SOURCE: Commonwealth Business Bank

July 31, 2012 07:47 ET

Commonwealth Business Bank Reports Robust Second Quarter, First Half 2012 Earnings, Achieves Record Profitability

LOS ANGELES, CA--(Marketwire - Jul 31, 2012) - Commonwealth Business Bank (OTCBB: CWBB)

Highlights:

  • Record six months net income of $3.42 million
  • Total loans increase $35 million, deposits up $50 million in first half of 2012
  • Non-accrual loans to gross loans decline to 1.92% from 4.15% at year-end 2011, while Texas Ratio improves to 10.63% from 20.29% at year-end 2011
  • Efficiency Ratio at 45.5%, despite addition of revenue generating employees in SBA and corporate lending departments, and compliance staff

Commonwealth Business Bank (OTCBB: CWBB), today reported record net income of $3.42 million for the six months ended June 30, 2012. Year-over-year results reflect strong revenue growth, accompanied by significant growth in core deposits, loans and a sharp reduction in the provision for loan losses due to improved asset quality.

For the three months ended June 30, 2012, net income was $1.73 million or $0.54 per fully diluted share compared with a net loss of $(2.58) million or $(0.83) per fully diluted share for the three months ended June 30, 2011. For the six months ended June 30, 2012, the company reported net income of $3.42 million or $1.08 per fully diluted share compared with a net loss of $(1.50) million or $(0.48) per fully diluted share for the six months ended June 30, 2011. Results for second quarter and first half of 2011 partially reflected significant one-time provisions for loan losses.

"Since taking decisive action in second quarter 2011 to aggressively address problem loans, the quality, performance and diversity of our loan portfolio have markedly improved," said Joanne Kim, President and CEO, who joined the company in April 2011. "We recognize economic conditions are far from robust, so we will continue to monitor asset quality with a keen focus on further diversifying our portfolio and mitigating risk through quality underwriting and oversight. We have focused on expanding relationships with existing lending customers and establishing broader banking relationships with new customers, which have contributed to our growth and increased profit. The bank launched new initiatives during 2011 to attract core deposits and retain low cost deposits in order to reduce its cost of funds.

"We have expanded our Small Business Administration lending, where we have particular expertise in 7(a) loans, which provide for a lower risk weighting than traditional CRE and C&I loans. Our expanded team is originating a growing amount of new business and increasing our non-interest income through gains on the sale of the government-guaranteed portions of these loans and interest income on the retained portion. For instance, we generated approximately $33 million in SBA loans in the first six months of 2012 compared with $35 million originated in all of 2011."

In second quarter 2012, net interest income after provision for loan losses was $3.77 million compared with a net interest loss of $(3.36) million in the same quarter 2011. Net interest income after provision for loan losses in the six months of 2012 was $7.53 million compared with a net interest loss after loan loss provision of $(695,000) in first half 2011. The company's net interest income before provision for loan losses grew year-over-year, primarily reflecting increased interest and fees from balance growth, a reduction in problem loans, active interest rate management and re-pricing of interest-bearing deposit accounts to the prevailing low interest rate environment. Commonwealth trimmed total interest expense by 7% to $870,000 in second quarter 2012 compared with $933,000 in second quarter 2011. Net interest income before the provision for loan losses was $4.07 million in second quarter 2012 compared with $3.49 million in second quarter 2011, while for the six months of 2012, net interest income before loan loss provision was $8.25 million, up 17% compared with $7.04 million in the six months of 2011.

"We believe the growth in total interest income and net income demonstrates the underlying strength of and growth potential for Commonwealth's operations," said Kim. "We have made judicious investments in people, such as expanding our team of loan officers and relationship managers, with the goal of generating loan and deposit growth. We also have financial incentives to reward our team's ability to build and expand banking relationships with customers."

The company's total non-interest expense was $4.95 million for the six months ended June 30, 2012 compared with $4.20 million for the six months ended June 30, 2011. This increase primarily reflected higher costs in salaries and employee benefits associated with 19% growth in number of staff. The company's efficiency ratio of 45.5% is comparable to previous periods and significantly better than most community bank peers, both locally and nationally.

Balance Sheet, Asset Quality and Capital Strength

Total assets were $461.81 million at June 30, 2012. This was a 12% increase from assets of $413.03 million at March 31, 2012, a 13% increase compared with December 31, 2011, and 16% growth from total assets of $399.34 million at June 30, 2011. Net loans after allowance for loan losses at June 30, 2012 were $357.65 million at June 30, 2012 compared with $322.58 million at December 31, 2011 and $306.48 million at June 30, 2011. Commonwealth had loans held for sale of $12.03 million at June 30, 2012. Kim also noted the bank established a new corporate lending department in May 2011, which has built a loan portfolio of approximately $33 million and achieved profitability. The company's net loans to deposits ratio, including loans held for sale, was 87.95% at June 30, 2012.

Total deposits at June 30, 2012 were $406.64 million compared with $352.12 million at June 30, 2011. Core deposits increased by $21.65 million, or 8%, to $294.35 million at June 30, 2012 from $272.70 million at June 30, 2011.

"While we have been able to obtain excellent rates on wholesale deposits in recent years, our ultimate goal is to continue building core deposits and further reduce our use of wholesale deposits needed to support lending growth," explained Kim. "Our net interest margin was 3.96% at June 30, 2012 and we have lowered our cost of funds to 0.97%, however, we continue to experience margin pressure in the continuing low interest rate environment. We will stay focused on this area as the rate environment changes in the coming years."

The company's ratio of non-accrual loans to total loans was 1.92% in second quarter, an improvement from 2.06% in first quarter 2012 and 4.15% at year-end 2011.

The bank reported a tier 1 leverage capital ratio of 12.50% and a total risk-based capital ratio of 15.44%, both of which significantly exceed minimum regulatory standards for a well-capitalized financial institution.

"During the past year, we have worked hard to achieve a balance between commercial and industrial loans, owner-occupied business loans and commercial property loans," said Kim. "Our ongoing objective is to minimize any exposure to large individual credits and expand the number of borrowers we have. During the past year we strengthened the bank's credit and risk management to prepare for our continued growth and to build a sound credit and underwriting culture at the bank. While many community banking competitors continue to shrink their balance sheets to survive, Commonwealth remains prepared to lend and support our local markets.

"We recently signed a lease for our new headquarters on Wilshire Boulevard, closer to the heart of the Korean-American business center, which will provide increased foot traffic and excellent visibility for the bank. We are excited about opportunities to enhance our interaction with the community and further build our franchise."

Commonwealth Business Bank is a traditional full-service commercial bank opened on March 9, 2005 and is headquartered in the "Miracle Mile" of the Los Angeles area of California.

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 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 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.

                         
                         
COMMONWEALTH BUSINESS BANK            
Statements of Financial Condition (Unaudited)
                         
As of June 30, 2012            
(Dollar in thousands)            
                         
                         
    June
30,
  March
31,
%   December
31,
  %   June
30,
%
    2012   2012 Change   2011   Change   2011 Change
ASSETS                                              
Cash and Cash Equivalent   $ 72,739     $ 45,313   60.5 %   $ 51,784     40.5 %   $ 64,415   12.9 %
Total Investment Securities     18,642       19,057   -2.2 %     21,951     -15.1 %     15,816   17.9 %
                                               
  Loans and lease financing, net of deferred fee and costs     368,801       346,834   6.3 %     333,505     10.6 %     317,387   16.2 %
  Less: Allowance for loan losses     (11,149 )     (10,771 ) 3.5 %     (10,929 )   2.0 %     (10,910 ) 2.2 %
Net Loans     357,652       336,063   6.4 %     322,576     10.9 %     306,477   16.7 %
                                               
FHLB & FRB stocks     3,264       3,052   6.9 %     3,052     6.9 %     3,161   3.3 %
Other assets     9,508       9,542   -0.4 %     8,725     9.0 %     9,469   0.4 %
  TOTAL ASSETS   $ 461,805     $ 413,027   11.8 %   $ 408,088     13.2 %   $ 399,338   15.6 %
                                               
LIABILITIES AND STOCKHOLDERS' EQUITY                                              
  DDA   $ 61,674     $ 49,495   24.6 %   $ 42,885     43.8 %   $ 41,604   48.2 %
  Money Market & NOW     128,860       115,906   11.2 %     111,158     15.9 %     101,798   26.6 %
  Savings     4,801       4,067   18.0 %     4,389     9.4 %     3,168   51.5 %
  Time deposits < $100K     99,017       101,624   -2.6 %     104,948     -5.7 %     126,129   -21.5 %
  Time deposits ≥ $100K     112,283       87,930   27.7 %     93,617     19.9 %     79,425   41.4 %
Total Deposits     406,635       359,022   13.3 %     356,997     13.9 %     352,124   15.5 %
                                               
Total Liabilities     409,480       362,535   12.9 %     359,336     14.0 %     354,040   15.7 %
                                               
SHAREHOLDERS' EQUITY     52,325       50,492   3.6 %     48,752     7.3 %     45,298   15.5 %
  TOTAL LIABILITIES & SHAREHOLDERS' EQUITY   $ 461,805     $ 413,027   11.8 %   $ 408,088     13.2 %   $ 399,338   15.6 %
                                               
                                               
 
 
COMMONWEALTH BUSINESS BANK              
Statements of Operations (Unaudited)        
                             
As of June 30, 2012              
(Dollar in thousands, except EPS)              
 
  Three Months Ended   Six Months Ended
                             
  June
30,
  March
31,
%   June
30,
  %   June
30,
  June
30,
  %
  2012   2012 Change   2011   Change   2012   2011   Change
  Total interest income $ 4,942   $ 5,035 -1.8 %   $ 4,422     11.8 %   $ 9,977   $ 9,081     9.9 %
  Total interest expense   870     857 1.5 %     933     -6.8 %     1,727     2,043     -15.4 %
                                                 
Net interest income before LL prov   4,072     4,178 -2.5 %     3,489     16.7 %     8,250   $ 7,038     17.2 %
                                                 
  Provision for loan losses   300     417 -28.1 %     6,847     -95.6 %     717   $ 7,733     -90.7 %
Net interest income after LL prov   3,772     3,761 0.3 %     (3,358 )   -212.3 %     7,533   $ (695 )   -1183.9 %
                                                 
  Gain on sale of loans   913     832 9.7 %     879     3.9 %     1,745   $ 1,776     -1.7 %
  Service charge and other income   521     323 61.3 %     346     50.6 %     844     726     16.3 %
Total non-interest Income   1,434     1,155 24.2 %     1,225     17.1 %     2,589   $ 2,502     3.5 %
                                                 
  Salaries and employee benefits   1,508     1,470 2.6 %     1,069     41.1 %     2,978   $ 2,254     32.1 %
  Occupancy & Equipment   288     275 4.7 %     260     10.8 %     563     499     12.9 %
  Other expenses   709     697 0       728     -2.6 %     1,406     1,449     -3.0 %
Total Non-interest Expense   2,505     2,442 2.6 %     2,057     21.8 %     4,947   $ 4,202     17.7 %
                                                 
Income (loss) before income taxes   2,701     2,474 9.2 %     (4,190 )   -164.5 %     5,175   $ (2,395 )   -316.1 %
                                                 
Total Income tax expense (benefits)   972     782 24.4 %     (1,612 )   -160.3 %     1,754   $ (898 )   -295.3 %
                                                 
Net income (loss) $ 1,729   $ 1,692 2.2 %   $ (2,578 )   -167.1 %   $ 3,422   $ (1,497 )   -328.6 %
                                                 
  EPS (BASIC) $ 0.56   $ 0.55       $ (0.83 )         $ 1.10   $ (0.48 )      
  EPS (FULLY DILUTED) $ 0.54   $ 0.50       $ (0.83 )         $ 1.08   $ (0.48 )      
                                                 
                                                 
 
 
COMMONWEALTH BUSINESS BANK          
Selected Financial Ratios          
                       
As of June 30, 2012          
(Dollar in thousands)          
                       
    Three Months Ended
                       
    June
30,
March
31,
%   December
31,
%   June
30,
  %
    2012 2012 Change   2011 Change   2011   Change
Performance Ratios:                                            
  Return on Average Assets     1.67 %   1.65 % 0.02 %     2.12 % -0.45 %     -2.62 %   4.29 %
  Return on Average Equity     13.47 %   13.67 % -0.20 %     18.10 % -4.63 %     -21.64 %   35.11 %
  Net Interest Margin     3.96 %   4.09 % -0.13 %     3.71 % 0.25 %     3.52 %   0.44 %
  Cost of Funds     0.97 %   0.96 % 0.01 %     1.01 % -0.04 %     1.09 %   -0.12 %
  Efficiency Ratio     45.50 %   45.79 % -0.29 %     50.82 % -5.32 %     43.64 %   1.86 %
                                             
Capital Ratios:                                            
  Core capital (leverage) ratio     12.50 %   12.24 % 0.26 %     11.99 % 0.51 %     11.46 %   1.04 %
  Tier 1 Risk-Based Capital Ratio     14.16 %   14.23 % -0.07 %     14.13 % 0.03 %     13.68 %   0.48 %
  Total Risk-Based Capital Ratio     15.44 %   15.50 % -0.06 %     15.41 % 0.03 %     14.96 %   0.48 %
                                             
                                             
Non-Performing Assets:                                            
  Total Non-accrual Loans   $ 7,070   $ 7,146   -1.06 %   $ 13,833   -48.89 %   $ 16,187     -56.32 %
  Total Non-Performing Loans   $ 14,362   $ 16,588   -13.42 %   $ 20,700   -30.62 %   $ 19,190     -25.16 %
                                               
  Other Real Estate Owned     -     -   -       -   -       -     -  
  Total Non-Performing Assets   $ 14,362   $ 16,588   -13.42 %   $ 20,700   -30.62 %   $ 19,190     -25.16 %
                                             
                                             
Asset quality ratios:                                            
  Total Non-Accrual Loans to Gross Loans     1.92 %   2.06 % -0.14 %     4.15 % -2.23 %     5.10 %   -3.18 %
  Non-Performing Loans to Gross Loans     3.89 %   4.78 % -0.89 %     6.21 % -2.31 %     6.05 %   -2.15 %
  Total NPA to Assets     3.11 %   4.02 % -0.91 %     5.07 % -1.96 %     4.81 %   -1.70 %
  Net Charge-offs to Average Gross Loans     -0.09 %   0.10 % -0.19 %     0.59 % -0.68 %     4.76 %   -4.85 %
  ALLL to Loans, Net of Deferred Fees/Costs     3.02 %   3.11 % -0.08 %     3.28 % -0.26 %     3.44 %   -0.42 %
  ALLL to Non-Accrual Loans     157.69 %   150.73 % 6.97 %     79.01 % 78.69 %     67.40 %   90.29 %
  ALLL to Non-Performing Loans     77.63 %   64.93 % 12.70 %     52.80 % 24.83 %     56.85 %   20.78 %
  Texas Ratio     10.63 %   11.10 % -0.47 %     20.29 % -9.66 %     28.79 %   -18.16 %