Edgar Filing: COMMUNITY WEST BANCSHARES /

form10q.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

T	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 000-23575

COMMUNITY WEST BANCSHARES

(Exact name of registrant as specified in its charter)

California	77-0446957
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

445 Pine Avenue, Goleta, California 93117

(Address of principal executive offices) (Zip Code)

(805) 692-5821

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. T YES £ NO

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

Large accelerated filer £

Accelerated filer £

Non-accelerated filer £

Smaller reporting company T

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

Number of shares of common stock of the registrant outstanding as of August 12, 2008: 5,915,130 shares

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION			PAGE

	ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)

		CONSOLIDATED BALANCE SHEETS	3

		CONSOLIDATED INCOME STATEMENTS	4

		CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY	5

		CONSOLIDATED STATEMENTS OF CASH FLOWS	6

		NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	7

The financial statements included in this Form 10-Q should be read with reference to Community West Bancshares’ Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

	ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	12

	ITEM 4T.	CONTROLS AND PROCEDURES	21

PART II. OTHER INFORMATION

	ITEM 1.	LEGAL PROCEEDINGS	21

	ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	21

	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	21

	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	22

	ITEM 5.	OTHER INFORMATION	22

	ITEM 6.	EXHIBITS	22


SIGNATURES

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

COMMUNITY WEST BANCSHARES

CONSOLIDATED BALANCE SHEETS

	June 30, 2008			December 31, 2007
	(unaudited)
ASSETS	(in thousands)
Cash and due from banks	$	5,634		$	6,855
Federal funds sold		7,338			2,434
Cash and cash equivalents		12,972			9,289
Time deposits in other financial institutions		677			778
Investment securities available-for-sale, at fair value; amortized cost of $5,401 at June 30, 2008 and $12,711 at December 31, 2007		5,390			12,664
Investment securities held-to-maturity, at amortized cost; fair value of $34,588 at June 30, 2008 and $25,733 at December 31, 2007		34,415			25,617
Federal Home Loan Bank stock, at cost		5,889			5,734
Federal Reserve Bank stock, at cost		842			812
Loans:
Loans held for sale, at lower of cost or fair value		122,761			110,415
Loans held for investment, net of allowance for loan losses of $6,423 at June 30, 2008 and $4,412 at December 31, 2007		446,384			428,750
Total loans		569,145			539,165
Servicing rights		1,152			1,206
Other assets acquired through foreclosure, net		704			150
Premises and equipment, net		3,985			3,284
Other assets		12,490			11,151
TOTAL ASSETS	$	647,661		$	609,850
LIABILITIES
Deposits:
Non-interest-bearing demand	$	36,041		$	33,240
Interest-bearing demand		56,433			75,016
Savings		15,705			14,905
Time certificates		377,603			310,578
Total deposits		485,782			433,739
Federal Home Loan Bank advances		105,000			121,000
Other liabilities		6,479			4,952
Total liabilities		597,261			559,691
STOCKHOLDERS' EQUITY
Common stock, no par value; 10,000,000 shares authorized; 5,915,130 shares issued and outstanding at June 30, 2008 and 5,894,585 at December 31, 2007		31,820			31,636
Retained earnings		18,587			18,551
Accumulated other comprehensive loss, net		(7	)		(28	)
Total stockholders' equity		50,400			50,159
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	647,661		$	609,850

See accompanying notes.

Table of Contents

COMMUNITY WEST BANCSHARES

CONSOLIDATED INCOME STATEMENTS (UNAUDITED)

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008		2007
	(dollars in thousands, except per share amounts)
INTEREST INCOME
Loans	$	10,720		$	10,930		$	22,080	$	21,365
Investment securities		590			459			1,155		903
Other		70			235			156		404
Total interest income		11,380			11,624			23,391		22,672
INTEREST EXPENSE
Deposits		4,329			4,431			8,824		8,543
Other borrowings		1,248			1,199			2,603		2,390
Total interest expense		5,577			5,630			11,427		10,933
NET INTEREST INCOME		5,803			5,994			11,964		11,739
Provision for loan losses		2,531			(63	)		3,204		222
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		3,272			6,057			8,760		11,517
NON-INTEREST INCOME
Other loan fees		656			802			1,226		1,545
Gains from loan sales, net		336			228			618		332
Document processing fees		214			196			402		372
Loan servicing, net		2			35			241		62
Service charges		101			110			210		212
Other		331			31			357		54
Total non-interest income		1,640			1,402			3,054		2,577
NON-INTEREST EXPENSES
Salaries and employee benefits		3,446			3,641			7,087		7,243
Occupancy and equipment expenses		558			521			1,140		986
Professional services		178			229			405		480
Advertising and marketing		149			166			256		328
Depreciation and amortization		158			114			291		239
Other operating expenses		824			632			1,314		1,226
Total non-interest expenses		5,313			5,303			10,493		10,502
Income (loss) before provision for income taxes		(401	)		2,156			1,321		3,592
Provision for (benefit from) income taxes		(149	)		904			576		1,514

NET INCOME (LOSS)	$	(252	)	$	1,252		$	745	$	2,078

INCOME (LOSS) PER SHARE – BASIC	$	(.04	)	$	.21		$	.13	$	.36
INCOME (LOSS) PER SHARE – DILUTED	$	(.04	)	$	.21		$	.12	$	.34
Basic weighted average number of common shares outstanding		5,913			5,856			5,911		5,840
Diluted weighted average number of common shares outstanding		5,913			6,038			5,974		6,035

See accompanying notes.

Table of Contents

COMMUNITY WEST BANCSHARES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

	Common Stock				Retained			Accumulated Other Comprehensive			Total Stockholders’
	Shares		Amount		Earnings			Income (Loss)			Equity

	(in thousands)

BALANCES AT JANUARY 1, 2008		5,895	$	31,636	$	18,551		$	(28	)	$	50,159
Exercise of stock options		20				105						105
Stock-based compensation						79						79
Comprehensive income:
Net income						745						745
Change in unrealized gains (losses) on securities
Available-for-sale									21			21
Total comprehensive income												766
Cash dividends paid ($0.12 per share)						(709	)					(709	)
BALANCES AT JUNE 30, 2008		5,915	$	31,820	$	18,587		$	(7	)	$	50,400

See accompanying notes.

Table of Contents

COMMUNITY WEST BANCSHARES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Six Months Ended June 30,
	2008			2007
	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	745		$	2,078
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		3,204			222
Depreciation and amortization		291			231
Stock-based compensation		79			87
Net amortization of discounts and premiums for investment securities		(42	)		3
Gains on sale of loans		(618	)		(332	)
Gains on sale of other assets acquired through foreclosure		(301	)		-
Federal Home Loan Bank stock dividend		(155	)		(117	)
Loans originated for sale and principal collections, net		1,374			2,041
Changes in:
Servicing rights, net of amortization and valuation adjustments		54			430
Other assets		(1,374	)		(1,657	)
Other liabilities		1,548			158
Net cash provided by operating activities		4,805			3,144
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of held-to-maturity securities		(12,899	)		(5,930	)
Purchase of Federal Home Loan Bank and Federal Reserve stock		(30	)		(118	)
Principal paydowns and maturities of held-to-maturity securities		4,142			1,631
Principal paydowns and maturities of available-for-sale securities		7,310			1,152
Loan originations and principal collections, net		(34,614	)		(35,042	)
Proceeds from sale of other assets acquired through foreclosure		421			-
Net decrease (increase) in time deposits in other financial institutions		101			(119	)
Purchase of premises and equipment, net		(992	)		(449	)
Net cash used in investing activities		(36,561	)		(38,875	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options		105			304
Cash dividends paid to shareholders		(709	)		(701	)
Net (decrease) increase in demand deposits and savings accounts		(14,982	)		19,983
Net increase in time certificates of deposit		67,025			22,352
Proceeds from Federal Home Loan Bank Advances		9,000			32,000
Repayments of Federal Home Loan Bank Advances		(25,000	)		(31,000	)
Net cash provided by financing activities		35,439			42,938
NET INCREASE IN CASH AND CASH EQUIVALENTS		3,683			7,207
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		9,289			11,343
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	12,972		$	18,550

Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	9,065		$	8,820
Cash paid for income taxes		1,780			3,097

Supplemental Disclosure of Noncash Investing Activity:
Transfers to other assets acquired through foreclosure	$	674		$	-

See accompanying notes.

Table of Contents

COMMUNITY WEST BANCSHARES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The interim consolidated financial statements reflect all adjustments and reclassifications that, in the opinion of management, are necessary for the fair presentation of the results of operations and financial condition for the interim period. The unaudited consolidated financial statements include Community West Bancshares (“CWBC") and its wholly-owned subsidiary, Community West Bank N.A. ("CWB" or the “Bank”). CWBC and CWB are referred to herein as “the Company”. The accompanying unaudited condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q and Article 8 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair statement have been reflected in the financial statements. However, the results of operations for the six-month period ended June 30, 2008 are not necessarily indicative of the results to be expected for the full year.

These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto of Community West Bancshares included in the Company's Annual Report on Form 10-K for the year ended December 31, 2007.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Provision and Allowance for Loan Losses – The Company maintains a detailed, systematic analysis and procedural discipline to determine the amount of the allowance for loan losses (“ALL”). The ALL is based on estimates and is intended to be adequate to provide for probable losses inherent in the loan portfolio. This process involves deriving probable loss estimates that are based on individual loan loss estimation, migration analysis/historical loss rates and management’s judgment.

The Company employs several methodologies for estimating probable losses. Methodologies are determined based on a number of factors, including type of asset, risk rating, concentrations, collateral value and the input of the Special Assets group, functioning as a workout unit.

The ALL calculation for the different major loan types is as follows:

SBA – All loans are reviewed and impaired loans are assigned a specific allowance. A migration analysis and various portfolio specific factors are used to calculate the required allowance for loans not impaired.

Relationship Banking – Includes commercial, commercial real estate and consumer loans. Impaired loans are assigned a specific allowance. A migration analysis and various portfolio specific factors are used to calculate the required allowance on the remaining pass loans.

Manufactured Housing – An allowance is calculated on the basis of risk rating, which is a combination of delinquency, value of collateral on classified loans and perceived risk in the product line.

The Company calculates the required ALL on a monthly basis. Any differences between estimated and actual observed losses from the prior month are reflected in the current period required ALL calculation and adjusted as deemed necessary. The review of the adequacy of the allowance takes into consideration such factors as concentrations of credit, changes in the growth, size and composition of the loan portfolio, overall and individual portfolio quality, review of specific problem loans, collateral, guarantees and economic conditions that may affect the borrowers' ability to pay and/or the value of the underlying collateral. Additional factors considered include: geographic location of borrowers, changes in the Company’s product-specific credit policy and lending staff experience. These estimates depend on subjective factors and, therefore, contain inherent uncertainties.

The Company's ALL is maintained at a level believed adequate by management to absorb known and inherent probable losses on existing loans. A provision for loan losses is charged to expense. The allowance is charged for losses when management believes that full recovery on the loan is unlikely. Generally, the Company charges off any loan classified as a "loss"; portions of loans which are deemed to be uncollectible; overdrafts which have been outstanding for more than 90 days; and, all other unsecured loans past due 120 or more days. Subsequent recoveries, if any, are credited to the ALL.

Servicing Rights – The guaranteed portion of certain SBA loans are sold into the secondary market. Servicing rights are recognized as separate assets when loans are sold with servicing retained. Servicing rights are amortized in proportion to, and over the period of, estimated future net servicing income. The Company uses industry prepayment statistics and its own prepayment experience in estimating the expected life of the loans. Management periodically evaluates servicing rights for impairment. Servicing rights are evaluated for impairment based upon the fair value of the rights as compared to amortized cost on a loan-by-loan basis. Fair value is determined using discounted future cash flows calculated on a loan-by-loan basis and aggregated to the total asset level. The initial servicing rights and resulting gain on sale are calculated based on the difference between the best actual par and premium bids on an individual loan basis.

Table of Contents

Other Assets Acquired Through Foreclosure – Other assets acquired through foreclosure includes real estate and other assets acquired through foreclosure on the collateral property and is recorded at the appraised value at the time of foreclosure less estimated costs to sell . Any excess of loan balance over the net realizable value of the other assets is charged-off against the allowance for loan losses. Subsequent to foreclosure, management periodically performs a new valuation and the asset is carried at the lower of carrying amount or fair value less estimated costs to sell. Operating expenses or income, and gains or losses on disposition of such properties, are recorded in current operations.

Recent Accounting Pronouncements – In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under U.S. GAAP. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 is effective prospectively for fiscal years beginning after November 15, 2007. The Company adopted SFAS 157 on January 1, 2008. The adoption did not have a material impact on the Company’s financial condition, results of operations or cash flows. See Note 4 for the additional disclosure requirements for certain fair value measurements impacted by SFAS 157.

In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 would allow the Company an irrevocable election to measure certain financial assets and liabilities at fair value, with unrealized gains and losses on the elected items recognized in earnings at each reporting period. The fair value option may only be elected at the time of initial recognition of a financial asset or financial liability or upon the occurrence of certain specified events. The election is applied on an instrument by instrument basis, with a few exceptions, and is applied only to entire instruments and not to portions of instruments. SFAS 159 also provides expanded disclosure requirements regarding the effects of electing the fair value option on the financial statements. SFAS 159 is effective prospectively for fiscal years beginning after November 15, 2007. The Company adopted SFAS 159 on January 1, 2008. The Company did not elect the fair value option, under SFAS 159, for any of our existing financial assets or financial liabilities as of January 1, 2008, nor have we elected the fair value option for any new financial assets or financial liabilities originated or entered into during the first six months of 2008.

2. LOAN SALES AND SERVICING

SBA Loan Sales - The Company occasionally sells the guaranteed portion of selected SBA loans into the secondary market on a servicing-retained basis. The Company retains the unguaranteed portion of these loans and services the loans as required under the SBA programs to retain specified yield amounts. The SBA program stipulates that the Company retains a minimum of 5% of the loan balance, which is unguaranteed. The percentage of each unguaranteed loan in excess of 5% may be periodically sold to a third party, typically for a cash premium. The Company records servicing liabilities for the unguaranteed loans sold calculated based on the present value of the estimated future servicing costs associated with each loan. The balance of all servicing rights and obligations is subsequently amortized over the estimated life of the loans using an estimated prepayment rate of 5-25%. Quarterly, the servicing asset is analyzed for impairment.

The Company also periodically sells certain SBA loans into the secondary market, on a servicing-released basis, typically for a cash premium.

As of June 30, 2008 and December 31, 2007, the Company had approximately $122.5 million and $108.9 million, respectively, in SBA loans included in loans held for sale.

Mortgage Loan Sales – The Company enters into mortgage loan rate lock commitments (normally for 30 days) with potential borrowers. In conjunction therewith, the Company enters into a forward sale commitment to sell the locked loan to a third party investor. This forward sale agreement requires delivery of the loan on a “best efforts” basis but does not obligate the Company to deliver if the mortgage loan does not fund.

The mortgage rate lock agreement and the forward sale agreement qualify as derivatives under SFAS No. 133, as amended. The value of these derivatives is generally equal to the fee, if any, charged to the borrower at inception but may fluctuate in the event of changes in interest rates. These derivative financial instruments are recorded at fair value if material. Although the Company does not attempt to qualify these transactions for the special hedge accounting afforded by SFAS No. 133, management believes that changes in the fair value of the two commitments generally offset and create an economic hedge. At June 30, 2008 and December 31, 2007, the Company had $2.6 million and $7.6 million, respectively, in notional amount of outstanding mortgage loan rate locks and forward sale commitments, the impact of which was not material to the Company’s financial position or results of operations.

Table of Contents

3. LOANS HELD FOR INVESTMENT

The composition of the Company’s loans held for investment and securitized loan portfolio follows:

	June 30,			December 31,
	2008			2007
	(in thousands)
Commercial	$	72,289		$	72,470
Real estate		140,964			136,734
SBA		38,896			34,021
Manufactured housing		182,417			172,938
Securitized		6,421			7,507
Other installment		12,344			10,027
		453,331			433,697
Less:
Allowance for loan losses		6,423			4,412
Deferred fees, net of costs		(122	)		25
Purchased premiums on securitized loans		(56	)		(73	)
Discount on SBA loans		702			583
Loans held for investment, net	$	446,384		$	428,750

An analysis of the allowance for credit losses for loans held for investment follows for the three and six months ended:

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
	(in thousands)
Balance, beginning of period	$	4,704		$	4,110		$	4,412		$	3,926

Loans charged off		(843	)		(37	)		(1,243	)		(180	)
Recoveries on loans previously charged off		31			37			50			79
Net charge-offs		(812	)		-			(1,193	)		(101	)

Provision for loan losses		2,531			(63	)		3,204			222
Balance, end of period	$	6,423		$	4,047		$	6,423		$	4,047

As of June 30, 2008 and December 31, 2007, the Company also had reserves for credit losses on undisbursed loans of $114,000 and $73,000 respectively.

The recorded investment in loans that is considered to be impaired:

	June 30,			December 31,
	2008			2007
	(in thousands)
Impaired loans without specific valuation allowances	$	-		$	33
Impaired loans with specific valuation allowances		10,655			16,468
Specific valuation allowances allocated to impaired loans		(328	)		(966	)
Impaired loans, net	$	10,327		$	15,535

Average investment in impaired loans	$	10,213		$	9,386

Table of Contents

4. FAIR VALUE MEASUREMENT

SFAS 157 defines fair value as the exchange price that would be received for an asset or the price that would be paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 – Quoted prices in active markets for identical assets and liabilities

Level 2 – Observable inputs other than quoted market prices in active markets for identical assets and liabilities

Level 3 – Unobservable inputs

The following summarizes the fair value measurements of assets measured on a recurring basis as of June 30, 2008 and the relative levels of inputs from which such amounts were derived:

	Fair value measurements at reporting date using
			Quoted prices in active markets for identical assets		Significant other observable inputs		Significant unobservable inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Investment securities available-for-sale	$	5,390	$	5,390	$	-	$	-
Interest only strips (included in other assets)		673		-		-		673
Total	$	6,063	$	5,390	$	-	$	673

On certain SBA loan sales that occurred prior to 2003, the Company retained interest only strips (“I/O strips”), which represent the present value of excess net cash flows generated by the difference between (a) interest at the stated rate paid by borrowers and (b) the sum of (i) pass-through interest paid to third-party investors and (ii) contractual servicing fees. Interest only strips are classified as level 3 in the fair value hierarchy. The fair value is determined on a quarterly basis through a discounted cash flow analysis prepared by an independent third party using industry prepayment speeds. The interest only strips were valued at $785,000 as of December 31, 2007. Valuation adjustments relating to the interest only strips of $101,000 and $112,000 were recorded in income for the three and six months ended June 30, 2008, respectively. No other changes in the balance have occurred related to the interest only strips and such valuation adjustments are included as offset to loan servicing income.

The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets are loans that are considered impaired per Financial Accounting Standard Board Statement No. 114 (“FAS 114”). A loan is considered impaired when, based on current information or events, it is probable that not all amounts due will be collected according to the contractual terms of the loan agreement. Impairment is measured based on the fair value of the underlying collateral. The collateral value is determined based on appraisals and other market valuations for similar assets.

The following summarizes the fair value measurements of assets measured on a non-recurring basis as of June 30, 2008 and the relative levels of inputs from which such amounts were derived:

	Fair value measurements at reporting date using
			Quoted prices in active markets for identical assets		Significant other observable inputs		Significant unobservable inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Impaired loans	$	10,327	$	-	$	10,327	$	-

Table of Contents

5. EARNINGS PER SHARE

Earnings per share – Basic has been computed based on the weighted average number of shares outstanding during each period. Earnings per share – Diluted has been computed based on the weighted average number of shares outstanding during each period plus the dilutive effect of granted options. Earnings per share were computed as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2008			2007		2008		2007
	(dollars in thousands except per share amounts)
Weighted average shares – Basic		5,913			5,856		5,911		5,840
Dilutive effect of options		-			182		63		195
Weighted average shares – Diluted		5,913			6,038		5,974		6,035

Net income (loss)	$	(252	)	$	1,252	$	745	$	2,078
Earnings per share – Basic		(.04	)		.21		.13		.36
Earnings per share – Diluted		(.04	)		.21		.12		.34

6. BORROWINGS

Federal Home Loan Bank Advances – The Company has a blanket lien credit line with the Federal Home Loan Bank (“FHLB”). Advances are collateralized in the aggregate by CWB’s eligible loans and securities. Total FHLB advances were $105.0 million and $121.0 million at June 30, 2008 and December 31, 2007, respectively, and include $7.5 million and $17.5 million, respectively, borrowed at variable rates which adjust to the current LIBOR rate either monthly or quarterly. At June 30, 2008 and December 31, 2007, CWB had securities pledged to FHLB of $39.8 million at carrying value and loans of $147.1 million, and $38.1 million at carrying value and loans of $150.0 million, respectively. Total FHLB interest expense for the six months ended June 30, 2008 and 2007 was $2.6 million and $2.4 million, respectively. At June 30, 2008, CWB had $22.2 million available for additional borrowings with the FHLB.

Table of Contents

ITEM 2.

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

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 unaudited interim consolidated financial statements and notes thereto and the other financial information appearing elsewhere in this report.

Forward Looking Statements

This Report on Form 10-Q contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Those forward-looking statements include statements regarding the intent, belief or current expectations of the Company and its management. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those projected in the forward-looking statements. The Company does not undertake any obligation to revise or update publicly any forward-looking statements for any reason.

The following discussion should be read in conjunction with the Company’s financial statements and the related notes provided under "Item 1—Financial Statements" above.

Overview of Earnings Performance

The Company reported a net loss of $(252,000), or $(.04) per diluted share, for the second quarter 2008 compared to net income of $1.3 million, or $0.21 per diluted share, for the second quarter 2007.

The significant factors impacting operations for the second quarter 2008 were:

loan loss provision of $2.5 million for the second quarter 2008 reflecting management’s assessment of heightened credit risk for the Company related to the current macroeconomic conditions impacting California and national business, real estate and consumer markets

a decline in interest income from loans of $210,000 due to the decline in yields, in part, resulting from the impact of actions of the Federal Open Market Committee (FOMC), which was partly offset by an increase to the average loan balance of $84.5 million for the second quarter 2008 compared to 2007

a 325 basis point cut in the target federal funds rate from 5.25% at June 30, 2007 to 2.00% as of June 30, 2008, impacting both yields on loans and rates paid on deposits and contributing to a 72 basis point decline in net interest margin from 4.45% to 3.73%

$301,000 net gain on the sale of other foreclosed assets in the second quarter 2008

relatively flat non-interest expenses for the second quarter 2008 compared to 2007

Critical Accounting Policies

A number of critical accounting policies are used in the preparation of the Company’s consolidated financial statements. These policies relate to areas of the financial statements that involve estimates and judgments made by management. These include: the provision and allowance for loan losses and servicing rights. These critical accounting policies are discussed in the Company’s 2007 10-K with a description of how the estimates are determined and an indication of the consequences of an over or under estimate.

Table of Contents

Results of Operations – Second Quarter Comparison

The following table sets forth for the periods indicated, certain items in the consolidated income statements of the Company and the related changes between those periods:

	Three Months Ended June 30,						Increase
	2008			2007			(Decrease)
	(dollars in thousands, except per share amounts)
Interest income	$	11,380		$	11,624		$	(244	)
Interest expense		5,577			5,630			(53	)
Net interest income		5,803			5,994			(191	)
Provision for loan losses		2,531			(63	)		2,594
Net interest income after provision for loan losses		3,272			6,057			(2,785	)
Non-interest income		1,640			1,402			238
Non-interest expenses		5,313			5,303			10
Income (loss) before provision for income taxes		(401	)		2,156			(2,557	)
Provision for (benefit from) income taxes		(149	)		904			(1,053	)
Net income (loss)	$	(252	)	$	1,252		$	(1,504	)
Income (loss) per share – Basic	$	(.04	)	$	.21		$	(.25	)
Income (loss) per share – Diluted	$	(.04	)	$	.21		$	(.25	)
Comprehensive income (loss)	$	(264	)	$	1,261		$	(1,525	)

The following table sets forth the changes in interest income and expense attributable to changes in rate and volume:

	Three Months Ended June 30,
	2008 versus 2007
	Total			Change due to
	change			Rate			Volume
	(in thousands)
Loans, net	$	(210	)	$	(1,718	)	$	1,508
Investment securities		131			42			89
Other		(165	)		(131	)		(34	)
Total interest-earning assets		(244	)		(1,807	)		1,563

Deposits		(102	)		(885	)		783
Other borrowings		49			(71	)		120
Total interest-bearing liabilities		(53	)		(956	)		903
Net interest income	$	(191	)	$	(851	)	$	660

Net Interest Income

Net interest income declined by $191,000 for the second quarter 2008 compared to 2007. Total interest income declined by $244,000. While average interest earning assets grew to $625.3 million for the second quarter 2008 compared to $539.7 million for the same period in 2007, an increase of $85.6 million, yields declined to 7.32% from 8.64% and the net interest margin declined 72 basis points from 4.45% to 3.73%. The decline in interest income due to rates of $1.8 million exceeded the increase of $1.6 million due to volume growth.

The decline in rates benefited the Bank in a reduction in interest expense of $53,000. The decline due to rates of $956,000 was partly offset by the increase due to deposit and borrowing volume growth of $903,000 for the second quarter of 2008 compared to 2007.

The rapid nature of the reduction in the target federal funds rate by the FOMC over the last year from 5.25% to 2.00%, for asset-sensitive institutions, tended to reduce yields on interest earning assets more quickly than rates paid on interest bearing liabilities, primarily deposits. This compression of the net interest margin may ease somewhat in coming months as deposit and borrowing rates reprice.

Table of Contents

Provision for Loan Losses

The provision for loan losses increased to $2.5 million for the second quarter 2008 reflecting management’s assessment of increased credit risk for the Company related to the current California and national business, real estate and consumer economic slowdown. The provision is impacted by both quantitative factors resulting from actual loss experience and qualitative factors which take into consideration management’s judgment regarding several internal and external factors including concentration of credit risk and overall macroeconomic conditions. The higher provision is primarily a result of increased qualitative factors which reflect the aforementioned economic circumstances and outlook. The Bank continues to diligently monitor the portfolio and has enhanced underwriting standards as necessary to prudently reflect the dynamics of the current economic outlook.

Non-Interest Income

Non-interest income includes gains from sale of loans, loan document fees, service charges on deposit accounts, loan servicing fees and other revenues not derived from interest on earning assets. Total non-interest income increased by $238,000, or 17.0%, for the second quarter 2008 compared to the same period in 2007. Gain on loan sales increased by $108,000 or 47.4%, due to the sale of $6.3 million in guaranteed SBA loans. Other non-interest income increased by $300,000 due to a $301,000 net gain on the sale of other foreclosed assets. These gains were partly offset by a decline in other loan fees, including loan originations, of $146,000.

Non-Interest Expenses

Non-interest expense remained relatively flat for the second quarter 2008 compared to 2007, increasing $10,000, or 0.2%.

Results of Operations –Six-Month Comparison

The following table sets forth for the periods indicated, certain items in the consolidated income statements of the Company and the related changes between those periods:

	Six Months Ended June 30,				Increase
	2008		2007		(Decrease)
	(dollars in thousands, except per share amounts)
Interest income	$	23,391	$	22,672	$	719
Interest expense		11,427		10,933		494
Net interest income		11,964		11,739		225
Provision for loan losses		3,204		222		2,982
Net interest income after provision for loan losses		8,760		11,517		(2,757	)
Non-interest income		3,054		2,577		477
Non-interest expenses		10,493		10,502		(9	)
Income before provision for income taxes		1,321		3,592		(2,271	)
Provision for income taxes		576		1,514		(938	)
Net income	$	745	$	2,078	$	(1,333	)
Income per share – Basic	$	.13	$	.36	$	(.23	)
Income per share – Diluted	$	.12	$	.34	$	(.22	)
Comprehensive income	$	766	$	2,102	$	(1,336	)

The following table sets forth the changes in interest income and expense attributable to changes in rate and volume:

	Six Months Ended June 30,
	2008 versus 2007
	Total			Change due to
	change			Rate			Volume
	(in thousands)
Loans, net	$	715		$	(2,470	)	$	3,185
Investment securities		252			81			171
Other		(248	)		(188	)		(60	)
Total interest-earning assets		719			(2,577	)		3,296

Deposits		281			(1,164	)		1,445
Other borrowings		213			(140	)		353
Total interest-bearing liabilities		494			(1,304	)		1,798
Net interest income	$	225		$	(1,273	)	$	1,498

Table of Contents

Net Interest Income

Net interest income increased by $225,000 for the first six months of 2008 compared to 2007. Total interest income increased $719,000 million, or 3.2%, for the period ended June 30, 2008 compared to the same period in 2007. The increase of $3.3 million due to growth in average earning assets was partly offset by a $2.6 million decline due to lower rates. For the first six months of 2008, average earning assets were $616.4 million compared to $529.9 million for the same period in 2007, an increase of 16.3%. This growth was offset by the decline in yield on interest earning asset to 7.63% for the first six months of 2008 from 8.63% for 2007 and a corresponding 57 basis point decline in net interest margin from 4.47% to 3.90%.

Interest expense increased $494,000, or 4.5% for the first six months of 2008 compared to 2007. The increase due to volume of $1.8 million was partially offset due to lower rates paid on deposits and borrowing. Rates paid on interest bearing liabilities declined from 4.83% for the first six months on 2007 to 4.24% for the same period of 2008.

Provision for Loan Losses

The provision for loan losses increased to $3.2 million for the first six months of 2008 compared to $222,000 for the same period of 2007. This increase reflected management’s assessment of increased credit risk for the Company related to the current California and national business, real estate and consumer economic slowdown. The provision is impacted by both quantitative factors resulting from actual loss experience and qualitative factors which take into consideration management’s judgment regarding several internal and external factors including concentration of credit risk and overall macroeconomic conditions. The higher provision is primarily a result of increased qualitative factors which reflect the aforementioned economic circumstances and outlook. The Bank continues to diligently monitor the portfolio and has enhanced underwriting standards as necessary to prudently reflect the dynamics of the current economic outlook.

Non-Interest Income

Non-interest income for the first six months of 2008 increased by $477,000 over the same period of 2008 primarily due to an increase of $286,000 in gains on loans sales and the net gain on the sale of other foreclosed assets of $301,000 included in other income. The Company sold $10.1 million in guaranteed SBA loans and $1.7 million in unguaranteed for the first six months of 2008 compared to $3.5 million in unguaranteed SBA loans sold for the same period of 2007. These increases were partly offset by a decline of $319,000 in other loan fees.

Non-Interest Expenses

Non-interest expenses remained flat with a decline of $9,000 for the first six months of 2008 compared to 2007.

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 June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
Interest-earning assets:	(dollars in thousands)
Interest-earning deposits in other financial institutions:
Average balance	$	982		$	839		$	1,004		$	831
Interest income		10			9			19			19
Average yield		4.11	%		4.35	%		3.76	%		4.71	%
Federal funds sold:
Average balance	$	11,152		$	17,126		$	10,117		$	14,770
Interest income		60			226			137			385
Average yield		2.16	%		5.29	%		2.72	%		5.26	%
Investment securities:
Average balance	$	45,835		$	38,934		$	45,294		$	38,590
Interest income		590			459			1,155			903
Average yield		5.18	%		4.73	%		5.13	%		4.72	%
Gross loans:
Average balance	$	567,310		$	482,758		$	559,955		$	475,685
Interest income		10,720			10,930			22,080			21,365
Average yield		7.60	%		9.08	%		7.93	%		9.06	%
Total interest-earning assets:
Average balance	$	625,279		$	539,657		$	616,370		$	529,876
Interest income		11,380			11,624			23,391			22,672
Average yield		7.32	%		8.64	%		7.63	%		8.63	%

Table of Contents

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
Interest-bearing liabilities:	(dollars in thousands)
Interest-bearing demand deposits:
Average balance	$	60,325		$	60,186		$	65,445		$	55,187
Interest expense		269			551			677			958
Average cost of funds		1.80	%		3.67	%		2.08	%		3.50	%
Savings deposits:
Average balance	$	14,585		$	15,537		$	14,350		$	15,429
Interest expense		128			137			258			266
Average cost of funds		3.52	%		3.53	%		3.61	%		3.48	%
Time certificates of deposit:
Average balance	$	366,258		$	292,388		$	349,299		$	289,131
Interest expense		3,932			3,743			7,889			7,319
Average cost of funds		4.54	%		5.13	%		4.54	%		5.10	%
Other borrowings:
Average balance	$	108,000		$	97,581		$	112,291		$	97,099
Interest expense		1,248			1,199			2,603			2,390
Average cost of funds		4.64	%		4.93	%		4.66	%		4.96	%
Total interest-bearing liabilities:
Average balance	$	549,168		$	465,692		$	541,385		$	456,846
Interest expense		5,577			5,630			11,427			10,933
Average cost of funds		4.08	%		4.85	%		4.24	%		4.83	%

Net interest income	$	5,803		$	5,994		$	11,964		$	11,739
Net interest spread		3.24	%		3.79	%		3.39	%		3.80	%
Net interest margin		3.73	%		4.45	%		3.90	%		4.47	%

Average yields and rates are derived by dividing interest income by the average balances of interest-earning assets and by dividing interest expense by the average balances of interest-bearing liabilities for the periods indicated. Amounts outstanding are averages of daily balances during the applicable periods.

Nonaccrual loans are included in the average balance of loans outstanding.

Net interest income is the difference between the interest and fees earned on loans and investments and the interest expense paid on deposits and other liabilities. The amount by which interest income will exceed interest expense depends on the volume or balance of earning assets compared to the volume or balance of interest-bearing deposits and liabilities and the interest rate earned on those interest-earning assets compared to the interest rate paid on those interest-bearing liabilities.

Net interest margin is net interest income expressed as a percentage of average earning assets. It is used to measure the difference between the average rate of interest earned on assets and the average rate of interest that must be paid on liabilities used to fund those assets. To maintain its net interest margin, the Company must manage the relationship between interest earned and paid.

Table of Contents

Financial Condition

Average total assets increased by $87 million, or 16.0%, to $632 million at June 30, 2008 compared to $545 million at June 30, 2007. Average total equity increased by 6.7% to $51.3 million at June 30, 2008 from $48.1 million at June 30, 2007. Average total gross loans at June 30, 2008 increased by $84 million, or 17.7%, to $560 million from $475.7 million at June 30, 2007. Average deposits also increased from $394.1 million at June 30, 2007 to $463.5 million as of June 30, 2008.

The book value per share increased to $8.52 at June 30, 2008 from $8.51 at December 31, 2007.

Selected balance sheet accounts (dollars in thousands)	June 30, 2008		December 31, 2007		Increase (Decrease)			Percent of Increase (Decrease)

Cash and cash equivalents	$	12,972	$	9,289	$	3,683			39.6	%
Investment securities available-for-sale		5,390		12,664		(7,274	)		(57.4	%)
Investment securities held-to-maturity		34,415		25,617		8,798			34.3	%
Loans-held for sale		122,761		110,415		12,346			11.2	%
Loans-held for investment, net		446,384		428,750		17,634			4.1	%
Total Assets		647,661		609,850		37,811			6.2	%

Total Deposits		485,782		433,739		52,043			12.0	%
Federal Home Loan Bank advances		105,000		121,000		(16,000	)		(13.2	%)

Total Stockholders' Equity		50,400		50,159		241			0.5	%

The following schedule shows the balance and percentage change in the various deposits:

	June 30, 2008		December 31, 2007		Increase (Decrease)			Percent of Increase (Decrease)
	(dollars in thousands)
Non-interest-bearing deposits	$	36,041	$	33,240	$	2,801			8.4	%
Interest-bearing deposits		56,433		75,016		(18,583	)		(24.8	%)
Savings		15,705		14,905		800			5.4	%
Time certificates of $100,000 or more		92,263		60,782		31,481			51.8	%
Other time certificates		285,340		249,796		35,544			14.2	%
Total deposits	$	485,782	$	433,739	$	52,043			12.0	%

Nonaccrual, Past Due and Restructured 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 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 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, except for securitized 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 except for the securitized loans, which are evaluated for impairment on a collective basis.

Table of Contents

The following schedule reflects recorded investment in loans that are considered to be impaired:

	June 30,			December 31,
	2008			2007
	(in thousands)
Impaired loans without specific valuation allowances	$	-		$	33
Impaired loans with specific valuation allowances		10,655			16,468
Specific valuation allowances allocated to impaired loans		(328	)		(966	)
Impaired loans, net	$	10,327		$	15,535

Average investment in impaired loans	$	10,213		$	9,386

Impaired loans declined by $5.3 million from December 31, 2007 to June 30, 2008. This is primarily related to a single loan on a condominium project. The loan on this project was retired with a loan made by Community West Bank to the junior deed holder on the property after the junior deed holder foreclosed. The Company believes that the new borrower and guarantors evidence satisfactory capacity to meet the terms of the new obligation and have been performing as agreed.

The following schedule reflects recorded investment at the dates indicated in certain types of loans:

	June 30,			December 31,
	2008			2007
	(dollars in thousands)
Nonaccrual loans	$	18,364		$	15,341
SBA guaranteed portion of loans included above		(6,809	)		(5,695	)
Nonaccrual loans, net	$	11,555		$	9,646

Troubled debt restructured loans, gross	$	6,031		$	7,255
Loans 30 through 89 days past due with interest accruing	$	4,337		$	18,898
Allowance for loan losses to gross loans		1.12	%		.81	%
Allowance for loan losses to gross loans less SBA guaranteed		1.34	%		.97	%

The higher allowance is primarily a result of increased qualitative factors reflecting management’s judgment regarding several internal and external factors including concentration of credit risk and overall economic conditions. The Bank continues to diligently monitor the portfolio and has enhanced underwriting standards as necessary to prudently reflect the dynamics of the current economic outlook.

CWB generally 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.

Liquidity and Capital Resources

Liquidity Management

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. The most important factor in the preservation of liquidity is maintaining public confidence that facilitates the retention and growth of core deposits. Ultimately, public confidence is gained through profitable operations, sound credit quality and a strong capital position. The Company’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 Company has asset/liability committees (“ALCO”) at the Board and Bank management level to review asset/liability management and liquidity issues. The Company maintains strategic liquidity and contingency plans. The Company uses short-term time certificates from other financial institutions to meet projected liquidity needs.

Table of Contents

CWB has a credit line with the Federal Home Loan Bank (“FHLB”). Advances are collateralized in the aggregate by CWB’s eligible loans and securities. Total FHLB advances were $105.0 million and $121.0 million at June 30, 2008 and December 31, 2007, respectively, and include $7.5 million and $17.5 million, respectively, borrowed at variable rates which adjust to the current LIBOR rate either monthly or quarterly. At June 30, 2008 and December 31, 2007, CWB had securities pledged to FHLB of $39.8 million at carrying value and loans of $147.1 million, and $38.1 million at carrying value and loans of $150 million, respectively. Total FHLB interest expense for the six months ended June 30, 2008 and 2007 was $2.6 million and $2.4 million, respectively. At June 30, 2008, CWB had $22.2 million available for additional borrowing.

CWB also maintains four federal funds purchased lines for a total borrowing capacity of $23.5 million.

The Company has not experienced disintermediation and does not believe this is a potentially probable occurrence. The liquidity ratio of the Company was 22% at June 30, 2008 and December 31, 2007. The Company’s liquidity ratio fluctuates in conjunction with loan funding demands. The liquidity ratio consists 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.

CWBC’s routine funding requirements primarily consist of certain operating expenses. Normally, CWBC obtains funding to meet its obligations from dividends collected from its subsidiary and has the capability to issue debt securities. Federal banking laws regulate the amount of dividends that may be paid by banking subsidiaries without prior approval.

Interest Rate Risk

The Company is exposed to different types of interest rate risks. These risks include: lag, repricing, basis and prepayment risk.

Lag Risk – lag risk results from the inherent timing difference between the repricing of the Company’s adjustable rate assets and liabilities. For instance, certain loans tied to the prime rate index may only reprice on a quarterly basis. However, at a community bank such as CWB, when rates are rising, funding sources tend to reprice more slowly than the loans. Therefore, for CWB, the effect of this timing difference is generally favorable during a period of rising interest rates and unfavorable during a period of declining interest rates. This lag can produce some short-term volatility, particularly in times of numerous prime rate changes.

Repricing Risk – repricing risk is caused by the mismatch in the maturities / repricing periods between interest-earning assets and interest-bearing liabilities. If CWB was perfectly matched, the net interest margin would expand during rising rate periods and contract during falling rate periods. This is so since loans tend to reprice more quickly than do funding sources. Typically, since CWB is somewhat asset sensitive, this would also tend to expand the net interest margin during times of interest rate increases.

Basis Risk – item pricing tied to different indices may tend to react differently, however, all CWB’s variable products are priced off the prime rate.

Prepayment Risk – prepayment risk results from borrowers paying down / off their loans prior to maturity. Prepayments on fixed-rate products increase in falling interest rate environments and decrease in rising interest rate environments. Since a majority of CWB’s loan originations are adjustable rate and set based on prime, and there is little lag time on the reset, CWB does not experience significant prepayments. However, CWB does have more prepayment risk on its securitized and manufactured housing loans and its mortgage-backed investment securities.

Management of Interest Rate Risk

To mitigate the impact of changes in market interest rates on the Company’s interest-earning assets and interest-bearing liabilities, the amounts and maturities are actively managed. Short-term, adjustable-rate assets are generally retained as they have similar repricing characteristics as our funding sources. CWB sells mortgage products and a portion of its SBA loan originations. While the Company has some interest rate exposure in excess of five years, it has internal policy limits designed to minimize risk should interest rates rise. Currently, the Company does not use derivative instruments to help manage risk, but will consider such instruments in the future if the perceived need should arise.

Loan sales - The Company’s ability to originate, purchase and sell loans is also significantly impacted by changes in interest rates. Increases in interest rates may also reduce the amount of loan and commitment fees received by CWB. A significant decline in interest rates could also decrease the size of CWB’s servicing portfolio and the related servicing income by increasing the level of prepayments.

Table of Contents

Capital Resources

The Company (on a consolidated basis) and CWB are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Company’s and CWB’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and CWB must meet specific capital guidelines that involve quantitative measures of the Company’s and CWB’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and CWB’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

The Federal Deposit Insurance Corporation Improvement Act (“FDICIA”) contains rules as to the legal and regulatory environment for insured depository institutions, including reductions in insurance coverage for certain kinds of deposits, increased supervision by the federal regulatory agencies, increased reporting requirements for insured institutions and new regulations concerning internal controls, accounting and operations. The prompt corrective action regulations of FDICIA define specific capital categories based on the institutions’ capital ratios. The capital categories, in declining order, are “well capitalized”, “adequately capitalized”, “undercapitalized”, “significantly undercapitalized” and “critically undercapitalized”. To be considered “well capitalized”, an institution must have a core capital ratio of at least 5% and a total risk-based capital ratio of at least 10%. Additionally, FDICIA imposes Tier I risk-based capital ratio of at least 6% to be considered “well capitalized”. Tier I risk-based capital is, primarily, common stock and retained earnings, net of goodwill and other intangible assets.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). The Company’s and CWB’s actual capital amounts and ratios as of June 30, 2008 and December 31, 2007 are presented in the table below:

(dollars in thousands)	Total Capital		Tier 1 Capital		Risk-Weighted Assets		Adjusted Average Assets		Total Risk-Based Capital Ratio			Tier 1 Risk-Based Capital Ratio			Tier 1 Leverage Ratio
June 30, 2008
CWBC (Consolidated)	$	56,819	$	50,292	$	522,153	$	642,996		10.88	%		9.63	%		7.82	%
CWB		56,557		50,020		523,174		641,663		10.81			9.56			7.80

December 31, 2007
CWBC (Consolidated)	$	54,479	$	50,067	$	507,228	$	596,631		10.74	%		9.87	%		8.39	%
CWB		51,520		47,108		507,017		591,755		10.16			9.29			7.96

Well capitalized ratios										10.00			6.00			5.00
Minimum capital ratios										8.00			4.00			4.00

The Company does not anticipate any material changes in its capital resources. CWBC has common equity only and does not have any off-balance sheet financing arrangements. The Company has not reissued any treasury stock nor does it have any immediate plans or programs to do so.

In consideration of the near-term economic and capital raising environment, the Company eliminated this quarter’s dividend.

Table of Contents

Supervision and Regulation

Banking is a complex, highly regulated industry. The banking regulatory scheme serves not to protect investors, but is designed to maintain a safe and sound banking system, to protect depositors and the FDIC insurance fund, and to 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 banking industry. Consequently, the Company's growth and earnings performance, as well as that of CWB, may be affected not only by management decisions and general economic conditions, but also by the requirements of applicable state and federal statutes and regulations and the policies of various governmental regulatory authorities, including the Board of Governors of the Federal Reserve Bank ("FRB”), the FDIC, and the Office of the Comptroller of the Currency ("OCC"). 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, 2007 under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operation – Supervision and Regulation."

ITEM 4T.

CONTROLS AND PROCEDURES

The Company’s Chief Executive Officer and Chief Financial Officer, with the participation of the Company’s management, carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer believe that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective in making known to them material information relating to the Company (including its consolidated subsidiaries) required to be included in this report.

Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an entity’s disclosure objectives. The likelihood of achieving such objections is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors or mistakes or intentional circumvention of the established process.

There was no change in the Company’s internal control over financial reporting, known to the Chief Executive Officer or the Chief Financial Officer, that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

The Company is involved in various litigation of a routine nature that is being handled and defended in the ordinary course of the Company’s business. In the opinion of management, based in part on consultation with legal counsel, the resolution of these litigation matters will not have a material impact on the Company’s financial position or results of operations.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None

Table of Contents

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its 2008 annual meeting of shareholders (“Meeting”) on May 22, 2008. At the Meeting, the Company’s shareholders considered and voted on the following matter:

1. Election of Directors. The Election of the following eight persons to the Board of Directors to serve until the 2009 Meeting and until their successors are elected and have qualified:

	Votes For		Votes Withheld

Robert H. Bartlein		4,315,166		203,772
Jean W. Blois		4,323,760		195,178
John D. Illgen		4,191,332		327,606
Lynda J. Nahra		4,316,321		202,617
William R. Peeples		4,341,021		177,917
James R. Sims, Jr.		4,319,805		199,133
Kirk B. Stovesand		4,336,866		182,072
C. Richard Whiston		4,323,922		195,016

ITEM 5.

OTHER INFORMATION

None

ITEM 6.

EXHIBITS

Exhibits.

31.1

Certification of Chief Executive Officer of the Registrant pursuant to Rule 13a-14(a) or Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.

31.2

Certification of Chief Financial Officer of the Registrant pursuant to Rule 13a-14(a) or Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.

*32.1

Certification of Chief Executive Officer and Chief Financial Officer of the Registrant pursuant to Rule 13a-14(b) or Rule 15d-14(b), promulgated under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. 1350.

*This certification is furnished to, but shall not be deemed filed, with the Commission. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Registrant specifically incorporates it by reference.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	COMMUNITY WEST BANCSHARES
	(Registrant)


Date: August 14, 2008	/s/Charles G. Baltuskonis
	Charles G. Baltuskonis
	Executive Vice President and
	Chief Financial Officer

	On Behalf of Registrant and as
	Principal Financial and Accounting Officer

Table of Contents

EXHIBIT INDEX

Exhibit
Number		Description of Document

31.1	Certification of Chief Executive Officer of the Registrant pursuant to Rule 13a-14(a) or Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.

31.2	Certification of Chief Financial Officer of the Registrant pursuant to Rule 13a-14(a) or Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.

32.1*	Certification of Chief Executive Officer and Chief Financial Officer of the Registrant pursuant to Rule 13a-14(b) or Rule 15d-14(b), promulgated under the Securities Exchange Act of 1934, as amended, and 18 U.S.C.1350.

____________________