CBB Bancorp, Inc. Reports 2019 Third Quarter Results

LOS ANGELES–(BUSINESS WIRE)–CBB Bancorp, Inc. (“CBB” or the “Company”) (OTCQX: CBBI), the holding company of Commonwealth Business Bank (the “Bank”), today announced net income for the third quarter of 2019 of $3.4 million, or $0.33 per diluted share, a decrease of 12.2% compared to $4.3 million, or $0.42 per diluted share, in the same period last year. Earnings per share and per share data have been adjusted to reflect the impact of a 10% stock dividend that was declared on October 2, 2018.

Additionally, CBB reported net income for the nine months ended September 30, 2019 of $10.5 million, or $1.01 per diluted share, a decrease of 19.3% from the $13.0 million, or $1.25 per diluted share, for the same period in 2018.

Third quarter 2019 net income resulted in returns on average assets (“ROAA”) and average equity (“ROAE”) of 1.15% and 9.44%, respectively, both of which measures were down from the same quarter in 2018. On a nine-month year-to-date basis, ROAA and ROAE were 1.21% and 10.09%, respectively.

Joanne Kim, President and CEO, commented, “We have been diligently working to reduce our cost of funds to offset the impact of lower market interest rates. Our compliance and other corporate overhead costs have stabilized and we are focused on high quality loan production and net interest margin.”

Additionally, Ms. Kim commented, “Our credit quality continues to be strong. We continue originate high quality loans while we monitor our loan portfolio as we prepare for future uncertainties.”

Net Interest Income and Margin:

Net Interest Income

Net interest income for the quarter ended September 30, 2019 was $10.9 million, a decrease of $1.1 million, or 8.9%, from the same period last year driven primarily by the increase in interest cost on deposits during the current quarter. For the nine months ended September 30, 2019, net interest income was $33.6 million, a decrease of $0.3 million, or 0.9%, from the corresponding period last year. The year-to-date decrease in net interest income was driven by higher costs of deposits which were substantially offset by higher interest income on loans. As market interest rates have declined over the recent quarters, competition for loans has increased as borrowers seek lower fixed-rate loans. We have managed to increase the contractual rate on loans by 17 basis points on a year-to-date basis, however the impact of re-pricing deposits lower generally lags the direction of market interest rates and is only beginning.

Net Interest Margin

The net interest margin for third quarter 2019 of 3.78% was lower than the net interest margin of 4.29% in the same period last year. For the nine months ended September 30, 2019, the net interest margin was 3.99%, compared to 4.30% for the corresponding period in 2018. While our yield on interest-earning assets increased 21 basis points, our cost of funds increased 60 basis points. Third quarter and nine-month year-to-date results were primarily affected by higher interest expense on deposits.

Provision for Loan Losses:

The provision for loan losses for the quarter and nine months ended September 30, 2019 was $300 thousand and $600 thousand, respectively, compared with $400 thousand and $1.2 million, respectively, for the corresponding periods last year. Non-performing assets as of September 30, 2019 were $5.1 million, compared with $439 thousand for the corresponding period last year. The provisions for loan losses for the quarter and nine-month periods ended September 30, 2019 reflect a decrease in specific reserves on classified loans, which was partially offset by qualitative factor increases.

Non-Interest Income:

Quarterly non-interest income for the quarter and nine months ended September 30, 2019 was $2.4 million and $7.5 million, respectively, compared to $2.2 million and $9.1 million, respectively, for the corresponding periods last year. The decline in the 2019 nine-month period was primarily due to a lower volume of SBA loan sales. For the nine months ended September 30, 2019, we sold $86.4 million of SBA loans, with net premiums received of $7.3 million, compared to sales of $104.7 million, with net premiums received of $9.6 million for the corresponding period last year.

Non-Interest Expense:

Non-interest expense for the quarter ended September 30, 2019 was $8.2 million, compared to $8.0 million in the corresponding period last year, an increase of $174 thousand, or 2.2%. For the nine months ended September 30, 2019, non-interest expense was $25.8 million, compared to $23.6 million for the corresponding period last year, an increase of $2.1 million, or 9.0%. Staffing additions primarily related to compliance and corporate administration, along with professional consulting expenses related to compliance and marketing costs attributable to our sponsorship of the LPGA LA Open were the primary contributors to increased non-interest expense.

Income Taxes:

The Company’s effective tax rate for the quarter ended September 30, 2019 was approximately 29.4%, up from 24.6% for the third quarter of 2018. The lower effective rate in the third quarter of 2018 was due to final adjustments made related to the final filing of the 2017 tax returns.

The effective income tax rate for the nine months ended September 30, 2019 was 29.13%, compared to 28.39% for the same period last year. On an ongoing basis, the company’s effective income tax rate (federal and state) is anticipated to be approximately 29.5%.

Balance Sheet:

At September 30, 2019, the Company had total assets of $1.16 billion, a decrease of $39.1 million, or 3.3%, from $1.20 billion at June 30, 2019, and a decrease of $44.6 million, or 3.7%, from $1.20 billion at September 30, 2018. We had nominal loan growth for the 12-month period as we managed certain concentration ratios. We also used our liquid assets to enable the run-off of high-costing deposits.

Investment Securities:

Investment securities totaled $97.1 million at the end of the current quarter, a decrease of $2.6 million, or 2.6%, compared to $99.8 million at the end of the prior quarter, and a decrease of $10.3 million, or 9.6%, compared to $107.4 million at the end of the year ago quarter. The year-over-year decrease in investment securities was due to principal paydowns.

Loans Receivable:

At September 30, 2019, loans receivable, excluding loans held-for-sale, were $905.0 million, an increase of $23.4 million, or 2.7%, from $881.6 million at June 30, 2019, and an increase of $8.4 million, or 0.9%, from $896.6 million at September 30, 2018. During the third quarter of 2019, total new loan production was $87.4 million, compared to $98.7 million for the prior quarter and $136.8 million for the same quarter last year. For the nine months ended September 30, 2019, total new loan production was $245.9 million, compared to $408.1 million for the same period last year.

During the current quarter, we sold $25.3 million of SBA loans, compared to sales of $36.7 million in the prior quarter and sales of $34.7 million in the year ago quarter. The weighted average premium from the sale of SBA loans for the current quarter was 8.7%, compared to 8.8% in the prior quarter and 8.1% in the year ago quarter. Our SBA loan production was lower for the 12-month period as we managed certain industry concentrations. This, in turn, reduced our loan sales.

Deposits:

Total deposits were $989.3 million at the end of the current quarter, a decrease of $42.4 million, or 4.1%, compared to $1.03 billion at the end of the prior quarter, and a decrease of $67.8 million, or 6.4%, compared to $1.06 billion at the end of the year ago quarter. The decrease was primarily due to our decision to let high rate CDs run off to reduce our cost of funds. Noninterest-bearing deposits decreased by $2.6 million, or 1.3%, to $200.0 million at the end of the current quarter from $202.7 million at the end of the prior quarter and decreased by $21.9 million, or 9.9%, compared to $222.0 million at the end of the year ago quarter. Noninterest-bearing deposits to total deposits were 20.2%, 19.6%, and 21.0% at the end of the current, prior, and year ago quarters, respectively.

ASSET QUALITY:

Loans 30 to 89 days past due and on accrual status at September 30, 2019 were $285 thousand, a decrease of $5.5 million from $5.8 million at June 30, 2019, and an increase of $54 thousand from $231 thousand at September 30, 2018. No loans were 90 days or more past due and still accruing at September 30, 2019, June 30, 2019, or September 30, 2018. Nonaccrual loans at September 30, 2019 were $5.1 million, or 0.57% of loans receivable, an increase of $2.6 million, compared to $2.5 million, or 0.29% of loans receivable at June 30, 2019, and an increase of $4.7 million from $0.4 million, or 0.05% of loans receivable at September 30, 2018.

Classified loans at September 30, 2019 were $8.9 million, or 0.99% of loans receivable, a decrease of $4.7 million, or 34.6%, compared to $13.7 million, or 1.55% of loans receivable at June 30, 2019, and a decrease of $2.9 million, or 17.6%, compared to $16.6 million, or 1.85% of loans receivable at September 30, 2018.

The allowance for loan losses at September 30, 2019 was $10.0 million, or 1.10% of loans receivable, compared to $10.0 million, or 1.14% of loans receivable at June 30, 2019, and $9.8 million, or 1.09%, of loans receivable at September 30, 2018. The ratio of allowance for loan losses to nonperforming loans was 194.8%, 397.4%, and 2,235.5% at September 30, 2019, June 30, 2019, and September 30, 2018, respectively.

CAPITAL:

At September 30, 2019, CBB and the Bank continued to exceed all minimum regulatory capital requirements and maintained capital conservation buffers in excess of the minimum required to avoid limitations on capital distributions, including dividend payments, and certain discretionary bonus payments. The fully phased-in capital conservation buffer requirement was 2.500% and 1.875% as of January 1, 2019 and December 31, 2018, respectively. The minimum capital conservation buffer increased an additional 0.625% at the beginning of 2019, reaching the fully phased-in minimum of 2.500%. As a result, effective January 1, 2019, bank holding companies and banks are required to maintain common equity tier 1, tier 1 risk-based and total risk-based capital ratios that are at least 7.00%, 8.50%, and 10.50%, respectively, to avoid bank regulatory limitations on capital distributions and discretionary bonus payments executive officers. Refer to Table 11 for additional information related to regulatory capital ratios.

About CBB Bancorp, Inc.:

CBB Bancorp, Inc. is the holding company of Commonwealth Business Bank, a full-service commercial bank which specializes in small- to medium-sized businesses and does business as “CBB Bank.” The Bank has eight full-service branches in Los Angeles, Orange, and Dallas Counties; two SBA regional offices in Los Angeles and Dallas counties; and five loan production offices in the states of Texas, Georgia, Colorado, and Washington.

For additional information, please go to www.cbb-bank.com.

FORWARD-LOOKING STATEMENTS:

This news release contains a number of forward-looking statements. These statements may be identified by use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar terms and phrases, including references to assumptions. Forward-looking statements are based upon various assumptions and analyses made by the Company in light of management’s experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate under the circumstances. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors (many of which are beyond the Company’s control) that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. You should not place undue reliance on such statements. Factors that could affect our results include, without limitation, the following: the timing and occurrence or non-occurrence of events may be subject to circumstances beyond the Company’s control; increases in competitive pressure among financial institutions or from non-financial institutions; changes in the interest rate environment may reduce interest margins; changes in deposit flows, loan demand or real estate values may adversely affect the business of the Company and the Bank; unanticipated or significant increases in loan losses; changes in accounting principles, policies or guidelines may cause the Company’s financial condition to be perceived differently; changes in corporate and/or individual income tax laws may adversely affect the Company’s financial condition or results of operations; general economic conditions, either nationally or locally in some or all areas in which the Company conducts business, or conditions in the securities markets or the banking industry may be less favorable than the Company currently anticipates; legislation or regulatory changes may adversely affect the Company’s business; technological changes may be more difficult or expensive than the Company anticipates; there may be failures or breaches of information technology security systems; success or consummation of new business initiatives may be more difficult or expensive than the Company anticipates; or litigation or other matters before regulatory agencies, whether currently existing or commencing in the future, may delay the occurrence or non-occurrence of events longer than the Company anticipates. The Company undertakes no obligation to revise any forward-looking statement contain herein to reflect any future events or circumstances, except to the extent required by law.