Third Quarter 2024 Highlights The Southern California Bancorp merger transformed the quarter, expanding the balance sheet but resulting in a net loss from one-time provisions and merger expenses, despite improved net interest margin - Completed the merger with Southern California Bancorp on July 31, 2024, creating a combined entity with approximately $4.25 billion in assets and 14 branches34 Q3 2024 Key Financial Results | Metric | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Net (Loss) Income | ($16.5M) | $0.19M | $6.6M | | Diluted (Loss) EPS | ($0.59) | $0.01 | $0.35 | | Adjusted Net Income (non-GAAP) | $9.1M | N/A | N/A | - The quarterly net loss was primarily due to a $15.0 million after-tax 'day one' provision for credit losses and $10.6 million in after-tax merger-related expenses47 - Post-merger balance sheet growth was substantial, with total assets reaching $4.36 billion, total loans $3.23 billion, and total deposits $3.74 billion6 - Net interest margin expanded to 4.43% from 3.94% in the prior quarter, while the allowance for credit losses (ACL) to total loans increased to 1.80%46 Third Quarter Operating Results Operating results show a net loss primarily due to one-time merger costs, despite significant growth in net interest income and margin, while provision for credit losses and noninterest expenses also surged Net Loss California BanCorp reported a net loss for Q3 2024, primarily driven by a significant after-tax CECL provision and merger expenses Net (Loss) Income and EPS Comparison | Metric | Q3 2024 | Q2 2024 | | :--- | :--- | :--- | | Net (Loss) Income | ($16.5M) | $0.19M | | Diluted (Loss) EPS | ($0.59) | $0.01 | | Adjusted Net Income (non-GAAP) | $9.1M | N/A | - The quarter's results were negatively impacted by a $15.0 million after-tax 'day one' CECL provision ($0.54 per share) and $10.6 million in after-tax merger expenses ($0.38 per share)7 Net Interest Income and Net Interest Margin Net interest income significantly increased in Q3 2024 due to the merger, expanding the net interest margin, driven by higher earning asset yields and purchase accounting accretion Net Interest Income and Margin Performance | Metric | Q3 2024 | Q2 2024 | | :--- | :--- | :--- | | Net Interest Income | $36.9M | $21.0M | | Net Interest Margin | 4.43% | 3.94% | | Average Total Loan Yield | 6.79% | 6.21% | | Cost of Funds | 2.19% | 2.21% | - Accretion income from purchase accounting on acquired loans contributed $4.1 million, increasing the net interest margin by 46 basis points9 - The cost of funds decreased by 2 basis points to 2.19%, aided by a decrease in the cost of interest-bearing deposits and an increase in noninterest-bearing deposits10 Provision for Credit Losses The company recorded a substantial provision for credit losses in Q3 2024, primarily due to a one-time initial provision related to acquired non-PCD loans and unfunded commitments from the merger Provision for Credit Losses (PCL) | Period | PCL Amount | | :--- | :--- | | Q3 2024 | $23.0M | | Q2 2024 | $2.9M | - The increase was largely driven by a one-time initial provision for credit losses on acquired non-PCD loans ($18.5 million) and unfunded commitments ($2.7 million) following the merger12 Noninterest Income Noninterest income remained stable in Q3 2024, as merger-related increases were offset by a valuation allowance on Other Real Estate Owned (OREO) Noninterest Income Comparison | Period | Noninterest Income | | :--- | :--- | | Q3 2024 | $1.2M | | Q2 2024 | $1.2M | - Merger-related increases in deposit fees and other income were offset by a $614 thousand valuation allowance on OREO due to a decline in the property's fair value13 Noninterest Expense Total noninterest expense nearly doubled in Q3 2024, driven almost entirely by merger-related costs, leading to a significantly higher efficiency ratio, which would be lower excluding these expenses Noninterest Expense and Efficiency Ratio | Metric | Q3 2024 | Q2 2024 | | :--- | :--- | :--- | | Total Noninterest Expense | $37.7M | $19.0M | | Merger and Related Expenses | $14.6M | $0.5M | | Efficiency Ratio (non-GAAP) | 98.9% | 85.7% | | Adjusted Efficiency Ratio (non-GAAP) | 60.5% | 83.5% | - Merger expenses included $6.2 million in retention/severance, $2.3 million in advisory fees, and $4.5 million in information technology costs15 Income Tax The company recorded an income tax benefit in Q3 2024, compared to an expense in Q2, with the effective tax rate decreasing, influenced by equity awards and non-deductible merger expenses Income Tax (Benefit) Expense | Metric | Q3 2024 | Q2 2024 | | :--- | :--- | :--- | | Income Tax (Benefit) Expense | ($6.1M) | $88K | | Effective Tax Rate | 26.9% | 31.7% | Balance Sheet Analysis The Southern California Bancorp merger dramatically reshaped the balance sheet, significantly increasing total assets, loans, and deposits, while enhancing liquidity by repaying FHLB borrowings Assets Total assets significantly increased at September 30, 2024, primarily driven by the merger, which added substantial assets and resulted in preliminary goodwill Total Assets Growth | Date | Total Assets | | :--- | :--- | | Sep 30, 2024 | $4.36B | | Jun 30, 2024 | $2.29B | - The increase was primarily due to the merger, which added $1.86 billion in assets and created $74.7 million in preliminary goodwill18 Loans Total loans held for investment significantly increased at the end of Q3, almost entirely due to acquiring loans through the merger Total Loans Held for Investment | Date | Total Loans | | :--- | :--- | | Sep 30, 2024 | $3.20B | | Jun 30, 2024 | $1.88B | - The loan growth was primarily driven by the $1.36 billion fair value of loans acquired in the merger19 Deposits Total deposits significantly increased at September 30, 2024, primarily due to the merger, with noninterest-bearing demand deposits also growing Deposit Composition | Metric | Sep 30, 2024 | Jun 30, 2024 | | :--- | :--- | :--- | | Total Deposits | $3.74B | $1.94B | | Noninterest-bearing Deposits | $1.37B | $0.67B | | % Noninterest-bearing | 36.6% | 34.4% | - The company used excess cash from the merger to pay off $131.9 million in high-cost brokered time deposits during the quarter20 Liquidity and Borrowings The company significantly improved liquidity by repaying all FHLB borrowings using merger cash, resulting in substantial available borrowing capacity and the assumption of subordinated borrowings - All FHLB borrowings were repaid during the third quarter using liquidity from the merger21 - Total available borrowing capacity was $1.23 billion at September 30, 2024, with an additional $159.3 million in unpledged liquid securities and $614.4 million in cash22 - The company assumed subordinated borrowings of $55.0 million in connection with the merger23 Asset Quality Asset quality metrics weakened post-merger, with total non-performing assets significantly increasing due to acquired nonaccrual PCD loans and legacy loan downgrades, while the allowance for credit losses also rose Non-Performing Assets (NPA) Comparison | Metric | Sep 30, 2024 | Jun 30, 2024 | | :--- | :--- | :--- | | Total NPAs | $29.8M | $4.7M | | NPAs to Total Assets | 0.68% | 0.20% | - The increase in NPAs was mainly due to $13.9 million of nonaccrual PCD loans acquired in the merger and the downgrade of a $12.7 million legacy loan relationship25 Allowance for Credit Losses (ACL) Ratios | Metric | Sep 30, 2024 | Jun 30, 2024 | | :--- | :--- | :--- | | Total ACL | $57.6M | $24.6M | | ALL to Total Loans | 1.67% | 1.27% | | ACL to Total Loans | 1.80% | 1.31% | Capital Capital levels were impacted by the merger and net loss, with tangible book value per common share decreasing, primarily due to the net loss and new share issuance, though regulatory capital ratios remain above 'well-capitalized' minimums Tangible Book Value (TBV) Per Share | Date | TBV per Common Share (non-GAAP) | | :--- | :--- | | Sep 30, 2024 | $11.28 | | Jun 30, 2024 | $13.71 | - The decrease in TBV was primarily impacted by the net loss for the quarter and the equity issued in connection with the merger31 - The Company's capital exceeds the minimums required to be 'well-capitalized,' the highest regulatory capital category32 Financial Statements and Tables This section presents detailed unaudited financial statements, including Financial Highlights, Allowance for Credit Losses roll-forward, Consolidated Balance Sheets, Income Statements, and Average Balance Sheets with yield analysis GAAP to Non-GAAP Reconciliation This section reconciles GAAP to non-GAAP financial measures, providing a clearer view of core performance by excluding significant one-time items like the after-tax 'day one' provision for non-PCD loans and merger-related expenses - The non-GAAP measures are presented to provide investors with information used by management to assess performance, excluding the impact of significant, non-recurring items like merger expenses52 Reconciliation of Net (Loss) Income to Adjusted Net Income (Q3 2024) | Description | Amount (in thousands) | | :--- | :--- | | Net (Loss) Income (GAAP) | ($16,464) | | Add: After-tax Day1 provision | $14,978 | | Add: After-tax merger expenses | $10,576 | | Adjusted Net Income (non-GAAP) | $9,090 | Reconciliation of Efficiency Ratio (Q3 2024) | Metric | Value | | :--- | :--- | | Efficiency Ratio (non-GAAP) | 98.9% | | Adjusted Efficiency Ratio (non-GAAP) | 60.5% |
Southern California Bancorp(BCAL) - 2024 Q3 - Quarterly Results