CBB Bancorp, Inc. ("CBB" or the "Company') (OTCQX: CBBI), the holding company of Commonwealth Business Bank, doing business as CBB Bank (the "Bank"), announced today net income for fourth quarter 2022 of $7.3 million, or $0.70 per diluted share, an increase of 28.0% compared to $5.7 million, or $0.54 per diluted share, in the prior quarter and a decrease of 8.5% compared to $8.0 million, or $0.77 per diluted share, in the same period last year.

Additionally, CBB reported net income for the year ended December 31, 2022 of $27.9 million, or $2.66 per diluted share, an increase of 0.4% from the $27.5 million, or $2.65 per diluted share, of net income for the year ended December 31, 2021.

Overall Results

Net income for fourth quarter 2022 was positively impacted by an improved net interest margin and a lower loan loss reserve requirement. The Company’s annualized return on average assets for fourth quarter 2022 was 1.64% compared to 1.27% for third quarter 2022 and 1.68% for fourth quarter 2021. The annualized return on average equity for fourth quarter 2022 was 14.04% compared to 11.24% for third quarter 2022 and 17.54% for fourth quarter 2021. The net interest margin for fourth quarter 2022 was 4.59% compared to 4.28% for third quarter 2022 and 3.49% for fourth quarter 2021. The efficiency ratio for fourth quarter 2022 was 51.41% compared to 55.64% for third quarter 2022 and 52.84% for fourth quarter 2021.

“We are pleased to announce our positive earnings performance for the fourth quarter, as our earnings continue to benefit from loan growth and higher net interest income, while maintaining excellent asset quality,” said James Hong, President and CEO.

Net Interest Income and Margin:

Net Interest Income

Net interest income for fourth quarter 2022 was $20.1 million, an increase of $1.2 million, or 6.6%, from third quarter 2022, and an increase of $3.8 million, or 23.2%, from fourth quarter 2021. For the year ended December 31, 2022, net interest income was $71.2 million, an increase of $12.4 million, or 20.1%, over 2021. The increase in net interest income over the prior year was primarily driven by the increase in total loans, as well as increased variable rate asset yields resulting from recent increases in interest rates by the Federal Reserve Bank.

Net Interest Margin

Our net interest margin for fourth quarter 2022 was 4.59% compared to 4.28% for third quarter 2022 and 3.49% for fourth quarter 2021. The increase in net interest margin was due to the impact of increases in the prime and federal funds rates, which were only partially offset by rising deposit costs. For the year ended December 31, 2022, net interest margin was 4.08% compared to 3.67% in 2021. Our cost of funds increased for fourth quarter 2022 to 1.19% from 0.63% for third quarter 2022 and 0.30% for fourth quarter 2021. For the year ended December 31, 2022, the cost of funds was 0.62% compared to 0.38% in 2021.

Provision for Loan Losses:

The Company recorded no provision for loan losses for fourth quarter 2022, compared to a provision of $0.9 million for third quarter 2022 and a negative provision of $0.8 million for fourth quarter 2021. A provision for loan losses of $1.3 million was recorded for the year ended December 31, 2022, compared to a $0.3 million negative provision for the corresponding period in 2021. The zero loan loss provision during the fourth quarter of 2022 was due to continued strong performance by our borrowers, which offset any provision that would otherwise have been recorded due to loan portfolio growth. See Table 10 for additional information.

Noninterest Income:

Noninterest income for fourth quarter 2022 was $0.9 million compared to $1.2 million for third quarter 2022 and $5.3 million for fourth quarter 2021. For the year ended December 31, 2022, noninterest income was $12.3 million compared to $19.6 million in 2021. There were no sales of SBA loans during the third and fourth quarter of 2022, compared with SBA loan sales of $42.2 million with an average premium percentage received of 11.1% during the fourth quarter of 2021. For the year ended December 31, 2022, the gain on sale of SBA loans was $8.0 million compared to $14.9 million for the year 2021.

Noninterest Expense:

Noninterest expense for fourth quarter 2022 was $10.8 million compared to $11.2 million for third quarter 2022 and $11.4 million for fourth quarter 2021. The decrease in noninterest expense in the fourth quarter of 2022 was largely due to a decrease in salaries and employee benefits. Salaries and employee benefits were at $6.2 million in fourth quarter 2022, down $0.6 million from $6.9 million in the prior quarter, and down $ 0.4 million from $6.6 million in the fourth quarter of 2021.

For the year ended December 31, 2022, noninterest expense was $43.2 million compared to $40.3 million for the corresponding period in 2021 year. The increase in noninterest expense in 2022 compared to 2021 was primarily driven by an increase in salaries and employee benefits which was offset by a decrease in merger-related expenses.

Income Taxes:

The Company’s effective tax rate for fourth quarter 2022 was 28.2% compared to 28.3% for third quarter 2022 and 27.1% for fourth quarter 2021. For the year ended December 31, 2022, the effective tax rate was 28.3% compared to 28.2% in 2021.

Balance Sheet:

Investment Securities:

Investment securities were $72.6 million at December 31, 2022, a decrease from $75.8 million at September 30, 2022 and from $84.2 million from December 31, 2021. The decreases were due to net principal paydowns. There were no portfolio additions in 2022.

Loans Receivable:

Loans receivable (including loans held for sale) at December 31, 2022 was $1.5 billion, an increase of $68.7 million, or 4.7%, from September 30, 2022, and an increase of $116.3 million, or 8.3%, from December 31, 2021. The increase in loan balances in 2022 compared with 2021 can be attributed, in part, to the decision not to sell SBA loans during the period due to their attractive variable rate yields and declining premiums on sale in the market.

The weighted average loan-to-value ratio of Commercial Real Estate loans was 69.4% at December 31, 2022. Excluding SBA loans, the weighted average loan-to-value ratio of CRE loans was 53%.

Allowance for Loan Losses and Asset Quality:

The allowance for loan losses at December 31, 2022 was $15.5 million, or 1.21% of portfolio loans, compared to $15.6 million, or 1.24% of portfolio loans, at September 30, 2022. Non-performing loans as of December 31, 2022 were $6.8 million, up from $690 thousand at September 30, 2022. The increase in non-performing loans was due to $6.1 million in real estate secured loans that were in the process of payoff or refinancing at year-end. The entire $6.1 million was paid off or refinanced and returned to performing status in January 2023. Loans payment deferments are considered performing loans in accordance with regulatory guidance. Our coverage ratio of allowance for loan losses to nonperforming assets continues to exceed 1900%.

SBA Loans Held for Sale:

SBA loans held for sale at December 31, 2022 were $230.4 million, compared to $186.4 million at September 30 2022 and $158.1 million at December 31, 2021. 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 December 31, 2022, up $4.9 million, or 0.3%, from September 30, 2022 and down $19.9 million, or 1.3%, from December 31, 2021. Noninterest-bearing demand deposits (DDAs) decreased $110.4 million, or 19.6%, from September 30, 2022 and decreased $168.1 million, or 27.1%, from December 31, 2021. DDAs were 30.0% of total deposits at December 31, 2022 compared to 37.3% at September 30, 2022 and 40.5% at December 31, 2021. The decrease in DDA deposits in the fourth quarter of 2022 was primarily due to a decrease in escrow related deposits, which have been adversely affected by the higher interest rate environment.

NOW and MMDA decreased $39.2 million, or 12.5%, from September 30, 2022 and $50.8 million, or 15.6% from December 31, 2021. Time deposits increased $169.8 million, or 29.2%, from September 30, 2022 and increased $224.6 million, or 42.7%, from December 31, 2021. Our time deposits at December 30, 2022 were $750.4 million, or 48.7% of total deposits, up from $580.6 million, or 37.9% of total deposits, at September 30, 2022 and up from $525.7 million, or 33.7% of total deposits, at December 31, 2021. The increases in time deposits during the fourth quarter of 2022 reflects a shift in depositors’ preferences for the higher rate term deposits over money market rates as rates have risen in the second half of 2022.

Borrowings:

Borrowings at December 31, 2022, September 30, 2022 and December 31, 2021 consisted of $50.0 million of Federal Home Loan Bank of San Francisco (FHLB-SF) advances at each date.

Capital:

Stockholders’ equity was $209.5 million at December 31, 2022, representing an increase of $6.8 million, or 3.3%, over stockholders’ equity of $202.7 million at September 30, 2022. Tangible book value per share at December 31, 2022 was $19.59 compared to $18.95 at September 30, 2022, an increase of $0.64 per share, or 3.4%.

Each of the Company’s and the Bank’s regulatory capital ratios increased at December 31, 2022 from September 30, 2022 and from December 31, 2021 and continue to exceed the minimum levels required to be considered “Well Capitalized” under the applicable regulatory capital rules and remain in compliance with the fully phased-in Basel III requirements, which went into effect on January 1, 2021, as shown on Table 11 in this press release. The Common Equity Tier 1 risked-based capital ratio at December 31, 2022 was 14.92% at the Company level and 14.87% 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 December 31, 2022, the Bank has ten full-service banking offices in Los Angeles and Orange Counties in California, Dallas County in Texas and Honolulu, Hawaii; three 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 tab “About Us” and select “Investors Relations” to see 4Q 2022 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 for such forward-looking statements to 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 above are necessarily subject to risk and uncertainty that may cause actual results to differ materially and adversely. 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. Forward-looking statements involve significant risks and uncertainties and actual results may differ materially from those presented, either expressed or implied, in this news release. Factors that might cause such differences 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.

Schedules and Financial Data: All tables and data to follow