Southern California Bancorp(BCAL) - 2025 Q2 - Quarterly Results

Executive Summary & Company Overview California BanCorp reported strong Q2 2025 earnings, derisking its balance sheet and focusing on organic business banking growth Q2 2025 Financial Performance Summary California BanCorp reported Q2 2025 net income of $14.1 million ($0.43 diluted EPS), a sequential decrease but significant year-over-year increase, with key performance ratios also declining sequentially | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :----------------------------- | :------ | :------ | :------ | | Net Income | $14.1M | $16.9M | $0.19M | | Diluted EPS | $0.43 | $0.52 | $0.01 | | Net Interest Margin | 4.61% | 4.65% | | | Return on Average Assets | 1.45% | 1.71% | | | Return on Average Common Equity| 10.50% | 13.18% | | | Efficiency Ratio (non-GAAP) | 56.1% | 55.6% | | Strategic Initiatives and Management Commentary Management emphasized strong Q2 earnings post-merger, continuing balance sheet derisking by reducing Sponsor Finance exposure and brokered deposits, while focusing on organic relationship-based business banking growth - The company reported strong second quarter earnings of $14.1 million, marking the third consecutive strong quarter since the merger last July[4] - Strategy to derisk the consolidated balance sheet by decreasing exposure in the Sponsor Finance portfolio, reducing reliance on brokered deposits, and improving overall credit quality; the Sponsor Finance portfolio continued to decline, and brokered deposits were successfully wound down[5][6] - Future focus is on organic loan and deposit growth through relationship-based business banking in California's small to medium-sized business markets[6] Second Quarter Operating Results This section details California BanCorp's Q2 2025 operating results, covering net income, net interest income, credit loss reversals, noninterest items, and income tax Net Income and Earnings Per Share Q2 2025 net income was $14.1 million ($0.43 diluted EPS), a decrease from Q1 2025, mainly due to lower net interest income after credit loss reversals, partially offset by higher noninterest income | Metric | Q2 2025 | Q1 2025 | Change (QoQ) | | :------------------- | :------ | :------ | :----------- | | Net Income | $14.1M | $16.9M | -$2.8M | | Diluted EPS | $0.43 | $0.52 | -$0.09 | - The decrease in net income and diluted EPS was largely driven by lower net interest income after reversal of credit losses, partially offset by higher noninterest income[10] Net Interest Income and Net Interest Margin Net interest income decreased to $41.4 million in Q2 2025, driven by lower interest and dividend income, while net interest margin slightly declined to 4.61% due to lower asset yields and increased cost of funds | Metric | Q2 2025 | Q1 2025 | Change (QoQ) | | :---------------------- | :------ | :------ | :----------- | | Net Interest Income | $41.4M | $42.3M | -$0.9M | | Net Interest Margin | 4.61% | 4.65% | -4 bps | | Total Interest Income | | | -$1.0M | | Total Interest Expense | | | -$0.2M | | Yield on Avg Total Loans| 6.58% | 6.61% | -3 bps | | Cost of Funds | 1.73% | 1.72% | +1 bp | - Decrease in net interest income primarily due to a $1.0 million decrease in total interest and dividend income, partially offset by a $201 thousand decrease in total interest expense[11] - The decrease in interest income was mainly due to decreases in average total loan balances, while the decrease in interest expense was primarily due to a decrease in interest expense on interest-bearing deposits[11] Reversal of Credit Losses Q2 2025 saw a $634 thousand reversal of credit losses, a significant decrease from Q1, with $4.1 million in net charge-offs reflecting the strategy to derisk criticized loans | Metric | Q2 2025 | Q1 2025 | Change (QoQ) | | :-------------------------- | :------ | :------ | :----------- | | Reversal of Credit Losses | $634K | $3.8M | -$3.166M | | Total Net Charge-offs | $4.1M | | | - Net charge-offs of $4.1 million resulted from the Company's continuing strategy to derisk the consolidated balance sheet by reducing exposure to criticized loans[16] - The decrease in reversal of credit losses for loans held for investment was driven primarily by the decrease in loan balances, changes in loan composition, and qualitative factors, partially offset by net charge-offs and changes in economic outlook for California[17] Noninterest Income Noninterest income increased to $2.9 million in Q2 2025, primarily due to higher equity investment income, despite no gains from SBA 7A loan sales | Metric | Q2 2025 | Q1 2025 | Change (QoQ) | | :------------------- | :------ | :------ | :----------- | | Noninterest Income | $2.9M | $2.6M | +$0.3M | | Other Charges and Fees | | | +$0.874M | | Gain on Sale of SBA 7A Loans | $0 | $0.577M | -$0.577M | - Other charges and fees increased $874 thousand in the second quarter due primarily to higher income from equity investments[18] Noninterest Expense Total noninterest expense slightly decreased to $24.8 million in Q2 2025, with lower salaries and regulatory assessments, but an $862 thousand loss on OREO sale negatively impacted the efficiency ratio | Metric | Q2 2025 | Q1 2025 | Change (QoQ) | | :-------------------------- | :------ | :------ | :----------- | | Total Noninterest Expense | $24.8M | $24.9M | -$0.087M | | Salaries & Employee Benefits| $15.3M | | -$0.571M | | Regulatory Assessments | $0.545M | | -$0.177M | | Loss on Sale of OREO | $0.862M | $0 | +$0.862M | | Efficiency Ratio (non-GAAP) | 56.1% | 55.6% | +0.5% | - The $862 thousand loss on sale of other real estate owned negatively impacted the efficiency ratio by 1.9% during the second quarter of 2025[20] Income Tax Expense Q2 2025 income tax expense was $6.0 million, a decrease from Q1, while the effective tax rate increased to 29.8% due to equity award vesting and stock price changes | Metric | Q2 2025 | Q1 2025 | Change (QoQ) | | :------------------- | :------ | :------ | :----------- | | Income Tax Expense | $6.0M | $6.8M | -$0.8M | | Effective Tax Rate | 29.8% | 28.8% | +1.0% | - The increase in the effective tax rate was primarily attributable to the vesting and exercise of equity awards combined with changes in the Company's stock price over time[21] Balance Sheet Analysis This section analyzes California BanCorp's balance sheet at June 30, 2025, detailing changes in assets, loans, deposits, and borrowings Assets Total assets decreased slightly to $3.95 billion at June 30, 2025, primarily due to lower loans, cash, and OREO, partially offset by increased available-for-sale debt securities | Metric | June 30, 2025 | March 31, 2025 | Change (QoQ) | | :------------------- | :------------ | :------------- | :----------- | | Total Assets | $3.95B | $3.98B | -$29.4M | - The decrease in total assets was primarily related to a decrease in loans ($75.8 million), cash and cash equivalents ($9.1 million), and OREO ($4.1 million), partially offset by an increase in available-for-sale debt securities ($56.6 million)[