...defined by the company we keep.sm
2012 Annual Report
In memory of Peter Branagh, Director, and Mona Branagh
Founders & Friends
Fellow Shareholders, Clients, and Friends:
When we started our Bank in July of 2007, we purposefully chose a strategy that focused on banking
middle market companies in the San Francisco Bay Area. We invested in high quality business bankers
and technologies that would separate us from our competitors, create efficiencies, and provide a more
valuable client experience. Since then, we’ve stayed true to our strategy, attracting new business clients
and deepening relationships with our existing clients. Our Bank’s brand and reputation have spread rapidly
across our region. Our strategy, our focus, and our quality people have resulted in one of the fastest growing
business banks in California.
We look forward to 2013, confident that our Bank will become even more successful.
2012 Achievements
Our balance sheet continued to grow in 2012. Existing and new
relationships brought $38 million in net year-over-year loan growth
to the Bank. Total loans reached $246 million at year-end 2012, our
highest year-end total. We’ve built a strong balance sheet that’s getting
stronger.
During 2012, we not only grew our loan portfolio at an impressive rate but
also improved its quality. The Bank’s non-performing assets (including
restructured loans that are current) to total assets ratio declined 35% to
1.26% at year-end 2012.
We’ve built a strong balance sheet that’s only
getting stronger
Our relationship clients also entrusted us with a record level of deposits.
Total deposits reached $281 million at year-end, an increase of over
15% from the previous year. Five percent of our relationships have
over $1 million on deposit with our Bank, further demonstrating our
clients’ confidence and trust in us. Non interest bearing deposits,
monies businesses typically use for their daily operations and cash
needs, represent approximately 30% of our total deposits, bolstering
our margin, while demonstrating the depth of our relationships.
Our loan portfolio is further evidence that we are staying true to our
strategy. Over 50% of our loans are to middle market, privately held
businesses for working capital, equipment, or term financing. Another
45% of the portfolio is composed of commercial real estate loans with
a significant portion representing owner occupied properties. The
remainder of our portfolio is invested in personal loans to business
owners, construction & development loans, and Small Business
Administration (SBA) loans.
1
Total Loans
(Dollars Thousands)
$280,000
$240,000
$200,000
$160,000
$120,000
$80,000
$40,000
$-
2008
2009
2010
2011
2012
Total Deposits
(Dollars Thousands)
$320,000
$280,000
$240,000
$200,000
$160,000
$120,000
$80,000
$40,000
$-
2008
2009
2010
2011
2012
Loan Portfolio
(Dollars Thousands)
CRE
45%
C&I
50%
California Bank of Commerce The low interest rate environment continues to be a challenge for most
financial institutions, including ours. The prime rate, the base rate from
which most business loans are priced, remains at its lowest level in
decades, enabling our clients to take advantage of some of the lowest
rates on commercial loans in generations. However, the low prime rate,
in combination with lower returns on cash investments, has resulted in
low yields on earning assets for most banks.
The same market forces driving down asset yields have depressed rates
that banks pay on client deposits. This fact created further challenges as
we attempted to balance how we attract new deposits with maintaining
a healthy overall net interest margin. We are pleased to have managed
our net interest margin to 3.71%, relatively unchanged year over year.
At the same time we were successfully maintaining our net interest
margin, we continued to attract loans and deposits, fueling our net
interest income growth. Net interest income reached a new high for the
Bank in 2012, generating $11.4 million toward our bottom line compared
to $9.1 million the previous year. Our net interest income growth was
bolstered by a 109% increase in non interest income, including gains on
loan sales, securities sales, and additional fee income.
We Doubled Net Income in 2012
Yields
(Percent)
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
Yield on Earning Assets
Net Interest Margin
Cost of Funds
2008
2009
2010
2011
2012
Net Interest Income
(Dollars Thousands)
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$-
Interest Income
Net Interest Income
Interest Expense
2008
2009
2010
2011
2012
In 2012, we generated $1.8 million in net income, doubling our previous
year’s net income. Income before taxes was $3.1 million in 2012,
compared to $1.5 million in 2011. Pre-tax operating profit -- profit before
taxes, extraordinary items, option expense, and provision -- was $4.7
million in 2012 compared to $3.1 million in 2011.
Pre-tax Operating Profit
(Dollars Thousands)
The Bank’s success is the result of the client relationships we have
established and maintained since our inception. These relationships are
developed by the quality people we have hired and retained. In 2012
we continued to add quality bankers to our ranks. Yet we managed to
maintain enviable productivity, efficiency, and overhead cost ratios. The
Bank’s average assets per employee reached $7.76 million at year-end,
marking the Bank’s highest asset productivity mark since we opened.
At the same time, the Bank continues to improve its efficiency ratio,
which averaged 67% in 2012.
$5,000
$4,000
$3,000
$2,000
$1,000
$-
$(1,000)
$(2,000)
2008
2009
2010
2011
2012
2
California Bank of Commerce Tangible Book Value Per Share
(Dollars)
$10.00
$9.00
$8.00
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
2008
2009
2010
2011
2012
Sophisticated Treasury Mangement
and Online Banking Suite
Everywhere Business Banking
From CBC Mobile
All of our efforts have directly translated into enhanced shareholder
value. We increased earnings per share (EPS) nearly 150% in 2012 to
$0.57, and the Bank’s tangible book value per common share reached
$9.34. While pleased with our progress, we expect to continue driving
improved shareholder value.
We Continue to Explore New Business Lines
and Invest in our Infrastructure
In 2012, our two newest business lines – dental and medical practice
acquisition financing, and asset based lending – began to contribute
to both our loan growth and profitability. As these two specialized
business lines become more established in the market, we expect their
contributions will grow and further add to our success in the coming
years.
Last year we also launched a new online banking platform, rivaling
treasury management tools provided by money center banks. The new
platform provided improved functionality and features to our business
clients. In addition, we enhanced our online security and fraud prevention
mechanisms. Our new online banking suite also improves the ease
and speed of money transfers between accounts, stop payments, and
enhanced ACH functionality. We also made changes that were subtle
but very helpful to our clients such as customized payment and balance
alerts, and the ability for our clients to customize their home page to
more intuitively navigate their online banking experience.
We also introduced mobile banking applications on the two primary
phone platforms. The new mobile applications enable our business
clients to submit and approve electronic payments including wires
and ACH transfers. Our mobile application also benefits our personal
clients with mobile payments, alerts, and of course a plethora of balance
information.
Our strategy and focus remains unchanged, and we look forward to
continued grow in a safe and sound manner. We are optimistic for the
Bank’s future as we possess the most important ingredient for our future
success -- our people. We continue to be defined by the company we
keep.
Sincerely,
Stephen A. Cortese
Chairman of the Board
Terry A. Peterson
President & CEO
3
California Bank of Commerce
...defined by the
GOLDEN STATE BRIDGE
Engineers & Contractors
Bay Cities
Paving &
Grading
ALL WEATHER INSULATED PANELS
®
CONCORD IRON WORKS, INC.
Shaw Pipeline Inc.
G A R N E R F I N A N C I A L
M A N A G E M E N T
Olympian Gulf Properties, Inc.
Tahoe Asphalt
eLLWOOD COMMERCIAL REAL ESTATE
4
California Bank of Commerce
company we keep.sm
SHIMMICK
Suprema Meat Company
Bayside Insulation, Inc.
California Trenchless, Inc.
B C McCosker Construction Company, Inc.
General Engineering Contractor
5
California Bank of Commerce Board of Directors
Executive Officers
Stephen A. Cortese
Chairman of the Board,
California Bank of Commerce
Managing Partner, Cortese Investment Company
Terry A. Peterson
President and CEO, California Bank of Commerce
Edward B. Collins
Partner and Managing Director, ChinaVest
Kevin J. Cullen
Chief Financial Officer, Olson & Co. Steel
Stephen R. Dathe
Vice President and General Manager
A & B Die Casting Company
Rochelle G. Klein
Advisory Director, Ocean Gate Capital Management
John E. Lindstedt
Chief Credit Officer, California Bank of Commerce
Thomas R. Morehouse
Retired President, Filesafe Inc.
John H. Sears
Retired, Special Counsel
Sheppard, Mullin, Richter & Hampton
Edmond E. Traille
Founding Partner & CEO, GALLINA LLP
Terry A. Peterson
President and Chief Executive Officer
Thomas M. Park
Executive Vice President
Steven E. Shelton
Executive Vice President
Stephen P. Tessler
Executive Vice President,
Director of Sales
Randall D. Greenfield
Executive Vice President,
Chief Financial Officer
John E. Lindstedt
Executive Vice President,
Chief Credit Officer
Virginia M. Robbins
Executive Vice President,
Chief Operating Officer
James Christiansen
Executive Vice President
CBC Business Credit
Mark A. DeVincenzi
Executive Vice President,
Marketing & Investor Relations
Vivian Z. Mui
Senior Vice President,
Senior Credit Officer
6
California Bank of Commerce
Relationship Managers & Senior Officers
Colleen Atkinson
Senior Vice President, Relationship Manager
catkinson@bankcbc.com
Tony Mesones
Senior Vice President, Relationship Manager
tmesones@bankcbc.com
Tom Dorrance
Senior Vice President, Chief Information Officer
tdorrance@bankcbc.com
Cindy Peters
Senior Vice President, Treasury Management
cpeters@bankcbc.com
Terry Guillory
Senior Vice President, Relationship Manager
tguillory@bankcbc.com
Ray Strzelecki
Senior Vice President, Relationship Manager
rstrzelecki@bankcbc.com
John Lehman
Senior Vice President, Operations & Compliance
jlehman@bankcbc.com
Jamie Smith
Senior Vice President, Relationship Manager
jsmith@bankcbc.com
Michele Wirfel
Senior Vice President, Relationship Manager
mwirfel@bankcbc.com
7
California Bank of Commerce Organizers
In 2006 and 2007, our Organizers shared a vision of California Bank of Commerce and they put
their time, money, and reputations on the line to make the Bank a reality. We thank them for their
contributions and commitment.
Danville, CA
Danville, CA
Danville, CA
Moraga, CA
Lafayette, CA
Alamo, CA
Newport Beach, CA
Orinda, CA
Orinda, CA
San Francisco, CA
Orinda, CA
Andy and Denise Armanino
Charles and Judith Bellig
John and Susan Bellig
Mike and Patrice Botto
Peter and Mona Branagh
Joe Brescia
Ray Brown
Jeff and Patty Calder
Sandy and Jean Colen
Ted and Margaret Collins
Jerry Condon
Michael and Darcy Cookson Walnut Creek, CA
Steve and Ann Cortese
Jack and Jackie Cullen
Kevin and Amy Cullen
Steve and Elaine Dathe
Richard and Nancy Doyle
Joe and Jackie Duffel
Doug and Lori Fowler
John and Leslie French
Rob and Laurie Fuller
Claude and Jackie Gaubert
Barry and Mary Gilbert
Mollie and Greg Gilbert
Orinda, CA
Orinda, CA
Lafayette, CA
Orinda, CA
Lafayette, CA
Orinda, CA
Lafayette, CA
Orinda, CA
Orinda, CA
Lafayette, CA
Alameda, CA
Oakland, CA
Stu and Sally Kahn
Brad and Jeanne Kisner
Ken and Kristen Kisner
Paul and Vicki Klapper
Roxy and Steve Klein
Bob and Judy Locker
David and Marsha Maiero
John and Nancy Montgomery
Tom and Carol Morehouse
Terry and Linda Murray
Guy and Maria Muzio
J.P. and Jane Oosterbaan
Tom and Sue Park
Paul Remack
Dave and Lori Sanson
Hans Schroeder
Dan and Denise Siri
Randy and Kathryn Soso
Bill and Sherry Stevenson
Mark and Kristi Swimmer
Steve and Trish Thomas
Ed and Mary Traille
Bruce and Patti Westphal
Dick and Lorraine Whitehurst
Steve and Linda Wight
Orinda, CA
Lafayette, CA
Lafayette, CA
Hillsborough, CA
Lafayette, CA
Lafayette, CA
Belmont, CA
Orinda, CA
Orinda, CA
Lafayette, CA
San Francisco, CA
Mill Valley, CA
Orinda, CA
Walnut Creek, CA
Walnut Creek, CA
San Francisco, CA
Orinda, CA
Orinda, CA
Orinda, CA
Orinda, CA
Walnut Creek, CA
Moraga, CA
Oakland, CA
Alamo, CA
Lafayette, CA
8
California Bank of Commerce
BALANCE SHEETS (unaudited)
December 31, 2012 and 2011
2012 2011
ASSETS
Cash and due from banks $ 5,776,321 $ 3,093,294
Interest bearing deposits in banks 38,374,829 43,868,788
Total cash and cash equivalents 44,151,150 46,962,082
Investment securities
Available-for-sale, at estimated fair value 46,718,089 36,349,666
Held to maturity, at amortized cost (fair value of $3,821,629
at December 31, 2012) 3,810,895 -
Loans held for sale - 372,173
Loans, less allowance for loan losses of $4,675,000 in
2012 and $4,175,000 in 2011 241,473,981 203,572,096
Premises and equipment, net 195,679 319,749
Bank owned life insurance (BOLI) 7,391,725 4,939,253
Deferred taxes, net 2,019,607 2,704,410
Accrued interest receivable and other assets 3,835,463 3,325,821
Total Assets $ 349,596,589 $ 298,545,250
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 83,181,730 $ 55,465,028
Interest bearing 198,300,033 188,438,362
Total deposits 281,481,763 243,903,390
Other borrowings 29,000,000 18,000,000
Accrued interest payable and other liabilities 2,418,446 1,998,984
Total liabilities 312,900,209 263,902,374
Commitments and contingencies
Shareholders' equity:
Preferred Stock – no par value: 10,000,000 shares authorized
Series C, noncumulative, $1,000 per share liquidation
value, 11,000 shares issued and outstanding at
December 31, 2012 and at December 31, 2011 10,949,443 10,949,443
Common stock - no par value; 40,000,000 shares
authorized; 2,757,243 issued and outstanding in 2011 and
2,750,000 in 2010 30,342,414 30,056,339
Accumulated deficit (5,017,814) (6,581,703)
Accumulated other comprehensive income,
net of taxes 422,337 218,797
Total shareholders' equity 36,696,380 34,642,876
Total liabilities and shareholders' equity $ 349,596,589 $ 298,545,250
Please see our Audited Financial Statements and Report of Independent Auditors for details.
9
California Bank of Commerce STATEMENTS OF INCOME (unaudited)
For the Years Ended December 31, 2012 and 2011
2012 2011
Interest income:
Interest and fees on loans $ 12,386,016 $ 10,145,984
Interest on investment securities 553,138 452,533
Interest on Federal funds sold - 1,903
Interest on deposits in banks 108,624 88,639
Total interest income 13,047,778 10,689,059
Interest expense:
Interest on deposits 1,167,674 1,149,344
Interest on borrowings 443,911 406,105
Total interest expense 1,611,585 1,555,449
Net interest income before provision for loan losses 11,436,193 9,133,610
Provision for loan losses 1,249,688 1,328,061
Net interest income after provision for loan losses 10,186,505 7,805,549
Non-interest income:
Service charges and fees 794,694 384,445
Net gains on sales of loans 362,161 240,640
Net gains on sales of investment securities 286,314 124,100
Earnings on BOLI 252,472 81,234
Other 44,519 3,399
Total non-interest income 1,740,160 833,818
Non-interest expenses:
Salaries and employee benefits 5,930,106 4,597,721
Occupancy and equipment 708,068 634,498
Other 2,168,671 1,931,384
Total non-interest expenses 8,806,845 7,163,603
Income before provision for income taxes 3,119,820 1,475,764
Provision for income taxes 1,354,264 682,616
Net Income 1,765,556 793,148
Preferred stock dividend (201,667) (159,556)
Income to common shareholders $ 1,563,889 $ 633,592
Income per share:
Basic $ 0.57 $ 0.23
Diluted $ 0.57 $ 0.23
Weighted average number of shares outstanding – basic 2,750,217 2,750,000
Weighted average number of shares outstanding – diluted 2,750,252 2,750,000
Please see our Audited Financial Statements and Report of Independent Auditors for details.
10
California Bank of Commerce californiabankofcommerce.com
3595 Mt. Diablo Boulevard
Lafayette, CA 94549
Member FDIC