Los Angeles, CA, April 30, 2013 – Commonwealth Business Bank (OTCBB: CWBB), a business-focused bank familiarly known as CBB Bank, today reported financial results for the quarter ended March 31, 2013 that reflected strong earnings growth attributed to increases in interest and non-interest income, expanded lending activities, and continuing asset quality improvement.
- First quarter 2013 net income was $2.65 million or $0.76 per diluted share compared with $1.69 million or $0.54 per diluted share in first quarter 2012, representing a 56% period-over-period increase.
- The Bank's return on average assets (ROAA) of 2.21% and return on average equity (ROAE) of 18.63% rose substantially compared with ROAA of 1.65% and ROAE of 13.67% in first quarter 2012.
- An efficiency ratio of 52% reflected the bank's productive and efficient operation, even as it added revenue-generating personnel and opened a new loan production office (LPO) in Dallas, Texas.
- Total assets increased to $500.99 million at March 31, 2013 compared with $413.03 million at March 31, 2012 and $481.85 million at December 31, 2012.
- Net loans increased 15% to $386.80 million in first quarter 2013 compared with $336.06 million in first quarter 2012.
- Total loan origination was $65 million in first quarter 2013.
- Total deposits rose 22% to $437.98 million compared with $359.02 million in first quarter 2012, primarily reflecting significant growth in core deposits.
- Key measures of asset quality included a "Texas Ratio" of 3.35%, non-accrual loans to gross loans ratio of 0.81%, and total non-performing assets (NPAs) to total assets ratio of 2.59% in first quarter 2013.
- The Bank's performance contributed to increased shareholder value, as tangible common book value per common share increased to $16.44, compared with $15.63 at year-end 2012.
"Our team of lenders and support staff are demonstrating CBB's ability to provide a top-class commercial banking experience to our customers," said Joanne Kim, President and CEO. "Our operation performed to our high standards, and we were extremely pleased that our Dallas LPO has gotten off to a strong start and provided meaningful contributions to loans in first quarter 2013."
Despite growth in earning assets during the first quarter 2013, net interest income before loan loss provision increased slightly to $4.36 million, compared with $4.18 million in first quarter 2012, due to reduction in yield on earning assets to 4.44% compared with 4.94% in first quarter 2012. Net interest income after provision for loan losses was $5.82 million in first quarter 2013 compared with net interest income after provision for loan loss of $3.76 million in first quarter 2012. This large year-over-year increase primarily reflected the positive impact of a $1.46 million gain from a reversal of loan loss provision. Kim explained the reversal was mainly driven by $760,000 recoveries on loans previously charged-off coupled with the improvement in historical loss rates.
Total interest expense was $889,000 for the quarter ended March 31, 2013, 3.8% higher than the $857,000 reported in first quarter 2012 due to growth in interest-bearing deposit balance. Kim noted that despite an increase in total interest expense, the Bank continues to successfully re-price interest-bearing deposits and has grown demand deposits, which had a positive year-over-year impact on the Company's cost of funds, which declined by 11 basis points to 0.85% in first quarter 2013 compared with 0.96% in first quarter 2012.
The Bank's net interest margin (NIM) declined to 3.69% in first quarter 2013 compared with 4.09% in first quarter 2012 and 4.03% in fourth quarter 2012. "The low interest rate environment will continue to present challenges to maintaining our NIM," said Kim. "We felt some compression in the Bank's NIM in first quarter 2013 due to downward re-pricing of loans and smaller recapturing of interest income from loans coming off from non-accrual status.
"While interest income will continue to be under pressure despite loan growth, non-interest income has made a significant contribution to our earnings and we expect that to continue. Over 73% of our loan portfolio are adjustable rate loans and the benefits of the adjustable rate nature of our loan portfolio will be seen as interest rates rise in the future."
The Company reported total non-interest income of $1.87 million in first quarter 2013, up 62% compared with $1.16 million in first quarter 2012. The increase reflected a 25% increase in fees and service charges and a 76% rise in gain on sale of SBA loans.
Total non-interest expense in first quarter 2013 was $3.24 million compared with $2.44 million in first quarter 2012. The increase reflected higher salaries and employee benefits resulting from approximately 26% growth in staffing, expenses related to relocation of the headquarters and Wilshire Branch and opening of the new Dallas SBA LPO. The Bank added revenue generating employees in SBA and commercial lending and, also added compliance and administration staff for support.
"These additional expenses reflect carefully considered investments in CBB Bank's ability to generate increasing revenue and support growth," noted Kim. "For instance, when establishing our Dallas LPO, we also set up an on-site Dallas Loan Underwriting Center responsible for underwriting, processing and closing loans. Loan approval occurs at our Los Angeles headquarters, but having an on-site team in Dallas has provided fast and efficient customer response times and created high levels of customer satisfaction. This has been an excellent investment to enhance productivity and service."
Balance Sheet, Asset Quality and Capital Strength
Total assets increased 21% to $500.99 million at March 31, 2013 compared with $413.03 million at March 31, 2012. Net loans after allowance for loan losses at March 31, 2013 were $386.80 million, up 15% compared with $336.06 million at March 31, 2012. The increase partially reflects retention of a portion of originated SBA loans held for sale.
Asset quality improved, with loans 30 to 89 days past due at $181,000 in first quarter 2013 compared with $99,000 in first quarter 2012 and $215,000 at year-end 2012. Total non-accrual loans at March 31, 2013 were $3.21 million, down 55% compared with $7.15 million at March 31, 2012, partially reflecting the sale of a large non-accrual loan during fourth quarter 2012 and proactive loan workouts. Total non-performing loans, which include $9.76 million of interest-accruing Troubled Debt Restructuring (TDR) loans, were $12.97 million at March 31, 2013, compared with $16.59 million at March 31, 2012 and $14.30 million at December 31, 2012.
The ratio of non-performing assets to total assets declined to 2.59% at March 31, 2013 compared with 4.02% at March 31, 2012. The ratio of NPAs to total assets was 2.97% at December 31, 2012. Since the inception, the bank had no Other Real Estate Owned. Net charge offs to average loans in first quarter 2013 was -0.82% compared with 0.10% in first quarter 2012.
Total deposits in first quarter 2013 increased 22% to $437.98 million compared with $359.02 million in first quarter 2012, and were up 3.5% compared with $422.99 million at year-end 2012, primarily from growth in non-interest bearing demand and money market deposits.
The Company's gross loans to deposits ratio, including loans held for sale, was 90.6% at March 31, 2013, consistent with the Bank's strategy of expanding its core retail deposit base to fund its growing lending activities.
The Bank reported a tier 1 leverage ratio of 12.21%, a tier 1 risk-based capital ratio of 15.07%, and a total risk-based capital ratio of 16.34% in first quarter 2013. All ratios exceed minimum regulatory standards for a well-capitalized financial institution. Kim added that in light of the Bank's capital strength and stable earnings growth, management is planning to pay off its preferred shares issued under the U.S. Treasury Department's Troubled Asset Relief Program. The dividend rates on these preferred shares are set to go up in January, 2014.
Kim concluded: "While generating strong performance from our current operations, we continue to examine strategic opportunities to expand our business banking and lending model to additional markets. The initial success of our Dallas LPO has demonstrated our model can be replicated. Our focus on SBA lending helps us maximize capital leverage while retaining less credit exposure. We continue to grow and expand our reputation as the business bank of choice even in a highly competitive environment."
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 Korea Town, Los Angeles, California. The Bank also has a loan production office in Dallas, 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.