Description
CBB Bancorp trades at 94% of TBV and 7.4X TTM earnings. This is very cheap for a $1.2 billion in assets bank based in California. There have been a number of factors resulting in the bank near its 52-week low that I believe are over-blown.
Background: CBBI is the holding company for Commonwealth Business Bank, the third-largest publicly trade Korean-American bank in California. It is based in Los Angeles, focuses on commercial lending, and has been led by CEO Joanne Kim for the past 8 years, during which time the bank has tripled in assets from $400 million to $1.2 billion. The bank has 8 branches in California and Texas, two commercial ending departments, and six SBA loan offices in CO, GA, TX, UT and WA. The bank started in 2005. ROE's have been in the 10-14% range and ROA's in the 1.25-1.60% range. Efficiency ratios have been in the low 60's.
The bank is dark and thinly traded. Indications are that there are several large, Korean-related shareholders. An SNL article from October 2007 indicated that Hana FInancial Group took a 37.5% stake from an equity raise.
Earnings: The bank recently released 1st Quarter 2019 earnings, posting $0.35 EPS. TTM EPS are $1.59, so the bank trades a TTM P/E of 7.4 and a run-rate P/E of 8.4. Therein lies some of the concern, as the bank earned $.47/sh in 2nd Quarter 2018. Rising interest rates did negatively impact earnings. However, it appears that quarterly earnings have stabilized around $0.35/sh.
Management: Joanne Kim, 64, has been the CEO since 2011 and has overseen its growth. She was previously president and CEO of Wilshire State Bank, another Korean-American bank based in California, which later merged with BBCN to form Bank of Hope. The one weak spot has been the CFO position, which could be compared to the drummer position in "This is Spinal Tap." The scuttlebutt is that the board chair fired one CFO because she told him to construct a bond portfolio and was upset that the bonds decreased in value when interest rates went up. The bank brought in successive non-Korean CFO's that have not stayed long. In February 2019, the bank hired Long Huynh as CFO.
A lawsuit was filed against the bank by a former employee in 2016 (California Case No. BC616254) that does not portray the work conditions favorably. Think along the lines of the Supreme Leader of North Korea. The suit also makes references to secret merger discussions and to certain bank regulation issues. The CEO has been cited as wishing to register with the SEC and get uplisted.
Loans: The bank focuses on commercial loans and has an SBA license. About 80% of the loans are commercial real estate and about 18% C&I. A breakout of the loans is provided below. Also note that the SBA loans on the books are only about 5% of the loans. The preference is to originate and sell the loans for a profit. Loan performance has been very good.
Deposits: As is typical for commercial banks, CBBI does rely on CD's for about half of their deposits. Still, about 20% of deposits on non-interest checking. Here is the deposit information.
Competition: There are 4 other Korean-American banks based in California that are public. The biggest is Bank of Hope (HOPE), which is the largest with $15 billion in assets. HOPE has grown through a number of mergers. When comparing CBBI to its peers, it trades at a significant discount, largely because it is the only one that does not file with the SEC. Thus, getting listed would create significant value for CBBI shareholders.
If CBBI traded in-line with its peers, it would trade for 125% of TBV or $15.60/sh, representing a 33% gain. Although I do not anticipate the bank being bought, it could be worth about $20/sh in a buyout.
SNL: https://www.snl.com/irweblinkx/Mobile/file.aspx?IID=4100034&FID=5054423
Long Huynh: https://finance.yahoo.com/news/cbb-bancorp-inc-announces-hiring-140000270.html
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.
Catalyst
Starts filing with the SEC.