California BanCorp Reports Financial Results for the Fourth Quarter and Twelve Months Ended December 31, 2022

Oakland, CA – January 26, 2023 – California BanCorp (NASDAQ: CALB), whose subsidiary is California Bank of Commerce, announced today its financial results for the fourth quarter and twelve months ended December 31, 2022.

The Company reported net income of $7.7 million for the fourth quarter of 2022, representing an increase of $2.2 million, or 39%, compared to $5.5 million for the third quarter of 2022 and an increase of $4.5 million, or 141%, compared to $3.2 million in the fourth quarter of 2021. For the twelve months ended December 31, 2022, net income was $21.1 million, representing an increase of $7.7 million, or 58%, compared to $13.4 million for the same period in 2021.

Diluted earnings per share of $0.91 for the fourth quarter of 2022 compared to $0.66 for the third quarter of 2022 and $0.38 for the fourth quarter of 2021.   For the twelve months ended December 31, 2022, diluted earnings per share of $2.51 compared to $1.61 for the same period in 2021.

“Our fourth quarter performance completed another strong year of continuing the growth of our client roster, realizing more operating leverage, and increasing our level of profitability,” said Steven Shelton, Chief Executive Officer of California BanCorp. “Given the potential for an economic slowdown in 2023, we have become more selective with our loan production; however, we continue to develop new relationships with high quality commercial clients. As a result, during the fourth quarter we experienced significant growth in both noninterest-bearing deposits and total deposits. At year-end, noninterest-bearing deposits represented 45% of our total deposits which allowed us to maintain a lower cost of funds and create additional expansion in our net interest margin, as well as contribute to our increasing level of profitability.   As we further execute our strategy of building a franchise based upon a stable low-cost deposit base and a conservatively underwritten and well-diversified loan portfolio, we believe the Company is positioned to continue generating strong financial performance for our shareholders.   Over the longer term, and as economic conditions improve, our strong commercial banking team’s ability to generate attractive lending opportunities will further result in higher levels of revenue, more operating leverage, and profitable growth for our franchise.”

Financial Highlights:

Profitability – three months ended December 31, 2022 compared to September 30, 2022

• Net income of $7.7 million and $0.91 per diluted share, compared to $5.5 million and $0.66 per share, respectively.
• Revenue of $23.8 million increased $4.0 million, or 20%, compared to $19.8 million for the third quarter of 2022.
• Net interest income of $21.9 million benefited from higher earning assets during the fourth quarter of 2022 combined with the rising rate environment and the acceleration of an unamortized discount totaling $1.4 million related to the repayment of previously purchased loans.
• Provision for loan losses of $1.1 million increased $300,000, or 38%, primarily as a result of continued adjustments in the qualitative reserve assessment in response to general macroeconomic changes, combined with growth in the real estate other loan portfolio.
• Non-interest income of $2.0 million increased $478,000, or 32%, primarily due to loan related fees.
• Non-interest expense, excluding capitalized loan origination costs, of $12.7 million increased $354,000, or 3%, compared to $12.3 million for the third quarter of 2022 primarily as a result of increased salary and benefit expense related to the continued growth of the business, combined with increases in item processing and business development expenses.

Profitability – twelve months ended December 31, 2022 compared to December 31, 2021

• Net income of $21.1 million and $2.51 per diluted share, compared to $13.4 million and $1.61 per diluted share, respectively.
• Revenue of $78.3 million increased $19.4 million, or 33%, compared to $58.9 million in the prior year.
• Net interest income of $71.0 million benefited from a more favorable mix of earning assets combined with the rising rate environment, partially offset by the recognition of net fees from Paycheck Protection Program (“PPP”) loans declining by $3.8 million from the prior year.
• Provision for loan losses increased $3.8 million primarily due to growth in the loan portfolio combined with a release of reserves in 2021 as a result of the continued assessment of qualitative reserves regarding the general macroeconomic changes related to COVID-19 as it pertained to our overall loan portfolio.
• Non-interest income of $7.4 million increased $3.2 million, or 77%, primarily due to a gain recognized on the sale of a portion of our solar loan portfolio during the first quarter of 2022 combined with an increase in service charges and other fees resulting from growth in the Company’s client base.
• Non-interest expense, excluding capitalized loan origination costs, of $48.8 million compared to $46.0 million for the same period in the prior year, reflecting the Company’s investment in infrastructure to support the continued growth of the Company.

Financial Position – December 31, 2022 compared to September 30, 2022

• Total assets decreased by $6.3 million to $2.04 billion; average total assets increased by $158.0 million to $2.09 billion.
• Gross loans increased by $5.5 million to $1.59 billion; average gross loans increased by $97.9 million to $1.62 billion.
• Deposits increased by $82.7 million to $1.79 billion; average deposits increased by $193.6 million to $1.79 billion.
• Other borrowings of $100.0 million were repaid during the fourth quarter of 2022 and no outstanding balance remained at December 31, 2022.
• Tangible book value per share of $19.78 increased by $0.98, or 5%.

Net Interest Income and Margin:

Net interest income for the quarter ended December 31, 2022 was $21.9 million, an increase of $3.5 million, or 19%, from $18.4 million for the three months ended September 30, 2022, and an increase of $7.9 million, or 57%, from $14.0 million for the quarter ended December 31, 2021. The increase in net interest income compared to the third quarter of 2022 was primarily attributable to growth of the loan portfolio and an increase in net interest margin related to the rising interest rate environment. Additionally, during the fourth quarter of 2022 commercial loans totaling $57.9 million that were previously purchased at a discount were paid off, resulting in the remaining unamortized discount of $1.4 million being accelerated into interest income. Compared to the fourth quarter of 2021, the increase in net interest income resulted from a more favorable mix of earning assets which benefited from the rising rate environment and the accelerated recognition of the discount related to the repayment of previously purchased loans, partially offset by a $684,000 reduction in the amortization of net fees received on PPP loans.

Net interest income for the twelve months ended December 31, 2022 was $71.0 million, an increase of $16.3 million, or 30%, over $54.7 million for the twelve months ended December 31, 2021. The increase in net interest income was primarily attributable to an increase in interest income as the result of a more favorable mix of earning assets combined with higher yields on those assets and the accelerated recognition of the discount related to the repayment of previously purchased loans, partially offset by a $3.8 million reduction in the amortization of net fees received on PPP loans.

The Company’s net interest margin for the fourth quarter of 2022 was 4.32%, compared to 3.94% for the third quarter of 2022 and 2.81% for the same period in 2021. The increase in margin compared to the prior quarter and the fourth quarter of 2021 was primarily due to growth in the loan portfolio and increased yields on earning assets, partially offset by an increase in the cost of deposits and other borrowings.

The Company’s net interest margin for the twelve months ended December 31, 2022 was 3.79%, compared to 2.89% for the same period in 2021.   The increase in margin compared to prior year was primarily due to a more favorable mix of higher yielding earning assets, partially offset by an increase in the cost of deposits and other borrowings and a reduction in the amortization of net fees received on PPP loans.

Non-Interest Income:

The Company’s non-interest income for the quarters ended December 31, 2022, September 30, 2022, and December 31, 2021 was $2.0 million, $1.5 million, and $994,000, respectively. The increase in non-interest income from the prior periods was primarily due to an increase in service charges and loan related fees.

For the twelve months ended December 31, 2022, non-interest income of $7.4 million compared to $4.2 million for the same period of 2021. The increase in non-interest income from prior year was the result of an increase in service charges and loan related fees, as well as a gain of $1.4 million recognized on the sale of a portion of our solar loan portfolio.

Net interest income and non-interest income comprised total revenue of $23.8 million, $19.8 million, and $15.0 million for the quarters ended December 31, 2022, September 30, 2022, and December 31, 2021, respectively. Total revenue for the twelve months ended December 31, 2022 and 2021 was $78.3 million and $58.9 million, respectively.

Non-Interest Expense:

The Company’s non-interest expense for the quarters ended December 31, 2022, September 30, 2022, and December 31, 2021 was $11.7 million, $11.2 million, and $10.0 million, respectively. The increase in non-interest expense from the prior periods was primarily due to an increase in salaries and benefits related to investments to support the continued growth of the business, combined with increases in item processing and business development expenses. Excluding capitalized loan origination costs, non-interest expense for the fourth quarter of 2022, the third quarter of 2022 and the fourth quarter of 2021 was $12.7 million, $12.3 million, and $11.6 million, respectively.

Non-interest expense of $44.7 million for the twelve months ended December 31, 2022 compared to $40.4 million for the same period of 2021. Excluding capitalized loan origination costs, non-interest expense was $48.8 million for the twelve months ended December 31, 2022 and $46.0 million for the same period in 2021 which reflects the Company’s investment in infrastructure to support the continued growth of the Company.

The Company’s efficiency ratio, the ratio of non-interest expense to revenues, was 49.17%, 56.52%, and 66.90% for the quarters ended December 31, 2022, September 30, 2022, and December 31, 2021, respectively. For the twelve months ended December 31, 2022 and 2021, the Company’s efficiency ratio was 57.01% and 68.65%, respectively.

Balance Sheet:

Total assets of $2.04 billion as of December 31, 2022, represented a decrease of $6.3 million compared to $2.05 billion at September 30, 2022, and increased $27.2 million compared to total assets of $2.0 billion at December 31, 2021. The decrease in total assets from the prior quarter was primarily due to decreased liquidity related to the payoff of other borrowings, combined with modest growth of the loan portfolio. Compared to the same period in the prior year, the Company had strong loan growth in the commercial and real estate other portfolios, which was partially offset by decreased liquidity resulting from the outflow of deposits related to forgiveness of PPP loans and the payoff of other borrowings.  

Total gross loans were $1.59 billion at December 31, 2022 and September 20, 2022, compared to $1.38 billion at December 31, 2021. During the fourth quarter of 2022, real estate other loans increased by $23.4 million, or 3%, due to organic growth, partially offset by decreases in commercial, real estate construction and land, and SBA loans related to the ordinary course of business. Year-over-year, commercial and real estate other loans increased by $160.3 million, or 34%, and $151.0 million, or 22%, respectively, due to organic growth. These increases were partially offset by a decrease in SBA loans of $74.2 million, or 91%, primarily due to PPP loan forgiveness, and a decrease in other loans of $40.9 million, or 51%, due to the sale of a portion of the solar loan portfolio.

Total deposits increased by $82.7 million, or 5%, to $1.79 billion at December 31, 2022 from $1.71 billion at September 30, 2022, and increased by $111.6 million, or 7%, from $1.68 billion at December 31, 2021. The increase in total deposits from the end of the third quarter of 2022 was primarily due to an increase in non-interest bearing demand deposits of $53.0 million and money market and savings deposits of $73.8 million, partially offset by a decrease in time deposits of $46.7 million as a result of reduced reliance on brokered certificates of deposits. Compared to the same period last year, the increase in total deposits was primarily concentrated in non-interest bearing demand deposits and time deposits, partially offset by a reduction in money market and savings deposits as a result of outflows related to forgiveness of PPP loans. Non-interest bearing deposits, primarily commercial business operating accounts, represented 45.3% of total deposits at December 31, 2022, compared to 44.4% at September 30, 2022 and 45.9% at December 31, 2021.

As of December 31, 2022, the Company had no outstanding borrowings, excluding junior subordinated debt securities, compared to $100.0 million and $106.4 million of outstanding borrowings as of September 30, 2022 and December 31, 2021, respectively.

Asset Quality:

The provision for credit losses increased to $1.1 million for the fourth quarter of 2022 compared to $800,000 for the third quarter of 2022 and $504,000 for the fourth quarter of 2021. The Company had net loan charge-offs of $650,000, or 0.04% of gross loans, during the fourth quarter of 2022 and $202,000, or 0.01% of gross loans, during the third quarter of 2022.   The Company had net loan recoveries of $6,000, or 0.00% of gross loans, during the fourth quarter of 2021.

Non-performing assets (“NPAs”) to total assets were 0.06% at December 31, 2022, compared to 0.02% at September 30, 2022 and 0.01% at December 31, 2021, with non-performing loans of $1.3 million, $343,000 and $232,000, respectively, on those dates.

The allowance for loan losses was $17.0 million, or 1.07% of total loans, at December 31, 2022, compared to $16.6 million, or 1.04% of total loans, at September 30, 2022 and $14.1 million, or 1.02% of total loans, at December 31, 2021.   

Capital Adequacy:

At December 31, 2022, shareholders’ equity totaled $172.3 million compared to $164.1 million at September 30, 2022 and $150.8 million one year ago. Additionally, at December 31, 2022, the Company’s total risk-based capital ratio, tier one capital ratio, and leverage ratio were 11.78%, 8.23%, and 7.98%, respectively; all of which were above the regulatory standards of 10.00%, 8.00%, and 5.00%, respectively, for “well-capitalized” institutions.

“Our strong financial performance and effective balance sheet management resulted in further growth of our tangible book value per share to $19.78, representing an increase of 5.2% from the prior quarter,” said Thomas A. Sa, President, Chief Financial Officer and Chief Operating Officer of California BanCorp   “During the fourth quarter, we successfully completed financing transactions in support of sponsor-backed clients’ evolving needs which resulted in nonrecurring fees of $1.4 million contributing to net interest income. Further, our ability to lead these transactions opportunistically enabled us to enhance capital accretion and reduce overall credit exposure.  These transactions combined with our strong core financial performance throughout 2022 resulted in a total equity to total assets ratio of 8.43% at year-end, representing an increase of 95 basis points from the prior year. We believe that our strong capital ratios position us well to effectively manage through potential economic uncertainty during 2023 while continuing to support the growth of our franchise over the longer term.”

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 Company’s common stock trades on the Nasdaq Global Select marketplace under the symbol CALB. For more information on California BanCorp, call us at (510) 457-3751, or visit us at www.californiabankofcommerce.com.

Contacts:

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

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

Use of Non-GAAP Financial Information:

This press release contains both financial measures based on GAAP and non-GAAP. Non-GAAP financial measures are used where management believes them to be helpful in understanding the Company’s results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in this press release. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

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; uncertainties related to the coronavirus pandemic; the impact of higher inflation rates; 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, loan demand, 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. Readers of this news release are encouraged to review the additional information regarding these and other risks and uncertainties to which our business is subject that are contained in our Annual Report on Form 10-K for the year ended December 31, 2021 which is on file with the Securities and Exchange Commission (the “SEC”). Additional information will be set forth in our Annual Report on Form 10-K for the year ended December 31, 2022, which we expect to file with the SEC during the first quarter of 2023, and readers of this release are urged to review the additional information that will be contained in that report.

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.

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