CBB Bancorp, Inc. ("CBB" or the "Company') (OTCQX: CBBI), the holding company of Commonwealth Business Bank (the "Bank"), announced today net income for second quarter 2023 of $8.1 million, or $0.76 per diluted share, an increase of 14.3% compared to $7.1 million, or $0.67 per diluted share, in the prior quarter and an increase of 25.5% compared to $6.5 million, or $0.62 per diluted share, in the same period last year.

Overall Results

Net income for second quarter 2023 includes the benefit of both a gain on the sale of SBA loans and reduced noninterest expense, which more than offset a decline in net interest margin. The return on average assets for second quarter 2023 was 1.79% compared to 1.59% for first quarter 2023 and 1.43% for second quarter 2022. The return on average equity for second quarter 2023 was 14.76%, compared to 13.45% for first quarter 2023 and 13.30% for second quarter 2022. The net interest margin for second quarter 2023 was 4.23%, compared to 4.38% for first quarter 2023 and 3.75% for second quarter 2022. The efficiency ratio for second quarter 2023 was 47.29%, compared to 51.04% for first quarter 2023 and 49.45% for second quarter 2022.

James Hong, President, and CEO, commented, “We are pleased to announce earnings growth for the second quarter of 2023, during a period in which we have continued to emphasize balance sheet safety and liquidity over growth. In addition to solid gains from the Bank’s SBA operations, the Company’s continued emphasis on cost control has helped to sustain the Company’s profitability.”

Net Interest Income and Margin

Net Interest Income

Net interest income for second quarter 2023 was $18.7 million, a decrease of $346 thousand, or 1.8%, from first quarter 2023, and an increase of $2.3 million, or 14.0%, from second quarter 2022. The decrease in net interest income compared with first quarter 2023 was primarily due to the impact of interest rate increases on the cost of deposits. The increase in net interest income compared with the second quarter 2022 was due to the increased yield on the Bank’s variable rate loans, which were impacted by the rising interest rate environment over the past year.

Net Interest Margin

The net interest margin for second quarter 2023 was 4.23%, compared to 4.38% for first quarter 2023 and 3.75% for second quarter 2022. The decrease in net interest margin from the prior quarter was primarily attributable to the rising cost of funds. The cost of funds for second quarter 2023 increased to 2.53% from 2.10% for first quarter 2023 and increased from 0.34% for second quarter 2022.

Provision for Loan Losses:

No provision for credit losses was recorded for the second quarter 2023 as asset quality remained steady and there was a decline in loan balances. The provision for loan losses for first quarter 2023 was also zero, compared with a provision for loan losses of $1.6 million for second quarter 2022. See Table 10 in this press release for additional information and trends.

Noninterest Income:

Noninterest income for second quarter 2023 was $2.8 million, compared to $1.1 million for first quarter 2023 and $4.5 million for second quarter 2022. The increase in noninterest income in second quarter 2023 compared to first quarter 2023 was primarily the result of gains on sales of loans. Sales of SBA loans were $42.4 million with an average premium percentage received of 6.8% during the second quarter 2023. There were no sales of SBA loans during the first quarter 2023 while there were SBA loan sales totaling $50.8 million, with an average premium percentage received of 8.0%, during the second quarter 2022.

Noninterest Expense:

Noninterest expense for second quarter 2023 was $10.2 million, compared to $10.3 million for the first quarter 2023 and $10.4 million for the second quarter 2022. Salaries and employee benefits were substantially lower at $5.6 million in second quarter 2023 compared with the prior quarter total of $6.1 million, and down from $ 7.0 million in the second quarter 2022. Lower salaries and employee benefits in the current quarter reflect both ongoing cost control efforts and lower incentive payments due to lower levels of loan originations. The increase in other expenses compared to the first quarter 2023 includes the effect of an increase in the cost of FDIC deposit insurance as the FDIC raised its general deposit insurance assessment rates effective on January 1, 2023.

Income Taxes:

The Company’ s effective tax rate for second quarter 2023 was 28.6% compared to 28.1% for first quarter 2023 and 28.3% for second quarter 2022.

Balance Sheet:

Investment Securities:

Investment securities were $66.4 million on June 30, 2023, a decrease of $2.5 million from March 31, 2023, and $11.1 million from June 30, 2022. The decreases were due to principal paydowns and an absence of portfolio additions in the six months of 2023, or in the second quarter 2022.

Loans Receivable:

Loans receivable (including loans held for sale) at June 30, 2023, was $1.4 billion, a decrease of $50.3 million, or 3.4%, from loans receivable at March 31, 2023, and an increase of $14.3 million, or 1.0%, from loans receivable at June 30, 2022. The decrease in loans receivable at June 30, 2023 compared to loans receivable at March 31, 2023, was due to slower loan origination due to reduced demand for loans resulting from the comparatively higher interest rate environment.

The weighted average loan-to-value ratio of commercial real estate loans (“CRE”) was 67.07% at June 30, 2023. Excluding SBA loans, the weighted average loan-to-value ratio of CRE loans was 49.91%.

Allowance for Credit Losses and Asset Quality:

The allowance for credit losses at June 30, 2023 was $15.6 million, or 1.30% of portfolio loans, compared to $15.6 million, or 12.8% of portfolio loans, at March 31, 2023, and compared to $14.7 million, or 1.17% of portfolio loans, at June 30, 2022. Nonperforming loans as of June 30, 2023, were $684 thousand, compared to $636 thousand at March 31, 2023, and compared to $2.5 million at June 30, 2022. The coverage ratio of allowance for credit losses to nonperforming assets exceeded 2200% at June 30, 2023.

SBA Loans Held for Sale:

Total SBA loans held for sale at June 30, 2023, was $215.1 million, compared to $ 243.8 million at March 31 2023, and $141.1 million at June 30, 2022. We continue to assess SBA loan sale premiums and plan to sell loans when we believe it is advantageous to do so. See comments under “Noninterest Income”, and Table 7 for additional SBA loan origination and sale data.

Deposits:

Deposits were $ 1.5 billion at June 30, 2023, down $15.0 million, or 1.0% of, from March 31, 2023, and up $7.0 million, or 0.5%, from June 30, 2022. Noninterest-bearing demand deposits (“DDAs”) decreased $2.2 million, or 0.5%, to $426.3 million at June 30, 2023, from March 31, 2023, and decreased $140.3 million, or 24.8%, from June 30, 2022. DDAs were 28.6% of total deposits at June 30, 2023, compared to 28.6% at March 31, 2023, and 38.2% at June 30, 2022. NOW and MMDA accounts decreased $1.4 million, or 0.6%, to $210.4 million at June 30, 2023, from March 31, 2023, and decreased $117.0 million, or 35.7%, from June 30, 2022. Time deposits decreased $9.6 million, or 1.2%, at June 30, 2023, from March 31, 2023, and increased $279.5 million, or 52.3%, from June 30, 2022. Time deposits at June 30, 2023, were $814.3 million, or 53.5% of total deposits, compared to $823.9 million, or 53.6% of total deposits, at March 31, 2023, and $534.7 million, or 35.3% of total deposits, at June 30, 2022. The increases in time deposits during the first two quarters of 2023 compared with the second quarter 2022 reflect a shift in depositors’ preferences for the higher rate term deposits over money market and checking accounts as rates have risen over the course of the past year. The primary cause of the decreases in noninterest bearing deposit balances during 2023 compared with the second quarter 2022 was a decline in escrow-related deposits as the higher interest rate environment caused a significant slowdown in activity for that sector.

Borrowings:

Borrowings at June 30, 2023, March 31, 2023, and June 30, 2022, consisted of $50.0 million of Federal Home Loan Bank of San Francisco advances at each date.

Capital:

Stockholders’ equity was $223.3 million at June 30, 2023, representing an increase of $7.1 million, or 3.3%, over stockholders’ equity of $216.2 million at March 31, 2023. Tangible book value per share at June 30, 2023, was $20.85, compared with $20.18 at March 31, 2023, an increase of $0.67 per share, or 3.3%.

Each of the Company’s and the Bank’s regulatory capital ratios increased at June 30, 2023, from March 31, 2023, and from June 30, 2022, and continue to exceed the minimum levels required to be considered “Well Capitalized” under the applicable regulatory capital rules and in compliance with the fully phased-in Basel III requirements, which went into effect on January 1, 2022, as shown on Table 11 in this press release. The Common Equity Tier 1 risked-based capital at June 30, 2023, was 17.08% at the Company level and 17.03% at the Bank level.

About CBB Bancorp, Inc.:

CBB Bancorp, Inc. is the holding company of Commonwealth Business Bank, a full-service commercial bank which specializes in loans to small-to medium-sized businesses and does business as “CBB Bank.” As of June 30, 2023, the Bank has ten full-service banking offices in Los Angeles and Orange Counties in California, Dallas County in Texas and Honolulu, Hawaii; two SBA regional offices in Los Angeles and Dallas Counties; and five loan production offices in Texas, Georgia, Colorado, and Washington. For additional information, please go to www.cbb-bank.com under the tab “About Us” and select “Investors Relations” to see 2Q 2023 Overview and COVID-19 update presentation.

FORWARD-LOOKING STATEMENTS:

This news release may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended, and CBB Bancorp and Commonwealth Business Bank (together, the “Company”) intend that such forward-looking statements be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Future events are difficult to predict, and the expectations described herein are necessarily subject to risks and uncertainties that may cause actual results to differ materially and adversely from those described herein. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include the words “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could,” or “may.” These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date. Factors that might cause actual results to differ materially from those presented, either expressed or implied, in this news release include, but are not limited to: the Company’s ability to successfully execute its business plans and achieve its objectives; changes in general economic and financial market conditions, either nationally or locally in areas in which the Company conducts its operations; changes in interest rates; continuing consolidation in the financial services industry; new litigation or changes in existing litigation; increased competitive challenges and expanding product and pricing pressures among financial institutions; legislation or regulatory changes which adversely affect the Company’s operations or business; loss of key personnel; and changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies.

The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances, except to the extent required by law.

Schedules and Financial Data:  All tables and data to follow