Community West Bancshares: Form 10-Q for the period ended Mar 31, 2025

General

We are a central California-based bank holding company for a bank subsidiary, Community West Bank (the “Bank”). We offer 26 full-service banking centers covering greater Sacramento in the north, throughout the San Joaquin Valley and west to the Central Coast. We provide traditional commercial banking services to small and medium-sized businesses and individuals in the communities that we serve.

Dividend Declared

On April 16, 2025, the Board of Directors declared a $0.12 per share cash dividend payable on May 16, 2025 to shareholders of record as of May 2, 2025.

Critical Accounting Policies and Estimates

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. We believe that the Company’s most critical accounting policies are those which the Company’s financial condition depends upon, and which involve the most complex or subjective decisions or assessments.

Business Combinations

We account for business combinations under the acquisition method of accounting in accordance with ASC 805. We recognize the fair value of the assets acquired and liabilities assumed as of the date of acquisition, with any excess of the fair value of consideration provided over the fair value of the identifiable net tangible and intangible assets acquired recorded as goodwill. Transaction costs are expensed as incurred. Application of the acquisition method requires extensive use of accounting estimates and judgments to determine the fair values of the identifiable assets acquired and liabilities assumed at the acquisition date.

In accordance with ASC 805, the acquiring company retains the right to make appropriate adjustments to the assets and liabilities of the acquired entity for information obtained during the measurement period about facts and circumstances that existed as of the acquisition date. The measurement period ends as of the earlier of (i) one year from the acquisition date or (ii) the date when the acquirer receives the information necessary to complete the business combination accounting.

Goodwill and intangible assets acquired in a business combination and that are determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exist that indicate the necessity for such impairment tests to be performed. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Core deposit intangible assets arising from business combinations are amortized on an accelerated basis reflecting the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up. The estimated life of the core deposit intangible is approximately 10 years.

Allowance for Credit Losses

The Current Expected Credit Loss (“CECL”) approach requires an estimate of the credit losses expected over the life of a financial asset carried at amortized cost. It removes the incurred loss approach’s threshold that delayed the recognition of a credit loss until it was “probable” a loss event was “incurred.”

The estimate of expected credit losses under the CECL approach is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is generally the starting point for estimating expected credit losses. We then consider whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period from which historical experience was used. Finally, we consider forecasts about future economic conditions that are reasonable and supportable.

Management’s evaluation of the appropriateness of the allowance for credit losses is often the most critical of accounting estimates for a financial institution. Our determination of the amount of the allowance for credit losses is a critical accounting estimate as it requires significant reliance on the use of estimates and significant judgment as to the amount and timing of expected future cash flows on criticized loans, significant reliance on historical loss rates, consideration of our quantitative and qualitative evaluation of economic factors, and the reliance on our reasonable and supportable forecasts.

The allowance for credit losses attributable to each portfolio segment also includes an amount for inherent risks not reflected in the historical analyses. Relevant factors include, but are not limited to, concentrations of credit risk (geographic, large borrower, and industry), economic trends and conditions, changes in underwriting standards, experience and depth of lending staff, trends in delinquencies, and the level of criticized loans.

The impact of utilizing the CECL approach to calculate the reserve for credit losses will be significantly influenced by the composition, characteristics and quality of our loan portfolios, as well as the prevailing economic conditions and forecasts utilized. Material changes to these and other relevant factors may result in greater volatility to the reserve for credit losses, and therefore, greater volatility to our reported earnings. See Note 4 to the Consolidated Financial Statements and the “Allowance for Credit Losses on Loans” section below.

Please refer to the Company’s 2024 Annual Report on Form 10-K for a complete listing of critical accounting policies.

Financial Highlights

The significant highlights for the Company as of or for the period ended March 31, 2025 included the following:

• The Company reported net income during the first quarter of $8.3 million, or earnings per diluted common share of $0.44, compared to $6.9 million and $0.36, respectively, in the fourth quarter of 2025.
• The amortized cost of available-for-sale investment securities decreased $10.8 million or 2.02% at March 31, 2025 compared to December 31, 2024.
• Total gross loans of $2.35 billion at March 31, 2025 increased by $12.7 million compared to $2.33 billion at December 31, 2024.
• Total assets increased by $31.3 million or 0.89% at March 31, 2025 compared to December 31, 2024.
• Total deposits of $2.9 billion at March 31, 2025 increased by 0.61% or $17.9 million compared to December 31, 2024.
• Total cost of deposits increased to 1.45% for the quarter ended March 31, 2025 compared to 1.49% for the quarter ended December 31, 2024.
• Average non-interest bearing demand deposit accounts as a percentage of total average deposits was 34.30% and 36.02% for the quarters ended March 31, 2025 and December 31, 2024, respectively.
• Net interest margin increased to 4.04% for the quarter ended March 31, 2025, from 3.95% for the quarter ended December 31, 2024.
• There were $6.9 million non-performing assets for the quarter ended March 31, 2025. Net loan recoveries were $124,000 for the quarter ended March 31, 2025 and loans delinquent 30 days or more were $8.5 million as of March 31, 2025.
• Capital positions remain strong at March 31, 2025 with a 9.36% Tier 1 Leverage Ratio; a 11.39% Common Equity Tier 1 Ratio; a 11.57% Tier 1 Risk-Based Capital Ratio; and a 13.82% Total Risk-Based Capital Ratio.
• The Company declared a $0.12 per common share cash dividend, payable on May 16, 2025 to shareholders of record as of May 2, 2025.

Overview

The following is management’s discussion and analysis of the Company’s financial condition, operating results, asset and liability management, liquidity and capital resources and should be read in conjunction with the Condensed Consolidated Financial Statements of the Company and the Notes thereto located at Item 1 of this report.

RESULTS OF OPERATIONS

(In thousands, except share and per-share amounts)

During the three months ended March 31, 2025, the Company reported net income of $8,293,000. Basic and diluted earnings per share for the three months ended March 31, 2025 were $0.44 and $0.44, respectively. Basic and diluted earnings per share for the three months ended March 31, 2024 were $0.31 and $0.31, respectively.

Statement Regarding use of Non-GAAP Financial Measures

Community West Bancshares’s financial results are presented in accordance with GAAP and refer to certain non-GAAP financial measures. Management believes that presentation of operating results using non-GAAP financial measures provides useful supplemental information to investors and facilitates the analysis of the Company’s core operating results and comparison of operating results across reporting periods. Management also uses non-GAAP financial measures to establish budgets and manage the Company’s business. A reconciliation of the GAAP financial measures to comparable non-GAAP financial measures is presented below.

Reconciliation of GAAP and Non-GAAP Financial Measures

(In thousands, except share and per-share amounts)

40

Net Interest Income and Net Interest Margin

The level of net interest income depends on several factors in combination, including yields on earning assets, the cost of interest-bearing liabilities, the relative volumes of earning assets and interest-bearing liabilities, and the mix of products which comprise the Company’s earning assets, deposits, and other interest-bearing liabilities. To maintain its net interest margin, the Company must manage the relationship between interest earned and paid.

The following Distribution, Rate and Yield table presents the average amounts outstanding for the major categories of the Company’s balance sheet, the average interest rates earned or paid thereon, and the resulting net interest margin on average interest earning assets for the periods indicated. Average balances are based on daily averages.

SCHEDULE OF AVERAGE BALANCES AND AVERAGE YIELDS AND RATES

(Dollars in thousands)

(1) Calculated on a fully tax equivalent basis, which includes Federal tax benefits relating to income earned on municipal bonds totaling $348 and $371 at March 31, 2025 and March 31, 2024, respectively.

(2) Loan interest income includes loan (costs) fees of $99 and $139 at March 31, 2025 and March 31, 2024, respectively.

(3) Average loans do not include non-accrual loans but do include interest income recovered from previously charged off loans.

(4) Net interest margin is computed by dividing net interest income by total average interest-earning assets.

The Volume and Rate Variances table below sets forth the dollar difference in interest earned and paid for each major category of interest-bearing assets and interest-bearing liabilities for the noted periods, and the amount of such change attributable to changes in average balances (volume) or changes in average interest rates. Volume variances are equal to the increase or decrease in the average balance times the prior period rate, and rate variances are equal to the increase or decrease in the average rate times the prior period average balance. Variances attributable to both rate and volume changes are equal to the change in rate times the change in average balance and are included below in the average volume column.

(In thousands)

(1) Computed on a tax equivalent basis for securities exempt from federal income taxes.

Comparison of the quarter ended March 31, 2025 and March 31, 2024

As discussed in Note 2, the Company completed its merger of Community West Bancshares as of April 1, 2024. As a result of the merger, the Company acquired loans with a fair value of $920,097,000 and assumed deposit liabilities totaling $844,035,000. As such, the volume of interest income and expense for the three months ended March 31, 2025 significantly increased as compared to the three months ended March 31, 2024 as described below.

The Company’s net interest margin (fully tax equivalent basis), expressed as a percentage of average earning assets, increased 62 basis points to 4.04% for the first quarter of 2025, from 3.42% for the first quarter of 2024. Average interest earning assets were $3,263,483,000 for the three months ended March 31, 2025 compared to $2,285,536,000 for the three months ended March 31, 2024. The $977,947,000 increase in average earning assets was attributed to the $1,044,764,000 or 81.43% increase in average loans and $59,017,000 increase in interest-earning deposits, partially offset by the $125,834,000 decrease in investment securities. For the three months ended March 31, 2025, the effective yield on investment securities including Federal funds sold and interest-earning deposits in other banks decreased five basis points. The effective yield on loans increased 95 basis points. Average interest bearing liabilities increased 69.73% to $2,115,718,000 for the three months ended March 31, 2025, compared to $1,246,515,000 for the same period in 2024.

Interest and fee income from loans increased $20,126,000 or 109.98% for the three months ended March 31, 2025 compared to the same period in 2024. The yield on average loans, excluding nonaccrual loans, was 6.69% for the three months ended

March 31, 2025 compared to 5.74% for the same period in 2024. The accretion from fair value marks on loans contributed 58 basis points to the loan yield for the three months ended March 31, 2025 compared to one basis point for the same period in 2024.

Interest income from interest-earning deposits in other banks increased $624,000 in the three months ended March 31, 2025 to $1,056,000 compared to $432,000 for the same period in 2024. The yield on average interest-earning deposits decreased fifty-two basis points to 4.53% for the three month period ended March 31, 2025 compared to 5.05% for the same period in 2024. Average interest-earning deposits for the three month period ended March 31, 2025 increased $59,017,000 or 172.56% to $93,217,000 compared to $34,200,000 for the same period in 2024.

Interest income from total investment securities decreased $1,263,000 in the three months ended March 31, 2025 to $6,005,000 compared to $7,268,000 for the same period in 2024. The yield on average total investment securities decreased fifteen basis points to 2.85% for the three month period ended March 31, 2025 compared to 3.00% for the same period in 2024. Average total investment securities for the three month period ended March 31, 2025 decreased $125,834,000 or 13.00% to $842,434,000 compared to $968,268,000 for the same period in 2024.

Total interest income for the three months ended March 31, 2025 increased $19,511,000 or 76.13% to $45,138,000 compared to $25,627,000 for the three months ended March 31, 2024. The yield on interest earning assets increased 107 basis points to 5.65% on a fully tax equivalent basis for the three months ended March 31, 2025 from 4.58% for the period ended March 31, 2024. The increase was the result of increased volume from the prior year merger, yield changes due to the increase in interest rates, and asset mix changes.

Interest expense on deposits for the three months ended March 31, 2025 and 2024 was $10,388,000 and $5,018,000, respectively. The average interest rate on interest bearing deposits increased to 2.21% for the three months ended March 31, 2025 compared to 1.80% for the same period ended March 31, 2024. Average interest-bearing deposits increased 69.87% or $785,460,000 to $1,909,556,000 for the three months ended March 31, 2025 compared to $1,124,096,000 for the same period ended March 31, 2024.

Average other borrowed funds were $206,162,000 with an effective rate of 4.98% for the three months ended March 31, 2025 compared to $122,419,000 with an effective rate of 5.02% for the three months ended March 31, 2024. Total interest expense on other borrowed funds was $2,568,000 for the three months ended March 31, 2025 and $1,536,000 for the three months ended March 31, 2024.

The cost of interest-bearing liabilities increased 37 basis points to 2.48% for the three month period ended March 31, 2025 compared to 2.11% for the same period in 2024. The cost of total deposits increased to 1.45% compared to 0.98% for the three month periods ended March 31, 2025 and 2024, respectively. The increase in the total cost of deposits was primarily due to the increases in the rates paid on deposit accounts, which included a large portion of brokered deposits. Average non-interest bearing demand deposits increased 7.08% to $996,921,000 for the three month period ended March 31, 2025 compared to $931,045,000 for the same period in 2024. The ratio of average non-interest bearing demand deposits to average total deposits decreased to 34.30% in the three month period ended March 31, 2025 compared to 45.30% for the same period in 2024.

Net interest income before the provision for credit losses for the three months ended March 31, 2025 increased by $13,109,000 or 68.73% to $32,182,000 compared to $19,073,000 for the same period in 2024. The increase was a result of the acquisition of Community West Bancshares as of April 1, 2024, which increased interest income on average earnings assets, partially offset by an increase in interest expense on average interest bearing liabilities.

Provision for Credit Losses on Loans

The following table sets forth information regarding our provisions for credit losses on loans, charge-offs and recoveries and ending allowance for credit losses for loans at the dates and for the periods indicated:

(Dollars in thousands)

Managing high-risk credits includes developing a business strategy with the customer to mitigate our potential losses. Management continues to monitor these credits with a view to identifying as early as possible when, and to what extent, additional provisions may be necessary. Management believes that the level of allowance for credit losses has been adjusted accordingly.

During the three month period ended March 31, 2025, the Company recorded a $168,000 provision for credit losses on loans, respectively. During the three months ended March 31, 2024, the Company recorded a $530,000 provision for credit losses on loans.

The Company had net recoveries of $124,000 for the three months ended March 31, 2025. The Company had net charge-offs totaling $525,000 for the three months ended March 31, 2024.

The Company has been and will continue to be proactive in looking for signs of deterioration within the loan portfolio in an effort to manage credit quality and work with borrowers where possible to mitigate losses. As of March 31, 2025, there were $47,605,000 in classified loans of which $9,257,000 related to commercial and industrial loans, zero to agricultural production, $100,000 to construction and other land loans, $3,469,000 to owner occupied real estate, $17,708,000 to non-owner occupied real estate, $10,115,000 to farmland, $2,867,000 to 1-4 family closed-end, $40,000 to 1-4 family revolving, $3,837,000 to manufactured housing, and $212,000 to consumer. This compares to $44,294,000 in classified loans of which $9,380,000 related to commercial and industrial loans, zero to agricultural production, $3,295,000 to owner occupied real estate, $15,846,000 to non-owner occupied real estate, $10,303,000 to farmland, $2,886,000 to 1-4 closed-end, $116,000 to 1-4 family revolving, $2,278,000 to manufactured housing, and $190,000 to consumer as of December 31, 2024.

Non-Interest Income

Non-interest income is comprised of customer service charges, loan placement fees, net gains/losses on sales and calls of investment securities, appreciation in cash surrender value of bank-owned life insurance, FHLB dividends, and other income. Non-interest income was $2,611,000 for the three months ended March 31, 2025 compared to $1,636,000 for the same period in 2024. The $975,000 or 59.60% increase in non-interest income during the three months ended March 31, 2025 was primarily driven by no realized losses on sales of investment securities at March 31, 2025, an increase of $118,000 for service charges, and an increase of $111,000 for interchange fees.

The Bank currently holds $10,978,000 in stock from the Federal Home Loan Bank (“FHLB”) of San Francisco in conjunction with our borrowing capacity and generally earns quarterly dividends. We received dividends totaling $241,000 for the three months ended March 31, 2025, compared to $157,000 for the three months ended March 31, 2024.

The following table shows significant components of non-interest income for the periods indicated:

(Dollars in thousands)

Non-Interest Expenses

Salaries and employee benefits, occupancy and equipment, information technology, data processing, professional services, acquisition and integration expenses, and regulatory assessments are the major categories of non-interest expenses.

Non-interest expenses increased $8,137,000 or 53.07% to $23,470,000 for the three months ended March 31, 2025, compared to $15,333,000 for the three months ended March 31, 2024. The net increase for the three month period was primarily the result of increases in salaries and employee benefits of $4,321,000, acquisition and merger expenses of $276,000, occupancy and equipment of $1,284,000, other expenses of $686,000, information technology of $754,000, regulatory assessments of $169,000, and professional services of $157,000.

Salaries and employee benefits increased $4,321,000 or 50.02% to $12,959,000 for the first three months of 2025 compared to $8,638,000 for the three months ended March 31, 2024. The increase in salaries and benefits was a reflection of an increase in full-time equivalent employees as a result of the merger. Full time equivalent employees were 342 for the three months ended March 31, 2025, compared to 253 for the three months ended March 31, 2024.

The following table shows significant components of non-interest expense for the periods indicated:

(Dollars in thousands)

45

Provision for Income Taxes

Our effective income tax rate was 27.02% and 23.43% for the three month period ended March 31, 2025 and 2024.

The Company reported an income tax provision of $3,071,000 and $1,125,000 for the three month period ended March 31, 2025 and 2024.

The effective tax rate was not as impacted by Low Income Housing Tax Credits (“LIHTC”) or additional tax exempt items during the three month period ended March 31, 2025 as compared to the prior year period due to the increased earnings of the Company from the merger. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of tax expense in the consolidated statements of income. If deemed necessary, the Company maintains a reserve for uncertain income taxes where the merits of the position taken or the amount of the position that would be ultimately sustained upon examination do not meet a more-likely-than-not criteria. As of March 31, 2025 and December 31, 2024, there was no reserve for uncertain tax positions.

FINANCIAL CONDITION

Summary of Changes in Consolidated Balance Sheets

Total assets were $3,553,086,000 as of March 31, 2025, compared to $3,521,771,000 at December 31, 2024, an increase of 0.89% or $31,315,000. Total gross loans were $2,346,897,000 at March 31, 2025, compared to $2,334,221,000 at December 31, 2024, an increase of $12,676,000 or 2.17%. Total cash and cash equivalents increased 23.25% or $27,994,000 to $148,392,000 at March 31, 2025 compared to $120,398,000 at December 31, 2024. The investment portfolio decreased 1.04% or $8,181,000 to $776,877,000 at March 31, 2025 compared to $785,058,000 at December 31, 2024. Total deposits increased 0.61% or $17,901,000 to $2,928,678,000 at March 31, 2025, compared to $2,910,777,000 at December 31, 2024. Shareholders’ equity increased $9,512,000 or 2.62% to $372,197,000 at March 31, 2025, compared to $362,685,000 at December 31, 2024. The increase in shareholders’ equity was driven by the retention of earnings, issuance of common stock, the change in unrealized loss, partially offset by dividends paid. Accrued interest payable and other liabilities was $47,909,000 at March 31, 2025, compared to $44,978,000 at December 31, 2024, an increase of 6.52%.

Investments

Our investment portfolio consists primarily of private label mortgage, U.S. Government sponsored entities and agencies collateralized by residential mortgage backed obligations, asset backed securities (PLMABS), corporate debt securities, and obligations of states and political subdivision securities and are classified at the date of acquisition as available for sale or held to maturity. As of March 31, 2025, investment securities with a fair value of $428,830,000, or 55.20% of our investment securities portfolio, were held as collateral for public funds, short and long-term borrowings, treasury, tax, and for other purposes.

Our loan-to-deposit ratio at March 31, 2025 was 80.14%, compared to 80.19% at December 31, 2024. The total investment portfolio decreased $8,181,000 to $776,877,000 at March 31, 2025 compared to $785,058,000 at December 31, 2024. The fair value of the available-for-sale investment portfolio reflected a net unrealized loss of $56,466,000 at March 31, 2025, compared to net unrealized losses of $59,221,000 at December 31, 2024 and $69,991,000 at March 31, 2024.

See Note 3 of the Notes to Consolidated Financial Statements (unaudited) included in this report for carrying values and estimated fair values of our investment securities portfolio.

Loans

Total gross loans increased $12,676,000 or 0.54% to $2,346,897,000 as of March 31, 2025, compared to $2,334,221,000 as of December 31, 2024.

The following table sets forth information concerning the composition of our loan portfolio at the dates indicated:

As of March 31, 2025, in management’s judgment, a concentration of loans existed in loans commercial real estate, including construction and other land loans, representing approximately 56.3% of total loans. This level of concentration of commercial real estate is consistent with the 55.8% of total loans at December 31, 2024. We believe that our commercial real estate loan underwriting policies and practices result in prudent extensions of credit, but recognize that our lending activities result in relatively high reported commercial real estate lending levels. Although we believe the loans within this real estate concentration have no more than the normal risk of collectability, a substantial decline in the performance of the economy in general or a decline in real estate values in our primary market areas, in particular, could have an adverse impact on collectability, increase the level of real estate-related nonperforming loans, or have other adverse effects which alone or in the aggregate could have a material adverse effect on our business, financial condition, results of operations and cash flows.

In order to mitigate these risks, the Board reviews and approves concentration limits proposed by management. Exceptions to limitations of concentrations are reported to the Board of Directors at least quarterly. Additionally, the Company maintains policy guidelines for maximum loan to value ratios to mitigate the risk of general declines in real estate values. The Company performs regular risk assessments, portfolio monitoring of loans, and stress tests as part of its risk management policies to identify any negative trends within the portfolio. Within the commercial real estate portfolio, there is diversification of collateral type and geography throughout our footprint. The Company did not engage in any sub-prime mortgage lending activities during the three months ended March 31, 2025 and 2024.

The following table presents the commercial real estate owner and non-owner occupied loan balances, associated percentage of commercial real estate concentrations of those sub-categories by collateral type as of the dates indicated.

(Dollars in thousands)

Nonperforming Assets

Nonperforming assets consist of nonperforming loans, other real estate owned (OREO), and repossessed assets. Nonperforming loans are those loans which have (i) been placed on nonaccrual status; (ii) been classified as doubtful under our asset classification system; or (iii) become contractually past due 90 days or more with respect to principal or interest and have not been restructured or otherwise placed on nonaccrual status. A loan is classified as nonaccrual when (i) it is maintained on a cash basis because of deterioration in the financial condition of the borrower; (ii) payment in full of principal or interest under the original contractual terms is not expected; or (iii) principal or interest has been in default for a period of 90 days or more unless the loan is both well secured and in the process of collection.

At March 31, 2025 there were $6,936,000 nonperforming assets, compared to $6,461,000 at December 31, 2024.

Allowance for Credit Losses on Loans

For additional information regarding provisions to credit losses on loans, see “Provision for credit losses on loans” above. Based on the current conditions of the loan portfolio, management believes that the $26,095,000 is adequate to absorb current expected credit losses in the Company’s loan portfolio. The following table summarizes the allocation for the allowance for credit losses by loan type as of the dates indicated (in thousands):

As of March 31, 2025, the balance in the allowance for credit losses (ACL) on loans was $26,095,000, or 1.11% of total gross loans, compared to $25,803,000, or 1.11% of total gross loans, as of December 31, 2024. The balance of unfunded commitments to extend credit on construction and other loans and letters of credit was $423,265,000 as of March 31, 2025, compared to $413,973,000 as of December 31, 2024. At March 31, 2025 and December 31, 2024, the balance of the reserve for unfunded commitments was $1,028,000 and $1,055,000, respectively. The reserve for unfunded commitments is calculated by management using appropriate, systematic, and consistently applied processes. While related to credit losses, this allocation is not a part of the ACL on loans and is considered separately as a liability for accounting and regulatory reporting purposes.

The following table illustrates and sets forth additional analysis which portrays the trends that are occurring in the loan portfolio.

(Dollars in thousands)

Deposits

The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to applicable legal limits. All of a depositor’s accounts at an insured depository institution, including all non-interest bearing transactions accounts, are insured by the FDIC up to standard maximum deposit insurance amount of $250,000 for each deposit insurance ownership category.

Total deposits increased $17,901,000 or 0.61% to $2,928,678,000 as of March 31, 2025, compared to $2,910,777,000 as of December 31, 2024. Interest-bearing deposits decreased $13,563,000 or 0.70% to $1,916,390,000 as of March 31, 2025, compared to $1,929,953,000 as of December 31, 2024. Non-interest bearing deposits increased $31,464,000 or 3.21% to $1,012,288,000 as of March 31, 2025, compared to $980,824,000 as of December 31, 2024. Average non-interest bearing deposits to average total deposits was 34.30% for the three months ended March 31, 2025 compared to 45.30% for the same period in 2024.

The composition of the deposits and year-to-date average interest rates paid at March 31, 2025 and December 31, 2024 is summarized in the table below.

(Dollars in thousands)

As of March 31, 2025 there was $1,069,860,000 in uninsured deposits or 36.53% of total deposits, compared to $1,029,929,000 and 35.38% as of December 31, 2024.

Other Borrowings

As of March 31, 2025, the Company had $90,000,000 Federal Home Loan Bank (“FHLB”) of San Francisco long-term advances outstanding and $45,000,000 short-term advances outstanding. We maintain a line of credit with the FHLB collateralized by government securities and loans. Refer to the Liquidity section below for further discussion of FHLB advances.

Capital

Capital serves as a source of funds and helps protect depositors and shareholders against potential losses. Historically, the primary source of capital for the Company has been through retained earnings.

The Company has historically maintained substantial levels of capital. The assessment of capital adequacy is dependent on several factors including asset quality, earnings trends, liquidity and economic conditions. Maintenance of adequate capital levels is integral to providing stability to the Company. The Company needs to maintain substantial levels of regulatory capital to give it maximum flexibility in the changing regulatory environment and to respond to changes in the market and economic conditions.

Our shareholders’ equity was $372,197,000 at March 31, 2025, compared to $362,685,000 at December 31, 2024. The increase from December 31, 2024 in shareholders’ equity is the result of an increase in retained earnings from net income of $8,293,000, stock issued under the employee purchase plan of $123,000, the effect of share-based compensation expense of $291,000, and a decrease in accumulated other comprehensive loss of $2,355,000, partially offset by common stock cash dividends of $2,278,000.

During the first three months of 2025, the Company declared $2,278,000 in cash dividends ($0.12 per common share) to holders of common stock. The Company declared and paid $1,419,000 in cash dividends ($0.12 per common share) to holders of common stock during the three months ended March 31, 2024. The difference in the aggregate amount paid is attributable to additional shares issued in connection with the acquisition of Community West Bancshares.

The following table presents the Company’s regulatory capital ratios as of March 31, 2025 and December 31, 2024.

(Dollars in thousands)

The following table presents the Bank’s regulatory capital ratios as of March 31, 2025 and December 31, 2024.

(Dollars in thousands)

Liquidity

Liquidity management involves our ability to meet cash flow requirements arising from fluctuations in deposit levels and demands of daily operations, which include funding of securities purchases, providing for customers’ credit needs and ongoing repayment of borrowings. Our liquidity is actively managed on a daily basis and reviewed periodically by our management and Board of Director’s Asset/Liability Committees. This process is intended to ensure the maintenance of sufficient funds to meet our needs, including adequate cash flow for off-balance sheet commitments.

Our primary sources of liquidity are derived from financing activities which include the acceptance of customer and, to a lesser extent, broker deposits, Federal funds facilities with correspondent banks, and advances from the Federal Home Loan Bank of San Francisco. These funding sources are augmented by payments of principal and interest on loans, the routine maturities and pay downs of securities from the securities portfolio, the stability of our core deposits and the ability to sell investment securities. As of March 31, 2025, the Company had unpledged securities totaling $348,047,000 available as a secondary source of liquidity and total cash and cash equivalents of $148,392,000. Cash and cash equivalents at March 31, 2025 increased 23.25% compared to $120,398,000 at December 31, 2024. Primary uses of funds include withdrawal of and interest payments on deposits, originations and purchases of loans, purchases of investment securities, and payment of operating expenses.

As a means of augmenting our liquidity, we have established federal funds lines with our correspondent banks. At March 31, 2025, our available borrowing capacity includes approximately $110,000,000 in unsecured credit lines with our correspondent banks, $589,261,000 in unused FHLB secured advances, and a $3,632,000 secured credit line at the Federal Reserve Bank. We believe our liquidity sources to be stable and adequate. At March 31, 2025, we were not aware of any information that was reasonably likely to have a material effect on our liquidity position.

The following table reflects the Company’s credit lines, balances outstanding, and pledged collateral at March 31, 2025 and December 31, 2024:

The liquidity of the parent company, Community West Bancshares, is primarily dependent on the payment of cash dividends by its subsidiary, Community West Bank, subject to limitations imposed by California statutes and the regulations.

Market risk is defined as the risk of loss arising from an adverse change in the market value (or prices) of financial instruments. A significant component of market risk is interest rate risk, which is inherent in our lending, investment, borrowing and deposit gathering activities. The Bank manages interest rate sensitivity to minimize the exposure of our net interest margin, earnings, and capital to changes in interest rates. Interest rate changes can create fluctuations in the net interest margin due to an imbalance in the timing of repricing or maturity of assets or liabilities. Interest rate changes can also affect the market value of our financial instruments, such as available-for-sale securities and the related unrealized gains or losses, which affects our equity value.

To mitigate interest rate risk, the structure of our assets and liabilities is managed with the objective of correlating the effects of interest rate changes on loans and investments with those of deposits and borrowings. The asset and liability management policy sets limits on the acceptable amount of change to net interest income and economic value of equity in different interest rate environments.

ALCO and the Bank’s Board of Directors review our exposure to interest rate risk at least quarterly. We use simulation models to measure interest rate risk and to evaluate strategies to improve profitability in the context of policy guidelines. A simplified statement of condition is prepared on a quarterly basis as a starting point, using instrument level data of our actual loans, investments, borrowings and deposits as inputs. If potential changes to net equity value and net interest income resulting from hypothetical interest rate changes are not within the limits established by the Bank’s Board of Directors, management may adjust the asset and liability mix to bring the risk position within approved limits or take other actions. Governing policies are subject to review by regulators and are updated to incorporate their observations and to adapt to changes in idiosyncratic and systemic risks. At March 31, 2025, interest rate risk was within policy guidelines established by ALCO and the Bank’s Board of Directors. One set of interest rates modeled and evaluated against flat interest rates and a static balance sheet is a series of immediate parallel shifts in the yield curve. Our most recent analysis of our interest rate sensitivity is provided in the following table as an example rather than an expectation of likely interest rate movements.

Interest rate sensitivity is a function of the repricing characteristics of our assets and liabilities. The Bank runs a combination of scenarios and sensitivities in its attempt to capture the range of interest rate risk including the simulations mentioned above. As with any simulation model or other method of measuring interest rate risk, limitations are inherent in the process and dependent on assumptions. For example, lower deposit growth than modeled may cause the Bank to increase its borrowing position, thereby increasing its liability sensitivity. Additionally, assets and liabilities may react differently to changes in market interest rates in terms of both timing and responsiveness to market rate movements. Important deposit modeling assumptions include the speed of deposit run-off and the amount by which interest-bearing deposit rates increase or decrease when market interest rates change, otherwise known as the deposit beta. The above tables reflect a range of deposit betas to rates paid on non-maturity interest-bearing deposits that differ in rising and falling rate scenarios, depending on product type and magnitude of the rate shock. The actual rates and timing of prepayments on loans and investment securities could vary significantly from the assumptions applied in the various scenarios. Lastly, uneven changes in different tenors of U.S. Treasury rates that result in changes to the shape of the yield curve could produce different results from those presented in the table. Accordingly, the results presented should not be relied upon as indicative of actual results in the event of changing market interest rates.

As of the end of the period covered by this report, management, including the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures with respect to the information generated for use in this Quarterly Report. The evaluation was based in part upon reports provided by a number of executives. Based upon, and as of the date of the evaluation of the disclosure controls and procedures, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to provide reasonable assurances that information required to be disclosed in the reports the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that information required to be disclosed by the Company in the reports that it files or submits is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

There was no change in the Company’s internal controls over financial reporting during the quarter ended March 31, 2025 that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

In designing and evaluating disclosure controls and procedures, the Company’s management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurances of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

There have been no material changes from risk factors as previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024.