Press Release

CBB Bancorp, Inc. Reports 2019 Second Quarter Results

Company Release - 7/26/2019 9:00 AM ET

Second Quarter 2019 Financial Highlights:

  • Net income of $3.5 million, or $0.33 per diluted share.
  • Return on average equity of 10.06% and return on average assets of 1.19%.
  • Net interest margin at 4.05%.
  • Efficiency ratio at 63.79%.
  • Nonperforming assets to total assets were 0.21%.
  • Net charge-offs to average loans were 0.02%.

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 of $3.5 million, or $0.33 per diluted share, for the second quarter of 2019, compared to $3.6 million, or $0.35 per diluted share, for the prior quarter and $4.5 million, or $0.43 per diluted share, for the second quarter of 2018.

For the six months ended June 30, 2019, net income decreased 18.1% to $7.1 million, or $0.68 per diluted share, compared to $8.6 million, or $0.83 per diluted share, for the same period in 2018.

“Our new loan originations were substantially stronger quarter over quarter, both in commercial and SBA lending. However, our net interest margin in the second quarter decreased 11 basis points, reflecting the impact of the rise in our costs of funds which increased 16 basis points. Going forward, our focus will be in managing funding costs aggressively and operating expenses to maximize earnings.” said Joanne Kim, President and CEO.

Net Interest Income and Net Interest Margin:

Net interest income was $11.4 million for the second quarter of 2019, an increase of $0.1 million, or 1.3%, compared to $11.3 million for the prior quarter, and a decrease of $0.2 million, or 1.5%, compared to $11.6 million for the same quarter last year. The quarter-over-quarter increase was primarily due to a $526,000 increase in interest earned on loans, which was offset by a $568,000 increase in interest paid on deposits. The quarter-over-quarter increase in interest earned on loans was primarily due to a $2.7 million increase in the average balance of loans, including loans held-for-sale, to $926.4 million from $923.7 million for the prior quarter, combined with a 14 basis point increase in the yield on loans to 6.46% from 6.32% in the prior quarter. The year-over-year quarterly increase was primarily due to a $1.3 million increase in interest earned on loans, and a $318,000 increase in interest earned on deposits at the FRB and other banks, which were offset by a $1.9 million increase in interest expense on deposits. The year-over-year quarterly increase in interest earned on loans was primarily due to a $62.4 million increase in the average balance of loans, combined with 16 basis points increase in the yield on loans to 6.46% from 6.30% in the same quarter last year.

Net interest income was $22.7 million for the six months ended June 30, 2019, an increase of $0.7 million, or 3.5%, compared to $22.0 million for the same period last year. The year-over-year increase was primarily attributable to a $4.0 million increase in interest earned on loans, a $454,000 increase in interest earned on deposits at the FRB and the other banks, which were partially offset by a $3.8 million increase in interest expense on deposits. The year-over-year increase in interest earned on loans was primarily due to a $85.6 million increase in the average balance of loans combined with 30 basis points increase in the yield on loans to 6.39% from 6.09%.

The reported yield on the loan portfolio is impacted by a number of factors, including changes in the average contractual interest rate earned on the portfolio due to change in loan composition and the amount of discount accretion on the retained portion of SBA loans.

The net interest margin was 4.05% for the current quarter, a decrease of 11 basis points, from 4.16% in the prior quarter, and a decrease of 40 basis points from 4.45% in the year ago quarter. The quarter-over-quarter decrease was primarily due to a 14 basis point increase in the yield on loans from 6.32% to 6.46% in the prior quarter, which was offset by a 16 basis point increase in our cost of funds to from 1.76% to 1.92% in the prior quarter. The year-over-year quarterly decrease was primarily due to a 16 basis point increase in the yield on loans from 6.30% in the year ago quarter, which was offset by a 66 basis point increase in our cost of funds from 1.26% in the same period last year. The quarter-over-quarter increase in our cost of funds was primarily due to a 16 basis point increase in our cost of deposits to 1.92% in the current quarter from 1.76% in the prior quarter and the year-over-year quarterly increase in our cost of funds was primarily due to 66 basis points increase in our cost of deposits from 1.25% in the same quarter last year. The increase in the contractual yield on our loans and cost of funds in the current quarter, compared to the year ago quarter was primarily due to increases in short-term market interest rates, with the overnight federal funds rate increasing 50 basis points during the twelve-month period.

For the six months ended June 30, 2019, the net interest margin was 4.10%, a decrease of 20 basis points, compared to 4.30% for the same period last year. The year-over-year decrease was primarily driven by a 38 basis point increase in the yield on interest-earning assets to 5.75% from 5.37% for the same period last year, which was offset by a 67 basis point increase in our cost of funds to 1.84% from 1.17% for the same period last year. The year-over-year increase in CBB’s yield on interest-earning assets was primarily due to a 30 basis point increase in the yield on loans to 6.39% from 6.09%, while the annual year-over-year increase in our cost of funds was primarily attributable to a 67 basis point increase in our cost of deposits to 1.84% from 1.17% for the same period last year.

Provision for Loan Losses:

CBB recorded a $300,000 provision for loan losses in the current quarter, compared to no provision for loan losses in the prior quarter and an $800,000 provision for loan losses in the year ago quarter. The quarter-over-quarter increase in provision for loan losses was primarily due to an increase in specific reserves set aside for two impaired loans. For the six months ended June 30, 2019, CBB recorded a $300,000 provision for loan losses, a decrease of $500,000, compared to $800,000 of loan loss provisions in the same period in 2018.

Noninterest Income:

For the current quarter, noninterest income totaled $3.0 million, an increase of $877,000, or 41.4%, and a decrease of $526,000, or 14.9%, from $2.1 million and $3.5 million in the prior and year ago quarters, respectively. The quarter-over-quarter increase was primarily driven by a $942,000 increase in gain on sale of loans. The year-over-year quarterly decrease was primarily due to a $369,000 decrease in gains on sales of loans, which was primarily driven by a 71 basis points decrease in the average premium we received on sales of SBA loans which offset a $1.6 million increase in the amount of SBA loan principal sold.

For the six months ended June 30, 2019, noninterest income decreased $1.7 million, or 25.0% to $5.1 million from $6.8 million in the same period last year. The decrease was primarily due to a $1.6 million decrease in gains on sales of loans. The year-over-year decrease in gains on sales of loans was primarily driven by a 129 basis point decrease in the average premium received from the sale of SBA loans and a volume decrease of $8.8 million in the SBA loan principal sold.

During the second quarter of 2019, the Company sold $36.7 million of SBA loans, compared to $24.5 million in the preceding quarter and $35.0 million in the same quarter last year. For the six months ended June 30, 2019, the Company sold $61.1 million of SBA loans, compared to $69.9 million in the same period last year. The quarterly average premium on sales of SBA loans for the current quarter was 8.81%, compared to 7.61% in the prior quarter and 9.52% in the year ago quarter. The average premium on sales of SBA loans for the six months ended June 30, 2019 was 8.33%, compared to 9.62% in the same period last year. The amount of SBA loans we sell varies based on the volume of loans we originate, our liquidity needs, and market conditions.

Noninterest Expense:

Noninterest expense for the second quarter of 2019 was $9.2 million, an increase of $837,000, or 10.0%, from $8.4 million in the prior quarter and an increase of $1.2 million, or 15.7%, from $8.0 million in the year ago quarter. The quarter-over-quarter increase was primarily due to a $369,000 increase in salaries and employee benefits and a $469,000 increase in marketing expense, which were partially offset by a $64,000 decrease in professional expense. The quarter-over-quarter increase in salaries and employee benefits was primarily driven by an annual merit increase and a seven person increase in the average number of full-time equivalent employees (“FTEs”) to 192 during the current quarter from 185 during the prior quarter. The quarter-over-quarter increase in marketing expense was attributable to our marketing and sponsorship of the LPGA LA Open.

The year-over-year quarterly increase in noninterest expense was primarily due to a $544,000 increase in salaries and employee benefits, a $667,000 increase in marketing and a $215,000 increase in professional expense. The year-over-year quarterly increase in salaries and employee benefits was primarily due to a 20 person increase in the average number of FTEs from 172 during the year ago quarter combined with annual employee compensation adjustments. The increase in marketing was primarily due to the marketing and sponsorship of the LPGA LA Open. Lastly, the increase in professional expense was attributable to an increase in external and internal audit fees related primarily to FDICIA and regulatory reporting requirements.

For the six months ended June 30, 2019, noninterest expense was $17.6 million, an increase of $2.0 million, or 12.5%, from $15.6 million for the same period last year. The increase was primarily due to a $904,000 increase in salaries and employee benefits, $807,000 increase in marketing expense, and $351,000 increase in professional expense. This was partially offset by a $97,000 decrease in other expense. The increase in salaries and employee benefits was primarily due to a 20 person increase in the average number of FTEs to 192 in the six months ended June 30, 2019 from 172 in the same period in 2018, combined with increases in annual employee compensation adjustments. The increases in marketing, professional expense, and other expense were primarily driven by the same reasons mentioned above.

Income Tax Expense:

Income tax expense was $1.4 million for the quarter, or an effective tax rate of 29.26%, compared to $1.5 million, or an effective tax rate of 28.77%, for the prior quarter and $1.9 million, or an effective tax rate of 29.67%, for the year ago quarter. For the six months ended June 30, 2019, the provision for income taxes was $2.9 million, or an effective tax rate of 29.01%, compared to $3.7 million, or an effective tax rate of 30.17%, in the same period last year.

Balance Sheet:

At June 30, 2019, the Company had total assets of $1.20 billion, an increase of $21.2 million, or 1.8%, from $1.18 billion at March 31, 2019, and an increase of $61.5 million, or 5.4%, from $1.14 billion at June 30, 2018. Interest earning assets totaled $1.16 billion at June 30, 2019, an increase of $23.0 million, or 2.0%, from $1.14 billion at March 31, 2019, and an increase of $61.1 million, or 5.5%, from $1.10 billion at June 30, 2018.

Interest-earning Deposits at the FRB and Other Banks:

Interest-earning deposits at the FRB and other banks totaled $127.2 million at the end of the current quarter, an increase of $15.9 million, or 14.3%, compared to $111.3 million at the end of the prior quarter, and an increase of $50.2 million, or 65.2%, compared to $77.0 million at the end of the year ago quarter. The quarter-over-quarter and year on year increases in interest-earning deposits at the FRB and other banks were primarily due to growth in the Bank’s customer deposits.

Investment Securities:

Investment securities totaled $99.8 million at the end of the current quarter, a decrease of $2.1 million, or 2.0%, compared to $101.8 million at the end of the prior quarter, and a decrease of $12.3 million, or 10.93%, compared to $112.0 million at the end of the year ago quarter. The year-over-year decrease in investment securities was due principal paydowns.

Loans Receivable:

At June 30, 2019, loans receivable, including loans held-for-sale, were $928.5 million, an increase of $8.9 million, or 1.0%, from $919.6 million at March 31, 2019, and an increase of $21.9 million, or 2.4%, from $906.6 million at June 30, 2018. During the second quarter of 2019, total new loan production, including revolving lines of credit, was $98.7 million, compared to $59.8 million for the prior quarter and $167.8 million for the same quarter last year. For the six months ended June 30, 2019, total new loan production, including revolving lines of credit, was $158.4 million, compared to $271.3 million for the same period last year.

During the second quarter of 2019, $29.2 million of loans paid off, compared to $26.8 million in the prior quarter and $57.5 million in year ago quarter. The year over year quarter decrease was attributable to lower demand related to the acquisition and deposition of property. During the current quarter, we sold $36.7 million of SBA loans, compared to sales of $24.5 million in the prior quarter and sales of $35.0 million in the year ago quarter. During the current, prior and year ago quarters, the Company did not sell any non-SBA loans.

Deposits:

Total deposits were $1.03 billion at the end of the current quarter, an increase of $16.2 million, or 1.6%, compared to $1.02 billion at the end of the prior quarter, and an increase of $45.9 million, or 4.7%, compared to $985.9 million at the end of the year ago quarter. Noninterest-bearing deposits increased $3.7 million, or 1.9%, to $202.7 million at the end of the current quarter from $198.9 million at the end of the prior quarter and increased $5.2 million, or 2.6%, compared to $197.5 million at the end of the year ago quarter. Noninterest-bearing deposits to total deposits were 19.6%, 19.6%, and 20.0% 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 June 30, 2019 were $5.8 million, an increase of $3.3 million from $2.5 million at March 31, 2019, and an increase of $2.5 million from $3.3 million at June 30, 2018. The quarter-over-quarter increase in loans 30 to 89 days past due was primarily due to a $3.4 million loan, which became more than 30 days past due in the quarter. This note is SBA 504 loan with a low loan to value ratio. No loans 90 days or more past due and still accruing at June 30, 2019, March 31, 2019, or June 30, 2018. Nonaccrual loans at June 30, 2019 were $2.5 million, or 0.29% of loans receivable, an increase of $1.5 million, compared to $1.1 million, or 0.12% of loans receivable at March 31, 2019, and an increase of $2.0 million from $0.5 million, or 0.06% of loans receivable at June 30, 2018.

Classified loans at June 30, 2019 were $13.7 million, or 1.55% of loans receivable, an increase of $4.6 million, or 51.1%, compared to $9.1 million, or 1.04% of loans receivable at March 31, 2019, and an increase of $2.8 million, or 25.9%, compared to $10.9 million, or 1.26% of loans receivable at June 30, 2018.

The allowance for loan losses at June 30, 2019 was $10.0 million, or 1.14% of loans receivable, compared to $9.8 million, or 1.12% of loans receivable at March 31, 2019, and $9.4 million, or 1.08%, of loans receivable at June 30, 2018. The ratio of allowance for loan losses to nonperforming loans was 395.7%, 899.5%, and 1803.3% at June 30, 2019, March 31, 2019, and June 30, 2018, respectively.

CAPITAL:

At June 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 will be 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 the aforementioned limitations on capital distributions and discretionary bonus payments.

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 and Orange Counties in California, and Dallas County in Texas; two SBA regional offices in Los Angeles and Dallas Counties; and six loan production offices in Texas, Georgia, Colorado, Utah 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.

STATEMENT OF INCOME AND PERFORMANCE HIGHLIGHT (Unaudited) - Table 1
(Dollars in thousands, except per share amounts)
 
Three Months Ended Six Months Ended

June 30,

March 31,

$

%

June 30,

$

%

June 30,

June 30,

$

%

 

2019

 

 

2019

 

Change

Change

 

2018

 

Change

Change

 

2019

 

 

2018

 

Change

Change

 
Interest income

$

16,296

 

$

15,584

 

$

712

 

4.6

%

$

14,605

 

$

1,691

 

11.6

%

$

31,880

 

$

27,430

 

$

4,450

 

16.2

%

Interest expense

 

4,865

 

 

4,297

 

 

568

 

13.2

%

 

3,005

 

 

1,860

 

61.9

%

 

9,162

 

 

5,475

 

 

3,687

 

67.3

%

Net interest income

 

11,431

 

 

11,287

 

 

144

 

1.3

%

 

11,600

 

  </