SOURCE: Community Business Bank

Community Business Bank

April 20, 2009 13:55 ET

Community Business Bank Reports 2009 First Quarter Results

Quarterly Earnings Increase Year-Over-Year; Total Loans Increase to $118 Million from $116 Million; Net Interest Income Rises 22%; Non-Interest Bearing Deposits Increase Sharply; Expense, Interest Rate Management Initiatives Have Positive Impact; $3.9 Million of TARP Capital Received in February

WEST SACRAMENTO, CA--(Marketwire - April 20, 2009) - Community Business Bank (OTCBB: CBBC) today reported earnings for the quarter ended March 31, 2009 of $69,000, or $.03 per diluted share, compared with earnings of $42,000, or $0.02 per diluted share for the comparable period one year ago. Net interest income for the quarter increased $276,000 or 22% compared with first quarter 2007, primarily reflecting reduced interest expense of $354,000 generated by the bank's initiatives to manage interest rate margins and focus on customer relationship-based pricing.

Business development efforts designed to emphasize expanded client relationships and value over competing on price supported a 46% increase in noninterest bearing direct deposit accounts, which increased $5.8 million to $18.4 million compared with $12.6 million in the first quarter of 2008. The bank's cost of funds dropped 169 basis points to 1.78% in first quarter 2009, compared with 3.47% a year ago. This was primarily due to the bank's Liability Management Strategy initiative, which focuses on relationship pricing and the usage of low-cost funding sources.

Deposits declined 3% to $84 million compared with $86 million a year ago, primarily reflecting fewer brokered certificate of deposit balances. First quarter 2009 noninterest income was $49,000, down $41,000 from 2008, mostly reflecting lower income related to gains on sale of loans. Total assets increased to $130.0 million compared with $124.7 million a year ago. The bank increased its loan loss provision to $109,000 compared with $25,000 a year ago.

"We had an encouraging first quarter, which showed modest improvement in core lending compared with the fourth quarter," said John DiMichele, president and CEO. "While our served markets continue to be under intense pressure due to fundamental economic changes and challenges, we are also seeing opportunity."

"After three years of rapid growth and significant success in building our customer base, we are able to improve our operating efficiency while investing in facilities, programs and people to support continued growth," said John DiMichele, president and CEO. "We have invested in technology and people to improve our growing franchise and demonstrate our value proposition to businesses, and we have virtually eliminated product offerings such as promotional high-yield certificates of deposits that may win customers but don't develop long-term full-service banking relationships. Our results, such as increases in noninterest bearing accounts and total loans, demonstrate that this is the right strategy for supporting long-term growth and customer loyalty."

Strategic Adjustments Position CBBC for the Future

Noninterest expense increased by $125,000 to $1.4 million at March 31, 2009 over the same time frame in 2008. A reduction in loan origination costs (which increased personnel expense) was responsible for approximately $113,000 of this variance. This reduction was due to lower loan volume as the bank slowed its balance sheet growth. The balance of this increase was in occupancy costs (approximately $49,000) associated with higher lease expense and depreciation of fixed assets at the new bank premises and higher regulatory assessments ($33,000), offset partially by lower compensation-related costs ($70,000). Community Business Bank opened a full-service branch in 2008 to serve an expanded customer base, but was able to offset some of this expense by consolidating a loan production office into this facility.

"We have achieved a size and critical mass that enables us to pursue operating efficiencies while offering our customers leading edge services and technological capabilities," noted DiMichele. "As a result, the bank has improved its efficiency ratio more than 10 points during the past 9 months. We have implemented programs such as remote deposit capture to give customers additional banking options and convenience. Our activities and investment support our goal of being customers' primary relationship bank, which benefits the bank by discouraging rate-shopping and benefits customers by giving us greater flexibility in offering attractive pricing."

The bank received $3.9 million from the U.S. Treasury under the TARP Capital Purchase Plan (CPP), further strengthening its well-capitalized position and providing additional opportunities to lend.

Continuing Management of Loans, Assets

As of March 31, 2009, total loans grew by 1.4% or $2 million to $118 million from $116 million at the end of the first quarter of 2008. Commercial real estate loans increased to 27% of total loans, up slightly from 26% one year ago. The concentration of construction loans decreased to 20%, compared with 28% one year ago. Commercial loans increased to 21% of the portfolio, up marginally from 20% at March 31, 2008. Agricultural loans were down slightly to 6% of total loans from 7% a year earlier.

"Our loan portfolio represents a good mix of loans and relative strength across the board," explained DiMichele. "Our business development officers are identifying lending and relationship opportunities as small and mid-sized business seek an alternative to the one-size-fits-all approach being taken by many of the largest institutions. Our customers provide services and products that, while not recession-proof, remain vitally important even in a difficult economy. More than a year ago, we tightened underwriting practices and made adjustments to our loan portfolio and minimized exposure to areas that have, indeed, turned out to have significant problems. We continue to face challenges with a relatively small number of our older loans and loan participations, and are managing these aggressively."

As of March 31, 2009, the allowance for loan and lease losses (ALLL) was $1.4 million, or 1.20% of gross loans, compared with $1.3 million, or 1.08% of gross loans at the end of the first quarter 2008. Management's assessment of the adequacy of the ALLL takes into consideration changes in loan volumes, concentrations and other qualitative factors including loan growth, which declined in 2008 and the first quarter of 2009.

The provision of $1.4 million recorded thus far in 2009 reflects the deteriorating economy and the resultant credit challenges faced by the Bank. This balance includes a provision of $109,000 for the first quarter of the year as well as loans charged off of $641,000. Management has been diligently addressing these loan quality issues and will continue to do so throughout 2009. The Bank's loan personnel have been actively managing the loan portfolio to further mitigate losses; a Special Assets Officer was added to staff in late 2008.

Total deposits were down $2.5 million at $84 million on March 31, 2009, compared with $86 million a year ago. Wholesale certificates of deposits decreased by $7.4 million compared with a year ago. This drop was due to a concerted effort to change the bank's deposit mix, while also slowing down balance sheet growth.

Savings and money market deposits were down $4.1 million from March 31, 2008. Much of this decline was due to depositors seeking the most conservative alternatives when the severe market volatility occurred in late summer 2008. Many of these depositors went into the Bank's CDARS deposits, which accounted for an increase of $3.0 million in the Bank's Retail CDs. These CDARs deposits are comprised of primarily core bank customers; approximately 57% of these funds are from directors, founders, or shareholders of the bank. Under regulatory guidelines, these deposits are treated as brokered deposits; Management strongly disagrees with this classification. Brokered deposits decreased 29%, or $7.4 million to $18.4 million, compared with $25.8 million in first quarter 2008.

Management has continued its Liability Management Strategy in order to drive down its cost of funds. This includes using short-term borrowing lines with the FRB and FHLB, which currently provide extremely low-cost alternatives. These borrowings are structured to mature in a variety of terms from 3 to 24 months in order to lock in current low rates while managing overall interest rate risk. Other borrowings increased by 25% or $4.5 million to $22.3 million, compared with $17.8 million in Q1 2008.

The Bank elected to participate in the transaction account guarantee program portion of the Temporary Liquidity Guarantee Program (TLGP) initiated by the FDIC in December 2008. This program provides a full guarantee of noninterest bearing deposit transaction accounts, regardless of dollar amount and will run through the end of 2009 unless it is extended.

Shareholders' equity at March 31, 2009 increased by approximately $3.1 million to $22.2 million from $19.0 million a year ago. This increase was primarily due to the receipt of $3.9 million in TARP CPP capital, partially offset by the large loan loss provision of $1.6 million recorded in 2008 and its impact on the net loss of $956,000 realized in 2008. The Bank continues to be "well-capitalized" under all regulatory categories.

Outlook

DiMichele said management anticipates it will be necessary to continue to increase its reserves for loan losses, although the rate of non-performing loans has slowed significantly compared with the past six months. He noted that the majority of the bank's loss reserves are related to a relatively few loans and participations with other banks acting as the lead participant. Despite the challenges, management believes the bank is well-positioned to capitalize on the economic recovery, and to win market share.

"Small and midsize businesses and professionals, which comprise our target market, increasingly recognize the benefits of working with a bank that is a partner and trusted advisor," explained DiMichele. "While price-shopping for the lowest rates is an appealing concept, relationship banking with personal service and leading-edge products offers a superior long-term value proposition. We anticipate continued success in capturing market share from businesses dissatisfied with their current banking relationships. We provide intensive training to our business development officers so they can effectively present our advantages to prospects.

"We are showing a profit as we continue to build our loan loss reserves to deal with future uncertainties. We will continue to actively manage through the bank's current challenges and the severe recession, while pursuing opportunities that will enhance Community Business Bank's long-term financial performance," he concluded.

About Community Business Bank

The bank's market area includes the greater Yolo, Solano, Sacramento, Placer, San Joaquin and contiguous counties. The bank focuses on and provides highly personalized commercial banking services to the businesses, professionals and non-profit organizations. The Bank's Call Reports are available for review or download directly from the FDIC website at www.fdic.gov, or through the link at the Bank's website at www.communitybizbank.com.

Forward Looking Statement

Certain matters discussed in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and factors such as: (1) the impact of changes in interest rates, (2) fluctuation in economic conditions, (3) competition in the Company's defined market, (4) the Company's ability to sustain its internal growth rate and to preserve its earning assets quality, and (5) government regulations. Although the Company believes the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct.


FINANCIAL TABLES FOLLOW

CONSOLIDATED BALANCE SHEETS (Unaudited)
- $ in thousands
                                     3/31/2009    3/31/2008
ASSETS                              ----------   ----------
Cash & Due From                     $    2,591   $    1,008
Fed Funds Sold                               -            -
Investment Securities                    2,815        5,001
Loans Net of Deferred Fees             117,790      116,175
Allowance for Loan Losses               (1,414)      (1,250)
Net Loans                              116,376      114,925
Premises and Equipments, Net             1,919        1,406
Accrued Interest Receivable                515          561
Other Real Estate Owned                  3,105            -
Other Assets                             2,670        1,847
TOTAL ASSETS                        $  129,991   $  124,748

LIABILITIES & SHAREHOLDERS' EQUITY
Non-interest Bearing Deposits           18,417       12,618
Interest Bearing Deposits               65,537       73,876
Total Deposits                          83,954       86,494
Accrued expenses/other liabilities       1,600        1,400
Other borrowings                        22,270       17,808
Total Liabilities                      107,824      105,702
Total Shareholders' Equity              22,167       19,046
Total Liabilities and Shareholders'
 Equity                             $  129,991   $  124,748




CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
- $ in thousands
                                       Three Months Ended
                                     ---------------------
                                      3/31/2009  3/31/2008
                                     ---------- ----------

Net Interest Income                  $   1,517  $    1,241
Provision for Loan Loss                    109          25
Non-Interest Income                         49          89
Non-interest Expense                     1,388       1,263
Income (Loss) Before Income Taxes           69          42
Income Taxes                                 -           -
NET INCOME (LOSS)                    $      69  $       42
Diluted EPS (LPS)                    $    0.03  $     0.02

Contact Information