CBB Bancorp, Inc. Reports Fourth Quarter and Full Year 2019 Financial 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 fourth quarter of 2019 of $2.9 million, or $0.28 per diluted share, a decrease of 16.5% compared to $3.4 million, or $0.33 per diluted share, in the prior quarter and a decrease of 19.9% compared to $3.7 million, or $0.35 per share of net income in the same period last year.

Additionally, CBB reported net income for the year ended December 31, 2019 of $13.3 million or $1.29 per diluted share, a decrease of 19.9% from the $16.7 million, or $1.60 per diluted share, of net income for 2018.

Fourth quarter 2019 net income resulted in a return on average assets (“ROA”) and a return on average equity (“ROE”) of 0.97% and 7.66% respectively, with both measures down from the fourth quarter of 2018. For the full-year 2019, ROA and ROE were 1.15% and 9.45%, down from 1.50% and 13.49% for the prior year. The fourth quarter and full year financial performance results were adversely impacted by a lower interest rate environment, including three interest rate cuts from the Federal Open Market Committee (“FOMC”).

Joanne Kim, President and CEO, commented, “Net interest margin compression and higher personnel costs related to compliance affected our net income for 2019. We have worked diligently to lower our funding costs since the early part of 2019, and we are beginning to see our interest-bearing costs decline.” She also commented further, “We have made substantial investments in our CBB Bank branding campaign which will continue into 2020, and have substantially strengthened our compliance division. We believe these investments will add value to our organization.”

Net Interest Income and Margin:

Net Interest Income

Net interest income for the quarter ended December 31, 2019 was $10.7 million, a decrease of $1.5 million, or 12.1% over the same period last year. For the twelve months ended December 31, 2019, net interest income decreased to $44.4 million, a decrease of $1.8 million, or 3.9% over the corresponding period last year. The decrease in net interest income was primarily driven by the decline in market interest rates. Our adjustable rate portfolio, which comprises approximately 48% of the loan portfolio, repriced downward due to the rate cuts by the FOMC. Additionally, lower market rates have triggered a higher level of loan refinancing.

Net Interest Margin

The net interest margin for the quarter ended December 31, 2019 of 3.77% compares with 4.32% in the same period last year, primarily due to loan yields falling faster than funding costs in reaction to lower market interest rates. For the year ended December 31, 2019, the margin was 3.94% compared to 4.30% for the corresponding period in 2018.

Our average loan yields decreased to 6.02% for the quarter ended December 31, 2019 compared with 6.41% or 39 basis points lower from the quarter ended December 31, 2018. Our cost of funds decreased to 1.79% for the quarter ended December 31, 2019 compared to 1.93%, or 14 basis points lower than the prior quarter but increased to 1.57%, or 22 basis points higher than the quarter ended December 31, 2018. The rate decrease from the prior quarter was primarily in certificates of deposit. We anticipate the cost of funds will come down as certificate of deposits mature and reprice.

Ms. Kim noted, “On the funding side, we continue to see heightened competition in deposit pricing despite the three rate cuts. To address this, we are taking steps to broaden and diversify our funding sources including placing more emphasis on savings and money market accounts and less emphasis on certificate of deposits.”

Provision for Loan Losses:

The provision for loan losses for the quarter and year ended December 31, 2019 was $700 thousand and $1.30 million, respectively, compared with $170 thousand and $1.37 million, respectively, for the corresponding periods last year. Nonperforming assets increased to $8.4 million compared to $410 thousand as of December 31, 2018. The coverage ratio of the allowance for loan losses to nonperforming assets continues to exceed 100%. See Table 10 for additional details and trends.

Noninterest Income:

Noninterest income for fourth quarter 2019 was $2.3 million compared to $1.3 million for fourth quarter 2018. The increase was due to higher gains on sale of SBA loans in 2019 and an impairment write down of loan servicing rights in 2018. For the year ended December 31, 2019, noninterest income was $9.8 million compared to $10.3 million in 2018, a decrease of $493 thousand or 4.8%. For the full year, noninterest income was lower than the prior year due lower gains on sale of SBA loans in 2019 and an impairment write down of servicing rights for 2018.

Noninterest Expense:

Noninterest expense for the quarter ended December 31, 2019 was $8.4 million compared to $8.4 million in the corresponding period last year. For the year ended December 31, 2019, noninterest expense was $34.1 million compared to $32.0 million for the corresponding period last year, an increase of $2.1 million or 6.5%. The primary contributors to the increased noninterest expenses were a $1.45 million increase in salaries and employee benefits and a $683 thousand increase in professional expense. Staffing additions primarily related to compliance and corporate administration, along with professional consulting expenses related to compliance, caused the increases.

Staffing and Salaries:

Salary expense was $5.4, million for the quarter ended December 31, 2019, compared to $5.0 million for the corresponding period last year. Salary expense for the years ended December 31, 2019 and 2018 was $21.1 million and $19.6 million, respectively. The year over year increase primarily relates to an increase in full-time equivalents (“FTE”) from 187 at December 31, 2018 to 191 FTE at December 31, 2019. The increase in FTE primarily relates to the additional compliance and corporate administration staff.

Occupancy and Equipment:

Occupancy and equipment expense for the quarter ended December 31, 2019 was $978 thousand, compared to $886 thousand in the corresponding period last year. For the year ended December 31, 2019, occupancy and equipment expense was $3.51 million compared to $3.45 million for the corresponding period last year, an increase of $65 thousand or 1.9%.

Professional Fees:

Professional fees for the quarter ended December 31, 2019 were $417 thousand, compared to $1.20 million for the corresponding period last year, a decrease of $778 thousand, or 65.1%. For the twelve months ended December 31, 2019, professional fees were $2.32 million compared to $2.59 million for the corresponding period last year, a decrease of $237 thousand or 10.5%. The additional costs in 2018 were for the implementation of Internal Control over Financial Reporting (ICFR) required by the Federal Deposit Insurance Corporation Improvement Act FDICIA, as well as professional consulting expenses resulted to compliance.

Income Taxes:

The Company’s effective tax rate for the quarter ended December 31, 2019 was approximately 28.5%, compared with 25.9% in the quarter ended December 31, 2018. The effective tax rate for the year ended December 31, 2019 was approximately 29.0%, compared with 27.9% for the year ended December 31, 2018.

Balance Sheet:

Investment Securities:

Investment securities were $94.7 million at December 31, 2019, down $9.8 million since December 31, 2018 due to principal paydowns. There were no portfolio additions.

Loans Receivable:

Loans receivable outstanding (including loans held for sale) increased from $921.5 million as of December 31, 2018 to $935.7 million as of December 31, 2019, an increase of $14.2 million or 1.5%. Average loans outstanding (including loans held for sale) increased from $922.0 million for the year ended December 31, 2018 to $930.5 million for the year ended December 31, 2019, an increase of $8.5 million or 1.0%. Ms. Kim further commented that “Organic portfolio loan growth is slowing down. We are seeing continued payoffs, both commercial and SBA loans as our borrowers take advantage of lower fixed rates offered by competitor banks due to lower market interest rates. Property owners are taking advantage of lower rates as they are refinancing for better rates.”

Allowance for Loan Losses and Asset Quality:

The allowance for loan losses at December 31, 2019 was $10.6 million, or 1.17% of portfolio loans, compared to $10.0 million, or 1.14% of portfolio loans as of December 31, 2018. Non-performing loans and other real estate owned (“REO’) as of December 31, 2019 was $8.4 million, up from $410 thousand at December 31, 2018. The increases in nonperforming loans have sufficient loan loss allowance in place at year end and the loan balances are well collateralized. See Table 10 for additional details and trends regarding asset quality.

SBA Loans Held for Sale:

SBA loans held for sale at December 31, 2019 were $28.8 million, down $16.8 million from December 31, 2018. Management has decided, at least in the near term, to sell more of its SBA loan production on the balance sheet due to the higher gain on sale premium compared to previous year. These loans are classified as held for sale on the balance sheet.

SBA loan production for the quarter ended December 31, 2019 was $30.8 million compared to $50.1 million in the same quarter last year. SBA loan production was $137.0 million for the twelve months ended December 31, 2019 compared with $189.4 million in the same period last year. See the Table 7 for additional SBA loan origination and sale data. The lower production in 2019 was due in part, to the first quarter 2019 Government shutdown, which adversely affected our SBA program.

Deposits:

Total deposits were $973.3 million at December 31, 2019, a decrease of $35.3 million, or 3.5% since December 31, 2018. Of this decrease, $25.6 million, or 2.53% of the deposit decline was in wholesale certificates of deposit as a result of our continual efforts to obtain low cost core deposits. As noted above, management is taking steps to broaden and diversify its funding sources including placing more emphasis on savings and money market accounts and less emphasis on short term certificates of deposit.

Borrowings:

Borrowings at December 31, 2019 consisted of $25.0 million of Federal Home Loan Bank of San Francisco (FHLB-SF) advances due in 2020, up $15 million from December 31, 2018. Borrowing capacity at the FHLB-SF was $328 million (with $309 million or 94% being available) at December 31, 2019 compared to $359 million (with $326 million or 91% being available) as of December 31, 2018.

Capital:

Stockholder’s equity at December 31, 2019 was $148.1 million compared to $131.9 million at December 31, 2018. This represents an increase of $16.1 million or 12.3% over the prior period. Book value per share at quarter end was $14.52 compared with $13.06 at December 31, 2018, an increase of $1.46 per share or 11.2%. Capital growth during the year primarily consisted of net income of $13.3 million, unrealized gains on investment securities of $2.0 million and $789 thousand related to stock-based compensation.

All regulatory capital ratios increased at December 31, 2019 from their levels at December 31, 2018. The change in the ratios is due to net capital growth, substantially from retained earnings, growing faster than regulatory capital requirements. Additionally, all regulatory capital levels and ratios exceed the minimum 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.

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 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; 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.

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

Contacts

Long T. Huynh, EVP & CFO

(323) 988-3010

Longh@cbb-bank.com

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