Press Release

California BanCorp Reports Financial Results for the Fourth Quarter and Year Ended December 31, 2019

Company Release - 2/5/2020 6:00 PM ET

OAKLAND, Calif., Feb. 05, 2020 (GLOBE NEWSWIRE) -- California BanCorp (the “Company”) (OTCQX-CALB), the parent company of California Bank of Commerce (the “Bank”), today announced its financial results for the fourth quarter and year ended December 31, 2019.

Net income was $578 thousand for the fourth quarter of 2019, representing a decrease of $1.4 million, or 70% compared to $2.0 million for the third quarter of 2019. For the year ended December 31, 2019, net income was $7.0 million representing a decrease of $1.7 million or 20% compared to $8.7 million in 2018.

Diluted earnings per share of $0.07 for the fourth quarter of 2019 compared to $0.25 for the third quarter of 2019. For the year ended December 31, 2019, diluted earnings per share of $0.86 compared to $1.19 in 2018.

“The past year has been one of meaningful investment in the future potential of our franchise. During 2019 we added substantial capabilities, in people and systems, to extend our markets and enhance our effectiveness in all markets,” said Steve Shelton, President and Chief Executive Officer. “As we move forward, we expect to continue our momentum in building a quality balance sheet and driving operating leverage in our business.”

“Our fourth quarter results were significantly impacted by our push to complete key initiatives and aggressively resolve a legacy problem loan,” stated Thomas A. Sa, Senior Executive Vice President, Chief Financial Officer and Chief Operating Officer. “At the same time, we made remarkable progress in quality measures for our business by growing average deposits by over $100 million, $45 million of which came in noninterest-bearing demand deposits, and by reducing nonperforming assets by half.”

Financial Highlights

Financial Position

December 31, 2019 compared to December 31, 2018

  • Total assets increased by $146.4 million, or 15% to a record level of $1.15 billion.
  • Total deposits increased by $114.0 million, or 13% to a record level of $988.2 million. Average total deposits increased $79.0 million, or 10%.
  • Gross loans increased by $104.9 million, or 12% to a record level of $949.7 million. Average gross loans increased $148.3 million, or 20%.
  • Total equity increased by $9.2 million, or 8% to $130.3 million.

December 31, 2019 compared to September 30, 2019

  • Total assets increased by $57.4 million, or 5% to a record level of $1.15 billion.
  • Total deposits increased by $64.3 million, or 7%. Average total deposits increased $102.0 million, or 11%.
  • Average noninterest-bearing demand deposits increased $45.0 million, or 13%.
  • Gross loans increased by $16.4 million, or 2%. Average gross loans grew $20.8 million, or 2%.

Income Statement

Years ended December 31, 2019 compared to December 31, 2018

  • Net income decreased by $1.7 million, or 20% to $7.0 million.
  • Net interest income increased by $5.1 million, or 14% to $40.9 million.
  • Total revenue increased by $5.6 million, or 14% to $45.2 million.
  • Provision for loan losses increased by $890.0 thousand, or 62%, to $2.3 million.
  • Operating expenses increased by $6.9 million, or 26%, to $33.2 million.

Three months ended December 31, 2019 compared to September 30, 2019

  • Net income decreased by $1.4 million, or 71% to $578 thousand.
  • Net interest income increased by $151 thousand, or 1% to $10.6 million.
  • Provision for loan losses increased by $500.0 thousand, or 100%, to $1.0 million.
  • Operating expenses increased $1.4 million, or 17%, to $9.8 million.

Balance Sheet

Total assets reached a record $1.15 billion as of December 31, 2019, up $146.4 million, or 15% compared to a year ago.

Total asset growth was driven by growth in deposits which increased by $114.0 million or 13% from $874.2 million at December 31, 2018, to $988.2 million at December 31, 2019. Commercial noninterest-bearing deposits represented $34.9 million of total deposit growth year over year, and represented growth of 10% compared to December 31, 2018. Noninterest-bearing deposits at December 31, 2019 were 39% of total deposits compared to 40% of total deposits at December 31, 2018. Growth in interest-bearing deposits of $79.1 million was comprised of growth in money market balances of $63.1 million and time deposits of $23.4 million, partially offset by a decline in interest-bearing demand deposits of $7.5 million.

Total gross loans increased by $104.9 million, or 12% to $949.7 million at December 31, 2019, from $844.7 million at December 31, 2018. The largest categories of growth within the loan portfolio were in commercial real estate at $51.1 million and commercial & industrial loans at $48.6 million.

Asset Quality

The allowance for loan losses increased by $275 thousand to $11.1 million, or 1.17% of total loans at December 31, 2019, compared to $10.8 million, or 1.28% of total loans at December 31, 2018. The change in the allowance was primarily the result of the charge-off activity in 2019, which partially offset provisions to accommodate loan growth.

Non-performing assets (“NPAs”) to total assets of 0.24% at December 31, 2019, compared to 0.44% at December 31, 2018, with non-performing loans of $2.7 million and $4.5 million, respectively, on those dates. At December 31, 2019, the allowance represented 402% coverage of non-performing assets, up from 242% at December 31, 2018.

Shareholder’s Equity

Total shareholder’s equity increased by $9.2 million, or 8% to $130.3 million at December 31, 2019, from $121.1 million at December 31, 2018. The increase is primarily attributed to earnings during the twelve-month period totaling $7.0 million, and the remainder resulting from shares issued under stock compensation plans and an increase in other comprehensive income. Tangible book value per common share increased by 7% between the periods, from $14.20 at December 31, 2018, to $15.16 at December 31, 2019.

Net Interest Income and Net Interest Margin – Years ended December 31, 2019 and December 31, 2018

Net interest income for the year ended December 31, 2019, was $40.9 million, an increase of $5.1 million, or 14.2% over $35.8 million for the same period in 2018.

Average total interest-earning assets increased by $116.4 million, or 13.3% to $992.7 million during 2019, and the average yield increased 27 basis points to 4.94%, primarily as a result of the strong increase in average loan balances and higher balance sheet leverage. During the year the Bank benefited from a significant increase in average loan balances of $148.2 million or 19.6% to $903.9 million. The average yield on total average gross loans in 2019 was 5.30%, up by 5 basis points compared to the 5.25% yield during 2018. In addition, as growth in average loan balances outpaced growth in average deposits, the average loan to deposit ratio for the year ended December 31, 2019 was 101.1% compared to 92.7% in the same period of 2018.

Of the $79.0 million increase in average total deposit balances year over year, $9.6 million were noninterest-bearing deposits while $69.4 million were interest-bearing. In addition, the overall cost of average total deposit balances was up by 25 basis points to 0.80% during 2019 compared to 0.55% during 2018. Average borrowed funds increased by $17.7 million to $29.7 million during 2019 while the average cost decreased to 3.13% in 2019 compared to 5.37% in 2018.

As a result of the strong increase in average loan balances and increased balance sheet leverage the net interest margin increased by 3 basis points to 4.12% during 2019, compared to 4.09% for 2018.

Net Interest Income and Net Interest Margin – three months ended December 31, 2019 and September 30, 2019

Net interest income was $10.6 million for the three months ended December 31, 2019, an increase of $150.7 thousand or 1% over $10.4 million for the third quarter ended September 30, 2019. The increase in net interest income includes an increase of $248.2 thousand in interest income comprised of increases in interest and fees on loans of $45.0 thousand and interest on excess funds of $262.6 thousand, offset in part by a decrease in interest earned on investment securities of $59.2 thousand.

Partially offsetting the growth in interest income was an increase of $97.5 thousand in interest expense. The growth in interest expense was comprised of growth in interest expense paid on deposits of $167.7 thousand offset by a decrease in interest expense on borrowed funds of $70.3 thousand. Growth in deposit expense was the result of growth in average interest-bearing deposits of $57.0 million. Interest expense on borrowed funds decreased as a result of lower utilization of wholesale funding, which decreased by $12.1 million on average in the quarter ended December 31, 2019 compared to the preceding quarter of 2019.

Compared to the third quarter of 2019, average deposit growth of $102.0 million outpaced growth in average loans of $20.8 million. As a result, the average loan to deposit ratio during the quarter ended December 31, 2019 decreased to 94.4% from 102.8% in the third quarter of 2019. In addition, average loans comprised 87.1% of average earning assets during the fourth quarter of 2019, which was a decrease from 92.9% for the third quarter of 2019. Taken together, the impact of the lower loan to deposit ratio and the decrease in loans as a percentage of average earning assets resulted in a decrease in yield on average earning assets of 33 basis points to 4.72% in the fourth quarter of 2019 from 5.05% for the third quarter.

Growth in average deposit balances in the quarter ended December 31, 2019 compared to the quarter ended September 30, 2019, was comprised of increases in average noninterest-bearing deposits of $45.0 million, or 13%, and $57.0 million, or 10.3%, in interest-bearing deposits. The average rate paid on interest-bearing deposits decreased by 2 basis points to 1.36% in the fourth quarter of 2019 compared to 1.38% in the third quarter of 2019. Noninterest-bearing demand deposits averaged 38.6% of total deposits in the fourth quarter of 2019 compared to 38.0% for the prior quarter. In addition, average borrowed funds to supplement funding decreased $12.1 million or 45% in the quarter ended December 31, 2019 compared to the third quarter of 2019.

The combination of the strong average deposit growth and lower deposit leverage during the fourth quarter of 2019, when compared to the third quarter of 2019, resulted in a decrease of 29 basis points in net interest margin to 3.90% during the fourth quarter of 2019 compared to 4.19% in the prior quarter.

Non-Interest Income and Expense – Years ended December 31, 2019 and December 31, 2018

During the year ended December 31, 2019, non-interest income totaled $4.2 million, an increase of $532 thousand, or 14.3% over 2018. This increase was primarily the result of higher loan fee income.

During the year ended December 31, 2019, non-interest expenses increased by $6.9 million or 26% to $33.2 million compared to $26.4 million in 2018. Of this increase, $5.1 million was in net salaries and benefits expenses, the result of hiring key executive and support staff positions to support the Company’s expansion initiatives and continued growth. In addition, operating expenses for the year ended December 31, 2019 included increases in occupancy and equipment related to the expansion of facilities; data processing costs related to enhancement of treasury management systems; and professional and legal fees related to implementation of FDICIA and SEC compliance controls and processes.

Non-Interest Income and Expense – three months ended December 31, 2019 and September 30, 2019

During the three months ended December 31, 2019, non-interest income totaled $1.2 million, a decrease of $115 thousand, or 9% from the three-month period ended September 30, 2019. The decrease was primarily the result of lower gains on loan sales compared to the prior quarter.

During the three months ended December 31, 2019, total non-interest expenses increased by $1.4 million, or 17% to $9.8 million compared to $8.4 million for the third quarter. This increase primarily related to completion of expansion initiatives, marketing campaigns and implementation of FDICIA and SEC compliance controls and processes. Salary and benefits expense increased $172 thousand for benefits related to executive hires in 2019.

Please see our detailed Fourth Quarter 2019 Unaudited Summary Financial Statements for more information.

Closing Remarks

“Following our capital raise in 2018, we embarked on a plan to position the Bank for substantive growth. We are proud of our efforts and progress in 2019 and believe we are well positioned to continue executing that plan,” Shelton concluded.

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 Northern California. 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

Thomas A. Sa, (510) 457-3775
Senior Executive Vice President
Chief Financial Officer and
Chief Operating Officer
tsa@bankcbc.com

Forward-Looking Information

Statements in this news release regarding expectations and beliefs about future financial performance and financial condition, as well as trends in the Company’s business and markets are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements often include words such as "believe," "expect," "anticipate," "intend," "plan," "estimate," "project," "outlook," or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could," or "may." The forward-looking statements in this news release are based on current information and on assumptions that the Company makes about future events and circumstances that are subject to a number of risks and uncertainties that are often difficult to predict and beyond the Company’s control. As a result of those risks and uncertainties, the Company’s actual financial results in the future could differ, possibly materially, from those expressed in or implied by the forward-looking statements contained in this news release and could cause the Company to make changes to future plans. Those risks and uncertainties include, but are not limited to, the risk of incurring loan losses, which is an inherent risk of the banking business; the risk that the Company will not be able to continue its internal growth rate; the risk that the United States economy will experience slowed growth or recession or will be adversely affected by domestic or international economic conditions and risks associated with the Federal Reserve Board taking actions with respect to interest rates, any of which could adversely affect, among other things, the values of real estate collateral supporting many of the Company’s loans, interest income and interest rate margins and, therefore, the Company’s future operating results; risks associated with changes in income tax laws and regulations; and risks associated with seeking new client relationships and maintaining existing client relationships. Also, the Company’s actual financial results in the future may differ from those currently expected or previously reported due to additional risks and uncertainties of which the Company is not currently aware or does not currently view as, but in the future may become, material to its business or operating results. Due to these and other possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this news release, which speak only as of today's date, or to make predictions based solely on historical financial performance. The Company disclaims any obligation to update forward-looking statements contained in this news release, whether as a result of new information, future events or otherwise, except as may be required by law.

Source: California BanCorp

 California BanCorp Financial Data as of December 31, 2019 (Unaudited)            
                    
 ($ Thousands) For the three months ended Change % Year ended Change %  
 Income Statement 12/31/2019 9/30/2019 12/31/2018 QoQ YoY 12/31/2019 12/31/2018 YTDoYTD  
 Interest and fees on loans $  12,132  $  12,087  $  10,120   0%  20% $  46,588  $  38,443  21%  
 Other interest income    673     471     913   43%  (26%)    2,490     2,496  (0%)  
 Total interest income    12,805     12,557     11,033   2%  16%    49,078     40,939  20%  
                    
 Interest on deposits    2,096     1,929     1,396   9%  50%    7,209     4,461  62%  
 Interest on borrowings and subordinated debentures    125     196     78   (36%)  61%    931     645  44%  
 Total interest expense    2,221     2,124     1,474   5%  51%    8,140     5,106  59%  
 Net interest income*    10,584       10,433      9,559    1 %  11 %    40,938      35,833   14 %  
 Provision for loan loss    1,000     500     591   100%  69%    2,326     1,436  62%  
 Net interest income after provision    9,584     9,933     8,968   (4%)  7%    38,612     34,397  12%  
                    
 Service charges and other account fees    200     245     292   (18%)  (32%)    957     1,059  (10%)  
 Loan related fees    652     517     291   26%  124%    2,046     1,441  42%  
 Net gains on securities sales    -     -     97   0%  (100%)    -     97  (100%)  
 Net gains on loan sales    17     212     135   (92%)  (87%)    253     418  (39%)  
 Other    277     287     47   (3%) N/A    992     701  42%  
 Total non-interest income*    1,146      1,261       862    (9%)  33 %    4,248      3,716   14 %  
                    
 Salaries and employee benefits    5,769     5,597     4,052   3%  42%    20,674     15,573  33%  
 Occupancy and equipment expenses    1,160     826     773   40%  50%    3,502     2,918  20%  
 Data processing, internet and software    521     524     424   (1%)  23%    1,883     1,539  22%  
 Professional and legal    764     355     437   115%  75%    2,383     1,123  112%  
 Other operating expenses    1,611     1,097     1,405   47%  15%    4,781     5,218  (8%)  
 Total operating expenses    9,825      8,399      7,091    17 %  39 %    33,223      26,371   26 %  
                    
 Net income before taxes    905     2,795     2,739   (68%)  (67%)    9,637     11,742  (18%)  
 Income taxes    327     791     632   (59%)  (48%)    2,636     3,029  (13%)  
 Net income $  578   $  2,004   $  2,107    (71%)  (73%) $  7,001   $  8,713   (20%)  
                    
 *Revenue (net interest income + non-interest income)    11,730     11,694     10,421   0%  13%    45,186     39,549  14%  
                    
 Earnings Per Share                  
 Basic earnings per share $  0.07   $  0.25   $  0.26    (71%)  (73%) $  0.87   $  1.22   (29%)  
 Diluted earnings per share $  0.07   $  0.25   $  0.26    (71%)  (73%) $  0.86   $  1.19   (28%)  
 Average shares outstanding    8,074,285     8,051,729     7,990,089         8,048,793     7,120,986     
 Average diluted shares    8,162,585     8,135,337     8,103,041         8,132,093     7,317,611     
                    
   For the three months ended Change $ Change %  
 Average Balance Sheet Items 12/31/2019 9/30/2019 12/31/2018 QoQ YoY QoQ YoY    
 Total Assets $  1,156,611  $  1,063,923  $  982,992  $   92,688  $  173,619   9%  18%    
 Total Loans    937,973     917,194     784,765     20,779     153,208   2%  20%    
 Investments    32,646     36,902     52,836     (4,256)    (20,190)  -12%  -38%    
 Earning Assets    1,077,708     987,286     926,331     90,422     151,377   9%  16%    
 Non-Interest Bearing Deposits    382,426     337,409     358,016     45,017     24,410   13%  7%    
 Core Deposits    865,686     754,403     760,220     111,284     105,466   15%  14%    
 Total Deposits    994,122     892,079     854,165     102,043     139,957   11%  16%    
 Borrowings    14,976     27,065     5,000     (12,089)    9,976   -45%  200%    
 Tangible Common Equity    122,684     120,833     112,450     1,851     10,234   2%  9%    
                    
   Year ended Change           
 Average Balance Sheet Items 12/31/2019 12/31/2018 $ %          
 Total Assets $  1,064,452  $  929,028  $  135,424   15%          
 Total Loans    903,923     755,659     148,264   20%          
 Investments    38,197     23,378     14,819   63%          
 Earning Assets    992,679     876,288     116,391   13%          
 Non-Interest Bearing Deposits    342,720     333,075     9,645   3%          
 Core Deposits    778,916     711,928     66,988   9%          
 Total Deposits    893,893     814,930     78,963   10%          
 Borrowings    29,717     12,051     17,666   147%          
 Tangible Common Equity    119,176     92,963     26,213   28%          
                    
                    
   At the periods ended Change $ Change %    
 Balance Sheet 12/31/2019 9/30/2019 12/31/2018 QoQ YoY QoQ YoY    
 Cash and equivalents $  114,342  $  67,660  $  78,705  $  46,682  $  35,637   69%  45%    
 Investment securities    28,555     36,260     43,415     (7,705)    (14,860)  -21%  -34%    
 Other investments    4,402     4,402     3,536     -     866   0%  24%    
                    
 Commercial loans    389,746     402,303     341,184     (12,557)    48,562   -3%  14%    
 CRE loans    502,929     484,606     451,851     18,323     51,078   4%  11%    
 Construction and land loans    42,519     32,547     37,344     9,972     5,175   31%  14%    
 Other loans    14,458     13,822     14,349     636     109   5%  1%    
 Loans    949,652     933,278     844,728     16,374     104,924   2%  12%    
 Net deferred costs    2,555      2,392     2,203     163     352   7%  16%    
 Allowance for loan losses    11,075     10,413     10,800     662     275   6%  3%    
 Net loans    941,132      925,257      836,131      15,875      105,001    2%  13%    
                    
 Premises and equipment, net    3,668     1,917     2,076     1,751     1,592   91%  77%    
 Bank owned life insurance    22,316     22,156     17,806     160     4,510   1%  25%    
 Deferred income taxes, net    6,173     5,247     5,803     926     370   18%  6%    
 Core Deposit Intangible    264     278     286     (14)    (22)  -5%  -8%    
 Goodwill    7,350     7,350     7,350     -     -   0%  0%    
 Other assets and interest receivable    23,832     24,082     10,564     (250)    13,268   -1%  126%    
 Total assets $  1,152,034   $  1,094,609   $  1,005,672   $  57,425   $  146,362    5%  15%    
                    
 Demand deposits $  387,267  $  373,289  $  352,402  $  13,978  $  34,865   4%  10%    
 Interest bearing demand deposits    25,178     22,896     32,650     2,282     (7,472)  10%  -23%    
 Money market & savings deposits    455,436     398,242     392,290     57,194     63,146   14%  16%    
 Time deposits    120,355     129,483     96,912     (9,128)    23,443   -7%  24%    
 Total deposits    988,236      923,910      874,254      64,326      113,982    7%  13%    
                    
 Borrowings    10,000     20,000     -     (10,000)    10,000   -50%  0%    
 Subordinated debentures, net    4,977     4,973     4,960     4     17   0%  0%    
 Other liabilities    18,565     16,724     5,379     1,841     13,186   11% N/A    
 Total liabilities    1,021,778     965,607     884,593     56,171     137,185   6%  16%    
                    
 Common stock    106,427     105,711     104,563     716     1,864   1%  2%    
 Retained earnings    23,519     22,937     16,515     582     7,004   3%  42%    
 Other comprehensive income    310     354     1     (44)    309   -12% N/A    
 Total shareholder’s equity    130,256      129,002      121,079      1,254      9,177    1%  8%    
 Total liabilities and equity $  1,152,034   $  1,094,609   $  1,005,672   $  57,425   $  146,362    5%  15%    
                    
 Tangible book value per common share $  15.16  $  15.08  $  14.20             
 Total shares outstanding    8,092,966     8,052,549     7,993,908             
                    
 Core relationship deposits    867,881     772,811     779,783     95,070     88,098         
                    
                    
   For the three months ended Year ended        
 Performance Ratios 12/31/2019 9/30/2019 12/31/2018 12/31/2019 12/31/2018        
 Return on average assets  0.20%  0.75%  0.85%  0.66%  0.94%        
 Return on average tangible common equity  1.87%  6.58%  7.43%  5.87%  9.37%        
 Efficiency ratio  83.76%  71.82%  68.05%  73.52%  66.68%        
                    
 Net Interest Margin                  
 Net interest margin  3.90%  4.19%  4.09%  4.12%  4.09%        
 Average earning assets yield  4.72%  5.05%  4.73%  4.94%  4.67%        
 Average investment yield  2.85%  3.12%  3.08%  3.08%  2.72%        
 Average loan yield  5.26%  5.30%  5.12%  5.30%  5.25%        
 Average total deposit rate  0.84%  0.86%  0.65%  0.80%  0.55%        
 Average borrowing rate  3.32%  2.87%  6.17%  3.13%  5.37%        
                    
 Other Ratios                  
 Average total loans to total deposits  94.4%  102.8%  91.9%  101.1%  92.7%        
 Average C&I loans to total loans  41.8%  41.7%  40.9%  41.5%  43.0%        
 Average non-interest bearing deposits to total deposits  38.5%  37.8%  41.9%  38.3%  40.9%        
 Average core deposits to total deposits  87.1%  84.6%  89.0%  87.1%  87.4%        
                    
   At the periods ended            
 Capital Ratios - Bank 12/31/2019 9/30/2019 12/31/2018            
 Tier 1 leverage ratio  10.44%  11.22%  11.31%            
 Common equity tier 1 capital ratio  10.38%  10.68%  10.94%            
 Tier 1 risk-based capital ratio  10.38%  10.68%  10.94%            
 Total risk-based capital ratio  11.79%  12.09%  12.52%            
                    
   At the periods ended            
 Non-Performing Assets  12/31/2019 9/30/2019 12/31/2018            
 Non-Accrual Loans $  2,753  $  4,675  $  4,463             
 Restructured Loans    -     -               
 Total non-performing loans (NPL)    2,753     4,675     4,463             
 Other Real Estate Owned    -     -     -             
 Total non-performing assets (NPA) $  2,753  $  4,675  $  4,463             
                    
 Restructured Loans Performing    646     697     930             
                    
 Quarterly Net (Charge-offs)/Recoveries $  338  $  1,588  $  9             
                    
 NPAs / Assets %  0.24%  0.43%  0.44%            
 NPAs / Loans and OREO %  0.29%  0.50%  0.53%            
 Loan Loss Reserves / Loans (%)  1.17%  1.12%  1.28%            
 Loan Loss Reserves / NPLs (%)  402%  223%  242%            

Source: California BanCorp
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