SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549




FORM
10-Q




(Mark
One)


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




For the
quarterly period ended September 30, 2008




or




o
            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.   x YES     
o 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  o
                    Accelerated
      filer  oNon-accelerated
      filer  o
                    Smaller
      reporting company  x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes oNo x




Number of
shares of common stock of the registrant outstanding as of November 13, 2008:
5,915,130 shares










TABLE OF CONTENTS






PART
      I.   FINANCIAL
      INFORMATION
                          PAGEITEM
      1.
                          FINANCIAL STATEMENTS (UNAUDITED)CONSOLIDATED BALANCE SHEETS
                          3CONSOLIDATED INCOME STATEMENTS
                          4CONSOLIDATED STATEMENT OF STOCKHOLDERS’
      EQUITY
                          5CONSOLIDATED STATEMENTS OF CASH FLOWS
                          6NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
      STATEMENTS
                          7The
      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
                          12ITEM
      4T.
                          CONTROLS AND PROCEDURES
                          22PART
      II.   OTHER
      INFORMATIONITEM
      1.
                          LEGAL PROCEEDINGS
                          22ITEM
      2.
                          UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS
                          22ITEM
      3.
                          DEFAULTS UPON SENIOR SECURITIES
                          22ITEM
      4.
                          SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS
                          23ITEM
      5.
                          OTHER INFORMATION
                          23ITEM
      6.
                          EXHIBITS
                          23SIGNATURES


2
 Table of Contents


PART
I – FINANCIAL INFORMATION


ITEM
1.    FINANCIAL
STATEMENTS




COMMUNITY WEST BANCSHARES


CONSOLIDATED
BALANCE SHEETS






September 30,
                        2008
                      
                      
                      December 31,
                        2007(unaudited)(in
      thousands)ASSETSCash
      and due from banks
                      
                      $
                      5,118
                      
                      
                      $
                      6,855Federal
      funds sold
                      
                      
                      10,018
                      
                      
                      
                      2,434Cash
      and cash equivalents
                      
                      
                      15,136
                      
                      
                      
                      9,289Time
      deposits in other financial institutions
                      
                      
                      660
                      
                      
                      
                      778Investment
      securities available-for-sale, at fair value; amortized cost of $5,024 at
      September 30, 2008 and $12,711 at December 31, 2007
                      
                      
                      5,041
                      
                      
                      
                      12,664Investment
      securities held-to-maturity, at amortized cost; fair value of $32,965 at
      September  30, 2008 and $25,733 at December 31,
    2007
                      
                      
                      32,942
                      
                      
                      
                      25,617Federal
      Home Loan Bank stock, at cost
                      
                      
                      5,847
                      
                      
                      
                      5,734Federal
      Reserve Bank stock, at cost
                      
                      
                      842
                      
                      
                      
                      812Loans:Loans
      held for sale, at lower of cost or fair value
                      
                      
                      118,396
                      
                      
                      
                      110,415Loans
      held for investment, net of allowance for loan losses of  $6,499
      at September 30, 2008 and $4,412 at December 31, 2007
                      
                      
                      443,867
                      
                      
                      
                      428,750Total
      loans
                      
                      
                      562,263
                      
                      
                      
                      539,165Servicing
      rights
                      
                      
                      1,204
                      
                      
                      
                      1,206Other
      assets acquired through foreclosure, net
                      
                      
                      440
                      
                      
                      
                      150Premises
      and equipment, net
                      
                      
                      3,818
                      
                      
                      
                      3,284Other
      assets
                      
                      
                      11,991
                      
                      
                      
                      11,151TOTAL
      ASSETS
                      
                      $
                      640,184
                      
                      
                      $
                      609,850LIABILITIESDeposits:Non-interest-bearing
      demand
                      
                      $
                      38,239
                      
                      
                      $
                      33,240Interest-bearing
      demand
                      
                      
                      47,317
                      
                      
                      
                      75,016Savings
                      
                      
                      16,780
                      
                      
                      
                      14,905Time
      certificates
                      
                      
                      380,559
                      
                      
                      
                      310,578Total
      deposits
                      
                      
                      482,895
                      
                      
                      
                      433,739Federal
      Home Loan Bank advances
                      
                      
                      100,500
                      
                      
                      
                      121,000Other
      liabilities
                      
                      
                      5,667
                      
                      
                      
                      4,952Total
      liabilities
                      
                      
                      589,062
                      
                      
                      
                      559,691STOCKHOLDERS'
      EQUITYCommon
      stock, no par value; 10,000,000shares
      authorized; 5,915,130 shares issued and outstanding at September 30, 2008
      and 5,894,585 at December 31, 2007
                      
                      
                      31,850
                      
                      
                      
                      31,636Retained
      earnings
                      
                      
                      19,262
                      
                      
                      
                      18,551Accumulated
      other comprehensive income (loss), net
                      
                      
                      10
                      
                      
                      
                      (28
                      )Total
      stockholders' equity
                      
                      
                      51,122
                      
                      
                      
                      50,159TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                      
                      $
                      640,184
                      
                      
                      $
                      609,850





See
accompanying notes.


3
 Table of Contents


COMMUNITY WEST BANCSHARES


CONSOLIDATED
INCOME STATEMENTS (UNAUDITED)








Three
      Months Ended September 30,
                    
                    
                    Nine
      Months Ended September 30,2008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007(dollars
      in thousands, except per share amounts)INTEREST
      INCOMELoans
                    
                    $
                    10,691
                    
                    
                    $
                    11,341
                    
                    
                    $
                    32,771
                    
                    
                    $
                    32,706Investment
      securities
                    
                    
                    568
                    
                    
                    
                    504
                    
                    
                    
                    1,723
                    
                    
                    
                    1,407Other
                    
                    
                    77
                    
                    
                    
                    185
                    
                    
                    
                    233
                    
                    
                    
                    589Total
      interest income
                    
                    
                    11,336
                    
                    
                    
                    12,030
                    
                    
                    
                    34,727
                    
                    
                    
                    34,702INTEREST
      EXPENSEDeposits
                    
                    
                    4,341
                    
                    
                    
                    4,631
                    
                    
                    
                    13,165
                    
                    
                    
                    13,174Other
      borrowings
                    
                    
                    1,221
                    
                    
                    
                    1,246
                    
                    
                    
                    3,824
                    
                    
                    
                    3,636Total
      interest expense
                    
                    
                    5,562
                    
                    
                    
                    5,877
                    
                    
                    
                    16,989
                    
                    
                    
                    16,810NET
      INTEREST INCOME
                    
                    
                    5,774
                    
                    
                    
                    6,153
                    
                    
                    
                    17,738
                    
                    
                    
                    17,892Provision
      for loan losses
                    
                    
                    652
                    
                    
                    
                    547
                    
                    
                    
                    3,856
                    
                    
                    
                    769NET
      INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
                    
                    
                    5,122
                    
                    
                    
                    5,606
                    
                    
                    
                    13,882
                    
                    
                    
                    17,123NON-INTEREST
      INCOMEOther
      loan fees
                    
                    
                    555
                    
                    
                    
                    587
                    
                    
                    
                    1,781
                    
                    
                    
                    2,132Gains
      from loan sales, net
                    
                    
                    389
                    
                    
                    
                    361
                    
                    
                    
                    1,007
                    
                    
                    
                    693Document
      processing fees
                    
                    
                    155
                    
                    
                    
                    189
                    
                    
                    
                    557
                    
                    
                    
                    561Other
                    
                    
                    99
                    
                    
                    
                    75
                    
                    
                    
                    907
                    
                    
                    
                    403Total
      non-interest income
                    
                    
                    1,198
                    
                    
                    
                    1,212
                    
                    
                    
                    4,252
                    
                    
                    
                    3,789NON-INTEREST
      EXPENSESSalaries
      and employee benefits
                    
                    
                    3,254
                    
                    
                    
                    3,383
                    
                    
                    
                    10,341
                    
                    
                    
                    10,626Occupancy
      and equipment expenses
                    
                    
                    619
                    
                    
                    
                    551
                    
                    
                    
                    1,759
                    
                    
                    
                    1,537Professional
      services
                    
                    
                    213
                    
                    
                    
                    266
                    
                    
                    
                    618
                    
                    
                    
                    746Advertising
      and marketing
                    
                    
                    106
                    
                    
                    
                    205
                    
                    
                    
                    362
                    
                    
                    
                    533Depreciation
      and amortization
                    
                    
                    100
                    
                    
                    
                    131
                    
                    
                    
                    391
                    
                    
                    
                    370Other
      operating expenses
                    
                    
                    862
                    
                    
                    
                    618
                    
                    
                    
                    2,176
                    
                    
                    
                    1,844Total
      non-interest expenses
                    
                    
                    5,154
                    
                    
                    
                    5,154
                    
                    
                    
                    15,647
                    
                    
                    
                    15,656Income
      before provision for income taxes
                    
                    
                    1,166
                    
                    
                    
                    1,664
                    
                    
                    
                    2,487
                    
                    
                    
                    5,256Provision
      for income taxes
                    
                    
                    491
                    
                    
                    
                    701
                    
                    
                    
                    1,067
                    
                    
                    
                    2,215NET
      INCOME
                    
                    $
                    675
                    
                    
                    $
                    963
                    
                    
                    $
                    1,420
                    
                    
                    $
                    3,041INCOME
      PER SHARE – BASIC
                    
                    $
                    .11
                    
                    
                    $
                    .16
                    
                    
                    $
                    .24
                    
                    
                    $
                    .52INCOME
      PER SHARE – DILUTED
                    
                    $
                    .11
                    
                    
                    $
                    .16
                    
                    
                    $
                    .24
                    
                    
                    $
                    .50Basic
      weighted average number of common shares outstanding
                    
                    
                    5,915
                    
                    
                    
                    5,877
                    
                    
                    
                    5,912
                    
                    
                    
                    5,852Diluted
      weighted average number of common shares outstanding
                    
                    
                    5,918
                    
                    
                    
                    6,009
                    
                    
                    
                    5,955
                    
                    
                    
                    6,027





See
accompanying notes.


4
 Table of Contents


COMMUNITY WEST BANCSHARES


CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY


(UNAUDITED)








Common
      Stock
                        Shares
                      
                      
                      Amount
                      
                      
                      Retained
                        Earnings
                      
                      
                      Accumulated
                        Other
                        Comprehensive
                        Income (Loss)
                      
                      
                      Total
                        Stockholders’
                        Equity(in
      thousands)BALANCES
      AT JANUARY 1, 2008
                      
                      
                      5,895
                      
                      
                      $
                      31,636
                      
                      
                      $
                      18,551
                      
                      
                      $
                      (28
                      )
                      
                      $
                      50,159Exercise
      of stock options
                      
                      
                      20
                      
                      
                      
                      105
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      105Stock-based
      compensation
                      
                      
                      
                      
                      
                      
                      109
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      109Comprehensive
      income:Net
      income
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      1,420
                      
                      
                      
                      
                      
                      
                      
                      1,420Change
      in unrealized gains on securities Available-for-sale
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      38
                      
                      
                      
                      38Total
      comprehensive income
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      1,458Cash
      dividends paid ($0.12 per share)
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (709
                      )
                      
                      
                      
                      
                      
                      
                      (709
                      )BALANCES
      AT SEPTEMBER 30, 2008
                      
                      
                      5,915
                      
                      
                      $
                      31,850
                      
                      
                      $
                      19,262
                      
                      
                      $
                      10
                      
                      
                      $
                      51,122





See
accompanying notes.


5
 Table of Contents


COMMUNITY WEST BANCSHARES


CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)








Nine
      Months Ended September 30,2008
                  
                  
                  2007(in
      thousands)CASH FLOWS FROM OPERATING
      ACTIVITIES:Net
      income
                  
                  $
                  1,420
                  
                  
                  $
                  3,041Adjustments
      to reconcile net income to net cash provided by operating
      activities:Provision
      for loan losses
                  
                  
                  3,856
                  
                  
                  
                  769Write-down
      of other assets acquired through foreclosure
                  
                  
                  -
                  
                  
                  
                  54Depreciation
      and amortization
                  
                  
                  391
                  
                  
                  
                  370Stock-based
      compensation
                  
                  
                  109
                  
                  
                  
                  125Net
      amortization of discounts and premiums for investment
      securities
                  
                  
                  (59
                  )
                  
                  
                  (10
                  )Gains
      on  sale of loans
                  
                  
                  (1,007
                  )
                  
                  
                  (693
                  )(Gains)
      losses on  sale of other assets acquired through
      foreclosure
                  
                  
                  (198
                  )
                  
                  
                  13Federal
      Home Loan Bank stock dividend
                  
                  
                  (245
                  )
                  
                  
                  (177
                  )Loans
      originated for sale and principal collections, net
                  
                  
                  354
                  
                  
                  
                  1,729Changes
      in:Servicing
      rights, net of amortization and valuation adjustments
                  
                  
                  2
                  
                  
                  
                  585Other
      assets
                  
                  
                  (904
                  )
                  
                  
                  (1,502
                  )Other
      liabilities
                  
                  
                  753
                  
                  
                  
                  984Net
      cash provided by operating activities
                  
                  
                  4,472
                  
                  
                  
                  5,288CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of held-to-maturity securities
                  
                  
                  (12,899
                  )
                  
                  
                  (7,881
                  )Purchase
      of Federal Home Loan Bank and Federal Reserve stock, net of
      redemptions
                  
                  
                  102
                  
                  
                  
                  (481
                  )Principal
      paydowns and maturities of held-to-maturity securities
                  
                  
                  5,631
                  
                  
                  
                  2,185Principal
      paydowns and maturities of available-for-sale securities
                  
                  
                  7,689
                  
                  
                  
                  1,855Loan
      originations and principal collections, net
                  
                  
                  (27,085
                  )
                  
                  
                  (55,499
                  )Proceeds
      from sale of other assets acquired through foreclosure
                  
                  
                  692
                  
                  
                  
                  7Net
      decrease (increase) in time deposits in other financial
      institutions
                  
                  
                  118
                  
                  
                  
                  (118
                  )Purchase
      of premises and equipment, net
                  
                  
                  (925
                  )
                  
                  
                  (681
                  )Net
      cash used in investing activities
                  
                  
                  (26,677
                  )
                  
                  
                  (60,613
                  )CASH FLOWS FROM FINANCING
      ACTIVITIES:Exercise
      of stock options
                  
                  
                  105
                  
                  
                  
                  412Cash
      dividends paid to shareholders
                  
                  
                  (709
                  )
                  
                  
                  (1,053
                  )Net
      (decrease) increase in demand deposits and savings
accounts
                  
                  
                  (20,825
                  )
                  
                  
                  30,230Net
      increase in time certificates of deposit
                  
                  
                  69,981
                  
                  
                  
                  16,631Proceeds
      from Federal Home Loan Bank Advances
                  
                  
                  9,000
                  
                  
                  
                  45,000Repayments
      of Federal Home Loan Bank Advances
                  
                  
                  (29,500
                  )
                  
                  
                  (31,000
                  )Net
      cash provided by financing activities
                  
                  
                  28,052
                  
                  
                  
                  60,220NET
      INCREASE IN CASH AND CASH EQUIVALENTS
                  
                  
                  5,847
                  
                  
                  
                  4,895CASH
      AND CASH EQUIVALENTS, BEGINNING OF PERIOD
                  
                  
                  9,289
                  
                  
                  
                  11,343CASH
      AND CASH EQUIVALENTS, END OF PERIOD
                  
                  $
                  15,136
                  
                  
                  $
                  16,238Supplemental
      Disclosure of Cash Flow Information:Cash
      paid for interest
                  
                  $
                  14,703
                  
                  
                  $
                  14,844Cash
      paid for income taxes
                  
                  
                  2,538
                  
                  
                  
                  3,203Supplemental
      Disclosure of Noncash Investing Activity:Transfers
      to other assets acquired through foreclosure
                  
                  $
                  784
                  
                  
                  $
                  51




See
accompanying notes.


6
 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 nine-month period ended September 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.


7
 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 nine 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
September 30, 2008 and December 31, 2007, the Company had approximately $117.1
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 September 30, 2008
and December 31, 2007, the Company had $5.3 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.


8
 Table of Contents




3. 
LOANS HELD FOR INVESTMENT




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


September 30,
                      2008
                    
                    
                    December 31,
                      2007(in
      thousands)Commercial
                    
                    $
                    74,136
                    
                    
                    $
                    72,470Real
      estate
                    
                    
                    130,448
                    
                    
                    
                    136,734SBA
                    
                    
                    39,455
                    
                    
                    
                    34,021Manufactured
      housing
                    
                    
                    187,053
                    
                    
                    
                    172,938Securitized
                    
                    
                    6,047
                    
                    
                    
                    7,507Other
      installment
                    
                    
                    13,847
                    
                    
                    
                    10,027450,986
                    
                    
                    
                    433,697Less:Allowance
      for loan losses
                    
                    
                    6,499
                    
                    
                    
                    4,412Deferred
      fees, net of costs
                    
                    
                    (168
                    )
                    
                    
                    25Purchased
      premiums on securitized loans
                    
                    
                    (48
                    )
                    
                    
                    (73
                    )Discount
      on SBA loans
                    
                    
                    836
                    
                    
                    
                    583Loans
      held for investment, net
                    
                    $
                    443,867
                    
                    
                    $
                    428,750




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




Three
      Months Ended September 30,
                
                
                Nine
      Months Ended September 30,2008
                
                
                2007
                
                
                2008
                
                
                2007(in
      thousands)Balance,
      beginning of period
                
                $
                6,423
                
                
                $
                4,047
                
                
                $
                4,412
                
                
                $
                3,926Loans
      charged off
                
                
                (588
                )
                
                
                (319
                )
                
                
                (1,831
                )
                
                
                (499
                )Recoveries
      on loans previously charged off
                
                
                12
                
                
                
                18
                
                
                
                62
                
                
                
                97Net
      charge-offs
                
                
                (576
                )
                
                
                (301
                )
                
                
                (1,769
                )
                
                
                (402
                )Provision
      for loan losses
                
                
                652
                
                
                
                547
                
                
                
                3,856
                
                
                
                769Balance,
      end of period
                
                $
                6,499
                
                
                $
                4,293
                
                
                $
                6,499
                
                
                $
                4,293




As of
September 30, 2008 and December 31, 2007, the Company also had reserves for
credit losses on undisbursed loans of $106,000 and $73,000
respectively.




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




September 30,
                      2008
                    
                    
                    December 31,
                      2007(in
      thousands)Impaired
      loans without specific valuation allowances
                    
                    $
                    -
                    
                    
                    $
                    33Impaired
      loans with specific valuation allowances
                    
                    
                    8,772
                    
                    
                    
                    16,468Specific
      valuation allowances allocated to impaired loans
                    
                    
                    (160
                    )
                    
                    
                    (966
                    )Impaired
      loans, net
                    
                    $
                    8,612
                    
                    
                    $
                    15,535Average
      investment in impaired loans
                    
                    $
                    9,935
                    
                    
                    $
                    9,386


9
 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 September 30, 2008 and the relative levels of inputs from
which such amounts were derived:




Fair
      value measurements at reporting date usingQuoted
      prices in active markets for identical assets
                    
                    
                    Significant
      other observable inputs
                    
                    
                    Significant
      unobservable inputsDescription
                    
                    Total
                    
                    
                    (Level
      1)
                    
                    
                    (Level
      2)
                    
                    
                    (Level
      3)(in
      thousands)Investment
      securities available-for-sale
                    
                    $
                    5,041
                    
                    
                    $
                    -
                    
                    
                    $
                    5,041
                    
                    
                    $
                    -Interest
      only strips (included in other assets)
                    
                    
                    579
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    579Total
                    
                    $
                    5,620
                    
                    
                    $
                    -
                    
                    
                    $
                    5,041
                    
                    
                    $
                    579




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 $94,000 and $206,000 were recorded in income for the three and
nine months ended September 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.  For loans
secured by real estate or other assets which are dependent upon liquidation of
collateral for repayment, impairment is measured based on the fair value of the
underlying collateral and are classified as Level 2.  The collateral
value is determined based on appraisals and other market valuations for similar
assets.  For loans classified as Level 3, impairment is measured based
on the net present value of future cash flow.




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




Fair
      value measurements at reporting date usingQuoted
      prices in active markets for identical assets
                    
                    
                    Significant
      other observable inputs
                    
                    
                    Significant
      unobservable inputsDescription
                    
                    Total
                    
                    
                    (Level
      1)
                    
                    
                    (Level
      2)
                    
                    
                    (Level
      3)(in
      thousands)Impaired
      loans
                    
                    $
                    8,612
                    
                    
                    $
                    -
                    
                    
                    $
                    8,225
                    
                    
                    $
                    387


10
 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 September 30,
                  
                  
                  Nine
      Months Ended September 30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007(dollars
      in thousands except per share amounts)Weighted
      average shares – Basic
                  
                  
                  5,915
                  
                  
                  
                  5,877
                  
                  
                  
                  5,912
                  
                  
                  
                  5,852Dilutive
      effect of options
                  
                  
                  3
                  
                  
                  
                  132
                  
                  
                  
                  43
                  
                  
                  
                  175Weighted
      average shares – Diluted
                  
                  
                  5,918
                  
                  
                  
                  6,009
                  
                  
                  
                  5,955
                  
                  
                  
                  6,027Net
      income
                  
                  $
                  675
                  
                  
                  $
                  963
                  
                  
                  $
                  1,420
                  
                  
                  $
                  3,041Earnings
      per share – Basic
                  
                  
                  .11
                  
                  
                  
                  .16
                  
                  
                  
                  .24
                  
                  
                  
                  .52Earnings
      per share – Diluted
                  
                  
                  .11
                  
                  
                  
                  .16
                  
                  
                  
                  .24
                  
                  
                  
                  .50






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 $100.5
million and $121.0 million at September 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 September 30, 2008 and December 31, 2007, CWB had
securities pledged to FHLB of $38.0 million at carrying value and loans of
$141.2 million, and $38.1 million at carrying value and loans of $150.0 million,
respectively. Total FHLB interest expense for the nine months ended September
30, 2008 and 2007 was $3.8 million and $3.6 million, respectively.  At
September 30, 2008, CWB had $20.0 million available for additional borrowings
with the FHLB.






7. 
SUBSEQUENT EVENT




On
November 12, 2008, the Company received preliminary approval to participate in
the U.S. Treasury’s (Treasury) Troubled Asset Relief Program (TARP) and its
Capital Purchase Program (CPP) up to 3% of the Bank’s risk-weighted
assets.  As of September 30, 2008, the Bank had $520.1 million of
risk-weighted assets; therefore, the expected amount of capital to be received
under the CPP will not exceed $15.6 million, to be issued to the Treasury as
Senior Preferred shares, and will pay a dividend of 5% for the first five years
and 9% thereafter.  In connection therewith, the Company will issue to
the Treasury warrants to purchase common stock with an aggregate market price
equal to 15% of the Senior Preferred shares.  The Company is in
process of obtaining shareholder approval to amend its Articles of Incorporation
to allow for the issuance of preferred shares.


11
 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 net income of $675,000, or $.11 per diluted share, for the
third quarter 2008 compared to net income of $963,000, or $0.16 per diluted
share, for the third quarter 2007.




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




·
            a
      decline in interest income from loans of $650,000 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 $77.5 million for the third quarter 2008 compared
      to 2007




·
            a
      275 basis point cut in the target federal funds rate from 4.75% at
      September 30, 2007 to 2.00% as of September 30, 2008, impacting both
      yields on loans and rates paid on deposits and contributing to a 79 basis
      point decline in net interest margin from 4.39% to
  3.60%




·
            loan
      loss provision of $652,000 for the third 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




·
            relatively
      flat  non-interest income and non-interest expenses for the
      third 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 Annual Report on Form 10-K with a description of
how the estimates are determined and an indication of the consequences of an
over or under estimate.


12
 Table of Contents




Results of Operations – Third 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
                            September 30,
                          
                          
                          Increase2008
                          
                          
                          2007
                          
                          
                          (Decrease)(dollars
      in thousands, except per share amounts)Interest
      income
                          
                          $
                          11,336
                          
                          
                          $
                          12,030
                          
                          
                          $
                          (694
                          )Interest
      expense
                          
                          
                          5,562
                          
                          
                          
                          5,877
                          
                          
                          
                          (315
                          )Net
      interest income
                          
                          
                          5,774
                          
                          
                          
                          6,153
                          
                          
                          
                          (379
                          )Provision
      for loan losses
                          
                          
                          652
                          
                          
                          
                          547
                          
                          
                          
                          105Net
      interest income after provision for loan losses
                          
                          
                          5,122
                          
                          
                          
                          5,606
                          
                          
                          
                          (484
                          )Non-interest
      income
                          
                          
                          1,198
                          
                          
                          
                          1,212
                          
                          
                          
                          (14
                          )Non-interest
      expenses
                          
                          
                          5,154
                          
                          
                          
                          5,154
                          
                          
                          
                          -Income
      before provision for income taxes
                          
                          
                          1,166
                          
                          
                          
                          1,664
                          
                          
                          
                          (498
                          )Provision
      for income taxes
                          
                          
                          491
                          
                          
                          
                          701
                          
                          
                          
                          (210
                          )Net
      income
                          
                          $
                          675
                          
                          
                          $
                          963
                          
                          
                          $
                          (288
                          )Income
      per share – Basic
                          
                          $
                          .11
                          
                          
                          $
                          .16
                          
                          
                          $
                          (.05
                          )Income
      per share – Diluted
                          
                          $
                          .11
                          
                          
                          $
                          .16
                          
                          
                          $
                          (.05
                          )Comprehensive
      income
                          
                          $
                          692
                          
                          
                          $
                          1,012
                          
                          
                          $
                          (320
                          )




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




Three
      Months Ended
                                    September 30,2008
      versus 2007Total
                                  
                                  
                                  Change due tochange
                                  
                                  
                                  Rate
                                  
                                  
                                  Volume(in
      thousands)Loans,
      net
                                  
                                  $
                                  (650
                                  )
                                  
                                  $
                                  (2,001
                                  )
                                  
                                  $
                                  1,351Investment
      securities
                                  
                                  
                                  64
                                  
                                  
                                  
                                  11
                                  
                                  
                                  
                                  53Other
                                  
                                  
                                  (108
                                  )
                                  
                                  
                                  (115
                                  )
                                  
                                  
                                  7Total
      interest-earning assets
                                  
                                  
                                  (694
                                  )
                                  
                                  
                                  (2,105
                                  )
                                  
                                  
                                  1,411Deposits
                                  
                                  
                                  (290
                                  )
                                  
                                  
                                  (1,196
                                  )
                                  
                                  
                                  906Other
      borrowings
                                  
                                  
                                  (25
                                  )
                                  
                                  
                                  (68
                                  )
                                  
                                  
                                  43Total
      interest-bearing liabilities
                                  
                                  
                                  (315
                                  )
                                  
                                  
                                  (1,264
                                  )
                                  
                                  
                                  949Net
      interest income
                                  
                                  $
                                  (379
                                  )
                                  
                                  $
                                  (841
                                  )
                                  
                                  $
                                  462





Net Interest
Income


Net
interest income declined by $379,000 for the third quarter 2008 compared to
2007.  Total interest income declined by $694,000.  While
average interest earning assets grew to $637.3 million for the third quarter
2008 compared to $555.4 million for the same period in 2007, an increase of
$81.9 million, yields declined to 7.08% from 8.59% and the net interest margin
declined 79 basis points from 4.39% to 3.60%.  The decline in interest
income due to rates of $2.1 million exceeded the increase of $1.4 million due to
volume growth.




The
decline in rates benefited the Bank in a reduction in interest expense of
$315,000.  The decline due to rates of $1.3 million was partly offset
by the increase due to deposit growth and borrowing volume of $949,000 for the
third 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 4.75% at September 30, 2007 to 2.00% at September 30, 2008, for
asset-sensitive institutions,  tended to reduce yields on interest
earning assets more quickly than rates paid on interest bearing liabilities,
primarily deposits.




Provision for Loan
Losses


The
provision for loan losses increased to $652,000 for the third quarter 2008
reflecting management’s assessment of increased credit risk for the Company
related to weaknesses in our portfolio identified by management as well as 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
implementing policies and procedures developed to assist in identifying
weaknesses in its portfolio.  The Bank has also enhanced underwriting
standards as necessary to prudently reflect the dynamics of the current economic
outlook.


13
 Table of Contents


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. Non-interest income remained flat for the third
quarter of 2008 compared to the same period in 2007, declining by
$14,000.




Non-Interest
Expenses


Non-interest
expenses remained flat for the third quarter 2008 compared to 2007 reflecting
management’s continuing efforts to control costs.




Results
of Operations –Nine-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:




Nine
      Months Ended
                          September 30,
                        
                        
                        Increase2008
                        
                        
                        2007
                        
                        
                        (Decrease)(dollars
      in thousands, except per share amounts)Interest
      income
                        
                        $
                        34,727
                        
                        
                        $
                        34,702
                        
                        
                        $
                        25Interest
      expense
                        
                        
                        16,989
                        
                        
                        
                        16,810
                        
                        
                        
                        179Net
      interest income
                        
                        
                        17,738
                        
                        
                        
                        17,892
                        
                        
                        
                        (154
                        )Provision
      for loan losses
                        
                        
                        3,856
                        
                        
                        
                        769
                        
                        
                        
                        3,087Net
      interest income after provision for loan losses
                        
                        
                        13,882
                        
                        
                        
                        17,123
                        
                        
                        
                        (3,241
                        )Non-interest
      income
                        
                        
                        4,252
                        
                        
                        
                        3,789
                        
                        
                        
                        463Non-interest
      expenses
                        
                        
                        15,647
                        
                        
                        
                        15,656
                        
                        
                        
                        (9
                        )Income
      before provision for income taxes
                        
                        
                        2,487
                        
                        
                        
                        5,256
                        
                        
                        
                        (2,769
                        )Provision
      for income taxes
                        
                        
                        1,067
                        
                        
                        
                        2,215
                        
                        
                        
                        (1,148
                        )Net
      income
                        
                        $
                        1,420
                        
                        
                        $
                        3,041
                        
                        
                        $
                        (1,621
                        )Income
      per share – Basic
                        
                        $
                        .24
                        
                        
                        $
                        .52
                        
                        
                        $
                        (.28
                        )Income
      per share – Diluted
                        
                        $
                        .24
                        
                        
                        $
                        .50
                        
                        
                        $
                        (.26
                        )Comprehensive
      income
                        
                        $
                        1,458
                        
                        
                        $
                        3,114
                        
                        
                        $
                        (1,656
                        )




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




Nine
      Months Ended
                                September 30,2008
      versus 2007Total
                              
                              
                              Change due tochange
                              
                              
                              Rate
                              
                              
                              Volume(in
      thousands)Loans,
      net
                              
                              $
                              65
                              
                              
                              $
                              (4,471
                              )
                              
                              $
                              4,536Investment
      securities
                              
                              
                              316
                              
                              
                              
                              92
                              
                              
                              
                              224Other
                              
                              
                              (356
                              )
                              
                              
                              (303
                              )
                              
                              
                              (53
                              )Total
      interest-earning assets
                              
                              
                              25
                              
                              
                              
                              (4,682
                              )
                              
                              
                              4,707Deposits
                              
                              
                              (9
                              )
                              
                              
                              (2,360
                              )
                              
                              
                              2,351Other
      borrowings
                              
                              
                              188
                              
                              
                              
                              (208
                              )
                              
                              
                              396Total
      interest-bearing liabilities
                              
                              
                              179
                              
                              
                              
                              (2,568
                              )
                              
                              
                              2,747Net
      interest income
                              
                              $
                              (154
                              )
                              
                              $
                              (2,114
                              )
                              
                              $
                              1,960


14
 Table of Contents




Net Interest
Income


Net
interest income declined by $154,000 for the first nine months of 2008 compared
to 2007.  Total interest income increased $25,000 for the period ended
September 30, 2008 compared to the same period in 2007.  The increase
of $4.7 million due to growth in average earning assets was offset by a $4.7
million decline due to lower rates.  For the first nine months of
2008, average earning assets were $623.4 million compared to $538.5 million for
the same period in 2007, an increase of 15.8%.  This growth was offset
by the decline in yield on interest earning assets to 7.44% for the first nine
months of 2008 from 8.62% for 2007 and a corresponding 64 basis point decline in
net interest margin from 4.44% to 3.80%.




Interest
expense increased $179,000, or 1.1%, for the first nine months of 2008 compared
to 2007.  The increase due to volume of $2.7 million was mostly offset
due to a decline of 2.6 million attributable to lower rates paid on deposits and
borrowings.   Rates paid on interest bearing liabilities declined
from 4.83% for the first nine months on 2007 to 4.15% for the same period of
2008.




Provision for Loan
Losses


The
provision for loan losses increased to $3.9 million for the first nine months of
2008 compared to $769,000 for the same period of 2007.  This increase
reflected management’s assessment of increased credit risk for the Company
related to weaknesses in our portfolio identified by management as well as 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
implementing policies and procedures developed to assist in identifying
weaknesses in its loan portfolio.  The Bank also 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 nine months of 2008 increased by $463,000 over the same
period of 2008 primarily due to an increase of $314,000 in gains on loans sales
and the net gain on the sale of other foreclosed assets of $198,000 included in
other income.  The Company sold $19.7 million in guaranteed SBA loans
and $1.7 million in unguaranteed SBA loans for the first nine months of 2008
compared to $5.3 million in guaranteed and $3.5 million in unguaranteed for the
same period of 2007.  Loan servicing income also increased $312,000
due to lower amortization of the servicing asset and I/O strip.  These
increases were partly offset by a decline of $351,000 in other loan
fees.




Non-Interest
Expenses


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


15
 Table of Contents




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,
                  
                  
                  Nine
      Months
                    Ended
      September 30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Interest-earning
      assets:
                  
                  (dollars
      in thousands)Interest-earning
      deposits in other financial institutions:Average
      balance
                  
                  $
                  1,016
                  
                  
                  $
                  1,035
                  
                  
                  $
                  1,008
                  
                  
                  $
                  900Interest
      income
                  
                  
                  10
                  
                  
                  
                  11
                  
                  
                  
                  29
                  
                  
                  
                  30Average
      yield
                  
                  
                  3.81
                  %
                  
                  
                  4.04
                  %
                  
                  
                  3.78
                  %
                  
                  
                  4.45
                  %Federal
      funds sold:Average
      balance
                  
                  $
                  13,315
                  
                  
                  $
                  13,161
                  
                  
                  $
                  11,189
                  
                  
                  $
                  14,240Interest
      income
                  
                  
                  67
                  
                  
                  
                  174
                  
                  
                  
                  204
                  
                  
                  
                  559Average
      yield
                  
                  
                  2.04
                  %
                  
                  
                  5.24
                  %
                  
                  
                  2.45
                  %
                  
                  
                  5.25
                  %Investment
      securities:Average
      balance
                  
                  $
                  45,336
                  
                  
                  $
                  41,032
                  
                  
                  $
                  45,310
                  
                  
                  $
                  39,412Interest
      income
                  
                  
                  568
                  
                  
                  
                  504
                  
                  
                  
                  1,723
                  
                  
                  
                  1,407Average
      yield
                  
                  
                  4.98
                  %
                  
                  
                  4.87
                  %
                  
                  
                  5.08
                  %
                  
                  
                  4.77
                  %Gross
      loans:Average
      balance
                  
                  $
                  577,682
                  
                  
                  $
                  500,213
                  
                  
                  $
                  565,942
                  
                  
                  $
                  483,914Interest
      income
                  
                  
                  10,691
                  
                  
                  
                  11,341
                  
                  
                  
                  32,771
                  
                  
                  
                  32,706Average
      yield
                  
                  
                  7.36
                  %
                  
                  
                  9.00
                  %
                  
                  
                  7.73
                  %
                  
                  
                  9.04
                  %Total
      interest-earning assets:Average
      balance
                  
                  $
                  637,349
                  
                  
                  $
                  555,441
                  
                  
                  $
                  623,449
                  
                  
                  $
                  538,466Interest
      income
                  
                  
                  11,336
                  
                  
                  
                  12,030
                  
                  
                  
                  34,727
                  
                  
                  
                  34,702Average
      yield
                  
                  
                  7.08
                  %
                  
                  
                  8.59
                  %
                  
                  
                  7.44
                  %
                  
                  
                  8.62
                  %Interest-bearing
      liabilities:Interest-bearing
      demand deposits:Average
      balance
                  
                  $
                  51,391
                  
                  
                  $
                  74,417
                  
                  
                  $
                  60,735
                  
                  
                  $
                  61,658Interest
      expense
                  
                  
                  245
                  
                  
                  
                  720
                  
                  
                  
                  922
                  
                  
                  
                  1,678Average
      cost of funds
                  
                  
                  1.89
                  %
                  
                  
                  3.84
                  %
                  
                  
                  2.03
                  %
                  
                  
                  3.64
                  %Savings
      deposits:Average
      balance
                  
                  $
                  15,821
                  
                  
                  $
                  16,160
                  
                  
                  $
                  14,843
                  
                  
                  $
                  15,678Interest
      expense
                  
                  
                  128
                  
                  
                  
                  149
                  
                  
                  
                  386
                  
                  
                  
                  415Average
      cost of funds
                  
                  
                  3.21
                  %
                  
                  
                  3.66
                  %
                  
                  
                  3.47
                  %
                  
                  
                  3.54
                  %Time
      certificates of deposit:Average
      balance
                  
                  $
                  387,457
                  
                  
                  $
                  289,422
                  
                  
                  $
                  362,121
                  
                  
                  $
                  289,232Interest
      expense
                  
                  
                  3,968
                  
                  
                  
                  3,762
                  
                  
                  
                  11,857
                  
                  
                  
                  11,081Average
      cost of funds
                  
                  
                  4.07
                  %
                  
                  
                  5.16
                  %
                  
                  
                  4.37
                  %
                  
                  
                  5.12
                  %Other
      borrowings:Average
      balance
                  
                  $
                  104,550
                  
                  
                  $
                  100,833
                  
                  
                  $
                  109,695
                  
                  
                  $
                  98,340Interest
      expense
                  
                  
                  1,221
                  
                  
                  
                  1,246
                  
                  
                  
                  3,824
                  
                  
                  
                  3,636Average
      cost of funds
                  
                  
                  4.65
                  %
                  
                  
                  4.90
                  %
                  
                  
                  4.66
                  %
                  
                  
                  4.94
                  %Total
      interest-bearing liabilities:Average
      balance
                  
                  $
                  559,219
                  
                  
                  $
                  480,832
                  
                  
                  $
                  547,394
                  
                  
                  $
                  464,908Interest
      expense
                  
                  
                  5,562
                  
                  
                  
                  5,877
                  
                  
                  
                  16,989
                  
                  
                  
                  16,810Average
      cost of funds
                  
                  
                  3.96
                  %
                  
                  
                  4.85
                  %
                  
                  
                  4.15
                  %
                  
                  
                  4.83
                  %Net
      interest income
                  
                  $
                  5,774
                  
                  
                  $
                  6,153
                  
                  
                  $
                  17,738
                  
                  
                  $
                  17,892Net
      interest spread
                  
                  
                  3.12
                  %
                  
                  
                  3.74
                  %
                  
                  
                  3.29
                  %
                  
                  
                  3.79
                  %Net
      interest margin
                  
                  
                  3.60
                  %
                  
                  
                  4.39
                  %
                  
                  
                  3.80
                  %
                  
                  
                  4.44
                  %


16
 Table of Contents


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.




Financial
Condition




Average
total assets increased by $84.9 million, or 15.3%, to $638.9 million at
September 30, 2008 compared to $553.9 million at September 30,
2007.  Average total equity increased by 5.5% to $51.3 million at
September 30, 2008 from $48.6 million at September 30, 2007.  Average
total gross loans at September 30, 2008 increased by $82.0 million, or 17.0%, to
$565.9 million from $483.9 million at September 30, 2007.  Average
deposits also increased from $401.2 million at September 30, 2007 to $472.9
million as of September 30, 2008.




The book
value per share increased to $8.64 at September 30, 2008 from $8.51 at December
31, 2007.




Selected
      balance sheet accounts
                  (dollars
      in thousands)
                
                September 30,
                  2008
                
                
                December 31,
      2007
                
                
                Increase
      (Decrease)
                
                
                Percent
      of Increase (Decrease)Cash
      and cash equivalents
                
                $
                15,136
                
                
                $
                9,289
                
                
                $
                5,847
                
                
                
                62.9
                %Investment
      securities available-for-sale
                
                
                5,041
                
                
                
                12,664
                
                
                
                (7,623
                )
                
                
                (60.2
                %)Investment
      securities held-to-maturity
                
                
                32,942
                
                
                
                25,617
                
                
                
                7,325
                
                
                
                28.6
                %Loans-held
      for sale
                
                
                118,396
                
                
                
                110,415
                
                
                
                7,981
                
                
                
                7.2
                %Loans-held
      for investment, net
                
                
                443,867
                
                
                
                428,750
                
                
                
                15,117
                
                
                
                3.5
                %Total
      Assets
                
                
                640,184
                
                
                
                609,850
                
                
                
                30,334
                
                
                
                5.0
                %Total
      Deposits
                
                
                482,895
                
                
                
                433,739
                
                
                
                49,156
                
                
                
                11.3
                %Federal
      Home Loan Bank advances
                
                
                100,500
                
                
                
                121,000
                
                
                
                (20,500
                )
                
                
                (16.9
                %)Total
      Stockholders' Equity
                
                
                51,122
                
                
                
                50,159
                
                
                
                963
                
                
                
                1.9
                %




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




September 30,
                        2008
                      
                      
                      December 31,
                        2007
                      
                      
                      Increase
      (Decrease)
                      
                      
                      Percent
      of Increase (Decrease)(dollars
      in thousands)Non-interest-bearing
      deposits
                      
                      $
                      38,239
                      
                      
                      $
                      33,240
                      
                      
                      $
                      4,999
                      
                      
                      
                      15.0
                      %Interest-bearing
      deposits
                      
                      
                      47,317
                      
                      
                      
                      75,016
                      
                      
                      
                      (27,699
                      )
                      
                      
                      (36.9
                      %)Savings
                      
                      
                      16,780
                      
                      
                      
                      14,905
                      
                      
                      
                      1,875
                      
                      
                      
                      12.6
                      %Time
      certificates of $100,000 or more
                      
                      
                      93,340
                      
                      
                      
                      60,782
                      
                      
                      
                      32,558
                      
                      
                      
                      53.6
                      %Other
      time certificates
                      
                      
                      287,219
                      
                      
                      
                      249,796
                      
                      
                      
                      37,423
                      
                      
                      
                      15.0
                      %Total
      deposits
                      
                      $
                      482,895
                      
                      
                      $
                      433,739
                      
                      
                      $
                      49,156
                      
                      
                      
                      11.3
                      %




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.


17
 Table of Contents


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




September 30,
                      2008
                    
                    
                    December 31,
                      2007(in
      thousands)Impaired
      loans without specific valuation allowances
                    
                    $
                    -
                    
                    
                    $
                    33Impaired
      loans with specific valuation allowances
                    
                    
                    8,772
                    
                    
                    
                    16,468Specific
      valuation allowances allocated to impaired loans
                    
                    
                    (160
                    )
                    
                    
                    (966
                    )Impaired
      loans, net
                    
                    $
                    8,612
                    
                    
                    $
                    15,535Average
      investment in impaired loans
                    
                    $
                    9,935
                    
                    
                    $
                    9,386




The
decline in impaired loans from December 31, 2007 to September 30, 2008 was
primarily related to two loans, one on a condominium project and one on raw
land.  The loans were retired with two new loans made by the Bank to
the junior lien holder on the properties after the junior lien holder had
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:




September 30,
                    2008
                  
                  
                  December 31,
                    2007(dollars
      in thousands)Nonaccrual
      loans
                  
                  $
                  20,309
                  
                  
                  $
                  15,341SBA
      guaranteed portion of loans included above
                  
                  
                  (8,303
                  )
                  
                  
                  (5,695
                  )Nonaccrual
      loans, net
                  
                  $
                  12,006
                  
                  
                  $
                  9,646Troubled
      debt restructured loans, gross
                  
                  $
                  5,408
                  
                  
                  $
                  7,255Loans
      30 through 89 days past due with interest accruing
                  
                  $
                  8,377
                  
                  
                  $
                  18,898Allowance
      for loan losses to gross loans
                  
                  
                  1.14
                  %
                  
                  
                  .81
                  %Allowance
      for loan losses to gross loans less SBA guaranteed
                  
                  
                  1.36
                  %
                  
                  
                  .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.  In addition, we are
addressing our adherence to independent appraisal procedures, developing a
program to manage risk in the Bank’s commercial real estate portfolio,
implementing an asset diversification program to monitor credit concentrations
and access risks inherent therein, and continuing to enhance our methods and
procedures to maintain the adequacy of the allowance for loan losses, including:
improving our process for identifying impaired loans, segmenting loans by groups
consistent with accounting standards and monitoring the fair value of collateral
on collateral-dependent loans.




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.


18
 Table of Contents




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.




CWB 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 $100.5
million and $121.0 million at September 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 September 30, 2008 and December 31, 2007, CWB had
securities pledged to FHLB of $38.0 million at carrying value and loans of
$141.2 million, and $38.1 million at carrying value and loans of $150.0 million,
respectively. Total FHLB interest expense for the nine months ended September
30, 2008 and 2007 was $3.8 million and $3.6 million, respectively.  At
September 30, 2008, CWB had $20.0 million available for additional borrowings
with the FHLB.




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
probable occurrence.  The liquidity ratio of the Company was 22% at
September 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.


19
 Table of Contents




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.




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.


20
 Table of Contents




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 September 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 RatioSeptember 30,
      2008CWBC
      (Consolidated)
                    
                    $
                    57,494
                    
                    
                    $
                    50,991
                    
                    
                    $
                    520,088
                    
                    
                    $
                    652,265
                    
                    
                    
                    11.05
                    %
                    
                    
                    9.80
                    %
                    
                    
                    7.82
                    %CWB
                    
                    
                    57,256
                    
                    
                    
                    50,753
                    
                    
                    
                    520,135
                    
                    
                    
                    651,883
                    
                    
                    
                    11.01
                    
                    
                    
                    9.76
                    
                    
                    
                    7.79December 31,
      2007CWBC
      (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
                    
                    
                    
                    7.96Well
      capitalized ratios
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    10.00
                    
                    
                    
                    6.00
                    
                    
                    
                    5.00Minimum
      capital ratios
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    8.00
                    
                    
                    
                    4.00
                    
                    
                    
                    4.00





The
Company is working to further enhance its capital position.  The
United States Department of Treasury (Treasury), under the TARP Capital Purchase
Program (CPP), instituted by the Treasury pursuant to the Emergency Economic
Stabilization Act of 2008, is providing up to $700 billion to the Treasury to
buy mortgages and other assets from financial institutions, investing and taking
equity positions in financial institutions, and establishing programs that will
allow companies to insure their troubled assets.  Under the CPP, the
Treasury will purchase up to $250 billion of senior preferred shares (Senior
Preferred) from qualifying financial institutions to facilitate capital growth
and to increase the flow of financing to U.S. businesses and consumers by
selling shares of Senior Preferred to the Treasury and will be available to U.S.
financial institutions that meet the Program’s eligibility
requirements.  On October 24, 2008, the Company applied to its primary
federal regulator, the Board of Governors of the Federal Reserve System (FRB),
and to the Bank's primary federal regulator, the Office of the Comptroller of
the Currency (OCC) to participate in the CPP up to the full extent
permitted.  Since the CPP allows for up to an amount equal to three
percent (3%) of our total risk-weighted assets, we applied to purchase up to
$15,600,000 in additional capital through the issuance of preferred shares to
the Treasury.  On November 12, 2008, the Company received preliminary
approval for its TARP application.  The Company is taking the action
necessary to meet the CPP’s eligibility requirements, including soliciting
shareholder approval by written consent of an amendment to the Articles of
Incorporation to allow the issuance of preferred shares.  Currently,
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.  No assurances
can be given that the Company will obtain the requisite shareholder approval of
the amendment to its Articles of Incorporation or that the Company will
ultimately participate in the CPP, the approximate number of shares of preferred
stock that the Company may issue pursuant to the CPP or the approximate amount
of consideration the Company will receive as compensation from Treasury for any
such shares that may be issued by the Company under the CPP.  Should
the Company not participate in the CPP, we do not anticipate that it will have a
material adverse effect on our financial position and
operations.  Without the additional capital, the Company’s growth may
be slowed, but the Company is well capitalized, achieving profitability and is
in the process of implementing policies and procedures which allow us to
adequately maintain adequate liquidity.




In
consideration of the near-term economic and capital raising environment, the
Company did not declare a dividend this quarter.


21
 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 objectives 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


22
 Table of Contents


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




None




ITEM
      5.
            OTHER
      INFORMATION




None




ITEM
      6.
            EXHIBITS




Exhibits.




10.1
            Employment
      and Confidentiality Agreement, among Community West Bank, Community West
      Bancshares and Richard M. Favor, dated September 5, 2008 (incorporated by
      reference from the Registrant’s Form 8-K filed with the Commission on
      September 10, 2008).




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.


23
 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:
      November 13, 2008
                /s/Charles G.
BaltuskonisCharles
      G. BaltuskonisExecutive
      Vice President andChief
      Financial OfficerOn
      Behalf of Registrant and asPrincipal
      Financial and Accounting
Officer


24
 Table of Contents


EXHIBIT
INDEX








ExhibitNumber
                      
                      Description
      of Document10.1
                      Employment
      and Confidentiality Agreement, among Community West Bank, Community West
      Bancshares and Richard M. Favor, dated September 5, 2008 (incorporated by
      reference from the registrant’s Form 8-K filed with the Commission on
      September 10, 2008).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.





25