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Southern California Bancorp(BCAL) - 2024 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited consolidated financial statements reflect significant changes from the merger with California BanCorp (CALB), resulting in a net loss for Q3 2024 due to merger expenses and credit loss provisions Consolidated Balance Sheets The company's consolidated balance sheet shows substantial growth as of September 30, 2024, driven by the CALB acquisition, with total assets increasing 84.8% to $4.36 billion Consolidated Balance Sheet Highlights (in thousands) | Metric | September 30, 2024 | December 31, 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Total Assets | $4,362,767 | $2,360,252 | +84.8% | | Total cash and cash equivalents | $614,423 | $86,793 | +607.9% | | Loans held for investment, net | $3,146,162 | $1,934,873 | +62.6% | | Goodwill | $112,515 | $37,803 | +197.6% | | Total Liabilities | $3,864,703 | $2,072,100 | +86.5% | | Total deposits | $3,740,915 | $1,943,556 | +92.5% | | Total Shareholders' Equity | $498,064 | $288,152 | +72.8% | Consolidated Statements of Operations The company reported a Q3 2024 net loss of $16.5 million, a significant shift from prior-year income, driven by a $23.0 million provision for credit losses and $14.6 million in merger expenses Key Operational Metrics (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $36,942 | $23,261 | $78,443 | $71,579 | | Provision for (reversal of) credit losses | $22,963 | $(96) | $25,525 | $91 | | Merger and related expenses | $14,605 | $— | $15,645 | $— | | Net (loss) income | $(16,464) | $6,556 | $(11,339) | $21,498 | | Diluted (loss) earnings per share | $(0.59) | $0.35 | $(0.53) | $1.15 | Consolidated Statements of Comprehensive Income (Loss) A total comprehensive loss of $12.8 million was recorded for Q3 2024, which was partially offset by a $3.6 million after-tax other comprehensive income from unrealized securities gains Comprehensive (Loss) Income (in thousands) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net (loss) income | $(16,464) | $6,556 | $(11,339) | $21,498 | | Total other comprehensive income (loss), net of tax | $3,631 | $(2,685) | $1,603 | $(2,804) | | Total comprehensive (loss) income, net of tax | $(12,833) | $3,871 | $(9,736) | $18,694 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased to $498.1 million, primarily driven by the issuance of 13.5 million shares valued at $214.4 million for the CALB business combination - For the nine months ended September 30, 2024, total shareholders' equity grew by $209.9 million20 - The issuance of common stock in the business combination added $214.4 million to shareholders' equity20 - The net loss for the nine-month period reduced retained earnings by $11.3 million20 Consolidated Statements of Cash Flows Cash and cash equivalents increased by $527.6 million in the first nine months of 2024, mainly due to cash acquired in the merger and net loan repayments Net Cash Flow Summary (Nine Months Ended, in thousands) | Cash Flow Activity | September 30, 2024 | September 30, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $26,662 | $41,538 | | Net cash provided by (used in) investing activities | $431,717 | $(42,693) | | Net cash provided by financing activities | $69,251 | $9,516 | | Net change in cash and cash equivalents | $527,630 | $8,361 | - Investing activities were significantly impacted by $336.3 million in net cash acquired from the business combination25 Notes to Consolidated Financial Statements The notes detail accounting policies and financial data, with a central focus on the significant and widespread impacts of the merger with California BanCorp on July 31, 2024 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion centers on the transformative impact of the CALB merger, which drove a Q3 2024 net loss due to one-time expenses but expanded the company's scale and core earnings power - The merger with California BanCorp (CALB) closed on July 31, 2024, adding $1.43 billion in loans, $1.91 billion in assets, and $1.64 billion in deposits201 - The company reported a net loss of $16.5 million for Q3 2024, primarily due to $15.0 million in after-tax CECL-related provisions and $10.6 million in after-tax merger expenses223 - Excluding one-time merger impacts, the company would have reported a non-GAAP net income of $9.1 million for Q3 2024223 - The company maintains a strong liquidity position with total available borrowing capacity of approximately $1.22 billion at September 30, 2024205 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, which is actively managed by the Asset Liability Committee (ALCO) through simulation models of NII and EVE - The primary market risk for the company is interest rate risk, which can affect net interest income and margin360 - Interest rate risk is managed by the Asset Liability Committee (ALCO) using tools such as Net Interest Income at Risk (NII at Risk) and Economic Value of Equity (EVE) simulation models362365 Item 4. Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2024, with no material changes to internal controls during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period366 - No material changes were made to the internal control over financial reporting during the quarter ended September 30, 2024366 PART II — OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal claims from normal business operations, none of which are expected to have a material adverse effect on its financial position - The company is party to various legal proceedings arising from normal business activities, none of which are expected to have a material adverse effect367 Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2023 Annual Report on Form 10-K - No material changes to the company's risk factors were reported for the period369 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No shares were repurchased under the company's authorized 550,000-share repurchase plan during the third quarter of 2024 - No shares were repurchased under the company's authorized 550,000-share repurchase plan during the third quarter of 2024370371 Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - None371 Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable372 Item 5. Other Information No directors or executive officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - No new or terminated director or executive officer trading plans were reported for the quarter373 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including merger agreements, corporate governance documents, and required certifications