Commonwealth Business Bank Reports 2017 First Quarter Results

First Quarter 2017 Financial Highlights:

  • Net income of $3.6 million, or $0.38 per diluted share.
  • Return on average equity was 13.85% and return on average assets was 1.60% annualized.
  • Net interest margin of 4.14% and efficiency ratio of 49.79%.
  • Gross loans increased $43.8 million, or 6.1%, to $758.0 million.

LOS ANGELES--()--Commonwealth Business Bank (“CBB” or the “Bank”) (OTCQB: CWBB) today announced net income of $3.6 million for the first quarter of 2017, compared to $3.4 million for the prior quarter and $3.1 million for the first quarter of 2016. Diluted earnings per share were $0.38 for the first quarter of 2017, compared to $0.37 for the preceding quarter and $0.34 for the year ago quarter.

“Our first quarter financial performance reflects our efforts to grow our balance sheet and that we are well-positioned should interest rates rise or remain flat”

“Our first quarter financial performance reflects our efforts to grow our balance sheet and that we are well-positioned should interest rates rise or remain flat,” said Joanne Kim, President and CEO. “In order to expand our deposit customer base to support growth, we relocated our Dallas branch to a new customer accessible facility which will house our full-service branch and SBA Region II administrative offices, and we will be opening a branch in each of the Dallas and Los Angeles markets in the second quarter,” added Ms. Kim.

RESULTS OF OPERATIONS

       
Three Months Ended
March 31, December 31, % March 31,   %
2017 2016 Change 2016 Change
(Dollars in thousands, except per share amounts)
 
Net income $ 3,559 $ 3,440 3.5 % $ 3,103 14.7 %
Net income per diluted common share $ 0.38 $ 0.37 2.7 % $ 0.34 ¹ 11.8 %
 
Return on average assets 1.60 % 1.53 % 4.6 % 1.62 % (1.2 %)
Return on average equity 13.85 % 13.58 % 2.0 % 13.53 % 2.4 %
 
Noninterest income/average assets 1.40 % 1.33 % 5.3 % 1.52 % (7.9 %)
Pre-tax, pre-provision earnings/average assets 2.69 % 2.58 % 4.3 % 2.98 % (9.7 %)
Noninterest expense/average assets 2.67 % 2.57 % 3.9 % 2.89 % (7.6 %)
Efficiency ratio 49.79 % 49.93 % (0.3 %) 49.24 % 1.1 %
Net interest margin² 4.14 % 3.94 % 5.1 % 4.46 % (7.2 %)
 

¹ Restated for 10% stock dividend to shareholders of record on May 16, 2016

² Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate

 

Net Interest Income and Net Interest Margin

Net interest income was $8.8 million for the first quarter of 2017, an increase of $207,000, or 2.4%, compared to $8.6 million for the prior quarter and an increase of $477,000, or 5.7%, compared to $8.3 million for the same quarter last year. The quarter-over-quarter increase was primarily due to a $243,000 increase in interest earned on loans and a $146,000 increase in interest earned on investment securities, which were partially offset by a $47,000 decrease in interest earned on deposits at the Federal Reserve Bank (“FRB”) and other banks, a $108,000 decrease in dividend income, and a $21,000 increase in interest expense on deposits. The quarter-over-quarter increase in interest earned on loans was due to a $27.4 million increase in the average balance of loans and a 4 basis point increase in the yield on loans to 5.33% from 5.29%. The year-over-year quarterly increase was primarily due to a $292,000 increase in interest earned on loans and a $314,000 increase in interest earned on investment securities, which were partially offset by a $149,000 increase in interest expense on deposits. The year-over-year quarterly increase in interest earned on loans was primarily due to a $76.5 million increase in the average balance of loans, which was partially offset by a 38 basis point decrease in yield on loans to 5.33% from 5.71%.

The reported yield on our loan portfolio is impacted by a number of factors, including changes in the average contractual interest rate earned on the portfolio and the amount of discount accretion on SBA loans. The following table reconciles the contractual yield on our loan portfolio to the reported loan yields for the periods indicated.

             
Three Months Ended
March 31, 2017 December 31, 2016 March 31, 2016
Amount Yield Amount Yield Amount Yield
(Dollars in thousands)
Contractual yield $ 9,159 4.98 % $ 8,705 4.82 % $ 8,554 5.14 %
SBA discount accretion 688 0.37 % 792 0.44 % 751 0.45 %
Prepayment penalties & late fees 77 0.05 % 140 0.08 % 200 0.12 %
Amortization of the net deferred costs (137 ) (0.07 %) (93 ) (0.05 %) (10 ) -
Interest recognized on nonaccrual loans   -   -     -   -     -   -  
As reported yield on loans $ 9,787   5.33 % $ 9,544   5.29 % $ 9,495   5.71 %
 

The net interest margin was 4.14% for the current quarter, an increase of 20 basis points from 3.94% in the prior quarter and a decrease of 32 basis points from 4.46% in the year ago quarter. The quarter-over-quarter increase was primarily due to a 22 basis point increase in the yield on interest-earning assets to 4.85% from 4.63% for the prior quarter, which was partially offset by a 2 basis point increase in our cost of funds to 0.78% from 0.76% for the prior quarter. The year-over-year quarterly decrease was primarily due to a 35-basis point decrease in the yield on interest-earning assets from 5.20% in the year ago quarter, which was partially offset by a 4 basis point decrease in our cost of funds from 0.82% for the same period last year. The quarter-over-quarter increase in our cost of funds was due to a 2 basis point increase in the Bank’s cost of deposits to 0.77% in the current quarter from 0.75% in the prior quarter and the year-over-year quarterly decrease in our cost of funds was due to a 4 basis point decrease in our cost of deposits from 0.81% in the same quarter last year.

Provision for Loan Losses

The Bank recorded no provision for loan losses for both in the first quarter of 2017 and the prior quarter and recorded a $400,000 provision for loan losses in the year ago quarter. There was no provision for loan losses in current quarter primarily due to reduced historical loss factors used in the allowance for loan loss calculations at March 31, 2017.

Noninterest Income

For the current quarter, noninterest income totaled $3.1 million, an increase of $100,000, or 3.3%, and an increase of $188,000, or 6.4%, from $3.0 million and $2.9 million in the prior and year ago quarters, respectively. The quarter-over-quarter increase was primarily due to a $30,000 increase in service charges on deposits, a $50,000 increase in SBA loan servicing fee income, a $55,000 increase in other income, and a $130,000 increase in gains on sales of OREO, which were partially offset by a $150,000 decrease in gains on sales of SBA loans. The quarter-over-quarter decrease in gains on sales of SBA loans was primarily due to a decrease in the amount of SBA loans sold, which was partially offset by an increase in the average premium received on the loans sold. The year-over-year quarterly increase was primarily due to a $129,000 increase in service charges on deposits, a $235,000 increase in SBA loan servicing fee income, a $58,000 increase in other income, and a $103,000 increase in gains on sales of OREO, which were partially offset by $346,000 decrease in gains on sales of SBA loans. The year-over-year decrease in gains on sales of SBA loans was primarily due to a decrease in the amount of SBA loans sold and a decrease in the average premium received on the loans sold.

As the following table indicates, during the first quarter of 2017, the Bank sold $27.8 million of SBA loans, compared to $31.2 million in the preceding quarter and $31.4 million in the same quarter last year. The quarterly average premium on sales of SBA loans for the current quarter was 9.24% compared to 9.17% in the prior quarter and 9.88% in the year ago quarter. The amount of SBA loan sales varies based on the volume of loans we originate, our liquidity needs and market conditions.

         
Three Months Ended
March 31, December 31, % March 31, %
2017   2016   Change 2016   Change
(Dollars in thousands)
SBA loans held-for-sale at beginning of the quarter $ 18,096 $ 11,525 57.0 % $ 17,809 1.6 %
SBA loans originated/transferred from held-for-
investment during the quarter 43,019 37,833 13.7 % 23,276 84.8 %
SBA loans sold during the quarter (27,774 ) (31,190 ) (11.0 %) (31,409 ) (11.6 %)
SBA loans principal payment, net of advance   (88 )   (72 ) 22.2 %     (74 ) 18.9 %
SBA loans held-for-sale at end of the quarter $ 33,253   $ 18,096   83.8 % $ 9,602   246.3 %
 
Gain on sale of SBA loans $ 1,978 $ 2,128 (7.0 %) $ 2,324 (14.9 %)
Premium on sale (weighted average) 9.24 % 9.17 % 0.8 % 9.88 % (6.5 %)
 
SBA loan production $ 57,579

 

$ 46,405 24.1 % $ 41,334 39.3 %
 

Noninterest Expense

Noninterest expense for the first quarter of 2017 was $5.9 million, an increase of $136,000, or 2.3%, from $5.8 million in the prior quarter and an increase of $392,000, or 7.1%, from $5.5 million in the year ago quarter. The quarter-over-quarter increase was primarily due to a $253,000 increase in salaries and employee benefits, which were partially offset by a $33,000 decrease in marketing expense, and a $126,000 decrease in other expense. The year-over-year quarterly increase was primarily due to a $237,000 increase in salaries and employee benefits, a $72,000 increase in occupancy and equipment, a $45,000 increase in professional expense, and an $87,000 increase in other expense, which were partially offset by a $131,000 decrease in data processing expense. The decrease in data processing expense was due to the absence of core system conversion costs incurred during the year ago quarter. The year-over-year quarterly increase in salaries and employee benefits was primarily due to a 14 person increase in the average number of full time equivalent employees (“FTEs”) to 144 during the current quarter from 130 during the year ago quarter.

         
At or for the Three Months Ended
March 31, December 31, % March 31, %
2017 2016 Change 2016   Change
(Dollars in thousands)
 
Salaries and benefits $ 4,015 $ 3,762 6.7 % $ 3,778 6.3 %
FTE at end of period 147 139 5.8 % 132 11.4 %
Average FTE during the period 144 138 4.3 % 130 10.8 %
Salaries and benefit/average FTE¹ $ 113 $ 108 4.6 % $ 117 (3.4 %)
Salaries and benefit/average assets¹ 1.81 % 1.67 % 8.4 % 1.97 % (8.1 %)
Noninterest expense/average assets¹ 2.67 % 2.57 % 3.9 % 2.89 % (7.6 %)
 
1 Annualized
 

Income Tax Expense

The income tax expense was $2.4 million for the quarter, or an effective tax rate of 40.50%, compared to $2.4 million, or an effective tax rate of 40.80%, for the prior quarter and $2.2 million, or an effective tax rate of 41.55%, for the year ago quarter.

Pre-Tax, Pre-Provision Income

For the first quarter of 2017, the Bank’s pre-tax, pre-provision (“PTPP”) income was $6.0 million, an increase of $171,000, or 2.9%, from $5.8 million for the prior quarter and an increase of $273,000, or 4.8%, from $5.7 million for the same quarter a year ago. Annualized PTPP income to average assets increased to 2.69% for the current quarter, compared to 2.58% for the prior quarter and decreased from 2.98% for the year ago quarter.

           
Three Months Ended
March 31, December 31, % March 31, %
2017 2016 Change 2016   Change
(Dollars in thousands)
 
PTPP income $ 5,982 $ 5,811 2.9 % $ 5,709 4.8 %
Average assets $ 901,145 $ 897,315 0.4 % $ 770,840 16.9 %
Annualized PTPP/average assets 2.69 % 2.58 % 4.3 % 2.98 % (9.7 %)
PTPP, excluding gain on sale of SBA loans $ 4,004 $ 3,683 8.7 % $ 3,385 18.3 %
 

BALANCE SHEET

At March 31, 2017, the Bank had total assets of $922.0 million, an increase of $8.8 million, or 1.0%, from $913.2 million at December 31, 2016 and an increase of $117.0 million, or 14.5%, from $805.0 million at March 31, 2016. Earning assets totaled $889.2 million at March 31, 2017, an increase of $4.0 million, or 0.5%, from $885.2 million at December 31, 2016, and an increase of $105.0 million, or 13.4%, from $784.2 million at March 31, 2016.

         
March 31, December 31, % March 31, %
  2017     2016   Change   2016   Change
(Dollars in thousands, except per share amounts)
 
Assets $ 921,965 $ 913,194 1.0 % $ 805,001 14.5 %
Earning assets 889,190 885,167 0.5 % 784,150 13.4 %
Interest-earning deposits at FRB and other banks 52,086 90,060 (42.2 %) 106,899 (51.3 %)
Investment securities 73,412 75,232 (2.4 %) 4,304 1605.7 %
Loans held-for-sale 33,253 18,096 83.8 % 9,602 246.3 %
Loans receivable 724,786 696,142 4.1 % 658,478 10.1 %
Deposits 799,833 795,104 0.6 % 695,954 14.9 %
 
Tangible common equity/total assets 11.48 % 11.17 % 2.8 % 11.62 % (1.2 %)
Tangible common equity per common share $ 11.63 $ 11.22 3.7 % $ 10.44 ¹ 11.4 %
 
¹ Restated for 10% stock dividend to shareholders of record on May 16, 2016
 

Interest-earning Deposits at the FRB and Other Banks

Interest-earning deposits at the FRB and other banks totaled $52.1 million at the current quarter-end, a decrease of $38.0 million, or 42.2%, compared to $90.1 million at the end of the prior quarter, and a decrease of $54.8 million, or 51.3%, compared to $106.9 million at the end of the year ago quarter.

Investment Securities

Investment securities totaled $73.4 million at the current quarter-end, a decrease of $1.8 million, or 2.4%, compared to $75.2 million at the end of the prior quarter, and an increase of $69.1 million compared to $4.3 million at the end of the year ago quarter. The year-over-year increase in investment securities was due to investing the Bank’s excess liquidity into higher yielding investment securities.

Loans Receivable

The following table details loans by type at the dates indicated:

         
March 31, December 31, % March 31, %
  2017     2016   Change   2016   Change
(Dollars in thousands)
 
Construction $ 12,302 $ 12,252 0.4 % $ 10,820 13.7 %
Commercial real estate 581,697 563,970 3.1 % 507,294 14.7 %
Commercial and industrial 126,204 114,319 10.4 % 136,911 (7.8 %)
Consumer   2,845     3,998   (28.8 %)   2,082   36.7 %
Gross loans 723,049 694,539 4.1 % 657,107 10.0 %
 
Net deferred loan costs   1,737     1,603   8.4 %   1,371   26.7 %
Gross loans, net $ 724,786   $ 696,142   4.1 % $ 658,478   10.1 %
 
Loans held-for-sale $ 33,253 $ 18,096 83.8 % $ 9,602 246.3 %
Gross loans, net, including loans held-for-sale $ 758,039 $ 714,238 6.1 % $ 668,080 13.5 %
 
Loan-to-deposit (LTD) ratio: 90.6 % 87.6 % 3.5 % 94.6 % (4.2 %)
LTD ratio including loans held-for-sale 94.8 % 89.8 % 5.5 % 96.0 % (1.3 %)
 

At March 31, 2017, gross loans, net, including loans held-for-sale were $758.0 million, an increase of $43.8 million, or 6.1%, from $714.2 million at December 31, 2016 and an increase of $90.0 million, or 13.5%, from $668.1 million at March 31, 2016. During the first quarter of 2017, total new loan production, including revolving lines of credit, was $111.2 million, compared to $69.5 million for the prior quarter and $82.9 million for the same quarter last year.

During the first quarter of 2017, $21.0 million of loans paid off compared to $17.1 million in the prior quarter and $30.5 million in year ago quarter. During the current quarter, we sold $27.8 million of SBA loans, compared to sales of $31.2 million in the prior quarter and sales of $31.4 million in the year ago quarter. In the current quarter, the Bank did not sell any non-SBA loans compared to $5.5 million in prior quarter and none in the year ago quarter.

Deposits

The following table details deposits by category at the dates indicated:

               
March 31, 2017 December 31, 2016 % March 31, 2016 %
Balance %   Balance %   Change Balance %   Change
(Dollars in thousands)
 
Noninterest-bearing demand $ 196,796 24.6 % $ 197,210 24.8 % (0.2 %) $ 156,022 22.4 % 26.1 %
Money market & NOW 168,206 21.0 % 169,309 21.3 % (0.7 %) 138,977 20.0 % 21.0 %
Savings 12,132 1.5 % 12,990 1.6 % (6.6 %) 9,277 1.3 % 30.8 %
Time deposits 422,699 52.8 % 415,595 52.3 % 1.7 % 391,678 56.3 % 7.9 %
               
Total Deposits $ 799,833   100.0 % $ 795,104   100.0 % 0.6 % $ 695,954   100.0 % 14.9 %
 
Cost of deposits 0.77 % 0.75 % 0.81 %
 

Total deposits were $799.8 million at the end of the current quarter, an increase of $4.7 million, or 0.6%, compared to $795.1 million at the end of the prior quarter and an increase of $103.9 million, or 14.9%, compared to $696.0 million at the end of the year ago quarter. Noninterest-bearing deposits decreased $414,000, or 0.2%, to $196.8 million at the end of the current quarter from $197.2 million at the end of the prior quarter and increased $40.8 million, or 26.1%, compared to $156.0 million at the end of the year ago quarter. Noninterest-bearing deposits to total deposits were 24.6%, 24.8% and 22.4% at the end of the current, prior and year ago quarters, respectively.

ASSET QUALITY

           
March 31, December 31, % March 31, %
  2017     2016   Change   2016   Change
(Dollars in thousands)

Delinquent Loans:¹

Loans 30-89 days past due $ 1,609 $ 309 420.7 % $ 2,270 (29.1 %)
90 days or more past due and still accruing - - - - -
Nonaccrual loans   3,158     3,084   2.4 %   1,895   66.6 %
Delinquent loans $ 4,767   $ 3,393   40.5 % $ 4,165   14.5 %
 

Nonperforming Assets:

90 days or more past due and still accruing $ - $ - - $ - -
Nonaccrual loans ¹   3,158     3,084   2.4 %   1,895   66.6 %
Nonperforming loans 3,158 3,084 2.4 % 1,895 66.6 %
 
Other real estate owned   -     1,155   (100.0 %)   1,155   (100.0 %)
Nonperforming assets $ 3,158   $ 4,239   (25.5 %) $ 3,050   3.5 %
 
Nonaccrual loans to gross loans excluding LHFS 0.44 % 0.44 % - 0.29 % 51.7 %
Nonperforming loans to gross loans excluding LHFS 0.44 % 0.44 % - 0.29 % 51.7 %
Nonperforming assets to total assets 0.34 % 0.46 % (26.1 %) 0.38 % (10.5 %)
Texas Ratio² 2.77 % 3.84 % (27.9 %) 2.97 % (6.7 %)
 

Classified Loans: ¹

Substandard $ 8,103 $ 8,125 (0.3 %) $ 8,346 (2.9 %)
Doubtful - - - - -
Loss   -     -   -     -   -  
Classified loans $ 8,103   $ 8,125   (0.3 %) $ 8,346   (2.9 %)
 
Classified assets to total assets 0.88 % 0.89 % (1.1 %) 1.04 % (15.4 %)
Classified assets to Tier 1 and ALLL 7.10 % 7.35 % (3.4 %) 8.14 % (12.8 %)
 

Performing TDR loans:

$ 3,740 $ 3,806 (1.7 %) $ 4,282 (12.7 %)
 

Allowance for Loan Losses Items:

Balance at beginning of period $ 8,456 $ 12,438 (32.0 %) $ 8,546 (1.1 %)
Provision for loan losses - - - 400 (100.0 %)
Charge-offs 83 4,010 (97.9 %) 18 361.1 %
Recoveries   26     28   (7.1 %)   98   (73.5 %)
Balance at the end of period $ 8,399   $ 8,456   (0.7 %) $ 9,026   (6.9 %)
 
ALLL to gross loans (exc. LHFS) 1.16 % 1.21 % (4.1 %) 1.37 % (15.3 %)
ALLL to nonperforming loans 265.96 % 274.19 % (3.0 %) 476.31 % (44.2 %)
 

1 Net of SBA guaranteed balance

2 Nonperforming assets divided by tangible common equity and ALLL

 

Loans 30 to 89 days past due and on accrual status at the end of the current quarter were $1.6 million, an increase of $1.3 million from $309,000 at the end of the prior quarter, and a decrease of $661,000 from $2.3 million at the end of the same quarter last year. The quarter-over-quarter increase in loans 30 to 89 days past due was primarily due to one $922,000 loan on which we received all past due payments subsequent to quarter end. There were no loans 90 days or more past due and still accruing at the end of the current, prior and year ago quarters. Nonaccrual loans increased $74,000 to $3.2 million, or 0.44% of gross loans excluding loans held-for-sale, at the end of the current quarter from $3.1 million, or 0.44% of gross loans excluding loans held-for-sale, at the end of the prior quarter and increased $1.3 million from $1.9 million, or 0.29% of gross loans excluding loans held-for-sale, at the end of the year ago quarter.

Nonperforming loans at March 31, 2017 were $3.2 million, or 0.44% of gross loans excluding loans held-for-sale, a decrease of $74,000 compared to $3.1 million, or 0.44% of gross loans excluding loans held-for-sale, at the end of the prior quarter and an increase of $1.3 million from $1.9 million, or 0.29% of gross loans excluding loans held-for-sale, at the end of the same quarter last year.

The Bank did not have any other real estate owned at March 31, 2017, a decrease of $1.2 million compared to $1.2 million at the end of the prior and the year ago quarters.

Nonperforming assets at the end of current quarter were $3.2 million, or 0.34% of total assets, a decrease of $1.1 million compared to $4.2 million, or 0.46% of total assets, at December 31, 2016 and an increase of $108,000 from $3.1 million, or 0.38% of total assets, at March 31, 2016. The quarter-over-quarter decrease in nonperforming assets was due to the sale of a $1.2 million OREO.

The allowance for loan losses at March 31, 2017 was $8.4 million, or 1.16% of gross loans excluding loans held-for-sale, compared to $8.5 million, or 1.21% of gross loans excluding loans held-for-sale, at December 31, 2016, and $9.0 million, or 1.37% of gross loans excluding loans held-for-sale, at the end of the year ago quarter. The allowance for loan losses to nonperforming loans was 265.96%, 274.19%, and 476.31% at March 31, 2017, December 31, 2016, and March 31, 2016, respectively.

CAPITAL

At March 31, 2017, the Bank continued to exceed all regulatory capital requirements to be classified as a “well-capitalized” institution and maintained a capital conservation buffer in excess of the minimum required to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments. The minimum capital conservation buffer requirement was 1.250% and 0.625% in 2017 and 2016, respectively. The capital conservation buffer is calculated as the smallest excess of a bank’s common equity tier 1, tier 1 risk-based and total risk-based capital ratios over the regulatory “adequately” capitalized minimum ratios of 4.50%, 6.00% and 8.00%, respectively. The minimum capital conservation buffer will increase an additional 0.625% at the beginning of 2018 and 2019, reaching the fully phased-in minimum of 2.500% in 2019. When the capital conservation buffer is fully phased-in in 2019, banks will be required to maintain common equity tier 1, tier 1 risk-based and total risk-based capital ratios that are at least 50 basis points greater than the well-capitalized minimums to avoid the aforementioned limitations on capital distributions. The Bank’s regulatory capital ratios and capital conservation buffer at the dates indicated are summarized below:

           
CBB Capital Ratios
Well-Capitalized March 31, December 31, September 30, June 30, March 31,
Minimum 2017   2016   2016   2016   2016  
 
Leverage ratio 5.00 % 11.75 % 11.40 % 11.68 % 11.93 % 12.09 %
Common equity tier 1 capital ratio 6.50 % 13.58 % 13.70 % 13.25 % 13.17 % 13.61 %
Tier 1 risk-based capital ratio 8.00 % 13.58 % 13.70 % 13.25 % 13.17 % 13.61 %
Total risk-based capital ratio 10.00 % 14.76 % 14.95 % 14.51 % 14.42 % 14.87 %
 
Capital Conservation Buffer
March 31, December 31, September 30, June 30, March 31,
2017   2016   2016   2016   2016  
 
Minimum required capital conservation buffer 1.250 % 0.625 % 0.625 % 0.625 % 0.625 %
CBB capital conservation buffer 6.764 % 6.953 % 6.512 % 6.424 % 6.870 %
 

ABOUT COMMONWEALTH BUSINESS BANK (“CBB BANK”)

Commonwealth Business Bank is a full-service commercial bank also doing business as “CBB Bank,” and specializes in small-to medium-sized businesses. CBB has six full service branches in Los Angeles, Orange, and Dallas Counties and five loan production offices in Texas, Georgia, Colorado, and Washington.

For additional information, please visit CBB’s website at www.cbb-bank.com.

NON-GAAP FINANCIAL MEASURES

CBB may use certain non-GAAP financial measures to provide meaningful supplemental information regarding CBB’s operational performance and to enhance investors’ overall understanding of such financial performance. These non-GAAP measures have important limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under the GAAP.

FORWARD-LOOKING STATEMENTS

This release may contain forward-looking statements that are subject to risks and uncertainties. Such risks and uncertainties may include, but are not necessarily limited to, fluctuations in interest rates, inflation, government regulations and general economic conditions, and competition within the business areas in which Commonwealth Business Bank is conducting its operations, including the real estate market in California, and other factors beyond Commonwealth Business Bank’s control. Such risks and uncertainties could cause results for subsequent interim periods or for the entire year to differ materially from those indicated. Readers should not place undue reliance on the forward-looking statements, which reflect management’s view only as of the date hereof. Commonwealth Business Bank undertakes no obligation to revise these forward-looking statements publicly to reflect subsequent events or circumstances.

 
BALANCE SHEET (Unaudited)
(Dollars in thousands)
           
March 31, December 31, % March 31, %
  2017     2016   Change     2016   Change
ASSETS
Cash and due from banks $ 13,977 $ 9,127 53.1 % $ 6,307 121.6 %
Interest-earning deposits at the FRB and other banks 52,086 90,060 (42.2 %) 106,899 (51.3 %)
Investment securities 73,412 75,232 (2.4 %) 4,304 1605.7 %
Loans held-for-sale, at the lower of cost or fair value 33,253 18,096 83.8 % 9,602 246.3 %
 
Loans 724,786 696,142 4.1 % 658,478 10.1 %
Allowance for loan losses   (8,399 )   (8,456 ) (0.7 %)   (9,026 ) (6.9 %)
Loans receivable, net 716,387 687,686 4.2 % 649,452 10.3 %
 
FHLB, FRB & PCBB stocks 5,653 5,637 0.3 % 4,867 16.1 %
Other assets   27,197     27,356   (0.6 %)   23,570   15.4 %
TOTAL ASSETS $ 921,965   $ 913,194   1.0 % $ 805,001   14.5 %
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing $ 196,796 $ 197,210 (0.2 %) $ 156,022 26.1 %
Interest-bearing   603,037     597,894   0.9 %   539,932   11.7 %
Total deposits 799,833 795,104 0.6 % 695,954 14.9 %
 
FHLB advances 10,000 10,000 - 10,000 -
Other liabilities   6,333     6,051   4.7 %   5,496   15.2 %
Total liabilities   816,166     811,155   0.6 %   711,450   14.7 %
 
Stockholders' Equity   105,799     102,039   3.7 %   93,551   13.1 %
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 921,965   $ 913,194   1.0 % $ 805,001   14.5 %
 
         
STATEMENT OF INCOME (Unaudited)
(Dollars in thousands, except per share amounts)
   
Three Months Ended
March 31, December 31, % March 31, %
  2017   2016   Change   2016 Change
 
Interest income $ 10,330 $ 10,096 2.3 % $ 9,698 6.5 %
Interest expense   1,527   1,500   1.8 %   1,372 11.3 %
Net interest income 8,803 8,596 2.4 % 8,326 5.7 %
 
Provision for loan losses   -   -   -     400 (100.0 %)
Net interest income after provision for loan losses 8,803 8,596 2.4 % 7,926 11.1 %
 
Gain on sale of loans 1,978 2,128 (7.0 %) 2,324 (14.9 %)
Gain (loss) on sale of OREO 103 (27 ) 281.5 % - 100.0 %
Service charges and other income   1,029   909   13.2 %   598 72.1 %
Noninterest income 3,110 3,010 3.3 % 2,922 6.4 %
 
Salaries and employee benefits 4,015 3,762 6.7 % 3,778 6.3 %
Occupancy and equipment 571 548 4.2 % 499 14.4 %
Other expenses   1,345   1,485   (9.4 %)   1,262 6.6 %
Noninterest expense 5,931 5,795 2.3 % 5,539 7.1 %
 
Income before income tax expense 5,982 5,811 2.9 % 5,309 12.7 %
 
Income tax expense 2,423 2,371 2.2 % 2,206 9.8 %
         
Net income $ 3,559 $ 3,440   3.5 % $ 3,103 14.7 %
 
PTPP $ 5,982 $ 5,811 2.9 % $ 5,709 4.8 %
PTPP excluding gain on sale of SBA loans $ 4,004 $ 3,683 8.7 % $ 3,385 18.3 %
 
Outstanding number of shares 9,095,159 9,095,159 - 8,964,813 ¹ 1.5 %
 
Weighted average shares for basic EPS 9,095,159 9,094,949 0.0 % 8,948,344 ¹ 1.6 %
Weighted average shares for diluted EPS 9,427,311 9,328,776 1.1 % 9,190,191 ¹ 2.6 %
 
Basic EPS $ 0.39 $ 0.38 2.6 % $ 0.35 ¹ 11.4 %
Diluted EPS $ 0.38 $ 0.37 2.7 % $ 0.34 ¹ 11.8 %
 

1 Restated for 10% stock dividend to shareholders of record on May 16, 2016

 
       
SELECTED FINANCIAL HIGHLIGHTS (Unaudited)
(Dollars in thousands, except per share amounts)
   
Three Months Ended
March 31, December 31, % March 31, %
  2017     2016   Change     2016   Change

Performance Ratios:

Return on average assets 1.60 % 1.53 % 4.6 % 1.62 % (1.2 %)
Return on average equity 13.85 % 13.58 % 2.0 % 13.53 % 2.4 %
Net interest margin 4.14 % 3.94 % 5.1 % 4.46 % (7.2 %)
Cost of funds 0.78 % 0.76 % 2.6 % 0.82 % (4.9 %)
Efficiency ratio 49.79 % 49.93 % (0.3 %) 49.24 % 1.1 %
 

Capital Ratios:

Core capital (leverage) ratio 11.75 % 11.40 % 3.1 % 12.09 % (2.8 %)
Common equity tier 1 risk-based capital ratio 13.58 % 13.70 % (0.9 %) 13.61 % (0.2 %)
Tier 1 risk-based capital ratio 13.58 % 13.70 % (0.9 %) 13.61 % (0.2 %)
Total risk-based capital ratio 14.76 % 14.95 % (1.3 %) 14.87 % (0.7 %)
Minimum required capital conservation buffer 1.250 % 0.625 % 100.0 % 0.625 % 100.0 %
CBB Capital conservation buffer 6.764 % 6.953 % (2.7 %) 6.870 % (1.5 %)
Tangible common equity / total assets 11.48 % 11.17 % 2.8 % 11.62 % (1.2 %)
Tangible common equity per share $ 11.63 $ 11.22 3.7 % $ 10.44 ² 11.4 %
 

Selected Average Balances:

Gross loans, net ¹ $ 745,243 $ 717,883 3.8 % $ 668,788 11.4 %
Total investment securities 74,526 47,409 57.2 % 4,339 1617.6 %
Interest-earning assets 871,044 871,973 (0.1 %) 750,262 16.1 %
Total assets 901,145 897,315 0.4 % 770,840 16.9 %
Noninterest-bearing deposits 178,540 183,238 (2.6 %) 134,277 33.0 %
Total deposits 777,047 779,080 (0.3 %) 662,248 17.3 %
Interest-bearing liabilities 612,063 605,842 1.0 % 537,971 13.8 %
Stockholders' equity 104,214 100,739 3.4 % 92,217 13.0 %
 

1 Includes loans held-for-sale

2 Restated for 10% stock dividend to shareholders of record on May 16, 2016

     
SELECTED LOAN AND ASSET QUALITY HIGHLIGHTS (Unaudited)
(Dollars in thousands)
     
1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
  2017     2016     2016     2016     2016  

Allowance for Loan Losses

Balance at beginning of period $ 8,456 $ 12,438 $ 9,321 $ 9,026 $ 8,546
Provision for loan losses - - 3,100 400 400
Charge-offs 83 4,010 3 166 18
Recoveries   26     28     20     61     98  
Balance at the end of period $ 8,399   $ 8,456   $ 12,438   $ 9,321   $ 9,026  
 

Nonperforming Assets:¹

Over 90 days still accruing $ - $ - $ 126 $ - $ -
Nonaccrual loans   3,158     3,084     6,965     3,279     1,895  
Total nonperforming loans   3,158     3,084     7,091     3,279     1,895  
 
Other real estate owned   -     1,155     1,403     1,155     1,155  
Total nonperforming assets $ 3,158   $ 4,239   $ 8,494   $ 4,434   $ 3,050  
 
 

Classified Loans:¹

Substandard $ 8,103 $ 8,125 $ 12,111 $ 9,783 $ 8,346
Doubtful - - - - -
Loss   -     -     -     -     -  
Total classified loans $ 8,103   $ 8,125   $ 12,111   $ 9,783   $ 8,346  
 

Performing TDR loans:

$ 3,740 $ 3,806 $ 3,898 $ 3,930 $ 4,282
 

Delinquent Loans:¹

Loans 30-89 days past due $ 1,609 $ 309 $ 576 $ 354 $ 2,270
90 days or more past due and still accruing - - 126 - -
Nonaccrual   3,158     3,084     6,965     3,279     1,895  
Total delinquent loans $ 4,767   $ 3,393   $ 7,667   $ 3,633   $ 4,165  
 

Asset Quality Ratios:

Net charge-offs to average gross loans ² 0.03 % 2.21 % (0.01 %) 0.06 % (0.05 %)
Nonaccrual loans to gross loans 0.44 % 0.44 % 0.99 % 0.47 % 0.29 %
Nonperforming assets to total assets 0.34 % 0.46 % 0.95 % 0.54 % 0.38 %
Classified assets to total assets 0.88 % 0.89 % 1.36 % 1.19 % 1.04 %
Classified assets to Tier 1 and ALLL 7.10 % 7.35 % 10.87 % 9.20 % 8.14 %
Nonperforming loans to gross loans (exc. LHFS) 0.44 % 0.44 % 1.01 % 0.47 % 0.29 %
ALLL to gross loans (exc. LHFS) 1.16 % 1.21 % 1.77 % 1.33 % 1.37 %
ALLL to nonaccrual loans 265.96 % 274.19 % 178.58 % 284.26 % 476.31 %
ALLL to nonperforming loans 265.96 % 274.19 % 175.41 % 284.26 % 476.31 %
ALLL to nonperforming assets 265.96 % 199.48 % 146.43 % 210.22 % 295.93 %
Texas ratio ³ 2.77 % 3.84 % 7.42 % 4.17 % 2.97 %
 
1 Net of SBA guaranteed balance
2 Includes loans held-for-sale
3 Nonperforming assets divided by tangible common equity and ALLL
 
 
MARGIN ANALYSIS (Unaudited)
(Dollars in thousands)
                 
Three Months Ended
March 31, 2017 December 31, 2016 March 31, 2016
Avg Balance Interest Yield Avg Balance Interest Yield Avg Balance Interest Yield
 
INTEREST-EARNING ASSETS
Loans ¹ $ 745,243 $ 9,787 5.33 % $ 717,883 $ 9,544 5.29 % $ 668,788 $ 9,495 5.71 %
Investment securities² 74,526 415 2.26 % 47,409 233 1.96 % 4,339 21 1.95 %
Interest-earning at the FRB and other banks 45,635 93 0.83 % 101,075 140 0.55 % 72,283 92 0.51 %
Other earning assets   5,640     115 8.27 %   5,606     223 15.83 %   4,852     90 7.46 %
Total interest-earning assets ² 871,044 10,410 4.85 % 871,973 10,140 4.63 % 750,262 9,698 5.20 %
 
NONINTEREST-EARNING ASSETS
Cash and due from banks 11,028 11,762 7,348
Other noninterest-earning assets   27,531     25,808     21,814  

Total noninterest-earning assets

38,559 37,570 29,162
 
Less: Allowance for loan losses (8,458 ) (12,228 ) (8,584 )
     
TOTAL ASSETS $ 901,145   $ 897,315   $ 770,840  
 
INTEREST-BEARING DEPOSITS
Interest-bearing demand $ 2,195 $ 1 0.15 % $ 1,865 $ 1 0.15 % $ 1,235 $ - 0.15 %
Money market 171,055 378 0.90 % 167,465 371 0.88 % 134,966 294 0.88 %
Savings 12,819 53 1.68 % 12,775 51 1.59 % 8,892 36 1.63 %
Time deposits   412,438     1,048 1.03 %   413,737     1,036 1.00 %   382,878     1,001 1.05 %
Total interest-bearing deposits 598,507 1,480 1.00 % 595,842 1,459 0.97 % 527,971 1,331 1.01 %
 
Borrowings   13,556     47 1.41 %   10,000     41 1.63 %   10,000     41 1.65 %
Total interest-bearing liabilities 612,063 1,527 1.01 % 605,842 1,500 0.98 % 537,971 1,372 1.03 %
 
Noninterest-bearing deposits 178,540 183,238 134,277
Other liabilities 6,328 7,496 6,375
 
Stockholders' equity   104,214     100,739     92,217  

TOTAL LIABILITIES & STOCKHOLDERS' EQUITY

$ 901,145   $ 897,315   $ 770,840  
 
Net interest income $ 8,883 $ 8,640 $ 8,326
 
 
Cost of deposits 0.77 % 0.75 % 0.81 %
 
Cost of funds 0.78 % 0.76 % 0.82 %
 
Net interest spread 3.84 % 3.65 % 4.17 %
 
Net interest margin² 4.14 % 3.94 % 4.46 %
 
1 Includes loans-held-for-sale

2 Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate

 

Contacts

Commonwealth Business Bank
Michael W. McCall
EVP & CFO
(323) 988-3144
MichaelM@cbb-bank.com

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