Press Release

California BanCorp Reports Record Quarterly Earnings of $2.5 Million, Up 20% from 3Q17, and a Strong 14% Core Deposit Growth

Company Release - 10/30/2018 5:35 PM ET

OAKLAND, Calif., Oct. 30, 2018 (GLOBE NEWSWIRE) -- California BanCorp (the “Company”) (OTCQX: CALB), the parent company of California Bank of Commerce (the “Bank”), today announced record earnings and strong asset growth year-over-year for the third quarter of 2018. 

Net income increased 20% to $2.5 million, or $0.34 per share for the third quarter of 2018 from $2.1 million, or $0.31 per share, for the third quarter of 2017. 

For the first nine months ended September 30, 2018, net income increased 17% to $6.6 million, or $0.94 per share, compared to $5.6 million, or $0.85 per share, for the first nine months of 2017. Net income for the nine months ended September 30, 2018, excluding non-recurring expenses was $7.2 million, a 29% increase over 2017, and $1.03 per share, a 21% increase over per share income in the prior year period.

Earnings growth between the periods was the result of strong loan growth of $66 million to $785 million at September 30, 2018, compared to a year ago, including commercial real estate loans, which increased by $46 million, or 13% to $399 million and commercial & industrial loans, which increased by $15 million, or 5% to $330 million.

Total assets reached a record $955 million as of September 30, 2018, up 12% or $102 million compared to a year ago. This growth was propelled by strong commercial deposit generation as shown by a $49 million, or 17%, increase in non-interest bearing deposits and an additional $42 million, or 12% increase, in core commercial interest-bearing deposits.

Also during the third quarter of 2018, the Company completed a successful private placement of common stock for a net increase in equity of $23.6 million. “These funds allowed the Company to pay-off its outstanding senior debt prior to quarter end and additionally provide the capital to support our organic growth targets over the next several years,” stated Steve Shelton, President and Chief Executive Officer.

Financial Highlights

September 30, 2018 compared to September 30, 2017

  • Total assets increased by $102 million, or 12% to a record level of $955 million.
  • Gross loans increased by $66 million, or 9% to a record level of $785 million.
  • Total deposits increased by $78 million, or 10% to a record level of $826 million.
  • Total core deposits increased by $91 million, or 14% to $733 million.
  • Total equity increased by $34 million, or 40% to $118 million.

Income Statement

Three months ended September 30, 2018 compared to September 30, 2017

  • Net income increased by $418 thousand, or 20% to $2.5 million.
  • Net interest income increased by $1.2 million, or 14% to $9.2 million.
  • Non-interest income increased by $141 thousand, or 18% to $927 thousand.
  • Return on average tangible common equity decreased to 10.2% from 10.9%.
  • Return on average assets increased to 1.04% from 1.00%.

Income Statement

Nine months ended September 30, 2018 compared to September 30, 2017

  • Net income increased by $1.0 million, or 17% to $6.6 million.
  • Net interest income increased by $3.0 million, or 13% to $26.3 million.
  • Non-interest income increased by $529 thousand, or 23% to $2.9 million.
  • Return on average tangible common equity decreased to 10.2% from 10.3%.
  • Return on average assets increased to 0.97% from 0.95%.
  • Core earnings increased by $1.6 million or 29% to $7.2 million.
  • Core return on average tangible common equity increased to 11.19% from 10.30%.
  • Core return on average total assets increased to 1.06% from 0.95%.

Balance Sheet

Total loans increased by $66 million or 9% from $719 million at September 30, 2017, to $785 million at September 30, 2018. The largest categories of growth within the loan portfolio were in commercial real estate at $46 million and commercial & industrial loans at $15 million. 

As a result of its strong cash position and with higher market interest rates during the third quarter of 2018, the Bank deployed about $31 million in a mix of government guaranteed investment securities at the end of the quarter.

Total deposits increased by $78 million, or 10% to $826 million at September 30, 2018, from $749 million at September 30, 2017, with growth primarily concentrated in commercial non-interest-bearing deposits of $49 million, which increased by 17% to $341 million and in core commercial interest-bearing accounts of $43 million, which increased by 12% to $392 million. Time deposits increased by $1.4 million, or 2% to $94 million at September 30, 2018. Non-interest bearing deposits were 41% of total deposits at September 30, 2018, which has contributed to a relatively lower deposit beta compared to other banks. Strong organic deposit growth during the third quarter of 2018 provided the funding to return a $15.2 million higher cost brokered deposit in addition to another $17.9 million higher cost deposit late in the period.

Shareholder’s Equity

Total shareholder’s equity increased by $33.8 million, or 40% from $84.4 million at September 30, 2017, to $118.2 million at September 30, 2018. The $33.8 million increase includes earnings during the twelve month period totaling $6.6 million, proceeds from the exercise of stock options totaling $3.1 million and $23.6 million in net proceeds from the Company’s successful private placement of common stock during the third quarter of 2018. Tangible book value per common share increased by 16% between the periods, from $12.01 at September 30, 2017, to $13.87 at September 30, 2018.

Net Interest Income and Net Interest Margin – three months ended September 30, 2018 and September 30, 2017

Net interest income was $9.2 million for the three months ended September 30, 2018, an increase of $1.2 million or 14% from $8.1 million for the same period in 2017. The increase in net interest income includes an increase of $1.6 million in interest income; the largest component of which was an increase in interest and fees on loans of $1.1 million. This increase in interest and fees on loans was primarily attributable to an increase in the average balance of loans outstanding of $56 million and the change in the Prime interest rate between the periods, with the yield on loans increasing by 21 basis points from 4.94% during the 2017 quarter to 5.15% during the current quarter.

As a result of strong deposit growth of $116 million, or 16% in average total deposits to $841 million during the third quarter of 2018, coupled with above average loan pay-offs, the Bank’s average cash and cash equivalent balances were substantially higher during the period, increasing by $77 million, or 138%, to $132 million. This growth, in addition to the increase in average yield to 1.98%, led to a $484 thousand, or 272% increase in interest income on cash and cash equivalents to $662 thousand in the current quarter compared to the 2017 quarter.

With the higher level of lower yielding cash balances during the third quarter of 2018 when compared to loans, the yield on total interest-earning assets increased by a modest 2 basis points to 4.64% compared to 4.62% during the third quarter of 2017. Also, during the third quarter of 2017, the Bank maintained a very strong average loan to deposit ratio of 96.9% loan as a result of above average loan growth during the first half of 2017. The average loan to deposit ratio was 90.0% during the third quarter of 2018, which muted the yield expansion on average total earning assets between the periods.

Both non-interest-bearing and interest-bearing deposits grew at a strong rate between the quarters, with average non-interest-bearing deposits up by $65 million, or 23% to $349 million and average interest-bearing deposits up by $51 million, or 12% to $492 million during the third quarter of 2018. The increase in the average balance of interest-bearing deposits, as well as higher interest rates between the periods led to an increase in interest paid on deposits of $491 thousand to $1.2 million during the third quarter of 2018 and an increase in the average rate paid on total deposits of 18 basis points to 0.57% in the third quarter of 2018 compared to 0.39% in the 2017 quarter.

As a result of the additional capital funding acquired during the third quarter of 2018, the Company paid-off $11.5 million of senior debt during the period, reducing average borrowed funds by $5.0 million to $11 million during the third quarter of 2018 compared to the 2017 quarter. While the average balance declined, the average rate paid on these borrowed funds rose to 5.4% during the third quarter of 2018, up by 0.26% from 5.2% paid during the 2017 period, as the borrowing mix between the periods changed. At September 30, 2018, the Company’s total borrowings were $5.0 million in subordinated debt. 

The combination of the strong average deposit balances and commensurate heavy cash position during the third quarter of 2018, when compared to 2017, led the net interest margin to decline by 10 basis points to 4.05% during the period compared to 4.15% in the 2017 quarter.

Net Interest Income and Net Interest Margin – nine months ended September 30, 2018 and September 30, 2017

Net interest income for the nine months ended September 30, 2018, was $26.3 million, an increase of $3.0 million, or 13.0% from the $23.3 million for the same period in 2017. During the nine month period the Bank benefited from a significant increase in average deposit balances of $123 million or 18% to $802 million, which was deployed primarily into a $62 million increase in average total loans and a $63 million increase in average interest-earning cash and cash equivalent balances. 

While average total interest-earning assets increased by $124 million, or 17% to $859 million during the 2018 period, the average yield increased by only 3 basis points to 4.65%, primarily as a result of the strong increase in the lower-yielding cash and cash equivalent balances. The average yield on total average loans including fees for the nine month period in 2018 was 5.08%, up by 21 basis points compared to the 4.87% yield during the same 2017 period.

Of the $122 million increase in average total deposit balances between the nine month periods, $54 million were non-interest-bearing deposits while $68 million were interest-bearing. The overall cost of average total deposit balances was up by 19 basis points to 0.51% during the 2018 period compared to 0.33% during 2017. Average borrowed funds declined by $12.4 million to $14.4 million during the 2018 period while their cost increased by 2.7% to 5.3% in 2018 compared to 2017.

As a result of the strong increase in higher cost interest-bearing balances on the funding side and the impact of the higher volume but lower return cash and cash equivalent balances to interest-earning assets, the net interest margin declined by 14 basis points to 4.09% during the nine month period ended September 30, 2018, compared to the same period in 2017.

Non-Interest Income and Expense – three months ended September 30, 2018 and September 30, 2017

During the three months ended September 30, 2018, non-interest income totaled $927 thousand, an increase of $141 thousand, or 18% from the three month period ended September 30, 2017. The increase was primarily the result of higher commercial deposit account analysis and loan related fees partially offset by a $79 thousand decrease in gains on loan sales during the current quarter compared to the 2017 quarter.

During the three months ended September 30, 2018, total non-interest expenses increased by $876 thousand, or 16% to $6.2 million compared to the same 2017 quarter. Of the increase, $520 thousand was in net salaries and benefits expenses, the result of hiring key executive and support staff positions to support the Company’s continued growth. Occupancy and FF&E expense increased by $94 thousand or 15% to $736 thousand in the 2018 third quarter as the Bank expanded into its new Walnut Creek location in the second half of 2017 and also expanded its Oakland space early in 2018. Other non-interest expenses increased by $262 thousand, or 17% to $1.8 million during the 2018 third quarter, primarily as a result of increased professional fees during the period. 

Non-Interest Income and Expense – nine months ended September 30, 2018 and September 30, 2017

During the nine months ended September 30, 2018, non-interest income totaled $2.9 million, a $529 thousand, or 23% increase over the same period in 2017. This increase for the nine-month period was primarily the result of higher commercial deposit account analysis fees and loan fee income compared to the 2017 period.

During the nine months ended September 30, 2018, non-interest expenses increased by $4.2 million or 28% to $19.3 million compared to the same period in 2017. Of this increase, $2.7 million was in net salaries and benefits expenses, the result of hiring key executive and support staff positions to support the Company’s continued growth, a non-recurring severance expense for the recent CEO transition, and a decrease in deferred loan origination costs compared to the nine month period in 2017, when loan origination activity was at an above trend pace. Occupancy and FF&E expense increased by $353 thousand or 20% to $2.1 million in the 2018 quarter as the Bank expanded into its new Walnut Creek location in the second half of 2017 and also expanded its Oakland space early in 2018. Other non-interest expenses increased by $1.2 million, or 27% to $5.6 million during the 2018 period, primarily as a result of increased operating expenses of $573 thousand at the Bank holding company (the holding company was formed at June 30, 2017), in addition to higher professional fees. Bank holding company expenses included non-recurring costs of $514 thousand in the 2018 period.

Credit Quality

Credit quality remains strong, with non-performing assets (“NPAs”) to total assets at 0.29% at September 30, 2018, compared to 0.12% at September 30, 2017, with non-performing loans at $2.7 million and $1.0 million, respectively, on those dates. 

The loan loss reserve was $10.2 million, or 1.30% of total loans at September 30, 2018, compared to $9.0 million, or 1.25% at September 30, 2017.

Closing Remarks

“We are pleased to post another record breaking quarter for both earnings and total loans and deposits,” said Chairman Stephen Cortese. “We continue to execute on our strategic initiative to safely grow our company while adding to our shareholders’ investment value.”

Please see our detailed Third Quarter 2018 Unaudited Summary Financial Statements for more information.

About California BanCorp

California BanCorp, the parent company for California Bank of Commerce, offers a broad range of commercial banking services to closely held businesses and professionals located throughout the San Francisco Bay Area. The stock trades on the OTCQX marketplace under the symbol CALB (formerly CABC). For more information on California BanCorp, call us at (510) 457-3751, or visit us at www.californiabankofcommerce.com.

California BanCorp
Steven E. Shelton, (510) 457-3751
President and Chief Executive Officer
seshelton@bankcbc.com

Randall D. Greenfield, (510) 457-3769
Senior EVP and Chief Financial Officer
rgreenfield@bankcbc.com

Source: California BanCorp

California BanCorp Financial Data as of September 30, 2018
                 
($ Thousands) For the three months ended Change % For the nine months ended Change %
Income Statement 9/30/2018 6/30/2018 9/30/2017 QoQ YoY 9/30/2018 9/30/2017 YTDoYTD
Interest and fees on loans $  9,839  $  9,384  $  8,749  5% 12% $  28,323  $  24,914  14%
Other interest income    756     424     246  78% 207%    1,583     513  209%
Total interest income    10,595     9,808     8,995  8% 18%    29,906     25,427  18%
                 
Interest on deposits    1,205     997     715  21% 69%    3,065     1,660  85%
Interest on borrowings and subordinated debentures    151     209     208  (28%) (27%)    567     509  11%
Total interest expense    1,356     1,206     923  12% 47%    3,632     2,169  67%
Net interest income    9,239      8,602      8,072   7 % 14 %    26,274      23,258   13 %
Provision for loan loss    394     191     296  106% 33%    845     2,110  (60%)
Net interest income after provision    8,845     8,411     7,776  5% 14%    25,429     21,148  20%
                 
Service charges and other account fees    350     306     215  14% 63%    767     656  17%
Loan related fees    404     320     338  26% 20%    1,150     974  18%
Net gains on loan sales    -     108     79  (100%) (100%)    283     200  42%
Other    173     154     154  12% 12%    654     495  32%
Total non-interest income    927      888      786   4 % 18 %    2,854      2,325   23 %
                 
Salaries and employee benefits    3,692     3,950     3,172  (7%) 16%    11,521     8,842  30%
Occupancy and equipment expenses    736     746     642  (1%) 15%    2,145     1,792  20%
Data processing, internet and software    373     357     342  4% 9%    1,115     1,123  (1%)
Professional and legal    340     168     156  102% 118%    686     580  18%
M&A and strategic initiatives    -     212     -  (100%) 0%    514     -  0%
Other operating expenses    1,080     1,140     1,033  (5%) (7%)    3,300     2,760  12%
Total operating expenses    6,221      6,573      5,345   (5%) 16 %    19,281      15,097   28 %
                 
Net income before taxes    3,551     2,726     3,217  30% 10%    9,002     8,376  7%
Income taxes    1,037     567     1,121  83% (7%)    2,397     2,754  (13%)
Net income $   2,514   $   2,159   $   2,096   16 % 20 % $   6,605   $   5,622   17 %
                 
Earnings Per Share                
Basic earnings per share $   0.34   $   0.33   $   0.33   4 % 4 % $   0.98   $   0.90   9 %
Diluted earnings per share $   0.34   $   0.32   $   0.31   6 % 7 % $   0.94   $   0.85   10 %
Average shares outstanding  7,361,383   6,604,562   6,384,149       6,828,105   6,260,391   
Average diluted shares  7,499,978   6,843,821   6,683,946       7,056,646   6,612,719   
                 
CORE EARNINGS SUMMARY                
  For the three months Ended Change % For the nine months ended Change %
Nonrecurring expense 9/30/2018 6/30/2018 9/30/2017 QoQ YoY 9/30/2018 9/30/2017 YTDoYTD
Strategic initiative and CEO transition $  -  $  598  $  -      $  900  $  -   
Total Nonrecurring expense    -     598     -         900     -   
                 
Nonrecurring expense (net of tax)    -      422      -          635      -    
                 
Core Net income $   2,514   $   2,581   $   2,096   (3%) 20 % $   7,240   $   5,622   29 %
                 
Core Earnings Per Share                
Basic core earnings per share    0.34      0.39      0.33   (13%) 4 %    1.06      0.90   18 %
Diluted core earnings per share    0.34      0.38      0.31   (11%) 7 %    1.03      0.85   21 %
                 
Core ROA  1.04%  1.17%  1.00%      1.06%  0.95%  
Core ROATCE  10.20%  12.58%  10.94%      11.19%  10.30%  
                 
  For the three months Ended Change $ Change %  
Average Balance Sheet Items 9/30/2018 6/30/2018 9/30/2017 QoQ YoY QoQ YoY  
Total Assets    962,254     887,108     828,476    75,146    133,778   8%  16%  
Total Loans    758,399     749,057     702,327    9,342    56,072   1%  8%  
Investments    15,417     12,165     14,018    3,252    1,399   27%  10%  
Earning Assets  906,259   840,653   772,019  65,606  134,240   8%  17%  
Non-Interest Bearing Deposits    349,449     317,193     284,174    32,256    65,275   10%  23%  
Core Deposits  737,891   680,243   617,080  57,648  120,811   8%  20%  
Total Deposits  841,409   785,047   725,141  56,362  116,268   7%  16%  
Borrowings    10,954     16,209     15,937    (5,255)   (4,983)  -32%  -31%  
Tangible Common Equity    97,827     82,247     76,000    15,580    21,827   19%  29%  
                 
  For the nine months Ended Change        
Average Balance Sheet Items 9/30/2018 9/30/2017 $ %        
Total Assets    910,843     789,031     121,812  15%        
Total Loans    745,851     683,710     62,141  9%        
Investments    13,449     14,655     (1,206) (8%)        
Earning Assets    859,422     735,816     123,606  17%        
Non-Interest Bearing Deposits    323,818     270,061     53,757  20%        
Core Deposits    694,801     577,050     117,751  20%        
Total Deposits    800,857     679,134     121,723  18%        
Borrowings    14,418     26,806     (12,388) (46%)        
Tangible Common Equity    86,489     73,007     13,482  18%        
                 
  At the periods ended Change $ Change %  
Balance Sheet 9/30/2018 6/30/2018 9/30/2017 QoQ YoY QoQ YoY  
Cash and equivalents    92,224     111,202     83,252    (18,978)   8,972   (17%)  11%  
Investment securities    42,532     11,652     13,757    30,880    28,775   265%  209%  
Other investments    3,536     3,536     3,199    -    337   0%  11%  
                 
Commercial loans    329,539     329,914     314,087    (375)   15,452   (0%)  5%  
CRE loans  399,096   357,969   352,827  41,127    46,269   11%  13%  
Construction and land loans    40,207     40,671     36,516    (464)   3,691   (1%)  10%  
Other loans    16,270     24,778     15,732    (8,508)   538   (34%)  3%  
Loans   785,112    753,332    719,162   31,780    65,950   4%  9%  
Allowance for loan losses    10,200     9,800     9,000    400    1,200   4%  13%  
Net loans  774,912    743,532    710,162   31,380   64,750    4 %  9 %  
                 
Premises and equipment, net    2,253     2,428     2,998    (175)   (745)  (7%)  (25%)  
Bank owned life insurance    16,756     16,651     16,324    105    432   1%  3%  
Deferred income taxes, net    5,205     5,583     6,733    (378)   (1,528)  (7%)  (23%)  
Core Deposit Intangible    405     419     460    (14)   (55)  (3%)  (12%)  
Goodwill    7,350     7,350     7,350    -    -   0%  0%  
Other assets and interest receivable    9,435     9,003     8,189    432    1,246   5%  15%  
Total assets   954,608     911,356     852,424   43,252    102,184    5 %  12 %  
                 
Demand deposits    340,941     326,556     292,047    14,385    48,894   4%  17%  
Interest bearing demand deposits    24,054     28,278     23,956    (4,224)   98   (15%)  0%  
Money market & savings deposits    367,539     354,785     340,164    12,754    27,375   4%  8%  
Time deposits    93,855     90,174     92,456    3,681    1,399   4%  2%  
Total deposits  826,389    799,793    748,623   26,596     77,766    3 %  10 %  
                 
Borrowings  -   11,500   11,000  (11,500)   (11,000)  (100%)  (100%)  
Subordinated debentures    4,956     4,951     4,939    5    17   0%  0%  
Other liabilities    5,036     3,960     3,415    1,076    1,621   27%  47%  
Total liabilities  836,381   820,204   767,977  16,177    68,404   2%  9%  
                 
Common stock  104,062   79,395   76,593  24,667    27,469   31%  36%  
Retained earnings    14,407     11,894     7,797    2,513    6,610   21%  85%  
Other comprehensive income    (242)    (137)    57    (105)   (299)  77%  -   
Total shareholder’s equity    118,227      91,152      84,447     27,075     33,780    30 %  40 %  
Total liabilities and equity    954,608      911,356      852,424     43,252     102,184    5 %  12 %  
                 
Tangible book value per common share    13.87     12.49     12.01       11%  16%  
Total shares outstanding  7,974,856   6,691,664   6,394,963           
                 
  For the three months ended For the nine months ended      
Performance Ratios 9/30/2018 6/30/2018 9/30/2017 9/30/2018 9/30/2017      
Return on average assets  1.04%  0.98%  1.00% 0.97% 0.95%      
Return on average tangible common equity  10.20%  10.53%  10.94% 10.21% 10.30%      
Efficiency ratio  61.19%  69.26%  60.34% 66.19% 59.01%      
                 
Net Interest Margin                
Net interest margin  4.05%  4.10%  4.15% 4.09% 4.23%      
Average loan yield  5.15%  5.03%  4.94% 5.08% 4.87%      
Average total deposit rate  0.57%  0.51%  0.39% 0.51% 0.33%      
Average borrowing rate  5.43%  5.18%  5.17% 5.25% 2.54%      
                 
Other Ratios                
Average total loans to total deposits  90.0%  95.4%  96.9% 93.0% 100.7%      
Average C&I loans to total loans  42.6%  43.9%  43.0% 43.4% 41.4%      
Average non-interest bearing deposits to total deposits 41.5%  40.4%  39.2% 40.4% 39.8%      
Average core deposits to total deposits  87.7%  86.7%  85.1% 86.8% 85.0%      
                 
  At the periods ended          
Capital Ratios - Bank 9/30/2018 6/30/2018 9/30/2017          
Tier 1 leverage ratio  11.26%  10.56%  10.58%          
Common equity tier 1 capital ratio  11.61%  10.65%  10.14%          
Tier 1 risk-based capital ratio  11.61%  10.65%  10.14%          
Total risk-based capital ratio  13.27%  12.35%  11.79%          
                 
  At the periods ended          
Non-Performing Assets 9/30/2018 6/30/2018 9/30/2017          
Non-Accrual Loans $  1,754  $  2,525  $  -           
Restructured Loans    969     1,009     1,015           
Total non-performing loans (NPL)    2,723     3,534     1,015           
Other Real Estate Owned    -     -     -           
Total non-performing assets (NPA) $  2,723  $  3,534  $  1,015           
Quarterly Net (Charge-offs)/Recoveries $  3  $  9  $  4           
                 
NPAs / Assets %  0.29%  0.39%  0.12%          
NPAs / Loans and OREO %  0.35%  0.47%  0.14%          
Loan Loss Reserves / Loans (%)  1.30%  1.30%  1.25%          
Loan Loss Reserves / NPLs (%)  375%  277%  887%          
                 

CALB new 5 (2) (1).jpg

Source: California BanCorp
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