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2023 Report2015 ANNUAL REPORT BUSINESSES, LIKE INDIVIDUALS, HAVE LIVES OF THEIR OWN. And as they grow and mature, they need a business bank dedicated to supporting them through every stage of their development. A bank like California Bank of Commerce (CBC). CBC was designed and built to provide a unique banking experience for businesses and their owners. Which is why we provide businesses and their founders and executives an experience that surpasses traditional expectations. We combine the power and sophistication of a money center bank with the personal service of a local bank. Indeed, everything we do—and are—is dedicated to creating superior, lasting financial and personal relationships that fuel our clients’ success. Board of Directors Front: Donald J. Kintzer, Edward B. Collins, Terry A. Peterson, Stephen A. Cortese, Thomas R. Morehouse Back: Kevin J. Cullen, Andrew J. Armanino, John H. Sears, Wayne S. Doiguchi, Rochelle G. Klein, Stephen R. Dathe, Edmond E. Traille TO OUR SHAREHOLDERS WE ARE VERY PLEASED TO REPORT ANOTHER SUCCESSFUL YEAR for California Bank of Commerce. In addition to our impressive growth in deposits, loans, and total assets, we added a new commercial banking team in San Jose, opened a new office in Oakland, and successfully completed our acquisition of Pan Pacific Bank. The comparability of financial information for the full year of 2015 to 2014 is affected by the acquisition. Additionally, the planned expansion and related expenses of opening an office in both Oakland and San Jose had the anticipated result of reducing core net income. • Core net income, basic net income plus tax-effected acquisition expenses, for the full year 2015 was $3.1 million, or $0.69 per basic common share, compared to $3.2 million, or $0.91 per basic common share, in 2014. • Total loans increased by 53%, or $180 million, to $518 million. • Net interest income increased by 16%, to $17.3 million. • Non-interest-bearing deposits increased by 60% to $225 million, representing 42% of our total deposits as of December 31, 2015. Loan Portfolio Total Assets (Dollars Millions) $ 700 Total Loans & Deposits (Dollars Millions) C&I 43% 2015 CRE 48% Other Loans 9% $ 650 $ 600 $ 500 $ 450 $ 400 $ 350 $ 300 $ 250 $ 200 $ 150 $ 100 Deposits Loans $542 $518 $ 550 $ 500 $ 450 $ 400 $ 350 $ 300 $ 250 $ 200 $ 150 $ 100 $244 $208 ‘11 ‘12 ‘13 ‘14 ‘15 ‘11 ‘12 ‘13 ‘14 ‘15 Executive Leadership Team Tom Park, Steve Shelton, Terry Peterson, John Lindstedt, Tom Dorrance BUILDING UPON A VERY SUCCESSFUL 2014, California Bank of Commerce accelerated its momentum in 2015 by posting the best year in our history, exceeding our plan in every major balance sheet category. One of our most important accomplishments for the year was our merger with Pan Pacific Bank—creating a powerful business bank with over $650 million in total assets, and a proven dedication to serving the demanding needs of successful middle-market businesses in the San Francisco Bay Area. This strategic partnership gives CBC a stronger presence in the South Bay and Silicon Valley, two major areas of innovation and growth. Combined with our new office in Oakland, we have significantly increased our Bay Area footprint. As a result of the merger, PPB Chairman and CEO Wayne Doiguchi has been named to the CBC Board of Directors. The merger closed on December 31, 2015. The similarity of our cultures allows the combined organization to accelerate our momentum. We are poised for another strong year of financial performance in 2016. Many people contribute to our continuing success and momentum. We thank our outstanding employees who are the true face of CBC. We thank our board members for their continued guidance and oversight. Most important, we thank our clients for entrusting us to provide customized banking solutions to their financial needs. We are defined by the company we keep, but we are also measured by the difference we make. Stephen A. Cortese Chairman of the Board Terry A. Peterson President and Chief Executive Officer FROM LAKE MERRITT IN OAKLAND, TO THE SKYSCRAPERS OF SAN FRANCISCO, TO THE WIND FARMS OF THE ALTAMONT PASS, few regions on earth are as diverse and dynamic as the San Francisco Bay Area. It’s this energy we help fuel every day. As one of the area’s leading business banks, we provide innovative financing and sound advice to the dreamers and doers who drive our economy and change our lives. Our business bankers are knowledgeable in a wide range of industries, providing tailored solutions shaped by their experience and expertise. Here are just a few of the industries we work with and a sampling of the clients we help. CONTRACTORS Contractors help build California—from the bridges that span The Bay to the buildings where we all live, work, and play. At CBC, we’re proud to provide financing and guidance that’s purpose-built to meet the needs of contractors. This includes loans to buy equipment or build a facility, long-term financing to expand operations, and ongoing working capital to smooth out cash flow during times of growth. Plus, we have connections to financial and business resources to help expand their network and drive their success. It’s little wonder many of our contractor clients have been with us for decades. Because we know the challenges they face every day. • To help expand and improve Bay Area transit service, we provided a job-specific line of credit to a client in support of two time-sensitive street shutdowns, as part of San Francisco’s Transbay Terminal project. The shutdowns occurred over Labor Day and Veterans Day. And the job was completed on time and on budget. • In the aftermath of the devastating San Bruno pipeline explosion, CBC helped one of our longtime clients upgrade residential natural gas lines. By materially increasing their line of credit, they were able to undertake a large, long-term project with the power company to help safely and reliably deliver gas and power service to California residents. MANUFACTURERS The California dream is alive and well, fueled largely by a resurgence in the state’s growing manufacturing base. Today, California is home to more manufacturing companies than any other state. And many of those companies partner with us. Our Relationship Managers have a deep understanding and insight into the complex needs of manufacturing clients—from maintaining their supply chain, hiring, and retaining a quality workforce, to navigating the state’s often challenging environment. We understand manufacturers because we’ve worked with them since our inception, providing flexible financing solutions to both young and established firms, in good times and bad. • We began our relationship with an industrial products company in Northern California in the early 2000s, starting with a small revolving line of credit that eventually grew to a total commitment in excess of $6 million. We provided financing to establish a new East Coast manufacturing facility, as well as shareholder loans to purchase the equity interest of an existing shareholder. The company grew to more than $75 million in revenue and was sold in 2015. DENTAL Unique among banks, we’ve built a team dedicated to serving dental professionals—providing them with solutions and guidance all the way from practice acquisition to retirement. Our services include acquisition loans, equipment financing, lines of credit, commercial real estate financing, and cash management services. Perhaps our highest value rests in the many relationships we’ve built in the dental community over many decades. We’re at the center of an extensive network of resources and information, enabling us to spot emerging trends and opportunities. We then use this knowledge to create personalized solutions for our dental clients looking to acquire an existing practice, expand their operations, or relocate to other areas. • In 2015, we provided a practice acquisition loan of $1.65 million to an orthodontist purchasing a multi-location practice in a North Bay county. Our client was a successful orthodontist but needed a creative approach to financing the acquisition. CBC helped by crafting a purchase agreement that included 20% seller carryback financing to offset post-purchase revenue risk and ensure the sellers were vested in the buyer’s success. It was a collaborative approach that yielded positive results. FOOD California feeds the world, thanks largely to the region’s many leading food and beverage companies. At California Bank of Commerce, we’re proud to support these companies in this competitive and often challenging environment. Whether they’re creating a new product or modernizing a facility, our F&B clients profit from our comprehensive, customized solutions. Our industry specialists help our clients maximize margins, secure distribution and placement, and cover the costs associated with ever-changing food safety and handling mandates. They’re also adept at helping acquire land and buildings, and financing growing receivable and inventory levels. It’s a level of expertise and experience that extends to every facet of the industry. Over the years we’ve become part of a large network of co-packers, food brokers, suppliers, and vendors—enabling us to connect our clients to a world of innovation and opportunity. • A local food manufacturing company suffered a major fire that completely shut down its production capabilities. Before the smoke had cleared, CBC was there—with $1 million in working capital financing to support cash shortfalls while the client repaired the line and awaited insurance proceeds. The facility was soon back up to speed, and our client had one of their best years ever. • An award-winning manufacturer of cookies and candies needed a forward-looking bank to help take it to the next level. We were happy to do just that. In addition to restructuring the company’s existing debt, we provided access to expanded financing as the company raised new capital for growth and expansion. PROFESSIONAL SERVICES Since our inception, Northern California’s leading professional services firms have turned to the professionals at California Bank of Commerce. Whether they’re a large regional or a small boutique firm, each of our clients benefits from tailored treasury services and customized banking solutions. For example, seasonal cash flow is a big challenge for many professional service firms. So, we create customized credit structures to help them maintain liquidity during leaner times. We also develop deposit strategies for clients who historically maintain large deposit balances to maximize returns while also maintaining liquidity access. Every business is different. So we always bring a fresh approach—resulting in nimble, creative, timely solutions. • A large independent accounting firm in California is continually looking for opportunities to grow its business. So the firm looked to CBC. We quickly developed cash flow-based acquisition financing to help our client make strategic acquisitions and increase their geographic market presence. • A longtime client in the financial advisory industry needed help financing the acquisition of a competitor. We provided our client with a multi-disbursement term loan facility to match the purchase contract, with a customized repayment schedule to match projected revenue and expense levels. • A well-respected services company was seeking to execute a leveraged buyout of its majority shareholder. The company had solid working capital assets, but insufficient additional assets to bridge the gap. By leveraging the enhancement of an SBA loan guarantee, we were able to provide a loan for the buyout, along with a repayment schedule that matched projected future cash flows. DISTRIBUTORS Distributors are the links that keep the supply chain strong. So it’s no surprise they’re among our most valued and long-standing clients. We understand the competitive pressures distributors deal with every day—from rapidly changing consumer trends, to inventory carrying costs, to the risk of relying on just a few large retail clients. That’s why we offer financing solutions tailored to a variety of needs and situations. So whether the challenge comes from nearby or offshore, our clients are prepared for whatever comes their way. • To support expanding revenues and contracts for a warehousing/logistics company, we provided term financing to help it purchase new equipment, a Revolving Line of Credit to bolster its working capital, and a Standby Letter of Credit to support a new lease on a larger warehouse. The SBLC was in lieu of a cash deposit, which preserved over $100,000 in available cash for the company. • We do business with a growing and profitable East Bay company that is majority owned by an Employee Stock Ownership Plan (ESOP). Our ability to understand the intricacies of ESOP financing enabled us to help finance its growth. COMMERCIAL AND INDUSTRIAL LENDING Commercial and Industrial (C&I) companies were the driving force of our creation—and remain a pillar of our business. While some banks still view C&I lending as difficult and even risky, we’re experts at understanding the complex challenges these companies face. From that knowledge, we’re able to provide tailored and sometimes unique terms for C&I firms all the way from their inception to market leadership. • We provided treasury management services and a Revolving Line of Credit to a client who provides green power and carbon offset products and services—helping make our economy and environment more sustainable. One unique part of our relationship is that the client’s contract with various utilities require Standby Letters of Credit, which we’ve provided both directly and through one of our correspondent banks. COMMERCIAL REAL ESTATE As many of our commercial clients grow, they’re looking to purchase or refinance their own building/facility. We’re experts in handling the complexities of owner-occupied property transactions, leaving our clients free to focus on their core business. Whether it’s traditional real estate financing or Small Business Administration-assisted transactions, we develop the right approach at the right time, helping our clients leverage the many advantages of ownership—including tax advantages, controlling overhead costs, asset appreciation and more. • The owner of a Silicon Valley manufacturing facility wanted to expand. The company began its building expansion before receiving financing, creating a difficult situation for most banks. CBC knew the company and the related borrower well, and knew the end user of the manufactured product. CBC went the extra mile in providing construction financing for a project already underway. ASSET BASED LENDING Asset-based lending (ABL) is an ideal solution for companies that want fast access to working capital, but sometimes have balance sheet challenges and/or are unwilling to sacrifice their hard-earned equity. At CBC, we’ve created a special division known as CBC Business Credit to provide this unique and valuable financing option. We’ve found ABL to be a highly flexible and scalable way to help businesses of all sizes capture a wide variety of opportunities—whether it’s growth, refinancing, taking advantage of supplier discounts, buying out shareholders, or even funding payroll. And because ABL can fluctuate depending on a business’ current needs, it provides daily and weekly access to the precise amount of working capital required. We’re proud to provide this “out-of-the box” financing solution that remains beyond the realm of traditional bank offerings. • Founded in 1960, a manufacturer of retail displays and fixtures was facing financial dilemmas—and its current lender was no longer willing to help. We quickly recognized the company’s long-standing reputation and strong relationships. So we replaced its $5 million Revolving Line of Credit with one that had better terms and more flexibility. • A premier janitorial company had just gone through a class action lawsuit, which led to its existing lenders backing out. We stepped in with a $1 million Revolving Line of Credit, which—fueled by the company’s success—has grown to over $5 million. We also provided various standby letters of credit to support the company’s relationship with its workers’ compensation insurer, thus substantially reducing its insurance expenses. • Established in 1976, a high-end furniture distributor confronted the major challenge of its current bank being bought out— and losing the relationship it valued. Through a trusted referral, it turned to CBC. We customized a solution to provide the distributor with the working capital it needed, on terms no other bank had considered (including the acquiring bank). It was our personalized approach and creative thinking that ultimately won us the business. SMALL BUSINESS LENDING Small businesses are the backbone of the California economy. That’s why our lenders have more than 30 years of combined experience helping small businesses meet their big challenges. One way is through our Small Business Administration (SBA) loan program. As a recognized Preferred Lender by the U.S. Small Business Administration, we’re able to simply and seamlessly provide the type of SBA loan required. We’re also a recognized SBA 504 first mortgage provider. And, our established relationships with Certified Development Corporations (CDCs) help us provide financing that keeps small businesses thriving in a number of key California industries. These include solar, telecommunications, insurance brokerage, manufacturing, hospitality, and engineering. • An Oakland-based company that specializes in large format print and process systems needed SBA financing to meet a number of important needs. We put together a $741,900 SBA loan to pay off the first trust deed on its property, purchase a partner’s share on the property, pay off an existing loan, and provide working capital to cover loan-related fees. • A landscaping business outgrew its present location and is now buying a commercial property for its expanding business in Morgan Hill, CA. CBC is processing its loan for $392,500. CONSTRUCTION Our bankers have been financing construction for decades. As a result of our experience and knowledge through various business cycles and because we know our clients, CBC is not in and out of the construction financing market. We stay with our construction clients in both good times and bad—providing the financing they need to weather any storm, while also keeping our bank safe and profitable. It’s a balance only truly experienced construction lenders can strike. Our lending team helps qualified real estate investors and developers access capital to build multifamily, retail, office, or industrial buildings. We also facilitate the transition to permanent financing at the end of construction, so builders can maximize their return sooner and break ground on their next project faster. • A dynamic, growing company wanted to expand its building in a very challenging location near San Francisco’s Fisherman’s Wharf. It was the kind of project we love. We provided construction financing for a challenging project that resulted in the company adding another building, consolidating its operations, and enjoying stunning views of Alcatraz and the Golden Gate Bridge. • Many banks would never walk into a project already underway, especially during the last few years when title companies wouldn’t issue title insurance due to loss of priority issues. We’re not most banks. We worked with the title company to secure the endorsements we needed, and supported our client in the construction of much-needed housing in Oakland. TREASURY MANAGEMENT Smart, safe cash management is key to any successful business—whether it’s an energetic startup or an established powerhouse. To help, we’ve created a portfolio of innovative deposit products and treasury management tools to meet each client’s cash flow needs and operational capabilities. Our treasury management team customizes solutions to help our clients manage payments, forecast cash flows, and mitigate risk. All backed by our advanced electronic banking platform that provides clients with around-the-clock access and convenience. Because when you run your own business, there are no business hours. Some of our treasury management services include: • Sophisticated check fraud protection (Positive Pay with SAND®) • Dual control payments on Automated Clearing House (ACH) wires • Foreign currency wires to most countries • High-volume digital check deposit from anywhere, anytime • Mobile business treasury tools on all the latest tablets, smartphones, and laptops • We provided enhanced treasury management services and a working capital line of credit to a nonprofit children’s art museum—and supported its mission of educating and enriching at-risk communities. • A local Better Business Bureau asked if we could build its ACH file for 400 recipients. We built its ACH file within 24 hours. And the Bureau moved all its business to us. • After a client sent an international wire at 5:15pm, they realized it was fraudulent. So they called us. We connected with the correspondent bank and were able to get 100% of the funds returned to us. STATEMEN TS OF INCOME For the Years Ended December 31, 2015 and 2014 Interest income: 2015 2014 Interest and fees on loans Interest on investment securities Interest on interest bearing deposits in banks Total interest income $ 18,071,786 425,424 140,265 18,637,475 $ 15,450,656 641,946 93,158 16,185,760 Interest expense: Interest on deposits Interest on borrowings Total interest expense 932,269 452,545 1,384,814 834,140 452,516 1,286,656 Net interest income before provision for loan losses 17,252,661 14,899,104 Provision (Benefit) for loan losses 280,408 (70,589) Net interest income after provision for loan losses 16,972,253 14,969,693 Non-interest income: Service charges and other fees Net gains on sales of loans Net (losses) gains on sales of investment securities Earnings on BOLI Other Total non-interest income Non-interest expenses: Salaries and employee benefits Occupancy and equipment Merger related Other Total non-interest expenses 1,609,245 — (22,174) 300,888 458,315 2,346,274 9,354,241 1,219,556 1,098,868 3,791,232 15,463,897 1,294,019 132,661 52,919 310,533 365,780 2,155,912 7,599,176 967,550 30,000 3,203,692 11,800,418 Income before provision for income taxes 3,854,630 5,325,187 Provision for income taxes Net Income 1,586,173 2,268,457 1,971,730 3,353,457 Preferred stock dividend Income to common shareholders (110,000) $ 2,158,457 (110,000) $ 3,243,457 Earnings per common share: Basic Diluted $ 0.49 $ 0.47 Weighted average number of common shares outstanding – basic Weighted average number of common shares outstanding – diluted 4,371,771 4,627,360 $ 0.91 $ 0.87 3,558,860 3,723,559 BALANCE SHEET S December 31, 2015 and 2014 Assets 2015 2014 Cash and due from banks Interest bearing deposits in banks Total cash and cash equivalents $ 12,921,429 55,942,946 68,864,375 $ 6,210,281 51,786,253 57,996,534 Investment securities Available-for-sale, at estimated fair value 31,786,518 31,320,930 Loans, less allowance for loan losses of $5,875,000 in 2015 and $5,560,000 in 2014 Premises and equipment, net Bank owned life insurance (BOLI) Deferred income taxes, net Core Deposit Intangible Goodwill Accrued interest receivable and other assets Total assets Liabilities and Shareholders’ Equity Deposits: Non-interest bearing Interest bearing Total deposits Other borrowings Accrued interest payable and other liabilities Total liabilities Commitments and contingencies 512,496,608 2,350,653 15,502,289 6,272,699 558,468 7,350,465 7,753,271 $ 652,935,346 333,252,251 241,845 11,854,475 2,331,087 — — 8,616,353 $ 445,613,475 $ 225,139,528 317,044,351 542,183,879 29,000,000 3,813,371 574,997,250 $ 140,558,314 214,468,126 355,026,440 29,000,000 3,009,196 387,035,636 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, 2015 and 2014 Common stock - no par value; 40,000,000 shares authorized; 5,537,837 issued and outstanding in 2015 and 4,328,488 in 2014 Retained earnings Accumulated other comprehensive income, net of taxes Total shareholders’ equity 10,949,443 10,949,443 64,123,095 46,866,592 2,830,463 672,006 35,095 77,938,096 89,798 58,577,839 Total liabilities and shareholders’ equity $ 652,935,346 $ 445,613,475 AT CBC, WE BELIEVE RELATIONSHIPS ARE EVERYTHING. Which is why everything we do revolves around building and strengthening them. We immerse ourselves in our clients’ goals, plans, and visions of the future. Then, together we create financial solutions that drive results. But we don’t wait to be asked. We actively search for opportunities and make introductions to help our clients at every phase of their corporate life cycle—whether it’s just getting started, expanding their base, or creating new markets and revenue streams. It’s a shared experience. A personal connection. And most of all, a relationship built on trust. Which, even as bankers, we can’t put a value on. Relationship Managers Front: Daniel Fujimoto, Jessica Perez, Colleen Atkinson, Elizabeth Pham, Joseph Wilson Back: Kevin Knox, Leonel Soto, Ray Strzelecki, Franklin Haggas, Kelly Attebery, Terry Guillory, Annalyn Perez, Michael Khan, Tony Mesones, Phillip Hoover Not pictured: Amy Efland and Natalie Taaffe Executive and Senior Vice Presidents Front: Chris Morin, Michele Wirfel, Cindy Peters, Leland Ong Back: Tommiette Rey, Winston Bandong, John Lehman, James Christiansen, Steven Nelson, Mark DeVincenzi, Vivian Mui Jamie Smith and Steve Tessler californiabankofcommerce.com California Bank of Commerce . 3595 Mt. Diablo Boulevard, Lafayette, CA 94549 . 925-283-2265
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