San Diego, Calif., Oct. 28, 2021 – Southern California Bancorp (the “Company”) (OTC Pink: BCAL), the holding company for Bank of Southern California, N.A. (the “Bank”) today reported financial results for the third quarter of 2021.
Third Quarter 2021 Highlights
- Net income available to common shareholders increased to $3.5 million, up $1.1 million, or 45.9% from $2.4 million in the prior quarter
- Net organic loans (non-PPP) increased to $1.1 billion, up $110.8 million, or 11.8%, from June 30, 2021, and up $223.9 million or 27.1% from December 31, 2020
- PPP loan portfolio balance of $181.4 million, down from $346.6 million at June 30, 2021
- Total assets of $1.8 billion, up $6.1 million, or 0.3%, from June 30, 2021, and up $205.1 million, or 13.0%, from December 31, 2020
- Total deposits of $1.6 billion, up $4.9 million, or 0.3% (after the sale of three branches with combined deposits of $82.0 million), from June 30, 2021, and up $371.6 million, or 31.1%, from December 31, 2020
- Noninterest-bearing demand deposits were 48.6% of total deposits, up from 47.9% at June 30, 2021
- Net interest margin of 3.67% in the third quarter, compared to 3.72% in the prior quarter; average yield on non-PPP loans of 4.60%
- Nonperforming assets to total assets ratio remains at 0.04%, the same as the prior quarter
- Received requisite approvals from shareholders of Southern California Bancorp and Bank of Santa Clarita, and requisite regulatory approvals, for acquisition of Bank of Santa Clarita, which will expand footprint into northern Los Angeles County and create commercial bank with approximately $2.2 billion in pro forma assets
- Completed sale of three branches to align footprint to support a commercial banking strategy
- Continued status as “well-capitalized,” the highest regulatory capital category
“I am very pleased to report strong third quarter non-PPP loan growth, which increased $111 million, or 12%, from the second quarter of 2021, net of payoffs of $22 million,” said David Rainer, Chairman, CEO and President of Southern California Bancorp and Bank of Southern California, N.A. “As of the end of the third quarter, our net organic year-to-date non-PPP loan growth was $224 million, or 27%, with much of this growth coming from the new branches we have opened in our expanded Los Angeles County footprint. We believe this strong loan growth is evidence of the traction we are gaining from the execution of our strategic repositioning of the Bank to a relationship-based, commercial banking model with branches in high growth areas.
“Deposits remained steady at $1.6 billion in the third quarter, even as we completed the sale of three branches with combined deposits of $82 million in September. Noninterest-bearing deposits of $760 million at September 30, 2021, represented 48.6% of total deposits and our cost of deposits decreased to 0.11% in the third quarter, down from 0.15% in the second quarter of 2021. Average deposits per branch grew to $130 million at September 30, 2021, up from $100 million at December 31, 2020, and on a pro forma basis, combined with Bank of Santa Clarita, are expected to be approximately $150 million per branch.
“In the third quarter we received approval for the acquisition of Bank of Santa Clarita from the shareholders of Southern California Bancorp and Bank of Santa Clarita, as well as regulatory approval of the transaction, which was closed on October 1, 2021. The integration is progressing smoothly, with both teams excited about the opportunities it presents, and we are very pleased to have former Bank of Santa Clarita Chairman Frank Di Tomaso join our Boards of Directors.
“Additionally, in the third quarter we established a Private Banking Group, with the appointment of Nicole Swain as President. Ms. Swain is well known and widely respected in the Southern California banking industry, and we are very pleased to have her join us.”
Third Quarter Operating Results
Net income for the third quarter of 2021 was $3.5 million or $0.25 per fully diluted share, compared with net income of $2.2 million or $0.23 per fully diluted share for the third quarter of 2020. The increase in net income from the prior year was primarily attributable to a $2.6 million increase in net interest income and a $963,000 increase in noninterest income. Noninterest expense increased to $12.7 million in the third quarter of 2021, compared with $9.0 million in the prior year, largely related to the Company’s recent strategic expansion into Los Angeles County. The Company took no loan loss provision in the third quarter of 2021, compared with a $2.0 million loan loss provision in the prior year.
Net income for the third quarter of 2021 was $3.5 million or $0.25 per fully diluted share, compared with net income of $2.4 million or $0.17 per fully diluted share in the second quarter of 2021. The increase in net income in the third quarter of 2021 was related to a $616,000 increase in net interest income in the third quarter of 2021 compared with the second quarter of 2021, and a decrease in noninterest expense in the third quarter of 2021 of $2.1 million compared with the second quarter of 2021, during which quarter the Company had nonrecurring compensation expenses of $3.1 million, related to a preexisting employment contract.
The Company’s income tax expense was $1.5 million for the third quarter of 2021, compared with a tax benefit of $51,000 in the second quarter of 2021, which was related to the acceleration and vesting of certain restricted share awards and the exercise of certain stock options. The Company’s income tax would have been approximately $740,000 higher in the second quarter without those benefits.
Net Interest Income and Net Interest Margin
Net interest income for the third quarter of 2021 was $16.0 million, an increase of $2.6 million, or 19.6%, from the third quarter of 2020. The increase was primarily due to an increase in average earning assets related to the Company’s expansion into Los Angeles County and increased PPP fee income due to the accelerated pace of PPP loan forgiveness. Comparisons to the prior year also benefit from a reduction in interest expense of $872,000 resulting in cost of funding decreasing to 0.18% from 0.45% in the prior year.
Net interest margin for the third quarter of 2021 was 3.67%, compared with 3.60% in the same quarter of the prior year. Third quarter loan yields and yield on average earning assets were 5.29% and 3.84%, respectively, compared with 4.31% and 4.03%, respectively, in the prior year.
Net interest income for the third quarter of 2021 was $16.0 million, an increase of $616,000 from the second quarter of 2021. The increase was primarily due to organic loan growth and increased PPP net fee income of $4.5 million in the third quarter compared with $3.2 million in the previous quarter, related to the accelerated pace of PPP loan forgiveness and an additional day of interest income in the third quarter.
Interest expense in the third quarter of 2021 was $752,000, a decrease of $115,000 or 13.3% from interest expense of $867,000 in the second quarter of 2021. The decrease in the third quarter was primarily related to a reduction the cost of deposits to 0.11%, down from 0.15% in the second quarter.
Net interest margin for the third quarter of 2021 was 3.67%, compared to 3.72% in the second quarter of 2021. The decrease in net interest margin in the third quarter of 2021 was largely due to the decrease in the yield on average earning assets to 3.84%, from 3.92% in the prior quarter.
The yield on average loans in the third quarter of 2021, excluding PPP loans, was 4.60%, a decrease of 40 basis points from 5.00% in the prior quarter. The decrease in non-PPP loan yields was primarily due to nonrecurring income of $437,000 related to elevated prepayment penalties and the fair value accretion of an acquired loan in the second quarter of 2021. Average PPP loan yields increased to 7.88% in the third quarter, compared to 3.83% in the prior quarter. The increase in PPP loan yields was primarily due to the increase in fee income due to the accelerated pace of loan forgiveness.
Cost of funding for the third quarter of 2021 was 0.18%, down from 0.22% in the previous quarter. A detailed comparison of interest income, yields, costs, and net interest income is included in the table below:
|Q3 2021||Q2 2021|
|Interest Income on:|
|Loans excl PPP||11,210,529||4.60%||11,586,549||5.00%|
|Fed Funds & Int Earning||159,972||0.13%||58,653||0.10%|
|Total Interest Income||16,779,289||3.84%||16,278,341||3.92%|
|Int Exp on Deposits||451,181||0.11%||566,579||0.15%|
|Int Exp on Borrowings||300,705||5.86%||300,692||4.93%|
|Total Interest Expense||751,886||0.18%||867,271||0.22%|
|Net Interest Income||16,027,403||3.67%||$15,411,070||3.72%|
Total noninterest income for the third quarter of 2021 was $1.7 million, an increase of $963,000 compared with $723,000 in the third quarter of the prior year. The increase in the third quarter of 2021 was largely related to the gain on sale of $1.0 million for three branches the Company sold on September 24, 2021, for which there was no corresponding transaction in the third quarter of 2020.
Total noninterest income in the third quarter of 2021 decreased by $63,000 compared with the second quarter of 2021. As noted above, in the third quarter of 2021 the Company sold three branches for $1.0 million for which there was no corresponding transaction in the second quarter of 2021; however, in the second quarter of 2021 the Company recorded a gain on sale of an acquired loan of $920,000. In the third quarter of 2021 the Company recorded income on bank owned life insurance of $165,000, compared to $300,000 in the second quarter of 2021.
Total assets at September 30, 2021, were $1.8 billion, an increase of $205.1 million or 13.0% from December 31, 2020. The increase in total assets was primarily related to a $371.6 million increase in deposits, offset by a $179.3 million decrease in other borrowings, primarily PPPLF.
Total loans were $1.2 billion at September 30, 2021, compared with $1.3 billion at June 30, 2021, and $1.4 billion at September 30, 2020. The Company’s non-PPP loan portfolio had net organic growth of $110.8 million or 11.8% in the third quarter of 2021, after payoffs and paydowns of $21.6 million, and ended the quarter at $1.1 billion.
Total commercial and industrial loans decreased by $139.8 million during the third quarter of 2021, of which $165.2 million was a reduction in total PPP loans. Loans secured by real estate grew by $84.9 million in the third quarter of 2021 compared with the prior quarter.
From April 2020 to May 2021 the Company originated a total of $799.1 million in PPP loans; at September 30, 2021, the remaining PPP loans outstanding balance was $181.4 million.
Total deposits at September 30, 2021, were $1.6 billion, an increase of $4.9 million from the end of the prior quarter. On September 24, 2021, the Company sold three branches with combined deposits of $82.0 million. Total deposits of $1.6 billion increased $428.3 million from the third quarter of 2020. Noninterest-bearing deposits at September 30, 2021 were $760.5 million, or 48.6% of total deposits, compared to $747.7 million, or 47.9% of total deposits, at June 30, 2021, and $503.9 million, or 44.3% of total deposits, at September 30, 2020.
Total non-performing assets were $0.7 million or 0.04% of total assets at September 30, 2021, the same as the prior quarter.
During the third quarter of 2021, the Company recorded net recoveries of $75,000, compared with net charge-offs of $4,000 in third quarter of 2020 and $20,000 in net recoveries in the second quarter of 2021.
The Company recorded no loan loss provision in the first three quarters of 2021, after recording $4.6 million in provisions for the full year of 2020. The allowance for loan and lease losses (ALLL) was $10.4 million at the end of the third quarter of 2021. The Company continues to monitor macroeconomic variables related to COVID-19 and reasonably believes it is adequately provisioned for the current environment. Management will continue to monitor and manage the loan portfolio to minimize potential future losses.
Relevant reserve ratios compared to the prior and year-ago quarter are as follows:
|Q3 2021||Q2 2021||Q3 2020|
|ALLL to Total Loans||0.84%||0.80%||0.76%|
|ALLL and Loan Fair Value Credit Marks (LFVCM) to Total Loans||1.00%||0.99%||1.14%|
|ALLL and LFVCM to Total Loans, excluding PPP Loans||1.18%||1.36%||1.88%|
Liquidity and Capital
With 31.1% growth in total deposits year-to-date 2021, and a strong cash balance from the quick pace of forgiveness of PPP loans, the Bank has ample liquidity resources to meet its customers’ needs. Additionally, the Bank has borrowing capacity of $170 million from the FHLB, with no outstanding borrowings at September 30, 2021.
The significant production in PPP loans over the past 18 months was funded through a combination of increased DDA accounts, generally associated directly with the PPP Loans, borrowings under PPPLF, and other sources. At September 30, 2021, the Bank’s PPP loan portfolio was entirely funded by Bank deposits.
PPP loans are considered zero risk-weighted assets and, as such, have helped maintain the Bank’s leverage capital ratio and total risk-based capital ratio at 9.58% and 16.02%, respectively, for the quarter ended September 30, 2021.
ABOUT BANK OF SOUTHERN CALIFORNIA AND SOUTHERN CALIFORNIA BANCORP
Southern California Bancorp (OTC Pink: 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 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, Bank of Southern California, N.A. offers a range of financial products and services to individuals, professionals, and small- to medium-sized businesses through its 12 branch offices serving San Diego, Orange, Los Angeles, and Ventura counties, as well as the Inland Empire. The Bank’s solution-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.
Southern California Bancorp’s common stock is traded on the OTC Markets Group Inc. Pink Open Market under the symbol “BCAL.” For more information, please visit banksocal.com or call (844) BNK-SOCAL.
In addition to historical information, certain matters set forth herein constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including forward-looking statements relating to management’s beliefs, projections and assumptions concerning future results and events. Forward-looking statements include descriptions of management’s plans or objectives for future operations, products or services, and forecasts of Southern California Bancorp’s revenues, earnings, or other measures of economic performance. As well, forward-looking statements may relate to future outlook and anticipated events, such as Southern California Bancorp’s plans and protocols with regard to managing potential impacts related to the ongoing COVID-19 pandemic. These forward-looking statements involve risks and uncertainties, based on the beliefs and assumptions of management and on the information available to management at the time that such forward-looking statements were made and can be identified by the fact that they do not relate strictly to historical or current facts. They 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 or the negative version of those words or phrases.
Forward-looking statements involve substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. Many factors could cause actual results to differ materially from those contemplated by these forward-looking statements. Except to the extent required by applicable law or regulation, Southern California Bancorp 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 except as required by law. Any statements about future operating results, such as those concerning accretion and dilution to Southern California Bancorp’s earnings or shareholders, are for illustrative purposes only, are not forecasts, and actual results may differ.
INVESTOR RELATIONS CONTACT
Kevin Mc Cabe
Bank of Southern California