CALIFORNIA BANCORP The following is a discussion of our financial condition atMarch 31, 2020 andDecember 31, 2019 and our results of operations for the three months endedMarch 31, 2020 and 2019, and should be read in conjunction with our audited consolidated financial statements set forth in our Annual Report on Form 10-K for the year endedDecember 31, 2019 that was filed with theSecurities and Exchange Commission (the "SEC") onApril 14, 2020 (our "Annual Report") and with the accompanying unaudited notes to consolidated financial statements set forth in this Quarterly Report on Form 10-Q for the quarterly period endedMarch 31, 2020 (this "Report"). Because we conduct all of our material business operations through our bank subsidiary,California Bank of Commerce , the discussion and analysis relates to activities primarily conducted by the Bank.
Forward Looking Statements
Statements contained in this Report that are not historical facts or that discuss our expectations, beliefs or views regarding our future operations or future financial performance, or financial or other trends in our business or in the markets in which we operate, and our future plans constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Often, they include words such as "believe," "expect," "anticipate," "intend," "plan," "estimate," "project," "forecast," or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could," or "may." The information contained in such forward-looking statements is based on current information available to us and on assumptions that we make about future economic and market conditions and other events over which we do not have control. In addition, our business and the markets in which we operate are subject to a number of risks and uncertainties. Such risks and uncertainties, and the occurrence of events in the future or changes in circumstances that had not been anticipated, could cause our financial condition or actual operating results in the future to differ materially from our expected financial condition or operating results that are set forth in the forward-looking statements contained in this Report and could, therefore, also affect the price performance of our shares. In addition to the risk of incurring loan losses and provision for loan losses, which is an inherent risk of the banking business, these risks and uncertainties include, but are not limited to, the following: deteriorating economic conditions and macroeconomic factors such as unemployment rates and the volume of bankruptcies, as well as changes in monetary, fiscal or tax policy to address the impact of COVID-19, any of which could cause us to incur additional loan losses and adversely affect our results of operations in the future; the risk that the credit quality of our borrowers declines; potential declines in the value of the collateral for secured loans; the risk of a recession inthe United States economy, and domestic or international economic conditions, which could cause us to incur additional loan losses and adversely affect our results of operations in the future; the risk that our interest margins and, therefore, our net interest income will be adversely affected by changes in prevailing interest rates; the risk that we will not be able to manage our interest rate risks effectively, in which event our operating results could be harmed; risks associated with seeking new client relationships and maintaining existing client relationships; and the prospect of changes in government regulation of banking and other financial services organizations, which could impact our costs of doing business and restrict our ability to take advantage of business and growth opportunities. Many of the foregoing risks and uncertainties are, and will be, exacerbated by the COVID-19 pandemic and any worsening of the global business and economic environment as a result. Readers of this Report are encouraged to review the additional information regarding these and other risks and uncertainties to which our business is subject that is contained in Part I, Item 1A of our Annual Report, as such information may be updated from time to time in subsequent Quarterly Reports on Form 10-Q that we file with theSEC . We urge you to read those risk factors in conjunction with your review of the following discussion and analysis of our results of operations for the three months ended, and our financial condition at,March 31, 2020 . Due to the risks and uncertainties we face, readers are cautioned not to place undue reliance on the forward-looking statements contained in this Report, which speak only as of the date of this Report, or to make predictions about future performance based solely on historical financial performance. We also disclaim any obligation to update forward-looking statements contained in this Report as a result of new information, future events or otherwise, except as may otherwise be required by law. OverviewCalifornia BanCorp (the "Company"), aCalifornia corporation headquartered inOakland, California , is the bank holding company for its wholly-owned subsidiaryCalifornia Bank of Commerce (the "Bank"). The Bank conducts its business from its headquarters inLafayette, California . The Company has 2 full service branches inCalifornia located inContra Costa County andSanta Clara County and 3 loan production offices inCalifornia located inAlameda County ,Contra Costa County , andSacramento County .
Selected Financial Data
The following tables set forth the Company's selected historical consolidated financial data for the periods and as of the dates indicated. You should read this information together with the Company's audited consolidated financial statements included in our Annual Report and the unaudited consolidated financial statements and related notes included elsewhere in this Report. The selected historical consolidated financial data as of and for the three months endedMarch 31, 2020 and 2019 are derived from our unaudited consolidated financial statements, which are included elsewhere in this Quarterly Report on Form 10-Q. The Company's historical results for any prior period are not necessarily indicative of future performance. 21 -------------------------------------------------------------------------------- Three months ended March 31, (Dollars in thousands, except per share data) 2020 2019 Income Statement Data: Interest income$ 12,303 $ 11,494 Interest expense 2,121 1,657 Net interest income 10,182 9,837 Provision for credit losses 400 581 Net interest income after provision for credit losses 9,782 9,256 Other income 1,290 863 Other expenses 10,407 7,615 Income before taxes 665 2,504 Income taxes 192 636 Net income $ 473$ 1,868 Per Share Data: Basic earnings per share $ 0.06 $ 0.23 Diluted earnings per share $ 0.06 $ 0.23 Performance Measures: Return on average assets 0.16 % 0.76 % Return on average equity 1.45 % 6.18 % Net interest margin 3.80 % 4.26 % Efficiency ratio 90.72 % 71.17 % March 31, December 31, (Dollars in thousands) 2020 2019 Balance Sheet Data: Assets$ 1,207,482 $ 1,152,034 Loans, net$ 960,282 $ 941,132 Deposits$ 1,028,861 $ 988,236 Shareholders' equity$ 131,193 $ 130,256 Asset Quality Data: Allowance for loan losses / gross loans 1.19 % 1.17 % Allowance for loan losses / nonperforming loans 436.42 % 402.29 % Nonperforming assets / total assets 0.22 % 0.24 % Nonperforming loans / gross loans 0.27 % 0.29 % Capital Adequacy Measures (Bank): Tier I leverage ratio 11.36 % 10.44 % Tier I risk-based capital ratio 11.33 % 10.38 % Total risk-based capital ratio 12.77 % 11.79 % Critical Accounting Policies Our unaudited consolidated financial statements are prepared in accordance with GAAP and with general practices within the financial services industry. Application of these principles requires management to make complex and subjective estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under current circumstances. These assumptions form the basis for our judgments about the carrying values of assets and liabilities that are not readily available from independent, objective sources. We evaluate our estimates on an ongoing basis. Use of alternative assumptions may have resulted in significantly different estimates. Actual results may differ from these estimates. 22 -------------------------------------------------------------------------------- Our most significant accounting policies are described in Note 1 to our audited financial statements for the year endedDecember 31, 2019 , included in our Annual Report on Form 10-K and in Note 1 to our unaudited financial statements, which are included elsewhere in this Quarterly Report on Form 10-Q.
COVID-19
The COVID-19 pandemic has caused a substantial disruption to the economy, as well as a heightened level of uncertainty about the scope and longevity of its impact. In response to the pandemic, we have implemented a multi-pronged approach to address the challenges caused by the effects of this pandemic. Our approach includes ensuring the safety of our employees and the communities that we serve and developing new and temporarily revised programs that are responsive to the needs of our loan and deposit customers. As we continue to closely monitor COVID-19developments, we remain focused on our ability to navigate these challenging conditions and the underlying strength and stability of our Company. For information regarding the specific business impact to the Company regarding COVID-19, see Note 7 of the unaudited consolidated financial statements, which are included elsewhere in this Quarterly Report on Form 10-Q.
Results of Operations:
Overview
For the three months endedMarch 31, 2020 , net income was$473,000 compared to$1.9 million for the same period last year. The decrease of$1.4 million , or 75%, was primarily attributable to an increase in operating expenses of$2.8 million , or 37%, partially offset by an increase in in net interest income of$345,000 , or 4%, an increase in non-interest income of$427,000 or 49%, and a reduction of income taxes of$444,000 , or 70%.
Net Interest Income and Margin
Net interest income, the difference between interest earned on loans and investments and interest paid on deposits is the principal component of the Company's earnings. Net interest income is affected by changes in the nature and volume of earning assets and interest-bearing liabilities held during the quarter, as well as the rates earned on such assets and the rates paid on interest bearing liabilities.
Net interest income for the three months endedMarch 31, 2020 , was$10.2 million , an increase of$345,000 , or 4% over$9.8 million for the same period in 2019. The increase in net interest income was primarily due to growth in average earning assets offset, in part, by lower average yields. Average total interest-earning assets increased by$140.5 million , or 15% to$1.08 billion in the first quarter of 2020 from$936.9 million for the same period during 2019. For the three months endedMarch 31, 2020 , growth in average deposits outpaced growth in average loans when compared to the same period of 2019 as the Company worked to strengthen liquidity. Average deposit balances for the three months endedMarch 31, 2020 grew$145.3 million , or 17%, from the quarter endedMarch 31, 2019 , while average loans grew$93.0 million , or 11%, for the same period. As a result, the average loan to deposit ratio for the first quarter of 2020 was 95.2% down from 100.5% for the first quarter of 2019 and the yield on average earning assets decreased 39 basis points to 4.59% from 4.98%. In addition, the average yield on total average gross loans in the three months endedMarch 31, 2020 was 4.98%, a decrease of 19 basis points compared to 5.17% in the same period one year earlier. Of the$145.3 million increase in average total deposit balances year over year,$42.9 million was attributable to noninterest-bearing deposits and$102.4 million was attributable to interest-bearing deposits. The cost of interest-bearing deposits was 1.28% during the quarter endedMarch 31, 2020 compared to 1.20% in the same quarter one year earlier. In addition, the overall cost of average total deposit balances increased by 7 basis points to 0.80% in the first quarter of 2020 compared to 0.73% in the first quarter of 2019. As a result, the net interest margin decreased by 46 basis points to 3.80% for the three months endedMarch 31, 2020 , compared to 4.26% for the three months endedMarch 31, 2019 . 23
-------------------------------------------------------------------------------- The following table shows the composition of average earning assets and average funding sources, average yields and rates, and the net interest margin for the quarters endedMarch 31, 2020 and 2019. Three months ended March 31, (Dollars in thousands) 2020 2019 Yields Interest Yields Interest Average or Income/ Average or Income/ Balance Rates Expense Balance Rates Expense ASSETS Interest earning assets: Loans (1)$ 952,303 4.98 %$ 11,783 $ 859,326 5.17 %$ 10,954 Federal funds sold 96,834 1.37 % 329 34,883 2.43 % 209 Investment securities 28,294 2.72 %
191 42,719 3.14 % 331
Total interest earning assets 1,077,431 4.59 %
12,303 936,928 4.98 % 11,494
Noninterest-earning assets: Cash and due from banks 21,729 17,124 All other assets (2) 68,643 41,310 TOTAL$ 1,167,803 $ 995,362 LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Deposits: Demand$ 23,747 0.12 %$ 7 $ 26,405 0.09 %$ 6 Money market and savings 476,493 1.19 % 1,412 399,753 1.07 % 1,053 Time 124,705 1.85 % 575 96,382 2.04 % 484 Other 15,070 3.39 % 127 10,744 4.30 % 114 Total interest-bearing liabilities 640,015 1.33 %
2,121 533,284 1.26 % 1,657
Noninterest-bearing liabilities: Demand deposits 375,039
332,114
Accrued expenses and other liabilities 21,406 7,298 Shareholders' equity 131,343 122,666 TOTAL$ 1,167,803 $ 995,362 Net interest income and margin (3) 3.80 %$ 10,182 4.26 %$ 9,837
(1) Nonperforming loans are included in average loan balances. No adjustment has
been made for these loans in the calculation of yields. Interest income on
loans includes amortization of deferred loan costs, net of deferred loan
fees, of
(2) Other noninterest-earning assets includes the allowance for credit losses of
(3) Net interest margin is net interest income divided by total interest-earning
assets.
The following table shows the effect of the interest differential of volume and rate changes for the quarters endedMarch 31, 2020 and 2019. The change in interest due to both rate and volume has been allocated in proportion to the relationship of absolute dollar amounts of change in each. 24 --------------------------------------------------------------------------------
Three Months Ended March, 31
2020 vs. 2019
Increase (Decrease) Due to
Change in:
Average Average Net
(Dollars in thousands) Volume Rate Change
Interest income:
Loans $ 1,022 $ (193 ) $ 829
Federal funds sold 218 (98 ) 120
Investment securities (98 ) (42 ) (140 )
Interest expense:
Deposits
Demand (1 ) 2 1
Money market and savings 225 134 359
Time 136 (45 ) 91
Other borrowings 37 (24 ) 13
Net interest income $ 745 $ (400 ) $ 345
Interest Income
Interest income increased by $809,000 in the first quarter of 2020 compared to
the same period of 2019, primarily due to volume growth in average earning
assets, and in particular an increase in loans. The increase in interest earned
on our loan portfolio of $829,000 in the first quarter of 2020 compared to the
first quarter of 2019 was comprised of $1.0 million attributable to an
approximate $93.0 million increase in average loans outstanding, offset by
approximately $193,000 attributable to the decrease in the yield earned on loans
to 4.98% from 5.17%.
Interest Expense
Interest expense increased by $464,000 in the first quarter of 2020 compared to
the same period of 2019, primarily due to the effect of increased rates paid on
interest-bearing deposits and the overall growth in the volume of average
interest-bearing deposits and borrowings to fund earning asset growth. The
average rate paid on interest-bearing liabilities in the first quarter of 2020
compared to the same period one year earlier increased 7 basis points to 1.33%
from 1.26%.
Provision for Credit Losses
We made provisions for loan losses of $400,000 and $581,000 for the three months
ended March 31, 2020 and 2019, respectively. We recorded net loan recoveries of
$90,000 in the first quarter of 2020 compared to net charge-offs of $131,000
during the same period of 2019. The allowance for loan loss as a percent of
outstanding loans was 1.19% at March 31, 2020 and 1.27% at March 31, 2019 . The
decrease in the reserve percentage reflects the impact of enhancements to our
qualitative methodology and higher charge-off activity in 2019. See further
discussion in "Financial Condition - Allowance for Loan Losses"
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Noninterest Income
The following table reflects the major components of the Company's noninterest
income.
Three Months Ended
March 31, Increase (Decrease)
(Dollars in thousands) 2020 2019 Amount Percent
Service charges and other fees $ 970 $ 625 $ 345 55 %
Gain on sale of SBA loans - 23 (23 ) -100 %
Earnings on BOLI 153 105 48 46 %
Other 167 110 57 52 %
Total noninterest income $ 1,290 $ 863 $ 427 49 %
Noninterest income grew by $427,000 or 49% in the first quarter of 2020,
compared to the first quarter of 2019. The increase was primarily attributable
to growth in service charges and other fees related to growth in
noninterest-bearing deposits and loans as well as an increase in earnings from
bank-owned life insurance and other miscellaneous income.
Noninterest Expense
The following table reflects the major components of the Company's noninterest
expense.
Three Months Ended
March 31, Increase (Decrease)
(Dollars in thousands) 2020 2019 Amount Percent
Salaries and benefits $ 6,477 $ 4,515 $ 1,962 43 %
Premises and equipment 1,139 745 394 53 %
Professional fees 955 358 597 167 %
Data processing 526 419 107 26 %
Other 1,310 1,578 (268 ) -17 %
Total noninterest expense $ 10,407 $ 7,615 $ 2,792 37 %
During the three months ended March 31, 2020 , non-interest expenses increased by
$2.8 million or 37% to $10.4 million compared to $7.6 million in the same period
of 2019. Of this increase, $2.0 million was in net salaries and benefits
expense. The increase in salaries and benefits was primarily the result of
hiring key executive and staff positions to support the Company's expansion
initiatives and continued growth, as well as approximately $400,000 due to
severance benefits related to the departure of an executive.
Operating expenses for the three months ended March 31, 2020 also included
increases in professional and legal fees related to implementation of FDICIA and
SEC compliance controls and processes as well as the registration of the
Company's common shares of $597,000 ; occupancy and equipment from the expansion
of facilities of $394,000 ; and data processing costs related to enhancement of
treasury management systems of $107,000 .
Provision for Income Taxes
Income tax expense was$192,000 for the first quarter of 2020 which compared to$636,000 for the same period one year earlier. The effective tax rates for those time periods were 28.9% and 25.4%, respectively. 26
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Financial Condition:
Overview
Total assets of the Company were$1.21 billion as ofMarch 31, 2020 compared to$1.15 billion as ofDecember 31, 2019 . The increase in assets was driven by an increase in both the loan portfolio and federal funds sold. Growth in assets was primarily funded by growth in deposits and other borrowings.
Loan Portfolio
Our loan portfolio consists almost entirely of loans to customers who have a full banking relationship with us. Gross loan balances increased by$19.3 million or 2% fromDecember 31, 2019 toMarch 31, 2020 . The loan portfolio atMarch 31, 2020 was comprised of approximately 43% of commercial and industrial loans compared to 41% atDecember 31, 2019 . In addition, commercial real estate loans comprised 55% of our loans atMarch 31, 2020 compared to 57% atDecember 31, 2019 . A substantial percentage of the commercial real estate loans are considered owner-occupied loans. Our loans are generated by our relationship managers and executives. Our senior management is actively involved in the lending, underwriting, and collateral valuation processes. Higher dollar loans or loan commitments are also approved through a bank loan committee comprised of executives and outside board members.
The following table reflects the composition of the Company's loan portfolio and their percentage distribution.
March 31, December 31,
(Dollars in thousands) 2020 2019
Commercial and industrial 416,308 389,746
Real estate - construction and land 41,697 42,519
Real estate - other 496,765 502,929
Real estate - HELOC 995 982
Installment and other 13,180 13,476
Total loans, gross 968,945 949,652
Deferred loan origination costs, net 2,902 2,555
Allowance for loan losses (11,565 ) (11,075 )
Total loans, net 960,282 941,132
Commercial and industrial 43 % 41 %
Real estate - construction and land 4 % 4 %
Real estate - other 51 % 53 %
Real estate - HELOC 0 % 0 %
Installment and other 1 % 1 %
Total loans, gross 100 % 100 %
The following table shows the maturity distribution for total loans outstanding
as of March 31, 2020 . The maturity distribution is grouped by remaining
scheduled principal payments that are due within one year, after one but within
five years, or after five years. The principal balances of loans are indicated
by both fixed and variable rate categories.
Over One
Due in Year But Loans With
One Year Less Than Over Fixed Variable
(Dollars in thousands) Or Less Five Years Five Years Total Rates (1) Rates Commercial and industrial
$ 169,586 $ 86,299 $
160,423
5,262 8,459 41,697 8,485 33,212
Real estate - other 16,818 98,608 381,339 496,765 203,905 292,860
Real estate - HELOC - 500 495 995 - 995
Installment and other 967 1,558 10,655 13,180 295 12,885
Total loans, gross $ 215,347 $ 192,227 $ 561,371 $ 968,945 $ 438,292 $ 530,653 (1) Excludes variable rate loans on floors
27
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Nonperforming Assets
Nonperforming assets are comprised of loans on nonaccrual status, loans 90 days or more past due and still accruing interest, and other real estate owned. We had no loans 90 days or more past due and still accruing interest and no other real estate owned atMarch 31, 2020 . A loan is placed on nonaccrual status if there is concern that principal and interest may not be fully collected or if the loan has been past due for a period of 90 days or more, unless the obligation is both well secured and in process of legal collection. When loans are placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on nonaccrual loans is subsequently recognized only to the extent that cash is received and the loan's principal balance is deemed collectible. Loans are returned to accrual status when they are brought current with respect to principal and interest payments and future payments are reasonably assured. Loans in which the borrower is encountering financial difficulties and we have modified the terms of the original loan are evaluated for impairment and classified as TDR loans. The following table presents information regarding the Company's nonperforming and restructured loans. March 31, December 31, (Dollars in thousands) 2020 2019 Nonaccrual loans$ 2,650 $ 2,753
Loans over 90 days past due and still accruing - -
Total nonperforming loans 2,650 2,753
Foreclosed assets - -
Total nonperforming assets $ 2,650 $
2,753
Performing TDR's $ 624 $ 646
Allowance for Loan Losses
Our allowance for loan losses is maintained at a level management believes is
adequate to account for probable incurred credit losses in the loan portfolio as
of the reporting date. We determine the allowance based on a quarterly
evaluation of risk. That evaluation gives consideration to the nature of the
loan portfolio, historical loss experience, known and inherent risks in the
portfolio, the estimated value of any underlying collateral, adverse situations
that may affect a borrower's ability to repay, current economic and
environmental conditions and risk assessments assigned to each loan as a result
of our ongoing reviews of the loan portfolio. This process involves a
considerable degree of judgment and subjectivity. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance. Such agencies may require the Bank to
recognize additions to the allowance based on judgments different from those of
management.
Our allowance is established through charges to the provision for loan losses.
Loans, or portions of loans, deemed to be uncollectible are charged against the
allowance. Recoveries of previously charged-off amounts are credited to our
allowance for loan losses. The allowance is decreased by the reversal of prior
provisions when the total allowance balance is deemed excessive for the risks
inherent in the portfolio. The allowance for loan losses balance is neither
indicative of the specific amounts of future charge-offs that may occur, nor is
it an indicator of any future loss trends.
28--------------------------------------------------------------------------------
The following table provides information on the activity within the allowance for loan losses as of and for the periods indicated.
Commercial Real Estate
and Construction Real Estate Real Estate Installment
(Dollars in thousands) Industrial and Land Other HELOC and Other Total
Three months ended March 31, 2020
Beginning balance $ 6,708 $ 1,022 $ 3,281 $ 6 $ 58 $ 11,075
Provision for loan losses 1,045 (292 ) (620 ) (1 ) 268 400
Charge-offs - - - - - -
Recoveries 90 - - - - 90
Ending balance $ 7,843 $ 730 $ 2,661 $ 5 $ 326 $ 11,565
Three months ended March 31, 2019
Beginning balance $ 5,578 $ 1,493 $ 3,703 $ 16 $ 10 $ 10,800
Provision for loan losses 378 (373 ) 448 (6 ) 134 581
Charge-offs - - - - (137 ) (137 )
Recoveries 6 - - - - 6
Ending balance $ 5,962 $ 1,120 $ 4,151 $ 10 $ 7 $ 11,250
Our provision of $400,000 for the quarter ended March 31, 2020 reflects an
increase to qualitative assessments from the potential impact of the COVID-19
pandemic as well as modest loan growth, offset by improvements in other
qualitative assessments. As of March 31, 2020 , our most direct potential
exposure to the Covid-19 environment related to our dental practice acquisition
loans, which are part of commercial loans, and we believe our actions to offer
payment deferments and government guaranteed loans provides significant
mitigation of risk in that segment. In addition, our assessment broadly
anticipates that the most severe and direct impacts from the Covid-19
environment would manifest in consumer credit card and installment portfolios;
segments of commercial loans related to consumer services; and real estate in
heavily impacted segments such as retail strip malls, hospitality and
restaurants. The provision reflects a heavier allocation toward commercial and
installment loans due to Covid-19 and less toward real estate segments.
Investment Portfolio
Our investment portfolio is comprised of debt securities. We use two classifications for our investment portfolio: available-for-sale (AFS) and held-to-maturity (HTM). Securities that we have the positive intent and ability to hold to maturity are classified as "held-to-maturity securities" and reported at amortized cost. Securities not classified as held-to-maturity securities are classified as "investment securities available-for-sale" and reported at fair value.
At
Our investments provide a source of liquidity as they can be pledged to support borrowed funds or can be liquidated to generate cash proceeds. The investment portfolio is also a significant resource to us in managing interest rate risk, as the maturity and interest rate characteristics of this asset class can be readily changed to match changes in the loan and deposit portfolios. The majority of our available-for-sale investment portfolio is comprised of mortgage-backed securities (MBSs) that are either issued or guaranteed byU.S. government agencies or government-sponsored enterprises (GSEs).
The following table reflects the amortized cost and fair market values for the
total portfolio for each of the categories of investments in our securities
portfolio as of
29
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Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
At March 31, 2020:
Residential mortgage backed and
government securities $ 23,763 $ 760 $ - $ 24,523
Government agencies 2,987 4 - 2,991
Corporate bonds 7,009 - (179 ) 6,830
Total available for sale securities
AtDecember 31, 2019 : Residential mortgage backed and government securities$ 20,291 $ 436 $ (5 ) $ 20,722 Government agencies 7,824 9 - 7,833 Corporate bonds - - - -
Total available for sale securities
$ (5 ) $ 28,555 Deposits
Our deposits are generated through core customer relationships, related predominantly to business relationships. Many of our business customers maintain high levels of liquid balances in their demand deposit accounts and use the Bank's treasury management services.
AtMarch 31, 2020 , approximately 39% of our deposits were in noninterest-bearing demand deposits. The balance of our deposits atMarch 31, 2020 were held in interest-bearing demand, savings and money market accounts and time deposits. More than 47% of total deposits were held in interest-bearing demand, savings and money market deposit accounts atMarch 31, 2020 , which provide our customers with interest and liquidity. Time deposits comprised the remaining 14% of our deposits atMarch 31, 2020 . Information concerning average balances and rates paid on deposits by deposit type for the past two fiscal years is contained in the Distribution, Yield and Rate Analysis of Net Income table located in the previous section titled "Results of Operations-Net Interest Income and Net Interest Margin". The following table provides a comparative distribution of our deposits by outstanding balance as well as by percentage of total deposits at the dates indicated. (Dollars in thousands) Balance % of Total At March 31, 2020: Demand noninterest-bearing$ 403,248 39 % Demand interest-bearing 21,083 2 % Money market and savings 459,712 45 % Time 144,818 14 % Total deposits$ 1,028,861 100 % At December 31, 2019: Demand noninterest-bearing$ 387,267 39 % Demand interest-bearing 25,178 3 % Money market and savings 455,436 46 % Time 120,355 12 % Total deposits$ 988,236 100 % 30
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Liquidity
Our primary source of funding is deposits from our core banking relationships. The majority of the Bank's deposits are transaction accounts or money market accounts that are payable on demand. A small number of customers represent a large portion of the Bank's deposits, as evidenced by the fact that approximately 20.0% of deposits were represented by the 10 largest depositors as ofMarch 31, 2020 . We strive to manage our liquidity in a manner that enables us to meet expected and unexpected liquidity needs under both normal and adverse conditions. The Bank maintains significant on-balance sheet and off-balance liquidity sources, including a marketable securities portfolio and borrowing capacity through various secured and unsecured sources.
Capital Resources
We are subject to various regulatory capital requirements administered by federal and state banking regulators. Our capital management consists of providing equity to support our current operations and future growth. Failure to meet minimum regulatory capital requirements may result in mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and off-balance sheet items as calculated under regulatory accounting policies. As ofMarch 31, 2020 andDecember 31, 2019 , we were in compliance with all applicable regulatory capital requirements, including the capital conservation buffer, and the Bank qualified as ''well-capitalized'' for purposes of theFDIC's prompt corrective action regulations. AtMarch 31, 2020 , the capital conservation buffer was 2.50%. AtMarch 31, 2020 , the Bank had a Tier 1 risk based capital ratio of 11.33%, a total capital to risk-weighted assets ratio of 12.77%, and a leverage ratio of 11.36%. AtDecember 31, 2019 , the Bank had a Tier 1 risk based capital ratio of 10.38%, a total capital to risk-weighted assets ratio of 11.79%, and a leverage ratio of 10.44%. During the first quarter of 2020, the Company entered into a borrowing arrangement for$12.0 million , the proceeds of which were infused into the Bank to support Tier 1 capital.
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