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	%

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