California BanCorp Reports Record Quarterly Earnings of $2.5 Million, Up 20% from 3Q17, and a Strong 14% Core Deposit Growth - California Bancorp (NASDAQ:CALB)

OAKLAND, Calif., Oct. 30, 2018 (GLOBE NEWSWIRE) -- California BanCorp (the "Company") 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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