- Record annual net income of $7.52 million or $2.32 per diluted share.
- ROA of 1.73 % and ROE of 14.31% for 2012.
- 47.69% efficiency ratio in 2012 while adding revenue generating employees and opening of a loan production office.
- Total assets were $481.85 million, an increase of 18.1%.
- Net loans were $376.7 million, up 17%.
- Total deposits rose 18.5% to $422.99 million, primarily reflecting significant growth in retail deposits, including non-interest bearing deposit accounts.
- The bank reported a Texas Ratio of 3.50%, non-accrual loans to gross loans of 0.85% and a 30.9% reduction in total non-performing assets.
- Tangible common book value per common share increased to $15.63, compared with $13.20 at year-end 2011.
Los Angeles, CA, January 31, 2013 – Commonwealth Business Bank (OTCBB: CWBB) today reported financial results for the quarter and year ended December 31, 2012 that reflected strong earnings growth attributed to increases in both interest and non-interest income and significant year-over-year asset quality improvement.
Net income rose 28% to $2.30 million or $0.69 per diluted share for fourth quarter 2012, compared with $2.17 million or $0.63 per diluted share for fourth quarter 2011. For the full year 2012, the Company reported net income of $7.52 million or $2.32 per diluted share, compared with net income of $1.84 million or $0.50 per diluted share for 2011.
"When I joined the Company in April 2011, I recognized the tremendous potential the CBB Bank franchise had to offer to the community," said Joanne Kim, President and CEO. "The bank had asset quality issues, but the strength of the CBB Bank franchise and the opportunity to grow the franchise was clear. We took aggressive action to quickly reduce problem loans in second quarter 2011, and the 2012 results show our action has been effective. With the reduction, we were able to focus on growing our businesses and diversifying portfolio in 2012."
"Although competition is intense for quality business loans and good banking relationships, we have had great success in serving mid to small size businesses, which value our specific abilities to understand and meet their banking requirements. We believe in building relationships one client at a time, and our ability to identify new opportunities to grow our SBA lending business has been important factors in our continuing success."
In fourth quarter 2012, net interest income was $4.63 million, compared with $3.79 million in fourth quarter 2011. Total interest income for the quarter increased 17% to $5.50 million, compared with $4.69 million in the fourth quarter 2011. For the full year 2012, net interest income after provision for loan losses was $16.59 million, compared with net interest income after provision for loan loss of $6.17 million for 2011. In 2012, total interest income was $20.76 million compared with $18.35 million of 2011. The Company's provision for loan losses was $717,000 in 2012 compared with $8.30 million in 2011. There was no provision for loan losses in fourth quarter 2012.
Total interest expense was $863,000 in fourth quarter 2012, 4.4% lower than fourth quarter 2011. The Company reduced total interest expense to $3.45 million in 2012, 11% lower than 2011. The Company has benefited from an improvement to its cost of funds by 3 basis points to 0.85% in fourth quarter 2012 by re-pricing interest-bearing retail deposit accounts, growth of non-interest bearing deposits, and a run off of high cost wholesale deposits.
"Managing net interest margins in this environment is a challenge for all banks, so our ability to grow the net interest margin to 4.03% compared with 3.71% in fourth quarter 2011 was encouraging," Kim explained. "Recapturing of interest income from non-accrual loans returning to accrual status also helped our net interest margin. We expect that the prolonged low interest rate environment will place additional pressure on our net interest margin in 2013 as loans are re-priced to lower rates."
The Company reported total non-interest income of $1.23 million for fourth quarter 2012 compared with $812,000 for the fourth quarter in 2011, a 51% increase. For 2012, total non-interest income was $5.10 million, up 21% compared with $4.22 million for 2011.
Total non-interest expense for 2012 was $10.69 million, compared with $8.60 million for 2011, primarily reflecting higher salaries and employee benefits resulting from 22% growth in staffing, expenses related to the Company's planned move to a new Los Angeles headquarters in March 2013 and opening of a Dallas-based SBA loan production office. The bank added revenue generating employees in SBA and commercial lending and, also added compliance and administration staff for support. Although non-interest expense increased, the bank continues to maintain an efficiency ratio of 47.69% for the year, which compares positively with most community bank peers, both locally and nationally.
Balance Sheet, Asset Quality and Capital Strength
Total assets were $481.85 million at December 31, 2012, compared with $408.08 million December 31, 2011, an 18.1% growth. Net loans after allowance for loan losses at December 31, 2012 were $376.74 million, up 17% compared with $322.58 million at December 31, 2011. The increase partially reflects retention of a portion of originated SBA loans held for sale. The bank dramatically improved asset quality in year-over-year comparisons. Loans 30 to 89 days past due declined to $215,000 at year-end 2012, compared with $2.29 million at year-end 2011, reflecting the positive impact of strengthened credit and underwriting practices implemented. Total non-accrual loans were $3.31 million at year-end 2012, down 75% compared with $13.10 million at year-end 2011. The reduction was result of a sale of a large non-accrual loan during fourth quarter, coupled with proactive loan workouts. Total non-performing loans, including interest accruing Trouble Debt Restructured (TDR) loans, were $14.30 million at December 31, 2012, compared with $20.70 million at December 31, 2011. While non-accrual loans declined, interest accruing TDR loans increased year-over-year to $11 million.
The ratio of non-performing assets to total assets declined to 2.97% at December 31, 2012, compared with 5.07% at December 31, 2011. The bank reported no Other Real Estate Owned at December 31, 2012.
Net charge offs to average loans for 2012 was 0.12% compared with 1.72% of 2011. Reflecting the Company's initiatives to improve asset quality, the bank's Texas Ratio was significantly reduced to 3.50% at year-end 2012 compared with 20.29% at year-end 2011.
Total deposits at December 31, 2012 grew 18.5% to $422.99 million compared with $357.00 million at December 31, 2011. The Company's gross loans to deposits ratio, including loans held for sale, was 91.6% at December 31, 2012. Kim noted that the bank's goal is to continue expanding its core retail deposit base to fund its growing lending activities, while maintaining a gross loan to deposit ratio at less than 95%.
The bank reported a tier 1 leverage ratio of 12.18%, a tier 1 risk-based capital ratio of 14.47%, and a total risk-based capital ratio of 15.74% in fourth quarter 2012. All ratios exceed minimum regulatory standards for a well-capitalized financial institution.
The bank opened its first Loan Production Office (LPO) in Dallas, Texas in December 2012, and plans to expand its LPO network to other areas in the future. LPO operations will focus on SBA 7(a) loan origination in the region. "We believe our SBA 7(a) lending model is scalable and we can expand our lending operations, and continue our loan growth momentum in an extremely competitive lending environment. SBA loans will help us maximize capital leverage while retaining less credit exposure than conventional loans. In order to maximize efficiency without compromising prudent risk management, loan production and underwriting are handled locally at Dallas Loan Underwriting Center, while all approvals are done by the Los Angeles headquarters." Kim explained.
As part of its expansion and marketing strategy, the Company also introduced a new "CBB Bank" name and graphic logo. "We continue to formally operate as Commonwealth Business Bank," said Kim, "but ¡®CBB Bank' gives us a more concise and memorable brand. Our new headquarters in the center of the Los Angeles Korean-American business community is a high rise and it prominently features our new logo at the top."
Kim concluded: "We move into 2013 with improved asset quality, and are well-positioned to grow our business on a number of fronts. The economy will continue to be a challenge, and uncertainty about the country's fiscal direction, interest rates, tax issues, and gridlock in Washington, D.C. have caused businesses to be cautious. We will focus on strong risk management, continued effort to maintain good asset quality and identifying quality opportunities to grow our businesses."
About the Company
CBB Bank is a traditional full-service commercial bank opened on March 9, 2005 and is headquartered in the "Miracle Mile" of the 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.