CBB Bancorp, Inc. Reports Fourth Quarter and Full Year 2020 Financial Results

CBB Bancorp, Inc. ("CBB" or the "Company') CBBI, the holding company of Commonwealth Business Bank (the "Bank"), announced today net income for fourth quarter 2020 of $3.7 million, or $0.36 per diluted share, an increase of 28.6% compared to $2.9 million, or $0.28 per diluted share, in the prior quarter and in the same period last year.

Additionally, CBB reported net income for the year ended December 31, 2020 of $9.9 million or $0.96 per diluted share, a decrease of 25.6% from the $13.3 million, or $1.29 per diluted share, of net income for 2019.

Overall Results

Net income for fourth quarter 2020 was positively impacted by the reversal of the SBA valuation allowance of $894 thousand. The return on average assets for fourth quarter 2020 was 1.07% compared to 0.85% for third quarter 2020 and 0.97% for fourth quarter 2019. The return on average equity for fourth quarter 2020 was 9.32% compared to 7.43% for third quarter 2020 and 7.66% for fourth quarter 2019. The net interest margin for fourth quarter 2020 was 3.48% compared to 3.20% for third quarter 2020 and 3.77% for fourth quarter 2019. The efficiency ratio for fourth quarter 2020 was 55.12% compared to 58.77% for third quarter 2020 and 64.05% for fourth quarter 2019.

Net Interest Income and Margin:

Net Interest Income

Net interest income for fourth quarter 2020 was $11.8 million, an increase of $1.1 million, or 10.6%, from third quarter 2020, and an increase of $1.0 million, or 9.7%, from fourth quarter 2019. The increase in net interest income was primarily driven by our ability to continue to aggressively lower deposit rates and wholesale borrowing costs while strategically shifting our deposit mix to lower-cost core deposits. For the year ended December 31, 2020, net interest income was $42.8 million, a decrease of $1.6 million, or 3.5% over the corresponding period in 2019.

Net Interest Margin

Our net interest margin for fourth quarter 2020 was 3.48% compared to 3.20% for third quarter 2020 and 3.77% for fourth quarter 2019. The increase in net interest margin was due to the lower repricing of our time deposits, which will continue as these deposits reach their maturities. For the year ended December 31, 2020, net interest margin was 3.41% compared to 3.94% for the corresponding period in 2019. Our cost of funds improved for fourth quarter 2020 to 0.60% from 0.85% for third quarter 2020 and 1.79% for fourth quarter 2019. For the year ended December 31, 2020, the cost of funds was 1.04% compared to 1.85% for the corresponding period in 2019.

Joanne Kim, President and CEO commented, "During this challenging year, we have focused on increasing core deposits and reducing our cost of funds which resulted in an improvement in our net interest margin. We will continue to focus on improving our net interest margin during 2021."

Provision for Loan Losses:

The provision for loan losses for fourth quarter 2020 was $1.6 million, compared to $1.6 million for third quarter 2020 and $700 thousand for fourth quarter 2019. For the year ended December 31, 2020, provision for loan losses was $5.5 million compared to $1.3 million for the corresponding period in 2019. Approximately $1.6 million of the fourth quarter provision was driven by an increase in qualitative factors due to the prolonged COVID-19 pandemic. Due to COVID-19, we are monitoring more data sources for early signs of distress within the portfolio such as deposit balances, overdrafts, line of credit usage and guarantors' credit history. We have segmented the loan portfolio several ways and examined risk exposure based on quantitative and qualitative information. We are actively communicating with borrowers and key depositors to understand and assess the health of their business, as well as the pandemic's effects on their customers and suppliers. In addition, we are engaging with borrowers more frequently to understand individual challenges and are obtaining data more frequently from borrowers, such as updated financial statements. See Table 10 for additional details and trends. For additional information, go to www.cbb-bank.com under tab "About Us" and select "Investors Relations" to see 4Q 2020 Overview and COVID-19 update presentation.

Noninterest Income:

Noninterest income for fourth quarter 2020 was $3.4 million compared to $3.0 million for third quarter 2020 and $2.3 million for fourth quarter 2019. For the year ended December 31, 2020, noninterest income was $9.6 million compared to $9.8 million for the corresponding period in 2019. The increase in noninterest income in fourth quarter 2020 was due to the reversal of the SBA valuation allowance of $894 thousand. In assessing our servicing assets, we reviewed the value of SBA servicing assets and various model inputs, including the discount rate, prepayment speeds and other market conditions, such as the decreases in the prime rate and the premiums earned on SBA loan sales.

Noninterest Expense:

Noninterest expense for fourth quarter 2020 was $8.4 million compared to $8.0 million for third quarter 2020 and $8.4 million for fourth quarter 2019. For the year ended December 31, 2020, noninterest expense was $32.9 million compared to $34.1 million for the corresponding period in 2019. Salaries and employee benefits increased by $529 thousand compared to the prior quarter. The increase was partially due to higher commissions and bonuses as a result of higher loan originations.

Income Taxes:

The Company's effective tax rate for fourth quarter 2020 was 29.0% compared to 27.9% for third quarter 2020 and 28.5% for fourth quarter 2019. For the year ended December 31, 2020, the effective tax rate was 29.8% compared to 29.0% for the corresponding period in 2019.

Balance Sheet:

Investment Securities:

Investment securities were $85.9 million at December 31, 2020, a decrease of $2.9 million from September 30, 2020 and $8.7 million from December 31, 2019. The decreases were due to principal paydowns. There were no portfolio additions in the fourth quarter.

Loans Receivable:

Loans receivable (including loans held for sale) at December 31, 2020 was $1.10 billion, an increase of $37.1 million, or 3.5%, from September 30, 2020, and an increase of $167.0 million, or 17.9% from December 31, 2019.

We provided loan payment deferments to our commercial borrowers under the CARES Act. The first round of three months of loan deferments as of June 30, 2020 totaled $280.0 million or 25.0% of the total loan portfolio. The majority of these loans have resumed payments during the third and fourth quarter. There were 17 loans that were still on loan deferments as of December 31, 2020 which totaled $56.6 million or 5.1% of the total loan portfolio. We anticipate there may be additional loan deferments. SBA loans originated during the period beginning September 28, 2020 to January 31, 2021 will not be able to receive six months of payments from SBA. However, loans originated beginning February 1, 2021 to September 30, 2021 will qualify for six months of payments and the monthly amount cannot exceed $9 thousand. Our weighted average loan-to-value ratio of Commercial Real Estate loans was 72.5% at December 31, 2020. Excluding SBA loans, our weighted average loan-to-value of CRE loans was 56.1%. For additional information, please go to www.cbb-bank.com under tab "About Us" and select "Investors Relations" to see 4Q 2020 Overview and COVID-19 update presentation.

Paycheck Protection Program (PPP):

PPP loans totaled $86.1 million at December 31, 2020. Net unearned fees as of December 31, 2020 was $1.8 million and is being accreted to income based on the two-year contractual maturity. The SBA approved $6.2 million in PPP loan forgiveness applications processed in the fourth quarter 2020. SBA will continue to support the PPP and we believe it is likely many customers will apply for additional PPP funds as the Bank is actively taking applications at this time.

Allowance for Loan Losses and Asset Quality:

The allowance for loan losses at December 31, 2020 was $14.4 million, or 1.38% of portfolio loans, compared to $13.6 million, or 1.35% of portfolio loans, at September 30, 2020. Excluding PPP loans of $86.1 million, which are government guaranteed, the allowance for loan losses at December 31, 2020 was 1.51% compared to 1.48% at September 30, 2020. Non-performing loans as of December 31, 2020 were $2.4 million, down from $4.1 million at September 30, 2020. Loans with payment deferments are considered performing loans in accordance with the regulatory guidance. Our coverage ratio of allowance for loan losses to nonperforming assets continues to exceed 300%. For additional information, please go to www.cbb-bank.com under tab "About Us" and select "Investors Relations" to see 4Q 2020 Overview and COVID-19 update presentation.

SBA Loans Held for Sale:

SBA loans held for sale at December 31, 2020 were $59.1 million, compared to $53.8 million at September 30, 2020 and $28.8 million at December 31, 2019. We continue to assess SBA loan sale premiums and plan to sell loans when it is advantageous to do so. During the quarter, the demand for SBA loans by the secondary market improved, resulting in a higher volume of SBA loan sales during the second half of the year as well as loan sale premiums. See comments under "Noninterest Income", and the Table 7 for additional SBA loan origination and sale data.

Deposits:

Deposits were $1.10 billion at December 31, 2020, down $2.3 million from September 30, 2020 and up $125.8 million from December 31, 2019. Noninterest-bearing demand deposits (DDAs) decreased $28.1 million or 7.7% from September 30, 2020 and increased $125.7 million or 60.0% from December 31, 2019. DDAs were 30.5% of total deposits at December 31, 2020 compared to 33.0% at September 30, 2020 and 21.5% at December 31, 2019. NOW and MMDA increased $30.6 million or 13.3% from September 30, 2020 and increased $142.9 million or 121.7% from December 31, 2019. Time deposits increased $5.2 million or 1.2% from September 30, 2020 and decreased $127.4 million or 22.0% from December 31, 2019. Our time deposits at September 30, 2020 were $451.9 million or 41.1% of total deposits, compared to $446.7 million or 40.6% of total deposits at September 30, 2020 and down from $579.3 million or 59.5% of total deposits at December 31, 2019. As noted before, we have been and will continue to focus on increasing demand deposits and reducing our cost of funds.

Borrowings:

Borrowings at December 31, 2020 consisted of $95.0 million of Federal Home Loan Bank of San Francisco (FHLB-SF) advances and $10.0 million of Pacific Coast Bankers' Bank (PCBB) borrowings, compared to $70 million of FHLB- SF advances at September 30, 2020.

Additionally, at December 31, 2020, we repaid approximately $58.7 million of PPP loans from the FRB PPP Liquidity Facility. The borrowing rate for the facility was 0.35%.

Capital:

Stockholders' equity was $160.0 million at December 31, 2020, representing an increase of $3.9 million, or 2.5%, over stockholders' equity of $156.1 million at September 30, 2020. Book value per share at December 31, 2020 was $15.61 compared with $15.23 at September 30, 2020, an increase of $0.38 per share or 2.5%.

All of our regulatory capital ratios increased at December 31, 2020 from their levels at September 30, 2020 and continue to exceed the minimum levels required to be considered "Well Capitalized" as defined for bank regulatory purposes and in compliance with the fully phased-in Basel III requirements, which went into effect on January 1, 2019, as shown on Table 11 in this press release. Importantly, our Common Equity Tier 1 risked-based capital at December 31, 2020 was 15.01% at the Company level and 14.97% 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 small-to medium-sized businesses and does business as "CBB Bank." The Bank has eight full-service branches in Los Angeles and Orange Counties in California, and Dallas County in Texas; 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 tab "About Us" and select "Investors Relations" to see 4Q 2020 Overview and COVID-19 update presentation.

FORWARD-LOOKING STATEMENTS:

This news release contains a number of forward-looking statements. These statements may be identified by the use of words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "likely," "may," "outlook," "plan," "potential," "predict," "project," "should," "will," "would" and similar terms and phrases, including references to assumptions. Forward-looking statements are based upon various assumptions and analyses made by the Company in light of management's experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate under the circumstances. These statements are not guaranties of future performance and are subject to risks, uncertainties and other factors (many of which are beyond the Company's control) that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. You should not place undue reliance on such statements. Factors that could affect our results include, without limitation, the following: the timing and occurrence or non-occurrence of events may be subject to circumstances beyond the Company's control; increases in competitive pressure among financial institutions or from non-financial institutions may occur; changes in the interest rate environment may reduce interest margins; changes in deposit flows, loan demand or real estate values may adversely affect the business of the Company and the Bank; significant increases in loan losses may occur; the possibility that changes in accounting principles, policies or guidelines may cause the Company's financial condition to be perceived differently; changes in corporate and/or individual income tax laws may adversely affect the Company's financial condition or results of operations; general economic conditions, either nationally or locally in some or all areas in which the Company conducts business, the effects of the COVID-19 pandemic, and of other widespread outbreaks of disease or pandemics, together with related impacts on general economic conditions, including adverse impacts on our customers' ability to make timely payments on their loans from us, reduced fee income due to reduced loan origination activity, reductions in or absence of gains on loan sales due to uncertainty in the loan sale market, and increased operating expense due to required changes in how we conduct our business may adversely affect us; conditions in the securities markets or the banking industry may be less favorable than the Company currently anticipates; legislation or regulatory changes may adversely affect the Company's business; technological changes may be more difficult or expensive to implement or accommodate than the Company anticipates; there may be failures or breaches of information technology security systems; success or consummation of new business initiatives may be more difficult or expensive than the Company anticipates; or litigation or matters before regulatory agencies, whether currently existing or commencing in the future, may delay the occurrence or non-occurrence of events longer than the Company anticipates. The Company undertakes no obligation to revise any forward-looking statement contained herein to reflect any future events or circumstances, except to the extent required by law.

Schedules and Financial Data: All tables and data to follow