CBB Bancorp, Inc. ("CBB" or the "Company") (OTCQX: CBBI), the holding company of Commonwealth Business Bank (the "Bank"), announced today net income for third quarter 2023 of $6.7 million, or $0.63 per diluted share, a decrease of 17.1% compared to $8.1 million, or $0.76 per diluted share, in the prior quarter and an increase of 16.7% compared to $5.7 million, or $0.54 per diluted share, in the same period last year.

OVERALL RESULTS

Net income for the third quarter 2023 declined from the prior period due to lower gain on sale of SBA loans and reduced net interest margin caused by rising cost of deposits. The return on average assets for the third quarter 2023 was 1.46% compared to 1.79% for the second quarter 2023 and 1.27% for the third quarter 2022. The return on average equity for the third quarter 2023 was 11.66%, compared to 14.76% for the second quarter 2023 and 11.24% for the third quarter 2022. The net interest margin for the third quarter 2023 was 4.01%, compared to 4.23% for the second quarter 2023 and 4.28% for the third quarter 2022. The efficiency ratio for the third quarter 2023 was 52.23%, compared to 47.29% for the second quarter 2023 and 55.64% for the third quarter 2022. While the efficiency ratio has decreased year over year, it increased quarter over quarter due to lower gain on sale of loans compared to the second quarter.

James Hong, President and CEO, commented, “We are pleased to announce continuing profitability for the third quarter of 2023, with strong liquidity, credit, and capital metrics. While the decisions on the timing of when to sell SBA loans contributed to lower earnings compared to the second quarter, we remain committed to building the core earnings of the Company in a safe and sound manner over time.”

INCOME STATEMENT

Net Interest Income

Net interest income for the third quarter 2023 was $18.0 million, a decrease of $726 thousand, or 3.9%, from the second quarter 2023, and a decrease of $819 thousand, or 4.4%, from the third quarter 2022. The decrease in net interest income compared with both the second quarter 2023 and the third quarter 2022 was primarily due to the impact of relatively higher increases in interest expense on deposits.

Net Interest Margin

The net interest margin for the third quarter 2023 was 4.01%, compared to 4.23% for the second quarter 2023 and 4.28% for the third quarter 2022. The quarter-over-quarter and year-over-year decreases in net interest margin were attributable to the rising cost of funds. The cost of funds for the third quarter 2023 increased to 2.91% compared to 2.53% for second quarter 2023 and 0.63% for third quarter 2022.

Provision for Credit Losses

No provision for credit losses was recorded for the third quarter 2023 or for the second quarter 2023, compared with a provision for credit losses of $0.9 million for the third quarter 2022. See Table 10 in this press release for additional information and trends.

Noninterest Income

Noninterest income in third quarter 2023 was $1.5 million compared to $2.8 million in second quarter 2023 and $1.2 million in third quarter 2022. The quarter-over-quarter decrease in noninterest income was primarily the result of lower gain on sale of loans. The Bank sold $9.2 million in SBA loans with an average premium of 8.3% during third quarter 2023 compared to sale of $42.4 million in SBA loans with an average premium of 6.8% during second quarter 2023. There was no sale of SBA loans during the third quarter 2022.

Noninterest Expense

Noninterest expense for the third quarter 2023 was $10.2 million, compared to $10.2 million for the second quarter 2023 and $11.2 million for the third quarter 2022. Salaries and employee benefits were $5.6 million in both third and second quarters of 2023, which decreased $1.3 million compared to the third quarter 2022. Lower salaries and employee benefits in the current quarter compared to the same quarter last year reflect both ongoing cost control efforts and efficiencies realized from completing the integration of Ohana Pacific Bank operations.

Income Taxes

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

BALANCE SHEET

Investment Securities

Investment securities were $61.6 million on September 30, 2023, a decrease of $4.8 million or 7.2% from June 30, 2023, and a decrease of $14.2 million or 18.8% from September 30, 2022. The decreases were due to principal paydowns and an absence of portfolio additions in the nine months of 2023, or in the fourth quarter 2022. The unrealized losses on available for sale investments were approximately $1.1 million at September 30, 2023, $0.9 million at June 30, 2023, and $1.4 million at September 30, 2022, all net of tax effects. Management believes that the Bank currently has adequate liquidity and does not need to sell any securities for liquidity purposes.

Loans Receivable

Loans receivable (including loans held-for-sale) at September 30, 2023, was $1.4 billion, an increase of $4.3 million, or 0.3% from June 30, 2023, and a decrease of $26.4 million, or 1.8%, from September 30, 2022. The slow increase in loans receivable compared to last quarter and decrease from a year ago, reflects the difficult environment for loan originations due to reduced demand stemming from the higher interest rate environment.

The weighted average loan-to-value ratio of commercial real estate loans (“CRE”) was 66.5% at September 30, 2023. Excluding SBA loans, the weighted average loan-to-value ratio of CRE loans was 49.2%.

Allowance for Credit Losses and Asset Quality

The allowance for credit losses at September 30, 2023, was $15.3 million, or 1.27% of total loans compared to $15.6 million, or 1.30% of total loans at June 30, 2023, and $15.6 million, or 1.24% of total loans at September 30, 2022. Nonperforming loans at September 30, 2023 were $618 thousand, compared to $684 thousand at June 30, 2023, and $690 thousand at September 30, 2022. The coverage ratio of allowance for credit losses to nonperforming assets exceeded 2200% at September 30, 2023.

SBA Loans Held-for-Sale

Total SBA loans held-for-sale at September 30, 2023, was $219.4 million, compared to $ 215.1 million at June 30 2023, and $186.4 million at September 30, 2022. We continue to assess SBA loan market premiums and plan to sell loans when 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 September 30, 2023, up $26.9 million, or 1.8%, from June 30, 2023, and up $16.0 million, or 1.0%, from September 30, 2022. Noninterest-bearing demand deposits (“DDAs”) at September 30, 2023 decreased $20.3 million, or 4.8%, to $406.0 million from the previous quarter, and decreased $156.0 million, or 27.8%, from September 30, 2022. DDAs were 26.6% of total deposits at September 30, 2023, compared to 28.6% at June 30, 2023, and 37.3% at September 30, 2022. NOW and MMDA accounts increased $16.9 million, or 8.0%, to $227.3 million at September 30, 2023 from the previous quarter and decreased $86.4 million, or 27.6%, compared to September 30, 2022. The quarter over quarter and year over year declines in DDAs can be attributed to the growing interest rate environment. Depositors were eager to capitalize on the rising interest rates, leading to a decrease in DDAs and a simultaneous increase in NOW and MMDA balances.

As of September 30, 2023, time deposits increased $16.3 million, or 2.0%, quarter over quarter, and $250 million, or 43.1%, from September 30, 2022. Time deposits at September 30, 2023, were $830.6 million, or 53.6% of total deposits, compared to $814.3 million, or 53.5% of total deposits at June 30, 2023, and $580.6 million, or 37.9% of total deposits at September 30, 2022. The increase in time deposits during the third quarter of 2023 compared to a year ago reflects depositors’ preferences for higher paying term deposits over money market and checking accounts as rates have risen significantly since March 2022. The primary reason for the decrease in noninterest-bearing deposits during 2023 was a decline in escrow-related deposits as the higher interest rate environment caused a significant slowdown in business activities for that sector.

Other Liabilities

Other Liabilities increased 30% quarter over quarter and 121% year over year, primarily due to increases in accrued interest payable, as the Bank’s overall cost of funds increased during these periods.

Borrowings

The Bank has maintained $50.0 million of Federal Home Loan Bank advances since September 30, 2022. The blended cost of FHLB advances was 0.94% as of September 30, 2023.

Capital

Stockholders’ equity was $228.9 million at September 30, 2023 representing an increase of $5.6 million, or 2.5%, from $223.3 million at June 30, 2023. Tangible book value per share at September 30, 2023, was $21.39, compared with $20.85 at June 30, 2023, an increase of $0.54, or 2.6%, per share.

Each of the Company’s and the Bank’s regulatory capital ratios increased at September 30, 2023 when compared to June 30, 2023 and September 30, 2022. Capital ratios 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 as shown on Table 11 in this press release. The Common Equity Tier 1 risked-based capital at September 30, 2023, was 17.61% at the Company level and 17.57% at the Bank level, and total capital ratios were 18.83% and 18.79% for the Company and the Bank, respectively.

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 September 30, 2023, the Bank had eleven 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 the 3Q 2023 Overview.

FORWARD-LOOKING STATEMENTS:

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. CBB Bancorp, Inc. (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