CBB Bancorp, Inc. Reports Third Quarter 2022 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 third quarter 2022 of $5.7 million, or $.54 per diluted share, a decrease of 11.3% compared to $6.5 million, or $.62 per diluted share, in the prior quarter and a decrease of 27.3% compared to $7.9 million, or $.75 per diluted share, in the same period last year.

Overall Results

Net income for third quarter 2022 was lower than prior periods due to the absence of SBA loan sales during the period. The recent volatility in pricing for SBA loans in the secondary market and the higher value of holding the variable-rate assets until the premiums stabilize were the two reasons for temporarily suspending the SBA loans sales. Net interest margin improved from the prior quarter, but the reduction in gains on SBA loan sales affected the return ratios for the period. Our return on average assets for third quarter 2022 was 1.27% compared to 1.43% for second quarter 2022 and 1.73% for third quarter 2021. Our return on average equity for third quarter 2022 was 11.24%, compared to 13.30% for second quarter 2022 and 17.87% for third quarter 2021. Our net interest margin for third quarter 2022 was 4.28%, compared to 3.75% for second quarter 2022 and 3.62% for third quarter 2021.

James Hong, President and CEO, commented, “In spite of the uncertainty in the markets caused by rising interest rates, we continue to see opportunities to add to our core earnings going forward through the addition of quality loan and deposit customers. We remain committed to continued growth while managing the risks of a more uncertain economic environment for the coming year.”

Net Interest Income and Margin

Net Interest Income

Net interest income for third quarter 2022 was $18.8 million, an increase of $2.4 million, or 14.5%, from second quarter 2022, and an increase of $2.7 million, or 16.9%, from third quarter 2021. The increase in net interest income compared with the prior quarter was driven by the increase in loans held for sale, as well as increased variable rate asset yields due to recent increases in interest rates by the Federal Reserve Bank.

Net Interest Margin

Our net interest margin for third quarter 2022 was 4.28%, compared to 3.75% for second quarter 2022 and 3.62% for third quarter 2021. The increase in net interest margin compared to second quarter 2022 was due to increased loan yields as well as interest income on cash and due from banks balances. Variable Rate loans comprised 45.6% of the loan portfolio at September 30, 2022. Our cost of funds for third quarter 2022 increased to 0.63% from 0.34% for second quarter 2022 and from 0.33% for third quarter 2021, as the rising interest rate environment has affected costs for both money market accounts and certificates of deposit.

Provision for Loan Losses:

The Company had a provision for loan losses for third quarter 2022 of $0.9 million, compared to $1.6 million for second quarter 2022 and no provision for loan losses for third quarter 2021. The provision recorded for the current quarter was due both loan growth and an increase of potential risks in the economy. See Table 10 in this press release for additional information and trends.

Noninterest Income:

Noninterest income for third quarter 2022 was $1.2 million, compared to $4.5 million for second quarter 2022 and $5.5 million for third quarter 2021. The decrease in noninterest income in third quarter 2022 was primarily the result of decreased gains on sales of loans. There were no sales of SBA loans during the third quarter of 2022, compared with SBA loan sales of $50.8 million with an average premium percentage received of 8.0% during the second quarter of 2022 and SBA loan sales of $42.0 million with an average premium percentage received of 11.5% during the third quarter of 2021.

Noninterest Expense:

Noninterest expense for third quarter 2022 was $11.2 million, compared to $10.4 million for second quarter 2022 and $10.6 million for third quarter 2021The increase in other expenses compared to the second quarter of 2022 was due to a credit to expense that occurred in the second quarter of $800 thousand. That credit related to the reversal of an earlier provision for probable loss on the anticipated repurchase of SBA loans sold. The noninterest expense in the third quarter of 2022 compared to the same period of 2021 increased by $553 thousand, or 5.2%. Salaries and employee benefits were substantially unchanged at $6.9 million in third quarter 2022 compared with the prior quarter, and up from $6.5 million in the third quarter of 2021.

Income Taxes:

The Company’ s effective tax rate for third quarter 2022 was 28.3% compared to 28.3% for second quarter 2022 and 28.6% for third quarter 2021.

Balance Sheet:

Investment Securities:

Investment securities were $75.8 million on September 30, 2022, a decrease of $1.6 million from June 30, 2022, and $10.6 million from September 30, 2021. The decreases were due to principal paydowns along with an increase in unrealized loss on securities available for sale. There were no portfolio additions in third quarter 2022, or in the comparable period of 2021.

Loans Receivable:

Loans receivable (including loans held for sale) on September 30, 2022 were $1.4 billion, an increase of $45.0 million, or 3.2%, from loans receivable at June 30, 2022, and an increase of $54.8 million, or 3.9%, from loans receivable at September 30, 2021. The increase in loan balances compared with earlier periods was primarily due to the increase in SBA loans held for sale, which typically yield between 1% and 2.50% over the prime rate.

Our weighted average loan-to-value ratio of commercial real estate loans was 69.3% at September 30, 2022. Excluding SBA loans, our weighted average loan-to-value ratio of CRE loans was 53.4%. For additional information, please go to www.cbb-bank.com under tab “About Us” and select “Investors Relations” to see 3Q 2022 Overview.

Allowance for Loan Losses and Asset Quality:

Our allowance for loan losses at September 30, 2022 was $15.6 million, or 1.24% of portfolio loans, compared to $14.7 million, or 1.17% of portfolio loans, at June 30 2022 and compared to $15.0 million, or 1.19% of portfolio loans, at September 30, 2021. Excluding Paycheck Protection Program (PPP) loans of $2.0 million, which are government guaranteed, the allowance for loan losses at September 30, 2022 was 1.24%, compared to 1.18% and 1.26%, respectively, at June 30 2022 and September 30, 2021. Non-performing loans were $690 thousand at September 30, 2022, compared to $2.5 million at June 30, 2022 and $768 thousand at September 30, 2021. Loans with payment deferments are considered to be performing loans in accordance with regulatory guidance. For additional information, please go to www.cbb-bank.com under tab “About Us” and select “Investors Relations” to see 3Q 2022 Overview.

SBA Loans Held for Sale:

SBA loans held for sale at September 30, 2022 were $186.4 million, compared to $141.1 million at June 30 2022 and $136.4 million at September 30, 2021. 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 $1.5 billion at September 30, 2022, up $17.9 million, or 1.2%, from June 30 2022 and down $132.7 million, or 8.0%, from September 30, 2021. Noninterest-bearing demand deposits (“DDAs”) decreased $4.6 million, or 0.8%, to $562.0 million at September 30, 2022 from June 30 2022 and decreased $108.4 million, or 16.2%, from September 30, 2021. DDAs were 36.7% of total deposits at September 30, 2022, compared to 37.4% at June 30 2022 and 40.2% at September 30, 2021. NOW and MMDA accounts decreased $13.8 million, or 4.2%, to $313.7 million at September 30, 2022 from June 30 2022 and decreased $62.8 million, or 16.7%, from September 30, 2021. Time deposits increased $45.9 million, or 8.6%, at September 30, 2022 from June 30 2022 and increased $48.0 million, or 9.0%, from September 30, 2021. Time deposits at September 30, 2022 were $580.6 million, or 37.8% of total deposits, compared to $534.7 million, or 35.3% of total deposits, at June 30, 2022, and $532.6 million, or 32.1% of total deposits, at September 30, 2021. The primary cause of the decreases in noninterest bearing deposit balances during 2022 compared with the comparable period of 2021 was a decline in escrow-related deposits. The reduction in escrow related deposits is due to both the impact of the rising interest rate environment, and reduced marketing efforts in this area.

Borrowings:

Borrowings at September 30, 2022, June 30, 2022 and September 30, 2021 consisted of $50.0 million of Federal Home Loan Bank of San Francisco advances at each date.

Capital:

Stockholders’ equity was $202.7 million at September 30, 2022, representing an increase of $5.6 million, or 2.9%, over stockholders’ equity of $197.1 million at June 30, 2022. Tangible book value per share at September 30, 2022 was $18.95, compared with $18.68 at June 30, 2022, an increase of $0.27 per share or 1.5%.

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 capital requirements, as shown in Table 11 in this press release. Our Common Equity Tier 1 risked-based capital at September 30, 2022 was 14.82% at the Company level and 14.70% 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 loans to small-to medium-sized businesses and does business as “CBB Bank.” As of September 30, 2022, the Bank has ten full-service banking offices in Los Angeles and Orange Counties in California, Dallas County in Texas and Honolulu, Hawaii; 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 3Q 2022 Overview.

FORWARD-LOOKING STATEMENTS:

This press release contains forward-looking statements. These statements typically include 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. You should not place undue reliance on such statements. 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 guarantees of future performance and are subject to risks, uncertainties and other factors that could cause actual results to differ materially from the anticipated future results expressed or implied by such forward-looking statements. Factors that could affect our results include, without limitation, the following: the timing and occurrence or non-occurrence of anticipated 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; changes in accounting principles, policies or guidelines may cause the Company’s financial condition to be perceived differently by investors and stock market analysts; changes in corporate and/or individual income tax laws may adversely affect the Company’s financial condition or results of operations or the results of operations or behavior of our loan and deposit customers; changes in 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 our information technology security systems or those of our third party service providers; 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; we may encounter greater difficulty, delay and expense than we anticipate in integrating the personnel and operations of Ohana Pacific Bank or any other companies we acquire. 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