CBB Bancorp, Inc. Reports First 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 first quarter 2022 of $8.4 million, or $0.80 per diluted share, an increase of 4.9% compared to $8.0 million, or $0.77 per diluted share, in the prior quarter and 57.6% compared to $5.3 million, or $0.52 per diluted share, in the same period last year.

Overall Results

Net income for first quarter 2022 was positively impacted by improving credit quality as well as continued strength in SBA loan originations and sales. The return on average assets for first quarter 2022 was 1.91% compared to 1.68% for fourth quarter 2021 and 1.58% for first quarter 2021. The return on average equity for first quarter 2022 was 18.08% compared to 17.54% for fourth quarter 2021 and 13.26% for first quarter 2021. The net interest margin for first quarter 2022 was 3.68% compared to 3.49% for fourth quarter 2021 and 3.90% for first quarter 2021. The efficiency ratio for first quarter 2022 was 50.71% compared to 52.84% for fourth quarter 2021 and 51.78% for first quarter 2021.

James Hong, President and CEO commented, “We are pleased to announce strong earnings for the first quarter of 2022. We reduced our allowance for loan losses during the quarter based on improved credit metrics and better than anticipated results from earlier Covid-19 related provisions. The origination and sale of SBA loans was a major contributor to the quarter’s profits, and is an ongoing focus for the Bank’s management team."

Net Interest Income and Margin:

Net Interest Income

Net interest income for first quarter 2022 was $15.8 million, a decrease of $465 thousand, or 2.9%, from fourth quarter 2021, and an increase of $3.0 million, or 23.2%, from first quarter 2021. The decrease in net interest income compared with the fourth quarter of 2021 was due primarily to the decrease in average loan balances of $22.4 million. The increase in net interest income compared with the first quarter of 2021 was driven by loan growth, as well as the completion of the acquisition of Ohana Pacific Bank(OPB) during 2021.

Net Interest Margin

Our net interest margin for first quarter 2022 was 3.68% compared to 3.49% for fourth quarter 2021 and 3.90% for first quarter 2021. The increase in net interest margin was primarily attributable to having reduced levels of lower yielding assets relative to higher yielding loan receivables. Our cost of funds increased for first quarter 2022 to 0.31% from 0.30% for fourth quarter 2021 and decreased from 0.52% for first quarter 2021. The Net interest margin during the quarter also benefited from an improved mix of earning assets, as we reduced our cash and due from banks balances to fund loan originations.

Provision for Loan Losses:

The Company recorded negative provisions for loan losses of $1.2 million for first quarter 2022 and $800 thousand for the fourth quarter of 2021. The provision for loan losses for first quarter 2021 was $500 thousand. The negative loan loss provision during the first quarter of 2022 was due to continued improvement in asset quality ratios and the absence of significant charge-offs, combined with a reduction of the loans outstanding balance at March 31, 2022. See Table 10 for additional information and trends.

Noninterest Income:

Noninterest income for first quarter 2022 was $5.6 million, compared to $5.3 million for fourth quarter 2021 and $3.7 million for first quarter 2021. The increase in noninterest income in first quarter 2022 was the result of higher gains on sales of loans. Sales of SBA loans were $50.5 million with an average premium percentage received of 11.0% during the first quarter of 2022, compared with $42.2 million with an average premium percentage received of 11.1% in the fourth quarter of 2021 and $30.2 million with an average premium percentage received of 10.9% during the first quarter of 2021.

Noninterest Expense:

Noninterest expense for first quarter 2022 was $10.9 million compared to $11.4 million for fourth quarter 2021 and $8.6 million for first quarter 2021. Salaries and employee benefits increased by $451 thousand to $7.1 million compared to $6.7 million in the prior quarter, due to increased 401k matching and payroll taxes associated with bonus payments . Additionally, lower loan originations resulted in a decrease in the amount of compensation deferred as loan origination costs. Other noninterest expense in first quarter 2022 was lower than in the fourth quarter of 2021 due to the absence of merger-related expenses and a provision for probable loss of $800 thousand on the repurchase of SBA loans sold that was booked in December 2021.

Income Taxes:

The Company’s effective tax rate for first quarter 2022 was 28.4% compared to 27.1% for fourth quarter 2021 and 28.6% for first quarter 2021.

Balance Sheet:

Investment Securities:

Investment securities were $80.1 million at March 31, 2022, a decrease of $4.1 million from December 31, 2021 and $3.3 million from March 31, 2021. The decreases were due to principal paydowns and an absence of portfolio additions in the first quarter 2022, or in the fourth and first quarters 2021.

Loans Receivable:

Loans receivable (including loans held for sale) at March 31, 2022 was $1.4 billion, a decrease of $24.0 million, or 1.7%, from December 31, 2021, and an increase of $185.8 million, or 15.6% from March 31, 2021. The decrease in loans compared to December 31, 2021 was due to higher than normal loan payoffs. The increase in loan balances compared with the first quarter of 2021 was due to the $149.2 million in loan receivable that were acquired in the OPB merger at July 1, 2021 as well as organic growth.

Our weighted average loan-to-value ratio of Commercial Real Estate loans was 67.8.% at March 31, 2022. Excluding SBA loans, our weighted average loan-to-value of CRE loans was 47.8%. For additional information, please go to www.cbb-bank.com under tab “About Us” and select “Investors Relations” to see 1Q 2022 Overview and COVID-19 update presentation.

Paycheck Protection Program (PPP):

PPP loans totaled $22.1 million at March 31, 2022. Net unearned fees as of March 31, 2022 were $765 thousand and are being accreted to income based on the two-year contractual maturity. The SBA approved $13.0 million in PPP loan forgiveness applications processed for our PPP loans in the first quarter 2022.

Allowance for Loan Losses and Asset Quality:

The allowance for loan losses at March 31, 2022 was $13.1 million, or 1.07% of portfolio loans, compared to $14.2 million, or 1.14% of portfolio loans, at December 31, 2021 and compared to $14.9 million, or 1.34% of portfolio loans, at March 31, 2021. Excluding PPP loans of $22.1 million, which are government guaranteed, the allowance for loan losses at March 31, 2022 was 1.09% compared to 1.18% and 1.48%, respectively, at December 31, 2021 and March 31, 2021. The decrease in the allowance as a percentage of the portfolio in the current quarter compared with the prior year is primarily due to loans acquired in the OPB acquisition, which have been marked to market value and do not currently require any loan loss allowance. Non-performing loans as of March 31, 2022 were $723 thousand, compared to $747 thousand at December 31, 2021. Certain 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 1800%. For additional information, please go to www.cbb-bank.com under tab “About Us” and select “Investors Relations” to see 1Q 2022 Overview and COVID-19 update presentation.

SBA Loans Held for Sale:

SBA loans held for sale at March 31, 2022 were $149.7 million, compared to $158.1 million at December 31, 2021 and $76.1million at March 31, 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 March 31, 2022, down $24.1 million from $1.6 billion at December 31, 2021 and up $342.5 million from $1.2 billion at March 31, 2021. Noninterest-bearing demand deposits (“DDAs”) decreased $43.4 million, or 7.0%, to $576.4 million at March 31, 2022 from December 31, 2021 and increased $167.6. million, or 41.0%, from March 31, 2021. DDAs were 38.4% of total deposits at March 31, 2022 compared to 40.5% at December 31, 2021 and 34.3% at March 31, 2021. NOW and MMDA increased $19.2 million, or 5.9%, to $344.5 million at March 31, 2022 from December 31, 2021 and increased $74.0 million, or 27.3%, from March 31, 2021. Time deposits decreased $4.3 million, or 0.8%, to $521.4 million at March 31, 2022 from December 31, 2021 and increased $55.4 million, or 11.9%, from March 31, 2021. Time deposits at March 31, 2022 were 34.0% of total deposits compared to $525.7 million, or 33.7% of total deposits, at December 31, 2021, and $466.0 million, or 39.1% of total deposits, at March 31, 2021. The primary cause of the decreases in deposit balances during 2022 compared with the fourth quarter of 2021 was a decline in escrow-related deposits from our Specialty Deposit Group. The increase compared with the first quarter of 2021 was due to normal growth combined with the completion of the merger with OPB during the third quarter of 2021.

Borrowings:

Borrowings at March 31, 2022 consisted of $50.0 million of Federal Home Loan Bank of San Francisco (“FHLB-SF”) advances unchanged from December 31, 2021, and decreased $15.0 million compared to $65 million of FHLB-SF advances at March 31, 2021.

Capital:

Stockholders’ equity was $191.1 million at March 31, 2022, representing an increase of $5.8 million, or 3.2%, over stockholders’ equity of $185.2 million at December 31, 2021. Tangible book value per share at March 31, 2022 was $18.31 compared with $17.76 at December 31, 2021, an increase of $0.55 per share, or 3.1%.

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, 2021, as shown on Table 11 in this press release. Importantly, our Common Equity Tier 1 risked-based capital at March 31, 2022 was 14.63% at the Company level and 14.62% 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 March 31, 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 1Q 2022 Overview and COVID-19 update presentation.

FORWARD-LOOKING STATEMENTS:

This news 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 (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. 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 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.