8-K: Community West Bancshares to Acquire United Security Bancshares in $191.9M All-Stock Merger

Community West Bancshares announced a definitive agreement to acquire United Security Bancshares in an all-stock transaction valued at approximately $191.9 million, creating a dominant community bank in Central California.

Summary

• Community West Bancshares (CWBC) will acquire United Security Bancshares (UBFO) in an all-stock merger, with UBFO merging into CWBC and United Security Bank merging into Community West Bank.
• UBFO shareholders will receive 0.4520 shares of CWBC common stock for each UBFO share, implying a deal value of $10.88 per UBFO share based on CWBC's December 16, 2025 closing price of $24.06.
• The total transaction value is approximately $191.9 million.
• Upon closing, UBFO shareholders will own approximately 29.4% of the combined company, and CWBC shareholders will own approximately 70.6%.
• The combined entity is projected to have approximately $5 billion in total assets, $3.5 billion in total loans, and $4.2 billion in total deposits.
• The merger is expected to be accretive to CWBC's earnings per share by 10.9% in 2026 (for the six-month period post-close) and 15.6% in 2027.
• Pro forma Return on Average Assets (ROAA) is estimated at 1.50% and Return on Average Tangible Common Equity (ROATCE) at 16.4% for 2027.
• The transaction is expected to result in a tangible book value dilution of 9.5% at close, with an earn-back period of 3.0 years using the cross-over method.
• Estimated pre-tax cost savings are approximately 45% of UBFO's noninterest expense, totaling $14.7 million in 2027, with 75% phased-in during 2026.
• The merger is subject to customary closing conditions, including regulatory approvals and shareholder approvals from both companies.
• UBFO will pay a termination fee of $7.7 million to CWBC under certain circumstances.

Sentiment

Score: 8

Explanation: The sentiment is highly positive due to significant EPS accretion, improved profitability metrics, strategic market expansion, and complementary cultures, despite initial tangible book value dilution and integration risks.

Positives

• The merger creates a dominant community bank in Central California with approximately $5 billion in total assets and $4.2 billion in total deposits.
• It is expected to be significantly accretive to CWBC's EPS, with 10.9% accretion in 2026 (six-month period) and 15.6% in 2027.
• Profitability metrics are projected to improve, with pro forma 2027 ROAA of 1.50% and ROATCE of 16.4%.
• The transaction solidifies CWBC's presence in attractive California markets and diversifies its customer mix and products.
• The combined company will benefit from an increased legal lending limit and deeper product base, expanding resources and capabilities.
• Both institutions share complementary cultures focused on relationship banking, local decision-making, and community commitment.
• UBFO brings a low-cost deposit franchise with 87.8% core deposits and a 1.13% MRQ cost of total deposits.
• CWBC's market share in Fresno County is expected to exceed 12%, positioning it as a market leader.
• The merger is expected to maintain a well-capitalized status with enhanced capital generation and an attractive internal rate of return (IRR) of approximately 20%.

Negatives

• The transaction is expected to result in a tangible book value dilution of 9.5% at closing.
• Estimated pre-tax transaction expenses are $20.8 million, which will impact initial financial results.
• There is a risk that the anticipated benefits, synergies, and operating efficiencies may not be fully realized or may take longer than expected.
• Integration of operations could be materially delayed, more costly, or more difficult than expected.

Risks

• The anticipated benefits of the proposed Merger may not be realized or may not be realized within the expected time period.
• Integration of the Target's operations with those of the Company may be materially delayed or will be more costly or difficult than expected.
• Inability to meet expectations regarding the timing of the proposed Merger.
• Changes to tax legislation and their potential effects on the accounting for the Merger.
• The inability to complete the proposed Merger due to the failure of the Target's shareholders to adopt the Merger Agreement, or the failure of the Company's shareholders to adopt the Merger Agreement or to approve the issuance of the Company's common stock in connection with the Merger.
• Failure to satisfy other conditions to completion of the proposed Merger, including receipt of required regulatory and other approvals.
• The failure of the proposed Merger to close for any other reason.
• Diversion of management's attention from ongoing business operations and opportunities due to the proposed Merger.
• Challenges of integrating and retaining key employees.
• The effect of the announcement of the proposed Merger on the Company's, the Target's or the combined company's respective customer and employee relationships and operating results.
• The possibility that the proposed Merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events.
• The dilution caused by the Company's issuance of additional shares of the Company's common stock in connection with the Merger.
• Changes in the global economy and financial market conditions and the business, results of operations and financial condition of the Company, the Target and the combined company.

Future Outlook

The merger is expected to close in the second quarter of 2026, subject to regulatory and shareholder approvals. The combined company anticipates significant EPS accretion and improved profitability metrics, aiming to create a more robust banking franchise with expanded resources and capacity to support Central California communities. Management will focus on successful integration and client retention.

Management Comments

• James J. Kim, CEO of Community West Bancshares, stated that the merger 'represents a major step forward in our long-term growth strategy and our commitment to the communities we serve throughout Central California.'
• Kim also noted that 'By bringing our organizations together, we are creating a more robust and more visible banking franchise, with greater depth of expertise, expanded resources and enhanced capacity to support businesses, families and communities. At the same time, we expect the combination to further deliver lasting value to our shareholders.'
• Dennis R. Woods, Chairman, President and CEO for United Security Bancshares, commented that 'Joining with Community West Bank is a natural partnership for our bank, our clients and our employees.'
• Woods added that 'With shared values and cultures centered on integrity, personal service and community commitment, this combination strengthens our ability to serve with greater scale, expanded lending capacity and broader market reach. Together, we are creating new opportunities for our clients, enhanced career paths for our employees and a stronger banking franchise across Central California.'

Industry Context

This merger signifies a consolidation trend within the California community banking sector, aiming to achieve greater scale and market dominance. The combined entity will surpass $4 billion in total deposits, positioning it as a top 10 community bank under $10 billion in assets in California. The strategic in-market expansion leverages existing footprints in Central California, particularly strengthening Community West Bancshares' leadership in Fresno County, where its market share will exceed 12%. This move allows for enhanced competitiveness against larger regional and money center banks by offering expanded lending capacity and broader market reach while maintaining a community-focused service model.

Comparison to Industry Standards

• The pro forma company's estimated 2027 ROAA of 1.50% is at the top quartile of Western Peers (publicly traded banks headquartered in the Western Region with $3.5B $7.5B in total assets), which has a median of 1.31% and a top quartile threshold of 1.55%.
• The pro forma company's estimated 2027 ROATCE of 16.4% significantly exceeds the median of 11.5% and is above the top quartile threshold of 14.3% for Western Peers.
• The pro forma company's Loans / Deposits ratio of 82.9% is below the median of 85.8% and the top quartile of 94.3% for Western Peers, suggesting a potentially more conservative lending approach or higher liquidity.
• The pro forma CET1 ratio of 12.0% is below the median of 12.7% and the top quartile of 14.9% for Western Peers, indicating a slightly lower capital buffer compared to some peers, though still well-capitalized.
• The pro forma Leverage Ratio of 9.9% is below the median of 10.6% and the top quartile of 11.0% for Western Peers.
• The pro forma NPAs / Assets of 0.42% is better than the median of 0.51% and the top quartile of 0.94% for Western Peers, indicating superior asset quality.
• CWBC's current Price / Forward EPS (2027E) of 8.3x is significantly lower than the median of 10.3x and the top quartile of 11.8x for Western Peers, suggesting the market may not yet fully price in the merger's benefits or reflects the initial TBV dilution.

Management Changes

Corporate Governance

Stakeholder Impact

• **Shareholders (CWBC):** Expected to benefit from significant EPS accretion (15.6% in 2027), improved profitability metrics (ROAA 1.50%, ROATCE 16.4%), and enhanced capital generation, despite initial tangible book value dilution.
• **Shareholders (UBFO):** Will receive 0.4520 shares of CWBC common stock for each UBFO share, becoming shareholders of a larger, more diversified combined entity. They will own approximately 29.4% of the combined company.
• **Employees:** All individuals employed by UBFO immediately prior to closing will become employees of CWBC. CWBC will initially provide substantially comparable employee benefit plans and compensation opportunities (excluding certain executive benefits). There are challenges related to integrating and retaining key employees.
• **Customers:** The merger will result in an increased legal lending limit, deeper product base, expanded resources, and enhanced capacity to serve businesses, families, and communities across Central California. UBFO's branches will become Community West Bank branches.
• **Communities:** The combined company aims to strengthen its ability to serve with greater scale and broader market reach, maintaining a shared community focus and commitment to small and medium-sized businesses.
• **Creditors:** Community West Bancshares will assume the due and punctual performance and observance of covenants related to UBFO's Trust Preferred Securities.

Next Steps

• Community West Bancshares and United Security Bancshares will prepare and file a registration statement on Form S-4 with the SEC, which will include a joint proxy statement/prospectus.
• Both companies will hold shareholder meetings to obtain approval for the merger and the issuance of CWBC common stock.
• The parties will seek and obtain all necessary regulatory approvals from federal and state banking authorities.
• Integration planning for the efficient and orderly combination of the banks' operations will proceed.
• The Company will take actions to amend or terminate Company Benefit Plans and accrue associated costs.
• The Company will terminate its 401(k) plan prior to the closing date.
• An independent accounting firm will prepare an analysis calculating potential Section 280G parachute payments.
• Community West Bancshares will assume the obligations related to United Security Bancshares' Trust Preferred Securities.
• Community West Bancshares will create two open positions on its board of directors and appoint two current United Security Bancshares directors, including Jagroop Jay Gill.

Key Dates

Recommendation

The merger is strategically sound, creating a larger, more dominant regional bank in Central California with significant market share gains. The projected EPS accretion of 15.6% in 2027 and improved ROAA/ROATCE metrics indicate strong financial benefits for CWBC shareholders. While there is initial tangible book value dilution, the 3-year earn-back period is acceptable for a strategic acquisition of this scale. The current valuation of CWBC at 8.3x pro forma 2027 EPS is attractive compared to industry peers, suggesting potential for re-rating as the market recognizes the combined entity's enhanced profitability and scale. The strong insider support through voting agreements further de-risks the transaction. This acquisition positions CWBC for sustained long-term growth and increased shareholder value.

Keywords

Bank Merger, Community Banking, Financial Services, Acquisition, Stock-for-Stock, California, Fresno, Central Valley, Earnings Accretion, Tangible Book Value Dilution, Regulatory Approval