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Financial Highlights:

Profitability - three months ended December 31, 2021 compared to September 30, 2021

• Net income of $3.2 million and $0.38 per diluted share, compared to $3.2 million and $0.39 per diluted share, respectively.

• Revenue of $15.0 million decreased $182,000, or 1%, compared to $15.1 million for the third quarter of 2021.

• Net fees from Paycheck Protection Program (“PPP”) loans contributed $708,000 to net interest income compared to $1.6 million for the third quarter of 2021.

• Provision for loan losses of $504,000 increased $204,000, or 68%, primarily as a result of growth in the loan portfolio.

• Non-interest expense, excluding capitalized loan origination costs, of $11.6 million decreased $100,000, or 1%, compared to $11.7 million for the third quarter of 2021 primarily due to lower headcount during the quarter resulting from the impact of the current competitive labor market.
  

Profitability - twelve months ended December 31, 2021 compared to December 31, 2020

• Net income of $13.4 million and $1.61 per diluted share, compared to $4.3 million and $0.53 per diluted share, respectively.

• Revenue of $58.9 million increased $10.0 million, or 20%, compared to $48.9 million in the prior year.

• Net fees from PPP loans contributed $5.5 million to net interest income compared to $3.3 million in the prior year.

• Provision for loan losses decreased $4.9 million primarily due to a charge-off recognized in the second quarter of 2020 related to a legacy problem loan as well as our continued assessment of qualitative reserves regarding the general macroeconomic changes related to COVID-19 as it pertains to our overall loan portfolio.

• Non-interest expense, excluding capitalized loan origination costs, of $46.0 million compared to $45.7 million for the same period in the prior year.
  

Financial Position – December 31, 2021 compared to September 30, 2021

• Total assets decreased by $34.1 million, or 2%, to $2.02 billion.

• Total gross loans increased by $74.7 million, or 6% to $1.38 billion. Excluding the impact of PPP loans forgiven by the SBA, total gross loans increased during the fourth quarter by $99.6 million, or 8%, to $1.30 billion.

• Total deposits decreased by $61.9 million, or 4%, to $1.68 billion. Average deposits increased $41.1 million, or 2%, to $1.76 billion.

• Borrowing arrangements increased by $21.9 million, or 16%, to $160.4 million.

• Capital ratios remained strong with a Tier 1 leverage ratio of 7.23%, Tier 1 capital ratio of 8.62% and total risk-based capital ratio of 12.75%.
  

Net Interest Income and Margin:

Net interest income for the quarter ended December 31, 2021 was $14.0 million, an increase of $126,000, or 1%, over $13.8 million for the three months ended September 30, 2021, and an increase of $1.2 million, or 9%, over $12.8 million for the quarter ended December 31, 2020. The increase in net interest income compared to the fourth quarter of 2020 was primarily attributable to a higher yield on loans as a result of new loan originations replacing the PPP loans that were forgiven during the current quarter, combined with growth in other earning assets due to excess liquidity.

Net interest income for the twelve months ended December 31, 2021 was $54.7 million, an increase of $9.8 million, or 22% over $44.9 million for the twelve months ended December 31, 2020. The increase in net interest income was primarily attributable to an increase in interest income as the result of growth in earning assets and amortization of fees received on PPP loans offset, in part, by a decline in short-term interest rates and higher liquidity.

The Company’s net interest margin for the fourth quarter of 2021 was 2.81% compared to 2.87% for the third quarter of 2021 and 2.66% for the fourth quarter of 2020. The decrease in margin compared to the prior quarter was primarily due to excess liquidity and a decline in accelerated deferred fees on PPP loans granted forgiveness by the SBA. The increase in margin compared to the fourth quarter one year ago was primarily due to higher recognition of accelerated deferred fees on PPP loans granted forgiveness by the SBA, offset in part by a decrease in short-term interest rates.

The Company’s net interest margin for the twelve months ended December 31, 2021 was 2.89% compared to 2.76% for the same period in 2020. The increase in margin compared to the prior year was primarily due to an increase in fees recognized on PPP loans, partially offset by a decrease in short-term interest rates and higher liquidity.

Non-Interest Income:

The Company’s non-interest income for the quarters ended December 31, 2021, September 30, 2021, and December 31, 2020 was $994,000, $1.3 million and $916,000, respectively. The decrease in noninterest income from the prior quarter was primarily due to prepayment penalties on loans recognized during the third quarter of 2021, partially offset by an increase in service charges and other fees.

For the twelve months ended December 31, 2021, non-interest income was $4.2 million compared to $4.0 million for the same period of 2020. The increase in non-interest income from the prior year was primarily the result of an increase in service charges and loan related fees.

Net interest income and non-interest income comprised total revenue of $15.0 million, $15.1 million, and $13.7 million for the quarters ended December 31, 2021, September 30, 2021, and December 31, 2020, respectively. Total revenue for the twelve months ended December 31, 2021 and 2020 was $58.9 million and $48.9 million, respectively.

Non-Interest Expense:

The Company’s non-interest expense for the quarters ended December 31, 2021, September 30, 2021, and December 31, 2020 was $10.0 million, $10.5 million, and $10.4 million, respectively. The decrease in non-interest expense during the fourth quarter of 2021 was primarily a result of increased deferred loan origination costs associated with the growth in the loan portfolio. Excluding capitalized loan origination costs, non-interest expenses for the fourth and third quarters of 2021 and the fourth quarter of 2020 were $11.6 million, $11.7 million, and $11.6 million, respectively.

Non-interest expense of $40.4 million for the twelve months ended December 31, 2021 compared to $37.8 million for the same period of 2020. Excluding capitalized loan origination costs, non-interest expense was $46.0 million for the twelve months ended December 31, 2021 and $45.7 million for the same period in 2020 which reflects the Company’s continued focus on managing expenses and leveraging the recent 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 66.90%, 69.42%, and 76.15% for the quarters ended December 31, 2021, September 30, 2021, and December 31, 2020, respectively. For the twelve months ended December 31, 2021 and 2020, the Company’s efficiency ratio was 68.65% and 77.27%, respectively.

Balance Sheet:

Total assets of $2.02 billion as of December 31, 2021, represented a decrease of $34.1 million, or 2%, compared to $2.05 billion at September 30, 2021 and an increase of $109.2 million, or 6%, compared to $1.91 billion at December 31, 2020. The decrease in total assets from the third quarter of 2021 was primarily due to a reduction in liquidity resulting from the seasonal outflow of deposits related to tax planning distributions made by certain commercial clients, partially offset by growth in the loan and investment portfolios. The year-over-year increase in total assets was primarily due to excess liquidity generated from growth in the deposit portfolio as the result of funding additional PPP loans combined with organic growth.

Total gross loans increased by $74.7 million, or 6%, to $1.38 billion at December 31, 2021 compared to $1.30 billion at September 30, 2021 and increased by $7.6 million, or 1%, compared to $1.37 billion at December 31, 2020.

During the fourth quarter of 2021, commercial and real estate other loans increased by $46.1 million and $33.0 million, respectively, due to organic growth. Additionally, during the fourth quarter of 2021 the Company purchased, net of discount, $22.7 million of residential solar loans. Partially offsetting these increases within the total loan portfolio, SBA loans decreased by $25.7 million primarily due to PPP loan forgiveness.

Year-over-year, commercial and real estate other loans increased by $59.7 million and $146.5 million, respectively, due to organic growth. The Company also purchased two portfolios of residential solar loans totaling approximately $42.7 million, net of discount. Partially offsetting these increases within the total loan portfolio, SBA loans decreased by $236.2 million primarily due to PPP loan forgiveness.

As a result of the CARES Act PPP, which was launched in April 2020 and re-launched in January 2021, the Company funded approximately $491.3 million in loans. Approximately $418.8 million of those balances have been granted forgiveness by the SBA as of December 31, 2021.

Total deposits decreased by $61.9 million, or 4%, to $1.68 billion at December 31, 2021, from $1.74 billion at September 30, 2021 and increased by $147.9 million, or 10%, over $1.53 billion at December 31, 2020. The decrease in total deposits from the end of the third quarter of 2021 was primarily due to a reduction in noninterest- bearing demand deposits of $19.4 million and a reduction in money market and savings deposits of $32.6 million.

Compared to the same period last year, deposit growth was primarily concentrated in noninterest-bearing demand and money market deposits as the result of funding PPP loans combined with organic growth. Noninterest-bearing deposits, consisting primarily of commercial business operating accounts, represented 46% of total deposits at December 31, 2021, compared to 45% at September 30, 2021 and 44% at December 31, 2020.

As of December 31, 2021, the Company had borrowing arrangements, excluding junior subordinated debt securities, of $106.4 million compared to $79.5 million at September 30, 2021 and $189.0 million as of December 31, 2020. The increase in borrowings during the fourth quarter of 2021 was comprised primarily of a $50.0 million short-term FHLB advance, partially offset by a $23.1 million reduction in PPPLF activity.

Asset Quality:

The provision for loan losses increased to $504,000 for the fourth quarter of 2021 compared to $300,000 for the third quarter of 2021 and decreased from $700,000 for the fourth quarter of 2020. Net loan recoveries in the fourth quarter of 2021 were $6,000, or 0.00% of gross loans, compared to net recoveries of $31,000, or 0.00% of gross loans, in the third quarter of 2021 and net recoveries of $26,000, or 0.00% of gross loans, in the fourth quarter 2020.

Non-performing assets (“NPAs”) to total assets of 0.01% at December 31, 2021 compared to 0.06% at September 30, 2021 and 0.01% at December 31, 2020, with non-performing loans of $232,000, $1.2 million, and $234,000 respectively, on those dates. The decrease in NPAs at December 31, 2021 compared to the September 30, 2021 primarily related to one commercial real estate loan that was paid off in full by the borrower.

The allowance for loan losses increased by $510,000 to $14.1 million, or 1.02% of total loans, at December 31, 2021, compared to $13.6 million, or 1.04% of total loans, at September 30, 2021 and decreased by $30,000 compared to $14.1 million, or 1.03% of total loans, at December 31, 2020. The increase in the allowance for loan losses in the quarter ended December 31, 2021 compared to the quarter ended September 30, 2021 was primarily the result of growth in the loan portfolio throughout the core segments of our business. The allowance as a percentage of total loans in the quarters ended December 31, 2021, September 30, 2021, and December 31, 2020 remained consistent and reflects the Company’s continued assessment of the qualitative reserves in response to general macroeconomic impacts related to COVID-19 combined with continued strong credit quality.

Capital Adequacy:

At December 31, 2021, shareholders’ equity totaled $150.8 million compared to $147.2 million at September 30, 2021 and $136.4 million one year ago. As a result, the Company’s total risk-based capital ratio, Tier 1 capital ratio and Tier 1 leverage ratio of 12.75%, 8.62%, and 7.23%, respectively, were all substantially above the regulatory standards for “well-capitalized” institutions of 10.00%, 8.00% and 5.00% respectively.

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
President and Chief Executive Officer
seshelton@bankcbc.com

Thomas A. Sa, (510) 457-3775
Senior Executive Vice 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; 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; 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, 2020 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, 2021, which we expect to file with the SEC during the first quarter of 2022, and readers of this release are urged to review the additional information that will be contained in that report.

The COVID-19 pandemic has created economic and financial disruptions that have adversely affected, and may continue to adversely affect, our business, operations, financial performance and prospects. Even after the COVID-19 pandemic subsides, it is possible that the U.S. and other major economies experience or continue to experience a prolonged recession, which could materially and adversely affect our business, operations, financial performance and prospects. Statements about the effects of the COVID-19 pandemic on our business, operations, financial performance and prospects may constitute forward-looking statements and are subject to the risk that the actual impacts may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, third parties and us.

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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