Community West Bancshares :CWBC-US: Earnings Analysis: 2016 By the Numbers : January 31, 2017

Community West Bancshares reports financial results for the year ended December 31, 2016.

We analyze the earnings along side the following peers of Community West Bancshares – Heritage Commerce Corp, SVB Financial Group, Sierra Bancorp, East West Bancorp, Inc., Pacific Premier Bancorp, Inc. and Cathay General Bancorp (HTBK-US, SIVB-US, BSRR-US, EWBC-US, PPBI-US and CATY-US) that have also reported for this period.

Highlights

  • Net interest income margins widened from 91.96% to 92.81% compared to the same period last year.
  • Net loan assets changed 19.04% compared to same period last year and 19.04% from previous period, total deposits changed 12.47% compared to same period last year and 12.47% from previous period.
  • Earnings decline because of narrowing of operating margins, despite positive contribution from one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2016 2015 2014 2013 2012
Relevant Numbers (Annual)
Revenues 31.34 30.13 30.4 26.23 28.54
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings 5.23 2.87 7.05 8.99 3.17
Earnings Growth (YOY) 82.2 -59.27 -21.59 183.2 130.26
Net Margin 16.68 9.53 23.18 34.26 11.12
EPS 0.62 0.3 0.75 0.98 0.31
Return on Equity 8.22 3.96 9.32 13.18 4.1
Return on Assets 0.78 0.49 1.28 1.67 0.54

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Earnings Growth Analysis

The company’s earnings growth was influenced by the year-on-year improvement in net interest income margins from 91.96% to 92.81%. However, the company’s loan loss provisions have prevented it from fully capitalizing on these net interest income margin improvements. CWBC-US‘s net interest income after provisions margin showed no improvement. Loan loss provisions as a percentage of net interest income were -0.17% this period, and -8.21% a year ago.

Net Interest Income Margin Versus Loan Loss Provisions Margin

Quadrant label definitions. Hover to know more

High Risk; High Reward Loans, Risky Loan Portfolio, Conservative Loan Portfolio, Safer Loan Portfolio
Net Interest Income Margin History
Loan Loss Provisions Margin History

Net Loans and Total Deposits

A financial institution’s core operations represented by Net Interest Income and Net Interest Income after Provisions are dependent on both the growth and quality of its deposits as well as the growth and quality of its loans. A firm could boost its interest income in the short-term by just increasing its loan assets with less concern about their quality – but this would eventually lead to greater loan loss provisions. Similarly a drive to increase deposits could result in higher interest expenses and eventually effect the firm’s equity. It is thus important to understand net interest income performance in context to loan loss provisions, loan assets and deposits.

Loan Assets Growth Rate History (HY YOY)
Total Deposits Growth Rate History (HY YOY)

The firm’s improvement in net interest income margins was influenced by both the relative increase in the levels of net loan assets and the level of total deposits as a percentage of equity. On an absolute basis, net loan assets changed 19.04% compared to the same period last year and 19.04% from the previous period. Total deposits changed 12.47% compared to the same period last year and 12.47% from the previous period.

Margins

The drop in operating margins was a main factor in the company’s earnings decline. Operating margins slid from 40.17% to 28.21%. The earnings decline appears to be impacted by one-time items, whose presence contributed to pretax margins equal to last year’s at around 28.21%.

EBIT Margin History
PreTax Margin History
EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables

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Company Profile

Community West Bancshares is a bank holding company, which provides full service banking through its wholly-owned subsidiary Community West Bank. Through the bank, it provides variety of financial products and services to customers including lending and deposit products. The company was founded on November 26, 1996 and is headquartered in Goleta, CA.

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