Press Release

CBB Bancorp, Inc. Reports First Quarter Financial Results

Company Release - 4/28/2020 9:00 AM ET

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 first quarter 2020 of $1.6 million, or $0.16 per diluted share, a decrease of 43.5% compared to $2.9 million, or $0.28 per diluted share, in the prior quarter and a decrease of 55.1% compared to $3.6 million, or $0.35 per share, in the same period last year.

Joanne Kim, President and CEO, commented, "The COVID-19 pandemic has caused an economic shutdown in the communities we serve, as well as in communities around the world. The financial effects are yet to be quantified for our Bank as we move forward in 2020 and beyond, however we believe our contingency planning, and our strong capital and liquidity will carry us through these challenging times. All branches and the corporate office are open to serve our customers, while observing recommended health precautions. As an SBA lender, we have dedicated our full resources on securing SBA loans for customers under the Paycheck Protection Program ("PPP"). To date, we have secured authorizations for more than 600 borrowers, and we have funded over 350 PPP loans through April 24, 2020."

Overall Results

The decline in net income of $1.2 million, compared with fourth quarter 2019, was primarily due to lower gain on sale of SBA loans, higher compensation and marketing costs, and lower net interest income in first quarter 2020.

The decline in net income of $2.0 million, compared with first quarter 2019, was primarily due to lower net interest income due to declining interest rates, lower gain on sale of SBA loans, and higher compensation costs, offset by lower professional costs.

"While the effects of the pandemic will shape our future financial results in the coming quarters, the reductions in interest rates in the second half of 2019, and in March 2020, were the story for the last two quarters. Three rate cuts aggregating 75 basis points in 2019, and two emergency rate cuts aggregating 150 basis points in March 2020, drastically changed our asset/liability strategies. While our net interest margin declined 30 basis points, comparing first quarter 2020 with 2019, it increased 9 basis points, comparing first quarter 2020 with fourth quarter 2019. With the additional emergency rate cuts in March 2020, we anticipate more margin pressure in the coming quarters," said Ms. Kim.

Net Interest Income and Margin:

Net Interest Income

Net interest income for first quarter 2020 was $10.5 million, a decrease of $245 thousand, or 2.3%, from fourth quarter 2019 and $11.3 million, a decrease of $795 thousand, or 7.0%, from first quarter 2019. We anticipate continued margin pressure, and will focus on managing the pricing and duration of our deposits and borrowings. The decrease in net interest income was primarily driven by a decline in market interest rates. Our adjustable rate loans, which comprise approximately 46% of our loan portfolio, repriced downward immediately due to the rate cuts by the Federal Open Market Committee (“FOMC”). Time deposits, which comprised 57% of total deposits, are repricing lower, but at a much slower pace.

Net Interest Margin

Our net interest margin for first quarter 2020 was 3.86% compared to 3.77% in the fourth quarter of 2019 and 4.16% for the first quarter of 2019. The increase in margin from the prior quarter was due to lower average deposit balances and our efforts to reduce our cost of funds. Our cost of funds for first quarter 2020 was 1.67% compared to 1.79% in fourth quarter 2019 and 1.76% for first quarter 2019.

Provision for Loan Losses:

Our provision for loan losses for first quarter 2020 was $700 thousand, unchanged from our provision of $700 thousand for fourth quarter 2019. There was no provision for loan losses for first quarter 2019. Approximately $500 thousand of the first quarter provision was driven primarily by an increase in qualitative factors relating to deteriorating macro-economic conditions, while $200 thousand was attributed to loan growth for the quarter. The assumptions underlying these qualitative factors included a deterioration in the macro-economic environment caused by the pandemic and the impact of deferring loan payments for customers as an accommodation due to the pandemic. Ms. Kim commented, “The unprecedented economic contraction related to COVID-19 will have a significant negative impact to our 2020 net income. Although our credit quality remains strong to date, we expect that our provision for loan losses will increase and deterioration in our credit quality may likely occur as this pandemic continues.” See Table 10 for additional details and trends.

Noninterest Income:

Noninterest income for first quarter 2020 was $1.7 million compared to $2.3 million for fourth quarter 2019 and $2.1 million for first quarter 2019. The decrease in first quarter 2020 was primarily due to lower gain on sale of SBA loans. During the first quarter, the secondary market, into which we sell SBA loans, began exhibiting signs of concern on the part of investors, that the default risk was increasing due to the pandemic. As a result, premiums (the price investors were willing to pay to purchase SBA loans) declined significantly. Premiums received in fourth quarter 2019 averaged 7.6%, however bids received in the second half of first quarter 2020 averaged 4.0%. As a result, the volume of loans sold during first quarter 2020 was $18.5 million, compared with $28.9 million for fourth quarter 2019, and $24.5 million for first quarter 2019.

Noninterest Expense:

Noninterest expense for first quarter 2020 was $8.9 million compared to $8.4 million for fourth quarter 2019 and $8.4 million for first quarter 2019. Marketing expense increased in first quarter 2020 due to the planned Ladies Professional Golf Tournament in April 2020 for which the Bank is a sponsor. The event was postponed due to the pandemic. Professional fees, related to compliance consulting, declined compared with first quarter 2019.

Income Taxes:

The Company’s effective tax rate for first quarter 2020 was 37.0% compared to 28.5% for fourth quarter 2019 and 28.8% in first quarter 2019. The increase in our effective tax rate was primarily due to the effect of significantly lower projected pre-tax income versus permanent differences as defined in Internal Revenue Service regulations.

Balance Sheet:

Investment Securities:

Investment securities were $91.9 million at March 31, 2020, down $2.8 million from December 31, 2019 and down $10.0 million from March 31, 2019. The decreases were due to principal paydowns. There were no portfolio additions. The unrealized gains and losses in the investment portfolio at March 31, 2020 are estimated based on observable market data, and the disruption in the securities market due to the pandemic could result in different results if such securities were sold.

Loans Receivable:

Loans receivable outstanding (including loans held for sale) at March 31, 2020 was $961.7 million, an increase of $26.0 million, or 2.8%, from December 31, 2019, and $935.7 million, an increase of $42.1 million, or 4.6%, from $919.6 million at March 31, 2019. Ms. Kim further commented, “As reported last quarter, organic loan growth slowed, exacerbated by the decline in interest rates, and the rush by loan customers to refinance at lower fixed rates. This continued into first quarter 2020, but the pandemic abruptly changed our focus to the SBA Paycheck Protection Program. In addition, we implemented a loan deferment program under guidelines provided by regulators and the accounting profession.”

Allowance for Loan Losses and Asset Quality:

The allowance for loan losses at March 31, 2020 was $11.0 million, or 1.18% of portfolio loans, compared to $10.6 million, or 1.17% of portfolio loans, at December 31, 2019. Non-performing loans and other real estate owned as of March 31, 2020 was $7.3 million, down from $8.4 million at December 31, 2019. Our coverage ratio of allowance for loan losses to nonperforming assets continues to exceed 100%. See comments under “Provision for Loan Losses”, and Table 10 for additional details and trends regarding asset quality.

SBA Loans Held for Sale:

SBA loans held for sale at March 31, 2020 were $30.0 million, compared to $28.8 million at December 31, 2019. We continue to assess SBA loan sale premiums and plan to sell loans when it is advantageous to do so. However, due to the COVID-19 pandemic, we saw a slowdown in the SBA loan sales secondary market towards the end of the quarter. See comments under “Noninterest Income”, and the Table 7 for additional SBA loan origination and sale data.

Deposits:

The decrease in deposits was part of our strategy to diversify the mixture of funding sources, and to lower our funding costs, which were heavily emphasized by retail and wholesale certificates of deposits. The run-off of non-relationship CDs accounted for most of the first quarter decline in deposits. The drastic decline in interest rates by the FOMC caused our adjustable rate loan portfolio to immediately reprice lower, yet our CD dependent portfolio will lag the loan portfolio repricing and will reprice as deposits reach their maturities. Our diversification strategy includes using our borrowing facilities, as well as driving core deposits through our recently formed Specialty Deposit Group, which is comprised of experienced bankers who provide specialized treasury management services to deposit-rich markets.

Borrowings:

Borrowings at March 31, 2020 consisted of $85.0 million of Federal Home Loan Bank of San Francisco (FHLB-SF) advances, up $60 million from December 31, 2019. The historically low market interest rates enabled us to match our fixed rate loans with long term, low cost funds, while minimizing interest rate risk.

Additionally, we are working with over 600 borrowers on PPP loans totaling approximately $59 million. We will access the Federal Reserve Bank credit facility related to the SBA PPP Liquidity Facility which will allow the Bank to fund PPP loans without taking on liquidity or funding risk. The current borrowing rate for the facility is 0.35% and the PPP loan rate is 1% plus a 5% loan fee.

Capital:

Stockholders’ equity was $149.8 million at March 31, 2020, representing an increase of $1.7 million, or 1.2%, over stockholders’ equity of $148.1 million at December 31, 2019. Book value per share at quarter end was $14.63 compared with $14.52 at December 31, 2019, an increase of $0.11 per share or 0.8%.

All of our regulatory capital ratios increased at March 31, 2020 from their levels at December 31, 2019 and continue to exceed the minimum levels required to be considered “Well Capitalized” as defined for bank regulatory purposes and in compliance with the fully phased-in Basel III requirements, which went into effect on January 1, 2019, as shown on Table 11 in this press release. Importantly, our Common Equity Tier 1 risked-based capital at March 31, 2020 was 14.82% at the Company level and 14.77% at the Bank level.

Soon Han Pak, Chairwoman of CBB Bancorp and CBB Bank commented, “Our Board was concerned with a potential economic downturn throughout 2019, but never imagined a global pandemic would bring the economy to an abrupt halt in 2020. We were quite comfortable with a high capital level and strong liquidity, and that strategy puts us in a stronger position to weather the fallout from the pandemic.”

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 five loan production offices in 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 guaranteeing 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; significant increases in loan losses; the possibility that 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, the effects of the COVID-19 pandemic, and of other widespread outbreaks of disease or pandemics, together with related impacts on general economic conditions, including adverse impacts on our customers’ ability to make timely payments on their loans from us, reduced fee income due to reduced loan origination activity, reductions in or absence of gains on loan sales due to uncertainty in the loan sale market, and increased operating expense due to required changes in how we conduct our 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 to implement or accommodate 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 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.

Schedules and Financial Data: All tables and data to follow;

STATEMENT OF INCOME AND PERFORMANCE HIGHLIGHT (Unaudited) - Table 1

(Dollars in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

December 31,

 

$

 

%

 

March 31,

 

$

 

%

 

 

 

 

2020

 

2019

 

Change

 

Change

 

2019

 

Change

 

Change

 

 
Interest income

$

14,473

 

$

15,254

 

$

(781

)

(5.1

%)

$

15,584

 

$

(1,111

)

(7.1

%)

Interest expense

 

3,981

 

 

4,517

 

 

(536

)

(11.9

%)

 

4,297

 

 

(316

)

(7.4

%)

Net interest income

 

10,492

 

 

10,737

 

 

(245

)

(2.3

%)

 

11,287

 

 

(795

)

(7.0

%)

 
Provision for loan losses

 

700

 

 

700

 

 

-

 

-

 

 

-

 

 

700

 

100.0

%

Net interest income after provision for loan losses

 

9,792

 

 

10,037

 

 

(245

)

(2.4

%)

 

11,287

 

 

(1,495

)

(13.2

%)

 
Gain on sale of loans

 

939

 

 

1,481

 

 

(542

)

(36.6

%)

 

1,167

 

 

(228

)

(19.5

%)

Gain (loss) on sale of OREO

 

(6

)

 

-

 

 

(6

)

(100.0

%)

 

(10

)

 

4

 

40.0

%

SBA servicing fee income, net

 

372

 

 

413

 

 

(41

)

(9.9

%)