COMMUNITY WEST BANCSHARES This discussion is designed to provide insight into management's assessment of significant trends related to the Company's consolidated financial condition, results of operations, liquidity, capital resources and interest rate sensitivity. It should be read in conjunction with the Company's unaudited interim consolidated financial statements and notes thereto included herein and the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 , and the other financial information appearing elsewhere in this report.
Forward Looking Statements
This Quarterly Report on Form 10-Q for the quarter endedSeptember 30, 2022 (this "Form 10-Q") contains certain forward-looking statements about the Company and the Bank that are intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. Statements that are not historical or current facts, including statements about future financial and operational results, expectations, or intentions are forward-looking statements. Such statements 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 Form 10-Q. It is important to note that these forward-looking statements are not guarantees of future performance and involve and are subject to significant risks, contingencies, and uncertainties, many of which are difficult to predict and are generally beyond our control including, but not limited to, risks from the ongoing COVID-19 pandemic; wars and international conflicts including the current military actions involving theRussian Federation andUkraine ; the strength ofthe United States economy in general and of the local economies in which we conduct operations; the effect of, and changes in, trade, monetary and fiscal policies and laws, including changes in interest rate policies of theBoard of Governors of theFederal Reserve System ; inflation, including the rising costs of oil and gas; supply chain interruptions; weather, natural disasters, climate change; increased unemployment; deterioration in credit quality of our loan portfolio and/or the value of the collateral securing the repayment of those loans; reduction in the value of our investment securities; the costs and effects of litigation and of adverse outcomes of such litigation; the cost and ability to attract and retain key employees; a breach of our operational or security systems, policies or procedures including cyber-attacks on us or third party vendors or service providers; regulatory or legal developments;United States tax policies, including our effective income tax rate; and our ability to implement and execute our business plan and strategy and expand our operations as provided therein. Actual results may differ materially from those set forth or implied in the forward-looking statements as a result of a variety of factors including the risk factors contained in documents filed by the Company with theSecurities and Exchange Commission and are available in the "Investor Relations" section of our website, https://www.communitywest.com/sec-filings/documents. The Company is under no obligation (and expressly disclaims any obligation) to update or alter such forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Forward-looking statements contained in this Quarterly Report on Form 10-Q involve substantial risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company and may cause our actual results to differ significantly from historical results and those expressed in any forward-looking statement. Risks and uncertainties include those set forth in our filings with theSecurities and Exchange Commission and the following factors that could cause actual results to differ materially from those presented:
• general economic conditions, either nationally or locally in some or all areas
in which business is conducted, or conditions in the real estate or securities
markets or the banking industry which could affect liquidity in the capital
markets, the volume of loan origination, deposit flows, real estate values, the
levels of non-interest income and the amount of loan losses;
• COVID-19 pandemic and measures to prevent its spread may continue to have an
effect on our business;
• changes in existing loan portfolio composition and credit quality, and changes
in loan loss requirements;
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• legislative or regulatory changes which may adversely affect the Company's
business;
• the water shortage in certain areas of
economy;
• the Company's success in implementing its new business initiatives, including
expanding its product line, adding new branches, and successfully building its
brand image;
• changes in interest rates which may reduce or increase net interest margin and
net interest income;
• increases in competitive pressure among financial institutions or non-financial
institutions;
• technological changes which may be more difficult to implement or more
expensive than anticipated;
• changes in borrowing facilities, capital markets and investment opportunities
which may adversely affect the business;
• changes in accounting principles, policies or guidelines which may cause
conditions to be perceived differently;
• litigation or other matters before regulatory agencies, whether currently
existing or commencing in the future, which may delay the occurrence or
non-occurrence of events longer than anticipated;
• the occurrence or non-occurrence of events longer than anticipated;
• the ability to originate loans with attractive terms and acceptable credit
quality;
• the ability to attract and retain key members of management;
• the ability to realize cost efficiencies;
• a failure or breach of our operational or security systems or infrastructure;
• a return of recessionary conditions could result in increases in our level of
non-performing loans and/or reduce demand for our products and services;
• loss of key personnel; • sources of liquidity;
• possible impact by the transition from Libor as a reference rate; and,
• risks related to natural disasters, terrorist attacks, threats of war or actual
war and health epidemics may impact our operations, revenues, costs, and stock
price. For additional information regarding risks that may cause our actual results to differ materially from any forward-looking statements, see "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 and in item 1A of Part II of this Quarterly Report.
Financial Overview and Highlights
Community West Bancshares ("CWBC") incorporated under the laws of the state ofCalifornia , is a bank holding company headquartered inGoleta, California providing full-service banking and lending through its wholly-owned subsidiaryCommunity West Bank ("CWB" or the "Bank"), which has sevenCalifornia branch banking offices inGoleta ,Ventura ,Santa Maria ,Santa Barbara ,San Luis Obispo ,Oxnard , andPaso Robles and one wholly owned subsidiary, 445Pine LLC which was formed to hold certain repossessed property. These entities are collectively referred to herein as the "Company".
COVID-19 Update
Although the COVID-19 pandemic continues to persist, we believe that the pandemic has not adversely affected our primary objective of providing our clients with financial services they need to conduct their operations and that we have been able to successfully navigate the challenges of the COVID-19 pandemic to date. The future trajectory of COVID-19 cases and timing of when the virus will be fully controlled or abated remain uncertain. We cannot predict the potential future impact that COVID-19 may have on our operations and financial performance.
Financial Result Highlights for the Third Quarter of 2022
The significant factors impacting the Company's third quarter earnings performance were:
• Net income was
2022, compared to
of 2021.
• Net interest income increased to
compared to
• A provision for loan losses of
of 2022, compared to a provision for loan losses of
quarter of 2021.
• Net interest margin was 4.39% for the third quarter of 2022, compared to 3.97%
for the third quarter of 2021.
• Return on average assets was 1.25% for the third quarter of 2022 compared to
1.28% for the third quarter of 2021.
• Return on average equity was 12.65% for the third quarter of 2022 compared to
14.77% for the third quarter 2021.
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• Loans, net increased
compared to
• Total assets decreased by
compared to
• Total demand deposits decreased
30, 2022, compared to
same period non-interest bearing demand deposits increased by
• Book value per common share increased to
to
• Net non-accrual loans were
The impact to the Company from these items, and others of both a positive and negative nature, will be discussed in more detail as they pertain to the Company's overall comparative performance for the three and nine months endedSeptember 30, 2022 throughout the analysis sections of this report on Form 10-Q.
Critical Accounting Estimates
The Company's significant accounting policies conform with generally accepted
accounting Principles ("GAAP") and are described in "Note 1 of the Notes to
Financial Statements section in the Company's Annual Report on Form 10-K" for
the fiscal year ended December 31, 2021 . In applying those accounting policies,
management of the Company is required to exercise judgment in determining many
of the methodologies, assumptions and estimates to be utilized. Certain of the
critical accounting estimates are more dependent on such judgement and in some
cases may contribute to volatility in the Company's reported financial
performance should the assumptions and estimates used change over time due to
changes in circumstances. The more significant areas in which management of the
Company applies critical assumptions and estimates include the following:
The Company maintains an allowance for loan losses ("ALL") at a level deemed
appropriate by management to provide for known or probable incurred losses in
the portfolio at the consolidated balance sheet date. The determination of ALL
requires estimates and assumptions in the preparation of the Company's financial
statements that can be particularly susceptible to significant change. The
Company has implemented and adheres to an internal loan review system and loss
allowance methodology designed to provide for the detection of problem loans and
maintenance of an adequate allowance to cover loan losses. Management's
determination of the adequacy of ALL is based on an evaluation of the
composition of the portfolio, actual loss experience, industry charge-off
experience on loans, current economic conditions, and other relevant factors in
the areas in which the Company's lending activities are based. These factors may
affect the borrowers' ability to pay and the value of the underlying collateral.
The allowance is calculated by applying loss factors to loans held for
investment according to loan type and loan credit classification. The loss
factors are evaluated on a quarterly basis and established based primarily upon
the Bank's historical loss experience. Various regulatory agencies, as an
integral part of their examination process, periodically review the Company's
ALL. Such agencies may require the Bank to recognize additions to the allowance
based on judgments different from those of management. In the opinion of
management, and in accordance with the credit loss allowance methodology, the
present allowance is considered adequate to absorb estimable and probable
incurred credit losses. Additions and reductions to the allowance are reflected
in current operations. Charge-offs to the allowance are made when specific loans
(or portions thereof) are considered uncollectible or are transferred to other
assets acquired through foreclosure and the fair value of the property is less
than the loan's recorded investment. Recoveries are credited to the allowance.
Although management uses the best information available to make these estimates,
future adjustments to the allowance may be necessary due to economic, operating,
regulatory and other conditions that may be beyond the Company's control.
Changes in the circumstances considered when determining management's estimates
and assumptions could result in changes in those estimates and assumptions,
which could result in adjustment of the allowance for loan losses in future
periods. A discussion of facts and circumstances considered by management in
determining the allowance for loan losses is included in "Note 1 - Summary of
Significant Accounting Policies" and "Note 4 - Loans Held for Investment" in our
consolidated financial statements included in our Annual Report on Form 10-K for
the year ended December 31, 2021 .
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Table of Contents RESULTS OF OPERATIONS
A summary of our results of operations and financial condition and select metrics is included in the following table:
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
(in thousands, except per share amounts)
Net income $ 3,478 $ 3,635 $ 10,073 $ 10,207
Basic earnings per share $ 0.40 $ 0.42 $ 1.16 $ 1.19
Diluted earnings per share $ 0.39 $ 0.41 $ 1.13 $ 1.17
Net interest margin 4.39 % 3.97 % 4.09 % 4.13 %
Return on average assets 1.25 % 1.28 % 1.19 % 1.29 %
Return on average stockholders' equity 12.65 % 14.77 % 12.66 % 14.49 %
The following table sets forth a summary financial overview for the comparable
three and nine months ended
Three Months Ended Nine Months Ended
September 30, Increase September 30, Increase
2022 2021 (Decrease) 2022 2021 (Decrease)
(in thousands, except per share amounts)
Consolidated Income
Statement Data:
Interest and dividend
income $ 12,654 $ 11,835 $ 819 $ 35,860 $ 34,541 $ 1,319
Interest expense 731 906 (175 ) 2,191 2,884 (693 )
Net interest income 11,923 10,929 994 33,669 31,657 2,012
Provision (credit)
for loan losses 298 7 291 266 (207 ) 473
Net interest income
after provision
(credit) for loan
losses 11,625 10,922 703 33,403 31,864 1,539
Non-interest income 872 1,040 (168 ) 3,214 2,809 405
Non-interest expenses 7,610 6,860 750 22,693 20,389 2,304
Income before
provision for income
taxes 4,887 5,102 (215 ) 13,924 14,284 (360 )
Provision for income
taxes 1,409 1,467 (58 ) 3,851 4,077 (226 )
Net income $ 3,478 $ 3,635 $ (157 ) $ 10,073 $ 10,207 $ (134 )
Earnings per share -
basic $ 0.40 $ 0.42 $ (0.02 ) $ 1.16 $ 1.19 $ (0.03 )
Earnings per share -
diluted $ 0.39 $ 0.41 $ (0.02 ) $ 1.13 $ 1.17 $ (0.04 )
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Interest Rates and Differentials
The following table illustrates average yields on interest earning assets and average rates on interest bearing liabilities for the periods indicated:
Three Months Ended September 30,
2022 2021
Average Average Average Average
Balance Interest Yield/Cost(2) Balance Interest Yield/Cost(2)
Interest Earning Assets (in thousands)
Federal funds sold and
interest earning
deposits $ 76,265 $ 401 2.09 % $ 182,182 $ 73 0.16 %
Investment securities 65,148 386 2.35 % 27,552 186 2.68 %
Loans (1) 935,169 11,867 5.03 % 882,058 11,576 5.21 %
Total interest earning
assets 1,076,582 12,654 4.66 % 1,091,792 11,835 4.30 %
Nonearning Assets
Cash and due from banks 2,177 2,162
Allowance for loan
losses (11,031 ) (10,174 )
Other assets 38,022 39,818
Total Assets $ 1,105,750 $ 1,123,598
Interest Bearing
Liabilities
Interest bearing demand
deposits 465,317 325 0.28 % 499,301 411 0.33 %
Savings deposits 25,133 14 0.22 % 21,335 18 0.33 %
Time deposits 151,130 189 0.50 % 188,512 279 0.59 %
Total interest bearing
deposits 641,580 528 0.33 % 709,148 708 0.40 %
FHLB advances 90,764 203 0.89 % 90,000 198 0.87 %
Total interest bearing
liabilities 732,344 731 0.40 % 799,148 906 0.45 %
Non-interest Bearing
Liabilities
Non-interest bearing
demand deposits 248,538 211,017
Other liabilities 15,789 15,797
Stockholders' equity 109,079 97,636
Total Liabilities and
Stockholders' Equity $ 1,105,750 $ 1,123,598
Net interest income and
margin (3) $ 11,923 4.39 % $ 10,929 3.97 %
Net interest spread (4) 4.26 % 3.85 %
Total cost of funds
(including the effect of
non-interest bearing
demand deposits) (5) 0.30 % 0.36 %
(1) Includes nonaccrual loans and loans held for sale.
(2) Annualized.
(3) Net interest margin is computed by dividing net interest income by total
average interest earning assets.
(4) Net interest spread represents average yield earned on interest earning
assets less the average rate paid on interest bearing liabilities.
(5) Total cost of funds (including the effect of non-interest bearing demand
deposits) is calculated by dividing total interest expense by the sum of
total interest bearing liabilities and non-interest bearing demand deposits.
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Nine Months Ended September 30,
2022 2021
Average Average Average Average
Balance Interest Yield/Cost(2) Balance Interest Yield/Cost(2)
Interest Earning Assets (in thousands)
Federal funds sold and
interest earning
deposits $ 143,455 $ 812 0.76 % $ 115,265 $ 146 0.17 %
Investment securities 45,903 858 2.50 % 26,792 530 2.64 %
Loans (1) 912,414 34,190 5.01 % 883,280 33,865 5.13 %
Total interest earning
assets 1,101,772 35,860 4.35 % 1,025,337 34,541 4.50 %
Nonearning Assets
Cash and due from banks 2,177 2,148
Allowance for loan
losses (10,805 ) (10,221 )
Other assets 38,195 39,904
Total Assets $ 1,131,339 $ 1,057,168
Interest Bearing
Liabilities
Interest bearing demand
deposits 493,332 917 0.25 % 449,019 1,359 0.40 %
Savings deposits 24,827 47 0.25 % 20,244 58 0.38 %
Time deposits 163,666 634 0.52 % 182,267 804 0.59 %
Total interest bearing
deposits 681,825 1,598 0.31 % 651,530 2,221 0.46 %
FHLB advances 90,257 593 0.88 % 95,806 663 0.93 %
Total interest bearing
liabilities 772,082 2,191 0.38 % 747,336 2,884 0.52 %
Non-interest Bearing
Liabilities
Non-interest bearing
demand deposits 236,531 199,861
Other liabilities 16,352 15,822
Stockholders' equity 106,374 94,149
Total Liabilities and
Stockholders' Equity $ 1,131,339 $ 1,057,168
Net interest income and
margin (3) $ 33,669 4.09 % $ 31,657 4.13 %
Net interest spread (4) 3.97 % 3.98 %
Total cost of funds
(including the effect of
non-interest bearing
demand deposits) (5) 0.29 % 0.41 %
(1) Includes nonaccrual loans and loans held for sale.
(2) Annualized.
(3) Net interest margin is computed by dividing net interest income by total
average interest earning assets.
(4) Net interest spread represents average yield earned on interest earning
assets less the average rate paid on interest bearing liabilities.
(5) Total cost of funds (including the effect of non-interest bearing demand
deposits) is calculated by dividing total interest expense by the sum of
total interest bearing liabilities and non-interest bearing demand deposits.
The table below sets forth the relative impact on net interest income of changes
in the volume of interest earning assets and interest bearing liabilities and
changes in rates earned and paid by the Company on such assets and liabilities.
For purposes of this table, nonaccrual loans have been included in the average
loan balances.
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Three Months Ended September 30, Nine Months Ended September 30,
2022 versus 2021 2022 versus 2021
Increase (Decrease) Increase (Decrease)
Due to Changes in (1) Due to Changes in (1)
Volume Rate Total
Volume Rate Total
(in thousands) (in thousands)
Interest income:
Federal funds sold
and interest earning
deposits $ (249 ) $ 577 $ 328 $ 134 $ 532 $ 666
Investment securities 248 (48 ) 200 374 (46 ) 328
Loans, net 699 (408 ) 291 1,122 (797 ) 325
Total interest income 698 121 819 1,630 (311 ) 1,319
Interest expense:
Interest bearing
demand deposits (25 ) (61 ) (86 ) 87 (529 ) (442 )
Savings deposits 2 (6 ) (4 ) 10 (21 ) (11 )
Time deposits (52 ) (38 ) (90 ) (77 ) (93 ) (170 )
FHLB advances 1 4 5 (36 ) (34 ) (70 )
Total interest
expense (74 ) (101 ) (175 ) (16 ) (677 ) (693 )
Net increase $ 772 $ 222 $ 994 $ 1,646 $ 366 $ 2,012 (1) Changes due to both volume and rate have been allocated proportionately
between changes in volume and rate.
Comparison of interest income, interest expense and net interest margin
The Company's primary source of revenue is interest income. Interest income for the three and nine months endedSeptember 30, 2022 was$12.7 million and$35.9 million , respectively, compared to$11.8 million and$34.5 million for three and nine months endedSeptember 30, 2021 , respectively. Total interest income in the three and nine months endedSeptember 30, 2022 was positively impacted by an increase in the average outstanding balance of total loans as well as the purchase of$40.0 million of additionalU.S. Treasury securities classified as available for sale during the second quarter. Interest income was also positively impacted by increases of 1.93% and 0.59% in the yield received on federal funds sold and interest earning deposits for the three and nine months endedSeptember 30, 2022 , respectively, compared to the same periods in the prior year. These effects were partially offset by a decrease in the rates earned on outstanding loans, in part due to lower accretion of deferred fees related to PPP loans. The Company recognized$29 thousand and$0.6 million of income in interest and net fees related to PPP loans during the three and nine months endedSeptember 30, 2022 , compared to$1.1 million and$3.3 million for the three and nine months endedSeptember 30, 2021 . The annualized yield on interest-earning assets for the third quarter 2022 was 4.66% compared to 4.30% for the third quarter of 2021. The annualized yield on interest-earning assets for the nine months endedSeptember 30, 2022 was 4.35% compared to 4.50% for the nine months endedSeptember 30, 2021 . Interest expense for the third quarter and year-to-date periods endingSeptember 30, 2022 was$0.7 million and$2.2 million , respectively. These amounts represented decreases of$0.2 million and$0.7 million , respectively, when compared to the comparable periods in 2021. The decreases in interest expense compared to the prior year periods was primarily due to a decrease in the rates paid on deposit accounts. For the three and nine months endedSeptember 30, 2022 , the cost of interest bearing deposits was 0.33% and 0.31%, respectively, compared to 0.40% and 0.46% during the comparable periods in prior years. The decreases in rates reflect the Company's disciplined approach to deposit pricing. The cost of borrowings was 0.89% and 0.87% for the three months endedSeptember 30, 2022 and 2021, respectively. The increased cost of borrowings was the result of new and repricing advances from the FHLB during the period at higher rates. For the nine months endedSeptember 30, 2022 and 2021, the cost of borrowings was 0.88% and 0.93%, respectively. The decrease in the cost of funds between the year to date periods was due to the maturity of advances with a higher interest rate, which were replaced by lower-costing advances. Including the impact of non-interest bearing deposits, the total cost of funds was 0.30% for the third quarter 2022 compared to 0.36% for the third quarter of 2021. Year-to-date total cost of funds for the nine months endedSeptember 30, 2022 was 0.29% compared to 0.41% for the first nine months of 2021. The net impact of the changes in yields on interest earning assets and the rates paid on interest-bearing liabilities was an increase in the interest margin for the three months endedSeptember 30, 2022 to 4.39% compared to 3.97% for the three months endedSeptember 30, 2021 . The net impact of the changes in yields on interest earning assets and the rates paid on interest bearing liabilities was a decrease in the interest margin for the nine months endedSeptember 30, 2022 to 4.09% compared to 4.13% for the nine months endedSeptember 30, 2021 . Page 37
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Table of Contents Provision for loan losses The provision (or credit) for loan losses in each period is reflected as a charge against earnings in that period. The provision for loan losses is equal to the amount required to maintain the allowance for loan losses at a level that is adequate to absorb probable losses inherent in the loan portfolio. The provision for loan losses was$298 thousand and$7 thousand for the three months endedSeptember 30, 2022 and 2021, respectively. The increase in the provision for loan losses expense for the third quarter 2022 compared to the third quarter of 2021 was primarily due to an increase in the outstanding balance of loans and the increase in net charge offs during the period. The Company's allowance was 1.20% of loans held for investment atSeptember 30, 2022 compared to 1.20% atDecember 31, 2021 . The provision (credit) for loan losses for the nine months endedSeptember 30, 2022 was$266 thousand compared to$(207) thousand for the nine months endedSeptember 30, 2021 . The change during the periods was primarily due to an increase in the outstanding balance of loans and the increase in net charge offs during the period.
The following schedule summarizes the provision, charge-offs, and recoveries by
loan category for the three and nine months ended
For the
Three Months Ended
Manufactured Commercial Single Family
Housing Real Estate Commercial SBA HELOC Real Estate Consumer Total
2022 (in thousands)
Beginning balance $ 3,976 $ 6,120 $ 594 $ 23 $ 37 $ 115 $ 1 $ 10,866
Charge-offs - - - (182 ) - - - (182 )
Recoveries 88 20 13 4 6 - - 131
Net recoveries 88 20 13 (178 ) 6 - - (51 )
Provision (credit) (77 ) 182 24 174 (6 ) - 1 298
Ending balance $ 3,987 $ 6,322 $ 631 $ 19 $ 37 $ 115 $ 2 $ 11,113
2021
Beginning balance $ 2,630 $ 6,328 $ 1,020 $ 114 $ 25 $ 122 $ 1 $ 10,240
Charge-offs - - - - - - - -
Recoveries 4 20 10 1 1 - - 36
Net recoveries 4 20 10 1 1 - - 36
Provision (credit) (25 ) 149 (15 ) (87 ) (2 ) (13 ) - 7
Ending balance $ 2,609 $ 6,497 $ 1,015 $ 28 $ 24 $ 109 $ 1 $ 10,283
For the Nine Months Ended September 30,
Manufactured Commercial Single Family
Housing Real Estate Commercial SBA HELOC Real Estate Consumer Total
2022 (in thousands)
Beginning balance $ 2,606 $ 6,729 $ 923 $ 22 $ 18 $ 105 $ 1 $ 10,404
Charge-offs - - - (182 ) - - - (182 )
Recoveries 123 60 183 246 12 - 1 625
Net recoveries 123 60 183 64 12 - 1 443
Provision (credit) 1,258 (467 ) (475 ) (67 ) 7 10 - 266
Ending balance $ 3,987 $ 6,322 $ 631 $ 19 $ 37 $ 115 $ 2 $ 11,113
2021
Beginning balance $ 2,612 $ 5,950 $ 1,379 $ 118 $ 25 $ 108 $ 2 $ 10,194
Charge-offs - - - - - - - -
Recoveries 155 60 30 46 4 1 - 296
Net recoveries 155 60 30 46 4 1 - 296
Provision (credit) (158 ) 487 (394 ) (136 ) (5 ) - (1 ) (207 )
Ending balance $ 2,609 $ 6,497 $ 1,015 $ 28 $ 24 $ 109 $ 1 $ 10,283
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The percentage of nonaccrual loans to the total loan portfolio has decreased to
0.03% as of
The allowance for loan losses compared to nonaccrual loans has increased to 4,650% as ofSeptember 30, 2022 from 1,841% as ofDecember 31, 2021 . Total past due loans increased to$2.5 million as ofSeptember 30, 2022 from$0.7 million as ofDecember 31, 2021 . The majority of the increase in past due loans during the period betweenDecember 31, 2021 andSeptember 30, 2022 is in the 30-59 days past due bucket. During this same period, the balance of loans that were graded as special mention, substandard, or doubtful decreased by$6.6 million and nonaccrual loans decreased by$0.3 million .
Non-Interest Income
The Company earned non-interest income primarily through fees related to services provided to loan and deposit customers.
The following table summarizes the Company's non-interest income for the periods
indicated:
Three Months Ended Nine Months Ended
September 30, Increase September 30, Increase
2022 2021 (Decrease) 2022 2021 (Decrease)
(in thousands)
Other loan fees $ 292 $ 383 $ (91 ) $ 915 $ 1,006 $ (91 )
Gains from loan sales, net 49 118 (69 ) 245 366 (121 )
Document processing fees 114 145 (31 ) 337 389 (52 )
Service charges 114 77 37 295 218 77
Other 303 317 (14 ) 1,422 830 592
Total non-interest income $ 872 $ 1,040 $ (168 ) $ 3,214 $ 2,809 $ 405
Total non-interest income decreased by $0.2 million for the three months ended
September 30, 2022 compared to the same period in 2021. Other loan fees
decreased for the three months ended September 30, 2022 due to lower fee income
related to the origination of Farmer Mac loans. In addition, the decrease in
other income between the periods was a result of lower gains from loan sales
during the period as a result of a lower volume of loans sold compared to the
same period in the prior year. Total non-interest income for the nine months
ended September 30, 2022 was $3.2 million , an increase of $0.4 million compared
to $2.8 million for the nine months ended September 30, 2021 . The increase was
primarily due to the recognition of $0.5 million of proceeds from a bank owned
life insurance policy and a $104 thousand gain on sale of other assets acquired
through foreclosure that was recognized in other income during the nine months
ended September 30, 2022 .
Non-Interest Expenses
The following table summarizes the Company's non-interest expenses for the
periods indicated:
Three Months Ended Nine Months Ended
September 30, Increase September 30, Increase
2022 2021 (Decrease) 2022 2021 (Decrease)
(in thousands)
Salaries and employee
benefits $ 4,823 $ 4,541 $ 282 $ 14,784 $ 13,611 $ 1,173
Occupancy, net 1,046 802 244 3,064 2,361 703
Professional services 653 434 219 1,687 1,204 483
Data processing 302 292 10 919 964 (45 )
Depreciation 173 191 (18 ) 535 594 (59 )
FDIC assessment 131 127 4 466 339 127
Advertising and
marketing 196 189 7 687 536 151
Other 286 284 2 551 780 (229 )
Total non-interest
expenses $ 7,610 $ 6,860 $ 750 $ 22,693 $ 20,389 $ 2,304
Total non-interest expenses increased by $0.8 million and $2.3 million in the
three and nine months ended September 30, 2022 , respectively, compared to the
same periods in 2021. The increase in non-interest expenses for the periods
presented is primarily due to increases in salaries and employee benefits,
occupancy expenses, and professional services. Salaries and employee benefits
increased in the three and nine months ended September 30, 2022 due to increased
pressure on wages and benefits as a result of increased inflation and low
unemployment. Occupancy costs and professional services also increased during
the three and nine month periods ended September 30, 2022 due to increased costs
associated with contracted services and expenses related to the Company's
strategic outsourcing of many of its information technology department services
and functions.
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During the year-to-date period endedSeptember 30, 2022 , the Company recorded other expenses of$0.6 million compared to other expenses of$0.8 million for the-year-to-date period endedSeptember 30, 2021 . The three and nine month periods in 2022 were impacted by recaptured loan collection and legal expenses of$132 thousand and$1.1 million , respectively, received from the settlement of a long-standing lawsuit with a former borrower. This expense recapture was partially offset by a decrease in the deferral of loan origination costs of$522 thousand associated with lower new loan origination volume in the current period.
Income Taxes
Income tax provision for the three and nine months endedSeptember 30, 2022 was$1.4 million and$3.9 million , respectively, compared to$1.5 million and$4.1 million in the same periods during 2021. The combined state and federal effective income tax rates for the three months endedSeptember 30, 2022 and 2021 were 28.8% and 28.8%, respectively, and for the nine months endedSeptember 30, 2022 and 2021 were 27.7% and 28.5%, respectively. The lower effective tax rate for the year-to-date period in 2022 was the result of the fact that the income recorded from the proceeds from a bank owned life insurance policy in the first quarter of 2022 was non-taxable to the Company. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts and their respective tax basis including operating losses and tax credit carryforwards. Net deferred tax assets of$4.6 million and$4.4 million atSeptember 30, 2022 andDecember 31, 2021 , respectively, are reported in other assets on the consolidated balance sheet. Accounting standards Codification Topic 740, Income Taxes, requires that companies assess whether a valuation allowance should be established against their deferred tax assets based on the consideration of all available evidence using a "more likely than not" standard. A valuation allowance is established for deferred tax assets if, based on weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets may not be realized. Management evaluates the Company's deferred tax assets for recoverability using a consistent approach which considers the relative impact of negative and positive evidence, including the Company's historical profitability and projections of future taxable income. The Company is required to establish a valuation allowance for deferred tax assets and record a charge to income if management determines, based on available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax assets may not be realized. There was no valuation allowance on our deferred tax assets atSeptember 30, 2022 orDecember 31, 2021 . ASC 740 also prescribes a more likely than not threshold for the financial statement recognition of uncertain tax positions. ASC 740 clarifies the accounting for income taxes by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. On a quarterly basis, the Company undergoes a process to evaluate whether income tax accruals are in accordance with ASC 740 guidance on uncertain tax positions. There were no uncertain tax positions atSeptember 30, 2022 andDecember 31, 2021 .
BALANCE SHEET ANALYSIS
Total assets decreased$68.8 million to$1.1 billion atSeptember 30, 2022 from$1.2 billion atDecember 31, 2021 . The decrease in total assets was mainly due to a decrease of$157.1 million in cash and cash equivalents that were used to pay down higher cost interest bearing deposits. However, partially offsetting this decrease, net loans held for investment increased by$54.2 million as ofSeptember 30, 2022 . The majority of the increase in loans held for investment was a result of an increase in commercial real estate loans of$63.6 million and manufactured housing loans of$12.6 million , partially offset by a decrease of$20.2 million in SBA loans primarily due to SBA forgiveness and payoff of PPP loans. Total liabilities decreased$77.2 million to$978.5 million atSeptember 30, 2022 from$1.1 billion atDecember 31, 2021 , mostly due to a decrease in deposits of$97.9 million . Interest bearing demand deposits decreased by$98.1 million and total certificates of deposits decreased by$33.3 million during the nine months endedSeptember 30, 2022 . These decreases were partially offset by an increase in non-interest bearing demand deposits of$33.2 million during the same time period. Total stockholders' equity increased$8.4 million to$109.8 million atSeptember 30, 2022 from$101.4 million atDecember 31, 2021 . The$10.1 million increase in retained earnings from net income was partially offset by a$1.9 million decrease as a result of dividends paid on common stock for the nine months endedSeptember 30, 2022 . Book value per common share was$12.54 atSeptember 30, 2022 compared to$11.72 atDecember 31, 2021 . Page 40
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Selected Balance Sheet Accounts
Percent
September 30, December 31, Increase Increase
2022 2021 (Decrease) (Decrease)
(dollars in thousands)
Cash and cash equivalents $ 51,295 $ 208,375 $ (157,080 ) (75.4 )%
Investment securities available-for-sale 57,115 19,711 37,404 189.8 %
Investment securities held-to-maturity 2,596 2,815 (219 ) (7.8 )%
Loans held for sale 22,096 23,408 (1,312 ) (5.6 )%
Loans held for investment, net 912,485 858,271 54,214 6.3 %
Total assets 1,088,278 1,157,052 (68,774 ) (5.9 )%
Total deposits 852,189 950,131 (97,942 ) (10.3 )%
FHLB advances 110,000 90,000 20,000 22.2 %
Total stockholder's equity 109,821 101,375 8,446 8.3 %
The table below summarizes the distribution of the Company's loans held for investment at the end of each of the periods indicated.
September 30, December 31,
2022 2021
(in thousands)
Manufactured housing $ 309,989 $ 297,363
Commercial real estate 544,373 480,801
Commercial 54,042 55,287
SBA 3,468 23,659
HELOC 3,373 3,579
Single family real estate 8,981 8,749
Consumer 323 109
Gross loans held for investment 924,549 869,547
Deferred costs, net (920 ) (838 )
Discount on SBA loans (31 ) (34 )
Loans held for investment 923,598 868,675
Allowance for loan losses (11,113 ) (10,404 )
Loans held for investment, net
The Company had$22.1 million of loans held for sale atSeptember 30, 2022 compared to$23.4 million atDecember 31, 2021 . Loans held for sale atSeptember 30, 2022 consisted of$5.3 million SBA loans and$16.8 million commercial agriculture FSA guaranteed loans. Loans held for sale atDecember 31, 2021 , were$6.3 million SBA loans and$17.1 million commercial agriculture FSA guaranteed loans.
Concentrations of Lending Activities
The Company's lending activities are primarily driven by the customers served in the market areas where the Company has branch offices in theCentral Coast ofCalifornia . The Company monitors concentrations within selected categories such as geography and product. The Company originates manufactured housing, commercial, SBA, construction, real estate, and consumer loans to customers through branch offices located in the Company's primary markets. The Company's business is concentrated in these areas and the loan portfolio includes significant credit exposure to the manufactured housing and commercial real estate markets of these areas. As ofSeptember 30, 2022 andDecember 31, 2021 , manufactured housing loans comprised 33.5% and 34.2%, respectively, of total loans. As ofSeptember 30, 2022 andDecember 31, 2021 , commercial real estate loans accounted for approximately 58.9% and 55.3% of total loans, respectively. Approximately 27.0% and 28.9% of these commercial real estate loans were owner-occupied atSeptember 30, 2022 andDecember 31, 2021 , respectively. Substantially all of these loans are secured by first liens with average loan to value ratios at origination of 50.9% and 53.8% atSeptember 30, 2022 andDecember 31, 2021 , respectively. The Company was within internally established concentration policy limits atSeptember 30, 2022 andDecember 31, 2021 .
Asset Quality
For all banks and bank holding companies, asset quality plays a significant role
in the overall financial condition of the institution and results of
operations. The Company measures asset quality in terms of nonaccrual loans as
a percentage of gross loans, and net charge-offs as a percentage of average
loans. Net charge-offs are calculated as the difference between charged-off
loans and recovery payments received on previously charged-off loans.
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September 30, December 31,
2022 2021
(in thousands)
Nonaccrual loans (net of government guaranteed portion) $ 239 $ 565
Troubled debt restructured loans, gross 6,317 8,565
Nonaccrual loans (net of government guaranteed portion) to gross loans
0.03 % 0.06 %
Net charge-offs (recoveries) (annualized) to average loans (0.06 )% (0.04 )%
Allowance for loan losses to nonaccrual loans (net of government guaranteed portion)
4,650 % 1,841 %
Allowance for loan losses to gross loans 1.20 % 1.20 %
The following table reflects the recorded investment in certain types of loans
at the dates indicated:
September 30, December 31,
2022 2021
(in thousands)Loans 30 through 89 days past due with interest accruing $ 2,456 $ 704 Loans 90 days or more past due with interest accruing $
- $ - Impaired loans A loan is considered impaired when, based on current information, it is probable that the Company will be unable to collect the scheduled payments of principal and/or interest under the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and/or interest payments. Loans that experience insignificant payment delays or payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays or payment shortfalls on a case-by-case basis. When determining the possibility of impairment, management considers the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal and interest owed. For collateral-dependent loans, the Company uses the fair value of collateral method to measure impairment. All other loans are measured for impairment based on the present value of future cash flows. Impairment is measured on a loan-by-loan basis for all loans in the portfolio. A loan is considered a TDR when concessions have been made to the borrower and the borrower is in financial difficulty. These concessions include but are not limited to term extensions, rate reductions and principal reductions. Forgiveness of principal is rarely granted and modifications for all classes of loans are predominantly term extensions. TDR loans are also considered impaired.
The following schedule summarizes impaired loans and specific reserves by loan class as of the periods indicated:
Manufactured Commercial Single Family Total
Housing Real Estate Commercial SBA HELOC Real Estate Consumer Loans
Impaired Loans
as of
September 30,
2022: (in thousands)
Recorded
Investment:
Impaired loans
with an
allowance
recorded $ 3,058 $ 212 $ 72 $ 43 $ - $ 213 $ - $ 3,598
Impaired loans
with no
allowance
recorded 1,120 - 1,331 18 - 153 - 2,622
Total loans
individually
evaluated for
impairment 4,178 212 1,403 61 - 366 - 6,220
Related
allowance for
impaired loans 166 17 1 1 - 9 - 194
Total impaired
loans, net $ 4,012 $ 195 $ 1,402 $ 60 $ - $ 357 $ - $ 6,026
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Manufactured Commercial Single Family Total
Housing Real Estate Commercial SBA HELOC Real Estate Consumer Loans
Impaired Loans
as of
December 31,
2021: (in thousands)
Recorded
Investment:
Impaired loans
with an
allowance
recorded $ 3,563 $ 220 $ 85 $ 194 $ - $ 425 $ - $ 4,487
Impaired loans
with no
allowance
recorded 1,358 1,402 1,505 226 - 258 - 4,749
Total loans
individually
evaluated for
impairment 4,921 1,622 1,590 420 - 683 - 9,236
Related
allowance for
impaired loans 210 17 - 1 - 12 - 240
Total impaired
loans, net $ 4,711 $ 1,605 $ 1,590 $ 419 $ - $ 671 $ - $ 8,996
Total impaired loans decreased $3.0 million as of September 30, 2022 compared to
December 31, 2021 . This decrease was primarily in impaired commercial real
estate and manufactured housing categories, which decreased by $1.4 million and
$0.7 million , respectively.
The following table summarizes nonaccrual loans by loan segment:
At September 30, 2022 At December 31, 2021
Nonaccrual Percent of Nonaccrual Percent of
Balance % Total Loans Balance % Total Loans
(dollars in thousands)
Manufactured housing $ 85 35.56 % 0.01 % $ 306 54.16 % 0.03 %
SBA - 0.00 % 0.00 % 1 0.18 % 0.00 %
Single family real estate 154 64.44 % 0.02 % 258 45.66 % 0.03 %
Total nonaccrual loans $ 239 100.00 % 0.03 % $ 565 100.00 % 0.06 %
Nonaccrual loans decreased
CWB or the SBA repurchases the guaranteed portion of SBA loans from investors
when those loans become past due 120 days. After the foreclosure and collection
process is complete, the SBA reimburses CWB for this principal balance.
Therefore, although these balances do not earn interest during this period, they
generally do not result in a loss of principal to CWB.
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Allowance For Loan Losses
The following table summarizes the activity in the allowance for loan losses by
loan type. Allocation of a portion of the allowance to one category of loans
does not preclude its availability to absorb losses in other categories:
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Allowance for loan losses: (in thousands)
Balance at beginning of period $ 10,866 $ 10,240 $ 10,404 $ 10,194
Provision (credit) charged to operating
expenses:
Manufactured housing (77 ) (25 ) 1,258 (158 )
Commercial real estate 182 149 (467 ) 487
Commercial 24 (15 ) (475 ) (394 )
SBA 174 (87 ) (67 ) (136 )
HELOC (6 ) (2 ) 7 (5 )
Single family real estate - (13 ) 10 -
Consumer 1 - - (1 )
Total Provision (credit) 298 7 266 (207 )
Recoveries of loans previously
charged-off:
Manufactured housing 88 4 123 155
Commercial real estate 20 20 60 60
Commercial 13 10 183 30
SBA 4 1 246 46
HELOC 6 1 12 4
Single family real estate - - - 1
Consumer - - 1 -
Total recoveries 131 36 625 296
Loans charged-off:
Manufactured housing - - - -
Commercial real estate - - - -
Commercial - - - -
SBA 182 - 182 -
HELOC - - - -
Single family real estate - - - -
Consumer - - - -
Total charged-off 182 - 182 -
Net charge-offs (recoveries) 51 (36 ) (443 ) (296 )
Balance at end of period $ 11,113 $ 10,283 $ 11,113 $ 10,283
Investment Securities
The investment securities portfolio of the Company is utilized as collateral for
borrowings, required collateral for public deposits and to manage liquidity,
capital, and interest rate risk.
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The carrying value of investment securities was as follows:
September 30, December 31,
2022 2021
(in thousands)
Securities available for sale (at fair value)
U.S. government agency notes $ 4,480 $ 5,508
U.S. government agency CMO 4,470 4,883
U.S. Treasury securities 39,795 -
Corporate debt securities 8,370 9,320
Total securities available for sale 57,115 19,711
Securities held to maturity (at amortized cost): US government agency MBS
2,596 2,815
Equity securities (at fair value): Farmer Mac class A stock 198 248
Total investment securities $ 59,909 $ 22,774 Other Assets Acquired Through Foreclosure
The following table represents the changes in other assets acquired through
foreclosure:
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
(in thousands)
Balance, beginning of period $ 2,250 $ 2,572 $ 2,518 $ 2,614
Additions - - - 136
Proceeds from dispositions - - (372 ) -
Gain (loss) on sales, net - - 104 (178 )
Balance, end of period $ 2,250 $ 2,572 $ 2,250 $ 2,572
Other assets acquired through foreclosure consist primarily of properties
acquired as a result of, or in-lieu-of, foreclosure. Properties or other assets
(primarily manufactured housing) are classified as other real estate owned and
other repossessed assets and are reported at fair value at the time of
foreclosure less estimated costs to sell. Costs relating to development or
improvement of the assets are capitalized to the extent that they are deemed to
be recoverable and increase the value of the property; otherwise those costs are
expensed. Costs related to holding the assets are charged to expense. The
Company did not have any valuation allowances against foreclosed assets as of
September 30, 2022 or December 31, 2021 .
Deposits
The following table provides the balance and percentage change in the Company's
deposits:
Percent
September 30, December 31, Increase Increase
2022 2021 (Decrease) (Decrease)
(dollars in thousands)
Non-interest bearing demand deposits
15.8 %
Interest bearing demand deposits 439,455 537,508 (98,053 ) (18.2 )%
Savings 23,865 23,675 190 0.8 %
Certificates of deposit ($250,000 or more) 9,909 17,612 (7,703 ) (43.7 )%
Other certificates of deposit 135,860 161,443 (25,583 ) (15.8 )%
Total deposits $ 852,189 $ 950,131 $ (97,942 ) (10.3 )%
Total deposits decreased to $852.2 million at September 30, 2022 from $950.1
million at December 31, 2021 . This decrease was primarily from a decrease in
interest bearing demand deposits and certificates of deposit. These decreases
were largely the result of depositors that moved their accounts to institutions
that were advertising higher rates on these types of accounts. Decreases in
these categories were partially offset by an increase in non-interest bearing
demand deposits.
Deposits are the primary source of funding the Company's asset growth. In
addition, the Bank is a member of Certificate of Deposit Account Registry
Service ("CDARS") and Insured Cash Sweep ("ICS"). CDARS and ICS provide a
mechanism for obtaining FDIC insurance for large deposits. At September 30,
2022 and December 31, 2021 , the Company had $73.9 million and $109.3 million ,
respectively, of CDARS and ICS deposits.
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Liquidity and Capital Resources
Liquidity
Liquidity for a bank is the ongoing ability to fund asset growth and business
operations, to accommodate liability maturities and deposit withdrawals and meet
contractual obligations through unconstrained access to funding at reasonable
market rates. Liquidity management involves forecasting funding requirements
and maintaining sufficient capacity to meet the needs and accommodate
fluctuations in asset and liability levels due to changes in our business
operations or unanticipated events.
The ability to have readily available funds sufficient to repay fully maturing
liabilities is of primary importance to depositors, creditors and regulators.
CWB's available liquidity is represented by cash and amounts due from banks,
federal funds sold and non-pledged marketable securities. CWB manages its
liquidity risk through operating, investing and financing activities. Liquidity
requirements can also be met through short-term borrowings or the disposition of
short-term assets. In order to ensure funds are available when necessary, on at
least a quarterly basis CWB projects the amount of funds that will be required.
The Company has established policies as well as analytical tools to manage
liquidity. Proper liquidity management ensures that sufficient funds are
available to meet normal operating demands in addition to unexpected customer
demand for funds, such as high levels of deposit withdrawals or increased loan
demand, in a timely and cost-effective manner. CWB's liquidity management is
viewed from a long-term and short-term perspective, as well as from an asset and
liability perspective. Management monitors liquidity through regular reviews of
maturity profiles, funding sources and loan and deposit forecasts to minimize
funding risk. The Bank has asset/liability committees ("ALCO") at the Board and
Bank management level to review asset/liability management and liquidity issues.
The Company through CWB has a blanket lien credit line with the Federal Home
Loan Bank ("FHLB"). FHLB advances are collateralized in the aggregate by CWB's
eligible loans and securities. Total FHLB fixed rate advances were $110.0
million at September 30, 2022 and $90.0 million at December 31, 2021 . The
Company also had $29.0 million of letters of credit with FHLB at September 30,
2022 to secure public funds. At September 30, 2022 , CWB had pledged to the FHLB
$51.2 million of securities and $237.2 million of loans. At September 30, 2022 ,
based on the amounts of loans and securities pledged, CWB had $36.4 million
available for additional borrowing. At December 31, 2021 , CWB had pledged to
the FHLB securities with a carrying value of $13.2 million and $286.6 million of
loans.
CWB has established a credit line with the Federal Reserve Bank ("FRB"). There
were no outstanding FRB advances as of September 30, 2022 and December 31,
2021 . At September 30, 2022 and December 31, 2021 , there were $260.2 million
and $259.5 million of loans pledged to the FRB. CWB had $88.9 million and $119.0
million in borrowing capacity as of September 30, 2022 and December 31, 2021 ,
respectively.
The Company has federal funds purchased lines at correspondent banks with a
total borrowing capacity of
The Company continues to face strong competition for core deposits. The liquidity ratio of the Company was 12.0% and 21.7% atSeptember 30, 2022 andDecember 31, 2021 , respectively. The Company's liquidity ratio fluctuates in conjunction with loan funding demands. The liquidity ratio consists of the sum of cash and due from banks, deposits in other financial institutions, available-for-sale investments, federal funds sold, and loans held for sale, divided by total assets. As a legal entity, separate and distinct from the Bank, CWBC must rely on its own resources for its liquidity. CWBC's routine funding requirements primarily consisted of certain operating expenses, common stock dividends and interest payments on the other borrowings. CWBC obtains funding to meet its obligations from dividends collected from CWB and fees charged for services provided to CWB and has the capability to issue equity and debt securities. Federal banking laws and regulatory requirements regulate the amount of dividends that may be paid by a banking subsidiary without prior approval. During the three and nine months endedSeptember 30, 2022 , CWBC declared and paid dividends of$0.7 million and$1.9 million , respectively. OnOctober 28, 2022 , the Company's Board of Directors declared a$0.075 per share dividend payable onNovember 30, 2022 , to stockholders of record onNovember 14, 2022 . The Company anticipates that it will continue to pay quarterly cash dividends in the future, although there can be no assurance that payment of such dividends will continue or that they will not be reduced. Page 46
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CWBC has a$10.0 million revolving line of credit. The Company must maintain a compensating deposit account with the lender of$1 million . In addition, the Company must maintain a minimum debt service coverage ratio of 1.65 to one, a minimum Tier 1 leverage ratio of 7.0%, a minimum total risked based capital ratio of 10.0% and a maximum net non-accrual ratio of not more than 3.0%. AtSeptember 30, 2022 , andDecember 31, 2021 , the line of credit balance was zero. The Company was in compliance with all of the required debt covenants atSeptember 30, 2022 andDecember 31, 2021 . Our material cash requirements may include funding existing loan commitments, funding equity investments, withdrawal/maturity of existing deposits, repayment of borrowings, operating lease payments, and expenditures necessary to maintain current operations. The Company enters into contractual obligations in the normal course of business as a source of funds for its asset growth and to meet required capital needs. The following schedule summarizes maturities and principal payments due on our contractual obligations excluding interest: At September 30, 2022 Less than More than 1 year 1 year Total (dollars in thousands) Time deposits$ 19,812 $ 125,957 $ 145,769 FHLB advances 20,000 90,000 110,000 Operating lease obligations 1,013 5,143 6,155 Total$ 40,825 $ 221,100 $ 261,924 In the ordinary course of business, we enter into various transactions to meet financing needs of our customers, which, in accordance with generally accepted accounting principles, are not included in our consolidated balance sheets. These transactions include off-balance sheet commitments, including commitments to extend credit and standby letters of credit. The following table presents a summary of the Company's commitments to extend credit by expiration period. At September 30, 2022 Less than More than 1 year 1 year Total (dollars in thousands) Loan commitments to extend credit$ 49,720 54,364$ 104,084 Standby letters of credit - - - Total$ 49,720 54,364$ 104,084 Capital Resources Maintaining capital strength continues to be a long-term objective for the Company. Capital is necessary to sustain growth, provide protection against unanticipated declines in asset values, and to safeguard depositor funds. Capital is also a source of funds for loan demand and enables the Company to effectively manage its assets and liabilities. The Company has the capacity to issue 60,000,000 shares of common stock of which 8,755,363 have been issued atSeptember 30, 2022 . Conversely, the Company may decide to repurchase shares of its outstanding common stock, depending on the market price and other relevant factors. CWB is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements could trigger certain mandatory or discretionary actions that, if undertaken, could have a material effect on the Company's business and financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, CWB must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgements by the regulators about components, risk weightings and other factors. In 2019, the federal banking agencies jointly issued a final rule, which provides for an additional optional, simplified measure of capital adequacy, the community bank leverage ratio framework. Under this framework, the bank would choose the option of using the community bank leverage ratio (CBLR). A CBLR bank may opt out of the framework at any time, without restriction, by reverting to the generally applicable risk-based capital rules. As of the fourth quarter 2021, the Company rescinded its CBLR election. Page 47
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The following tables illustrate the Bank's regulatory ratios and theFederal Reserve's current adequacy guidelines as ofSeptember 30, 2022 andDecember 31, 2021 . Common Tier 1 Equity Leverage Capital Tier 1 Ratio/Tier 1 Total Capital (To Risk- (To Risk- Capital (To Risk-Weighted Weighted Weighted (To Average Assets) Assets) Assets) Assets)September 30, 2022 CWB's actual regulatory ratios 12.46 % 11.30 % 11.30 % 9.83 % Minimum capital requirements 8.00 % 6.00 % 4.50 % 4.00 % Well-capitalized requirements 10.00 % 8.00 % 6.50 % N/A December 31, 2021 CWB's actual regulatory ratios 12.19 % 11.02 % 11.02 % 8.56 % Minimum capital requirements 8.00 % 6.00 % 4.50 % 4.00 % Well-capitalized requirements 10.00 % 8.00 % 6.50 % N/A
There are no conditions or events since
Supervision and Regulation
Banking is a complex, highly regulated industry. The primary goals of the
regulatory scheme are to maintain a safe and sound banking system, protect
depositors and the Federal Deposit Insurance Corporation's ("FDIC") insurance
fund, and facilitate the conduct of sound monetary policy. In furtherance of
these goals, Congress and the states have created several largely autonomous
regulatory agencies and enacted numerous laws that govern banks, bank holding
companies and the financial services industry. Consequently, the growth and
earnings performance of the Company can be affected not only by management
decisions and general economic conditions, but also by the requirements of
applicable state and federal statutes, regulations, and the policies of various
governmental regulatory authorities, including the Board of Governors of the
Federal Reserve System , the Office of the Comptroller of the Currency ("OCC"),
and FDIC .
The system of supervision and regulation applicable to financial services
businesses governs most aspects of the business of CWBC and CWB, including: (i)
the scope of permissible business; (ii) investments; (iii) reserves that must be
maintained against deposits; (iv) capital levels that must be maintained; (v)
the nature and amount of collateral that may be taken to secure loans; (vi) the
establishment of new branches; (vii) mergers and consolidations with other
financial institutions; and (viii) the payment of dividends.
Laws or regulations are enacted which may have the effect of increasing the cost
of doing business, limiting, or expanding the scope of permissible activities,
or changing the competitive balance between banks and other financial and
non-financial institutions. Proposals to change the laws and regulations
governing the operations of banks and bank holding companies are frequently made
in Congress and by various bank and other regulatory agencies. Future changes
in the laws, regulations or policies that impact the Company cannot necessarily
be predicted, but they may have a material effect on the Company's business and
earnings.
For a detailed discussion of the regulatory scheme governing the Company and
CWB, please see the discussion in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2021 under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operation -
Supervision and Regulation."
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