The following discussion is designed to provide insight into management's assessment of significant trends related to the consolidated financial condition, results of operations, liquidity, capital resources and interest rate risk for Community West Bancshares ("CWBC") and its wholly-owned subsidiary, Community West Bank ("CWB" or "Bank"). Unless otherwise stated, "Company" refers to CWBC and CWB as a consolidated entity. The following discussion should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto and the other financial information appearing elsewhere in this 2008 Annual Report on Form 10-K.

Forward-Looking Statements

This 2008 Annual Report on Form 10-K contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Those forward-looking statements include statements regarding the intent, belief or current expectations of the Company and its management. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those projected in the forward-looking statements.

Risk Factors

The Bank is subject to a number of risks that may adversely affect our financial condition or results of operation, many of which are outside of our direct control, though efforts are made to manage those risks while optimizing returns. Among the risks assumed are: (1) credit risk, which is the risk of loss due to loan and lease customers or other counterparties not being able to meet their financial obligations under agreed upon terms, (2) market risk, which is the risk of loss due to changes in the market value of assets and liabilities due to changes in the market interest rates, foreign exchange rates, equity prices, and credit spreads, (3) liquidity risk, which is the risk of loss due to the possibility that funds may not be available to satisfy current of future obligations based on external macro market issues, investor and customer perception of financial strength, and events unrelated to the Company such as war, terrorism, or financial institution market specific issues, and (4) operational risk, which is the risk of loss due to human error, inadequate or failed internal systems and controls, violation of, or noncompliance with, laws, rules, regulations, prescribed practices, or ethical standards, and external influences such as market conditions, fraudulent activities, disasters and security risks.

Throughout 2008, the Bank operated in what is now labeled by many industry observers as the most difficult environment for financial institutions in many decades. What began as a subprime lending crises in 2007, turned into a widespread housing, banking and capital market crisis in 2008. As a result, 2008 represented a year of tremendous capital markets turmoil as capital markets ceased to function and credit markets were largely closed to businesses and consumers. The unavailability of credit to many borrowers and lack of credit flow, even between banks, contributed to the weakening of the economy, especially in the second half of 2008, and the 2008 fourth quarter in particular.

Concurrent with and reflecting this environment, the weakeness that had been centered primarily in the housing and capital markets segments, spilled over into other segments of the economy. The most visible sector negatively impacted was manufacturing, and most notably, the automobile sector.

The United States government took several actions in 2008 and into 2009, such as the largest stimulus plan in United States' history, and considering even further actions, no assurances can be given regarding their effectiveness in strengthening the capital markets and improving the economy. Therefore, for the foreseeable future, the Company may be operating in a heightened risk environment. Of the major risk factors, those most likely to affect financial institutions are credit risk, market risk, and liquidity risk.

As related to credit risk, the Bank anticipates continued pressure on credit quality performance, including higher loan delinquencies, net charge-offs, and the level of nonaccrual loans. All loans portfolios are expected to be impacted. Until unemployment levels decline, and the economic outlook improves, we anticipate that we will continue to build our allowance for credit losses in both absolute and relative terms.

With regard to market risk, the continuation of the volatile capital markets is likely to be reflected in wide fluctuations in the value of certain assets, most notably mortgage asset-backed securities.

The actions taken by regulatory agencies and government bodies in late 2008 have been effective in reducing systemic liquidity risk. Specific actions included the FDIC raising the deposit insurance limit to $250,000 and providing full guarantees on noninterest bearing deposits at all FDIC-insured financial institutions. Among other actions, the most significant was the passage in October 2008 of the $700 billion Emergency Economic Stabilization Act; the cornerstone of which was the Troubled Asset Relief Program (TARP). The TARP's voluntary Capital Purchase Plan (CPP) made available $350 billion of funds to banks and other financial institutions. The Bank participated in TARP and received $15.6 million in capital investment.on December 19, 2008.

More information on risk is set forth under the heading "Risk Factors" included in Item 1A of our 2008 form 10-K for the year ended December 31, 2008.

Overview of Earnings Performance

Net income available to common shareholders of the Company was $1.4 million, or $0.24 per basic and diluted common share, for 2008 compared to $3.8 million, or $0.65 per basic common share, and $0.63 per diluted common share, for 2007. The Company's earnings performance was impacted in 2008 by:

† a 400 to 425 basis point cut in the target federal funds rate from 4.25% at December 31, 2007 to a range of 0% to 0.25% as of December 31, 2008, impacting both yields on loans and rates paid on deposits and contributing to a 66 basis point decline in net interest margin from 4.38% to 3.72%

† contributing to the decline in margin was a higher balance of non-accrual loans which reduced the net interest margin by 27 basis points in 2008 compared to 16 basis points for 2007

† a decline in interest income from loans of $1.1 million due to the decline in yields, which was partly offset by an increase to the average loan balance of $75.0 million for 2008 compared to 2007

† loan loss provision of $5.3 million for 2008 reflecting management's assessment of heightened credit risk for the Company related to the current macroeconomic conditions impacting California and national business, real estate and consumer markets as well as increased allowance related to quarterly migration analysis

† the results for the year benefited from a slight increase of 4.9% in non-interest income as well as a decline of 2.3% in non-interest expenses

The impact to the Company from these items, and others of both a positive and negative nature, will be discussed in more detail as they pertain to the Company's overall comparative performance for the year ended December 31, 2008 throughout the analysis sections of this Annual Report.

2008 Economic Environment

During 2008, market and economic conditions were severely impacted where credit conditions rapidly deteriorated and financial markets experienced widespread illiquidity and elevated levels of volatility. Concerns about future economic growth, unemployment, oil prices, lower consumer confidence, rapid contraction of credit availability and lower corporate earnings continue to challenge the economy. As a result of these economic conditions, federal government agencies, the Federal Reserve Board and the Treasury initiated several actions which have changed the landscape of the financial services' industry.

The deteriorating economy continues to negatively impact the credit quality of our loan portfolio. The stress businesses and consumers have experienced has resulted in higher level of bankruptcies, foreclosures and delinquencies and losses in our portfolio. The Company has increased its allowance for loan losses
- see "Provision for Loan Losses" below.

The Company did not have subprime lending exposure or exposure in its investment securities' portfolio as all issues are guaranteed directly or indirectly by a government agency or government sponsored entity.

The economic conditions noted above are widely considered likely to continue throughout most or all of 2009.

Regulatory Initiatives

On October 3, 2008, the President signed EESA into law. Pursuant to EESA, the Treasury has authority to, among other things, invest in financial institutions and purchase mortgages, mortgage-backed securities and certain other financial instruments from financial institutions, in an aggregate of up to $700 billion, for the purpose of stabilizing and providing liquidity to the U.S. financial markets.

On October 14, 2008, in connection with the TARP-CPP, established as part of EESA, the Treasury announced a plan to invest up to $250 billion in certain eligible financial institutions in the form of non-voting, senior preferred stock initially paying quarterly dividends at a 5% annual rate. When the Treasury makes such preferred investments in any company, it will also receive 10-year warrants to acquire common shares. We were identified as such a company and received $15.6 million in capital investment on December 19, 2008. See discussion under "- Capital Resources" below.

As part of the initiatives, the FDIC implemented the Temporary Liquidity Guarantee Program (TLGP) to strengthen confidence and encourage liquidity in the banking system. The TLGP is comprised of the Debt Guarantee Program (DGP) and the Transaction Account Guarantee Program ('TAGP"). The DGP will guarantee all newly issued senior unsecured debt (e.g. promissory notes, unsubordinated unsecured notes and commercial paper - of which the Company currently has none) up to prescribed limits issued by participating entities beginning on October 14, 2008 and continuing through June 30, 2009. For eligible debt issued by that date, the FDIC will provide the guarantee coverage until the earlier of the maturity date of the debt or June 30, 2012. The TAGP will offer full guarantee for noninterest-bearing deposit accounts held at FDIC-insured depository institutions. The unlimited coverage is voluntary for eligible institutions and would be in addition to the $250,000 FDIC deposit insurance per account that was included as part of EESA. The TAGP coverage became effective on October 14, 2008 and will continue for participating institutions until December 31, 2009.

Initially, these programs were provided at no cost until the opt-out extension period date of December 5, 2008. Participants in the DGP will be charged an annualized fee of 75 basis points. Any eligible entity that has chosen not to opt out of the TAGP will be quarterly assessed a 10 basis point fee on balances in noninterest-bearing transaction accounts that exceed the deposit insurance limit of $250,000.

On February 10, 2009, the FSP was announced by the Treasury. The FSP is a comprehensive set of measures intended to shore up the financial system. The core elements of FSP include making bank capital injections, creating a public-private investment fund to buy troubled assets, establishing guidelines for loan modification programs and expanding the Federal Reserve lending program. The Treasury has indicated more details regarding the FSP are to be announced on a newly created government website, www.FinancialStability.gov, in the next several weeks.

Critical Accounting Policies

The Company's accounting policies are more fully described in Note 1 of the Consolidated Financial Statements. As disclosed in Note 1, the preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. The Company believes that the following discussion addresses the Company's most critical accounting policies, which are those that are most important to the portrayal of the Company's financial condition and results of operations and require management's most difficult, subjective and complex judgments.

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

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

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

· SBA - A migration analysis and various portfolio specific factors are used to calculate the required allowance for all non-impaired loans. In addition, the migration results are adjusted based upon qualitative factors. Impaired loans are assigned a specific reserve based upon the individual characteristics of the loan.

· Relationship Banking - Primarily includes commercial, commercial real estate and construction loans. A migration analysis and various portfolio specific factors are used to calculate the required allowance for all non-impaired loans. In addition, the migration results are adjusted based upon qualitative factors. Impaired loans are assigned a specific reserve based upon the individual characteristics of the loan.

· Manufactured Housing - The allowance is calculated on the basis of loss history and risk rating, which is primarily a function of delinquency. In addition, the loss history is adjusted based upon qualitative factors.

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

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

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

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

Changes in Interest Income and Interest Expense

The Company primarily earns income from the management of its financial assets and liabilities and from charging fees for services it provides. The Company's income from managing assets consists of the difference between the interest income received from its loan portfolio and investments and the interest expense paid on its funding sources, primarily interest paid on deposits. This difference or spread is net interest income. The amount by which interest income will exceed interest expense depends on the volume or balance of interest-earning assets compared to the volume or balance of interest-bearing deposits and liabilities and the interest rate earned on those interest-earning assets compared to the interest rate paid on those interest-bearing liabilities.

Net interest income, when expressed as a percentage of average total interest-earning assets, is referred to as net interest margin on interest-earning assets. The Company's net interest income is affected by the change in the level and the mix of interest-earning assets and interest-bearing liabilities, referred to as volume changes. The Company's net yield on interest-earning assets is also affected by changes in the yields earned on assets and rates paid on liabilities, referred to as rate changes. Interest rates charged on the Company's loans are affected principally by the demand for such loans, the supply of money available for lending purposes, competitive factors and general economic conditions such as federal economic policies, legislative tax policies and governmental budgetary matters. To maintain its net interest margin, the Company must manage the relationship between interest earned and paid.

The following table sets forth, for the period indicated, the increase or decrease in dollars and percentages of certain items in the consolidated income statements as compared to the prior periods:

                                                               Year Ended December 31,
                                                   2008 vs. 2007                      2007 vs. 2006
                                            Amount of        Percent of        Amount of        Percent of
                                             Increase         Increase          Increase         Increase
                                            (decrease)       (decrease)        (decrease)       (decrease)
INTEREST INCOME                                                 (dollars in thousands)
Loans                                      $     (1,099 )           (2.5 )%   $      6,994             18.8 %
Investment securities                               227             11.6 %             376             23.9 %
Other                                              (437 )          (61.6 )%            168             31.1 %
Total interest income                            (1,309 )           (2.8 )%          7,538             19.2 %
INTEREST EXPENSE
Deposits                                           (583 )           (3.3 )%          4,583             34.7 %
Bonds payable and other borrowings                  (28 )           (0.6 )%          1,447             40.4 %
Total interest expense                             (611 )           (2.7 )%          6,030             35.9 %
NET INTEREST INCOME                                (698 )           (2.9 )%          1,508              6.7 %
Provision for loan losses                         3,967            305.9 %             808            165.2 %
NET INTEREST INCOME AFTER PROVISION  FOR
LOAN LOSSES                                      (4,665 )          (20.5 )%            700              3.2 %
NON-INTEREST INCOME
Other loan fees                                    (634 )          (23.2 )%            (92 )           (3.3 )%
Gains from loan sales, net                          216             26.9 %            (697 )          (46.5 )%
Document processing fees, net                       (32 )           (4.3 )%            (66 )           (8.1 )%
Loan servicing fees, net                            484                -              (255 )          (98.5 )%
Service charges                                      (8 )           (1.8 )%             78             21.4 %
Other                                               210            192.7 %             (95 )          (46.6 )%
Total non-interest income                           236              4.9 %          (1,127 )          (18.9 )%
NON-INTEREST EXPENSES
Salaries and employee benefits                     (622 )           (4.4 )%          1,001              7.7 %
Occupancy and equipment expenses                    252             12.1 %             234             12.6 %
Professional services                              (108 )          (12.1 )%            (57 )           (6.0 )%
Advertising and marketing                          (330 )          (43.9 )%            149             24.8 %
Depreciation                                          2              0.4 %              17              3.4 %
Other                                               322             11.8 %             824             43.1 %
Total non-interest expenses                        (484 )           (2.3 )%          2,168             11.5 %
Income before provision for income taxes         (3,945 )                           (2,595 )
Provision for income taxes                       (1,637 )                           (1,056 )
NET INCOME                                 $     (2,308 )                     $     (1,539 )
Preferred stock dividends                            35                                  -
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS                               $     (2,343 )                     $     (1,539 )

Comparison of 2008 to 2007

Net interest income declined by $698,000, or 2.9%, for 2008 compared to 2007.

Total interest income declined by $1.3 million, or 2.8%, from $46.8 million in 2007 to $45.5 million in 2008. Of this decline, $7.1 million was due to changes in rates and is reflective of the 400 to 425 basis point reduction in the targeted Fed funds rate between December 2007 and December 2008. Also contributing to the decline in yield on interest earning assets was the increase in non-accrual loans which reduced yields by 27 basis points in 2008 compared to 16 basis points in 2007. The $7.1 million decline was offset by $5.8 million increase in interest income due to the growth of interest earning assets. Average loan balances increased by $75.0 million for 2008 compared to 2007.

Total interest expense decreased by $611,000, or 2.7%, in 2008 compared to 2007. Interest expense on deposits declined $583,000 while the interest expense on other borrowings declined $28,000. Of these declines, $3.9 million was due to lower rates paid on deposits and borrowings. These rate declines were partially offset by $3.3 million increase in interest expense due to growth in interest bearing liabilities.

Declines in interest income for the commercial, real estate commercial and construction and SBA portfolios of $1.2 million, $1.0 million and $559,000, respectively, were partially offset by an increase of $1.8 million for the manufactured housing portfolio.

While the decline in interest income was partly offset by the decline in interest expense, margins continued to suffer compression. Yields on interest earning assets declined from 8.55% for 2007 to 7.27% for 2008. This decline was partly offset by a reduction in the rates paid on interest bearing liabilities from 4.81% for 2007 to 4.05% for 2008. The rapid decline in interest rates due to the actions of the Federal Reserve impacted rates on interest earning assets more quickly than the rates paid on interest bearing liabilities. Generally, rates paid on deposits and borrowings have declined, but at a slower pace than the rates earned on loans. The net effect was a 66 basis point decline in the margin from 4.38% to 3.72%. As deposit and borrowing rates continue to decline, this margin compression may ease in coming periods.

Comparison of 2007 to 2006

Net interest income increased by $1.5 million, or 6.7%, for 2007 compared to 2006. Total interest income increased by $7.5 million, or 19.2%, from $39.3 million in 2006 to $46.8 million in 2007. Of this increase, $7.4 million was due to interest-earning asset growth, primarily loans, and $134,000 resulted from rate increases. Total interest expense increased by $6.0 million, or 35.9%, in 2007 compared to 2006. Interest expense on deposits increased $4.6 million while the interest expense on other borrowings increased $1.4 million. Of the increase in interest expense on deposits, $2.8 million was due to deposit growth, including broker deposits, and $1.8 million resulted from higher rates. The increase in interest expense is primarily due to increased competition for core deposits which resulted in higher deposit rates and increased use of wholesale funding sources to fund loan growth.

The increase in interest income resulted almost entirely from growth in interest earning assets, primarily loans, with yields remaining flat at 8.55% from 2006 to 2007. Average gross loans grew $81.0 million from $413.0 million for 2006 to $494 million for 2007. Margins continued to be compressed as deposit and borrowing rates increased from 4.31% to 4.81%. The upward pressure on interest rates paid on deposits began to ease as the FOMC reduced the target level for the federal funds rate in September 2007. Responding to concerns about a weakening economic outlook, the rate was reduced from 5.25% to 4.25% by December 31, 2007.

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

                                                    Year Ended December 31,
                                  2008 versus 2007                          2007 versus 2006
. . .