Highlights Include:
- Net interest income increased 19.4% year-over-year, as strong loan and investment income was partially offset by higher funding costs
- Net income declined due mainly to the nonrecurring writeoff of a debt investment and higher personnel expenses
- Total assets, total deposits, investment securities, and net loans all increased over prior-year levels
IRVINE, CALIF. (May 25, 2023) – Commercial Bank of California (“CBC” or “Bank”), a BauerFinancial Four-Star Excellent Bank, today reported net income of $2.9 million for the first quarter of 2023, a decline from the $3.5 million earned in the first quarter of 2022.
Reflecting the increase in earning assets compared to the prior year, net interest income for the first quarter of 2023 was $16.3 million, an increase of $2.7 million over the $13.6 million total for the comparable period in 2022. CBC recorded provisions of $1.1 milion to its allowance for credit losses during the first quarter of 2023, consisting of a non-recurring provision of $750,000 relating to the writeoff of the subordinated debt of a failed bank, and a provision of $350,000 largely due to loan portfolio growth. The credit loss provision was $250,000 in the first quarter of 2022. Credit quality across the Bank remains observably strong despite the disquieting economic circumstances. Other operating income declined from $4.2 million in the first quarter of 2022 to $3.6 million in 2023’s comparable period, as higher payment processing fee income was erased by lower gains on sales of SBA loans and a slight decline in service charges and fees. Other operating expenses were $14.8 million in the first quarter of 2023, an increase from 2022’s first quarter total of $12.7 million. The operating expense increase was due to a substantial rise in personnel expenses, moderated by reductions in occupancy and other expenses. On a non-GAAP basis, excluding the one-time write off of the subordinated debt, the 2023 net income would have been $3.4 million.
Over the twelve months ended March 31, 2023, CBC’s total assets grew by $226.0 million, or 11.5%, to $2.2 billion, compared to total assets of $2.0 billion at this time one year ago. Net loans rose to $1.5 billion at March 31, 2023 from $1.2 billion at March 31, 2022, an increase of 28.1%. Deposits slightly increased by $28 million, totaling $1.82 billion and $1.79 billion at March 31, 2023 and 2022, respectively. Borrowings were $200 million and zero at March 31, 2023 and 2022, respectively. The increase was primarily used to fund loan growth and strengthen on-balance sheet liquidity. Total capital at March 31, 2023 was $154.7 million compared to $155.8 million a year ago. The slight change primarily reflected the retention of earnings from CBC’s continued profitability, more than offset by a significant increase in accumulated other comprehensive loss, resulting from declines in the market value of available-for-sale securities as a direct result of the rapid increase in interest rates over the past year. The Bank’s capital ratios continue to be well above all applicable regulatory standards for well-capitalized status, the highest category of capital strength established by banking regulators. CBC’s Tier 1 Leverage Ratio stood at 8.10% as of March 31, 2023.
Ash Patel, President and Chief Executive Officer, commented: “While the situation remains fluid, the recent turmoil in the banking system shows signs of stabilizing. After the Federal Reserve’s most recent rate hike, market rates appear to have plateaued, and many market participants are anticipating declining rates later this year and building this assumption into their decision making. This is reducing pressure on the more vulnerable elements of the banking system, and a stable banking industry benefits us all. The recent turmoil reinforces our long-held beliefs on the importance of relationships and prudent financial management. Since the beginning of the turmoil, CBC has worked closely with its clients to help insulate them from the uncertainties that existed. Others found CBC to be the safe haven they were looking for after other institutions experienced problems. New and old clients alike benefited from CBC’s well-established practice of maintaining high liquidity to protect against possible deposit outflows, including the maintenance of credit facilities with the Federal Reserve, Federal Home Loan Bank, and other contingent funding sources. We’ve said it before, but it bears repeating: one of the benefits of being a privately-held financial institution is that we don’t have to sacrifice safety for profitability, and the same benefits accrue to our clients. CBC’s balance sheet remains well-positioned to deal with today’s economic environment and whatever changes emerge in the future.”
He continued: “Despite the modest decline in first quarter profitability, overall we are satisfied with CBC’s progress and operating results. We expect the factors that adversely impacted earnings to be nonrecurring, one-time events. Our expectations are based on the pillars of continued growth in earning assets, robust expansion of net interest income, and solid asset quality that have always been the basis of our success. At the same time, CBC will continue its efforts to expand revenues and manage expenses to maintain our positive momentum and further increase our financial strength.”
Mr. Patel concluded: “Thanks to our hallmark financial strength, CBC and its clients are in position to capitalize on the opportunities that are an inevitable byproduct of periods of stress like those of the recent past. Of course, CBC’s bright future would not be possible without the solid foundation that you represent. We thank our clients, team members, and friends for their undiminished loyalty and support.”
About Commercial Bank of California
Commercial Bank of California is a full-service bank and diversified financial services company serving the business and professional communities of Los Angeles and Orange counties. Recognized as a BauerFinancial, Inc. “Four-Star Excellent Bank” for its financial strength and stability, CBC provides the financial expertise of a major bank while maintaining a commitment to personalized service for every CBC client. More information about CBC’s custom solutions for your business is available at www.cbcal.com.
STATEMENTS OF CONDITION (UNAUDITED)
| ($000’s omitted) | March 31, 2023 | March 31, 2022 | ||
|---|---|---|---|---|
| ASSETS: | ||||
| Cash and due from banks | $ | 11,273 | $ | 34,699 |
| Interest bearing deposits with banks | 144,891 | 260,586 | ||
| Federal funds sold | – | – | ||
| Cash and cash equivalents | 156,164 | 295,285 | ||
| Investment securities | 434,320 | 415,799 | ||
| Loans | 1,540,356 | 1,205,519 | ||
| Less: allowance for loan and lease losses | 18,118 | 17,377 | ||
| Loans, net | 1,522,238 | 1,188,142 | ||
| Premises and equipment – net | 11,166 | 13,608 | ||
| Other real estate owned | – | – | ||
| Accrued interest receivable and other assets | 74,269 | 59,346 | ||
| Total assets | $ | 2,198,157 | $ | 1,972,180 |
LIABILITIES AND CAPITAL:
| ($000’s omitted) | March 31, 2023 | March 31, 2022 | ||
|---|---|---|---|---|
| Non-interest bearing demand deposits | $ | 846,043 | $ | 915,134 |
| Interest bearing demand deposits | 233,834 | 95,207 | ||
| Savings and money market deposits | 592,956 | 732,370 | ||
| Time deposits | 147,227 | 49,466 | ||
| Total deposits | 1,820,060 | 1,792,177 | ||
| Borrowings | 200,000 | – | ||
| Accrued interest payable and other liabilities | 23,365 | 24,174 | ||
| Total liabilities | $ | 2,043,425 | $ | 1,816,351 |
| Stated capital | 121,012 | 120,430 | ||
| Retained earnings | 65,557 | 48,682 | ||
| Accumulated other comprehensive income | -31,837 | -13,283 | ||
| Total capital | $ | 154,732 | $ | 155,829 |
| Total liabilities and capital | $ | 2,198,157 | $ | 1,972,180 |
STATEMENTS OF OPERATIONS (UNAUDITED)
| ($000’s omitted) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | ||
|---|---|---|---|---|
| Interest on loans | $ | 20,331 | $ | 13,535 |
| Interest on deposits with banks | 2,004 | 215 | ||
| Interest on investment securities | 2,816 | 1,270 | ||
| Other interest income | 146 | 124 | ||
| Total interest income | 25,297 | 15,144 | ||
| Interest on deposits | 7,636 | 1,504 | ||
| Interest on other borrowings | 1,379 | 2 | ||
| Total interest expense | 9,015 | 1,506 | ||
| Net interest income | 16,282 | 13,638 | ||
| Provision for credit losses | 1,098 | 250 | ||
| Net interest income after provision for credit losses | 15,184 | 13,388 | ||
| Bank service charges and fees | 282 | 307 | ||
| Payment processing fee income | 2,711 | 2,581 | ||
| Other income | 650 | 1,346 | ||
| Other operating income | 3,643 | 4,234 | ||
| Salaries and related benefits | 10,704 | 8,375 | ||
| Occupancy expenses | 951 | 1,072 | ||
| Other expenses | 3,123 | 3,231 | ||
| Total other operating expenses | 14,778 | 12,678 | ||
| Income before provision for income taxes | 4,049 | 4,944 | ||
| Provision for income taxes | 1,168 | 1,404 | ||
| Net income | $ | 2,881 | $ | 3,540 |
