Commonwealth Business Bank Reports 2016 Fourth Quarter Results

LOS ANGELES--(BUSINESS WIRE)--

Commonwealth Business Bank ("CBB" or the "Bank") CWBB today announced net income of $3.4 million for the fourth quarter of 2016, compared to $1.8 million for the prior quarter and $2.5 million for the fourth quarter of 2015. Diluted earnings per share were $0.37 for the fourth quarter of 2016, compared to $0.19 for the preceding quarter and $0.27 for the year ago quarter.

Net income for the year ended December 31, 2016 increased 1.4% to $11.4 million, or $1.24 per diluted share, compared to $11.3 million, or $1.23 per diluted share, for the same period in 2015.

"Our strong financial performance this quarter reflects the decisive steps we took last quarter to address credit issues related to one borrower and our continued efforts to effectively manage our balance sheet and reduce our cost of funds." said Joanne Kim, President and CEO. "To ensure our continued success, in 2017 we will expand our presence in the markets we serve by relocating our Dallas branch to a new retail-friendly location and opening new branches in Los Angeles and Dallas." added Ms. Kim.

RESULTS OF OPERATIONS


	Three Months Ended													Twelve Months Ended
	December 31,			September 30,			%		December 31,			%		December 31,			December 31,			%
	2016			2016			Change		2015			Change		2016			2015			Change
	(Dollars in thousands, except per share amounts)

Net income	$	3,440		$	1,755		96.0	%	$	2,546		35.1	%	$	11,437		$	11,275		1.4	%
Net income per diluted common share	$	0.37		$	0.19		94.7	%	$	0.27	¹	37.0	%	$	1.24		$	1.23	¹	0.8	%

Return on average assets		1.53	%		0.83	%	84.3	%		1.31	%	16.8	%		1.38	%		1.55	%	(11.0	%)
Return on average equity		13.58	%		7.04	%	92.9	%		11.31	%	20.1	%		11.80	%		13.44	%	(12.2	%)

Noninterest income/average assets		1.33	%		1.36	%	(2.2	%)		1.60	%	-16.9	%		1.43	%		1.53	%	(6.5	%)
Pre-tax, pre-provision earnings/average assets		2.58	%		2.77	%	(6.9	%)		2.40	%	7.5	%		2.78	%		2.72	%	2.2	%
Noninterest expense/average assets		2.57	%		2.54	%	1.2	%		3.11	%	-17.4	%		2.69	%		2.74	%	(1.8	%)
Efficiency ratio		49.93	%		47.83	%	4.4	%		56.44	%	-11.5	%		49.13	%		50.23	%	(2.2	%)
Net interest margin²		3.94	%		4.08	%	(3.4	%)		4.00	%	-1.5	%		4.16	%		4.02	%	3.5	%

¹ Restated for 10% stock dividend to shareholders of record on May 16, 2016
² Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate

Net Interest Income and Net Interest Margin

Net interest income was $8.6 million for the fourth quarter of 2016, an increase of $206,000, or 2.5%, compared to $8.4 million for the prior quarter and an increase of $1.0 million, or 13.7%, compared to $7.6 million for the same quarter last year. The quarter-over-quarter increase was primarily due to a $50,000 increase in interest earned on investment securities, a $65,000 increase in interest earned on deposits at the Federal Reserve Bank ("FRB") and other banks, and a $122,000 increase in dividend income, which were partially offset by a $75,000 increase in interest expense on deposits. The year-over-year quarterly increase was primarily due to a $798,000 increase in interest earned on loans, a $167,000 increase in interest earned on investment securities, and a $133,000 increase in dividend income, which were partially offset by a $146,000 increase in interest expense on deposits. The year-over-year quarterly increase in interest earned on loans was due to a $51.1 million increase in the average balance of loans and a 9 basis point increase in the yield on loans to 5.29% from 5.20%.

Net interest income was $33.6 million for the year ended December 31, 2016, an increase of $5.0 million, or 17.7%, compared to $28.5 million for the same period last year. The year-over-year increase was primarily attributable to a $5.2 million increase in interest earned on loans, a $252,000 increase in interest earned on investment securities, and a $203,000 increase in interest earned on deposits at the FRB and other banks, which were partially offset by a $674,000 increase in interest expense on deposits. The increase in interest earned on loans was due to a $74.1 million increase in the average balance of loans and a 19 basis point increase in the yield on loans to 5.43% from 5.24%.

The reported yield on our loan portfolio is impacted by a number of factors, including changes in the contractual interest rate earned on the portfolio and the amount of discount accretion on SBA loans. The following table reconciles the contractual yield on our loan portfolio to the reported loan yields for the periods indicated.


	Three Months Ended													Twelve Months Ended
	December 31, 2016					September 30, 2016				December 31, 2015				December 31, 2016					December 31, 2015
	Amount			Yield		Amount		Yield		Amount		Yield		Amount			Yield		Amount		Yield
	(Dollars in thousands)
Contractual yield	$	8,705		4.82	%	$	8,836	4.86	%	$	8,064	4.80	%	$	34,229		4.90	%	$	30,208	4.83	%
SBA discount accretion		792		0.44	%		568	0.31	%		579	0.34	%		3,014		0.43	%		2,399	0.38	%
Prepayment penalties & late fees		140		0.08	%		95	0.06	%		83	0.05	%		500		0.07	%		150	0.03	%
Amortization of the net deferred costs		(93	)	(0.05	%)		2	-			20	0.01	%		(83	)	(0.01	%)		8	-
Interest recognized on nonaccrual loans		-		-			-	-			-	-			275		0.04	%		-	-
As reported yield on loans	$	9,544		5.29	%	$	9,501	5.23	%	$	8,746	5.20	%	$	37,935		5.43	%	$	32,765	5.24	%

The net interest margin was 3.94% for the current quarter, a decrease of 14 basis points from 4.08% in the prior quarter and a decrease of 6 basis points from 4.00% in the year ago quarter. The quarter-over-quarter decrease was primarily due to a 14 basis point decrease in the yield on interest-earning assets to 4.63% from 4.77% for the prior quarter, which was partially offset by a 1 basis point decrease in our cost of funds to 0.76% from 0.77% for the prior quarter. The year-over-year quarterly decrease was primarily due to a 9 basis point decrease in the yield on interest-earning assets from 4.72% in the year ago quarter, which was partially offset by a 4 basis point decrease in our cost of funds from 0.80% for the same period last year. The quarter-over-quarter decrease in our cost of funds was due to a 1 basis point decrease in the Bank's cost of deposits to 0.75% in the current quarter from 0.76% in the prior quarter and the year-over-year quarterly decrease in our cost of funds was due to a 4 basis point decrease in our cost of deposits from 0.79% in the same quarter last year.

For the year ended December 31, 2016, the net interest margin was 4.16%, an increase of 14 basis points compared to 4.02% for 2015. This increase was primarily due to a 13 basis point increase in the yield on interest-earning assets to 4.86% from 4.73% and a 1 basis point decrease in our cost of funds to 0.78% from 0.79%.

Provision for Loan Losses

The Bank recorded no provision for loan losses in the fourth quarter of 2016, a decrease of $3.1 million compared to the amount recorded in the prior quarter and a decrease of $350,000 compared to the amount recorded in the year ago quarter. The quarter-over-quarter decrease in the provision for loan losses was due to credit issues related to one borrower in the prior quarter. Although we are taking all necessary steps to minimize our loss on this relationship, we charged off the loan in the current quarter. For the year ended December 31, 2016, the Bank recorded provision for loan losses of $3.9 million, an increase of $3.4 million from $500,000 recorded last year. The year-over-year increase in the provision for loan losses was primarily due to the aforementioned third quarter credit issues related to one commercial borrower.

Noninterest Income

For the current quarter, noninterest income totaled $3.0 million, an increase of $125,000, or 4.3%, and a decrease of $98,000, or 3.2%, from $2.9 million and $3.1 million in the prior and year ago quarters, respectively. The quarter-over-quarter increase was primarily due to a $67,000 increase in service charges on deposits and a $153,000 increase in gains on sales of SBA loans, which were partially offset by a $92,000 decrease in SBA loan servicing fee income. The year-over-year quarterly decrease was primarily due to a $205,000 decrease in gains on sales of SBA loans, which was partially offset by $78,000 increase in service charges on deposits.

For the year ended December 31, 2016, noninterest income increased $777,000, or 7.0%, to $11.9 million from $11.1 million in 2015. The increase was primarily due to a $153,000 increase in service charges on deposits, a $144,000 increase in other service fee income, a $158,000 increase in SBA servicing income, and a $315,000 increase in gains on sales of SBA loans.

As the following table indicates, during the fourth quarter of 2016, the Bank sold $31.2 million of SBA loans, compared to $28.7 million in the preceding quarter and $33.8 million in the same quarter last year. For the year ended December 31, 2016, the Bank sold $123.4 million of SBA loans, compared to $111.1 million last year. The quarterly average premium on sales of SBA loans for the current quarter was 9.17% compared to 9.29% in the prior quarter and 9.48% in the year ago quarter. The average premium on sales of SBA loans for the year ended December 31, 2016 was 9.64% compared to 10.58% last year. The amount of SBA loan sales varies based on the volume of loans we originate, our liquidity needs and market conditions.


	Three Months Ended													Twelve Months Ended
	December 31,			September 30,			%		December 31,			%		December 31,			December 31,			%
	2016			2016			Change		2015			Change		2016			2015			Change
	(Dollars in thousands)
SBA loans held-for-sale at beginning of the quarter	$	11,525		$	13,780		(16.4	%)	$	21,043		(45.2	%)	$	17,809		$	21,267		(16.3	%)
SBA loans originated/transferred from held-for-investment during the quarter		37,833			26,545		42.5	%		30,676		23.3	%		123,986			108,321		14.5	%
SBA loans sold during the quarter		(31,190	)		(28,722	)	8.6	%		(33,762	)	(7.6	%)		(123,448	)		(111,134	)	11.1	%
SBA loans principal payment, net of advance		(72	)		(78	)	(7.7	%)		(148	)	(51.4	%)		(251	)		(645	)	(61.1	%)
SBA loans held-for-sale at end of the quarter	$	18,096		$	11,525		57.0	%	$	17,809		1.6	%	$	18,096		$	17,809		1.6	%

Gain on sale of SBA loans	$	2,128		$	1,975		7.7	%	$	2,333		(8.8	%)	$	8,839		$	8,524		3.7	%
Premium on sale (weighted average)		9.17	%		9.29	%	(1.3	%)		9.48	%	(3.3	%)		9.64	%		10.58	%	(8.9	%)

SBA loan production	$	46,405		$	32,854		41.2	%	$	43,313		7.1	%	$	163,160		$	147,362		10.7	%

Noninterest Expense

Noninterest expense for the fourth quarter of 2016 was $5.8 million, an increase of $402,000, or 7.5%, from $5.4 million in the prior quarter and a decrease of $227,000, or 3.8%, from $6.0 million in the year ago quarter. The quarter-over-quarter increase was primarily due to a $72,000 increase in salaries and employee benefits, a $68,000 increase in professional expense, and a $329,000 increase in other expense, which were partially offset by a $55,000 decrease in marketing expense. The increase in other expense was primarily due to a $191,000 contribution to the Bank's recently established charitable foundation. The year-over-year quarterly decrease was primarily due to a $836,000 decrease in data processing expense and a $80,000 decrease in marketing expense, which were partially offset by a $443,000 increase in salaries and employee benefits and a $212,000 increase in other expense. The decrease in data processing expense was due to one-time core system conversion costs incurred during the year ago quarter. The year-over-year quarterly increase in salaries and employee benefits was primarily due to a 15 person increase in the average number of full time equivalent employees ("FTEs") to 138 during the current quarter from 123 during the year ago quarter.

For the year ended December 31, 2016, noninterest expense was $22.3 million, an increase of $2.4 million, or 12.2%, from $19.9 million last year. The increase was primarily due to a $2.5 million increase in salaries and employee benefits, a $154,000 increase in occupancy and equipment expense, and a $414,000 increase in other expense, which were partially offset by a $531,000 decrease in data processing expense. The increase in salaries and employee benefits was due to a 16 person increase in the average number of FTEs to 132 in the twelve months of 2016 from 116 in the same period last year. The decrease in data processing expense was primarily due to one-time core system conversion costs in 2015.


	At or for the Three Months Ended													At or for the Twelve Months Ended
	December 31,			September 30,			%		December 31,			%		December 31,			December 31,			%
	2016			2016			Change		2015			Change		2016			2015			Change
	(Dollars in thousands)

Salaries and benefits	$	3,762		$	3,690		2.0	%	$	3,319		13.3	%	$	14,951		$	12,501		19.6	%
FTE at end of period		139			136		2.2	%		127		9.4	%		139			127		9.4	%
Average FTE during the period		138			132		4.5	%		123		12.2	%		132			116		13.8	%
Salaries and benefit/average FTE¹	$	108		$	111		(2.7	%)	$	107		0.9	%	$	113		$	108		4.6	%
Salaries and benefit/average assets¹		1.67	%		1.74	%	(4.0	%)		1.71	%	(2.3	%)		1.80	%		1.72	%	4.7	%
Noninterest expense/average assets¹		2.57	%		2.54	%	1.2	%		3.11	%	(17.4	%)		2.69	%		2.74	%	(1.8	%)

¹ Annualized

Income Tax Expense

The income tax expense was $2.4 million for the quarter, or an effective tax rate of 40.80%, compared to $1.0 million, or an effective tax rate of 36.92%, for the prior quarter and $1.8 million, or an effective tax rate of 40.76%, for the year ago quarter. For the year ended December 31, 2016, income tax expense was $7.8 million, or an effective tax rate of 40.52%, compared to $8.0 million, or an effective tax rate of 41.39%, in 2015.

Pre-Tax, Pre-Provision Income

For the fourth quarter of 2016, the Bank's pre-tax, pre-provision ("PTPP") income was $5.8 million, a decrease of $71,000, or 1.2%, from $5.9 million for the prior quarter and an increase of $1.2 million, or 25.0%, from $4.6 million for the same quarter a year ago. Annualized PTPP income to average assets decreased to 2.58% for the current quarter, compared to 2.77% for the prior quarter and increased from 2.40% for the year ago quarter. For the year ended December 31, 2016, PTPP income was $23.1 million, an increase of $3.4 million, or 17.2%, from $19.7 million in the prior year. PTPP income to average assets for the year ended December 31, 2016 was 2.78%, an increase of 6 basis points from 2.72% last year.


	Three Months Ended													Twelve Months Ended
	December 31,			September 30,			%		December 31,			%		December 31,			December 31,			%
	2016			2016			Change		2015			Change		2016			2015			Change
	(Dollars in thousands)

PTPP income	$	5,811		$	5,882		(1.2	%)	$	4,648		25.0	%	$	23,128		$	19,736		17.2	%
Average assets	$	897,315		$	845,402		6.1	%	$	768,885		16.7	%	$	831,368		$	725,773		14.5	%
Annualized PTPP/average assets		2.58	%		2.77	%	(6.9	%)		2.40	%	7.5	%		2.78	%		2.72	%	2.2	%
PTPP, excluding gain on sale of SBA loans	$	3,683		$	3,907		(5.7	%)	$	2,315		59.1	%	$	14,289		$	11,212		27.4	%

BALANCE SHEET

At December 31, 2016, the Bank had total assets of $913.2 million, an increase of $20.4 million, or 2.3%, from $892.8 million at September 30, 2016 and an increase of $126.8 million, or 16.1%, from $786.4 million at December 31, 2015. Earning assets totaled $885.2 million at December 31, 2016, an increase of $23.5 million, or 2.7%, from $861.6 million at September 30, 2015, and an increase of $119.5 million, or 15.6%, from $765.7 million at December 31 2015.


	December 31,			September 30,			%		December 31,			%
	2016			2016			Change		2015			Change
	(Dollars in thousands, except per share amounts)

Assets	$	913,194		$	892,758		2.3	%	$	786,423		16.1	%
Earning assets		885,167			861,626		2.7	%		765,667		15.6	%
Interest-earning deposits at FRB and other banks		90,060			101,515		(11.3	%)		88,951		1.2	%
Investment securities		75,232			39,864		88.7	%		4,363		1624.3	%
Loans held-for-sale		18,096			11,525		57.0	%		17,809		1.6	%
Loans receivable		696,142			703,372		(1.0	%)		649,691		7.1	%
Deposits		795,104			776,835		2.4	%		680,512		16.8	%

Tangible common equity/total assets		11.17	%		11.08	%	0.8	%		11.44	%	(2.4	%)
Tangible common equity per common share	$	11.22		$	10.89		3.0	%	$	10.05	¹	11.6	%

¹ Restated for 10% stock dividend to shareholders of record on May 16, 2016

Interest-earning Deposits at the FRB and Other Banks

Interest-earning deposits at the FRB and other banks totaled $90.1 million at the current quarter-end, a decrease of $11.5 million, or 11.3%, compared to $101.5 million at the end of the prior quarter, and an increase of $1.1 million, or 1.2%, compared to $89.0 million at the end of the year ago quarter.

Investment Securities

Investment securities totaled $75.2 million at the current quarter-end, an increase of $35.4 million, or 88.7%, compared to $39.9 million at the end of the prior quarter, and an increase of $70.9 million compared to $4.4 million at the end of the year ago quarter. The increase in investment securities was due to investing the Bank's excess liquidity into higher-earning investment securities.

Loans Receivable

The following table details loans by type at the dates indicated:


	December 31,			September 30,			%		December 31,			%
	2016			2016			Change		2015			Change
	(Dollars in thousands)

Construction	$	12,252		$	12,232		0.2	%	$	10,577		15.8	%
Commercial real estate		563,970			564,214		(0.0	%)		502,679		12.2	%
Commercial and industrial		114,319			122,125		(6.4	%)		131,869		(13.3	%)
Consumer		3,998			3,448		16.0	%		3,153		26.8	%
Gross loans		694,539			702,019		(1.1	%)		648,278		7.1	%

Net deferred loan costs		1,603			1,353		18.5	%		1,413		13.4	%
Gross loans, net	$	696,142		$	703,372		(1.0	%)	$	649,691		7.1	%

Loans held-for-sale	$	18,096		$	11,525		57.0	%	$	17,809		1.6	%
Gross loans, net, including loans held-for-sale	$	714,238		$	714,897		(0.1	%)	$	667,500		7.0	%

Loan-to-deposit (LTD) ratio:		87.6	%		90.5	%	(3.3	%)		95.5	%	(8.3	%)
LTD ratio including loans held-for-sale		89.8	%		92.0	%	(2.4	%)		98.1	%	(8.4	%)

At December 31, 2016, gross loans, net, including loans held-for-sale were $714.2 million, a decrease of $659,000, or 0.1%, from $714.9 million at September 30, 2016 and an increase of $46.7 million, or 7.0%, from $667.5 million at December 31, 2015. During the fourth quarter of 2016, total new loan production, including revolving lines of credit, was $69.5 million, compared to $86.0 million for the prior quarter and $76.4 million for the same quarter last year. For the year ended December 31, 2016, total new loan production, including revolving lines of credit, was $348.0 million, compared to $361.5 million in 2015.

As discussed earlier, during the current quarter we sold $31.2 million of SBA loans, compared to sales of $28.7 million in the prior quarter and sales of $33.8 million in the year ago quarter. During the year ended December 31, 2016 we sold $123.4 million of SBA loans, compared to sales of $111.1 million last year. In addition to sales of SBA loans, the Bank sold $5.5 million, $11.7 million, and $9.0 million of commercial real estate ("CRE") loans in the current, prior and year ago quarters, respectively, to reduce its concentration in CRE loans. For the years ended December 31, 2016 and 2015, we sold $17.2 million and $9.0 million, respectively, of CRE loans.

Deposits

The following table details deposits by category at the dates indicated:


	December 31, 2016					September 30, 2016					%		December 31, 2015					%
	Balance			%		Balance			%		Change		Balance			%		Change
	(Dollars in thousands)

Noninterest-bearing demand	$	197,210		24.8	%	$	187,367		24.1	%	5.3	%	$	163,385		24.0	%	20.7	%
Money market & NOW		169,309		21.3	%		166,209		21.4	%	1.9	%		133,343		19.6	%	27.0	%
Savings		12,990		1.6	%		12,373		1.6	%	5.0	%		8,845		1.3	%	46.9	%
Time deposits		415,595		52.3	%		410,886		52.9	%	1.1	%		374,939		55.1	%	10.8	%

Total Deposits	$	795,104		100.0	%	$	776,835		100.0	%	2.4	%	$	680,512		100.0	%	16.8	%

Cost of deposits		0.75	%				0.76	%						0.79	%

Total deposits were $795.1 million at the end of the current quarter, an increase of $18.3 million, or 2.4%, compared to $776.8 million at the end of the prior quarter and an increase of $114.6 million, or 16.8%, compared to $680.5 million at the end of last year. Noninterest-bearing deposits increased $9.8 million, or 5.3%, to $197.2 million at the end of the current quarter from $187.4 million at the end of the prior quarter and increased $33.8 million, or 20.7%, compared to $163.4 million at the end of the year ago quarter. Noninterest-bearing deposits to total deposits were 24.8%, 24.1% and 24.0% at the end of the current, prior and year ago quarters, respectively.

ASSET QUALITY


		December 31,			September 30,			%		December 31,			%
		2016			2016			Change		2015			Change
		(Dollars in thousands)
Delinquent Loans:¹
	Loans 30-89 days past due	$	309		$	576		(46.4	%)	$	175		76.6	%
	90 days or more past due and still accruing		-			126		(100.0	%)		-		-
	Nonaccrual loans		3,084			6,965		(55.7	%)		2,927		5.4	%
	Delinquent loans	$	3,393		$	7,667		(55.7	%)	$	3,102		9.4	%

Nonperforming Assets:
	90 days or more past due and still accruing	$	-		$	126		(100.0	%)	$	-		-
	Nonaccrual loans ¹		3,084			6,965		(55.7	%)		2,927		5.4	%
	Nonperforming loans		3,084			7,091		(56.5	%)		2,927		5.4	%

	Other real estate owned		1,155			1,403		(17.7	%)		-		-
	Nonperforming assets	$	4,239		$	8,494		(50.1	%)	$	2,927		44.8	%

	Nonaccrual loans to gross loans excluding LHFS		0.44	%		0.99	%	(55.6	%)		0.45	%	(2.2	%)
	Nonperforming loans to gross loans excluding LHFS		0.44	%		1.01	%	(56.4	%)		0.45	%	(2.2	%)
	Nonperforming assets to total assets		0.46	%		0.95	%	(51.6	%)		0.37	%	24.3	%
	Texas Ratio²		3.84	%		7.63	%	(49.7	%)		2.97	%	29.3	%

Classified Loans: ¹
	Substandard	$	8,125		$	12,111		(32.9	%)	$	7,056		15.2	%
	Doubtful		-			-		-			-		-
	Loss		-			-		-			-		-
	Classified loans	$	8,125		$	12,111		(32.9	%)	$	7,056		15.2	%

	Classified assets to total assets		0.89	%		1.36	%	(34.6	%)		0.90	%	(1.1	%)
	Classified assets to Tier 1 and ALLL		7.35	%		10.87	%	(32.4	%)		7.16	%	2.7	%

Performing TDR loans:		$	3,806		$	3,898		(2.4	%)	$	4,341		(12.3	%)

Allowance for Loan Losses Items:
	Balance at beginning of period	$	12,438		$	9,321		33.4	%	$	9,238		34.6	%
	Provision for loan losses		-			3,100		(100.0	%)		350		(100.0	%)
	Charge-offs		4,010			3		133567	%		1,227		226.8	%
	Recoveries		28			20		40.0	%		185		(84.9	%)
	Balance at the end of period	$	8,456		$	12,438		(32.0	%)	$	8,546		(1.1	%)

	ALLL to gross loans (exc. LHFS)		1.21	%		1.77	%	(31.6	%)		1.32	%	(8.3	%)
	ALLL to nonperforming loans		274.19	%		175.41	%	56.3	%		291.97	%	(6.1	%)

¹ Net of SBA guaranteed balance
² Nonperforming assets divided by tangible common equity and ALLL

Loans 30 to 89 days past due and on accrual status at the end of the current quarter were $309,000, a decrease of $267,000 compared to $576,000, at the end of the prior quarter, and an increase of $134,000 from $175,000 at the end of the same quarter last year. There were no loans 90 days or more past due and still accruing at the end of the current quarter, compared to $126,000 at the end of the prior quarter and none at the end of the year ago quarter. Nonaccrual loans decreased $3.9 million to $3.1 million, or 0.44% of gross loans excluding loans held-for-sale, at the end of the current quarter from $7.0 million, or 0.99% of gross loans excluding loans held-for-sale, at the end of the prior quarter and increased $157,000 from $2.9 million, or 0.45% of gross loans excluding loans held-for-sale, at the end of last year.

Nonperforming loans at December 31, 2016 were $3.1 million, or 0.44% of gross loans excluding loans held-for-sale, a decrease of $4.0 million compared to $7.1 million, or 1.01% of gross loans excluding loans held-for-sale, at the end of the prior quarter and an increase of $157,000 from $2.9 million, or 0.45% of gross loans excluding loans held-for-sale, at the end of the same quarter last year.

Real estate owned at December 31, 2016 was $1.2 million, a decrease of $248,000, or 17.7%, compared to $1.4 million at the end of the prior quarter and an increase of $1.2 million from none at the end of the year ago quarter.

Nonperforming assets at the end of current quarter were $4.2 million, or 0.46% of total assets, a decrease of $4.3 million compared to $8.5 million, or 0.95% of total assets, at September 30, 2016 and an increase of $1.3 million from $2.9 million, or 0.37% of total assets, at December 31, 2015.

The allowance for loan losses at December 31, 2016 was $8.5 million, or 1.21% of gross loans excluding loans held-for-sale, compared to $12.4 million, or 1.77% of gross loans excluding loans held-for-sale, at September 30, 2016, and $8.5 million, or 1.32% of gross loans excluding loans held-for-sale, at the end of the year ago quarter. The quarter-over-quarter decrease in the provision for loan losses was primarily due to the charge off of the aforementioned troubled loan. The allowance for loan losses to nonperforming assets was 274.19%, 175.41%, and 291.97% at December 31, 2016, September 30, 2016, and December 31, 2015, respectively.

CAPITAL

At December 31, 2016, the Bank continued to exceed all regulatory capital requirements to be classified as a "well-capitalized" institution and maintained a capital conservation buffer in excess of the minimum required to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments. The minimum capital conservation buffer requirement was 0.625% in 2016 and there was no capital conservation buffer requirement in prior years. The capital conservation buffer is calculated as the smallest excess of a bank's common equity tier 1, tier 1 risk-based and total risk-based capital ratios over the regulatory "adequately" capitalized minimum ratios of 4.50%, 6.00% and 8.00%, respectively. The minimum capital conservation buffer will increase an additional 0.625% at the beginning of 2017, 2018, and 2019, reaching the fully phased-in minimum of 2.500% in 2019. When the capital conservation buffer is fully phased-in in 2019, banks will be required to maintain common equity tier 1, tier 1 risk-based and total risk-based capital ratios that are at least 50 basis points greater than the well-capitalized minimums to avoid the aforementioned limitations on capital distributions. The Bank's regulatory capital ratios and capital conservation buffer at the dates indicated are summarized below:


			CBB Capital Ratios
	Well-Capitalized		December 31,		September 30,		June 30,		March 31,		December 31,
	Minimum		2016		2016		2016		2016		2015

Leverage ratio	5.00	%	11.40	%	11.68	%	11.93	%	12.09	%	11.67	%
Common equity tier 1 capital ratio	6.50	%	13.70	%	13.25	%	13.17	%	13.61	%	13.25	%
Tier 1 risk-based capital ratio	8.00	%	13.70	%	13.25	%	13.17	%	13.61	%	13.25	%
Total risk-based capital ratio	10.00	%	14.95	%	14.51	%	14.42	%	14.87	%	14.50	%

			Capital Conservation Buffer
			December 31,		September 30,		June 30,		March 31,		December 31,
			2016		2016		2016		2016		2015

Minimum required capital conservation buffer			0.625	%	0.625	%	0.625	%	0.625	%	N/A
CBB Capital conservation buffer			6.953	%	6.512	%	6.424	%	6.870	%	N/A

ABOUT COMMONWEALTH BUSINESS BANK ("CBB BANK")

Commonwealth Business Bank is a full-service commercial bank also doing business as "CBB Bank," and specializes in small-to medium-sized businesses. CBB has six full service branches in Los Angeles, Orange, and Dallas Counties and five loan production offices in Texas, Georgia, Colorado, and Washington. For additional information, please visit CBB's website at www.cbb-bank.com.

NON-GAAP FINANCIAL MEASURES

CBB may use certain non-GAAP financial measures to provide meaningful supplemental information regarding CBB's operational performance and to enhance investors' overall understanding of such financial performance. These non-GAAP measures have important limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under the GAAP.

FORWARD-LOOKING STATEMENTS

This release may contain forward-looking statements that are subject to risks and uncertainties. Such risks and uncertainties may include, but are not necessarily limited to, fluctuations in interest rates, inflation, government regulations and general economic conditions, and competition within the business areas in which Commonwealth Business Bank is conducting its operations, including the real estate market in California, and other factors beyond Commonwealth Business Bank's control. Such risks and uncertainties could cause results for subsequent interim periods or for the entire year to differ materially from those indicated. Readers should not place undue reliance on the forward-looking statements, which reflect management's view only as of the date hereof. Commonwealth Business Bank undertakes no obligation to revise these forward-looking statements publicly to reflect subsequent events or circumstances.


BALANCE SHEET (Unaudited)
(Dollars in thousands)

		December 31,			September 30,			%		December 31,			%
		2016			2016			Change		2015			Change
ASSETS
	Cash and due from banks	$	9,127		$	11,832		(22.9	%)	$	7,878		15.9	%
	Interest-earning deposits at the FRB and other banks		90,060			101,515		(11.3	%)		88,951		1.2	%
	Investment securities		75,232			39,864		88.7	%		4,363		1624.3	%
	Loans held-for-sale, at the lower of cost or fair value		18,096			11,525		57.0	%		17,809		1.6	%

	Loans		696,142			703,372		(1.0	%)		649,691		7.1	%
	Allowance for loan losses		(8,456	)		(12,438	)	(32.0	%)		(8,546	)	(1.1	%)
	Loans receivable, net		687,686			690,934		(0.5	%)		641,145		7.3	%

	FHLB & FRB stock		5,637			5,350		5.4	%		4,853		16.2	%
	Other assets		27,356			31,738		(13.8	%)		21,424		27.7	%
	TOTAL ASSETS	$	913,194		$	892,758		2.3	%	$	786,423		16.1	%


LIABILITIES AND STOCKHOLDERS' EQUITY
	Noninterest-bearing	$	197,210		$	187,367		5.3	%	$	163,385		20.7	%
	Interest-bearing		597,894			589,468		1.4	%		517,127		15.6	%
	Total deposits		795,104			776,835		2.4	%		680,512		16.8	%

	FHLB advances		10,000			10,000		-			10,000		-
	Other liabilities		6,051			6,992		(13.5	%)		5,924		2.1	%
	Total liabilities		811,155			793,827		2.2	%		696,436		16.5	%

Stockholders' Equity			102,039			98,931		3.1	%		89,987		13.4	%
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY		$	913,194		$	892,758		2.3	%	$	786,423		16.1	%

STATEMENT OF INCOME (Unaudited)
(Dollars in thousands, except per share amounts)

	Three Months Ended											Twelve Months Ended
	December 31,		September 30,		%		December 31,			%		December 31,		December 31,			%
	2016		2016		Change		2015			Change		2016		2015			Change

Interest income	$	10,096	$	9,816	2.9	%	$	8,917		13.2	%	$	39,243	$	33,523		17.1	%
Interest expense		1,500		1,426	5.2	%		1,355		10.7	%		5,691		5,011		13.6	%
Net interest income		8,596		8,390	2.5	%		7,562		13.7	%		33,552		28,512		17.7	%

Provision for loan losses		-		3,100	(100.0	%)		350		(100.0	%)		3,900		500		680.0	%
Net interest income after provision for loan losses		8,596		5,290	62.5	%		7,212		19.2	%		29,652		28,012		5.9	%

Gain on sale of loans		2,128		1,975	7.7	%		2,333		(8.8	%)		8,839		8,524		3.7	%
Service charges and other income		882		910	(3.1	%)		775		13.8	%		3,078		2,616		17.7	%
Noninterest income		3,010		2,885	4.3	%		3,108		(3.2	%)		11,917		11,140		7.0	%

Salaries and employee benefits		3,762		3,690	2.0	%		3,319		13.3	%		14,951		12,501		19.6	%
Occupancy and equipment		548		551	(0.5	%)		503		8.9	%		2,122		1,968		7.8	%
Other expenses		1,485		1,152	28.9	%		2,200		(32.5	%)		5,268		5,447		(3.3	%)
Noninterest expense		5,795		5,393	7.5	%		6,022		(3.8	%)		22,341		19,916		12.2	%

Income before income tax expense		5,811		2,782	108.9	%		4,298		35.2	%		19,228		19,236		(0.0	%)

Income tax expense		2,371		1,027	130.9	%		1,752		35.3	%		7,791		7,961		(2.1	%)

Net income	$	3,440	$	1,755	96.0	%	$	2,546		35.1	%	$	11,437	$	11,275		1.4	%

PTPP	$	5,811	$	5,882	(1.2	%)	$	4,648		25.0	%	$	23,128	$	19,736		17.2	%
PTPP excluding gain on sale of SBA loans	$	3,683	$	3,907	(5.7	%)	$	2,315		59.1	%	$	14,289	$	11,212		27.4	%

Weighted average shares for basic EPS		9,094,949		9,076,095	0.2	%		8,913,802	¹	2.0	%		9,038,366		8,833,284	¹	2.3	%
Weighted average shares for diluted EPS		9,328,776		9,285,072	0.5	%		9,200,817	¹	1.4	%		9,255,619		9,173,535	¹	0.9	%

Basic EPS	$	0.38	$	0.19	100.0	%	$	0.28	¹	35.7	%	$	1.27	$	1.28	¹	(0.8	%)
Diluted EPS	$	0.37	$	0.19	94.7	%	$	0.27	¹	37.0	%	$	1.24	$	1.23	¹	0.8	%

¹ Restated for 10% stock dividend to shareholders of record on May 16, 2016

SELECTED FINANCIAL HIGHLIGHTS (Unaudited)
(Dollars in thousands, except per share amounts)

		Three Months Ended													Twelve Months Ended
		December 31,			September 30,			%		December 31,			%		December 31,			December 31,			%
		2016			2016			Change		2015			Change		2016			2015			Change
Performance Ratios:
	Return on average assets		1.53	%		0.83	%	84.3	%		1.31	%	16.8	%		1.38	%		1.55	%	(11.0	%)
	Return on average equity		13.58	%		7.04	%	92.9	%		11.31	%	20.1	%		11.80	%		13.44	%	(12.2	%)
	Net interest margin		3.94	%		4.08	%	(3.4	%)		4.00	%	(1.5	%)		4.16	%		4.02	%	3.5	%
	Cost of funds		0.76	%		0.77	%	(1.3	%)		0.80	%	(5.0	%)		0.78	%		0.79	%	(1.3	%)
	Efficiency ratio		49.93	%		47.83	%	4.4	%		56.44	%	(11.5	%)		49.13	%		50.23	%	(2.2	%)

Capital Ratios:
	Core capital (leverage) ratio		11.40	%		11.68	%	(2.4	%)		11.68	%	(2.4	%)		11.40	%		11.68	%	(2.4	%)
	Common equity tier 1 risk-based capital ratio		13.70	%		13.25	%	3.4	%		13.26	%	3.3	%		13.70	%		13.26	%	3.3	%
	Tier 1 risk-based capital ratio		13.70	%		13.25	%	3.4	%		13.26	%	3.3	%		13.70	%		13.26	%	3.3	%
	Total risk-based capital ratio		14.95	%		14.51	%	3.0	%		14.51	%	3.0	%		14.95	%		14.51	%	3.0	%
	Minimum required capital conservation buffer		0.625	%		0.625	%	N/A			N/A		N/A			0.625	%		N/A		N/A
	CBB Capital conservation buffer		6.953	%		6.512	%	N/A			N/A		N/A			6.953	%		N/A		N/A
	Tangible common equity / total assets		11.17	%		11.08	%	0.8	%		11.44	%	(2.4	%)		11.17	%		11.44	%	(2.4	%)
	Tangible common equity per share	$	11.22		$	10.89		3.0	%	$	10.05	²	11.6	%	$	11.22		$	10.05	²	11.6	%

Selected Average Balances:
	Gross loans, net ¹	$	717,883		$	723,184		(0.7	%)	$	666,831		7.7	%	$	698,975		$	624,870		11.9	%
	Total investment securities		47,409			36,440		30.1	%		4,448		965.8	%		23,519			5,945		295.6	%
	Interest-earning assets		871,973			821,989		6.1	%		749,850		16.3	%		808,456			708,506		14.1	%
	Total assets		897,315			845,402		6.1	%		768,885		16.7	%		831,368			725,773		14.5	%
	Noninterest-bearing deposits		183,238			160,897		13.9	%		140,452		30.5	%		155,449			126,424		23.0	%
	Total deposits		779,080			728,415		7.0	%		662,374		17.6	%		717,572			626,666		14.5	%
	Interest-bearing liabilities		605,842			577,844		4.8	%		531,922		13.9	%		572,205			509,898		12.2	%
	Stockholders' equity		100,739			99,207		1.5	%		89,271		12.8	%		96,954			83,894		15.6	%

¹ Includes loans held-for-sale
² Restated for 10% stock dividend to shareholders of record on May 16, 2016

SELECTED LOAN AND ASSET QUALITY HIGHLIGHTS (Unaudited)
(Dollars in thousands)

		4th Qtr			3rd Qtr			2nd Qtr			1st Qtr			4th Qtr
		2016			2016			2016			2016			2015
Allowance for Loan Losses
	Balance at beginning of period	$	12,438		$	9,321		$	9,026		$	8,546		$	9,238
	Provision for loan losses		-			3,100			400			400			350
	Charge-offs		4,010			3			166			18			1,227
	Recoveries		28			20			61			98			185
	Balance at the end of period	$	8,456		$	12,438		$	9,321		$	9,026		$	8,546

Nonperforming Assets:¹
	Over 90 days still accruing	$	-		$	126		$	-		$	-		$	-
	Nonaccrual loans		3,084			6,965			3,279			1,895			2,927
	Total nonperforming loans		3,084			7,091			3,279			1,895			2,927

	Other real estate owned		1,155			1,403			1,155			1,155			-
	Total nonperforming assets	$	4,239		$	8,494		$	4,434		$	3,050		$	2,927


Classified Loans:¹
	Substandard	$	8,125		$	12,111		$	9,783		$	8,346		$	7,056
	Doubtful		-			-			-			-			-
	Loss		-			-			-			-			-
	Total classified loans	$	8,125		$	12,111		$	9,783		$	8,346		$	7,056

Performing TDR loans:		$	3,806		$	3,898		$	3,930		$	4,282		$	4,341

Delinquent Loans:¹
	Loans 30-89 days past due	$	309		$	576		$	354		$	2,270		$	175
	90 days or more past due and still accruing		-			126			-			-			-
	Nonaccrual		3,084			6,965			3,279			1,895			2,927
	Total delinquent loans	$	3,393		$	7,667		$	3,633		$	4,165		$	3,102

Asset Quality Ratios:
	Net charge-offs to average gross loans ²		2.21	%		(0.01	%)		0.06	%		(0.05	%)		0.62	%
	Nonaccrual loans to gross loans		0.44	%		0.99	%		0.47	%		0.29	%		0.45	%
	Nonperforming assets to total assets		0.46	%		0.95	%		0.54	%		0.38	%		0.37	%
	Classified assets to total assets		0.89	%		1.36	%		1.19	%		1.04	%		0.90	%
	Classified assets to Tier 1 and ALLL		7.35	%		10.87	%		9.20	%		8.14	%		7.16	%
	Nonperforming loans to gross loans (exc. LHFS)		0.44	%		1.01	%		0.47	%		0.29	%		0.45	%
	ALLL to gross loans (exc. LHFS)		1.21	%		1.77	%		1.33	%		1.37	%		1.32	%
	ALLL to nonaccrual loans		274.19	%		178.58	%		284.26	%		476.31	%		291.97	%
	ALLL to nonperforming loans		274.19	%		175.41	%		284.26	%		476.31	%		291.97	%
	ALLL to nonperforming assets		199.48	%		146.43	%		210.22	%		295.93	%		291.97	%
	Texas ratio ³		3.84	%		7.63	%		4.17	%		2.97	%		2.97	%

¹ Net of SBA guaranteed balance
² Includes loans held-for-sale
³ Nonperforming assets divided by tangible common equity and ALLL


MARGIN ANALYSIS (Unaudited)
(Dollars in thousands)

	Three Months Ended
	December 31, 2016							September 30, 2016							December 31, 2015
	Avg Balance			Interest		Yield		Avg Balance			Interest		Yield		Avg Balance			Interest		Yield

INTEREST-EARNING ASSETS
Loans ¹	$	717,883		$	9,544	5.29	%	$	723,184		$	9,501	5.23	%	$	666,831		$	8,746	5.20	%
Investment securities²		47,409			233	1.96	%		36,440			169	1.85	%		4,448			22	2.00	%
Interest-earning at the FRB and other banks		101,075			140	0.55	%		57,015			75	0.52	%		73,735			59	0.32	%
Other earning assets		5,606			223	15.83	%		5,350			101	7.51	%		4,836			90	7.38	%
Total interest-earning assets ²		871,973			10,140	4.63	%		821,989			9,846	4.77	%		749,850			8,917	4.72	%

NONINTEREST-EARNING ASSETS
Cash and due from banks		11,762							8,272							7,274
Other noninterest-earning assets		25,808							24,502							20,535
Total noninterest-earning assets		37,570							32,774							27,809

Less: Allowance for loan losses		(12,228	)						(9,361	)						(8,774	)

TOTAL ASSETS	$	897,315						$	845,402						$	768,885

INTEREST-BEARING DEPOSITS
Interest-bearing demand	$	1,865		$	1	0.15	%	$	1,446		$	-	0.15	%	$	1,026		$	-	0.15	%
Money market		167,465			371	0.88	%		154,120			342	0.88	%		135,415			306	0.90	%
Savings		12,775			51	1.59	%		11,198			44	1.56	%		8,071			37	1.82	%
Time deposits		413,737			1,036	1.00	%		400,754			998	0.99	%		377,410			970	1.02	%
Total interest-bearing deposits		595,842			1,459	0.97	%		567,518			1,384	0.97	%		521,922			1,313	1.00	%

Borrowings		10,000			41	1.63	%		10,326			42	1.62	%		10,000			42	1.65	%
Total interest-bearing liabilities		605,842			1,500	0.98	%		577,844			1,426	0.98	%		531,922			1,355	1.01	%

Noninterest-bearing deposits		183,238							160,897							140,452
Other liabilities		7,496							7,454							7,240

Stockholders' equity		100,739							99,207							89,271
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY	$	897,315						$	845,402						$	768,885

Net interest income				$	8,640						$	8,420						$	7,562


Cost of deposits						0.75	%						0.76	%						0.79	%

Cost of funds						0.76	%						0.77	%						0.80	%

Net interest spread						3.65	%						3.79	%						3.71	%

Net interest margin²						3.94	%						4.08	%						4.00	%

¹ Includes loans-held-for-sale
² Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate

MARGIN ANALYSIS (Unaudited)
(Dollars in thousands)

	Twelve Months Ended
	December 31, 2016							December 31, 2015
	Avg Balance			Interest		Yield		Avg Balance			Interest		Yield
Number of Days in the Period
INTEREST-EARNING ASSETS
Loans ¹	$	698,975		$	37,935	5.43	%	$	624,870		$	32,765	5.24	%
Investment securities²		23,519			447	1.90	%		5,945			121	2.04	%
Interest-earning at the FRB and other banks		80,699			425	0.53	%		73,083			222	0.30	%
Other earning assets		5,263			510	9.69	%		4,608			415	9.01	%
Total interest-earning assets ²		808,456			39,317	4.86	%		708,506			33,523	4.73	%

NONINTEREST-EARNING ASSETS
Cash and due from banks		8,746							6,992
Other noninterest-earning assets		23,969							19,232
Total noninterest-earning assets		32,715							26,224

Less: Allowance for loan losses		(9,803	)						(8,957	)

TOTAL ASSETS	$	831,368						$	725,773

INTEREST-BEARING DEPOSITS
Interest-bearing demand	$	1,450		$	2	0.15	%	$	1,027		$	2	0.15	%
Money market		151,484			1,322	0.87	%		139,853			1,260	0.90	%
Savings		10,672			168	1.57	%		7,653			139	1.82	%
Time deposits		398,517			4,034	1.01	%		351,709			3,451	0.98	%
Total interest-bearing deposits		562,123			5,526	0.98	%		500,242			4,852	0.97	%

Short-term borrowings		10,082			165	1.64	%		9,656			159	1.65	%
Total interest-bearing liabilities		572,205			5,691	0.99	%		509,898			5,011	0.98	%

Noninterest-bearing deposits		155,449							126,424
Other Liabilities		6,760							5,557

Stockholders' equity		96,954							83,894

TOTAL LIABILITIES & STOCKHOLDERS' EQUITY	$	831,368						$	725,773

Net interest income				$	33,626						$	28,512


Cost of deposits						0.77	%						0.77	%

Cost of funds						0.78	%						0.79	%

Net interest spread						3.87	%						3.75	%

Net interest margin²						4.16	%						4.02	%

¹ Includes loans-held-for-sale
² Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate

View source version on businesswire.com: http://www.businesswire.com/news/home/20170124005476/en/

Commonwealth Business Bank
Michael W. McCall
EVP & CFO
323-988-3144
MichaelM@cbb-bank.com

Market News and Data brought to you by Benzinga APIs