Commonwealth Business Bank Reports Strong Second Quarter Earnings

Commonwealth Business Bank (“CBB”) (OTCQB: CWBB) today announced net income of $3.0 million for the second quarter of 2015, compared with $2.8 million for the first quarter of 2015 and $2.4 million for the second quarter of 2014. Diluted earnings per share were $0.36 for the second quarter of 2015, compared with $0.34 for the first quarter of 2015 and $0.30 for the second quarter of 2014.

“Our second quarter results continue a trend of solid performance,” said Joanne Kim, President and CEO. “Our earnings of $3.0 million represented an increase of 24% over the same period in 2014 and a 9% increase over the first quarter of this year. We experienced solid loan growth and margin expansion, supported by deposit growth. Since its opening in April of this year, our Fullerton Branch has added over $20 million in deposits. We also added the new Commercial Banking Department during the quarter to facilitate commercial and industrial loan production. To support our growing operations, we strengthened our infrastructure, continuing our commitment to a disciplined focus on risk management.”

RESULTS OF OPERATIONS

Net income for the second quarter of 2015 increased $252,000 over the first quarter of 2015, and $594,000 over the second quarter of 2014. The improvement came from an increase in net interest income and gains on sale of Small Business Administration (“SBA”) loans, partially offset by increases in compensation, occupancy and marketing costs.

Net income for the six months ended June 30, 2015 decreased slightly compared to the previous year, primarily due to a $1.2 million negative loan loss reserves in the prior year.

Net Interest Income and Net Interest Margin

Net interest income, before provision for loan losses and loan commitments was $7.2 million for the second quarter of 2015, an increase of $720,000, or 11.1%, from $6.5 million for the first quarter of 2015, and an increase of $1.9 million, or 34.9%, from $5.3 million for the second quarter of 2014. The year-over-year increase in net interest income was primarily attributable to an increase of $123.3 million in average loan balances and a 20 basis point increase in the loan yield to 5.39%.

The net interest margin improved during the second quarter of 2015 to 4.21%, compared to 4.04% for the first quarter of 2015 and 3.61% for the second quarter of 2014. This improvement from the first quarter of 2015 was attributable to an 18 basis point increase in the yield on earning assets. The yield on average earning assets increased to 4.91% for the second quarter of 2015, from 4.73% for the first quarter of 2015 and 4.34% for the second quarter of 2014, primarily from an increase in loan yield. An accelerated accretion of discount on certain paid off SBA loans partially contributed to the increase in loan yield. The cost of funds was 0.78% for the second quarter of 2015, compared with 0.77% for the first quarter of 2015 and 0.82% for the second quarter of 2014. The year-over-year decrease in cost of funds was attributable to a decrease in cost of interest-bearing deposits and an increase in noninterest-bearing deposit balances.

Noninterest Income

For the second quarter of 2015, noninterest income totaled $2.8 million, approximately $200,000 increase from both the first quarter of 2015 and the second quarter of 2014. The quarter-over-quarter increase was primarily due to a $198,000 increase in the gains on the sale of SBA loans and a $42,000 increase in fee income, partially offset by a $44,000 decrease in SBA servicing income. The year-over-year increase in noninterest income was due primarily to a $302,000 increase in the gains on the sale of SBA loans, partially offset by a $105,000 decrease in fees and loan servicing income.

During the second quarter of 2015, CBB sold $27.1 million of SBA loans, compared with $25.7 million for the first quarter of 2015 and $23.5 million for the second quarter of 2014. SBA loan sales are dependent upon the volume of loans originated as well as the liquidity needs and market conditions, and, therefore, will vary from quarter to quarter.

Noninterest Expense

Noninterest expense for the second quarter of 2015 increased to $4.9 million, up 12.1% from $4.4 million for the first quarter of 2015, and up $1.1 million, or 28.9% from $3.8 million in the second quarter of 2014. The increase was due primarily to an increase in salaries and employee benefits resulting from the addition of staffing to support business expansion and to strengthen the infrastructure, as well as the annual merit adjustments. For the second quarter of 2015, salaries and employee benefits increased to $3.1 million, up $180,000 from $2.9 million for the first quarter of 2015, and up $526,000 from $2.6 million for the second quarter of 2014. Occupancy and equipment expense, as well as higher marketing expense associated with the new Fullerton Branch, also contributed to an increase in noninterest expense.

Pre-Tax, Pre-Provision Income

For the first quarter of 2015, CBB’s pre-tax, pre-provision (“PTPP”) income was $5.2 million, up 8.2% from $4.8 million for the first quarter of 2015 and up 23.0%, from $4.2 million for the second quarter of 2014. Annualized PTPP income increased to 2.94% of average assets for the second quarter of 2015, compared with 2.90% and 2.78% of average assets for the first quarter of 2015 and the second quarter of 2014, respectively.

The effective income tax rate for the six months ended June 30, 2015 was 41.61%, compared with 41.78% for the same period of 2014.

BALANCE SHEET SUMMARY

At June 30, 2015, CBB had total assets of $744.0 million, an increase of $40.1 million, or 5.7%, from $703.9 million at March 31, 2015, and an increase of $113.8 million, or 18.1%, from $630.2 million at June 30, 2014. Earning assets totaled $727.7 million at June 30, 2015, an increase of $112.9 million, or 18.4%, from $614.8 million at June 30, 2014. The year-over-year increase in earning assets was mainly from a $120.6 million growth in total loans.

Loans Receivable

The following table lists gross loans by type at the dates indicated:

At June 30, 2015, total loans (including loans held-for-sale) were $622.2 million, which was a $15.0 million, or 2.5% increase from $607.2 million at March 31, 2015 and a $120.6 million, or 24.0% increase from $501.6 million at June 30, 2014. During the second quarter of 2015, total new loan production (including revolving lines of credit) was approximately $97.7 million, compared to $74.1 million for the first quarter of 2015 and $93.9 million for the second quarter of 2014.

Deposits

The following table sets forth the amount of deposits by category at the dates indicated:

Total deposits increased $35.8 million, or 5.9% during the quarter and increased $88.6 million, or 15.9%, compared to June 30, 2014. The deposits from the two new branches and organic growth from existing branches, coupled with an increase in wholesale deposits contributed to the increase. Noninterest-bearing deposits grew $5.3 million, or 3.9% during the quarter and $14.5 million, or 11.5%, compared to June 30, 2014. However, due to a larger increase in time deposits, noninterest-bearing deposit decreased to 21.76% of total deposits at June 30, 2015 from 22.17% at March 31, 2015 and 22.62% at June 30, 2014. The increase in noninterest-bearing deposit balances and lower cost of interest-bearing deposits were the primary contributors to the year-over-year reduction in the cost of funds.

ASSET QUALITY

Nonperforming assets decreased during the second quarter of 2015 due to pay-off of a nonaccrual commercial real estate loan.

The $1.8 million year-over-year reduction in classified loans was due primarily to a pay-off as noted above and upgrades of certain classified commercial real estate loans.

The allowance for loan losses at June 30, 2015 was $9.0 million, or 1.51% of total gross loans (excluding loans held-for-sale), compared to $9.0 million, or 1.52%, at March 31, 2015, and $8.8 million, or 1.82%, at June 30, 2014. There was no provision for loan losses recorded for the first half of 2015, compared to a $1.2 million reversal in loan loss reserves for the same period of 2014. CBB also recorded no provision for unfunded loan commitments for the first half of 2015 and 2014.

CAPITAL

Effective January 1, 2015, the federal banking regulators changed the ratios and ratio thresholds for capital evaluations to conform to the prompt corrective action and the Basel III capital rules. As of June 30, 2015, the impact of such change on capital is minimal and CBB exceeded the regulatory capital requirements under the new Basel III capital rules to be classified as “well-capitalized.”

“We are very pleased with the upward trends of our net interest margin and core earnings. We continue to benefit from an improving economy and business climate resulting in an improvement in our asset quality, coupled with strong loan originations. We remain optimistic about the expansion of our franchise and the financial outlook for the remainder of 2015,” commented Ms. Kim.

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 five full service branches in Los Angeles and Orange Counties and four loan production offices in Texas, Georgia and Colorado.

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.