Oakland, CA – January 30, 2024 – California BanCorp (NASDAQ: CALB) (the “Company”), whose subsidiary is California Bank of Commerce, announced today its financial results for the fourth quarter and twelve months ended December 31, 2023.
The Company reported net income of $5.3 million for the fourth quarter of 2023, compared to $5.4 million for the third quarter of 2023 and $7.7 million for the fourth quarter of 2022. For the twelve months ended December 31, 2023, net income was $21.6 million, representing an increase of $525,000, or 2%, compared to $21.1 million for the same period in 2022.
Diluted earnings per share were $0.63 for the fourth quarter of 2023, compared to $0.64 for the third quarter of 2023 and $0.91 for the fourth quarter of 2022. For the twelve months ended December 31, 2023, diluted earnings per share were $2.56, compared to $2.51 for the same period in 2022.
“Despite a challenging year for the banking industry, we generated a record level of earnings in 2023, which reflects the strength of the franchise we have built and our ability to perform well in a variety of economic conditions,” said Steven Shelton, Chief Executive Officer of California BanCorp. “While maintaining our conservative approach to new loan production and prudent balance sheet management, we continued to deliver strong financial performance in the fourth quarter with our return on assets remaining above 1%. As expected, our balance sheet remained relatively flat with the prior quarter, although we continue to have success in adding new full banking relationships that provide operating deposit accounts that have helped to offset seasonal outflows from existing clients and high-quality commercial lending opportunities that have offset the level of payoffs that we are seeing in the portfolio.
“Given the strength of our balance sheet, with a high level of capital, liquidity, and reserves, along with a conservatively underwritten loan portfolio, we believe we are well positioned to continue delivering strong financial performance in 2024 even if the macroeconomic environment remains challenging. As the banking industry has stabilized, we are seeing more businesses looking to move their deposit relationships from the larger banks to a smaller commercial bank that provides a higher level of responsiveness and service. This is creating opportunities for us to add attractive new client relationships given the strong balance sheet, robust treasury management solutions, and superior level of service that we can provide. We have a strong deposit pipeline that we believe should result in continued growth in our client roster during 2024, further improvement in our level of profitability in the years ahead, and an increase in the value of our franchise,” said Mr. Shelton.
Financial Highlights:
Profitability – three months ended December 31, 2023 compared to September 30, 2023
- Net income of $5.3 million and $0.63 per diluted share, compared to $5.4 million and $0.64 per diluted share, respectively.
- Revenue was $19.9 million for both the fourth and third quarters of 2023.
- Net interest income was $18.6 million for both the fourth and third quarters of 2023.
- Provision for credit losses of $181,000 decreased $133,000, or 42%, from $314,000 for the third quarter of 2023.
- Non-interest income was $1.3 million for both the fourth and third quarters of 2023.
- Non-interest expense, excluding capitalized loan origination costs, of $13.0 million increased $523,000, or 4%, compared to $12.5 million for the third quarter of 2023.
Profitability – twelve months ended December 31, 2023 compared to December 31, 2022
- Net income of $21.6 million and $2.56 per diluted share, compared to $21.1 million and $2.51 per diluted share, respectively.
- Revenue of $79.4 million increased $1.1 million, or 1%, compared to $78.3 million in the prior year.
- Net interest income of $74.6 million increased $3.6 million, or 5%, compared to $71.0 million for the same period in the prior year.
- Provision for credit losses of $1.3 million decreased $2.5 million, or 66%, from $3.8 million for the twelve months ended December 31, 2022.
- Non-interest income of $4.9 million decreased $2.5 million, or 34%, from $7.4 million for the same period in the prior year.
- Non-interest expense, excluding capitalized loan origination costs, of $50.4 million decreased $1.6 million, or 3%, compared to $48.8 million for the twelve months ended December 31, 2022.
Financial Position – December 31, 2023 compared to September 30, 2023
- Total assets increased by $2.0 million, or 0%, to $1.99 billion.
- Total gross loans decreased by $13.6 million, or 1%, to $1.56 billion; average total gross loans increased by $20.3 million to $1.57 billion.
- Total deposits decreased by $81.8 million, or 5%, to $1.63 billion; average total deposits decreased by $18.8 million to $1.70 billion.
- Other borrowings were $75.0 million at December 31, 2023 compared to no balances outstanding at September 30, 2023.
- Capital ratios remain healthy with a tier I leverage ratio of 9.61%, tier I capital ratio of 9.53% and total risk-based capital ratio of 13.16%.
- Book value per share of $23.38 increased by $0.74, or 3%.
- Tangible book value per share of $22.50 increased by $0.74, or 3%.
Net Interest Income and Margin:
Net interest income for the quarters ended December 31, 2023 and September 30, 2023 was $18.6 million, compared to $21.9 million for the three months ended December 31, 2022. Net interest income for the twelve months ended December 31, 2023 was $74.6 million, an increase of $3.6 million, or 5% over $71.0 million for the twelve months ended December 31, 2022. The decrease in net interest income for the quarters ended December 31, 2023 and September 30, 2023 compared to the fourth quarter of 2022 was primarily due to an increase in the cost of interest-bearing deposits. The increase in net interest income for the year ended December 31, 2023 compared to the year ended December 31, 2022 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.
The Company’s net interest margin for the fourth quarter of 2023 was 3.88%, compared to 3.86% for the third quarter of 2023 and 4.32% for the same period in 2022. The decrease in margin from the same period last year was primarily the result of an increase in the cost of deposits, partially offset by a more favorable mix of earning assets with higher yields.
The Company’s net interest margin for the twelve months ended December 31, 2023 was 3.92% compared to 3.79% for the same period in 2022. The increase in margin compared to prior year was primarily due to loan growth and increased yields on earnings assets, partially offset by an increase in the cost of deposits and other borrowings.
Non-Interest Income:
The Company’s non-interest income for the quarters ended December 31, 2023, September 30, 2023, and December 31, 2022 was $1.3 million, $1.3 million and $2.0 million, respectively. For the twelve months ended December 31, 2023, non-interest income of $4.9 million compared to $7.4 million for the same period of 2022. The decrease in non-interest income from prior year was the result of a decrease in service charges and loan related fees combined with a $1.4 million gain recognized in the first quarter of 2022 on the sale of a portion of our solar loan portfolio.
Net interest income and non-interest income comprised total revenue of $19.9 million, $19.9 million, and $23.8 million for the quarters ended December 31, 2023, September 30, 2023, and December 31, 2022, respectively. Total revenue for the twelve months ended December 31, 2023 and 2022 was $79.4 million and $78.3 million, respectively.
Non-Interest Expense:
The Company’s non-interest expense for the quarters ended December 31, 2023, September 30, 2023, and December 31, 2022 was $12.2 million, $11.9 million, and $11.7 million, respectively. The increase in non-interest expense from the third quarter of 2023 and fourth quarter of 2022 was primarily due to an increase in salaries and benefits combined with an increase in premises and equipment, partially offset by a decrease in data processing expense. Excluding capitalized loan origination costs, non-interest expense for the fourth quarter of 2023, the third quarter of 2023 and the fourth quarter of 2022 was $13.0 million, $12.5 million, and $12.7 million, respectively.
Non-interest expense of $47.5 million for the twelve months ended December 31, 2023 increased by $2.8 million, or 6%, compared to $44.7 million for the same period of 2022. Excluding capitalized loan origination costs, non-interest expense was $50.4 million for the twelve months ended December 31, 2023 and $48.8 million for the same period in 2022 which reflects investment in infrastructure to support the growth of the Company.
The Company’s efficiency ratio, the ratio of non-interest expense to revenues, was 61.36%, 59.64%, and 49.17% for the quarters ended December 31, 2023, September 30, 2023, and December 31, 2022, respectively. For the twelve months ended December 31, 2023 and 2022, the Company’s efficiency ratio was 59.82% and 57.01%, respectively.
Balance Sheet:
Total assets of $1.99 billion as of December 31, 2023, represented an increase of $2.0 million, or 0%, compared to $1.98 billion at September 30, 2023 and a decrease of $56.3 million, or 3%, compared to $2.04 billion at December 31, 2022. Compared to the same period in the prior year, total assets decreased primarily due to conservative new loan production during 2023 and decreased liquidity as a result of a reduction in total deposits, partially offset by an increase in short-term borrowings.
Total gross loans decreased by $13.6 million, or 1%, to $1.56 billion at December 31, 2023, from $1.57 billion at September 30, 2023 and decreased by $33.9 million, or 2%, compared to $1.59 billion at December 31, 2022. During the fourth quarter of 2023, the reduction in gross loans was primarily the result of commercial loans decreasing by $16.6 million, or 1%, partially offset by an increase in construction and land loans of $4.2 million, or 10%. Compared to the same period in the prior year, the reduction in gross loans was primarily the result of construction and land loans decreasing by $19.5 million, or 31%, due to the completion of a large construction project.
Total deposits decreased by $81.8 million, or 5%, to $1.63 billion at December 31, 2023 from $1.71 billion at September 30, 2023, and decreased by $166.5 million, or 9%, from $1.79 billion at December 31, 2022. The decrease in total deposits from the end of the third quarter of 2023 was primarily due to a decrease in demand deposits of $31.2 million, or 4%, a decrease in money market and savings accounts of $41.1 million, of 6%, and a decrease in time deposits of $9.5 million, or 3%. Noninterest-bearing deposits, primarily commercial business operating accounts, represented 40.4% of total deposits at December 31, 2023, compared to 40.2% at September 30, 2023 and 45.3% at December 31, 2022.
At December 31, 2023, the Company had $75.0 million in outstanding borrowings, excluding junior subordinated debt securities, compared to no outstanding borrowings at September 30, 2023 and December 31, 2022.
Asset Quality:
The provision for credit losses on loans decreased to $87,000 for the fourth quarter of 2023 compared to $121,000 for the third quarter of 2023, and $1.1 million for the fourth quarter of 2022. The Company had loan recoveries of $20,000 during the fourth quarter of 2023, loan charge-offs of $156,000 and recoveries of $234,000 during the third quarter of 2023, and loan charge-offs of $650,000 and no recoveries during the fourth quarter of 2022.
Non-performing assets (“NPAs”) to total assets were 0.19% at December 31, 2023, 0.06% at September 30, 2023 and 0.06% at December 31, 2022, with non-performing loans of $3.8 million, $1.2 million and $1.3 million, respectively, on those dates. The increase in non-performing loans during the fourth quarter of 2023 was due to one loan relationship within our commercial portfolio. The borrower is currently in the process of liquidating its assets and the Company does not anticipate a loss associated with this loan as of December 31, 2023.
The allowance for credit losses on loans increased by $107,000 to $16.0 million, or 1.03% of total loans, at December 31, 2023, compared to $15.9 million, or 1.01% of total loans, at September 30, 2023 and $17.0 million, or 1.07% of total loans, at December 31, 2022. On January 1, 2023, the Company adopted the new current expected credit losses (CECL) standard. The Company’s allowance for credit losses on loans was 0.95% upon adoption on January 1, 2023 compared to 1.07% at December 31, 2022.
The allowance for credit losses on unfunded loan commitments increased by $120,000 to $2.2 million, or 0.32% of total unfunded loan commitments, at December 31, 2023, compared to $2.1 million, or 0.32% of total unfunded loan commitments, at September 30, 2023 and $430,000, or 0.07% of total unfunded loan commitments at December 31, 2022. The Company’s allowance for credit losses on unfunded loan commitments was 0.28% upon the adoption of CECL on January 1, 2023 compared to 0.07% at December 31, 2022.
Capital Adequacy:
At December 31, 2023, shareholders’ equity totaled $196.5 million compared to $190.1 million at September 30, 2023 and $172.3 million one year ago. As a result, the Company’s total risk-based capital ratio, tier I capital ratio and tier I leverage ratio of 13.16%, 9.53%, and 9.61%, respectively, were all above the regulatory standards for “well-capitalized” institutions of 10.00%, 8.00% and 5.00% respectively.
“With our strong financial performance and prudent balance sheet management, we continued to increase our capital ratios and tangible book value per share, and during 2023, our tangible book value per share increased 14%,” said Thomas A. Sa, President, Chief Financial Officer and Chief Operating Officer of California BanCorp. “With our high level of capital, we are well positioned to continue growing our franchise and creating long-term value for shareholders.”
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, please visit our website 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 future performance or financial results 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; the impacts of the failure of other depository institutions on investor and depositor sentiments and preferences; the Company’s ability to manage its liquidity; 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, 2022 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, 2023, which we expect to file with the SEC during the first quarter of 2024, 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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