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| CWBC > SEC Filings for CWBC > Form 10-Q on 14-Aug-2009 | All Recent SEC Filings |
14-Aug-2009
Quarterly Report
This discussion is designed to provide insight into management's assessment of significant trends related to the Company's consolidated financial condition, results of operations, liquidity, capital resources and interest rate sensitivity. It should be read in conjunction with the unaudited interim consolidated financial statements and notes thereto and the other financial information appearing elsewhere in this report.
Forward Looking Statements
This Report on Form 10-Q contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Those forward-looking statements include statements regarding the intent, belief or current expectations of the Company and its management. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those projected in the forward-looking statements. The Company does not undertake any obligation to revise or update publicly any forward-looking statements for any reason.
The following discussion should be read in conjunction with the Company's financial statements and the related notes provided under "Item 1-Financial Statements" above.
Overview of Earnings Performance
For the second quarter 2009, net income was $800,000 compared to net loss of $252,000 for the second quarter 2008.
The significant factors impacting net income for the second quarter 2009 were:
· The provision for loan losses declined to $743,000 for 2009 Q2 compared to $2.5 million for the same quarter in 2008. Primarily due to the provision recorded in Q1 2009, the allowance for loan losses increased $6.1 million from $7.3 million at December 31, 2008 to $13.4 million at June 30, 2009.
· The margin experienced a slight improvement to 3.78% for 2009 Q2 compared to 3.73% for 2008. Although yields on loans declined from 7.32% for 2008 Q2 to 6.18% for the same period in 2009, rates paid on deposits and borrowings have also declined from 4.08% to 2.77%. The net margin has shown a steady recovery throughout 2009.
· The strategic decision to discontinue SBA lending east of the Rocky Mountains contributed to a decline in salaries and employee benefits to $2.9 million for 2009 Q2 from $3.4 million for 2008, a reduction of $515,000.
· An increase of $504,000 in the FDIC assessment for 2009 Q2 compared to 2008 resulting from the combination of higher assessment rates and a special assessment of $306,000.
Critical Accounting Policies
A number of critical accounting policies are used in the preparation of the Company's consolidated financial statements. These policies relate to areas of the financial statements that involve estimates and judgments made by management. These include: the provision and allowance for loan losses and servicing rights. These critical accounting policies are discussed in the Company's 2008 10-K with a description of how the estimates are determined and an indication of the consequences of an over or under estimate.
Results of Operations - Second Quarter Comparison
The following table sets forth for the periods indicated, certain items in the
consolidated statements of income of the Company and the related changes between
those periods:
Three Months Ended
June 30, Increase
2009 2008 (Decrease)
(dollars in thousands, except per share amounts)
Interest income $ 10,200 $ 11,380 $ (1,180 )
Interest expense 3,966 5,577 (1,611 )
Net interest income 6,234 5,803 431
Provision for loan losses 743 2,531 (1,788 )
Net interest income after provision for loan losses 5,491 3,272 2,219
Non-interest income 1,255 1,640 (385 )
Non-interest expenses 5,383 5,313 70
Income (loss) before provision for income taxes 1,363 (401 ) 1,764
Provision (benefit) for income taxes 563 (149 ) 712
Net income (loss) $ 800 $ (252 ) $ 1,052
Preferred stock dividends 262 - 262
Net income (loss) available to common shareholders $ 538 $ (252 ) $ 790
Earnings (loss) per common share:
Basic $ .09 $ (.04 ) $ .13
Diluted $ .09 $ (.04 ) $ .13
Dividends per common share $ - $ .06 $ (.06 )
Comprehensive income (loss) $ 858 $ (264 ) $ 1,122
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The following table sets forth the changes in interest income and expense attributable to changes in rate and volume:
Three Months Ended
June 30,
2009 versus 2008
Total Change due to
change Rate Volume
(in thousands)
Loans, net $ (974 ) $ (1,466 ) $ 492
Investment securities (153 ) (137 ) (16 )
Other (53 ) (53 ) -
Total interest-earning assets (1,180 ) (1,656 ) 476
Deposits (1,389 ) (1,336 ) (53 )
Other borrowings (222 ) (351 ) 129
Total interest-bearing liabilities (1,611 ) (1,687 ) 76
Net interest income $ 431 $ 31 $ 400
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Net Interest Income
Net interest income increased by $431,000 for the second quarter 2009 compared
to 2008. Total interest income declined by $1.2 million. While average interest
earning assets grew to $662.2 million for the second quarter 2009 compared to
$625.3 million for the same period in 2008, an increase of $36.9 million, yields
declined to 6.18% from 7.32%. The decline in interest income due to rates of
$1.7 million was partly offset by the increase of $476,000 due to volume growth.
The decline in rates benefited the Bank in a reduction in interest expense of $1.6 million for the second quarter 2009 compared to 2008. The net impact of the decline in yields on interest earning assets and the decline in rates on interest-bearing liabilities was a slight increase in the margin from 3.73% for the second quarter of 2008 to 3.78% for the second quarter 2009.
Provision for Loan Losses
The provision for loan losses declined to $743,000 for the second quarter 2009
compared to $2.5 million for 2008. Primarily due to the provision recorded in
Q1 2009, the allowance for loan losses increased $6.1 million from $7.3 million
at December 31, 2008 to $13.4 million at June 30, 2009. See the following
discussion regarding the provision for loan losses for the first six months
2009.
Non-Interest Income
Non-interest income includes gains from sale of loans, loan document fees,
service charges on deposit accounts, loan servicing fees and other revenues not
derived from interest on earning assets. Total non-interest income decreased by
$385,000, or 23.5%, for the second quarter 2009 compared to the same period in
2008. Gain on loan sales declined by $278,000 as no SBA loans were sold in the
second quarter 2009 compared to $6.3 million in loans sales for the same period
in 2008. Other non-interest income declined $297,000. The second quarter 2008
benefitted from a gain on the sale of other foreclosed assets of $301,000. These
declines were partly offset by an increase in loan servicing income of $115,000
and other loan fees of $38,000.
Non-Interest Expenses
Non-interest expenses increased $70,000, or 1.3% for the second quarter 2009
compared to the same period in 2008. Reductions in salaries and employee
benefits of $515,000, resulting from the discontinuation of SBA lending east of
the Rockies, were offset by an increase in the FDIC assessment of $504,000.
Results of Operations -Six-Month Comparison
The following table sets forth for the periods indicated, certain items in the
consolidated statements of income of the Company and the related changes between
those periods:
Six Months Ended
June 30, Increase
2009 2008 (Decrease)
(dollars in thousands, except per share amounts)
Interest income $ 20,417 $ 23,391 $ (2,974 )
Interest expense 8,420 11,427 (3,007 )
Net interest income 11,997 11,964 33
Provision for loan losses 13,298 3,204 10,094
Net interest income (loss) after provision for
loan losses (1,301 ) 8,760 (10,061 )
Non-interest income 2,423 3,054 (631 )
Non-interest expenses 11,190 10,493 697
Income (loss) before provision for income taxes (10,068 ) 1,321 (11,389 )
Provision (benefit) for income taxes (4,139 ) 576 (4,715 )
Net income (loss) $ (5,929 ) $ 745 $ (6,674 )
Preferred stock dividends 523 - 523
Net income (loss) available to common shareholders $ (6,452 ) $ 745 $ (7,197 )
Earnings (loss) per common share:
Basic $ (1.09 ) $ .13 $ (1.22 )
Diluted $ (1.09 ) $ .12 $ (1.21 )
Dividends per common share $ - $ .12 $ (.12 )
Comprehensive income (loss) $ (5,768 ) $ 766 $ (6,534 )
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The following table sets forth the changes in interest income and expense attributable to changes in rate and volume:
Six Months Ended
June 30,
2009 versus 2008
Total Change due to
change Rate Volume
(in thousands)
Loans, net $ (2,582 ) $ (3,793 ) $ 1,211
Investment securities (269 ) (250 ) (19 )
Other (123 ) (126 ) 3
Total interest-earning assets (2,974 ) (4,169 ) 1,195
Deposits (2,526 ) (2,748 ) 222
Other borrowings (481 ) (620 ) 139
Total interest-bearing liabilities (3,007 ) (3,368 ) 361
Net interest income $ 33 $ (801 ) $ 834
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Net Interest Income
Net interest income increased by $33,000 for the first six months of 2009
compared to 2008. Total interest income declined $3.0 million, or 12.7%, for the
period ended June 30, 2009 compared to the same period in 2008. Of this decline,
$4.2 million was due to declines in interest rates which were partly offset by
an increase of $1.2 million due to growth in volume. The average balance for
interest earning assets was $659.2 million for the first six months of 2009
compared to $616.4 for the same period in 2008, an increase of $42.8 million,
while the yield declined from 7.63% to 6.25%.
Interest expense also declined, primarily due to a reduction in rates paid on deposits and borrowings. Rates paid on deposits and borrowings declined from 4.24% for the first six months of 2008 to 2.97% for 2009. These reductions in the rates paid on deposits and borrowings have contributed to a sequential improvement in the margin to 3.67% for the first six months of the year compared to 3.56% in the first quarter of 2009.
Provision for Loan Losses
The provision for loan losses increased $10.1 million to $13.3 million for the
first six months of 2009 compared to $3.2 million for the same period of
2008. The substantially higher comparable loan loss provision for 2009 reflected
the effect of increases in losses on specific credits as well as experienced
loss frequency and severity on the allowance calculation. During the first
quarter 2009, the Company experienced significant deterioration and downgrades
to specific loans in its portfolio, including net charge-offs of $6.5 million,
generally related to the current economic circumstances. A major component of
the allowance calculation relates to historical loan losses. The Company has
experienced elevated levels of loan losses over the past four quarters thereby
resulting in a significantly higher allowance requirement. The migration of the
losses through the loan portfolio has resulted in a calculated increase in the
allowance of $7.3 million at December 31, 2008 to $13.4 million at June 30,
2009. This increase is directly related to increased inherent losses in our loan
portfolio and the effect of historical loan loss experience on our estimate of
losses inherent in the portfolio as of the balance sheet date and does not
necessarily reflect expected future losses.
Non-Interest Income
Non-interest income declined for the first six months of 2009 to $2.4 million
from $3.1 million for 2008. Declines of $442,000 in gain on loans sales,
$241,000 in other loan fees and $296,000 in other income were partly offset by
increases of $271,000 in loan servicing and $67,000 in document
processing. There were no sales of SBA loans in the first six months of 2009
compared to $10.0 million in guaranteed loans sales and $1.7 million in
unguaranteed over the same period in 2008. Other loan fees declined due to a
reduction of referral fees on SBA 504 loans. In 2008, other income benefitted
from a net gain on the sale of other foreclosed assets of $301,000. Loan
servicing income increased in 2009 primarily due to a reduction of the
amortization of the I/O strip and servicing asset due to slower prepayment
speeds on serviced SBA loans.
Non-Interest Expenses
Non-interest expenses increased $697,000, from $10.5 million for the first six
months of 2008 to $11.2 million for 2009. The FDIC assessment increased $649,000
and other expenses increased $831,000 and included increases in the reserve on
undisbursed loans of $263,000, collection related costs of $241,000, and losses
on the sale of other foreclosed assets of $159,000. Partly offsetting these
increases was a reduction in salaries and employee benefits of $704,000,
primarily resulting in the discontinuation of SBA lending east of the Rockies.
Interest Rates and Differentials
The following table illustrates average yields on interest-earning assets and
average rates on interest-bearing liabilities for the periods indicated:
Three Months Six Months
Ended June 30, Ended June 30,
2009 2008 2009 2008
Interest-earning assets: (dollars in thousands)
Interest-earning deposits in other
financial institutions:
Average balance $ 1,091 $ 982 $ 1,104 $ 1,004
Interest income 6 10 14 19
Average yield 2.39 % 4.11 % 2.61 % 3.76 %
Federal funds sold:
Average balance $ 11,124 $ 11,152 $ 11,083 $ 10,117
Interest income 11 60 19 137
Average yield 0.35 % 2.16 % 0.34 % 2.72 %
Investment securities:
Average balance $ 44,255 $ 45,835 $ 44,346 $ 45,294
Interest income 437 590 886 1,155
Average yield 3.97 % 5.18 % 4.03 % 5.13 %
Gross loans:
Average balance $ 605,684 $ 567,310 $ 602,648 $ 559,955
Interest income 9,746 10,720 19,498 22,080
Average yield 6.45 % 7.60 % 6.52 % 7.93 %
Total interest-earning assets:
Average balance $ 662,154 $ 625,279 $ 659,181 $ 616,370
Interest income 10,200 11,380 20,417 23,391
Average yield 6.18 % 7.32 % 6.25 % 7.63 %
Three Months Six Months
Ended June 30, Ended June 30,
2009 2008 2009 2008
Interest-bearing liabilities: (dollars in thousands)
Interest-bearing demand deposits:
Average balance $ 96,695 $ 60,325 $ 81,976 $ 65,445
Interest expense 441 269 724 677
Average cost of funds 1.83 % 1.80 % 1.78 % 2.08 %
Savings deposits:
Average balance $ 19,513 $ 14,585 $ 17,385 $ 14,350
Interest expense 120 128 234 258
Average cost of funds 2.46 % 3.52 % 2.72 % 3.61 %
Time certificates of deposit:
Average balance $ 335,939 $ 366,258 $ 351,579 $ 349,299
Interest expense 2,380 3,932 5,340 7,889
Average cost of funds 2.84 % 4.32 % 3.06 % 4.54 %
Other borrowings:
Average balance $ 122,681 $ 108,000 $ 120,188 $ 112,291
Interest expense 1,025 1,248 2,122 2,603
Average cost of funds 3.35 % 4.64 % 3.56 % 4.66 %
Total interest-bearing liabilities:
Average balance $ 574,828 $ 549,168 $ 571,128 $ 541,385
Interest expense 3,966 5,577 8,420 11,427
Average cost of funds 2.77 % 4.08 % 2.97 % 4.24 %
Net interest income $ 6,234 $ 5,803 $ 11,997 $ 11,964
Net interest spread 3.41 % 3.24 % 3.27 % 3.39 %
Net interest margin 3.78 % 3.73 % 3.67 % 3.90 %
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In calculating interest rates and differentials:
· Average yields and rates are derived by dividing interest income by the average balances of interest-earning assets and by dividing interest expense by the average balances of interest-bearing liabilities for the periods indicated. Amounts outstanding are averages of daily balances during the applicable periods.
· Nonaccrual loans are included in the average balance of loans outstanding.
· Net interest income is the difference between the interest and fees earned on loans and investments and the interest expense paid on deposits and other liabilities. The amount by which interest income will exceed interest expense depends on the volume or balance of earning assets compared to the volume or balance of interest-bearing deposits and liabilities and the interest rate earned on those interest-earning assets compared to the interest rate paid on those interest-bearing liabilities.
· Net interest margin is net interest income expressed as a percentage of average earning assets. It is used to measure the difference between the average rate of interest earned on assets and the average rate of interest that must be paid on liabilities used to fund those assets. To maintain its net interest margin, the Company must manage the relationship between interest earned and paid.
Financial Condition
Average total assets increased by $40.2 million, or 6.4%, to $672.4 million at June 30, 2009 compared to $632.2 million at June 30, 2008. Average total equity increased by 23.8% to $63.5 million at June 30, 2009 from $51.3 million at June 30, 2008. Average total gross loans at June 30, 2009 increased by $42.7 million, or 7.6%, to $603 million from $560 million at June 30, 2008. Average deposits also increased from $463.5 million at June 30, 2008 to $486.5 million as of June 30, 2009.
The book value per common share declined to $7.78 at June 30, 2009 from $8.84 at December 31, 2008.
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