Overview
California BanCorp (the “Company,” “we” or “us”), a California corporation headquartered in Oakland, California, is the bank holding company for its wholly-owned subsidiary California Bank of Commerce (the “Bank”). The Bank has a full service branch in California located in Contra Costa County and 4 loan production offices in California located in Alameda County, Contra Costa County, Sacramento County, and Santa Clara County.
Critical Accounting Policies
Our unaudited consolidated financial statements are prepared in accordance with GAAP and with general practices within the financial services industry. Application of these principles requires management to make complex and subjective estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under current circumstances. These assumptions form the basis for our judgments about the carrying values of assets and liabilities that are not readily available from independent, objective sources. We evaluate our estimates on an ongoing basis. Use of alternative assumptions may have resulted in significantly different estimates. Actual results may differ from these estimates.
Our most significant accounting policies are described in Note 1 to our audited financial statements for the year ended December 31, 2022, included in our Annual Report on Form 10-K and in Note 1 to our unaudited financial statements, which are included elsewhere in this Quarterly Report on Form 10-Q.
Results of Operations – Three Months Ended March 31, 2023 and 2022:
Overview
For the three months ended March 31, 2023 and March 31, 2022, net income was $5.5 million and $3.7 million, respectively, representing an increase of $1.8 million, or 48%. Compared to the same period last year, net interest income after the provision for credit losses increased by $4.8 million, which was offset by a decrease in non-interest income of $1.4 million, an increase in non-interest expense of $927,000 and an increase in the provision for income taxes of $691,000.
Net Interest Income and Margin
Net interest income, the difference between interest earned on loans and investments and interest paid on deposits and borrowings is the principal component of the Company’s earnings. Net interest income is affected by changes in the nature and volume of earning assets and interest-bearing liabilities held during the quarter, the rates earned on such assets and the rates paid on interest bearing liabilities.
Net interest income for the three months ended March 31, 2023, was $18.8 million, an increase of $4.2 million, or 29% from $14.5 million for the same period in 2022. The increase in net interest income was primarily attributable to the rising interest rate environment combined with a more favorable mix of higher yielding earning assets offset, in part, by an increase in the cost of total deposits.
Average total interest-earning assets were $1.89 billion in the first quarter of 2023 compared to $1.85 billion for the same period during 2022. For the quarter ended March 31, 2023, the yield on average earning assets increased 197 basis points to 5.47% from 3.50% for the quarter ended March 31, 2022. The yield on total average gross loans in the three months ended March 31, 2023 was 5.76%, representing an increase of 136 basis points compared to 4.40% in the same period one year earlier. For the three months ended March 31, 2023 compared to the same period in 2022, the yield on average investment securities increased 61 basis points to 3.43% from 2.82%.
For the three months ended March 31, 2023, average loans increased $211.1 million, or 15%, from the quarter ended March 31, 2022 while average deposit balances increased $47.9 million, or 3%, for the same period. As a result, the average loan to deposit ratio for the first quarter of 2023 was 93.08% compared to 83.00% for the first quarter of 2022.
Of the $211.1 million increase in average loan balances year over year, average commercial and real estate other loans increased by $148.8 million and $135.6 million, respectively, as a result of organic growth. These increases were partially offset by a decrease in average SBA loans of $55.0 million primarily due to PPP loan forgiveness and a decrease in other loans of $38.7 million.
29