San Diego, Calif., July 25, 2023 (GLOBE NEWSWIRE) -- Southern California Bancorp (“us,” “we,” “our,” or the “Company”) ( BCAL), the holding company for Bank of Southern California, N.A. (the “Bank”) announces its consolidated financial results for the second quarter of 2023.
Southern California Bancorp reported net income of $6.7 million for the second quarter of 2023, or $0.36 per diluted share, compared to net loss of $736 thousand, or $0.04 per diluted share in the second quarter of 2022, and net income of $8.2 million, or $0.44 per diluted share in the first quarter of 2023.
“I am pleased to report that our strong year-to-date performance in 2023 includes net interest income of $48.3 million and net income of $14.9 million, showing considerable improvement from $38.7 million and $710 thousand, 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. “We believe this improvement in performance is due to the strong execution of our relationship-based business banking model.
“Second quarter net income of $6.7 million helped drive our tangible book value per share to $12.82, an increase of $0.33, or 2.6% from the prior quarter. Our balance sheet continues to be strong, with deposit balances remaining steady, as we have elected to vigorously defend our deposit base in the face of increasing competition and deposit costs. Our loan portfolio grew by $19.8 million in the second quarter, with a focus on full banking relationships, that include a deposit component."
Second Quarter 2023 Highlights
- Net income of $6.7 million, compared with $8.2 million in the prior quarter
- Diluted earnings per share of $0.36, compared with $0.44 the prior quarter
- Net interest margin of 4.36%, compared with 4.71% in the prior quarter; average loan yield of 5.91% compared with 5.78% in the prior quarter
- Return on average assets of 1.18%, compared with 1.46% in the prior quarter
- Return on average common equity of 9.93%, compared with 12.72% in the prior quarter
- Efficiency ratio of 59.6%, compared with 56.8% in the prior quarter
- Tangible book value per common share ("TBV") (non-GAAP1) of $12.82 at June 30, 2023, up $0.33 from $12.49 at March 31, 2023
- Total assets of $2.31 billion, a slight increase from March 31, 2023
- Total loans, including loans held for sale, of $1.91 billion, compared with $1.89 billion at March 31, 2023
- Nonperforming assets to total assets ratio of 0.002% at June 30, 2023, compared with 0.000% at March 31, 2023
- Total deposits of $1.98 billion, down $4.9 million or 0.2%, compared with $1.99 billion at March 31, 2023
- Noninterest-bearing demand deposits were $776.9 million, representing 39.2% of total deposits, compared with $882.0 million, or 44.4% of total deposits at March 31, 2023
- Cost of deposits was 1.29%, compared with 0.80% in the prior quarter
- Bank's capital exceeds minimums to be “well-capitalized,” the highest regulatory capital category
"Given the recent turmoil in the banking industry, we have opportunistically hired a few new business relationship managers and continue to scout for additional talent," said Rainer. "We are building on an already exceptional team and are focused on a strategy of deposit gathering through new relationships--using exception pricing where appropriate--and consequently we are seeing an increase in account openings.
"Reflecting our culture of prudent underwriting, the credit quality of our loan portfolio remains outstanding; our nonperforming assets to total assets ratio ended the second quarter at 0.002%."
Second Quarter Operating Results
Net Income
Net income for the second quarter of 2023 was $6.7 million, or $0.36 per diluted share, compared with net income of $8.2 million, or $0.44 per diluted share in the first quarter of 2023. Pre-tax, pre-provision income (non-GAAP) for the second quarter was $9.9 million, a decrease of $1.5 million or 13.4% from the prior quarter.
Net Interest Income and Net Interest Margin
Net interest income for the second quarter of 2023 was $23.4 million, compared to $24.9 million in the prior quarter. The decrease in net interest income was primarily due to a $2.5 million increase in total interest expense, partially offset by a $1.1 million increase in total interest and dividend income in the second quarter of 2023 as compared to the prior quarter. During the second quarter of 2023, loan interest income increased $1.0 million, total debt securities income increased $71 thousand, and interest and dividend income from other financial institutions increased $12 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. Average interest-earning assets increased $9.9 million, the result of a $5.8 million increase in average total loans, a $5.5 million increase in average total debt securities, a $5.2 million increase in average deposits in other financial institutions, and a $1.1 million increase in average restricted stock investments and other bank stock, partially offset by a $7.7 million decrease in average Fed funds sold/resale agreements. The increase in interest expense for the second quarter of 2023 was primarily due to a $2.4 million increase in interest expense on interest-bearing deposits, the result of a $101.7 million increase in average interest-bearing deposits, coupled with a 68 basis point increase in interest-bearing deposit costs.
Net interest margin for the second quarter of 2023 was 4.36%, compared with 4.71% in the prior quarter. The decrease was primarily related to a 50 basis point increase in the cost of funds, partially offset by a 11 basis point increase in the total interest-earning assets yield, the result of higher market interest rates and a change in the Bank's interest-earning asset mix. The yield on total earning assets in the second quarter of 2023 was 5.64%, compared with 5.53% in the prior quarter. The yield on average total loans in the second quarter of 2023 was 5.91%, an increase of 13 basis points from 5.78% in the prior quarter.
Cost of funds for the second quarter of 2023 was 138 basis points, an increase of 50 basis points from 88 basis points in the prior quarter. The increase was primarily driven by a 68 basis point increase in the cost of interest-bearing deposits, coupled with an increase in average interest-bearing deposits, and a decrease in average noninterest-bearing deposits. Average noninterest-bearing demand deposits decreased $109.6 million to $805.6 million and represented 41.3% of total average deposits for the second quarter of 2023, compared with $915.2 million and 46.7%, respectively, for the prior quarter; average interest-bearing deposits increased $101.7 million to $1.15 billion during the second quarter of 2023. The total cost of deposits in the second quarter of 2023 was 129 basis points, an increase of 49 basis points from 80 basis points in the prior quarter.
Average total borrowings increased $8.5 million to $40.6 million for the second quarter of 2023, primarily due to an increase of $8.4 million in average Federal Home Loan Bank (FHLB) borrowings during the quarter. The average cost of total borrowings was 5.66% for the second quarter of 2023, up from 5.54% in the prior quarter.
Provision for Credit Losses
The Company recorded a reversal of provision for credit losses of $15 thousand in the second quarter of 2023, compared to a $202 thousand provision for credit losses in the prior quarter. The provision for credit losses in the second quarter of 2023 included a $135 thousand negative provision for unfunded commitments primarily due to lower unfunded loan commitments. Total unfunded loan commitments decreased $33.9 million to $523.6 million at June 30, 2023, from $557.5 million at March 31, 2023. The provision for credit losses for loan portfolio in the second quarter of 2023 was $120 thousand, a decrease of $158 thousand from $278 thousand in the prior quarter. The decrease was driven by a number of factors: a decrease in classified loans, changes in the portfolio mix, and a decrease in the qualitative reserve, partially offset by change in 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. 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 second quarter of 2023 was $1.1 million, a decrease of $474 thousand compared to total noninterest income of $1.6 million in the first quarter of 2023. In the second quarter of 2023, the Company recorded a gain on sale of loans of $77 thousand on the sale of $1.0 million of SBA 7A loans, a decrease of $731 thousand from the gain on sale of loans of $808 thousand in the first quarter of 2023, of which $797 thousand was recorded on the sale of $9.9 million in SBA 7A loans. Additionally, a $39 thousand gain on sale of loans was recorded on a nonaccrual 1-4 family residential loan in the prior quarter. Service charges and fees on deposit accounts was $530 thousand, an increase of $91 thousand compared to $439 thousand in the prior quarter. The increase was primarily due to higher 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 prior quarter. Other charges and fees was $136 thousand, an increase of $111 thousand compared to $25 thousand in the prior quarter. The increase was primarily due to higher income from equity investments.
Noninterest Expense
Total noninterest expense for the second quarter of 2023 was $14.6 million, a decrease of $412 thousand from total noninterest expense of $15.0 million in the prior quarter. In the second quarter of 2023, salaries and employee benefits decreased by $567 thousand, and legal, audit and professional fees decreased by $118 thousand, partially offset by data processing and communications, which increased by $120 thousand, and other expenses, which increased by $158 thousand.
The $567 thousand decrease in salaries and benefits was due primarily to lower stock compensation expense related to the accelerated stock compensation expense resulting from the vesting of performance-based restricted stock units of $632 thousand recorded in the prior quarter, an increase in the deferred loan origination costs resulting from higher loan growth in the second quarter of 2023, and a decrease in payroll taxes and benefits expense. The $118 thousand decrease in legal, audit and professional fees was due primarily to completion of the Company's listing on the Nasdaq Capital Market early in the second quarter of 2023. The $120 thousand increase in data processing and communications was due primarily to an increase in network and core system data processing expense. The $158 thousand increase in other expense was due primarily to the increase in customer service related expense, and travel expense, partially offset by the decrease in sundry losses resulting from the recoveries of affidavits of forgery that were charged-off in previous quarters.
Efficiency ratio (non-GAAP) for the second quarter of 2023 was 59.6%, compared to 56.8% in the prior quarter.
Income Tax
In the second quarter of 2023, the Company’s income tax expense was $3.2 million, compared with $3.0 million in the first quarter of 2023. The effective rate was 32.3% for the second quarter of 2023 and 26.8% for the first quarter of 2023. The effective rate was 29.4% for the six months ended June 30, 2023. The increase in the effective tax rate for the second 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.
Balance Sheet
Assets
Total assets at June 30, 2023 were $2.31 billion, an increase of $17.1 million or 0.7% from March 31, 2023. The increase in total assets from the prior quarter was primarily related to a $2.5 million increase in cash and cash equivalents and a $19.9 million increase in total loans, including loans held for sale, partially offset by a $4.6 million decrease in securities available-for-sale.
Loans
Total loans held for investment were $1.91 billion at June 30, 2023, compared to $1.89 billion at March 31, 2023, with second quarter of 2023 new originations of $63.3 million and payoffs and net paydowns of $37.7 million. Total loans secured by real estate increased by $22.4 million, with construction and land development loans increasing by $19.2 million, and commercial real estate loans increasing by $24.8 million, partially offset by a decrease in 1-4 family residential and multifamily decreasing $3.9 million and $17.7 million, respectively. In addition, commercial and industrial loans decreased by $1.4 million. The Company had $1.1 million in SBA 7A loans held for sale at June 30, 2023, compared to $577 thousand at March 31, 2023; most of these loans are expected to be sold in the secondary market in the third quarter of 2023.
Deposits
Total deposits at June 30, 2023 were $1.98 billion, a decrease of $4.9 million from March 31, 2023. Noninterest-bearing demand deposits at June 30, 2023 were $776.9 million, or 39.2% of total deposits, compared with $882.0 million, or 44.4% of total deposits at March 31, 2023. At June 30, 2023, total interest-bearing deposits were $1.20 billion, compared to $1.10 billion at March 31, 2023. At June 30, 2023, total brokered time deposits were $98.4 million, compared to $84.5 million at March 31, 2023. Given the nature of the Company's commercial banking model, at June 30, 2023, approximately 40% of total deposits exceeded the FDIC insurance limits; however, the Company offers the Insured Cash Sweep (ICS) product, providing customers with FDIC insurance coverage at ICS network institutions. At June 30, 2023, ICS deposits increased to $256.3 million, or 13% of total deposits, compared to $140.3 million, or 7% of total deposits at March 31, 2023.
Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("Federal Reserve") Borrowings
At June 30, 2023, the Company had overnight FHLB borrowings of $15.0 million, a $15.0 million increase from March 31, 2023. There were no outstanding Federal Reserve Discount Window borrowings at June 30, 2023. The Company did not participate in the Federal Reserve Bank Term Funding Program.
At June 30, 2023, the Company had available borrowing capacity from the FHLB secured lines of credit of approximately $405 million and available borrowing capacity from the Federal Reserve Discount Window of approximately $142 million. The Company also had available borrowing capacity from two unsecured credit lines from correspondent banks of approximately $60 million at June 30, 2023, with no outstanding borrowings. Total available borrowing capacity was $606.7 million at June 30, 2023. Additionally, the Company had unpledged liquid securities at fair value approximately $120 million and cash and cash equivalents of $104.6 million at June 30, 2023.
Asset Quality
Total non-performing assets increased to $40 thousand, or 0.002% of total assets at June 30, 2023, compared with $1 thousand, or 0.000% of total assets at March 31, 2023. The increase from March 31, 2023, was due primarily to a commercial and industrial loan with a net carrying value of $41 thousand that was placed on non-accrual status during the second quarter of 2023. Special mention loans decreased by $1.2 million during the second quarter of 2023 to $10.6 million at June 30, 2023 due mostly to paydowns totaling $1.1 million, coupled with three commercial and industrial loans from one relationship totaling $590 thousand that were downgraded from special mention loans to substandard loans, partially offset by two commercial and industrial loans from one relationship totaling $494 thousand that were downgraded from pass loans to special mention. Substandard loans decreased by $1.7 million during the second quarter of 2023 to $4.7 million at June 30, 2023 due mostly to payoffs totaling $2.1 million, partially offset by the three commercial and industrial loans downgraded from special mention.
The Company had no loans over 90 days past due that were accruing interest at June 30, 2023 and March 31, 2023.
There were no loan delinquencies (30-89 days past due) at June 30, 2023, compared to $123 thousand of loan delinquencies (30-89 days past due) at March 31, 2023.
The allowance for credit losses, which is comprised of allowance for loan losses (ALL) and reserve for unfunded loan commitments, totaled $24.0 million, or 1.26% of total loans at June 30, 2023, compared to $24.1 million, or 1.27% at March 31, 2023. The $24 thousand decrease in the allowance includes a $120 thousand provision for credit losses for the loan portfolio and a $135 thousand negative credit provision for unfunded loan commitments, coupled with a net charge-off of $9 thousand for the quarter ended June 30, 2023.
Allowance for loan losses was $22.5 million, or 1.18% of total loans at June 30, 2023, compared to $22.4 million, or 1.18% at March 31, 2023.
Capital
Tangible book value (non-GAAP) per common share at June 30, 2023, was $12.82, compared with $12.49 at March 31, 2023. In the second 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 $1.6 million to $6.6 million at June 30, 2023 from $5.0 million at March 31, 2023. Tangible common equity (non-GAAP) as a percent of total tangible assets at June 30, 2023 increased to 10.33% from 10.13% in the prior quarter, and unrealized losses as a percent of tangible capital equity at June 30, 2023 increased to 2.8% from 2.2% in the prior quarter.
The Bank’s leverage capital ratio and total risk-based capital ratio were 11.47% and 12.98%, respectively, at June 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 ( 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, Riversides, 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 plans or objectives for future operations, products or services, 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 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 March 31, 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 Six Months Ended | |||||||||||||||||||
| June 30, 2023 | March 31, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | ||||||||||||||||
| EARNINGS | ($ in thousands except share and per share data) | |||||||||||||||||||
| Net interest income | $ | 23,426 | $ | 24,892 | $ | 20,936 | $ | 48,318 | $ | 38,731 | ||||||||||
| (Reversal of) Provision for credit losses | $ | (15 | ) | $ | 202 | $ | 1,796 | $ | 187 | $ | 3,646 | |||||||||
| Noninterest income | $ | 1,096 | $ | 1,570 | $ | 1,526 | $ | 2,666 | $ | 3,129 | ||||||||||
| Noninterest expense | $ | 14,607 | $ | 15,019 | $ | 21,708 | $ | 29,626 | $ | 37,260 | ||||||||||
| Income tax expense (benefit) | $ | 3,212 | $ | 3,017 | $ | (306 | ) | $ | 6,229 | $ | 244 | |||||||||
| Net income (loss) | $ | 6,718 | $ | 8,224 | $ | (736 | ) | $ | 14,942 | $ | 710 | |||||||||
| Pre-tax pre-provision income (1) | $ | 9,915 | $ | 11,443 | $ | 754 | $ | 21,358 | $ | 4,600 | ||||||||||
| Adjusted pre-tax pre-provision income (1) | $ | 9,915 | $ | 11,443 | $ | 7,798 | $ | 21,358 | $ | 12,168 | ||||||||||
| Diluted earnings (loss) per share | $ | 0.36 | $ | 0.44 | $ | (0.04 | ) | $ | 0.80 | $ | 0.04 | |||||||||
| Shares outstanding at period end | 18,296,365 | 18,271,194 | 17,840,626 | 18,296,365 | 17,840,626 | |||||||||||||||
| PERFORMANCE RATIOS | ||||||||||||||||||||
| Return on average assets | 1.18 | % | 1.46 | % | (0.13 | )% | 1.32 | % | 0.06 | % | ||||||||||
| Adjusted return on average assets (1) | 1.18 | % | 1.46 | % | 0.73 | % | 1.32 | % | 0.53 | % | ||||||||||
| Return on average common equity | 9.93 | % | 12.72 | % | (1.19 | )% | 11.29 | % | 0.58 | % | ||||||||||
| Adjusted return on average common equity (1) | 9.93 | % | 12.72 | % | 6.82 | % | 11.29 | % | 4.93 | % | ||||||||||
| Yield on total loans | 5.91 | % | 5.78 | % | 4.74 | % | 5.85 | % | 4.72 | % | ||||||||||
| Yield on interest earning assets | 5.64 | % | 5.53 | % | 3.99 | % | 5.58 | % | 3.77 | % | ||||||||||
| Cost of deposits | 1.29 | % | 0.80 | % | 0.07 | % | 1.05 | % | 0.07 | % | ||||||||||
| Cost of funds | 1.38 | % | 0.88 | % | 0.13 | % | 1.13 | % | 0.13 | % | ||||||||||
| Net interest margin | 4.36 | % | 4.71 | % | 3.87 | % | 4.54 | % | 3.64 | % | ||||||||||
| Efficiency ratio (1) | 59.57 | % | 56.76 | % | 96.64 | % | 58.11 | % | 89.01 | % | ||||||||||
| Adjusted efficiency ratio (1) | 59.57 | % | 56.76 | % | 65.28 | % | 58.11 | % | 70.93 | % | ||||||||||
| As of | ||||||||||||
| June 30, 2023 | March 31, 2023 | December 31, 2022 | ||||||||||
| CAPITAL | ($ in thousands except share and per share data) | |||||||||||
| Tangible equity to tangible assets (1) | 10.33 | % | 10.13 | % | 9.84 | % | ||||||
| Book value (BV) per common share | $ | 14.96 | $ | 14.64 | $ | 14.51 | ||||||
| Tangible BV per common share (1) | $ | 12.82 | $ | 12.49 | $ | 12.32 | ||||||
| ASSET QUALITY | ||||||||||||
| Allowance for loan losses (ALL) | $ | 22,502 | $ | 22,391 | $ | 17,099 | ||||||
| Reserve for unfunded loan commitments | $ | 1,538 | $ | 1,673 | $ | 1,310 | ||||||
| Allowance for credit losses (ACL) | $ | 24,040 | $ | 24,064 | $ | 18,409 | ||||||
| ALL to total loans | 1.18 | % | 1.18 | % | 0.90 | % | ||||||
| ACL to total loans | 1.26 | % | 1.27 | % | 0.97 | % | ||||||
| Nonperforming loans | $ | 40 | $ | 1 | $ | 41 | ||||||
| Other real estate owned | $ | — | $ | — | $ | — | ||||||
| Nonperforming assets to total assets | — | % | — | % | — | % | ||||||
| END OF PERIOD BALANCES | ||||||||||||
| Total loans, including loans held for sale | $ | 1,914,415 | $ | 1,894,509 | $ | 1,906,800 | ||||||
| Total assets | $ | 2,309,183 | $ | 2,292,053 | $ | 2,283,927 | ||||||
| Deposits | $ | 1,980,908 | $ | 1,985,856 | $ | 1,931,905 | ||||||
| Loans to deposits | 96.6 | % | 95.4 | % | 98.7 | % | ||||||
| Shareholders' equity | $ | 273,749 | $ | 267,539 | $ | 260,355 | ||||||
