2021 First Quarter Financial Report

photo of Ash Patel

2021 First Quarter Financial Report

Ash Patel, President and CEO

Commercial Bank of California Reports Strong Growth, Resurgent Profitability for First Quarter of 2021

IRVINE, CALIF. (May 20, 2021) – Commercial Bank of California (“CBC” or “Bank”), a BauerFinancial Five-Star Superior Bank, today reported net income of $4,141,000 for the first quarter of 2021, a sharp increase over the $1,139,000 earned in the first quarter of 2020.  Reflecting the increase in earning assets compared to the prior year, net interest income for the first quarter of 2021 was $11,015,000, an increase of $721,000 over the comparable figure in 2020.  CBC recorded loan loss provisions of $300,000 in the initial quarter of 2021 as credit quality remained strong.  In contrast, CBC made provisions of $1,075,000 to its allowance for loan losses during the first quarter of 2020 as a precaution to build credit reserves against potential adverse effects of the pandemic on borrower performance.

The Bank recognized over $5 million in origination fees as income during the first quarter of 2021, relating to the Second Draw loans made in 2021 under the Paycheck Protection Program (“PPP”).  The Bank also recorded an adjustment to income of $1.3 million during the first quarter of 2021 to measure the Second Draw PPP loans at fair value at March 31, 2021.  The fee income paid to CBC by the SBA on the 2020 PPP loans also boosted the Bank’s earnings, but the Bank elected to defer the income recognition of those fees, net of associated personnel costs, over the life of the loans rather than counting the fees as income and the salaries as expense immediately.  As the 2020 PPP loans are forgiven by the federal government, the net remaining balance of $1.9 million in fees and costs deferred will be recognized as part of CBC’s interest income.  Future recognition of income on the 2020 PPP loans will depend on the pace at which these loans are forgiven by the SBA, so it is impossible to say how much income will be recognized in future periods, or for how long such income will be recognized.

During the twelve months ended March 31, 2021, the Bank’s total assets grew by $597.1 million, or 56.9%, to $1.65 billion, compared to total assets of $1.05 billion at this time one year ago.  Net loans  rose from $813.6 million at March 31, 2020 to $1.15 billion at March 31, 2021 (including $300.9 million in PPP loans).  Deposits totaled $1.42 billion at March 31, 2021, a sharp increase of $491.8 million, or 52.9%, from the $929.9 million total at March 31, 2020.  CBC’s Los Angeles and Orange County offices generated two-thirds of the deposit growth over the past twelve months while the payment processing division contributed the remainder of the increase with the pandemic-related rise in contactless and online payments. Total capital at March 31, 2021 was $140.2 million compared to $108.9 million a year ago, with the increase of $31.2 million, or 28.7%, reflecting the retention of earnings from CBC’s continued profitability, plus capital contributions from CBC’s parent company during 2020 to further bolster capital required to support the Bank’s growing asset base.

The Bank’s capital ratios continue to be well above all regulatory standards for well-capitalized institutions.  CBC’s Tier 1 Leverage Ratio stood at 8.86% as of March 31, 2021.

Ash Patel, President and Chief Executive Officer, commented:  “The past twelve months have been a year unlike any in our lifetime.  A year ago, as the COVID-19 pandemic and the government response to it were in their early stages, we all faced great uncertainly concerning the economic future.  One year later, with effective vaccines being administered and case numbers and mortalities declining sharply, we can at last anticipate a return to more normal times.  There is a spirit of cautious optimism in the air.  Businesses are reopening, and many employees are beginning to return to the workplace.  Traffic on our freeways is increasing.  Consumer spending is beginning to return to pre-pandemic levels, as evidenced by the growth in our payment processing fee income to $1.8 million for the first quarter of 2021, an increase of $228,000, or 14.5%, compared to the $1.6 million we recognized in the first quarter a year ago.  While the national job creation numbers may not always paint a rosy picture of the economy, at least many of the jobs that were lost due to the pandemic are now being replaced.” 

He continued:  “As the overall economy is rebounding, so too are our clients, and with their recovery comes increasing growth and strengthening profitability for CBC.  Overall, we are pleased with our results for the first quarter of 2021.  Our 2020 growth in total assets, loans, and deposits has continued into the new year.  Reflecting that growth, net interest revenue increased despite the continuation of the historically low interest rate environment.  Our earnings for the first quarter of 2021 also benefited from fee income on Paycheck Protection Program loans, described more fully elsewhere.  As you may recall, in 2020, CBC originated more than 800 PPP loans aggregating over $240 million.  We are gratified that our efforts to extend a financial lifeline to deserving employers are being rewarded.”

Mr. Patel concluded:  “Throughout the recent past, the importance of maintaining financial strength to deal with economic uncertainty has been a constant refrain.  At this time last year, I said ‘But after we all get through this ordeal, when the storm has passed, we will emerge to a bright new era of prosperity.’  I believe we are now at the threshold of that bright new era.  CBC’s financial strength is here to help us – and our clients – profit from the opportunities that are emerging.  For all these reasons, our confidence in the future of CBC remains undiminished.  But at the same time, we know that our success would not be possible without you.  We thank our clients, team members, and friends for their ongoing 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. “Five-Star Superior 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.

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Financial Highlights

  • Total assets, total deposits, and net loans all increased significantly over prior-year levels
  • Net income reflects higher net interest revenue and payment processing fee income
  • Loan loss provisions were reduced as COVID-19 reserve build subsides
  • Earnings were further bolstered by recognition of fees related to Paycheck Protection Program loans

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  All statements, other than statements of historical fact, included herein may constitute forward-looking statements.  Although Commercial Bank of California believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct.  Important factors that could cause actual results to differ materially from Commercial Bank of California’s expectations include fluctuations in interest rates, inflation, government regulations, and economic conditions and competition in the geographic and business areas in which Commercial Bank of California conducts its operations.

STATEMENTS OF CONDITION (UNAUDITED)

($000s omitted) March 31, 2021 March 31, 2020
ASSETS:
Cash and due from banks $ 25,062 $ 14,773
Interest bearing deposits with banks 312,358 79,831
Fed funds sold 10,000 10,000
Cash and cash equivalents 347,420 104,604
Investment securities 102,458 87,799
Loans 1,164,684 824,980
Less: allowance for loan and lease losses 15,457 11,379
Loans, net 1,149,227 813,601
Premises and equipment - net 2,113 2,992
Other real estate owned - -
Accrued interest receivable and other assets 44,555 39,660
Total assets $ 1,645,773 $ 1,048,656
LIABILITIES AND CAPITAL:
Non-interest bearing deposits $ 744,368 $ 445,183
Interest bearing demand deposits 53,845 54,632
Savings and money market deposits 580,282 390,069
Time deposits 43,276 40,059
Total deposits 1,421,771 929,943
Borrowings 69,072 -
Accrued interest paybale and other liabilities 14,765 9,825
Total liabilities 1,505,608 939,768
Stated capital 105,430 83,830
Retained earnings 33,279 23,895
Accumulated other comprehensive income (loss) 1,456 1,163
 
Total capital 140,165 108,888
Total liabilities and capital $ 1,645,773 $ 1,048,656

STATEMENTS OF OPERATIONS (UNAUDITED)

Three Months Ended Three Months Ended
($000's omitted) March 31, 2021 March 31, 2020
Interest on loans $ 11,620 $ 10,503
Interest on deposits with banks 133 436
Interest on investment securities 458 552
Other interest income 65 92
Total interest income 12,276 11,583
Interest on deposits 1,199 1,289
Interest on borrowings 62 -
Total interest expense 1,261 1,289
Net interest income 11,015 10,294
Provision for loan losses 300 1,075
Net interest income after provision for loan losses 10,715 9,219
Bank service charges and fees 226 268
Payment processing fee income 1,801 1,573
Other income 4,091 490
Other operating income 6,118 2,331
Salaries and related benefits 7,180 6,751
Occupancy expenses 1,040 1,160
Other expenses 2,838 2,051
Total other operating expenses 11,058 9,962
Income before provision for income taxes 5,775 1,588
Provision for income taxes 1,634 449
Net income $ 4,141 $ 1,139