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CBB Bancorp, Inc. Reports 2018 Second Quarter ResultsCBB Bancorp, Inc. ("CBB" or the "Company") (OTCQB: CBBI), the parent company of Commonwealth Business Bank (the "Bank"), today announced net income of $4.5 million, or $0.47 per diluted share, for the second quarter of 2018, compared to $4.2 million, or $0.44 per diluted share, for the prior quarter and $3.8 million, or $0.40 per diluted share, for the second quarter of 2017. For the six months ended June 30, 2018, net income increased 17.7% to $8.6 million, or $0.91 per diluted share, compared to $7.3 million, or $0.78 per diluted share, for the same period in 2017. "Our new loan originations continued to be strong in the second quarter, both in commercial and SBA lending. Our net interest margin increased 30 basis points, reflecting the impact of the rise in short term interest rates and our asset-sensitive balance sheet. Going forward, our focus will be in managing funding costs and operating expenses to further maximize earnings," said Joanne Kim, President and CEO. RESULTS OF OPERATIONS
Net Interest Income and Net Interest Margin Net interest income was $11.6 million for the second quarter of 2018, an increase of $1.2 million, or 12.0%, compared to $10.4 million for the prior quarter, and an increase of $1.9 million, or 19.9%, compared to $9.7 million for the same quarter last year. The quarter-over-quarter increase was primarily due to a $1.8 million increase in interest earned on loans, including $535,000 earned on non-accrual loans, which was partially offset by a $579,000 increase in interest paid on deposits. The quarter-over-quarter increase in interest earned on loans was primarily due to a $49.5 million increase in the average balance of loans, including loans held-for-sale, to $864.1 million from $814.6 million for the prior quarter, combined with 43 basis points increase in the yield on loans to 6.30% from 5.87% in the prior quarter. The year-over-year quarterly increase was primarily due to a $2.7 million increase in interest earned on loans, a $353,000 increase in interest earned on investment securities and a $147,000 increase in interest earned on deposits at the FRB and other banks, which were offset by a $1.2 million increase in interest paid on deposits. The year-over-year quarterly increase in interest earned on loans was primarily due to a $72.8 million increase in the average balance of loans, combined with 77 basis points increase in the yield on loans from 5.53% in the same quarter last year. Net interest income was $22.0 million for the six months ended June 30, 2018, an increase of $3.5 million, or 18.8%, compared to $18.5 million for the same period last year. The annual year-over-year increase was primarily attributable to a $4.7 million increase in interest earned on loans, a $669,000 increase in interest earned on investment securities, and a $334,000 increase in interest earned on deposits at the FRB and the other banks, which were partially offset by a $2.1 million increase in interest paid on deposits. The annual year-over-year increase in interest earned on loans was primarily due to a $71.1 million increase in the average balance of loans combined with 66 basis points increase in the yield on loans to 6.09% from 5.43%. The reported yield on our loan portfolio is impacted by a number of factors, including changes in the average contractual interest rate earned on the portfolio and the amount of discount accretion on the retained portion of SBA loans. The following table reconciles the contractual yield on our loan portfolio to the reported yield for the periods indicated.
The net interest margin was 4.45% for the current quarter, an increase of 30 basis points, from 4.15% in the prior quarter, and an increase of 21 basis points from 4.24% in the year ago quarter. The quarter-over-quarter increase was primarily due to 46 basis points increase in the yield on interest-earning assets to 5.59% from 5.13% in the prior quarter, which was partially offset by 17 basis points increase in our cost of funds to 1.26% from 1.09% in the prior quarter. The year-over-year quarterly increase was primarily due to 58 basis points increase in the yield on interest-earning assets from 5.01% in the year ago quarter, which was partially offset by 41 basis points increase in our cost of funds from 0.85% in the same period last year. The quarter-over-quarter increase in our cost of funds was primarily due to 18 basis points increase in our cost of deposits to 1.25% in the current quarter from 1.07% in the prior quarter and the year-over-year quarterly increase in our cost of funds was primarily due to 41 basis points increase in our cost of deposits from 0.84% in the same quarter last year. The increase in the contractual yield on our loans and cost of funds in the current quarter, compared to the year ago quarter was primarily due to increases in short-term market interest rates, with the overnight federal funds rate increasing 75 basis points during the twelve-month period. For the six months ended June 30, 2018, the net interest margin was 4.30%, an increase of 11 basis points, compared to 4.19% for the same period last year. The annual year-over-year increase was primarily driven by 44 basis points increase in the yield on interest-earning assets to 5.37% from 4.93% for the same period last year, which was partially offset by 36 basis points increase in our cost of funds to 1.18% from 0.82% for the same period last year. The annual year-over-year increase in CBB's yield on interest-earning assets was primarily due to 66 basis points increase in the yield on loans to 6.09% from 5.43%, while the annual year-over-year increase in our cost of funds was primarily attributable to 36 basis points increase in our cost of deposits to 1.16% from 0.80% for the same period last year. Provision for Loan Losses CBB recorded an $800,000 provision for loan losses in the current quarter, compared to no provision for loan losses in the prior quarter and a $350,000 provision for loan losses in the year ago quarter. The quarter-over-quarter increase in provision for loan losses was primarily due to a $73.7 million, or 8.9% increase in loans receivable, including loans held-for-sale. For the six months ended June 30, 2018, CBB recorded an $800,000 provision for loan losses, an increase of $450,000, compared to $350,000 in the same period in 2017. Noninterest Income For the current quarter, noninterest income totaled $3.5 million, an increase of $224,000, or 6.8%, and a decrease of $272,000, or 7.2%, from $3.3 million and $3.8 million in the prior and year ago quarters, respectively. The quarter-over-quarter increase was primarily driven by an $81,000 increase in SBA loan servicing income and an $89,000 increase in other income. The year-over-year quarterly decrease was primarily due to a $214,000 decrease in gains on sales of loans, which was primarily driven by a 68 basis point decrease in the average premium we received on sales of SBA loans combined with a $1.3 million decrease in the amount of SBA loans we sold. For the six months ended June 30, 2018, noninterest income decreased $86,000, or 1.2% to $6.8 million from $6.9 million in the same period last year. The decrease was primarily due to a $177,000 decrease in SBA loan servicing fee income, a $130,000 decrease in other income, and a $103,000 decrease in gains on sales of other real estate owned ("OREO"), which were partially offset by a $244,000 increase in gains on sales of loans. The annual year-over-year increase in gains on sales of loans was primarily driven by an increase in the amount of SBA loans we sold, which was offset by a 16 basis point decrease in the average premium we received on sales of SBA loans. As the following table indicates, during the second quarter of 2018, the Company sold $35.0 million of SBA loans, compared to $34.9 million in the preceding quarter and $36.3 million in the same quarter last year. For the six months ended June 30, 2018, the Company sold $69.9 million of SBA loans, compared to $64.1 million in the same period last year. The quarterly average premium on sales of SBA loans for the current quarter was 9.52%, compared to 9.71% in the prior quarter and 10.20% in the year ago quarter. The average premium on sales of SBA loans for the six months ended June 30, 2018 was 9.62%, compared to 9.78% in the same period last year. The amount of SBA loans we sell varies based on the volume of loans we originate, our liquidity needs, and market conditions.
Noninterest Expense Noninterest expense for the second quarter of 2018 was $8.0 million, an increase of $296,000, or 3.9%, from $7.7 million in the prior quarter and an increase of $1.2 million, or 17.9%, from $6.7 million in the year ago quarter. The quarter-over-quarter increase was primarily due to a $185,000 increase in salaries and employee benefits and a $195,000 increase in other expense, which were partially offset by a $58,000 decrease in marketing expense and a $143,000 decrease in professional expense. The quarter-over-quarter increase in salaries and employee benefits was primarily driven by an annual merit increase and an 8 person increase in the average number of full time equivalent employees ("FTEs") to 172 during the current quarter from 164 during the prior quarter. The quarter-over-quarter increase in other expense was attributable to a $236,000 business franchise tax payment to the State of Delaware for CBB Bancorp, Inc., which was incorporated in 2017. The year-over-year quarterly increase in noninterest expense was primarily due to a $648,000 increase in salaries and employee benefits, a $171,000 increase in occupancy and equipment related expense, a $100,000 increase in professional expense, and a $251,000 increase in other expense. The year-over-year quarterly increase in salaries and employee benefits was primarily due to a 16 person increase in the average number of FTEs from 156 during the year ago quarter combined with increases in annual employee merit and employee incentive compensation. The increase in occupancy and equipment related expenses were primarily due to the increased lease and depreciation expense resulting from the opening of three new branches during the later part of the prior year. The increase in professional expense was attributable to an increase in external and internal audit fees related primarily to FDICIA reporting requirements. For the six months ended June 30, 2018, noninterest expense was $15.6 million, an increase of $2.9 million, or 23.2%, from $12.7 million for the same period last year. The increase was primarily due to a $1.4 million increase in salaries and employee benefits, a $439,000 increase in occupancy and equipment related expense, a $423,000 increase in professional expense, and a $373,000 increase in other expense. The increase in salaries and employee benefits was primarily due to an 18 person increase in the average number of FTEs to 168 in the six months ended June 30, 2018 from 150 in the same period in 2017, combined with increases in annual employee merit and employee incentive compensation. The increases in occupancy and equipment related expense, professional expense, and other expense were primarily driven by the same reasons aforementioned.
Income Tax Expense Income tax expense was $1.9 million for the quarter, or an effective tax rate of 29.67%, compared to $1.8 million, or an effective tax rate of 30.70%, for the prior quarter and $2.6 million, or an effective tax rate of 40.78%, for the year ago quarter. For the six months ended June 30, 2018, the provision for income taxes was $3.7 million, or an effective tax rate of 30.17%, compared to $5.0 million, or an effective tax rate of 40.65%, in the same period last year. The year-over-year quarterly and the annual year-over-year decreases in income tax expense, and the related effective tax rate, were due to the reduced federal corporate tax rate to 21% from 35% effective January 1, 2018. Pre-Tax, Pre-Provision Income For the second quarter of 2018, the Company's pre-tax, pre-provision ("PTPP") income was $7.2 million, an increase of $1.2 million, or 19.6%, from $6.0 million for the prior quarter and an increase of $447,000, or 6.7%, from $6.7 million for the same quarter last year. The quarter-over-quarter increase in PTPP income was primarily due to increases in net interest income and noninterest income, which were offset by an increase in noninterest expense. The year-over-year quarterly increase in PTPP income was primarily driven by an increase in net interest income, which was partially offset by a decrease in noninterest income and an increase in noninterest expense. Annualized PTPP income to average assets increased to 2.65% for the current quarter, compared to 2.32% for the prior quarter, but decreased compared to 2.83% for the year ago quarter. The year-over-year quarterly decrease in PTPP income to average assets was primarily due to a larger proportional increase in average assets than PTPP income. For the six months ended June 30, 2018, PTPP income was $13.2 million, an increase of $459,000, or 3.6%, from $12.7 million for the same period last year. PTPP income to average assets for the six months ended June 30, 2018 decreased 27 basis points to 2.49% from 2.76% for the same period last year.
BALANCE SHEET At June 30, 2018, the Company had total assets of $1.14 billion, an increase of $67.0 million, or 6.3%, from $1.07 billion at March 31, 2018, and an increase of $143.4 million, or 14.4%, from $994.0 million at June 30, 2017. Earning assets totaled $1.10 billion at June 30, 2018, an increase of $65.3 million, or 6.3%, from $1.04 billion at March 31, 2018, and an increase of $142.3 million, or 14.8%, from $960.2 million at June 30, 2017.
Interest-earning Deposits at the FRB and Other Banks Interest-earning deposits at the FRB and other banks totaled $77.0 million at the end of the current quarter, a decrease of $3.5 million, or 4.3%, compared to $80.5 million at the end of the prior quarter, and a decrease of $6.5 million, or 7.7%, compared to $83.5 million at the end of the year ago quarter. The quarter-over-quarter decrease in interest-earning deposits at the FRB and other banks was primarily due to the greater growth in loans, compared to deposit growth during the current period. The year-over-year quarterly decrease in interest-earning deposits at the FRB and other banks was primarily due to an increase in investment securities during the current period. Investment Securities Investment securities totaled $112.0 million at the end of the current quarter, a decrease of $5.6 million, or 4.8%, compared to $117.6 million at the end of the prior quarter, and an increase of $40.8 million, or 57.3%, compared to $71.2 million at the end of the year ago quarter. The year-over-year increase in investment securities was due to investing the Company's excess liquidity into higher yielding investment securities. Loans Receivable The following table details loans by type at the dates indicated:
At June 30, 2018, loans receivable, including loans held-for-sale, were $906.6 million, an increase of $73.7 million, or 8.9%, from $832.9 million at March 31, 2018, and an increase of $107.4 million, or 13.4%, from $799.3 million at June 30, 2017. During the second quarter of 2018, total new loan production, including revolving lines of credit, was $167.8 million, compared to $103.5 million for the prior quarter and $108.8 million for the same quarter last year. For the six months ended June 30, 2018, total new loan production, including revolving lines of credit, was $271.2 million, compared to $220.0 million for the same period last year. During the second quarter of 2018, $52.6 million of loans paid off, compared to $38.3 million in the prior quarter and $18.6 million in year ago quarter. During the current quarter, we sold $35.0 million of SBA loans, compared to sales of $34.9 million in the prior quarter and sales of $36.3 million in the year ago quarter. During the current, prior and year ago quarters, the Company did not sell any non-SBA loans. During the six months ended June 30, 2018 and 2017, we did not sell any non-SBA loans. Deposits The following table details deposits by category at the dates indicated:
Total deposits were $985.9 million at the end of the current quarter, an increase of $54.6 million, or 5.9%, compared to $931.2 million at the end of the prior quarter, and an increase of $118.2 million, or 13.6%, compared to $867.7 million at the end of the year ago quarter. Noninterest-bearing deposits increased $9.2 million, or 4.9%, to $197.5 million at the end of the current quarter from $188.3 million at the end of the prior quarter and decreased $15.8 million, or 7.4%, compared to $213.3 million at the end of the year ago quarter. Noninterest-bearing deposits to total deposits were 20.0%, 20.2%, and 24.6% at the end of the current, prior, and year ago quarters, respectively. ASSET QUALITY
Loans 30 to 89 days past due and on accrual status at June 30, 2018 were $3.3 million, an increase of $1.5 million from $1.8 million at March 31, 2018, and an increase of $2.8 million from $523,000 at June 30, 2017. The quarter-over-quarter increase in loans 30 to 89 days past due was primarily due to a $903,000 loan, which became current in July 2018, and a $1.0 million loan, which is in the process of a loan modification. There were no loans 90 days or more past due and still accruing at June 30, 2018, March 31, 2018, and June 30, 2017, respectively. Nonaccrual loans decreased $1.6 million to $520,000, or 0.06% of loans receivable at June 30, 2018 from $2.1 million, or 0.26% of loans receivable at March 31, 2018, and decreased $2.3 million from $2.9 million, or 0.37% of loans receivable at June 30, 2017. The quarter-over-quarter decrease in nonaccrual loans was primarily due to a lending relationship with a $1.1 million loan, which was returned to accrual status and a lending relationship with a $477,000 loan, which was paid off during the current quarter. Nonperforming loans at June 30, 2018 were $520,000, or 0.06% of loans receivable, a decrease of $1.6 million, compared to $2.1 million, or 0.26% of loans receivable at March 31, 2018, and a decrease of $2.3 million from $2.9 million, or 0.37% of loans receivable at June 30, 2017. The Company did not have any OREO at the end of the current, prior, and year ago quarters. Nonperforming assets at June 30, 2018 were $520,000, or 0.05% of total assets, a decrease of $1.6 million, compared to $2.1 million, or 0.20% of total assets at March 31, 2018, and a decrease of $2.3 million from $2.9 million, or 0.29% of total assets at June 30, 2017. The year-over-year quarterly decrease in nonperforming assets was primarily driven by the aforementioned two lending relationships with the $1.1 million loan, which was returned to accrual status and the $477,000 loan, which was paid off during the current quarter, and another lending relationship with a $457,000 loan, which was fully charged off during the first quarter of 2018. Classified loans at June 30, 2018 were $10.9 million, or 1.26% of loans receivable, a decrease of $1.2 million, or 10.1%, compared to $12.1 million, or 1.50% of loans receivable at March 30, 2018, and a decrease of $631,000, or 5.5%, compared to $11.5 million, or 1.51% of loans receivable at June 30, 2017. The allowance for loan losses at June 30, 2018 was $9.4 million, or 1.08% of loans receivable, compared to $8.6 million, or 1.06% of loans receivable at March 31, 2018, and $8.8 million, or 1.15%, of loans receivable at June 30, 2017. The allowance for loan losses to nonperforming loans was 1803.27%, 406.46%, and 307.46% at June 30, 2018, March 31, 2018, and June 30, 2017, respectively. CAPITAL At June 30, 2018, CBB and the Bank continued to exceed all minimum regulatory capital requirements and they maintained capital conservation buffers in excess of the minimum required to avoid limitations on capital distributions, including dividend payments, and certain discretionary bonus payments. The minimum capital conservation buffer requirement was 1.875% and 1.250% in 2018 and 2017, respectively. The capital conservation buffer is calculated as the smallest excess of a bank holding company's and a bank's common equity tier 1, tier 1 risk-based and total risk-based capital ratios over the regulatory "adequately" capitalized minimum ratios of 4.50%, 6.00% and 8.00%, respectively. The minimum capital conservation buffer will increase an additional 0.625% at the beginning of 2019, reaching the fully phased-in minimum of 2.500%. As a result, effective January 1, 2019 bank holding companies and banks will be required to maintain common equity tier 1, tier 1 risk-based and total risk-based capital ratios that are at least 7.00%, 8.50%, and 10.50%, respectively, to avoid the aforementioned limitations on capital distributions and discretionary bonus payments. The following are the CBB's and the Bank's regulatory capital ratios and capital conservation buffers:
ABOUT CBB Bancorp, Inc. CBB Bancorp, Inc. is the holding company of Commonwealth Business Bank, a full-service commercial bank which specializes in small-to medium-sized businesses and does business as "CBB Bank." The Bank has eight full service branches in Los Angeles, Orange, and Dallas Counties; two SBA regional offices in Los Angeles and Dallas counties; and six loan production offices in the states of Texas, Georgia, Colorado, Utah and Washington. For additional information, please go to www.cbb-bank.com. NON-GAAP FINANCIAL MEASURES CBB may use certain non-GAAP financial measures to provide meaningful supplemental information regarding CBB's operational performance and to enhance investors' overall understanding of such financial performance. These non-GAAP measures have important limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under the GAAP. FORWARD-LOOKING STATEMENTS This release may contain forward-looking statements that are subject to risks and uncertainties. Such risks and uncertainties may include, but are not necessarily limited to, fluctuations in interest rates, inflation, government regulations and general economic conditions, and competition within the business areas in which CBB Bancorp, Inc. conducts its operations, including the real estate market in California, and other factors beyond CBB Bancorp, Inc.'s control. Such risks and uncertainties could cause results for subsequent interim periods or for the entire year to differ materially from those indicated. Readers should not place undue reliance on the forward-looking statements, which reflect management's view only as of the date hereof. CBB Bancorp, Inc. undertakes no obligation to revise these forward-looking statements publicly to reflect subsequent events or circumstances.
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