Commonwealth Business Bank Reports Third Quarter Earnings

Commonwealth Business Bank (“CBB”) (OTCQB: CWBB) today announced net income of $2.9 million for the third quarter of 2015, compared with $3.0 million for the second quarter of 2015 and $2.9 million for the third quarter of 2014. Diluted earnings per share were $0.35 for the third quarter of 2015, compared with $0.36 for both the second quarter of 2015 and third quarter of 2014.

“Our third quarter performance reflects the current competitive environment. We recorded strong earnings as shown in quarterly ROA and ROE of 1.52% and 13.58%, respectively, and although our net interest margin declined during the quarter, it was 4.03% on a year-to-date basis, which is favorable compared to the industry. Our loan growth was strong this quarter, spurred by more than $84 million new loan originations in commercial loans and commercial real estate loans,” said Joanne Kim, President and CEO.

RESULTS OF OPERATIONS

Net income for the third quarter of 2015 decreased $91,000 over the second quarter of 2015, and $6,000 over the third quarter of 2014. The quarter-over-quarter decrease came from a decrease in gains on sale of Small Business Administration (“SBA”) loans, partially offset by a decrease in noninterest expense.

Net income for the nine months ended September 30, 2015 decreased slightly by $73,000, compared to the previous year. The decrease was primarily due to a $1.2 million negative loan loss provision for the nine months ended September 30, 2014, compared to a $150,000 provision for loan loss for the same period in 2015. However, net Interest income continued to drive CBB’s financial results and increased $4.4 million, or 26.7% for the nine months ended September 30, 2015.

Net Interest Income and Net Interest Margin

Net interest income, before provision for loan losses and loan commitments was $7.3 million for the third quarter of 2015, an increase of $64,000, or 0.9%, from $7.2 million for the second quarter of 2015, and an increase of $1.3 million, or 22.0%, from $6.0 million for the third quarter of 2014. The year-over-year increase in net interest income was primarily attributable to an increase of $126.2 million in average loan balances.

The net interest margin declined during the third quarter of 2015 to 3.86%, compared to 4.21% for the second quarter of 2015 and 3.90% for the third quarter of 2014. This decrease from the second quarter of 2015 was attributable to a 33 basis point decrease in the yield on earning assets. The yield on average earning assets decreased to 4.58% for the third quarter of 2015, from 4.91% for the second quarter of 2015 and 4.59% for the third quarter of 2014, primarily from a decrease in loan yield. Higher accelerated accretion of discount on paid off SBA loans during the second quarter of 2015 partially contributed to the difference in loan yield between the quarters. The cost of funds was 0.80% for the third quarter of 2015, compared with 0.78% for both the second quarter of 2015 and third quarter of 2014. The year-over-year increase in cost of funds was attributable to an increase in cost of interest-bearing deposits, primarily from time deposit promotions.

Noninterest Income

For the third quarter of 2015, noninterest income totaled $2.4 million, approximately a $424,000 and $488,000 decrease from the second quarter of 2015 and the third quarter of 2014, respectively. The quarter-over-quarter decrease was primarily due to a $493,000 decrease in the gains on the sale of SBA loans, partially offset by a $54,000 increase in fee income and a $15,000 increase in SBA servicing income. The year-over-year decrease in noninterest income was due primarily to a $454,000 decrease in the gains on the sale of SBA loans and a $34,000 decrease in fees and loan servicing income. Gains on sale of SBA loans are tied to the volume of, and premium on, sales of such loans.

During the third quarter of 2015, CBB sold $24.6 million of SBA loans, compared with $27.1 million for the second quarter of 2015 and $25.0 million for the third 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 third quarter of 2015 decreased to $4.5 million, down 7.5% from $4.9 million for the second quarter of 2015, and up $589,000, or 15.0% from $3.9 million in the third quarter of 2014. The quarter-over-quarter decrease was primarily contributed by a decrease in marketing expense, professional expense, and other operating expense. The year-over-year 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. For the third quarter of 2015, salaries and employee benefits increased to $3.2 million, up $86,000 from $3.1 million for the second quarter of 2015, and up $517,000 from $2.7 million for the third quarter of 2014.

Pre-Tax, Pre-Provision Income

For the third quarter of 2015, CBB’s pre-tax, pre-provision (“PTPP”) income was $5.2 million, up 0.1% from $5.2 million for the second quarter of 2015 and up 4.7%, from $4.9 million for the third quarter of 2014. Annualized PTPP income decreased to 2.68% of average assets for the third quarter of 2015, compared with 2.94% and 3.15% of average assets for the second quarter of 2015 and the third quarter of 2014, respectively.

The effective income tax rate for the nine months ended September 30, 2015 was 41.57%, compared with 41.31% for the same period of 2014.

BALANCE SHEET SUMMARY

At September 30, 2015, CBB had total assets of $778.8 million, an increase of $34.8 million, or 4.7%, from $744.0 million at June 30, 2015, and an increase of $150.4 million, or 23.9%, from $628.4 million at September 30, 2014. Earning assets totaled $760.3 million at September 30, 2015, an increase of $145.4 million, or 23.6%, from $614.9 million at September 30, 2014. The year-over-year increase in earning assets was mainly from a $135.6 million growth in total loans.

Loans Receivable

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

At September 30, 2015, total loans (including loans held-for-sale) were $671.0 million, which was a $48.7 million, or 7.8% increase from $622.2 million at June 30, 2015 and a $135.6 million, or 25.3% increase from $535.4 million at September 30, 2014. During the third quarter of 2015, total new loan production (including revolving lines of credit) was approximately $113.4 million, compared to $97.7 million for the second quarter of 2015 and $71.2 million for the third quarter of 2014.

Deposits

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

Total deposits increased $30.6 million, or 4.7% during the quarter and increased $124.7 million, or 22.7%, compared to September 30, 2014. Noninterest-bearing deposits grew $5.1 million, or 3.6% during the quarter and $21.5 million, or 17.4%, compared to September 30, 2014. However, due to a larger increase in time deposits, noninterest-bearing deposit decreased to 21.5% of total deposits at September 30, 2015 from 21.8% at June 30, 2015 and 22.5% at September 30, 2014. The lower proportional increase in noninterest-bearing deposit balances and higher cost of interest-bearing deposits resulted in a slight increase in the cost of deposits, when compared to the second quarter of 2015 and third quarter of 2014.

ASSET QUALITY

Nonaccrual loans increased during the third quarter of 2015 primarily due to a single commercial real estate loan with an outstanding balance of $1.1 million that was placed on nonaccrual during the third quarter of 2015.

The $1.0 million quarter-over-quarter increase in classified loans was due primarily to the addition of one commercial business loan with outstanding balance of $1.4 million.

The allowance for loan losses at September 30, 2015 was $9.2 million, or 1.42% of total gross loans (excluding loans held-for-sale), compared to $9.0 million, or 1.51%, at June 30, 2015, and $8.9 million, or 1.70%, at September 30, 2014. CBB recorded a $150,000 provision for loan losses for the first nine months of 2015, compared to a $1.2 million reversal in loan loss reserves for the same period of 2014. The $150,000 provision for loan losses was primarily due to organic loan growth but also due to an increase in specific reserves on impaired loans during the third quarter of 2015. The CBB recorded no provision for unfunded loan commitments for the first nine months 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 September 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 excited about the upcoming core system conversion, which we have been working on since early 2015,” said Ms. Kim. “We understand the critical role of IT in the successful operations of our bank. The core system we have chosen will provide us the platform that will enable us to upgrade our products and services offered to our customers, and differentiate us from peers in our community,” 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.