CABB California Business Bank (CE)

California Business Bank (OTCBB:CABB) (“CBB”) announced today its 1st quarter 2010 unaudited (“Q-1-10”) results. CBB reported a net operating profit of $9.9 thousand for the 1st quarter 2010, or ($0.005) per share, compared to Q1-2009 net operating loss of $172 thousand or ($0.09) per share. The Bank continued to make improvement in the level of Non-Performing Assets (“NPA”) that decreased to 35.4% of Tier-1 Capital as of Q-1-10 from a high of 69.0% of Tier-1 Capital as of Q-3-09 and from 38.0% as of Q-4-09.

ASSETS: (000)

        Asset Type     Q-1-10     Q-1-09     FYE-09     FYE-08     FYE-07 Cash     $ 840     $ 1,868     $ 591     $ 1,361     $ 1,426 Investments       17,781       27,298       23,550       17,724       31,845 Loans       84,408       86,191       84,544       82,936       82,632 Fixed Assets       654       502       686       772       769 Accruals       262       300       274       405       491 OREO       3,389       2,189       4,250       2,189       -- Other Assets       1,204       1,601       1,516       1,331       678 Total Assets     $ 108,538     $ 119,949     $ 115,411     $ 106,718     $ 117,841

• Total Assets decreased by $11.4 million or 9.51% comparing Q-1-10 to Q-1-09. Total Assets decreased by $6.9 million comparing Q-1-10 to FYE-09 to $108.4 million. The decrease in Total Assets from FYE-09 to Q-1-10 resulted from a decrease in cash and investment of $5.8 million, OREO by $862 thousand, loans by $136 thousand, and, fixed assets, accruals and other assets by $356 thousand.
• The Bank continues to cleanse the balance sheet of legacy problem assets that has decreased operating earnings and increased maintenance and collection expenses.
• Total assets will most likely be flat or reflect marginal growth for FYE-10.

        Loans:     Q-1-10     Q-1-09     FYE-09     FYE-08     FYE-07 Commercial & Industrial     $ 56,342       $ 63,321     $ 56,270       $ 53,205       $ 53,909   SBA Loans       1,337         908       1,588         908         150   Construction       320         4,034       467         7,182         13,740   Commercial Real Estate       28,138         21,710       27,664         23,488         15,781   Consumer Loans       68         255       378         155         129   Deferred Loan Fees       (89 )       18       (95 )       (10 )       (36 ) Deferred Loan Premiums       35         15       35         43         44   Less: Reserves       1,743         2,035       1,763         2,035         1,085   Net Loans     $ 84,408       $ 88,226     $ 84,544       $ 82,936       $ 82,632  

• Net Loans decreased from Q-1-10 to FYE-09 by .16%. The bank is resolving the three (3) remaining participated construction loans which totaled $320 thousand as of Q-1-10. The construction loan portfolio peaked as of FYE-07 at $13.7 million through our own origination and participations purchased. The present bank direction is not to make any new construction loans, or acquire any loan participations purchased through FYE-10.
• The bank has experienced three consecutive quarters of no 30-89 day past due loans, and has one loan that is 90 days past due but still accruing totaling $500,000.
• OREO levels continued to decrease by 20.26% to $3.38 million as of Q-1-10 from $4.25 million as of FYE-09.
• The bank is beginning to note positive results with the establishment of its Small Business Administration (“SBA”) Department in the fourth quarter of FYE-09, with steady increases forecasted in loan volume, and positive results should be reflected by FYE-10. The bank obtains a U. S. Government guarantee backed by the full-faith and credit of the United States Government that typically is 75% of the loan amount. However, Congress has temporary raised both the dollar amount and guarantee percentage up to 90%.
• The bank has been increasing loan rates and floors on loans for inherent risk associated with loans while considering deposit relationships.

        Investments:     Q-1-10     Q-1-09     FYE-09     FYE-08     FYE-07 Fed Funds Sold     $ 1,335     $ 13,346     $ 16,415     $ 3,775     $ 7,760 Securities Available for Sale       -       13,469       4,493       11,394       24,084 Due from Banks Interest Bearing       16,446       483       2642       2,555       1 Total Investments     $ 17,781     $ 27,298     $ 23,550     $ 17,724     $ 31,845

• CBB carried no long-term securities at 3/31/10. The Bank has deliberately maintained short term on investments which sacrifices short-term yield but affords the bank protection from any sudden upward shocks in a volatile rate environment.
• However, no assurance can be given that CBB’s expectations will be realized.

LIABILITIES & EQUITY: (000)

        Liabilities & Equity     Q-1-10     Q-1-09     FYE-09     FYE-08     FYE-07 Deposits     $ 96,842     $ 99,567     $ 103,599     $ 85,110     $ 94,231 Other Borrowings       -       5,000       0       6,000       5,000 Accrual Interest Payable       57       82       73       87       234 Other Liabilities       293       200       385       242       400 Total Liabilities     $ 97,192     $ 104,849     $ 104,057     $ 91,439     $ 99,865 Equity       11,346       15,100       11,354       15,279       17,976 Total Liabilities & Equity     $ 108,538     $ 119,949     $ 115,411     $ 106,718     $ 117,841

• Total liabilities decreased by 5.96% or $7 million when comparing Q-1-10 to FYE-09. The reduction is attributed to the decrease in deposits and reduction in FHLB borrowings by $5 million to zero outstanding throughout Q-1-10.
• The bank’s equity position improved from the retention of profit of $9.9 thousand.

        Deposits:     Q-1-10     Q-1-09     FYE-09     FYE-08     FYE-07 Non-Interest Deposits     $ 15,451     $ 20,087     $ 16,306     $ 18,315     $ 16,680 NOW Accounts       2,830       1,389       3,735       1,651       4,422 Savings       20,035       5,976       18,357       6,400       18,663 Money Market       8,645       14,380       9,446       17,669       12,769 Time Deposits       49,881       57,735       55,755       41,075       41,697 Total Deposits     $ 96,842     $ 99,567     $ 103,599     $ 85,110     $ 94,231

• Total Deposits decreased by 6.52% from Q-4 2009 and totaled $96.8 million as of Q-1 2010.
• The decrease in deposits was driven by CBB’s planned run-off of higher costing deposits in conjunction with the development of new core products. These newer core products, appropriately called Stimulus Savings® and Stimulus Money Market® require a transaction account and a transfer from either Stimulus Savings® or Stimulus Money Market® to a transaction account monthly. Additionally, CBB has had good success in generating new and existing customers for debit card and on-line banking services, all of which have resulted in deepening the quality and penetration of our customer base, with that base increasing the number of products per customer, in many cases to 5 to 7 products per customer These products generated $15 million in interest bearing deposits and $1 million in transaction account deposits since implementation approximately very early in October, from both existing and new customers.

LIQUIDITY:

The bank’s loan-to-deposit ratio was 89.02% and net liquid assets were 17.16% as of Q1-10. Additionally, the bank has back-up sources of liquidity at both the Federal Home Loan Bank of $3.6 million and Federal Reserve Bank Discount Window of $33 million, respectively. These sources of both on balance and off balance sheet provide significant liquidity and funding sources.

CAPITAL:

CBB’s book balance as of the first quarter 2010 was $6.04 per share based upon shareholders’ equity of $11.3 million. CBB capital ratios exceed the “Well Capitalized” regulatory standards in all three capital ratios:

Improvement in Capital ratios as follows:

         

12/09

             

3/10

                        Tier 1 Leverage Capital 9.15 % 9.86 % Tier 1 Risk-Based Capital 12.86 % 13.87 % Total Risk-Based Capital 14.12 % 15.13 %  

REGULATORY MATTERS

Following a regulatory visitation that occurred in the fourth quarter of 2009, in an attempt to cooperate with our regulatory agencies, on March 18, 2010, without admitting or denying any allegations, we entered into a Consent Order with both the Commissioner and the FDIC. The Consent Order requires us, among other items and within certain time frames, to (i) retain qualified management; (ii) maintain our tier 1 capital leverage ratio equal or exceeding 9%, on or before December 31, 2010 increase tier 1 capital by $5 million, and develop and implement a capital plan; (iii) not pay cash dividends or make any other payment to our shareholders without the written consent of the regulatory agencies; (iv) reduce our assets classified at the October 13, 2009 visitation as “Substandard” to not more than $7 million; (v) adopt revised lending and collection policies; (vi) adopt a revised policy for determining adequacy of the ALLL; (vii) adopt a revised written liquidity and funds management policy; (viii) implement a written plan addressing retention of profits, reducing overhead expense and setting forth a comprehensive budget covering the period 2010 to 2012; (ix) provide a written plan for eliminating our reliance on brokered deposits; (x) not establish any new branches or other offices without prior written consent of the regulatory agencies; (xi) provide periodic reports to our regulatory agencies and (xii) furnish our shareholders a description of the Order.

We are making progress in complying with the Order, and we are in the process of preparing or making all of the changes to plans, policies and procedures recommended by the regulatory agencies. We continue to attempt to improve asset quality and we intend to eliminate brokered deposits by January 2011.

The Board of Directors intends to increase capital by $5,000,000 to $10,000,000 through the issuance of additional common stock through a private placement of shares to accredited investors as defined in SEC Regulation D. This capital infusion will increase the shareholders’ equity to a minimum of $16.3 million to a maximum of $21.3 million. The Bank has also been in contact with invstors who have expressed an interest in contributing capital to the Bank, and have entered into preliminary due diligence efforts with them.

The Bank has taken steps to reduce the overhead expenses of the Bank so as to improve profitability, including the reduction in some positions within the staff. The Board of Directors and Bank continuously evaluates and assesses management and all other positions, and the Board and management may make changes in the future.

We believe that the corrective actions mentioned above will allow the Bank to strengthen the safety and soundness of its operations, increase profitability, and enhance its contribution to the community which it serves.

LOOKING FORWARD:

Although CBB can give no assurance that the following events will occur, CBB believes the following:

• The bank expects flat or marginal growth in 2010
• We expect continued improvement in the quality of our asset portfolio within 2010, and we project that the majority of the legacy assets will be finally resolved either by the end of 2010 or the 1st quarter 2011,
• The Bank is moving towards sustainable profitability,
• CBB is now better positioned to focus on sustainable profitability. The bank’s loan spread will also improve with the continued reduction in NPA and further placement of loan floors on variable priced loans that began in the fourth quarter of 2008, and
• CBB has been extremely proactive in analyzing it’s expenditures in all areas; reducing staff where appropriate, cutting overhead costs in all areas, and maximizing the value of all expenditures.

California Business Bank offers a wide range of financial services to individuals, small and medium size businesses in Los Angeles, and the surrounding communities in Southern California. Our commitment is to deliver the highest quality financial services and products to our customers.

FORWARD Looking Statements

Certain matters discussed in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and are subject to the safe harbors created by the act. These forward-looking statements refer to the CBB’s current expectations regarding future operating results, and growth in loans, deposits, and assets. These forward looking statements are subject to certain risks and uncertainties that could cause the actual results, performance, or achievements to differ materially from those expressed, suggested, or implied by the forward looking statements. These risks and uncertainties include, but are not limited to (1) the impact of changes in interest rates, a decline in economic conditions, and increased competition by financial service providers on the CBB’s results of operation, (2) the CBB’s ability to continue its internal growth rate, (3) the CBB’s ability to build net interest spread, (4) the quality of the CBB’s earning assets, and (5) governmental regulations.