SOURCE: Commonwealth Business Bank

Commonwealth Business Bank

January 31, 2014 08:24 ET

Commonwealth Business Bank Reports Record Earnings, 22% Loan Growth in 2013, and Announces a 10% Stock Dividend

LOS ANGELES, CA--(Marketwired - Jan 31, 2014) - Commonwealth Business Bank ("CBB") (OTCQB: CWBB) announced today record net income available to common shareholders for the full year 2013 totaling $9.3 million, or $2.67 per diluted share, compared to $7.5 million, or $2.32 per diluted share, for the full year 2012. For the fourth quarter 2013, net income available to common shareholders was $2.3 million, or $0.62 per diluted share, compared to $2.4 million, or $0.65 per diluted share, for the third quarter 2013, and $2.2 million, or $0.69 per diluted share, for the fourth quarter 2012.

"The record earnings achieved in 2013 reflect our solid performance," said Joanne Kim, President and CEO. "We believe our continuing focus on identifying new lending and deposit opportunities and providing efficient and personal services to customers have contributed to our strong performance. We will continue to grow the Bank by exploring branch and expansion opportunities in strategic key markets, assemble a team of seasoned commercial bankers, and support our activities with efficient operations and prudent risk management."

STOCK DIVIDEND:
In light of the Bank's strong performance and earnings growth in 2012 and 2013, and in recognition of, and appreciation for, the long-time support of our shareholders, CBB's Board of Directors has declared a one-time 10% stock dividend payable in whole shares to the Bank's shareholders of record as of February 14, 2014, with cash being paid for any fractional shares. Future dividends on common stock, if any, rests within the discretion of the Board of Directors and will depend, among other things, upon earnings, capital requirements and the financial condition of the Bank, as well as other relevant factors. The Bank can provide no assurance that future dividends will be paid on common stock.

FINANCIAL HIGHLIGHTS:

  • A 6.3% increase in year-over-year fourth quarter net income available to common shareholders to $2.3 million, or $0.62 per diluted share.
  • A 29.7% increase in year-over-year net income available to common shareholders to $9.3 million, or $2.67 per diluted share.
  • Fourth quarter pre-tax pre-provision income grew to $3.7 million, compared to $3.2 million for the third quarter 2013, and $2.8 million for the fourth quarter 2012.
  • Fourth quarter net interest margin expanded to 3.95% from 3.93%.
  • Fourth quarter efficiency ratio improved to 51.1%, compared to 56.7% for the third quarter 2013, and 52.4% for the fourth quarter 2012. 
  • Return on average assets in 2013 increased to 1.85% compared to 1.73% in 2012; and return on average equity increased to 15.41% in 2013 compared to 14.31% in 2012.
  • Total net loans increased 6.2% to $460.9 million during the fourth quarter of 2013 and 22.3% year-over-year.
  • Total deposits increased 12.3% to $503.4 million during the fourth quarter of 2013 and 19.0% year-over-year.
  • All outstanding shares of TARP preferred stock were redeemed at a 4.9% discount, financed by retained earnings and from the proceeds of a $4.0 million private offering of common stock.

RESULTS OF OPERATIONS
Fourth quarter pre-tax pre-provision income was $3.7 million, compared to $3.2 million for the third quarter 2013, and $2.8 million for the fourth quarter 2012. Net interest income before provision for loan losses for the fourth quarter 2013 increased 4.6% to $5.1 million from $4.9 million for the third quarter 2013, and increased 10.9% from $4.6 million for the fourth quarter 2012. The increase was attributable to increase in yields on interest-earning assets, primarily from growth of loans. 

Overall cost of funds were 0.81%, 0.78% and 0.85%, respectively, for the fourth and third quarter of 2013, and the fourth quarter 2012; and 0.81% and 0.91%, respectively, for the twelve months ended 2013 and 2012. The ten basis points decline in cost of funds year-over-year was a result of the growth in demand deposits, coupled with repricing of interest-bearing liabilities to lower rates. The three basis points increase in between quarters was mainly due to the decrease in average balances of Demand Deposits. CBB also increased wholesale certificate of deposits with three to five years maturities to partially hedge for fixed rate loan originations. 

"Our goal is to expand core deposits to fund our growing lending activities, and keep building sustained client relationships. To complement an increase in cost of funds associated with the growth of interest- bearing deposits, we will focus on building a larger non-interest bearing demand deposits base," noted Kim.

For the fourth quarter 2013, interest income increased by 5.2%, compared to the third quarter 2013, and by 10.6% compared to the fourth quarter 2012. Interest expense also increased by 8.5% and 8.9%, compared to the third and fourth quarter of 2013 and 2012, respectively. 

CBB had no provision for loan losses during 2013 and 2012. Despite the growth in loan balances during the four quarters of 2013, CBB has not increased its allowance for loan losses as the effect of a reduction in problem loans offset new loan loss provision requirements for new loan growth.

Non-interest income declined 9.2% to $2.3 million for the fourth quarter 2013, compared to $2.6 million for the third quarter 2013, due primarily to a reduction in gains on sale of SBA loans. During the fourth quarter 2013, $24.9 million in SBA loans were sold, compared to $30.2 million in third quarter 2013 and $11.1 million in the fourth quarter 2012. A smaller volume of SBA loans sold during the quarter and a lower market premiums contributed to a decline in gains on sale. For 2013, CBB sold a total of $95.1 million in SBA loans, compared to $38.5 million in 2012.

Other income including service charges increased 42.3% to $430,000 during the fourth quarter 2013, as compared to $302,000 for the third quarter 2013, and increased 12.7% from $382,000 for the fourth quarter 2012. Non-interest income increased 91.1%, compared to $1.2 million for the same period of 2012, primarily from an increase in gains on sale of SBA loans; but it decreased 9.2%, compared to the prior quarter in 2013, primarily due to a lower gains on sale of SBA loans. For the year ended December 31, 2013, non-interest income increased 88% to $9.6 million, compared to $5.1 million for 2012.

During the fourth quarter 2013, non-interest expense decreased 10.0% to $3.8 million, from $4.3 million for the third quarter 2013, and increased 24.6% from $3.1 million for the fourth quarter 2012. The fluctuation between quarters was due primarily to a $466,000 one-time settlement of occupancy expenses related to the early termination of lease contracts in the third quarter 2013. Salaries and employee benefits expense increased 38.9% and 43.2% for the three and twelve months ended December 31, 2013, respectively, from comparable periods in prior year, due primarily to new hires in the SBA and commercial business development areas, and higher stock option compensation cost and commission expenses. Non-interest expense increased 38.2% year-over-year primarily from addition of personnel, accelerated expenses associated with early terminations of the headquarters and the Wilshire Branch lease contracts, and other increases related to the expansion of operations. While operating costs increased, CBB's efficiency ratio continues to compare favorably to its peers. CBB's efficiency ratio improved to 51.1% for the fourth quarter 2013, as compared to 56.7% for the third quarter of 2013 and 52.4% for the same period in prior year.

BALANCE SHEET AND CAPITAL
Total gross loans grew 6.0% to $469.8 million at December 31, 2013, compared to $443.0 million at September 30, 2013. The increase in total loans quarter-over-quarter was due mainly to the growth in SBA and commercial real estate loans and reflects, in part, the retention of SBA loans held-for-sale. It grew 21.2% from $387.5 million at December 31, 2012.

CBB produced a total of $64.3 million and $281.6 million, respectively, in new loans during fourth quarter and full year of 2013. SBA loans represented 51.9% of new loans, while commercial real estate and term loans and lines of credit represented 31.8% and 16.3%, respectively, of the total loan production. CBB ranked as the 17th largest SBA lender in the nation in terms of dollars approved during the twelve months period from October 2012 to September 2013, according to the National Association of Government Guarantee Lenders report. 

Total Fed funds sold and the Federal Reserve Bank excess reserve balance increased 81.5% to $62.0 million during the fourth quarter 2013, compared to $34.1 million at the third quarter-end primarily as a result of deposit volatility.

Total deposits at December 31, 2013 increased 12.3% to $503.4 million, compared to $448.2 million at September 30, 2013, and increased 19.0%, compared to $423.0 million at December 31, 2012. Demand deposits, NOW and Money Market, and Savings accounts increased 7.8%, 4.0%, 18.1%, respectively, at December 31, 2013 from September 30, 2013; and 35.7%, 16.8%, 45.4%, respectively, from December 31, 2012. The spike in demand deposits and money market account balances at the year-end was due to the transfer of loan proceeds to the borrower's deposit accounts and the month-end fluctuations of certain deposit accounts. The increase in certificate of deposit was due to normal growth augmented by ongoing certificate of deposits campaign. 

The Bank continues to be well capitalized under the regulatory standards. As of December 31, 2013, Tier 1 leverage ratio, Tier 1 risk-based capital ratio, and total risk-based capital ratio were 12.07%, 13.55%, 14.81%, respectively, as compared to 12.18%, 14.47%, and 15.74%, respectively, as of December 31, 2012.

ASSET QUALITY

Non-accrual loans totaled $5.0 million, or 1.06% of total loans, at December 31, 2013, compared with $5.2 million, or 1.18% of total loans, at September 30, 2013 and $3.3 million, or 0.85% of total loans, at December 31, 2012. There were no new non-accrual loans during the fourth quarter 2013. The legal dispute between the principals of the $2.6 million loans placed on non-accrual during the third quarter of 2013 will likely be resolved in early 2014. The Bank expects to work out an agreement with the prevailing principals without any additional potential losses. Loan delinquencies continued a declining trend to $83,000, or 0.02% of total loans, at December 31, 2013 compared with $183,000 or 0.04% at September 30, 2013 and $215,000 or 0.06% at December 31, 2012.

Accruing troubled debt restructuring ("TDR") loans totaled $10.4 million at December 31, 2013, up slightly from $10.3 million at September 30, 2013, and down from $11.0 million at December 31, 2012. 

The asset quality remained stable and non-performing assets (loans past due 90 days or more and non-accrual, accruing TDR loans and OREO) were $15.3 million, or 2.69% of total assets, as of December 31, 2013, compared to $15.5 million, or 3.02% of total assets as of September 30, 2013, and $14.3 million, or 2.97% of total assets as of December 31, 2012.

Classified assets were $12.5 million, or 2.19% of total assets, as of December 31, 2013, compared to $14.5 million, or 2.83% of total assets at September 30, 2013, and $17.5 million, or 3.63% of total assets as of December 31, 2012. The decrease is mainly attributable to a $1.8 million commercial property loan that was paid off in December 2013. 

There was no new loan charge-offs during the fourth quarter, and the charge-offs (recoveries) were ($56,000) for the fourth quarter of 2013, as compared to $1.1 million for the third quarter of 2013, and $312,000 for the fourth quarter of 2012. The allowance for loan losses as a percentage of total loans was 1.9%, 2.0%, and 2.8%, as of December 31, 2013, September 30, 2012, and December 31, 2012, respectively.

Kim concluded: "Our strategy to increase productivity and generate growth through our Los Angeles headquarters' operations as well as loan production offices in other markets, has driven consistent earnings growth and increased shareholder value. We continue to focus on expanding banking relationships, particularly to support core deposit growth, and to examine opportunities to replicate our success in additional markets. We feel the generally improving economic climate will support the positive trends CBB has achieved."

ABOUT COMMONWEALTH BUSINESS BANK ("CBB BANK")
Commonwealth Business Bank is a full-service commercial bank specializing in small- to medium-sized businesses and headquartered in the business districts of Korea town, Los Angeles, California.

FORWARD-LOOKING STATEMENTS
This press release contains certain forward-looking information about Commonwealth Business Bank 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 Commonwealth Business Bank. Commonwealth Business Bank 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 reduces 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 Commonwealth Business Bank 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 Commonwealth Business Bank to retain customers, demographic changes, demand for the products or services of Commonwealth Business Bank 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, Commonwealth Business Bank's results could differ materially from those expressed in, or implied or projected by such forward-looking statements. Commonwealth Business Bank assumes no obligation to update such forward-looking statements.

   
BALANCE SHEET (Unaudited)  
(Dollars in Thousands)  
                               
                               
    December 31,     September 30,     %     December 31,     %  
    2013     2013     Change     2012     Change  
ASSETS                                    
  Cash and Cash Equivalent   $ 22,103     $ 18,452     19.8 %   $ 7,990     176.6 %
  Due from Federal Reserve Bank     61,945       34,130     81.5 %     70,789     -12.5 %
  Investment Securities     7,556       7,729     -2.2 %     11,542     -34.5 %
  Loans, net     469,796       443,013     6.0 %     387,467     21.2 %
  Less: Allowance for loan losses     (8,925 )     (8,869 )   0.6 %     (10,729 )   -16.8 %
LOANS,NET     460,871       434,144     6.2 %     376,738     22.3 %
                                     
  FHLB & FRB stock     3,649       3,649     0.0 %     3,288     11.0 %
  Other assets     14,031       14,090     -0.4 %     11,506     21.9 %
TOTAL ASSETS   $ 570,155     $ 512,194     11.3 %   $ 481,853     18.3 %
                                     
LIABILITIES AND STOCKHOLDERS' EQUITY                                    
  DDA   $ 92,723     $ 86,018     7.8 %   $ 68,330     35.7 %
  Money market & NOW     154,167       148,172     4.0 %     131,973     16.8 %
  Savings     7,647       6,475     18.1 %     5,260     45.4 %
  Time deposits < $100K     75,718       63,330     19.6 %     80,654     -6.1 %
  Time deposits > $100K     173,171       144,229     20.1 %     136,777     26.6 %
TOTAL DEPOSITS     503,426       448,224     12.3 %     422,994     19.0 %
                                     
TOTAL LIABILITIES     506,544       451,364     12.2 %     425,452     19.1 %
SHAREHOLDERS' EQUITY     63,611       60,830     4.6 %     56,401     12.8 %
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY   $ 570,155     $ 512,194     11.3 %   $ 481,853     18.3 %
                                     
                                     
   
INCOME STATEMENT (Unaudited)  
(Dollars in Thousands, Except Per Share Information)  
 
                                                 
    Three Months Ended     Twelve Months Ended  
                                                           
NET INTEREST INCOME     31-Dec
2013
    30-Sep
2013
    %
Change
      31-Dec
2012
    %
Change
      31-Dec
2013
        31-Dec
2012
    %
Change
 
  Interest income   $ 6,077   $ 5,777     5.2 %   $ 5,496     10.6 %   $ 22,566       $ 20,758     8.7 %
  Interest expense     939     865     8.5 %     863     8.9 %     3,551         3,447     3.0 %
    Total net interest income     5,138     4,912     4.6 %     4,633     10.9 %     19,015         17,311     9.8 %
  Provision for loan losses    
-
   
-
   
-
     
-
   
-
     
(1,464
)      
717
   
NM
 
    Net interest income after provisionfor loan losses    
5,138
   
4,912
   
4.6
%    
4,633
   
10.9
%    
20,479
       
16,594
   
23.4
%
                                                           
NON-INTEREST INCOME                                                          
  Gain on sale of loans     1,918     2,283     -16.0 %     847     126.4 %     8,013         3,462     NM  
  Service charges and other income     430     302     42.3 %     382     12.7 %     1,575         1,641     -4.0 %
    Total non-interest income     2,348     2,585     -9.2 %     1,229     91.1 %     9,587         5,103     87.9 %
                                                           
NON-INTEREST EXPENSE                                                          
  Salaries and employee benefits     2,685     2,567     4.6 %     1,933     38.9 %     9,492         6,630     43.2 %
  Occupancy and equipment     374     886     -57.8 %     327     14.5 %     2,157         1,186     81.8 %
  Other expenses     766     797     -3.9 %     809     -5.4 %     3,127         2,873     8.8 %
    Total non-interest expense     3,825     4,250     -10.0 %     3,069     24.6 %     14,777         10,690     38.2 %
INCOME BEFORE PROVISION FOR INCOME TAXES    
3,661
   
3,247
   
12.7
%    
2,793
   
31.1
%    
15,289
       
11,007
   
38.9
%
                                                           
  Provision for income tax expense     1,357     1,134     19.7 %     494     174.6 %     6,025         3,489     72.7 %
                                                           
NET INCOME   $ 2,304   $ 2,113     9.0 %   $ 2,299     0.2 %   $ 9,264       $ 7,518     23.2 %
                                                           
  Preferred Stock Adjustments                                                          
  Preferred stock cash dividend     -     (78 )   -100.0 %     (105 )   -100.0 %     (183 )       (210 )   -12.8 %
  Accretion of preferred stock discount     -     (72 )   -100.0 %     (26 )   -100.0 %     (128 )       (97 )   32.1 %
  Redemption of preferred stock     -     396     -100.0 %     -             396         -        
    Total preferred stock adjustments     -     246     -100.0 %     (131 )   -100.0 %     85         (307 )   -127.7 %
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS                                                          
  $ 2,304   $ 2,359     -2.4 %   $ 2,168     6.3 %   $ 9,349       $ 7,211     29.7 %
                                                           
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING:                                                          
  BASIC     3,488,122     3,398,507     2.6 %     3,098,967     12.6 %     3,278,473         3,098,967     5.8 %
  DILUTED     3,697,296     3,628,551     1.9 %     3,159,081     17.0 %     3,503,083         3,110,424     12.6 %
                                                           
  BASIC EPS   $ 0.66   $ 0.69     -4.9 %   $ 0.70     -5.6 %   $ 2.85       $ 2.33     22.6 %
  DILUTED EPS   $ 0.62   $ 0.65     -4.2 %   $ 0.69     -9.2 %   $ 2.67       $ 2.32     15.1 %
                                                             
                                                             
   
SELECTED FINANCIAL RATIOS  
(Dollars in Thousands)  
 
                                                 
    Three Months Ended     Twelve Months Ended  
    4th Qtr     3rd Qtr     %     4th Qtr     %     31-Dec     31-Dec     %  
    2013     2013     Change     2012     Change     2013     2012     Change  
Performance Ratios:                                                          
  Return on Average Assets     1.74 %     1.66 %   0.07 %     1.98 %   -0.24 %     1.85 %     1.73 %   0.12 %
  Return on Average Equity     14.80 %     14.00 %   0.81 %     16.58 %   -1.78 %     15.41 %     14.31 %   1.10 %
  Net Interest Margin     3.95 %     3.93 %   0.02 %     4.03 %   -0.08 %     3.86 %     4.02 %   -0.16 %
  Cost of Funds     0.81 %     0.78 %   0.03 %     0.85 %   -0.04 %     0.81 %     0.91 %   -0.10 %
  Efficiency Ratio     51.09 %     56.69 %   -5.60 %     52.36 %   -1.27 %     51.66 %     47.69 %   3.97 %
  Liquidity ratio     21.38 %     15.89 %   5.48 %     23.14 %   -1.76 %     21.38 %     23.14 %   -1.77 %
                                                           
Capital Ratios:                                                          
  Core Capital (Leverage) Ratio     12.07 %     12.06 %   0.01 %     12.18 %   -0.11 %     12.07 %     12.18 %   -0.11 %
  Tier 1 Risk-Based Capital Ratio     13.55 %     13.63 %   -0.08 %     14.47 %   -0.92 %     13.55 %     14.47 %   -0.92 %
  Total Risk-Based Capital Ratio     14.81 %     14.89 %   -0.08 %     15.74 %   -0.93 %     14.81 %     15.74 %   -0.93 %
  Tangible common equity per share   $ 18.18     $ 17.46     4.12 %   $ 15.63     16.31 %   $ 18.18     $ 15.63     16.31 %
  Tangible common equity/Total Assets     11.16 %     11.88 %   -0.72 %     10.05 %   1.11 %     11.16 %     10.05 %   1.11 %
                                                           
Selected Quarterly Information:                                                          
                                                           
  Average Balances:                                                          
  Loans, Net of Deferred Fees/Costs   $ 456,563     $ 432,388     5.59 %   $ 392,469     16.33 %    $ 419,221     $ 362,728     15.57 %
  Total Securities     7,663       9,595     -20.14 %     12,821     -40.23 %     9,231       17,299     -46.64 %
  Total Deposits     461,367       440,015     4.85 %     403,281     14.40 %     437,212       378,465     15.52 %
  Stockholder's Equity     61,745       59,887     3.10 %     55,143     11.97 %     60,104       52,523     14.43 %
  Interest Earning Assets     516,147       496,050     4.05 %     457,185     12.90 %     493,059       430,977     14.40 %
  Interest Bearing Liabilities     383,092       355,202     7.85 %     343,579     11.50 %     361,148       325,858     10.83 %
  Total Assets     526,830       504,276     4.47 %     461,543     14.15 %     500,730       433,887     15.41 %