CBB Bancorp, Inc. Reports First Quarter 2021 Financial Results

CBB Bancorp, Inc. ("CBB" or the "Company') (OTCQX: CBBI), the holding company of Commonwealth Business Bank (the "Bank"), announced today net income for first quarter 2021 of $5.3 million, or $0.52 per diluted share, an increase of 43.6% compared to $3.7 million, or $0.36 per diluted share, in the prior quarter and 230.9% compared to $1.6 million, or $0.16 per diluted share, in the same period last year.

Overall Results

Net income for first quarter 2021 was positively impacted by improving margins and credit quality, as well as continued balance sheet growth. The return on average assets for first quarter 2021 was 1.58% compared to 1.07% for fourth quarter 2020 and 0.58% for first quarter 2020. The return on average equity for first quarter 2021 was 13.26% compared to 9.32% for fourth quarter 2020 and 4.31% for first quarter 2020. The net interest margin for first quarter 2021 was 3.90% compared to 3.48% for fourth quarter 2020 and 3.86% for first quarter 2020. The efficiency ratio for first quarter 2021 was 51.78% compared to 55.12% for fourth quarter 2020 and 73.28% for first quarter 2020.

Joanne Kim, President and CEO commented, “We are pleased to announce record earnings for the first quarter of 2021, as we recover from a challenging 2020. We have been able to provide solid loan and deposit growth, improving margins and improving credit quality of our loan portfolio. We believe we are well positioned to complete the acquisition of Ohana Pacific Bank, subject to receipt of regulatory approval, in the second half of this year.”

Net Interest Income and Margin:

Net Interest Income

Net interest income for first quarter 2021 was $12.8 million, an increase of $1.1 million, or 9.0%, from fourth quarter 2020, and an increase of $2.3 million, or 22.4%, from first quarter 2020. The increase in net interest income was driven by loan growth, as well as our continuing to aggressively lower deposit rates and wholesale borrowing costs, while strategically shifting our deposit mix to lower-cost core deposits.

Net Interest Margin

Our net interest margin for first quarter 2021 was 3.90% compared to 3.48% for fourth quarter 2020 and 3.86% for first quarter 2020. The increase in net interest margin was due to the lower repricing of our time deposits, which will continue as these deposits reach their maturities. Our cost of funds improved for first quarter 2021 to 0.52% from 0.60% for fourth quarter 2020 and 1.67% for first quarter 2020. The Net interest margin during the quarter also benefited from an improved mix of earning assets, as cash and due from banks balances decreased to fund loan balances.

Provision for Loan Losses:

The provision for loan losses for first quarter 2021 was $500 thousand, compared to $1.6 million for fourth quarter 2020 and $700 thousand for first quarter 2020. With no material charge-offs during the quarter, and improving credit quality statistics, the provision in the quarter is substantially all due to portfolio growth. We are continuing to monitor a number of data sources for signs of distress within the portfolio due to COVID-19. These include deposit balances, overdrafts, line of credit usage and guarantors’ credit history. We have segmented the loan portfolio several ways and examined risk exposure based on quantitative and qualitative information. We are actively communicating with borrowers and key depositors to understand and assess the health of their businesses, as well as the pandemic’s effects on their customers and suppliers. In addition, we are engaging with borrowers more frequently to understand individual challenges and are obtaining data more frequently from borrowers, such as updated financial statements. See Table 10 for additional information and trends.

Noninterest Income:

Noninterest income for first quarter 2021 was $3.7 million, compared to $3.4 million for fourth quarter 2020 and $1.7 million for first quarter 2020. The increase in noninterest income in first quarter 2021 was the result of higher gains on sales of loans. This increase was partially offset by the income booked in the fourth quarter of 2020 due to a $894 thousand reversal of the valuation allowance on our SBA servicing rights. Sales of SBA loans were $30.2 million with an average premium percentage received of 10.9% during the first quarter of 2021, compared with $20.4 million with an average premium percentage received of 10.7% in the fourth quarter of 2020 and $18.5 million with an average premium percentage received of 8.0% during the first quarter of 2020.

Noninterest Expense:

Noninterest expense for first quarter 2021 was $8.6 million compared to $8.4 million for fourth quarter 2020 and $8.9 million for first quarter 2020. Salaries and employee benefits decreased by $624 thousand compared to $5.5 million in the prior quarter, as higher loan originations resulted in an increase in the amount of compensation deferred as loan origination costs. This was offset in part by merger-related expenses during the quarter of $681 thousand, compared to $40 thousand for fourth quarter 2020 and none for first quarter 2020.

Income Taxes:

The Company’s effective tax rate for first quarter 2021 was 28.6% compared to 29.0% for fourth quarter 2020 and 37.0% for first quarter 2020.

Balance Sheet:

Investment Securities:

Investment securities were $83.4 million at March 31, 2021, a decrease of $2.5 million from December 31, 2020 and $8.5 million from March 31, 2020. The decreases were due to principal paydowns. There were no portfolio additions in first quarter 2021, or in the fourth and first quarters 2020.

Loans Receivable:

Loans receivable (including loans held for sale) at March 31, 2021 was $1.19 billion, an increase of $87.0 million, or 7.9%, from December 31, 2020, and an increase of $228.0 million, or 23.7% from March 31, 2020.

We provided loan payment deferments to our commercial borrowers under the CARES Act. The first round of three months of loan deferments as of March 31, 2021 totaled $271.4 million, or 22.8% of the total loan portfolio. The borrowers on a majority of these loans resumed making their loan payments during the 2020 fourth and 2021 first quarter. Ten loans were still on payment deferment status as of March 31, 2021, which totaled $50.4 million in principal amount, or 4.2% of the total loan portfolio. We anticipate there may be additional loan payment deferments. SBA loans originated during the period beginning September 28, 2020 to January 31, 2021 will not be able to receive six months of payments from the SBA. However, loans originated from February 1, 2021 to September 30, 2021 qualify for six months of guaranteed payments not exceeding $9 thousand per month. Our weighted average loan-to-value ratio of Commercial Real Estate loans was 72.4% at March 31, 2021. Excluding SBA loans, our weighted average loan-to-value of CRE loans was 56.0%. For additional information, please go to www.cbb-bank.com under tab “About Us” and select “Investors Relations” to see 1Q 2021 Overview and COVID-19 update presentation.

Paycheck Protection Program (PPP):

PPP loans totaled $109.2 million at March 31, 2021. Net unearned fees as of March 31, 2021 was $2.9 million, which is being accreted to income based on a two-year contractual maturity. The SBA approved $29.2 million in PPP loan forgiveness applications processed in first quarter 2021. We believe it is likely many customers will apply for additional PPP funds and the Bank is actively taking applications at this time.

Allowance for Loan Losses and Asset Quality:

The allowance for loan losses at March 31, 2021 was $14.9 million, or 1.34% of portfolio loans, compared to $14.4 million, or 1.38% of portfolio loans, at December 31, 2020 and compared to $11.0 million, or 1.18% of portfolio loans, at March 31, 2020. Excluding PPP loans of $109.2 million, which are government guaranteed, the allowance for loan losses at March 31, 2021 was 1.48% compared to 1.51% and 1.18%, respectively, at December 31, 2020 and March 31, 2020. Non-performing loans as of March 31, 2021 were $1.3 million, down from $2.4 million at December 31, 2020. Loans with payment deferments are considered to be performing loans in accordance with regulatory guidance. Our coverage ratio of allowance for loan losses to nonperforming assets exceeded 1,100%. For additional information, please go to www.cbb-bank.com under tab “About Us” and select “Investors Relations” to see 1Q 2021 Overview and COVID-19 update presentation.

SBA Loans Held for Sale:

SBA loans held for sale at March 31, 2021 were $76.1 million, compared to $59.1 million at December 31, 2020 and $30.0 million at March 31, 2020. We continue to assess SBA loan sale premiums and plan to sell loans when we believe it is advantageous to do so. See comments under “Noninterest Income”, and Table 7 for additional SBA loan origination and sale data.

Deposits:

Deposits were $1.19 billion at March 31, 2021, up $92.4 million, or 8.4% of total deposits, from December 31, 2020 and up $241.1 million, or 25.4% of total deposits, from March 31, 2020. Noninterest-bearing demand deposits (“DDAs”) increased $73.5 million, or 21.9%, to $408.7 million at March 31, 2021 from December 31, 2020 and increased $197.6 million, or 93.6%, from March 31, 2020. DDAs were 34.3% of total deposits at March 31, 2021 compared to 30.5% at December 31, 2020 and 22.2% at March 31, 2020. Negotiable order of withdrawal (“NOW”) and money market deposit accounts (“MMDAs”) increased $10.2 million, or 3.9% to $270.5 million at March 31, 2021 from December 31, 2020 and increased $134.2 million, or 98.4%, from March 31, 2020. Time deposits increased $14.1 million, or 3.1%, at March 31, 2021 from December 31, 2020 and decreased $72.3 million, or 13.4%, from March 31, 2020. Time deposits at March 31, 2021 were $466.0 million, or 39.1% of total deposits, compared to $451.9 million, or 41.1% of total deposits, at December 31, 2020, and $538.3 million, or 56.6% of total deposits, at March 31, 2020. As noted above, we have been and will continue to focus on increasing demand deposits and reducing our cost of funds.

Borrowings:

Borrowings at March 31, 2021 consisted of $65.0 million of Federal Home Loan Bank of San Francisco (“FHLB-SF”) advances, compared to $95.0 million of FHLB-SF advances and $10.0 million of Pacific Coast Bankers’ Bank (“PCBB”) borrowings at December 31, 2020, and compared to $85.0 million of FHLB-SF advances at March 31, 2020.

Capital:

Stockholders’ equity was $165.1 million at March 31, 2021, representing an increase of $5.1 million, or 3.2%, over stockholders’ equity of $160.0 million at December 31, 2020. Book value per share at March 31, 2021 was $16.11 compared with $15.61 at December 31, 2020, an increase of $0.50 per share or 3.2%.

All of our regulatory capital ratios continue to exceed the minimum levels required to be considered “Well Capitalized” as defined for bank regulatory purposes and in compliance with the fully phased-in Basel III requirements, which went into effect on January 1, 2020, as shown on Table 11 in this press release. Importantly, our Common Equity Tier 1 risked-based capital at March 31, 2021 was 15.0% at the Company level and 14.98% at the Bank level.

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 and Orange Counties in California, and Dallas County in Texas; two SBA regional offices in Los Angeles and Dallas Counties; and five loan production offices in Texas, Georgia, Colorado and Washington.

For additional information, please go to www.cbb-bank.com under tab “About Us” and select “Investors Relations” to see 1Q 2021 Overview and COVID-19 update presentation.

FORWARD-LOOKING STATEMENTS:

This news release contains a number of forward-looking statements. These statements may typically be identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar terms and phrases, including references to assumptions. Forward-looking statements are based upon various assumptions and analyses made by the Company in light of management��s experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate under the circumstances. These statements are not guaranties of future performance and are subject to risks, uncertainties and other factors (many of which are beyond the Company’s control) that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. You should not place undue reliance on such statements. Factors that could affect our results include, without limitation, the following: the timing and occurrence or non-occurrence of events may be subject to circumstances beyond the Company’s control; increases in competitive pressure among financial institutions or from non-financial institutions may occur; changes in the interest rate environment may reduce interest margins; changes in deposit flows, loan demand or real estate values may adversely affect the business of the Company and the Bank; significant increases in loan losses may occur; the possibility that changes in accounting principles, policies or guidelines may cause the Company’s financial condition to be perceived differently; changes in corporate and/or individual income tax laws may adversely affect the Company’s financial condition or results of operations; general economic conditions, either nationally or locally in some or all areas in which the Company conducts business, the effects of the COVID-19 pandemic, and of other widespread outbreaks of disease or pandemics, together with related impacts on general economic conditions, including adverse impacts on our customers’ ability to make timely payments on their loans from us, reduced fee income due to reduced loan origination activity, reductions in or absence of gains on loan sales due to uncertainty in the loan sale market, and increased operating expense due to required changes in how we conduct our business may adversely affect us; conditions in the securities markets or the banking industry may be less favorable than the Company currently anticipates; legislation or regulatory changes may adversely affect the Company’s business; technological changes may be more difficult or expensive to implement or accommodate than the Company anticipates; there may be failures or breaches of information technology security systems; success or consummation of new business initiatives may be more difficult or expensive than the Company anticipates; or litigation or matters before regulatory agencies, whether currently existing or commencing in the future, may delay the occurrence or non-occurrence of events longer than the Company anticipates. The Company undertakes no obligation to revise any forward-looking statement contained herein to reflect any future events or circumstances, except to the extent required by law.

Schedules and Financial Data: All tables and data to follow