SOURCE: Commonwealth Business Bank

Commonwealth Business Bank

October 29, 2012 18:49 ET

Commonwealth Business Bank Reports Strong Third Quarter Earnings as Focus on Operating Fundamentals and Loan Growth Continues in 2012

LOS ANGELES, CA--(Marketwire - Oct 29, 2012) - Commonwealth Business Bank (OTCBB: CWBB)

Highlights:

  • Record nine months net income of $5.22 million or $1.68 per diluted share and third quarter net income of $1.80 million or $0.57 per diluted share.
  • Net interest income before provision for loan losses in third quarter 2012 rose 19.4% compared with third quarter 2011, and 18% in the nine months of 2012 compared with the nine months of 2011.
  • The bank added revenue generating employees in SBA and commercial lending while maintaining a 46.1% efficiency ratio for the nine months of 2012.
  • Total assets at September 30, 2012 were $450.05 million, up 12% compared with $402.14 million at September 30, 2011, and up 10% since December 31, 2011.
  • Net loans, mainly reflecting steady growth in commercial property and retained SBA loans, was $366.38 million at September 30, 2012, up 16% compared with $316.08 million at September 30, 2011, and up 13.61% compared with December 31, 2011 totals.
  • The bank reported a reduction in Texas Ratio to 3.71% and non-accrual loans to 0.72% of gross loans at September 30, 2012.
  • Tangible common book value per share increased by $2.42 to $14.90 compared with $12.48 at September 30, 2011.

Commonwealth Business Bank (OTCBB: CWBB) today reported financial results for the quarter and nine months ended September 30, 2012 that reflected earnings growth from significant year-over-year asset quality and non-interest income improvement, loan growth and reduction in cost of funds.

For the three months ended September 30, 2012, net income was $1.80 million or $0.57 per diluted share compared with net income of $1.16 million or $0.37 per diluted share for the three months ended September 30, 2011, a 55% increase. For the nine months ended September 30, 2012, the company reported net income of $5.22 million or $1.68 per diluted share compared with a net loss of $(333,000) or $(0.11) per diluted share for the nine months ended September 30, 2011. Results for the nine months of 2011 reflected significant one-time provisions for loan losses taken in second quarter 2011.

"We are pleased our third quarter and nine month 2012 financial results reflect initiatives to generate steady and reliable income growth, achieve improved asset quality and develop a diversified and balanced loan portfolio," said Joanne Kim, President and CEO. "It remains a highly competitive environment to win quality loans. We believe our focus on building relationships with our business customers one at a time and identifying new opportunities in SBA lending have been important factors in our continuing success."

In third quarter 2012, net interest income after provision for loan losses was $4.43 million compared with $3.14 million in third quarter 2011, a 41% improvement. Total interest income at September 30, 2012 grew 11% compared with September 30, 2011, while the company lowered total interest expense 13% during the same periods. Kim explained that interest income grew as the loan balance increased and nonaccrual loans were returned to accrual status. The bank has benefited from positive impact on cost of funds from re-pricing of interest-bearing accounts to lower rates, growth of non-interest bearing deposits, and run off of high cost wholesale deposits. Despite growth in its loan balance, the bank did not have any loan loss provision expense during third quarter as historical loss factors improved. Net interest income after provision for loan losses for the nine months of 2012 was $11.96 million compared with $2.45 million for the nine months of 2011.

"Managing net interest income in this environment is a challenge for all banks, so our ability to grow third quarter 2012 net interest margin to 3.98% compared with 3.70% in third quarter 2011 was encouraging," Kim explained. She noted the bank has maintained a cost of funds to below 1%.

The company reported total non-interest income of $1.29 million for the quarter ended September 30, 2012 compared with $911,000 for the quarter ended September 30, 2011, a 41% increase. For the nine months ended September 30, 2012, total non-interest income was $3.88 million, up 14% compared with $3.41 million for the nine months ended September 30, 2011. The company recorded year-over year quarterly and nine month growth in its gain on the sale of SBA loans.

Total non-interest expense was $7.62 million for the nine months ended September 30, 2012, compared with $6.34 million for the nine months ended September 30, 2011, primarily reflecting higher salaries and employee benefits resulting from 19% growth in staffing and annual pay increase. The bank added revenue generating employees in SBA and commercial lending in line with strong loan production and also added compliance and administration staff for support. Although non-interest expense increased, the bank continues to be highly productive and its efficiency ratio was 46.8% during third quarter 2012, which remained comparable to previous quarters and compares positively with most community bank peers, both locally and nationally.

Balance Sheet, Asset Quality and Capital Strength

Total assets were $450.05 million at September 30, 2012 compared with $402.14 million September 30, 2011. Net loans after allowance for loan losses at September 30, 2012 were $366.38 million compared with $316.08 million at September 30, 2011. The increase partially reflects retention of guaranteed portion of SBA loans to build a stable pipeline of SBA inventories. A key strategic direction is to expand SBA lending, which management anticipates will maximize capital leverage while adding less credit risk than conventional commercial and real estate loans.

Commonwealth added $717,000 in provision for loan losses during the nine months of 2012 compared with $8.30 million in the nine months of 2011, and no provision for third quarter 2012. Net charge offs to average loans for the nine months of 2012 improved to 0.04% compared with 2.10% for the same period in 2011. The asset quality continues to improve and the Texas Ratio was 3.71% compared with 10.63% at June 30, 2012 and 24.65% at September 30, 2011.

Non-accrual loans were reduced by 61.4% to $2.73 million at September 30, 2012, compared with $7.1 million at June 30, 2012, and down 82% compared with $15.2 million at September 30, 2011, 30 to 89 days loan delinquencies increased by $4.7 million at September 30, 2012. This is attributable to one commercial loan which management feels is well secured. The bank reported no Other Real Estate Owned at September 30, 2012.

Total deposits at September 30, 2012 were $393.05 million compared with $406.64 million at June 30, 2012 and $353.47 million at September 30, 2011. Deposit balance declined from second quarter 2012 as high rate wholesale deposits were intentionally run off to minimize cost, and periodic balance fluctuation in large checking accounts was normalized. The company's net loans to deposits ratio, including loans held for sale, was 93.2% at September 30, 2012. Kim noted that the bank's goal is to expand its core deposit base to fund its growing lending activities.

The bank reported a tier 1 leverage capital ratio of 12.11%, a tier 1 risk-based capital ratio of 14.36%, and a total risk-based capital ratio of 15.63% in third quarter 2012, which exceed minimum regulatory standards for a well-capitalized financial institution.

Kim concluded: "We continue to focus on risk management while expanding and diversifying our loan portfolio and avoiding exposure to large individual credits. Many attractively located commercial properties in the Los Angeles area have continued to be in demand, which has facilitated our growing activity in owner-occupied business loans and commercial property loans. Strengthening the bank's balance sheet and credit quality has positioned us to grow and pursue opportunities.

"We are looking forward to moving to our new headquarters on Wilshire Boulevard at the beginning of 2013, which is closer to the center of the Korean-American business activities. It will provide increased foot traffic and excellent visibility for the bank."

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, 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.

 
 
STATEMENTS OF OPERATIONS (Unaudited)
 
As of September 30, 2012
(Dollar in thousansds)
                                 
                                 
    Three Months Ended   Nine Months Ended
    September 30,   June 30,   %   September 30,   %   September 30,   September 30,   %
    2012   2012   Change   2011   Change   2012   2011   Change
  Total interest income   $ 5,283   $ 4,942   6.9 %   $ 4,640   13.9 %   $ 15,262   $ 13,721     11.2 %
  Total interest expense     856     870   -1.6 %     933   -8.3 %     2,584     2,975     -13.1 %
                                                   
Net interest income before LL prov     4,427     4,072   8.7 %     3,707   19.4 %     12,678     10,746     18.0 %
                                                   
  Provision for loan losses     -     300   NM       564   NM       717     8,296     -91.4 %
Net interest income after LL prov     4,427     3,772   17.4 %     3,143   40.9 %     11,961     2,450     388.2 %
                                                   
  Gain on sale of loans     869     913   -4.8 %     557   56.0 %     2,615     2,333     12.1 %
  Service charges and other income     416     521   -20.2 %     354   17.5 %     1,261     1,078     17.0 %
Total non-interest Income     1,285     1,434   -10.4 %     911   41.1 %     3,876     3,411     13.6 %
                                                   
  Salaries and employee benefits     1,717     1,508   13.9 %     1,197   43.4 %     4,697     3,452     36.1 %
  Occupancy and equipment     297     288   3.1 %     265   12.1 %     860     765     12.4 %
  Other expenses     660     709   -6.9 %     673   -1.9 %     2,067     2,119     -2.5 %
Total non-interest Expense     2,674     2,505   6.7 %     2,135   25.2 %     7,624     6,336     20.3 %
                                                   
Income (loss) before income taxes     3,038     2,701   12.5 %     1,919   58.3 %     8,213     (475 )   NM  
                                                   
Total Income tax provision     1,240     972   27.6 %     756   64.0 %     2,995     (142 )   NM  
                                                   
Net income (loss)   $ 1,798   $ 1,729   4.0 %   $ 1,163   54.6 %   $ 5,218   $ (333 )   NM  
                                                   
  BASIC EPS   $ 0.58   $ 0.56         $ 0.38         $ 1.68   $ (0.11 )      
  DILUTED EPS   $ 0.57   $ 0.54         $ 0.37         $ 1.68   $ (0.11 )      
                                                   
                                                   
 
 
STATEMENTS OF FINANCIAL CONDITION (Unaudited)
 
As of September 30, 2012
(Dollar in thousansds)
                             
                             
    September 30,   June 30,   %   December 31,   %   September 30,   %
    2012   2012   Change   2011   Change   2011   Change
ASSETS                                                  
Cash and Cash Equivalent   $ 56,634     $ 72,739     -22.1 %     51,784     9.4 %   $ 55,409     2.2 %
Total Investment Securities     14,023       18,642     -24.8 %     21,951     -36.1 %     18,727     -25.1 %
                                                   
  Loans and lease financing, net of deferred fee and costs     377,424       368,801     2.3 %     333,505     13.2 %     327,495     15.2 %
  Less: Allowance for loan losses     (11,041 )     (11,149 )   -1.0 %     (10,929 )   1.0 %     (11,415 )   -3.3 %
Net Loans     366,383       357,652     2.4 %     322,576     13.6 %     316,080     15.9 %
                                                   
FHLB & FRB stocks     3,264       3,264     -       3,052     6.9 %     3,161     3.3 %
Other assets     9,743       9,508     2.5 %     8,721     11.7 %     8,760     11.2 %
TOTAL ASSETS   $ 450,047     $ 461,805     -2.5 %   $ 408,084     10.3 %   $ 402,137     11.9 %
                                                   
LIABILITIES AND STOCKHOLDERS' EQUITY                                                  
  DDA   $ 58,076     $ 61,674     -5.8 %   $ 42,885     35.4 %   $ 40,476     43.5 %
  Money market & NOW     126,633       128,860     -1.7 %     111,158     13.9 %     107,668     17.6 %
  Savings     3,928       4,801     -18.2 %     4,389     -10.5 %     3,684     6.6 %
  Time deposits < $100K     91,382       99,017     -7.7 %     104,948     -12.9 %     116,255     -21.4 %
  Time deposits ≥ $100K     113,030       112,283     0.7 %     93,617     20.7 %     85,386     32.4 %
TOTAL DEPOSITS     393,049       406,635     -3.3 %     356,997     10.1 %     353,469     11.2 %
                                                   
TOTAL LIABILITIES     395,934       409,480     -3.3 %     359,332     10.2 %     355,610     11.3 %
SHAREHOLDERS' EQUITY     54,113       52,325     3.4 %     48,752     11.0 %     46,527     16.3 %
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY   $ 450,047     $ 461,805     -2.5 %   $ 408,084     10.3 %   $ 402,137     11.9 %
                                                   
                                                   
   
   
SELECTED FINANCIAL RATIOS  
   
As of September 30, 2012  
(Dollar in thousands)  
                                           
    Three Months Ended  
    September 30,     June 30,     %     December 31,     %     September 30,     %  
    2012     2012     Change     2011     Change     2011     Change  
Performance Ratios:                                                  
  Return on Average Assets     1.61 %     1.67 %   -0.06 %     2.12 %   -0.51 %     1.15 %   0.46 %
  Return on Average Equity     13.37 %     13.47 %   -0.10 %     18.10 %   -4.73 %     9.99 %   3.38 %
  Net Interest Margin     3.98 %     3.96 %   0.02 %     3.71 %   0.27 %     3.70 %   0.28 %
  Cost of Funds     0.88 %     0.97 %   -0.09 %     1.01 %   -0.13 %     1.05 %   -0.17 %
  Efficiency Ratio     46.81 %     45.50 %   1.31 %     50.82 %   -4.01 %     46.22 %   0.59 %
                                                   
Capital Ratios:                                                  
  Core Capital (Leverage) Ratio     12.11 %     12.50 %   -0.39 %     11.99 %   0.12 %     11.51 %   0.60 %
  Tier 1 Risk-Based Capital Ratio     14.36 %     14.16 %   0.20 %     14.13 %   0.23 %     13.65 %   0.71 %
  Total Risk-Based Capital Ratio     15.63 %     15.44 %   0.19 %     15.41 %   0.22 %     14.93 %   0.70 %
                                                   
Delinquent Loans, 30-89 Days Past-Due:   $ 4,843     $ 95     NM     $ 2,286     NM     $ 904     NM  
                                                   
Non-Performing Assets:                                                  
  Total Non-Accrual Loans   $ 2,730     $ 7,070     -61.38 %   $ 13,104     -79.16 %   $ 15,169     -82.00 %
  90 Days or More Past-Due and Still Accruing     -       -             729             -        
  Accrual TDR Loans     11,108       7,292     52.33 %     6,867     61.76 %     5,871     89.20 %
  Total Non-Performing Loans     13,838       14,362     -3.65 %     20,700     -33.15 %     21,040     -34.23 %
                                                   
  Other Real Estate Owned     -       -     -       -     -       -     -  
  Total Non-Performing Assets   $ 13,838     $ 14,362     -3.65 %   $ 20,700     -33.15 %   $ 21,040     -34.23 %
                                                   
                                                   
Asset Quality Ratios:                                                  
  Total Non-Accrual Loans to Gross Loans     0.72 %     1.92 %   -1.19 %     3.93 %   -3.21 %     4.63 %   -3.91 %
  Non-Performing Loans to Gross Loans     3.67 %     3.89 %   -0.23 %     6.21 %   -2.54 %     6.42 %   -2.76 %
  Total NPA to Assets     3.07 %     3.11 %   -0.04 %     5.07 %   -2.00 %     5.23 %   -2.16 %
  Net Charge-offs to Average Gross Loans     0.12 %     -0.09 %   0.21 %     0.59 %   -0.47 %     0.08 %   0.04 %
  ALLL to Loans, Net of Deferred Fees/Costs     2.93 %     3.02 %   -0.08 %     3.28 %   -0.35 %     3.49 %   -0.56 %
  ALLL to Non-Accrual Loans     404.38 %     157.69 %   NM       83.40 %   NM       75.25 %   NM  
  ALLL to Non-Performing Loans     79.79 %     77.63 %   2.16 %     52.80 %   26.99 %     54.25 %   25.54 %
  Texas Ratio     3.71 %     10.63 %   -6.91 %     20.29 %   -16.58 %     24.65 %   -20.94 %