COMMUNITY WEST BANCSHARES /
Community  West  Bancshares ("CWBC") was incorporated in the State of California on  November  26,  1996,  for the purpose of forming a bank holding company.  On December  31,  1997,  CWBC  acquired  a  100%  interest  in Community West Bank, National Association ("CWB" or "Bank") (formerly known as Goleta National Bank). Effective  that  date,  shareholders  of  CWB  became  shareholders of CWBC in a one-for-one  exchange.  The  acquisition  was  accounted at historical cost in a manner  similar to pooling-of-interests.  CWBC and CWB are referred to herein as "Company".  Community  West  Bancshares  is a bank holding company.  During the fiscal year, CWB  was  the  sole  bank  subsidiary  of  CWBC.  CWBC  provides  management and shareholder  services  to  CWB.  CWB offers a range of commercial and retail financial services to professionals, small to mid-sized businesses and individual households.  These services include various  loan  options  as  well  as  deposit  products.  CWB  also offers other financial  services.  Relationship  Banking - Relationship banking is conducted at the community level through  four  full-service  branch  offices on the Central Coast of California. In  addition  to  the  existing  Goleta  and  Ventura branches, new full-service branches were opened in Santa Maria in May 2005 and in downtown Santa Barbara in October  2005.  The primary customers are small to mid-sized businesses in these communities and their owners and managers.  CWB's goal is to provide the highest quality  service and the most diverse products to meet the varying needs of this highly  sought  customer  base.  CWB  offers  a  range of commercial and retail financial services, including the acceptance  of  demand,  savings  and  time  deposits,  and  the  origination of commercial,  real  estate,  construction, home improvement and other installment and  term  loans.  Its customers are also provided with the choice of a range of cash  management  services, remittance banking, merchant credit card processing, courier  service  and  online banking.  In addition to the traditional financial services  offered,  CWB  offers  internet  banking,  automated  clearinghouse origination,  electronic  data interchange and check imaging.   CWB continues to investigate  products and services that it believes address the growing needs of its  customers and to analyze new markets for potential expansion opportunities.  One  of  CWB's  key  strengths  and  a  fundamental  difference that the Company believes  enables  it  to  stand  apart  from  the  competition  is the depth of experience  of  personnel in commercial lending and business development.  These individuals develop business, structure and underwrite the credit and manage the customer  relationship.  This  provides  a  competitive  advantage  as  CWB's competitors  for  the  most  part,  have  a  centralized  lending function where developing  business, underwriting credit and managing the relationship is split between  multiple  individuals.  Small Business Administration Lending - CWB has been an approved lender/servicer of  loans  guaranteed  by  the Small Business Administration ("SBA") since 1990. The  Company  originates  SBA loans which are frequently sold into the secondary market.  The Company continues to service these loans after sale and is required under  the  SBA  programs to retain specified amounts.  The two primary SBA loan programs  that  CWB  offers  are  the basic 7(a) Loan Guaranty and the Certified Development  Company ("CDC"), a Section 504 ("504") program.  The 7(a) serves as the  SBA's  primary  business  loan  program  to help qualified small businesses obtain  financing  when  they  might  not be eligible for business loans through normal  lending channels.  Loan proceeds under this program can be used for most business  purposes including working capital, machinery and equipment, furniture and  fixtures,  land  and  building  (including  purchase,  renovation  and  new construction),  leasehold  improvements  and debt refinancing.  Loan maturity is generally  up  to  10  years  for  working  capital and up to 25 years for fixed assets.  The  7(a) loan is approved and funded by a qualified lender, guaranteed by  the SBA and subject to applicable regulations.  The SBA typically guarantees 75%,  and  up  to  85%,  of  the  loan  amount,  depending  on  the  loan  size. Periodically,  the  Company  may  sell  some  of the guaranteed and unguaranteed portion  of select 7(a) program loans into the secondary market.  The Company is required by the SBA to retain a contractual minimum of 5% on all SBA 7(a) loans. The  SBA  7(a) loans are all variable interest rate loans.  The servicing spread is  a  minimum of 1% on the majority of loans.  Income recognized by the Company on  the sales of the guaranteed portion of these loans and the ongoing servicing income  received  have  in  the  past  been  significant revenue sources for the Company.  CWB has been offering 504 loans since 1991, but was fairly inactive in this loan product  through  2002.  Beginning  in  2003,  upon  acquisition  of  a group of experienced  504  lenders  in  the  Sacramento  area, CWB increased its 504 loan origination  volume.  The  504  program  is  an  economic  development-financing program  providing  long-term,  low  downpayment  loans to expanding businesses. Typically,  a  504  project includes a loan secured from a private-sector lender with  a  senior lien, a loan secured from a CDC (funded by a 100% SBA-guaranteed debenture)  with  a  junior                                         - 3 -  lien  covering  up  to 40% of the total cost, and a contribution of at least 10% equity  from the borrower.  As of December 8, 2004, debenture limits were raised to  $1.5  million  for regular 504 loans and $2 million for those 504 loans that meet  a  public  policy  goal.  In 2001, CWB began offering Business & Industry ("B & I") loans. These loans are similar to the SBA product, except they are guaranteed by the U.S. Department of Agriculture.  The  guaranteed  amount  is  generally  80%. B&I loans are made to businesses  in  designated  rural areas and are generally larger loans to larger businesses  than  the  7(a)  loans. Similar to the SBA 7(a) product, they can be sold into the secondary market.  CWB  also  originates  conventional  and  investor loans which are funded by our secondary-market partners for which the Bank receives a premium.  CWB  originates  SBA  loans  in  the  states  of  California, Alabama, Colorado, Florida,  Georgia,  North  Carolina,  Oregon,  South  Carolina,  Tennessee  and Washington.  Beginning  in 1995, the SBA designated CWB as a "Preferred Lender." As  a  Preferred  Lender,  CWB has been delegated the loan approval, closing and most  servicing  and  liquidation  authority  responsibility  from the SBA.  CWB currently  has  SBA  Preferred  Lender status in the California districts of Los Angeles,  Fresno, Sacramento, San Francisco, San Diego and Santa Ana, as well as the  states  of  Alabama,  Colorado,  Florida,  Georgia,  North  Carolina, South Carolina  and  Tennessee.  CWB also has Preferred Lender status in the cities of Seattle  and  Spokane,  Washington and Portland, Oregon.  Due to CWB's Preferred Lender  status  in  so  many  states and districts, CWB has achieved competitive advantage  in  this  product  and  has  been able to increase its loan volume in recent  years.  Mortgage Lending - In 1995, CWB established a Wholesale and Retail Mortgage Loan Center.  The  Mortgage  Loan  Division  originates residential real estate loans primarily  in  the  California  counties  of Santa Barbara, Ventura and San Luis Obispo.  Some  retail  loans  not  fitting  CWB's wholesale lending criteria are brokered  to  other lenders.  After wholesale origination, the real estate loans are  sold  into  the  secondary  market.  Manufactured  Housing  -  In  1998,  CWB  established  a  financing  program for manufactured  housing  to  provide  affordable  home  ownership  to  low  to moderate-income  families  that are purchasing or refinancing their manufactured house.  Initially,  these  loans  were offered in CWB's primary lending areas of Santa  Barbara,  Ventura  and San Luis Obispo counties. Over the last two years, the  Company  has  expanded this program into Los Angeles, Orange, San Diego and Sacramento  counties. The manufactured homes are located in approved mobile home parks  primarily along the California coast in cities from San Diego to San Luis Obispo  counties.  The parks must meet specific criteria and have amenities such as  clubhouses,  pools,  common  areas  and  be  maintained in good to excellent condition.  The manufactured housing loans are retained in CWB's loan portfolio. As  of  December 31, 2005, CWB held $101.3 million of manufactured housing loans in  its  portfolio.  COMPANY  HISTORY  From  December  1998  until  August  2001,  the Company owned a 100% interest in Palomar Community Bank ("Palomar").  In August of 2001, the Company sold Palomar Community  Bank.  From  October  1997  to  October  2002,  the  Company owned an interest in ePacific.com (formerly known as Electronic Paycheck, LLC).  COMPETITION  AND  SERVICE  AREA  The financial services industry is highly competitive with respect to both loans and deposits. Overall, the industry is dominated by a relatively small number of major  banks  with  many  offices  operating over a wide geographic area. In the markets  where the Company's banking branches are present, several de novo banks have  increased competition. Some of the major commercial banks operating in the Company's service areas offer types of services that are not offered directly by the  Company.  Some  of  these  services  include  leasing, trust and investment services  and international banking. The Company has taken several approaches to minimize the impact of competitor's numerous branch offices and varied products. First,  the  Company  through CWB provides courier services to business clients, thus  discounting  the need for multiple branches in one market. Second, through strategic  alliances  and correspondents, the Company provides a full compliment of  competitive  services.  Finally,  one  of  CWB's strategic initiatives is to establish  full-service branches or loan production offices in areas where there is  a  high  demand  for  its lending products. In addition to loans and deposit services  offered by CWB's four branches located in Goleta, Ventura, Santa Maria and  Santa  Barbara,  California,  a  loan production office currently exists in Roseville, California. The Company also maintains SBA loan production offices in the  California  areas of Atascadero, Roseville, San Francisco bay area, and San Diego as well as the states of Colorado, Florida, Georgia, North Carolina, South Carolina,  Oregon  and  Washington.  Competition  may  adversely  affect  the  Company's  performance.  The financial service's  business  in the Company's markets is highly competitive and becoming increasingly  more  so  due  to  changing  regulations, technology and strategic consolidations  amongst  other  financial  service  providers.  Other  banks and specialty  financial  services                                         - 4 -  companies  may  have more capital than the Company and can offer trust services, leasing  and  other financial products to the Company's customer base.  When new competitors  seek to enter one of the Company's markets, or when existing market participants  seek  to  increase their market share, they sometimes undercut the pricing  or  credit  terms  prevalent  in  that  market.  Increasing  levels  of competition  in  the  banking  and  financial services businesses may reduce our market  share  or  cause the prices to fall for which the Company can charge for products  and  services.  GOVERNMENT  POLICIES  The  Company's  operations are affected by various state and federal legislative changes  and  by  policies of various regulatory authorities, including those of the states in which it operates and the U.S. government. These policies include, for  example,  statutory maximum legal lending rates, domestic monetary policies by  the  Board  of  Governors of the Federal Reserve System, U.S. fiscal policy, U.S.  Patriot Act and capital adequacy and liquidity constraints imposed by bank regulatory  agencies.  Changes  in  these laws, regulations and policies greatly affect  our  operations.  See "Item 1A, Risk Factors - Curtailment of Government Guaranteed  Loan  Programs Could Affect a Segment of the Company's Business" and "Item  7,  Management's  Discussion  and  Analysis  of  Financial Conditions and Results  of  Operations  -  Supervision  and  Regulation."  EMPLOYEES  As  of  December  31,  2005,  the  Company  had  137  full-time and 10 part-time employees.  The Company's employees are not represented by a union or covered by a  collective  bargaining agreement. Management of the Company believes that, in general,  its  employee  relations  are  good.
Investing in our common stock involves various risks which are particular to our company,  our  industry  and  our  market  area.  Several risk factors regarding investing  in  our  common stock are discussed below. This listing should not be considered as all-inclusive. If any of the following risks were to occur, we may not  be  able  to  conduct  our  business as currently planned and our financial condition or operating results could be negatively impacted. These matters could cause  the trading price of our common stock to decline in future periods.  Such risks  and  uncertainties  include:       -    changes  in  the  interest  rate  environment  affecting interest rate           margins  and/or  interest  rate  risk      -    increased  competitive  pressure  among  financial services' companies      -    the  availability  of  sources  of  liquidity  at  a  reasonable  cost      -    the  regulation  of  the  banking  industry  including  legislative or           regulatory  changes  adversely  affecting  the  business  in which the           Company  engages      -    reduction  in  our  earnings  by  losses  on  loans      -    dependence  on  real  estate      -    operational  risks      -    deterioration  in  general  economic  conditions      -    risks  of  natural  disasters      -    other  risks  and  uncertainties  that  may  be  detailed  herein  RISK  DUE TO ECONOMIC CONDITIONS DUE TO CHANGES IN INTEREST RATES OR THE ECONOMY IN  THE  AREAS  WE  SERVE  The  Federal  Reserve  Board  ("FRB")  has continued its efforts to prevent/slow inflation  and  to maintain a stable price environment as the economy enters the fifth  year  of  economic  expansion.  In 2005, the FRB raised the discount rate eight  times  from  2.25%  to 4.25%, an increase of 2.00%. Typically, these rate increases  enhance  net  interest  income  for  asset-sensitive  financial institutions.  At  the  same  time,  the flattening yield curve may compress net interest  margins.  As  inflation  has remained largely in check and the housing market  has  shown  signs  of slowing, most sectors of the economy have remained strong.  This  continued  strength  in  the  economy during 2005, which has been reflected  in  strong  loan demand in the markets in which the Company operates, may  not  continue  in  2006.  While  there is uncertainty regarding FRB's interest rate policy under a new FRB chairman,  the  outlook for 2006 is generally optimistic.  Supporting an overall optimistic  outlook in the economy is continued strength in consumer confidence, provided  by  the  rebuilding of the Gulf coast and a high level of liquidity in the  economy.  This  optimistic  outlook  is tempered by concerns related to the real  estate  market  and  the  federal  budget  deficit.  The  Company  serves  three  primary  regions.  The  Tri-Counties  region  which consists  of San Luis Obispo, Santa Barbara and Ventura counties in the state of California,  the  SBA Western Region where CWB originates SBA loans (California, Colorado, Oregon and Washington) and the SBA Southeast Region (Alabama, Florida, Georgia,  North  and  South Carolina and Tennessee).  A downturn in the National economy  or  in  any  of the markets in the Company services may have a negative impact  on  the  Company's  future  earnings  or  stock  price.                                         - 5 -  CHANGES  IN  THE  REGULATORY  ENVIRONMENT  The financial services industry is heavily regulated.  The Company is subject to federal  and state regulation designed to protect the deposits of consumers, not to benefit shareholders. These regulations include the following:       -    the amount of capital the Company must maintain      -    the types of activities in which it can engage      -    the types and amounts of investments it can make      -    the locations of its offices      -    insurance  of  the  Company's  deposits and the premiums paid for this           insurance      -    how much cash the Company must set aside as reserves for deposits  The regulations impose limitations on operations and may be changed at any time, possibly  causing  future  results  to  vary  significantly  from  past results. Government  policy  and  regulation,  particularly  as  implemented  through the Federal  Reserve  System, significantly affects credit conditions.  See "Item 7. Management's  Discussion  and  Analysis  of  Financial  Condition and Results of Operations  -  Supervision  and  Regulation."  BANK REGULATIONS COULD DISCOURAGE CHANGES IN THE COMPANY'S OWNERSHIP  Bank  regulations  could delay or discourage a potential acquirer who might have been  willing  to  pay a premium price to acquire a large block of common stock. That  possibility might decrease the value of the Company's common stock and the price  that a stockholder will receive if shares are sold in the future.  Before anyone  can  buy  enough  voting  stock  to exercise control over a bank holding company  like CWBC, bank regulators must approve the acquisition.  A stockholder must  apply  for  regulatory approval to own 10 percent or more of the Company's common  stock, unless the stockholder can show that they will not actually exert control  over the Company.  As a result, no single stockholder can own more than 25  percent  of  the  Company's  common  stock  without  applying for regulatory approval.  THE PRICE OF THE COMPANY'S COMMON STOCK MAY CHANGE RAPIDLY AND SIGNIFICANTLY  The  market  price  of  the  Company's  common  stock  could  change rapidly and significantly  at  any time.  The market price of the Company's common stock has fluctuated  in recent years.  Between January 1, 2004 and December 31, 2005, the market  price of its common stock ranged from a low of $8.15 per share to a high of  $15.30  per share.  Fluctuations may occur, among other reasons, in response to:       -    short-term or long-term operating results      -    perceived strength of the banking industry in general      -    the Company's relatively low public float and thinly-traded stock      -    perceived value of the Company's loan portfolio      -    trends in the Company's nonperforming assets      -    legislative/regulatory action or adverse publicity      -    announcements by competitors      -    economic changes and general market conditions  The  trading  price  of the Company's common stock may continue to be subject to wide  fluctuations in response to the factors set forth above and other factors, many of which are beyond the Company's control.  The stock market can experience extreme  price  and  trading  volume  fluctuations  that  often are unrelated or disproportionate  to  the  operating  performance  of individual companies.  The Company  believes  that investors should consider the likelihood of these market fluctuations  before  investing  in  the  Company's  common  stock.  DEPENDENCE ON REAL ESTATE CONCENTRATED IN THE STATE OF CALIFORNIA  Approximately  42%  of  the  loan portfolio of the Company is secured by various forms  of  real  estate,  including  residential  and  commercial real estate. A decline  in  current  economic conditions or rising interest rates could have an adverse  effect  on  the demand for new loans, the ability of borrowers to repay outstanding  loans  and  the  value of real estate and other collateral securing loans.  The real estate securing the Company's loan portfolio is concentrated in California.  If  real  estate  values  decline  significantly,  especially  in California,  the  change  could  harm  the  financial condition of the Company's borrowers,  the  collateral  for  its  loans  will provide less security and the Company  would  be  more  likely  to  suffer  losses  on  defaulted  loans.  CURTAILMENT OF GOVERNMENT GUARANTEED LOAN PROGRAMS COULD AFFECT A SEGMENT OF THE COMPANY'S  BUSINESS  A  major  segment  of  the  Company's  business  consists  of  originating  and periodically selling government guaranteed loans, in particular those guaranteed by  the  SBA.  From  time  to time, the government agencies that guarantee these loans  reach  their  internal limits and cease to guarantee loans.  In addition, these  agencies  may  change  their  rules  for  loans  or  Congress  may  adopt legislation  that  would  have  the  effect  of  discontinuing  or  changing the programs.  Non-                                         - 6 -  governmental  programs could replace government programs for some borrowers, but the  terms  might not be equally acceptable.  Therefore, if these changes occur, the  volume of loans to small business, industrial and agricultural borrowers of the types that now qualify for government guaranteed loans could decline.  Also, the  profitability  of  these  loans  could  decline.  In  late  2004,  the  SBA eliminated  the  piggy-back program, in which a conventional real estate loan is made  and  a  SBA  7(a)  guaranteed  second  trust  deed  is  subordinate to the conventional  first trust deed. As the funding of the guaranteed portion of 7(a) loans  is a major portion of the Company's business, the long-term resolution to the  funding  for  the  7(a)  loan program may have an unfavorable impact on the Company's  future  performance  and  results  of  operations.  ENVIRONMENTAL LAWS COULD FORCE THE COMPANY TO PAY FOR ENVIRONMENTAL PROBLEMS  When  a  borrower  defaults  on  a  loan  secured  by real property, the Company generally  purchases  the  property  in  foreclosure  or  accepts  a deed to the property  surrendered  by  the  borrower.  The  Company  may  also take over the management  of commercial properties when owners have defaulted on loans.  While CWB  has  guidelines intended to exclude properties with an unreasonable risk of contamination,  hazardous substances may exist on some of the properties that it owns,  manages  or occupies.  The Company faces the risk that environmental laws could force it to clean up the properties at the Company's expense.  It may cost much  more  to  clean  a property than the property is worth.  The Company could also be liable for pollution generated by a borrower's operations if the Company took  a role in managing those operations after default.  Resale of contaminated properties  may  also  be  difficult.  COMPETITION  WITH  OTHER  BANKING  INSTITUTIONS  COULD  ADVERSELY  AFFECT PROFITABILITY.  The  banking  industry is highly competitive.  The Company faces competition not only  from  other  financial  institutions  within  the  markets  it serves, but deregulation has resulted in competition from companies not typically associated with  financial services as well as companies accessed through the internet.  As a  community  bank, the Company attempts to combat this increased competition by developing and offering new products and increased quality of services.  FLUCTUATIONS IN INTEREST RATES MAY REDUCE PROFITABILITY.  Changes  in  interest rates may affect our level of interest income, the primary component  of  our  gross revenue, as well as the level of our interest expense. Interest  rate fluctuations are caused by many factors which, for the most part, are  not under our direct control. For example, national monetary policy plays a significant  role  in  the  determination  of  interest  rates.  Additionally, competitor  pricing and the resulting negotiations that occur with our customers also  impact  the rates we collect on loans and the rates we pay on deposits. As interest  rates change, we expect that we will periodically experience "gaps" in the  interest  rate  sensitivities  of  our assets and liabilities, meaning that either  our  interest-bearing  liabilities  will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa. In either event, if market interest rates should move contrary to our position, this "gap" may work against us, and our earnings may be negatively affected.  Changes in the level of interest rates also may negatively affect our ability to originate  loans,  the value of our assets and our ability to realize gains from the  sale  of our assets, all of which ultimately affect our earnings. A decline in  the  market  value  of our assets may limit our ability to borrow additional funds.  As  a  result,  we  could  be  required  to  sell  some of our loans and investments  under  adverse market conditions, upon terms that are not favorable to  us,  in  order  to maintain our liquidity. If those sales are made at prices lower  than  the  amortized costs of the investments, we will incur losses.  See additional  discussion on interest rate risk in "Item 7. Management's Discussion and  Analysis  of  Financial Condition and Results of Operations - Interest Rate Risk."  OPERATIONAL  RISK  Operational  risk  represents  the  risk  of  loss  resulting from the Company's operations,  including  but  not  limited  to, the risk of fraud by employees or persons  outside  the  Company,  the  execution  of unauthorized transactions by employees, transaction processing errors and breaches of internal control system and  compliance  requirements.  This  risk  of  loss also includes the potential legal  actions that could arise as a result of an operational deficiency or as a result  of  noncompliance with applicable regulatory standards, adverse business decisions  or  their  implementation  and  customer  attrition  due to potential negative  publicity.  Operational  risk  is  inherent in all business activities and the management of this  risk  is important to the achievement of the Company's objectives.  In the event  of  a  breakdown  in  the  internal control system, improper operation of systems  or  improper employee actions, the Company could suffer financial loss, face regulatory action and suffer damage to its reputation.  The Company manages operational  risk  through  a risk management framework and its internal control processes.  The  framework  involves  business  units, corporate risk management personnel  and  executive  management.  Under this framework, the business units have  direct  and  primary  responsibility  and  accountability for identifying, controlling  and monitoring operational risk.  Business unit managers maintain a system  of  controls  with  the  objective  of  providing  proper  transaction authorization  and  execution,  proper  system                                         - 7 -  operations,  safeguarding  of  assets  from  misuse  or  theft  and ensuring the reliability of financial and other data.  Business unit managers ensure that the controls are appropriate and are implemented as designed.  Business continuation and  disaster  recovery  planning  is  also  critical  to  effectively  manage operational  risks.  The Company's internal audit function (currently outsourced to  a  third party) validates the system of internal controls through risk-based regular  and  ongoing  audit  procedures  and  reports  on  the effectiveness of internal  controls to executive management and the Audit Committee of the Board.  While  the  Company  believes that it has designed effective methods to minimize operational  risks,  there  is no absolute assurance that business disruption or operational losses would not occur in the event of disaster.  DEPENDENCE ON TECHNOLOGY AND TECHNOLOGICAL IMPROVEMENTS.  The  financial  services industry is undergoing rapid technological changes with frequent  introductions  of  new  technology-driven  products  and services.  In addition,  to  better serve customers, the effective use of technology increases efficiency  and  enables  financial  institutions  to  reduce costs. Many of our competitors  have  substantially  greater  resources  to invest in technological improvements.  The  Company  faces  the risk of having to keep up with the rapid changes.  ITEM  1B.  UNRESOLVED  STAFF  COMMENTS - ---------  ---------------------------  Not  applicable.  ITEM  2.  DESCRIPTION  OF  PROPERTY - --------  -------------------------  The  Company  owns  the  property on which the CWB full-service branch office is located  in  Goleta,  California.  All  other  property is leased by the Company, including the principal executive office  in  Goleta.  This  facility  houses  the  Company's  corporate  offices, comprised  of  various  departments,  including  electronic  business  services, finance,  human  resources,  information technology, loan operations, marketing, the  mortgage  loan  division,  SBA  administration, risk management and special assets.  The  Company continually evaluates the suitability and adequacy of the Company's offices  and  has  a  program  of  relocating or remodeling them as necessary to maintain  efficient  and  attractive  facilities.  Management  believes that its existing  facilities  are  adequate  for  its  present  purposes.  ITEM  3.  LEGAL  PROCEEDINGS - --------  ------------------  The  Company is involved in various litigation of a routine nature that is being handled  and  defended in the ordinary course of the Company's business.  In the opinion  of  management,  based  in part on consultation with legal counsel, the resolution  of  these  litigation matters will not have a material impact on the Company's  financial  position  or  results  of  operations.  ITEM  4.  SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS. - --------  ------------------------------------------------------------  None.                                         - 8 -  PART  II
Market Information, Holders and Dividends  The Company's common stock is traded on the Nasdaq Stock Market ("Nasdaq") under the  symbol  CWBC.  The following table sets forth the high and low sales prices on  a  per  share basis for the Company's common stock as reported by Nasdaq for the  period  indicated:                                  2005 Quarters                    2004 Quarters                     -------------------------------  ---------------------------------                     Fourth   Third   Second   First   Fourth   Third   Second   First                     -------  ------  -------  ------  -------  ------  -------  ------          Stock Price Range:     High            $ 14.40  $12.57  $ 13.50  $15.30  $ 13.47  $10.74  $  9.75  $ 9.38     Low               12.25   12.20    12.00   11.00    10.55    8.15     8.23    8.19  Cash Dividends Declared            $   .05  $  .05  $   .05  $  .04  $   .04  $  .04  $   .04  $    -   As  of  March  23,  2006,  the year to date high and low stock sales prices were $14.44  and  $13.85, respectively.  As of March 23, 2006, the last reported sale price per share for the Company's common stock was $14.25.  As  of  March 23, 2006, the Company had 382 stockholders of record of its common stock.  The  Company  resumed  declaring  dividends  to  its  shareholders in the second quarter  2004.  It  is  the  Company's  intention  to  declare and pay dividends quarterly.  The  primary  source  of funds for dividends paid to shareholders is dividends  received  from  the  subsidiary  bank,  CWB.  CWB's  ability  to  pay dividends  to  the Company is limited by California law and federal banking law. See  "Item  7.  Management's  Discussion and Analysis of Financial Condition and Results  of Operations - Supervision and Regulation of the Company - Limitations on Dividend Payments."  As of December 31, 2005, CWB had $10.0 million available for  dividends.  Securities Authorized for Issuance Under Equity Compensation Plans    The following table summarizes the securities authorized for issuance as of December 31, 2005: - ----------------------------------------------------------------------------------------------------------------------                                             Number of                                        securities to be                                     Number of securities                                           issued upon            Weighted-average      remaining available for future                                           exercise of           exercise price of           issuance under equity                                           outstanding              outstanding               compensation plans                                        options, warrants        options, warrants           (excluding securities           Plan Category                   and rights                and rights             reflected in column (a) - ----------=============-------------------==========----------------==========-------------=======================----                                               (a)                      (b)                           (c) - ----------------------------------------------------------------------------------------------------------------------     Plans approved by shareholders                      539,162  $                   7.29                          355,151 - ---------------------------------------------------------------------------------------------------------------------- Plans not approved by shareholders                        -                       N/A                                - - ---------------------------------------------------------------------------------------------------------------------- Total                                               539,162                                                    355,151 - ----------------------------------------------------------------------------------------------------------------------                                          - 9 -  ITEM  6.  SELECTED  FINANCIAL  DATA - -------   -------------------------  The  following  selected  financial  data  have  been derived from the Company's consolidated  financial  condition  and results of operations, as of and for the years  ended December 31, 2005, 2004, 2003, 2002 and 2001, and should be read in conjunction  with  the  consolidated  financial statements and the related notes included  elsewhere  in  this  report.                                                                    YEAR ENDED DECEMBER 31,                                                -----------------------------------------------------                                                   2005      2004        2003      2002       2001                                                ---------  ---------  ---------  ---------  ---------       INCOME STATEMENT:                                       (IN THOUSANDS, EXCEPT PER SHARE DATA) Interest income                                $ 29,778   $ 21,845   $ 20,383   $ 29,976   $ 40,794 Interest expense                                 10,347      7,845      9,342     13,466     20,338                                                ---------  ---------  ---------  ---------  --------- Net interest income                              19,431     14,000     11,041     16,510     20,456 Provision for loan losses                           566        418      1,669      4,899     11,880                                                ---------  ---------  ---------  ---------  --------- Net interest income after provision for loan     18,865     13,582      9,372     11,611      8,576   losses Non-interest income                               7,310     10,462     10,675     11,398     22,171 Non-interest expenses                            18,160     17,521     16,736     24,931     32,006                                                ---------  ---------  ---------  ---------  --------- Income (loss) before income taxes                 8,015      6,523      3,311     (1,922)    (1,259) Provision (benefit) for income taxes              2,373      2,688      1,128       (652)    (1,281)                                                ---------  ---------  ---------  ---------  ---------           NET INCOME (LOSS)                    $  5,642   $  3,835   $  2,183   $ (1,270)  $     22                                                =========  =========  =========  =========  =========  PER SHARE DATA: Income (loss) per common share - Basic         $   0.98   $   0.67   $   0.38   $  (0.22)  $   0.00 Weighted average shares used in income (loss)     5,744      5,718      5,694      5,690      5,948   per share calculation - Basic Income (loss) per common share - Diluted       $   0.95   $   0.65   $   0.38   $  (0.22)  $   0.00 Weighted average shares used in income (loss)     5,931      5,867      5,758      5,690      5,998   per share calculation - Diluted Book value per share                           $   7.34   $   6.56   $   6.02   $   5.64   $   5.86  BALANCE SHEET: Net loans                                      $381,517   $290,506   $244,274   $245,856   $260,955 Total assets                                    444,354    365,203    304,250    307,210    323,863 Total deposits                                  334,238    284,568    224,855    219,083    196,166 Total liabilities                               402,119    327,634    269,919    275,123    290,506 Total stockholders' equity                       42,235     37,569     34,331     32,087     33,357  OPERATING AND CAPITAL RATIOS: Return on average equity                          14.16%     10.60%      6.65%    (3.99)%      0.07% Return on average assets                           1.43       1.15       0.73      (0.42)      0.01 Dividend payout ratio                             19.39      17.91          -          -          - Equity to assets ratio                             9.50      10.29      11.28      10.48      10.30 Tier 1 leverage ratio                              9.80      10.41      11.15      10.48       9.07 Tier 1 risk-based capital ratio                   11.21      12.51      14.05      12.66      11.75 Total risk-based capital ratio                    12.26      13.76      15.31      13.92      13.02   The income statement for 2001 includes 8.5 months of Palomar operating results.                                        - 10 -
The  following  discussion  is  designed  to  provide  insight into management's assessment of significant trends related to Community West Bancshares ("CWBC" or "Company") and its wholly-owned subsidiary Community West Bank's (formerly known as  Goleta  National  Bank)  ("CWB" or "Bank") consolidated financial condition, results  of  operations,  liquidity,  capital  resources and interest rate risk. Unless  otherwise  stated,  "Company"  refers  to CWBC and CWB as a consolidated entity.  It  should  be  read  in  conjunction  with  the consolidated financial statements  and  notes  thereto  and  the  other financial information appearing elsewhere  in  this  report.  FORWARD-LOOKING  STATEMENTS  This  2005  Annual  Report  on  Form  10-K  contains  statements that constitute forward-looking  statements  within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as  amended.  Those  forward-looking statements include statements regarding the intent,  belief  or current expectations of the Company and its management.  Any such  forward-looking  statements  are  not guarantees of future performance and involve  risks  and uncertainties, and actual results may differ materially from those  projected  in  the  forward-looking  statements.  OVERVIEW  OF  EARNINGS  PERFORMANCE - -----------------------------------  In  2005,  the  net  income of the Company was $5.6 million, or $0.98, per basic share  and $0.95 per diluted share compared to $3.8 million, or $0.67, per basic share  and  $0.65  per  diluted  share for 2004.  This represents a $1.8 million increase  in  net  income over 2004.  The primary reason for the increase is the $5.4  million  net  interest  margin  improvement,  as the Company increased its volume  of  earning  assets  while also experiencing widening margins.  This was accomplished despite a challenging economic and interest rate environment in the banking  industry.  The Company had a decrease in non-interest income, primarily due  to  its  discretionary  decision  to  sell fewer SBA 7(a) loans.  The other predominant  factor  contributing  to  positive  earnings  is  the  control  of non-interest  expenses,  despite  the 2005 asset growth.  The Company's earnings performance  was  also  impacted  in  2005  by:       -    net  loan  portfolio  growth  of $91.0 million, or 31.3%, primarily in           commercial,  commercial  real  estate,  manufactured  housing  and SBA           loans;      -    resolution  of a potential tax issue which resulted in a reversal of a           reserve  and  positively  impacted  net  income;      -    continued  prepayments  of the securitized loans and the payoff of the           securitized  bonds,  impacting  interest  income,  interest  expense,           provision  for  loan  losses  and  other  non-interest  expenses;      -    200  basis  point  increase  in  the  Federal  Reserve  Board's target           overnight  interest rate from 2.25% to 4.25%, positively impacting net           interest  income,  although,  the  yield  curve  flattening  served to           compress  margins;      -    strategic  decision to reduce SBA loan sales which negatively impacted           the  related gains on loan sales, but will help grow the balance sheet           and  enhance  future  interest  income;      -    fewer  mortgage loan originations, which negatively impacted loan fees           and  gain  on  loan  sales.  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  2005  throughout the analysis sections  of  this  report.  CRITICAL  ACCOUNTING  POLICIES - ------------------------------  The  Company's  accounting  policies  are  more fully described in Note 1 of the Consolidated  Financial  Statements.  As disclosed in Note 1, the preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions about future  events  that affect the amounts reported in the financial statements and accompanying  notes.  Actual  results  could  differ  significantly  from  those estimates.  The  Company  believes  that  the following discussion addresses the Company's  most  critical  accounting  policies,  which  are those that are most important  to  the portrayal of the Company's financial condition and results of operations  and  require  management's  most  difficult,  subjective and complex judgments.  PROVISION  AND  ALLOWANCE  FOR  LOAN  LOSSES - The Company maintains a detailed, systematic  analysis  and  procedural  discipline to determine the amount of the allowance  for  loan  losses  ("ALL").  The  ALL  is  based  on estimates and is intended  to  be  adequate  to  provide for probable losses inherent in the loan portfolio.  This  process  involves  deriving  probable  loss estimates that are based  on  individual  loan  loss estimation, migration analysis/historical loss rates  and  management's  judgment.                                        - 11 -  The  Company  employs  several  methodologies  for  estimating  probable losses. Methodologies  are  determined  based  on a number of factors, including type of asset,  risk  rating,  concentrations,  collateral  value  and  the input of the Special Assets group, functioning as a workout unit.  The ALL calculation for the different major loan types is as follows:       -    SBA  -  All  loans  are  reviewed  and classified loans are assigned a           specific allowance. Those not classified are assigned a pass rating. A           migration  analysis and various portfolio specific factors are used to           calculate  the  required  allowance  on  those  pass  loans.       -    Relationship Banking - Includes commercial, commercial real estate and           consumer  loans. Classified loans are assigned a specific allowance. A           migration  analysis and various portfolio specific factors are used to           calculate  the  required  allowance  on  the  remaining  pass  loans.       -    Manufactured Housing - An allowance is calculated on the basis of risk           rating,  which is a combination of delinquency, value of collateral on           classified  loans  and  perceived  risk  in  the  product  line.       -    Securitized Loans - The Company considers this a homogeneous portfolio           and calculates the allowance based on statistical information provided           by  the  servicer.  Charge-off  history  is  calculated based on three           methodologies;  a  3-month  and  a  12-month  historical  trend and by           delinquency  information.  The  highest  allowance  requirement of the           three  methods  is  used.  The  Company  calculates  the  required  ALL on a monthly basis.  Any difference between  estimated and actual observed losses from the prior month are reflected in the current period required ALL calculation and adjusted as deemed necessary. The  review  of  the  adequacy  of  the  allowance takes into consideration such factors as concentrations of credit, changes in the growth, size and composition of  the  loan  portfolio,  overall  and  individual portfolio quality, review of specific  problem loans, collateral, guarantees and economic conditions that may affect  the  borrowers'  ability  to  pay  and/or  the  value  of the underlying collateral.  Additional  factors  considered  include:  geographic  location  of borrowers,  changes  in the Company's product-specific credit policy and lending staff  experience.  These  estimates depend on the outcome of future events and, therefore,  contain  inherent  uncertainties.  The  Company's  ALL  is maintained at a level believed adequate by management to absorb  known  and  inherent probable losses on existing loans.  A provision for loan  losses  is  charged  to expense.  The allowance is charged for losses when management  believes that full recovery on the loan is unlikely.  Generally, the Company charges off any loan classified as a "loss"; portions of loans which are deemed to be uncollectible; overdrafts which have been outstanding for more than 30  days;  and, all other unsecured loans past due 120 or more days.  Subsequent recoveries,  if  any,  are  credited  to  the  ALL.  INTEREST  ONLY  STRIPS  AND SERVICING RIGHTS - The guaranteed portion of certain SBA  loans  can  be  sold  into  the  secondary  market.  Servicing  rights  are recognized  at  fair  market  value  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.  Also, at the time of the loan  sale, it is the Company's policy to recognize the related gain on the loan sale  in accordance with generally accepted accounting principles ("GAAP").  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.  Additionally, on certain SBA loan sales that occurred prior to 2003, the Company  retained  interest  only  strips  ("I/O  Strips"),  which represent the present  value  of excess net cash flows generated by the difference between (a) interest  at  the  stated  rate  paid  by  borrowers  and  (b)  the  sum  of (i) pass-through  interest  paid  to  third-party  investors  and  (ii)  contractual servicing  fees.  The  I/O  strips are classified as trading securities.  Accordingly, the Company records  the I/O strips at fair value with the resulting increase or decrease in fair  value being recorded through operations in the current period.  Quarterly, the Company verifies the reasonableness of its valuation estimates by comparison to  the  results  of  an  independent  third  party  valuation  analysis.  OTHER  REAL  ESTATE  OWNED  -  Other  real  estate owned ("OREO") is real estate acquired  through foreclosure on the collateral property and is recorded at fair value  at  the  time of foreclosure less estimated costs to sell.  Any excess of loan  balance  over  the  fair value of the OREO is charged-off against the ALL. Subsequent  to foreclosure, management periodically performs a new valuation and the  asset  is carried at the lower of carrying amount or fair value.  Operating expenses  or  income, and gains or losses on disposition of such properties, are charged  or  credited  to  current  operations.                                        - 12 -  STOCK-BASED  COMPENSATION  -  Until  the  effective date of SFAS 123, January 1, 2006,  GAAP  permitted the Company to use either of two methodologies to account for  compensation  cost  in  connection  with employee stock options.  The first method  required  issuers  to  record  compensation  expense over the period the options  were  expected  to  be  outstanding  prior  to  exercise, expiration or cancellation.  The  amount  of  compensation  expense to be recognized over this term  is  the "fair value" of the options at the time of the grant as determined by  the Black-Scholes valuation model.  Black-Scholes computed fair value of the options  based on the length of their term, the volatility of the stock price in past  periods  and  other  factors.  Under  this  method,  the issuer recognized compensation  expense  regardless  of  whether  or  not  the employee eventually exercised  the  options.  Under  the second methodology, if options are granted at an exercise price equal to  the  market  value  of  the  stock at the time of the grant, no compensation expense  was  recognized.  GAAP required that issuers electing the second method present  pro  forma disclosure of net income (loss) and earnings per share as if the  first  method  had  been  elected.  Under  the terms of the Company's stock option plan, full-time salaried employees may be granted qualified stock options or  incentive  stock  options  and  directors  may be granted nonqualified stock options.  Options  may  be  granted  at a price not less than 100% of the market value  of  the  stock  on  the  date  of  grant. Qualified options are generally exercisable in cumulative 20% installments. All options expire no later than ten years  from  the  date  of  grant.  RECENT  ACCOUNTING  PRONOUNCEMENTS  PENDING  ADOPTION - -----------------------------------------------------  Statement  of  Financial  Accounting  Standards No. 123R - SFAS No. 123 (Revised 2004)  ("SFAS No. 123R"), Share-Based Payment, is a revision of SFAS No. 123 and supersedes  APB  Opinion  No.  25  and its related implementation guidance.  The Statement  focuses  primarily  on accounting for transactions in which an entity obtains  employee  services  in share-based payment transactions.  SFAS No. 123R requires  a  public  entity to measure the cost of employee services received in exchange  for  an award of equity instruments based on the grant-date fair value of  the  award (with limited exceptions).  That cost will be recognized over the period  during  which an employee is required to provide service in exchange for the  award.  On March 29, 2005, the SEC issued Staff Accounting Bulletin No. 107 ("SAB No. 107"), which provides the Staff's views regarding interactions between SFAS No. 123R and certain SEC rules and regulations and provides interpretations of  the  valuation  of  share-based  payments  for  public  companies.  SFAS  No.  123R  permits public companies to adopt its requirements using one of two  methods:  (1) A "modified prospective" method in which compensation cost is recognized  beginning  with  the effective date (a) based on the requirements of SFAS  No. 123R for all share-based payments granted after the effective date and (b)  based  on  the  requirements  of  SFAS  No.  123  for all awards granted to employees  prior  to the effective date of SFAS No. 123R that remain unvested on the  effective  date.  (2)  A "modified retrospective" method which includes the requirements  of  the  modified  prospective  method  described  above, but also permits  entities  to  restate  based on the amounts previously recognized under SFAS  No. 123 for purposes of pro forma disclosures either (a) all prior periods presented  or  (b)  prior  interim  periods  of  the  year  of  adoption.  This  statement  is  effective  for  the beginning of the first annual reporting period  that begins after June 15, 2005 therefore, we will adopt the standard in the  first  quarter of 2006 using the modified prospective method.  As permitted by  SFAS  No.  123,  we  currently account for share-based payments to employees using  the  intrinsic  value  method  prescribed  in  APB  No.  25 and, as such, generally recognize no compensation cost for employee stock options.  The effect on  our results of operations of expensing stock options using the Black-Scholes method  is  presented in the disclosure of pro forma net income and earnings per share in the note, entitled "Stockholder's Equity".  SFAS No. 123R also requires the  benefits  of tax deductions in excess of recognized compensation cost to be reported  as  a  financing  cash  flow, rather than as an operating cash flow as required  under  current literature.  This requirement will reduce net operating cash  flows  and  increase  net  financing  cash flows in periods after adoption  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 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                                        - 13 -  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 of certain items in the consolidated income statements of the Company as compared to the prior periods:                                                              YEAR ENDED DECEMBER 31,                                            --------------------------------------------------                                                 2005 VS. 2004            2004 VS. 2003                                            ------------------------  ------------------------                                             AMOUNT OF   PERCENT OF    AMOUNT OF   PERCENT OF                                             INCREASE     INCREASE     INCREASE     INCREASE                                            (DECREASE)   (DECREASE)   (DECREASE)   (DECREASE)                                            -----------  -----------  -----------  -----------                                                           (DOLLARS IN THOUSANDS)      INTEREST INCOME   Loans                                    $    7,711         37.5%  $      907          4.6%   Investment securities                           295         30.1%         490        100.2%   Other                                           (73)      (24.3)%          65         27.5%                                            -----------  -----------  -----------  -----------     Total interest income                       7,933         36.3%       1,462          7.2%                                            -----------  -----------  -----------  ----------- INTEREST EXPENSE   Deposits                                      2,685         53.5%         395          8.5%   Bonds payable and other borrowings             (183)       (6.5)%      (1,892)      (40.1)%                                            -----------  -----------  -----------  -----------     Total interest expense                      2,502         31.9%      (1,497)      (16.0)%                                            -----------  -----------  -----------  ----------- NET INTEREST INCOME                             5,431         38.8%       2,959         26.8% Provision for loan losses                         148         35.4%      (1,251)      (75.0)%                                            -----------  -----------  -----------  ----------- NET INTEREST INCOME AFTER PROVISION             5,283         38.9%       4,210         44.9%   FOR LOAN LOSSES NON-INTEREST INCOME   Other loan fees                                (870)      (23.0)%         853         29.2%   Gains from loan sales, net                   (1,482)      (37.2)%        (879)      (18.1)%   Document processing fees, net                     6          0.7%        (120)      (12.8)%   Loan servicing fees, net                       (841)      (59.4)%         152         12.0%   Service charges                                 (63)      (16.5)%           5          1.3%   Other                                            98        107.7%        (224)      (71.1)%                                            -----------  -----------  -----------  -----------     Total non-interest income                  (3,152)      (30.1)%        (213)       (2.0)%                                            -----------  -----------  -----------  ----------- NON-INTEREST EXPENSES   Salaries and employee benefits                  142          1.2%         435          3.8%   Occupancy and equipment expenses                244         15.3%         (95)       (5.6)%   Professional services                            82          8.7%         304         47.8%   Depreciation                                     11          2.1%         (49)       (8.4)%   Loan servicing and collection                    30         13.3%        (213)      (48.6)%   Other                                           130          5.5%         403         20.4%                                            -----------  -----------  -----------  -----------     Total non-interest expenses                   639          3.6%         785          4.7%                                            -----------  -----------  -----------  ----------- Income before provision for income taxes        1,492                     3,212 Provision for income taxes                       (315)                    1,560                                            -----------               -----------           NET INCOME                       $    1,807                $    1,652                                            ===========               ===========   Total interest income increased by $7.9 million, or 36.3%, from $21.8 million in 2004  to  $29.7  million  in  2005.  Of  this  increase, $4.6 million was due to interest-earning  asset  growth, primarily loans, and $3.3 million resulted from rate increases. Total interest expense increased by $2.5 million, or 31.9%, from $7.8  million  in  2004  to $10.3 million in 2005.  Interest expense on deposits increased  $2.7 million while the interest expense on bonds and other borrowings declined  $183,000.  Of  the  increase  in  interest  expense  on deposits, $1.3 million  was  due to deposit growth and $1.4 million resulted from higher rates.  The increase in interest income from loans was due to growth in the manufactured housing,  commercial  real  estate,  commercial and SBA loan portfolios of $34.9 million,  $31.6  million,  $14.1  million and $14.8 million, respectively.  This loan  portfolio growth contributed to increases in interest income on loans from manufactured  housing  of $2.5 million, or 50.9%, commercial real estate of $2.4 million, or 49.3%, commercial of $1.3 million, or 68.5% and SBA of $2.0 million, or  49.5%.  A  decline  in the balance of the securitized loan portfolio of $8.6 million,  or  36.7%,                                        - 14 -  partially  offset  these increases with a related decrease in interest income of $1.1  million,  or  31.0%,  in  2005  compared  to  2004.  The  decrease  in the securitized  loan portfolio also indirectly accounted for a $1.4 million decline in  interest  expense  as  the related bonds were paid down and, eventually, the remainder was called.  This decrease in interest expense was offset by increases in  interest  paid  on  advances  from  FHLB  of $1.4 million and an increase on deposit  related  interest  on $2.7 million.  Interest income on investments and federal funds sold increased $295,000 and $78,000, respectively, while there was a  decline on interest income on interest earning deposits and time certificates of  deposit  of  $151,000.  The  Company has relied on various wholesale funding sources to fund loan growth and will likely continue to do so.  Total  interest  income  increased  $1.4 million, or 7.2%, from $20.4 million in 2003 to $21.8 million in 2004.  Total interest expense decreased 16.0% from $9.3 million  in 2003 to $7.8 million in 2004. The Company experienced a $907,000, or 4.6%,  increase  in  interest income from loans in 2004 over 2003.  The increase resulted  from  the  growth  in loans primarily related to manufactured housing, commercial real estate, commercial and SBA of $27.4 million, $14.3 million, $6.3 million  and $4.6 million, respectively.  This loan portfolio growth contributed to  increases  in  interest  income  on  loans from manufactured housing of $1.7 million,  or 51.6%, commercial real estate of $1.5 million, or 48.2%, commercial of  $600,000,  or  43.7%,  and  SBA  of  $331,000,  or 9.1%.  A reduction in the securitized  loan portfolio balance of $13.9 million, or 37.2%, primarily due to payments  of  loan  balances,  partially offset this increase in interest income with a decrease in interest income of $2.5 million, or 41.3%, from 2003 compared to  2004.  Mortgage loan interest income also declined by $535,000, or 77%.  The decrease in the size of the securitized loan portfolio also indirectly accounted for a $2.2 million decline in interest expense as the related bonds paid down by $12.2  million.  This  decrease  in  interest expense from the bond pay down was partially  offset by increases in interest paid on deposits and other borrowings of  $395,000  and  $304,000,  respectively.  Interest income on investments also increased  in 2004 over 2003 by $555,000, or 76.6%, due to increased activity in investment  securities.  The  following  table  sets  forth  the  changes  in interest income and expense attributable  to  changes  in  rate  and  volume:                                                                      YEAR ENDED DECEMBER 31,                                                ----------------------------------------------------------                                                      2005 VERSUS 2004              2004 VERSUS 2003                                                ----------------------------  ----------------------------                                                            CHANGE DUE TO                 CHANGE DUE TO                                                 TOTAL   -------------------   TOTAL  --------------------                                                 CHANGE     RATE     VOLUME    CHANGE     RATE     VOLUME                                                --------  ------------------  --------  ------------------                                                                             (IN THOUSANDS) Interest earning deposits in other financial institutions (including time deposits)         $  (151)  $    25   $  (176)  $   116   $     3   $   113 Federal funds sold                                  78       169       (91)      (51)       35       (86) Investment securities                              295        46       249       490        58       432 Loans, net                                       8,823     2,758     6,065     3,428        (6)    3,434 Securitized loans                               (1,112)      300    (1,412)   (2,521)      164    (2,685)                                                --------  --------  --------  --------  --------  -------- Total interest-earning assets                    7,933     3,298     4,635     1,462       254     1,208                                                --------  --------  --------  --------  --------  --------  Interest-bearing demand                          1,422       480       942       450       256       194 Savings                                            104       132       (28)       25        (6)       31 Time certificates of deposit                     1,159       804       355       (80)     (355)      275 Bonds payable                                   (1,351)     (392)     (959)   (2,196)      193    (2,389) Other borrowings                                 1,168       375       793       304        35       269                                                --------  --------  --------  --------  --------  -------- Total interest-bearing liabilities               2,502     1,399     1,103    (1,497)      123    (1,620)                                                --------  --------  --------  --------  --------  -------- Net interest income                            $ 5,431   $ 1,899   $ 3,532   $ 2,959   $   131   $ 2,828                                                ========  ========  ========  ========  ========  ========   The following table presents the net interest income and net interest margin for the  three  years  indicated:                                      YEAR ENDED DECEMBER 31,                         ----------------------------------------                             2005          2004          2003                         ------------  ------------  ------------                                       (DOLLARS IN THOUSANDS) Interest income         $    29,778   $    21,845   $    20,383 Interest expense             10,347         7,845         9,342                         ------------  ------------  ------------ Net interest income     $    19,431   $    14,000   $    11,041                         ============  ============  ============ Net interest margin            5.14%         4.41%         3.93%                                         - 15 -  NON-INTEREST  INCOME  The  following  table summarizes the Company's non-interest income for the three years  indicated:                                      YEAR ENDED DECEMBER 31,                                  ------------------------- NON-INTEREST INCOME               2005     2004     2003                                  -------  -------  -------                                            (IN THOUSANDS) Other loan fees                  $ 2,906  $ 3,776  $ 2,923 Gains from loan sales, net:        2,499    3,981    4,860 Document processing fees, net:       823      817      937 Loan servicing fees, net             575    1,416    1,264 Service charges                      318      381      376 Other                                189       91      315                                  -------  -------  -------   Total non-interest income      $ 7,310  $10,462  $10,675                                  =======  =======  =======   Total  non-interest  income  for the Company declined by $3.2 million, or 30.1%, from  2004 to 2005.  The majority of this decline is the result of the Company's decision  to retain more of the SBA loans it originates rather than sell them as in  previous  periods.  The following table summarizes these changes:                                                YEAR ENDED DECEMBER 31,                                            -------------------------                                            2005     2004     CHANGE                                           -------  -------  --------     Gain from loan sales                            (IN THOUSANDS)   SBA                                     $ 2,190  $ 3,481  $(1,291)   Mortgage                                    309      500     (191)                                           -------  -------  --------       Total                               $ 2,499  $ 3,981  $(1,482)                                           =======  =======  ========  Other loan fees   SBA                                     $ 1,463  $ 1,526  $   (63)   Mortgage                                  1,443    2,250     (807)                                           -------  -------  --------       Total                               $ 2,906  $ 3,776  $  (870)                                           =======  =======  ========  Document processing fees, net   SBA                                     $   194  $   182  $    12   Mortgage                                    563      563        -   Other                                        66       72       (6)                                           -------  -------  --------       Total                               $   823  $   817  $     6                                           =======  =======  ========   The Company sold $22.2 million of SBA loans in 2005 compared to $34.1 million in 2004,  which  contributed  to  a  decline  in gains from SBA loans sales of $1.3 million,  or  37.1%,  for  2005  compared  to  2004.  As  the Company started by discretion  to  reduce the volume of SBA loans sold in 2004, the decrease in SBA loan  sales in both years contributed to the $841,000, or 59.4%, decline in loan servicing  fees  from 2004 to 2005.  In addition, gains from mortgage loan sales also  experienced  a  decline in 2005 compared to 2004, primarily related to the continued  slowing  in  mortgage  loan refinancing activity. The slower mortgage activity  also  resulted in an $807,000 or 35.7%, decline in other mortgage loan fees  for  2005  compared  to  2004.  Total  non-interest  income for the Company declined by 2.0%, from 2003 to 2004. This  decline  was primarily due to the drop in total mortgage loan originations of  $114.9  million,  or 35.5%, from $323.7 million in 2003 to $208.8 million in 2004  which resulted in declines of $662,000 in gains on loan sales, $680,000 in other  loan  fees  and  $374,000 in document processing fees.  Net gains on loan sales  for  the SBA division also declined slightly due to management's decision to  sell less 7(a) guaranteed loans in 2004 than 2003.  During 2004, the Company increased  activity in SBA 504 loan originations and referrals which resulted in increases in other SBA loan fees and document processing fees.                                        - 16 -    NON-INTEREST  EXPENSES  The following table summarizes the Company's non-interest expenses for the three years  indicated:                                       YEAR ENDED DECEMBER 31,                                     ------------------------- NON-INTEREST EXPENSES                 2005     2004     2003                                     -------  -------  -------                                              (IN THOUSANDS)   Salaries and employee benefits    $11,993  $11,851  $11,416   Occupancy and equipment expenses    1,840    1,596    1,691   Professional services               1,022      940      636   Depreciation                          543      532      581   Loan servicing and collection         255      225      438   Other                               2,507    2,377    1,974                                     -------  -------  -------     Total non-interest expenses     $18,160  $17,521  $16,736                                     =======  =======  =======   Non-interest expenses increased $639,000, or 3.6%, in 2005 compared to 2004. The Company  opened  two  new  full-service  branches  in  2005 which were primarily responsible  for  the $244,000, or 15.3%, increase in occupancy expenses and the $142,000,  or  1.2%, increase in salaries and employee benefits in 2005 compared to  2004.   The slight increase in other non-interest expenses included $399,000 in  bond  related  costs  as the result of the securitized bond call and payoff.  Non-interest expenses increased $785,000 in 2004 compared to 2003.  Increases in salaries  and  employee  benefits,  professional  services and other expenses of $435,000, $304,000 and $403,000, respectively, were partly offset by declines in occupancy,  depreciation  and  loan servicing and collection of $95,000, $49,000 and  $213,000.   The  increase  in "Other" included a $402,000 charge related to sub-lease  costs  incurred  in  connection  with  a former lending relationship.  The  following table compares the various elements of non-interest expenses as a percentage  of  average  assets:                                            TOTAL      SALARIES AND   OCCUPANCY AND                           AVERAGE   NON-INTEREST     EMPLOYEE      DEPRECIATION YEAR ENDED DECEMBER 31,   ASSETS      EXPENSES       BENEFITS        EXPENSES - ------------------------  --------  -------------  -------------  --------------       DOLLARS IN THOUSANDS)          2005             393,210          4.62%          3.05%           0.61%          2004             333,230          5.26%          3.56%           0.64%          2003             299,661          5.58%          3.81%           0.76%   INCOME  TAXES  Income  tax  provision  was  $2.4  million  in  2005,  $2.7  million in 2004 and $1.1million  in  2003.  The effective income tax rate was 29.6%, 41.2% and 34.1% for  2005,  2004 and 2003, respectively.  The effective income tax rate for 2005 is  less  than the effective income tax rate in other periods presented as a tax reserve  of  $914,000,  or  $.16 per share (basic), related to the resolution of potential  tax issues as been reversed due to the resolution of the uncertainty. See  footnote  10,  "Income  Taxes",  in the notes to the Consolidated Financial Statements.  CAPITAL  RESOURCES  The  Federal  Deposit  Insurance Corporation Improvement Act ("FDICIA") contains rules  as  to  the  legal  and  regulatory  environment  for  insured depository institutions,  including  reductions  in insurance coverage for certain kinds of deposits,  increased  supervision  by the federal regulatory agencies, increased reporting  requirements  for insured institutions and new regulations concerning internal  controls,  accounting  and  operations.  The  prompt  corrective  action  regulations  of  FDICIA define specific capital categories based on the institutions' capital ratios. The capital categories, in declining  order,  are  "well  capitalized",  "adequately  capitalized", "undercapitalized",  "significantly  undercapitalized"  and  "critically undercapitalized". To be considered "well capitalized", an institution must have a  core  capital ratio of at least 5% and a total risk-based capital ratio of at least  10%. Additionally, FDICIA imposed in 1994 a new Tier I risk-based capital ratio  of  at  least  6%  to be considered "well capitalized". Tier I risk-based capital  is,  primarily, common stock and retained earnings, net of goodwill and other  intangible  assets.                                        - 17 -  To  be  categorized  as "adequately capitalized" or "well capitalized", CWB must maintain  minimum total risk-based, Tier I risk-based and Tier I leverage ratios and  values  as  set  forth  in  the  tables  below:    (DOLLARS IN THOUSANDS)                          RISK-    ADJUSTED    TOTAL     TIER 1    TIER 1                            TOTAL     TIER 1   WEIGHTED    AVERAGE   CAPITAL   CAPITAL   LEVERAGE                           CAPITAL   CAPITAL    ASSETS     ASSETS     RATIO     RATIO      RATIO                           --------  --------  ---------  ---------  --------  --------  ---------         DECEMBER 31, 2005 CWBC (Consolidated)       $ 46,031  $ 42,077  $ 375,487  $ 429,378    12.26%    11.21%      9.80% CWB                         42,501    38,577    375,474    425,768    11.32     10.27       9.06  DECEMBER 31, 2004 CWBC (Consolidated)       $ 41,047  $ 37,315  $ 298,359  $ 358,623    13.76%    12.51%     10.41% CWB                         38,550    34,819    298,309    354,889    12.92     11.67       9.81  Well capitalized ratios                                               10.00      6.00       5.00 Minimum capital ratios                                                 8.00      4.00       4.00   The  Company  does not anticipate any material changes in its capital resources. CWBC  has  common  equity only and does not have any off-balance sheet financing arrangements.  The  Company  has  not repurchased any stock nor does it have any immediate  plans  or  programs  to  do  so.                                        - 18 -  SCHEDULE OF AVERAGE ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY  As  of  the  dates  indicated  below,  the  following schedule shows the average balances  of the Company's assets, liabilities and stockholders' equity accounts as  a  percentage  of  average  total  assets:                                                                                          DECEMBER 31,                                                             ----------------------------------------------------------                                                                     2005                 2004               2003                                                             ------------------  ------------------  ------------------                                                              AMOUNT       %      AMOUNT       %      AMOUNT       %                                                             ---------  -------  ---------  -------  ---------  -------                                                                                      (DOLLARS IN THOUSANDS) ASSETS Cash and due from banks                                     $  5,428      1.4%  $  5,364      1.6%  $  6,431      2.1% Interest-earning deposits in other financial institutions        414      0.1%     6,919      2.1%     1,359      0.5% Federal funds sold                                             5,923      1.5%     8,684      2.6%    15,462      5.1% Time deposits in other financial institutions                    643      0.2%       577      0.2%     1,542      0.5% Investment securities available-for-sale                      22,474      5.7%    21,220      6.4%     8,910      3.0% Investment securities held-to-maturity                         7,703      2.0%     3,493      1.0%     5,036      1.7% Federal Reserve Bank & Federal Home Loan Bank stock            2,882      0.7%     1,902      0.6%       812      0.3% Interest only strips, at fair value                            2,261      0.6%     3,214      1.0%     4,054      1.3% Loans held for sale, net                                      50,106     12.7%    44,037     13.2%    45,445     15.2% Loans held for investment, net                               265,799     67.6%   197,622     59.3%   147,351     49.2% Securitized loans, net                                        18,241      4.6%    28,661      8.6%    50,173     16.7% Servicing rights                                               3,118      0.8%     3,002      0.9%     2,062      0.7% Other real estate owned, net                                      43        -         88        -        677      0.2% Premises and equipment, net                                    2,011      0.5%     1,655      0.5%     1,805      0.6% Other assets                                                   6,164      1.6%     6,792      2.0%     8,542      2.9%                                                             ---------  -------  ---------  -------  ---------  ------- TOTAL ASSETS                                                $393,210    100.0%  $333,230    100.0%  $299,661    100.0%                                                             =========  =======  =========  =======  =========  =======  LIABILITIES Deposits:   Non-interest-bearing demand                               $ 34,758      8.8%  $ 38,761     11.6%  $ 34,400     11.5%   Interest-bearing demand                                     87,587     22.3%    50,785     15.2%    35,768     11.9%   Savings                                                     16,479      4.2%    17,810      5.3%    15,480      5.2%   Time certificates of $100,000 or more                       62,545     15.9%    31,851      9.6%    21,076      7.0%   Other time certificates                                     89,304     22.7%   109,456     32.9%   109,828     36.7%                                                             ---------  -------  ---------  -------  ---------  -------     Total deposits                                           290,673     73.9%   248,663     74.6%   216,552     72.3% Other borrowings                                              46,285     11.8%    22,699      6.8%     6,518      2.2% Bonds payable in connection with securitized loans            10,469      2.7%    19,676      5.9%    39,000     13.0% Other liabilities                                              5,948      1.5%     5,992      1.8%     4,746      1.5%                                                             ---------  -------  ---------  -------  ---------  -------     Total liabilities                                        353,375     89.9%   297,030     89.1%   266,816     89.0%                                                             ---------  -------  ---------  -------  ---------  ------- STOCKHOLDERS' EQUITY Common stock                                                  30,127      7.6%    29,940      9.0%    29,812     10.0% Retained earnings                                              9,783      2.5%     6,275      1.9%     3,037      1.0% Accumulated other comprehensive (loss)                           (75)       -        (15)       -         (4)       -                                                             ---------  -------  ---------  -------  ---------  -------     Total stockholders' equity                                39,835     10.1%    36,200     10.9%    32,845     11.0%                                                             ---------  -------  ---------  -------  ---------  ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                             $393,210    100.0%  $333,230    100.0%  $299,661    100.0%                                                             =========  =======  =========  =======  =========  =======                                         - 19 -  INTEREST  RATES  AND  DIFFERENTIALS - -----------------------------------  The  following  table  illustrates average yields on interest-earning assets and average  rates  on  interest-bearing liabilities for the years indicated.  These average  yields and rates are derived by dividing interest income by the average balances  of  interest-earning  assets  and  by dividing interest expense by the average  balances  of  interest-bearing  liabilities  for  the  years indicated. Amounts outstanding are averages of daily balances during the period.                                                                     YEAR ENDED DECEMBER 31,                                                              ------------------------------- INTEREST-EARNING ASSETS:                                       2005       2004       2003                                                              ---------  ---------  ---------                                                                        (DOLLARS IN THOUSANDS) Interest earning deposits in other financial institutions:     Average outstanding                                      $    414   $  6,919   $  1,359     Interest income                                                11        170         31     Average yield                                                2.75%      2.46%      2.28% Time deposits in other financial institutions:     Average outstanding                                           643        577      1,542     Interest income                                                21         13         36     Average yield                                                3.26%      2.25%      2.33% Federal funds sold:     Average outstanding                                         5,923      8,684     15,462     Interest income                                               196        118        169     Average yield                                                3.31%      1.36%      1.09% Investment securities:     Average outstanding                                        33,059     26,615     14,758     Interest income                                             1,274        979        489     Average yield                                                3.85%      3.68%      3.31% Gross loans, excluding securitized:     Average outstanding                                       319,008    244,492    195,648     Interest income                                            25,804     16,982     13,554     Average yield                                                8.09%      6.95%      6.93% Securitized loans:     Average outstanding                                        19,147     30,098     52,359     Interest income                                             2,472      3,583      6,104     Average yield                                               12.91%     11.91%     11.66% Total interest-earning assets:     Average outstanding                                       378,194    317,385    281,128     Interest income                                            29,778     21,845     20,383     Average yield                                                7.87%      6.88%      7.25%                                         - 20 -                                              YEAR ENDED DECEMBER 31,                                       ------------------------------- INTEREST-BEARING LIABILITIES:           2005       2004       2003                                       ---------  ---------  ---------                                               (DOLLARS IN THOUSANDS) Interest-bearing demand deposits:     Average outstanding               $ 87,587   $ 50,785   $ 35,768     Interest expense                     2,242        820        371     Average effective rate                2.56%      1.61%      1.04% Savings deposits:     Average outstanding                 16,479     17,810     15,480     Interest expense                       344        241        215     Average effective rate                2.09%      1.35%      1.39% Time certificates of deposit:     Average outstanding                151,849    141,308    130,904     Interest expense                     5,115      3,955      4,035     Average effective rate                3.37%      2.80%      3.08% Bonds payable:     Average outstanding                 10,469     19,676     39,000     Interest expense                     1,090      2,441      4,637     Average effective rate               10.42%     12.41%     11.89% Other borrowings:     Average outstanding                 46,285     22,699      6,518     Interest expense                     1,556        388         84     Average effective rate                3.36%      1.71%      1.29% Total interest-bearing liabilities:     Average outstanding                312,669    252,278    227,670     Interest expense                    10,347      7,845      9,342     Average effective rate                3.31%      3.11%      4.10%  NET INTEREST INCOME                     19,431     14,000     11,041 NET INTEREST SPREAD                       4.56%      3.77%      3.15% AVERAGE NET MARGIN                        5.14%      4.41%      3.93%   Nonaccrual loans are included in the average balance of loans outstanding.  LOAN  PORTFOLIO - ---------------  The  Company's  largest categories of loans held in the portfolio are commercial loans,  real  estate  loans,  SBA  loans,  manufactured housing loans and second mortgage  loans.  Loans  are  carried at face amount, net of payments collected, the  allowance  for loan losses, deferred loan fees/costs and discounts on loans purchased.  Interest  on  all  loans  is  accrued  daily,  primarily on a simple interest basis.  It is the Company's policy to place a loan on nonaccrual status when  the loan is 90 days past due.  Thereafter, previously recorded interest is reversed and interest income is typically recognized on a cash basis.  The  rates charged on variable rate loans are set at specific increments.  These increments  vary  in  relation  to the Company's published prime lending rate or other  appropriate indices.  At December 31, 2005 and 2004, approximately 62% of the  Company's  loan  portfolio  was  comprised of variable interest rate loans. Management  monitors  the  maturity  of  loans  and  the sensitivity of loans to changes  in  interest  rates.  The  following  table sets forth, as of the dates indicated, the amount of gross held  for  investment  loans  outstanding  based  on  the  remaining  scheduled repayments  of  principal,  which could either be repriced or remain fixed until maturity,  classified  by  years  until  maturity:                                        - 21 -                                                            DECEMBER 31,                --------------------------------------------------------------------------------------------------------                       2005                 2004                 2003                2002                 2001                       ----                 ----                 ----                ----                 ---- IN YEARS                                                   (IN THOUSANDS)                --------------------------------------------------------------------------------------------------------                FIXED     VARIABLE   FIXED     VARIABLE   FIXED     VARIABLE    FIXED     VARIABLE   FIXED     VARIABLE                --------  ---------  --------  ---------  --------  ----------  --------  ---------  --------  ---------            Less than One  $ 19,797  $  49,796  $  3,877  $  44,896  $  2,382  $   34,108  $  2,604  $   8,188  $ 10,346  $  26,532 One to Five      39,081     50,708    12,922     29,567     4,128      13,645     3,615     16,224     3,975      6,195 Over Five        88,086    139,570    94,568    110,215    85,390     110,914   105,491    116,322   164,748     58,761                -------------------------------------------------------------------------------------------------------- Total          $146,964  $ 240,074  $111,367  $ 184,678  $ 91,900  $  158,667  $111,710  $ 140,734  $179,069  $  91,488                ========================================================================================================   Distribution  of  Loans  The  distribution  of the Company's total loans by type of loan, as of the dates indicated,  is  shown  in  the  following  table:                                                      DECEMBER 31,                              -----------------------------------------------------                                2005       2004       2003       2002       2001                              ---------  ---------  ---------  ---------  ---------                                             (DOLLARS IN THOUSANDS)                               LOAN       LOAN       LOAN       LOAN       LOAN                              BALANCE    BALANCE    BALANCE    BALANCE    BALANCE                              ---------  ---------  ---------  ---------  ---------       Commercial                   $ 44,957   $ 30,893   $ 24,592   $ 19,302   $ 26,411 Real estate                   116,938     85,357     71,010     47,456     44,602 SBA                            37,088     35,265     30,698     40,961     31,889 Manufactured housing          101,336     66,423     39,073     28,199     24,135 Other installment              11,355      8,645      5,770      7,047      4,088 Securitized                    14,858     23,474     37,386     66,195    108,584 Held for sale                  60,506     45,988     42,038     43,284     30,848                              ---------  ---------  ---------  ---------  --------- Gross Loans                   387,038    296,045    250,567    252,444    270,557 Less: Allowance for loan losses       3,954      3,894      4,675      5,950      8,275 Deferred fees/costs               181       (103)        69       (318)       222 Discount on SBA loans           1,386      1,748      1,549        956      1,105                              ---------  ---------  ---------  ---------  --------- Net Loans                    $381,517   $290,506   $244,274   $245,856   $260,955                              =========  =========  =========  =========  ========= Percentage to Gross Loans: Commercial                       11.6%      10.5%       9.8%       7.6%       9.8% Real estate                      30.2       28.8       28.3       18.8       16.5 SBA                               9.6       11.9       12.3       16.3       11.8 Manufactured housing             26.2       22.5       15.6       11.2        8.9 Other installment                 2.9        2.9        2.3        2.8        1.5 Securitized                       3.9        7.9       14.9       26.2       40.1 Held for sale                    15.6       15.5       16.8       17.1       11.4                              ---------  ---------  ---------  ---------  ---------                                 100.0%     100.0%     100.0%     100.0%     100.0%                              =========  =========  =========  =========  =========   Commercial  Loans  In addition to traditional term commercial loans made to business customers, CWB grants  revolving  business  lines  of credit.  Under the terms of the revolving lines  of  credit,  CWB grants a maximum loan amount, which remains available to the business during the loan term.  Generally, as part of the loan requirements, the  business agrees to maintain its primary banking relationship with CWB.  CWB does not extend material loans of this type in excess of two years.  Commercial  Real  Estate  and  Construction  Loans  Commercial  real  estate loans are primarily made for the purpose of purchasing, improving  or  constructing  single-family  residences, commercial or industrial properties.  A  substantial portion of the Company's real estate construction loans are first and  second  trust  deeds  on  the  construction of owner-occupied single family dwellings.  The  Company  also  makes  real  estate  construction  loans  on                                        - 22 -  commercial  properties.  These  consist  of  first  and  second  trust  deeds collateralized  by  the related real property.  Construction loans are generally written with terms of six to eighteen months and usually do not exceed a loan to appraised  value  of  80%.  Commercial  and  industrial  real  estate  loans  are  secured by nonresidential property.  Office  buildings or other commercial property primarily secure these loans.  Loan  to  appraised value ratios on nonresidential real estate loans are generally  restricted  to 80% of appraised value of the underlying real property if  occupied  by  the  owner  or  owner's  business;  otherwise, these loans are generally  restricted to 75% of appraised value of the underlying real property.  SBA  Loans  The  SBA  loans  consist  of  7(a), 504, conventional, investor and Business and Industry  loans.  The 7(a) loan proceeds are used for working capital, machinery and  equipment purchases, land and building purposes, leasehold improvements and debt  refinancing.  The SBA guarantees up to 85% of the loan amount depending on loan size.  Under the SBA 7(a) loan program, the Company is required to retain a minimum  of  5%  of  the  gross  originated  principal  amount  of  each loan it originates  and  sells  into  the  secondary  market  The  504  loans  are  made  in conjunction with Certified Development Companies. These  loans  are  granted  to  purchase  or  construct  real  estate or acquire machinery and equipment.  The loan is structured with a conventional first trust deed  provided  by  a  private  lender  and  a second trust deed which is funded through  the sale of debentures.  The predominant structure is terms of 10% down payment,  50%  conventional  first  loan  and  40%  debenture.  Conventional  and investor loans are funded by our secondary-market partners and the  Bank  receives  a  premium  for  these  transactions.  B&I  loans are guaranteed by the U.S. Department of Agriculture.  The guaranteed amount  is  generally 80%.  B&I loans are similar to the 7(a) loans but are made to  businesses in designated rural areas.  These loans can also be sold into the secondary  market.  Real  Estate  Loans  The mortgage loan division originates first and second mortgage loans secured by trust  deeds  on  one to four family homes.  The loans are made to borrowers for the  purpose  of  purchasing a home or refinancing an existing home for purposes such  as  interest  rate  reduction,  home  improvement, and debt consolidation. These  loans  are underwritten to specific investor guidelines and are committed for  sale  to  that  investor.  A  majority  of  these  loans are sold servicing released  into  the  secondary  market.  Manufactured  Housing  Loans  The  mortgage  loan  division  originates  loans  secured  by manufactured homes primarily  located  in  mobile home parks along the Central Coast of California. At  December  31, 2005, the Bank had $101.3 million in its portfolio.  The loans are  serviced  internally and are generally fixed rate written for terms of 5 to 30 years with balloon payments ranging from 5 to 15 years.  Other  Installment  Loans  Installment  loans  consist of automobile, small home equity lines of credit and general-purpose  loans  made  to  individuals.  These  loans are primarily fixed rate.  Second  Mortgage  Loans  Prior  to  2000, the Company originated and purchased second mortgage loans that allowed  borrowers  to  borrow  up to 125% of their home's appraised value, when combined  with  the  balance of the first mortgage loan, up to a maximum loan of $100,000.  In  1998  and  1999,  the  Company  transferred  $81 million and $122 million, respectively, of these loans to two special purpose trusts. These loans were  both  originated and purchased by the Company.  The trusts then sold bonds to third party investors that were secured by the transferred loans. In November 2005,  the  Company  exercised  its  right  to  call  the bonds and paid off the remaining  balance  of  $9.8 million.  The special purpose trusts were dissolved while  the  Company  continues  to  have  the  loans  serviced  by a third party ("Servicer"),  who  receives  a stated servicing fee.  The securitized loans are classified  as  held  for  investment.                                        - 23 -  Loan  Commitments  Outstanding  The Company's loan commitments outstanding at the dates indicated are summarized below:                                                DECEMBER 31,                             -------------------------------------------                              2005     2004     2003     2002     2001                             -------  -------  -------  -------  -------                                                   (IN THOUSANDS) Commercial                  $22,327  $19,010  $13,867  $11,370  $ 7,450 Real estate                  19,323    7,618   11,676    7,664    6,370 SBA                           3,408    6,107    9,531    8,675    4,712 Installment loans             9,330    8,966    5,112    2,402   13,339 Standby letters of credit     1,499      403      522      380      438                             -------  -------  -------  -------  ------- Total commitments           $55,887  $42,104  $40,708  $30,491  $32,309                             =======  =======  =======  =======  =======   The  Company makes loans to borrowers in a number of different industries. Other than  Manufactured Housing, no single concentration comprises 10% or more of the Company's  loan  portfolio.  Commercial,  commercial  real  estate loans and SBA loans  comprised  over  10%  of  the Company's loan portfolio as of December 31, 2005,  but  consisted  of  diverse  borrowers.  Allowance  for  Loan  Losses  The  following table summarizes the activity in the Company's allowance for loan losses  for  the  periods  indicated:                                                                     YEAR ENDED DECEMBER 31,                                                  -----------------------------------------------------                                                    2005       2004       2003       2002       2001                                                  ---------  ---------  ---------  ---------  ---------                                                                            (IN THOUSANDS) Average gross loans, held for investment, including Securitized loans                      $288,049   $230,533   $202,563   $218,317   $267,402 Gross loans at end of year, held for investment, including Securitized loans           324,965    248,412    206,912    208,522    237,989  Allowance for loan losses, beginning of year                                             $  3,894   $  4,676   $  5,950   $  8,275   $  6,746   Loans charged off:     Commercial                                        228        185        445          1        614     Real estate                                         8        274        471      2,474      3,129     Installment                                         -          -          3          -          -     Short-term consumer                                 -          -        902      3,162      2,478     Securitized                                       831      1,356      2,512      4,012      4,358                                                  ---------  ---------  ---------  ---------  ---------       Total                                         1,067      1,815      4,333      9,649     10,580                                                  ---------  ---------  ---------  ---------  ---------   Recoveries of loans previously charged off     Commercial                                         20         31         88         71         40     Real estate                                        89         44         42        396        171     Short-term consumer                                 -          -        672      1,392        400     Securitized                                       452        540        588        566        378                                                  ---------  ---------  ---------             ---------       Total                                           561        615      1,390      2,425        990                                                  ---------  ---------  ---------             --------- Net loans charged off                                 506      1,200      2,943      7,224      9,590 Provision for loan losses                             566        418      1,669      4,899     11,881 Adjustments due to Palomar sale                         -          -          -          -       (762)                                                  ---------  ---------  ---------  ---------  --------- Allowance for loan losses, end of year           $  3,954   $  3,894   $  4,676   $  5,950   $  8,275                                                  =========  =========  =========  =========  ========= Ratios: Net loan charge-offs to average loans                 0.2%       0.5%       1.5%       3.3%       3.6% Net loan charge-offs to loans at end of period        0.2%       0.5%       1.4%       3.5%       4.0% Allowance for loan losses to loans held for investment at end of period                           1.4%       1.6%       2.3%       2.9%       3.5% Net loan charge-offs to allowance for loan losses at beginning of period                        13.0%      25.7%      49.5%      87.3%     142.2% Net loan charge-offs to provision for loan losses                                               89.4%     287.1%     176.3%     147.5%      80.7%                                         - 24 -    The following table summarizes the allowance for loan losses:                                                                DECEMBER 31,                  ---------------------------------------------------------------------------------------------------                        2005                 2004               2003                2002                 2001                  ------------------  ------------------  ------------------  -------------------  ------------------                                                          (DOLLARS IN THOUSANDS)                           PERCENT             PERCENT             PERCENT              PERCENT             PERCENT                           OF LOANS            OF LOANS            OF LOANS             OF LOANS            OF LOANS                           IN EACH             IN EACH             IN EACH              IN EACH             IN EACH BALANCE AT                CATEGORY            CATEGORY            CATEGORY             CATEGORY            CATEGORY END OF PERIOD             TO TOTAL            TO TOTAL            TO TOTAL             TO TOTAL            TO TOTAL APPLICABLE TO:   AMOUNT     LOANS    AMOUNT     LOANS    AMOUNT     LOANS     AMOUNT     LOANS    AMOUNT     LOANS - ---------------  -------  ---------  -------  ---------  -------  ---------  --------  ---------  -------  ---------            SBA              $ 1,409      35.7%  $ 1,388      35.7%  $ 1,550      27.0%  $  1,874      26.6%  $ 1,752      18.8% Manufactured   housing            563      14.2%      465      11.9%      372      15.6%       272      11.2%      291       8.9% Securitized          628      15.9%    1,109      28.5%    2,024      14.9%     2,571      26.2%    4,189      40.1% All other loans    1,354      34.2%      932      23.9%      730      42.5%     1,233      36.0%    2,043      32.2%                  ---------------------------------------------------------------------------------------------------   TOTAL          $ 3,954       100%  $ 3,894       100%  $ 4,676       100%  $  5,950       100%  $ 8,275       100%                  ===================================================================================================   Total  allowance  for  loan  losses  ("ALL")  increased  $60,000,  or 1.5%, from December  31,  2004 to December 31, 2005.  The slight increase was primarily the result  of  growth within the commercial, commercial real estate,  construction, and  manufactured housing portfolios which was mostly offset by a decline in the ALL  for the securitized loan portfolio as a result of the continued decrease in net  charge-offs  and  outstanding  loan  balances.  Net  loans  charged-off  were  $506,000  in  2005, $1.2 million in 2004 and $2.9 million  in 2003.  The primary reason for the decline in net loan charge-offs in 2005  was  the  paydown  in  the  securitized loan portfolio of $8.6 million, or 36.7%,  from  $23.5  million at year end 2004 to $14.9 million at year end 2005.  The  Company  recorded $566,000 as a provision for loan losses in 2005, $418,000 in  2004  and  $1.7 million in 2003.  The moderate increase in 2005 over 2004 is due  to  loan  growth  in most categories offset by the continued paydown in the securitized  loan  portfolio.  In  management's  opinion,  the  balance  of  the  allowance for loan losses was sufficient to absorb known and inherent probable losses in the loan portfolio as of  December31,  2005.  Nonaccrual,  Past  Due  and  Restructured  Loans  A  loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal  or  interest  under  the  contractual  terms  of  the loan agreement. Factors  considered  by  management  in  determining  impairment include payment status,  collateral  value and the probability of collecting scheduled principal and  interest  payments.  Loans  that experience insignificant payment delays or payment  shortfalls  generally  are  not  classified  as  impaired.  Management determines  the  significance  of  payment  delays  and  payment shortfalls on a case-by-case  basis.  When determining the possibility of impairment, management considers the circumstances surrounding the loan and the borrower, including the length  of  the  delay,  the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal and interest owed.  For  collateral-dependent  loans,  the  Company  uses  the  fair value of collateral  method  to  measure  impairment.  All  other  loans,  except  for securitized,  are  measured  for impairment based on the present value of future cash flows.  Impairment is measured on a loan-by-loan basis for all loans in the portfolio  except  for the securitized loans, which are evaluated for impairment on  a  collective  basis.  The  recorded  investment  in  loans  that  are  considered to be impaired is as follows:                                                                          YEAR ENDED DECEMBER 31,                                                          ------------------------------------------------                                                            2005      2004      2003      2002      2001                                                          --------  --------  --------  --------  --------                                                                                  (IN THOUSANDS) Impaired loans without specific valuation allowances     $    77   $    49   $   235   $   422   $     - Impaired loans with specific valuation allowances          3,406     3,926     6,843     7,971     6,587 Specific valuation allowance related to impaired loans      (473)     (425)     (640)   (1,127)   (1,669)                                                          --------  --------  --------  --------  -------- Impaired loans, net                                      $ 3,010   $ 3,550   $ 6,438   $ 7,266   $ 4,918                                                          ========  ========  ========  ========  ======== Average investment in impaired loans                     $ 3,716   $ 5,137   $ 6,584   $ 7,565   $ 5,047                                                          ========  ========  ========  ========  ========                                         - 25 -  The  following  schedule  reflects recorded investment at the dates indicated in certain  types  of  loans:                                                                           YEAR ENDED DECEMBER 31,                                                            ------------------------------------------------                                                              2005      2004      2003      2002      2001                                                            --------  --------  --------  --------  --------                                                                                   (IN THOUSANDS) Nonaccrual loans                                           $ 6,797   $ 8,350   $ 7,174   $13,965   $11,413 SBA guaranteed portion of loans included above              (4,332)   (5,287)   (4,106)   (8,143)   (7,825)                                                            --------  --------  --------  --------  -------- Nonaccrual loans, net                                      $ 2,465   $ 3,063   $ 3,068   $ 5,822   $ 3,588                                                            ========  ========  ========  ========  ========  Troubled debt restructured loans                           $    75   $   124   $   193   $   829   $ 1,093 Loans 30 through 90 days past due with interest accruing     1,792     1,804     3,907     5,122     2,607  Interest income recognized on impaired loans               $   141   $   103   $   277   $   190   $ 1,443 Interest foregone on nonaccrual loans and troubled debt   restructured loans outstanding                               253       208       216     1,263     1,146                                                            --------  --------  --------  --------  -------- Gross interest income on impaired loans                    $   394   $   311   $   493   $ 1,453   $ 2,589                                                            ========  ========  ========  ========  ========   The  accrual  of  interest  is  discontinued when substantial doubt exists as to collectibility  of  the  loan;  generally  at  the  time  the  loan  is  90 days delinquent.  Any  unpaid  but  accrued  interest  is  reversed  at  that  time. Thereafter,  interest  income  is  no  longer  recognized  on the loan. As such, interest  income  may be recognized on impaired loans to the extent they are not past  due  by  90  days.  Interest  on  nonaccrual loans is accounted for on the cash-basis  or  cost-recovery  method,  until  qualifying for return to accrual. Loans  are  returned  to  accrual  status when all of the principal and interest amounts contractually due are brought current and future payments are reasonably assured.  All  of  the  nonaccrual  loans  are  impaired.  Net non accrual loans declined  $598,000  from 2004 to 2005.  Principal balances of non-accrual loans, excluding  $4.0  million  in  SBA  guaranteed  loans  repurchased from investors compared to $5.2 million in 2004, declined by $403,000 and the guarantee related to  these  loans  increased  $195,000.  Total  impaired  loans  decreased  by  $492,000,  or  12.4%,  in 2005, while the specific  valuation  allowance  for  impaired  loans increased $48,000 for a net decrease  of  $540,000.  The  decline  in  impaired loans resulted from payments against  impaired  loans of $551,000 and pay-offs of impaired loans of $258,000. Additionally,  $136,000  of impaired loans were charged off, $11,000 in balances were upgraded and $111,000 of impaired loans were converted to OREO.  Offsetting these  declines  were  the  addition  of newly impaired loans of $547,000 and an increase in loans without a specific valuation allowance of $28,000.  Financial difficulties encountered by certain borrowers may cause the Company to restructure  the  terms  of their loan to facilitate loan repayment.  A troubled debt  restructured  loan  ("TDR")  would  generally be considered impaired.  The balance of impaired loans disclosed above includes all TDRs that, as of December 31,  2005,  2004  and  2003,  are  considered impaired.  Total TDRs decreased by 39.5%,  or  $49,000,  from $124,000 to $75,000 as of December 31, 2004 and 2005, respectively.  INVESTMENT  PORTFOLIO - ---------------------  The  following  table summarizes the carrying values of the Company's investment securities  for  the  years  indicated:                                           YEAR ENDED DECEMBER 31,                                       -------------------------                                        2005     2004     2003                                       -------  -------  -------                                            (IN THOUSANDS)     Available-for-sale securities - ----------------------------- U.S. Government and agency            $15,148  $15,221  $ 7,024 Other (1)                               7,471    7,037    8,408                                       -------  -------  ------- Total available-for-sale securities   $22,619  $22,258  $15,432                                       =======  =======  =======                                         - 26 -                                         YEAR ENDED DECEMBER 31,                                     -------------------------                                      2005     2004     2003                                     -------  -------  -------                                            (IN THOUSANDS     Held-to-maturity securities - --------------------------- U.S. Government and agency          $   200  $   200  $   200 Other (1)                             8,477    5,894    4,836                                     -------  -------  ------- Total held-to-maturity securities   $ 8,677  $ 6,094  $ 5,036                                     =======  =======  =======   At  December 31, 2005, $200,000 at carrying value of held-to-maturity securities were pledged as collateral to the U.S. Treasury for CWB's treasury, tax and loan account  and  $31.1  million  at carrying value were pledged to the Federal Home Loan Bank, San Francisco, as collateral for current and future advances.  The  following tables summarize the maturity periods and weighted average yields of  the  Company's  investment  securities  at  December  31,  2005.                                                                                                              FIVE TO TEN                            TOTAL AMOUNT           LESS THAN ONE YEAR         ONE TO FIVE YEARS              YEARS                        AMOUNT        YIELD       AMOUNT        YIELD       AMOUNT        YIELD       AMOUNT        YIELD                      -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------                                                (DOLLARS IN THOUSANDS)          Available-for-sale securities - ----------------------------- U. S. Government and agency           $    15,148         3.5%  $         -           -   $    15,148         3.5%  $         -           - Other (1)                  7,471         4.0%            -           -         7,471         4.0%            -           -                      -----------               -----------               -----------               ----------- Total AFS            $    22,619         3.7%  $         -           -   $    22,619         3.7%  $         -           -                      ===========               ===========               ===========               ===========  Held-to-maturity securities - --------------------------- U.S. Government and agency           $       200         3.6%  $       200         3.6%  $         -           -   $         -           - Other (1)                  8,477         4.7%            -           -         5,453         4.3%        3,024         5.3%                      -----------               -----------               -----------               ----------- Total HTM            $     8,677         4.6%  $       200         3.6%  $     5,453         4.3%  $     3,024         5.3%                      ===========               ===========               ===========               ===========   (1) Consists of pass-through mortgage backed securities and collateralized mortgage obligations.   Mortgage-backed  securities  and  collateralized  mortgage  obligations  are distributed  in  total  based  on  average  expected  maturities.  Interest-Only  Strips  and  Servicing  Rights  As  of December 31, 2005 and 2004, the Company held interest-only strips ("I/O") in  the  amount of $1.9 million and $2.7 million, respectively.  There have been no  new  I/O's since 2002.  These I/O's represent the present value of the right to  the  estimated  net  cash flows generated by SBA loans sold.  Net cash flows consist  of  the  difference  between  (a)  interest  at the stated rate paid by borrowers  and  (b)  the  sum  of  (i) pass-through interest paid to third-party investors  and (ii) contractual servicing fees.  The Company also held servicing rights  related  to SBA loans sales of $2.8 million and $3.3 million at December 31,  2005  and 2004, respectively.  For loans sold subsequent to March 31, 2002, the initial servicing rights and resulting gain on sale were calculated based on the  difference  between  the  best actual par and premium bids on an individual loan  basis.  The  servicing  right balances are subsequently amortized over the estimated  life  of  the  loans  using  industry  prepayment  statistics and the Company's  own  experience.  Quarterly, the servicing right and I/O strip assets are analyzed for impairment.  The I/O's are accounted for as investments in debt securities  classified  as  trading  securities.  Accordingly, the Company marks them  to  fair  value  with  the resulting increase or decrease recorded through operations  in  the  current  period.  At December 31, 2005 and 2004, all of the servicing  rights  were  related  to  SBA  loan  sales.  LIQUIDITY  MANAGEMENT - ---------------------  The  Company  has  established  policies  as  well as analytical tools to manage liquidity.  Proper  liquidity  management  ensures  that  sufficient  funds  are available  to  meet  normal operating demands in addition to unexpected customer demand  for  funds, such as high levels of deposit withdrawals or increased loan demand, in a timely and cost effective manner.  The most important factor in the preservation  of  liquidity  is  maintaining  public  confidence  that                                        - 27 -  facilitates  the  retention  and  growth  of  core deposits.  Ultimately, public confidence  is  gained through profitable operations, sound credit quality and a strong  capital  position.  The  Company's liquidity management is viewed from a long-term  and  short-term  perspective,  as well as from an asset and liability perspective.  Management  monitors liquidity through regular reviews of maturity profiles,  funding  sources  and  loan and deposit forecasts to minimize funding risk.  The Company has asset/liability committees ("ALCO") at the Board and Bank management level to review asset/liability management and liquidity issues.  The Company  maintains strategic liquidity and contingency plans.  Periodically, the Company  has used short-term time certificates from other financial institutions to  meet  projected  liquidity  needs.  In 2004, CWB was approved for membership in the Federal Home Loan Bank ("FHLB"). The  Company  has  a  blanket  lien  credit  line  with  the  FHLB. Advances are collateralized  in the aggregate by CWB's eligible mortgage loans and securities of the U.S Government and its agencies. The outstanding advances at December 31, 2005  include  $38.5  million  borrowed  at  variable  rates which adjust to the current LIBOR rate either monthly or quarterly and $25 million borrowed at fixed rates.  At  December  31,  2005,  CWB  had  pledged to FHLB, securities of $31.1 million  at  carrying  value  and  loans  of  $62.8 million, and had $30 million available  for  additional borrowing At December 31, 2004, CWB had $33.8 million of  loans  and $14.1 million of securities pledged as collateral and outstanding advances of $10.5 million.  The  Company  also  maintains  three  federal  funds purchased lines for a total borrowing  capacity  of  $18.5  million.  The  Company,  through the Bank, also has the ability as a member of the Federal Reserve System, to borrow at the discount window up to 50% of what is pledged at the  Federal  Reserve  Bank.   CWB  qualifies  for primary credit as it has been deemed  to  be in sound financial condition.  The rate on primary credit will be 50  basis  points  less  than  the  secondary  credit rate and will generally be granted  on a "no questions asked basis" at a rate that initially will be at 100 basis  points  above  the  Federal Open Market Committee's (FOMC) target federal funds  rate.  As the rate is currently not attractive, it is unlikely it will be used as a regular source of funding, but is noted as available as an alternative funding  source.  The Company has not experienced disintermediation and does not believe this is a potentially  probable occurrence.  However, in a highly competitive marketplace, CWB's  core  deposits  (excluding  certificates  of  deposit)  declined by $30.1 million  in 2005 and the Company has turned more to wholesale funding sources to help  fund  loan growth.  The liquidity ratio of the Company was 22% at December 31,  2005  compared  to 27% at December 31, 2004.  The Company's liquidity ratio fluctuates  in  conjunction  with  loan  funding  demands.  The  liquidity ratio consists  of  cash and due from banks, deposits in other financial institutions, available  for  sale  investments,  federal  funds sold and loans held for sale, divided  by  total  assets.  CWBC's  routine  funding  requirements  primarily  consist  of certain operating expenses.  Normally, CWBC obtains funding to meet its obligations from dividends collected  from  its subsidiary and has the capability to issue debt securities. Federal  banking  laws  regulate  the  amount  of  dividends that may be paid by banking  subsidiaries  without  prior  approval.  Interest  Rate  Risk  The  Company  is exposed to different types of interest rate risks.  These risks include:  lag,  repricing,  basis  and  prepayment  risk.       -    Lag  Risk  -  lag  risk  results  from  the inherent timing difference           between  the  repricing  of  the  Company's adjustable rate assets and           liabilities.  For instance, certain loans tied to the prime rate index           may  only  reprice  on a quarterly basis. However, at a community bank           such  as  CWB,  when rates are rising, funding sources tend to reprice           more  slowly  than  the  loans. Therefore, for CWB, the effect of this           timing  difference  is  generally  favorable during a period of rising           interest  rates  and unfavorable during a period of declining interest           rates.  This  lag can produce some short-term volatility, particularly           in  times  of  numerous  prime  rate  changes.       -    Repricing  Risk  -  repricing  risk  is  caused by the mismatch in the           maturities  /  repricing  periods  between interest-earning assets and           interest-bearing  liabilities.  If  CWB was perfectly matched, the net           interest  margin  would expand during rising rate periods and contract           during  falling  rate  periods. This is so since loans tend to reprice           more quickly than do funding sources. Typically, since CWB is somewhat           asset  sensitive,  this  would  also  tend  to expand the net interest           margin  during  times  of  interest  rate  increases.                                        - 28 -       -    Basis  Risk - item pricing tied to different indices may tend to react           differently,  however,  all CWB's variable products are priced off the           prime  rate.       -    Prepayment Risk - prepayment risk results from borrowers paying down /           off  their loans prior to maturity. Prepayments on fixed-rate products           increase  in falling interest rate environments and decrease in rising           interest  rate  environments.  Since  a  majority  of  CWB's  loan           originations  are adjustable rate and set based on prime, and there is           little  lag  time  on  the  reset, CWB does not experience significant           prepayments.  However,  CWB  does  have  more  prepayment  risk on its           securitized  and  manufactured  housing  loans and its mortgage-backed           investment  securities.  Management  of  Interest  Rate  Risk  To  mitigate  the  impact  of  changes in market interest rates on the Company's interest-earning  assets  and  interest-bearing  liabilities,  the  amounts  and maturities  are  actively  managed.  Short-term,  adjustable-rate  assets  are generally retained as they have similar repricing characteristics as our funding sources.  CWB  sells  mortgage  products  and  a  portion  of  its  SBA  loan originations.  While  the  Company  has some interest rate exposure in excess of five  years,  it  has  internal  policy  limits designed to minimize risk should interest rates rise.  Currently, the Company does not use derivative instruments to  help  manage  risk,  but will consider such instruments in the future if the perceived  need  should  arise.  Loan sales - The Company's ability to originate, purchase and sell loans is also significantly impacted by changes in interest rates. Increases in interest rates may  also  reduce  the  amount  of  loan  and commitment fees received by CWB. A significant  decline  in  interest  rates  could also decrease the size of CWB's servicing  portfolio and the related servicing income by increasing the level of prepayments.  DEPOSITS - --------  The following table shows the Company's average deposits for each of the periods indicated  below:                                                      YEAR ENDED DECEMBER 31,                             --------------------------------------------------------------                                     2005                 2004                 2003                             --------------------  -------------------  -------------------                              AVERAGE    PERCENT   AVERAGE    PERCENT   AVERAGE    PERCENT                              BALANCE   OF TOTAL   BALANCE   OF TOTAL   BALANCE   OF TOTAL                             ---------  ---------  --------  ---------  --------  ---------        (DOLLARS IN THOUSANDS) Noninterest-bearing demand   $ 34,758      12.0%  $ 38,760      15.6%  $ 34,400      15.9% Interest-bearing demand        87,587      30.1%    50,785      20.4%    35,768      16.5% Savings                        16,479       5.7%    17,810       7.2%    15,480       7.2% TCD's of $100,000 or more      62,545      21.5%    31,851      12.8%    21,076       9.7% Other TCD's                    89,304      30.7%   109,457      44.0%   109,828      50.7%                             ---------  ---------  --------  ---------  --------  ---------   Total Deposits             $290,673     100.0%  $248,663     100.0%  $216,552     100.0%                             =========  =========  ========  =========  ========  =========   The maturities of time certificates of deposit ("TCD's") were as follows:                                                                DECEMBER 31,                                         --------------------------------------------------                                                   2005                      2004                                         ------------------------  ------------------------                                         TCD'S OVER      OTHER     TCD'S OVER      OTHER                                          $100,000       TCD'S      $100,000       TCD'S                                         -----------  -----------  -----------  -----------                                                                (IN THOUSANDS) Less than three months                  $    14,968  $    18,872  $     8,002  $    16,237 Over three months through six months         17,947       19,395        7,062       20,809 Over six months through twelve months        48,575       38,822        9,877       15,843 Over twelve months through five years        28,045       26,451       15,452       39,137                                         -----------  -----------  -----------  -----------   Total                                 $   109,535  $   103,540  $    40,393  $    92,026                                         ===========  ===========  ===========  ===========   The  deposits  of  the Company may fluctuate up and down with local and national economic  conditions.  However,  management does not believe that deposit levels are  significantly  influenced  by  seasonal  factors.  The  Company  manages its money desk and obtains brokered deposits in accordance with  its  liquidity  and  strategic planning.  Such deposits increased by $42.0 million  during 2005 as the Company's general funding needs increased due to the growth  in  the  loan  portfolio.  The  Company can use the money desk or obtain broker  deposits  when                                        - 29 -  necessary in a short timeframe; however, these funds are more expensive as there is  substantial  competition  for  these  deposits.  CONTRACTUAL OBLIGATIONS - -----------------------  The  Company  has contractual obligations that include long-term debt, deposits, operating  leases and purchase obligations for service providers.  The following table is summary of those obligations at December 31, 2005:                                                                                                        OVER 5                                                 TOTAL      < 1 YEAR     1-3 YEARS    3-5 YEARS      YEARS                                              -----------  -----------  -----------  -----------  -----------                                                                             (IN THOUSANDS) FHLB Borrowing                               $    63,500  $     4,000  $    51,500  $     8,000  $         - Time certificates of deposits                    213,075      158,578       40,467       14,030            - Operating lease obligations                        2,241          930          793          410          108 Purchase obligations for service providers         1,211          363          590          258            -                                              -----------  -----------  -----------  -----------  -----------   Total                                      $   280,027  $   163,871  $    93,350  $    22,698  $       108                                              ===========  ===========  ===========  ===========  ===========                              SUPERVISION AND REGULATION  INTRODUCTION - ------------  Banking  is  a  complex,  highly  regulated  industry.  The primary goals of the regulatory  scheme  are  to  maintain  a  safe and sound banking system, protect depositors  and  the  Federal Deposition Insurance Corporation's insurance fund, and  facilitate  the  conduct of sound monetary policy.  In furtherance of these goals,  Congress  and  the  states  have  created  several  largely  autonomous regulatory  agencies  and  enacted numerous laws that govern banks, bank holding companies  and  the  financial  services  industry. Consequently, the growth and earnings  performance  of  CWBC  and  CWB can be affected not only by management decisions  and  general  economic  conditions,  but  also by the requirements of applicable  state  and  federal statues, regulations and the policies of various governmental  regulatory  authorities,  including  the Board of Governors of the Federal  Reserve  System,  or  the  FRB,  the  Office  of the Comptroller of the Currency,  or  the  OCC, and Federal Deposit Insurance Corporation, or the FDIC.  The  system  of  supervision  and  regulation  applicable  to financial services businesses  governs most aspects of the business of CWBC and CWB, including: (i) the scope of permissible business; (ii) investments; (iii) reserves that must be maintained  against  deposits;  (iv) capital levels that must be maintained; (v) the  nature and amount of collateral that may be taken to secure loans; (vi) the establishment  of  new  branches;  (vii)  mergers  and consolidations with other financial institutions; and (viii) the payment of dividends.  From  time  to  time  laws  or  regulations are enacted which have the effect of increasing  the  cost  of  doing  business,  limiting  or expanding the scope of permissible  activities,  or  changing the competitive balance between banks and other financial and non-financial institutions. Proposals to change the laws and regulations  governing  the  operations  of banks and bank holding companies are frequently  made  in Congress and by various bank and other regulatory agencies. Future  changes  in  the  laws,  regulations or polices that impact CWBC and CWB cannot  necessarily  be  predicted,  but  they may have a material effect on the business and earnings of CWBC and CWB.  CWBC - ----  General.  As  a  bank holding company, CWBC is registered under the Bank Holding Company  Act  of  1956, as amended, (or "BHCA"), and is subject to regulation by the  FRB.  According  to  FRB  Policy,  CWBC  is  expected to act as a source of financial  strength  for CWB, to commit resources to support it in circumstances where  CWBC  might  not  otherwise  do  so.  Under  the BHCA, CWBC is subject to periodic examination by the FRB.  CWBC is also required to file periodic reports of  its  operations  and any additional information regarding its activities and those  of  its  subsidiaries  as  may  be  required  by  the  FRB.  CWBC  is  also  a bank holding company within the meaning of Section 3700 of the California  Financial  Code.  Consequently,  CWBC  and  CWB  are  subject  to examination  by,  and  may be required to file reports with, the Commissioner of the  California  Department of Financial Institutions ("DFI").  Regulations have not yet been proposed or adopted or steps otherwise taken to implement the DFI's powers  under  this  statute.  CWBC  has  a  class  of  securities  registered  with  the  Securities  Exchange Commission  ("SEC")  under Section 12 of the Securities Exchange Act of 1934, as amended,  ("1934  Act")  and  has its common stock listed on the Nasdaq National Market.  Consequently,  CWBC is subject to supervision and regulation by the SEC and  compliance  with Nasdaq  listing  requirements.                                        - 30 -  Bank  Holding  Company Liquidity.  CWBC is a legal entity, separate and distinct from  CWB.  CWBC  has  the  ability to raise capital on its own behalf or borrow from external sources, CWBC may also obtain additional funds from dividends paid by,  and  fees  charged  for  services  provided  to,  CWB.  However, regulatory constraints  on CWB may restrict or totally preclude the payment of dividends by CWB  to  CWBC.  Transactions  With  Affiliate.  CWBC  and  any  subsidiaries  it may purchase or organize  are  deemed to be affiliates of CWB within the meaning of Sections 23A and  23B of the Federal Reserve Act, and the FRB's Regulation W.  Under Sections 23A and 23B and Regulation W, loans by CWB to affiliates, investments by them in affiliates'  stock,  and taking affiliates' stock as collateral for loans to any borrower  is  limited to 10% of CWB's capital, in the case of any one affiliate, and  is  limited  to  20%  of  CWB's capital, in the case of all affiliates.  In addition,  transactions  between  CWB  and other affiliates must be on terms and conditions  that  are  consistent  with  safe  and  sound  banking practices, in particular,  a  bank  and  its  subsidiaries  generally may not purchase from an affiliate  a  low-quality  asset,  as defined in the Federal Reserve Act.  These restrictions  also  prevent  a  bank  holding CWBC and its other affiliates from borrowing  from  a  banking subsidiary of the bank holding CWBC unless the loans are  secured  by  marketable collateral of designated amounts.  CWBC and CWB are also  subject  to  certain  restrictions  with  respect  to  engaging  in  the underwriting,  public  sale  and  distribution  of  securities.  Limitations  on  Business  and  Investment  Activities.  Under  the BHCA, a bank holding  company  must  obtain  the  FRB's  approval  before:  (i)  directly  or indirectly  acquiring  more than 5% ownership or control of any voting shares of another bank or bank holding company; (ii) acquiring all or substantially all of the  assets of another bank; (iii) or merging or consolidating with another bank holding  company.  The  FRB  may allow a bank holding company to acquire banks located in any state of  the United States without regard to whether the acquisition is prohibited by the  law  of  the  state  in  which  the  target  bank is located.  In approving interstate  acquisitions,  however, the FRB must give effect to applicable state laws limiting the aggregate amount of deposits that may be held by the acquiring bank  holding  company  and  its insured depository institutions in the state in which the target bank is located, provided that those limits do not discriminate against  out-of-state  depository  institutions  or their holding companies, and state  laws  which  require  that  the  target bank have been in existence for a minimum  period  of  time, not to exceed five years, before being acquired by an out-of-state  bank  holding  company.  In  addition  to  owning  or  managing  banks,  bank  holding  companies may own subsidiaries engaged in certain businesses that the FRB has determined to be "so closely related to banking as to be a proper incident thereto." CWBC, therefore, is  permitted to engage in a variety of banking-related businesses.  Some of the activities  that  the  FRB  has  determined, pursuant to its Regulation Y, to be related  to  banking  are:       -    making  or  acquiring  loans or other extensions of credit for its own           account  or  for  the  account  of  others      -    servicing  loans  and  other  extensions  of  credit;      -    performing  functions  or  activities that may be performed by a trust           company in the manner authorized by federal or state law under certain           circumstances;      -    leasing  personal  and  real  property  or acting as agent, broker, or           adviser  in  leasing  such  property  in  accordance  with  various           restrictions  imposed  by  FRB  regulations;      -    acting  as  investment  or  financial  advisor;      -    providing  management  consulting  advise under certain circumstances;      -    providing  support  services,  including courier services and printing           and  selling  MICR-encoded  items;      -    acting  as  a  principal,  agent or broker for insurance under certain           circumstances;      -    making  equity  and  debt  investments  in  corporations  or  projects           designed primarily to promote community welfare or jobs for residents;      -    providing  financial,  banking  or  economic  data processing and data           transmission  services;      -    owning,  controlling  or operating a savings association under certain           circumstances;      -    selling  money  orders,  travelers'  checks  and  U.S.  Savings Bonds;      -    providing  securities  brokerage  services,  related securities credit           activities  pursuant  to Regulation T and other incidental activities;      -    underwriting  and  dealing  in  obligations  of  the  U.S.,  general           obligations  of  states  and  their  political  subdivisions and other           obligations  authorized  for  state  member  banks  under  federal law                                        - 31 -  Additionally,  qualifying  bank holding companies making an appropriate election to  the  FRB  may  engage  in  a  full  range of financial activities, including insurance, securities and merchant banking.  CWBC has not elected to qualify for these  financial  services.  Federal  law  prohibits  a  bank  holding  company and any subsidiary banks from engaging  in  certain  tie-in  arrangements  in connection with the extension of credit.  Thus,  for  example, CWB may not extend credit, lease or sell property, or  furnish  any  services,  or  fix  or  vary  the consideration for any of the foregoing  on  the  condition  that:       -    the  customer  must obtain or provide some additional credit, property           or  services  from  or  to CWB other than a loan, discount, deposit or           trust  services:      -    the  customer  must obtain or provide some additional credit, property           or  service  from  or  to  CWBC  or  any  subsidiaries;  or      -    the  customer  must not obtain some other credit, property or services           from  competitors,  except reasonable requirements to assure soundness           of  credit  extended  Capital  Adequacy.  Bank  holding  companies  must  maintain  minimum  levels of capital  under  the  FRB's  risk-based  capital adequacy guidelines.  If capital falls  below  minimum  guideline  levels,  a  bank  holding company, among other things,  may  be  denied  approval  to  acquire or establish additional banks or non-bank  businesses.  The FRB's risk-based capital adequacy guidelines, discussed in more detail below in  the  section  entitled "SUPERVISION AND REGULATON - CWB - Regulatory Capital Guidelines,"  assign  various risk percentages to different categories of assets and  capital is measured as a percentage of risk assets.  Under the terms of the guidelines,  bank  holding  companies  are  expected  to  meet  capital adequacy guidelines  based  both on total risk assets and on total assets, without regard to  risk  weights.  The  risk-based guidelines are minimum requirements.  Higher capital levels will be  required  if  warranted  by the particular circumstances or risk profiles of individual organizations.  For example, the FRB's capital guidelines contemplate that additional capital may be required to take adequate account of, among other things,  interest  rate  risk,  or  the risks posed by concentrations of credit, nontraditional  activities  or  securities  trading  activities.  Moreover,  any banking  organization  experiencing  or  anticipating  significant  growth  or expansion  into new activities, particularly under the expanded powers under the Gramm-Leach-Bliley  Act, would be expected to maintain capital ratios, including tangible  capital  positions,  well  above  the  minimum  levels.  Limitations  on  Dividend  Payments.  California  Corporations  Code Section 500 allows  CWBC  to pay a dividend to its shareholders only to the extent that CWBC has  retained  earnings  and,  after  the  dividend,  CWBC's:       -    assets  (exclusive  of  goodwill and other intangible assets) would be           1.25  times  its  liabilities  (exclusive  of deferred taxes, deferred           income  and  other  deferred  credits);  and      -    current  assets  would  be  at  least  equal  to  current liabilities.  Additionally,  the FRB's policy regarding dividends provides that a bank holding CWBC should not pay cash dividends exceeding its net income or which can only be funded  in ways that weaken the bank holding company's financial health, such as by  borrowing.  The  FRB  also  possesses  enforcement  powers over bank holding companies  and  their  non-bank  subsidiaries  to prevent or remedy actions that represent  unsafe  or unsound practices or violations of applicable statutes and regulations.  The  Sarbanes-Oxley  Act  of  2002.  The Sarbanes-Oxley Act of 2002, or the SOX, became  effective  on  July  30,  2002,  and  represents  the  most far reaching corporate  and  accounting  reform  legislation  since  the  enactment  of  the Securities  Act  of  1933  and the Exchange Act of 1934.  The SOX is intended to provide  a  permanent  framework that improves the quality of independent audits and  accounting  services,  improves  the  quality  of  financial  reporting, strengthens  the  independence  of  accounting  firms  and  increases  the responsibility of management for corporate disclosures and financial statements. It  is  intended  that  by addressing these weaknesses, public companies will be able  to  avoid  the  problems  encountered  by  several companies in 2001-2002.  The  Sox's  provisions  are  significant  to  all companies that have a class of securities  registered  under  Section  12 of the Exchange Act, or are otherwise reporting  to  the  SEC  (or the appropriate federal banking agency) pursuant to Section  15(d)  of  the  Exchange  Act,  including  CWBC  (collectively, "public companies").  In  addition  to  SEC  rulemaking to implement the SOX, The Nasdaq National  Market  has  adopted  corporate  governance  rules  intended  to allow shareholders to more easily and effectively monitor the performance of companies and  directors.  The                                        - 32 -  principal  provisions  of  the  SOX, many of which have been interpreted through regulations  released  in  2003,  provide  for  and include, among other things:       -    the  creation  of  an  independent  accounting  oversight  board;      -    auditor  independence provisions that restrict non-audit services that           accountants  may  provide  to  their  audit  clients;      -    additional corporate governance and responsibility measures, including           the  requirement  that the chief executive officer and chief financial           officer  of  a  public  company  certify  financial  statements;      -    the  forfeiture  of  bonuses or other incentive-based compensation and           profits  from  the  sale  of  an  issuer's securities by directors and           senior  officers  in  the  twelve  month  period  following  initial           publication  of  any  financial  statements  that  later  require           restatement;      -    an  increase  in  the  oversight  of,  and  enhancement  of  certain           requirements relating to, audit committees of public companies and how           they  interact  with  CWBC's  independent  auditors;      -    requirements  that audit committee members must be independent and are           barred  from accepting consulting, advisory or other compensatory fees           from  the  issuer;      -    requirements  that  companies  disclose whether at least one member of           the  audit  committee is a "financial expert' (as such term is defined           by  the  SEC)  and  if not discussed, why the audit committee does not           have  a  financial  expert;      -    expanded  disclosure  requirements  for  corporate insiders, including           accelerated  reporting  of  stock  transactions  by  insiders  and  a           prohibition  on  insider  trading  during  pension  blackout  periods;      -    a  prohibition  on  personal  loans  to directors and officers, except           certain  loans  made  by  insured  financial  institutions  on           non-preferential  terms  and  in compliance with other bank regulatory           requirements;      -    disclosure  of  a code of ethics and filing a Form 8-K for a change or           waiver  of  such  code;      -    a  range  of  enhanced  penalties  for fraud and other violations; and      -    expanded  disclosure  and  certification  relating  to  an  issuer's           disclosure  controls  and  procedures  and  internal  controls  over           financial  reporting.  As  a  result  of  the  SOX, and its implementing regulations, CWBC has incurred substantial  cost  to  interpret  and  ensure  compliance  with  the law and its regulations  including,  without  limitation,  increased expenditures by CWBC in auditors' fees, attorneys' fees, outside advisors fees, and increased errors and omissions insurance premium costs. Effective September 29, 2005 the SEC extended the  compliance  dates for non-accelerated filers such as CWBC with the internal control  over  financial reporting requirements to July 15, 2007. CWBC cannot be certain  of  the effect, if any, of the foregoing legislation on the business of CWBC  although  increased  costs of compliance are likely. Future changes in the laws,  regulation,  or policies that impact CWBC cannot necessarily be predicted and may have a material effect on the business and earnings of CWBC.  CWB - ---  General.  CWB,  as  a  national  banking  association  which  is a member of the Federal  Reserve  System,  is  subject  to  regulation,  supervision and regular examination  by  the  OCC,  FDIC and the FRB.  CWB's deposits are insured by the FDIC  up  to  the  maximum  extent  provided  by  law.  The regulations of these agencies  govern  most  aspects  of CWB's business and establish a comprehensive framework  governing  its  operations.  Regulatory  Capital  Guidelines.  The  federal banking agencies have established - -------------------------------- minimum  capital  standards  known  as  risk-based  capital  guidelines.  These guidelines are intended to provide a measure of capital that reflects the degree of  risk associated with a bank's operations.  The risk-based capital guidelines include  both a definition of capital and a framework for calculating the amount of capital that must be maintained against a bank's assets and off-balance sheet items.  The amount of capital required to be maintained is based upon the credit risks associated with the various types of a bank's assets and off-balance sheet items.  A bank's assets and off-balance sheet items are classified under several risk categories, with each category assigned a particular risk weighting from 0% to  100%.                                       Adequately   Well                     CWBC                                   ============  ====                     ====                                   Capitalized   Capitalized      CWB     (consolidated)                                   ============  ============  =========  ==============                                   (greater than or equal to)                                   ==========================      Total risk-based capital                 8.00%        10.00%     11.32%          12.26% ================================  ============  ============  =========  ============== Tier 1 risk-based capital ratio          4.00%         6.00%     10.27%          11.21% ================================  ============  ============  =========  ============== Tier 1 leverage capital ratio            4.00%         5.00%      9.06%           9.80% ================================  ============  ============  =========  ==============                                         - 33 -  As  of December 31, 2005, management believes that CWBC's capital levels met all minimum  regulatory  requirements and that CWB was considered "well capitalized" under  the  regulatory  framework  for  prompt  corrective  action.  Prompt  Corrective Action.  The federal banking agencies possess broad powers to take  prompt  corrective  action to resolve the problems of insured banks.  Each federal  banking agency has issued regulations defining five capital categories: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized,"  and "critically undercapitalized."  Under the regulations, a bank  shall  be  deemed  to  be:       -    "well  capitalized"  if it has a total risk-based capital ratio of 10%           or  more,  has  a Tier 1 risk-based capital ratio of 6% or more, has a           leverage  capital  ratio of 5% or more and is not subject to specified           requirements  to  meet  and  maintain a specific capital level for any           capital  measure;      -    "adequately capitalized" if it has a total risk-based capital ratio of           8%  or  more,  a  Tier  1 risk-based capital ratio of 4% or more and a           leverage  capital ratio of 4% or more (3% under certain circumstances)           and  does  not  meet  the  definition  of  "well  capitalized";      -    "undercapitalized"  if it has a total risk-based capital ratio that is           less  than 8%, a Tier 1 risk-based capital ratio that is less than 4%,           or  a  leverage  capital  ratio that is less than 4% (3% under certain           circumstances)      -    "significantly  undercapitalized" if it has a total risk-based capital           ratio  that is less than 6%, a Tier 1 risk-based capital ratio that is           less  than  3%  or  a leverage capital ratio that is less than 3%; and      -    "critically  undercapitalized" if it has a ratio of tangible equity to           total  assets  that  is  equal  to  or  less  than  2%  Banks  are  prohibited  from  paying dividends or management fees to controlling persons  or  entities  if,  after  making  the  payment,  the  bank  would  be "undercapitalized,"  that  is, the bank fails to meet the required minimum level for any relevant capital measure.  Asset growth and branching restrictions apply to  "undercapitalized"  banks.  Banks  classified  as  "undercapitalized"  are required  to  submit acceptable capital plans guaranteed by its holding company, if  any.  Broad  regulatory authority was granted with respect to "significantly undercapitalized" banks, including forced mergers, growth restrictions, ordering new elections for directors, forcing divestiture by its holding company, if any, requiring  management  changes  and prohibiting the payment of bonuses to senior management.  Even  more  severe  restrictions  are  applicable  to  "critically undercapitalized"  banks,  those  with capital at or less than 2%.  Restrictions for  these  banks  include the appointment of a receiver or conservator.  All of the  federal banking agencies have promulgated substantially similar regulations to  implement  this  system  of  prompt  corrective  action  A bank, based upon its capital levels, that is classified as "well capitalized," "adequately  capitalized" or "undercapitalized" may be treated as though it were in  the  next  lower capital category if the appropriate federal banking agency, after notice and opportunity for a hearing, determines that an unsafe or unsound condition,  or  an unsafe or unsound practice, warrants such treatment.  At each successive  lower  capital  category,  an  insured  bank  is  subject  to  more restrictions.  The  federal  banking  agencies,  however,  may  not  treat  an institution  as "critically undercapitalized" unless its capital ratios actually warrant  such  treatment.  In  addition  to  measures  taken under the prompt corrective action provisions, insured  banks  may  be  subject to potential enforcement actions by the federal banking  agencies for unsafe or unsound practices in conducting their businesses or  for  violations  of  any  law,  rule, regulation or any condition imposed in writing  by  the  agency  or any written agreement with the agency.  Enforcement actions may include the imposition of a conservator or receiver, the issuance of a  cease-and-desist  order  that  can be judicially enforced, the termination of insurance  of deposits (in the case of a depository institution), the imposition of  civil  money  penalties, the issuance of directives to increase capital, the issuance  of  formal  and  informal  agreements,  the  issuance  of  removal and prohibition  orders  against institution-affiliated parties.  The enforcement of such  actions  through  injunctions  or  restraining  orders may be based upon a judicial  determination that the agency would be harmed if such equitable relief was  not  granted.  The  OCC, as the primary regulator for national banks, also has a broad range of enforcement  measures,  from  cease  and  desist  powers  and  the imposition of monetary  penalties  to  the  ability  to  take  possession of a bank, including causing  its  liquidation.  Federal  Deposit  Insurance.  The  FDIC  has implemented a risk-based assessment system  in  which  the deposit insurance premium relates to the probability that the  deposit  insurance  fund  will  incur  a loss. Under the current risk-based assessment  system  adopted by the FDIC, banks are categorized into one of three capital  categories,  ("well  capitalized",  "adequately  capitalized"  and "undercapitalized").  Assignment of a bank into a particular capital category is based  on  supervisory  evaluations  by  its  primary  federal  regulator.  CWB  is currently risk rated a 1A, which results in CWB being categorized, group A.  Because  of the FDIC's favorable loss experience and a healthy reserve ratio in  the  Bank  Insurance  Fund,  well-capitalized  and  well-managed                                        - 34 -  banks  have  in  recent  years  paid  minimal premiums for FDIC Insurance.   The current  deposit insurance system will remain in effect until the effective date of  final  regulations  implementing  the  FDI  Reform  Act  (discussed  below).  On  February  8,  2006,  President  Bush  signed  into  law  The Federal Deposit Insurance  Reform  Act  of  2005  (the  "FDI  Reform  Act").  The FDI Reform Act represents  the  most  significant  reform  in  the  deposit insurance system in decades.  The  FDI Reform Act will (i) merge the BIF and the Savings Association Insurance  Fund  (or  SAIF)  (the  new  combined fund will be called the Deposit Insurance  Fund  or  DIF),  (ii)  index  the $100,000 insurance level to reflect inflation  (the first adjustment for inflation will be effective January 1, 2011 and  thereafter  adjustments  will  occur every 5 years), (iii) increase deposit insurance  coverage  for  retirement  accounts  to  $250,000, which will also be subject  to the every five years adjustment process, (iv) offer credits to banks that historically have capitalized the FDIC which can be used to offset premiums otherwise due (this addresses the fact that institutions that have grown rapidly have  not  had  to  pay  deposit premiums), (v) impose a cap on the level of the deposit  insurance  fund  and provide for dividends when the fund grows beyond a specified  threshold,  (vi)  adopt the historical basis concept for distributing the  aforementioned  one-time credit and dividends (each bank's historical basis will  be determined by a formula that involves looking back to the institution's assessment  base  in  1996  and  adding premiums paid since that time) and (vii) authorize  revisions  to  the  current risk-based system for assessing premiums. The  deadline  for  merging  the  BIF and the SAIF into the DIF is July 1, 2006. Final rules for the remaining provisions are scheduled to become effective by no later  than  November  5,  2006.  While  the  FDI Reform Act assumes continuation of the FDIC's current system for calculating  an  institution's  assessment  based  on  (i)  the  probability the institution  will  cause  the  insurance  fund  to incur a loss, (ii) the likely amount  of any such loss, and (iii) the revenue needs of the insurance fund, the amount  of  future premiums and assessment rates that CWB will have pay into the DIF  will  depend  on  the  final  regulations to be adopted by the FDIC.  While Management  cannot  make final determination of the impact of the FDI Reform Act until  the implementing regulations are finalized, Management currently believes that the implementation of the FDI Reform Act will not have a material effect on the  business  and  earnings  of  CWBC  and  CWB.  Money  Laundering  and  Currency  Controls.  Various  federal  statutory  and regulatory  provisions  are  designed to enhance record-keeping and reporting of currency  and foreign transactions.  Pursuant to the Bank Secrecy Act, financial institutions  must  report  high  levels  of  currency  transactions or face the imposition  of  civil  monetary  penalties  for reporting violations.  The Money Laundering  Control  Act  imposes  sanctions,  including  revocation  of federal deposit  insurance,  for  institutions  convicted  of  money  laundering.  The International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001  ("IMLAFATA"),  a  part of the USA Patriot Act, authorizes the Secretary of the  Treasury,  in  consultation with the heads of other government agencies, to adopt  special  measures applicable to banks and other financial institutions to enhance  recordkeeping  and  reporting  requirements  for  certain  financial transactions  that  are  of  primary  money laundering concern.  Among its other provisions,  IMLAFATA  requires  each financial institution to: (i) establish an anti-money laundering program; (ii) establish due diligence policies, procedures and  controls  with  respect  to  its private banking accounts and correspondent banking  accounts  involving  individuals  and  certain foreign banks; and (iii) avoid  establishing,  maintaining,  administering,  or  managing  correspondent accounts in the Untied States for, or on behalf of, a foreign bank that does not have  a  physical  presence  in  any  country.  In addition, IMLAFATA contains a provision  encouraging  cooperation  among  financial  institutions,  regulatory authorities  and  law  enforcement  authorities  with  respect  to  individuals, entities  and  organizations engaged in, or reasonably suspected of engaging in, terrorist  acts  or  money  laundering  activities.  The  Treasury  Department's  adopted  final  regulations  implementing  IMLAFATA mandate  that federally-insured banks and other financial institutions establish customer  identification  programs  designed  to  verify the identity of persons opening  new  accounts,  maintain  the  records  used  for  verification, and to determine  whether  the  person  appears  on  any  list  of  known  or suspected terrorists  or  terrorist  organizations.  Community Reinvestment Act.  The CRA is intended to encourage insured depository institutions,  while operating safely and soundly, to help meet the credit needs of  their communities.  The CRA specifically directs the federal bank regulatory agencies,  in  examining insured depository institutions, to assess their record of  helping  to  meet the credit needs of their entire community, including low- and  moderate-income  neighborhoods,  consistent  with  safe  and  sound banking practices.  The  CRA  further  requires  the  agencies  to  take  a  financial institution's  record  of  meeting  its community credit needs into account when evaluating applications for, among other things, domestic branches, consummating mergers  or  acquisitions  or  holding  company  formations.  The  federal  banking  agencies  have adopted regulations which measure a bank's compliance  with  its  CRA obligations on a performance-based evaluation system. This  system  bases  CRA  ratings  on  an  institution's  actual                                        - 35 -  lending  service  and investment performance rather than the extent to which the institution conducts needs assessments, documents community outreach or complies with  other  procedural requirements.  The ratings range from "outstanding" to a low  of  "substantial  noncompliance."  CWB  had  a  CRA  rating  of  "Satisfactory"  as  of  its most recent regulatory examination.  Environmental  Regulation.  Federal,  state  and  local  laws  and  regulations regarding  the  discharge  of harmful materials into the environment may have an impact  on  CWB.  Since  CWB  is not involved in any business that manufactures, uses  or  transports  chemicals,  waste,  pollutants or toxins that might have a material  adverse  effect  on  the  environment,  CWB's  primary  exposure  to environmental  laws  is through its lending activities and through properties or businesses  CWB  may  own, lease or acquire.  Based on a general survey of CWB's loan  portfolio,  conversations  with  local  appraisers and the type of lending currently and historically done by CWB, management is not aware of any potential liability  for  hazardous waste contamination that would be reasonably likely to have  a  material  adverse  effect  on  CWBC  as  of  December  31,  2005.  Safeguarding  of  Customer  Information  and  Privacy.  The  FRB  and other bank regulatory  agencies  have  adopted  guidelines  for  safeguarding confidential, personal  customer information.  These guidelines require financial institutions to  create,  implement and maintain a comprehensive written information security program  designed  to  ensure  the  security  and  confidentiality  of  customer information,  protect  against any anticipated threats or hazard to the security or  integrity  of such information and protect against unauthorized access to or use  of  such information that could result in substantial harm or inconvenience to  any  customer.  CWB  has  adopted a customer information security program to comply  with  such  requirements.  Financial  institutions  are  also required to implement policies and procedures regarding  the  disclosure  of nonpublic personal information about consumers to non-affiliated  third  parties.  In general, financial institutions must provide explanations to consumers on policies and procedures regarding the disclosure of such  nonpublic  personal information, and, except as otherwise required by law, prohibits  disclosing  such information except as provided in CWB's policies and procedures.  CWB  has implemented privacy policies addressing these restrictions which  are  distributed  regularly  to  all  existing  and new customers of CWB.  USA  Patriot  Act.  On  October  26,  2001,  the  President  signed  into  law comprehensive  anti-terrorism legislation, the Uniting and Strengthening America by  Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of  2001,  known  as  the  Patriot Act.  The USA Patriot Act ("Patriot Act") was designed  to  deny  terrorists  and  others  the ability to obtain access to the United  States  financial system, and has significant implications for financial institutions  and  other  businesses  involved  in  the  transfer of money.  The Patriot  Act,  as  implemented  by various federal regulatory agencies, requires financial  institutions, including CWB, to implement new policies and procedures or  amend existing policies and procedures with respect to, among other matters, anti-money  laundering, compliance, suspicious activity and currency transaction reporting  and  due  diligence on customers.  The Patriot Act and its underlying regulations  also  permit  information  sharing  for  counter-terrorist purposes between  federal law enforcement agencies and financial institutions, as well as among  financial  institutions,  subject  to certain conditions, and require the FRB, the OCC and other federal banking agencies to evaluate the effectiveness of an  applicant  in  combating  money  laundering  activities  when  considering applications  filed under Section 3 of the BHCA or the Bank Merger Act.  CWB has augmented  its systems and procedures to accomplish this.  CWB believes that the ongoing  cost of compliance with the Patriot Act is not likely to be material to CWB.  Other  Aspects  of  Banking  Law.  CWB  is also subject to federal statutory and regulatory provisions covering, among other things, security procedures, insider and  affiliated  party  transactions,  management  interlocks,  electronic funds transfers,  funds  availability, and truth-in-savings.  There are also a variety of  federal statutes which regulate acquisitions of control and the formation of bank  holding  companies.  REGULATORY  MATTERS From  October  2002  until October 2003, CWB was operating under a Consent Order with  the  OCC.  In  addition,  from  March  2000  until November 2003, CWBC was operating  under  a  Memorandum  of  Understanding  with  the  FRB.  Prior  to termination  of  agreements,  both  CWB  and  CWBC  were  precluded from certain activities.                                        - 36 -  ITEM  7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK - --------   ---------------------------------------------------------  The  Company's  primary  market risk is interest rate risk ("IRR").  To minimize the volatility of net interest income at risk ("NII") and the impact on economic value of equity ("EVE"), the Company manages its exposure to changes in interest rates  through  asset  and  liability  management  activities  within guidelines established  by the Board's ALCO.  ALCO has the responsibility for approving and ensuring  compliance  with  asset/liability  management  policies, including IRR exposure.  To  mitigate  the  impact  of  changes  in  interest  rates  on  the  Company's interest-earning  assets  and interest-bearing liabilities, the Company actively manages  the  amounts and maturities.  The Company generally retains short-term, adjustable-rate  assets  as  they  have  similar  re-pricing  characteristics as funding  sources.  The  Company sells substantially all of its mortgage products and  a  portion of its SBA loan originations.  While the Company has some assets and  liabilities in excess of five years, it has internal policy limits designed to  minimize  risk  should interest rates rise.  Currently, the Company does not use  derivative  instruments  to  help  manage  risk,  but  will  consider  such instruments in the future if the perceived need should arise.  The  Company  uses  software,  combined  with download detailed information from various  application programs, and assumptions regarding interest rates, lending and  deposit  trends  and  other key factors to forecast/simulate the effects of both  higher and lower interest rates.   The results detailed below indicate the impact,  in  dollars  and percentages, on NII and EVE of an increase in interest rates  of  200 basis points and a decline of 200 basis points compared to a flat interest  rate  scenario.    - ------------------------------------------------------------------------------------------------ INTEREST RATE SENSITIVITY                            200 BP INCREASE         200 BP DECREASE                                                   ----------------------  ----------------------                                                      2005        2004        2005        2004                                                   ----------  ----------  ----------  ----------                                                               (DOLLARS IN THOUSANDS)      Anticipated impact over the next twelve months: Net interest income (NII)                         $   1,869   $   1,230   $  (1,933)  $  (1,237)                                                         9.4%        8.2%      (9.7%)      (8.3%) - ------------------------------------------------------------------------------------------------  - ------------------------------------------------------------------------------------------------ Economic value of equity (EVE)                    $  (1,916)  $    (749)  $     239   $     241                                                       (3.7%)      (1.6%)         .5%        0.5% - ------------------------------------------------------------------------------------------------   For  further  discussion  of  interest  rate  risk,  see  "Item  7. Management's Discussion  and  Analysis  of  Financial  Condition  and Results of Operations - Interest  Rate  Risk."  ITEM  8. CONSOLIDATED FINANCIAL STATEMENTS  AND  SUPPLEMENTAL  DATA - -------  ----------------------------------------------------------       The Company's consolidated financial statements begin on page F-1.                                        - 37 -  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  The Board of Directors and Stockholders of Community West Bancshares  We  have  audited the accompanying consolidated balance sheets of Community West Bancshares  (the  Company)  as  of  December  31, 2005 and 2004, and the related consolidated statements of income, stockholders' equity, and cash flows for each of  the  three  years  in the period ended December 31, 2005. These consolidated financial  statements  are  the  responsibility of the Company's management. Our responsibility  is  to  express  an  opinion  on  these  consolidated  financial statements  based  on  our  audits.  We  conducted  our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements  are free of material misstatement. We were not engaged to perform an audit  of  the  Company's  internal  control over financial reporting. Our audit included  consideration  of internal control over financial reporting as a basis for  designing  audit  procedures that are appropriate in the circumstances, but not  for  the  purpose  of  expressing  an  opinion  on the effectiveness of the Company's  internal control over financial reporting. Accordingly, we express no such  opinion.  An  audit  also  includes  examining,  on a test basis, evidence supporting  the  amounts  and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating  the  overall  financial  statement presentation. We believe that our audits  provide  a  reasonable  basis  for  our  opinion.  In  our  opinion,  the financial statements referred to above present fairly, in all  material  respects,  the  consolidated financial position of Community West Bancshares  at  December  31, 2005 and 2004, and the consolidated results of its operations  and  its  cash flows for each of the three years in the period ended December  31,  2005,  in  conformity  with  U.S.  generally  accepted accounting principles.  Los Angeles, California March 17, 2006                                         F - 1                                                COMMUNITY WEST BANCSHARES                                            CONSOLIDATED BALANCE SHEETS                                                                                                 DECEMBER 31,                                                                                           ----------------------                                                                                              2005        2004                                                                                           ----------  ----------                                                                                                 (DOLLARS IN                                                                                                  THOUSANDS)    ASSETS Cash and due from banks                                                                   $   4,830   $   8,769 Interest-earning deposits in other financial institutions                                         -       9,700 Federal funds sold                                                                            8,902      11,736                                                                                           ----------  ----------   Cash and cash equivalents                                                                  13,732      30,205 Time deposits in other financial institutions                                                   532         647 Investment securities available-for-sale, at fair value; amortized cost of   $22,833 at December 31, 2005 and $22,380 at December 31, 2004                              22,619      22,258 Investment securities held-to-maturity, at amortized cost; fair value of   $8,619 at December 31, 2005 and $6,122 at December 31, 2004                                 8,677       6,094 Federal Home Loan Bank stock, at cost                                                         2,985       1,200 Federal Reserve Bank stock, at cost                                                             812         812 Interest only strips, at fair value                                                           1,888       2,715 Loans:   Held for sale, at lower of cost or fair value                                              60,506      45,988   Held for investment, net of allowance for loan losses of $3,326 at December 31,     2005 and $2,785 at December 31, 2004                                                    306,781     222,153   Securitized loans, net of allowance for loan losses of $628  at December 31, 2005 and     $1,109 at December 31, 2004                                                              14,230      22,365                                                                                           ----------  ----------       Total loans                                                                           381,517     290,506 Servicing rights                                                                              2,845       3,258 Other real estate owned, net                                                                      7          13 Premises and equipment, net                                                                   2,146       1,763 Other assets                                                                                  6,594       5,732                                                                                           ----------  ---------- TOTAL ASSETS                                                                              $ 444,354   $ 365,203                                                                                           ==========  ==========  LIABILITIES Deposits:   Non-interest-bearing demand                                                             $  34,251   $  44,384   Interest-bearing demand                                                                    70,453      92,395   Savings                                                                                    16,459      15,370   Time certificates of $100,000 or more                                                     109,535      40,393   Other time certificates                                                                   103,540      92,026                                                                                           ----------  ----------     Total deposits                                                                          334,238     284,568 Securities sold under agreements to repurchase                                                    -      13,672 Federal Home Loan Bank advances                                                              63,500      10,500 Bonds payable in connection with securitized loans                                                -      13,910 Other liabilities                                                                             4,381       4,984                                                                                           ----------  ----------     Total liabilities                                                                       402,119     327,634                                                                                           ----------  ---------- Commitments and contingencies-See Note 15 STOCKHOLDERS' EQUITY Common stock, no par value; 10,000,000 shares authorized; 5,751,313 shares issued and   outstanding at December 31, 2005 and 5,729,869 at December 31, 2004                        30,190      30,020 Retained earnings                                                                            12,171       7,621 Accumulated other comprehensive loss                                                           (126)        (72)                                                                                           ----------  ----------   Total stockholders' equity                                                                 42,235      37,569                                                                                           ----------  ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                $ 444,354   $ 365,203                                                                                           ==========  ==========  See accompanying notes.                                          F - 2                                   COMMUNITY WEST BANCSHARES                              CONSOLIDATED INCOME STATEMENTS                                                                 YEAR ENDED DECEMBER 31,                                                               -------------------------                                                                 2005     2004     2003                                                               -------  -------  -------                                                                (IN THOUSANDS, EXCEPT                                                                  PER SHARE DATA)     INTEREST INCOME   Loans                                                       $28,276  $20,565  $19,658   Investment securities                                         1,274      979      489   Other                                                           228      301      236                                                               -------  -------  -------     Total interest income                                      29,778   21,845   20,383                                                               -------  -------  ------- INTEREST EXPENSE   Deposits                                                      7,701    5,016    4,621   Bonds payable and other borrowings                            2,646    2,829    4,721                                                               -------  -------  -------     Total interest expense                                     10,347    7,845    9,342                                                               -------  -------  ------- NET INTEREST INCOME                                            19,431   14,000   11,041 Provision for loan losses                                         566      418    1,669                                                               -------  -------  ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES            18,865   13,582    9,372 NON-INTEREST INCOME   Other loan fees                                               2,906    3,776    2,923   Gains from loan sales, net                                    2,499    3,981    4,860   Document processing fees, net                                   823      817      937   Loan servicing fees, net                                        575    1,416    1,264   Service charges                                                 318      381      376   Other                                                           189       91      315                                                               -------  -------  -------     Total non-interest income                                   7,310   10,462   10,675                                                               -------  -------  ------- NON-INTEREST EXPENSES   Salaries and employee benefits                               11,993   11,851   11,416   Occupancy and equipment expenses                              1,840    1,596    1,691   Professional services                                         1,022      940      636   Depreciation                                                    543      532      581   Loan servicing and collection                                   255      225      438   Other                                                         2,507    2,377    1,974                                                               -------  -------  -------     Total non-interest expenses                                18,160   17,521   16,736                                                               -------  -------  ------- Income before provision for income taxes                        8,015    6,523    3,311 Provision for income taxes                                      2,373    2,688    1,128                                                               -------  -------  -------           NET INCOME                                          $ 5,642  $ 3,835  $ 2,183                                                               =======  =======  =======  INCOME PER SHARE - BASIC                                      $  0.98  $  0.67  $  0.38 INCOME PER SHARE - DILUTED                                    $  0.95  $  0.65  $  0.38 Basic weighted average number of common shares outstanding      5,744    5,718    5,694 Diluted weighted average number of common shares outstanding    5,931    5,867    5,258   See accompanying notes.                                          F - 3                                                   COMMUNITY WEST BANCSHARES                                     CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY                                                                                            ACCUMULATED                                                                                             OTHER            TOTAL                                           COMMON          STOCK          RETAINED       COMPREHENSIVE    STOCKHOLDERS'                                           SHARES          AMOUNT         EARNINGS       INCOME (LOSS)       EQUITY                                        -------------  --------------  ---------------  ---------------  ---------------                                                                              (IN THOUSANDS) BALANCES AT DECEMBER 31, 2002                              5,690  $       29,798  $        2,289   $            -   $       32,087 Exercise of stock options                         17              76               -                -               76 Comprehensive income: Net income                                                                     2,183                -            2,183 Change in unrealized loss on   securities available-for-sale, net                                                              (15)             (15)                                                                                                         --------------- Comprehensive income                                                                                             2,168                                        -------------  --------------  ---------------  ---------------  --------------- BALANCES AT DECEMBER 31, 2003                              5,707          29,874           4,472              (15)          34,331 Exercise of stock options                         23             146               -                -              146 Comprehensive income: Net income                                                                     3,835                -            3,835 Change in unrealized loss on   securities available-for-sale, net                                                              (57)             (57)                                                                                                         --------------- Comprehensive income                                                                                             3,778 Cash dividends paid  ($0.12 per share)                                                              (686)                             (686)                                        -------------  --------------  ---------------  ---------------  --------------- BALANCES AT DECEMBER 31, 2004                              5,730          30,020           7,621              (72)          37,569 Exercise of stock options                         21             119                                               119 Tax benefit from stock options                                    40                                                40 Comprehensive income: Net income                                                                     5,642                             5,642 Change in unrealized loss on   securities available-for-sale, net                                                              (54)             (54)                                                                                                         --------------- Comprehensive income                                                                                             5,588 Cash dividends paid  ($0.19 per share)                                                            (1,092)                           (1,092) Other                                                             11                                                11                                        -------------  --------------  ---------------  ---------------  --------------- BALANCES AT DECEMBER 31, 2005                              5,751  $       30,190  $       12,171   $         (126)  $       42,235                                        =============  ==============  ===============  ===============  ===============  See accompanying notes.                                          F - 4                                                  COMMUNITY WEST BANCSHARES                                         CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                                            YEAR ENDED DECEMBER 31,                                                                                       -------------------------------                                                                                         2005       2004       2003                                                                                       ---------  ---------  ---------                                                                                                    (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES:   Net income                                                                          $  5,642   $  3,835   $  2,183   Adjustments to reconcile net income to net cash provided by operating activities:     Provision for loan losses                                                              566        418      1,669     Provision for losses on real estate owned                                                -          1         25     Deferred income taxes                                                                 (220)      (278)       474     Depreciation and amortization                                                          746      1,270      1,589     Net amortization of discounts and premiums on securities                                12         19        189     Gains on:       Sale of other real estate owned                                                       49         (2)       (79)       Sale of loans held for sale                                                       (1,610)    (3,981)    (4,401)     Changes in:       Fair value of interest only strips, net of accretion                                 827        833      1,000       Servicing rights, net of amortization                                                413       (759)      (602)       Other assets                                                                        (862)     1,562      4,068       Other liabilities                                                                   (360)     1,058     (1,062)                                                                                       ---------  ---------  ---------         Net cash provided by operating activities                                        5,203      3,976      5,053                                                                                       ---------  ---------  --------- CASH FLOWS FROM INVESTING ACTIVITIES:     Purchase of held-to-maturity securities                                             (4,545)    (3,179)    (7,337)     Purchase of available-for-sale securities                                           (2,113)   (10,232)   (24,197)     Purchase of Federal Home Loan Bank stock                                            (1,712)    (1,200)         -     Federal Home Loan Bank stock dividend                                                  (73)         -          -     Principal paydowns and maturities of available-for-sale securities                   1,763      3,413      8,670     Principal paydowns and maturities of held-to-maturity securities                     1,939      2,095      8,219     Loan originations and principal collections, net                                   (90,230)   (42,758)     2,744     Proceeds from sale of other real estate owned                                          194        529      1,718     Net decrease in time deposits in other financial institutions                          115        145      1,485     Purchase of premises and equipment, net of sales                                      (926)      (663)      (254)                                                                                       ---------  ---------  ---------       Net cash (used in) investing activities                                          (95,588)   (51,850)    (8,952)                                                                                       ---------  ---------  --------- CASH FLOWS FROM FINANCING ACTIVITIES:     Exercise of stock options                                                              119        146         76     Cash dividends paid to shareholders                                                 (1,092)      (686)         -     Net (decrease) increase in demand deposits and savings accounts                    (30,986)    56,058      9,847     Net increase (decrease) in time certificates of deposit                             80,656      3,655     (4,075)     Proceeds from securities sold under agreements to repurchase                             -     13,672     20,041     Repayments of securities sold under agreements to repurchase                       (13,672)   (14,394)    (5,647)     Proceeds from Federal Home Loan Bank advances                                       56,500     14,000          -     Repayment of Federal Home Loan Bank advances                                        (3,500)    (3,500)         -     Repayments of bonds payable in connection with securitized loans                   (14,113)   (12,928)   (25,381)                                                                                       ---------  ---------  ---------       Net cash provided by (used in) financing activities                               73,912     56,023     (5,139)                                                                                       ---------  ---------  --------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                   (16,473)     8,149     (9,038) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                            30,205     22,056     31,094                                                                                       ---------  ---------  --------- CASH AND CASH EQUIVALENTS, END OF YEAR                                                $ 13,732   $ 30,205   $ 22,056                                                                                       =========  =========  =========  See accompanying notes.                                          F - 5                              COMMUNITY WEST BANCSHARES                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                 DECEMBER 31, 2005  1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  The accounting and reporting policies of Community West Bancshares, a California Corporation ("Company or CWBC"), and its wholly-owned subsidiary, Community West Bank  National  Association ("CWB") are in accordance with accounting principles generally  accepted  in  the United States ("GAAP") and general practices within the  financial  services  industry.  All  material intercompany transactions and accounts  have  been  eliminated.  The  following  are  descriptions of the most significant  of  those  policies:  NATURE  OF  OPERATIONS  -  The  Company's  primary  operations  are  related  to commercial  banking  and  financial  services  through  CWB  which  include  the acceptance of deposits and the lending and investing of money.  The Company also engages  in  electronic  banking  services.  The  Company's customers consist of small  to  mid-sized  businesses,  including  Small  Business  Administration borrowers,  as  well  as  individuals.  USE  OF  ESTIMATES  - The preparation of financial statements in conformity with accounting  principles  generally  accepted  in  the  United  States  requires management  to make estimates and assumptions that affect the reported amount of assets  and  liabilities  as  well  as  disclosures  of  contingent  assets  and liabilities  at  the  date  of  the  financial  statements.  These estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period.  Although management believes these estimates to be reasonably accurate,  actual  results  may  differ.  Certain amounts in the 2003 and 2004 financial statements have been reclassified to  be  comparable  with  classifications  in  2005.  BUSINESS  SEGMENTS  -  Reportable  business  segments  are  determined using the "management approach" and are intended to present reportable segments consistent with  how  the  chief  operating  decision  maker  organizes segments within the company  for  making  operating  decisions  and  assessing  performance.  As  of December  31,  2005  and  2004,  the  Company  had  only one reportable business segment.  RESERVE  REQUIREMENTS  -  All  depository  institutions  are  required by law to maintain  reserves on transaction accounts and non-personal time deposits in the form  of  cash  balances  at  the  Federal  Reserve  Bank ("FRB"). These reserve requirements  can  be  offset by cash balances held at CWB. At December 31, 2005 and 2004, CWB's cash balance was sufficient to offset the FRB requirement.  INVESTMENT  SECURITIES  -  The  Company currently holds securities classified as both  available-for-sale  ("AFS")  and  held-to-maturity  ("HTM").  Securities classified  as  HTM  are  accounted for at amortized cost as the Company has the positive intent and ability to hold them to maturity.  Securities not classified as HTM are considered AFS and are carried at fair value with unrealized gains or losses  reported  as  a  separate  component  of accumulated other comprehensive income  (loss), net of any applicable income taxes.  Realized gains or losses on the  sale of AFS securities, if any, are determined on a specific identification basis.  Purchase  premiums and discounts are recognized in interest income using the  effective  interest  method over the terms of the related securities, or to earlier  call  dates,  if appropriate.  Declines in the fair value of AFS or HTM securities  below their cost that are deemed to be other than temporary, if any, are  reflected  in  earnings  as  realized  losses.  There  is no recognition of unrealized  gains  or  losses  for  HTM  securities.  INTEREST  ONLY  STRIPS  AND SERVICING RIGHTS - The guaranteed portion of certain SBA  loans  can  be  sold  into  the  secondary  market.  Servicing  rights  are recognized  at  fair  market  value  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.  Additionally, on certain SBA loan sales that occurred prior to 2003, the Company  retained  interest  only  strips  ("I/O  Strips"),  which represent the present  value  of excess net cash flows generated by the difference between (a) interest  at  the  stated  rate  paid  by  borrowers  and  (b)  the  sum  of (i) pass-through  interest  paid  to  third-party  investors  and  (ii)  contractual servicing  fees.  The  I/O  strips are classified as trading securities.  Accordingly, the Company records  the I/O strips at fair value with the resulting increase or decrease in fair  value being recorded through operations in the current period.  Quarterly,                                         F - 6  the Company verifies the reasonableness of its valuation estimates by comparison to  the  results  of  an  independent  third  party  valuation  analysis.  LOANS  HELD  FOR  SALE - Loans which are originated and intended for sale in the secondary  market  are  carried  at  the  lower  of cost or estimated fair value determined on an aggregate basis.  Valuation adjustments, if any, are recognized through  a  valuation allowance by charges to lower of cost or market provision. Loans  held  for sale are primarily comprised of SBA loans and residential first and  second mortgage loans.  The Company did not incur a lower of cost or market valuation provision in the years ended December 31, 2005, 2004 and 2003.  LOANS  HELD  FOR  INVESTMENT  -  Loans  are  recognized  at the principal amount outstanding,  net  of  unearned  income, loan participations and amounts charged off.  Unearned  income  includes  deferred loan origination fees reduced by loan origination  costs.  Unearned  income  on  loans is amortized to interest income over the life of the related loan using the level yield method.  INTEREST  INCOME  ON  LOANS  -  Interest  on  loans  is  accrued  daily  on  a simple-interest basis.  The accrual of interest is discontinued when substantial doubt exists as to collectibility of the loan, generally at the time the loan is 90  days  delinquent,  unless  the  credit  is  well  secured  and in process of collection.  Any  unpaid  but  accrued  interest  is  reversed  at  that  time. Thereafter,  interest  income  is no longer recognized on the loan.  Interest on non-accrual  loans  is  accounted for on the cash-basis or cost-recovery method, until  qualifying  for  return to accrual.  Loans are returned to accrual status when  all  of  the  principal and interest amounts contractually due are brought current  and  future  payments  are  reasonably  assured.  Impaired  loans  are identified  as impaired when it is probable that interest and principal will not be  collected  according to the contractual terms of the loan agreement.  All of the  Company's nonaccrual loans were also classified as impaired at December 31, 2005  and  2004.  REPURCHASE  AGREEMENTS - Securities sold under repurchase agreements are treated as  collateralized financing transactions and carried at the amount at which the securities  will  be  subsequently  repurchased.  SECURITIZED  LOANS  AND  BOND DEFERRED COSTS - Purchased loan premiums, deferred debt  issuance  costs  and  bond  discount  related  to  the  loan and bonds are amortized  on  a  method  that  approximates  the  level  yield  method over the estimated life of the loans and bonds, respectively.  PROVISION  AND  ALLOWANCE  FOR  LOAN  LOSSES - The Company maintains a detailed, systematic  analysis  and  procedural  discipline to determine the amount of the allowance  for  loan  losses  ("ALL").  The  ALL  is  based  on estimates and is intended  to  be  adequate  to  provide for probable losses inherent in the loan portfolio.  This  process  involves  deriving  probable  loss estimates that are based  on  individual  loan  loss estimation, migration analysis/historical loss rates  and  management's  judgment.  The  Company  employs  several  methodologies  for  estimating  probable losses. Methodologies  are  determined  based  on a number of factors, including type of asset,  risk  rating,  concentrations,  collateral  value  and  the input of the Special  Assets  group,  functioning  as  a  workout  unit.  The ALL calculation for the different major loan types is as follows:       -    SBA  -  All  loans  are  reviewed  and classified loans are assigned a           specific allowance. Those not classified are assigned a pass rating. A           migration  analysis and various portfolio specific factors are used to           calculate  the  required  allowance  on  those  pass  loans.       -    Relationship Banking - Includes commercial, commercial real estate and           consumer  loans. Classified loans are assigned a specific allowance. A           migration  analysis and various portfolio specific factors are used to           calculate  the  required  allowance  on  the  remaining  pass  loans.       -    Manufactured Housing - An allowance is calculated on the basis of risk           rating,  which is a combination of delinquency, value of collateral on           classified  loans  and  perceived  risk  in  the  product  line.       -    Securitized Loans - The Company considers this a homogeneous portfolio           and calculates the allowance based on statistical information provided           by  the  servicer.  Charge-off  history  is  calculated based on three           methodologies;  a  3-month  and  a  12-month  historical  trend and by           delinquency  information. The highest requirement of the three methods           is  used.  The  Company  calculates  the  required  ALL on a monthly basis.  Any difference between  estimated and actual observed losses from the prior month are reflected in the current period required ALL calculation and adjusted as deemed necessary. The  review  of  the  adequacy  of  the  allowance takes into consideration such factors as concentrations of credit, changes in the growth, size and composition of  the  loan  portfolio,  overall  and  individual portfolio quality, review of specific  problem loans, collateral, guarantees and economic conditions that may affect  the  borrowers'  ability  to  pay  and/or  the  value  of the underlying collateral.  Additional  factors  considered  include:  geographic  location  of borrowers,  changes  in the Company's product-specific credit policy and lending staff  experience.  These  estimates depend on the outcome of future events and, therefore,  contain  inherent  uncertainties.                                         F - 7  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 30  days;  and, all other unsecured loans past due 120 or more days.  Subsequent recoveries,  if  any,  are  credited  to  the  ALL.  OTHER  REAL  ESTATE  OWNED  -  Other  real  estate owned ("OREO") is real estate acquired  through foreclosure on the collateral property and is recorded at fair value  at  the  time of foreclosure less estimated costs to sell.  Any excess of loan  balance  over  the  fair  value  of  the  OREO  is charged-off against the allowance  for  loan losses.  Subsequent to foreclosure, management periodically performs  a  new  valuation  and  the  asset is carried at the lower of carrying amount  or  fair  value.  Operating  expenses  or income, and gains or losses on disposition  of  such  properties,  are  charged  to  current  operations.  PREMISES  AND  EQUIPMENT  -  Premises  and  equipment  are  stated at cost, less accumulated  depreciation  and amortization.  Depreciation is computed using the straight-line  method  over the estimated useful lives of the assets.  Leasehold improvements  are amortized over the terms of the leases or the estimated useful lives  of  the  improvements,  whichever  is  shorter.  Generally, the estimated useful  lives  of  other  items  of  premises  and  equipment  are  as  follows:            Building  and  improvements            31.5 years           Furniture  and  equipment              5 - 10 years           Electronic  equipment  and  software   2 - 5 years  INCOME  TAXES  - The Company uses the accrual method of accounting for financial reporting  purposes  as  well  as  for  tax  reporting.  Due to tax regulations, certain  items of income and expense are recognized in different periods for tax return  purposes  than for financial statement reporting.  These items represent "temporary  differences."  Deferred  income  taxes  are  recognized  for the tax effect  of temporary differences between the tax basis of assets and liabilities and  their  financial  reporting amounts at each period end based on enacted tax laws  and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.  A valuation allowance is established for deferred tax assets if, based on weight of available evidence, it is more likely than  not  that  some  portion  or  all  of  the  deferred tax assets may not be realized.  INCOME  PER  SHARE  -  Basic  income per share is computed based on the weighted average  number  of shares outstanding during each year divided into net income. Diluted  income  per  share  is computed based on the weighted average number of shares  outstanding  during  each  year  plus  the  dilutive  effect, if any, of outstanding  options  divided  into  net  income.  STATEMENT  OF CASH FLOWS  -  For purposes of reporting cash flows, cash and cash equivalents  include  cash,  due  from banks, interest-earning deposits in other financial  institutions  and federal funds sold.  Federal funds sold are one-day transactions  with  CWB's  funds  being  returned  the  following  business day.  STOCK-BASED  COMPENSATION  -  Until  the  effective date of SFAS 123, January 1, 2006,  GAAP  permitted the Company to use either of two methodologies to account for  compensation  cost  in  connection  with employee stock options.  The first method  required  issuers  to  record  compensation  expense over the period the options  were  expected  to  be  outstanding  prior  to  exercise, expiration or cancellation.  The  amount  of  compensation  expense to be recognized over this term  was the "fair value" of the options at the time of the grant as determined by  the Black-Scholes valuation model.  Black-Scholes computes fair value of the options  based on the length of their term, the volatility of the stock price in past  periods  and  other  factors.  Under  this  method,  the issuer recognized compensation  expense  regardless  of  whether  or  not  the employee eventually exercises  the  options.  Under the second methodology, if options were granted at an exercise price equal to  the  market  value  of  the  stock at the time of the grant, no compensation expense  was  recognized.  GAAP required that issuers electing the second method present  pro forma disclosures of net income (loss) and earnings per share as if the  first  method  had  been  elected.  Under  the terms of the Company's stock option plan, full-time salaried employees may be granted qualified stock options or  incentive  stock  options  and  directors  may be granted nonqualified stock options.  Options  may  be  granted  at a price not less than 100% of the market value  of  the  stock  on  the  date  of  grant. Qualified options are generally exercisable in cumulative 20% installments. All options expire no later than ten years  from  the  date  of  grant.  RECENT  ACCOUNTING  PRONOUNCEMENTS  -  SFAS  No.  123  (Revised 2004) ("SFAS No. 123R"),  Share-Based  Payment,  is a revision of SFAS No. 123 and supersedes APB Opinion  No.  25 and its related implementation guidance.  The Statement focuses primarily  on  accounting  for  transactions in which an entity obtains employee services  in  share-based payment transactions.  SFAS No. 123R requires a public entity  to  measure  the  cost  of employee services received in exchange for an award  of  equity  instruments  based  on the grant-date fair value of the award (with  limited exceptions).  That cost will be recognized over the period during which  an  employee  is  required  to  provide  service                                         F - 8  in  exchange  for the award.  On March 29, 2005, the SEC issued Staff Accounting Bulletin  No.  107  ("SAB  No. 107"), which provides the Staff's views regarding interactions  between  SFAS  No.  123R and certain SEC rules and regulations and provides  interpretations  of  the  valuation of share-based payments for public companies.  SFAS  No.  123R  permits public companies to adopt its requirements using one of two  methods:  (1) A "modified prospective" method in which compensation cost is recognized  beginning  with  the effective date (a) based on the requirements of SFAS  No. 123R for all share-based payments granted after the effective date and (b)  based  on  the  requirements  of  SFAS  No.  123  for all awards granted to employees  prior  to the effective date of SFAS No. 123R that remain unvested on the effective date, or  (2) a "modified retrospective" method which includes the requirements  of  the  modified  prospective  method  described  above, but also permits  entities  to  restate  based on the amounts previously recognized under SFAS  No. 123 for purposes of pro forma disclosures either (a) all prior periods presented  or  (b)  prior  interim  periods  of  the  year  of  adoption.  The Company will adopt the standard in the first quarter 2006 using the modified prospective  method.  As  permitted  by  SFAS  No.  123,  the  Company currently accounts  for share-based payments to employees using the intrinsic value method prescribed  in  APB  No.  25  and,  as such, recognizes no compensation cost for employee  stock  options.  The  effect on the Company's results of operations of expensing  stock  options  using  the  Black-Scholes  method is presented in the disclosure  of pro forma net income and earnings per share in the note, entitled "Stockholder's  Equity".  This  requirement will reduce net operating cash flows and  increase net financing cash flows in periods after adoption.  The pro forma statements  estimate  the  approximate  impact to the Company of the adoption of this  statement.  2.   INVESTMENT SECURITIES  The  amortized  cost  and  estimated  fair  value of investment securities is as follows:    DECEMBER 31, 2005                                      (IN THOUSANDS) - -----------------                                                      GROSS        GROSS                                       AMORTIZED   UNREALIZED    UNREALIZED      FAIR Available-for-sale securities           COST         GAINS        LOSSES        VALUE - -----------------------------        -----------  -----------  ------------  -----------      U.S. Government and agency           $    15,320  $         -  $      (172)  $    15,148 Other securities                           7,513            -          (42)        7,471                                      -----------  -----------  ------------  ----------- Total available-for-sale securities  $    22,833  $         -  $      (214)  $    22,619                                      ===========  ===========  ============  ===========  Held-to-maturity securities - --------------------------- U.S. Government and agency           $       200  $         -  $        (4)  $       196 Other securities                           8,477            -          (54)        8,423                                      -----------  -----------  ------------  ----------- Total held-to-maturity securities    $     8,677  $         -  $       (58)  $     8,619                                      ===========  ===========  ============  ===========    DECEMBER 31, 2004                                      (IN THOUSANDS) - -----------------                                                      GROSS        GROSS                                       AMORTIZED   UNREALIZED    UNREALIZED      FAIR Available-for-sale securities           COST         GAINS        LOSSES        VALUE - -----------------------------        -----------  -----------  ------------  -----------      U.S. Government and agency           $    15,311  $         -  $       (90)  $    15,221 Other securities                           7,069            -          (32)        7,037                                      -----------  -----------  ------------  ----------- Total available-for-sale securities  $    22,380  $         -  $      (122)  $    22,258                                      ===========  ===========  ============  ===========  Held-to-maturity securities - --------------------------- U.S. Government and agency           $       200  $         -  $        (1)  $       199 Other securities                           5,894           29            -         5,923                                      -----------  -----------  ------------  ----------- Total held-to-maturity securities    $     6,094  $        29  $        (1)  $     6,122                                      ===========  ===========  ============  ===========   At  December  31,  2005,  $200,000 at carrying value of the above securities was pledged  as collateral to the United States Treasury for CWB's treasury, tax and loan  account  and $31,096,000 at carrying value was pledged to the Federal Home Loan Bank, San Francisco, as collateral for current and future advances.  3.   LOAN SALES AND SERVICING  SBA  LOAN  SALES  -  The  Company  periodically  sells the guaranteed portion of selected  SBA loans into the secondary market, on a servicing-retained basis, in exchange  for  a  combination  of  a  cash  premium  and  servicing  rights.  A                                         F - 9  portion  of  the proceeds is recognized as servicing fee income as it occurs and the  remainder is capitalized as excess servicing and is included in the gain on sale  calculation.  The  Company retains the unguaranteed portion of these loans and  services  the  loans as required under the SBA programs to retain specified yield amounts.  The SBA program stipulates that the Company retains a minimum of 5%  of  the  loan  balance,  which  is  unguaranteed.  The  percentage  of  each unguaranteed  loan in excess of 5% may be periodically sold to a third party for a  cash premium.  The Company records servicing liabilities for the unguaranteed loans  sold  calculated  based  on  the  present  value  of the estimated future servicing  costs  associated with each loan.  A portion of this cost is included as  a  reduction to the premium collected on the loan sale, and the remainder is accrued  and  recognized  as a reduction of servicing expense as it occurs.  The balance  of  all servicing rights and obligations is subsequently amortized over the  estimated  life  of the loans using an estimated prepayment rate of 25-30%. Quarterly, both the servicing rights and I/O strips are analyzed for impairment.  The  Company  also  periodically  sells  SBA loans originated under the 504 loan program  into  the  secondary market, on a servicing-released basis, in exchange for  a  cash  premium.  As  of  December  31,  2005 and December 31, 2004, the Company had approximately $58.1  million  and  $43.6  million,  respectively,  in SBA loans held for sale.  MORTGAGE  LOAN SALES - In the normal course of business, the Company enters into mortgage  loan  rate lock commitments with potential borrowers.  Simultaneously, the  Company  enters  into  a "best efforts" forward sale commitment to sell the locked  loans  to  a  third  party investor.  Since the two commitments directly offset  and  create  a  perfect  hedge,  there  is  no interest rate risk to the Company;  therefore,  there  is  no  material  net  income statement effect.  At December  31,  2005  and  2004,  the  Company had $8.1 million and $6.2 million, repectively,  in  outstanding  mortgage  loan  commitments.  The following is a summary of activity in I/O Strips:                                   YEAR ENDED DECEMBER 31,                              --------------------------                               2005     2004      2003                              -------  -------  --------                                         (IN THOUSANDS) Balance, beginning of year   $2,715   $3,548   $ 4,548 Valuation adjustment, net      (827)    (833)   (1,000)                              -------  -------  -------- Balance, end of year         $1,888   $2,715   $ 3,548                              =======  =======  ========   The following is a summary of activity in Servicing Rights:                                   YEAR ENDED DECEMBER 31,                               -------------------------                                 2005     2004     2003                               -------  -------  -------                                         (IN THOUSANDS) Balance, beginning of year    $3,258   $2,499   $1,897 Additions through loan sales     524    1,259    1,116 Amortization                    (937)    (500)    (514)                               -------  -------  ------- Balance, end of year          $2,845   $3,258   $2,499                               =======  =======  =======                                         F - 10  4.   LOANS HELD FOR INVESTMENT  The  composition of the Company's loans held for investment portfolio, excluding securitized  loans  is  as  follows:                                                           DECEMBER 31,                                                  -------------------------                                                     2005          2004                                                  -----------  ------------                                                           (IN THOUSANDS) Commercial                                       $    44,957  $    30,893 Real estate                                          116,938       85,357 SBA                                                   37,088       35,265 Manufactured housing                                 101,336       66,423 Other installment                                     11,355        8,645                                                  -----------  ------------                                                      311,674      226,583   Less:  Allowance for loan losses                             3,326        2,785  Deferred fees, net of costs                             181         (103)  Discount on unguaranteed portion of SBA loans         1,386        1,748                                                  -----------  ------------  Loans held for investment, net                  $   306,781  $   222,153                                                  ===========  ============   An analysis of the allowance for loan losses for loans held for investment is as follows:                                                    YEAR ENDED DECEMBER 31,                                              ----------------------------                                                2005      2004      2003                                              --------  --------  --------                                                         (IN THOUSANDS) Balance, beginning of year                   $ 2,785   $ 2,652   $ 3,379  Loans charged off                               (236)     (459)   (1,822) Recoveries on loans previously charged off       109        75       802                                              --------  --------  --------   Net charge-offs                               (127)     (384)   (1,020)  Provision for loan losses                        668       517       293                                              --------  --------  -------- Balance, end of year                         $ 3,326   $ 2,785   $ 2,652                                              ========  ========  ========   The  recorded  investment  in  loans  that  are  considered to be impaired is as follows:                                                                YEAR ENDED DECEMBER 31,                                                          ----------------------------                                                            2005      2004      2003                                                          --------  --------  --------                                                                      (IN THOUSANDS) Impaired loans without specific valuation allowances     $    77   $    49   $   235 Impaired loans with specific valuation allowances          3,406     3,926     6,843 Specific valuation allowance related to impaired loans      (473)     (425)     (640)                                                          --------  --------  -------- Impaired loans, net                                      $ 3,010   $ 3,550   $ 6,438                                                          ========  ========  ========  Average investment in impaired loans                     $ 3,716   $ 5,137   $ 6,584                                                          ========  ========  ========                                         F - 11  The  following  schedule  reflects recorded investment at the dates indicated in certain  types  of  loans:                                                                              YEAR ENDED DECEMBER 31,                                                                        ----------------------------                                                                          2005      2004      2003                                                                        --------  --------  --------                                                                                    (IN THOUSANDS) Nonaccrual loans                                                       $ 6,797   $ 8,350   $ 7,174 SBA guaranteed portion of loans included above                          (4,332)   (5,287)   (4,106)                                                                        --------  --------  -------- Nonaccrual loans, net                                                  $ 2,465   $ 3,063   $ 3,068                                                                        ========  ========  ========  Troubled debt restructured loans                                       $    75   $   124   $   193 Loans 30 through 90 days past due with interest accruing               $ 1,792   $ 1,804   $ 3,907  Interest income recognized on impaired loans                           $   141   $   103   $   277 Interest foregone on nonaccrual loans and troubled debt restructured   loans outstanding                                                        253       208       216                                                                        --------  --------  -------- Gross interest income on impaired loans                                $   394   $   311   $   493                                                                        ========  ========  ========   The  Company makes loans to borrowers in a number of different industries. Other than  Manufactured Housing, no single concentration comprises 10% or more of the Company's  loan  portfolio.  Commercial,  commercial  real  estate loans and SBA loans  comprised  over  10%  of  the Company's loan portfolio as of December 31, 2005,  but  consisted  of  diverse  borrowers.  5.   SECURITIZED  LOANS  Prior  to  2000, the Company originated and purchased second mortgage loans that allowed  borrowers  to  borrow  up to 125% of their home's appraised value, when combined  with  the  balance of the first mortgage loan, up to a maximum loan of $100,000.  In  1998  and  1999,  the  Company  transferred  $81 million and $122 million, respectively, of these loans to two special purpose trusts. These loans were  both  originated and purchased by the Company.  The trusts then sold bonds to third party investors that were secured by the transferred loans. In November 2005,  the  Company  exercised  its  right  to  call  the bonds and paid off the remaining  balance  of  $9.8 million.  The special purpose trusts were dissolved while  the  Company  continues  to  have  the  loans  serviced  by a third party ("Servicer"),  who  receives  a  stated  servicing  fee.  At  December  31,  2005  and 2004, respectively, securitized loans are net of an allowance  for loan losses as set forth below, and include purchase premiums and deferred  fees/costs  of $268,000 and $469,000, respectively. An analysis of the allowance  for  loan  losses  for  securitized  loans  is  as  follows:                                                     YEAR END DECEMBER 31,                                              ----------------------------                                                2005      2004      2003                                              --------  ------------------                                                          (IN THOUSANDS) Balance, beginning of year                   $ 1,109   $ 2,024   $ 2,571  Loans charged off                               (831)   (1,356)   (2,511) Recoveries on loans previously charged off       452       540       588                                              --------  --------  --------   Net charge-offs                               (379)     (816)   (1,923)  Provision for loan losses                       (102)      (99)    1,376                                              --------  --------  -------- Balance, end of year                         $   628   $ 1,109   $ 2,024                                              ========  ========  ========                                         F - 12    6.   PREMISES AND EQUIPMENT                                                            DECEMBER 31,                                                   --------------------------                                                       2005          2004                                                   ------------  ------------                                                            (IN THOUSANDS) Furniture, fixtures and equipment                 $     7,045   $     6,698 Building and land                                         927           896 Leasehold improvements                                  1,219           757 Construction in progress                                    8            29                                                   ------------  ------------                                                         9,199         8,380 Less: accumulated depreciation and amortization        (7,053)       (6,617)                                                   ------------  ------------ Premises and equipment, net                       $     2,146   $     1,763                                                   ============  ============   The  Company  leases  office facilities under various operating lease agreements with  terms that expire at various dates between January 2006 and December 2011, plus options to extend certain lease terms for periods of up to ten years.  The  minimum lease commitments as of December 31, 2005 under all operating lease agreements  are  as  follows:                      (IN THOUSANDS)   2006            $            930 2007                         533 2008                         260 2009                         224 2010                         186 Thereafter                   108                 ----------------   Total         $          2,241                 ================   Rent  expense  for the years ended December 31, 2005, 2004 and 2003, included in occupancy expense was $820,000, $724,000 and $680,000, respectively.  7.   DEPOSITS  At  December  31,  2005,  the maturities of time certificates of deposits are as follows:                      (IN THOUSANDS)   2006            $        158,579 2007                      34,938 2008                       5,528 2009                      12,155 2010                       1,875                 ----------------   Total         $        213,075                 ================   8.   BORROWINGS  Federal Home Loan Bank Advances - -------------------------------  The  Company  has  a  blanket  lien  credit line with the Federal Home Loan Bank ("FHLB").  Advances  are  collateralized  in  the  aggregate  by  CWB's eligible mortgage  loans  and  securities  of  the  U.S Government and its agencies.  The outstanding  advances  at  December  31,  2005 include $38.5 million borrowed at variable  rates  which  adjust  to  the  current  LIBOR  rate  either monthly or quarterly.  At  December  31, 2005, CWB had pledged to FHLB, securities of $31.1 million  at  carrying  value  and  loans  of  $62.8 million, and had $30 million available  for  additional  borrowing.  At  December 31, 2004, the CWB had $33.8 million  of  loans  and  $14.1  million  of securities pledged as collateral and outstanding  advances  of  $10.5  million.                                        F - 13    Information related to advances from FHLB:                                                                 DECEMBER 31, 2005                                           --------------------------------------------------------                                                             FIXED                  VARIABLE                                                      ----------------------  ---------------------                                                                  INTEREST                INTEREST                                             TOTAL     AMOUNT       RATES      AMOUNT      RATES                                           ---------  ---------  -----------  ---------  ----------                                                             (DOLLARS IN THOUSANDS)                                           ---------  ---------------------------------------------       Due within one year                       $   4,000  $   4,000  2.59%-2.88%  $       -          -% After one year but within three years        51,500     13,000   3.28-4.68      38,500   3.70-4.44 After three years but within five years       8,000      8,000   4.28-4.85           -           -                                           ---------  ---------               --------- Total advances from FHLB                  $  63,500  $  25,000               $  38,500                                           =========  =========               =========                                                                DECEMBER 31, 2004                                          -------------------------------------------------                                                          FIXED             VARIABLE                                                    -------------------  ------------------                                                              INTEREST            INTEREST                                            TOTAL   AMOUNT     RATES     AMOUNT     RATES                                           -------  -------  ----------  -------  ---------                                                           (DOLLARS IN THOUSANDS)                                          --------  ---------------------------------------       Due within one year                       $     -  $     -          -%  $     -         -% After one year but within three years       3,500    3,500   1.77-2.75        -          - After three years but within five years     7,000    7,000   2.59-3.28        -          -                                           -------  -------              -------  --------- Total advances from FHLB                  $10,500  $10,500              $     -                                           =======  =======              =======    Financial information pertaining to advances   from FHLB:                                          2005          2004                                                   ------------  ------------                                                        (DOLLARS IN THOUSANDS) Weighted average interest rate, end of the year          4.14%         2.71% Weighted average interest rate during the year           3.48%         2.09% Average balance of advances from FHLB             $    42,081   $     5,419 Maximum amount outstanding at any month end            63,500        10,500   The total interest expense on advances from FHLB was $1,464,000 for 2005 and $113,000 for 2004.  Repurchase  Agreements - ----------------------  Prior to 2005, the Company had entered into a financing arrangement with a third party by which a portion of its government-guaranteed securities were pledged as collateral for short-term borrowings.  During 2005, these borrowings matured and were  paid  off.  As  of  December 31, 2004, securities with a carrying value of $14.0  million  were  pledged  as  collateral  for short-term borrowings and the Company  had  $13.7  million of outstanding repurchase agreements, with interest rates  of  1.40%  to  2.35%.  Bonds  Payable - --------------  In  the  fourth  quarter  2005,  the  Company  exercised  its  right to call the remaining  bonds  and paid off the balance of $9.8 million.   As of December 31, 2004, bonds payable were $179,000 for Series 1998-1 and $14.3 million for Series 1999-1.  The  total  bonds  payable of $14.5 million was reduced by issuance and discount costs of $601,000 for a net of $13.9 million at December 31, 2004.  The bonds  were  collateralized  by  securitized loans with an outstanding principal balance  of  $6.6 million and $16.4 million for Series 1998-1 and Series 1999-1, respectively  at December 31, 2004. There was no cross collateralization between the  bond  issues.  Financial data pertaining to bonds payable were as follows:                                                                YEAR ENDED DECEMBER 31,                                                          ----------------------------                                                            2005      2004      2003                                                          --------  --------  --------                                                                 (DOLLARS IN THOUSANDS) Weighted average coupon interest rate, end of year             -      8.27%     8.26% Annual weighted average interest rate                      10.42%    12.41%    11.89% Average balance of bonds payable, net                    $10,469   $19,676   $39,000 Maximum amount of bonds payable, net, at any month end   $13,382   $24,706   $50,473                                         F - 14  Federal  Funds  Purchased - ------------------------- The Company maintains three federal funds purchased lines with a total borrowing capacity  of  $18.5 million.  There was no amount outstanding as of December 31, 2005.  9.   STOCKHOLDERS' EQUITY  Common  Stock - -------------  Earnings per share-Calculation of Weighted Average Shares Outstanding - ---------------------------------------------------------------------                                                   YEAR ENDED DECEMBER 31,                                               -------------------------                                                2005     2004     2003                                               -------  -------  -------                                                        (IN THOUSANDS) Basic weighted average shares outstanding       5,744    5,718    5,694 Dilutive effect of stock options                  187      149       64                                               -------  -------  ------- Diluted weighted average shares outstanding     5,931    5,867    5,758                                              ========  =======  =======   Stock  Option  Plans - --------------------  As  of  December 31, 2005, options were outstanding at prices ranging from $3.63 to  $14.25  per  share  with  314,662  options  exercisable  and 355,151 options available for future grant. As of December 31, 2004, options were outstanding at prices  ranging  from $3.00 to $12.50 per share with 276,467 options exercisable and  372,451  options  available for future grant.  As of December 31, 2005, the average life of the outstanding options was approximately 6.8 years.  Stock option activity is as follows:                                                            YEAR ENDED DECEMBER 31,                                    -------------------------------------------------------------                                                2005                 2004                 2003                                              WEIGHTED             WEIGHTED             WEIGHTED                                               AVERAGE              AVERAGE              AVERAGE                                      2005    EXERCISE     2004    EXERCISE     2003    EXERCISE                                     SHARES     PRICE     SHARES     PRICE     SHARES     PRICE                                    --------  ---------  --------  ---------  --------  ---------        Options outstanding, January 1,    543,307   $    6.77  463,207   $    6.04  350,852   $    6.30 Granted                             38,500       13.30  151,500        9.10  198,000        5.51 Canceled                           (21,200)       6.64  (48,300)       7.22  (69,100)       6.22 Exercised                          (21,445)       5.55  (23,100)       6.31  (16,545)       4.63                                    --------  ---------  --------  ---------  --------  --------- Options outstanding, December 31,  539,162   $    7.29  543,307   $    6.77  463,207   $    6.04                                    ========  =========  ========  =========  ========  ========= Options exercisable, December 31,  314,662   $    6.63  276,467   $    6.39  256,327   $    6.53                                    ========  =========  ========  =========  ========  =========   The  fair value of each stock option grant under the Company's stock option plan during  2005,  2004  and  2003  was  estimated  on  the  date of grant using the Black-Scholes  option-pricing  model  with  the  following  weighted-average assumptions:                                 YEAR ENDED DECEMBER 31,                           ----------------------------                             2005      2004      2003                           --------  --------  --------     Annual dividend yield         1.6%      1.7%      0.0% Expected volatility          33.8%     35.7%     32.4% Risk free interest rate       4.2%      4.2%      3.9% Expected life (in years)      6.8       6.8       7.3   The  grant  date  estimated  fair  value of options was $4.60 per share in 2005, $2.91  per  share  in  2004  and  $2.83  per share in 2003.  The Company applies Accounting  Principles  Board  Opinion  No.  25  and  related interpretations in accounting  for  its  stock  option plan.  Accordingly, no compensation cost has been  recognized  for  its  stock  option  plan.  Had  compensation cost for the Company's stock option plan been determined based on the fair value at the grant dates  for  awards  under the plan consistent with the method prescribed by SFAS No.  123,  the  Company's  net  income  and income per share for the years ended December  31,  2005,  2004  and  2003  would have been adjusted to the pro forma amounts  indicated  below:                                        F - 15                                              YEAR ENDED DECEMBER 31,                                     ----------------------------------                                        2005        2004        2003                                     ----------  ----------  ----------                                      (IN THOUSANDS, EXCEPT PER SHARE                                                   DATA)     Income: As reported                         $    5,642  $    3,835  $    2,183 Pro forma                                5,537       3,664       1,975 Income per common share - basic As reported                               0.98        0.67        0.38 Pro forma                                 0.96        0.64        0.35 Income per common share - diluted As reported                               0.95        0.65        0.38 Pro forma                                 0.93        0.62        0.34   10.  INCOME  TAXES  The provision (benefit) for income taxes consists of the following:                                        YEAR ENDED DECEMBER 31,                                    -------------------------                                     2005     2004     2003                                    -------  -------  -------                                         (IN THOUSANDS)     Current:   Federal                          $1,815   $2,423   $  647   State                               778      543        7                                    -------  -------  -------                                     2,593    2,966      654 Deferred:   Federal                            (308)    (441)     712   State                                88      163     (238)                                    -------  -------  -------                                      (220)    (278)     474                                    -------  -------  ------- Total provision for income taxes   $2,373   $2,688   $1,128                                    =======  =======  =======   The  federal  income tax provision differs from the applicable statutory rate as follows:                                                 YEAR ENDED DECEMBER 31,                                              -----------------------                                               2005     2004    2003                                              -------  ------  ------     Federal income tax at statutory rate           34.0%   34.0%   34.0% State franchise tax, net of federal benefit     7.2%    7.2%    7.0% Other                                         (0.2)%    2.0%    0.1% Reserve change                               (11.4)%  (2.0)%  (7.0)%                                              -------  ------  ------                                                29.6%   41.2%   34.1%                                              =======  ======  ======   Significant components of the Company's net deferred taxes as of December 31 are as  follows:                                    2005      2004                               --------  --------                                 (IN THOUSANDS)    Deferred tax assets:   Depreciation                $   370   $   453   Deferred loan costs               -       202   Other                           830       100                               --------  --------                                 1,200       755                               --------  -------- Deferred tax liabilities:   Deferred loan fees             (952)   (1,256)   Allowance for loan losses      (734)     (189)   Deferred loan costs             (92)     (161)   Other                          (203)     (150)                               --------  --------                                (1,981)   (1,756)                               --------  -------- Net deferred taxes            $  (781)  $(1,001)                               ========  ========   The  effective  income  tax  rate for 2005 is less than the effective income tax rate  in other periods presented as a tax reserve of $914,000, or $.16 per share (basic), related to the resolution of potential tax issues has been reversed due to  the  resolution  of  the  uncertainty.                                        F - 16  11.  SUPPLEMENTAL DISCLOSURE TO THE CONSOLIDATED FINANCIAL STATEMENTS  Consolidated Statement of Cash Flows  Listed  below  are the supplemental disclosures to the Consolidated Statement of Cash  Flows:                                                                         YEAR ENDED DECEMBER 31,                                                                     -------------------------                                                                      2005     2004     2003                                                                     -------  -------  -------                                                                              (IN THOUSANDS) Supplemental Disclosure of Cash Flow Information:   Cash paid for interest                                            $ 9,373  $ 6,600  $ 9,006   Cash paid for income taxes                                          3,512    2,497      947 Supplemental Disclosure of Noncash Investing Activity:   Transfers to other real estate owned                                  263       89    1,570   Transfers from loans held for sale to loans held for investment         -        -        -   12.  EMPLOYEE BENEFIT PLAN  The  Company  has  established  a  401(k) plan for the benefit of its employees. Employees  are  eligible  to  participate  in  the  plan  after  three months of consecutive  service.  Employees  may  make  contributions  to  the plan and the Company  may make discretionary profit sharing contributions, subject to certain limitations.  The  Company's  contributions  were  determined  by  the  Board of Directors  and  amounted  to  $147,000, $137,000 and $129,000, in 2005, 2004 and 2003,  respectively.  13.  FAIR VALUES OF FINANCIAL INSTRUMENTS  The  estimated  fair values of financial instruments have been determined by the Company  using  available  market  information  and  appropriate  valuation methodologies.  However,  considerable  judgment is required to interpret market data  to  develop  estimates of fair value. Accordingly, the estimates presented herein  are  not necessarily indicative of the amounts the Company could realize in  a  current  market  exchange. The use of different market assumptions and/or estimation  methodologies may have a material effect on the estimated fair value amounts.  The following table represents the estimated fair values:                                                                              DECEMBER 31,                                                        ----------------------------------------------                                                                2005                    2004                                                        ----------------------  ----------------------                                                        CARRYING    ESTIMATED   CARRYING    ESTIMATED                                                         AMOUNT    FAIR VALUE    AMOUNT    FAIR VALUE                                                        ----------------------  ----------------------                                                                             (IN THOUSANDS) Assets:   Cash and cash equivalents                            $  13,732  $    13,732  $  30,205  $    30,205     Time deposits in other financial institutions            532          532        647          647     Federal Reserve and Federal Home Loan Bank stock       3,797        3,797      2,012        2,012     Investment securities                                 31,296       31,238     28,352       28,380     Interest-only strips                                   1,888        1,962      2,715        2,715     Net loans                                            381,517      384,704    290,506      291,483     Servicing rights                                       2,845        2,853      3,258        3,260 Liabilities:      Deposits (other than time deposits)                  121,163      121,163    152,149      152,149     Time deposits                                        213,075      212,025    132,419      132,186     Securities sold under agreements to repurchase             -            -     13,672       13,642     Federal Home Loan Bank advances                       63,500       63,264     10,500       10,429     Bonds payable                                              -            -     13,910       14,154   The  methods  and  assumptions  used to estimate the fair value of each class of financial  instruments  for  which  it is practicable to estimate that value are explained  below:  Cash  and cash equivalents - The carrying amounts approximate fair value because of  the  short-term  nature  of  these  instruments.  Time deposits in other financial institutions - The carrying amounts approximate fair  value  because  of  the  relative  short-term nature of these instruments.                                        F - 17  Federal  Reserve  Stock - The carrying value approximates the fair value because the stock can be sold back to the Federal Reserve at any time.  Federal  Home  Loan  Bank Stock - The carrying value approximates the fair value because the stock can be sold back to the Federal Home Loan Bank at any time.  Investment  securities  -  The  fair value is based on quoted market prices from security  brokers  or  dealers.  Interest  Only  Strips  -  Fair value is determined using discounted future cash flows  calculated  on a loan-by-loan basis, using market discount and prepayment rates  and  aggregated  to  the  total  asset  level.  Loans  -  For most loan categories, the fair value is estimated using discounted cash  flows  utilizing  a  discount rate approximating that which the Company is currently  offering  for  each  type  of  loan  and  taking  into  consideration historical  prepayment  speeds.  Certain  adjustable  loans  that  reprice  on a frequent  basis  are  valued  at  book  value.  Servicing  rights  - Fair value is determined using discounted future cash flows calculated  on  a loan-by-loan basis, using market discount and prepayment rates and  aggregated  to  the  total  asset  level.  Deposits  -  The amount payable at demand at report date is used to estimate the fair  value  of  demand  and  savings  deposits.  The  estimated  fair values of fixed-rate  time  deposits  are  determined  by  discounting  the  cash flows of segments  of  deposits  that  have  similar  maturities  and  rates, utilizing a discount rate that approximates the prevailing rates offered to depositors as of the  measurement  date.  Securities  sold  under  agreements  to repurchase - The fair value is estimated using  discounted  cash  flow  analysis  based  on  rates  for  similar types of borrowing  arrangements.  FHLB  Advances - The fair value is estimated using discounted cash flow analysis based  on  rates  for  similar  types  of  borrowing  arrangements.  Bonds  Payable - The fair value is estimated using discounted cash flow analysis based  on  rates  for  similar  types  of  borrowing  arrangements.  Commitments  to Extend Credit, Commercial and Standby Letters of Credit - Due to the  proximity  of  the pricing of these commitments to the period end, the fair values  of  commitments  are  immaterial  to  the  financial  statements.  The  fair  value  estimates  presented herein are based on pertinent information available  to  management as of December 31, 2005 and 2004.  Although management is  not  aware of any factors that would significantly affect the estimated fair value  amounts, such amounts have not been comprehensively revalued for purposes of  these  financial  statements  since  those  dates  and,  therefore,  current estimates  of  fair  value  may  differ significantly from the amounts presented herein.  14.  REGULATORY  MATTERS  The  Company (on a consolidated basis) and CWB are subject to various regulatory capital  requirements  administered  by the Federal banking agencies. Failure to meet  minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a  direct material effect on the Company's and CWB's financial statements. Under capital  adequacy  guidelines and the regulatory framework for prompt corrective action,  the  Company and CWB must meet specific capital guidelines that involve quantitative measures of the Company's and CWB's assets, liabilities and certain off-balance-sheet  items  as  calculated  under regulatory accounting practices. The  Company's  and CWB's capital amounts and classification are also subject to qualitative  judgments  by  the regulators about components, risk weightings and other  factors.  Prompt  corrective action provisions are not applicable to bank holding  companies.  The  Federal  Deposit  Insurance Corporation Improvement Act ("FDICIA") contains rules  as  to  the  legal  and  regulatory  environment  for  insured depository institutions,  including  reductions  in insurance coverage for certain kinds of deposits,  increased  supervision  by the federal regulatory agencies, increased reporting  requirements  for insured institutions and new regulations concerning internal  controls,  accounting  and  operations.  The  prompt corrective action regulations  of  FDICIA  define  specific  capital  categories  based  on  the institutions'  capital  ratios.  The capital categories, in declining order, are "well capitalized", "adequately capitalized", "undercapitalized", "significantly undercapitalized"  and  "critically  undercapitalized".  To  be considered "well capitalized", an institution must have a core capital ratio of at least 5% and a total  risk-based  capital  ratio of at least 10%.  Additionally, FDICIA imposes Tier  I  risk-based  capital  ratio  of  at  least  6%  to  be  considered "well capitalized".  Tier  I  risk-based  capital  is,  primarily,  common  stock  and retained  earnings,  net  of  goodwill  and  other  intangible  assets.  Quantitative  measures  established  by  regulation  to  ensure capital adequacy require  the  Company  and  the Bank to maintain minimum amounts and ratios (set forth  in  the  following  table) of total and Tier 1 capital (as defined in the regulations)  to  risk-weighted  assets  (as  defined) and of Tier 1 capital (as defined)  to  average  assets  (as  defined).  The                                        F - 18  Company's  and  CWB's  actual capital amounts and ratios as of December 31, 2005 and  2004  are  also  presented  in  the  table  below:                                                    RISK-    ADJUSTED    TOTAL     TIER 1    TIER 1 (DOLLARS IN                TOTAL     TIER 1   WEIGHTED    AVERAGE   CAPITAL   CAPITAL   LEVERAGE  THOUSANDS)               CAPITAL   CAPITAL    ASSETS     ASSETS     RATIO     RATIO      RATIO                           --------  --------  ---------  ---------  --------  --------  ---------         DECEMBER 31, 2005 - ----------------- CWBC (Consolidated)       $ 46,031  $ 42,077  $ 375,487  $ 429,378    12.26%    11.21%      9.80% CWB                         42,501    38,577    375,474    425,768    11.32     10.27       9.06  DECEMBER 31, 2004 - ----------------- CWBC (Consolidated)       $ 41,047  $ 37,315  $ 298,359  $ 358,623    13.76%    12.51%     10.41% CWB                         38,550    34,819    298,309    354,889    12.92     11.67       9.81  Well capitalized ratios                                               10.00      6.00       5.00 Minimum capital ratios                                                 8.00      4.00       4.00   As  of  December  31,  2005  and  2004,  management  believed  that  CWB met all applicable  capital  adequacy requirements and is correctly categorized as "well capitalized" under the regulatory framework for prompt corrective action.  15.  COMMITMENTS  AND  CONTINGENCIES  Commitments - -----------  In  the  normal  course  of  business,  the  Company  is  a  party  to financial instruments  with  off-balance-sheet  risk  to  meet  the financing needs of its customers.  These financial instruments include commitments to extend credit and standby  letters  of  credit.  These  instruments  involve,  to varying degrees, elements  of credit and interest rate risk in excess of the amount recognized in the  balance  sheet.  The  Company's  exposure  to  credit  loss in the event of nonperformance  by  the  other party to commitments to extend credit and standby letters  of  credit  is  represented by the contractual notional amount of those instruments.  As  of  December 31, 2005 and 2004, the Company had commitments to extend  credit  of  approximately $55.9 million and $42.1 million, respectively, including  obligations to extend standby letters of credit of approximately $1.5 million  and  $403,000,  respectively.  Commitments  to  extend  credit  are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally  have  fixed  expiration  dates  or  other termination clauses and may require  payment of a fee.  Since many of the commitments are expected to expire without  being  drawn  upon,  the  total  commitment  amounts do not necessarily represent  future  cash  requirements.  Standby  letters  of credit are conditional commitments issued by the Company to guarantee  the performance of a customer to a third party.  Those guarantees are primarily  issued to support private borrowing arrangements.  All guarantees are short-term  and  expire  within  one  year.  The  Company uses the same credit policies in making commitments and conditional obligations  as it does for extending loan facilities to customers.  The Company evaluates  each customer's creditworthiness on a case-by-case basis.  The amount of  collateral  obtained,  if  deemed necessary by the Company upon extension of credit,  is  based  on  management's  credit  evaluation  of  the  counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant  and  equipment  and  income-producing  commercial  properties.  Loans  Sold - -----------  The Company has sold loans that are guaranteed or insured by government agencies for  which  the  Company retains all servicing rights and responsibilities.  The Company  is  required to perform certain monitoring functions in connection with these  loans to preserve the guarantee by the government agency and prevent loss to  the  Company  in  the  event  of nonperformance by the borrower.  Management believes  that  the  Company  is  in  compliance  with  these requirements.  The outstanding  balance  of the sold portion of such loans was approximately $148.2 million  and  $167.1  million  at  December  31,  2005  and  2004, respectively.  The Company retains a certain level of risk relating to the servicing activities and retained interest in sold SBA loans.  In addition, during the period of time that  the  loans  are  held for sale, the Company is subject to various business risks  associated  with  the  lending  business,  including  borrower  default, foreclosure and the risk that a rapid increase in interest rates would result in a  decline  of  the  value  of  loans held for sale to potential purchasers.  In connection  with  its  loan sales, the Company enters agreements which generally require  the  Company to repurchase or substitute loans in the event of a breach of  a  representation  or  warranty  made  by  the  Company  to  the  loan                                        F - 19  purchaser,  any  misrepresentation  during the mortgage loan origination process or, in some cases, upon any fraud or early default on such mortgage loans.  Executive  Salary  Continuation - -------------------------------  The  Company has an agreement with a former officer/director, which provides for a  monthly  cash  payment to the officer or beneficiaries in the event of death, disability  or retirement, beginning in December 2003 and extending for a period of  fifteen  years.  The  Company  purchased  a  life  insurance  policy  as  an investment.  The  cash  surrender value of  the policy was $752,000 and $714,000 at  December  31,  2005 and 2004, respectively, and is included in other assets. The  present value of the Company's liability under the agreement was calculated using  a  discount  rate  of  6% and is included in accrued interest payable and other liabilities in the accompanying consolidated balance sheets.  In 2005, the Company  paid  $50,000  to  the  former officer/director under the terms of this agreement.  The accrued executive salary continuation liability was $451,000 and $473,000 at December 31, 2005 and 2004, respectively.  The Company also has certain Key Man life insurance policies related to a former officer/director.  The  combined  cash  surrender  value  of  the  policies  was $192,000 and $183,000 at December 31, 2005 and 2004, respectively.  Litigation - ----------  The  Company  is  involved in litigation of a routine nature that is handled and defended  in  the  ordinary course of the Company's business.  In the opinion of management,  based in part on consultation with legal counsel, the resolution of these  other litigation matters will not have a material impact on the Company's financial  position  or  results  of  operations.  16.  COMMUNITY WEST BANCSHARES FINANCIAL STATEMENTS (PARENT COMPANY ONLY)                                                                                        DECEMBER 31,                                                                                 ------------------- BALANCE SHEETS                                                                    2005       2004 - --------------                                                                  ---------  -------- Assets                                                                             (IN THOUSANDS)    Cash and equivalents                                                            $   3,555  $  3,073 Time deposits in financial institutions                                                 -        99 Investment in subsidiary                                                           38,861    35,144 Loans, net of allowance for loan losses of $11,000 in 2005 and $17,000 in 2004          9       207                                                                                 ---------  --------   Total assets                                                                  $  42,425  $ 38,523                                                                                 =========  ========  Liabilities and stockholders' equity Other liabilities                                                               $      64  $    882 Common stock                                                                       30,190    30,020 Retained earnings                                                                  12,171     7,621                                                                                 ---------  --------   Total stockholders equity                                                        42,361    37,641                                                                                 ---------  --------   Total liabilities and stockholders' equity                                    $  42,425  $ 38,523                                                                                 =========  ========                                                                             YEAR ENDED DECEMBER 31,                                                                         ------------------------- INCOME STATEMENTS                                                      2005      2004      2003 - -----------------                                                    --------  --------  --------                                                                                  (IN THOUSANDS) Total income                                                         $    82   $    12   $    17 Total expense                                                            220       188       198 Equity in undistributed subsidiaries: Net income from subsidiaries     4,809     3,933     2,303                                                                      --------  --------  -------- Income before  income tax provision                                    4,671     3,757     2,122 Income tax provision (benefit)                                          (971)      (78)      (61)                                                                      --------  --------  -------- Net income                                                           $ 5,642   $ 3,835   $ 2,183                                                                      ========  ========  ========                                         F - 20                                                                                  YEAR ENDED DECEMBER 31,                                                                             --------  --------  -------- STATEMENTS OF CASH FLOWS                                                      2005      2004      2003 - ------------------------                                                    --------  --------  --------                                                                                   (IN THOUSANDS)     Cash flows from operating activities: Net income                                                                  $ 5,642   $ 3,835   $ 2,183 Adjustments to reconcile net income to cash used in operating activities:   Equity in undistributed (income) from subsidiaries                         (4,809)   (3,933)   (2,303)   Net change in other liabilities                                              (818)     (270)      (33)   Net change in other assets                                                    198       321        (3)                                                                             --------  --------  -------- Net cash provided by (used in) operating activities                             213       (47)     (156) Cash flows from investing activities:   Net decrease in time deposits in other financial institutions                  99       198       891   Net dividends from and investments in subsidiaries                          1,092       686         -                                                                             --------  --------  --------   Net cash provided by investing activities                                   1,191       884       891 Cash flows from financing activities:   Proceeds from issuance of common stock                                        170       146        76   Cash dividend payments to shareholders                                     (1,092)     (686)        -                                                                             --------  --------  -------- Net cash (used in) provided by financing activities                            (922)     (540)       76   Net increase in cash and cash equivalents                                     482       297       811   Cash and cash equivalents at beginning of year                              3,073     2,776     1,965                                                                             --------  --------  --------   Cash and cash equivalents, at end of year                                 $ 3,555   $ 3,073   $ 2,776                                                                             ========  ========  ========   17.  QUARTERLY FINANCIAL DATA (UNAUDITED)  Income statement results on a quarterly basis were as follows:                                                   YEAR ENDED DECEMBER 31, 2005                                           ----------------------------------------                                             Q4      Q3       Q2      Q1    TOTALS                                           ------  -------  ------  ------  -------                                              (IN THOUSANDS, EXCEPT SHARE DATA)       Interest income                           $8,682  $7,651   $7,117  $6,328  $29,778 Interest expense                           3,090   2,786    2,411   2,060   10,347                                           ------  -------  ------  ------  ------- Net interest income                        5,592   4,865    4,706   4,268   19,431 Provision for loan losses                    171     (39)     264     170      566                                           ------  -------  ------  ------  ------- Net interest income after provision for   loan losses                              5,421   4,904    4,442   4,098   18,865 Non-interest income                        1,628   1,996    1,861   1,825    7,310 Non-interest expenses                      4,698   4,799    4,406   4,257   18,160                                           ------  -------  ------  ------  ------- Income before income taxes                 2,351   2,101    1,897   1,666    8,015 Provision for income taxes                   957     (50)     778     688    2,373                                           ------  -------  ------  ------  -------         NET INCOME                        $1,394  $2,151   $1,119  $  978  $ 5,642                                           ======  =======  ======  ======  =======  Earnings per share - basic                $ 0.24  $ 0.37   $ 0.19  $ 0.17  $  0.98 Earnings per share - diluted                0.23    0.36     0.19    0.16     0.95 Cash dividends per common share           $ 0.05  $ 0.05   $ 0.05  $ 0.04  $  0.19 Weighted average shares:   Basic                                    5,746   5,745    5,745   5,741    5,744   Diluted                                  5,946   5,931    5,945   5,955    5,931                                         F - 21                                                    YEAR ENDED DECEMBER 31, 2004                                           ----------------------------------------                                             Q4      Q3      Q2       Q1    TOTALS                                           ------  ------  -------  ------  ------- (IN THOUSANDS, EXCEPT PER SHARE DATA)       Interest income                           $5,728  $5,711  $5,245   $5,161  $21,845 Interest expense                           2,007   1,954   1,945    1,939    7,845                                           ------  ------  -------  ------  ------- Net interest income                        3,721   3,757   3,300    3,222   14,000 Provision for loan losses                    167     186     (30)      95      418                                           ------  ------  -------  ------  ------- Net interest income after provision for   loan losses                              3,554   3,571   3,330    3,127   13,582 Non-interest income                        2,433   2,157   3,438    2,434   10,462 Non-interest expenses                      4,359   4,086   5,000    4,076   17,521                                           ------  ------  -------  ------  ------- Income before income taxes                 1,628   1,642   1,768    1,485    6,523 Provision for income taxes                   674     675     728      611    2,688                                           ------  ------  -------  ------  -------         NET INCOME                        $  954  $  967  $1,040   $  874  $ 3,835                                           ======  ======  =======  ======  =======  Earnings per share - basic                $ 0.17  $ 0.17  $ 0.18   $ 0.15  $  0.67 Earnings per share - diluted                0.16    0.16    0.18     0.15     0.65 Cash dividends per common share           $ 0.04  $ 0.04  $ 0.04   $    -  $  0.12 Weighted average shares:    Basic                                   5,730   5,720   5,714    5,707    5,718    Diluted                                 5,929   5,869   5,835    5,834    5,867                                         F - 22
None
Under  the  supervision  and with the participation of the Company's management, the  Chief  Executive  Officer  and  the  Chief  Financial Officer evaluated the effectiveness  of  the design and operation of the Company's disclosure controls and  procedures  as  of  December 31, 2005.  Based on and as of the time of such evaluation,  the  Chief  Executive Officer and Chief Financial Officer concluded that  the  Company's disclosure controls and procedures were effective in timely alerting  them  to  material  information relating to the Company (including its consolidated  subsidiary)  required to be included in the Company's reports that it  files  with  or  submits to the Securities and Exchange Commission under the Securities  Exchange  Act  of 1934.  There have been no changes in the Company's internal  control  over  financial  reporting that occurred during the Company's year  ended  December 31, 2005, that have materially affected, or are reasonably likely  to  materially  affect,  the  Company's  internal control over financial reporting.
None.  PART  III
The  information  concerning the directors and executive officers of the Company is  incorporated  herein  by  reference  from the section entitled "Proposal 1 - Election  of  Directors"  contained  in  the  definitive proxy statement ("Proxy Statement")  of  the  Company  to be filed pursuant to Regulation 14A within 120 days  after  the  end  of  the  Company's  last  fiscal  year.  The  Company  has  adopted  a  code  of ethics that applies to all its principal executive  officer, principal financial officer, principal accounting officer or controller  and  persons  performing  similar  functions.  A copy of the code of ethics is available on the Company's website at www.communitywest.com.
Information  concerning  executive  compensation  is  incorporated  herein  by reference  from  the  section  entitled  "Proposal  1  -  Election of Directors" contained  in  the  Proxy  Statement.
Information  concerning  security  ownership  of  certain  beneficial owners and management  and  related shareholder matters is incorporated herein by reference from  the  section  entitled  "Security  Ownership of Certain Beneficial Owners, Directors and Executive Officers" contained in the Proxy Statement.
Information  concerning  certain  relationships  and  related  transactions  is incorporated  herein  by  reference  from  the  section  entitled  "Proposal 1 - Election of Directors" contained in the Proxy Statement.  ITEM  14.      PRINCIPAL  ACCOUNTANT  FEES  AND  SERVICES - ---------      ------------------------------------------  Information  concerning  principal  accountant fees and services is incorporated herein  by  reference from the section entitled "Independent Auditors" contained in  the  Proxy  Statement.                                          60  PART IV
(a)(1)    The following consolidated financial statements of Community West Bancshares are filed as part of this Annual Report.      Report of Independent Registered Public Accounting Firm            F-1  Consolidated Balance Sheets as of December 31, 2005 and 2004       F-2  Consolidated Income Statements for each of the three years in the period ended December 31, 2005                              F-3  Consolidated Statements of Stockholders' Equity for each of the three years ended in the period ended December 31, 2005     F-4  Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2005                              F-5  Notes to Consolidated Financial Statements                         F-6   (a)(2)  Financial  Statement  Schedules  Financial  statement  schedules  other than those listed above have been omitted because they are either not applicable or the information is otherwise included.  (a)(3)  Exhibits.  The  following  is a list of exhibits filed as a part of this report.  2.1       Plan  of  reorganization  (1)  2.2       Definitive  Agreement  to  sell  Palomar  (4)  3.1       Articles  of  Incorporation  (3)  3.2       Bylaws  (3)  4.1       Common  Stock  Certificate  (2)  10.1      1997 Stock  Option  Plan  and  Form  of  Stock  Option  Agreement  (1)  10.3      Salary  Continuation  Agreement  between  Goleta  National  Bank  and           Llewellyn  Stone,  President  and  CEO  (3)  10.4      Agreement  between the Company's subsidiary, Goleta National Bank, and           ACE  Cash  Express  Inc  (5)  10.6      Memorandum  of  Understanding  between  the  Company  and  the Federal           Reserve  Bank  of  San  Francisco,  dated  February  22,  2001  (6)  10.7      Consulting  Agreement  between  the Goleta National Bank and Llewellyn           Stone  (6)  10.9      Indemnification Agreement  between  the Company and Lynda Nahra, dated           December  20,  2001  (6)  10.13     Consent  Order between Goleta National Bank and the Comptroller of the           Currency  of  the  United  States,  dated  October  28,  2002  (7)  10.14     Stipulation  and  Consent  to  the  Issuance of a Consent Order by the           Office  of the Comptroller of the Currency, dated October 28, 2002 (7)  10.15     Amendment  Number  3  to  Master  Loan Agency Agreement between Goleta           National Bank and Ace Cash Express, Inc., dated as of November 1, 2002           (7)  10.16     Amendment  Number  1  to Collection Servicing Agreement between Goleta           National Bank and Ace Cash Express, Inc., dated as of November 1, 2002           (7)  10.17     Indemnification  Agreement  between  the  Company  and  Charles  G.           Baltuskonis,  dated  March  18,  2003  (8)  10.18     Letter issued by the Comptroller of the Currency and Order Terminating           the  Consent  Order,  dated  October  21,  2003  (9)  10.19     Letter  dated  November  6,  2003 from the Federal Reserve Bank of San           Francisco  rescinding  the Memorandum of Understanding, dated February           2001  (9)  10.20     Employment  and  Confidentiality  Agreement,  Goleta  National  Bank,           between  the  Company  and  Lynda  J.  Nahra  dated April 23, 2003 (9)                                          61  10.21     Assistant  Secretary's  Certificate  of Adoption of Amendment No. 1 to           Community  West  Bancshares  1997  Stock  Option  Plan  (10)  21        Subsidiaries of the Registrant  23.1      Consent of Ernst & Young LLP  31.1      Certification of the Chief Executive Officer  31.2      Certification of the Chief Financial Officer  32.1      Certification pursuant to 18 U.S.C. Section 1350  - ------------------------------            (1)  Incorporated  by  reference  from  the  Registrant's Registration                Statement  on  Form S-8 filed with the Commission on December 31,                1997.            (2)  Incorporated  by  reference  from  the  Registrant's Amendment to                Registration  Statement  on Form 8-A filed with the Commission on                March 12, 1998.            (3)  Incorporated  by  reference  from  the  Registrant's  Annual                Report on Form 10-K filed with the Commission on March 26, 1998.            (4)  Filed  as  an  exhibit  to  the  Registrant's Form 8-K filed with                the Commission on December 5, 2000.            (5)  Incorporated  by  reference  from  the  Registrant's  quarterly                report  on  Form  10-Q  for  the quarter ended September 30, 2001                filed by the Registrant with the Commission on November 16, 2001.            (6)  Incorporated  by  reference  from  the  Registrant's  Annual                Report on Form 10-K for the year ended December 31, 2001 filed by                the Registrant with the Commission on April 16, 2002.            (7)  Incorporated  by  reference  from  the  Registrant's  Form  8-K                filed with the Commission on November 4, 2002.            (8)  Incorporated  by  reference  from  the  Registrant's  Annual                Report  on  Form  10-K for the year ended December 31, 2002 filed                with the Commission on March 31, 2003.            (9)  Incorporated  by  reference  from  the  Registrant's  Annual                Report  on  Form  10-K for the year ended December 31, 2003 filed                with the Commission on March 29, 2004.            (10) Incorporated  by  reference  from  the  Registrant's Registration                Statement  on  Form  S-8  (File  No  333-129898)  filed  with the                Commission on November 22, 2005.                                          62  SIGNATURES  Pursuant  to  the  requirements  of  Section  13  of 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.                                         COMMUNITY  WEST  BANCSHARES                                               (Registrant)  Date:  March 23, 2006                  By:/s/  William R.Peeples                                           ----------------------                                           William R. Peeples                                           Chairman of the Board  Pursuant  to  the  requirements of the Securities and Exchange Act of 1934, this report  has  been  signed  below  by  the  following  persons  on  behalf of the registrant  in  the  capacities  and  on  the  dates  indicated.   Signature                        Title                            Date - ---------                        -----                            ----  /s/ William R. Peeples           Director and                     March 23, 2006 - --------------------------       Chairman of the Board William R. Peeples  /s/ Charles G. Baltuskonis       Executive Vice President and     March 23, 2006 - --------------------------       Chief Financial Officer Charles G. Baltuskonis  /s/ Robert H. Bartlein           Director                         March 23, 2006 - -------------------------- Robert H. Bartlein  /s/ Jean W. Blois                Director                         March 23, 2006 - -------------------------- Jean W. Blois  /s/ John D. Illgen               Director and Secretary           March 23, 2006 - --------------------------       of the Board John D. Illgen  /s/ Lynda J. Nahra               Director, President and          March 23, 2006 - --------------------------       Chief Executive Officer Lynda J. Nahra  /s/ James R. Sims Jr.            Director                         March 23, 2006 - -------------------------- James R. Sims Jr.  /s/ Kirk B. Stovesand            Director                         March 23, 2006 - -------------------------- Kirk B. Stovesand  /s/ C. Richard Whiston           Director                         March 23, 2006 - -------------------------- C Richard Whiston                                          63       EX-21 2 ex21.txt EXHIBIT 21                                                                        Exhibit 21    COMMUNITY WEST BANK, NATIONAL ASSOCIATION (FKA GOLETA NATIONAL BANK) (A Nationally Chartered Bank) 100% wholly owned subsidiary    EX-23.1 3 ex23_1.txt EXHIBIT 23.1                                                                      Exhibit 23.1               CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   We  consent  to the incorporation by reference in the Registration Statements on Form  S-8  (Nos.  333-43531  and  333-129898)  pertaining  to the Community West Bancshares  1997  Stock  Option  Plan  of  our report dated March 17, 2006, with respect  to  the  consolidated financial statements of Community West Bancshares included  in  this  Annual  Report  on Form 10-K for the year ended December 31, 2005.    Los Angeles, California March 23, 2006    EX-31.1 4 ex31_1.txt EXHIBIT 31.1                                                                      Exhibit 31.1                                    CERTIFICATION  I,  Lynda  J.  Nahra,  President  and  Chief Executive Officer of Community West Bancshares,  a  California  corporation,  certify  that:  1.   I  have  reviewed  the  annual  report  on  Form  10-K  of  Community  West      Bancshares;  2.   Based on my knowledge, this report does not contain any untrue statement of      a  material  fact  or  omit  to state a material fact necessary to make the      statements  made, in light of the circumstances under which such statements      were  made,  not  misleading  with  respect  to  the period covered by this      report;  3.   Based on  my  knowledge,  the  financial  statements,  and  other financial      information  included  in  this  report,  fairly  present  in  all material      respects  the  financial condition, results of operations and cash flows of      the  registrant  as  of,  and  for,  the  periods presented in this report;  4.   The registrant's  other  certifying  officer(s)  and  I are responsible for      establishing and maintaining disclosure controls and procedures (as defined      in  Exchange  Act  Rules  13a-15e  and 15d-15(e)) for the registrant and we      have:       a.   Designed  such  disclosure  controls  and  procedures  or  caused such           disclosure  controls  and  procedures  to  be  designed  under  our           supervision,  to  ensure  that  material  information  relating to the           registrant,  including its consolidated subsidiaries, is made known to           us  by others within those entities, particularly during the period in           which  this  quarterly  report  is  being  prepared;       b.   Evaluated  the  effectiveness  of  the  registrant's  disclosure           controls  and  procedures and presented in this report our conclusions           about  the effectiveness of the disclosure controls and procedures, as           of  the  end  of  the  period  covered  by  this  report based on such           evaluation;  and       c.   Disclosed  in  this  report  any  change  in the registrant's internal           control over financial reporting that occurred during the registrant's           most  recent fiscal quarter (the registrant's fourth fiscal quarter in           the  case  of  an  annual  report) that has materially affected, or is           reasonably  likely  to  materially  affect,  the registrant's internal           control  over  financial  reporting:  and  5.   The registrant's other certifying officer(s) and I have disclosed, based on      our  most  recent evaluation of internal control over financial reporting,,      to  the registrant's auditors and the audit committee of registrant's board      of  directors  (or  persons  performing  the  equivalent  functions):       a)   All significant  deficiencies  and  material  weaknesses  in  the           design or operation of internal control over financial reporting which           are  reasonably likely to adversely affect the registrant's ability to           record,  process,  summarize  and  report  financial  information; and       b)   Any fraud,  whether  or  not  material,  that  involves  management or           other  employees  who  have  a  significant  role  in the registrant's           internal  control  over  financial  reporting.                                          /s/ Lynda J. Nahra                                         ------------------                                         Lynda J. Nahra                                         President and Chief Executive Officer       March 23, 2006    EX-31.2 5 ex31_2.txt EXHIBIT 31.2                                                                      Exhibit 31.2                                     CERTIFICATION  I,  Charles G. Baltuskonis, Executive Vice President and Chief Financial Officer of  Community  West  Bancshares,  a  California  corporation,  certify  that:  1.   I  have  reviewed  the  annual report  on  Form  10-K  of  Community  West      Bancshares;  2.   Based on my knowledge, this report does not contain any untrue statement of      a  material  fact  or  omit  to state a material fact necessary to make the      statements  made, in light of the circumstances under which such statements      were  made,  not  misleading  with  respect  to  the period covered by this      report;  3.   Based on  my  knowledge,  the  financial  statements,  and  other financial      information  included  in  this  report,  fairly  present  in  all material      respects  the  financial condition, results of operations and cash flows of      the  registrant  as  of,  and  for,  the  periods presented in this report;  4.   The registrant's  other  certifying  officer(s)  and  I are responsible for      establishing and maintaining disclosure controls and procedures (as defined      in  Exchange  Act  Rules  13a-15e  and 15d-15(e)) for the registrant and we      have:       a.   Designed  such  disclosure  controls  and  procedures  or  caused such           disclosure  controls  and  procedures  to  be  designed  under  our           supervision,  to  ensure  that  material  information  relating to the           registrant,  including its consolidated subsidiaries, is made known to           us  by others within those entities, particularly during the period in           which  this  quarterly  report  is  being  prepared;       b.   Evaluated  the  effectiveness  of  the  registrant's  disclosure           controls  and  procedures and presented in this report our conclusions           about  the effectiveness of the disclosure controls and procedures, as           of  the  end  of  the  period  covered  by  this  report based on such           evaluation;  and       c.   Disclosed  in  this  report  any  change  in the registrant's internal           control over financial reporting that occurred during the registrant's           most  recent fiscal quarter (the registrant's fourth fiscal quarter in           the  case  of  an  annual  report) that has materially affected, or is           reasonably  likely  to  materially  affect,  the registrant's internal           control  over  financial  reporting:  and  5.   The registrant's other certifying officer(s) and I have disclosed, based on      our  most  recent evaluation of internal control over financial reporting,,      to  the registrant's auditors and the audit committee of registrant's board      of  directors  (or  persons  performing  the  equivalent  functions):       c)   All significant  deficiencies  and  material  weaknesses  in  the           design or operation of internal control over financial reporting which           are  reasonably likely to adversely affect the registrant's ability to           record,  process,  summarize  and  report  financial  information; and       d)   Any fraud,  whether  or  not  material,  that  involves  management or           other  employees  who  have  a  significant  role  in the registrant's           internal  control  over  financial  reporting.                                           /s/ Charles G. Baltuskonis                                         --------------------------                                         Charles G. Baltuskonis                                         Executive Vice President and                                         Chief Financial Officer  March 23, 2006    EX-32.1 6 ex32_1.txt EXHIBIT 32.1                                                                      Exhibit 32.1                   CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,       AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002        In connection with the filing of the Annual Report on Form 10-K for the year ended December 31, 2005 ("Report") by Community West Bancshares ("Registrant"), each of the undersigned hereby certifies that:  1.   The Report  fully  complies with the requirements of Section 13(a) or 15(d)      of  the  Securities  Exchange  Act  of  1934,  as  amended  and 2.   The information  contained  in  the Report fairly presents, in all material      respects,  the  financial  condition  and  results  of  operations  of  the      Registrant  as  of  and  for  the  periods  presented  in  the  Report.                                          /s/ Lynda J. Nahra                                            --------------                                            Lynda J. Nahra                                            President and Chief Executive Officer                                         /s/ Charles G. Baltuskonis                                            ----------------------                                            Charles G. Baltuskonis                                            Executive Vice President and                                            Chief Financial Officer       March 23, 2006        A signed original of this written statement required by Section 906 has been provided to Community West Bancshares and will be furnished to the Securities and Exchange Commission or its staff upon request.    -----END PRIVACY-ENHANCED MESSAGE-----