UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)


OF
THESECURITIES EXCHANGE ACT OF 1934




FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2008


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)





Securities
registered under Section 12(b) of the Exchange Act:





Title
      of each class
              Name
      of each exchange on which registeredCommon
      Stock, No Par Value
              Nasdaq
      Global Market





Securities
registered under Section 12(g) of the Exchange Act: NONE





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes £ No T





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act.  Yes £ No T





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 past 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.  Yes T     No
£





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. £





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





Large
      accelerated filer £
              Accelerated
      filer £Non-accelerated
      filer (Do not check if smaller reporting company) £
              Smaller
      reporting company T





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





The
aggregate market value of common stock, held by non-affiliates of the registrant
as of June 30, 2008, was $23,079,200 based on a closing price of $6.51 for the
common stock, as reported on the Nasdaq Global Market.  For purposes
of the foregoing computation, all executive officers, directors and 5 percent
beneficial owners of the registrant are deemed to be affiliates.  Such
determination should not be deemed to be an admission that such executive
officers, directors or 5 percent beneficial owners are, in fact, affiliates of
the registrant.





As of
March 24, 2009, 5,915,130 shares of the registrant’s common stock were
outstanding.










DOCUMENTS
INCORPORATED BY REFERENCE





Portions
of the registrant's definitive proxy statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A in connection with the 2009
Annual Meeting of Shareholders to be held on or about May 28, 2009 are
incorporated by reference into Part III of this Report.  The proxy
statement will be filed with the Securities and Exchange Commission not later
than 120 days after the registrant's fiscal year ended December 31,
2008.


-2-




COMMUNITY
WEST BANCSHARES


FORM
10-K








INDEX





Part
      I
                                      PageItem
      1.
                                      Business
                                      4Item 1A.
                                      Risk
      Factors
                                      6Item 1B.
                                      Unresolved
      Staff Comments
                                      13Item
      2.
                                      Properties
                                      13Item
      3.
                                      Legal
      Proceedings
                                      13Item
      4.
                                      Submission
      of Matters to a Vote of Security Holders
                                      13Part
      IIItem
      5.
                                      Market
      for Registrant's Common Equity, Related Shareholder Matters and Issuer
      Purchases of Equity Securities
                                      14Item
      6.
                                      Selected
      Financial Data
                                      16Item
      7.
                                      Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                      17Item
      7A.
                                      Quantitative
      and Qualitative Disclosure about Market Risk
                                      50Item
      8.
                                      Consolidated
      Financial Statements and Supplementary Data
                                      F1Item
      9.
                                      Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                                      76Item
      9A(T).
                                      Controls
      and Procedures
                                      76Item
      9B.
                                      Other
      Information
                                      76Part
      IIIItem
      10.
                                      Directors,
      Executive Officers and Corporate Governance
                                      76Item
      11.
                                      Executive
      Compensation
                                      77Item 12.
                                      Security
      Ownership of Certain Beneficial Owners and Management and Related
      Shareholder Matters
                                      77Item
      13.
                                      Certain
      Relationships and Related Transactions and Director
      Independence
                                      77Item
      14.
                                      Principal
      Accounting Fees and Services
                                      77Part
      IVItem
      15.
                                      Exhibits,
      Financial Statement Schedules
                                      77Signatures
                                      81


-3-
 Index
  PART
I
 
 ITEM
      1.
              BUSINESS
 
 GENERAL
 
 Community
West Bancshares (“CWBC”) was incorporated in the State of California on
November 26, 1996, for the purpose of forming a bank holding
company.  On December 31, 1997, CWBC acquired a 100% interest in
Community West Bank, National Association ("CWB" or
“Bank”).  Effective that date, shareholders of CWB became shareholders
of CWBC in a one-for-one exchange.  The acquisition was accounted at
historical cost in a manner similar to pooling-of-interests.  CWBC and
CWB are referred to herein as the “Company”.
 
 Community
West Bancshares is a bank holding company.  During the fiscal year,
CWB was the sole bank subsidiary of CWBC.  CWBC provides management
and shareholder services to CWB.
 
 PRODUCTS
AND SERVICES
 
 CWB
offers a range of commercial and retail financial services to professionals,
small to mid-sized businesses and individual households.  These
services include various loan and deposit products.  CWB also offers
other financial services.
 
 Relationship Banking– Relationship banking is
conducted at the community level through five full-service branch offices on the
Central Coast of California stretching from Santa Maria to Westlake Village. The
primary customers are small to mid-sized businesses in these communities and
their owners and managers.  CWB’s goal is to provide the highest quality
service and the most diverse products to meet the varying needs of this highly
sought customer base.
 
 CWB
offers a range of commercial and retail financial services, including the
acceptance of demand, savings and time deposits, and the origination of
commercial, real estate, construction, home improvement, home equity lines of
credit and other installment and term loans.  Its customers are also
provided with the choice of a range of cash management services, remittance
banking, merchant credit card processing, courier service and online
banking.  In addition to the traditional financial services offered, CWB
offers remote deposit capture, automated clearinghouse origination, electronic
data interchange and check imaging.   CWB continues to
investigate products and services that it believes address the growing needs of
its customers and to analyze new markets for potential expansion
opportunities.
 
 One of
CWB’s key strengths and a fundamental difference that the Company believes
enables it to stand apart from the competition is the depth of experience of
personnel in commercial lending and business development.  These
individuals develop business, structure and underwrite the credit and manage the
customer relationship.  This provides a competitive advantage as CWB’s
competitors for the most part, have a centralized lending function where
developing business, underwriting credit and managing the relationship is split
between multiple individuals.
 
 Small Business Administration
Lending-
CWB has been a preferred lender/servicer of loans guaranteed by the Small
Business Administration (“SBA”) since 1990.  The Company originates
SBA loans which are occasionally sold into the secondary market.  The
Company continues to service these loans after sale and is required under the
SBA programs to retain specified amounts.  The two primary SBA loan
programs that CWB offers are the basic 7(a) Loan Guaranty and the Certified
Development Company (“CDC”), a Section 504 (“504”) program.
 
 The 7(a)
serves as the SBA’s primary business loan program to help qualified small
businesses obtain financing when they might not be eligible for business loans
through normal lending channels.  Loan proceeds under this program can
be used for most business purposes including working capital, machinery and
equipment, furniture and fixtures, land and building (including purchase,
renovation and new construction), leasehold improvements and debt
refinancing.  Loan maturity is generally up to 10 years for working
capital and up to 25 years for fixed assets.  The 7(a) loan is
approved and funded by a qualified lender, guaranteed by the SBA and subject to
applicable regulations.  The SBA typically guarantees 75%, and up to
85%, of the loan amount, depending on the loan size.  Although, in
very recent developments, as described below, the guarantee has been temporarily
increased.  The Company is required by the SBA to retain a contractual
minimum of 5% on all SBA 7(a) loans.  The SBA 7(a) loans are always
variable interest rate loans.  The servicing spread is a minimum of 1%
on the majority of loans.  Income recognized by the Company on the
sales of the guaranteed portion of these loans and the ongoing servicing income
received have in the past been significant revenue sources for the
Company.
  -4-
 Index
  The 504
program is an economic development-financing program providing long-term, low
downpayment loans to expanding businesses.  Typically, a 504 project
includes a loan secured from a private-sector lender with a senior lien, a loan
secured from a CDC (funded by a 100% SBA-guaranteed debenture) with a junior
lien covering up to 40% of the total cost, and a contribution of at least 10%
equity from the borrower.  Debenture limits are $1.5 million for
regular 504 loans, $2 million for those 504 loans that meet a public policy goal
and $4 million for manufacturing entities.
 
 CWB also
offers Business & Industry ("B & I") loans.  These
loans are similar to the SBA product, except they are guaranteed by the U.S.
Department of Agriculture.  The guaranteed amount is generally
80%.  B&I loans are made to businesses in designated rural areas
and are generally larger loans to larger businesses than the 7(a)
loans.  Similar to the SBA 7(a) product, they can be sold into the
secondary market.
 
 CWB also
originates conventional and investor loans which are funded by our
secondary-market partners for which the Bank receives a premium.
 
 CWB
originates SBA loans in the states of California, Alabama, Arizona, Colorado,
Florida, Georgia, Indiana, Kentucky, New Jersey, North Carolina, Ohio, Oregon,
Pennsylvania, South Carolina, Tennessee, Utah, Virginia, Washington, Washington
DC and metro New York City.  The SBA has designated CWB as a
"Preferred Lender", such status being awarded on a national basis.  As
a Preferred Lender, CWB has been delegated the loan approval, closing and most
servicing and liquidation authority responsibility from the SBA.
 
 CWB has
made the decision based on an analysis of risk vs. reward and the desire to
preserve capital to discontinue as of April 1, 2009 SBA lending east of the
Rocky Mountains.
 
 On March
16, 2009, the White House announced as part of the Financial Stability Plan and
the Consumer and Business Lending Initiative, several provisions designed to
provide liquidity in SBA markets and encourage SBA lending
activities.  These include:
 
 ·
              Temporarily
      increasing the percentage guaranteed to 90% up to a maximum guarantee
      amount of $1.5 million
 
 ·
              Direct
      purchase of securities backed by SBA 7(a)
loans
 
 ·
              Make
      direct purchases securities backed by SBA 504
  loans
 
 ·
              Temporarily
      eliminate borrower and lender fees for 504
loans
 
 ·
              Temporarily
      eliminate up-front SBA guaranty fees that are passed through to borrowers
      for 7(a) loans
 
 Mortgage Lending-CWB has a Wholesale and
Retail Mortgage Loan Center.  The Mortgage Loan Division originates
residential real estate loans primarily in the California counties of Santa
Barbara, Ventura and San Luis Obispo.  Some retail loans not fitting
CWB’s wholesale lending criteria are brokered to other lenders.  After
wholesale origination, most of the real estate loans are sold into the secondary
market.
 
 Manufactured Housing - CWB
has a financing program for manufactured housing to provide affordable home
ownership to low to moderate-income families that are purchasing or refinancing
their manufactured house.  These loans are offered in CWB’s primary
lending areas of Santa Barbara, Ventura and San Luis Obispo counties and the
secondary areas of Los Angeles, Orange, San Diego, Sacramento and surrounding
Northern California counties.  The manufactured homes are located in
approved mobile home parks.  The parks must meet specific criteria and
have amenities such as clubhouses, pools, common areas and be maintained in good
to excellent condition.  The manufactured housing loans are retained
in CWB’s loan portfolio.
 
 CWB’s
business is not seasonal in nature nor is CWB’s business reliant on just a few
major clients.
 
 COMPETITION
AND SERVICE AREA
 
 The
financial services industry is highly competitive with respect to both loans and
deposits.  Overall, the industry is dominated by a relatively small
number of major banks with many offices operating over a wide geographic
area.  In the markets where the Company’s banking branches are
present, several de novo banks have increased competition.  Some of
the major commercial banks operating in the Company's service areas offer types
of services that are not offered directly by the Company.  Some of
these services include leasing, trust and investment services and international
banking.  The Company has taken several approaches to minimize the
impact of competitors’ numerous branch offices and varied
products.  First, CWB provides courier services to business clients,
thus discounting the need for multiple branches in one
market.  Second, through strategic alliances and correspondents, the
Company provides a full complement of competitive services. Finally, one of
CWB’s strategic initiatives is to establish full-service branches or loan
production offices in areas where there is a high demand for its lending
products.  In addition to loans and deposit services offered by CWB’s
five branches located in Goleta, Ventura, Santa Maria, Santa Barbara and
Westlake Village, California, a loan production office currently exists in
Roseville, California and a SBA loan production office in the San Francisco Bay
area.  The Company also maintains SBA loan production offices in the
states of Arizona, Colorado, Florida, Georgia, New Jersey, North Carolina,
Tennessee, Ohio, Oregon, Utah, Virginia and Washington.   The
remote deposit capture product was put in place to better compete for deposits
in areas not serviced by a branch.
  -5-
 Index
  Competition
may adversely affect the Company’s performance.  The financial
services business in the Company’s markets is highly competitive and becoming
increasingly more so due to changing regulations, technology and strategic
consolidations amongst other financial service providers.  Other
banks, credit unions and specialty financial services companies may have more
capital than the Company and can offer trust services, leasing and other
financial products to the Company's customer base.  When new
competitors seek to enter one of the Company's markets, or when existing market
participants seek to increase their market share, they sometimes undercut the
pricing or credit terms prevalent in that market.  Increasing levels
of competition in the banking and financial services businesses may reduce the
Company’s market share or cause the prices to fall for which the Company can
charge for products and services.
 
 Competition
may also be impacted by overall economic conditions which for 2008 are
considered among the most difficult environments for financial institutions in
decades.During
2008, market and economic conditions were severely impacted where credit
conditions rapidly deteriorated and financial markets experienced widespread
illiquidity and elevated levels of volatility.  Concerns about future
economic growth, unemployment, oil prices, lower consumer confidence, rapid
contraction of credit availability and lower corporate earnings continue to
challenge the economy.  As a result of these economic conditions,
federal government agencies, the Federal Reserve Board and the U.S. Department
of the Treasury (the Treasury) initiated several actions which have changed the
landscape of the financial services’ industry.
 
 EMPLOYEES
 
 As of
December 31, 2008, the Company had 135 full-time and 13
part-time employees.  The Company's employees are not represented
by a union or covered by a collective bargaining
agreement.  Management of the Company believes that, in general, its
employee relations are good.
 
 GOVERNMENT
POLICIES
 
 The
Company’s operations are affected by various state and federal legislative
changes and by regulations and policies of various regulatory authorities,
including those of the states in which it operates and the U.S.
government.  These laws, regulations and policies include, for
example, statutory maximum legal lending rates, domestic monetary policies by
the Board of Governors of the Federal Reserve System which impact interest rates
(as evidenced by the dramatic downward interest rate pressure in 2008), U.S.
fiscal policy, anti-terrorism and money laundering legislation and capital
adequacy and liquidity constraints imposed by bank regulatory
agencies.  Changes in these laws, regulations and policies may greatly
affect our operations.  See “Item 1A Risk Factors – Curtailment of
Government Guaranteed Loan Programs Could Affect a Segment of the Company’s
Business” and “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Supervision and Regulation.”
 
 
 ITEM
      1A.
              RISK
      FACTORS
 
 Investing
in our common stock involves various risks which are particular to our Company,
our industry and our market area.  Several risk factors regarding
investing in our common stock are discussed below. This listing should not be
considered as all-inclusive. If any of the following risks were to occur, we may
not be able to conduct our business as currently planned and our financial
condition or operating results could be negatively impacted.
 
 Recession
and changes in domestic and foreign financial markets may have a material
negative impact on our results of operations and financial
condition.
 
 Economic
indices have shown that since the fourth quarter of 2007, the United States
economy has been in a recession. This has been reflected in significant business
failures and job losses, which job losses were excess of 500,000 in each of
November and December 2008.  Job losses at this level are expected to
continue during the first quarter of 2009.
  -6-
 Index
  In
addition, in the past year, the domestic and foreign financial markets,
securities trading markets and economies generally have experienced significant
turmoil including, without limitation, government takeovers of troubled
institutions, government brokered mergers of such firms to avoid bankruptcy or
failures, bankruptcies of securities trading firms and insurance companies,
failures of financial institutions and securities brokerage firms, significant
declines in real property values, and wide fluctuations in energy prices, all of
which have contributed to reduced availability of credit for businesses and
consumers, significant levels of foreclosures on residential and commercial
properties, falling home prices, reduced liquidity and a lack of stability
across the entire financial sector.  These recent events and the
corresponding uncertainty and decline in financial markets are likely to
continue for the foreseeable future.  The full extent of the
repercussions to our nation’s economy in general and our business in particular
are not fully known at this time.  Such events are likely to have a
negative effect on (i) our ability to service our existing customers and attract
new customers, (ii) the ability of our borrowers to operate their business as
successfully as in the past, (iii) the financial security and net worth of our
customers, and (iv) the ability of our customers to repay their loans with us in
accordance with the terms thereof.  Even though we have enhanced our
total shareholders equity with the proceeds of the $15.6 million we received in
funds from the Treasury under its Troubled Asset Relief Program – Capital
Purchase Program (“TARP-CPP”) (discussed below), such developments could have a
material negative impact on our results of operations and financial
condition.
 
 Recent
legislative and regulatory initiatives to address difficult market and economic
conditions may not stabilize the U.S. banking system.
 
 The
recently enacted Emergency Economic Stabilization Act (“EESA”), the Financial
Stability Plan (“FSP”), the American Recovery and Reinvestment Act (“ARRA”) and
the Homeowner Affordability and Stabilization Plan (“HASP”), and the numerous
actions by the Board of Governors of the Federal Reserve System, the Treasury,
the Federal Deposit Insurance Corporation (“FDIC”), the Securities and Exchange
Commission (“SEC”) and others are intended to address the liquidity and credit
crisis, and to stabilize the U.S. banking, financial securities and housing
markets.  These measures include homeowner relief that encourage loan
restructuring and modification; the establishment of significant liquidity and
credit facilities for financial institutions and investment banks; the lowering
of the federal funds rate; emergency action against short selling practices; a
temporary guaranty program for money market funds; the establishment of a
commercial paper funding facility to provide “back-stop” liquidity to commercial
paper issuers; and coordinated international efforts to address illiquidity and
other weaknesses in the banking sector.  The EESA and the other
regulatory initiatives described above may not have their desired
effects.  If the volatility in the markets continues and economic
conditions fail to improve or worsen, our business, financial condition and
results of operations could be materially and adversely affected.
 
 Current
levels of market volatility are unprecedented.
 
 The
capital and credit markets have been experiencing volatility and disruption for
more than a year. In recent months, the volatility and disruption has reached
unprecedented levels.  The markets have produced downward pressure on
stock prices and credit availability for certain issuers without regard to those
issuers’ underlying financial strength. If current levels of market disruption
and volatility continue or worsen, there can be no assurance that we will not
experience an adverse effect, which may be material, on our ability to access
capital and on our business, financial condition and results of
operations.
 
 We are subject to
certain executive compensation and corporate governance restrictions as a result
of our participation in the TARP Program.
 
 As a
result of our participation in the TARP-CPP, we must adopt the Treasury's
standards for executive compensation and corporate governance for the period
during which the Treasury holds an equity position acquired under the
TARP-CPP.  These standards generally apply to our Chief Executive
Officer, our Chief Financial Officer, our Chief Credit Officer and up to the two
next most highly compensated executive officers (collectively, the “senior
executive officers”).  The standards include: (i) ensuring that
incentive compensation for senior executive officers does not encourage
unnecessary and excessive risks that threaten the value of our Company, (ii)
requiring clawback of any bonus or incentive compensation paid to a senior
executive officer based on statements of earnings, gains or other criteria that
are later proven to be materially inaccurate, (iii) prohibiting golden parachute
payments to a senior executive officer, including severance payments for any
reason and (iv) our agreement not to deduct for tax purposes compensation to a
senior executive officer in excess of $500,000.  In particular, the
change to the deductibility limit on executive compensation may increase the
overall cost of our compensation programs in future periods or impact our
ability to attract and retain quality executive personnel.  We will be
subject to the executive compensation and corporate governance restrictions for
so long as the Treasury holds any equity securities issued as a result of our
participation in TARP-CPP. This period could be more than
ten  years.
  -7-
 Index
  Reserve
for credit losses may not be adequate to cover actual loan losses.
 
 The risk
of nonpayment of loans is inherent in all lending activities, and nonpayment, if
it occurs, may have an adverse effect on our financial condition and/or results
of operation.  We maintain a reserve for credit losses to absorb
estimated probable credit losses inherent in the loan and commitment portfolios
as of the balance sheet date.  After a provision of $5.3 million for
the year, as of December 31, 2008, our allowance for loan losses was $7.3
million or 1.61% of loans held for investment.  In determining the
level of the reserve for credit losses, our management makes various assumptions
and judgments about the loan portfolio.  We rely on an analysis of our
loan portfolio based on historical loss experience, volume and types of loans,
trends in classifications, volume and trends in delinquencies and non-accruals,
national and local economic conditions and other pertinent information known at
the time of the analysis.  If management’s assumptions are incorrect,
the reserve for credit losses may not be sufficient to cover losses, which could
have a material adverse effect on our financial condition and/or results of
operations.  While the allowance was determined to be adequate at
December 31, 2008, based on the information available to us at the time, there
can be no assurance that the allowance will be adequate in the
future.  During the first quarter of 2009, the Company has experienced
some deterioration and certain downgrades to specific loans in its
portfolio.  As a result, and  to enhance the overall general
reserve, it is likely that the Company will  make substantial
provisions to the allowance for loan losses in the first quarter of 2009, and if
further losses come to light, the Company will record such provisions in the
period in which the losses are incurred.
 
 All
of our lending involves underwriting risks.
 
 As of
December 31, 2008, commercial business loans represented 12.7% of our total loan
portfolio; real estate loans represented 22.1% of our total loan portfolio; SBA
loans represented 28.4% of our total loan portfolio and manufactured housing
loans represented 32.4% of our total portfolio.  All such lending,
even when secured by the assets of a business, involves considerable risk of
loss in the event of failure of the business.  To reduce such risk, we
typically take additional security interests in other collateral of the
borrower, such as real property, certificates of deposit or life insurance,
and/or obtain personal guarantees.  In light of the economic downturn,
our efforts to reduce risk of loss may not prove sufficient as the value of the
additional collateral or personal guarantees may be significantly
reduced.  There can be no assurances that we have taken sufficient
collateral or the values thereof will be sufficient to repay loans in accordance
with their terms.
 
 Our
dependence on real estate concentrated in the State of California.
 
 As of
December 31, 2008, approximately $195.8 million, or 33.3%, of our loan portfolio
is secured by various forms of real estate, including residential and commercial
real estate.  A further decline in current economic conditions or
rising interest rates could have an adverse effect on the demand for new loans,
the ability of borrowers to repay outstanding loans and the value of real estate
and other collateral securing loans.  The real estate securing our
loan portfolio is concentrated in California.  The decline in real
estate values could harm the financial condition of our borrowers and the
collateral for our loans will provide less security and we would be more likely
to suffer losses on defaulted loans.
 
 Curtailment
of government guaranteed loan programs could affect a segment of our
business.
 
 A major
segment of our business consists of originating and periodically selling
government guaranteed loans, in particular those guaranteed by the Small
Business Administration.  From time to time, the government agencies
that guarantee these loans reach their internal limits and cease to guarantee
loans.  In addition, these agencies may change their rules for loans
or Congress may adopt legislation that would have the effect of discontinuing or
changing the loan programs.  Non-governmental programs could replace
government programs for some borrowers, but the terms might not be equally
acceptable.  Therefore, if these changes occur, the volume of loans to
small business, industrial and agricultural borrowers of the types that now
qualify for government guaranteed loans could decline.  Also, the
profitability of these loans could decline.  As the funding of the
guaranteed portion of 7(a) loans is a major portion of our business, the
long-term resolution to the funding for the 7(a) loan program may have an
unfavorable impact on our future performance and results of
operations.
  -8-
 Index
  Our
small business customers may lack the resources to weather a downturn in the
economy.
 
 One of
the primary focal points of our business development and marketing strategy is
serving the banking and financial services needs of small- and medium-sized
businesses and professional organizations.  Small businesses generally
have fewer financial resources in terms of capital or borrowing capacity than do
larger entities.  If economic conditions are generally unfavorable in
our service areas, the businesses of our lending clients and their ability to
repay outstanding loans may be negatively affected.  As a consequence,
our results of operations and financial condition may be adversely
affected.
 
 Environmental
laws could force the Company to pay for environmental problems.
 
 When a
borrower defaults on a loan secured by real property, we generally purchase the
property in foreclosure or accept a deed to the property surrendered by the
borrower.  We may also take over the management of commercial
properties when owners have defaulted on loans.  While we have
guidelines intended to exclude properties with an unreasonable risk of
contamination, hazardous substances may exist on some of the properties that we
own, manage or occupy and unknown hazardous risks could impact the value of real
estate collateral.  We face the risk that environmental laws could
force us to clean up the properties at our expense.  It may cost much
more to clean a property than the property is worth.  We could also be
liable for pollution generated by a borrower’s operations if we took a role in
managing those operations after default.  Resale of contaminated
properties may also be difficult.
 
 Fluctuations
in interest rates may reduce profitability.
 
 Changes
in interest rates affect interest income, the primary component of our gross
revenue, as well as interest expense.  Our earnings depend largely on
the relationship between the cost of funds, primarily deposits and borrowings,
and the yield on earning assets, primarily loans and investment
securities.  This relationship, known as the interest rate spread, is
subject to fluctuation and is affected by the monetary policies of the Federal
Reserve Board, the shape of the yield curve, the international interest rate
environment, as well as by economic, regulatory and competitive factors which
influence interest rates, the volume and mix of interest-earning assets and
interest-bearing liabilities, and the level of nonperforming assets. Many of
these factors are beyond our control.  Fluctuations in interest rates
may affect the demand of customers for products and services.  As
interest rates change, we expect to periodically experience “gaps” in the
interest rate sensitivities of its assets and liabilities.  This means
that either interest-bearing liabilities will be more sensitive to changes in
market interest rates than interest-earning assets, or vice versa.  In
either event, changes in market interest rates may have a negative impact on our
earnings.
 
 Responding
to economic sluggishness and recession concerns, the Federal Reserve Board,
through its Federal Open Market Committee (“FOMC”), cut the target federal funds
rate beginning in September 2007 to historically low levels.  The
actions of the Federal Reserve Board, while designed to help the economy
overall, may negatively impact the Bank’s earnings.
 
 Changes
in the level of interest rates also may negatively affect our ability to
originate loans, the value of loans and the ability to realize gains from the
sale of loans, all of which ultimately affect earnings. A decline in the market
value of our assets may limit our ability to borrow additional
funds.  As a result, we could be required to sell some of our loans
and investments under adverse market conditions, under terms that are not
favorable, to maintain liquidity.  If those sales are made at prices
lower than the amortized costs of the investments, losses may be
incurred.
 
 Risks
due to economic conditions and environmental disasters in the regions we serve
may adversely affect our operations.
 
 The
Company serves three primary regions:  the Tri-Counties region which
consists of San Luis Obispo, Santa Barbara and Ventura counties in the state of
California, the SBA Western Region where the Bank originates SBA loans (Arizona,
California, Oregon, Colorado, Oregon, Utah and Washington) and the SBA Southeast
Region (Alabama, Florida, Georgia, Indiana, Kentucky, Maryland, North and South
Carolina, New Jersey, Ohio, Pennsylvania, Tennessee, Virginia, Washington DC and
metro New York City).  The current economic slowdown in those regions
as well as natural disasters such as hurricanes, floods, fires and earthquakes
could result in the following consequences, any of which could hurt our
business:
 
 ·
              loan
      delinquencies may increase;
 
 ·
              problem
      assets and foreclosures may
increase;
  -9-
 Index
  ·
              demand
      for our products and services may decline;
and
 
 ·
              collateral
      for loans made by us, especially real estate, may decline in value, in
      turn reducing customers’ borrowing power, and reducing the value of assets
      and collateral associated with our existing
  loans.
 
 Competition
with other banking institutions could adversely affect
profitability.
 
 The
banking industry is highly competitive.  We face increased competition
not only from other financial institutions within the markets we serve, but
deregulation has resulted in competition from companies not typically associated
with financial services as well as companies accessed through the
internet.  As a community bank, the Bank attempts to combat this
increased competition by developing and offering new products and increased
quality of services.  Ultimately, competition can drive down the
Bank’s interest margins and reduce profitability and make it more difficult to
increase the size of the loan portfolio and deposit base.
 
 Regulatory
considerations may adversely affect our operations.
 
 As a
bank holding company under the Bank Holding Company Act, we are regulated,
supervised and examined by the Board of Governors of the Federal Reserve System,
or Federal Reserve Board.  This regulatory framework is intended
primarily for the protection of depositors and the federal deposit insurance
funds and not for the protection of our shareholders.  As a result of
this regulatory framework, our earnings are affected by actions of the Federal
Reserve Board, the Office of the Comptroller of the Currency (the
"Comptroller"), which regulates the Bank, and the FDIC, which insures the
deposits of the Bank within certain limits.
 
 In
addition, there are numerous governmental requirements and regulations that
affect our business activities.  A change in applicable statutes,
regulations or regulatory policy may have a material effect on our
business.  Depository institutions, like the Bank, are also affected
by various federal laws, including those relating to consumer protection and
similar matters.
 
 The
holding company is a legal entity separate and distinct from the
Bank.  However, our principal source of cash revenues is the payment
of dividends from the Bank.  There are various legal and regulatory
limitations on the extent to which the Bank can finance or otherwise supply
funds to us and our other affiliates.
 
 As a
national bank, the prior approval of the Comptroller is required if the total of
all dividends declared and paid to the Bank in any calendar year exceeds the
Bank’s net earnings for that year combined with their retained net earnings less
dividends paid for the preceding two calendar years.
 
 Government
agencies regulationsalso
dictate the following:
 
 ·
              the
      amount of capital we must maintain;
 
 ·
              the
      types of activities in which we can
engage;
 
 ·
              the
      types and amounts of investments we can
make;
 
 ·
              the
      locations of our offices;
 
 ·
              insurance
      of our deposits and the premiums paid for the insurance;
    and
 
 ·
              how
      much cash we must set aside as reserves for
  deposits.
 
 The
regulations impose limitations on operations and may be changed at any time,
possibly causing future results to vary significantly from past
results.  Regulations can significantly increase the cost of doing
business such as increased deposit insurance premiums imposed by the FDIC to be
paid in 2009.  Moreover, certain of these regulations contain
significant punitive sanctions for violations, including monetary penalties and
limitations on a bank’s ability to implement components of its business
plan.  In addition, changes in regulatory requirements may act to add
costs associated with compliance efforts.  Furthermore, government
policy and regulation, particularly as implemented through the Federal Reserve
System, significantly affect credit conditions.
  -10-
 Index
  Operational
risks may result in losses.
 
 Operational
risk represents the risk of loss resulting from our operations, including but
not limited to, the risk of fraud by employees or persons outside the Company,
the execution of unauthorized transactions by employees, transaction processing
errors and breaches of internal control system and compliance
requirements.  This risk of loss also includes the potential legal
actions that could arise as a result of an operational deficiency or as a result
of noncompliance with applicable regulatory standards, adverse business
decisions or their implementation and customer attrition due to potential
negative publicity.
 
 Operational
risks are inherent in all business activities and the management of these risks
is important to the achievement of our objectives.  In the event of a
breakdown in the internal control system, improper operation of systems or
improper employee actions, we could suffer financial loss, face regulatory
action and suffer damage to our reputation. We manage operational risks through
a risk management framework and our internal control processes.  While
we believe that we have designed effective methods to minimize operational
risks, there is no absolute assurance that business disruption or operational
losses would not occur in the event of disaster.
 
 An
information systems interruption or breach in security might result in loss of
customers.
 
 We rely
heavily on communications and information systems to conduct
business.  In addition, we rely on third parties to provide key
components of information system infrastructure, including loan, deposit and
general ledger processing, internet connections, and network
access.  Any disruption in service of these key components could
adversely affect our ability to deliver products and services to customers and
otherwise to conduct operations.  Furthermore, any security breach of
information systems or data, whether managed by the Company or by third parties,
could harm our reputation or cause a decrease in the number of our
customers.
 
 We
may depend on technology and technological improvements.
 
 The
financial services industry is undergoing rapid technological changes with
frequent introductions of new technology-driven products and
services.  In addition to providing better service to customers, the
effective use of technology increases efficiency and enables financial
institutions to reduce costs.  Many of our competitors have
substantially greater resources to invest in technological
improvements.  We face the risk of having to keep up with the rapid
technological changes.
 
 Loss
of key management personnel may adversely affect our operations.
 
 The Bank
is operated by key management personnel in each department of the Bank,
including executive, lending, finance, operations and retail
banking.  Many of these key staff members have been employed by the
Bank for a number of years and, accordingly, have developed expertise and a
loyal customer following.  In the event that a key management member
were to terminate employment with the Bank, the effect may be to impair the
Bank’s ability to operate as effectively as it does at the present time, or in
the case of a former employee being hired by a competitor, may result in a loss
of customers to a competitor.  In addition, the loss of services of
any of our executive officers, or their failure to adequately perform their
management functions, would make it difficult for us to continue to grow our
business, obtain and retain customers, and set up and maintain appropriate
internal controls for our operations.  If any member of our executive
officers does not perform up to expectations, our results of operations could
suffer and our current plans to expand and become more profitable may not
succeed.  Finally, if any of our executive officers decides to leave,
it may be difficult to replace her or him and we would lose the benefit of the
knowledge she or he gained during her or his tenure with us.
 
 Changes
in accounting policies may adversely affect the reported results of
operations.
 
 The
financial statements prepared by the Company are subject to various guidelines
and requirements promulgated by the Financial Accounting Standards Board, the
Securities and Exchange Commission and bank regulatory agencies.  The
adoption of new or revised accounting standards may adversely affect the
reported results of operation.
  -11-
 Index
  Litigation
risks may have a material impact on our assets or results of
operations.
 
 We are
involved in various matters of litigation in the ordinary course of business
which, historically, have not been material to our assets or results of
operations.  No assurances can be given that future litigation may not
have a material impact on our assets or results of operations.
 
 Geopolitical
concerns and the heightened risk of terrorism have negatively affected the stock
market and the global economy.
 
 Stock
prices domestically and around the world have been and continue to be adversely
affected by geopolitical concerns and the heightened risk of
terrorism.  In addition to negatively affecting the stock markets, the
geopolitical concerns and the heightened risk of terrorism have adversely
affected, and may continue to adversely affect, the national and global economy
because of the uncertainties that exist as to the instabilities in the Middle
East and elsewhere, and as to how the U.S. and other countries will respond to
terrorist threats or actions.  All of these uncertainties may
contribute to a global slowdown in economic activity.  An overall
weakened economy may have the effect of decreasing loan demand, increasing loan
delinquencies and generally causing our results of operations and our financial
condition to suffer.
 
 Certain restrictions will affect our
ability to declare or pay dividends and repurchase our shares as a result of our
decision to participate in the TARP-CPP.
 
 As a
result of our participation in the TARP-CPP, our ability to declare or pay
dividends on any of our common stock will be limited.  Specifically,
we will not be able to declare dividends payments on common, junior preferred or
pari passu preferred
shares if we are in arrears on the dividends on the shares of fixed rate
cumulative perpetual preferred stock, Series A (the “Series A Preferred
Stock”).  Further, while we are permitted to pay stock dividends,
effectuate stocks splits and reverse stock splits, we will not be permitted to
declare or pay cash dividends on our common stock without the Treasury's
approval until the third anniversary of the investment unless the Series A
Preferred Stock has been redeemed or transferred.  In addition, our
ability to repurchase our shares will be restricted.  Treasury consent
generally will be required for us to make any stock repurchases until the third
anniversary of the investment by the Treasury unless the Series A Preferred
Stock has been redeemed or transferred.  Further, common, junior
preferred or pari passu
preferred shares may not be repurchased if we are in arrears on the Series A
Preferred stock dividends to the Treasury.   For more information
regarding our Series A Preferred Stock, including the rights, preferences,
privileges and restrictions of the Series A Preferred Stock that may affect the
holders of our common Stock, please refer to the Company’s Current Reports on
Form 8-K as filed with the SEC on December 18, 2008 and December 24, 2008, the
Certificate of Determination of Fixed Rate Cumulative Perpetual Preferred Stock,
Series A, filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K as
filed with the SEC on December 18, 2008, and the Form of Certificate for the
Fixed Rate Cumulative Perpetual Preferred Stock, Series A, filed as Exhibit 4.3
to the Company’s Registration Statement on Form 3 .
 
 The
Series A Preferred Stock impacts net income available to our common shareholders
and earnings per common share and the Warrant we issued to the Treasury may be
dilutive to holders of our Common Stock.
 
 The
dividends on the Series A Preferred Stock will reduce the net income available
to common shareholders and our earnings per common share. The Series A
Preferred Stock will also receive preferential treatment in the event of
liquidation, dissolution or winding up of the Company.  Additionally,
the ownership interest of the existing holders of our common stock will be
diluted to the extent the warrant we issued to the Treasury (the “Warrant”) in
conjunction with the sale to the Treasury of the Series A Preferred Stock is
exercised.  The shares of common stock underlying the Warrant
represent approximately 8.8% of the shares of our common stock outstanding as of
December 31, 2008 (including the shares issuable upon exercise of the Warrant in
total shares outstanding).  Although the Treasury has agreed not to
vote any of the shares of common stock it receives upon exercise of the Warrant,
a transferee of any portion of the Warrant or of any shares of common stock
acquired upon exercise of the Warrant is not bound by this
restriction.
  -12-
 Index
  ITEM
      1B.
              UNRESOLVED STAFF
      COMMENTS
 
 Not
applicable.
 
 
 ITEM
      2.
              PROPERTIES
 
 The
Company owns the property on which the CWB full-service branch office is located
in Goleta, California.  All other properties are leased by the
Company, including the principal executive office in Goleta.  This
facility houses the Company's corporate offices, comprised of various
departments, including executive management, electronic business services,
finance, human resources, information technology, loan operations, marketing,
the mortgage loan division, SBA administration, risk management and special
assets.
 
 The
Company continually evaluates the suitability and adequacy of the Company’s
offices and has a program of relocating or remodeling them as necessary to
maintain efficient and attractive facilities.  Management believes
that the Company has sufficient insurance to cover its interests in its
properties, both owned and leased, and that its existing facilities are adequate
for its present purposes.  There are no material capital expenditures
anticipated.
 
 
 ITEM
      3.
              LEGAL
      PROCEEDINGS
 
 The
Company is involved in various litigation matters of a routine nature that are
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.  There are no pending legal proceedings to which the
Company or any of its directors, officers, employees or affiliates, or any
principal security holder of the Company or any associate of any of the
foregoing, is a party or has an interest adverse to the Company, or of which any
of the Company’s properties are subject.
 
 
 ITEM
      4.
              SUBMISSION OF MATTERS
      TO A VOTE OF SECURITY
HOLDERS.
 
 On
November 10, 2008, the Company filed a Definitive Proxy Statement on Schedule
14A with the Securities and Exchange Commission to solicit the written consent
of its shareholders of record on October 23, 2008 to obtain the necessary
approval to amend the Company's Articles of Incorporation to authorize the
issuance of up to 10,000,000 shares of common stock and 10,000,000 shares of
preferred stock.  To approve the amendment, the Company was required
to obtain approval from shares representing a majority of the then-outstanding
shares of common stock entitled to vote, or 5,915,130 shares.  On
December 11, 2008, the Company received written consents representing 4,163,664
shares, or 70.39%, of common stock entitled to vote approving the amendment,
245,673 shares of common stock voting against the amendment, and 55,351 shares
of common stock representing abstentions.  As a result, the amendment
was approved by the Company's shareholders effective as of December 11,
2008.
  -13-
 Index
  PART II
 
 ITEM
      5.
              MARKET FOR THE
      REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY
SECURITIES
 
 Market
Information, Holders and Dividends
 
 The
Company’s common stock is traded on the Nasdaq Global Market (“NASDAQ”) under
the symbol CWBC.  The following table sets forth the high and low
sales prices on a per share basis for the Company’s common stock as reported by
NASDAQ for the period indicated:
 
 2008
      Quarters
                          
                          
                          2007
      QuartersFourth
                          
                          
                          Third
                          
                          
                          Second
                          
                          
                          First
                          
                          
                          Fourth
                          
                          
                          Third
                          
                          
                          Second
                          
                          
                          FirstStock
      Price Range:High
                          
                          $
                          5.50
                          
                          
                          $
                          7.65
                          
                          
                          $
                          9.52
                          
                          
                          $
                          10.25
                          
                          
                          $
                          12.24
                          
                          
                          $
                          13.75
                          
                          
                          $
                          15.85
                          
                          
                          $
                          16.00Low
                          
                          
                          3.00
                          
                          
                          
                          3.50
                          
                          
                          
                          6.49
                          
                          
                          
                          7.05
                          
                          
                          
                          9.26
                          
                          
                          
                          10.26
                          
                          
                          
                          11.75
                          
                          
                          
                          15.50Common
      DividendsDeclared
                          
                          $
                          0.00
                          
                          
                          $
                          0.00
                          
                          
                          $
                          .06
                          
                          
                          $
                          .06
                          
                          
                          $
                          .06
                          
                          
                          $
                          .06
                          
                          
                          $
                          .06
                          
                          
                          $
                          .06
 
 As of
March 24, 2009 the year to date high and low stock sales prices were $4.02 and
$1.59, respectively.  As of March 24, 2009, the last reported sale
price per share for the Company's common stock was $2.125.
 
 As of
March 24, 2009, the Company had 331 stockholders of record of its common
stock.
 
 Preferred
Stock Dividends
 
 On
December 19, 2008, as part of TARP-CPP, in exchange for an aggregate purchase
price of $15,600,000, the Company issued 15,600 shares of Fixed Rate Cumulative
Perpetual Preferred Stock, Series A, no par value, with a liquidation preference
of $1,000 per share which pays cumulative dividends at a rate of 5% per year for
the first five years and 9% per year thereafter.  The Series A
Preferred Stock has no maturity date and ranks senior to the common stock with
respect to the payment of dividends and distributions.  See “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Capital Resources.”
 
 Common
Stock Dividends
 
 It is the
Company’s intention to review its dividend policy on a quarterly
basis.  The Company’s last declared dividend was in April
2008.  The sources of funds for dividends paid to shareholders are the
Company’s capital and dividends received from its subsidiary bank,
CWB.  CWB’s ability to pay dividends to the Company is limited by
California law and federal banking law.  In addition, as a result of
the Company's participation in TARP, the Company's ability to declare or pay
dividends on its common stock will be limited.  See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - TARP" and see “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations – Supervision and Regulation -CWBC
- Limitations on Dividend Payments.”
  -14-
 Index
  Securities
Authorized for Issuance under Equity Compensation Plans
 
 The
following table summarizes the securities authorized for issuance as of December
31, 2008:
 
 Plan Category
                  
                  Number
      of securities to be issued upon exercise of outstanding options,
      warrantsand rights
                  
                  
                  Weighted-average
      exercise price of outstanding options, warrantsand rights
                  
                  
                  Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column (a))(a)
                  
                  
                  (b)
                  
                  
                  (c)Plans
      approved by shareholders
                  
                  
                  459,863
                  
                  
                  $
                  8.14
                  
                  
                  
                  335,600Plans
      not approved by shareholdersTotal
                  
                  
                  459,863
                  
                  
                  $
                  8.14
                  
                  
                  
                  335,600
  -15-
 Index
  ITEM
      6.
              SELECTED FINANCIAL
      DATA
 
 The
following selected financial data have been derived from the Company’s
consolidated financial condition and results of operations, as of and for the
years ended December 31, 2008, 2007, 2006, 2005 and 2004, and should be
read in conjunction with the consolidated financial statements and the related
notes included elsewhere in this report.
 
 Year
      Ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2005
                    
                    
                    2004INCOME
      STATEMENT:
                    
                    (in
      thousands, except per share data and ratios)Interest
      income
                    
                    $
                    45,532
                    
                    
                    $
                    46,841
                    
                    
                    $
                    39,303
                    
                    
                    $
                    29,778
                    
                    
                    $
                    21,845Interest
      expense
                    
                    
                    22,223
                    
                    
                    
                    22,834
                    
                    
                    
                    16,804
                    
                    
                    
                    10,347
                    
                    
                    
                    7,845Net
      interest income
                    
                    
                    23,309
                    
                    
                    
                    24,007
                    
                    
                    
                    22,499
                    
                    
                    
                    19,431
                    
                    
                    
                    14,000Provision
      for loan losses
                    
                    
                    5,264
                    
                    
                    
                    1,297
                    
                    
                    
                    489
                    
                    
                    
                    566
                    
                    
                    
                    418Net
      interest income after provision for loan
                      losses
                    
                    
                    18,045
                    
                    
                    
                    22,710
                    
                    
                    
                    22,010
                    
                    
                    
                    18,865
                    
                    
                    
                    13,582Non-interest
      income
                    
                    
                    5,081
                    
                    
                    
                    4,845
                    
                    
                    
                    5,972
                    
                    
                    
                    7,310
                    
                    
                    
                    10,462Non-interest
      expenses
                    
                    
                    20,516
                    
                    
                    
                    21,000
                    
                    
                    
                    18,832
                    
                    
                    
                    18,160
                    
                    
                    
                    17,521Income
      before income taxes
                    
                    
                    2,610
                    
                    
                    
                    6,555
                    
                    
                    
                    9,150
                    
                    
                    
                    8,015
                    
                    
                    
                    6,523Provision  for
      income taxes
                    
                    
                    1,129
                    
                    
                    
                    2,766
                    
                    
                    
                    3,822
                    
                    
                    
                    2,373
                    
                    
                    
                    2,688NET
      INCOME
                    
                    $
                    1,481
                    
                    
                    $
                    3,789
                    
                    
                    $
                    5,328
                    
                    
                    $
                    5,642
                    
                    
                    $
                    3,835Preferred
      stock dividends
                    
                    
                    35
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -NET
      INCOME AVAILABLE TO COMMON SHAREHOLDERS
                    
                    $
                    1,446
                    
                    
                    $
                    3,789
                    
                    
                    $
                    5,328
                    
                    
                    $
                    5,642
                    
                    
                    $
                    3,835PER
      COMMON SHARE DATA:Income
      per  share – Basic
                    
                    $
                    0.24
                    
                    
                    $
                    0.65
                    
                    
                    $
                    0.92
                    
                    
                    $
                    0.98
                    
                    
                    $
                    0.67Weighted
      average shares used in income
                      per
      share calculation – Basic
                    
                    
                    5,913
                    
                    
                    
                    5,862
                    
                    
                    
                    5,785
                    
                    
                    
                    5,744
                    
                    
                    
                    5,718Income
      per  share – Diluted
                    
                    $
                    0.24
                    
                    
                    $
                    0.63
                    
                    
                    $
                    .89
                    
                    
                    $
                    0.95
                    
                    
                    $
                    0.65Weighted
      average shares used in income per share calculation –
    Diluted
                    
                    
                    5,941
                    
                    
                    
                    6,022
                    
                    
                    
                    6,001
                    
                    
                    
                    5,931
                    
                    
                    
                    5,867Book
      value per share
                    
                    $
                    8.84
                    
                    
                    $
                    8.51
                    
                    
                    $
                    8.05
                    
                    
                    $
                    7.34
                    
                    
                    $
                    6.56BALANCE
      SHEET:Net
      loans
                    
                    $
                    581,075
                    
                    
                    $
                    539,165
                    
                    
                    $
                    451,572
                    
                    
                    $
                    381,517
                    
                    
                    $
                    290,506Total
      assets
                    
                    
                    656,981
                    
                    
                    
                    609,850
                    
                    
                    
                    516,615
                    
                    
                    
                    444,354
                    
                    
                    
                    365,203Total
      deposits
                    
                    
                    475,439
                    
                    
                    
                    433,739
                    
                    
                    
                    368,747
                    
                    
                    
                    334,238
                    
                    
                    
                    284,568Total
      liabilities
                    
                    
                    590,363
                    
                    
                    
                    559,691
                    
                    
                    
                    469,795
                    
                    
                    
                    402,119
                    
                    
                    
                    327,634Total
      stockholders' equity
                    
                    
                    66,618
                    
                    
                    
                    50,159
                    
                    
                    
                    46,820
                    
                    
                    
                    42,235
                    
                    
                    
                    37,569
 OPERATING
      AND CAPITAL RATIOS:Return
      on average equity
                      
                      
                      2.85
                      %
                      
                      
                      7.72
                      %
                      
                      
                      11.88
                      %
                      
                      
                      14.16
                      %
                      
                      
                      10.60
                      %Return
      on average assets
                      
                      
                      0.23
                      
                      
                      
                      0.67
                      
                      
                      
                      1.12
                      
                      
                      
                      1.43
                      
                      
                      
                      1.15Dividend
      payout ratio
                      
                      
                      49.07
                      
                      
                      
                      36.92
                      
                      
                      
                      24.97
                      
                      
                      
                      19.39
                      
                      
                      
                      17.91Equity
      to assets ratio
                      
                      
                      10.14
                      
                      
                      
                      8.22
                      
                      
                      
                      9.06
                      
                      
                      
                      9.50
                      
                      
                      
                      10.29Tier
      1 leverage ratio
                      
                      
                      10.28
                      
                      
                      
                      8.39
                      
                      
                      
                      9.21
                      
                      
                      
                      9.80
                      
                      
                      
                      10.41Tier
      1 risk-based capital ratio
                      
                      
                      12.45
                      
                      
                      
                      9.87
                      
                      
                      
                      10.57
                      
                      
                      
                      11.21
                      
                      
                      
                      12.51Total
      risk-based capital ratio
                      
                      
                      13.70
                      
                      
                      
                      10.74
                      
                      
                      
                      11.45
                      
                      
                      
                      12.26
                      
                      
                      
                      13.76
  -16-
 Index
  ITEM
      7.
              MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
 
 The
following discussion is designed to provide insight into management’s assessment
of significant trends related to the consolidated financial condition, results
of operations, liquidity, capital resources and interest rate risk for Community
West Bancshares (“CWBC”) and its wholly-owned subsidiary, Community West Bank
(“CWB” or “Bank”).  Unless otherwise stated, “Company” refers to CWBC
and CWB as a consolidated entity.  The following discussion should be
read in conjunction with the Company’s Consolidated Financial Statements and
Notes thereto and the other financial information appearing elsewhere in this
2008 Annual Report on Form 10-K.
 
 Forward-Looking
Statements
 
 This 2008
Annual Report on Form 10-K 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.
 
 Risk
Factors
 
 The Bank
is subject to a number of risks that may adversely affect our financial
condition or results of operation, many of which are outside of our direct
control, though efforts are made to manage those risks while optimizing
returns.  Among the risks assumed are: (1) credit risk, which is
the risk of loss due to loan and lease customers or other counterparties not
being able to meet their financial obligations under agreed upon terms, (2)
market risk,which is the risk of loss due to changes in the market value of assets
and liabilities due to changes in the market interest rates, foreign exchange
rates, equity prices, and credit spreads, (3) liquidity risk, which
is the risk of loss due to the possibility that funds may not be available to
satisfy current of future obligations based on external macro market issues,
investor and customer perception of financial strength, and events unrelated to
the Company such as war, terrorism, or financial institution market specific
issues, and (4) operational risk,
which is the risk of loss due to human error, inadequate or failed internal
systems and controls, violation of, or noncompliance with, laws, rules,
regulations, prescribed practices, or ethical standards, and external influences
such as market conditions, fraudulent activities, disasters and security
risks.
 
 Throughout
2008, the Bank operated in what is now labeled by many industry observers as the
most difficult environment for financial institutions in many
decades.  What began as a subprime lending crises in 2007, turned into
a widespread housing, banking and capital market crisis in 2008.  As a
result, 2008 represented a year of tremendous capital markets turmoil as capital
markets ceased to function and credit markets were largely closed to businesses
and consumers.  The unavailability of credit to many borrowers and
lack of credit flow, even between banks, contributed to the weakening of the
economy, especially in the second half of 2008, and the 2008 fourth quarter in
particular.
 
 Concurrent
with and reflecting this environment, the weakeness that had been centered
primarily in the housing and capital markets segments, spilled over into other
segments of the economy.  The most visible sector negatively impacted
was manufacturing, and most notably, the automobile sector.
 
 The
United States government took several actions in 2008 and into 2009, such as the
largest stimulus plan in United States’ history, and considering even further
actions, no assurances can be given regarding their effectiveness in
strengthening the capital markets and improving the
economy.  Therefore, for the foreseeable future, the Company may be
operating in a heightened risk environment.  Of the major risk
factors, those most likely to affect financial institutions are credit risk,
market risk, and liquidity risk.
 
 As
related to credit
risk, the Bank anticipates continued pressure on credit quality
performance, including higher loan delinquencies, net charge-offs, and the level
of nonaccrual loans.  All loans portfolios are expected to be
impacted.  Until unemployment levels decline, and the economic outlook
improves, we anticipate that we will continue to build our allowance for credit
losses in both absolute and relative terms.
 
 With
regard to market
risk, the continuation of the volatile capital markets is likely to be
reflected in wide fluctuations in the value of certain assets, most notably
mortgage asset-backed securities.
  -17-
 Index
  The
actions taken by regulatory agencies and government bodies in late 2008 have
been effective in reducing systemic liquidity
risk.  Specific actions included the FDIC raising the deposit
insurance limit to $250,000 and providing full guarantees on noninterest bearing
deposits at all FDIC-insured financial institutions.  Among other
actions, the most significant was the passage in October 2008 of the $700
billion Emergency Economic Stabilization Act; the cornerstone of which was the
Troubled Asset Relief Program (TARP).  The TARP’s voluntary Capital
Purchase Plan (CPP) made available $350 billion of funds to banks and other
financial institutions.  The Bank participated in TARP and received
$15.6 million in capital investment.on December 19, 2008.
 
 More
information on risk is set forth under the heading “Risk Factors” included in
Item 1A of our 2008 form 10-K for the year ended December 31, 2008.
 
 Overview of Earnings
Performance
 
 Net
income available to common shareholders of the Company was $1.4 million, or
$0.24 per basic and diluted common share, for 2008 compared to $3.8 million, or
$0.65 per basic common share, and $0.63 per diluted common share, for
2007.    The Company’s earnings performance was impacted in
2008 by:
 
 §
              a
      400 to 425 basis point cut in the target federal funds rate from 4.25% at
      December 31, 2007 to a range of 0% to 0.25% as of December 31, 2008,
      impacting both yields on loans and rates paid on deposits and contributing
      to a 66 basis point decline in net interest margin from 4.38% to
      3.72%
 
 §
              contributing
      to the decline in margin was a higher balance of non-accrual loans which
      reduced the net interest margin by 27 basis points in 2008 compared to 16
      basis points for 2007
 
 §
              a
      decline in interest income from loans of $1.1 million due to the decline
      in yields, which was partly offset by an increase to the average loan
      balance of $75.0 million for  2008 compared to
    2007
 
 §
              loan
      loss provision of $5.3 million for 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 as well as increased allowance related to
      quarterly migration analysis
 
 §
              the
      results for the year benefited from a slight increase of
      4.9%  in non-interest income as well as a decline of 2.3% in
      non-interest expenses
 
 The
impact to the Company from these items, and others of both a positive and
negative nature, will be discussed in more detail as they pertain to the
Company’s overall comparative performance for the year ended December 31, 2008
throughout the analysis sections of this Annual Report.
 
 2008 Economic
Environment
 
 During
2008, market and economic conditions were severely impacted where credit
conditions rapidly deteriorated and financial markets experienced widespread
illiquidity and elevated levels of volatility.  Concerns about future
economic growth, unemployment, oil prices, lower consumer confidence, rapid
contraction of credit availability and lower corporate earnings continue to
challenge the economy.  As a result of these economic conditions,
federal government agencies, the Federal Reserve Board and the Treasury
initiated several actions which have changed the landscape of the financial
services’ industry.
 
 The
deteriorating economy continues to negatively impact the credit quality of our
loan portfolio.  The stress businesses and consumers have experienced
has resulted in higher level of bankruptcies, foreclosures and delinquencies and
losses in our portfolio.  The Company has increased its allowance for
loan losses – see “Provision for Loan Losses” below.
 
 The
Company did not have subprime lending exposure or exposure in its investment
securities’ portfolio as all issues are guaranteed directly or indirectly by a
government agency or government sponsored entity.
 
 The
economic conditions noted above are widely considered likely to continue
throughout most or all of 2009.
 
 Regulatory
Initiatives
 
 On
October 3, 2008, the President signed EESA into law.  Pursuant to
EESA, the Treasury has authority to, among other things, invest in financial
institutions and purchase mortgages, mortgage-backed securities and certain
other financial instruments from financial institutions, in an aggregate of up
to $700 billion, for the purpose of stabilizing and providing liquidity to the
U.S. financial markets.
 
 On
October 14, 2008, in connection with the TARP-CPP, established as part of EESA,
the Treasury announced a plan to invest up to $250 billion in certain eligible
financial institutions in the form of non-voting, senior preferred stock
initially paying quarterly dividends at a 5% annual rate.  When the
Treasury makes such preferred investments in any company, it will also receive
10-year warrants to acquire common shares.  We were identified as such
a company and received $15.6 million in capital investment on December 19,
2008.  See discussion under “–Capital Resources”
below.
  -18-
 Index
  As part
of the initiatives, the FDIC implemented the Temporary Liquidity Guarantee
Program (TLGP) to strengthen confidence and encourage liquidity in the banking
system.  The TLGP is comprised of the Debt Guarantee Program (DGP) and
the Transaction Account Guarantee Program (‘TAGP").  The DGP will
guarantee all newly issued senior unsecured debt (e.g. promissory notes,
unsubordinated unsecured notes and commercial paper - of which the Company
currently has none) up to prescribed limits issued by participating entities
beginning on October 14, 2008 and continuing through June 30,
2009.  For eligible debt issued by that date, the FDIC will provide
the guarantee coverage until the earlier of the maturity date of the debt or
June 30, 2012.  The TAGP will offer full guarantee for
noninterest-bearing deposit accounts held at FDIC-insured depository
institutions.  The unlimited coverage is voluntary for eligible
institutions and would be in addition to the $250,000 FDIC deposit insurance per
account that was included as part of EESA.  The TAGP coverage became
effective on October 14, 2008 and will continue for participating institutions
until December 31, 2009.
 
 Initially,
these programs were provided at no cost until the opt-out extension period date
of December 5, 2008.  Participants in the DGP will be charged an
annualized fee of 75 basis points.  Any eligible entity that has
chosen not to opt out of the TAGP will be quarterly assessed a 10 basis point
fee on balances in noninterest-bearing transaction accounts that exceed the
deposit insurance limit of $250,000.
 
 On
February 10, 2009, the FSP was announced by the Treasury.  The FSP is
a comprehensive set of measures intended to shore up the financial
system.  The core elements of FSP include making bank capital
injections, creating a public-private investment fund to buy troubled assets,
establishing guidelines for loan modification programs and expanding the Federal
Reserve lending program.  The Treasury has indicated more details
regarding the FSP are to be announced on a newly created government website,
www.FinancialStability.gov, in the next several weeks.
 
 Critical Accounting
Policies
 
 The
Company’s accounting policies are more fully described in Note 1 of the
Consolidated Financial Statements.  As disclosed in Note 1, the
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions about future events that affect the amounts reported in the
financial statements and accompanying notes.  Actual results could
differ significantly from those estimates.  The Company believes that
the following discussion addresses the Company’s most critical accounting
policies, which are those that are most important to the portrayal of the
Company’s financial condition and results of operations and require management’s
most difficult, subjective and complex judgments.
 
 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
      – A migration analysis and various portfolio specific factors are used to
      calculate the required allowance for all non-impaired loans.  In
      addition, the migration results are adjusted based upon qualitative
      factors. Impaired loans are assigned a specific reserve based upon the
      individual characteristics of the
loan.
 
 ·
              Relationship
      Banking – Primarily includes commercial, commercial real estate and
      construction loans.  A migration analysis and various portfolio
      specific factors are used to calculate the required allowance for all
      non-impaired loans. In addition, the migration results are adjusted based
      upon qualitative factors.  Impaired loans are assigned a
      specific reserve based upon the individual characteristics of the
      loan.
 
 ·
              Manufactured
      Housing – The allowance is calculated on the basis of loss history and
      risk rating, which is primarily a function of delinquency.  In
      addition, the loss history is adjusted based upon qualitative
      factors.
  -19-
 Index
  The
Company calculates the required ALL on a monthly basis.  Any
difference between estimated and actual observed losses from the prior month is
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
the outcome of future events 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 can be 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.
 
 Other Assets
Acquired Through Foreclosure– Other assets acquired through foreclosure
includes real estate and other repossessed assets and the collateral property is
recorded at the lesser of the appraised value at the time of foreclosure less
estimated costs to sell or the loan balance.  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 the legal ownership
date, management periodically performs a new valuation and the asset is carried
at the lower of carrying amount or fair value.  Operating expenses or
income, and gains or losses on disposition of such properties, are recorded in
current operations.
 
 Changes in Interest Income
and Interest Expense
 
 The
Company primarily earns income from the management of its financial assets and
liabilities and from charging fees for services it provides.  The
Company's income from managing assets consists of the difference between the
interest income received from its loan portfolio and investments and the
interest expense paid on its funding sources, primarily interest paid on
deposits.  This difference or spread is net interest
income.  The amount by which interest income will exceed interest
expense depends on the volume or balance of interest-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 income, when expressed as a percentage of average total
interest-earning assets, is referred to as net interest margin on
interest-earning assets.  The Company's net interest income is
affected by the change in the level and the mix of interest-earning assets and
interest-bearing liabilities, referred to as volume changes.  The
Company's net yield on interest-earning assets is also affected by changes in
the yields earned on assets and rates paid on liabilities, referred to as rate
changes.  Interest rates charged on the Company's loans are affected
principally by the demand for such loans, the supply of money available for
lending purposes, competitive factors and general economic conditions such as
federal economic policies, legislative tax policies and governmental budgetary
matters.  To maintain its net interest margin, the Company must manage
the relationship between interest earned and paid.
  -20-
 Index
  The
following table sets forth, for the period indicated, the increase or decrease
in dollars and percentages of certain items in the consolidated income
statements as compared to the prior periods:
 
 Year
      Ended December 31,2008
      vs. 2007
                                
                                
                                2007
      vs. 2006Amount
      of
                                  Increase
                                  (decrease)
                                
                                
                                Percent
      of
                                  Increase
                                  (decrease)
                                
                                
                                Amount
      of
                                  Increase
                                  (decrease)
                                
                                
                                Percent
      of
                                  Increase
                                  (decrease)INTEREST
      INCOME
                                
                                (dollars
      in thousands)Loans
                                
                                $
                                (1,099
                                )
                                
                                
                                (2.5
                                )%
                                
                                $
                                6,994
                                
                                
                                
                                18.8
                                %Investment
      securities
                                
                                
                                227
                                
                                
                                
                                11.6
                                %
                                
                                
                                376
                                
                                
                                
                                23.9
                                %Other
                                
                                
                                (437
                                )
                                
                                
                                (61.6
                                )%
                                
                                
                                168
                                
                                
                                
                                31.1
                                %Total
      interest income
                                
                                
                                (1,309
                                )
                                
                                
                                (2.8
                                )%
                                
                                
                                7,538
                                
                                
                                
                                19.2
                                %INTEREST
      EXPENSEDeposits
                                
                                
                                (583
                                )
                                
                                
                                (3.3
                                )%
                                
                                
                                4,583
                                
                                
                                
                                34.7
                                %Bonds
      payable and other borrowings
                                
                                
                                (28
                                )
                                
                                
                                (0.6
                                )%
                                
                                
                                1,447
                                
                                
                                
                                40.4
                                %Total
      interest expense
                                
                                
                                (611
                                )
                                
                                
                                (2.7
                                )%
                                
                                
                                6,030
                                
                                
                                
                                35.9
                                %NET
      INTEREST INCOME
                                
                                
                                (698
                                )
                                
                                
                                (2.9
                                )%
                                
                                
                                1,508
                                
                                
                                
                                6.7
                                %Provision
      for loan losses
                                
                                
                                3,967
                                
                                
                                
                                305.9
                                %
                                
                                
                                808
                                
                                
                                
                                165.2
                                %NET
      INTEREST INCOME AFTER PROVISION   FOR LOAN
      LOSSES
                                
                                
                                (4,665
                                )
                                
                                
                                (20.5
                                )%
                                
                                
                                700
                                
                                
                                
                                3.2
                                %NON-INTEREST
      INCOMEOther
      loan fees
                                
                                
                                (634
                                )
                                
                                
                                (23.2
                                )%
                                
                                
                                (92
                                )
                                
                                
                                (3.3
                                )%Gains
      from loan sales, net
                                
                                
                                216
                                
                                
                                
                                26.9
                                %
                                
                                
                                (697
                                )
                                
                                
                                (46.5
                                )%Document
      processing fees, net
                                
                                
                                (32
                                )
                                
                                
                                (4.3
                                )%
                                
                                
                                (66
                                )
                                
                                
                                (8.1
                                )%Loan
      servicing fees, net
                                
                                
                                484
                                
                                
                                
                                -
                                
                                
                                
                                (255
                                )
                                
                                
                                (98.5
                                )%Service
      charges
                                
                                
                                (8
                                )
                                
                                
                                (1.8
                                )%
                                
                                
                                78
                                
                                
                                
                                21.4
                                %Other
                                
                                
                                210
                                
                                
                                
                                192.7
                                %
                                
                                
                                (95
                                )
                                
                                
                                (46.6
                                )%Total
      non-interest income
                                
                                
                                236
                                
                                
                                
                                4.9
                                %
                                
                                
                                (1,127
                                )
                                
                                
                                (18.9
                                )%NON-INTEREST
      EXPENSESSalaries
      and employee benefits
                                
                                
                                (622
                                )
                                
                                
                                (4.4
                                )%
                                
                                
                                1,001
                                
                                
                                
                                7.7
                                %Occupancy
      and equipment expenses
                                
                                
                                252
                                
                                
                                
                                12.1
                                %
                                
                                
                                234
                                
                                
                                
                                12.6
                                %Professional
      services
                                
                                
                                (108
                                )
                                
                                
                                (12.1
                                )%
                                
                                
                                (57
                                )
                                
                                
                                (6.0
                                )%Advertising
      and marketing
                                
                                
                                (330
                                )
                                
                                
                                (43.9
                                )%
                                
                                
                                149
                                
                                
                                
                                24.8
                                %Depreciation
                                
                                
                                2
                                
                                
                                
                                0.4
                                %
                                
                                
                                17
                                
                                
                                
                                3.4
                                %Other
                                
                                
                                322
                                
                                
                                
                                11.8
                                %
                                
                                
                                824
                                
                                
                                
                                43.1
                                %Total
      non-interest expenses
                                
                                
                                (484
                                )
                                
                                
                                (2.3
                                )%
                                
                                
                                2,168
                                
                                
                                
                                11.5
                                %Income
      before provision for income taxes
                                
                                
                                (3,945
                                )
                                
                                
                                
                                
                                
                                
                                (2,595
                                )Provision
      for income taxes
                                
                                
                                (1,637
                                )
                                
                                
                                
                                
                                
                                
                                (1,056
                                )NET
      INCOME
                                
                                $
                                (2,308
                                )
                                
                                
                                
                                
                                
                                $
                                (1,539
                                )Preferred
      stock dividends
                                
                                
                                35
                                
                                
                                
                                
                                
                                
                                
                                -NET
      INCOME AVAILABLE TO COMMON SHAREHOLDERS
                                
                                $
                                (2,343
                                )
                                
                                
                                
                                
                                
                                $
                                (1,539
                                )
 
 Comparison
of 2008 to 2007
 
 Net
interest income declined by $698,000, or 2.9%, for 2008 compared to
2007.
 
 Total
interest income declined by $1.3 million, or 2.8%, from $46.8 million in 2007 to
$45.5 million in 2008.  Of this decline, $7.1 million was due to
changes in rates and is reflective of the 400 to 425 basis point reduction in
the targeted Fed funds rate between December 2007 and December
2008.  Also contributing to the decline in yield on interest earning
assets was the increase in non-accrual loans which reduced yields by 27 basis
points in 2008 compared to 16 basis points in 2007.  The $7.1 million
decline was offset by $5.8 million increase in interest income due to the growth
of interest earning assets.  Average loan balances increased by $75.0
million for 2008 compared to 2007.
  -21-
 Index
  Total
interest expense decreased by $611,000, or 2.7%, in 2008 compared to
2007.  Interest expense on deposits declined $583,000 while the
interest expense on other borrowings declined $28,000.  Of these
declines, $3.9 million was due to lower rates paid on deposits and
borrowings.  These rate declines were partially offset by $3.3 million
increase in interest expense due to growth in interest bearing
liabilities.
 
 Declines
in interest income for the commercial, real estate commercial and construction
and SBA portfolios of $1.2 million, $1.0 million and $559,000, respectively,
were partially offset by an increase of $1.8 million for the manufactured
housing portfolio.
 
 While the
decline in interest income was partly offset by the decline in interest expense,
margins continued to suffer compression.  Yields on interest earning
assets declined from 8.55% for 2007 to 7.27% for 2008.  This decline
was partly offset by a reduction in the rates paid on interest bearing
liabilities from 4.81% for 2007 to 4.05% for 2008.  The rapid decline
in interest rates due to the actions of the Federal Reserve impacted rates on
interest earning assets more quickly than the rates paid on interest bearing
liabilities.  Generally, rates paid on deposits and borrowings have
declined, but at a slower pace than the rates earned on loans.  The
net effect was a 66 basis point decline in the margin from 4.38% to
3.72%.  As deposit and borrowing rates continue to decline, this
margin compression may ease in coming periods.
 
 Comparison
of 2007 to 2006
 
 Net
interest income increased by $1.5 million, or 6.7%, for 2007 compared to
2006.  Total interest income increased by $7.5 million, or 19.2%, from
$39.3 million in 2006 to $46.8 million in 2007.  Of this increase,
$7.4 million was due to interest-earning asset growth, primarily loans, and
$134,000 resulted from rate increases.  Total interest expense
increased by $6.0 million, or 35.9%, in 2007 compared to
2006.  Interest expense on deposits increased $4.6 million while the
interest expense on other borrowings increased $1.4 million.  Of the
increase in interest expense on deposits, $2.8 million was due to deposit
growth, including broker deposits, and $1.8 million resulted from higher
rates.  The increase in interest expense is primarily due to increased
competition for core deposits which resulted in higher deposit rates and
increased use of wholesale funding sources to fund loan growth.
 
 The
increase in interest income resulted almost entirely from growth in interest
earning assets, primarily loans, with yields remaining flat at 8.55% from 2006
to 2007.  Average gross loans grew $81.0 million from $413.0 million
for 2006 to $494 million for 2007.  Margins continued to be compressed
as deposit and borrowing rates increased from 4.31% to
4.81%.   The upward pressure on interest rates paid on deposits
began to ease as the FOMC reduced the target level for the federal funds rate in
September 2007.   Responding to concerns about a weakening
economic outlook, the rate was reduced from 5.25% to 4.25% by December 31,
2007.
 
 The
following table sets forth the changes in interest income and expense
attributable to changes in rate and volume:
  Year
      Ended December 31,2008
      versus 2007
                                  
                                  
                                  2007
      versus 2006Total
                                  
                                  
                                  Change due to
                                  
                                  
                                  Total
                                  
                                  
                                  Change due tochange
                                  
                                  
                                  Rate
                                  
                                  
                                  Volum
                                  
                                  
                                  change
                                  
                                  
                                  Rate
                                  
                                  
                                  Volume(in
      thousands)Interest
      earning deposits in other financial institutions (including time
      deposits)
                                  
                                  $
                                  (7
                                  )
                                  
                                  $
                                  (9
                                  )
                                  
                                  $
                                  2
                                  
                                  
                                  $
                                  18
                                  
                                  
                                  $
                                  1
                                  
                                  
                                  $
                                  17Federal
      funds sold
                                  
                                  
                                  (430
                                  )
                                  
                                  
                                  (400
                                  )
                                  
                                  
                                  (30
                                  )
                                  
                                  
                                  150
                                  
                                  
                                  
                                  33
                                  
                                  
                                  
                                  117Investment
      securities
                                  
                                  
                                  227
                                  
                                  
                                  
                                  8
                                  
                                  
                                  
                                  219
                                  
                                  
                                  
                                  376
                                  
                                  
                                  
                                  155
                                  
                                  
                                  
                                  221Loans,
      net
                                  
                                  
                                  (1,099
                                  )
                                  
                                  
                                  (6,722
                                  )
                                  
                                  
                                  5,623
                                  
                                  
                                  
                                  6,994
                                  
                                  
                                  
                                  (55
                                  )
                                  
                                  
                                  7,049Total
      interest-earning assets
                                  
                                  
                                  (1,309
                                  )
                                  
                                  
                                  (7,123
                                  )
                                  
                                  
                                  5,814
                                  
                                  
                                  
                                  7,538
                                  
                                  
                                  
                                  134
                                  
                                  
                                  
                                  7,404Interest-bearing
      demand
                                  
                                  
                                  (1,224
                                  )
                                  
                                  
                                  (1,091
                                  )
                                  
                                  
                                  (133
                                  )
                                  
                                  
                                  582
                                  
                                  
                                  
                                  324
                                  
                                  
                                  
                                  258Savings
                                  
                                  
                                  (53
                                  )
                                  
                                  
                                  (31
                                  )
                                  
                                  
                                  (22
                                  )
                                  
                                  
                                  105
                                  
                                  
                                  
                                  89
                                  
                                  
                                  
                                  16Time
      certificates of deposit
                                  
                                  
                                  694
                                  
                                  
                                  
                                  (2,526
                                  )
                                  
                                  
                                  3,220
                                  
                                  
                                  
                                  3,896
                                  
                                  
                                  
                                  1,367
                                  
                                  
                                  
                                  2,529Other
      borrowings
                                  
                                  
                                  (28
                                  )
                                  
                                  
                                  (304
                                  )
                                  
                                  
                                  276
                                  
                                  
                                  
                                  1,447
                                  
                                  
                                  
                                  91
                                  
                                  
                                  
                                  1,356Total
      interest-bearing liabilities
                                  
                                  
                                  (611
                                  )
                                  
                                  
                                  (3,952
                                  )
                                  
                                  
                                  3,341
                                  
                                  
                                  
                                  6,030
                                  
                                  
                                  
                                  1,871
                                  
                                  
                                  
                                  4,159Net
      interest income
                                  
                                  $
                                  (698
                                  )
                                  
                                  $
                                  (3,171
                                  )
                                  
                                  $
                                  2,473
                                  
                                  
                                  $
                                  1,508
                                  
                                  
                                  $
                                  (1,737
                                  )
                                  
                                  $
                                  3,245
 -22-
 Index
  The
following table presents the net interest income and net interest margin for the
three years indicated:
 
 Year
      Ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006(dollars
      in thousands)Interest
      income
                    
                    $
                    45,532
                    
                    
                    $
                    46,841
                    
                    
                    $
                    39,303Interest
      expense
                    
                    
                    22,223
                    
                    
                    
                    22,834
                    
                    
                    
                    16,804Net
      interest income
                    
                    $
                    23,309
                    
                    
                    $
                    24,007
                    
                    
                    $
                    22,499Net
      interest margin
                    
                    
                    3.72
                    %
                    
                    
                    4.38
                    %
                    
                    
                    4.89
                    %
  Provision
for Loan Losses
 
 The
provision for loan losses increased $4.0 million to $5.3 million for 2008
compared to $1.3 million in 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
 
 The
following table summarizes the Company's non-interest income for the three years
indicated:
 
 Year
      Ended December 31,Non-interest
      income
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006(in
      thousands)Other
      loan fees
                  
                  $
                  2,104
                  
                  
                  $
                  2,738
                  
                  
                  $
                  2,830Gains
      from loan sales, net
                  
                  
                  1,018
                  
                  
                  
                  802
                  
                  
                  
                  1,499Document
      processing fees, net
                  
                  
                  718
                  
                  
                  
                  750
                  
                  
                  
                  816Loan
      servicing fees, net
                  
                  
                  488
                  
                  
                  
                  4
                  
                  
                  
                  259Service
      charges
                  
                  
                  434
                  
                  
                  
                  442
                  
                  
                  
                  364Other
                  
                  
                  319
                  
                  
                  
                  109
                  
                  
                  
                  204Total
      non-interest income
                  
                  $
                  5,081
                  
                  
                  $
                  4,845
                  
                  
                  $
                  5,972
  Comparison
of 2008 to 2007
 
 Non-interest
income increased by $236,000 for 2008 over 2007, primarily due to an increase of
$484,000 in loan servicing, $216,000 in gains on loans sales and the net gain on
the sale of other foreclosed assets of $205,000 included in other
income.  The Company sold $19.7 million in guaranteed SBA loans and
$1.7 million in unguaranteed SBA loans during 2008 compared to $5.3 million in
guaranteed and $3.5 million in unguaranteed for 2007.  The gain due to
the increased volume of loans sold was negatively impacted by a decline in the
premiums received on the sale of the guaranteed portion of SBA
loans.  The increase in loan servicing income benefited from lower
amortization of the servicing asset and I/O strip as prepayment speeds on SBA
loans have slowed.  These increases were partly offset by the decline
in other loan fees of $634,000 resulting from a decline in both loan origination
fees and referral fees on 504 SBA loans.
  -23-
 Index
  Comparison
of 2007 to 2006
 
 Total
non-interest income for the Company declined by $1.1 million, or 18.9%, in 2007
compared to 2006. The decline is primarily due to the sale of fewer SBA loans
which impacted gains from loan sales and loan servicing fees.  The
decrease in net gains from SBA loans sales was $648,000, or 47.6%, for 2007
compared to 2006.  The Company sold $8.8 million in SBA 7(a) loans in
2007 compared to $15.8 million in 2006. The reduction in loan sales, along with
higher prepayments, also impacted net loan servicing fees which decreased by
$255,000 in 2007 compared to 2006.  Net gains from mortgage loan sales
decreased by $49,000, or 35.3% in 2007 compared to 2006, primarily related to a
decline in mortgage loan originations from $43.4 million in 2006 to $39.6
million in 2007.
 
 Non-Interest
Expenses
 
 The
following table summarizes the Company's non-interest expenses for the three
years indicated:
 
 Year
      Ended December 31,Non-interest
      expenses
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006(in
      thousands)Salaries
      and employee benefits
                  
                  $
                  13,390
                  
                  
                  $
                  14,012
                  
                  
                  $
                  13,011Occupancy
      and equipment expenses
                  
                  
                  2,341
                  
                  
                  
                  2,089
                  
                  
                  
                  1,855Professional
      services
                  
                  
                  788
                  
                  
                  
                  896
                  
                  
                  
                  953Advertising
      and marketing
                  
                  
                  421
                  
                  
                  
                  751
                  
                  
                  
                  602Depreciation
                  
                  
                  518
                  
                  
                  
                  516
                  
                  
                  
                  499Other
                  
                  
                  3,058
                  
                  
                  
                  2,736
                  
                  
                  
                  1,912Total
      non-interest expenses
                  
                  $
                  20,516
                  
                  
                  $
                  21,000
                  
                  
                  $
                  18,832
 
 
 Comparison
of 2008 to 2007
 
 Total
non-interest expenses experienced a modest decline of 2.3% for 2008 compared to
2007.  This decline was focused principally in the areas of salaries
and benefits, which was reduced by $622,000 or 4.4% and advertising and
marketing, which declined by $330,000 or 43.9%.  The savings in the
area of salary and benefits was achieved through a reduction in staffing levels
beginning in the first quarter of 2008.  Increases in occupancy
related expense and other expenses partly offset these declines.
 
 Comparison
of 2007 to 2006
 
 Total
non-interest expenses increased $2.2 million, or 11.5%, in 2007 compared to
2006.  This increase was primarily due to an increase in salaries and
employee benefits of $1.0 million, or 7.7%, in 2007 compared to
2006.  Contributing to the increase in salaries and employee benefits
was the full year of operation of the new Westlake Village Branch which opened
in 2006, higher costs for health insurance and increased stock option
expense.  The Company also incurred increased occupancy costs of
$234,000 and advertising and marketing of $149,000.   Other
non-interest expenses were impacted by sublease costs of $220,000 related to a
former loan, and increases in the FDIC assessment, loan servicing and data
processing of $188,000, $128,000 and $119,000, respectively.
 
 The
following table compares the various elements of non-interest expenses as a
percentage of average assets:
 
 Year
      Ended December 31,
                    
                    Average
      Assets
                    
                    
                    Total Non-Interest
      Expenses
                    
                    
                    Salaries
      and Employee Benefits
                    
                    
                    Occupancy
      and Depreciation Expenses(dollars
      in thousands)2008
                    
                    $
                    640,993
                    
                    
                    
                    3.20
                    %
                    
                    
                    2.09
                    %
                    
                    
                    0.45
                    %2007
                    
                    $
                    563,493
                    
                    
                    
                    3.73
                    %
                    
                    
                    2.49
                    %
                    
                    
                    0.46
                    %2006
                    
                    $
                    474,465
                    
                    
                    
                    3.97
                    %
                    
                    
                    2.74
                    %
                    
                    
                    0.50
                    %
 
 Income
Taxes
 
 Income
tax expense was $1.1 million in 2008, $2.8 million in 2007 and $3.8 million in
2006.  The effective income tax rate was 43.3%, 42.2% and 41.8% for
2008, 2007 and 2006, respectively.    See Note 10, “Income
Taxes”, in the notes to the Consolidated Financial Statements.
  -24-
 Index
  Schedule
of Average Assets, Liabilities and Stockholders' Equity
 
 As of the
dates indicated below, the following schedule shows the average balances of the
Company's assets, liabilities and stockholders' equity accounts and, for each
balance, the percentage of average total assets:
 
 December
      31,2008
                  
                  
                  2007
                  
                  
                  2006Amount
                  
                  
                  %
                  
                  
                  Amount
                  
                  
                  %
                  
                  
                  Amount
                  
                  
                  %ASSETS
                  
                  (dollars
      in thousands)Cash
      and due from banks
                  
                  $
                  4,419
                  
                  
                  
                  0.7
                  %
                  
                  $
                  4,374
                  
                  
                  
                  0.8
                  %
                  
                  $
                  5,264
                  
                  
                  
                  1.1
                  %Time
      and interest-earning deposits in other financial
    institutions
                  
                  
                  997
                  
                  
                  
                  0.2
                  %
                  
                  
                  935
                  
                  
                  
                  0.2
                  %
                  
                  
                  567
                  
                  
                  
                  0.1
                  %Federal
      funds sold
                  
                  
                  11,488
                  
                  
                  
                  1.8
                  %
                  
                  
                  12,938
                  
                  
                  
                  2.3
                  %
                  
                  
                  10,661
                  
                  
                  
                  2.3
                  %Investment
      securities available-for-sale
                  
                  
                  6,889
                  
                  
                  
                  1.1
                  %
                  
                  
                  19,929
                  
                  
                  
                  3.5
                  %
                  
                  
                  22,655
                  
                  
                  
                  4.8
                  %Investment
      securities held-to-maturity
                  
                  
                  31,319
                  
                  
                  
                  4.9
                  %
                  
                  
                  14,741
                  
                  
                  
                  2.6
                  %
                  
                  
                  8,759
                  
                  
                  
                  1.9
                  %Federal
      Reserve Bank & Federal Home Loan Bank stock
                  
                  
                  6,634
                  
                  
                  
                  1.0
                  %
                  
                  
                  5,657
                  
                  
                  
                  1.0
                  %
                  
                  
                  4,342
                  
                  
                  
                  0.9
                  %Loans
      held for sale, net
                  
                  
                  120,339
                  
                  
                  
                  18.7
                  %
                  
                  
                  92,867
                  
                  
                  
                  16.5
                  %
                  
                  
                  64,785
                  
                  
                  
                  13.6
                  %Loans
      held for investment, net
                  
                  
                  436,525
                  
                  
                  
                  68.1
                  %
                  
                  
                  388,419
                  
                  
                  
                  68.9
                  %
                  
                  
                  332,315
                  
                  
                  
                  70.0
                  %Securitized
      loans, net
                  
                  
                  6,383
                  
                  
                  
                  1.0
                  %
                  
                  
                  8,444
                  
                  
                  
                  1.5
                  %
                  
                  
                  11,913
                  
                  
                  
                  2.5
                  %Servicing
      rights
                  
                  
                  1,161
                  
                  
                  
                  0.2
                  %
                  
                  
                  1,580
                  
                  
                  
                  0.3
                  %
                  
                  
                  2,410
                  
                  
                  
                  0.5
                  %Other
      assets acquired through foreclosure, net
                  
                  
                  540
                  
                  
                  
                  0.1
                  %
                  
                  
                  499
                  
                  
                  
                  0.1
                  %
                  
                  
                  52
                  
                  
                  
                  -Premises
      and equipment, net
                  
                  
                  3,814
                  
                  
                  
                  0.6
                  %
                  
                  
                  3,007
                  
                  
                  
                  0.5
                  %
                  
                  
                  2,287
                  
                  
                  
                  0.5
                  %Other
      assets
                  
                  
                  10,485
                  
                  
                  
                  1.6
                  %
                  
                  
                  10,103
                  
                  
                  
                  1.8
                  %
                  
                  
                  8,455
                  
                  
                  
                  1.8
                  %TOTAL
      ASSETS
                  
                  $
                  640,993
                  
                  
                  
                  100.0
                  %
                  
                  $
                  563,493
                  
                  
                  
                  100.0
                  %
                  
                  $
                  474,465
                  
                  
                  
                  100.0
                  %LIABILITIESDeposits:Non-interest-bearing
      demand
                  
                  $
                  35,618
                  
                  
                  
                  5.5
                  %
                  
                  $
                  34,172
                  
                  
                  
                  6.0
                  %
                  
                  $
                  34,555
                  
                  
                  
                  7.3
                  %Interest-bearing
      demand
                  
                  
                  58,893
                  
                  
                  
                  9.2
                  %
                  
                  
                  65,687
                  
                  
                  
                  11.7
                  %
                  
                  
                  58,569
                  
                  
                  
                  12.3
                  %Savings
                  
                  
                  14,989
                  
                  
                  
                  2.3
                  %
                  
                  
                  15,642
                  
                  
                  
                  2.8
                  %
                  
                  
                  15,184
                  
                  
                  
                  3.2
                  %Time
      certificates of $100,000 or more
                  
                  
                  88,385
                  
                  
                  
                  13.8
                  %
                  
                  
                  155,156
                  
                  
                  
                  27.5
                  %
                  
                  
                  138,897
                  
                  
                  
                  29.2
                  %Other
      time certificates
                  
                  
                  278,510
                  
                  
                  
                  43.5
                  %
                  
                  
                  135,831
                  
                  
                  
                  24.1
                  %
                  
                  
                  102,604
                  
                  
                  
                  21.7
                  %Total
      deposits
                  
                  
                  476,395
                  
                  
                  
                  74.3
                  %
                  
                  
                  406,488
                  
                  
                  
                  72.1
                  %
                  
                  
                  349,809
                  
                  
                  
                  73.7
                  %Other
      borrowings
                  
                  
                  108,141
                  
                  
                  
                  16.9
                  %
                  
                  
                  102,167
                  
                  
                  
                  18.2
                  %
                  
                  
                  74,597
                  
                  
                  
                  15.8
                  %Other
      liabilities
                  
                  
                  4,562
                  
                  
                  
                  0.7
                  %
                  
                  
                  5,785
                  
                  
                  
                  1.0
                  %
                  
                  
                  5,210
                  
                  
                  
                  1.1
                  %Total
      liabilities
                  
                  
                  589,098
                  
                  
                  
                  91.9
                  %
                  
                  
                  514,440
                  
                  
                  
                  91.3
                  %
                  
                  
                  429,616
                  
                  
                  
                  90.6
                  %STOCKHOLDERS'
      EQUITYPreferred
      stock
                  
                  
                  464
                  
                  
                  
                  0.1
                  %
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Common
      stock
                  
                  
                  31,808
                  
                  
                  
                  4.9
                  %
                  
                  
                  31,210
                  
                  
                  
                  5.5
                  %
                  
                  
                  30,517
                  
                  
                  
                  6.4
                  %Retained
      earnings
                  
                  
                  19,630
                  
                  
                  
                  3.1
                  %
                  
                  
                  17,953
                  
                  
                  
                  3.2
                  %
                  
                  
                  14,523
                  
                  
                  
                  3.0
                  %Accumulated
      other comprehensive loss
                  
                  
                  (7
                  )
                  
                  
                  -
                  
                  
                  
                  (110
                  )
                  
                  
                  -
                  
                  
                  
                  (191
                  )
                  
                  
                  -Total
      stockholders' equity
                  
                  
                  51,895
                  
                  
                  
                  8.1
                  %
                  
                  
                  49,053
                  
                  
                  
                  8.7
                  %
                  
                  
                  44,849
                  
                  
                  
                  9.4
                  %TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                  
                  $
                  640,993
                  
                  
                  
                  100.0
                  %
                  
                  $
                  563,493
                  
                  
                  
                  100.0
                  %
                  
                  $
                  474,465
                  
                  
                  
                  100.0
                  %
 -25-
 Index
  Interest Rates and
Differentials
 
 The
following table illustrates average yields on interest-earning assets and
average rates paid on interest-bearing liabilities for the years
indicated.  These 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 years indicated.  Amounts outstanding are averages
of daily balances during the period.
 
 Year
      Ended December 31,Interest-earning
      assets:
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006(dollars
      in thousands)Time
      and interest earning deposits in other financial
    institutions:Average
      outstanding
                  
                  $
                  997
                  
                  
                  $
                  935
                  
                  
                  $
                  567Interest
      income
                  
                  
                  36
                  
                  
                  
                  43
                  
                  
                  
                  25Average
      yield
                  
                  
                  3.66
                  %
                  
                  
                  4.57
                  %
                  
                  
                  4.31
                  %Federal
      funds sold:Average
      outstanding
                  
                  $
                  11,488
                  
                  
                  $
                  12,938
                  
                  
                  $
                  10,661Interest
      income
                  
                  
                  236
                  
                  
                  
                  666
                  
                  
                  
                  516Average
      yield
                  
                  
                  2.05
                  %
                  
                  
                  5.15
                  %
                  
                  
                  4.84
                  %Investment
      securities:Average
      outstanding
                  
                  $
                  44,841
                  
                  
                  $
                  40,326
                  
                  
                  $
                  35,756Interest
      income
                  
                  
                  2,179
                  
                  
                  
                  1,952
                  
                  
                  
                  1,576Average
      yield
                  
                  
                  4.86
                  %
                  
                  
                  4.84
                  %
                  
                  
                  4.41
                  %Gross
      loans:Average
      outstanding
                  
                  $
                  568,861
                  
                  
                  $
                  493,903
                  
                  
                  $
                  412,947Interest
      income
                  
                  
                  43,081
                  
                  
                  
                  44,180
                  
                  
                  
                  37,186Average
      yield
                  
                  
                  7.57
                  %
                  
                  
                  8.95
                  %
                  
                  
                  9.01
                  %Total
      interest-earning assets:Average
      outstanding
                  
                  $
                  626,187
                  
                  
                  $
                  548,102
                  
                  
                  $
                  459,931Interest
      income
                  
                  
                  45,532
                  
                  
                  
                  46,841
                  
                  
                  
                  39,303Average
      yield
                  
                  
                  7.27
                  %
                  
                  
                  8.55
                  %
                  
                  
                  8.55
                  %
 -26-
 Index
 
 Year
      Ended December 31,Interest-bearing
      liabilities:
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006(dollars
      in thousands)Interest-bearing
      demand deposits:Average
      outstanding
                  
                  $
                  58,893
                  
                  
                  $
                  65,687
                  
                  
                  $
                  58,569Interest
      expense
                  
                  
                  1,153
                  
                  
                  
                  2,378
                  
                  
                  
                  1,796Average
      effective rate
                  
                  
                  1.96
                  %
                  
                  
                  3.62
                  %
                  
                  
                  3.07
                  %Savings
      deposits:Average
      outstanding
                  
                  $
                  14,989
                  
                  
                  $
                  15,642
                  
                  
                  $
                  15,184Interest
      expense
                  
                  
                  507
                  
                  
                  
                  560
                  
                  
                  
                  455Average
      effective rate
                  
                  
                  3.39
                  %
                  
                  
                  3.58
                  %
                  
                  
                  2.99
                  %Time
      certificates of deposit:Average
      outstanding
                  
                  $
                  366,895
                  
                  
                  $
                  290,987
                  
                  
                  $
                  241,502Interest
      expense
                  
                  
                  15,565
                  
                  
                  
                  14,870
                  
                  
                  
                  10,974Average
      effective rate
                  
                  
                  4.24
                  %
                  
                  
                  5.11
                  %
                  
                  
                  4.54
                  %Other
      borrowings:Average
      outstanding
                  
                  $
                  108,141
                  
                  
                  $
                  102,167
                  
                  
                  $
                  74,602Interest
      expense
                  
                  
                  4,998
                  
                  
                  
                  5,026
                  
                  
                  
                  3,579Average
      effective rate
                  
                  
                  4.62
                  %
                  
                  
                  4.92
                  %
                  
                  
                  4.80
                  %Total
      interest-bearing liabilities:Average
      outstanding
                  
                  $
                  548,918
                  
                  
                  $
                  474,483
                  
                  
                  $
                  389,857Interest
      expense
                  
                  
                  22,223
                  
                  
                  
                  22,834
                  
                  
                  
                  16,804Average
      effective rate
                  
                  
                  4.05
                  %
                  
                  
                  4.81
                  %
                  
                  
                  4.31
                  %Net
      interest income
                  
                  $
                  23,309
                  
                  
                  $
                  24,007
                  
                  
                  $
                  22,499Net
      interest spread
                  
                  
                  3.22
                  %
                  
                  
                  3.74
                  %
                  
                  
                  4.24
                  %Average
      net margin
                  
                  
                  3.72
                  %
                  
                  
                  4.38
                  %
                  
                  
                  4.89
                  %
 
 Nonaccrual
loans are included in the average balance of loans outstanding.
 
 Loan
Portfolio
 
 The
Company's largest categories of loans held in the portfolio are commercial,
commercial real estate and construction, SBA and manufactured housing
loans.  Loans are carried at face amount, net of payments collected,
the allowance for loan loss and deferred loan fees/costs. Interest on all loans
is accrued daily, primarily on a simple interest basis.  It is the
Company's policy to place a loan on nonaccrual status when the loan is 90 days
past due.  Thereafter, previously recorded interest is reversed and
interest income is typically recognized on a cash basis.
 
 The rates
charged on variable rate loans are set at specific increments.  These
increments vary in relation to the Company's published prime lending rate or
other appropriate indices.  At December 31, 2008 and 2007,
approximately 59% of the Company's loan portfolio was comprised of variable
interest rate loans.  Management monitors the maturity of loans and
the sensitivity of loans to changes in interest rates.
  -27-
 Index
  The
following table sets forth, as of the dates indicated, the amount of gross loans
outstanding based on the remaining scheduled repayments of principal, which
could either be repriced or remain fixed until maturity, classified by scheduled
principal payments:
 
 December
      31,2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005
                  
                  
                  2004In
      Years
                  
                  
                  
                  
                  
                  
                  
                  (in
      thousands)Fixed
                  
                  
                  Variable
                  
                  
                  Fixed
                  
                  
                  Variable
                  
                  
                  Fixed
                  
                  
                  Variable
                  
                  
                  Fixed
                  
                  
                  Variable
                  
                  
                  Fixed
                  
                  
                  VariableLess
      than One
                  
                  $
                  16,405
                  
                  
                  $
                  78,005
                  
                  
                  $
                  16,445
                  
                  
                  $
                  83,356
                  
                  
                  $
                  16,442
                  
                  
                  $
                  76,509
                  
                  
                  $
                  19,797
                  
                  
                  $
                  49,796
                  
                  
                  $
                  3,877
                  
                  
                  $
                  44,896One
      to Five
                  
                  
                  87,034
                  
                  
                  
                  82,298
                  
                  
                  
                  79,549
                  
                  
                  
                  67,549
                  
                  
                  
                  65,083
                  
                  
                  
                  50,931
                  
                  
                  
                  39,081
                  
                  
                  
                  50,708
                  
                  
                  
                  12,922
                  
                  
                  
                  29,567Over
      Five
                  
                  
                  137,632
                  
                  
                  
                  187,525
                  
                  
                  
                  129,335
                  
                  
                  
                  167,878
                  
                  
                  
                  103,242
                  
                  
                  
                  144,136
                  
                  
                  
                  88,086
                  
                  
                  
                  139,570
                  
                  
                  
                  94,568
                  
                  
                  
                  110,215Total
                  
                  $
                  241,071
                  
                  
                  $
                  347,828
                  
                  
                  $
                  225,329
                  
                  
                  $
                  318,783
                  
                  
                  $
                  184,767
                  
                  
                  $
                  271,576
                  
                  
                  $
                  146,964
                  
                  
                  $
                  240,074
                  
                  
                  $
                  111,367
                  
                  
                  $
                  184,67840.9
                  %
                  
                  
                  59.1
                  %
                  
                  
                  41.4
                  %
                  
                  
                  58.6
                  %
                  
                  
                  40.5
                  %
                  
                  
                  59.5
                  %
                  
                  
                  38.0
                  %
                  
                  
                  62.0
                  %
                  
                  
                  37.6
                  %
                  
                  
                  62.4
                  %
 
 As of
December 31, 2008, approximately $97.7 million of the variable rate loans were
subject to rate floors.
 
 Distribution
of Loans
 
 The
distribution of total loans by type of loan, as of the dates indicated, is shown
in the following table:
 
 December
      31,2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2005
                    
                    
                    2004(dollars
      in thousands)Loan
      Balance
                    
                    
                    Loan
      Balance
                    
                    
                    Loan
      Balance
                    
                    
                    Loan
      Balance
                    
                    
                    Loan
      BalanceCommercial
                    
                    $
                    74,895
                    
                    
                    $
                    72,470
                    
                    
                    $
                    53,725
                    
                    
                    $
                    44,957
                    
                    
                    $
                    30,893Real
      estate
                    
                    
                    129,876
                    
                    
                    
                    136,734
                    
                    
                    
                    135,902
                    
                    
                    
                    116,938
                    
                    
                    
                    85,357SBA
                    
                    
                    167,491
                    
                    
                    
                    142,874
                    
                    
                    
                    103,361
                    
                    
                    
                    95,217
                    
                    
                    
                    78,878Manufactured
      housing
                    
                    
                    190,838
                    
                    
                    
                    172,938
                    
                    
                    
                    142,804
                    
                    
                    
                    101,336
                    
                    
                    
                    66,423Other
      installment
                    
                    
                    15,793
                    
                    
                    
                    10,027
                    
                    
                    
                    8,301
                    
                    
                    
                    11,355
                    
                    
                    
                    8,645Securitized
                    
                    
                    5,645
                    
                    
                    
                    7,507
                    
                    
                    
                    10,104
                    
                    
                    
                    14,858
                    
                    
                    
                    23,474Mortgage
      loans held for sale
                    
                    
                    4,361
                    
                    
                    
                    1,562
                    
                    
                    
                    2,146
                    
                    
                    
                    2,377
                    
                    
                    
                    2,375Gross
      Loans
                    
                    
                    588,899
                    
                    
                    
                    544,112
                    
                    
                    
                    456,343
                    
                    
                    
                    387,038
                    
                    
                    
                    296,045Less:Allowance
      for loan losses
                    
                    
                    7,341
                    
                    
                    
                    4,412
                    
                    
                    
                    3,926
                    
                    
                    
                    3,954
                    
                    
                    
                    3,894Deferred
      fees/costs
                    
                    
                    (326
                    )
                    
                    
                    (48
                    )
                    
                    
                    43
                    
                    
                    
                    181
                    
                    
                    
                    (103
                    )Discount
      on SBA loans
                    
                    
                    809
                    
                    
                    
                    583
                    
                    
                    
                    802
                    
                    
                    
                    1,386
                    
                    
                    
                    1,748Net
      Loans
                    
                    $
                    581,075
                    
                    
                    $
                    539,165
                    
                    
                    $
                    451,572
                    
                    
                    $
                    381,517
                    
                    
                    $
                    290,506Percentage
      to Gross Loans:Commercial
                    
                    
                    12.7
                    %
                    
                    
                    13.3
                    %
                    
                    
                    11.8
                    %
                    
                    
                    11.6
                    %
                    
                    
                    10.5
                    %Real
      estate
                    
                    
                    22.1
                    
                    
                    
                    25.1
                    
                    
                    
                    29.8
                    
                    
                    
                    30.2
                    
                    
                    
                    28.8SBA
                    
                    
                    28.4
                    
                    
                    
                    26.3
                    
                    
                    
                    22.7
                    
                    
                    
                    24.6
                    
                    
                    
                    26.6Manufactured
      housing
                    
                    
                    32.4
                    
                    
                    
                    31.8
                    
                    
                    
                    31.3
                    
                    
                    
                    26.2
                    
                    
                    
                    22.5Other
      installment
                    
                    
                    2.7
                    
                    
                    
                    1.8
                    
                    
                    
                    1.8
                    
                    
                    
                    2.9
                    
                    
                    
                    2.9Securitized
                    
                    
                    1.0
                    
                    
                    
                    1.4
                    
                    
                    
                    2.2
                    
                    
                    
                    3.9
                    
                    
                    
                    7.9Mortgage
      loans held for sale
                    
                    
                    .7
                    
                    
                    
                    .3
                    
                    
                    
                    .4
                    
                    
                    
                    .6
                    
                    
                    
                    .8100.0
                    %
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %
 
 Commercial
Loans
 
 In
addition to traditional term commercial loans made to business customers, CWB
grants revolving business lines of credit.  Under the terms of the
revolving lines of credit, CWB grants a maximum loan amount, which remains
available to the business during the loan term.  Generally, as part of
the loan requirements, the business agrees to maintain its primary banking
relationship with CWB.  CWB does not extend material loans of this
type in excess of two years.
  -28-
 Index
  Commercial
Real Estate and Construction Loans
 
 Commercial
real estate and construction loans are primarily made for the purpose of
purchasing, improving or constructing single-family residences, commercial or
industrial properties.
 
 A
substantial portion of CWB's real estate construction loans are first and second
trust deeds on the construction of owner-occupied single family
dwellings.  CWB also makes real estate construction loans on
commercial properties.  These consist of first and second trust deeds
collateralized by the related real property.  Construction loans are
generally written with terms of six to eighteen months and usually do not exceed
a loan to appraised value of 80%.
 
 Commercial
and industrial real estate loans are secured by nonresidential
property.  Office buildings or other commercial property primarily
secure these loans.  Loan to appraised value ratios on nonresidential
real estate loans are generally restricted to 80% of appraised value of the
underlying real property if occupied by the owner or owner’s business;
otherwise, these loans are generally restricted to 75% of appraised value of the
underlying real property.
 
 SBA
Loans
 
 The SBA
loans consist of 7(a), 504, conventional, investor and Business and Industry
loans (“B&I”).  The 7(a) loan proceeds are used for working
capital, machinery and equipment purchases, land and building purposes,
leasehold improvements and debt refinancing.  The SBA guarantees up to
85% of the loan amount depending on loan size. Although, in very recent
developments, as described below, the guarantee has been temporarily
increased.  Under the SBA 7(a) loan program, the Company is required
to retain a minimum of 5% of the principal balance of each loan it sells into
the secondary market.
 
 The 504
loans are made in conjunction with Certified Development
Companies.  These loans are granted to purchase or construct real
estate or acquire machinery and equipment.  The loan is structured
with a conventional first trust deed provided by a private lender and a second
trust deed which is funded through the sale of debentures.  The
predominant structure is terms of 10% down payment, 50% conventional first loan
and 40% debenture. Conventional and investor loans are funded by our
secondary-market partners and CWB receives a premium for these
transactions.
 
 B&I
loans are guaranteed by the U.S. Department of Agriculture.  The
guaranteed amount is generally 80%.  B&I loans are similar to the
7(a) loans but are made to businesses in designated rural
areas.  These loans can also be sold into the secondary
market.
 
 CWB has
made the decision based on an analysis of risk vs. reward and the desire to
preserve capital to discontinue as of April 1, 2009 SBA lending east of the
Rocky Mountains.
 
 On March
16, 2009, the White House announced as part of the Financial Stability Plan and
the Consumer and Business Lending Initiative, several provisions designed to
provide liquidity in SBA markets and encourage SBA lending
activities.  These include:
 
 ·
              Temporarily
      increasing the percentage guaranteed to 90% up to a maximum guarantee
      amount of $1.5 million
 
 ·
              Direct
      purchase of securities backed by SBA 7(a)
loans
 
 ·
              Make
      direct purchases securities backed by SBA 504
  loans
 
 ·
              Temporarily
      eliminate borrower and lender fees for 504
loans
 
 ·
              Temporarily
      eliminate up-front SBA guaranty fees that are passed through to borrowers
      for 7(a) loans
  -29-
 Index
  Real
Estate Loans
 
 The
mortgage loans consist of first and second mortgage loans secured by trust deeds
on one to four family homes.  These loans are made to borrowers for
purposes such as purchasing a home, refinancing an existing home, interest rate
reduction, home improvement, or debt consolidation.  These loans are
underwritten to specific investor guidelines and are committed for sale to that
investor.  A majority of these loans are sold servicing released into
the secondary market.
 
 Manufactured
Housing Loans
 
 The
mortgage loan division originates loans secured by manufactured homes located in
mobile home parks along the California coast and in the Sacramento area. 
The loans are serviced internally and are generally fixed rate written for terms
of 5 to 30 years with balloon payments ranging from 5 to 15 years.
 
 Other
Installment Loans
 
 Installment
loans consist of automobile, small home equity lines of credit and
general-purpose loans made to individuals.  These loans are primarily
fixed rate.
  -30-
 Index
  Off-Balance Sheet
Arrangements
 
 The Bank
has various “off-balance sheet” arrangements that might have an impact on its
financial condition, liquidity or result of operations.  The Bank’s
primary source of funds for its lending is its deposits.  If necessary
to meet the demand of deposit withdrawals or loan fundings, the Bank could
obtain funding through federal funds lines of credit, advances from the Federal
Home Loan Bank (“FHLB”), Fed discount window borrowing or issuance of deposits
through brokers.  The Bank has continuous lines of credit with
correspondent banks providing for federal funds lines of credit up to a maximum
of $23.5 million and availability under agreements with the FHLB for additional
borrowing capacity of $16.9 million at December 31, 2008.  There were
no borrowings outstanding on the federal funds facilities or the Fed discount
window at December 31, 2008, and advances from the FHLB in the amount of $110
million.  Available borrowing capacity from the Fed discount window
was $150 million at December 31, 2008.
 
 At
December 31, 2008, the Bank had outstanding commitments to fund existing
loans of approximately $37.7 million pursuant to credit availability terms in
the loan agreements, including standby letters of credit of
$552,000.  Because these commitments generally have fixed expiration
dates and many will expire without being drawn upon, the total commitment level
does not necessarily represent future cash requirements.  If needed to
fund these outstanding commitments, the Bank has the ability to liquidate
federal funds sold or securities available-for-sale or, on a short-term basis,
to borrow and purchase federal funds from other financial institutions, to
obtain advances from the FHLB or the Fed discount window and to issue new
certificates of deposit through the money desk or brokers.
 
 Total
loan commitments outstanding at the dates indicated are summarized
below:
 
 December
      31,2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2005
                    
                    
                    2004(in
      thousands)Commercial
                    
                    $
                    17,940
                    
                    
                    $
                    21,612
                    
                    
                    $
                    24,431
                    
                    
                    $
                    22,327
                    
                    
                    $
                    19,010Real
      estate
                    
                    
                    4,376
                    
                    
                    
                    8,649
                    
                    
                    
                    18,839
                    
                    
                    
                    19,323
                    
                    
                    
                    7,618SBA
                    
                    
                    6,526
                    
                    
                    
                    9,453
                    
                    
                    
                    5,508
                    
                    
                    
                    3,408
                    
                    
                    
                    6,107Installment
      loans
                    
                    
                    8,333
                    
                    
                    
                    10,503
                    
                    
                    
                    9,662
                    
                    
                    
                    9,330
                    
                    
                    
                    8,966Standby
      letters of credit
                    
                    
                    552
                    
                    
                    
                    518
                    
                    
                    
                    847
                    
                    
                    
                    1,499
                    
                    
                    
                    403Total
      commitments
                    
                    $
                    37,727
                    
                    
                    $
                    50,735
                    
                    
                    $
                    59,287
                    
                    
                    $
                    55,887
                    
                    
                    $
                    42,104
 
 Loan
Concentrations
 
 The
Company makes loans to borrowers in a number of different industries. Other than
manufactured housing, no single concentration comprises 10% or more of the
Company’s loan portfolio.  Commercial, commercial real estate,
construction and SBA loans each comprised over 10% of the Company’s loan
portfolio as of December 31, 2008 and 2007, but consisted of diverse
borrowers.
  -31-
 Index
  Allowance
for Loan Losses
 
 The
following table summarizes the activity in the allowance for loan losses for the
periods indicated:
 
 Year
      Ended December 31,2008
                            
                            
                            2007
                            
                            
                            2006
                            
                            
                            2005
                            
                            
                            2004(in
      thousands)Average
      gross loans, held for investment,
                            
                            $
                            448,522
                            
                            
                            $
                            401,036
                            
                            
                            $
                            348,161
                            
                            
                            $
                            288,049
                            
                            
                            $
                            230,533Gross
      loans at end of year, held for investment
                            
                            
                            456,630
                            
                            
                            
                            433,162
                            
                            
                            
                            379,703
                            
                            
                            
                            324,965
                            
                            
                            
                            248,412Allowance
      for loan losses, beginning of year
                            
                            $
                            4,412
                            
                            
                            $
                            3,926
                            
                            
                            $
                            3,954
                            
                            
                            $
                            3,894
                            
                            
                            $
                            4,676Loans
      charged off:Commercial
      (including SBA)
                            
                            
                            1,499
                            
                            
                            
                            775
                            
                            
                            
                            459
                            
                            
                            
                            228
                            
                            
                            
                            185Real
      estate
                            
                            
                            263
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            8
                            
                            
                            
                            274Installment
                            
                            
                            325
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Securitized
                            
                            
                            372
                            
                            
                            
                            142
                            
                            
                            
                            341
                            
                            
                            
                            831
                            
                            
                            
                            1,356Total
                            
                            
                            2,459
                            
                            
                            
                            917
                            
                            
                            
                            800
                            
                            
                            
                            1,067
                            
                            
                            
                            1,815Recoveries
      of loans previously charged offCommercial
      (including SBA)
                            
                            
                            106
                            
                            
                            
                            45
                            
                            
                            
                            93
                            
                            
                            
                            20
                            
                            
                            
                            31Real
      estate
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            89
                            
                            
                            
                            44Installment
                            
                            
                            2
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Securitized
                            
                            
                            16
                            
                            
                            
                            61
                            
                            
                            
                            190
                            
                            
                            
                            452
                            
                            
                            
                            540Total
                            
                            
                            124
                            
                            
                            
                            106
                            
                            
                            
                            283
                            
                            
                            
                            561
                            
                            
                            
                            615Net
      loans charged off
                            
                            
                            2,335
                            
                            
                            
                            811
                            
                            
                            
                            517
                            
                            
                            
                            506
                            
                            
                            
                            1,200Provision
      for loan losses
                            
                            
                            5,264
                            
                            
                            
                            1,297
                            
                            
                            
                            489
                            
                            
                            
                            566
                            
                            
                            
                            418Allowance
      for loan losses, end of year
                            
                            $
                            7,341
                            
                            
                            $
                            4,412
                            
                            
                            $
                            3,926
                            
                            
                            $
                            3,954
                            
                            
                            $
                            3,894Ratios:Net
      loan charge-offs to average loans
                            
                            
                            0.52
                            %
                            
                            
                            0.20
                            %
                            
                            
                            0.15
                            %
                            
                            
                            0.18
                            %
                            
                            
                            0.52
                            %Net
      loan charge-offs to loans at end of period
                            
                            
                            0.51
                            %
                            
                            
                            0.19
                            %
                            
                            
                            0.14
                            %
                            
                            
                            0.16
                            %
                            
                            
                            0.48
                            %Allowance
      for loan losses to loans held for     investment
      at end of period
                            
                            
                            1.61
                            %
                            
                            
                            1.02
                            %
                            
                            
                            1.03
                            %
                            
                            
                            1.22
                            %
                            
                            
                            1.57
                            %Net
      loan charge-offs to allowance for loan losses at beginning of
      period
                            
                            
                            52.92
                            %
                            
                            
                            20.66
                            %
                            
                            
                            13.08
                            %
                            
                            
                            12.99
                            %
                            
                            
                            25.66
                            %Net
      loan charge-offs to provision for loan losses
                            
                            
                            44.46
                            %
                            
                            
                            62.53
                            %
                            
                            
                            105.73
                            %
                            
                            
                            89.40
                            %
                            
                            
                            287.08
                            %
 -32-
 Index
  The
following table summarizes the allowance for loanlosses:
 
 December
      31,2008
                        
                        
                        2007
                        
                        
                        2006
                        
                        
                        2005
                        
                        
                        2004(dollars
      in thousands)Balance at end of periodapplicable
      to:
                        
                        Amount
                        
                        
                        Percent
      of loans in each category to totalloans
                        
                        
                        Amount
                        
                        
                        Percent
      of loans in each category to totalloans
                        
                        
                        Amount
                        
                        
                        Percent
      of loans in each category to totalloans
                        
                        
                        Amount
                        
                        
                        Percent
      of loans in each category to totalloans
                        
                        
                        Amount
                        
                        
                        Percent
      of loans in each category to totalloansSBA
                        
                        $
                        2,850
                        
                        
                        
                        28.4
                        %
                        
                        $
                        1,810
                        
                        
                        
                        26.3
                        %
                        
                        $
                        1,365
                        
                        
                        
                        22.6
                        %
                        
                        $
                        1,409
                        
                        
                        
                        24.6
                        %
                        
                        $
                        1,388
                        
                        
                        
                        24.6
                        %Manufactured
      housing
                        
                        
                        1,659
                        
                        
                        
                        32.4
                        %
                        
                        
                        610
                        
                        
                        
                        31.8
                        %
                        
                        
                        786
                        
                        
                        
                        31.3
                        %
                        
                        
                        563
                        
                        
                        
                        26.2
                        %
                        
                        
                        465
                        
                        
                        
                        22.5
                        %Securitized
                        
                        
                        107
                        
                        
                        
                        1.0
                        %
                        
                        
                        322
                        
                        
                        
                        1.4
                        %
                        
                        
                        351
                        
                        
                        
                        2.2
                        %
                        
                        
                        628
                        
                        
                        
                        3.9
                        %
                        
                        
                        1,109
                        
                        
                        
                        7.9
                        %All
      other loans
                        
                        
                        2,725
                        
                        
                        
                        38.2
                        %
                        
                        
                        1,670
                        
                        
                        
                        40.5
                        %
                        
                        
                        1,424
                        
                        
                        
                        43.9
                        %
                        
                        
                        1,354
                        
                        
                        
                        45.3
                        %
                        
                        
                        932
                        
                        
                        
                        45.0
                        %Total
                        
                        $
                        7,341
                        
                        
                        
                        100.0
                        %
                        
                        $
                        4,412
                        
                        
                        
                        100.0
                        %
                        
                        $
                        3,926
                        
                        
                        
                        100.0
                        %
                        
                        $
                        3,954
                        
                        
                        
                        100.0
                        %
                        
                        $
                        3,894
                        
                        
                        
                        100.0
                        %
 
 Total
allowance for loan losses (“ALL”) increased by $2.9 million from December 31,
2007 to December 31, 2008.
 
 In
management’s opinion, the balance of the allowance for loan losses was
sufficient to absorb known and inherent probable losses in the portfolio as of
December 31, 2008.  During the first quarter of 2009, the Company has
experienced some deterioration and certain downgrades to specific loans in its
portfolio.  As a result, and to enhance the overall general reserve, it is
likely that the Company will  make substantial provisions to the
allowance for loan losses in the first quarter of 2009, and if further losses
come to light, the Company will record such provisions in the period in which
the losses are incurred.
 
 Nonaccrual,
Past Due and Restructured Loans
 
 A loan is
considered impaired when, based on current information and events, it is
determined 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
and 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, are
measured for impairment based on the present value of future cash
flows.
 
 The
recorded investment in loans that are considered to be impaired is as
follows:
 
 Year
      Ended December 31,2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005
                  
                  
                  2004(in
      thousands)Impaired
      loans without specific valuation allowances
                  
                  $
                  -
                  
                  
                  $
                  33
                  
                  
                  $
                  63
                  
                  
                  $
                  77
                  
                  
                  $
                  49Impaired
      loans with specific valuation allowances
                  
                  
                  8,566
                  
                  
                  
                  16,468
                  
                  
                  
                  5,145
                  
                  
                  
                  3,406
                  
                  
                  
                  3,926Specific
      valuation allowance related to impaired loans
                  
                  
                  (151
                  )
                  
                  
                  (966
                  )
                  
                  
                  (641
                  )
                  
                  
                  (473
                  )
                  
                  
                  (425
                  )Impaired
      loans, net
                  
                  $
                  8,415
                  
                  
                  $
                  15,535
                  
                  
                  $
                  4,567
                  
                  
                  $
                  3,010
                  
                  
                  $
                  3,550Average
      investment in impaired loans
                  
                  $
                  9,612
                  
                  
                  $
                  9,386
                  
                  
                  $
                  4,074
                  
                  
                  $
                  3,716
                  
                  
                  $
                  5,137
 -33-
 Index
 
 The
following schedule reflects recorded investment at the dates indicated in
certain types of loans:
 
 Year
      Ended December 31,2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005
                  
                  
                  2004(in
      thousands)Nonaccrual
      loans
                  
                  $
                  28,821
                  
                  
                  $
                  15,341
                  
                  
                  $
                  7,417
                  
                  
                  $
                  6,797
                  
                  
                  $
                  8,350SBA
      guaranteed portion of loans included above
                  
                  
                  (11,918
                  )
                  
                  
                  (5,695
                  )
                  
                  
                  (4,256
                  )
                  
                  
                  (4,332
                  )
                  
                  
                  (5,287
                  )Nonaccrual
      loans, net
                  
                  $
                  16,903
                  
                  
                  $
                  9,646
                  
                  
                  $
                  3,161
                  
                  
                  $
                  2,465
                  
                  
                  $
                  3,063Troubled
      debt restructured loans
                  
                  $
                  5,408
                  
                  
                  $
                  7,255
                  
                  
                  $
                  68
                  
                  
                  $
                  75
                  
                  
                  $
                  124Loans
      30 through 90 days past due with interest accruing
                  
                  $
                  11,974
                  
                  
                  $
                  18,898
                  
                  
                  $
                  2,463
                  
                  
                  $
                  1,792
                  
                  
                  $
                  1,804Interest
      income recognized on impaired loans
                  
                  $
                  12
                  
                  
                  $
                  691
                  
                  
                  $
                  242
                  
                  
                  $
                  141
                  
                  
                  $
                  103Interest
      foregone on nonaccrual loans and troubled debt restructured loans
      outstanding
                  
                  
                  1,707
                  
                  
                  
                  904
                  
                  
                  
                  488
                  
                  
                  
                  253
                  
                  
                  
                  208Gross
      interest income on impaired and
nonaccrual  loans
                  
                  $
                  1,719
                  
                  
                  $
                  1,595
                  
                  
                  $
                  730
                  
                  
                  $
                  394
                  
                  
                  $
                  311
 
 The
accrual of interest is discontinued when substantial doubt exists as to
collectability of the loan; generally at the time the loan is 90 days
delinquent. Any unpaid but accrued interest is reversed at that
time.  Thereafter, interest income is no longer recognized on the
loan.  Interest income may be recognized on impaired loans to the
extent they are not past due by 90 days.  Interest on nonaccrual loans
is accounted for on the cash-basis or cost-recovery method, until qualifying for
return to accrual.  Loans are returned to accrual status when all of
the principal and interest amounts contractually due are brought current and
future payments are reasonably assured.   Total net nonaccrual
loans increased by $7.3 million from 2007 to 2008.
 
 Total net
impaired loans declined by $7.1 million as of December 31, 2008 compared to
December 31, 2007.  The decline in impaired loans from December 31,
2007 to December 31, 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.
 
 Financial
difficulties encountered by certain borrowers may cause the Company to
restructure the terms of their loan to facilitate loan repayment.  A
troubled debt restructured loan (“TDR”) would generally be considered
impaired.
 
 Investment
Portfolio
 
 The
following table summarizes the carrying values of the Company's investment
securities for the years indicated:
 
 December
      31,2008
                          
                          
                          2007
                          
                          
                          2006Available-for-sale
    securities
                          
                          (in
      thousands)U.S.
      Government agency notes
                          
                          $
                          -
                          
                          
                          $
                          5,993
                          
                          
                          $
                          13,184U.S.
      Government agency: MBS
                          
                          
                          5,284
                          
                          
                          
                          5,004
                          
                          
                          
                          7,005U.S.
      Government agency: CMO
                          
                          
                          1,499
                          
                          
                          
                          1,667
                          
                          
                          
                          1,908Total
                          
                          $
                          6,783
                          
                          
                          $
                          12,664
                          
                          
                          $
                          22,097December
      31,2008
                          
                          
                          2007
                          
                          
                          2006Held-to-maturity securities
                          
                          (in
      thousandsU.S.
      Government agency notes
                          
                          $
                          -
                          
                          
                          $
                          200
                          
                          
                          $
                          200U.S.
      Government agency: MBS
                          
                          
                          25,750
                          
                          
                          
                          25,417
                          
                          
                          
                          10,335U.S.
      Government agency: CMO
                          
                          
                          5,442
                          
                          
                          
                          -
                          
                          
                          
                          -Total
                          
                          $
                          31,192
                          
                          
                          $
                          25,617
                          
                          
                          $
                          10,535
 -34-
 Index
  At
December 31, 2008, $38.0 million at carrying value was pledged to the Federal
Home Loan Bank, San Francisco, as collateral for current and future
advances.
 
 The
maturity periods and weighted average yields of investment securities at
December 31, 2008 are as follows:
 
 Total Amount
                      
                      
                      Less than One Year
                      
                      
                      One to Five Years
                      
                      
                      Five
      to
                        Ten YearsAmount
                      
                      
                      Yield
                      
                      
                      Amount
                      
                      
                      Yield
                      
                      
                      Amount
                      
                      
                      Yield
                      
                      
                      Amount
                      
                      
                      Yield(dollars
      in thousands)Available-for-sale
    securitiesU.
      S. Government:Agency:
      MBS
                      
                      $
                      5,284
                      
                      
                      
                      4.5
                      %
                      
                      $
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      5,284
                      
                      
                      
                      4.5
                      %
                      
                      $
                      -
                      
                      
                      
                      -Agency:
      CMO
                      
                      
                      1,499
                      
                      
                      
                      4.6
                      %
                      
                      
                      1,499
                      
                      
                      
                      4.6
                      %
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Total
                      
                      $
                      6,783
                      
                      
                      
                      4.5
                      %
                      
                      $
                      1,499
                      
                      
                      
                      4.6
                      %
                      
                      $
                      5,284
                      
                      
                      
                      4.5
                      %
                      
                      $
                      -
                      
                      
                      
                      -Held-to-maturity securitiesU.S.
      Government:Agency:
      MBS
                      
                      $
                      25,750
                      
                      
                      
                      5.3
                      %
                      
                      $
                      3,390
                      
                      
                      
                      6.7
                      %
                      
                      $
                      22,360
                      
                      
                      
                      5.0
                      %
                      
                      $
                      -
                      
                      
                      
                      -Agency:
      CMO
                      
                      
                      5,442
                      
                      
                      
                      4.9
                      %
                      
                      
                      5,442
                      
                      
                      
                      4.9
                      %
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Total
                      
                      $
                      31,192
                      
                      
                      
                      5.2
                      %
                      
                      $
                      8,832
                      
                      
                      
                      5.6
                      %
                      
                      $
                      22,360
                      
                      
                      
                      5.0
                      %
                      
                      $
                      -
                      
                      
                      
                      -
 
 Capital
Resources
 
 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
imposed in 1994 a new 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.
 
 To be
categorized as "adequately capitalized" or "well capitalized", CWB must maintain
minimum total risk-based, Tier I risk-based and Tier I leverage ratios
and values as set forth in the tables 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 RatioDecember
      31, 2008CWBC
      (Consolidated)
                  
                  $
                  73,245
                  
                  
                  $
                  66,553
                  
                  
                  $
                  534,628
                  
                  
                  $
                  647,413
                  
                  
                  
                  13.70
                  %
                  
                  
                  12.45
                  %
                  
                  
                  10.28
                  %CWB
                  
                  
                  60,597
                  
                  
                  
                  53,904
                  
                  
                  
                  534,655
                  
                  
                  
                  647,432
                  
                  
                  
                  11.33
                  
                  
                  
                  10.08
                  
                  
                  
                  8.33December
      31, 2007
                  
                  $
                  54,479
                  
                  
                  $
                  50,067
                  
                  
                  $
                  507,228
                  
                  
                  $
                  596,631
                  
                  
                  
                  10.74
                  %
                  
                  
                  9.87
                  %
                  
                  
                  8.39
                  %CWBC
      (Consolidated)
                  
                  
                  51,520
                  
                  
                  
                  47,108
                  
                  
                  
                  507,017
                  
                  
                  
                  591,755
                  
                  
                  
                  10.16
                  
                  
                  
                  9.29
                  
                  
                  
                  7.96CWBWell
      capitalized ratios
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  10.00
                  %
                  
                  
                  6.00
                  %
                  
                  
                  5.00
                  %Minimum
      capital ratios
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  8.00
                  %
                  
                  
                  4.00
                  %
                  
                  
                  4.00
                  %
 
 TARP
 
 On
December 19, 2008, as part of the Treasury’s TARP-CPP, the Company entered into
a Letter Agreement which incorporates the terms of a Securities Purchase
Agreement – Standard Terms with the Treasury, pursuant to which the Company
issued to the Treasury, in exchange for an aggregate purchase price of $15.6
million in cash: (i) 15,600 shares of the Company's Series A Preferred Stock,
and (ii) a Warrant to purchase up to 521,158 shares of the Company's common
stock, no par value at an exercise price of $4.49 per share.
  -35-
 Index
  The
rights, preferences and privileges of the Series A Preferred Stock are set forth
in the Certificate of Determination of Fixed Rate Cumulative Perpetual Preferred
Stock, Series A (“Certificate of Determination”), which the Company filed with
the Secretary of State of the State of California on December 16,
2008.  The Certificate of Determination was filed as Exhibit 3.2 to
the Company’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 18, 2008.
 
 The
Series A Preferred Stock pays cumulative dividends at a rate of 5% per year for
the first five years and at a rate of 9% per year thereafter, but will be paid
only if, as and when declared by the Company's Board of
Directors.  The Series A Preferred Stock has no maturity date and
ranks senior to the common stock with respect to the payment of dividends and
distributions and amounts payable upon liquidation, dissolution and winding up
of the Company.  The Series A Preferred Stock is generally non-voting,
other than class voting on certain matters that could adversely affect the
Series A Preferred Stock.  In the event that dividends payable on the
Series A Preferred Stock have not been paid for the equivalent of six or more
quarters, whether or not consecutive, the Company's authorized number of
Directors will be automatically increased by two and the holders of the Series A
Preferred Stock, voting together with holders of any then outstanding voting
parity stock, will have the right to elect those Directors at the Company's next
annual meeting of shareholders or at a special meeting of shareholders called
for that purpose.  These Directors will be elected annually and will
serve until all accrued and unpaid dividends on the Series A Preferred Stock
have been paid.
 
 To
preserve the voting rights of holders of Series A Preferred Stock to elect two
Directors to the Company’s Board of Directors in the event dividends on the
Series A Preferred Stock due thereunder are not paid for six or more quarters,
the Company has agreed with the Treasury that at all times during which any
shares of Series A Preferred Stock are outstanding, it will not fill more than
nine Director positions.  In the event the Company desires to increase
the number of Directors beyond nine, then the Company is required to amend its
bylaws to increase the maximum Directors to always allow for at least two open
Director seats for the holders of the Series A Preferred Stock to
elect.
 
 The
Company may redeem the Series A Preferred Stock after February 15, 2012 for
$1,000 per share plus accrued and unpaid dividends.  Prior to this
date, the Company may redeem the Series A Preferred Stock for $1,000 per share
plus accrued and unpaid dividends if: (i) the Company has raised aggregate gross
proceeds in one or more "qualified equity offerings" (as defined in the Purchase
Agreement entered into between the Company and the Treasury ) in excess of $15.6
million, and (ii) the aggregate redemption price does not exceed the aggregate
net cash proceeds from such qualified equity offerings.  Any
redemption is subject to the prior approval of the Company's primary banking
regulator.
 
 Prior to
December 19, 2011, unless the Company has redeemed the Series A Preferred Stock
or the Treasury has transferred the Series A Preferred Stock to a third party,
the consent of the Treasury will be required for the Company to: (i) declare or
pay any dividend or make any distribution on the common stock (other than
regularly quarterly cash dividends of not more than the amount of the last
quarterly cash dividend per share, or if lower, publicly announced an intention
to declare, on the common stock prior to October 14, 2008, as may be adjusted
prior to any stock splits, stock dividends, or similar transactions) or (ii)
redeem, purchase or acquire any shares of common stock or other equity or
capital securities, other than in connection with benefit plans consistent with
past practice and certain other circumstances specified in the Purchase
Agreement.  In addition, under the Certificate of Determination, the
Company's ability to declare or pay dividends or repurchase common stock or
other equity or capital securities will be subject to restrictions in the event
that the Company fails to declare or pay (or set aside for payment) full
dividends on the Series A Preferred Stock.
 
 The
Warrant is immediately exercisable and has a 10-year term.  The
exercise price and the ultimate number of shares of common stock that may be
issued under the Warrant (the “Warrant Shares”) are subject to certain
anti-dilution adjustments, such as upon stock splits or distributions of
securities or other assets to holders of the common stock, and upon certain
issuances of the common stock at or below a specified price relative to the then
current market price of the common stock.  If, on or prior to December
31, 2009, the Company receives aggregate gross cash proceeds of not less than
$15.6 million from "qualified equity offerings", the number of shares of common
stock issuable pursuant to the Treasury's exercise of the Warrant will be
reduced by one-half of the original number of Warrant Shares, taking into
account all adjustments, underlying the Warrant.  Pursuant to the
Purchase Agreement, the Treasury has agreed not to exercise voting power with
respect to any Warrant Shares.
 
 Both the
Series A Preferred Stock and the Warrant will be accounted for as components to
Tier 1 capital.
  -36-
 Index
  The
Series A Preferred Stock and the Warrant were issued in a private placement
exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.
Upon the request of the Treasury at any time, the Company has agreed to promptly
enter into a deposit arrangement pursuant to which the Series A Preferred Stock
may be deposited and depositary shares  may be
issued.    The Company has filed a shelf registration
statement to register for resale the Warrant and the
Warrant  Shares.  Neither the Series A Preferred Stock nor
the Warrant will be subject to any contractual restrictions on transfer, except
that the Treasury may only transfer or exercise an aggregate of one-half of the
Warrant Shares prior to the earlier of the redemption of 100% of the shares of
Series A Preferred Stock and December 31, 2009.
 
 Pursuant
to the terms of the Purchase Agreement, the Company has agreed that, until such
time as the Treasury ceases to own any securities acquired pursuant thereto, it
will take all necessary action to ensure that its benefit plans with respect to
its Senior Executive Officers (as defined hereafter) comply with Section 111(b)
of EESA. That section requires that the Company take such actions and effect
such changes to its compensation, bonus, incentive and other benefit plans,
arrangements and agreements (including golden parachute, severance and
employment agreements) (collectively, “Benefit Plans”) with respect to its
Senior Executive Officers to: (i) place limits on compensation that exclude
incentives for the Senior Executive Officers to take unnecessary and excessive
risks that threaten the value of the Company at all times while the Treasury
holds any securities acquired pursuant to the Purchase Agreement; (ii) require
the recovery by the Company of any bonus or incentive compensation paid to a
Senior Executive Officer based on statements of earnings, gains, or other
criteria that are later proven to be materially inaccurate; and (iii) prohibit
the making of any golden parachute payment to the Company’s Senior Executive
Officers at all times while the Treasury holds any securities acquired pursuant
to the Purchase Agreement.  To comply with Section 111(b) of EESA and
the Company’s obligation under the Purchase Agreement, the Company has entered
into a an agreement with Lynda J. Nahra, the Company’s President and Chief
Executive Officer, Charles G. Baltuskonis, the Company’s Executive Vice
President and Chief Financial Officer, and Richard M. Favor, the Company’s
Executive Vice President and Chief Credit Officer (each, a “Senior Executive
Officer”) pursuant to which the Company and each Senior Executive Officer has
agreed to effect such changes to all Benefits Plans applicable to them in order
for the Company to comply with Section 111(b) of EESA and its obligations under
the Purchase Agreement.   In addition to executing an agreement
with the Company to limit their respective Benefits Plans, each Senior Executive
Officer has delivered a Waiver to the Company and the Treasury pursuant to which
they have voluntarily waived any claim against the Treasury or the Company for
any changes, amendments or modifications to any applicable Benefit Plan that are
or will be required to comply with EESA and the regulations issued thereunder by
the Treasury.
 
 Liquidity
Management
 
 The
Company has established policies as well as analytical tools to manage
liquidity.  Recent disruptions in the credit and capital markets have
exposed weaknesses in many banks’ liquidity risk measurement and management
systems.  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
contingency funding plan outlines practical and realistic funding alternatives
that can be readily implemented as access to regular funding is
reduced.  Such plan incorporates events that could rapidly affect the
bank’s liquidity, including a tightening of collateral requirements or other
restrictive terms associated with secured borrowings or the loss of certain
deposit or funding relationship.  Periodically, the Company has used
short-term time certificates from other financial institutions to meet projected
liquidity needs.
 
 CWB has a
credit line with the FHLB.  Advances are collateralized in the
aggregate by CWB’s eligible mortgage loans, securities of the U.S Government and
its agencies and certain other loans.  The outstanding advances at
December 31, 2008 include $4.0 million borrowed at variable rates which adjust
to the current LIBOR rate either monthly or quarterly and $106.0 million
borrowed at fixed rates.  At December 31, 2008, CWB had pledged to
FHLB, securities of $38.0 million at carrying value and loans of $149.9 million,
and had $16.9 million available for additional borrowing.  At December
31, 2007, CWB had $150.0 million of loans and $38.1 million of securities
pledged as collateral and outstanding advances of $121 million.
  -37-
 Index
  CWB also
has established credit line with the Federal Reserve Bank
(“FRB”).  Advances are collateralized in the aggregate by eligible
loans, and the unused borrowing capacity was $149.7 million as of December 31,
2008.  CWB has begun using the line in 2009.
 
 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
likely occurrence, although the competition for core deposits has
heightened.  The liquidity ratio of the Company was 23% at December
31, 2008 compared to 22% at 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 and
TARP preferred dividends.  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.  CWB anticipates that for the foreseeable future, it will
fund its expenses and TARP preferred dividends from its own funds and will not
receive dividends from its bank subsidiary.
 
 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.  However, the
      margin relationship is somewhat dependent on the shape of the yield
      curve.
 
 ·
              Basis Risk – item
      pricing tied to different indices may tend to react differently, however,
      all CWB’s variable products are priced off the prime
  rate.
 
 ·
              Prepayment Risk –
      prepayment risk results from borrowers paying down / off their loans prior
      to maturity.  Prepayments on fixed-rate products increase in
      falling interest rate environments and decrease in rising interest rate
      environments.  Since a majority of CWB’s loan originations are
      adjustable rate and set based on prime, and there is little lag time on
      the reset, CWB does not experience significant
      prepayments.  However, CWB does have more prepayment risk on its
      securitized and manufactured housing loans and its mortgage-backed
      investment securities.
 
 Management
of Interest Rate Risk
 
 To
mitigate the impact of changes in market interest rates on the Company’s
interest-earning assets and interest-bearing liabilities, the amounts and
maturities are actively managed.  Short-term, adjustable-rate assets
are generally retained as they have similar repricing characteristics as our
funding sources.  CWB sells mortgage products and a portion of its SBA
loan originations.  While the Company has some interest rate exposure
in excess of five years, it has internal policy limits designed to minimize risk
should interest rates rise.  Currently, the Company does not use
derivative instruments to help manage risk, but will consider such instruments
in the future if the perceived need should arise.
 
 Loan sales - The Company’s
ability to originate, purchase and sell loans is also significantly impacted by
changes in interest rates.  Increases in interest rates may also
reduce the amount of loan and commitment fees received by CWB.  A
significant decline in interest rates could also decrease the size of CWB’s
servicing portfolio and the related servicing income by increasing the level of
prepayments.
  -38-
 Index
  Deposits
 
 The
following table shows the Company's average deposits for each of the periods
indicated below:
 
 Year
      Ended December 31,2008
                                          
                                          2007
                                          
                                          
                                          2006Average
      Balance
                                          
                                          Percent
                                            of Total
                                          
                                          
                                          Average
      Balance
                                          
                                          Percent
                                            of Total
                                          
                                          
                                          AverageBalance
                                          
                                          
                                          Percent
                                            of Total(dollars
      in thousands)Noninterest-bearing
      demand
                                          
                                          $
                                          35,618
                                          
                                          
                                          
                                          7.5
                                          %
                                          
                                          $
                                          34,172
                                          
                                          
                                          
                                          8.4
                                          %
                                          
                                          $
                                          34,555
                                          
                                          
                                          
                                          9.9
                                          %Interest-bearing
      demand
                                          
                                          
                                          58,893
                                          
                                          
                                          
                                          12.4
                                          %
                                          
                                          
                                          65,687
                                          
                                          
                                          
                                          16.1
                                          %
                                          
                                          
                                          58,569
                                          
                                          
                                          
                                          16.7
                                          %Savings
                                          
                                          
                                          14,989
                                          
                                          
                                          
                                          3.1
                                          %
                                          
                                          
                                          15,642
                                          
                                          
                                          
                                          3.9
                                          %
                                          
                                          
                                          15,184
                                          
                                          
                                          
                                          4.3
                                          %TCD’s
      of $100,000 or more
                                          
                                          
                                          88,385
                                          
                                          
                                          
                                          18.5
                                          %
                                          
                                          
                                          155,156
                                          
                                          
                                          
                                          38.2
                                          %
                                          
                                          
                                          138,897
                                          
                                          
                                          
                                          39.7
                                          %Other
      TCD’s
                                          
                                          
                                          278,510
                                          
                                          
                                          
                                          58.5
                                          %
                                          
                                          
                                          135,831
                                          
                                          
                                          
                                          33.4
                                          %
                                          
                                          
                                          102,604
                                          
                                          
                                          
                                          29.4
                                          %Total
      Deposits
                                          
                                          $
                                          476,395
                                          
                                          
                                          
                                          100.0
                                          %
                                          
                                          $
                                          406,488
                                          
                                          
                                          
                                          100.0
                                          %
                                          
                                          $
                                          349,809
                                          
                                          
                                          
                                          100.0
                                          %
 
 The
maturities of time certificates of deposit ("TCD’s") were as
follows:
 
 December
    31,2008
                    
                    
                    2007TCD's
      over$100,000
                    
                    
                    Other
                      TCD’s
                    
                    
                    TCD's
      over$100,000
                    
                    
                    OtherTCD’s(in
      thousands)Less
      than three months
                    
                    $
                    44,376
                    
                    
                    $
                    85,921
                    
                    
                    $
                    28,045
                    
                    
                    $
                    48,014Over
      three months through six months
                    
                    
                    31,633
                    
                    
                    
                    61,331
                    
                    
                    
                    12,273
                    
                    
                    
                    36,642Over
      six months through twelve months
                    
                    
                    33,985
                    
                    
                    
                    46,584
                    
                    
                    
                    11,500
                    
                    
                    
                    101,522Over
      twelve months through five years
                    
                    
                    28,336
                    
                    
                    
                    36,001
                    
                    
                    
                    8,964
                    
                    
                    
                    63,618Total
                    
                    $
                    138,330
                    
                    
                    $
                    229,837
                    
                    
                    $
                    60,782
                    
                    
                    $
                    249,796
 
 The
deposits of the Company may fluctuate up and down with local and national
economic conditions.  However, management does not believe that
deposit levels are significantly influenced by seasonal factors.
 
 The
Company manages its money desk and obtains brokered deposits in accordance with
its liquidity and strategic planning.  The Company can use the money
desk or obtain broker deposits when necessary in a short time frame; however,
these funds are more expensive as there is substantial competition for these
deposits.
 
 Contractual
Obligations
 
 The
Company has contractual obligations that include long-term debt, deposits,
operating leases and purchase obligations for service providers.  The
following table is a summary of those obligations at December 31,
2008:
 
 Total
                  
                  
                  < 1 Year
                  
                  
                  1-3 Years
                  
                  
                  3-5 Years
                  
                  
                  Over
      5 Years(in
      thousands)FHLB
      Borrowing
                  
                  $
                  110,000
                  
                  
                  $
                  70,000
                  
                  
                  $
                  32,000
                  
                  
                  $
                  8,000
                  
                  
                  $
                  -Time
      certificates of deposits
                  
                  
                  368,167
                  
                  
                  
                  303,831
                  
                  
                  
                  53,019
                  
                  
                  
                  11,317
                  
                  
                  
                  -Operating
      lease obligations
                  
                  
                  3,951
                  
                  
                  
                  1,203
                  
                  
                  
                  1,782
                  
                  
                  
                  437
                  
                  
                  
                  529Purchase
      obligations for service providers
                  
                  
                  809
                  
                  
                  
                  561
                  
                  
                  
                  209
                  
                  
                  
                  39
                  
                  
                  
                  -Total
                  
                  $
                  482,927
                  
                  
                  $
                  375,595
                  
                  
                  $
                  87,010
                  
                  
                  $
                  19,793
                  
                  
                  $
                  529
 -39-
 Index
  SUPERVISION
AND REGULATION
 Introduction
 
 Banking
is a complex, highly regulated industry.  The primary goals of the
regulatory scheme are to maintain a safe and sound banking system, protect
depositors and the Federal Deposition Insurance Corporation’s insurance fund,
and facilitate the conduct of sound monetary policy.  In furtherance
of these goals, Congress and the states have created several largely autonomous
regulatory agencies and enacted numerous laws that govern banks, bank holding
companies and the financial services industry. Consequently, the growth and
earnings performance of CWBC and CWB can be affected not only by management
decisions and general economic conditions, but also by the requirements of
applicable state and federal statues, regulations and the policies of various
governmental regulatory authorities, including the Board of Governors of the
Federal Reserve System (FRB), the Office of the Comptroller of the Currency
(OCC), and Federal Deposit Insurance Corporation (FDIC).
 
 The
system of supervision and regulation applicable to financial services businesses
governs most aspects of the business of CWBC and CWB, including: (i) the scope
of permissible business; (ii) investments; (iii) reserves that must be
maintained against deposits; (iv) capital levels that must be maintained; (v)
the nature and amount of collateral that may be taken to secure loans; (vi) the
establishment of new branches; (vii) mergers and consolidations with other
financial institutions; and (viii) the payment of
dividends.
 
 From time
to time laws or regulations are enacted which have the effect of increasing the
cost of doing business, limiting or expanding the scope of permissible
activities, or changing the competitive balance between banks and other
financial and non-financial institutions.  Proposals to change the
laws and regulations governing the operations of banks and bank holding
companies are frequently made in Congress and by various bank and other
regulatory agencies.  Future changes in the laws, regulations or
polices that impact CWBC and CWB cannot necessarily be predicted, but they may
have a material effect on the business and earnings of CWBC and CWB.
 
 CWBC
 
 General.  As a bank
holding company, CWBC is registered under the Bank Holding Company Act of 1956,
as amended ("BHCA"), and is subject to regulation by the
FRB.  According to FRB Policy, CWBC is expected to act as a source of
financial strength for CWB, to commit resources to support it in circumstances
where CWBC might not otherwise do so.  Under the BHCA, CWBC is subject
to periodic examination by the FRB.  CWBC is also required to file
periodic reports of its operations and any additional information regarding its
activities and those of its subsidiaries as may be required by the
FRB.
 
 CWBC is
also a bank holding company within the meaning of Section 3700 of the California
Financial Code.  Consequently, CWBC and CWB are subject to examination
by, and may be required to file reports with, the Commissioner of the California
Department of Financial Institutions (“DFI”).  Regulations have not
yet been proposed or adopted or steps otherwise taken to implement the DFI’s
powers under this statute.
 
 CWBC has
a class of securities registered with the Securities Exchange Commission (“SEC”)
under Section 12 of the Securities Exchange Act of 1934, as amended (“1934 Act”)
and has its common stock listed on the Nasdaq Global
Market.  Consequently, CWBC is subject to supervision and regulation
by the SEC and compliance with NASDAQ listing requirements.
 
 Bank Holding Company
Liquidity.  CWBC is a legal entity, separate and distinct from
CWB.  CWBC has the ability to raise capital on its own behalf or
borrow from external sources, CWBC may also obtain additional funds from
dividends paid by, and fees charged for services provided to,
CWB.  However, regulatory constraints on CWB may restrict or totally
preclude the payment of dividends by CWB to CWBC.
 
 Transactions with
Affiliate.  CWBC and any subsidiaries it may purchase or
organize are deemed to be affiliates of CWB within the meaning of Sections 23A
and 23B of the Federal Reserve Act, and the FRB’s Regulation W.  Under
Sections 23A and 23B and Regulation W, loans by CWB to affiliates, investments
by them in affiliates’ stock, and taking affiliates’ stock as collateral for
loans to any borrower is limited to 10% of CWB’s capital, in the case of any one
affiliate, and is limited to 20% of CWB’s capital, in the case of all
affiliates.  In addition, transactions between CWB and other
affiliates must be on terms and conditions that are consistent with safe and
sound banking practices, in particular, a bank and its subsidiaries generally
may not purchase from an affiliate a low-quality asset, as defined in the
Federal Reserve Act.  These restrictions also prevent a bank holding
CWBC and its other affiliates from borrowing from a banking subsidiary of the
bank holding CWBC unless the loans are secured by marketable collateral of
designated amounts.  CWBC and CWB are also subject to certain
restrictions with respect to engaging in the underwriting, public sale and
distribution of securities.
  -40-
 Index
  Limitations on Business and
Investment Activities.  Under the BHCA,a bank holding company
must obtain the FRB’s approval before: (i) directly or indirectly acquiring more
than 5% ownership or control of any voting shares of another bank or bank
holding company; (ii) acquiring all or substantially all of the assets of
another bank; (iii) or merging or consolidating with another bank holding
company.
 
 The FRB
may allow a bank holding company to acquire banks located in any state of the
United States without regard to whether the acquisition is prohibited by the law
of the state in which the target bank is located.  In approving
interstate acquisitions, however, the FRB must give effect to applicable state
laws limiting the aggregate amount of deposits that may be held by the acquiring
bank holding company and its insured depository institutions in the state in
which the target bank is located, provided that those limits do not discriminate
against out-of-state depository institutions or their holding companies, and
state laws which require that the target bank have been in existence for a
minimum period of time, not to exceed five years, before being acquired by an
out-of-state bank holding company.
 
 In
addition to owning or managing banks, bank holding companies may own
subsidiaries engaged in certain businesses that the FRB has determined to be “so
closely related to banking as to be a proper incident thereto.” CWBC, therefore,
is permitted to engage in a variety of banking-related
businesses.  Some of the activities that the FRB has determined,
pursuant to its Regulation Y, to be related to banking are:
 
 §
              making
      or acquiring loans or other extensions of credit for its own account or
      for the account of others
 §
              servicing
      loans and other extensions of
credit;
 §
              performing
      functions or activities that may be performed by a trust company in the
      manner authorized by federal or state law under certain
      circumstances;
 §
              leasing
      personal and real property or acting as agent, broker, or adviser in
      leasing such property in accordance with various restrictions imposed by
      FRB regulations;
 §
              acting
      as investment or financial advisor;
 §
              providing
      management consulting advise under certain
  circumstances;
 §
              providing
      support services, including courier services and printing and selling
      MICR-encoded items;
 §
              acting
      as a principal, agent or broker for insurance under certain
      circumstances;
 §
              making
      equity and debt investments in corporations or projects designed primarily
      to promote community welfare or jobs for
  residents;
 §
              providing
      financial, banking or economic data processing and data transmission
      services;
 §
              owning,
      controlling or operating a savings association under certain
      circumstances;
 §
              selling
      money orders, travelers’ checks and U.S. Savings
  Bonds;
 §
              providing
      securities brokerage services, related securities credit activities
      pursuant to Regulation T and other incidental
  activities;
 §
              underwriting
      and dealing in obligations of the U.S., general obligations of states and
      their political subdivisions and other obligations authorized for state
      member banks under federal law
 
 Additionally,
qualifying bank holding companies making an appropriate election to the FRB may
engage in a full range of financial activities, including insurance, securities
and merchant banking.  CWBC has not elected to qualify for these
financial services.
 
 Federal
law prohibits a bank holding company and any subsidiary banks from engaging in
certain tie-in arrangements in connection with the extension of
credit.  Thus, for example, CWB may not extend credit, lease or sell
property, or furnish any services, or fix or vary the consideration for any of
the foregoing on the condition that:
 
 ·
              the
      customer must obtain or provide some additional credit, property or
      services from or to CWB other than a loan, discount, deposit or trust
      services:
 ·
              the
      customer must obtain or provide some additional credit, property or
      service from or to CWBC or any subsidiaries;
or
 ·
              the
      customer must not obtain some other credit, property or services from
      competitors, except reasonable requirements to assure soundness of credit
      extended
 
 Capital
Adequacy.  Bank holding companies must maintain minimum levels
of capital under the FRB’s risk-based capital adequacy guidelines.  If
capital falls below minimum guideline levels, a bank holding company, among
other things, may be denied approval to acquire or establish additional banks or
non-bank businesses.
  -41-
 Index
  The FRB’s
risk-based capital adequacy guidelines, discussed in more detail below in the
section entitled “Supervision and Regulation – CWB – Regulatory Capital
Guidelines,” assign various risk percentages to different categories of assets
and capital is measured as a percentage of risk assets.  Under the
terms of the guidelines, bank holding companies are expected to meet capital
adequacy guidelines based both on total risk assets and on total assets, without
regard to risk weights.
 
 The
risk-based guidelines are minimum requirements.  Higher capital levels
will be required if warranted by the particular circumstances or risk profiles
of individual organizations.  For example, the FRB’s capital
guidelines contemplate that additional capital may be required to take adequate
account of, among other things, interest rate risk, or the risks posed by
concentrations of credit, nontraditional activities or securities trading
activities.  Moreover, any banking organization experiencing or
anticipating significant growth or expansion into new activities, particularly
under the expanded powers under the Gramm-Leach-Bliley Act, would be expected to
maintain capital ratios, including tangible capital positions, well above the
minimum levels.
 
 Limitations on Dividend
Payments.  California Corporations Code Section 500 allows CWBC
to pay a dividend to its shareholders only to the extent that CWBC has retained
earnings and, after the dividend, CWBC’s:
 
 §
              assets
      (exclusive of goodwill and other intangible assets) would be 1.25 times
      its liabilities (exclusive of deferred taxes, deferred income and other
      deferred credits); and
 §
              current
      assets would be at least equal to current
  liabilities.
 
 Additionally,
the FRB’s policy regarding dividends provides that a bank holding CWBC should
not pay cash dividends exceeding its net income or which can only be funded in
ways that weaken the bank holding company’s financial health, such as by
borrowing. The FRB also possesses enforcement powers over bank holding companies
and their non-bank subsidiaries to prevent or remedy actions that represent
unsafe or unsound practices or violations of applicable statutes and
regulations.
 
 The Sarbanes-Oxley Act of
2002. The Sarbanes-Oxley Act of 2002, or the SOX, became effective on
July 30, 2002, and represents the most far reaching corporate and accounting
reform legislation since the enactment of the Securities Act of 1933 and the
Exchange Act of 1934.  The SOX is intended to provide a permanent
framework that improves the quality of independent audits and accounting
services, improves the quality of financial reporting, strengthens the
independence of accounting firms and increases the responsibility of management
for corporate disclosures and financial statements.  It is intended
that by addressing these weaknesses, public companies will be able to avoid the
problems encountered by several companies in 2001-2002.
 
 Sox’s
provisions are significant to all companies that have a class of securities
registered under Section 12 of the Exchange Act, or are otherwise reporting to
the SEC (or the appropriate federal banking agency) pursuant to Section 15(d) of
the Exchange Act, including CWBC (collectively, “public
companies”).  In addition to SEC rulemaking to implement the SOX, The
Nasdaq Global Market has adopted corporate governance rules intended to allow
shareholders to more easily and effectively monitor the performance of companies
and directors.  The principal provisions of the SOX, many of which
have been interpreted through regulations released in 2003, provide for and
include, among other things:
 
 ·
              the
      creation of an independent accounting oversight
  board;
 ·
              auditor
      independence provisions that restrict non-audit services that accountants
      may provide to their audit clients;
 ·
              additional
      corporate governance and responsibility measures, including the
      requirement that the chief executive officer and chief financial officer
      of a public company certify financial
  statements;
 ·
              the
      forfeiture of bonuses or other incentive-based compensation and profits
      from the sale of an issuer’s securities by directors and senior officers
      in the twelve month period following initial publication of any financial
      statements that later require
restatement;
 ·
              an
      increase in the oversight of, and enhancement of certain requirements
      relating to, audit committees of public companies and how they interact
      with CWBC’s independent auditors;
 ·
              requirements
      that audit committee members must be independent and are barred from
      accepting consulting, advisory or other compensatory fees from the
      issuer;
 ·
              requirements
      that companies disclose whether at least one member of the audit committee
      is a “financial expert’ (as such term is defined by the SEC) and if not
      discussed, why the audit committee does not have a financial
      expert;
  -42-
 Index
  ·
              expanded
      disclosure requirements for corporate insiders, including accelerated
      reporting of stock transactions by insiders and a prohibition on insider
      trading during pension blackout
periods;
 ·
              a
      prohibition on personal loans to directors and officers, except certain
      loans made by insured financial institutions on non-preferential terms and
      in compliance with other bank regulatory
  requirements;
 ·
              disclosure
      of a code of ethics and filing a Form 8-K for a change or waiver of such
      code;
 ·
              a
      range of enhanced penalties for fraud and other violations;
      and
 ·
              expanded
      disclosure and certification relating to an issuer’s disclosure controls
      and procedures and internal controls over financial
    reporting.
 
 As a
result of the SOX, and its implementing regulations, CWBC has incurred
substantial cost to interpret and ensure compliance with the law and its
regulations including, without limitation, increased expenditures by CWBC in
auditors’ fees, attorneys’ fees, outside advisors fees, and increased errors and
omissions insurance premium costs.  The requirement for management to
assess the effectiveness of internal controls over financial reporting has been
extended by the SEC for non-accelerated filers, such as CWBC, and became
effective for fiscal years ending after December 15, 2007, and, therefore, that
requirement was applicable to the most recently completed fiscal year for
CWBC.  Currently, the auditor’s attestation report on internal control
over financial reporting is due for fiscal years ending on or after December 15,
2009; however, the SEC has published a proposal to delay, once again, the
requirement for the auditor’s attestation report.  CWBC cannot be
certain of the effect, if any, of the foregoing legislation on the business of
CWBC although increased costs of compliance are likely.  Future
changes in the laws, regulation, or policies that impact CWBC cannot necessarily
be predicted and may have a material effect on the business and earnings of
CWBC.
 
 CWB
 
 General.  CWB, as a
national banking association which is a member of the Federal Reserve System, is
subject to regulation, supervision and regular examination by the OCC, FDIC and
the FRB.  CWB’s deposits are insured by the FDIC up to the maximum
extent provided by law.  The regulations of these agencies govern most
aspects of CWB's business and establish a comprehensive framework governing its
operations.
 
 Regulatory Capital
Guidelines.  The federal banking agencies have established
minimum capital standards known as risk-based capital
guidelines.  These guidelines are intended to provide a measure of
capital that reflects the degree of risk associated with a bank’s
operations.  The risk-based capital guidelines include both a
definition of capital and a framework for calculating the amount of capital that
must be maintained against a bank’s assets and off-balance sheet
items.  The amount of capital required to be maintained is based upon
the credit risks associated with the various types of a bank’s assets and
off-balance sheet items.  A bank’s assets and off-balance sheet items
are classified under several risk categories, with each category assigned a
particular risk weighting from 0% to 100%.
 
 Adequately
                                                                                                                          Capitalized
                                                                                                                        
                                                                                                                        
                                                                                                                        Well
                                                                                                                          Capitalized
                                                                                                                        
                                                                                                                        
                                                                                                                        CWB
                                                                                                                        
                                                                                                                        
                                                                                                                        CWBC (consolidated)(greater than or equal to)Total risk-based capital
                                                                                                                        
                                                                                                                        
                                                                                                                        8.00
                                                                                                                        %
                                                                                                                        
                                                                                                                        
                                                                                                                        10.00
                                                                                                                        %
                                                                                                                        
                                                                                                                        
                                                                                                                        11.33
                                                                                                                        %
                                                                                                                        
                                                                                                                        
                                                                                                                        13.70
                                                                                                                        %Tier 1 risk-based capital
    ratio
                                                                                                                        
                                                                                                                        
                                                                                                                        4.00
                                                                                                                        %
                                                                                                                        
                                                                                                                        
                                                                                                                        6.00
                                                                                                                        %
                                                                                                                        
                                                                                                                        
                                                                                                                        10.08
                                                                                                                        %
                                                                                                                        
                                                                                                                        
                                                                                                                        12.45
                                                                                                                        %Tier 1 leverage capital
    ratio
                                                                                                                        
                                                                                                                        
                                                                                                                        4.00
                                                                                                                        %
                                                                                                                        
                                                                                                                        
                                                                                                                        5.00
                                                                                                                        %
                                                                                                                        
                                                                                                                        
                                                                                                                        8.33
                                                                                                                        %
                                                                                                                        
                                                                                                                        
                                                                                                                        10.28
                                                                                                                        %
 
 As of
December 31, 2008, management believes that CWBC’s capital levels met all
minimum regulatory requirements and that CWB was considered “well capitalized”
under the regulatory framework for prompt corrective action.
 
 Prompt Corrective
Action.  The federal banking agencies possess broad powers to
take prompt corrective action to resolve the problems of insured
banks.  Each federal banking agency has issued regulations defining
five capital categories: “well capitalized,” “adequately capitalized,”
“undercapitalized,” “significantly undercapitalized,” and “critically
undercapitalized.”  Under the regulations, a bank shall be deemed to
be:
 
 §
              “well
      capitalized” if it has a total risk-based capital ratio of 10% or more,
      has a Tier 1 risk-based capital ratio of 6% or more, has a leverage
      capital ratio of 5% or more and is not subject to specified requirements
      to meet and maintain a specific capital level for any capital
      measure;
 §
              “adequately
      capitalized” if it has a total risk-based capital ratio of 8% or more, a
      Tier 1 risk-based capital ratio of 4% or more and a leverage capital ratio
      of 4% or more (3% under certain circumstances) and does not meet the
      definition of “well capitalized”;
 §
              “undercapitalized”
      if it has a total risk-based capital ratio that is less than 8%, a Tier 1
      risk-based capital ratio that is less than 4%, or a leverage capital ratio
      that is less than 4% (3% under certain
  circumstances)
  -43-
 Index
  §
              “significantly
      undercapitalized” if it has a total risk-based capital ratio that is less
      than 6%, a Tier 1 risk-based capital ratio that is less than 3% or a
      leverage capital ratio that is less than 3%;
and
 §
              “critically
      undercapitalized” if it has a ratio of tangible equity to total assets
      that is equal to or less than 2%
 
 While
these benchmarks have not changed, due to market turbulence, the regulators have
strongly encouraged banks and bank holding companies to achieve and maintain
higher ratios.
 
 Banks are
prohibited from paying dividends or management fees to controlling persons or
entities if, after making the payment, the bank would be “undercapitalized,”
that is, the bank fails to meet the required minimum level for any relevant
capital measure.  Asset growth and branching restrictions apply to
“undercapitalized” banks.  Banks classified as “undercapitalized” are
required to submit acceptable capital plans guaranteed by its holding company,
if any.  Broad regulatory authority was granted with respect to
“significantly undercapitalized” banks, including forced mergers, growth
restrictions, ordering new elections for directors, forcing divestiture by its
holding company, if any, requiring management changes and prohibiting the
payment of bonuses to senior management.  Even more severe
restrictions are applicable to “critically undercapitalized” banks, those with
capital at or less than 2%.  Restrictions for these banks include the
appointment of a receiver or conservator.  All of the federal banking
agencies have promulgated substantially similar regulations to implement this
system of prompt corrective action
 
 A bank,
based upon its capital levels, that is classified as “well capitalized,”
“adequately capitalized” or “undercapitalized” may be treated as though it were
in the next lower capital category if the appropriate federal banking agency,
after notice and opportunity for a hearing, determines that an unsafe or unsound
condition, or an unsafe or unsound practice, warrants such
treatment.  At each successive lower capital category, an insured bank
is subject to more restrictions.  The federal banking agencies,
however, may not treat an institution as “critically undercapitalized” unless
its capital ratios actually warrant such treatment.
 
 In
addition to measures taken under the prompt corrective action provisions,
insured banks may be subject to potential enforcement actions by the federal
banking agencies for unsafe or unsound practices in conducting their businesses
or for violations of any law, rule, regulation or any condition imposed in
writing by the agency or any written agreement with the
agency.  Enforcement actions may include the imposition of a
conservator or receiver, the issuance of a cease-and-desist order that can be
judicially enforced, the termination of insurance of deposits (in the case of a
depository institution), the imposition of civil money penalties, the issuance
of directives to increase capital, the issuance of formal and informal
agreements, the issuance of removal and prohibition orders against
institution-affiliated parties.  The enforcement of such actions
through injunctions or restraining orders may be based upon a judicial
determination that the agency would be harmed if such equitable relief was not
granted.
 
 The OCC,
as the primary regulator for national banks, also has a broad range of
enforcement measures, from cease and desist powers and the imposition of
monetary penalties to the ability to take possession of a bank, including
causing its liquidation.
 
 FDIC Insurance and Insurance
Assessments.
 
 Banks and
thrifts have historically paid varying amounts of premiums on deposits for
federal deposit insurance depending upon a risk-based system which evaluated the
institution’s regulatory and capital adequacy ratings.  The FDIC
operated two separate insurance funds, the Bank Insurance Fund (“BIF”) and the
Savings Association Insurance Fund (“SAIF”).
 
 As a
result of the Federal Deposit Insurance Reform Act of 2006 (the “FDI Reform
Act”) and regulations adopted by the FDIC effective as of November 2, 2007: (i)
the BIF and the SAIF have been merged into the Deposit Insurance Fund (the
“DIF”); (ii) the $100,000 insurance level has been indexed to reflect inflation
(the first adjustment for inflation will be effective January 1, 2011 and
thereafter adjustments will occur every 5 years); (iii) deposit insurance
coverage for retirement accounts has been increased to $250,000, and will also
be subject to adjustment every five years; (iv) banks that historically have
capitalized the BIF are entitled to a one-time credit which can be used to
off-set premiums otherwise due (this addresses the fact that institutions that
have grown rapidly have not had to pay deposit premiums); (v) a cap on the level
of the DIF has been imposed and dividends will be paid when the DIF grows beyond
a specified threshold; and (vi) the previous risk-based system for assessing
premiums has been revised.
  -44-
 Index
  Effective
January 1, 2007, the FDIC utilizes a risk-based assessment system to set
semi-annual insurance premium assessments which categorizes banks into four risk
categories based on capital levels and supervisory “CAMELS” ratings and names
them Risk Categories I, II, III and IV.  The “CAMELS” rating system is
based upon an evaluation of the five critical elements of an institution’s
operations: Capital adequacy, Asset quality, Management, Earnings, Liquidity,
and Sensitivity to risk.  This rating system is designed to take into
account and reflect all significant financial and operational factors financial
institution examiners assess in their evaluation of an institution’s
performance.  The following table sets forth these four Risk
Categories:
  Capital
      Group
                                                    Supervisory
      SubgroupA
                                                    B
                                                    C1.  
      Well Capitalized
                                                    I
                                                    
                                                    III2.  
      Adequately Capitalized
                                                    
                                                    II3.  
      Undercapitalized
                                                    III
                                                    IV
 Within
Risk Category I, the assessment system combines supervisory ratings with other
risk measures to differentiate risk.  For most institutions, the
assessment system combines CAMELS component ratings with financial ratios to
determine an institution’s assessment rate.  For large institutions
that have long-term debt issuer ratings, the new assessment system
differentiates risk by combining CAMELS component ratings with those
ratings.  For large institutions within Risk Category I, initial
assessment rate determinations may be modified within limits upon review of
additional relevant information.  The new assessment system assess
those within Risk Category I that pose the least risk a minimum assessment rate
and those that pose the greatest risk a maximum assessment rate that is two
basis points higher.  An institution that poses an intermediate risk
within Risk Category I will be charged a rate between the minimum and maximum
that will vary incrementally by institution.
 
 On
February 27, 2009, the FDIC adopted final rules modifying the risk-based
assessment system and setting initial base assessment rates beginning April 1,
2009.  Under these new rules, risk assessments for small Risk Category
I institutions and large Risk Category I institutions with no long-term debt
rating will include a consideration of such institution’s adjusted brokered
deposit ratio. The adjusted brokered deposit ratio affects institutions whose
brokered deposits are more than 10 percent of domestic deposits and whose total
assets are more than 40 percent greater than they were four years previously.
The adjusted brokered deposit ratio excludes certain reciprocal deposits for
institutions in Risk Category I. Brokered deposits that consist of balances
swept into an insured institution are included in the adjusted brokered deposit
ratio for all institutions.
 
 Further,
the new rules revised the method for calculating the assessment rate for a large
Risk Category I institution with a long-term debt issuer rating so that it
equally weights the institution's weighted average CAMELS component ratings, its
long-term debt issuer ratings and the financial ratios method assessment rate.
The final rule updates the uniform amount and the pricing multipliers for the
weighted average CAMELS component ratings and financial ratios method. It also
increases the maximum possible large bank adjustment from 0.5 basis point to 1.0
basis point.
 
 These new
rules set forth three possible adjustments to an institution's initial base
assessment rate: (i) a decrease of up to five basis points for long-term
unsecured debt, including senior unsecured debt (other than debt guaranteed
under the Temporary Liquidity Guarantee Program) and subordinated debt and, for
small institutions, a portion of Tier 1 capital; (ii) an increase not to exceed
50 percent of an institution's assessment rate before the increase for secured
liabilities in excess of 25 percent of domestic deposits; and (ii) for non-Risk
Category I institutions, an increase not to exceed 10 basis points for brokered
deposits in excess of 10 percent of domestic deposits.
 
 Under
these new rules, the FDIC adopted new initial base assessment rates as of April
1, 2009, as follows, expressed in terms of cents per $100 in insured
deposits:
  Initial
      Base Assessment RatesRisk
      CategoryI
      *
                                                              II
                                                              III
                                                              IVAnnual
      Rates (in basis points)
                                                              Minimum
                                                              Maximum12
                                                              16
                                                              22
                                                              32
                                                              45
 *Initial
base rates that were not the minimum or maximum rate will vary between these
rates.
  -45-
 Index
  After
applying all possible adjustments, minimum and maximum total base assessment
rates for each Risk Category are as follows:
 
 Total
      Base Assessment RatesRisk
                                        Category
                                        I
                                      Risk
                                        Category
                                        II
                                      Risk
                                        Category
                                        III
                                      Risk
                                        Category
                                        IVInitial
      base assessment rate
                                      12
      – 16
                                      22
                                      32
                                      45Unsecured
      debt adjustment
                                      -5
      – 0
                                      -5
      – 0
                                      -5
      – 0
                                      -5
      – 0Secured
      liability adjustment
                                      0 –
      8
                                      0 –
      11
                                      0 –
      16
                                      0 –
      22.5Brokered
      deposit adjustment
                                      
                                      0 –
      10
                                      0 –
      10
                                      0 –
      10Total
      base assessment rate
                                      7 –
      24
                                      17
      – 43
                                      27
      – 58
                                      40
      –
77.5
 * All
amounts for all risk categories are in basis points annually. Total base rates
that are not the minimum or maximum rate will vary between these
rates.
 
 In
addition, on February 27, 2009, the FDIC adopted an interim rule that imposes a
20 basis point emergency special assessment on all insured depository
institutions on June 30, 2009. The special assessment will be collected
September 30, 2009, at the same time that the risk-based assessments for the
second quarter of 2009 are collected. The interim rule also permits the FDIC to
impose an emergency special assessment of up to 10 basis points on all insured
depository institutions whenever, after June 30, 2009, the FDIC estimates that
the DIF reserve ratio will fall to a level that the FDIC believes would
adversely affect public confidence or to a level close to zero or negative at
the end of a calendar quarter.
 
 The FDIC
may terminate its insurance of deposits if it finds that the Bank has engaged in
unsafe and unsound practices, is in an unsafe or unsound condition to continue
operations, or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC.
 
 Effective
November 21, 2008 and until December 31, 2009, the FDIC expanded deposit
insurance limits for certain accounts under the FDIC’s Temporary Liquidity
Guarantee Program.  Provided an institution has not opted out of the
Temporary Liquidity Guarantee Program, the FDIC may (i) guarantee, through the
earlier of maturity or June 30, 2012, certain newly issued senior unsecured debt
issued by participating institutions on or after October 14, 2008 and before
June 30, 2009 and (ii) provide full FDIC deposit insurance coverage for
noninterest bearing transaction deposit accounts, Negotiable Order of Withdrawal
(“NOW”) accounts paying less than 0.5% interest per annum and Interest on
Lawyers Trust Accounts (IOLTAs) held at participating FDIC-insured institutions
through December 31, 2009. Coverage under the TLGP was available for the first
30 days without charge. The fee assessment for coverage of senior unsecured debt
ranges from 50 basis points to 100 basis points per annum, depending on the
initial maturity of the debt. The fee assessment for deposit insurance coverage
is 10 basis points per quarter on amounts in covered accounts exceeding
$250,000.  On February 10, 2009, the Treasury extended the Temporary
Liquidity Guarantee Program to October 31, 2009 pursuant to the Financial
Stability Plan - Capital Assistance Program.   CWB has not opted
out of the Temporary Liquidity Guarantee Program.
 
 Community Reinvestment
Act.The CRA
is intended to encourage insured depository institutions, while operating safely
and soundly, to help meet the credit needs of their communities.  The
CRA specifically directs the federal bank regulatory agencies, in examining
insured depository institutions, to assess their record of helping to meet the
credit needs of their entire community, including low- and moderate-income
neighborhoods, consistent with safe and sound banking practices.  The
CRA further requires the agencies to take a financial institution's record of
meeting its community credit needs into account when evaluating applications
for, among other things, domestic branches, consummating mergers or acquisitions
or holding company formations.
 
 The
federal banking agencies have adopted regulations which measure a bank’s
compliance with its CRA obligations on a performance-based evaluation
system.  This system bases CRA ratings on an institution’s actual
lending service and investment performance rather than the extent to which the
institution conducts needs assessments, documents community outreach or complies
with other procedural requirements.  The ratings range from
“outstanding” to a low of “substantial noncompliance.”
 
 CWB had a
CRA rating of “Satisfactory” as of its most recent regulatory
examination.
  -46-
 Index
  Environmental
Regulation.  Federal, state and local laws and regulations regarding
the discharge of harmful materials into the environment may have an impact on
CWB.  Since CWB is not involved in any business that manufactures,
uses or transports chemicals, waste, pollutants or toxins that might have a
material adverse effect on the environment, CWB’s primary exposure to
environmental laws is through its lending activities and through properties or
businesses CWB may own, lease or acquire.  Based on a general survey
of CWB’s loan portfolio, conversations with local appraisers and the type of
lending currently and historically done by CWB, management is not aware of any
potential liability for hazardous waste contamination that would be reasonably
likely to have a material adverse effect on CWBC as of December 31,
2008.
 
 Safeguarding of Customer Information
and Privacy.  The FRB and other bank regulatory agencies have
adopted guidelines for safeguarding confidential, personal customer
information.  These guidelines require financial institutions to
create, implement and maintain a comprehensive written information security
program designed to ensure the security and confidentiality of customer
information, protect against any anticipated threats or hazard to the security
or integrity of such information and protect against unauthorized access to or
use of such information that could result in substantial harm or inconvenience
to any customer.  CWB has adopted a customer information security
program to comply with such requirements.
 
 Financial
institutions are also required to implement policies and procedures regarding
the disclosure of nonpublic personal information about consumers to
non-affiliated third parties.  In general, financial institutions must
provide explanations to consumers on policies and procedures regarding the
disclosure of such nonpublic personal information, and, except as otherwise
required by law, prohibits disclosing such information except as provided in
CWB’s policies and procedures.  CWB has implemented privacy policies
addressing these restrictions which are distributed regularly to all existing
and new customers of CWB.
 
 USA
Patriot Act.  On October 26, 2001, the President signed into law
comprehensive anti-terrorism legislation, the Uniting and Strengthening America
by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act
of 2001, known as the Patriot Act.  The USA Patriot Act (“Patriot
Act”) was designed to deny terrorists and others the ability to obtain access to
the United States financial system, and has significant implications for
financial institutions and other businesses involved in the transfer of
money.  The Patriot Act, as implemented by various federal regulatory
agencies, requires financial institutions, including CWB, to implement new
policies and procedures or amend existing policies and procedures with respect
to, among other matters, anti-money laundering, compliance, suspicious activity
and currency transaction reporting and due diligence on
customers.  The Patriot Act and its underlying regulations also permit
information sharing for counter-terrorist purposes between federal law
enforcement agencies and financial institutions, as well as among financial
institutions, subject to certain conditions, and require the FRB, the OCC and
other federal banking agencies to evaluate the effectiveness of an applicant in
combating money laundering activities when considering applications filed under
Section 3 of the BHCA or the Bank Merger Act.  CWB has augmented its
systems and procedures to accomplish this.  CWB believes that the
ongoing cost of compliance with the Patriot Act is not likely to be material to
CWB.
 
 Other Aspects of Banking
Law.  CWB is also subject to federalstatutory
and regulatory provisions covering, among other things, security procedures,
insider and affiliated party transactions, management interlocks, electronic
funds transfers, funds availability, and
truth-in-savings.  There are also a variety of federal statutes which
regulate acquisitions of control and the formation of bank holding
companies.
 
 Recent Regulatory
Developments. In
light of current conditions in the global financial markets and the global
economy, regulators have increased their focus on the regulation of the
financial services industry. Proposals for legislation that could substantially
intensify the regulation of the financial services industry are expected to be
introduced in the U.S. Congress and in state legislatures. The agencies
regulating the financial services industry also frequently adopt changes to
their regulations. Substantial regulatory and legislative initiatives, including
a comprehensive overhaul of the regulatory system in the U.S., are possible in
the months or years ahead. Any such action could have a materially adverse
effect on our business, financial condition and results of
operations.
 
 Recent months have
already seen an unprecedented number of government initiatives designed to
respond to the stresses experienced in financial markets.  In response
to the financial crises affecting the banking system and financial markets and
going concern threats to investment banks and other financial institutions,
EESA) was signed into law on October 3, 2008.  Pursuant to EESA, the
Treasury was given the authority to, among other things, purchase up to $700
billion of mortgages, mortgage-backed securities and certain other financial
instruments from financial institutions for the purpose of stabilizing and
providing liquidity to the U.S. financial markets. Pursuant to EESA, the
Treasury established the Troubled Asset Relief Program (“TARP”) and has since
injected capital into many financial institutions under the
TARP-CPP.  On December 19, 2008, CWBC entered into a Securities
Purchase Agreement–Standard Terms with the Treasury pursuant to which, among
other things, CWBC sold preferred stock and warrants to the Treasury for an
aggregate purchase price of $15.6 million.  Under the terms of the
TARP-CPP, CWBC is prohibited from increasing dividends on its common stock, and
from making certain repurchases of equity securities, including its common
stock, without the Treasury’s consent. Furthermore, as long as the preferred
stock issued to the Treasury is outstanding, dividend payments and repurchases
or redemptions relating to certain equity securities, including CWBC’s common
stock, are prohibited until all accrued and unpaid dividends are paid on such
preferred stock, subject to certain limited exceptions.
  -47-
 Index
  On
February 10, 2009, the Treasury announced the FSP, which, among other things,
proposes to establish a new Capital Assistance Program (“CAP”) through which
eligible banking institutions will have access to Treasury capital as a bridge
to private capital until market conditions normalize, and extends the TLGP to
October 31, 2009. As a complement to CAP, a new Public-Private Investment Fund
on an initial scale of up to $500 billion, with the potential to expand up to $1
trillion, was announced to catalyze the removal of legacy assets from the
balance sheets of financial institutions. This proposed fund will combine public
and private capital with government financing to help free up capital to support
new lending. In addition, the existing Term Asset-Backed Securities Lending
Facility (“TALF”) would be expanded (up to $1 trillion) in order to reduce
credit spreads and restart the securitized credit markets that in recent years
supported a substantial portion of lending to households, students, small
businesses, and others. Furthermore, the FSP proposes a new framework of
governance and oversight to help ensure that banks receiving funds are held
responsible for appropriate use of those funds through stronger conditions on
lending, dividends and executive compensation along with enhanced reporting to
the public.
 
 On
February 17, 2009, ARRA was signed into law.  ARRA is intended to
provide tax breaks for individuals and businesses, direct aid to distressed
states and individuals, and provide infrastructure spending.  In
addition, ARRA imposes new executive compensation and expenditure limits on all
previous and future TARP-CPP recipients and expands the class of employees to
whom the limits and restrictions apply.  ARRA also provides the
opportunity for additional repayment flexibility for existing TARP-CPP
recipients.  Among other things, ARRA prohibits the payment of
bonuses, other incentive compensation and severance to certain highly paid
employees (except in the form of restricted stock subject to specified
limitations and conditions), and requires each TARP-CPP recipient to comply with
certain other executive compensation related requirements.  These
provisions modify the executive compensation provisions that were included in
EESA, and in most instances apply retroactively for so long as any obligation
arising from financial assistance provided to the recipient under TARP remains
outstanding.  To the extent that the executive compensation provisions
in ARRA are more restrictive than the restrictions described in the Treasury’s
executive compensation guidelines already issued under EESA, the new ARRA
guidelines appear to supersede those restrictions.  However, both ARRA
and the existing Treasury guidelines contemplate that the Secretary of the
Treasury will adopt standards to provide additional guidance regarding how the
executive compensation restrictions under ARRA and EESA will be
applied.
 
 In
addition, ARRA directs the Secretary of the Treasury to review previously-paid
bonuses, retention awards and other compensation paid to the senior executive
officers and certain other highly-compensated employees of each TARP-CPP
recipient to determine whether any such payments were excessive, inconsistent
with the purposes of ARRA or the TARP, or otherwise contrary to the public
interest. If the Secretary determines that any such payments have been made by a
TARP-CPP recipient, the Secretary will seek to negotiate with the TARP-CPP
recipient and the subject employee for appropriate reimbursements to the U.S.
government (not the TARP-CPP recipient) with respect to any such compensation or
bonuses. ARRA also permits the Secretary, subject to consultation with the
appropriate federal banking agency, to allow a TARP-CPP recipient to repay any
assistance previously provided to such TARP-CPP recipient under the TARP,
without regard to whether the TARP-CPP recipient has replaced such funds from
any source, and without regard to any waiting period. Any TARP-CPP recipient
that repays its TARP assistance pursuant to this provision would no longer be
subject to the executive compensation provisions under ARRA.
 
 On
February 18, 2009, the Treasury announced the HASP, which proposes to provide
refinancing for certain homeowners, to support low mortgage rates by
strengthening confidence in Fannie Mae and Freddie Mac, and to establish a
Homeowner Stability Initiative to reach at-risk homeowners. Among other things,
the Homeowner Stability Initiative would offer monetary incentive to mortgage
servicers and mortgage holders for certain modifications of at-risk loans, and
would establish an insurance fund designed to reduce
foreclosures.
  -48-
 Index
  It is not
clear at this time what impact EESA, the CPP, the TLGP, the FSP, ARRA, HASP, or
other liquidity and funding initiatives will have on the financial markets and
the other difficulties described above, including the high levels of volatility
and limited credit availability currently being experienced, or on the U.S.
banking and financial industries and the broader U.S. and global economies.
Failure of these programs to address the issues noted above could have an
adverse effect on the CWBC and its business.
  -49-
 Index
  ITEM
      7A.
              QUANTITATIVE AND
      QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
 
 The
Company's primary market risk is interest rate risk (“IRR”).  To
minimize the volatility of net interest income at risk (“NII”) and the impact on
economic value of equity (“EVE”), the Company manages its exposure to changes in
interest rates through asset and liability management activities within
guidelines established by the Board’s Asset Liability Committee
(“ALCO”).  ALCO has the responsibility for approving and ensuring
compliance with asset/liability management policies, including IRR
exposure.
 
 To
mitigate the impact of changes in interest rates on the Company’s
interest-earning assets and interest-bearing liabilities, the Company actively
manages the amounts and maturities.   The Company sells
substantially all of its mortgage products and a portion of its SBA loan
originations.  While the Company has some assets and liabilities 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.
 
 The
Company uses software, combined with download detailed information from various
application programs, and assumptions regarding interest rates, lending and
deposit trends and other key factors to forecast/simulate the effects of both
higher and lower interest rates.   The results detailed below
indicate the impact, in dollars and percentages, on NII and EVE of an increase
in interest rates of 200 basis points and a decline of 200 basis points compared
to a flat interest rate scenario.  The model assumes that the rate
change shock occurs immediately.
 
 Interest
      Rate Sensitivity
                              
                              200
      bp increase
                              
                              
                              200
      bp decrease2008
                              
                              
                              2007
                              
                              
                              2008
                              
                              
                              2007(dollars
      in thousands)Anticipated
      impact over the next twelve months:Net
      interest income (NII)
                              
                              $
                              684
                              
                              
                              $
                              1,872
                              
                              
                              $
                              -
                              
                              
                              $
                              (1,911
                              )2.8
                              %
                              
                              
                              7.6
                              %
                              
                              
                              -
                              
                              
                              
                              (7.8
                              %)Economic
      value of equity (EVE)
                              
                              $
                              (11,298
                              )
                              
                              $
                              (7,523
                              )
                              
                              $
                              -
                              
                              
                              $
                              5,981(16.5
                              %)
                              
                              
                              (14.0
                              %)
                              
                              
                              -
                              
                              
                              
                              11.2
                              %
 
 As of
December 31, 2008, the Fed Funds target rate was between 0.0% and 0.25% and the
prime rate was 3.25%.  In the present rate environment, a 200 basis
point decrease was not considered in the December 31, 2008 interest rate
sensitivity analysis.
 
 For
further discussion of interest rate risk, see “Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity
Management - Interest Rate Risk.”
 
 ITEM
      8.
              CONSOLIDATED
      FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
 
 The
Company’s Consolidated Financial Statements and the Notes thereto begin on page
F-1.
  -50-
 Index
  ITEM
      8.
              FINANCIAL STATEMENT
      AND SUPPLEMENTARY DATA
 
 
 Report
of Independent Registered Public Accounting Firm
 
 The Board
of Directors and stockholders of Community West Bancshares
 
 We have
audited the accompanying consolidated balance sheets of Community West
Bancshares and subsidiary (the Company) as of December 31, 2008 and 2007, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2008. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company’s internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Community West
Bancshares and subsidiary at December 31, 2008 and 2007, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2008, in conformity with U.S. generally accepted
accounting principles.
 
 /s/ Ernst & Young
LLP
 
 Los
Angeles, California
 March 26,
2009
  F-1
 Index
  COMMUNITY
WEST BANCSHARES
 CONSOLIDATED
BALANCE SHEETS
 
 December
      31,2008
                      
                      
                      2007(dollars
      in thousands)ASSETSCash
      and due from banks
                      
                      $
                      4,151
                      
                      
                      $
                      6,855Federal
      funds sold
                      
                      
                      8,102
                      
                      
                      
                      2,434Cash
      and cash equivalents
                      
                      
                      12,253
                      
                      
                      
                      9,289Time
      deposits in other financial institutions
                      
                      
                      812
                      
                      
                      
                      778Investment
      securities available-for-sale, at fair value; amortized cost of $6,871
      December 31, 2008 and $12,711 December 31, 2007
                      
                      
                      6,783
                      
                      
                      
                      12,664Investment
      securities held-to-maturity, at amortized cost; fair value of $31,574 at
      December 31, 2008 and $25,733 at December 31, 2007
                      
                      
                      31,192
                      
                      
                      
                      25,617Federal
      Home Loan Bank stock, at cost
                      
                      
                      5,660
                      
                      
                      
                      5,734Federal
      Reserve Bank stock, at cost
                      
                      
                      902
                      
                      
                      
                      812Loans:Held
      for sale, at lower of cost or fair value
                      
                      
                      131,786
                      
                      
                      
                      110,415Held
      for investment, net of allowance for loan losses of $7,341 at December 31,
      2008 and $4,412 at December 31, 2007
                      
                      
                      449,289
                      
                      
                      
                      428,750Total
      loans
                      
                      
                      581,075
                      
                      
                      
                      539,165Servicing
      rights
                      
                      
                      1,161
                      
                      
                      
                      1,206Other
      assets acquired through foreclosure, net
                      
                      
                      1,146
                      
                      
                      
                      150Premises
      and equipment, net
                      
                      
                      3,718
                      
                      
                      
                      3,284Other
      assets
                      
                      
                      12,279
                      
                      
                      
                      11,151TOTAL
      ASSETS
                      
                      $
                      656,981
                      
                      
                      $
                      609,850LIABILITIESDeposits:Non-interest-bearing
      demand
                      
                      $
                      35,080
                      
                      
                      $
                      33,240Interest-bearing
      demand
                      
                      
                      57,474
                      
                      
                      
                      75,016Savings
                      
                      
                      14,718
                      
                      
                      
                      14,905Time
      certificates
                      
                      
                      368,167
                      
                      
                      
                      310,578Total
      deposits
                      
                      
                      475,439
                      
                      
                      
                      433,739Federal
      Home Loan Bank advances
                      
                      
                      110,000
                      
                      
                      
                      121,000Other
      liabilities
                      
                      
                      4,924
                      
                      
                      
                      4,952Total
      liabilities
                      
                      
                      590,363
                      
                      
                      
                      559,691Commitments
      and contingencies-See Note 16STOCKHOLDERS'
      EQUITYPreferred
      stock, no par value; 10,000,000 shares authorized; 15,600
      shares  issued and outstanding, net of discount
                      
                      
                      14,300
                      
                      
                      
                      -Common
      stock, no par value; 10,000,000shares
      authorized; 5,915,130 shares issued and outstanding  at
      December 31, 2008 and 5,894,585 at December 31, 2007
                      
                      
                      33,081
                      
                      
                      
                      31,636Retained
      earnings
                      
                      
                      19,288
                      
                      
                      
                      18,551Accumulated
      other comprehensive loss
                      
                      
                      (51
                      )
                      
                      
                      (28
                      )Total
      stockholders' equity
                      
                      
                      66,618
                      
                      
                      
                      50,159TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                      
                      $
                      656,981
                      
                      
                      $
                      609,850
 See
accompanying notes.
  F-2
 Index
  COMMUNITY
WEST BANCSHARES
 CONSOLIDATED
INCOME STATEMENTS
 
 
 Year
      Ended December 31,2008
                            
                            
                            2007
                            
                            
                            2006(in
      thousands, except per share data)INTEREST
      INCOMELoans
                            
                            $
                            43,081
                            
                            
                            $
                            44,180
                            
                            
                            $
                            37,186Investment
      securities
                            
                            
                            2,179
                            
                            
                            
                            1,952
                            
                            
                            
                            1,576Other
                            
                            
                            272
                            
                            
                            
                            709
                            
                            
                            
                            541Total
      interest income
                            
                            
                            45,532
                            
                            
                            
                            46,841
                            
                            
                            
                            39,303INTEREST
      EXPENSEDeposits
                            
                            
                            17,225
                            
                            
                            
                            17,808
                            
                            
                            
                            13,225Other
      borrowings
                            
                            
                            4,998
                            
                            
                            
                            5,026
                            
                            
                            
                            3,579Total
      interest expense
                            
                            
                            22,223
                            
                            
                            
                            22,834
                            
                            
                            
                            16,804NET
      INTEREST INCOME
                            
                            
                            23,309
                            
                            
                            
                            24,007
                            
                            
                            
                            22,499Provision
      for loan losses
                            
                            
                            5,264
                            
                            
                            
                            1,297
                            
                            
                            
                            489NET
      INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
                            
                            
                            18,045
                            
                            
                            
                            22,710
                            
                            
                            
                            22,010NON-INTEREST
      INCOMEOther
      loan fees
                            
                            
                            2,104
                            
                            
                            
                            2,738
                            
                            
                            
                            2,830Gains
      from loan sales, net
                            
                            
                            1,018
                            
                            
                            
                            802
                            
                            
                            
                            1,499Document
      processing fees, net
                            
                            
                            718
                            
                            
                            
                            750
                            
                            
                            
                            816Service
      charges
                            
                            
                            434
                            
                            
                            
                            442
                            
                            
                            
                            364Loan
      servicing fees, net
                            
                            
                            488
                            
                            
                            
                            4
                            
                            
                            
                            259Other
                            
                            
                            319
                            
                            
                            
                            109
                            
                            
                            
                            204Total
      non-interest income
                            
                            
                            5,081
                            
                            
                            
                            4,845
                            
                            
                            
                            5,972NON-INTEREST
      EXPENSESSalaries
      and employee benefits
                            
                            
                            13,390
                            
                            
                            
                            14,012
                            
                            
                            
                            13,011Occupancy
      and equipment expenses
                            
                            
                            2,341
                            
                            
                            
                            2,089
                            
                            
                            
                            1,855Professional
      services
                            
                            
                            788
                            
                            
                            
                            896
                            
                            
                            
                            953Advertising
      and marketing
                            
                            
                            421
                            
                            
                            
                            751
                            
                            
                            
                            602Depreciation
      and amortization
                            
                            
                            518
                            
                            
                            
                            516
                            
                            
                            
                            499Other
                            
                            
                            3,058
                            
                            
                            
                            2,736
                            
                            
                            
                            1,912Total
      non-interest expenses
                            
                            
                            20,516
                            
                            
                            
                            21,000
                            
                            
                            
                            18,832Income
      before provision for income taxes
                            
                            
                            2,610
                            
                            
                            
                            6,555
                            
                            
                            
                            9,150Provision
      for income taxes
                            
                            
                            1,129
                            
                            
                            
                            2,766
                            
                            
                            
                            3,822NET
      INCOME
                            
                            $
                            1,481
                            
                            
                            $
                            3,789
                            
                            
                            $
                            5,328Preferred
      stock dividends
                            
                            
                            35
                            
                            
                            
                            -
                            
                            
                            
                            -NET
      INCOME AVAILABLE TO COMMON SHAREHOLDERS
                            
                            $
                            1,446
                            
                            
                            $
                            3,789
                            
                            
                            $
                            5,328Earnings
      per common share:Basic
                            
                            $
                            0.24
                            
                            
                            $
                            0.65
                            
                            
                            $
                            0.92Diluted
                            
                            $
                            0.24
                            
                            
                            $
                            0.63
                            
                            
                            $
                            0.89Basic
      weighted average number of common shares outstanding
                            
                            
                            5,913
                            
                            
                            
                            5,862
                            
                            
                            
                            5,785Diluted
      weighted average number of common shares outstanding
                            
                            
                            5,941
                            
                            
                            
                            6,022
                            
                            
                            
                            6,001
 
 See
accompanying notes.
  F-3
 Index
  COMMUNITY
WEST BANCSHARES
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
 
 
 Preferred
                                                                                
                                                                                
                                                                                Common
      Stock
                                                                                
                                                                                
                                                                                Retained
                                                                                
                                                                                
                                                                                Accumulated
      Other Comprehensive
                                                                                
                                                                                
                                                                                Total
      Stockholders’Stock
                                                                                
                                                                                
                                                                                Shares
                                                                                
                                                                                
                                                                                Amount
                                                                                
                                                                                
                                                                                Earnings
                                                                                
                                                                                
                                                                                Income
    (Loss)
                                                                                
                                                                                
                                                                                EquityBALANCES
      AT
                                                                                (in
      thousands)DECEMBER
      31, 2005
                                                                                
                                                                                $
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                5,751
                                                                                
                                                                                
                                                                                $
                                                                                30,190
                                                                                
                                                                                
                                                                                $
                                                                                12,171
                                                                                
                                                                                
                                                                                $
                                                                                (126
                                                                                )
                                                                                
                                                                                $
                                                                                42,235Exercise
      of stock options
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                64
                                                                                
                                                                                
                                                                                
                                                                                387
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                387Stock
      option expense, recognized in earnings
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                163
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                163Tax
      benefit from stock options
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                54
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                54Comprehensive
      income:Net
      income
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                5,328
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                5,328Change
      in unrealized loss on securities available-for-sale, net
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                (17
                                                                                )
                                                                                
                                                                                
                                                                                (17
                                                                                )Comprehensive
      income
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                5,311Cash
      dividends paid ($0.23 per share)
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                (1,330
                                                                                )
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                (1,330
                                                                                )OtherBALANCES
      ATDECEMBER
      31, 2006
                                                                                
                                                                                $
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                5,815
                                                                                
                                                                                
                                                                                
                                                                                30,794
                                                                                
                                                                                
                                                                                
                                                                                16,169
                                                                                
                                                                                
                                                                                
                                                                                (143
                                                                                )
                                                                                
                                                                                
                                                                                46,820Exercise
      of stock options
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                80
                                                                                
                                                                                
                                                                                
                                                                                499
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                499Stock
      option expense, recognized in earnings
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                283
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                283Tax
      benefit from stock options
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                60
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                60Comprehensive
      income:Net
      income
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                3,789
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                3,789Change
      in unrealized loss on securities available-for-sale, net
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                115
                                                                                
                                                                                
                                                                                
                                                                                115Comprehensive
      income
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                3,904Cash
      dividends paid ($0.24 per share)
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                (1,407
                                                                                )
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                (1,407
                                                                                )BALANCES
      ATDECEMBER
      31, 2007
                                                                                
                                                                                $
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                5,895
                                                                                
                                                                                
                                                                                $
                                                                                31,636
                                                                                
                                                                                
                                                                                $
                                                                                18,551
                                                                                
                                                                                
                                                                                $
                                                                                (28
                                                                                )
                                                                                
                                                                                $
                                                                                50,159Issuance
      of preferred stock
                                                                                
                                                                                
                                                                                14,291
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                14,291Issuance
      of common stock warrants
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                1,159
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                1,159Exercise
      of stock options
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                20
                                                                                
                                                                                
                                                                                
                                                                                105
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                105Stock
      option expense, recognized in earnings
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                181
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                181Comprehensive
      income:Net
      income
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                1,481
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                1,481Change
      in unrealized loss on securities available-for-sale, net
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                (23
                                                                                )
                                                                                
                                                                                
                                                                                (23
                                                                                )Comprehensive
      income
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                1,458Dividends:Common
      ($0.12 per share)
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                (709
                                                                                )
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                (709
                                                                                )Preferred
                                                                                
                                                                                
                                                                                9
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                (35
                                                                                )
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                (26
                                                                                )BALANCES
      ATDECEMBER
      31, 2008
                                                                                
                                                                                $
                                                                                14,300
                                                                                
                                                                                
                                                                                
                                                                                5,915
                                                                                
                                                                                
                                                                                $
                                                                                33,081
                                                                                
                                                                                
                                                                                $
                                                                                19,288
                                                                                
                                                                                
                                                                                $
                                                                                (51
                                                                                )
                                                                                
                                                                                $
                                                                                66,618
 See
accompanying notes.
  F-4
 Index
  COMMUNITY
WEST BANCSHARES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 
 Year
      Ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006(in
      thousands)CASH FLOWS FROM OPERATING
      ACTIVITIES:Net
      income
                    
                    $
                    1,481
                    
                    
                    $
                    3,789
                    
                    
                    $
                    5,328Adjustments
      to reconcile net income to net cash provided by operating
      activities:Provision
      for loan losses
                    
                    
                    5,264
                    
                    
                    
                    1,297
                    
                    
                    
                    489Write-down
      of other assets acquired through foreclosure
                    
                    
                    -
                    
                    
                    
                    54
                    
                    
                    
                    -Depreciation
      and amortization
                    
                    
                    518
                    
                    
                    
                    516
                    
                    
                    
                    499Deferred
      income taxes
                    
                    
                    (1,668
                    )
                    
                    
                    (576
                    )
                    
                    
                    (177
                    )Stock-based
      compensation
                    
                    
                    181
                    
                    
                    
                    283
                    
                    
                    
                    163Net
      amortization of discounts and premiums for investment
      securities
                    
                    
                    (85
                    )
                    
                    
                    (19
                    )
                    
                    
                    (5
                    )(Gain)
      loss on:Sale
      of other assets acquired through foreclosure
                    
                    
                    (205
                    )
                    
                    
                    29
                    
                    
                    
                    19Sale
      of loans held for sale
                    
                    
                    (1,018
                    )
                    
                    
                    (802
                    )
                    
                    
                    (1,499
                    )Loan
      originated for sale and principal collections, net
                    
                    
                    (2,682
                    )
                    
                    
                    673
                    
                    
                    
                    369Changes
      in:Servicing
      rights, net of amortization
                    
                    
                    45
                    
                    
                    
                    762
                    
                    
                    
                    877Other
      assets
                    
                    
                    552
                    
                    
                    
                    (1,444
                    )
                    
                    
                    (1,619
                    )Other
      liabilities
                    
                    
                    (22
                    )
                    
                    
                    (345
                    )
                    
                    
                    1,881Net
      cash provided by operating activities
                    
                    
                    2,361
                    
                    
                    
                    4,217
                    
                    
                    
                    6,325CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of held-to-maturity securities
                    
                    
                    (12,899
                    )
                    
                    
                    (17,782
                    )
                    
                    
                    (3,953
                    )Purchase
      of available-for-sale securities
                    
                    
                    (2,002
                    )
                    
                    
                    -
                    
                    
                    
                    (3,976
                    )Purchase
      of Federal Home Loan Bank stock, net of redemptions
                    
                    
                    375
                    
                    
                    
                    (1,029
                    )
                    
                    
                    (1,319
                    )Purchase
      of Federal Reserve stock
                    
                    
                    (90
                    )
                    
                    
                    -
                    
                    
                    
                    -Federal
      Home Loan Bank stock dividend
                    
                    
                    (301
                    )
                    
                    
                    (240
                    )
                    
                    
                    (161
                    )Principal
      pay downs and maturities of available-for-sale securities
                    
                    
                    7,844
                    
                    
                    
                    9,634
                    
                    
                    
                    4,474Principal
      pay downs and maturities of held-to-maturity securities
                    
                    
                    7,407
                    
                    
                    
                    2,714
                    
                    
                    
                    2,096Loan
      originations and principal collections, net
                    
                    
                    (45,360
                    )
                    
                    
                    (88,863
                    )
                    
                    
                    (69,886
                    )Proceeds
      from sale of other assets acquired through foreclosure
                    
                    
                    1,095
                    
                    
                    
                    451
                    
                    
                    
                    104Net
      increase in time deposits in other financial institutions
                    
                    
                    (34
                    )
                    
                    
                    (242
                    )
                    
                    
                    (4
                    )Purchase
      of premises and equipment, net
                    
                    
                    (952
                    )
                    
                    
                    (998
                    )
                    
                    
                    (1,155
                    )Net
      cash used in investing activities
                    
                    
                    (44,917
                    )
                    
                    
                    (96,355
                    )
                    
                    
                    (73,780
                    )CASH FLOWS FROM FINANCING
      ACTIVITIES:Issuance
      of preferred stock and warrants on common stock, net of
    costs
                    
                    
                    15,450
                    
                    
                    
                    -
                    
                    
                    
                    -Preferred
      stock dividends
                    
                    
                    (35
                    )
                    
                    
                    -
                    
                    
                    
                    -Amortization
      of discount on preferred stock
                    
                    
                    9Exercise
      of stock options
                    
                    
                    105
                    
                    
                    
                    499
                    
                    
                    
                    387Cash
      dividends paid on common stock
                    
                    
                    (709
                    )
                    
                    
                    (1,407
                    )
                    
                    
                    (1,330
                    )Net
      (decrease) increase in demand deposits and savings
accounts
                    
                    
                    (15,889
                    )
                    
                    
                    25,631
                    
                    
                    
                    (23,633
                    )Net
      increase in time certificates of deposit
                    
                    
                    57,589
                    
                    
                    
                    39,361
                    
                    
                    
                    58,142Proceeds
      from Federal Home Loan Bank advances
                    
                    
                    33,000
                    
                    
                    
                    64,000
                    
                    
                    
                    41,500Repayment
      of Federal Home Loan Bank advances
                    
                    
                    (44,000
                    )
                    
                    
                    (38,000
                    )
                    
                    
                    (10,000
                    )Net
      cash provided by financing activities
                    
                    
                    45,520
                    
                    
                    
                    90,084
                    
                    
                    
                    65,066NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                    
                    
                    2,964
                    
                    
                    
                    (2,054
                    )
                    
                    
                    (2,389
                    )CASH
      AND CASH EQUIVALENTS, BEGINNING OF YEAR
                    
                    
                    9,289
                    
                    
                    
                    11,343
                    
                    
                    
                    13,732CASH
      AND CASH EQUIVALENTS, END OF YEAR
                    
                    $
                    12,253
                    
                    
                    $
                    9,289
                    
                    
                    $
                    11,343
 See
      accompanying notes.
  F-5
 Index
  COMMUNITY
WEST BANCSHARES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 
 1.  SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
 
 The
accounting and reporting policies of Community West Bancshares, a California
corporation (“Company” or “CWBC”), and its wholly-owned subsidiary, Community
West Bank National Association (“CWB”) are in accordance with accounting
principles generally accepted in the United States (“GAAP”) and general
practices within the financial services industry.  All material
intercompany transactions and accounts have been eliminated.  The
following are descriptions of the most significant of those
policies:
 
 Nature of
Operations – The Company’s primary operations are related to commercial
banking and financial services through CWB which include the acceptance of
deposits and the lending and investing of money.  The Company also
engages in electronic banking services.  The Company’s customers
consist of small to mid-sized businesses, including Small Business
Administration borrowers, as well as individuals.
 
 Use of
Estimates – The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities as well as disclosures of contingent assets and
liabilities at the date of the financial statements.  These estimates
and assumptions also affect the reported amounts of revenues and expenses during
the reporting period.  Although management believes these estimates to
be reasonably accurate, actual results may differ.
 
 Certain
amounts in the prior years’ financial statements have been reclassified to be
comparable with classifications in 2008.
 
 Business
Segments – Reportable business segments are determined using the
“management approach” and are intended to present reportable segments consistent
with how the chief operating decision maker organizes segments within the
company for making operating decisions and assessing performance.  As
of December 31, 2008 and 2007, the Company had only one reportable business
segment.
 
 Reserve
Requirements – All depository institutions are required by law to
maintain reserves on transaction accounts and non-personal time deposits in the
form of cash balances at the Federal Reserve Bank (“FRB”). These reserve
requirements can be offset by cash balances held at CWB.
 
 Investment
Securities – The Company currently holds securities, primarily
mortgage-backed securities (“MBS”) and collateralized mortgage obligations
(“CMO”), classified as both available-for-sale (“AFS”) and held-to-maturity
(“HTM”).  Securities classified as HTM are accounted for at amortized
cost as the Company has the positive intent and ability to hold them to
maturity.  Securities not classified as HTM are considered AFS and are
carried at fair value with unrealized gains or losses reported as a separate
component of accumulated other comprehensive income (loss), net of any
applicable income taxes.  Realized gains or losses on the sale of AFS
securities, if any, are determined on a specific identification
basis.  Purchase premiums and discounts are recognized in interest
income using the effective interest method over the terms of the related
securities, or to earlier call dates, if appropriate.  Declines in the
fair value of AFS or HTM securities below their cost that are deemed to be other
than temporary, if any, are reflected in earnings as realized
losses.  There is no recognition of unrealized gains or losses for HTM
securities.  All investment securities are direct or indirect agencies
of the U. S. Government.
 
 Servicing
Rights – The guaranteed portion of certain SBA loans can be 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.
 
 Loans Held for
Sale – Loans which are originated and intended for sale in the secondary
market are carried at the lower of cost or estimated fair value determined on an
aggregate basis.  Valuation adjustments, if any, are recognized
through a valuation allowance by charges to lower of cost or market
provision.  Loans held for sale are primarily comprised of SBA loans
and residential first and second mortgage loans.  The Company did not
incur a lower of cost or market valuation provision in the years ended December
31, 2008, 2007 and 2006.
 
 Loans Held for
Investment – Loans are recognized at the principal amount outstanding,
net of unearned income, loan participations and amounts charged
off.  Unearned income includes deferred loan origination fees reduced
by loan origination costs.  Unearned income on loans is amortized to
interest income over the life of the related loan using the level yield
method.
  F-6
 Index
  Interest Income
on Loans – Interest on loans is accrued daily on a simple-interest
basis.  The accrual of interest is discontinued when substantial doubt
exists as to collectability of the loan, generally at the time the loan is 90
days delinquent, unless the credit is well secured and in process of collection.
Any unpaid but accrued interest is reversed at that time. Thereafter, interest
income is no longer recognized on the loan.  Interest on non-accrual
loans is accounted for on the cash-basis or cost-recovery method, until
qualifying for return to accrual.  Loans are returned to accrual
status when all of the principal and interest amounts contractually due are
brought current and future payments are reasonably assured.  Impaired
loans are identified as impaired when it is probable that interest and principal
will not be collected according to the contractual terms of the loan
agreement.
 
 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
      – A migration analysis and various portfolio specific factors are used to
      calculate the required allowance for all non-impaired loans.  In
      addition, the migration results are adjusted based upon qualitative
      factors. Impaired loans are assigned a specific reserve based upon the
      individual characteristics of the
loan.
 
 ·
              Relationship
      Banking – Primarily includes commercial, commercial real estate and
      construction loans.  A migration analysis and various portfolio
      specific factors are used to calculate the required allowance for all
      non-impaired loans. In addition, the migration results are adjusted based
      upon qualitative factors.  Impaired loans are assigned a
      specific reserve based upon the individual characteristics of the
      loan.
 
 ·
              Manufactured
      Housing – The allowance is calculated on the basis of loss history and
      risk rating, which is primarily a function of delinquency.  In
      addition, the loss history is adjusted based upon qualitative
      factors.
 
 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 the outcome of future events 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.
 
 Other Assets
Acquired through Foreclosure– Other assets acquired through foreclosure
includes real estate and other repossessed assets and the collateral property is
recorded at the lesser of the appraised value at the time of foreclosure less
estimated costs to sell or the loan balance.  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 the legal ownership
date, management periodically performs a new valuation and the asset is carried
at the lower of carrying amount or fair value.  Operating expenses or
income, and gains or losses on disposition of such properties, are recorded in
current operations.
 
 Premises and
Equipment – Premises and equipment are stated at cost, less accumulated
depreciation and amortization.  Depreciation is computed using the
straight-line method over the estimated useful lives of the
assets.  Leasehold improvements are amortized over the terms of the
leases or the estimated useful lives of the improvements, whichever is
shorter.  Generally, the estimated useful lives of other items of
premises and equipment are as follows:
 
 Building
      and improvements
                  31.5
      yearsFurniture
      and equipment
                  5 –
      10 yearsElectronic
      equipment and software
                  3 –
      5 years
 F-7
 Index
  Income
Taxes– The
Company uses the accrual method of accounting for financial reporting purposes
as well as for tax reporting.  Due to tax regulations, certain items
of income and expense are recognized in different periods for tax return
purposes than for financial statement reporting.  These items
represent “temporary differences.”  Deferred income taxes are
recognized for the tax effect of temporary differences between the tax basis of
assets and liabilities and their financial reporting amounts at each period end
based on enacted tax laws and statutory tax rates applicable to the periods in
which the differences are expected to affect taxable income.  A
valuation allowance is established for deferred tax assets if, based on weight
of available evidence, it is more likely than not that some portion or all of
the deferred tax assets may not be realized.
 
 Income Per Common
Share – Basic income per common share is computed based on the weighted
average number of common shares outstanding during each year divided into net
income available to common shareholders.  Diluted income per share is
computed based on the weighted average number of common shares outstanding
during each year plus the dilutive effect of outstanding options divided into
net income available to common shareholders.
 
 Statement of Cash
Flows – For purposes of reporting cash flows, cash and cash equivalents
include cash, due from banks, interest-earning deposits in other financial
institutions and federal funds sold.  Federal funds sold are one-day
transactions with CWB’s funds being returned the following business
day.
 
 Stock-Based
Compensation– On January 1, 2006, the Company changed its accounting
policy related to stock-based compensation in connection with the adoption of
Statement of Financial Accounting Standards  No. 123, “Share-Based
Payment”.  See Note 9 – Stock-Based Compensation for additional
information.
 
 Preferred Stock
and Warrants– The receipt of TARP Capital Purchase Program (as more
fully discussed in Note 10) and the issuance of preferred stock and Common Stock
warrants required a valuation of these two instruments.  The Company
engaged outside experts to assist management this valuation and allocation of
the funds received between the preferred stock and related
warrants.  A binomial option pricing model was used in arriving at the
valuation.
 
 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 5
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 2008.
  F-8
 Index
  2.  INVESTMENT
SECURITIES
 
 The
amortized cost and estimated fair value of investment securities is as
follows:
 
 December 31, 2008
                          
                          (in
      thousands)Gross
                          
                          
                          GrossAmortized
                          
                          
                          Unrealized
                          
                          
                          Unrealized
                          
                          
                          FairAvailable-for-sale
    securities
                          
                          Cost
                          
                          
                          Gains
                          
                          
                          Losses
                          
                          
                          ValueU.S.
      Government agency: MBS
                          
                          $
                          5,371
                          
                          
                          $
                          1
                          
                          
                          $
                          (88
                          )
                          
                          $
                          5,284U.S.
      Government agency: CMO
                          
                          
                          1,500
                          
                          
                          
                          3
                          
                          
                          
                          (4
                          )
                          
                          
                          1,499Total
                          
                          $
                          6,871
                          
                          
                          $
                          4
                          
                          
                          $
                          (92
                          )
                          
                          $
                          6,783Held-to-maturity securitiesU.S.
      Government agency: MBS
                          
                          $
                          25,750
                          
                          
                          $
                          459
                          
                          
                          $
                          (21
                          )
                          
                          $
                          26,188U.S.
      Government agency: CMO
                          
                          
                          5,442
                          
                          
                          
                          -
                          
                          
                          
                          (56
                          )
                          
                          
                          5,386Total
                          
                          $
                          31,192
                          
                          
                          $
                          459
                          
                          
                          $
                          (77
                          )
                          
                          $
                          31,574
 
 December 31, 2007
                        
                        (in
      thousands)Gross
                        
                        
                        GrossAmortized
                        
                        
                        Unrealized
                        
                        
                        Unrealized
                        
                        
                        FairAvailable-for-sale
    securities
                        
                        Cost
                        
                        
                        Gains
                        
                        
                        Losses
                        
                        
                        ValueU.S.
      Government agency notes
                        
                        $
                        6,000
                        
                        
                        $
                        -
                        
                        
                        $
                        (7
                        )
                        
                        $
                        5,993U.S.
      Government agency: MBS
                        
                        
                        4,994
                        
                        
                        
                        14
                        
                        
                        
                        (4
                        )
                        
                        
                        5,004U.S.
      Government agency: CMO
                        
                        
                        1,717
                        
                        
                        
                        -
                        
                        
                        
                        (50
                        )
                        
                        
                        1,667Total
                        
                        $
                        12,711
                        
                        
                        $
                        14
                        
                        
                        $
                        (61
                        )
                        
                        $
                        12,664Held-to-maturity securitiesU.S.
      Government agency notes
                        
                        $
                        200
                        
                        
                        $
                        -
                        
                        
                        $
                        (1
                        )
                        
                        $
                        199U.S.
      Government agency: MBS
                        
                        
                        25,417
                        
                        
                        
                        137
                        
                        
                        
                        (20
                        )
                        
                        
                        25,534Total
                        
                        $
                        25,617
                        
                        
                        $
                        137
                        
                        
                        $
                        (21
                        )
                        
                        $
                        25,733
 
 At
December 31, 2008,  $38.0 million at carrying value was pledged to the
Federal Home Loan Bank, San Francisco, as collateral for current and future
advances.
 
 The
maturity periods and weighted average yields of investment securities at
December 31, 2008 are as follows:
 
 Total Amount
                      
                      
                      Less than One Year
                      
                      
                      One to Five Years
                      
                      
                      Five
      to
                        Ten YearsAmount
                      
                      
                      Yield
                      
                      
                      Amount
                      
                      
                      Yield
                      
                      
                      Amount
                      
                      
                      Yield
                      
                      
                      Amount
                      
                      
                      Yield(dollars
      in thousands)Available-for-sale
    securitiesU.
      S. Government:Agency:
      MBS
                      
                      $
                      5,284
                      
                      
                      
                      4.5
                      %
                      
                      $
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      5,284
                      
                      
                      
                      4.5
                      %
                      
                      $
                      -
                      
                      
                      
                      -Agency:
      CMO
                      
                      
                      1,499
                      
                      
                      
                      4.6
                      %
                      
                      
                      1,499
                      
                      
                      
                      4.6
                      %
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Total
                      
                      $
                      6,783
                      
                      
                      
                      4.5
                      %
                      
                      $
                      1,499
                      
                      
                      
                      4.6
                      %
                      
                      $
                      5,284
                      
                      
                      
                      4.5
                      %
                      
                      $
                      -
                      
                      
                      
                      -Held-to-maturity securitiesU.S.
      Government:Agency:
      MBS
                      
                      $
                      25,750
                      
                      
                      
                      5.3
                      %
                      
                      $
                      3,390
                      
                      
                      
                      6.7
                      %
                      
                      $
                      22,360
                      
                      
                      
                      5.0
                      %
                      
                      $
                      -
                      
                      
                      
                      -Agency:
      CMO
                      
                      
                      5,442
                      
                      
                      
                      4.9
                      %
                      
                      
                      5,442
                      
                      
                      
                      4.9
                      %
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Total
                      
                      $
                      31,192
                      
                      
                      
                      5.2
                      %
                      
                      $
                      8,832
                      
                      
                      
                      5.6
                      %
                      
                      $
                      22,360
                      
                      
                      
                      5.0
                      %
                      
                      $
                      -
                      
                      
                      
                      -
 F-9
 Index
  The
following tables show all securities that are in an unrealized loss position and
temporarily impaired as of:
 
 December
      31, 2008
                      
                      Less
      than 12 months
                      
                      
                      More
      than 12 months
                      
                      
                      TotalFair
                      
                      
                      Unrealized
                      
                      
                      Fair
                      
                      
                      Unrealized
                      
                      
                      Fair
                      
                      
                      UnrealizedValue
                      
                      
                      Losses
                      
                      
                      Value
                      
                      
                      Losses
                      
                      
                      Value
                      
                      
                      Losses(in
      thousands)Available-for-sale
    securitiesU.S.
      Government agency: MBS
                      
                      $
                      4,249
                      
                      
                      $
                      66
                      
                      
                      $
                      716
                      
                      
                      $
                      22
                      
                      
                      $
                      4,965
                      
                      
                      $
                      88U.S.
      Government agency: CMO
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,106
                      
                      
                      
                      4
                      
                      
                      
                      1,106
                      
                      
                      
                      4Total
                      
                      $
                      4,249
                      
                      
                      $
                      66
                      
                      
                      $
                      1,822
                      
                      
                      $
                      26
                      
                      
                      $
                      6,071
                      
                      
                      $
                      92Held-to-maturity securitiesU.S.
      Government agency: MBS
                      
                      $
                      4,025
                      
                      
                      $
                      21
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      4,025
                      
                      
                      $
                      21U.S.
      Government agency: CMO
                      
                      
                      5,386
                      
                      
                      
                      56
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      5,386
                      
                      
                      
                      56Total
                      
                      $
                      9,411
                      
                      
                      $
                      77
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      9,411
                      
                      
                      $
                      77
 
 December
      31, 2007
                      
                      Less
      than 12 months
                      
                      
                      More
      than 12 months
                      
                      
                      TotalFair
                      
                      
                      Unrealized
                      
                      
                      Fair
                      
                      
                      Unrealized
                      
                      
                      Fair
                      
                      
                      UnrealizedValue
                      
                      
                      Losses
                      
                      
                      Value
                      
                      
                      Losses
                      
                      
                      Value
                      
                      
                      Losses(in
      thousands)Available-for-sale
    securitiesU.S.
      Government and agency
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      3,993
                      
                      
                      $
                      7
                      
                      
                      $
                      3,993
                      
                      
                      $
                      7U.S.
      Government agency: MBS
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      1,067
                      
                      
                      
                      4
                      
                      
                      
                      1,067
                      
                      
                      
                      4U.S.
      Government agency: CMO
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,667
                      
                      
                      
                      50
                      
                      
                      
                      1,667
                      
                      
                      
                      50Total
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      6,727
                      
                      
                      $
                      61
                      
                      
                      $
                      6,727
                      
                      
                      $
                      61Held-to-maturity securitiesU.S.
      Government and agency
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      199
                      
                      
                      $
                      1
                      
                      
                      $
                      199
                      
                      
                      $
                      1U.S.
      Government agency: MBS
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2,711
                      
                      
                      
                      20
                      
                      
                      
                      2,711
                      
                      
                      
                      20Total
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      2,910
                      
                      
                      $
                      21
                      
                      
                      $
                      2,910
                      
                      
                      $
                      21
 
 For
December 31, 2008 and December 31, 2007, twelve securities were in an unrealized
loss position.
 
 Declines
in the fair value of held-to-maturity and available-for-sale securities below
their cost that are deemed to be other than temporary are reflected in earnings
as realized losses.  In estimating other-than-temporary impairment
losses, management considers, among other things (i) the length of time and
the extent to which the fair value has been less than cost (ii) the
financial condition and near-term prospects of the issuer and (iii) the
intent and ability of the Company to retain its investment in the issuer for a
period of time sufficient to allow for any anticipated recovery in fair
value.
 
 Management
has the ability and intent to hold the securities classified as held-to-maturity
until they mature, at which time the Company will receive full value for the
securities.  Furthermore, as of December 31, 2008, management
also has the ability and intent to hold the securities classified as
available-for-sale for a period of time sufficient for a recovery of
cost.  The unrealized losses are largely due to increases in market
interest rates over the yields available at the time the underlying securities
were purchased.  The fair value is expected to recover as the bonds
approach their maturity date or repricing date or if market yields for such
investments decline.  Management does not believe any of the
securities are impaired due to reasons of credit quality, as all are direct or
indirect agencies of the U. S. government.   Accordingly, as of
December 31, 2008 and 2007, management believes the impairments detailed in
the table above are temporary and no other-than-temporary impairment loss has
been realized in the Company’s consolidated statements of income.
 
 3.  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 retain 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%.  The
servicing asset is analyzed for impairment quarterly.
  F-10
 Index
  The
Company also periodically sells certain SBA loans into the secondary market, on
a servicing-released basis, typically for a cash premium.
 
 As of
December 31, 2008 and December 31, 2007, the Company had approximately $127.4
million and $108.9 million, respectively, in SBA loans held for
sale.
 
 The
following is a summary of activity in Servicing Rights:
 
 Year
      Ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006(in
      thousands)Balance,
      beginning of year
                    
                    $
                    1,206
                    
                    
                    $
                    1,968
                    
                    
                    $
                    2,845Additions
      through loan sales
                    
                    
                    273
                    
                    
                    
                    83
                    
                    
                    
                    158Amortization
                    
                    
                    (318
                    )
                    
                    
                    (845
                    )
                    
                    
                    (1,035
                    )Balance,
      end of year
                    
                    $
                    1,161
                    
                    
                    $
                    1,206
                    
                    
                    $
                    1,968
 
 Mortgage Loan
Sales – From time to time, 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 December 31, 2008
and December 31, 2007, the Company had $7.3 million and $7.6 million,
respectively, in outstanding mortgage loan interest rate lock and forward sale
commitments, the impact of which were not material to the Company’s financial
position or results of operations.
 
 4.  LOANS
HELD FOR INVESTMENT
 
 The
composition of the Company’s loans held for investment portfolio is as
follows:
  December
      31,2008
                    
                    
                    2007(in
      thousands)Commercial
                    
                    $
                    74,895
                    
                    
                    $
                    72,470Real
      estate
                    
                    
                    129,876
                    
                    
                    
                    136,734SBA
                    
                    
                    40,066
                    
                    
                    
                    34,021Manufactured
      housing
                    
                    
                    190,838
                    
                    
                    
                    172,938Securitized
                    
                    
                    5,645
                    
                    
                    
                    7,507Other
      installment
                    
                    
                    15,793
                    
                    
                    
                    10,027457,113
                    
                    
                    
                    433,697Less:Allowance
      for loan losses
                    
                    
                    7,341
                    
                    
                    
                    4,412Deferred
      fees, net of costs
                    
                    
                    (284
                    )
                    
                    
                    25Purchased
      premiums
                    
                    
                    (42
                    )
                    
                    
                    (73
                    )Discount
      on unguaranteed portion of SBA loans
                    
                    
                    809
                    
                    
                    
                    583Loans
      held for investment, net
                    
                    $
                    449,289
                    
                    
                    $
                    428,750
 F-11
 Index
  An
analysis of the allowance for credit losses on loans held for investment is as
follows:
 
 Year
      Ended December 31,2008
                  
                  
                  2007
                  
                  
                  2006(in
      thousands)Balance,
      beginning of year
                  
                  $
                  4,412
                  
                  
                  $
                  3,926
                  
                  
                  $
                  3,954Loans
      charged off
                  
                  
                  (2,459
                  )
                  
                  
                  (917
                  )
                  
                  
                  (800
                  )Recoveries
      on loans previously charged off
                  
                  
                  124
                  
                  
                  
                  106
                  
                  
                  
                  283Net
      charge-offs
                  
                  
                  (2,335
                  )
                  
                  
                  (811
                  )
                  
                  
                  (517
                  )Provision
      for loan losses
                  
                  
                  5,264
                  
                  
                  
                  1,297
                  
                  
                  
                  489Balance,
      end of year
                  
                  $
                  7,341
                  
                  
                  $
                  4,412
                  
                  
                  $
                  3,926
 
 As of
December 31, 2008 and 2007, the Company also had reserves for credit losses on
undisbursed loans of $97,000 and $73,000, respectively, which are included in
other liabilities in the consolidated balance sheet.
 
 The
recorded investment in loans that are considered to be impaired is as
follows:
 
 Year
      Ended December 31,2008
                  
                  
                  2007
                  
                  
                  2006(in
      thousands)Impaired
      loans without specific valuation allowances
                  
                  $
                  -
                  
                  
                  $
                  33
                  
                  
                  $
                  63Impaired
      loans with specific valuation allowances
                  
                  
                  8,566
                  
                  
                  
                  16,468
                  
                  
                  
                  5,145Specific
      valuation allowance related to impaired loans
                  
                  
                  (151
                  )
                  
                  
                  (966
                  )
                  
                  
                  (641
                  )Impaired
      loans, net
                  
                  $
                  8,415
                  
                  
                  $
                  15,535
                  
                  
                  $
                  4,567Average
      investment in impaired loans
                  
                  $
                  9,612
                  
                  
                  $
                  9,386
                  
                  
                  $
                  4,074
 
 The
following schedule reflects recorded investment at the dates indicated in
certain types of loans:
 
 Year
      Ended December 31,2008
                  
                  
                  2007
                  
                  
                  2006(in
      thousands)Nonaccrual
      loans
                  
                  $
                  28,821
                  
                  
                  $
                  15,341
                  
                  
                  $
                  7,417SBA
      guaranteed portion of loans included above
                  
                  
                  (11,918
                  )
                  
                  
                  (5,695
                  )
                  
                  
                  (4,256
                  )Nonaccrual
      loans, net
                  
                  $
                  16,903
                  
                  
                  $
                  9,646
                  
                  
                  $
                  3,161Troubled
      debt restructured loans
                  
                  $
                  5,408
                  
                  
                  $
                  7,255
                  
                  
                  $
                  68Loans
      30 through 90 days past due with interest accruing
                  
                  $
                  11,974
                  
                  
                  $
                  18,898
                  
                  
                  $
                  2,463Interest
      income recognized on impaired loans
                  
                  $
                  12
                  
                  
                  $
                  691
                  
                  
                  $
                  242Interest
      foregone on nonaccrual loans and troubled debt restructured loans
      outstanding
                  
                  
                  1,707
                  
                  
                  
                  904
                  
                  
                  
                  488Gross
      interest income on impaired and nonaccrual loans
                  
                  $
                  1,719
                  
                  
                  $
                  1,595
                  
                  
                  $
                  730
 
 The
Company makes loans to borrowers in a number of different industries. Loans
collateralized by manufactured housing comprises over 10% of the Company’s loan
portfolio.  This concentration is somewhat mitigated by the fact that
the portfolio consists of over 1,800 individual borrowers with diverse income
sources. Commercial, commercial real estate, construction and SBA loans also
comprised over 10% of the Company’s loan portfolio as of December 31, 2008 and
2007.  The Bank analyzes these concentrations on a quarterly basis and
reports the risk related to concentrations to the Board of
Directors.  Management believes the systems in place coupled with the
diversity of the portfolios are adequate to mitigate concentration
risk.
  F-12
 Index
  5.  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 December 31, 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
                  
                  $
                  6,783
                  
                  
                  $
                  -
                  
                  
                  $
                  6,783
                  
                  
                  $
                  -Interest
      only strips (included in other assets)
                  
                  
                  558
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  558Total
                  
                  $
                  7,341
                  
                  
                  $
                  -
                  
                  
                  $
                  6,783
                  
                  
                  $
                  558
 
 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.  I/O 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 I/O strips were valued at $785,000 as of December 31,
2007. Valuation adjustments relating to the I/O strips of $227,000 were recorded
in income for the year resulting in a value of $558,000 at  December
31, 2008.  No other changes in the balance have occurred related to the I/O
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 December 31, 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
                  
                  $
                  8,566
                  
                  
                  $
                  -
                  
                  
                  $
                  7,849
                  
                  
                  $
                  717
 
 Also see
“Note 14 – Fair Value of Financial Instruments”.
  F-13
 Index
  6.  PREMISES
AND EQUIPMENT
 
 December
      31,2008
                    
                    
                    2007(in
      thousands)Furniture,
      fixtures and equipment
                    
                    $
                    8,210
                    
                    
                    $
                    7,989Building
      and land
                    
                    
                    1,407
                    
                    
                    
                    1,407Leasehold
      improvements
                    
                    
                    2,431
                    
                    
                    
                    1,440Construction
      in progress
                    
                    
                    -
                    
                    
                    
                    35112,048
                    
                    
                    
                    11,187Less:
      accumulated depreciation and amortization
                    
                    
                    (8,330
                    )
                    
                    
                    (7,903
                    )Premises
      and equipment, net
                    
                    $
                    3,718
                    
                    
                    $
                    3,284
 
 The
Company leases office facilities under various operating lease agreements with
terms that expire at various dates between April 2009 and May 2017, plus options
to extend certain lease terms for periods of up to ten years.
 
 The
minimum lease commitments as of December 31, 2008 under all operating lease
agreements are as follows:
 
 (in
      thousands)2009
                        
                        $
                        1,2032010
                        
                        
                        9562011
                        
                        
                        8262012
                        
                        
                        2802013
                        
                        
                        157Thereafter
                        
                        
                        529Total
                        
                        $
                        3,951
 
 Rent
expense for the years ended December 31, 2008, 2007 and 2006, included in
occupancy expense was $1,199,000, $1,118,000 and $928,000,
respectively.
 
 7.  DEPOSITS
 
 At
December 31, 2008, the maturities of time certificates of deposit are as
follows:
 
 (in
      thousands)2009
                    
                    $
                    303,8312010
                    
                    
                    44,3472011
                    
                    
                    8,6722012
                    
                    
                    1,8362013
                    
                    
                    9,481Total
                    
                    $
                    368,167
 
 8.  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 mortgage loans, securities of the U.S Government and its agencies and
certain other loans.  The outstanding advances at December 31, 2008
include $4.0 million borrowed at variable rates which adjust to the current
LIBOR rate monthly.  At December 31, 2008, CWB had pledged to FHLB,
securities of $38.0 million at carrying value and loans of $149 million, and had
$16.9 million available for additional borrowing.  At December 31,
2007, CWB had $150 million of loans and $38.1 million of securities pledged as
collateral and outstanding advances of $121 million.
  F-14
 Index
  Information
related to advances from FHLB:
 
 December
      31, 2008Fixed
                    
                    
                    VariableTotal
                    
                    
                    Amount
                    
                    
                    Interest
                      Rates
                    
                    
                    Amount
                    
                    
                    Interest
                      Rates(dollars in
      thousands)Due
      within one year
                    
                    $
                    70,000
                    
                    
                    $
                    66,000
                    
                    
                    
                    .50%-5.32
                    %
                    
                    $
                    4,000
                    
                    
                    
                    1.87
                    %After
      one year but within three years
                    
                    
                    32,000
                    
                    
                    
                    32,000
                    
                    
                    
                    3.31%-5.18
                    %
                    
                    
                    -
                    
                    
                    
                    -After
      three years but within five years
                    
                    
                    8,000
                    
                    
                    
                    8,000
                    
                    
                    
                    2.81%-3.81
                    %
                    
                    
                    -
                    
                    
                    
                    -Total
                    
                    $
                    110,000
                    
                    
                    $
                    106,000
                    
                    
                    
                    
                    
                    
                    $
                    4,000
 
 December
      31, 2007Fixed
                          
                          
                          VariableTotal
                          
                          
                          Amount
                          
                          
                          Interest
                            Rates
                          
                          
                          Amount
                          
                          
                          Interest
                            Rates(dollars
      in thousands)Due
      within one year
                          
                          $
                          39,000
                          
                          
                          $
                          25,500
                          
                          
                          
                          3.75%-4.99
                          %
                          
                          $
                          13,500
                          
                          
                          
                          4.75%-5.19
                          %After
      one year but within three years
                          
                          
                          82,000
                          
                          
                          
                          78,000
                          
                          
                          
                          3.91%-5.32
                          %
                          
                          
                          4,000
                          
                          
                          
                          5.24
                          %After
      three years but within five years
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Total
                          
                          $
                          121,000
                          
                          
                          $
                          103,500
                          
                          
                          
                          
                          
                          
                          $
                          17,500Financial
      information pertaining to advances from FHLB:2008
                          
                          
                          2007(dollars
      in thousands)Weighted
      average interest rate, end of the year
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          4.11
                          %
                          
                          
                          4.80
                          %Weighted
      average interest rate during the year
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          4.62
                          %
                          
                          
                          4.92
                          %Average
      balance of advances from FHLB
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          $
                          108,141
                          
                          
                          $
                          102,167Maximum
      amount outstanding at any month end
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          $
                          119,000
                          
                          
                          $
                          121,000
 
 The total
interest expense on advances from FHLB was $4,998,000 for 2008 and $5,026,000
for 2007.
 
 Federal Reserve
Bank
 
 CWB has
established a credit line with the Federal Reserve Bank.  Advances are
collateralized in the aggregate by eligible loans, and the unused borrowing
capacity was $149.7 million as of December 31, 2008.  CWB has begun
using the line in 2009.
 
 Federal Funds
Purchased
 
 The
Company maintains four federal funds purchased lines with a total borrowing
capacity of $23.5 million.  There was no amount outstanding as of
December 31, 2008 and 2007.
 
 9.  STOCK-BASED
COMPENSATION
 
 Prior to
January 1, 2006, employee compensation expense under stock option plans was
reported only if options were granted below market price at grant date in
accordance with the intrinsic value method of accounting.  Because the
exercise price of the Company’s employee stock options always equaled the market
price of the underlying stock on the date of grant, no compensation expense was
recognized on options granted.  As stated in Note 1 – Summary of
Significant Accounting Policies, the Company adopted the provisions of SFAS No.
123R (“123R”) on January 1, 2006.  123R eliminated the ability to
account for stock-based compensation using the intrinsic value method and
requires that such transactions be recognized as compensation cost in the income
statement based on their fair values on the measurement date, which is generally
the date of the grant.  The Company transitioned to the fair-value
based accounting for stock-based compensation using a modified version of
prospective application (MPA).  Under MPA, as it is applicable to the
Company, 123R applies to new awards modified, repurchased or cancelled after
January 1, 2006.  Additionally, compensation cost for the portion of
awards for which the requisite service has not been rendered (generally
referring to non-vested awards) that were outstanding as of January 1, 2006 is
recognized as the remaining requisite service is rendered during the period of
and/or the periods after the adoption of 123R.  The attribution of
compensation cost for those earlier awards is based on the same method and on
the same grant-date fair values previously determined for the pro forma
disclosures required for companies that did not previously adopt the fair value
accounting method for stock-based employee compensation.
  F-15
 Index
  The fair
value of the Company’s employee stock options granted is estimated at the date
of grant using the Black-Scholes option-pricing model.  This model
requires the input of highly subjective assumptions, changes to which can
materially affect the fair value estimate.  One such assumption,
expected volatility, can have a significant impact on stock option
valuation.  In developing this assumption, the Company relied on
historical volatility using both company specific and industry
information.  Additionally, there may be other factors that would
otherwise have a significant effect on the value of employee stock options
granted but are not considered by the model.  Accordingly, management
believes that the Black-Scholes option-pricing model provides a reasonable
estimate of fair value.
 
 As a
result of applying the provisions of 123R for the years ended December 31, 2008,
2007, and 2006, the Company recognized stock-based compensation expense of
$182,000, $283,000 and $163,000, respectively.
 
 For the
year ended December 31, 2008, 86,750 stock options were granted at a
weighted-average fair value of $1.70 per share.  Stock-based
compensation, net of forfeitures, is recognized ratably over the requisite
service period for all awards.  As of December 31, 2008, estimated
future stock-based compensation expense related to unvested stock options
totaled $270,000.  The weighted-average period over which this
unrecognized expense is expected to be recognized is 1.7 years.
 
 For the
year ended December 31, 2007, 71,750 stock options were granted at a
weighted-average fair value of $4.06 per share.  Stock-based
compensation, net of forfeitures, is recognized ratably over the requisite
service period for all awards.  As of December 31, 2007, estimated
future stock-based compensation expense related to unvested stock options
totaled $343,000.  The weighted-average period over which this
unrecognized expense is expected to be recognized is 1.7 years.
 
 For the
year ended December 31, 2006, 30,500 stock options were granted at a
weighted-average fair value of $5.53 per share.  Stock-based
compensation, net of forfeitures, is recognized ratably over the requisite
service period for all awards.  As of December 31, 2006, estimated
future stock-based compensation expense related to unvested stock options
totaled $435,000.  The weighted-average period over which this
unrecognized expense is expected to be recognized is 1.67 years.
 
 The fair
value of each stock option grant under the Company’s stock option plan during
2008, 2007 and 2006 was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average
assumptions:
 
 Year
      Ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006Annual
      dividend yield
                    
                    
                    .9
                    %
                    
                    
                    1.9
                    %
                    
                    
                    1.6
                    %Expected
      volatility
                    
                    
                    29.6
                    %
                    
                    
                    31.7
                    %
                    
                    
                    31.7
                    %Risk
      free interest rate
                    
                    
                    3.13
                    %
                    
                    
                    4.2
                    %
                    
                    
                    4.7
                    %Expected
      life (in years)
                    
                    
                    6.4
                    
                    
                    
                    6.7
                    
                    
                    
                    6.8
 
 10.  STOCKHOLDERS’
EQUITY
  Preferred
Stock
 
 On
December 19, 2008, as part of the United States Department of the Treasury’s
(the “Treasury”) Troubled Asset Relief Program - Capital Purchase Program (the
“TARP Program”), the Company entered into a Letter Agreement  with the
Treasury, pursuant to which the Company issued to the Treasury, in exchange for
an aggregate purchase price of $15.6 million in cash: (i) 15,600 shares of the
Company's Fixed Rate Cumulative Perpetual Preferred Stock, Series A, no par
value, having a liquidation preference of $1,000 per share (the “Series A
Preferred Stock”), and (ii) a warrant (the “Warrant”) to purchase up to 521,158
shares of the Company's common stock, no par value (the “Common Stock”), at an
exercise price of $4.49 per share.
 
 Series A
Preferred Stock pays cumulative dividends at a rate of 5% per year for the first
five years and at a rate of 9% per year thereafter, but will be paid only if, as
and when declared by the Company's Board of Directors.  The Series A
Preferred Stock has no maturity date and ranks senior to the common stock with
respect to the payment of dividends and distributions and amounts payable upon
liquidation, dissolution and winding up of the Company.  The Series A
Preferred Stock is generally non-voting, other than class voting on certain
matters that could adversely affect the Series A Preferred Stock.  In
the event that dividends payable on the Series A Preferred Stock have not been
paid for the equivalent of six or more quarters, whether or not consecutive, the
Company's authorized number of Directors will be automatically increased by two
and the holders of the Series A Preferred Stock, voting together with holders of
any then outstanding voting parity stock, will have the right to elect those
Directors at the Company's next annual meeting of shareholders or at a special
meeting of shareholders called for that purpose.  These Directors will
be elected annually and will serve until all accrued and unpaid dividends on the
Series A Preferred Stock have been paid.
  F-16
 Index
  The
Company may redeem the Series A Preferred Stock after February 15, 2012 for
$1,000 per share plus accrued and unpaid dividends.  Prior to this
date, the Company may redeem the Series A Preferred Stock for $1,000 per share
plus accrued and unpaid dividends if: (i) the Company has raised aggregate gross
proceeds in one or more "qualified equity offerings" (as defined in the
Securities Purchase Agreement entered into between the Company and the Treasury)
in excess of $15.6 million, and (ii) the aggregate redemption price does not
exceed the aggregate net cash proceeds from such qualified equity
offerings.  Any redemption is subject to the prior approval of the
Company's primary banking regulator.
 
 A
valuation was prepared which allocated the $15.6 million received, less related
costs of $150,000, between the Series A Preferred Stock and the Warrant at $14.3
million and $1.2 million, respectively.  The resulting discount to the
Series A Preferred Stock and related costs are being amortized on a straight
line basis over five years.
  F-17
 Index
  Common
Stock
 
 Common Stock
Warrant
 
 The
Warrant issued as part of the TARP  provide for the purchase of up to
521,158 shares of the common stock, at an exercise price of $4.49 per share (the
“Warrant Shares”).  The Warrant is immediately exercisable and has a
10-year term.  The exercise price and the ultimate number of shares of
common stock that may be issued under the Warrant are subject to certain
anti-dilution adjustments, such as upon stock splits or distributions of
securities or other assets to holders of the common stock, and upon certain
issuances of the common stock at or below a specified price relative to the then
current market price of the common stock.  If, on or prior to December
31, 2009, the Company receives aggregate gross cash proceeds of not less than
$15.6 million from "qualified equity offerings", the number of shares of common
stock issuable pursuant to the Treasury's exercise of the Warrant will be
reduced by one-half of the original number of Warrant Shares, taking into
account all adjustments, underlying the Warrant.  Pursuant to the
Securities Purchase Agreement, the Treasury has agreed not to exercise voting
power with respect to any Warrant Shares.
 
 Earnings per Common
Share-Calculation of Weighted Average Shares Outstanding
 
 Year
      Ended December 31,2008
                  
                  
                  2007
                  
                  2006(in
      thousands)Basic
      weighted average common shares outstanding
                  
                  
                  5,913
                  
                  
                  
                  5,862
                  
                  
                  
                  5,785Dilutive
      effect of stock options
                  
                  
                  28
                  
                  
                  
                  160
                  
                  
                  
                  216Diluted
      weighted average common shares outstanding
                  
                  
                  5,941
                  
                  
                  
                  6,022
                  
                  
                  
                  6,001
 
 Stock Option
Plans
 
 The
Company has one stock option plan, the Community West Bancshares 2006 Stock
Option Plan.  As of December 31, 2008, 335,600 options were available
for future grant and 459,863 options were outstanding at prices ranging from
$3.45 to $15.75 per share with 342,913 options fully vested.  As of
December 31, 2007, options were outstanding at prices ranging from $4.00 to
$15.75 per share with 326,350 options vested and 418,350 options available for
future grant.  The average life of the outstanding options was
approximately 6.4 years as of December 31, 2008.
 
 Stock
option activity is as follows:
 
 Year
      Ended December 31,2008
                        Option
                        Shares
                      
                      
                      2008
      Weighted Average Exercise
                        Price
                      
                      
                      2007
                        Option
                        Shares
                      
                      
                      2007
      Weighted Average Exercise
                        Price
                      
                      
                      2006
                        Option
                        Shares
                      
                      
                      2006
      Weighted Average Exercise
                        Price(in
      thousands, except per share data)Total
      options as of January 1,
                      
                      
                      462
                      
                      
                      $
                      8.63
                      
                      
                      
                      501
                      
                      
                      $
                      7.87
                      
                      
                      
                      547
                      
                      
                      $
                      7.28Granted
                      
                      
                      87
                      
                      
                      
                      5.58
                      
                      
                      
                      72
                      
                      
                      
                      12.18
                      
                      
                      
                      30
                      
                      
                      
                      15.58Canceled
                      
                      
                      (69
                      )
                      
                      
                      9.15
                      
                      
                      
                      (31
                      )
                      
                      
                      10.74
                      
                      
                      
                      (13
                      )
                      
                      
                      9.41Exercised
                      
                      
                      (20
                      )
                      
                      
                      5.12
                      
                      
                      
                      (80
                      )
                      
                      
                      6.24
                      
                      
                      
                      (63
                      )
                      
                      
                      6.11Total
      options at December 31,
                      
                      
                      460
                      
                      
                      
                      8.14
                      
                      
                      
                      462
                      
                      
                      
                      8.63
                      
                      
                      
                      501
                      
                      
                      $
                      7.87Total
      vested options as of December 31,
                      
                      
                      343
                      
                      
                      
                      7.36
                      
                      
                      
                      326
                      
                      
                      $
                      7.61
                      
                      
                      
                      317
                      
                      
                      $
                      6.92
 
 Additional
information of stock option activity is presented in the following
table:
 
 Year
      Ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006(in
      thousands, except per share data)Intrinsic
      value of options exercised
                    
                    $
                    72
                    
                    
                    $
                    651
                    
                    
                    $
                    559Cash
      received from the exercise of options
                    
                    
                    105
                    
                    
                    
                    499
                    
                    
                    
                    387Weighted-average
      grant-date fair value of options
                    
                    
                    2.44
                    
                    
                    
                    4.06
                    
                    
                    
                    5.53
 F-18
 Index
  A summary
of the change in unvested stock option shares during the year is as
follows:
 
 Unvested
      Stock Option Shares
                  
                  Number
      of Option Shares
                  
                  
                  Weighted-Average
      Grant-Date
                    Fair
      Value(
      in thousands, except per share data)Unvested
      stock options at January 1, 2008
                  
                  
                  136
                  
                  
                  $
                  4.05Granted
                  
                  
                  87
                  
                  
                  
                  1.70Vested
                  
                  
                  (94
                  )
                  
                  
                  2.63Forfeited
                  
                  
                  (12
                  )
                  
                  
                  3.53Total
      unvested stock options at December 31, 2008
                  
                  
                  117
                  
                  
                  $
                  3.50
 
 11.  INCOME
TAXES
 
 The
provision for income taxes consists of the following:
 
 Year
      Ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006(in
      thousands)Current:Federal
                    
                    $
                    2,017
                    
                    
                    $
                    2,432
                    
                    
                    $
                    3,021State
                    
                    
                    780
                    
                    
                    
                    910
                    
                    
                    
                    9782,797
                    
                    
                    
                    3,342
                    
                    
                    
                    3,999Deferred:Federal
                    
                    
                    (1,186
                    )
                    
                    
                    (395
                    )
                    
                    
                    (214
                    )State
                    
                    
                    (482
                    )
                    
                    
                    (181
                    )
                    
                    
                    37(1,668
                    )
                    
                    
                    (576
                    )
                    
                    
                    (177
                    )Total
      provision for income taxes
                    
                    $
                    1,129
                    
                    
                    $
                    2,766
                    
                    
                    $
                    3,822
 
 The
federal income tax provision differs from the applicable statutory rate as
follows:
 
 Year
      Ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006Federal
      income tax at statutory rate
                    
                    
                    34.0
                    %
                    
                    
                    34.0
                    %
                    
                    
                    34.0
                    %State
      franchise tax, net of federal benefit
                    
                    
                    7.2
                    %
                    
                    
                    7.2
                    %
                    
                    
                    7.2
                    %Other
                    
                    
                    2.1
                    %
                    
                    
                    1.0
                    %
                    
                    
                    0.6
                    %43.3
                    %
                    
                    
                    42.2
                    %
                    
                    
                    41.8
                    %
 
 Significant
components of the Company’s net deferred taxes as of December 31 are as
follows:
 
 2008
                      
                      
                      2007Deferred
      tax assets:
                      
                      (in
      thousands)Allowance
      for loan losses
                      
                      $
                      1,325
                      
                      
                      $
                      -Depreciation
                      
                      
                      305
                      
                      
                      
                      325Other
                      
                      
                      511
                      
                      
                      
                      5962,141
                      
                      
                      
                      921Deferred
      tax liabilities:Deferred
      loan fees
                      
                      
                      -
                      
                      
                      
                      (318
                      )Allowance
      for loan losses
                      
                      
                      -
                      
                      
                      
                      (195
                      )Deferred
      loan costs
                      
                      
                      (17
                      )
                      
                      
                      (30
                      )Other
                      
                      
                      (485
                      )
                      
                      
                      (407
                      )(502
                      )
                      
                      
                      (950
                      )Net
      deferred taxes
                      
                      $
                      1,639
                      
                      
                      $
                      (29
                      )
 F-19
 Index
  12.  SUPPLEMENTAL
DISCLOSURE TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 Consolidated
Statement of Cash Flows
 
 Listed
below are the supplemental disclosures to the Consolidated Statement of Cash
Flows:
 
 Year
      Ended December 31,2008
                  
                  
                  2007
                  
                  
                  2006(in
      thousands)Supplemental
      Disclosure of Cash Flow Information:Cash
      paid for interest
                  
                  $
                  20,325
                  
                  
                  $
                  21,012
                  
                  
                  $
                  15,485Cash
      paid for income taxes
                  
                  
                  2,573
                  
                  
                  
                  3,855
                  
                  
                  
                  4,260Supplemental
      Disclosure of Noncash Investing Activity:Transfers
      to other assets acquired through foreclosure
                  
                  
                  1,886
                  
                  
                  
                  102
                  
                  
                  
                  472
 
 13.  EMPLOYEE
BENEFIT PLAN
 
 The
Company has established a 401(k) plan for the benefit of its employees.
Employees are eligible to participate in the plan after three months of
consecutive service. Employees may make contributions to the plan and the
Company may make discretionary profit sharing contributions, subject to certain
limitations. The Company’s contributions were determined by the Board of
Directors and amounted to $260,000, $255,000 and $169,000 in 2008, 2007 and
2006, respectively.
 
 14.  FAIR
VALUES OF FINANCIAL INSTRUMENTS
 
 The
estimated fair values of financial instruments have been determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required to interpret market
data to develop estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts the Company could realize
in a current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
 
 The
following table represents the estimated fair values:
 
 December
      31,2008
                            
                            
                            2007Carrying
      Amount
                            
                            
                            Estimated
      Fair Value
                            
                            
                            Carrying
      Amount
                            
                            
                            Estimated
      Fair Value(in
      thousands)Assets:Cash
      and cash equivalents
                            
                            $
                            12,253
                            
                            
                            $
                            12,253
                            
                            
                            $
                            9,289
                            
                            
                            $
                            9,289Time
      deposits in other financial institutions
                            
                            
                            812
                            
                            
                            
                            812
                            
                            
                            
                            778
                            
                            
                            
                            778Federal
      Reserve and Federal Home Loan Bank stock
                            
                            
                            6,562
                            
                            
                            
                            6,562
                            
                            
                            
                            6,546
                            
                            
                            
                            6,546Investment
      securities
                            
                            
                            37,975
                            
                            
                            
                            38,357
                            
                            
                            
                            38,281
                            
                            
                            
                            38,397Net
      loans
                            
                            
                            581,075
                            
                            
                            
                            560,532
                            
                            
                            
                            539,165
                            
                            
                            
                            543,069Liabilities:Deposits
      (other than time deposits)
                            
                            
                            107,272
                            
                            
                            
                            107,272
                            
                            
                            
                            123,161
                            
                            
                            
                            123,161Time
      deposits
                            
                            
                            368,167
                            
                            
                            
                            372,003
                            
                            
                            
                            310,578
                            
                            
                            
                            311,488Federal
      Home Loan Bank advances
                            
                            
                            110,000
                            
                            
                            
                            111,797
                            
                            
                            
                            121,000
                            
                            
                            
                            122,596
 
 The
methods and assumptions used to estimate the fair value of each class of
financial instruments for which it is practicable to estimate that value are
explained below:
 
 Cash and cash equivalents -The carrying amounts approximate fair value because of the short-term
nature of these instruments.
 
 Time deposits in other financial
institutions - The carrying amounts approximate fair value because of the
relative short-term nature of these instruments.
 
 Federal Reserve Stock - The
carrying value approximates the fair value because the stock can be sold back to
the Federal Reserve at any time.
  F-20
 Index
  Federal Home Loan Bank Stock
- The carrying value approximates the fair value because the stock can be sold
back to the Federal Home Loan Bank at any time.
 
 Investment securities –
Market valuations of our investment securities are provided by an independent
third party. The fair values are determined by using several sources for valuing
fixed income securities. Their techniques include pricing models that vary based
on the type of asset being valued and incorporate available trade, bid and other
market information. In accordance with the hierarchy established in
SFAS 157, the market valuation sources include observable market inputs and
are therefore considered Level 2 inputs for purposes of determining the
fair values.
 
 Loans– For most loan
categories, the fair value is estimated using discounted cash flows utilizing an
appropriate discount rate and historical prepayment speeds while taking into
consideration the recent disruptions in the financial markets, especially in the
second half of 2008.  Certain adjustable loans that reprice on a
frequent basis are valued at book value.
 
 Deposits – The amount payable
at demand at report date is used to estimate the fair value of demand and
savings deposits. The estimated fair values of fixed-rate time deposits are
determined by discounting the cash flows of segments of deposits that have
similar maturities and rates, utilizing a discount rate that approximates the
prevailing rates offered to depositors as of the measurement date.
 
 FHLB Advances – The fair
value is estimated using discounted cash flow analysis based on rates for
similar types of borrowing arrangements.
 
 Commitments to Extend Credit,
Commercial and Standby Letters of Credit – Due to the proximity of the
pricing of these commitments to the period end, the fair values of commitments
are immaterial to the financial statements.
 The fair
value estimates presented herein are based on pertinent information available to
management as of December 31, 2008 and 2007.  Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since those dates and, therefore, current
estimates of fair value may differ significantly from the amounts presented
herein.
  F-21
 Index
  15.  REGULATORY
MATTERS
 
 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 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 or leverage capital ratio of at least 5%, a Tier I
risk-based capital ratio of at least 6%, and a total risk-based capital ratio of
at least 10%.  Tier I risk-based capital is, primarily, common stock
and retained earnings, net of goodwill and other intangible assets.
 
 Quantitative
measures established by regulation to ensure capital adequacy require the
Company and the Bank to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier 1 leverage capital (as defined) to
adjusted average assets (as defined).  The Company’s and CWB’s actual
capital amounts and ratios as of December 31, 2008 and 2007 are also 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 RatioDecember 31, 2008CWBC
      (Consolidated)
                      
                      $
                      73,245
                      
                      
                      $
                      66,553
                      
                      
                      $
                      534,628
                      
                      
                      $
                      647,413
                      
                      
                      
                      13.70
                      %
                      
                      
                      12.45
                      %
                      
                      
                      10.28
                      %CWB
                      
                      
                      60,597
                      
                      
                      
                      53,904
                      
                      
                      
                      534,655
                      
                      
                      
                      647,432
                      
                      
                      
                      11.33
                      
                      
                      
                      10.08
                      
                      
                      
                      8.33December 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
                      %
                      
                      
                      5.00
                      %Minimum
      capital ratios
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      8.00
                      %
                      
                      
                      4.00
                      %
                      
                      
                      4.00
                      %
 
 As of
December 31, 2008 and 2007, management believed that the Company and CWB met all
applicable capital adequacy requirements and is correctly categorized as “well
capitalized” under the regulatory framework for prompt corrective
action.
 
 16.  COMMITMENTS
AND CONTINGENCIES
 
 Commitments
 
 In the
normal course of business, the Company is a party to financial instruments with
off-balance-sheet risk to meet the financing needs of its
customers.  These financial instruments include commitments to extend
credit and standby letters of credit.  These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the balance sheet.  The Company’s exposure to
credit loss in the event of nonperformance by the other party to commitments to
extend credit and standby letters of credit is represented by the contractual
notional amount of those instruments.  As of December 31, 2008 and
2007, the Company had commitments to extend credit of approximately $37.7
million and $50.7 million, respectively, including obligations to extend standby
letters of credit of approximately $552,000 and $518,000,
respectively.
 
 Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract.  Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee.  Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
  F-22
 Index
  Standby
letters of credit are conditional commitments issued by the Company to guarantee
the performance of a customer to a third party.  Those guarantees are
primarily issued to support private borrowing arrangements.  All
guarantees are short-term and expire within one year.
 
 The
Company uses the same credit policies in making commitments and conditional
obligations as it does for extending loan facilities to
customers.  The Company evaluates each customer’s creditworthiness on
a case-by-case basis.  The amount of collateral obtained, if deemed
necessary by the Company upon extension of credit, is based on management’s
credit evaluation of the counterparty.  Collateral held varies but may
include accounts receivable, inventory, property, plant and equipment and
income-producing commercial properties.
 
 Loans
Sold
 
 The
Company has sold loans that are guaranteed or insured by government agencies for
which the Company retains all servicing rights and
responsibilities.  The Company is required to perform certain
monitoring functions in connection with these loans to preserve the guarantee by
the government agency and prevent loss to the Company in the event of
nonperformance by the borrower.  Management believes that the Company
is in compliance with these requirements.  The outstanding balance of
the sold portion of such loans was approximately $84.5 million and $86.4 million
at December 31, 2008 and 2007, respectively.
 
 The
Company retains a certain level of risk relating to the servicing activities and
retained interest in sold SBA loans.  In addition, during the period
of time that the loans are held for sale, the Company is subject to various
business risks associated with the lending business, including borrower default,
foreclosure and the risk that a rapid increase in interest rates would result in
a decline of the value of loans held for sale to potential
purchasers.  In connection with its loan sales, the Company enters
agreements which generally require the Company to repurchase or substitute loans
in the event of a breach of a representation or warranty made by the Company to
the loan purchaser, any misrepresentation during the mortgage loan origination
process or, in some cases, upon any fraud or early default on such mortgage
loans.
 
 Executive Salary
Continuation
 
 The
Company has an agreement with a former officer/director, which provides for a
monthly cash payment to the officer or beneficiaries in the event of death,
disability or retirement, beginning in December 2003 and extending for a period
of fifteen years.  In connection with the agreement, the Company
purchased a life insurance policy as an investment.  The cash
surrender value of  the policy was $813,000 and $792,000 at December
31, 2008 and 2007, respectively, and is included in other assets.  The
present value of the Company’s liability under the agreement was calculated
using a discount rate of 6% and is included in accrued interest payable and
other liabilities in the accompanying consolidated balance sheets.  In
2008 and 2007, the Company paid $50,000 to the former officer/director under the
terms of this agreement.  The accrued executive salary continuation
liability was $375,000 and $402,000 at December 31, 2008 and 2007,
respectively.
 
 The
Company also has certain Key Man life insurance policies related to a former
officer/director.  The combined cash surrender value of the policies
was  $205,000 and $201,000 at December 31, 2008 and 2007,
respectively.
 
 Litigation
 
 The
Company is involved in litigation of a routine nature that is 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 other litigation matters will not have a material impact on
the Company’s financial position or results of operations.There are no
pending legal proceedings to which the Company or any of its directors,
officers, employees or affiliates, or any principal security holder of the
Company or any associate of any of the foregoing, is a party or has an interest
adverse to the Company, or of which any of the Company’s properties are
subject.
  F-23
 Index
  17.  COMMUNITY
WEST BANCSHARES FINANCIAL STATEMENTS (PARENT COMPANY ONLY)
  December
      31,Balance Sheets
                      
                      2008
                      
                      
                      2007Assets
                      
                      (in
      thousands)Cash
      and equivalents
                      
                      $
                      12,746
                      
                      
                      $
                      2,874Investment
      in subsidiary
                      
                      
                      54,020
                      
                      
                      
                      47,229Other
      assets
                      
                      
                      121
                      
                      
                      
                      211Total
      assets
                      
                      $
                      66,887
                      
                      
                      $
                      50,314Liabilities
      and stockholders’ equityOther
      liabilities
                      
                      $
                      218
                      
                      
                      $
                      127Preferred
      stock
                      
                      
                      14,300
                      
                      
                      
                      -Common
      stock
                      
                      
                      33,081
                      
                      
                      
                      31,636Retained
      earnings
                      
                      
                      19,288
                      
                      
                      
                      18,551Total
      stockholders equity
                      
                      
                      66,669
                      
                      
                      
                      50,187Total
      liabilities and stockholders' equity
                      
                      $
                      66,887
                      
                      
                      $
                      50,314
 
 Year
      Ended December 31,Income Statements
                      
                      2008
                      
                      
                      2007
                      
                      
                      2006(in
      thousands)Total
      income
                      
                      $
                      -
                      
                      
                      $
                      - -
                      
                      
                      $
                      10 100Total
      expense
                      
                      
                      432
                      
                      
                      
                      532
                      
                      
                      
                      346Equity
      in undistributed subsidiaries: Net income from
subsidiaries
                      
                      
                      1,791
                      
                      
                      
                      4,170
                      
                      
                      
                      5,581Income
      before income tax provision
                      
                      
                      1,359
                      
                      
                      
                      3,638
                      
                      
                      
                      5,245Income
      tax (benefit)
                      
                      
                      (122
                      )
                      
                      
                      (151
                      )
                      
                      
                      (83
                      )Net
      income
                      
                      $
                      1,481
                      
                      
                      $
                      3,789 3,789
                      
                      
                      $
                      5,328
 
 Year
      Ended December 31,Statements of Cash Flows
                                    
                                    2008
                                    
                                    
                                    2007
                                    
                                    
                                    2006(in
      thousands)Cash
      flows from operating activities:Net
      income
                                    
                                    $
                                    1,481
                                    
                                    
                                    $
                                    3,789
                                    
                                    
                                    $
                                    5,328Adjustments
      to reconcile net income to cash used in operating
    activities:Equity
      in undistributed (income) from subsidiaries
                                    
                                    
                                    (1,791
                                    )
                                    
                                    
                                    (4,170
                                    )
                                    
                                    
                                    (5,581
                                    )Stock-based
      compensation
                                    
                                    
                                    181
                                    
                                    
                                    
                                    283
                                    
                                    
                                    
                                    163Net
      change in other liabilities
                                    
                                    
                                    90
                                    
                                    
                                    
                                    (5
                                    )
                                    
                                    
                                    123Net
      change in other assets
                                    
                                    
                                    91
                                    
                                    
                                    
                                    233
                                    
                                    
                                    
                                    (376
                                    )Net
      cash provided by (used in) operating activities
                                    
                                    
                                    52
                                    
                                    
                                    
                                    130
                                    
                                    
                                    
                                    (343
                                    )Cash
      flows from investing activities:Net
      dividends from and investments in subsidiaries
                                    
                                    
                                    (5,000
                                    )
                                    
                                    
                                    53
                                    
                                    
                                    
                                    1,330Net
      cash provided by investing activities
                                    
                                    
                                    (5,000
                                    )
                                    
                                    
                                    53
                                    
                                    
                                    
                                    1,330Cash
      flows from financing activities:Issuance
      of preferred stock, net of  costs
                                    
                                    
                                    15,450
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Preferred
      stock dividend
                                    
                                    
                                    (35
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Amortization
      of discount on preferred stock
                                    
                                    
                                    9
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Proceeds
      from issuance of common stock
                                    
                                    
                                    105
                                    
                                    
                                    
                                    499
                                    
                                    
                                    
                                    387Cash
      dividend payments to shareholders
                                    
                                    
                                    (709
                                    )
                                    
                                    
                                    (1,407
                                    )
                                    
                                    
                                    (1,330
                                    )Net
      cash (used in) provided by financing activities
                                    
                                    
                                    14,820
                                    
                                    
                                    
                                    (908
                                    )
                                    
                                    
                                    (943
                                    )Net
      increase (decrease) in cash and cash equivalents
                                    
                                    
                                    9,872
                                    
                                    
                                    
                                    (725
                                    )
                                    
                                    
                                    44Cash
      and cash equivalents at beginning of year
                                    
                                    
                                    2,874
                                    
                                    
                                    
                                    3,599
                                    
                                    
                                    
                                    3,555Cash
      and cash equivalents, at end of year
                                    
                                    $
                                    12,746
                                    
                                    
                                    $
                                    2,874
                                    
                                    
                                    $
                                    3,599
 F-24
 Index
  18.  QUARTERLY
FINANCIAL DATA (unaudited)
 
 Income
statement results on a quarterly basis were as follows:
 
 Year
      Ended December 31, 2008Q4
                    
                    
                    Q3
                    
                    
                    Q2
                    
                    
                    Q1
                    
                    
                    Totals(in
      thousands, except share data)Interest
      income
                    
                    $
                    10,805
                    
                    
                    $
                    11,336
                    
                    
                    $
                    11,380
                    
                    
                    $
                    12,011
                    
                    
                    $
                    45,532Interest
      expense
                    
                    
                    5,234
                    
                    
                    
                    5,562
                    
                    
                    
                    5,577
                    
                    
                    
                    5,850
                    
                    
                    
                    22,223Net
      interest income
                    
                    
                    5,571
                    
                    
                    
                    5,774
                    
                    
                    
                    5,803
                    
                    
                    
                    6,161
                    
                    
                    
                    23,309Provision
      for loan losses
                    
                    
                    1,408
                    
                    
                    
                    652
                    
                    
                    
                    2,531
                    
                    
                    
                    673
                    
                    
                    
                    5,264Net
      interest income after provision for loan losses
                    
                    
                    4,163
                    
                    
                    
                    5,122
                    
                    
                    
                    3,272
                    
                    
                    
                    5,488
                    
                    
                    
                    18,045Non-interest
      income
                    
                    
                    829
                    
                    
                    
                    1,198
                    
                    
                    
                    1,640
                    
                    
                    
                    1,414
                    
                    
                    
                    5,081Non-interest
      expenses
                    
                    
                    4,869
                    
                    
                    
                    5,154
                    
                    
                    
                    5,313
                    
                    
                    
                    5,180
                    
                    
                    
                    20,516Income
      before income taxes
                    
                    
                    123
                    
                    
                    
                    1,166
                    
                    
                    
                    (401
                    )
                    
                    
                    1,722
                    
                    
                    
                    2,610Provision
      (benefit) for income taxes
                    
                    
                    62
                    
                    
                    
                    491
                    
                    
                    
                    (149
                    )
                    
                    
                    725
                    
                    
                    
                    1,129NET
      INCOME (LOSS)
                    
                    
                    61
                    
                    
                    
                    675
                    
                    
                    
                    (252
                    )
                    
                    
                    997
                    
                    
                    
                    1,481Preferred
      stock dividends
                    
                    
                    35
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    35NET
      INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS
                    
                    $
                    26
                    
                    
                    $
                    675
                    
                    
                    $
                    (252
                    )
                    
                    $
                    997
                    
                    
                    $
                    1,446Earnings
      per common share:Basic
                    
                    $
                    0.00
                    
                    
                    $
                    0.11
                    
                    
                    $
                    (0.04
                    )
                    
                    $
                    0.17
                    
                    
                    $
                    0.24Diluted
                    
                    
                    0.00
                    
                    
                    
                    0.11
                    
                    
                    
                    (0.04
                    )
                    
                    
                    0.17
                    
                    
                    
                    0.24Cash
      dividends per common share
                    
                    
                    0.00
                    
                    
                    
                    0.00
                    
                    
                    
                    0.06
                    
                    
                    
                    0.06
                    
                    
                    
                    0.12Weighted
      average common shares:Basic
                    
                    
                    5,915
                    
                    
                    
                    5,915
                    
                    
                    
                    5,913
                    
                    
                    
                    5,909
                    
                    
                    
                    5,913Diluted
                    
                    
                    5,915
                    
                    
                    
                    5,918
                    
                    
                    
                    5,913
                    
                    
                    
                    5,975
                    
                    
                    
                    5,941
 
 
 Year
      Ended December 31, 2007Q4
                    
                    
                    Q3
                    
                    
                    Q2
                    
                    
                    Q1
                    
                    
                    Totals(in
      thousands, except per share data)Interest
      income
                    
                    $
                    12,139
                    
                    
                    $
                    12,030
                    
                    
                    $
                    11,624
                    
                    
                    $
                    11,048
                    
                    
                    $
                    46,841Interest
      expense
                    
                    
                    6,024
                    
                    
                    
                    5,877
                    
                    
                    
                    5,630
                    
                    
                    
                    5,303
                    
                    
                    
                    22,834Net
      interest income
                    
                    
                    6,115
                    
                    
                    
                    6,153
                    
                    
                    
                    5,994
                    
                    
                    
                    5,745
                    
                    
                    
                    24,007Provision
      for loan losses
                    
                    
                    528
                    
                    
                    
                    547
                    
                    
                    
                    (63
                    )
                    
                    
                    285
                    
                    
                    
                    1,297Net
      interest income after provision for loan losses
                    
                    
                    5,587
                    
                    
                    
                    5,606
                    
                    
                    
                    6,057
                    
                    
                    
                    5,460
                    
                    
                    
                    22,710Non-interest
      income
                    
                    
                    1,056
                    
                    
                    
                    1,212
                    
                    
                    
                    1,402
                    
                    
                    
                    1,175
                    
                    
                    
                    4,845Non-interest
      expenses
                    
                    
                    5,344
                    
                    
                    
                    5,154
                    
                    
                    
                    5,303
                    
                    
                    
                    5,199
                    
                    
                    
                    21,000Income
      before income taxes
                    
                    
                    1,299
                    
                    
                    
                    1,664
                    
                    
                    
                    2,156
                    
                    
                    
                    1,436
                    
                    
                    
                    6,555Provision
      for income taxes
                    
                    
                    551
                    
                    
                    
                    701
                    
                    
                    
                    904
                    
                    
                    
                    610
                    
                    
                    
                    2,766NET
      INCOME
                    
                    $
                    748
                    
                    
                    $
                    963
                    
                    
                    $
                    1,252
                    
                    
                    $
                    826
                    
                    
                    $
                    3,789Earnings
      per share – basic
                    
                    $
                    0.13
                    
                    
                    $
                    0.16
                    
                    
                    $
                    0.21
                    
                    
                    $
                    0.14
                    
                    
                    $
                    0.65Earnings
      per share – diluted
                    
                    
                    0.12
                    
                    
                    
                    0.16
                    
                    
                    
                    0.21
                    
                    
                    
                    0.14
                    
                    
                    
                    0.63Cash
      dividends per common share
                    
                    $
                    0.06
                    
                    
                    $
                    0.06
                    
                    
                    $
                    0.06
                    
                    
                    $
                    0.06
                    
                    
                    $
                    0.24Weighted
      average shares:Basic
                    
                    
                    5,891
                    
                    
                    
                    5,877
                    
                    
                    
                    5,856
                    
                    
                    
                    5,824
                    
                    
                    
                    5,862Diluted
                    
                    
                    6,005
                    
                    
                    
                    6,009
                    
                    
                    
                    6,038
                    
                    
                    
                    6,030
                    
                    
                    
                    6,022
 
 F-25
 Index
  ITEM
      9.
                CHANGES IN AND
      DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
  None
 
 ITEM 9A(T).
              CONTROLS
      AND PROCEDURES
 
 Evaluation
of Disclosure Controls and Procedures
 
 Under the
supervision and with the participation of the Company’s management, the Chief
Executive Officer and the Chief Financial Officer evaluated the effectiveness of
the design and operation of the Company’s disclosure controls and procedures as
of December 31, 2008.  Based on and as of the time of such evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that the
Company’s disclosure controls and procedures were effective in timely alerting
them to material information relating to the Company (including its consolidated
subsidiary) required to be included in the Company’s reports that it files with
or submits to the Securities and Exchange Commission under the Securities
Exchange Act of 1934.  There have been no changes in the Company’s
internal control over financial reporting that occurred during the Company’s
year ended December 31, 2008, that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial
reporting.
 
 Report
on Management’s Assessment of Internal Control over Financial
Reporting
 
 The
management of Community West Bancshares is responsible for establishing and
maintaining an adequate internal control over financial reporting. Internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external reporting purposes in accordance with
accounting principles generally accepted in the United States of America.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Management has assessed the
effectiveness of Community West Bancshares’ internal control over financial
reporting as of December 31, 2008. In making its assessment, management has
utilized the criteria set forth by the Committee of Sponsoring Organizations
(COSO) of the Treadway Commission inInternal Control — Integrated
Framework. Management concluded that based on its assessment, Community
West Bancshares internal control over financial reporting was effective as of
December 31, 2008.
 
 This
Annual Report does not include an attestation report of the Company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management's report
in this Annual Report.
 
 There
were no changes in the Company’s internal control over financial reporting
during the fiscal quarter ended December 31, 2008 that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
 
 ITEM
      9B.
              OTHER
      INFORMATION
 
 None.
 
 
 PART
III
 
 ITEM
      10.
                  DIRECTORS, EXECUTIVE
      OFFICERS AND CORPORATE
GOVERNANCE
 
  The
information required by Item 401 of Regulation S-K concerning the directors and
executive officers of the Company is incorporated herein by reference from the
section entitled "Proposal 1 – Election of Directors" contained in the
definitive proxy statement ("Proxy Statement") of the Company to be filed
pursuant to Regulation 14A within 120 days after the end of the Company's last
fiscal year.
 
 -76-
 Index
 
 The
information required by Item 405 of Regulation S-K is incorporated herein by
reference from the section entitled “Section 16(a) Beneficial Ownership
Reporting Compliance” contained in the Proxy Statement.
 
 The
information required by Items 407(c)(3), (d)(4) and (d)(5) of Regulation S-K is
incorporated herein by reference from the section entitled “Certain Information
Regarding the Board of Directors” contained in the Proxy Statement.
 
 The
Company has adopted a code of ethics that applies to its principal executive
officer, principal financial officer, principal accounting officer or controller
and persons performing similar functions.  A copy of the code of
ethics is available on the Company’s website at
www.communitywest.com.
 
 ITEM
      11.
                EXECUTIVE
      COMPENSATION
 
  Information
required by Item 402 of Regulation S-K concerning executive compensation is
incorporated herein by reference from the section entitled "Executive
Compensation" contained in the Proxy Statement.
 
 ITEM
      12.
                SECURITY OWNERSHIP OF
      CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER
      MATTERS
 
  Information
required by Item 403 of Regulation S-K concerning security ownership of certain
beneficial owners and management is incorporated herein by reference from the
section entitled "Security Ownership of Certain Beneficial Owners, Directors and
Executive Officers" contained in the Proxy Statement.
 
 Information
required by Item 201(d) of Regulation S-K is contained under “Item 5. Market for
Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities - Securities Authorized for Issuance Under Equity Compensation
Plans” herein.
 
 ITEM
      13.
                CERTAIN RELATIONSHIPS
      AND RELATED TRANSACTIONS AND DIRECTOR
  INDEPENDENCE
 
  Information
required by Item 404 of Regulation S-K concerning certain relationships and
related transactions is incorporated herein by reference from the section
entitled "Executive Compensation – Certain Relationships and Related
Transactions" contained in the Proxy Statement.
 
 Information
required by Item 407(a) of Regulation S-K concerning director independence is
incorporated herein by reference from the section entitled “Proposal 1 –
Election of Directors – Directors and Executive Officers” contained in the Proxy
Statement.
 
 ITEM 14.
              PRINCIPAL
      ACCOUNTING FEES AND SERVICES
  Information
concerning principal accountant fees and services is incorporated herein by
reference from the section entitled “Independent Auditors” contained in the
Proxy Statement.
 
 
 PART
IV
 
 ITEM
      15.
                EXHIBITS, FINANCIAL
      STATEMENT SCHEDULES
 
  (a)(1)  
The following Consolidated Financial Statements of Community West Bancshares are
filed as part of this Annual Report.
 
 Report
      of Independent Registered Public Accounting Firm
                    F-1Consolidated
      Balance Sheets as of December 31, 2008 and 2007
                    F-2Consolidated
      Income Statements for each of the three years in the period ended December
      31, 2008
                    F-3Consolidated
      Statements of Stockholders' Equity for each of the three years in the
      period ended December 31, 2008
                    F-4Consolidated
      Statements of Cash Flows for each of the three years in the period ended
      December 31, 2008
                    F-5Notes
      to Consolidated Financial Statements
                    F-6
  77
 Index
  (a)(2)
Financial Statement Schedules
 
 Financial
statement schedules other than those listed above have been omitted because they
are either not applicable or the information is otherwise included.
 
 (a)(3)
Exhibits.  The following is a list of exhibits filed as a part of this
Annual Report.
 
 3.1
              Articles
      of Incorporation (3)
 
 3.2
              Amended
      and Restated Articles of Incorporation
(14)
 
 3.3
              Bylaws
      (3)
 
 3.4
              Certificate
      of Amendment of Bylaws (14)
 
 3.5
              Certificate
      of Determination of Fixed Rate Cumulative Perpetual Preferred Stock,
      Series A (14)
 
 4.1
              Common
      Stock Certificate (2)
 
 4.2
              Warrant
      to Purchase 521,158 shares of Common Stock, dated December 19, 2008,
      issued to the United States Department of the Treasury
  (15)
 
 10.1*
              1997
      Stock Option Plan and Form of Stock Option Agreement
  (1)
 
 10.3*
              Salary
      Continuation Agreement between Goleta National Bank and Llewellyn Stone,
      President and CEO (3)
 
 10.9
              Indemnification
      Agreement between the Company and Lynda Nahra, dated December 20, 2001
      (4)
 
 10.15
              Amendment
      Number 3 to Master Loan Agency Agreement between Goleta National Bank and
      Ace Cash Express, Inc., dated as of November 1, 2002
  (5)
 
 10.16
              Amendment
      Number 1 to Collection Servicing Agreement between Goleta National Bank
      and Ace Cash Express, Inc., dated as of November 1, 2002
    (5)
 
 10.17
              Indemnification
      Agreement between the Company and Charles G. Baltuskonis, dated March 18,
      2003 (6)
 
 10.20*
              Employment
      and Confidentiality Agreement, Goleta National Bank, between the Company
      and Lynda J. Nahra dated April 23, 2003
(7)
 
 10.21
              Assistant
      Secretary’s Certificate of Adoption of Amendment No. 1 to Community West
      Bancshares 1997 Stock Option Plan
(8)
 
 10.22*
                Community
      West Bancshares 2006 Stock Option Plan
(9)
 
 10.23*
                Community
      West Bancshares 2006 Stock Option Plan form of Stock Option Agreement
      (9)
 
 10.24*
                Employment
      and Confidentiality Agreement date January 1, 2007 among Community West
      Bank, Community West Bancshares and Lynda J. Nahra
  (10)
 
 10.25*
                Employment
      and Confidentiality Agreement date July 1, 2007 among Community West Bank,
      Community West Bancshares and Charles G. Baltuskonis
  (11)
 
 10.26*
                Employment
      and Confidentiality Agreement dated September 6, 2007 among Community West
      Bank, Community West Bancshares and Richard M. Favor
  (12)
 
 10.27*
              Employment
      and Confidentiality Agreement, dated September 5, 2008, among Community
      West Bank, Community West Bancshares and Richard M. Favor
    (13)
 
 10.28
              Letter
      Agreement, dated December 19, 2008, between Community West Bancshares and
      the United States Department of the Treasury, and the Securities Purchase
      Agreement - Standard Terms attached thereto and incorporated therein
      (15)
 
 10.29
              Letter
      Agreement, dated December 19, 2008, between Community West Bancshares and
      the United States Department of the Treasury regarding the Number of
      Director Positions (15)
 
 78
 Index
 
 10.30*
              Agreement,
      dated December 19, 2008, between Community West Bancshares and Lynda Nahra
      regarding modifications to Benefit Plans
(15)
 
 10.31*
              Agreement,
      dated December 19, 2008, between Community West Bancshares and Charles
      Baltuskonis regarding modifications to Benefit Plans
  (15)
 
 10.32*
              Agreement,
      dated December 19, 2008, between Community West Bancshares and Richard
      Favor regarding modifications to Benefit Plans
  (15)
 
 10.33
              Waiver
      of Lynda Nahra, dated December 19, 2008, waiving claims against Community
      West Bancshares and the United States Department of the Treasury as a
      result of modifications to Benefit Plans
(15)
 
 10.34
              Waiver
      of Charles Baltuskonis, dated December 19, 2008, waiving claims against
      Community West Bancshares and the United States Department of the Treasury
      as a result of modifications to Benefit Plans
  (15)
 
 10.35
              Waiver
      of Richard Favor, dated December 19, 2008, waiving claims against
      Community West Bancshares and the United States Department of the Treasury
      as a result of modifications to Benefit Plans
  (15)
  21
              Subsidiaries
      of the Registrant (9)
 
 23.1
              Consent
      of Ernst & Young LLP
 
 31.1
              Certification
      of the Chief Executive Officer
 
 31.2
              Certification
      of the Chief Financial Officer
 
 32.1
              Certification
      pursuant to 18 U.S.C. Section 1350
 _______________________________________________
 (1)
              Incorporated
      by reference from the Registrant's Registration Statement on Form S-8
      filed with the Commission on December 31,
1997.
 
 (2)
              Incorporated
      by reference from the Registrant's Amendment to Registration Statement on
      Form 8-A filed with the Commission on March 12,
  1998.
 
 (3)
              Incorporated
      by reference from the Registrant's Annual Report on Form 10-K filed with
      the Commission on March 26,
1998.
 
 (4)
              Incorporated
      by reference from the Registrant’s Annual Report on Form 10-K for the year
      ended December 31, 2001 filed by the Registrant with the Commission on
      April 16, 2002.
 
 (5)
              Incorporated
      by reference from the Registrant’s Form 8-K filed with the Commission on
      November 4, 2002.
 
 (6)
              Incorporated
      by reference from the Registrant’s Annual Report on Form 10-K for the year
      ended December 31, 2002 filed with the Commission on March 31,
      2003.
 
 (7)
              Incorporated
      by reference from the Registrant’s Annual Report on Form 10-K for the year
      ended December 31, 2003 filed with the Commission on March 29,
      2004.
 
 (8)
              Incorporated
      by reference from the Registrant’s Registration Statement on Form S-8
      (File No 333-129898) filed with the Commission on November 22,
      2005.
 
 (9)
              Incorporated
      by reference from Registrant’s Annual Report on Form 10-K for the year
      ended December 31, 2006 filed with the Commission on March 26,
      2007.
 
 (10)
              Incorporated
      by reference from the Registrant’s Form 8-K filed with the Commission on
      February 28, 2007
  79
 Index
  (11)
              Incorporated
      by reference from the Registrant’s Form 8-K filed with the Commission on
      July 2, 2007
 
 (12)
              Incorporated
      by reference from the Registrant’s Form 8-K filed with the Commission on
      November 2, 2007
 
 (13)
              Incorporated
      by reference from Registrant’s Form 8-K filed with the Commission on
      September 10, 2008
 
 (14)
              Incorporated
      by reference from the Registrant’s Form 8-K filed with the Commission on
      December 18, 2008
 
 (15)
              Incorporated
      by reference from the Registrant’s Form 8-K filed with the Commission on
      December 24, 2008
 
 *
              Indicates
      a management contract or compensatory plan or
  arrangement.
 
 80
 Index
 
 SIGNATURES
 
 Pursuant
to the requirements of Section 13 of 15(d) of the Securities and 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:
      March 26, 2009
                By:
                /s/ William R. PeeplesWilliam
      R. PeeplesChairman
      of the Board
 
 Pursuant
to the requirements of the Securities and Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant in the
capacities and on the dates indicated.
 
 Signature
                  
                  Title
                  
                  Date/s/ William R. Peeples
                  
                  Director
      and
                  
                  March
      26, 2009William
      R. Peeples
                  
                  Chairman
      of the Board/s/ Charles G. Baltuskonis
                  
                  Executive
      Vice President and
                  
                  March
      26, 2009Charles
      G. Baltuskonis
                  
                  Chief
      Financial Officer/s/ Robert H. Bartlein
                  
                  Director
                  
                  March
      26, 2009Robert
      H. Bartlein/s/ Jean W. Blois
                  
                  Director
                  
                  March
      26, 2009Jean
      W. Blois/s/ John D. Illgen
                  
                  Director
      and Secretary
                  
                  March
      26, 2009John
      D. Illgen
                  
                  of
      the Board/s/ Lynda J. Nahra
                  
                  Director,
      President and
                  
                  March
      26, 2009Lynda
      J. Nahra
                  
                  Chief
      Executive Officer/s/ James R. Sims Jr.
                  
                  Director
                  
                  March
      26, 2009James
      R. Sims Jr./s/ Kirk B. Stovesand
                  
                  Director
                  
                  March
      26, 2009Kirk
      B. Stovesand/s/ C. Richard Whiston
                  
                  Director
                  
                  March
      26, 2009C
      Richard Whiston
 
 -81-