LOS ANGELES, CA--(Marketwired - Oct 30, 2013) - Commonwealth Business Bank ("CBB") (
"Our performance positively reflects our continuing efforts towards achieving top tier sustainable earnings," said Joanne Kim, President and CEO. "We believe our continued focus on identifying new lending opportunities, and providing efficient and personal services to customers have been important factors that have contributed to our strong performance."
- 41.4% increase in year-over-year quarterly earnings.
- Net interest margin expansion for the third quarter 2013 of 9 basis points to 3.93% from 3.84% for the second quarter 2013.
- 5.1% increase in total loans to $443.01 million at September 30, 2013 from $421.59 million at June 30, 2013.
- Redemption of all outstanding shares of preferred stock that were issued to the U.S. Treasury under its Troubled Asset Relief Program - Capital Purchase Program aggregating $8.09 million at a 4.9% discount.
RESULTS OF OPERATIONS
Third quarter pre-tax pre-provision income was $3.25 million, compared to $3.93 million for the second quarter 2013, and $3.04 million for the third quarter 2012. Net interest income before provision for loan losses for third quarter 2013 increased 6.6% to $4.91 million from $4.61 million for second quarter 2013, and increased 10.9% from $4.43 million for third quarter 2012. The increase was attributable to a reduction in cost of funds, growth of loan balances, and an increase in yields on interest-earning assets.
CBB has benefited from the reduction in cost of funds as a result of the growth of noninterest-bearing deposits, and the re-pricing of interest-earning accounts to lower rates. This, coupled with deployment of excess liquidity into higher yielding loans, helped increase the net interest margin in third quarter 2013 by nine basis points. "Increasing the net interest margin in this low rate environment is challenging, but our focus on asset-liability management enabled us to increase our net interest margin to 3.93% for third quarter 2013, from 3.84% for the second quarter 2013," commented Kim.
For the third quarter 2013, interest income increased by 5.7%, compared to second quarter 2013, and by 9.4% compared to third quarter 2012. Interest expense increased only marginally by 0.9% and 1.1%, compared to second quarter 2013 and third quarter 2012, respectively.
Despite the growth in loan balances during the second and third quarters of 2013, CBB has not increased its allowance for loan losses because, in the opinion of CBB's management, the effect of the decrease in problem loans offset any new loan loss provision requirements that resulted from this growth.
Non-interest income declined 7.1% to $2.59 million for third quarter 2013, compared to $2.78 million for second quarter 2013, due primarily to a reduction in gain on sale of SBA loans. Competition in origination and sale of SBA loans has resulted in lower market premiums on sale. Other income also declined during third quarter 2013, compared to second quarter 2013, due to a $153,000 one-time loss on disposition of fixed assets associated with the early termination of CBB's former headquarters and branch lease contracts. However, adjusting for this one-time charge, service fees and other income actually increased 4.1% compared to second quarter 2013. Non-interest income increased 101.2%, compared to $1.29 million for the same period of 2012.
For third quarter 2013, non-interest expense increased 22.8% to $4.25 million, from $3.46 million for second quarter 2013, and increased 58.9% from $2.67 million for third quarter 2012. The increase was due primarily to a $466,000 one-time settlement of occupancy expenses related to the early termination of lease contracts, increased salary and commission expenses relating to new hires in the SBA and commercial business development areas, and increased stock-based compensation costs. CBB's efficiency ratio increased to 56.69% for third quarter 2013, up from 46.83% and 46.81% for second quarter 2013 and third quarter 2012, respectively.
BALANCE SHEET AND CAPITAL
Total loans grew 5.1% to $443.01 million at September 30, 2013, compared to $421.59 million at June 30, 2013. The increase in total loans quarter-over-quarter was due primarily to the growth in SBA and commercial real estate loans and reflects, in part, the retention of the guaranteed portion of newly originated SBA loans.
CBB produced a total of $85.41 million in new loans during third quarter 2013. SBA loans represented 44.4% of new loans, while commercial real estate and term loans and lines of credit represented 40.9% and 14.7%, respectively, of the total 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 declined 49.5% to $34.13 million in third quarter 2013, as funds were used for new loan originations.
Total deposits at September 30, 2013 declined 0.4% to $448.22 million, compared to $450.01 million at June 30, 2013, and increased 14%, compared to $393.05 million at September 30, 2012. Deposit balances declined slightly from June 30, 2013, as increases in money market and jumbo CDs were offset by reductions in noninterest-bearing demand deposits and non-jumbo CDs. Noninterest-bearing demand deposits declined, as a higher than normal balance fluctuation at June 30, 2013 normalized by September 30, 2013. Non-jumbo CD balances declined primarily due to a combination of customer migration to jumbo CDs, and our intentional run-off of high cost deposits to manage interest costs.
"Our goal is to continue to expand the core deposits to fund our growing lending activities," said Kim.
In July 2013, CBB became the successful bidder of the Treasury's Dutch auction and redeemed all outstanding shares of its non-cumulative, perpetual preferred stock, aggregate liquidation preference $8.09 million. These shares were issued to the U.S. Treasury in connection with CBB's participation in Treasury's Troubled Asset Relief Program - Capital Purchase Program. All shares of preferred stock were redeemed at a 4.9% discount to its liquidation preference. The redemption was financed, in part, with $4.0 million in proceeds from the private offering and sale of newly issued shares of CBB's common stock that was completed in the second quarter of 2013. The remainder of the redemption price was paid from CBB's retained earnings. As a result, Tier 1 Leverage, Tier 1 Risk-Based and Total Risk-Based Capital Ratios at September 30, 2013 all declined to 12.06%, 13.63% and 14.89%, respectively, compared with Tier 1 Leverage Capital Ratio of 13.43%, Tier 1 Risk-Based Capital Ratio of 15.62%, and Total Risk-Based Capital Ratio of 16.89% at June 30, 2013. However, the tangible common equity to total assets ratio increased to 11.88% from 11.07% for second quarter 2013. All regulatory capital ratios continued to exceed the minimum standards to be deemed "well-capitalized" under regulatory guidelines.
Non-accrual loans totaled $5.23 million, or 1.18% of total loans, at September 30, 2013, compared with $2.71 million, or 0.64% of total loans, at June 30, 2013 and $2.73 million, or 0.72% of total loans, at September 30, 2012. A loan relationship involving a legal dispute between the principals of the loan became over 90 days past due during the quarter. Due to the delay and uncertainty of the outcome of the litigation, this loan was placed on non-accrual status and the impairment was charged off. As a result of the migration of the aforementioned loan to non-accrual status, 30 to 89 days loan delinquencies declined to $183,000, or 0.04% of total loans, at September 30, 2013 compared with $3.71 million or 0.88% at June 30, 2013 and $4.84 million or 1.28% at September 30, 2012.
Accruing troubled debt restructuring ("TDR") loans totaled $10.25 million at September 30, 2013, up from $9.77 million at June 30, 2013 and down from $11.11 million at September 30, 2012. Non-performing assets (loans past due 90 days or more and non-accrual, accruing TDR loans and OREO) increased to $15.48 million, or 3.02% of total assets, at September 30, 2013 compared with $12.48 million, or 2.40% of total assets, at June 30, 2013. However, the ratio declined when compared with $13.84 million, or 3.07% of total assets, at September 30, 2012. Although nonperforming loans increased, classified loans declined to $14.48 million, or 3.27% of total loans at September 30, 2013 from $14.76 million, or 3.50% of total loans at June 30, 2013 and $25.27 million, or 6.70% of total loans at September 30, 2012. As a result of the charge-off mentioned above, net charge-offs to average loans increased to 1.00% during the quarter, compared to 0.20% for second quarter 2013, and 0.12% for third quarter 2012.
Joanne Kim concluded: "Despite an increase in loan delinquencies from a loan relationship undergoing litigation, overall asset quality has remained stable during 2013, and we will continue to be vigilant in overseeing and managing the risks in our loan portfolio."
Commonwealth Business Bank is a full-service commercial bank specializing in small- to medium-sized businesses and headquartered in the business districts of Koreatown, Los Angeles, California.
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 SHEETS (Unaudited)|
|(Dollars in Thousands)|
|September 30, 2013||June 30, 2013||% Change||September 30, 2012||% Change|
|Cash and Cash Equivalents||$||52,582||$||81,244||-35.3||%||$||56,634||-7.2||%|
|Less: Allowance for loan losses||(8,869||)||(9,960||)||-11.0||%||(11,041||)||-19.7||%|
|FHLB & FRB stocks||3,649||3,513||3.9||%||3,264||11.8||%|
|LIABILITIES AND STOCKHOLDERS' EQUITY|
|Money market & NOW||148,172||145,034||2.2||%||126,633||17.0||%|
|Time deposits < $100K||63,330||68,463||-7.5||%||91,382||-30.7||%|
|Time deposits ≥ $100K||144,229||133,931||7.7||%||113,030||27.6||%|
|TOTAL LIABILITIES & SHAREHOLDERS' EQUITY||$||512,194||$||519,679||-1.4||%||$||450,047||13.8||%|
|STATEMENTS OF OPERATIONS (Unaudited)|
|(Dollars in Thousands, Except Per Share Info)|
|Three Months Ended||Nine Months Ended|
|September 30, 2013||June 30, 2013||% Change||September 30, 2012||% Change||September 30, 2013||September 30, 2012||% Change|
|Net interest income before provision for loan losses||4,912||4,609||6.6||%||4,427||10.9||%||13,878||12,678||9.5||%|
|Provision for loan losses||-||-||-||-||-||(1,464||)||717||NM|
|Net interest income after provision for loan losses||4,912||4,609||6.6||%||4,427||10.9||%||15,342||11,961||28.3||%|
|Gain on sale of loans||2,283||2,345||-2.7||%||869||NM||6,095||2,615||NM|
|Service charges and other income||302||437||-30.9||%||416||-27.3||%||1,144||1,261||-9.3||%|
|Salaries and employee benefits||2,567||2,253||13.9||%||1,717||49.5||%||6,806||4,697||44.9||%|
|Occupancy and equipment||886||454||95.2||%||297||NM||1,780||860||NM|
|Income before income taxes||3,247||3,930||-17.4||%||3,038||6.9||%||11,629||8,213||41.6||%|
|Income tax provision||1,134||1,728||-34.4||%||1,240||-8.5||%||4,669||2,995||55.9||%|
|Preferred Stock Adjustments|
|Preferred stock cash dividend||(78||)||-||-||(105||)||-25.7||%||(183||)||(105||)||74.3||%|
|Accretion of preferred stock discount||(72||)||(29||)||NM||(25||)||NM||(128||)||(71||)||80.3||%|
|One-time adjustment from repurchase of preferred stock||396||-||-||-||-||396||-||-|
|Total preferred stock adjustment||246||(29||)||NM||(130||)||NM||85||(176||)||NM|
|Net Income Available to Common Shareholders||$||2,359||$||2,173||8.6||%||$||1,668||41.4||%||$||7,045||$||5,042||39.7||%|
|Weighted average shares for basic EPS||3,398,507||3,172,123||7.1||%||3,098,967||9.7||%||3,207,821||3,098,967||3.5||%|
|Weighted average shares for diluted EPS||3,628,551||3,420,662||6.1||%||3,133,344||15.8||%||3,437,749||3,099,016||10.9||%|
|SELECTED FINANCIAL RATIOS|
|(Dollar in Thousands)|
|Three Months Ended|
|September 30, 2013||June 30, 2013||% Change||September 30, 2012||% Change|
|Return on Average Assets||1.66||%||1.81||%||-0.15||%||1.61||%||0.06||%|
|Return on Average Equity||14.00||%||14.44||%||-0.44||%||13.37||%||0.63||%|
|Net Interest Margin||3.93||%||3.84||%||0.09||%||3.98||%||-0.05||%|
|Cost of Funds||0.78||%||0.81||%||-0.03||%||0.88||%||-0.10||%|
|Core Capital (Leverage) Ratio||12.06||%||13.43||%||-1.37||%||12.11||%||-0.05||%|
|Tier 1 Risk-Based Capital Ratio||13.63||%||15.62||%||-1.99||%||14.36||%||-0.73||%|
|Total Risk-Based Capital Ratio||14.89||%||16.89||%||-2.00||%||15.63||%||-0.74||%|
|30-89 Days Past-Due||$ 183||$ 3,710||-95.08||%||$ 4,843||-96.23||%|
|90 Days or More Past-Due and Still Accruing||-||-||-||-||-|
|Accrual TDR Loans||10,250||9,770||4.91||%||11,108||-7.72||%|
|Total Non-Performing Loans||15,480||12,477||24.07||%||13,838||11.87||%|
|Other Real Estate Owned||-||-||-||-||-|
|Total Non-Performing Assets||15,480||12,477||24.07||%||13,838||11.87||%|
|Total Classified Loans||14,481||14,760||-1.89||%||25,270||-42.70||%|
|Asset Quality Ratios:|
|Non-Accrual Loans/Total Loans||1.18||%||0.64||%||0.54||%||0.72||%||0.46||%|
|Non-Performing Loans/Total Loans||3.50||%||2.96||%||0.54||%||3.67||%||-0.17||%|
|Net Charge-offs/Average Loans||1.00||%||0.20||%||0.80||%||0.12||%||0.88||%|