Southern California Bancorp Announces Results for the Third Quarter 2020

Southern California Bancorp (the “Company”) (OTC Pink: BCAL), the holding company for Bank of Southern California, N.A. (the “Bank”) today reported net income of $2.24 million for Q3 2020, or $0.24 per diluted share, compared to net income of $2.57 million or $0.27 per diluted share, for Q2 2020. After considering non-recurring strategic expenses, pre-tax pre-provision, operating profit increased to $6.67 million in Q3 vs. $6.33 million in Q2 and for the nine months ended September 30, 2020 increased to $16 million vs. $8 million for the nine months of 2019.

THIRD QUARTER 2020 HIGHLIGHTS

As previously announced, the Company acquired CalWest Bancorp (“CalWest”) at the end of May, and in mid-August, successfully completed the conversion of CalWest into the Bank, adding $221 million in loans, $241 million in deposits, and $312 million in assets at the time of acquisition. In reference to this achievement, Nathan Rogge, President and CEO of Bank of Southern California stated, “We are pleased to report that we have retained 97% of CalWest customers. We look forward to further building upon our relationships with our newest clients and supporting them with the enhanced products and services, increased footprint, and superior service that customers have come to expect from Bank of Southern California.”

During Q3, organic loan and deposit growth coupled with the extension of PPP were offset by both continued challenges related to the ongoing COVID-19 pandemic and anticipated non-recurring expenses associated with data conversion of CalWest customers to the Bank’s core platform. At quarter-end, total assets increased from $1.55 billion in Q2 2020 to $1.58 billion in Q3 2020. The following details summarize Q3 results:

  • Total loan portfolio increased $13 million to $1.36 billion; total loan production over the quarter was $80 million including $15 million in new PPP Loans
    • The Bank continued its leadership role within the communities it serves by actively participating in the extended Paycheck Protection Program (PPP), funding over 730 new PPP Loans in Q3, in addition to more than 2,300 PPP Loans funded in Q2.
    • The Bank received over $35 million in loan payoffs over the quarter due to the competitive rate environment following the Federal Reserve’s 150 bps reduction at the end of the first quarter
  • Total deposits Q/Q decreased $18 million to $1.14 billion primarily related to a planned $22 million reduction in non-core time deposits. Other non-maturity deposits increased $4 million – supported by the conversion of over 650 PPP Loan customers to deposit banking relationships
  • Quarterly operating results were significantly impacted by strategic non-recurring events, including:
    • CalWest system conversion and branch repositioning expenses of $1.76 million
    • An additional $2.0 million loan loss provision driven by economic uncertainties from COVID-19.

NET INTEREST INCOME AND RATIO OVERVIEW

Net interest income increased $1.99 million, or 17%, Q/Q primarily associated with the 21% increase in average earning assets from Q2 to Q3 associated with closing the CalWest merger in Q2 and the growth associated with PPP in Q2.

Average loan yields, excluding PPP Loans, increased slightly by 3 bps Q/Q from 4.89% to 4.92%. PPP Loan yields fell 50 bps Q/Q due to the slow rollout of SBA forgiveness and subsequent adjustments to the Bank’s PPP Loan fee accretion. Cost of funding remained flat Q/Q as other deposits replaced non-core maturing time certificates. A detailed comparison of Q/Q interest income, yields, costs, and net interest income is included below:

Q3 2020

Q2 2020

Interest Income on:

Total Loans

$

14,772,183

4.31

%

$

12,480,097

4.55

%

Loans excl PPP

10,205,686

4.92

%

8,871,048

4.89

%

PPP Loans

4,566,497

3.38

%

3,609,049

3.88

%

Investments

226,211

2.68

%

195,036

2.59

%

Fed Funds & Int Earning

26,303

0.12

%

57,300

0.24

%

Total Interest Income

15,024,697

4.03

%

12,732,433

4.17

%

 

Int Exp on Deposits

930,474

0.32

%

869,786

0.35

%

Int Exp on Borrowings

693,487

0.99

%

447,830

1.03

%

Total Interest Expense

1,623,961

0.46

%

1,317,616

0.46

%

 

Net Interest Income

$

13,400,736

3.60

%

$

11,414,817

3.74

%

LIQUIDITY AND CAPITAL

The Bank has ample liquidity resources to meet its customer’s needs through both the Federal Home Loan Bank (FHLB) and Federal Reserve Bank’s PPP Liquidity Facility (PPP LF). At September 30, 2020, combined borrowing capacity available at both the FHLB and through PPP LF was over $400 million.

The significant growth in PPP Loans in Q2 and Q3 has been funded through a combination of increased DDA accounts, generally associated directly with the PPP Loans, borrowings under PPP LF, and other sources. On average during Q3, the total PPP Loan portfolio was funded through 50% DDA growth, 45% from borrowings, and 5% from other balance sheet liquidity.

PPP Loans are considered zero risk-weighted assets and PPP LF advances are not counted in the leverage ratio. As such, preferential capital treatment of PPP LF advances has helped maintain the Bank’s leverage capital ratio for Q3 at 9.2% and total risk-based capital ratio for Q3 at 15.9%.

CREDIT QUALITY AND ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses (ALLL) increased from $8.30 million in Q2 to $10.30 million in Q3, primarily from $2.00 million in provisions for loan losses due to the continued unpredictability related to macroeconomic variables caused by COVID-19. As the initial onset of economic uncertainty became clearer, many customers who elected a payment deferral have been returned to paying status; a total of $151 million in loans have reinstated their normal loan payments. Of the remaining 24 loans currently on deferral, the following table details the exposure by industry:

Industry

Outstanding Loan Amounts

Number of Loans

Hotels & Food

$6,979,669

7

Real Estate, Rental & Leasing

6,568,658

5

Arts Entertainment Recreation

1,045,141

1

Health Care

1,813,568

4

Wholesale

272,674

3

Other

8,970,997

4

Total

$25,650,707

24

Loans classified as nonperforming and loan charge-offs continue to be at very low levels. However, management believes the addition of $2.0 million as provision for loan losses during Q3, successive to the $2.25 million added in Q2, prudent and conservative considering the continued uncertainties related to COVID-19. Management will continue to monitor and manage the loan portfolio to minimize potential future losses.

Relevant reserve ratios compared to the prior quarter are as follows:

Q3 2020

Q2 2020

ALLL to Total Loans

0.76%

0.61%

ALLL and Loan Fair Value Credit Marks (LFVCM) to Total Loans

1.14%

0.99%

ALLL and LFVCM to Total Loans, excluding PPP Loans

1.88%

1.62%

BRANCH PLANS AND FUTURE GROWTH

The Bank’s overarching goal is to continuously develop as a first-class provider of banking needs for small and mid-sized businesses within Southern California. To achieve this goal, the Bank has outlined a three-pronged approach; expanding within its current market through new branch development, deepening its existing market presence by consistently providing exceptional customer service with incredible banking solutions, and streamlining banking operations by consolidating branch banking functions.

Growth within existing markets is being realized with the addition of a new branch in the San Diego market, located in downtown La Jolla village. This branch will offer additional banking access for existing customers as well as the opportunity to engage new potential clients within La Jolla. The branch is currently under development with an expected opening in the first quarter of 2021.

The Bank is deepening its presence in existing locations by providing enhanced training and service capabilities at our branches. Over time, the Bank is aiming for even deeper customer relationships within the markets it serves, which Mr. Rogge elaborated on by saying, “We are excited about the growth we are experiencing across our newest markets, specifically in Los Angeles County and Orange County. As we look ahead to 2021, we will be working towards expanding our business banking teams to better serve Southern California’s business community.”

This focus on first-class customer service as a tool to expand an existing market footprint has come to fruition at the Glendale branch. Due to exceptional growth, this branch outgrew its original location, and is moving to a larger branch location in the fourth quarter.

The Bank continuously evaluates opportunities for greater operational efficiency and, as a result, recently consolidated two branches in Los Angeles County and one branch in Orange County into existing locations. In reference to the branch consolidations, Mr. Rogge stated, “Last quarter, we successfully consolidated a few of our branch locations that served overlapping regions, while providing the bank with the opportunity to realize efficiencies.”

ABOUT SOUTHERN CALIFORNIA BANCORP

A growing community bank, established in 2001, Bank of Southern California, N.A., with headquarters in San Diego, CA, offers a range of financial products to individuals, professionals and small-to-medium sized businesses. The Bank's solution-driven, relationship-based approach to banking provides accessibility to decision makers and enhances value through strong partnerships with its clients. The Bank currently operates branches in San Diego County, Los Angeles County, Orange County, San Bernardino County, and the Coachella Valley in Riverside County. For more information, please visit https://www.banksocal.com or call (844) BNK-SOCAL.

FORWARD-LOOKING STATEMENTS

This press release may contain comments or information that constitute forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) and Southern California Bancorp and its subsidiary, Bank of Southern California, N.A., intends for such forward-looking statements to be covered by the safe harbor provisions of that Act. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include the words "believe," "expect," "anticipate," "intend," "plan," "estimate," or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could," or "may." Forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management's views as of any subsequent date. Forward-looking statements involve significant risks and uncertainties and actual results may differ materially from those presented, in this news release. Factors that might cause such differences include, but are not limited to: the impact of the COVID-19 on the economy and the Company; the ability of the Company to successfully execute its business plan; changes in interest rates and interest rate relationships; changes in demand for products and services; changes in banking legislation or regulation; trends in customer behavior as well as their ability to repay loans; and changes in the global, national, and local economies.

Southern California Bancorp undertakes no obligation to update or clarify forward-looking statements, whether as a result of new information, future events or otherwise.

Additional current and historical financial results and trends are available on our website: https://www.banksocal.com/about-us/financials

Southern California Bancorp

Balance Sheets

(Unaudited)

Sept 30, 2020

Jun 30, 2020

Mar 31, 2020

Dec 31, 2019

Sept 30, 2019

ASSETS

Cash and due from banks

$

16,008,641

$

20,893,528

$

12,269,691

$

9,897,767

$

15,128,183

Fed funds & int-bearing balances

105,543,557

83,029,504

87,730,465

80,950,002

75,135,400

Total cash and cash equivalents

121,552,198

103,923,032

100,000,156

90,847,769

90,263,583

Debt securities (AFS)

24,767,969

26,855,698

19,834,420

16,343,747

16,653,476

FRB, FHLB and other equity stock

8,872,900

8,899,450

6,593,600

6,242,550

6,242,550

Construction & land development

43,101,171

35,241,241

23,213,929

24,679,602

34,788,277

1-4 Family Residential

107,724,352

105,297,275

82,443,776

85,085,585

89,133,751

Multifamily

113,159,342

125,895,257

122,564,197

122,661,958

115,139,808

Other commercial real estate

403,795,137

403,110,978

315,264,381

318,691,858

325,966,048

Commercial & industrial

689,687,091

675,270,756

134,525,771

122,969,242

117,164,010

Other consumer

6,010,280

5,935,683

5,182,707

2,566,670

2,524,850

Total loans

1,363,477,373

1,350,751,190

683,194,761

676,654,915

684,716,744

Allowance for loan losses

(10,295,855

)

(8,300,176

)

(5,674,212

)

(5,363,361

)

(5,152,508

)

Total loans and leases, net

1,353,181,518

1,342,451,014

677,520,549

671,291,554

679,564,236

Premises, equipment, and ROU, net

13,257,434

13,125,130

8,981,735

9,474,709

10,208,285

Other real estate owned

0

0

0

0

0

Goodwill and core deposit intangible

21,479,639

22,297,992

18,339,391

18,434,491

18,545,166

Bank owned life insurance

17,883,455

17,774,774

11,180,222

11,113,559

11,046,168

Accrued interest and other assets

14,291,215

10,629,800

9,601,820

6,437,979

6,536,322

Total Assets

$

1,575,286,328

$

1,545,956,890

$

852,051,893

$

830,186,358

$

839,059,786

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:

Noninterest-bearing demand

$

503,929,563

$

524,041,064

$

230,494,656

$

205,811,799

$

204,533,626

Interest bearing checking

96,527,122

89,429,765

61,903,709

54,180,961

78,669,996

Money market and savings

410,847,164

394,126,519

241,362,463

243,256,117

246,048,145

Time deposits

126,736,990

148,854,654

155,185,228

168,664,653

163,647,227

Total deposits

1,138,040,839

1,156,452,002

688,946,056

671,913,530

692,898,994

Other borrowings

297,357,238

251,086,895

34,649,168

35,015,405

35,216,254

Accrued interest and other liabilities

11,967,887

12,997,372

6,079,701

2,734,250

3,544,865

Total liabilities

1,447,365,964

1,420,536,269

729,674,925

709,663,185

731,660,113

Shareholders' Equity:

Common stock and APIC

120,899,650

120,566,830

103,444,194

103,249,020

91,706,667

Retained earnings

6,724,183

4,484,619

18,882,781

16,971,445

15,335,742

Accum. other comprehensive income

296,531

369,172

49,993

302,708

357,264

Total shareholders' equity

127,920,364

125,420,621

122,376,968

120,523,173

107,399,673

Total Liabilities and Shareholders' Equity

$

1,575,286,328

$

1,545,956,890

$

852,051,893

$

830,186,358

$

839,059,786

 

Southern California Bancorp

Income Statement - Quarterly

(Unaudited)

Sept 30, 2020

Jun 30, 2020

Mar 31, 2020

Dec 31, 2019

Sept 30, 2019

INTEREST INCOME

Loans, including fees

$

14,772,183

$

12,480,097

$

8,968,879

$

8,934,552

$

9,117,427

Investment securities

226,211

195,036

215,478

213,361

228,948

Fed funds & int-bearing balances

26,303

57,300

354,027

272,029

240,230

Total interest income

15,024,697

12,732,433

9,538,384

9,419,942

9,586,605

 

INTEREST EXPENSE

Deposits

930,474

869,786

1,353,156

1,481,335

1,604,913

Other borrowings

693,487

447,830

200,055

202,361

186,446

Total interest expense

1,623,961

1,317,616

1,553,211

1,683,696

1,791,359

Net interest income

13,400,736

11,414,817

7,985,173

7,736,246

7,795,246

 

Provision for loan losses

2,000,000

2,252,000

300,000

200,000

300,000

 

Net interest income after provision

11,400,736

9,162,817

7,685,173

7,536,246

7,495,246

 

NON INTEREST INCOME

Service charges, fees and other income

364,797

309,359

358,953

253,979

347,867

Income on bank owned life insurance

108,682

78,125

66,663

67,391

64,976

Gains on loan sales

0

0

0

0

104,548

OREO, investment, other gains (losses)

250,009

2,149

321,714

(575

)

177,328

Total non interest income

723,488

389,633

747,330

320,795

694,719

 

NON INTEREST EXPENSE

Salaries and benefits

4,151,278

3,171,772

3,246,963

2,908,736

3,378,287

Occupancy and equipment

1,290,454

854,976

809,848

807,944

808,160

Strategic and other non-recurring expense

1,763,390

356,742

280,838

400,914

191,898

Other expense

1,763,783

1,441,300

1,356,518

1,394,744

1,332,304

Total non interest expense

8,968,905

5,824,790

5,694,167

5,512,338

5,710,649

Income before income tax expense

3,155,319

3,727,660

2,738,336

2,344,703

2,479,316

 

Income tax expense

920,000

1,154,377

827,000

709,000

763,000

 

Net Income

$

2,235,319

$

2,573,283

$

1,911,336

$

1,635,703

$

1,716,316

Basic earnings per share

$

0.24

$

0.27

$

0.20

$

0.19

$

0.20

Average shares outstanding

9,429,538

9,422,608

9,408,940

8,578,102

8,410,522

Operating profit (before non-recurring items) 1

$

6,668,700

$

6,334,253

$

2,997,460

$

2,946,192

$

2,689,338

1 Op profit (before non-recurring items) = Pre-tax, pre-provision earnings, before non interest income gains (losses) and non-recurring expense.

 

Southern California Bancorp

Income Statement - Year-to-Date

(Unaudited)

Sept 30, 2020

Sept 30, 2019

Sept 30, 2018

Sept 30, 2017

INTEREST INCOME

Loans, including fees

36,221,159

$

26,598,782

$

17,797,187

$

13,260,858

Investment securities

636,725

781,147

658,439

524,740

Fed funds & int-bearing balances

437,630

896,774

711,919

298,968

Total interest income

37,295,514

28,276,703

19,167,545

14,084,566

INTEREST EXPENSE

Deposits

3,153,416

4,650,872

2,278,661

1,043,779

Other borrowings

1,341,372

507,768

19,693

0

Total interest expense

4,494,788

5,158,640

2,298,354

1,043,779

 

Net interest income

32,800,726

23,118,063

16,869,191

13,040,787

Provision for loan losses

4,552,000

800,000

1,150,000

271,000

 

Net interest income after provision for loan losses

28,248,726

22,318,063

15,719,191

12,769,787

 

NON INTEREST INCOME

Service charges, fees and other income

1,033,109

1,091,900

1,004,992

815,025

Income on bank owned life insurance

253,470

178,029

170,248

180,904

Gains on loan sales

0

198,422

1,028,284

413,590

OREO, investment, other gains (losses)

573,872

165,021

73,631

452

Total non interest income

1,860,451

1,633,372

2,277,155

1,409,971

 

NON INTEREST EXPENSE

Salaries and benefits

10,570,013

9,817,582

6,965,973

5,472,948

Occupancy and equipment

2,955,278

2,319,835

1,597,263

1,193,421

Strategic and other non-recurring expense

2,400,970

191,898

1,646,924

365,443

Other expense

4,561,601

4,283,811

3,081,745

2,445,651

Total non interest expense

20,487,862

16,613,126

13,291,905

9,477,463

 

Income before income tax expense

9,621,315

7,338,309

4,704,441

4,702,295

 

Income tax expense

2,901,377

2,201,000

1,451,000

1,872,000

 

Net Income

$

6,719,938

$

5,137,309

$

3,253,441

$

2,830,295

Basic earnings per share

$

0.71

$

0.61

$

0.49

$

0.55

Average shares outstanding

9,420,362

8,410,105

6,654,150

5,179,196

Operating profit (before non-recurring items) 1

$

16,000,413

$

7,966,764

$

6,399,450

$

4,924,696

 

1 Op profit (before non-recurring items) = Pre-tax, pre-provision earnings, before non interest income gains (losses) and non-recurring expense.

 

Southern California Bancorp

Quarterly Financial Highlights

(Unaudited)

Quarterly

9 Months YTD

2020

2020

2020

2019

2019

($$ in thousands except per share data)

3rd Qtr

2nd Qtr

1st Qtr

4th Qtr

3rd Qtr

2020

2019

EARNINGS

Net interest income

$

13,401

11,415

7,985

7,736

7,795

32,801

23,118

Provision for loan losses

$

2,000

2,252

300

200

300

4,552

800

NonInterest income

$

723

390

747

321

695

1,860

1,633

NonInterest expense

$

8,969

5,825

5,694

5,512

5,711

20,488

16,613

Income tax expense

$

920

1,154

827

709

763

2,901

2,201

Net income

$

2,235

2,573

1,911

1,636

1,716

6,720

5,137

Basic earnings per share

$

0.24

0.27

0.20

0.19

0.20

0.71

0.61

Average shares outstanding

9,429,538

9,422,608

9,408,940

8,578,102

8,410,522

9,420,362

8,410,105

Ending shares outstanding

9,455,065

9,424,565

9,412,690

9,405,190

8,410,522

9,455,065

8,410,522

PERFORMANCE RATIOS

Return on average assets

0.57

%

0.80

%

0.90

%

0.79

%

0.87

%

0.72

%

0.89

%

Return on average common equity

7.00

%

8.33

%

6.30

%

5.93

%

6.37

%

7.21

%

6.56

%

Yield on loans

4.31

%

4.55

%

5.32

%

5.23

%

5.44

%

4.61

%

5.56

%

Yield on earning assets

4.03

%

4.17

%

4.76

%

4.88

%

5.21

%

4.25

%

5.27

%

Cost of deposits

0.32

%

0.35

%

0.78

%

0.88

%

0.99

%

0.45

%

0.98

%

Cost of funding

0.46

%

0.46

%

0.86

%

0.95

%

1.06

%

0.55

%

1.05

%

Net interest margin

3.60

%

3.74

%

3.98

%

4.01

%

4.24

%

3.73

%

4.31

%

Efficiency ratio

63.5

%

49.3

%

65.2

%

68.4

%

67.3

%

59.1

%

67.1

%

CAPITAL

Tangible equity to tangible assets

6.85

%

6.77

%

12.48

%

12.58

%

10.83

%

6.85

%

10.83

%

Book value (BV) per common share

$

13.53

13.31

13.00

12.81

12.77

13.53

12.77

Tangible BV per common share

$

11.26

10.94

11.05

10.85

10.56

11.26

10.56

ASSET QUALITY

Net loan charge-offs (recoveries)

$

4

(374

)

(11

)

(11

)

36

(380

)

20

Allowance for loan losses (ALLL)

$

10,296

8,300

5,674

5,363

5,153

10,296

5,153

ALLL to total loans

0.76

%

0.61

%

0.83

%

0.79

%

0.75

%

0.76

%

0.75

%

Loan fair value credit marks (LFVCM)

$

5,205

5,076

1,649

1,906

2,030

5,205

2,030

ALLL and LFVCM to total loans

1.14

%

0.99

%

1.07

%

1.07

%

1.05

%

1.14

%

1.05

%

ALLL & LFVCM to total loans (excl PPP)

1.88

%

1.62

%

1.07

%

1.07

%

1.05

%

1.88

%

1.05

%

Nonperforming loans

$

1,125

1,734

1,433

1,911

2,225

1,125

2,225

Other real estate owned

$

0

0

0

0

0

0

0

Nonperforming assets to total assets

0.07

%

0.11

%

0.17

%

0.23

%

0.27

%

0.07

%

0.27

%

END OF PERIOD BALANCES

Total loans

$

1,363,477

1,350,751

683,195

676,655

684,717

1,363,477

684,717

Total assets

$

1,575,286

1,545,957

852,052

830,186

839,060

1,575,286

839,060

Deposits

$

1,138,041

1,156,452

688,946

671,914

692,899

1,138,041

692,899

Loans to deposits

119.8

%

116.8

%

99.2

%

100.7

%

98.8

%

119.8

%

98.8

%

Shareholders' equity

$

127,920

125,421

122,377

120,523

107,400

127,920

107,400

Full-time equivalent employees

118

122

92

97

96

118

96

AVERAGE BALANCES (QTRLY) | | (YTD)

Total loans

$

1,358,291

1,100,180

676,825

678,015

664,946

1,046,427

639,557

Earning assets

$

1,477,910

1,225,376

803,804

766,012

730,165

1,170,342

717,655

Total assets (net of AFS valuation)

$

1,556,364

1,296,741

855,397

818,989

783,043

1,237,289

768,715

Deposits

$

1,142,686

983,294

696,341

671,443

641,867

939,071

634,812

Shareholders' equity

$

126,670

123,899

121,773

109,464

106,853

124,222

104,783

Contacts:

Amanda Conover
Director of Marketing
Bank of Southern California
aconover@banksocal.com
858.847.4762

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