CBB Bancorp, Inc. Reports 2018 First Quarter Results

First Quarter 2018 Financial Highlights:

  • Net income of $4.2 million, or $0.44 per diluted share.
  • Return on average equity of 14.40% and return on average assets of 1.61%.
  • Solid net interest margin of 4.15% driven by a loan yield of 5.87%.
  • New loan production of $103.5 million.

LOS ANGELES--()--CBB Bancorp, Inc. (“CBB” or the “Company”) (OTCQB: CBBI), the parent company of Commonwealth Business Bank (the “Bank”), today announced net income of $4.2 million, or $0.44 per diluted share, for the first quarter of 2018, compared to $1.0 million, or $0.11 per diluted share, for the prior quarter and $3.6 million, or $0.38 per diluted share, for the first quarter of 2017. The prior quarter’s net income and earnings per diluted share were adversely impacted by a $2.0 million write down of the Company’s net deferred asset that was required when the Tax Cuts and Jobs Act was signed into law on December 22, 2017. Excluding the impact of the write down of the Company’s net deferred tax asset, net income for the prior quarter would have been $3.0 million, or $0.32 per diluted share.

“In the first quarter, we hired a second SBA lending specialist in the state of Washington to expand our presence in this attractive SBA market”

“In the first quarter our earnings were positively impacted by the reduction in the federal corporate tax rate to 21% and our consistently strong net interest margin. Even though recent investments in our infrastructure have increased our operating costs, we believe these investments will provide lasting, long-term benefits to the Company,” said Joanne Kim, President and CEO. “In the first quarter, we hired a second SBA lending specialist in the state of Washington to expand our presence in this attractive SBA market,” Ms. Kim added.

 

RESULTS OF OPERATIONS

 
    Three Months Ended
March 31,     December 31,     %     March 31,     %
2018 2017 Change 2017 Change
(Dollars in thousands, except per share amounts)
 
Net income $ 4,154 $ 1,013 310.1 % $ 3,559 16.7 %
Diluted EPS $ 0.44 $ 0.11 300.0 % $ 0.38 15.8 %
 
Return on average assets 1.61 % 0.39 % 312.8 % 1.60 % 0.6 %
Return on average equity 14.40 % 3.46 % 316.2 % 13.85 % 4.0 %
 
Noninterest income/average assets 1.27 % 1.11 % 14.4 % 1.40 % (9.3 %)
Pre-tax, pre-provision earnings/average assets 2.32 % 1.96 % 18.4 % 2.69 % (13.8 %)
Noninterest expense/average assets 2.96 % 3.04 % (2.6 %) 2.67 % 10.9 %
Efficiency ratio 56.09 % 60.76 % (7.7 %) 49.79 % 12.7 %
Net interest margin¹ 4.15 % 4.06 % 2.2 % 4.14 % 0.2 %
 
¹ 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 $10.4 million for the first quarter of 2018, an increase of $171,000, or 1.7%, compared to $10.2 million for the prior quarter, and an increase of $1.6 million, or 17.6%, compared to $8.8 million for the same quarter last year. The quarter-over-quarter increase was primarily due to a $220,000 increase in interest earned on loans and a $155,000 increase in interest earned on investments securities, which were partially offset by a $133,000 increase in interest paid on deposits and a $50,000 increase in interest paid on borrowings. The quarter-over-quarter increase in interest earned on loans was primarily due to a $9.0 million increase in the average balance of loans, including loans held-for-sale, to $814.6 million from $805.6 million for the prior quarter, combined with a 17 basis point increase in the yield on loans to 5.87% from 5.70% in the prior quarter. The year-over-year quarterly increase was primarily due to a $2.0 million increase in interest earned on loans, a $316,000 increase in interest earned on investment securities and a $187,000 increase in interest earned on deposits at the FRB and other banks, which were partially offset by a $874,000 increase in interest paid on deposits and a $69,000 increase in interest paid on borrowings. The year-over-year quarterly increase in interest earned on loans was primarily due to a $69.4 million increase in the average balance of loans, combined with a 54 basis point increase in the yield on loans from 5.33% in the same quarter last year.

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 yield for the periods indicated.

 
    Three Months Ended
March 31, 2018     December 31, 2017     March 31, 2017
Amount     Yield Amount     Yield Amount     Yield
(Dollars in thousands)
Contractual yield $ 10,825 5.39 % $ 10,717 5.28 % $ 9,159 4.98 %
SBA discount accretion 1,106 0.55 % 850 0.42 % 688 0.37 %
Prepayment penalties & late fees 23 0.01 % 82 0.04 % 77 0.05 %
Amortization of net deferred costs (167 ) (0.08 %) (82 ) (0.04 %) (137 ) (0.07 %)
Interest recognized on nonaccrual loans   -   -     -   -     -   -  
As reported yield on loans $ 11,787   5.87 % $ 11,567   5.70 % $ 9,787   5.33 %
 

The net interest margin was 4.15% for the current quarter, an increase of 9 basis points, from 4.06% in the prior quarter and an increase of 1 basis point from 4.14% in the year ago quarter. The quarter-over-quarter increase was primarily due to a 17 basis point increase in the yield on interest-earning assets to 5.13% from 4.96% in the prior quarter, which was partially offset by 10 basis points increase in our cost of funds to 1.09% from 0.99% in the prior quarter. The year-over-year quarterly increase was primarily due to a 28 basis point increase in the yield on interest-earning assets from 4.85% in the year ago quarter, which was partially offset by a 31 basis point increase in our cost of funds from 0.78% in the same period last year. The quarter-over-quarter increase in our cost of funds was primarily due to a 9 basis point increase in our cost of deposits to 1.07% in the current quarter from 0.98% in the prior quarter and the year-over-year quarterly increase in our cost of funds was primarily due to a 30 basis point increase in our cost of deposits from 0.77% 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 75 basis points during this twelve-month period.

Provision for Loan Losses

The CBB recorded no provision for loan losses in the current, prior and year ago quarters.

Noninterest Income

For the current quarter, noninterest income totaled $3.3 million, an increase of $380,000, or 13.0%, and an increase of $186,000, or 6.0%, from $2.9 million and $3.1 million in the prior and year ago quarters, respectively. The quarter-over-quarter increase was primarily driven by a $577,000 increase in gains on sales of loans, which was partially offset by a $153,000 decrease in SBA loan servicing fee income. The quarter-over-quarter increase in gains on sales of loans was primarily due to an increase in the amount of SBA loans we sold, while the quarter-over-quarter decrease in SBA loan servicing fee income was due to an increase in the amount of SBA loans paid off during the current quarter. The year-over-year quarterly increase was primarily due to a $458,000 increase in gains on sales of loans, which was partially offset by a $122,000 decrease in SBA loan servicing fee income, a $100,000 decrease in other income and a $103,000 decrease in gains on sales of other real estate owned (“OREO”). The year-over-year quarterly increase in gains on sales of SBA loans was primarily due to an increase in the amount of SBA loans we sold.

As the following table indicates, during the first quarter of 2018, the Company sold $34.9 million of SBA loans, compared to $22.6 million in the preceding quarter and $27.8 million in the same quarter last year. The quarterly average premium on sales of SBA loans for the current quarter was 9.71%, compared to 10.41% in the prior quarter and 9.24% in the year ago quarter. The amount of SBA loans we sell varies based on the volume of loans we originate, our liquidity needs and market conditions.

 
    Three Months Ended
March 31,       December 31,       %       March 31,       %
2018 2017 Change 2017 Change
(Dollars in thousands)
SBA loans held-for-sale at beginning of the quarter $ 28,346 $ 18,626 52.2 % $ 18,096 56.6 %

SBA loans originated/transferred from held-for-investment during the quarter

30,377 32,447 (6.4 %) 43,019 (29.4 %)
SBA loans sold during the quarter (34,923 ) (22,618 ) 54.4 % (27,774 ) 25.7 %
SBA loans principal payment, net of advance   (192 )   (109 ) 76.1 %     (88 ) 118.2 %
SBA loans held-for-sale at end of the quarter $ 23,608   $ 28,346   (16.7 %) $ 33,253   (29.0 %)
 
Gain on sale of SBA loans $ 2,436 $ 1,852 31.5 % $ 1,978 23.2 %
Premium on sale (weighted average) 9.71 % 10.41 % (6.7 %) 9.24 % 5.1 %
 
SBA loan production $ 35,681 $ 54,496 (34.5 %) $ 57,579 (38.0 %)
 

Noninterest Expense

Noninterest expense for the first quarter of 2018 was $7.7 million, a decrease of $303,000, or 3.8%, from $8.0 million in the prior quarter and an increase of $1.7 million, or 29.1%, from $5.9 million in the year ago quarter. The quarter-over-quarter decrease was primarily due to a $203,000 decrease in salaries and employee benefits, a $20,000 decrease in occupancy and equipment related expense, a $49,000 decrease in professional expense, and a $53,000 decrease in other expense, which were offset by an $86,000 increase in marketing expense. The quarter-over-quarter decrease in salaries and employee benefits was primarily driven by a decrease in incentive compensation during the quarter and the quarter-over-quarter decrease in professional expense was primarily due to a decrease in legal fees related to the formation of the bank holding company in 2017. The year-over-year quarterly increase was primarily due to a $723,000 increase in salaries and employee benefits, a $268,000 increase in occupancy and equipment related expense, and a $323,000 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 to 164 from 144 during the year ago quarter, combined with annual employee merit increases and an increase in employee incentive expense. The increase in occupancy and equipment related expense was due to the opening of three new branches during the current year. The increase in professional expense was attributable to a $107,000 increase in legal fees and a $179,000 increase in external and internal audit fees related to having its audited financial statements meet public reporting standards and making the Company FDICIA compliant.

 
    At or for the Three Months Ended
March 31,       December 31,       %       March 31,       %
2018 2017 Change 2017 Change
(Dollars in thousands)
 
Salaries and benefits $ 4,738 $ 4,941 (4.1 %) $ 4,015 18.0 %
FTE at the end of period 164 161 1.9 % 147 11.6 %
Average FTE during the period 164 162 1.2 % 144 13.9 %
Salaries and benefit/average FTE¹ $ 117 $ 121 (3.3 %) $ 113 3.5 %
Salaries and benefit/average assets¹ 1.83 % 1.89 % (3.2 %) 1.81 % 1.1 %
Noninterest expense/average assets¹ 2.96 % 3.04 % (2.6 %) 2.67 % 10.9 %
 

¹Annualized

Income Tax Expense

Income tax expense was $1.8 million for the quarter, or an effective tax rate of 30.70%, compared to $4.1 million, or an effective tax rate of 80.29%, for the prior quarter and $2.4 million, or an effective tax rate of 40.50%, for the year ago quarter. The quarter-over-quarter decrease in income tax expense, and related effective tax rate, was due to the aforementioned $2.0 million write down of the Company’s net deferred tax asset in the prior quarter and the permanent reduction in the federal corporate tax rate to 21% from 35% effective January 1, 2018. In the current quarter, the Company’s net deferred tax asset was written down by an additional $86,000 due to changes in certain assumptions we made at the end of 2017 in calculating the impact of the Tax Cuts and Jobs Act. The year-over-year quarterly decrease in income tax expense, and the related effective tax rate, was due the aforementioned reduction in the federal corporate tax rate, which was partially offset by the $86,000 write down of the Company’s net deferred tax asset.

Pre-Tax, Pre-Provision Income

For the first quarter of 2018, the Company’s pre-tax, pre-provision (“PTPP”) income was $6.0 million, an increase of $854,000, or 16.6%, from $5.1 million for the prior quarter and an increase of $12,000, or 0.2%, from $6.0 million for the same quarter last year. The quarter-over-quarter increase in PTPP income was primarily due to increases in net interest income and gains on sales of loans combined with a decrease in noninterest expense. The year-over-year quarterly increase in PTPP income was primarily driven by increases in net interest income and gains on sales of loans, which were partially offset by an increase in noninterest expense. Annualized PTPP income to average assets increased to 2.32% for the current quarter, compared to 1.96% for the prior quarter, but decreased compared to 2.69% for the year ago quarter. The quarter-over-quarter increase in PTPP income to average assets was primarily attributable to a higher proportional increase in PTPP income than average assets and the year-over-year quarterly decrease in PTPP income to average assets was primarily due to a higher proportional increase in average assets than PTPP income.

           
      Three Months Ended
March 31,       December 31, % March 31,       %
2018 2017 Change 2017 Change
(Dollars in thousands)
 
PTPP income $ 5,994 $ 5,140 16.6 % $ 5,982 0.2 %
Average assets $ 1,049,295 $ 1,038,577 1.0 % $ 901,145 16.4 %
Annualized PTPP/average assets 2.32 % 1.96 % 18.4 % 2.69 % (13.8 %)
PTPP, excluding gain on sale of SBA loans $ 3,558 $ 3,281 8.4 % $ 4,004 (11.1 %)
 

BALANCE SHEET

At March 31, 2018, the Company had total assets of $1.07 billion, a decrease of $8.5 million, or 0.8%, from $1.08 billion at December 31, 2017 and an increase of $148.4 million, or 16.1%, from $922.0 million at March 31, 2017. Earning assets totaled $1.04 billion at March 31, 2018, a decrease of $11.8 million, or 1.1%, from $1.05 billion at December 31, 2017, and an increase of $148.1 million, or 16.7%, from $889.2 million at March 31, 2017.

             
    March 31,       December 31,

$

      % March 31,       $       %
2018 2017 Change Change 2017 Change Change
(Dollars in thousands, except per share amounts)
 
Assets $ 1,070,370 $ 1,078,854 $ (8,484 ) (0.8 %) $ 921,965 $ 148,405 16.1 %
Earning assets 1,037,252 1,049,054 (11,802 ) (1.1 %) 889,190 148,062 16.7 %
Interest-earning deposits at FRB and other banks 80,468 103,391 (22,923 ) (22.2 %) 52,086 28,382 54.5 %
Investment securities 117,634 123,657 (6,023 ) (4.9 %) 73,412 44,222 60.2 %
Loans held-for-sale 23,608 28,346 (4,738 ) (16.7 %) 33,253 (9,645 ) (29.0 %)
Loans receivable 809,281 787,399 21,882 2.8 % 724,786 84,495 11.7 %
Deposits 931,233 895,721 35,512 4.0 % 799,833 131,400 16.4 %
 
Common equity/total assets 11.06 % 10.68 % 0.38 % 3.6 % 11.48 % (0.42 %) (3.7 %)
Common equity per share $ 12.98 $ 12.63 $ 0.35 2.8 % $ 11.63 $ 1.35 11.6 %
Tangible common equity ratio¹ 10.08 % 9.72 % 0.36 % 3.7 % 10.49 % (0.41 %) (3.9 %)
Tangible common equity per share¹ $ 11.70 $ 11.38 $ 0.32 2.8 % $ 10.52 $ 1.18 11.3 %
 

¹ Net of loan servicing rights

Interest-earning Deposits at the FRB and Other Banks

Interest-earning deposits at the FRB and other banks totaled $80.5 million at the current quarter-end, a decrease of $22.9 million, or 22.2%, compared to $103.4 million at the end of the prior quarter, and an increase of $28.4 million, or 54.5%, compared to $52.1 million at the end of the year ago quarter. The quarter-over-quarter decrease in interest-earning deposits at the FRB and other banks was primarily due to a decrease in FHLB advances to $10.0 million from $60.0 million in the prior quarter combined with an increase in loans receivable during the current quarter. The year-over-year quarterly increase in interest-earning deposits at the FRB and other banks was primarily driven by an increase in deposits, which was partially offset by an increase in loans receivable.

Investment Securities

Investment securities totaled $117.6 million at the current quarter-end, a decrease of $6.0 million, or 4.9%, compared to $123.7 million at the end of the prior quarter, and an increase of $44.2 million, or 60.2%, compared to $73.4 million at the end of the year ago quarter. The year-over-year increase in investment securities was due to investing the Company’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,

     

$

     

%

2018 2017 Change Change

2017

Change Change
(Dollars in thousands)
 
Construction $ 9,032 $ 12,575 $ (3,543 ) (28.2 %) $ 12,302 $ (3,270 ) (26.6 %)
Commercial real estate 668,649 645,211 23,438 3.6 % 581,697 86,952 14.9 %
Commercial and industrial 126,057 122,917 3,140 2.6 % 126,204 (147 ) (0.1 %)
Consumer   3,952     4,928     (976 ) (19.8 %)   2,845     1,107   38.9 %

Gross loans

807,690 785,631 22,059 2.8 % 723,049 84,641 11.7 %
 
Net deferred loan fees/costs   1,591     1,768     (176 ) (10.0 %)   1,737     (146 ) (8.4 %)
Loans receivable $ 809,281   $ 787,399   $ 21,882   2.8 % $ 724,786   $ 84,495   11.7 %
 
Loans held-for-sale $ 23,608 $ 28,346 $ (4,738 ) (16.7 %) $ 33,253 $ (9,645 ) (29.0 %)
Loans receivable including loans held-for-sale $ 832,889 $ 815,745 $ 17,144 2.1 % $ 758,039 $ 74,850 9.9 %
 
Loan-to-deposit (LTD) ratio 86.9 % 87.9 % (1.0 %) (1.1 %) 90.6 % (3.7 %) (4.1 %)
LTD ratio including loans held-for-sale 89.4 % 91.1 % (1.6 %) (1.8 %) 94.8 % (5.3 %) (5.6 %)
 

At March 31, 2018, loans receivable, including loans held-for-sale, were $832.9 million, an increase of $17.1 million, or 2.1%, from $815.7 million at December 31, 2017, and an increase of $74.9 million, or 9.9%, from $758.0 million at March 31, 2017. During the first quarter of 2018, total new loan production, including revolving lines of credit, was $103.5 million, compared to $105.1 million for the prior quarter and $111.2 million for the same quarter last year.

During the first quarter of 2018, $38.3 million of loans paid off, compared to $57.9 million in the prior quarter and $21.0 million in year ago quarter. During the current quarter, we sold $34.9 million of SBA loans, compared to sales of $22.6 million in the prior quarter and sales of $27.8 million in the year ago quarter. During the current quarter, the Company had no sales of non-SBA loans, compared to $3.7 million of sales and no sales of non-SBA loans in the prior and year ago quarters, respectively.

Deposits

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

 
      March 31, 2018       December 31, 2017       $       %       March 31, 2017       $       %
Balance       % Balance       % Change Change Balance       % Change Change

(Dollars in thousands)

 
Noninterest-bearing demand $ 188,328 20.2 % $ 203,641 22.7 % $ (15,313 ) (7.5 %) $ 196,796 24.6 % $ (8,468 ) (4.3 %)
Money market & NOW 166,960 17.9 % 169,710 18.9 % (2,750 ) (1.6 %) 168,206 21.0 % (1,246 ) (0.7 %)
Savings 18,080 1.9 % 15,876 1.8 % 2,204 13.9 % 12,132 1.5 % 5,948 49.0 %
Time deposits 557,865 59.9 % 506,494 56.5 % 51,371 10.1 % 422,699 52.8 % 135,166 32.0 %
                   
Total Deposits $ 931,233   100.0 % $ 895,721   100.0 % $ 35,512   4.0 % $ 799,833   100.0 % $ 131,400   16.4 %
 
Cost of deposits 1.07 % 0.98 % 0.09 % 9.0 % 0.77 % 0.30 % 38.5 %
 

Total deposits were $931.2 million at the end of the current quarter, an increase of $35.5 million, or 4.0%, compared to $895.7 million at the end of the prior quarter, and an increase of $131.4 million, or 16.4%, compared to $799.8 million at the end of the year ago quarter. Noninterest-bearing deposits decreased $15.3 million, or 7.5%, to $188.3 million at the end of the current quarter from $203.6 million at the end of the prior quarter and decreased $8.5 million, or 4.3%, compared to $196.8 million at the end of the year ago quarter. Noninterest-bearing deposits to total deposits were 20.2%, 22.7% and 24.6% at the end of the current, prior, and year ago quarters, respectively.

           

ASSET QUALITY

 
    March 31,       December 31, $       %       March 31,       $       %
2018 2017 Change Change 2017 Change Change
(Dollars in thousands)

Delinquent Loans:¹

Loans 30-89 days past due $ 1,844 $ 131 $ 1,713 1307.6 % $ 1,609 $ 235 14.6 %
90 days or more past due and still accruing - - - - - - -
Nonaccrual loans   2,105     2,467     (362 ) (14.7 %)   3,158     (1,053 ) (33.3 %)
Delinquent loans $ 3,949   $ 2,598   $ 1,351   52.0 % $ 4,767   $ (818 ) (17.2 %)
 

Nonperforming Assets:¹

90 days or more past due and still accruing $ - $ - $ - - $ - $ - -
Nonaccrual loans   2,105     2,467     (362 ) (14.7 %)   3,158     (1,053 ) (33.3 %)
Nonperforming loans 2,105 2,467 (362 ) (14.7 %) 3,158 (1,053 ) (33.3 %)
 
Other real estate owned   -     -     -   -     -     -   -  
Nonperforming assets $ 2,105   $ 2,467   $ (362 ) (14.7 %) $ 3,158   $ (1,053 ) (33.3 %)
 
Nonaccrual loans to loans receivable 0.26 % 0.31 % (0.05 %) (16.1 %) 0.44 % (0.18 %) (40.9 %)
Nonperforming loans to loans receivable 0.26 % 0.31 % (0.05 %) (16.1 %) 0.44 % (0.18 %) (40.9 %)
Nonperforming assets to total assets 0.20 % 0.23 % (0.03 %) (13.0 %) 0.34 % (0.14 %) (41.2 %)
Texas Ratio² 1.66 % 1.99 % (0.33 %) (16.6 %) 2.77 % (1.11 %) (40.1 %)
 

Classified Assets:¹

Substandard $ 12,107 $ 10,103 $ 2,004 19.8 % $ 8,103 $ 4,004 49.4 %
Doubtful - - - - - - -
Loss   -     -     -   -     -     -   -  
Classified loans $ 12,107 $ 10,103 $ 2,004 19.8 % $ 8,103 $ 4,004 49.4 %
 
Other real estate owned   -     -     -   -     -     -   -  
Classified assets $ 12,107   $ 10,103   $ 2,004   19.8 % $ 8,103   $ 4,004   49.4 %
 
Classified loans to loans receivable 1.50 % 1.28 % 0.22 % 17.2 % 1.12 % 0.38 % 33.9 %
Classified loans to Tier 1 and ALLL 9.54 % 8.16 % 1.38 % 16.9 % 7.10 % 2.44 % 34.4 %
Classified assets to total assets 1.13 % 0.94 % 0.19 % 20.2 % 0.88 % 0.25 % 28.4 %
Classified assets to Tier 1 and ALLL 9.54 % 8.16 % 1.38 % 16.9 % 7.10 % 2.44 % 34.4 %
 

Performing TDR loans:

$ 1,155 $ 1,200 $ (45 ) (3.8 %) $ 3,740 $ (2,585 ) (69.1 %)
 

Allowance for Loan Losses Items:

Balance at beginning of period $ 8,653 $ 8,249 $ 404 4.9 % $ 8,456 $ 197 2.3 %
Provision for loan losses - - - - - - -
Charge-offs 116 244 (128 ) (52 %) 83 33 39.8 %
Recoveries   19     648     (629 ) (97.1 %)   26     (7 ) (26.9 %)
Balance at the end of period $ 8,556   $ 8,653   $ (97 ) (1.1 %) $ 8,399   $ 157   1.9 %
 
ALLL to loans receivable 1.06 % 1.10 % (3.6 %) 1.16 % (8.6 %)
ALLL to nonperforming loans 406.46 % 350.75 % 15.9 % 265.96 % 52.8 %
 

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 $1.8 million, an increase of $1.7 million from $131,000 at the end of the prior quarter, and an increase of $235,000 from $1.6 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 late payments on loans which were received in April 2018. 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 decreased $362,000 to $2.1 million, or 0.26% of loans receivable at the end of the current quarter from $2.5 million, or 0.31% of loans receivable at the end of the prior quarter, and decreased $1.1 million from $3.2 million, or 0.44% of loans receivable, at the end of the year ago quarter.

Nonperforming loans at March 31, 2018 were $2.1 million, or 0.26% of loans receivable, a decrease of $362,000, compared to $2.5 million, or 0.31% of loans receivable, at the end of the prior quarter and a decrease of $1.1 million from $3.2 million, or 0.44% of loans receivable, at the end of the same quarter last year.

The Company did not have any OREO at the end of the current, prior, and the year ago quarters.

Nonperforming assets at the end of current quarter were $2.1 million, or 0.20% of total assets, a decrease of $362,000, compared to $2.5 million, or 0. 23% of total assets, at December 31, 2017, and a decrease of $1.1 million from $3.2 million, or 0.34% of total assets, at March 31, 2017. The year-over-year quarterly decrease in nonperforming assets was primarily due to one loan relationship totaling $716,000 that became current during the second quarter of 2017.

Classified loans at the end of the current quarter were $12.1 million, or 1.50% of loans receivable, an increase of $2.0 million, or 19.8%, compared to $10.1 million, or 1.28% of loans receivable, at the end of the prior quarter, and an increase of $4.0 million, or 49.4%, compared to $8.1 million, or 1.12% of loans receivable, at the end of the same quarter last year. The quarter-over-quarter and year-over-year increases were primarily due to the downgrade of loans to borrowers who have experienced deteriorated business performance. These loans continue to perform as agreed.

The allowance for loan losses at March 31, 2018 was $8.6 million, or 1.06% of loans receivable, compared to $8.7 million, or 1.10% of loans receivable, at December 31, 2017, and $8.4 million, or 1.16%, of loans receivable, at the end of the year ago quarter. The allowance for loan losses to nonperforming loans was 406.46%, 350.75%, and 265.96% at March 31, 2018, December 31, 2017, and March 31, 2017, respectively.

CAPITAL

At March 31, 2018, CBB and the Bank continued to exceed all minimum regulatory capital requirements and they 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 minimum capital conservation buffer requirement was 1.875% and 1.250% in 2018 and 2017, respectively. The capital conservation buffer is calculated as the smallest excess of a bank holding company’s and 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 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. The following are the CBB’s and the Bank’s regulatory capital ratios and capital conservation buffers:

     
Well-                              
Capitalized March 31, December 31, September 30, June 30, March 31,
Minimum 2018 2017 2017 2017 2017
Leverage ratio
Company N/A 11.34 % 11.06 % 11.26 % N/A N/A
Bank 5.00 % 11.30 % 11.02 % 11.22 % 11.52 % 11.75 %
Common equity tier 1 capital ratio
Company N/A 13.66 % 13.63 % 13.70 % N/A N/A
Bank 6.50 % 13.61 % 13.58 % 13.65 % 13.43 % 13.58 %
Tier 1 risk-based capital ratio
Company N/A 13.66 % 13.63 % 13.70 % N/A N/A
Bank 8.00 % 13.61 % 13.58 % 13.65 % 13.43 % 13.58 %
Total risk-based capital ratio
Company N/A 14.76 % 14.78 % 14.82 % N/A N/A
Bank 10.00 % 14.72 % 14.74 % 14.77 % 14.61 % 14.76 %
Capital conservation buffer
Company 6.765 % 6.788 % 6.826 % N/A N/A
Bank 6.721 % 6.742 % 6.774 % 6.611 % 6.764 %
 

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, Utah and Washington.

For additional information, please go to 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 CBB Bancorp, Inc. conducts its operations, including the real estate market in California, and other factors beyond CBB Bancorp, Inc.’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. CBB Bancorp, Inc. 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,       $       %
2018 2017 Change Change 2017 Change Change
ASSETS
Cash and due from banks $ 9,868 $ 9,353 $ 515 5.5 % $ 13,977 $ (4,109 ) (29.4 %)
Interest-earning deposits at the FRB and other banks 80,468 103,391 (22,923 ) (22.2 %) 52,086 28,382 54.5 %
Investment securities 117,634 123,657 (6,023 ) (4.9 %) 73,412 44,222 60.2 %
Loans held-for-sale, at the lower of cost or fair value 23,608 28,346 (4,738 ) (16.7 %) 33,253 (9,645 ) (29.0 %)
 
Loans receivable 809,281 787,399 21,882 2.8 % 724,786 84,495 11.7 %
Allowance for loan losses   (8,556 )   (8,653 )   97   (1.1 %)   (8,399 )   (157 ) 1.9 %
Loans receivable, net 800,725 778,746 21,979 2.8 % 716,387 84,338 11.8 %
 
FHLB, FRB & PCBB stocks 6,261 6,261 - - 5,653 608 10.8 %
Servicing assets 11,610 11,377 233 2.0 % 10,137 1,473 14.5 %
Other assets   20,196     17,723     2,473   14.0 %   17,060     3,136   18.4 %
TOTAL ASSETS $ 1,070,370   $ 1,078,854   $ (8,484 ) (0.8 %) $ 921,965   $ 148,405   16.1 %
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing $ 188,328 $ 203,641 $ (15,313 ) (7.5 %) $ 196,796 $ (8,468 ) (4.3 %)
Interest-bearing   742,905     692,080     50,825   7.3 %   603,037     139,868   23.2 %
Total deposits 931,233 895,721 35,512 4.0 % 799,833 131,400 16.4 %
 
FHLB advances 10,000 60,000 (50,000 ) (83.3 %) 10,000 - -
Other liabilities   10,784     7,955     2,829   35.6 %   6,333     4,451   70.3 %
Total liabilities   952,017     963,676     (11,659 ) (1.2 %)   816,166     135,851   16.6 %
 
Stockholders' Equity   118,353     115,178     3,175   2.8 %   105,799     12,554   11.9 %
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 1,070,370   $ 1,078,854   $ (8,484 ) (0.8 %) $ 921,965   $ 148,405   16.1 %
 
     
STATEMENT OF INCOME (Unaudited)
(Dollars in thousands, except per share amounts)
 
      Three Months Ended
March 31,       December 31, $       %       March 31,       $      

%

2018 2017 Change Change 2017 Change Change
 
Interest income $ 12,825 $ 12,471 $ 354 2.8 % $ 10,330 $ 2,495 24.2 %
Interest expense   2,470   2,287   183   8.0 %   1,527   943   61.8 %
Net interest income 10,355 10,184 171 1.7 % 8,803 1,552 17.6 %
 
Provision for loan losses   -   -   -   -     -   -   -  
Net interest income after provision for loan losses 10,355 10,184 171 1.7 % 8,803 1,552 17.6 %
 
Gain on sale of loans 2,436 1,859 577 31.0 % 1,978 458 23.2 %
Gain (loss) on sale of OREO - - - - 103 (103 ) (100.0 %)
Service charges and other income   860   1,057   (197 ) (18.6 %)   1,029   (169 ) (16.4 %)
Noninterest income 3,296 2,916 380 13.0 % 3,110 186 6.0 %
 
Salaries and employee benefits 4,738 4,941 (203 ) (4.1 %) 4,015 723 18.0 %
Occupancy and equipment 839 859 (20 ) (2.3 %) 571 268 46.9 %
Other expenses   2,080   2,160   (80 ) (3.7 %)   1,345   735   54.6 %
Noninterest expense 7,657 7,960 (303 ) (3.8 %) 5,931 1,726 29.1 %
 
Income before income tax expense 5,994 5,140 854 16.6 % 5,982 12 0.2 %
 
Income tax expense 1,840 4,127 (2,287 ) (55.4 %) 2,423 (583 ) (24.1 %)
             
Net income $ 4,154 $ 1,013 $ 3,141   310.1 % $ 3,559 $ 595   16.7 %
 
PTPP $ 5,994 $ 5,140 $ 854 16.6 % $ 5,982 $ 12 0.2 %
PTPP excluding gain on sale of SBA loans $ 3,558 $ 3,281 $ 277 8.4 % $ 4,004 $ (446 ) (11.1 %)
 
Outstanding number of shares 9,121,009 9,121,009 - - 9,095,159 25,850 0.3 %
 
Weighted average shares for basic EPS 9,121,009 9,121,009 - - 9,095,159 25,850 0.3 %
Weighted average shares for diluted EPS 9,513,255 9,500,234 13,021 0.1 % 9,427,311 85,944 0.9 %
 
Basic EPS $ 0.46 $ 0.11 $ 0.35 318.2 % $ 0.39 $ 0.07 17.9 %
Diluted EPS $ 0.44 $ 0.11 $ 0.33 300.0 % $ 0.38 $ 0.06 15.8 %
 
   
SELECTED FINANCIAL HIGHLIGHTS (Unaudited)
(Dollars in thousands, except per share amounts)
 
Three Months Ended
March 31,       December 31,       %       March 31,       %
2018 2017 Change 2017 Change

Performance Ratios:

Return on average assets 1.61 % 0.39 % 312.8 % 1.60 % 0.6 %
Return on average equity 14.40 % 3.46 % 316.2 % 13.85 % 4.0 %
Net interest margin 4.15 % 4.06 % 2.2 % 4.14 % 0.2 %
Cost of funds 1.09 % 0.99 % 10.1 % 0.78 % 39.7 %
Efficiency ratio 56.09 % 60.76 % (7.7 %) 49.79 % 12.7 %
 

Capital Ratios:

Core capital (leverage) ratio 11.34 % 11.06 % 2.5 % 11.75 % (3.5 %)
Common equity tier 1 risk-based capital ratio 13.66 % 13.63 % 0.2 % 13.58 % 0.6 %
Tier 1 risk-based capital ratio 13.66 % 13.63 % 0.2 % 13.58 % 0.6 %
Total risk-based capital ratio 14.76 % 14.78 % (0.1 %) 14.76 % 0.0 %
Minimum required capital conservation buffer 1.875 % 1.250 % 50.0 % 1.250 % 50.0 %
CBB Capital conservation buffer 6.765 % 6.788 % (0.3 %) 6.764 % 0.0 %
Common equity/total assets 11.06 % 10.68 % 3.6 % 11.48 % (3.7 %)
Common equity per share $ 12.98 $ 12.63 2.8 % $ 11.63 11.5 %
Tangible common equity ratio¹ 10.08 % 9.72 % 3.7 % 10.49 % (3.9 %)
Tangible common equity per share¹ $ 11.70 $ 11.38 2.8 % $ 10.52 11.3 %
 

Selected Average Balances:

Loans² $ 814,600 $ 805,581 1.1 % $ 745,243 9.3 %
Total investment securities 120,944 96,789 25.0 % 74,526 62.3 %
Interest-earning assets 1,017,278 1,004,327 1.3 % 871,044 16.8 %
Total assets 1,049,295 1,038,577 1.0 % 901,145 16.4 %
Noninterest-bearing deposits 178,179 194,366 (8.3 %) 178,540 (0.2 %)
Total deposits 892,343 898,057 (0.6 %) 777,047 14.8 %
Interest-bearing liabilities 745,053 720,323 3.4 % 612,063 21.7 %
Stockholders' equity 117,019 116,167 0.7 % 104,214 12.3 %
 

¹ Net of loan servicing rights

² Includes loans held-for-sale
 
     
SELECTED LOAN AND ASSET QUALITY HIGHLIGHTS (Unaudited)
(Dollars in thousands)
 
1st Qtr.       4th Qtr.       3rd Qtr.       2nd Qtr.       1st Qtr.
2018 2017 2017 2017 2017

Allowance for Loan Losses:

Balance at beginning of period $ 8,653 $ 8,249 $ 8,778 $ 8,399 $ 8,456
Provision for loan losses - - 164 350 -
Charge-offs 116 244 726 - 83
Recoveries   19     648     33     29     26  
Balance at the end of period $ 8,556   $ 8,653   $ 8,249   $ 8,778   $ 8,399  
 

Nonperforming Assets:¹

Over 90 days still accruing $ - $ - $ 57 $ - $ -
Nonaccrual loans   2,105     2,467     2,638     2,855     3,158  
Total nonperforming loans 2,105 2,467 2,695 2,855 3,158
 
Other real estate owned   -     -     -     -     -  
Total nonperforming assets $ 2,105   $ 2,467   $ 2,695   $ 2,855   $ 3,158  
 

Classified Assets:¹

Substandard $ 12,107 $ 10,103 $ 11,885 $ 11,520 $ 8,103
Doubtful - - - - -
Loss   -     -     -     -     -  
Total classified loans $ 12,107 $ 10,103 $ 11,885 $ 11,520 $ 8,103
 
Other real estate owned   -     -     -     -     -  
Total classified assets $ 12,107   $ 10,103   $ 11,885   $ 11,520   $ 8,103  
 

Performing TDR loans:

$ 1,155 $ 1,200 $ 4,185 $ 4,262 $ 3,740
 

Delinquent Loans:¹

Loans 30-89 days past due $ 1,844 $ 131 $ 232 $ 523 $ 1,609
90 days or more past due and still accruing - - 57 - -
Nonaccrual   2,105     2,467     2,638     2,855     3,158  
Total delinquent loans $ 3,949   $ 2,598   $ 2,927   $ 3,378   $ 4,767  
 

Asset Quality Ratios:

Net charge-offs to average loans² 0.05 % (0.20 %) 0.34 % (0.01 %) 0.03 %
Nonaccrual loans to loans receivable 0.26 % 0.31 % 0.34 % 0.37 % 0.44 %
Nonperforming loans to loans receivable 0.26 % 0.31 % 0.35 % 0.37 % 0.44 %
Nonperforming assets to total assets 0.20 % 0.23 % 0.26 % 0.29 % 0.34 %
Classified loans to loans receivable 1.50 % 1.28 % 1.54 % 1.51 % 1.12 %
Classified loans to Tier 1 and ALLL 9.54 % 8.16 % 9.71 % 9.70 % 7.10 %
Classified assets to total assets 1.13 % 0.94 % 1.14 % 1.16 % 0.88 %
Classified assets to Tier 1 and ALLL 9.54 % 8.16 % 9.71 % 9.70 % 7.10 %
ALLL to loans receivable 1.06 % 1.10 % 1.07 % 1.15 % 1.16 %
ALLL to nonaccrual loans 406.46 % 350.75 % 312.70 % 307.46 % 265.96 %
ALLL to nonperforming loans 406.46 % 350.75 % 306.09 % 307.46 % 265.96 %
ALLL to nonperforming assets 406.46 % 350.75 % 306.09 % 307.46 % 265.96 %
Texas ratio ³ 1.66 % 1.99 % 2.20 % 2.40 % 2.77 %
 
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, 2018       December 31, 2017       March 31, 2017
Avg Balance     Interest     Yield Avg Balance     Interest     Yield Avg Balance     Interest     Yield
                       
INTEREST-EARNING ASSETS
Loans ¹ $ 814,600 $ 11,787 5.87 % $ 805,581 $ 11,567 5.70 % $ 745,243 $ 9,787 5.33 %
Investment securities² 120,944 699 2.34 % 96,789 584 2.39 % 74,526 415 2.26 %
Interest-earning at the FRB and other banks 75,473 280 1.50 % 95,703 307 1.27 % 45,635 93 0.83 %
Other earning assets   6,261         107     6.93 %   6,254         101     6.41 %   5,640         115     8.27 %
Total interest-earning assets ² 1,017,278 12,873 5.13 % 1,004,327 12,559 4.96 % 871,044 10,410 4.85 %
 
NONINTEREST-EARNING ASSETS
Cash and due from banks 11,985 11,879 11,028
Other noninterest-earning assets   28,682     30,645     27,531  
Total noninterest-earning assets 40,667 42,524 38,559
 
Less: Allowance for loan losses (8,650 ) (8,274 ) (8,458 )
     
TOTAL ASSETS $ 1,049,295   $ 1,038,577   $ 901,145  
 
INTEREST-BEARING DEPOSITS
Interest-bearing demand $ 1,434 $ 1 0.15 % $ 1,725 $ 1 0.15 % $ 2,195 $ 1 0.15 %
Money market 168,083 423 1.02 % 174,102 432 0.98 % 171,055 378 0.90 %
Savings 17,219 65 1.53 % 15,457 62 1.59 % 12,819 53 1.68 %
Time deposits   527,428         1,865     1.43 %   512,407         1,726     1.34 %   412,438         1,048     1.03 %
Total interest-bearing deposits 714,164 2,354 1.34 % 703,691 2,221 1.25 % 598,507 1,480 1.00 %
 
Borrowings   30,889         116     1.52 %   16,632         66     1.57 %   13,556         47     1.41 %
Total interest-bearing liabilities 745,053 2,470 1.34 % 720,323 2,287 1.26 % 612,063 1,527 1.01 %
 
Noninterest-bearing deposits 178,179 194,366 178,540
Other liabilities 9,044 7,721 6,328
 
Stockholders' equity   117,019     116,167     104,214  
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 1,049,295   $ 1,038,577   $ 901,145  
 
Net interest income $ 10,403 $ 10,272 $ 8,883
 
 
Cost of deposits 1.07 % 0.98 % 0.77 %
 
Cost of funds 1.09 % 0.99 % 0.78 %
 
Net interest spread 3.79 % 3.70 % 3.84 %
 
Net interest margin² 4.15 % 4.06 % 4.14 %
 

¹ Includes loans held-for-sale

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

 

Contacts

CBB Bancorp, Inc.
Michael W. McCall, 323-988-3144
EVP & CFO
MichaelM@cbb-bank.com

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