and First Half Earnings Growth; Redeems 100% of Preferred Stock Issued Under TARP
Los Angeles, CA, July 30, 2013 – Commonwealth Business Bank (the "Bank") (OTCQB: CWBB), a business-focused bank familiarly known as CBB Bank, today reported financial results for the three and six months ended June 30, 2013 that included double-digit year-over-year growth of earnings, and loan balances and non-interest bearing demand deposit increases. Additionally, on July 22, 3013, the Bank completed the redemption of all outstanding shares of its non-cumulative perpetual preferred stock previously held by the U.S. Treasury under its Troubled Asset Relief Program - Capital Purchase Program (TARP CPP).
¡¤ Second quarter 2013 net income increased by 27% to $2.20 million or $0.64 per diluted share compared with $1.73 million or $0.54 per diluted share in second quarter 2012.
¡¤ First half 2013 net income rose 42% to $4.85 million or $1.32 per diluted share compared with $3.42 million or $1.08 per diluted share in first half 2012.
¡¤ Return on average assets of 1.81% and return on average equity of 14.44%.
¡¤ Net interest margin increased by 15 basis points to 3.84% from that of the first quarter 2013.
¡¤ Second quarter 2013 efficiency ratio improved to 46.83% from 52.03% for the first quarter of 2013.
¡¤ At June 30, 2013, total assets, net loans and deposits all increased compared with those at March 31, 2013 and at June 30, 2012.
¡¤ At June 30, 2013, non-interest bearing demand deposits increased by 26.8% from the level at March 31, 2013 and 56.3% from the level at June 30, 2012.
¡¤ Key measures of asset quality at June 30, 2013 included a "Texas Ratio" of 3.35%, non-accrual loans to gross loans ratio of 0.64%, and a total non-performing assets (NPAs) to total assets ratio of 2.40%.
¡¤ In second quarter 2013, the bank raised $4.0 million in a private offering of its common stock, the proceeds of which were used, in combination with the Bank¡¯s retained earnings, to redeem 100% of the outstanding TARP CPP preferred stock held by the U.S. Treasury.
"We continue to generate strong and balanced results that reflect the efforts of our talented team and a commitment to excellent service," said Joanne Kim, President and CEO. "Our ability to provide value and a seamless customer relationship experience has helped us mitigate the industry-wide challenges of intense competition and rate-shopping."
Second quarter net income declined to $2.20 million, or $0.64 per diluted share, compared with $2.65 million, or $0.76 per diluted share, for the first quarter of 2013. When adjusted for the first quarter¡¯s reversal of provision for loan losses, second quarter net income before income tax was higher by $941,000. Net income increased by 27% compared with $1.73 million or $0.54 per diluted share in the second quarter of 2012. Net income for the first half of 2013 rose 42% to $4.85 million or $1.32 per diluted share compared with $3.42 million or $1.08 per diluted share for the first half of 2012. During second quarter 2013, the Bank raised $4 million in common equity and the timing of the transaction coupled with exercising of in-money options by employees negatively impacted earnings per share for the quarter.
In first half 2013, net interest income after loan loss provision increased 38% to $10.43 million compared with $7.53 million for the same period of 2012. For the first half of 2013, net interest income included $1.46 million reversal of loan loss provision booked in the first quarter of 2013 which was associated with a recovery of a loan previously charged off and an improvement in asset quality. For the second quarter of 2013, net interest income after provision for loan losses was $4.61 million compared with $3.77 million for the same period of 2012. Total interest expense for the second quarter and for the first half of 2013 was relatively stable compared to the total interest expense for the same periods of 2012 despite an increase in average deposit balance.
Net interest margin improved to 3.84% for the second quarter of 2013, which represented a 15 basis point increase from that of the first quarter of 2013. Net interest margin, however, declined from 3.96% for the second quarter of 2012. The Bank improved its yield on earning assets by managing composition and balance and lowered its cost of funds to 0.81% for the second quarter of 2013 compared with 0.85% for the first quarter of 2013 and 0.97% for the second quarter of 2012.
"Our loan growth and a lower cost of funds during the past year has supported net interest income growth despite pressures on net interest margin and loan pay-offs," Ms. Kim noted. "Loan origination has remained strong and the rate of loan pay-offs slowed in the second quarter of 2013 compared with the first quarter of 2013. And, with its asset sensitive profile, the Bank is well positioned for interest rate increases in future periods."
Total non-interest income continued to reflect strong SBA loan production and subsequent gains on sale of SBA loans. For the six months ended June 30, 2013, total non-interest income was $4.65 million, up 80% from $2.59 million for the six months ended June 30, 2012. Second quarter 2013 total non-interest income was $2.78 million, up 94% from second quarter 2012 total non-interest income of $1.43 million.
Total non-interest expense for the first half of 2013 was $6.70 million compared with $4.95 million for the same period of 2012, reflecting an increase in salaries and benefits related to new hires and increased occupancy costs related to establishing the Texas LPOs and Loan Underwriting Center, and the relocation of the Bank¡¯s headquarters and Wilshire Branch. The Bank added revenue generating employees in SBA and commercial lending and added compliance and administration staff for support while maintaining an efficiency ratio of 46.8% for the second quarter 2013 compared with 45.5% for the same period in 2012.
"We are pleased with the immediate productivity, efficiency and growth as a result of investing in human resources and facilities," stated Ms. Kim. "Relocating our headquarters to a highly visible building in the heart of the Korean-American business community in Los Angles has enhanced our accessibility to customers and provided a measureable marketing enhancement."
Balance Sheet, Asset Quality and Capital Strength
Total assets increased to $519.7 million at June 30, 2013 compared with $461.8 million at June 30, 2012, a 12.5% year-over-year growth. Net loans grew by 15.1% to $411.6 million at June 30, 2013 compared to $357.7 million at June 30, 2012. This increase reflects growth in SBA and core lending.
The Bank continues to demonstrate sound asset quality, with NPAs to total assets of 2.40%, total non-accrual loans to gross loans ratio of 0.64%, and a "Texas Ratio" of 3.35%, all reflecting improvement from the first quarter of 2013 and from the same period of 2012. However, loans 30 to 89 days past due increased to 0.88% of gross loans during the second quarter compared to the first quarter of 2013 as a result of a loan becoming delinquent because of a disagreement between the principals of the borrower that is undergoing litigation. It is deemed that the borrower has sufficient cash flow to service the debt.
Total deposits at June 30, 2013 increased 2.7% to $450.0 million compared with $438.0 million at March 31, 2013 and $406.6 million at June 30, 2012, primarily reflecting a 26.8% and a 56.3% growth in non-interest bearing demand deposit balances which contributed to the Bank¡¯s lower cost of funds for the period.
In July 2013, the Bank redeemed all outstanding shares of its non-cumulative perpetual preferred stock, liquidation preference of $8.1 million, pursuant to an auction held by the United States Treasury in which the Bank was the winning bidder. The preferred stock was previously issued to the U.S. Treasury under TARP CPP. The preferred stock was redeemed at an approximate discount of 4.9%. The Bank financed the redemption of the preferred stock from its retained earnings and $4 million in new common equity that was raised through a private offering in June 2013.
"We are very pleased with the outcome of the auction," commented Joanne Kim. "We believe our ability to buy back the entire outstanding preferred stock demonstrates our financial strength."
With the infusion of new common equity, coupled with strong earnings, the Bank expanded key capital ratios at June 30, 2013, compared with these capital ratios at March 31, 2013 and at June 30, 2012. At June 30, 2013, the Bank reported a Tier 1 Leverage ratio of 13.43%, a Tier 1 Risk-Based Capital ratio of 15.62%, and a Total Risk-Based Capital ratio of 16.89%. All ratios exceeded minimum regulatory standards to be deemed "well-capitalized" under regulatory guidelines.
Ms. Kim concluded: "Our business and operational model continues to exceed expectations for generating core deposit and loan activity, complemented by a focus on SBA lending that helps us maximize capital leverage while retaining less credit exposure. We are proud that our SBA lending capabilities put our ranking as the 24th largest SBA lender in the nation in term of dollars approved during the nine months from October 2012 to June 2013, according to the National Association of Government Guaranteed Lenders report.
"We plan to open another SBA loan production office in the Southeastern United States during the third quarter. We are thrilled with the tremendous job our CBB team has done to identify attractive lending opportunities in a very competitive environment. We feel our progress and strong financial performances support our business strategy and display our ability to continue to create franchise value."
About the Company
CBB Bank is a traditional full-service commercial bank opened on March 9, 2005 and is headquartered in the business district of Koreatown, Los Angeles, California. The Bank also has loan production offices in Dallas and Houston, Texas.
Cautionary Statement Regarding Forward-Looking Statements
This press release contains certain forward-looking information about Commonwealth Business Bank (CWBB) that is intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking statements, and include statements related to the Bank¡¯s outlook. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of CWBB. CWBB cautions readers that a number of important factors could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements. Risks and uncertainties include, but are not limited to, revenues that are lower than expected and credit quality deterioration which could cause an increase in the provision for credit losses.
These forward-looking statements involve known and unknown risks, uncertainties and factors such as: changes in consumer spending, borrowing and savings habits, technological changes, the cost of additional capital is more than expected, a change in the interest rate environment reducing interest margins, asset/liability repricing risks and liquidity risks, general economic conditions, particularly those affecting real estate values, either nationally or in the market areas in which CWBB does or anticipates doing business, including the possibility of a U.S. recession, a slowdown in construction activity, recent volatility in the credit or equity markets and its effect on the general economy, loan delinquency rates, the ability of CWBB to retain customers, demographic changes, demand for the products or services of CWBB as well as its ability to attract and retain qualified people, competition with other banks and financial institutions, and other factors. If any of these risks or uncertainties materializes or if any of the assumptions underlying such forward-looking statements proves to be incorrect, CWBB¡¯s results could differ materially from those expressed in, or implied or projected by such forward-looking statements. CWBB assumes no obligation to update such forward-looking statements.
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