UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)


OF
THE SECURITIES EXCHANGE ACT OF 1934





FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2007


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. T





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





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 £ No T





The
aggregate market value of common stock, held by non-affiliates of the registrant
as of June 29, 2007, was $43,157,544 based on a closing price of $12.00 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, 2008, 5,909,630 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 2008
Annual Meeting to be held on May 22, 2008 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, 2007.





- 2
-




COMMUNITY
WEST BANCSHARES


FORM
10-K





INDEX




Part I
            
            
            PageItem
      1.
            Business
            4Item 1A.
            Risk Factors
            6Item 1B.
            Unresolved Staff Comments
            10Item
      2.
            Properties
            10Item
      3.
            Legal Proceedings
            10Item
      4.
            Submission of Matters to a Vote of Security
      Holders
            10Part IIItem
      5.
            Market for Registrant's Common Equity, Related Shareholder
      Matters and Issuer Purchases of Equity Securities
            11Item
      6.
            Selected Financial Data
            12Item
      7.
            Management's Discussion and Analysis of Financial Condition
      and Results of Operations
            13Item
      7A.
            Quantitative and Qualitative Disclosure about Market
      Risk
            39Item
      8.
            Consolidated Financial Statements and Supplementary
      Data
            39Item
      9.
            Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosure
            62Item
      9A(T).
            Controls and Procedures
            62Item
      9B.
            Other Information
            62Part IIIItem
      10.
            Directors, Executive Officers and Corporate
      Governance
            62Item
      11.
            Executive Compensation
            63Item 12.
            Security Ownership of Certain Beneficial Owners and
      Management and Related Shareholder Matters
            63Item
      13.
            Certain Relationships and Related Transactions and Director
      Independence
            63Item
      14.
            Principal Accounting Fees and Services
            63Part IVItem
      15.
            Exhibits, Financial Statement Schedules
            63Signatures
            
            66Certifications
            
            67




- 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 “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.  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.





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.





- 4
-
 Index





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, Maryland, North Carolina, Ohio, Oregon, South Carolina,
Tennessee and Washington.  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.





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, 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 Alabama, Arizona, Colorado, Florida, Georgia, Maryland, North
Carolina, South Carolina, Tennessee, Ohio, and Oregon.   The
remote deposit capture product was put in place to better compete for deposits
in areas not serviced by a branch.





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.





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, 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.”





- 5
-
 Index





EMPLOYEES





As of
December 31, 2007, the Company had 146 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.





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.





Risk
Due to Economic Conditions Due to Changes in Interest Rates





The
well-publicized downturn in the housing market and the related crisis in
subprime mortgage lending have impacted the economy in myriad ways,
including:





·
            slowdown
      in construction, both residential and commercial, including construction
      lending





·
            slowdown
      in job growth





·
            tightening
      of credit markets





·
            dampening
      of consumer confidence and spending





Financial
institutions have been directly impacted by:





·
            slowdown
      in overall economic growth





·
            write-offs
      of mortgage backed securities





·
            tightening
      of credit standards for business and
consumers





·
            tightening
      of available credit for bank holding companies for financing
      growth





Responding
to economic sluggishness and recession concerns, the Federal Reserve Board,
through its Federal Open Market Committee (FOMC), began cutting the target
federal funds rate in September 2007 with a 50 basis point
reduction.  This was followed by 25 basis point cuts in October and
December and, in an unprecedented move, a 75 basis point reduction on January
22, 2008, between FOMC meetings.  At the scheduled January 30, 2008
meeting, the Fed made an additional cut of 50 basis points and followed with a
75 basis point cut at the March 18, 2008 meeting.  In all, these cuts
in the target federal funds rate resulted in a reduction in the prime rate banks
charge to their best customers from 8.25% to 5.25%.





The
actions of the Federal Reserve, while designed to help the economy overall, may
negatively impact in the short term the Bank’s earnings.  Potentially
lower earnings, combined with continued uncertainty in the credit markets, may
also impact the Bank’s ability to raise capital and maintain required capital
ratios.





Risk
Due to Economic Conditions in the Regions the Company Serves





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 CWB originates SBA loans (Arizona,
California, Colorado, Oregon and Washington) and the SBA Southeast Region
(Alabama, Florida, Georgia, Maryland, North and South Carolina and
Tennessee).  A downturn in the National economy or in any of the
markets the Company services may have a negative impact on the Company’s future
earnings or stock price.





Fluctuations in
Interest Rates May Reduce Profitability





Changes
in interest rates affect interest income, the primary component of the Company’s
gross revenue, as well as interest expense.  The Company’s 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 the Company’s control.  Fluctuations in
interest rates may affect the demand of customers for products and
services.  As interest rates change, the Company expects 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 the Company’s earnings.





- 6
-
 Index





Changes
in the level of interest rates also may negatively affect the Company’s ability
to originate loans, the value of these 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 the Company’s assets may limit its ability to borrow
additional funds.  As a result, the Company could be required to sell
some of its 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.  See additional discussion on interest rate risk in "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity Management - Interest Rate Risk."





Competition with Other Banking
Institutions Could Adversely Affect Profitability





The
banking industry is highly competitive.  The Company faces increased
competition not only from other financial institutions within the markets it
serves, 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 Company attempts to
combat this increased competition by developing and offering new products and
increased quality of services.  Ultimately, competition can drive down
the Company’s interest margins and reduce profitability and make it more
difficult to increase the size of the loan portfolio and deposit
base.





Changes
in the Regulatory Environment





The
financial services’ industry is heavily regulated.  The Company is
subject to federal and state regulation designed to protect the deposits of
consumers, not to benefit shareholders.  These regulations include the
following:





·
            the
      amount of capital the Company must
maintain


·
            the
      types of activities in which it can
engage


·
            the
      types and amounts of investments it can
make


·
            the
      locations of its offices


·
            insurance
      of the Company's deposits and the premiums paid for this
      insurance


·
            how
      much cash the Company 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.  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, such as
expansion through mergers and acquisitions.  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.  See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations – Supervision and
Regulation."





Bank
Regulations Could Discourage Changes in the Company's Ownership





Bank
regulations could delay or discourage a potential acquirer who might have been
willing to pay a premium price to acquire a large block of common
stock.  That possibility might decrease the value of the Company's
common stock and the price that a stockholder will receive if shares are sold in
the future.  Before anyone can buy enough voting stock to exercise
control over a bank holding company like CWBC, bank regulators must approve the
acquisition.  A stockholder must apply for regulatory approval to own
10 percent or more of the Company's common stock, unless the stockholder can
show that they will not actually exert control over the Company.  No
single stockholder can own more than 25 percent of the Company's common stock
without applying for regulatory approval.





- 7
-
 Index





The
Price of the Company's Common Stock May Change Rapidly and
Significantly





The
market price of the Company's common stock could change rapidly and
significantly at any time.  The market price of the Company's common
stock has fluctuated in recent years.  Fluctuations may occur, among
other reasons, in response to:





·
            short-term
      or long-term operating results


·
            perceived
      strength of the banking industry in
general


·
            the
      Company’s relatively low public float and thinly-traded
    stock


·
            perceived
      value of the Company's loan
portfolio


·
            trends
      in the Company's nonperforming
assets


·
            legislative/regulatory
      action or adverse publicity


·
            announcements
      by competitors


·
            economic
      changes and general market
conditions





The
trading price of the Company's common stock may continue to be subject to wide
fluctuations in response to the factors set forth above and other factors, many
of which are beyond the Company's control.  The stock market can
experience extreme price and trading volume fluctuations that often are
unrelated or disproportionate to the operating performance of individual
companies.  The Company believes that investors should consider the
likelihood of these market fluctuations before investing in the Company's common
stock.





Dependence
on Real Estate Concentrated in the State of California





Approximately
$181 million, or 33.3%, of the loan portfolio of the Company is secured by
various forms of real estate, including residential and commercial real
estate.  A 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 the Company's
loan portfolio is concentrated in California.  If real estate values
decline significantly, especially in California, the change could harm the
financial condition of the Company's borrowers, the collateral for its loans
will provide less security and the Company would be more likely to suffer losses
on defaulted loans.





Curtailment
of Government Guaranteed Loan Programs Could Affect a Segment of the Company's
Business





A major
segment of the Company's business consists of originating and periodically
selling government guaranteed loans, in particular those guaranteed by the
SBA.  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 the Company’s business,
the long-term resolution to the funding for the 7(a) loan program may have an
unfavorable impact on the Company’s future performance and results of
operations.





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 the Company’s financial condition or
results of operation.  The Company maintains a reserve for credit
losses to absorb estimated probable credit losses inherent in the loan and
commitment portfolios as of the balance sheet date.  In determining
the level of the reserve for credit losses, management makes various assumptions
and judgments about the loan portfolio.  If management’s assumptions
are incorrect, the reserve for credit losses may not be sufficient to cover
losses, which could adversely affect the Company’s financial condition or
results of operations.





Environmental
Laws Could Force the Company to Pay for Environmental Problems





When a
borrower defaults on a loan secured by real property, the Company generally
purchases the property in foreclosure or accepts a deed to the property
surrendered by the borrower.  The Company may also take over the
management of commercial properties when owners have defaulted on
loans.  While CWB has guidelines intended to exclude properties with
an unreasonable risk of contamination, hazardous substances may exist on some of
the properties that it owns, manages or occupies and unknown hazardous risks
could impact the value of real estate collateral.  The Company faces
the risk that environmental laws could force it to clean up the properties at
the Company's expense.  It may cost much more to clean a property than
the property is worth.  The Company could also be liable for pollution
generated by a borrower's operations if the Company took a role in managing
those operations after default.  Resale of contaminated properties may
also be difficult.





- 8
-
 Index





Operational
Risk





Operational
risk represents the risk of loss resulting from the Company’s 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
risk is inherent in all business activities and the management of this risk is
important to the achievement of the Company’s objectives.  In the
event of a breakdown in the internal control system, improper operation of
systems or improper employee actions, the Company could suffer financial loss,
face regulatory action and suffer damage to its reputation.  The
Company manages operational risk through a risk management framework and its
internal control processes.  While the Company believes that it has
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





The
Company relies heavily on communications and information systems to conduct
business.  In addition, it relies 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 the Company’s 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 its reputation or cause a decrease in the number
of its customers.





Dependence 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 better serve customers, the effective use
of technology increases efficiency and enables financial institutions to reduce
costs.  Many of the Company’s competitors have substantially greater
resources to invest in technological improvements.  The Company faces
the risk of having to keep up with the rapid technological changes.





Loss
of Key Management Personnel





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.





Variations in
Quarterly Operating Results





The
Company’s results of operations are reported on a quarterly basis.  In
the event quarterly results fail to exceed results from the prior period or
periods, securities analysts and stockholders might assume that a decline in
profitability is indicative of lower results for a full fiscal year when they
might be the result of temporary factors.





Accounting
Policies





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.





Litigation
Risk





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 the Company’s assets or results of
operations.





- 9
-
 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.





No
matters were submitted for a vote by the shareholders during the fourth quarter
of 2007.




- 10
-
 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:





2007 Quarters
            
            
            2006 QuartersFourth
            
            
            Third
            
            
            Second
            
            
            First
            
            
            Fourth
            
            
            Third
            
            
            Second
            
            
            FirstStock
      Price Range:High
            
            $
            12.24
            
            
            $
            13.75
            
            
            $
            15.85
            
            
            $
            16.00
            
            
            $
            15.99
            
            
            $
            16.00
            
            
            $
            16.00
            
            
            $
            14.44Low
            
            
            9.26
            
            
            
            10.26
            
            
            
            11.75
            
            
            
            15.50
            
            
            
            15.00
            
            
            
            15.17
            
            
            
            14.05
            
            
            
            13.85Cash
      Dividends Declared
            
            $
            .06
            
            
            $
            .06
            
            
            $
            .06
            
            
            $
            .06
            
            
            $
            .06
            
            
            $
            .06
            
            
            $
            .06
            
            
            $
            .05





As of
March 24, 2008 the year to date high and low stock sales prices were $10.25 and
$7.05, respectively.  As of March 24, 2008, the last reported sale
price per share for the Company's common stock was $8.69.





As of
March 24, 2008, the Company had 345 stockholders of record of its common
stock.





It is the
Company’s intention to declare and pay dividends quarterly.  The
sources of funds for dividends paid to shareholders are the Company’s capital
and dividends received from the subsidiary bank, CWB.  CWB’s ability
to pay dividends to the Company is limited by California law and federal banking
law.  See “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Supervision and Regulation -CWBC -
Limitations on Dividend Payments.”





Securities
Authorized for Issuance under Equity Compensation Plans





The
following table summarizes the securities authorized for issuance as of December
31, 2007:





Plan Category
            
            Number of securities to be issued upon exercise of
      outstanding options, warrants and rights
            
            
            Weighted-average exercise price of outstanding
      options, warrants and 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
            
            
            462,320
            
            
            $
            8.63
            
            
            
            418,350Plans not approved by
      shareholdersTotal
            
            
            462,320
            
            
            $
            8.63
            
            
            
            418,350





- 11
-
 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, 2007, 2006, 2005, 2004 and 2003, and should be read in
conjunction with the consolidated financial statements and the related notes
included elsewhere in this report.





Year Ended
December 31,2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003INCOME
      STATEMENT:
            
            (in
      thousands, except per share data and ratios)Interest
      income
            
            $
            46,841
            
            
            $
            39,303
            
            
            $
            29,778
            
            
            $
            21,845
            
            
            $
            20,383Interest
      expense
            
            
            22,834
            
            
            
            16,804
            
            
            
            10,347
            
            
            
            7,845
            
            
            
            9,342Net
      interest income
            
            
            24,007
            
            
            
            22,499
            
            
            
            19,431
            
            
            
            14,000
            
            
            
            11,041Provision
      for loan losses
            
            
            1,297
            
            
            
            489
            
            
            
            566
            
            
            
            418
            
            
            
            1,669Net
      interest income after provision for loan losses
            
            
            22,710
            
            
            
            22,010
            
            
            
            18,865
            
            
            
            13,582
            
            
            
            9,372Non-interest
      income
            
            
            4,845
            
            
            
            5,972
            
            
            
            7,310
            
            
            
            10,462
            
            
            
            10,675Non-interest
      expenses
            
            
            21,000
            
            
            
            18,832
            
            
            
            18,160
            
            
            
            17,521
            
            
            
            16,736Income
      before income taxes
            
            
            6,555
            
            
            
            9,150
            
            
            
            8,015
            
            
            
            6,523
            
            
            
            3,311Provision  for
      income taxes
            
            
            2,766
            
            
            
            3,822
            
            
            
            2,373
            
            
            
            2,688
            
            
            
            1,128NET
      INCOME
            
            $
            3,789
            
            
            $
            5,328
            
            
            $
            5,642
            
            
            $
            3,835
            
            
            $
            2,183PER
      SHARE DATA:Income
      per common share – Basic
            
            $
            0.65
            
            
            $
            0.92
            
            
            $
            0.98
            
            
            $
            0.67
            
            
            $
            0.38Weighted
      average shares used in income per share calculation –
Basic
            
            
            5,862
            
            
            
            5,785
            
            
            
            5,744
            
            
            
            5,718
            
            
            
            5,694Income
      per common share – Diluted
            
            $
            0.63
            
            
            $
            .89
            
            
            $
            0.95
            
            
            $
            0.65
            
            
            $
            0.38Weighted
      average shares used in income per share calculation –
    Diluted
            
            
            6,022
            
            
            
            6,001
            
            
            
            5,931
            
            
            
            5,867
            
            
            
            5,758Book
      value per share
            
            $
            8.51
            
            
            $
            8.05
            
            
            $
            7.34
            
            
            $
            6.56
            
            
            $
            6.02BALANCE
      SHEET:Net
      loans
            
            $
            539,165
            
            
            $
            451,572
            
            
            $
            381,517
            
            
            $
            290,506
            
            
            $
            244,274Total
      assets
            
            
            609,850
            
            
            
            516,615
            
            
            
            444,354
            
            
            
            365,203
            
            
            
            304,250Total
      deposits
            
            
            433,739
            
            
            
            368,747
            
            
            
            334,238
            
            
            
            284,568
            
            
            
            224,855Total
      liabilities
            
            
            559,691
            
            
            
            469,795
            
            
            
            402,119
            
            
            
            327,634
            
            
            
            269,919Total
      stockholders' equity
            
            
            50,159
            
            
            
            46,820
            
            
            
            42,235
            
            
            
            37,569
            
            
            
            34,331OPERATING
      AND CAPITAL RATIOS:Return
      on average equity
            
            
            7.72
            %
            
            
            11.88
            %
            
            
            14.16
            %
            
            
            10.60
            %
            
            
            6.65
            %Return
      on average assets
            
            
            0.67
            
            
            
            1.12
            
            
            
            1.43
            
            
            
            1.15
            
            
            
            0.73Dividend
      payout ratio
            
            
            36.92
            
            
            
            24.97
            
            
            
            19.39
            
            
            
            17.91
            
            
            
            -Equity
      to assets ratio
            
            
            8.22
            
            
            
            9.06
            
            
            
            9.50
            
            
            
            10.29
            
            
            
            11.28Tier
      1 leverage ratio
            
            
            8.39
            
            
            
            9.21
            
            
            
            9.80
            
            
            
            10.41
            
            
            
            11.15Tier
      1 risk-based capital ratio
            
            
            9.87
            
            
            
            10.57
            
            
            
            11.21
            
            
            
            12.51
            
            
            
            14.05Total
      risk-based capital ratio
            
            
            10.74
            
            
            
            11.45
            
            
            
            12.26
            
            
            
            13.76
            
            
            
            15.31





- 12
-
 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
2007 Annual Report on Form 10-K.





Forward-Looking
Statements





This 2007
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.





Overview of Earnings
Performance





Net
income of the Company was $3.8 million, or $0.65 per basic share, and $0.63 per
diluted share, for 2007 compared to $5.3 million, or $0.92 per basic share, and
$0.89 per diluted share, for 2006.    The Company’s earnings
performance was impacted in 2007 by:





§
            despite
      relatively stable yields on loans, net margin declined from 4.89% in 2006
      to 4.38% in 2007 due to higher deposit and borrowing
  costs





§
            increase
      in non-performing assets, which contributed to an increase in the
      provision for loan losses and a decrease in interest income, reflecting an
      economy that has recently experienced setbacks in the real estate and
      credit markets





§
            net
      loan portfolio growth of $87.6 million, or 19.4%, primarily in
      manufactured housing, commercial real estate, commercial, and SBA loans
      which contributed to increased net interest income over the comparative
      periods.  Net interest income grew to $24.0 million for the year
      ended December 31, 2007 compared to $22.5 million and $19.4 million for
      the years ended December 31, 2006 and 2005,
  respectively





§
            decline
      in non-interest income primarily due to selling fewer SBA loans and an
      increase 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, 2007
throughout the analysis sections of this Annual Report.





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.





- 13
-
 Index





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





·
            SBA
      – All loans are reviewed and classified loans are assigned a specific
      allowance.  Those not classified are assigned a pass
      rating.  A migration analysis and various portfolio specific
      factors are used to calculate the required allowance on those pass
      loans.





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





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





The
Company calculates the required ALL on a monthly basis.  Any
difference 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.





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 assets acquired through foreclosure on the
collateral property and 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 foreclosure, 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.





- 14
-
 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 31,2007 vs. 2006
            
            
            2006 vs. 2005Amount of Increase
    (decrease)
            
            
            Percent of Increase
    (decrease)
            
            
            Amount of Increase
    (decrease)
            
            
            Percent of Increase
    (decrease)INTEREST
      INCOME
            
            (dollars
      in thousands)Loans
            
            $
            6,994
            
            
            
            18.8
            %
            
            $
            8,910
            
            
            
            31.5
            %Investment
      securities
            
            
            376
            
            
            
            23.9
            %
            
            
            302
            
            
            
            23.7
            %Other
            
            
            168
            
            
            
            31.1
            %
            
            
            313
            
            
            
            137.3
            %Total
      interest income
            
            
            7,538
            
            
            
            19.2
            %
            
            
            9,525
            
            
            
            32.0
            %INTEREST
      EXPENSEDeposits
            
            
            4,583
            
            
            
            34.7
            %
            
            
            5,524
            
            
            
            71.7
            %Bonds
      payable and other borrowings
            
            
            1,447
            
            
            
            40.4
            %
            
            
            933
            
            
            
            35.3
            %Total
      interest expense
            
            
            6,030
            
            
            
            35.9
            %
            
            
            6,457
            
            
            
            62.4
            %NET
      INTEREST INCOME
            
            
            1,508
            
            
            
            6.7
            %
            
            
            3,068
            
            
            
            15.8
            %Provision
      for loan losses
            
            
            808
            
            
            
            165.2
            %
            
            
            (77
            )
            
            
            (13.6
            )%NET
      INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
            
            
            700
            
            
            
            3.2
            %
            
            
            3,145
            
            
            
            16.7
            %NON-INTEREST
      INCOMEOther
      loan fees
            
            
            (92
            )
            
            
            (3.3
            )%
            
            
            (76
            )
            
            
            (2.6
            )%Gains
      from loan sales, net
            
            
            (697
            )
            
            
            (46.5
            )%
            
            
            (1,000
            )
            
            
            (40.0
            )%Document
      processing fees, net
            
            
            (66
            )
            
            
            (8.1
            )%
            
            
            (7
            )
            
            
            (0.9
            )%Loan
      servicing fees, net
            
            
            (255
            )
            
            
            (98.5
            )%
            
            
            (316
            )
            
            
            (55.0
            )%Service
      charges
            
            
            78
            
            
            
            21.4
            %
            
            
            46
            
            
            
            14.5
            %Other
            
            
            (95
            )
            
            
            (46.6
            )%
            
            
            15
            
            
            
            7.9
            %Total
      non-interest income
            
            
            (1,127
            )
            
            
            (18.9
            )%
            
            
            (1,338
            )
            
            
            (18.3
            )%NON-INTEREST
      EXPENSESSalaries
      and employee benefits
            
            
            1,001
            
            
            
            7.7
            %
            
            
            1,018
            
            
            
            8.5
            %Occupancy
      and equipment expenses
            
            
            234
            
            
            
            12.6
            %
            
            
            15
            
            
            
            0.8
            %Professional
      services
            
            
            (57
            )
            
            
            (6.0
            )%
            
            
            (69
            )
            
            
            (6.8
            )%Advertising
      and marketing
            
            
            149
            
            
            
            24.8
            %
            
            
            71
            
            
            
            13.4
            %Depreciation
            
            
            17
            
            
            
            3.4
            %
            
            
            (44
            )
            
            
            (8.1
            )%Other
            
            
            824
            
            
            
            43.1
            %
            
            
            (319
            )
            
            
            (14.3
            )%Total
      non-interest expenses
            
            
            2,168
            
            
            
            11.5
            %
            
            
            672
            
            
            
            3.7
            %Income
      before provision for income taxes
            
            
            (2,595
            )
            
            
            
            
            
            
            1,135Provision
      for income taxes
            
            
            (1,056
            )
            
            
            
            
            
            
            1,449NET
      INCOME
            
            $
            (1,539
            )
            
            
            
            
            
            $
            (314
            )





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.





Interest
income from loans increased primarily due to overall net growth in the loan
portfolio.  The manufactured housing, commercial real estate,
commercial and SBA loan portfolios increased by $30.1 million, $5.7 million,
$18.7 million and $32.3 million, respectively, during 2007.  This loan
growth contributed to increased interest income from manufactured housing of
$2.9 million, or 26.2%, commercial real estate of $1.3 million, or 12.3%,
commercial of $1.1 million, or 22.1%, and SBA of $2.1 million, or 29.5%, for
2007 compared to 2006.  These increases to loan interest income were
partially offset by a decrease in interest income from the securitized loan
portfolio of $398,000, or 25.6%, for 2007 compared to 2006.  Interest
income from investments and federal funds sold increased by $376,000 and
$150,000, respectively for 2007 compared to 2006.





- 15
-
 Index





The
increase in interest income resulted almost entirely from growth in interest
earning assets with yields remaining flat at 8.55% from 2006 to
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.   In 2008, the rate has been
adjusted three times and as of March 18, 2008 was 2.25%.





Comparison
of 2006 to 2005





Total
interest income increased by $9.5 million, or 32.0%, from $29.7 million in 2005
to $39.3 million in 2006.  Of this increase, $6.8 million was due to
interest-earning asset growth, primarily loans, and $2.7 million resulted from
rate increases.  Total interest expense increased by $6.5 million, or
62.4%, from $10.3 million in 2005 to $16.8 million in 2006.  Interest
expense on deposits increased $5.5 million, primarily due to an increase in
volume of time certificates of deposit, while the interest expense on other
borrowings increased $933,000.





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





Year Ended
December 31,2007 versus 2006
            
            
            2006 versus 2005Total
            
            
            Change due to
            
            
            Total
            
            
            Change due tochange
            
            
            Rate
            
            
            Volume
            
            
            change
            
            
            Rate
            
            
            Volume(in
      thousands)Interest
      earning deposits in other financial institutions (including time
      deposits)
            
            $
            18
            
            
            $
            1
            
            
            $
            17
            
            
            $
            (8
            )
            
            $
            13
            
            
            $
            (21
            )Federal
      funds sold
            
            
            150
            
            
            
            33
            
            
            
            117
            
            
            
            321
            
            
            
            91
            
            
            
            230Investment
      securities
            
            
            376
            
            
            
            155
            
            
            
            221
            
            
            
            302
            
            
            
            183
            
            
            
            119Loans,
      net
            
            
            6,994
            
            
            
            (55
            )
            
            
            7,049
            
            
            
            8,910
            
            
            
            2,451
            
            
            
            6,459Total
      interest-earning assets
            
            
            7,538
            
            
            
            134
            
            
            
            7,404
            
            
            
            9,525
            
            
            
            2,738
            
            
            
            6,787Interest-bearing
      demand
            
            
            582
            
            
            
            324
            
            
            
            258
            
            
            
            (447
            )
            
            
            443
            
            
            
            (890
            )Savings
            
            
            105
            
            
            
            89
            
            
            
            16
            
            
            
            110
            
            
            
            149
            
            
            
            (39
            )Time
      certificates of deposit
            
            
            3,896
            
            
            
            1,367
            
            
            
            2,529
            
            
            
            5,861
            
            
            
            1,786
            
            
            
            4,075Other
      borrowings
            
            
            1,447
            
            
            
            91
            
            
            
            1,356
            
            
            
            933
            
            
            
            664
            
            
            
            269Total
      interest-bearing liabilities
            
            
            6,030
            
            
            
            1,871
            
            
            
            4,159
            
            
            
            6,457
            
            
            
            3,042
            
            
            
            3,415Net
      interest income
            
            $
            1,508
            
            
            $
            (1,737
            )
            
            $
            3,245
            
            
            $
            3,068
            
            
            $
            (304
            )
            
            $
            3,372





The
following table presents the net interest income and net interest margin for the
three years indicated:





Year Ended
December 31,2007
            
            
            2006
            
            
            2005(dollars
      in thousands)Interest
      income
            
            $
            46,841
            
            
            $
            39,303
            
            
            $
            29,778Interest
      expense
            
            
            22,834
            
            
            
            16,804
            
            
            
            10,347Net
      interest income
            
            $
            24,007
            
            
            $
            22,499
            
            
            $
            19,431Net
      interest margin
            
            
            4.38
            %
            
            
            4.89
            %
            
            
            5.14
            %





Provision
for Loan Losses





The
provision for loan losses increased $808,000 to $1.3 million for 2007 compared
to $489,000 in 2006.  The increase was driven primarily by net
charge-offs in the SBA loan portfolio of $618,000 as well as loan
growth.





The
economy as a whole has recently experienced setbacks in the real estate and
credit markets that have lead to a growth in non-performing assets for many
financial institutions.  The Bank has experienced an increase in
impaired loans and has provided specific reserves believed to be adequate to
cover potential losses.   Nonetheless, increasing provisions for
loan losses remain possible in the current economic environment.





- 16
-
 Index





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
            
            2007
            
            
            2006
            
            
            2005(in
      thousands)Other
      loan fees
            
            $
            2,738
            
            
            $
            2,830
            
            
            $
            2,906Gains
      from loan sales, net
            
            
            802
            
            
            
            1,499
            
            
            
            2,499Document
      processing fees, net
            
            
            750
            
            
            
            816
            
            
            
            823Loan
      servicing fees, net
            
            
            4
            
            
            
            259
            
            
            
            575Service
      charges
            
            
            442
            
            
            
            364
            
            
            
            318Other
            
            
            109
            
            
            
            204
            
            
            
            189Total
      non-interest income
            
            $
            4,845
            
            
            $
            5,972
            
            
            $
            7,310





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 Company’s continued plan
to grow the Bank's SBA loan portfolio and sell fewer SBA loans which impacted
gains from loan sales and loan servicing fees.





The
following table summarizes this change:





Year Ended
December 31,2007
            
            
            2006
            
            
            ChangeGains
      from loan sales, net
            
            (in
      thousands)SBA
            
            $
            713
            
            
            $
            1,361
            
            
            $
            (648
            )Mortgage
            
            
            89
            
            
            
            138
            
            
            
            (49
            )Total
            
            $
            802
            
            
            $
            1,499
            
            
            $
            (697
            )





Management’s
strategic shift gradually to sell fewer SBA loans and grow the portfolio
contributed to the comparative decrease in net gains from SBA loans sales of
$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.  Total other non-interest income, including document processing
fees and service charges declined by $83,000 in 2007 compared to
2006.





Comparison
of 2006 to 2005





Total
non-interest income for the Company declined by $1.3 million, or 18.3%, in 2006
compared to 2005. The decline is primarily due to the Company’s continued plan
to grow the Bank's SBA loan portfolio and sell fewer SBA loans which impacted
gains from loan sales and loan servicing fees.   Management’s
strategic shift  gradually to sell fewer SBA loans and grow the
portfolio, combined with market declines in loan sale pricing during 2006,
contributed to the comparative decrease in net gains from SBA loan sales of
$829,000, or 37.8%, for 2006 compared to 2005.   Also impacted
were net loan servicing fees which decreased by $316,000, or 55.0%, in 2006
compared to 2005.





- 17
-
 Index





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
            
            2007
            
            
            2006
            
            
            2005(in
      thousands)Salaries
      and employee benefits
            
            $
            14,012
            
            
            $
            13,011
            
            
            $
            11,993Occupancy
      and equipment expenses
            
            
            2,089
            
            
            
            1,855
            
            
            
            1,840Professional
      services
            
            
            896
            
            
            
            953
            
            
            
            1,022Advertising
      and marketing
            
            
            751
            
            
            
            602
            
            
            
            531Depreciation
            
            
            516
            
            
            
            499
            
            
            
            543Other
            
            
            2,736
            
            
            
            1,912
            
            
            
            2,231Total
      non-interest expenses
            
            $
            21,000
            
            
            $
            18,832
            
            
            $
            18,160





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.





Comparison
of 2006 to 2005





Total
non-interest expenses increased $672,000, or 3.7%, in 2006 compared to
2005.  This increase was primarily due to an increase in salaries and
employee benefits of $1.0 million, or 8.5%, in 2006 compared to
2005.    Also contributing to the increase were the
additional months of expense for the two full-service-branches added in May and
October 2005 and the recognition of $163,000 in stock option expense as a result
of the 2006 adoption of FAS 123R.  This increase was partially offset
by decreases in other non-interest expenses, professional services and
depreciation expense, which declined by $248,000, $69,000 and $44,000,
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)2007
            
            $
            563,493
            
            
            
            3.73
            %
            
            
            2.49
            %
            
            
            0.46
            %2006
            
            $
            474,465
            
            
            
            3.97
            %
            
            
            2.74
            %
            
            
            0.50
            %2005
            
            $
            393,210
            
            
            
            4.62
            %
            
            
            3.05
            %
            
            
            0.61
            %





Income
Taxes





Income
tax expense was $2.8 million in 2007, $3.8 million in 2006 and $2.4 million in
2005.  The effective income tax rate was 42.2%, 41.8% and 29.6% for
2007, 2006 and 2005, respectively.  The effective income tax rate for
2005 was generally less than the effective income tax rate in other periods
presented as a tax reserve of $914,000, or $.16 per share (basic), related to
the resolution of  tax issues.  See Note 10, “Income Taxes”,
in the notes to the Consolidated Financial Statements.





- 18
-
 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 31,2007
            
            
            2006
            
            
            2005Amount
            
            
            %
            
            
            Amount
            
            
            %
            
            
            Amount
            
            
            %ASSETS
            
            (dollars
      in thousands)Cash
      and due from banks
            
            $
            4,374
            
            
            
            0.8
            %
            
            $
            5,264
            
            
            
            1.1
            %
            
            $
            5,428
            
            
            
            1.4
            %Time
      and interest-earning deposits in other financial
    institutions
            
            
            935
            
            
            
            0.2
            %
            
            
            567
            
            
            
            0.1
            %
            
            
            1,057
            
            
            
            0.3
            %Federal
      funds sold
            
            
            12,938
            
            
            
            2.3
            %
            
            
            10,661
            
            
            
            2.3
            %
            
            
            5,923
            
            
            
            1.5
            %Investment
      securities available-for-sale
            
            
            19,929
            
            
            
            3.5
            %
            
            
            22,655
            
            
            
            4.8
            %
            
            
            22,474
            
            
            
            5.7
            %Investment
      securities held-to-maturity
            
            
            14,741
            
            
            
            2.6
            %
            
            
            8,759
            
            
            
            1.9
            %
            
            
            7,703
            
            
            
            2.0
            %Federal
      Reserve Bank & Federal Home Loan Bank stock
            
            
            5,657
            
            
            
            1.0
            %
            
            
            4,342
            
            
            
            0.9
            %
            
            
            2,882
            
            
            
            0.7
            %Loans
      held for sale, net
            
            
            92,867
            
            
            
            16.5
            %
            
            
            64,785
            
            
            
            13.6
            %
            
            
            50,106
            
            
            
            12.7
            %Loans
      held for investment, net
            
            
            388,419
            
            
            
            68.9
            %
            
            
            332,315
            
            
            
            70.0
            %
            
            
            265,799
            
            
            
            67.6
            %Securitized
      loans, net
            
            
            8,444
            
            
            
            1.5
            %
            
            
            11,913
            
            
            
            2.5
            %
            
            
            18,241
            
            
            
            4.6
            %Servicing
      rights
            
            
            1,580
            
            
            
            0.3
            %
            
            
            2,410
            
            
            
            0.5
            %
            
            
            3,118
            
            
            
            0.8
            %Other
      assets acquired through foreclosure, net
            
            
            499
            
            
            
            0.1
            %
            
            
            52
            
            
            
            -
            
            
            
            43
            
            
            
            -Premises
      and equipment, net
            
            
            3,007
            
            
            
            0.5
            %
            
            
            2,287
            
            
            
            0.5
            %
            
            
            2,011
            
            
            
            0.5
            %Other
      assets
            
            
            10,103
            
            
            
            1.8
            %
            
            
            8,455
            
            
            
            1.8
            %
            
            
            8,425
            
            
            
            2.2
            %TOTAL
      ASSETS
            
            $
            563,493
            
            
            
            100.0
            %
            
            $
            474,465
            
            
            
            100.0
            %
            
            $
            393,210
            
            
            
            100.0
            %LIABILITIESDeposits:Non-interest-bearing
      demand
            
            $
            34,172
            
            
            
            6.0
            %
            
            $
            34,555
            
            
            
            7.3
            %
            
            $
            34,758
            
            
            
            8.8
            %Interest-bearing
      demand
            
            
            65,687
            
            
            
            11.7
            %
            
            
            58,569
            
            
            
            12.3
            %
            
            
            87,587
            
            
            
            22.3
            %Savings
            
            
            15,642
            
            
            
            2.8
            %
            
            
            15,184
            
            
            
            3.2
            %
            
            
            16,479
            
            
            
            4.2
            %Time
      certificates of $100,000 or more
            
            
            155,156
            
            
            
            27.5
            %
            
            
            138,897
            
            
            
            29.2
            %
            
            
            62,545
            
            
            
            15.9
            %Other
      time certificates
            
            
            135,831
            
            
            
            24.1
            %
            
            
            102,604
            
            
            
            21.7
            %
            
            
            89,304
            
            
            
            22.7
            %Total
      deposits
            
            
            406,488
            
            
            
            72.1
            %
            
            
            349,809
            
            
            
            73.7
            %
            
            
            290,673
            
            
            
            73.9
            %Other
      borrowings
            
            
            102,167
            
            
            
            18.2
            %
            
            
            74,597
            
            
            
            15.8
            %
            
            
            46,285
            
            
            
            11.8
            %Bonds
      payable in connection with securitized loans
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            10,469
            
            
            
            2.7
            %Other
      liabilities
            
            
            5,785
            
            
            
            1.0
            %
            
            
            5,210
            
            
            
            1.1
            %
            
            
            5,948
            
            
            
            1.5
            %Total
      liabilities
            
            
            514,440
            
            
            
            91.3
            %
            
            
            429,616
            
            
            
            90.6
            %
            
            
            353,375
            
            
            
            89.9
            %STOCKHOLDERS'
      EQUITYCommon
      stock
            
            
            31,210
            
            
            
            5.5
            %
            
            
            30,517
            
            
            
            6.4
            %
            
            
            30,127
            
            
            
            7.6
            %Retained
      earnings
            
            
            17,953
            
            
            
            3.2
            %
            
            
            14,523
            
            
            
            3.0
            %
            
            
            9,783
            
            
            
            2.5
            %Accumulated
      other comprehensive (loss)
            
            
            (110
            )
            
            
            -
            
            
            
            (191
            )
            
            
            -
            
            
            
            (75
            )
            
            
            -Total
      stockholders' equity
            
            
            49,053
            
            
            
            8.7
            %
            
            
            44,849
            
            
            
            9.4
            %
            
            
            39,835
            
            
            
            10.1
            %TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            563,493
            
            
            
            100.0
            %
            
            $
            474,465
            
            
            
            100.0
            %
            
            $
            393,210
            
            
            
            100.0
            %





- 19
-
 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:
            
            2007
            
            
            2006
            
            
            2005(dollars
      in thousands)Time
      and interest earning deposits in other financial
    institutions:Average
      outstanding
            
            $
            935
            
            
            $
            567
            
            
            $
            1,057Interest
      income
            
            
            43
            
            
            
            25
            
            
            
            32Average
      yield
            
            
            4.57
            %
            
            
            4.31
            %
            
            
            3.03
            %Federal
      funds sold:Average
      outstanding
            
            $
            12,938
            
            
            $
            10,661
            
            
            $
            5,923Interest
      income
            
            
            666
            
            
            
            516
            
            
            
            196Average
      yield
            
            
            5.15
            %
            
            
            4.84
            %
            
            
            3.31
            %Investment
      securities:Average
      outstanding
            
            $
            40,326
            
            
            $
            35,756
            
            
            $
            33,059Interest
      income
            
            
            1,952
            
            
            
            1,576
            
            
            
            1,274Average
      yield
            
            
            4.84
            %
            
            
            4.41
            %
            
            
            3.85
            %Gross
      loans, excluding securitized:Average
      outstanding
            
            $
            485,114
            
            
            $
            400,540
            
            
            $
            319,008Interest
      income
            
            
            43,022
            
            
            
            35,631
            
            
            
            25,804Average
      yield
            
            
            8.87
            %
            
            
            8.90
            %
            
            
            8.09
            %Securitized
      loans:Average
      outstanding
            
            $
            8,789
            
            
            $
            12,407
            
            
            $
            19,147Interest
      income
            
            
            1,158
            
            
            
            1,555
            
            
            
            2,472Average
      yield
            
            
            13.18
            %
            
            
            12.54
            %
            
            
            12.91
            %Total
      interest-earning assets:Average
      outstanding
            
            $
            548,102
            
            
            $
            459,931
            
            
            $
            378,194Interest
      income
            
            
            46,841
            
            
            
            39,303
            
            
            
            29,778Average
      yield
            
            
            8.55
            %
            
            
            8.55
            %
            
            
            7.87
            %





- 20
-
 Index




Year Ended
December 31,Interest-bearing
      liabilities:
            
            2007
            
            
            2006
            
            
            2005(dollars
      in thousands)Interest-bearing
      demand deposits:Average
      outstanding
            
            $
            65,687
            
            
            $
            58,569
            
            
            $
            87,587Interest
      expense
            
            
            2,378
            
            
            
            1,796
            
            
            
            2,242Average
      effective rate
            
            
            3.62
            %
            
            
            3.07
            %
            
            
            2.56
            %Savings
      deposits:Average
      outstanding
            
            $
            15,642
            
            
            $
            15,184
            
            
            $
            16,479Interest
      expense
            
            
            560
            
            
            
            455
            
            
            
            344Average
      effective rate
            
            
            3.58
            %
            
            
            2.99
            %
            
            
            2.09
            %Time
      certificates of deposit:Average
      outstanding
            
            $
            290,987
            
            
            $
            241,502
            
            
            $
            151,849Interest
      expense
            
            
            14,870
            
            
            
            10,974
            
            
            
            5,115Average
      effective rate
            
            
            5.11
            %
            
            
            4.54
            %
            
            
            3.37
            %Other
      borrowings:Average
      outstanding
            
            $
            102,167
            
            
            $
            74,602
            
            
            $
            56,754Interest
      expense
            
            
            5,026
            
            
            
            3,579
            
            
            
            2,646Average
      effective rate
            
            
            4.92
            %
            
            
            4.80
            %
            
            
            4.66
            %Total
      interest-bearing liabilities:Average
      outstanding
            
            $
            474,483
            
            
            $
            389,857
            
            
            $
            312,669Interest
      expense
            
            
            22,834
            
            
            
            16,804
            
            
            
            10,347Average
      effective rate
            
            
            4.81
            %
            
            
            4.31
            %
            
            
            3.31
            %Net
      interest income
            
            $
            24,007
            
            
            $
            22,499
            
            
            $
            19,431Net
      interest spread
            
            
            3.74
            %
            
            
            4.24
            %
            
            
            4.56
            %Average
      net margin
            
            
            4.38
            %
            
            
            4.89
            %
            
            
            5.14
            %





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, 2007 and 2006,
approximately 59% and 60%, respectively, 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.





- 21
-
 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 31,2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003In
      Years
            
            (in thousands)Fixed
            
            
            Variable
            
            
            Fixed
            
            
            Variable
            
            
            Fixed
            
            
            Variable
            
            
            Fixed
            
            
            Variable
            
            
            Fixed
            
            
            VariableLess
      than One
            
            $
            16,445
            
            
            $
            83,356
            
            
            $
            16,442
            
            
            $
            76,509
            
            
            $
            19,797
            
            
            $
            49,796
            
            
            $
            3,877
            
            
            $
            44,896
            
            
            $
            2,382
            
            
            $
            34,108One
      to Five
            
            
            79,549
            
            
            
            67,549
            
            
            
            65,083
            
            
            
            50,931
            
            
            
            39,081
            
            
            
            50,708
            
            
            
            12,922
            
            
            
            29,567
            
            
            
            4,128
            
            
            
            13,645Over
      Five
            
            
            129,335
            
            
            
            167,878
            
            
            
            103,242
            
            
            
            144,136
            
            
            
            88,086
            
            
            
            139,570
            
            
            
            94,568
            
            
            
            110,215
            
            
            
            85,390
            
            
            
            110,914Total
            
            $
            225,329
            
            
            $
            318,783
            
            
            $
            184,767
            
            
            $
            271,576
            
            
            $
            146,964
            
            
            $
            240,074
            
            
            $
            111,367
            
            
            $
            184,678
            
            
            $
            91,900
            
            
            $
            158,66741.4
            %
            
            
            58.6
            %
            
            
            40.5
            %
            
            
            59.5
            %
            
            
            38.0
            %
            
            
            62.0
            %
            
            
            37.6
            %
            
            
            62.4
            %
            
            
            36.7
            %
            
            
            63.3
            %





Distribution
of Loans





The
distribution of total loans by type of loan, as of the dates indicated, is shown
in the following table:





December 31,2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003(dollars
      in thousands)Loan Balance
            
            
            Loan Balance
            
            
            Loan Balance
            
            
            Loan Balance
            
            
            Loan BalanceCommercial
            
            $
            72,470
            
            
            $
            53,725
            
            
            $
            44,957
            
            
            $
            30,893
            
            
            $
            24,592Real
      estate
            
            
            136,734
            
            
            
            135,902
            
            
            
            116,938
            
            
            
            85,357
            
            
            
            71,010SBA
            
            
            142,874
            
            
            
            103,361
            
            
            
            95,217
            
            
            
            78,878
            
            
            
            67,663Manufactured
      housing
            
            
            172,938
            
            
            
            142,804
            
            
            
            101,336
            
            
            
            66,423
            
            
            
            39,073Other
      installment
            
            
            10,027
            
            
            
            8,301
            
            
            
            11,355
            
            
            
            8,645
            
            
            
            5,770Securitized
            
            
            7,507
            
            
            
            10,104
            
            
            
            14,858
            
            
            
            23,474
            
            
            
            37,386Mortgage
      loans held for sale
            
            
            1,562
            
            
            
            2,146
            
            
            
            2,377
            
            
            
            2,375
            
            
            
            5,073Gross
      Loans
            
            
            544,112
            
            
            
            456,343
            
            
            
            387,038
            
            
            
            296,045
            
            
            
            250,567Less:Allowance
      for loan losses
            
            
            4,412
            
            
            
            3,926
            
            
            
            3,954
            
            
            
            3,894
            
            
            
            4,675Deferred
      fees/costs
            
            
            (48
            )
            
            
            43
            
            
            
            181
            
            
            
            (103
            )
            
            
            69Discount
      on SBA loans
            
            
            583
            
            
            
            802
            
            
            
            1,386
            
            
            
            1,748
            
            
            
            1,549Net
      Loans
            
            $
            539,165
            
            
            $
            451,572
            
            
            $
            381,517
            
            
            $
            290,506
            
            
            $
            244,274Percentage
      to Gross Loans:Commercial
            
            
            13.3
            %
            
            
            11.8
            %
            
            
            11.6
            %
            
            
            10.5
            %
            
            
            9.8
            %Real
      estate
            
            
            25.1
            
            
            
            29.8
            
            
            
            30.2
            
            
            
            28.8
            
            
            
            28.3SBA
            
            
            26.3
            
            
            
            22.7
            
            
            
            24.6
            
            
            
            26.6
            
            
            
            27.0Manufactured
      housing
            
            
            31.8
            
            
            
            31.3
            
            
            
            26.2
            
            
            
            22.5
            
            
            
            15.6Other
      installment
            
            
            1.8
            
            
            
            1.8
            
            
            
            2.9
            
            
            
            2.9
            
            
            
            2.3Securitized
            
            
            1.4
            
            
            
            2.2
            
            
            
            3.9
            
            
            
            7.9
            
            
            
            14.9Mortgage
      loans held for sale
            
            
            .3
            
            
            
            .4
            
            
            
            .6
            
            
            
            .8
            
            
            
            2.1100.0
            %
            
            
            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.





- 22
-
 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.  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.





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.





- 23
-
 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 FHLB 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
in the approximate amount of $5.1 million.  There were no borrowings
outstanding on the federal funds facilities at December 31, 2007, and advances
from the FHLB in the amount of $121 million.





At
December 31, 2007, the Bank had outstanding commitments to fund existing loans
of approximately $50.7 million pursuant to credit availability terms in the loan
agreements, including standby letters of credit of $518,000.  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 to issue new certificates of deposit through
brokers.





Total
loan commitments outstanding at the dates indicated are summarized
below:





December 31,2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003(in
      thousands)Commercial
            
            $
            21,612
            
            
            $
            24,431
            
            
            $
            22,327
            
            
            $
            19,010
            
            
            $
            13,867Real
      estate
            
            
            8,649
            
            
            
            18,839
            
            
            
            19,323
            
            
            
            7,618
            
            
            
            11,676SBA
            
            
            9,453
            
            
            
            5,508
            
            
            
            3,408
            
            
            
            6,107
            
            
            
            9,531Installment
      loans
            
            
            10,503
            
            
            
            9,662
            
            
            
            9,330
            
            
            
            8,966
            
            
            
            5,112Standby
      letters of credit
            
            
            518
            
            
            
            847
            
            
            
            1,499
            
            
            
            403
            
            
            
            522Total
      commitments
            
            $
            50,735
            
            
            $
            59,287
            
            
            $
            55,887
            
            
            $
            42,104
            
            
            $
            40,708





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, 2007 and 2006, but consisted of diverse
borrowers.





- 24
-
 Index





Allowance
for Loan Losses





The
following table summarizes the activity in the allowance for loan losses for the
periods indicated:





Year Ended
December 31,2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003(in
      thousands)Average
      gross loans, held for investment,
            
            $
            401,036
            
            
            $
            348,161
            
            
            $
            288,049
            
            
            $
            230,533
            
            
            $
            202,563Gross
      loans at end of year, held for investment
            
            
            433,162
            
            
            
            379,703
            
            
            
            324,965
            
            
            
            248,412
            
            
            
            206,912Allowance
      for loan losses, beginning of year
            
            $
            3,926
            
            
            $
            3,954
            
            
            $
            3,894
            
            
            $
            4,676
            
            
            $
            5,950Loans
      charged off:Commercial
      (including SBA)
            
            
            775
            
            
            
            459
            
            
            
            228
            
            
            
            185
            
            
            
            445Real
      estate
            
            
            -
            
            
            
            -
            
            
            
            8
            
            
            
            274
            
            
            
            471Installment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            3Short-term
      consumer
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            902Securitized
            
            
            142
            
            
            
            341
            
            
            
            831
            
            
            
            1,356
            
            
            
            2,512Total
            
            
            917
            
            
            
            800
            
            
            
            1,067
            
            
            
            1,815
            
            
            
            4,333Recoveries
      of loans previously charged offCommercial
      (including SBA)
            
            
            45
            
            
            
            93
            
            
            
            20
            
            
            
            31
            
            
            
            88Real
      estate
            
            
            -
            
            
            
            -
            
            
            
            89
            
            
            
            44
            
            
            
            42Short-term
      consumer
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            672Securitized
            
            
            61
            
            
            
            190
            
            
            
            452
            
            
            
            540
            
            
            
            588Total
            
            
            106
            
            
            
            283
            
            
            
            561
            
            
            
            615
            
            
            
            1,390Net
      loans charged off
            
            
            811
            
            
            
            517
            
            
            
            506
            
            
            
            1,200
            
            
            
            2,943Provision
      for loan losses
            
            
            1,297
            
            
            
            489
            
            
            
            566
            
            
            
            418
            
            
            
            1,669Allowance
      for loan losses, end of year
            
            $
            4,412
            
            
            $
            3,926
            
            
            $
            3,954
            
            
            $
            3,894
            
            
            $
            4,676Ratios:Net
      loan charge-offs to average loans
            
            
            0.2
            %
            
            
            0.1
            %
            
            
            0.2
            %
            
            
            0.5
            %
            
            
            1.5
            %Net
      loan charge-offs to loans at end of period
            
            
            0.2
            %
            
            
            0.1
            %
            
            
            0.2
            %
            
            
            0.5
            %
            
            
            1.4
            %Allowance
      for loan losses to loans held for     investment
      at end of period
            
            
            1.0
            %
            
            
            1.0
            %
            
            
            1.2
            %
            
            
            1.6
            %
            
            
            2.3
            %Net
      loan charge-offs to allowance for loan losses at beginning of
      period
            
            
            20.7
            %
            
            
            13.1
            %
            
            
            13.0
            %
            
            
            25.7
            %
            
            
            49.5
            %Net
      loan charge-offs to provision for loan losses
            
            
            62.5
            %
            
            
            105.7
            %
            
            
            89.4
            %
            
            
            287.1
            %
            
            
            176.3
            %





- 25
-
 Index





The
following table summarizes the allowance for loanlosses:





December 31,2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003(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
            
            $
            1,810
            
            
            
            26.3
            %
            
            $
            1,365
            
            
            
            22.6
            %
            
            $
            1,409
            
            
            
            24.6
            %
            
            $
            1,388
            
            
            
            24.6
            %
            
            $
            1,550
            
            
            
            27.0
            %Manufactured
      housing
            
            
            610
            
            
            
            31.8
            %
            
            
            786
            
            
            
            31.3
            %
            
            
            563
            
            
            
            26.2
            %
            
            
            465
            
            
            
            22.5
            %
            
            
            372
            
            
            
            15.6
            %Securitized
            
            
            322
            
            
            
            1.4
            %
            
            
            351
            
            
            
            2.2
            %
            
            
            628
            
            
            
            3.9
            %
            
            
            1,109
            
            
            
            7.9
            %
            
            
            2,024
            
            
            
            14.9
            %All
      other loans
            
            
            1,670
            
            
            
            40.5
            %
            
            
            1,424
            
            
            
            43.9
            %
            
            
            1,354
            
            
            
            45.3
            %
            
            
            932
            
            
            
            45.0
            %
            
            
            730
            
            
            
            42.5
            %Total
            
            $
            4,412
            
            
            
            100
            %
            
            $
            3,926
            
            
            
            100
            %
            
            $
            3,954
            
            
            
            100
            %
            
            $
            3,894
            
            
            
            100
            %
            
            $
            4,676
            
            
            
            100
            %





Total
allowance for loan losses (“ALL”) increased by $486,000 from December 31, 2006
to December 31, 2007.  The increase was primarily due to loan growth
and the impact of charge-offs on the migration analysis.  Net loans
charged-offs were $811,000 in 2007, $517,000 in 2006 and $506,000 in
2005.





In
management's opinion, the balance of the allowance for loan losses was
sufficient to absorb known and inherent probable losses in the loan portfolio as
of December 31, 2007.





Nonaccrual,
Past Due and Restructured Loans





A loan is
considered impaired when, based on current information and events, it is
probable that the Company will be unable to collect the scheduled payments of
principal or interest under the contractual terms of the loan
agreement.  Factors considered by management in determining impairment
include payment status, collateral value and the probability of collecting
scheduled principal and interest payments.  Loans that experience
insignificant payment delays or payment shortfalls generally are not classified
as impaired.  Management determines the significance of payment delays
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.  Impairment is measured on a loan-by-loan basis for all loans
in the portfolio except for the securitized loans, which are evaluated for
impairment on a collective basis.





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





Year Ended
December 31,2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003(in
      thousands)Impaired
      loans without specific valuation allowances
            
            $
            33
            
            
            $
            63
            
            
            $
            77
            
            
            $
            49
            
            
            $
            235Impaired
      loans with specific valuation allowances
            
            
            16,468
            
            
            
            5,145
            
            
            
            3,406
            
            
            
            3,926
            
            
            
            6,843Specific
      valuation allowance related to impaired loans
            
            
            (966
            )
            
            
            (641
            )
            
            
            (473
            )
            
            
            (425
            )
            
            
            (640
            )Impaired
      loans, net
            
            $
            15,535
            
            
            $
            4,567
            
            
            $
            3,010
            
            
            $
            3,550
            
            
            $
            6,438Average
      investment in impaired loans
            
            $
            9,386
            
            
            $
            4,074
            
            
            $
            3,716
            
            
            $
            5,137
            
            
            $
            6,584





- 26
-
 Index





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





Year Ended
December 31,2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003(in
      thousands)Nonaccrual
      loans
            
            $
            15,341
            
            
            $
            7,417
            
            
            $
            6,797
            
            
            $
            8,350
            
            
            $
            7,174SBA
      guaranteed portion of loans included above
            
            
            (5,695
            )
            
            
            (4,256
            )
            
            
            (4,332
            )
            
            
            (5,287
            )
            
            
            (4,106
            )Nonaccrual
      loans, net
            
            $
            9,646
            
            
            $
            3,161
            
            
            $
            2,465
            
            
            $
            3,063
            
            
            $
            3,068Troubled
      debt restructured loans
            
            $
            7,255
            
            
            $
            68
            
            
            $
            75
            
            
            $
            124
            
            
            $
            193Loans
      30 through 90 days past due with interest accruing
            
            $
            18,898
            
            
            
            2,463
            
            
            
            1,792
            
            
            
            1,804
            
            
            
            3,907Interest
      income recognized on impaired loans
            
            $
            691
            
            
            $
            242
            
            
            $
            141
            
            
            $
            103
            
            
            $
            277Interest
      foregone on nonaccrual loans and troubled debt restructured loans
      outstanding
            
            $
            904
            
            
            
            488
            
            
            
            253
            
            
            
            208
            
            
            
            216Gross
      interest income on impaired loans
            
            $
            1,595
            
            
            $
            730
            
            
            $
            394
            
            
            $
            311
            
            
            $
            493





The
accrual of interest is discontinued when substantial doubt exists as to
collectibility 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.  All of the nonaccrual loans
are impaired.  Total net nonaccrual loans increased by $6.5 million
from 2006 to 2007.  The increase in net non-accrual loans was
primarily due to one construction loan of $5.3 million for which the collateral
appears to adequately secure principal recovery.





Total net
impaired loans increased by $11.0 million as of December 31, 2007 compared to
December 31, 2006.  Three loans of $5.3 million, $4.0 million and $1.0
million constituted most of the increase.  In consideration of the
collateral, specific reserves for these three loans total $122,000.





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.  The balance of impaired loans disclosed above includes all
TDRs that, as of December 31, 2007, 2006 and 2005, are considered
impaired.





Investment
Portfolio





The
following table summarizes the carrying values of the Company's investment
securities for the years indicated:





December 31,2007
            
            
            2006
            
            
            2005Available-for-sale
      securities
            
            (in
      thousands)U.S.
      Government agency notes
            
            $
            5,993
            
            
            $
            13,184
            
            
            $
            15,148U.S.
      Government agency: MBS
            
            
            5,004
            
            
            
            7,005
            
            
            
            5,148U.S.
      Government agency: CMO
            
            
            1,667
            
            
            
            1,908
            
            
            
            2,323Total
            
            $
            12,664
            
            
            $
            22,097
            
            
            $
            22,619December 31,2007
            
            
            2006
            
            
            2005Held-to-maturity
      securities
            
            (in
      thousandsU.S.
      Government agency notes
            
            $
            200
            
            
            $
            200
            
            
            $
            200U.S.
      Government agency: MBS
            
            
            25,417
            
            
            
            10,335
            
            
            
            8,477Total
            
            $
            25,617
            
            
            $
            10,535
            
            
            $
            8,677





- 27
-
 Index





At
December 31, 2007, $200,000 at carrying value of held-to-maturity securities
were pledged as collateral to the U.S. Treasury for CWB’s treasury, tax and loan
account and $38.1 million at carrying value were 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, 2007 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
      notes
            
            $
            5,993
            
            
            
            4.7
            %
            
            $
            5,993
            
            
            
            4.7
            %
            
            $
            -
            
            
            
            -
            
            
            $
            -
            
            
            
            -Agency:
      MBS
            
            
            5,004
            
            
            
            4.3
            %
            
            
            
            
            
            
            
            
            
            
            5,004
            
            
            
            4.3
            %Agency:
      CMO
            
            
            1,667
            
            
            
            4.8
            %
            
            
            -
            
            
            
            -
            
            
            
            603
            
            
            
            4.5
            %
            
            
            1,064
            
            
            
            5.0
            %Total
            
            $
            12,664
            
            
            
            4.1
            %
            
            $
            5,993
            
            
            
            4.7
            %
            
            $
            5,607
            
            
            
            4.3
            %
            
            $
            1,064
            
            
            
            5.0
            %Held-to-maturity
      securitiesU.S.
      Government:Agency
      notes
            
            $
            200
            
            
            
            3.6
            %
            
            $
            200
            
            
            
            3.6
            %
            
            $
            -
            
            
            
            -
            
            
            $
            -
            
            
            
            -Agency:
      MBS
            
            
            25,417
            
            
            
            5.1
            %
            
            
            -
            
            
            
            -
            
            
            
            19,012
            
            
            
            4.9
            %
            
            
            6,405
            
            
            
            5.5
            %Total
            
            $
            25,617
            
            
            
            5.1
            %
            
            $
            200
            
            
            
            3.6
            %
            
            $
            19,012
            
            
            
            4.9
            %
            
            $
            6,405
            
            
            
            5.5
            %





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, 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
            
            
            
            7.96December
      31, 2006CWBC
      (Consolidated)
            
            $
            50,692
            
            
            $
            46,766
            
            
            $
            442,571
            
            
            $
            507,718
            
            
            
            11.45
            %
            
            
            10.57
            %
            
            
            9.21
            %CWB
            
            
            46,842
            
            
            
            42,916
            
            
            
            442,624
            
            
            
            503,800
            
            
            
            10.58
            
            
            
            9.70
            
            
            
            8.52Well
      capitalized ratios
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            10.00
            
            
            
            6.00
            
            
            
            5.00Minimum
      capital ratios
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            8.00
            
            
            
            4.00
            
            
            
            4.00





Primarily due to asset growth, CWBC and
CWB may need to obtain additional capital to maintain the Total Capital Ratio
within the “well capitalized” category.  CWBC has common equity only
and does not have any off-balance sheet financing arrangements.  The
Company has not repurchased any stock nor does it have any immediate plans or
programs to do so.





- 28
-
 Index





Liquidity
Management





The
Company has established policies as well as analytical tools to manage
liquidity.  Proper liquidity management ensures that sufficient funds
are available to meet normal operating demands in addition to unexpected
customer demand for funds, such as high levels of deposit withdrawals or
increased loan demand, in a timely and cost effective manner.  The
most important factor in the preservation of liquidity is maintaining public
confidence that facilitates the retention and growth of core
deposits.  Ultimately, public confidence is gained through profitable
operations, sound credit quality and a strong capital position.  The
Company’s liquidity management is viewed from a long-term and short-term
perspective, as well as from an asset and liability
perspective.  Management monitors liquidity through regular reviews of
maturity profiles, funding sources and loan and deposit forecasts to minimize
funding risk.  The Company has asset/liability committees (“ALCO”) at
the Board and Bank management level to review asset/liability management and
liquidity issues.  The Company maintains strategic liquidity and
contingency plans.  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 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, 2007 include $17.5 million borrowed at
variable rates which adjust to the current LIBOR rate either monthly or
quarterly and $103.5 million borrowed at fixed rates.  At December 31,
2007, CWB had pledged to FHLB, securities of $38.1 million at carrying value and
loans of $150 million, and had $5.1 million available for additional
borrowing.  At December 31, 2006, CWB had $160.2 million of loans and
$32.4 million of securities pledged as collateral and outstanding advances of
$95 million.





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





The
Company, through the Bank, also has the ability as a member of the Federal
Reserve System, to borrow at the discount window up to 50% of what is pledged at
the Federal Reserve Bank.





The
Company has not experienced disintermediation and does not believe this is a
potentially probable occurrence.  The liquidity ratio of the Company
was 22% at December 31, 2007 compared to 21% at December 31,
2006.  The Company’s liquidity ratio fluctuates in conjunction with
loan funding demands.  The liquidity ratio consists of cash and due
from banks, deposits in other financial institutions, available for sale
investments, federal funds sold and loans held for sale, divided by total
assets.





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





Interest
Rate Risk





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





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





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





- 29
-
 Index





·
            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.





Deposits





The
following table shows the Company's average deposits for each of the periods
indicated below:





Year Ended
December 31,2007
            
            
            2006
            
            
            2005Average Balance
            
            
            Percent of Total
            
            
            Average Balance
            
            
            Percent of Total
            
            
            Average Balance
            
            
            Percent of Total(dollars
      in thousands)Noninterest-bearing
      demand
            
            $
            34,172
            
            
            
            8.4
            %
            
            $
            34,555
            
            
            
            9.9
            %
            
            $
            34,758
            
            
            
            12.0
            %Interest-bearing
      demand
            
            
            65,687
            
            
            
            16.1
            %
            
            
            58,569
            
            
            
            16.7
            %
            
            
            87,587
            
            
            
            30.1
            %Savings
            
            
            15,642
            
            
            
            3.9
            %
            
            
            15,184
            
            
            
            4.3
            %
            
            
            16,479
            
            
            
            5.7
            %TCD’s
      of $100,000 or more
            
            
            155,156
            
            
            
            38.2
            %
            
            
            138,897
            
            
            
            39.7
            %
            
            
            62,545
            
            
            
            21.5
            %Other
      TCD’s
            
            
            135,831
            
            
            
            33.4
            %
            
            
            102,604
            
            
            
            29.4
            %
            
            
            89,304
            
            
            
            30.7
            %Total
      Deposits
            
            $
            406,488
            
            
            
            100.0
            %
            
            $
            349,809
            
            
            
            100.0
            %
            
            $
            290,673
            
            
            
            100.0
            %





The
maturities of time certificates of deposit ("TCD’s") were as
follows:





December 31,2007
            
            
            2006TCD's
      over$100,000
            
            
            Other
      TCD’s
            
            
            TCD's
      over$100,000
            
            
            OtherTCD’s(in
      thousands)Less
      than three months
            
            $
            28,045
            
            
            $
            48,014
            
            
            $
            46,037
            
            
            $
            31,347Over
      three months through six months
            
            
            12,273
            
            
            
            36,642
            
            
            
            35,161
            
            
            
            21,497Over
      six months through twelve months
            
            
            11,500
            
            
            
            101,522
            
            
            
            44,666
            
            
            
            28,516Over
      twelve months through five years
            
            
            8,964
            
            
            
            63,618
            
            
            
            48,802
            
            
            
            15,191Total
            
            $
            60,782
            
            
            $
            249,796
            
            
            $
            174,666
            
            
            $
            96,551





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.  Such deposits increased by
$48.5 million during 2007 as the Company’s general funding needs increased due
to the growth in the loan portfolio.  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.





- 30
-
 Index





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,
2007:





Total
            
            
            < 1 Year
            
            
            1-3 Years
            
            
            3-5 Years
            
            
            Over
      5 Years(in
      thousands)FHLB
      Borrowing
            
            $
            121,000
            
            
            $
            39,000
            
            
            $
            82,000
            
            
            $
            -
            
            
            $
            -Time
      certificates of deposits
            
            
            310,578
            
            
            
            237,995
            
            
            
            68,708
            
            
            
            3,875
            
            
            
            -Operating
      lease obligations
            
            
            4,514
            
            
            
            1,095
            
            
            
            1,827
            
            
            
            985
            
            
            
            607Purchase
      obligations for service providers
            
            
            1,267
            
            
            
            550
            
            
            
            624
            
            
            
            93
            
            
            
            -Total
            
            $
            437,359
            
            
            $
            278,640
            
            
            $
            153,159
            
            
            $
            4,953
            
            
            $
            607





- 31
-
 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.





- 32
-
 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.





- 33
-
 Index





The FRB’s
risk-based capital adequacy guidelines, discussed in more detail below in the
section entitled “SUPERVISION AND REGULATON – 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;





- 34
-
 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,
2008; 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
            %
            
            
            10.15
            %
            
            
            10.74
            %Tier 1 risk-based capital
    ratio
            
            
            4.00
            %
            
            
            6.00
            %
            
            
            9.28
            %
            
            
            9.87
            %Tier 1 leverage capital
    ratio
            
            
            4.00
            %
            
            
            5.00
            %
            
            
            7.96
            %
            
            
            8.39
            %





As of
December 31, 2007, 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)





- 35
-
 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%





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 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 2005 (the “FDI Reform
Act”) and regulations adopted by the FDIC effective as of November 2, 2006: (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.





Prior to
January 1, 2007, the FDIC utilized a risk-based assessment system to set
semi-annual insurance premium assessments which categorized banks into risk
categories based on two criteria, (1) three capital levels and (2) three
supervisory ratings, creating a nine-cell matrix for risk-based
assessments.  The new assessment system consolidates the previous nine
risk categories into four and names them Risk Categories I, II, III and
IV.   The four new categories will continue to be defined based
upon supervisory and capital evaluations.  In practice, the subgroup
evaluations will generally be based on an institution’s composite CAMELS rating
assigned to it by the institution’s federal supervisor at the end of its
examination.  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 consolidation creates four new Risk Categories as
shown in following table:





- 36
-
 Index




Capital Group
            Supervisory SubgroupA
            B
            C1.  Well
    Capitalized
            I
            
            III2.  Adequately
      Capitalized
            II3.  Undercapitalized
            III
            IV





Within
Risk Category I, the new assessment system combines supervisory ratings with
other risk measures to differentiate risk.  For most institutions, the
new 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.





Effective
January 1, 2007, the actual assessment rates under this new assessment system
are summarized below, expressed in terms of cents per $100 in insured
deposits:





Risk
      CategoryI*
            II
            III
            IVMinimum
            Maximum5
            7
            10
            28
            43*  Rates
      for institutions that do no pay the minimum or maximum rate vary between
      these rates.







The
assessment for the Financing Corporation (FICO) is unaffected by the new
legislation.  All insured members continue to pay the FICO assessment
at a rate that is set quarterly.  The FDIC is the collection agent for
FICO.  The FICO assessment services the interest on the noncallable
thrift bonds issued between 1987 and 1989.  The FICO assessment will
end in 2019 when the final bonds mature.





FICO Annual Rates for
  2007Quarter 1
            Quarter 2
            Quarter 3
            Quarter 41.22
            1.22
            1.14
            1.14





The
annual rates above are in basis points.





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.





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.”





- 37
-
 Index





CWB had a
CRA rating of “Satisfactory” as of its most recent regulatory examination.





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, 2007.





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.





- 38
-
 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 decrease2007
            
            
            2006
            
            
            2007
            
            
            2006(dollars
      in thousands)Anticipated
      impact over the next twelve months:Net
      interest income (NII)
            
            $
            1,872
            
            
            $
            1,495
            
            
            $
            (1,911
            )
            
            $
            (1,542
            )7.6
            %
            
            
            6.5
            %
            
            
            (7.8
            %)
            
            
            (6.7
            %)Economic
      value of equity (EVE)
            
            $
            (7,523
            )
            
            $
            (6,573
            )
            
            $
            5,981
            
            
            $
            5,656(14.0
            %)
            
            
            (13.3
            %)
            
            
            11.2
            %
            
            
            11.4
            %





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.





- 39
-
 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, 2007 and 2006, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2007. 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, 2007 and 2006, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2007, in conformity with U.S. generally accepted
accounting principles.





/s/ Ernst
& Young LLP





Los
Angeles, CA


March 21,
2008





F-1
 Index





COMMUNITY
WEST BANCSHARES


CONSOLIDATED
BALANCE SHEETS








December 31,2007
            
            
            2006(dollars
      in thousands)ASSETSCash
      and due from banks
            
            $
            6,855
            
            
            $
            4,190Federal
      funds sold
            
            
            2,434
            
            
            
            7,153Cash
      and cash equivalents
            
            
            9,289
            
            
            
            11,343Time
      deposits in other financial institutions
            
            
            778
            
            
            
            536Investment
      securities available-for-sale, at fair value; amortized cost of $12,711
      December 31, 2007 and $22,340 December 31, 2006
            
            
            12,664
            
            
            
            22,097Investment
      securities held-to-maturity, at amortized cost; fair value of $25,733 at
      December 31, 2007 and $10,437 at December 31, 2006
            
            
            25,617
            
            
            
            10,535Federal
      Home Loan Bank stock, at cost
            
            
            5,734
            
            
            
            4,465Federal
      Reserve Bank stock, at cost
            
            
            812
            
            
            
            812Loans:Held
      for sale, at lower of cost or fair value
            
            
            110,415
            
            
            
            75,795Held
      for investment, net of allowance for loan losses of $4,412 at December 31,
      2007 and $3,926 at December 31, 2006
            
            
            428,750
            
            
            
            375,777Total
      loans
            
            
            539,165
            
            
            
            451,572Servicing
      rights
            
            
            1,206
            
            
            
            1,968Other
      assets acquired through foreclosure, net
            
            
            150
            
            
            
            582Premises
      and equipment, net
            
            
            3,284
            
            
            
            2,802Other
      assets
            
            
            11,151
            
            
            
            9,903TOTAL
      ASSETS
            
            $
            609,850
            
            
            $
            516,615LIABILITIESDeposits:Non-interest-bearing
      demand
            
            $
            33,240
            
            
            $
            33,033Interest-bearing
      demand
            
            
            75,016
            
            
            
            49,975Savings
            
            
            14,905
            
            
            
            14,522Time
      certificates
            
            
            310,578
            
            
            
            271,217Total
      deposits
            
            
            433,739
            
            
            
            368,747Federal
      Home Loan Bank advances
            
            
            121,000
            
            
            
            95,000Other
      liabilities
            
            
            4,952
            
            
            
            6,048Total
      liabilities
            
            
            559,691
            
            
            
            469,795Commitments
      and contingencies-See Note 15STOCKHOLDERS'
      EQUITYCommon
      stock, no par value; 10,000,000shares
      authorized; 5,894,585 shares issued and outstanding at December 31, 2007
      and 5,814,568 at December 31, 2006
            
            
            31,636
            
            
            
            30,794Retained
      earnings
            
            
            18,551
            
            
            
            16,169Accumulated
      other comprehensive loss
            
            
            (28
            )
            
            
            (143
            )Total
      stockholders' equity
            
            
            50,159
            
            
            
            46,820TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            609,850
            
            
            $
            516,615See
      accompanying notes.





F-2
 Index





COMMUNITY
WEST BANCSHARES


CONSOLIDATED
INCOME STATEMENTS








Year Ended
December 31,2007
            
            
            2006
            
            
            2005(in
      thousands, except per share data)INTEREST
      INCOMELoans
            
            $
            44,180
            
            
            $
            37,186
            
            
            $
            28,276Investment
      securities
            
            
            1,952
            
            
            
            1,576
            
            
            
            1,274Other
            
            
            709
            
            
            
            541
            
            
            
            228Total
      interest income
            
            
            46,841
            
            
            
            39,303
            
            
            
            29,778INTEREST
      EXPENSEDeposits
            
            
            17,808
            
            
            
            13,225
            
            
            
            7,701Other
      borrowings
            
            
            5,026
            
            
            
            3,579
            
            
            
            2,646Total
      interest expense
            
            
            22,834
            
            
            
            16,804
            
            
            
            10,347NET
      INTEREST INCOME
            
            
            24,007
            
            
            
            22,499
            
            
            
            19,431Provision
      for loan losses
            
            
            1,297
            
            
            
            489
            
            
            
            566NET
      INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
            
            
            22,710
            
            
            
            22,010
            
            
            
            18,865NON-INTEREST
      INCOMEOther
      loan fees
            
            
            2,738
            
            
            
            2,830
            
            
            
            2,906Gains
      from loan sales, net
            
            
            802
            
            
            
            1,499
            
            
            
            2,499Document
      processing fees, net
            
            
            750
            
            
            
            816
            
            
            
            823Service
      charges
            
            
            442
            
            
            
            364
            
            
            
            318Loan
      servicing fees, net
            
            
            4
            
            
            
            259
            
            
            
            575Other
            
            
            109
            
            
            
            204
            
            
            
            189Total
      non-interest income
            
            
            4,845
            
            
            
            5,972
            
            
            
            7,310NON-INTEREST
      EXPENSESSalaries
      and employee benefits
            
            
            14,012
            
            
            
            13,011
            
            
            
            11,993Occupancy
      and equipment expenses
            
            
            2,089
            
            
            
            1,855
            
            
            
            1,840Professional
      services
            
            
            896
            
            
            
            953
            
            
            
            1,022Advertising
      and marketing
            
            
            751
            
            
            
            602
            
            
            
            531Depreciation
            
            
            516
            
            
            
            499
            
            
            
            543Other
            
            
            2,736
            
            
            
            1,912
            
            
            
            2,231Total
      non-interest expenses
            
            
            21,000
            
            
            
            18,832
            
            
            
            18,160Income
      before provision for income taxes
            
            
            6,555
            
            
            
            9,150
            
            
            
            8,015Provision
      for income taxes
            
            
            2,766
            
            
            
            3,822
            
            
            
            2,373NET
      INCOME
            
            $
            3,789
            
            
            $
            5,328
            
            
            $
            5,642INCOME
      PER SHARE – BASIC
            
            $
            0.65
            
            
            $
            0.92
            
            
            $
            0.98INCOME
      PER SHARE – DILUTED
            
            $
            0.63
            
            
            $
            0.89
            
            
            $
            0.95Basic
      weighted average number of common shares outstanding
            
            
            5,862
            
            
            
            5,785
            
            
            
            5,744Diluted
      weighted average number of common shares outstanding
            
            
            6,022
            
            
            
            6,001
            
            
            
            5,931See
      accompanying notes.





F-3
 Index





COMMUNITY
WEST BANCSHARES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY








AccumulatedOther
            
            
            TotalCommon
      Stock
            
            
            Retained
            
            
            Comprehensive
            
            
            Stockholders’Shares
            
            
            Amount
            
            
            Earnings
            
            
            Income (Loss)
            
            
            EquityBALANCES
      AT
            
            (in
      thousands)DECEMBER
      31, 2004
            
            
            5,730
            
            
            $
            30,020
            
            
            $
            7,621
            
            
            $
            (72
            )
            
            $
            37,569Exercise
      of stock options
            
            
            21
            
            
            
            119
            
            
            
            
            
            
            
            
            
            
            
            119Tax
      benefit from stock options
            
            
            
            
            
            
            40
            
            
            
            
            
            
            
            
            
            
            
            40Comprehensive
      income:Net
      income
            
            
            
            
            
            
            
            
            
            
            5,642
            
            
            
            
            
            
            
            5,642Change
      in unrealized loss on securities available-for-sale, net
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (54
            )
            
            
            (54
            )Comprehensive
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            5,588Cash
      dividends paid ($0.19 per share)
            
            
            
            
            
            
            
            
            
            
            (1,092
            )
            
            
            
            
            
            
            (1,092
            )Other
            
            
            
            
            
            
            11
            
            
            
            
            
            
            
            
            
            
            
            11BALANCES
      ATDECEMBER
      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
            )BALANCES
      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
            )
            
            $
            50,159





F-4
 Index





COMMUNITY
WEST BANCSHARES


CONSOLIDATED
STATEMENTS OF CASH FLOWS








Year Ended
December 31,2007
            
            
            2006
            
            
            2005(in
      thousands)CASH FLOWS FROM OPERATING
      ACTIVITIES:Net
      income
            
            $
            3,789
            
            
            $
            5,328
            
            
            $
            5,642Adjustments
      to reconcile net income to net cash provided by operating
      activities:Provision
      for loan losses
            
            
            1,297
            
            
            
            489
            
            
            
            566Write-down
      of other assets acquired through foreclosure
            
            
            54
            
            
            
            -
            
            
            
            -Depreciation
      and amortization
            
            
            516
            
            
            
            499
            
            
            
            746Deferred
      income taxes
            
            
            (576
            )
            
            
            (177
            )
            
            
            (220
            )Stock-based
      compensation
            
            
            283
            
            
            
            163
            
            
            
            -Net
      amortization of discounts and premiums for investment
      securities
            
            
            (19
            )
            
            
            (5
            )
            
            
            12Loss
      (gain) on:Sale
      of other assets acquired through foreclosure
            
            
            29
            
            
            
            19
            
            
            
            49Sale
      of loans held for sale
            
            
            (802
            )
            
            
            (1,499
            )
            
            
            (2,499
            )Loan
      originated for sale and principal collections, net
            
            
            673
            
            
            
            369
            
            
            
            306Changes
      in:Servicing
      rights, net of amortization
            
            
            762
            
            
            
            877
            
            
            
            413Other
      assets
            
            
            (1,444
            )
            
            
            (1,619
            )
            
            
            (35
            )Other
      liabilities
            
            
            (345
            )
            
            
            1,881
            
            
            
            (360
            )Net
      cash provided by operating activities
            
            
            4,217
            
            
            
            6,325
            
            
            
            4,620CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of held-to-maturity securities
            
            
            (17,782
            )
            
            
            (3,953
            )
            
            
            (4,545
            )Purchase
      of available-for-sale securities
            
            
            -
            
            
            
            (3,976
            )
            
            
            (2,113
            )Purchase
      of Federal Home Loan Bank stock
            
            
            (1,029
            )
            
            
            (1,319
            )
            
            
            (1,712
            )Federal
      Home Loan Bank stock dividend
            
            
            (240
            )
            
            
            (161
            )
            
            
            (73
            )Principal
      pay downs and maturities of available-for-sale securities
            
            
            9,634
            
            
            
            4,474
            
            
            
            1,763Principal
      pay downs and maturities of held-to-maturity securities
            
            
            2,714
            
            
            
            2,096
            
            
            
            1,939Loan
      originations and principal collections, net
            
            
            (88,863
            )
            
            
            (69,886
            )
            
            
            (89,647
            )Proceeds
      from sale of other assets acquired through foreclosure
            
            
            451
            
            
            
            104
            
            
            
            194Net
      (increase) decrease in time deposits in other financial
      institutions
            
            
            (242
            )
            
            
            (4
            )
            
            
            115Purchase
      of premises and equipment, net
            
            
            (998
            )
            
            
            (1,155
            )
            
            
            (926
            )Net
      cash used in investing activities
            
            
            (96,355
            )
            
            
            (73,780
            )
            
            
            (95,005
            )CASH FLOWS FROM FINANCING
      ACTIVITIES:Exercise
      of stock options
            
            
            499
            
            
            
            387
            
            
            
            119Cash
      dividends paid on common stock
            
            
            (1,407
            )
            
            
            (1,330
            )
            
            
            (1,092
            )Net
      (decrease) increase in demand deposits and savings
accounts
            
            
            25,631
            
            
            
            (23,633
            )
            
            
            (30,986
            )Net
      increase in time certificates of deposit
            
            
            39,361
            
            
            
            58,142
            
            
            
            80,656Repayments
      of securities sold under agreements to repurchase
            
            
            -
            
            
            
            -
            
            
            
            (13,672
            )Proceeds
      from Federal Home Loan Bank advances
            
            
            64,000
            
            
            
            41,500
            
            
            
            56,500Repayment
      of Federal Home Loan Bank advances
            
            
            (38,000
            )
            
            
            (10,000
            )
            
            
            (3,500
            )Repayments
      of bonds payable in connection with securitized loans
            
            
            -
            
            
            
            -
            
            
            
            (14,113
            )Net
      cash provided by financing activities
            
            
            90,084
            
            
            
            65,066
            
            
            
            73,912NET
      DECREASE IN CASH AND CASH EQUIVALENTS
            
            
            (2,054
            )
            
            
            (2,389
            )
            
            
            (16,473
            )CASH
      AND CASH EQUIVALENTS, BEGINNING OF YEAR
            
            
            11,343
            
            
            
            13,732
            
            
            
            30,205CASH
      AND CASH EQUIVALENTS, END OF YEAR
            
            $
            9,289
            
            
            $
            11,343
            
            
            $
            13,732See
      accompanying notes.





F-5
 Index





COMMUNITY
WEST BANCSHARES





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007





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 2005 and 2006 financial statements have been reclassified to be
comparable with classifications in 2007.





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, 2007 and 2006, 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.  At December
31, 2007 and 2006, CWB’s cash balance was sufficient to offset the FRB
requirement.





Investment
Securities – The Company currently holds securities 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.





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, 2007, 2006 and 2005.





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 collectibility 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.  All of the Company’s nonaccrual loans were also classified
as impaired at December 31, 2007 and 2006.





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





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





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





·
            SBA
      – All loans are reviewed and classified loans are assigned a specific
      allowance.  Those not classified are assigned a pass
      rating.  A migration analysis and various portfolio specific
      factors are used to calculate the required allowance on those pass
      loans.





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





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





·
            Securitized
      Loans – The Company considers this a homogeneous portfolio and calculates
      the allowance based on statistical information provided by the
      servicer.  Charge-off history is calculated based on two
      methodologies; a 12-month historical trend analysis and by delinquency
      information.  The highest requirement of the two methods is
      used.





The
Company calculates the required ALL on a monthly basis.  Any
difference 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 assets acquired through foreclosure on the
collateral property and is recorded at 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
foreclosure, 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.





F-7
 Index





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





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
Share – Basic income per share is computed based on the weighted average
number of shares outstanding during each year divided into net
income.  Diluted income per share is computed based on the weighted
average number of shares outstanding during each year plus the dilutive effect
of outstanding options divided into net income.





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 (“SFAS 123(R)”).  See Note 8 – Stock-Based Compensation for
additional information.





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 liquidity.





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 adoption did not have
a material impact on the Company’s financial condition, results of operations or
liquidity.





In July
2006, the FASB issued FIN 48, “Accounting For Uncertainty In Income Taxes—an
Interpretation of FASB Statement No. 109,” to create a single model to address
accounting for uncertainty in tax positions. FIN 48 clarifies that a tax
position must be more likely than not of being sustained before being recognized
in the financial statements. As required, the Company adopted the provisions of
FIN 48 as of January 1, 2007. The adoption of FIN 48 did not have a material
impact on the Company’s financial position, operating results or cash
flows.





F-8
 Index





2.
            INVESTMENT
      SECURITIES





The
amortized cost and estimated fair value of investment securities is as
follows:





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





December 31,
      2006
            
            (in
      thousands)Gross
            
            
            GrossAmortized
            
            
            Unrealized
            
            
            Unrealized
            
            
            FairAvailable-for-sale
      securities
            
            Cost
            
            
            Gains
            
            
            Losses
            
            
            ValueU.S.
      Government agency notes
            
            $
            13,320
            
            
            $
            -
            
            
            $
            (136
            )
            
            $
            13,184U.S.
      Government agency: MBS
            
            
            7,047
            
            
            
            10
            
            
            
            (53
            )
            
            
            7,004U.S.
      Government agency: CMO
            
            
            1,973
            
            
            
            -
            
            
            
            (64
            )
            
            
            1,909Total
            
            $
            22,340
            
            
            $
            10
            
            
            $
            (253
            )
            
            $
            22,097Held-to-maturity
      securitiesU.S.
      Government agency notes
            
            $
            200
            
            
            $
            -
            
            
            $
            (4
            )
            
            $
            196U.S.
      Government agency: MBS
            
            
            10,335
            
            
            
            19
            
            
            
            (113
            )
            
            
            10,241Total
            
            $
            10,535
            
            
            $
            19
            
            
            $
            (117
            )
            
            $
            10,437





At
December 31, 2007, $200,000 at carrying value of the above securities was
pledged as collateral to the United States Treasury for CWB’s treasury, tax and
loan account and $38,081,000 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, 2007 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
      notes
            
            $
            5,993
            
            
            
            4.7
            %
            
            $
            5,993
            
            
            
            4.7
            %
            
            $
            -
            
            
            
            -
            
            
            $
            -
            
            
            
            -Agency:
      MBS
            
            
            5,004
            
            
            
            4.3
            %
            
            
            
            
            
            
            
            
            
            
            5,004
            
            
            
            4.3
            %Agency:
      CMO
            
            
            1,667
            
            
            
            4.8
            %
            
            
            -
            
            
            
            -
            
            
            
            603
            
            
            
            4.5
            %
            
            
            1,064
            
            
            
            5.0
            %Total
            
            $
            12,664
            
            
            
            4.1
            %
            
            $
            5,993
            
            
            
            4.7
            %
            
            $
            5,607
            
            
            
            4.3
            %
            
            $
            1,064
            
            
            
            5.0
            %Held-to-maturity
      securitiesU.S.
      Government:Agency
      notes
            
            $
            200
            
            
            
            3.6
            %
            
            $
            200
            
            
            
            3.6
            %
            
            $
            -
            
            
            
            -
            
            
            $
            -
            
            
            
            -Agency:
      MBS
            
            
            25,417
            
            
            
            5.1
            %
            
            
            -
            
            
            
            -
            
            
            
            19,012
            
            
            
            4.9
            %
            
            
            6,405
            
            
            
            5.5
            %Total
            
            $
            25,617
            
            
            
            5.1
            %
            
            $
            200
            
            
            
            3.6
            %
            
            $
            19,012
            
            
            
            4.9
            %
            
            $
            6,405
            
            
            
            5.5
            %





F-9
 Index





The
following tables show all securities that are in an unrealized loss position and
temporarily impaired as of:





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 agency notes
            
            $
            -
            
            
            $
            -
            
            
            $
            3,993
            
            
            $
            7
            
            
            $
            3,993
            
            
            $
            7U.S.
      Government agency: MBS
            
            
            
            
            
            
            
            
            
            
            1,067
            
            
            
            4
            
            
            
            1,067
            
            
            
            4: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





December
      31, 2006
            
            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
            
            $
            -
            
            
            $
            -
            
            
            $
            13,184
            
            
            $
            136
            
            
            $
            13,184
            
            
            $
            136U.S.
      Government agency: MBS
            
            
            1,203
            
            
            
            15
            
            
            
            2,584
            
            
            
            38
            
            
            
            3,787
            
            
            
            53:CMO
            
            
            -
            
            
            
            -
            
            
            
            1,909
            
            
            
            64
            
            
            
            1,909
            
            
            
            64Total
            
            $
            1,203
            
            
            $
            15
            
            
            $
            17,677
            
            
            $
            238
            
            
            $
            18,880
            
            
            $
            253Held-to-maturity
      securitiesU.S.
      Government and agency
            
            $
            -
            
            
            $
            -
            
            
            $
            196
            
            
            $
            4
            
            
            $
            196
            
            
            $
            4U.S.
      Government agency: MBS
            
            
            2,602
            
            
            
            25
            
            
            
            5,357
            
            
            
            88
            
            
            
            7,959
            
            
            
            113Total
            
            $
            2,602
            
            
            $
            25
            
            
            $
            5,553
            
            
            $
            92
            
            
            $
            8,155
            
            
            $
            117





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, 2007, 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.  Accordingly, as of December 31, 2007 and 2006, 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, 2007 and December 31, 2006, the Company had approximately $108.9
million and $73.6 million, respectively, in SBA loans held for
sale.





The
following is a summary of activity in Servicing Rights:





Year Ended
December 31,2007
            
            
            2005
            
            
            2005(in
      thousands)Balance,
      beginning of year
            
            $
            1,968
            
            
            $
            2,845
            
            
            $
            3,258Additions
      through loan sales
            
            
            83
            
            
            
            158
            
            
            
            524Amortization
            
            
            (845
            )
            
            
            (1,035
            )
            
            
            (937
            )Balance,
      end of year
            
            $
            1,206
            
            
            $
            1,968
            
            
            $
            2,845





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, 2007
and December 31, 2006, the Company had $7.6 million and $4.7 million,
respectively, in outstanding mortgage loan 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 31,2007
            
            
            2006(in
      thousands)Commercial
            
            $
            72,470
            
            
            $
            53,725Real
      estate
            
            
            136,734
            
            
            
            135,902SBA
            
            
            34,021
            
            
            
            29,712Manufactured
      housing
            
            
            172,938
            
            
            
            142,804Securitized
            
            
            7,507
            
            
            
            9,950Other
      installment
            
            
            10,027
            
            
            
            8,301433,697
            
            
            
            380,394Less:Allowance
      for loan losses
            
            
            4,412
            
            
            
            3,926Deferred
      fees, net of costs
            
            
            25
            
            
            
            17Purchased
      premiums
            
            
            (73
            )
            
            
            (128
            )Discount
      on unguaranteed portion of SBA loans
            
            
            583
            
            
            
            802Loans
      held for investment, net
            
            $
            428,750
            
            
            $
            375,777





F-11
 Index





An
analysis of the allowance for credit losses on loans held for investment is as
follows:





Year Ended
December 31,2007
            
            
            2006
            
            
            2005(in
      thousands)Balance,
      beginning of year
            
            $
            3,926
            
            
            $
            3,954
            
            
            $
            3,894Loans
      charged off
            
            
            (917
            )
            
            
            (800
            )
            
            
            (1,068
            )Recoveries
      on loans previously charged off
            
            
            106
            
            
            
            283
            
            
            
            562Net
      charge-offs
            
            
            (811
            )
            
            
            (517
            )
            
            
            (506
            )Provision
      for loan losses
            
            
            1,297
            
            
            
            489
            
            
            
            566Balance,
      end of year
            
            $
            4,412
            
            
            $
            3,926
            
            
            $
            3,954





As of
December 31, 2007 and 2006, the Company also had reserves for credit losses on
undisbursed loans of $73,000 and 117,000, respectively.





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





Year Ended
December 31,2007
            
            
            2006
            
            
            2005(in
      thousands)Impaired
      loans without specific valuation allowances
            
            $
            33
            
            
            $
            63
            
            
            $
            77Impaired
      loans with specific valuation allowances
            
            
            16,468
            
            
            
            5,145
            
            
            
            3,406Specific
      valuation allowance related to impaired loans
            
            
            (966
            )
            
            
            (641
            )
            
            
            (473
            )Impaired
      loans, net
            
            $
            15,535
            
            
            $
            4,567
            
            
            $
            3,010Average
      investment in impaired loans
            
            $
            9,386
            
            
            $
            4,074
            
            
            $
            3,716





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





Year
      Ended December 31,2007
            
            
            2006
            
            
            2005(in
      thousands)Nonaccrual
      loans
            
            $
            15,341
            
            
            $
            7,417
            
            
            $
            6,797SBA
      guaranteed portion of loans included above
            
            
            (5,695
            )
            
            
            (4,256
            )
            
            
            (4,332
            )Nonaccrual
      loans, net
            
            $
            9,646
            
            
            $
            3,161
            
            
            $
            2,465Troubled
      debt restructured loans
            
            $
            7,255
            
            
            $
            68
            
            
            $
            75Loans
      30 through 90 days past due with interest accruing
            
            $
            18,898
            
            
            $
            2,463
            
            
            $
            1,792Interest
      income recognized on impaired loans
            
            $
            691
            
            
            $
            242
            
            
            $
            141Interest
      foregone on nonaccrual loans and troubled debt restructured loans
      outstanding
            
            $
            904
            
            
            
            488
            
            
            
            253Gross
      interest income on impaired loans
            
            $
            1,595
            
            
            $
            730
            
            
            $
            394





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 comprised over 10% of the Company’s loan portfolio as
of December 31, 2007 and 2006, but consisted of diverse borrowers.





F-12
 Index





5.
            PREMISES
      AND EQUIPMENT





December 31,2007
            
            
            2006(in
      thousands)Furniture,
      fixtures and equipment
            
            $
            7,989
            
            
            $
            7,864Building
      and land
            
            
            1,407
            
            
            
            993Leasehold
      improvements
            
            
            1,440
            
            
            
            1,424Construction
      in progress
            
            
            351
            
            
            
            5111,187
            
            
            
            10,332Less:
      accumulated depreciation and amortization
            
            
            (7,903
            )
            
            
            (7,530
            )Premises
      and equipment, net
            
            $
            3,284
            
            
            $
            2,802





The
Company leases office facilities under various operating lease agreements with
terms that expire at various dates between March 2008 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, 2007 under all operating lease
agreements are as follows:





(in
      thousands)2008
            
            $
            1,0952009
            
            
            9342010
            
            
            8932011
            
            
            7322012
            
            
            253Thereafter
            
            
            607Total
            
            $
            4,514





Rent
expense for the years ended December 31, 2007, 2006 and 2005, included in
occupancy expense was $1,118,000, $928,000 and $820,000,
respectively.





6.
            DEPOSITS





At
December 31, 2007, the maturities of time certificates of deposit are as
follows:





(in
      thousands)2008
            
            $
            237,9952009
            
            
            60,2862010
            
            
            8,4222011
            
            
            2,1312012
            
            
            1,744Total
            
            $
            310,578





7.
            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, 2007
include $17.5 million borrowed at variable rates which adjust to the current
LIBOR rate either monthly or quarterly.  At December 31, 2007, CWB had
pledged to FHLB, securities of $38.1 million at carrying value and loans of $150
million, and had $5.1 million available for additional borrowing.  At
December 31, 2006, CWB had $160.2 million of loans and $32.4 million of
securities pledged as collateral and outstanding advances of $95
million.





F-13
 Index





Information
related to advances from FHLB:





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
            
            
            
            
            
            
            $
            17,500





December 31, 2006Fixed
            
            
            VariableTotal
            
            
            Amount
            
            
            Interest Rates
            
            
            Amount
            
            
            Interest Rates(dollars
      in thousands)Due
      within one year
            
            $
            34,000
            
            
            $
            3,000
            
            
            
            3.28
            %
            
            $
            31,000
            
            
            
            5.30%-5.32
            %After
      one year but within three years
            
            
            53,000
            
            
            
            39,500
            
            
            
            4.02%-5.32
            %
            
            
            13,500
            
            
            
            5.30%-5.34
            %After
      three years but within five years
            
            
            8,000
            
            
            
            8,000
            
            
            
            4.28%-4.85
            %
            
            
            -
            
            
            
            -Total
            
            $
            95,000
            
            
            $
            50,500
            
            
            
            
            
            
            $
            44,500





Financial
information pertaining to advances from FHLB:





2007
            
            
            2006(dollars
      in thousands)Weighted
      average interest rate, end of the year
            
            
            4.80
            %
            
            
            4.98
            %Weighted
      average interest rate during the year
            
            
            4.92
            %
            
            
            4.80
            %Average
      balance of advances from FHLB
            
            $
            102,167
            
            
            $
            74,603Maximum
      amount outstanding at any month end
            
            $
            121,000
            
            
            $
            95,000





The total
interest expense on advances from FHLB was $5,026,000 for 2007 and $3,579,000
for 2006.





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, 2007 and 2006.





8.
            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.





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.





F-14
 Index





As a
result of applying the provisions of 123R for the years ended December 31,
2007and 2006, the Company recognized stock-based compensation expense of
$283,000 and $163,000, respectively.





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.





The
following pro forma information presents the net income and earnings per share
for the year ended December 31, 2005 as if the fair value method of 123R had
been used to measure compensation cost for stock-based compensation
plans.  For purposes of these pro forma disclosures, the estimated
fair value of stock options and non-vested stock awards is amortized to expense
over the related vesting periods.





Year
      Ended December 31, 2005(in thousands, except per share
      amounts)Income:As
      reported
            
            $
            5,642Pro
      forma
            
            
            5,537Income
      per share - basicAs
      reported
            
            
            .98Pro
      forma
            
            
            .96Income
      per share - dilutedAs
      reported
            
            
            .95Pro
      forma
            
            
            .93





The fair
value of each stock option grant under the Company’s stock option plan during
2007, 2006 and 2005 was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average
assumptions:





Year
      Ended December 31,2007
            
            
            2006
            
            
            2005Annual
      dividend yield
            
            
            1.9
            %
            
            
            1.6
            %
            
            
            1.6
            %Expected
      volatility
            
            
            31.7
            %
            
            
            31.7
            %
            
            
            33.8
            %Risk
      free interest rate
            
            
            4.2
            %
            
            
            4.7
            %
            
            
            4.2
            %Expected
      life (in years)
            
            
            6.7
            
            
            
            6.8
            
            
            
            6.8





9.
            STOCKHOLDERS’
      EQUITY




Common
Stock





Earnings per
share-Calculation of Weighted Average Shares Outstanding





Year Ended
December 31,2007
            
            
            2006
            
            2005(in
      thousands)Basic
      weighted average shares outstanding
            
            
            5,862
            
            
            
            5,785
            
            
            
            5,744Dilutive
      effect of stock options
            
            
            160
            
            
            
            216
            
            
            
            187Diluted
      weighted average shares outstanding
            
            
            6,022
            
            
            
            6,001
            
            
            
            5,931





Stock Option
Plans





The
Company has one stock option plan, the Community West Bancshares 2006 Stock
Option Plan.  As of December 31, 2007, 418,350 options were available
for future grant and 462,320 options were outstanding at prices ranging from
$4.00 to $15.75 per share with 326,350 options fully vested.  As of
December 31, 2006, options were outstanding at prices ranging from $3.63 to
$15.99 per share with 317,787 options vested and 833,851 options available for
future grant.  Of the options available for future grant at December
31, 2006, 349,351 were associated with Community West Bancshares 1997 Stock
Option Plan which expired on January 23, 2007. The average life of the
outstanding options was approximately 6.7 years as of December 31,
2007.





F-15
 Index





Stock
option activity is as follows:





Year Ended
December 31,2007 Option Shares
            
            
            2007 Weighted Average Exercise
      Price
            
            
            2006 Option Shares
            
            
            2006 Weighted Average Exercise
      Price
            
            
            2005 Option Shares
            
            
            2005 Weighted Average Exercise
      Price(in
      thousands, except per share data)Total
      options as of January 1,
            
            
            501
            
            
            $
            7.87
            
            
            
            547
            
            
            $
            7.28
            
            
            
            551
            
            
            $
            6.77Granted
            
            
            72
            
            
            
            12.18
            
            
            
            30
            
            
            
            15.58
            
            
            
            38
            
            
            
            13.30Canceled
            
            
            (31
            )
            
            
            10.74
            
            
            
            (13
            )
            
            
            9.41
            
            
            
            (21
            )
            
            
            6.64Exercised
            
            
            (80
            )
            
            
            6.24
            
            
            
            (63
            )
            
            
            6.11
            
            
            
            (21
            )
            
            
            5.55Total
      options at December 31,
            
            
            462
            
            
            
            8.63
            
            
            
            501
            
            
            $
            7.87
            
            
            
            547
            
            
            $
            7.28Total
      vested options as of December 31,
            
            
            326
            
            
            $
            7.61
            
            
            
            317
            
            
            $
            6.92
            
            
            
            317
            
            
            $
            6.61





Additional
information of stock option activity is presented in the following
table:





Year
      Ended December 31,2007
            
            
            2006
            
            
            2005(in
      thousands, except per share data)Intrinsic
      value of options exercised
            
            $
            651
            
            
            $
            559
            
            
            $
            153Cash
      received from the exercise of options
            
            
            499
            
            
            
            387
            
            
            
            119Weighted-average
      grant-date fair value of options
            
            
            4.06
            
            
            
            5.53
            
            
            
            4.60





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, 2007
            
            
            184
            
            
            $
            3.58Granted
            
            
            72
            
            
            
            4.06Vested
            
            
            (101
            )
            
            
            3.25Forfeited
            
            
            (19
            )
            
            
            3.80Total
      unvested stock options at December 31, 2007
            
            
            136
            
            
            $
            4.05





10.
            INCOME
      TAXES





The
provision for income taxes consists of the following:





Year Ended
December 31,2007
            
            
            2006
            
            
            2005(in
      thousands)Current:Federal
            
            $
            2,432
            
            
            $
            3,021
            
            
            $
            1,815State
            
            
            910
            
            
            
            978
            
            
            
            7783,342
            
            
            
            3,999
            
            
            
            2,593Deferred:Federal
            
            
            (395
            )
            
            
            (214
            )
            
            
            (308
            )State
            
            
            (181
            )
            
            
            37
            
            
            
            88(576
            )
            
            
            (177
            )
            
            
            (220
            )Total
      provision for income taxes
            
            $
            2,766
            
            
            $
            3,822
            
            
            $
            2,373





F-16
 Index





The
federal income tax provision differs from the applicable statutory rate as
follows:





Year Ended
December 31,2007
            
            
            2006
            
            
            2005Federal
      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
            
            
            1.1
            %
            
            
            0.6
            %
            
            
            (0.2
            )%Reserve
      change
            
            
            -
            
            
            
            -
            
            
            
            (11.4
            )%42.2
            %
            
            
            41.8
            %
            
            
            29.6
            %





Significant
components of the Company’s net deferred taxes as of December 31 are as
follows:





2007
            
            
            2006Deferred
      tax assets:
            
            (in
      thousands)Depreciation
            
            $
            325
            
            
            $
            363Other
            
            
            596
            
            
            
            660921
            
            
            
            1,023Deferred
      tax liabilities:Deferred
      loan fees
            
            
            (318
            )
            
            
            (635
            )Allowance
      for loan losses
            
            
            (195
            )
            
            
            (651
            )Deferred
      loan costs
            
            
            (30
            )
            
            
            (53
            )Other
            
            
            (407
            )
            
            
            (288
            )(950
            )
            
            
            (1,627
            )Net
      deferred taxes
            
            $
            (29
            )
            
            $
            (604
            )





The
effective income tax rate for 2005 is less than the effective income tax rate in
other periods presented due to a tax benefit of $914,000, or $.16 per share
(basic), related to the resolution of  tax issues.





11.
            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 31,2007
            
            
            2006
            
            
            2005(in
      thousands)Supplemental
      Disclosure of Cash Flow Information:Cash
      paid for interest
            
            $
            21,012
            
            
            $
            15,485
            
            
            $
            9,373Cash
      paid for income taxes
            
            
            3,855
            
            
            
            4,260
            
            
            
            3,512Supplemental
      Disclosure of Noncash Investing Activity:Transfers
      to other assets acquired through foreclosure
            
            
            102
            
            
            
            472
            
            
            
            263





12.
            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 $255,000, $169,000 and $147,000 in 2007, 2006 and
2005, respectively.





13.
            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.





F-17
 Index





The
following table represents the estimated fair values:





December 31,2007
            
            
            2006Carrying Amount
            
            
            Estimated Fair Value
            
            
            Carrying Amount
            
            
            Estimated Fair Value(in
      thousands)Assets:Cash
      and cash equivalents
            
            $
            9,289
            
            
            $
            9,289
            
            
            $
            11,343
            
            
            $
            11,343Time
      deposits in other financial institutions
            
            
            778
            
            
            
            778
            
            
            
            536
            
            
            
            536Federal
      Reserve and Federal Home Loan Bank stock
            
            
            6,546
            
            
            
            6,546
            
            
            
            5,277
            
            
            
            5,277Investment
      securities
            
            
            38,281
            
            
            
            38,397
            
            
            
            32,632
            
            
            
            32,534Net
      loans
            
            
            539,165
            
            
            
            543,069
            
            
            
            451,572
            
            
            
            451,265Servicing
      rights
            
            
            1,206
            
            
            
            1,206
            
            
            
            1,968
            
            
            
            1,968Liabilities:Deposits
      (other than time deposits)
            
            
            123,161
            
            
            
            123,161
            
            
            
            97,530
            
            
            
            97,530Time
      deposits
            
            
            310,578
            
            
            
            311,488
            
            
            
            271,217
            
            
            
            270,571Federal
      Home Loan Bank advances
            
            
            121,000
            
            
            
            122,596
            
            
            
            95,000
            
            
            
            94,748





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.





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 - The
fair value is based on quoted market prices from security brokers or
dealers.





Loans– For most loan
categories, the fair value is estimated using discounted cash flows utilizing a
discount rate approximating that which the Company is currently offering for
each type of loan and taking into consideration historical prepayment
speeds.  Certain adjustable loans that reprice on a frequent basis are
valued at book value.





Servicing rights – Fair value
is determined using discounted future cash flows calculated on a loan-by-loan
basis, using market discount and prepayment rates and aggregated to the total
asset level.





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, 2007 and 2006.  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-18
 Index





14.
            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, 2007 and 2006 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,
      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
            
            
            
            7.96December 31,
      2006CWBC
      (Consolidated)
            
            $
            50,692
            
            
            $
            46,766
            
            
            $
            442,571
            
            
            $
            507,718
            
            
            
            11.45
            %
            
            
            10.57
            %
            
            
            9.21
            %CWB
            
            
            46,842
            
            
            
            42,916
            
            
            
            442,624
            
            
            
            503,800
            
            
            
            10.58
            
            
            
            9.70
            
            
            
            8.52Well
      capitalized ratios
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            10.00
            
            
            
            6.00
            
            
            
            5.00Minimum
      capital ratios
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            8.00
            
            
            
            4.00
            
            
            
            4.00





As of
December 31, 2007 and 2006, 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.





15.
            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, 2007 and
2006, the Company had commitments to extend credit of approximately $50.7
million and $59.3 million, respectively, including obligations to extend standby
letters of credit of approximately $518,000 and $847,000,
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-19
 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 $86.4 million and $112.8
million at December 31, 2007 and 2006, 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 $792,000 and $771,000 at December
31, 2007 and 2006, 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
2007 and 2006, the Company paid $50,000 to the former officer/director under the
terms of this agreement.  The accrued executive salary continuation
liability was $402,000 and $427,000 at December 31, 2007 and 2006,
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  $201,000 and $196,000 at December 31, 2007 and 2006,
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-20
 Index





16.
            COMMUNITY
      WEST BANCSHARES FINANCIAL STATEMENTS (PARENT COMPANY
  ONLY)





December 31,Balance
      Sheets
            
            2007
            
            
            2006Assets
            
            (in
      thousands)Cash
      and equivalents
            
            $
            2,874
            
            
            $
            3,599Investment
      in subsidiary
            
            
            47,229
            
            
            
            43,112Other
      assets
            
            
            211
            
            
            
            384Total
      assets
            
            $
            50,314
            
            
            $
            47,095Liabilities
      and stockholders’ equityOther
      liabilities
            
            $
            127
            
            
            $
            132Common
      stock
            
            
            31,636
            
            
            
            30,794Retained
      earnings
            
            
            18,551
            
            
            
            16,169Total
      stockholders equity
            
            
            50,187
            
            
            
            46,963Total
      liabilities and stockholders' equity
            
            $
            50,314
            
            
            $
            47,095





Year Ended
December 31,Income
      Statements
            
            2007
            
            
            2006
            
            
            2005(in
      thousands)Total
      income
            
            $
            -
            
            
            $
            10
            
            
            $
            82Total
      expense
            
            
            532
            
            
            
            346
            
            
            
            220Equity
      in undistributed subsidiaries: Net income from
subsidiaries
            
            
            4,170
            
            
            
            5,581
            
            
            
            4,809Income
      before  income tax provision
            
            
            3,638
            
            
            
            5,245
            
            
            
            4,671Income
      tax (benefit)
            
            
            (151
            )
            
            
            (83
            )
            
            
            (971
            )Net
      income
            
            $
            3,789
            
            
            $
            5,328
            
            
            $
            5,642





Year Ended
December 31,Statements of Cash
      Flows
            
            2007
            
            
            2006
            
            
            2005(in
      thousands)Cash
      flows from operating activities:Net
      income
            
            $
            3,789
            
            
            $
            5,328
            
            
            $
            5,642Adjustments
      to reconcile net income to cash used in operating
    activities:Equity
      in undistributed (income) from subsidiaries
            
            
            (4,170
            )
            
            
            (5,581
            )
            
            
            (4,809
            )Stock-based
      compensation
            
            
            283
            
            
            
            163
            
            
            
            -Net
      change in other liabilities
            
            
            (5
            )
            
            
            123
            
            
            
            (818
            )Net
      change in other assets
            
            
            233
            
            
            
            (376
            )
            
            
            198Net
      cash provided by (used in) operating activities
            
            
            130
            
            
            
            (343
            )
            
            
            213Cash
      flows from investing activities:Net
      decrease in time deposits in other financial institutions
            
            
            -
            
            
            
            -
            
            
            
            99Net
      dividends from and investments in subsidiaries
            
            
            53
            
            
            
            1,330
            
            
            
            1,092Net
      cash provided by investing activities
            
            
            53
            
            
            
            1,330
            
            
            
            1,191Cash
      flows from financing activities:Proceeds
      from issuance of common stock
            
            
            499
            
            
            
            387
            
            
            
            170Cash
      dividend payments to shareholders
            
            
            (1,407
            )
            
            
            (1,330
            )
            
            
            (1,092
            )Net
      cash (used in) provided by financing activities
            
            
            (908
            )
            
            
            (943
            )
            
            
            (922
            )Net
      increase in cash and cash equivalents
            
            
            (725
            )
            
            
            44
            
            
            
            482Cash
      and cash equivalents at beginning of year
            
            
            3,599
            
            
            
            3,555
            
            
            
            3,073Cash
      and cash equivalents, at end of year
            
            $
            2,874
            
            
            $
            3,599
            
            
            $
            3,555





F-21
 Index





16.
            QUARTERLY
      FINANCIAL DATA (unaudited)





Income
statement results on a quarterly basis were as follows:




Year Ended December 31,
      2007Q4
            
            
            
            Q3
            
            
            
            Q2
            
            
            
            Q1
            
            
            Totals(in
      thousands, except 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





Year Ended December 31,
      2006Q4
            
            
            
            Q3
            
            
            
            Q2
            
            
            
            Q1
            
            
            Totals(in
      thousands, except per share data)Interest
      income
            
            $
            10,601
            
            
            $
            10,276
            
            
            $
            9,377
            
            
            $
            9,049
            
            
            $
            39,303Interest
      expense
            
            
            4,891
            
            
            
            4,489
            
            
            
            3,908
            
            
            
            3,516
            
            
            
            16,804Net
      interest income
            
            
            5,710
            
            
            
            5,787
            
            
            
            5,469
            
            
            
            5,533
            
            
            
            22,499Provision
      for loan losses
            
            
            152
            
            
            
            12
            
            
            
            144
            
            
            
            181
            
            
            
            489Net
      interest income after provision for loan losses
            
            
            5,558
            
            
            
            5,775
            
            
            
            5,325
            
            
            
            5,352
            
            
            
            22,010Non-interest
      income
            
            
            1,613
            
            
            
            1,453
            
            
            
            1,579
            
            
            
            1,327
            
            
            
            5,972Non-interest
      expenses
            
            
            4,941
            
            
            
            4,694
            
            
            
            4,687
            
            
            
            4,510
            
            
            
            18,832Income
      before income taxes
            
            
            2,230
            
            
            
            2,534
            
            
            
            2,217
            
            
            
            2,169
            
            
            
            9,150Provision
      (benefit) for income taxes
            
            
            941
            
            
            
            1,043
            
            
            
            928
            
            
            
            910
            
            
            
            3,822NET
      INCOME
            
            $
            1,289
            
            
            $
            1,491
            
            
            $
            1,289
            
            
            $
            1,259
            
            
            $
            5,328Earnings
      per share – basic
            
            $
            0.22
            
            
            $
            0.26
            
            
            $
            0.22
            
            
            $
            0.22
            
            
            $
            0.92Earnings
      per share – diluted
            
            
            0.21
            
            
            
            0.25
            
            
            
            0.21
            
            
            
            0.21
            
            
            
            0.89Cash
      dividends per common share
            
            $
            0.06
            
            
            $
            0.06
            
            
            $
            0.06
            
            
            $
            0.05
            
            
            $
            0.23Weighted
      average shares:Basic
            
            
            5,805
            
            
            
            5,787
            
            
            
            5,781
            
            
            
            5,767
            
            
            
            5,785Diluted
            
            
            6,018
            
            
            
            6,008
            
            
            
            6,000
            
            
            
            5,976
            
            
            
            6,001


F-22
 Index




ITEM
      9.
            CHANGES IN AND
      DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE





None





ITEM9A(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, 2007.  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, 2007, 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, 2007. 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, 2007.





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, 2007 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.





- 62
-
 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, 2007 and 2006
            F-2Consolidated
      Income Statements for each of the three years in the period ended December
      31, 2007
            F-3Consolidated
      Statements of Stockholders' Equity for each of the three years in the
      period ended December 31, 2007
            F-4Consolidated
      Statements of Cash Flows for each of the three years in the period ended
      December 31, 2007
            F-5Notes
      to Consolidated Financial Statements
            F-6





- 63
-
 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
            Bylaws(3)





4.1
            Common Stock Certificate(2)





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)





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.





- 64
-
 Index





(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





(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





- 65
-
 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 27, 2008
            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
      27, 2008William
      R. Peeples
            
            Chairman
      of the Board/s/ Charles G. Baltuskonis
            
            Executive
      Vice President and
            
            March
      27, 2008Charles
      G. Baltuskonis
            
            Chief
      Financial Officer/s/ Robert H. Bartlein
            
            Director
            
            March
      27, 2008Robert
      H. Bartlein/s/ Jean W. Blois
            
            Director
            
            March
      27, 2008Jean
      W. Blois/s/ John D. Illgen
            
            Director
      and Secretary
            
            March
      27, 2008John
      D. Illgen
            
            of
      the Board/s/ Lynda J. Nahra
            
            Director,
      President and
            
            March
      27, 2008Lynda
      J. Nahra
            
            Chief
      Executive Officer/s/ James R. Sims Jr.
            
            Director
            
            March
      27, 2008James
      R. Sims Jr./s/ Kirk B. Stovesand
            
            Director
            
            March
      27, 2008Kirk
      B. Stovesand/s/ C. Richard Whiston
            
            Director
            
            March
      27, 2008C
      Richard Whiston






- 66 -