industries most heavily impacted include retail, healthcare, hospitality, schools and energy.  The Company’s management team has evaluated the loans related to the affected industries and at June 30, 2020, the Bank’s loans to these industries were $187.3 million which is 21.9% of our $856.0 million loan portfolio.

Importantly, of the selected industry loans, $1.7 million or 0.9% are on non-accrual.  Also, of the selected industries loans the classified loans are $12.1 Million or 6.5%.  Lastly, the Bank has accommodated $81.8 million of these loans with payment deferrals or 43.7% of the selected industries.  Additional detail by industry is included in the table below.

Second Quarter 2020 Financial Highlights:

• Net income was $1.2 million, or $0.14 per diluted share, in 2Q20, compared to $1.6 million, or $0.19 per diluted share in 1Q20, and $1.6 million, or $0.18 per diluted share in 2Q19.
• Net interest income was $8.8 million for the quarter, compared to $8.5 million for 1Q20, and $8.5 million for 2Q19.
• Provision for loan losses was $762,000 for the quarter, compared to $392,000 for 1Q20, and $177,000 for 2Q19. The resulting allowance was 1.34% of total loans held for investment at June 30, 2020 (excluding the $75.1 million of PPP loans which are 100% guaranteed by the SBA).
• Net interest margin was 3.72% for 2Q20, compared to 3.97% for 1Q20, and 4.07% for 2Q19.
• Total demand deposits increased $96.0 million to $504.0 million at June 30, 2020, compared to $408.0 million at March 31, 2020, and increased $47.7 million compared to $456.3 million at June 30, 2019.  Total demand deposits represented 67.2% of total deposits at June 30, 2020. 
• Non-interest-bearing demand deposits increased $71.5 million to $192.8 million at June 30, 2020, compared to $121.3 million at March 31, 2020 and increased $80.3 million compared to $112.5 million at June 30, 2019.
• Total loans increased $74.0 million during the quarter to $856.0 million at June 30, 2020, compared to $782.0 million at March 31, 2020, and increased $67.1 million from $788.9 million at June 30, 2019. 
• Book value per common share increased to $9.93 at June 30, 2020, compared to $9.82 at March 31, 2020, and $9.19 at June 30, 2019. 
• Total risked-based capital improved to 11.63% for the Bank at June 30, 2020, compared to 11.60% at March 31, 2020 and 10.67% at June 30, 2019.
• Net non-accrual loans of $2.6 million at June 30, 2020 and at March 31, 2020, compared to $3.0 million at June 30, 2019.
  
• Other assets acquired through foreclosure, net was $2.7 million at June 30, 2020 and at March 31, 2020, compared to $1.1 million at June 30, 2019.

Income Statement

Net interest income was $8.8 million in 2Q20 compared to $8.5 million in 1Q20 and $8.5 million in 2Q19, primarily due to decreased deposit costs.  In the first six months of 2020, net interest income increased 3.1% to $17.2 million, compared to $16.7 million in the first six months of 2019. 

Non-interest income was $640,000 in 2Q20, compared to $950,000 in 1Q20, and $692,000 in 2Q19.  Other loan fees were $283,000 for 2Q20 a 17% decline compared to $341,000 for 1Q20, and a 5.2% increase compared to 2Q19.  Gain on sale of loans was $97,000 in 2Q20 compared to $190,000 in the preceding quarter.  There were no gains on sales of loans in 2Q19.  Non-interest income increased 22.7% to $1.6 million in the first six months of 2020 compared to $1.3 million in the first six months of 2019.

Second quarter net interest margin was 3.72%, compared to 3.97% in 1Q20, and 4.07% in 2Q19.  “The 150-basis point reduction in interest rates in March 2020 and the resulting effect on yields on earning assets contributed to the net interest margin decline during the quarter,” said Susan C. Thompson, Executive Vice President and Chief Financial Officer.  In the first six months of 2020, the net interest margin was 3.84%, compared to 4.03% in the prior year period.

“While our asset quality at quarter end remained solid, we are being proactive in our approach to the COVID-19 pandemic and its impact on the local economy.  Consequently, we booked a $762,000 loan loss provision during the second quarter, which is higher than the provisions booked over the past few years,” said Thompson.  The provision for loan losses was $392,000 for 1Q20, and $177,000 for 2Q19.  The increase in the current quarter was primarily the result of management’s qualitative adjustment to reflect the estimated losses due to the current economic uncertainties and some growth in the loan portfolio.

Non-interest expense totaled $7.0 million in 2Q20, compared to $6.7 million in the preceding quarter and $6.8 million in 2Q19.  2Q20 included some additional pandemic related expenses.  In the first six months of 2020, non-interest expense was $13.7 million, compared to $13.5 million in the first six months of 2019. 

Balance Sheet

Total assets increased $135.6 million, or 14.7%, to $1.06 billion at June 30, 2020, compared to $925.2 million at March 31, 2020 and increased $155.3 million, or 17.1%, compared to $905.6 million at June 30, 2019.  Total loans increased $74.0 million, or 9.5%, to $856.0 million at June 30, 2020, compared to $782.0 million at March 31, 2020, and increased $67.1 million, or 8.5% compared to $788.9 million at June 30, 2019.  

Commercial real estate loans outstanding (which include SBA 504, construction and land) were up modestly from year ago levels to $392.8 million at June 30, 2020 and comprise 45.9% of the total loan portfolio.  Manufactured housing loans were up 5.6% from year ago levels to $267.3 million and represent 31.2% of total loans.  SBA PPP loans originated during the second quarter were $75.1 million at June 30, 2020 and represent 8.8% of total loans.  Commercial loans (which include agriculture loans) were down 12.4% from year ago levels to $95.1 million and represent 11.1% of the total loan portfolio.  The majority of this decrease was in the commercial agriculture portfolio as the Company has switched its production focus from on-balance sheet Federal Service Agency loans with guarantees to off-balance sheet Farmer Mac loans for which we receive servicing income for the life of the loan.

Total deposits were $750.2 million at June 30, 2020, compared to $711.6 million at March 31, 2020, and $765.1 million at June 30, 2019.  Non-interest-bearing demand deposits increased $71.5 million, or 59.0%, during the quarter to $192.8 million at June 30, 2020, compared to $121.3 million at March 31, 2020, and increased $80.3 million, or 71.4%, compared to $112.5 million at June 30, 2019.  Interest-bearing demand deposits increased $24.5 million to $311.3 million at June 30, 2020, compared to $286.7 million at March 31, 2020, and decreased $32.6 million compared to $343.8 million at June 30, 2019.  Certificates of deposit, which include brokered deposits, decreased $59.3 million during the quarter to $228.2 million at June 30, 2020, compared to $287.6 million at March 31, 2020 and decreased $64.3 million compared to $292.5 million at June 30, 2019.  The reduction in deposits was due to divesting of some high-priced municipal funding to lower cost non-deposit funding sources.  

Stockholders’ equity increased to $84.1 million at June 30, 2020, compared to $83.2 million at March 31, 2020, and $77.8 million at June 30, 2019.  Book value per common share increased to $9.93 at June 30, 2020, compared to $9.82 at March 31, 2020, and $9.19 at June 30, 2019.  In an effort to be conservative, the Company drew down $10 million on its line of credit in 1Q20, which can be down streamed to the Bank as additional capital if needed in the future.

Credit Quality

Management is closely monitoring credit metrics and performing stress testing on the Bank’s loan portfolio.  In addition, resources have been reallocated to credit administration to closely analyze higher risk segments within the portfolio, monitoring and tracking loan payment deferrals and customer liquidity, and provide timely reporting to management and the Board of Directors.  The management team continues to analyze economic conditions in its markets.  Based on the Company’s resources, capital levels, current economic climate, and underwriting policies, management expects to be able to manage the economic risks and uncertainties associated with the COVID-19 pandemic and remain adequately capitalized.

The Company recorded a provision for loan losses of $762,000 in 2Q20.  This compares to a provision for loan losses of $392,000 in 1Q20, and $177,000 in 2Q19.  The allowance for loan losses, including the reserve for undisbursed loans, was $10.1 million, or 1.22% of total loans held for investment, at June 30, 2020.  The allowance for loan losses was 1.34% of total loans held for investment at June 30, 2020 when excluding the $75.1 million of PPP loans, which are 100% guaranteed by the SBA.  Net non-accrual loans plus net other assets acquired through foreclosure were $5.3 million at June 30, 2020, which was unchanged from March 31, 2020.  Net non-accrual loans plus net other assets acquired through foreclosure were $4.1 million at June 30, 2019. 

Net non-accrual loans totaled $2.6 million at June 30, 2020, which was unchanged from March 31, 2020.  Net non-accrual loans were $3.0 million a year ago.  Of the $2.6 million of net non-accrual loans at June 30, 2020, $1.5 million were commercial loans, $0.9 million were manufactured housing loans, $0.1 million were SBA loans, and $0.1 million were commercial real estate loans.

There was $2.7 million in other assets acquired through foreclosure as of June 30, 2020 and at March 31, 2020.  This compares to $1.1 million of other assets acquired through foreclosure at June 30, 2019.  The majority of this balance relates to one property of $2.5 million.

Cash Dividend Declared

The Company’s Board of Directors declared a cash dividend of $0.045 per common share, payable August 31, 2020 to common shareholders of record on August 14, 2020. 

Stock Repurchase Program

The Company did not repurchase shares during the second quarter of 2020, leaving $1.4 million available under the previously announced repurchase program.  The Company has suspended its repurchase program until further notice.

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 2020, Community West was awarded a “Premier” rating by The Findley Reports.  For 51 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.

Contact:
Susan C. Thompson, EVP & CFO
805.692.5821
www.communitywestbank.com