SOUTHERN CALIFORNIA BANCORP REPORTS NET INCOME OF $6.6 MILLION FOR THE THIRD QUARTER


San Diego, Calif., Oct. 26, 2023 (GLOBE NEWSWIRE) -- Southern California Bancorp (“us,” “we,” “our,” or the “Company”) (NASDAQ: BCAL), the holding company for Bank of Southern California, N.A. (the “Bank”) announces its consolidated financial results for the third quarter of 2023.

Southern California Bancorp reported net income of $6.6 million for the third quarter of 2023, or $0.35 per diluted share, compared to net income of $6.9 million, or $0.38 per diluted share in the third quarter of 2022, and net income of $6.7 million, or $0.36 per diluted share in the second quarter of 2023.

“I am pleased to report that our strong year-to-date performance in 2023 includes net interest income of $71.6 million and net income of $21.5 million, up from $62.5 million and $7.6 million, respectively, in the corresponding year-to-date period in 2022,” said David Rainer, Chairman and CEO of Southern California Bancorp and Bank of Southern California. “Given the changes in the economic environment between these two periods, including one of the fastest Fed funds rate hiking cycles in history, we believe our third quarter return on average assets of 1.12% and net interest margin of 4.23% are evidence of the ongoing solid execution of our relationship-based business banking model in a challenging market subject to margin compression. We continue maintaining strong relationships with our current customers, as well as establishing new relationships, in what we believe is the best market in the country for small to medium-sized business relationship banking.

“Third quarter net income of $6.6 million helped drive our tangible book value per share (non-GAAP1) to $13.08, an increase of $0.26, or 2.0% from the prior quarter. Our balance sheet continues to be strong, with deposit balances remaining steady, as we continue to vigorously defend our deposit base in the face of increasing competition and deposit costs. Our loan portfolio grew by $20.9 million in the third quarter of 2023 with total average loan yields increasing to 5.97%.

“The Bank has always fostered a prudent credit culture with disciplined underwriting and credit risk management; however, in the third quarter of 2023 our nonperforming assets to total assets ratio increased to 0.62%, as a real estate loan collateralized by multifamily properties in our Private Banking portfolio was placed on non-accrual status. A court appointed receiver is in place and we are aggressively pursuing the resolution of this matter.”

Third Quarter 2023 Highlights

 Net income of $6.6 million, compared with $6.7 million in the prior quarter
 Diluted earnings per share of $0.35, compared with $0.36 the prior quarter
 Net interest margin of 4.23%, compared with 4.36% in the prior quarter; average loan yield of 5.97% compared with 5.91% in the prior quarter
 Return on average assets of 1.12%, compared with 1.18% in the prior quarter
 Return on average common equity of 9.38%, compared with 9.93% in the prior quarter
 Efficiency ratio (non-GAAP) of 61.4%, compared with 59.6% in the prior quarter
 Tangible book value per common share (“TBV”) (non-GAAP) of $13.08 at September 30, 2023, up $0.26 from $12.82 at June 30, 2023
 Total assets of $2.31 billion at September 30, 2023, a slight increase from June 30, 2023
   

1 Reconciliations of the non–U.S. generally accepted accounting principles (“GAAP”) measures are set forth at the end of this press release.

 Total loans, including loans held for sale, of $1.94 billion at September 30, 2023, compared with $1.91 billion at June 30, 2023
 Nonperforming assets to total assets ratio of 0.617% at September 30, 2023, compared with 0.002% at June 30, 2023
 Total deposits of $1.98 billion at September 30, 2023, up $2.9 million or 0.1%, compared with $1.98 billion at June 30, 2023
 Noninterest-bearing demand deposits were $736.0 million at September 30, 2023, representing 37.1% of total deposits, compared with $776.9 million, or 39.2% of total deposits at June 30, 2023
 Cost of deposits was 1.56%, compared with 1.29% in the prior quarter
 Cost of funds was 1.62%, compared with 1.38% in the prior quarter
 Bank’s capital exceeds minimums to be “well-capitalized, the highest regulatory capital category
   

Third Quarter Operating Results

Net Income

Net income for the third quarter of 2023 was $6.6 million, or $0.35 per diluted share, compared with net income of $6.7 million, or $0.36 per diluted share in the second quarter of 2023. Pre-tax, pre-provision income (non-GAAP) for the third quarter was $9.3 million, a decrease of $620 thousand or 6.3% from the prior quarter.

Net Interest Income and Net Interest Margin

Net interest income for the third quarter of 2023 was $23.3 million, compared to $23.4 million in the prior quarter. The decrease in net interest income was primarily due to a $1.4 million increase in total interest expense, partially offset by a $1.2 million increase in total interest and dividend income in the third quarter of 2023 as compared to the prior quarter. During the third quarter of 2023, loan interest income increased $1.0 million, total debt securities income increased $12 thousand, and interest and dividend income from other financial institutions increased $222 thousand. The increase in interest income was due to a number of factors: a higher average total loan balance from organic loan growth; a change in the interest-earning asset mix; and higher yields on interest-earning assets resulting from increases in the target Fed funds rate, partially offset by the reversal of a non-accrual loan’s interest income of $264 thousand. Average interest-earning assets increased $29.5 million, the result of a $24.4 million increase in average total loans, a $7.6 million increase in average deposits in other financial institutions, a $3.0 million increase in average Fed funds sold/resale agreements, and a $326 thousand increase in average restricted stock investments and other bank stock, partially offset by a $5.8 million decrease in average total debt securities. The increase in interest expense for the third quarter of 2023 was primarily due to a $1.5 million increase in interest expense on interest-bearing deposits, the result of a $66.6 million increase in average interest-bearing deposits, coupled with a 36 basis point increase in interest-bearing deposit costs.

Net interest margin for the third quarter of 2023 was 4.23%, compared with 4.36% in the prior quarter. The decrease was primarily related to a 24 basis point increase in the cost of funds, partially offset by an 8 basis point increase in the total interest-earning assets yield, the result of higher market interest rates and a change in the Bank’s average interest-earning asset mix. The yield on total average earning assets in the third quarter of 2023 was 5.72%, compared with 5.64% in the prior quarter. The yield on average total loans in the third quarter of 2023 was 5.97%, an increase of 6 basis points from 5.91% in the prior quarter. The yield on average total loans in the third quarter of 2023 included the impact of the reversal of a non-accrual loan’s interest, which decreased the overall loan yield by 5 basis points.

Cost of funds for the third quarter of 2023 was 162 basis points, an increase of 24 basis points from 138 basis points in the prior quarter. The increase was primarily driven by a 36 basis point increase in the cost of interest-bearing deposits, a 20 basis point increase in the cost of Federal Home Loan Bank (FHLB) borrowings, an increase in average interest-bearing deposits, and a decrease in average noninterest-bearing deposits. Average noninterest-bearing demand deposits decreased $37.4 million to $768.1 million and represented 38.8% of total average deposits for the third quarter of 2023, compared with $805.6 million and 41.3%, respectively, in the prior quarter; average interest-bearing deposits increased $66.6 million to $1.21 billion during the third quarter of 2023. The total cost of deposits in the third quarter of 2023 was 156 basis points, an increase of 27 basis points from 129 basis points in the prior quarter.

Average total borrowings decreased $11.0 million to $29.6 million for the third quarter of 2023, primarily due to a decrease of $11.1 million in average FHLB borrowings during the quarter. The average cost of total borrowings was 5.82% for the third quarter of 2023, up from 5.66% in the prior quarter.

Provision for Credit Losses

The Company recorded a reversal of provision for credit losses of $96 thousand in the third quarter of 2023, compared to a reversal of provision for credit losses of $15 thousand in the prior quarter. The reversal of provision for credit losses in the third quarter of 2023 included a $298 thousand negative provision for unfunded commitments primarily due to lower unfunded loan commitments. Total unfunded loan commitments decreased $33.2 million to $490.4 million at September 30, 2023, from $523.6 million at June 30, 2023. The provision for credit losses for the loan portfolio in the third quarter of 2023 was $202 thousand, an increase of $82 thousand from $120 thousand in the prior quarter. The increase was driven by our reasonable and supportable forecast, primarily related to the economic outlook from the Federal Reserve’s actions to control inflation, and an increase in total loan balances, partially offset by a decrease in special mention and substandard accruing loans and changes in the portfolio mix. The Company’s management continues to monitor macroeconomic variables related to increasing interest rates, inflation and the concerns of an economic downturn, and believes it is appropriately provisioned for the current environment.

Noninterest Income

Total noninterest income in the third quarter of 2023 was $815 thousand, a decrease of $281 thousand compared to total noninterest income of $1.1 million in the second quarter of 2023. In the third quarter of 2023, the Company recorded a loss on sale of loans of $54 thousand related to a guaranty denial from the U.S. Small Business Administration for an SBA 7A loan that defaulted in 2017 and settled in 2020. There was no gain on SBA 7A loan sales in the third quarter of 2023, compared to gain on sale of loans of $77 thousand on the sale of $1.0 million in SBA 7A loans in the second quarter of 2023. The decrease was due to a decrease in originations of SBA 7A loans, combined with a decrease in SBA secondary market premiums. Service charges and fees on deposit accounts was $470 thousand, a decrease of $60 thousand compared to $530 thousand in the prior quarter. The decrease was primarily due to lower analysis charges for certain deposit accounts. The Company recorded a gain on sale of debt securities of $34 thousand in the second quarter of 2023, for which there was no comparable transaction in the third quarter of 2023.

Noninterest Expense

Total noninterest expense for the third quarter of 2023 was $14.8 million, an increase of $174 thousand from total noninterest expense of $14.6 million in the prior quarter. In the third quarter of 2023, salaries and employee benefits increased by $62 thousand, and other expenses increased by $120 thousand; these increases were partially offset by decreases in legal, audit and professional fees of $69 thousand.

The $62 thousand increase in salaries and benefits was due primarily to a decrease in the deferred loan origination costs resulting from lower loan growth in the third quarter of 2023, partially offset by a decrease in payroll taxes and benefits expense. The $120 thousand increase in other expense was due primarily to the increase in sundry losses resulting from the recoveries of affidavits of forgery that were recorded in the second quarter of 2023. The $69 thousand decrease in legal, audit and professional fees was due primarily to a decrease in legal and consulting expenses.

Efficiency ratio (non-GAAP) for the third quarter of 2023 was 61.4%, compared to 59.6% in the prior quarter.

Income Tax

In the third quarter of 2023, the Company’s income tax expense was $2.8 million, compared with $3.2 million in the second quarter of 2023. The effective rate was 30.2% for the third quarter of 2023 and 32.3% for the second quarter of 2023. The effective rate was 29.7% for the nine months ended September 30, 2023. The decrease in the effective tax rate for the third quarter of 2023 was primarily attributable to the impact of the vesting and exercise of equity awards combined with changes in the Company’s stock price over time, and other deferred tax related adjustments.

Balance Sheet

Assets

Total assets at September 30, 2023 were $2.31 billion, an increase of $4.5 million or 0.2% from June 30, 2023. The increase in total assets from the prior quarter was primarily related to a $20.9 million increase in total loans, including loans held for sale, partially offset by a $9.5 million decrease in cash and cash equivalents, and a $8.0 million decrease in securities available-for-sale.

Loans

Total loans held for investment were $1.93 billion at September 30, 2023, compared to $1.91 billion at June 30, 2023, with third quarter of 2023 new originations of $40.6 million and payoffs and net paydowns of $26.3 million. Total loans secured by real estate increased by $20.1 million, with other commercial real estate loans increasing by $58.3 million, and multifamily increasing $8.1 million, partially offset by a $37.9 million decrease in construction and land development loans, and an $8.5 million decrease in 1-4 family residential. In addition, commercial and industrial loans decreased by $1.9 million. The Company had $4.8 million in SBA 7A loans held for sale at September 30, 2023, compared to $1.1 million at June 30, 2023; most of these loans are expected to be sold in the secondary market in the fourth quarter of 2023.

Deposits

Total deposits at September 30, 2023 were $1.98 billion, an increase of $2.9 million from June 30, 2023. Noninterest-bearing demand deposits at September 30, 2023 were $736.0 million, or 37.1% of total deposits, compared with $776.9 million, or 39.2% of total deposits at June 30, 2023. At September 30, 2023, total interest-bearing deposits were $1.25 billion, compared to $1.20 billion at June 30, 2023. At September 30, 2023, total brokered time deposits were $84.5 million, compared to $98.4 million at June 30, 2023. Given the nature of the Company’s commercial banking model, at September 30, 2023, approximately 43% of total deposits exceeded the FDIC insurance limits. The Company offers the Insured Cash Sweep (ICS) product, providing customers with FDIC insurance coverage at ICS network institutions. At September 30, 2023, ICS deposits were $252.7 million, or 13% of total deposits, compared to $256.3 million, or 13% of total deposits at June 30, 2023.

Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“Federal Reserve”) Borrowings

At September 30, 2023, the Company had overnight FHLB borrowings of $8.0 million, a $7.0 million decrease from June 30, 2023. There were no outstanding Federal Reserve Discount Window borrowings at September 30, 2023 or June 30, 2023. The Company did not participate in the Federal Reserve Bank Term Funding Program.

At September 30, 2023, the Company had available borrowing capacity from the FHLB secured lines of credit of approximately $431 million and available borrowing capacity from the Federal Reserve Discount Window of approximately $151 million. The Company also had available borrowing capacity from three unsecured credit lines from correspondent banks of approximately $75 million at September 30, 2023, with no outstanding borrowings. Total available borrowing capacity was $656.8 million at September 30, 2023. Additionally, the Company had unpledged liquid securities at fair value of approximately $111.8 million and cash and cash equivalents of $95.1 million at September 30, 2023.

Asset Quality

Total non-performing assets increased to $14.3 million, or 0.617% of total assets at September 30, 2023, compared with $40 thousand, or 0.002% of total assets at June 30, 2023. The increase from June 30, 2023, was due primarily to a multifamily loan with a net carrying value of $14.3 million that was placed on non-accrual status and downgraded to substandard, partially offset by a paydown of a commercial and industrial loan with a net carrying value of $41 thousand during the third quarter of 2023. The multifamily loan added to non-accrual loans during the third quarter of 2023 is collateralized by three investment multifamily properties located in the city of Santa Monica, California. A court appointed receiver is in place and the Company is aggressively pursuing the resolution of this matter. Based on a review of the combined “As-Is” collateral value, after accounting for estimated selling costs, the estimated net collateral value was sufficient to result in no loss to the Company at September 30, 2023. Special mention loans decreased by $7.3 million during the third quarter of 2023 to $3.3 million at September 30, 2023, due mostly to four commercial and industrial loans from two relationships totaling $7.3 million that were upgraded from special mention loans to pass loans. Substandard accruing loans decreased by $1.1 million during the third quarter of 2023 to $3.5 million at September 30, 2023 due mostly to loans from one relationship that were upgraded to pass loans, coupled with net paydowns, partially offset by one SBA 7A loan downgraded from pass.

The Company had no loans over 90 days past due that were accruing interest at September 30, 2023, and June 30, 2023.

There were $96 thousand of loan delinquencies (30-89 days past due) from three Paycheck Protection Program loans at September 30, 2023, compared to no loan delinquencies (30-89 days past due) at June 30, 2023.

The allowance for credit losses, which is comprised of allowance for loan losses (ALL) and reserve for unfunded loan commitments, totaled $23.9 million, or 1.24% of total loans held for investment at September 30, 2023, compared to $24.0 million, or 1.26% at June 30, 2023. The $95 thousand decrease in the allowance includes a $202 thousand provision for credit losses for the loan portfolio and a $298 thousand negative credit provision for unfunded loan commitments, coupled with a net recovery of $1 thousand for the quarter ended September 30, 2023.

The allowance for loan losses was $22.7 million, or 1.18% of total loans held for investment at September 30, 2023, compared to $22.5 million, or 1.18% at June 30, 2023.

Capital

Tangible book value (non-GAAP) per common share at September 30, 2023, was $13.08, compared with $12.82 at June 30, 2023. In the third quarter of 2023, tangible book value was primarily impacted by net income, stock-based compensation expense, and net of tax unrealized losses on debt securities available-for-sale. Other comprehensive losses related to unrealized losses, net of taxes, on securities available-for-sale increased by $2.7 million to $9.2 million at September 30, 2023 from $6.6 million at June 30, 2023. The increase in the unrealized losses, net of taxes, on securities availabe-for-sale was primarily attributable to factors other than credit related, including changes in interest rates driven by the Federal Reserve’s policy to fight inflation, and general volatility in credit market conditions. Tangible common equity (non-GAAP) as a percent of total tangible assets (non-GAAP) at September 30, 2023 increased to 10.53% from 10.33% in the prior quarter, and unrealized losses as a percent of tangible common equity (non-GAAP) at September 30, 2023 increased to 3.9% from 2.8% in the prior quarter.

The Bank’s leverage capital ratio and total risk-based capital ratio were 11.69% and 13.28%, respectively, at September 30, 2023. The Bank elected the three-year phase-in period under the regulatory capital rules, which allow a phase-in of the Day 1 CECL transition adjustment to the regulatory capital at 25% per year over a three-year transition period.

ABOUT SOUTHERN CALIFORNIA BANCORP AND BANK OF SOUTHERN CALIFORNIA, N.A.

Southern California Bancorp (NASDAQ: BCAL) is a registered bank holding company headquartered in San Diego, California. Bank of Southern California, N.A., a national banking association chartered under the laws of the United States (the “Bank”) and regulated by the Office of Comptroller of the Currency, is a wholly owned subsidiary of Southern California Bancorp. Established in 2001 and headquartered in San Diego, California, the Bank offers a range of financial products and services to individuals, professionals, and small- to medium-sized businesses through its 13 branch offices serving Orange, Los Angeles, Riverside, San Diego, and Ventura counties, as well as the Inland Empire. The Bank’s solutions-driven, relationship-based approach to banking provides accessibility to decision makers and enhances value through strong partnerships with its clients. Additional information is available at www.banksocal.com.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, this release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and other matters that are not historical facts. Examples of forward-looking statements include, among others, statements regarding expectations, plans or objectives for future operations, products or services, loan recoveries, and forecasts relating to financial and operating results or other measures of economic performance. Forward-looking statements reflect management’s current view about future events and involve risks and uncertainties that may cause actual results to differ from those expressed in the forward-looking statement or historical results. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and often include the words or phrases such as “aim,” “can,” “may,” “could,” “predict,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “hope,” “intend,” “plan,” “potential,” “project,” “will likely result,” “continue,” “seek,” “shall,” “possible,” “projection,” “optimistic,” and “outlook,” and variations of these words and similar expressions.

Some factors that could cause actual results to differ materially from historical or expected results include, among others: the risk factors discussed in the Company’s Registration Statement on Form 10, as amended, filed with the Securities and Exchange Commission; changes in real estate markets and general economic conditions, either nationally or locally in the areas in which the Company conducts business; the impact on financial markets from geopolitical conflicts; inflation, interest rate, market and monetary fluctuations; increases in competitive pressures among financial institutions and businesses offering similar products and services; higher than anticipated defaults in the Company’s loan portfolio; changes in management’s estimate of the adequacy of the allowance for credit losses; legislative or regulatory changes or changes in accounting principles, policies or guidelines; and the impacts of recent bank failures.

Additional information regarding these and other risks and uncertainties to which our business and future financial performance are subject is contained in the Company’s Registration Statement on Form 10, as amended, its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023, and other documents the Company files with the SEC from time to time.

Any forward-looking statement made in this release is based only on information currently available to management and speaks only as of the date on which it is made. The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements or to conform such forward-looking statements to actual results or to changes in its opinions or expectations, except as required by law.

Southern California Bancorp and Subsidiary
Financial Highlights (Unaudited)

  At or for the
Three Months Ended
  At or for the
Nine Months Ended
 
  September 30,
2023
  June 30,
2023
  September 30,
2022
  September 30,
2023
  September 30,
2022
 
  ($ in thousands except share and per share data) 
EARNINGS                    
Net interest income $23,261  $23,426  $23,786  $71,579  $62,517 
(Reversal of) provision for credit losses $(96) $(15) $1,560  $91  $5,206 
Noninterest income $815  $1,096  $358  $3,481  $3,487 
Noninterest expense $14,781  $14,607  $13,150  $44,407  $50,410 
Income tax expense $2,835  $3,212  $2,505  $9,064  $2,749 
Net income $6,556  $6,718  $6,929  $21,498  $7,639 
Pre-tax pre-provision income (1) $9,295  $9,915  $10,994  $30,653  $15,594 
Adjusted pre-tax pre-provision income (1) $9,295  $9,915  $9,911  $30,653  $22,079 
Diluted earnings per share $0.35  $0.36  $0.38  $1.15  $0.42 
Shares outstanding at period end  18,309,282   18,296,365   17,863,525   18,309,282   17,863,525 
                     
PERFORMANCE RATIOS                    
Return on average assets  1.12%  1.18%  1.18%  1.25%  0.44%
Adjusted return on average assets (1)  1.12%  1.18%  1.05%  1.25%  0.71%
Return on average common equity  9.38%  9.93%  11.02%  10.63%  4.11%
Adjusted return on average common equity (1)  9.38%  9.93%  9.80%  10.63%  6.58%
Yield on total loans  5.97%  5.91%  5.09%  5.89%  4.85%
Yield on interest earning assets  5.72%  5.64%  4.60%  5.63%  4.05%
Cost of deposits  1.56%  1.29%  0.25%  1.22%  0.14%
Cost of funds  1.62%  1.38%  0.31%  1.30%  0.19%
Net interest margin  4.23%  4.36%  4.32%  4.43%  3.87%
Efficiency ratio (1)  61.39%  59.57%  54.46%  59.16%  76.37%
Adjusted efficiency ratio (1)  61.39%  59.57%  58.95%  59.16%  66.55%


  As of 
  September 30,
2023
  June 30,
2023
  December 31,
2022
 
  ($ in thousands except share and per share data) 
CAPITAL            
Tangible equity to tangible assets (1)  10.53%  10.33%  9.84%
Book value (BV) per common share $15.21  $14.96  $14.51 
Tangible BV per common share (1) $13.08  $12.82  $12.32 
             
ASSET QUALITY            
Allowance for loan losses (ALL) $22,705  $22,502  $17,099 
Reserve for unfunded loan commitments $1,240  $1,538  $1,310 
Allowance for credit losses (ACL) $23,945  $24,040  $18,409 
ALL to total loans held for investment  1.18%  1.18%  0.90%
ACL to total loans held for investment  1.24%  1.26%  0.97%
Nonperforming loans $14,272  $40  $41 
Other real estate owned $  $  $ 
Nonperforming assets to total assets  0.62%  %  %
             
END OF PERIOD BALANCES            
Total loans, including loans held for sale $1,935,364  $1,914,415  $1,906,800 
Total assets $2,313,649  $2,309,183  $2,283,927 
Deposits $1,983,857  $1,980,908  $1,931,905 
Loans to deposits  97.6%  96.6%  98.7%
Shareholders’ equity $278,550  $273,749  $260,355 


(1)Non-GAAP measure. See – GAAP to Non-GAAP reconciliation


  At or for the
Three Months Ended
  At or for the
Nine Months Ended
 
ALLOWANCE for CREDIT LOSSES September 30,
2023
  June 30,
2023
  September 30,
2022
  September 30,
2023
  September 30,
2022
 
  ($ in thousands) 
Allowance for loan losses                    
Balance at beginning of period $22,502  $22,391  $15,136  $17,099  $11,657 
Adoption of ASU 2016-13 (1)           5,027    
Provision for credit losses  202   120   1,300   600   4,800 
Charge-offs     (9)     (36)  (21)
Recoveries  1         15    
Net recoveries (charge-offs)  1   (9)     (21)  (21)
Balance, end of period $22,705  $22,502  $16,436  $22,705  $16,436 
Reserve for unfunded loan commitments                    
Balance, beginning of period $1,538  $1,673  $950  $1,310  $804 
Adoption of ASU 2016-13 (1)           439    
(Reversal of) provision for credit losses  (298)  (135)  260   (509)  406 
Balance, end of period  1,240   1,538   1,210   1,240   1,210 
Allowance for credit losses $23,945  $24,040  $17,646  $23,945  $17,646 
                     
ALL to total loans held for investment  1.18%  1.18%  0.89%  1.18%  0.89%
ACL to total loans held for investment  1.24%  1.26%  0.96%  1.24%  0.96%


(1)Represents the impact of adopting ASU 2016-13, Financial Instruments - Credit Losses on January 1, 2023. As a result of adopting ASU 2016-13, our methodology to compute our allowance for credit losses is based on a current expected credit loss methodology, rather than the previously applied incurred loss methodology.


Southern California Bancorp and Subsidiary
Balance Sheets (Unaudited)

  September 30,
2023
  June 30,
2023
  December 31,
2022
 
  ($ in thousands) 
ASSETS            
Cash and due from banks $33,517  $34,632  $60,295 
Federal funds sold & interest-bearing balances  61,604   69,995   26,465 
Total cash and cash equivalents  95,121   104,627   86,760 
             
Securities available-for-sale, at fair value  111,840   119,875   112,580 
Securities held-to-maturity, at cost (fair value of $45,224 at September 30, 2023; $48,563 at June 30, 2023; and $47,906 at December 31, 2022)  53,699   53,782   53,946 
Loans held for sale  4,813   1,062   9,027 
Loans held for investment:            
Construction & land development  237,320   275,250   239,067 
1-4 family residential  141,668   150,150   144,322 
Multifamily  218,170   210,025   218,606 
Other commercial real estate  1,019,647   961,307   958,676 
Commercial & industrial  310,990   312,845   331,644 
Other consumer  2,756   3,776   5,458 
Total loans held for investment  1,930,551   1,913,353   1,897,773 
Allowance for credit losses - loans  (22,705)  (22,502)  (17,099)
Total loans held for investment, net  1,907,846   1,890,851   1,880,674 
             
Restricted stock at cost  16,027   15,997   14,543 
Premises and equipment  13,565   13,919   14,334 
Right of use asset  10,007   7,853   8,607 
Goodwill  37,803   37,803   37,803 
Core deposit intangible  1,275   1,403   1,584 
Bank owned life insurance  38,665   38,428   37,972 
Deferred taxes, net  12,542   11,666   10,699 
Accrued interest and other assets  10,446   11,917   15,398 
Total assets $2,313,649  $2,309,183  $2,283,927 
             
LIABILITIES AND SHAREHOLDERS’ EQUITY            
Deposits:            
Noninterest-bearing demand $735,979  $776,895  $923,899 
Interest-bearing NOW accounts  354,489   354,088   209,625 
Money market and savings accounts  699,942   660,654   668,602 
Time deposits  193,447   189,271   129,779 
Total deposits  1,983,857   1,980,908   1,931,905 
             
Borrowings  25,842   32,818   67,770 
Operating lease liability  12,657   10,394   11,055 
Accrued interest and other liabilities  12,743   11,314   12,842 
Total liabilities  2,035,099   2,035,434   2,023,572 
             
Shareholders’ Equity:            
Common stock - 50,000,000 shares authorized, no par value; issued and outstanding 18,309,282 at September 30, 2023; 18,296,365 at June 30, 2023 and 17,940,283 at December 31, 2022)  221,632   220,702   218,280 
Retained earnings  66,163   59,607   48,516 
Accumulated other comprehensive loss - net of taxes  (9,245)  (6,560)  (6,441)
Total shareholders’ equity  278,550   273,749   260,355 
Total liabilities and shareholders’ equity $2,313,649  $2,309,183  $2,283,927 


Southern California Bancorp and Subsidiary

Income Statements - Quarterly and Year-to-Date (Unaudited)

  Three Months Ended  Nine Months Ended 
  September 30,
2023
  June 30,
2023
  September 30,
2022
  September 30,
2023
  September 30,
2022
 
  ($ in thousands except share and per share data) 
INTEREST AND DIVIDEND INCOME                    
Interest and fees on loans $28,977  $27,987  $22,907  $83,983  $60,585 
Interest on debt securities  942   833   636   2,506   1,366 
Interest on tax-exempted debt securities  359   456   483   1,302   884 
Interest and dividends from other institutions  1,206   984   1,337   3,162   2,597 
Total interest and dividend income  31,484   30,260   25,363   90,953   65,432 
                     
INTEREST EXPENSE                    
Interest on NOW, savings, and money market accounts  5,922   4,730   1,151   13,555   1,697 
Interest on time deposits  1,867   1,531   155   4,373   334 
Interest on borrowings  434   573   271   1,446   884 
Total interest expense  8,223   6,834   1,577   19,374   2,915 
Net interest income  23,261   23,426   23,786   71,579   62,517 
                     
(Reversal of) provision for credit losses (1)  (96)  (15)  1,560   91   5,206 
Net interest income after provision for credit losses  23,357   23,441   22,226   71,488   57,311 
                     
NONINTEREST INCOME                    
Service charges and fees on deposit accounts  470   530   468   1,439   1,340 
(Loss) gain on sale of loans  (54)  77   240   831   1,056 
Bank owned life insurance income  238   232   222   693   1,269 
Servicing and related income on loans  61   87   45   223   139 
Gain on sale of debt securities     34      34    
Loss on sale of building and related fixed assets        (768)     (768)
Other charges and fees  100   136   151   261   451 
Total noninterest income  815   1,096   358   3,481   3,487 
                     
NONINTEREST EXPENSE                    
Salaries and employee benefits  9,736   9,674   8,878   29,651   28,435 
Occupancy and equipment expenses  1,579   1,527   1,610   4,553   4,752 
Data processing  1,144   1,176   1,008   3,376   3,520 
Legal, audit and professional  598   667   885   2,050   2,110 
Regulatory assessments  369   367   445   1,188   1,205 
Director and shareholder expenses  215   214   311   642   727 
Merger and related expenses        117      1,185 
Core deposit intangible amortization  128   90   100   309   298 
Litigation settlements, net        (975)     5,525 
Other expense  1,012   892   771   2,638   2,653 
Total noninterest expense  14,781   14,607   13,150   44,407   50,410 
Income before income taxes  9,391   9,930   9,434   30,562   10,388 
Income tax expense  2,835   3,212   2,505   9,064   2,749 
Net income $6,556  $6,718  $6,929  $21,498  $7,639 
                     
Net income per share - basic $0.35  $0.37  $0.39  $1.17  $0.43 
Net income per share - diluted $0.35  $0.36  $0.38  $1.15  $0.42 
Weighted average common share-diluted  18,672,132   18,596,228   18,277,789   18,632,890   18,193,676 
Pre-tax, pre-provision income (2) $9,295  $9,915  $10,994  $30,653  $15,594 


(1)Included (reversal of) provision for unfunded commitments of $(298) thousand, $(135) thousand and $260 thousand for the three months ended September 30, 2023, June 30, 2023 and September 30, 2022, respectively; and $(509) thousand and $406 thousand for the nine months ended September 30, 2023 and September 30, 2022, respectively.
(2)Non-GAAP measure. See – GAAP to Non-GAAP reconciliation.


Southern California Bancorp and Subsidiary
Average Balance Sheets and Yield Analysis
(Unaudited)

  Three Months Ended 
  September 30, 2023  June 30, 2023  September 30, 2022 
  Average Balance  Income/
Expense
  Yield/
Cost
  Average Balance  Income/
Expense
  Yield/
Cost
  Average Balance  Income/
Expense
  Yield/
Cost
 
  ($ in thousands) 
Assets                                    
Interest-earning assets:                                    
Total loans $1,924,384  $28,977   5.97% $1,900,033  $27,987   5.91% $1,786,862  $22,907   5.09%
Taxable debt securities  111,254   942   3.36%  106,208   833   3.15%  109,886   636   2.30%
Tax-exempt debt securities (1)  59,630   359   3.02%  70,470   456   3.29%  73,750   483   3.29%
Deposits in other financial institutions  50,367   681   5.36%  42,770   537   5.04%  96,504   528   2.17%
Fed funds sold/resale agreements  20,653   283   5.44%  17,639   228   5.18%  103,515   598   2.29%
Restricted stock investments and other bank stock  16,365   242   5.87%  16,039   219   5.48%  14,855   211   5.64%
Total interest-earning assets  2,182,653   31,484   5.72%  2,153,159   30,260   5.64%  2,185,372   25,363   4.60%
Total noninterest-earning assets  131,288           133,716           141,467         
Total assets $2,313,941          $2,286,875          $2,326,839         
                                     
Liabilities and Shareholders’ Equity                                    
Interest-bearing liabilities:                                    
Interest-bearing NOW accounts $353,714  $1,706   1.91% $308,863  $1,279   1.66% $226,394  $54   0.09%
Money market and savings accounts  675,609   4,216   2.48%  662,487   3,451   2.09%  699,276   1,097   0.62%
Time deposits  183,745   1,867   4.03%  175,161   1,531   3.51%  95,028   155   0.65%
Total interest-bearing deposits  1,213,068   7,789   2.55%  1,146,511   6,261   2.19%  1,020,698   1,306   0.51%
Borrowings:                                    
FHLB advances  11,731   163   5.51%  22,791   302   5.31%         —%
Subordinated debt  17,830   271   6.03%  17,806   271   6.10%  17,735   271   6.06%
TruPS         —%         —%         —%
Total borrowings  29,561   434   5.82%  40,597   573   5.66%  17,735   271   6.06%
Total interest-bearing liabilities  1,242,629   8,223   2.63%  1,187,108   6,834   2.31%  1,038,433   1,577   0.60%
                                     
Noninterest-bearing liabilities:                                    
Noninterest-bearing deposits (2)  768,148           805,553           1,012,619         
Other liabilities  25,722           22,727           26,287         
Shareholders’ equity  277,442           271,487           249,500         
Total Liabilities and Shareholders’ Equity $2,313,941          $2,286,875          $2,326,839         
                                     
Net interest spread          3.09%          3.33%          4.00%
Net interest income and margin     $23,261   4.23%     $23,426   4.36%     $23,786   4.32%
Cost of deposits          1.56%          1.29%          0.25%
Cost of funds          1.62%          1.38%          0.31%


(1)Tax-exempt debt securities yields are presented on a tax equivalent basis using a 21% tax rate.
(2)Average noninterest-bearing deposits represent 38.77%, 41.27% and 49.80% of average total deposits for the three months ended September 30, 2023, June 30, 2023 and September 30, 2022, respectively.


Southern California Bancorp and Subsidiary
Average Balance Sheets and Yield Analysis
(Unaudited)

  Nine Months Ended 
  September 30, 2023  September 30, 2022 
  Average Balance  Income/
Expense
  Yield/Cost  Average Balance  Income/
Expense
  Yield/Cost 
  ($ in thousands) 
Assets                        
Interest-earning assets:                        
Total loans $1,906,327  $83,983   5.89% $1,669,962  $60,585   4.85%
Taxable debt securities  104,881   2,506   3.19%  94,385   1,366   1.93%
Tax-exempt debt securities (1)  68,043   1,302   3.24%  48,537   884   3.08%
Deposits in other financial institutions  43,629   1,675   5.13%  267,650   1,160   0.58%
Fed funds sold/resale agreements  21,182   798   5.04%  64,072   753   1.57%
Restricted stock investments and other bank stock  15,774   689   5.84%  14,596   684   6.27%
Total interest-earning assets  2,159,836   90,953   5.63%  2,159,202   65,432   4.05%
Total noninterest-earning assets  133,224           139,533         
Total assets $2,293,060          $2,298,735         
                         
Liabilities and Shareholders’ Equity                        
Interest-bearing liabilities:                        
Interest-bearing NOW accounts $290,326  $3,301   1.52% $209,660  $191   0.12%
Money market and savings accounts  674,452   10,254   2.03%  687,557   1,506   0.29%
Time deposits  170,620   4,373   3.43%  93,071   334   0.48%
Total interest-bearing deposits  1,135,398   17,928   2.11%  990,288   2,031   0.27%
Borrowings:                        
FHLB advances  16,282   632   5.19%         —%
Subordinated debt  17,807   814   6.11%  17,711   814   6.14%
TruPS         —%  1,656   70   5.65%
Total borrowings  34,089   1,446   5.67%  19,367   884   6.10%
Total interest-bearing liabilities  1,169,487   19,374   2.21%  1,009,655   2,915   0.39%
                         
Noninterest-bearing liabilities:                        
Noninterest-bearing deposits (2)  829,082           1,018,889         
Other liabilities  24,086           21,628         
Shareholders’ equity  270,405           248,563         
                         
Total Liabilities and Shareholders’ Equity $2,293,060          $2,298,735         
                         
Net interest spread          3.42%          3.66%
Net interest income and margin     $71,579   4.43%     $62,517   3.87%
Cost of deposits          1.22%          0.14%
Cost of funds          1.30%          0.19%


(1)Tax-exempt debt securities yields are presented on a tax equivalent basis using a 21% tax rate.
(2)Average noninterest-bearing deposits represent 42.20%, and 50.71% of average total deposits for the nine months ended September 30, 2023 and September 30, 2022, respectively.


Southern California Bancorp and Subsidiary
GAAP to Non-GAAP Reconciliation
(Unaudited)

The following tables present a reconciliation of non-GAAP financial measures to GAAP measures for: (1) adjusted net income, (2) efficiency ratio, (3) adjusted efficiency ratio, (4) pre-tax pre-provision income, (5) adjusted pre-tax pre-provision income, (6) average tangible common equity, (7) adjusted return on average assets, (8) adjusted return on average equity, (9) return on average tangible common equity, (10) adjusted return on average tangible common equity, (11) tangible common equity, (12) tangible assets, (13) tangible common equity to tangible asset ratio, and (14) tangible book value per share. We believe the presentation of certain non-GAAP financial measures provides useful information to assess our consolidated financial condition and consolidated results of operations and to assist investors in evaluating our financial results relative to our peers. These non-GAAP financial measures complement our GAAP reporting and are presented below to provide investors and others with information that we use to manage the business each period. Because not all companies use identical calculations, the presentation of these non-GAAP financial measures may not be comparable to other similarly titled measures used by other companies. These non-GAAP measures should be taken together with the corresponding GAAP measures and should not be considered a substitute of the GAAP measures.

  Three Months Ended  Nine Months Ended 
  September 30,
2023
  June 30,
2023
  September 30,
2022
  September 30,
2023
  September 30,
2022
 
  ($ in thousands) 
Adjusted net income                    
Net income $6,556  $6,718  $6,929  $21,498  $7,639 
Add: After-tax merger and related expenses (1)        82      852 
(Deduct) add: After-tax litigation (recoveries) settlements, net (1)        (845)     3,734 
Adjusted net income (non-GAAP) $6,556  $6,718  $6,166  $21,498  $12,225 
                     
Efficiency Ratio                    
Noninterest expense $14,781  $14,607  $13,150  $44,407  $50,410 
Less: Merger and related expenses        117      1,185 
(Add) deduct: Litigation (recoveries) settlements, net        (1,200)     5,300 
Adjusted noninterest expense  14,781   14,607   14,233   44,407   43,925 
                     
Net interest income  23,261   23,426   23,786   71,579   62,517 
Noninterest income  815   1,096   358   3,481   3,487 
Total net interest income and noninterest income $24,076  $24,522  $24,144  $75,060  $66,004 
Efficiency ratio (non-GAAP)  61.4%  59.6%  54.5%  59.2%  76.4%
Adjusted efficiency ratio (non-GAAP)  61.4%  59.6%  59.0%  59.2%  66.5%
                     
Pre-tax pre-provision income                    
Net interest income $23,261  $23,426  $23,786  $71,579  $62,517 
Noninterest income  815   1,096   358   3,481   3,487 
Total net interest income and noninterest income  24,076   24,522   24,144   75,060   66,004 
Less: Noninterest expense  14,781   14,607   13,150   44,407   50,410 
Pre-tax pre-provision income (non-GAAP)  9,295   9,915   10,994   30,653   15,594 
Add: Merger and related expenses        117      1,185 
(Deduct) add: Litigation (recoveries) settlements, net        (1,200)     5,300 
Adjusted pre-tax pre-provision income (non-GAAP) $9,295  $9,915  $9,911  $30,653  $22,079 

(1) After-tax merger and related expenses and litigation settlements, net are presented using a 29.56% tax rate.


  Three Months Ended  Nine Months Ended 
  September 30, 2023  June 30,
2023
  September 30,
2022
  September 30, 2023  September 30, 2022 
  ($ in thousands) 
Return on Average Assets, Equity, and Tangible Equity                    
Net income $6,556  $6,718  $6,929  $21,498  $7,639 
Adjusted net income (non-GAAP) $6,556  $6,718  $6,166  $21,498  $12,225 
                     
Average assets $2,313,941  $2,286,875  $2,326,839  $2,293,060  $2,298,735 
Average shareholders’ equity  277,442   271,487   249,500   270,405   248,563 
Less: Average intangible assets  39,158   39,250   38,940   39,249   38,786 
Average tangible common equity (non-GAAP) $238,284  $232,237  $210,560  $231,156  $209,777 
                     
Return on average assets  1.12%  1.18%  1.18%  1.25%  0.44%
Adjusted return on average assets (non-GAAP)  1.12%  1.18%  1.05%  1.25%  0.71%
Return on average equity  9.38%  9.93%  11.02%  10.63%  4.11%
Adjusted return on average equity (non-GAAP)  9.38%  9.93%  9.80%  10.63%  6.58%
Return on average tangible common equity (non-GAAP)  10.92%  11.60%  13.06%  12.43%  4.87%
Adjusted return on average tangible common equity (non-GAAP)  10.92%  11.60%  11.62%  12.43%  7.79%


  September 30,
2023
  June 30,
2023
  December 31,
2022
 
  ($ in thousands except share and per share data) 
Tangible Common Equity Ratio/Tangible Book Value Per Share            
Shareholders’ equity $278,550  $273,749  $260,355 
Less: Intangible assets  39,078   39,206   39,387 
Tangible common equity (non-GAAP) $239,472  $234,543  $220,968 
             
Total assets $2,313,649  $2,309,183  $2,283,927 
Less: Intangible assets  39,078   39,206   39,387 
Tangible assets (non-GAAP) $2,274,571  $2,269,977  $2,244,540 
             
Equity to asset ratio  12.04%  11.85%  11.40%
Tangible common equity to tangible asset ratio (non-GAAP)  10.53%  10.33%  9.84%
Book value per share $15.21  $14.96  $14.51 
Tangible book value per share (non-GAAP) $13.08  $12.82  $12.32 
Shares outstanding  18,309,282   18,296,365   17,940,283 


INVESTOR RELATIONS CONTACT
Kevin Mc Cabe
Bank of Southern California
kmccabe@banksocal.com
818.637.7065