Southern California Bancorp Reports Continued Strong Loan Growth for the Fourth Quarter and Full Year of 2021

─ Fourth quarter non-PPP organic loan growth of $154 million, up 14.7% from prior quarter

─ 2021 full year non-PPP organic loan growth of $378 million, up 45.7% from prior year

Southern California Bancorp (“us,” “we,” “our,” or the “Company”) (OTC Pink: BCAL), the holding company for Bank of Southern California, N.A. (the “Bank”) today reported consolidated financial results for the fourth quarter and full year of 2021.

The comparability of consolidated financial information for the fourth quarter and for the full year of 2021 to the same periods of 2020 is affected by the acquisition of Bank of Santa Clarita (“BSCA”) which was completed effective October 1, 2021. Accordingly, BSCA’s operating results for the fourth quarter and for the full year 2021 are included in the Company’s consolidated financial statements for the periods beginning after October 1, 2021.

Fourth Quarter 2021 Highlights

• Closed the BSCA acquisition on October 1, 2021: BSCA’s total assets and deposits were $425.6 million and $342.3 million, respectively, at the closing date
• Quarterly net income of $3.4 million, compared to $3.5 million in the prior quarter
• Pre-tax, pre-provision income increased to $6.0 million, up $960,000, or 19.1%, from the prior quarter
• Total Non-Paycheck Protection Program (“PPP”) loans (“non-PPP”) increased to $1.45 billion, up $394.8 million, or 37.6%, from September 30, 2021; excluding loans acquired from BSCA, net organic loans were up $154.3 million, or 14.7%, from September 30, 2021
• PPP loan portfolio balance of $58.7 million, down from $181.4 million at September 30, 2021
• Total assets of $2.26 billion, up $475.7 million, or 26.7%, from the prior quarter
• Total deposits of $1.97 billion, up $406.7 million, or 26.0%, from the prior quarter
• Noninterest-bearing demand deposits were 50.0% of total deposits, up from 48.6% at September 30, 2021; cost of deposits was 0.09%, down from 0.11% in the prior quarter
• Net interest margin of 3.74% in the fourth quarter compared to 3.67% in the prior quarter; average yield on non-PPP loans of 4.58% compared with 4.60% in the prior quarter
• Nonperforming assets to total assets ratio remain at 0.04%, the same as the two prior quarters
• Continued status as “well-capitalized,” the highest regulatory capital category

Full Year 2021 Highlights

• Annual net income increased to a record $10.7 million, up $6.0 million, or 126.8% from $4.7 million in the prior year
• Pre-tax, pre-provision income increased to $15.4 million, up $4.1 million, or 35.9% from $11.3 million in the prior year
• Total non-PPP loans increased to $1.45 billion, up $618.7 million, or 74.8% from December 31, 2020; excluding loans acquired from BSCA, net organic loans grew $378.2 million, or 45.7%, from December 31, 2020.
• PPP loan portfolio balance of $58.7 million, down from $406.5 million at December 31, 2020
• Total assets of $2.26 billion, up $680.8 million, or 43.1% from December 31, 2020
• Total deposits of $1.97 billion, up $778.4 million, or 65.1% from December 31, 2020
• Noninterest-bearing demand deposits were 50.0% of total deposits, up from 44.7% at December 31, 2020; cost of deposits for 2021 was 0.13%, down from 0.39% in 2020
• Net interest margin of 3.64% for 2021, compared with 3.66% in the prior year; average yield on non-PPP loans of 4.71% in 2021, compared with 4.90% in the prior year
• Completed acquisition of BSCA, effective October 1, 2021
• Completed sale of three branches to align footprint to support a commercial banking strategy, effective September 24, 2021

“I am very pleased to report organic non-PPP loan growth of $378.2 million or 46% for the full year of 2021, net of approximately $222.1 million in payoffs, and organic non-PPP loan growth of $154.3 million or 15% in the fourth quarter, net of approximately $67.1 million in payoffs,” said David Rainer, Chairman, CEO and President of Southern California Bancorp and Bank of Southern California, N.A. “We credit this tremendous growth to the successful execution of our relationship-based commercial banking model, and the Bank’s expansion into Orange, Los Angeles and Ventura counties in 2021, combined with positive growth in San Diego. The payoffs and paydowns we received in both periods were associated with the Company’s former heavily overweighted transaction-based banking model. Along with our strong loan growth, our ratio of nonperforming assets to total assets has held steady at 0.04% over the last three quarters, which resulted directly from our disciplined loan underwriting standards.

“Our strong organic loan growth in 2021 drove a significant increase in net interest income, with 2021 net interest income growing to $64.4 million, an $18.5 million, or 40% increase over the prior year, and fourth quarter net interest income growing to $20.3 million, a $4.3 million or 27% increase over the prior quarter. The increase in net interest income resulted in record annual net income of $10.7 million for 2021 and $3.4 million for the fourth quarter of 2021. Given the strong loan growth we experienced last year, we recorded a $1.2 million provision for loan loss in the fourth quarter; our pre-tax, pre-provision income was $15.4 million and $6.0 million for the full year and fourth quarter of 2021, respectively.

“Our total assets grew to $2.3 billion in 2021, an increase of $680.8 million, or 43%, and included $426 million from the BSCA acquisition at the closing date. Total deposits grew $778 million, or 65%, and included $342 million from the BSCA acquisition, bringing average deposits for all branches to $152 million per branch. The growth in total deposits was especially strong considering we sold three branches in the third quarter of 2021 with a combined $82 million in deposits. We are deploying this cash from deposit growth to fund new loans and, over time, make additions to our investment portfolio.

“We are currently in the process of integrating the Bank of Santa Clarita and working to ensure a smooth transition for both customers and employees. We anticipate completing the BSCA system conversion in the second quarter of 2022. After building the foundation and expanding the footprint of our relationship-based commercial banking model in 2021, and with the recent addition of our Private Banking and SBA lending divisions, we are looking forward to a very productive year in 2022, as we continue providing highly personalized service to all our Southern California customers.”

Fourth Quarter and Full Year Operating Results

Net Income

Net income for the fourth quarter of 2021 was $3.4 million, or $0.19 per diluted share, compared to net income of $3.5 million, or $0.25 per diluted share in the third quarter of 2021. Pre-tax, pre-provision income for the fourth quarter of 2021 was $6.0 million, an increase of $960,000, or 19.1% compared to pre-tax, pre-provision income of $5.0 million in the prior quarter. The decrease in net income in the fourth quarter of 2021 compared with the third quarter of 2021 was due to a $4.3 million increase in net interest income, offset by a $1.2 million increase in the provision for loan losses, a $1.2 million decrease in noninterest income, and a $2.2 million increase in noninterest expense.

Net income for the full year of 2021 was $10.7 million, or $0.72 per diluted share, compared to net income of $4.7 million or $0.49 per diluted share for 2020, an increase of 126.8%. Pre-tax, pre-provision income for 2021 was $15.4 million, an increase of $4.1 million, or 35.9% compared to pre-tax, pre-provision income of $11.3 million for the full year of 2020. The increase in net income in 2021 compared with 2020 was primarily due to an $18.5 million increase in net interest income, a $2.2 million increase in noninterest income, and a $3.4 million decrease in the provision for loan losses, partially offset by a $16.6 million increase in noninterest expense.

Net Interest Income and Net Interest Margin

Net interest income for the fourth quarter of 2021 was $20.3 million, an increase of $4.3 million, or 26.9% from $16.0 million in the prior quarter. The increase was due to strong organic loan growth, as well as net interest income associated with the BSCA acquisition, which became effective October 1, 2021. Total average loans for the quarter ended December 31, 2021, increased to $1.5 billion as compared to $1.2 billion in the prior quarter. Total average loans related to the BSCA acquisition was $250.1 million. PPP net loan interest income in the fourth quarter of 2021 decreased to $4.8 million, compared to $5.2 million in the prior quarter. Interest expense in the fourth quarter of 2021 was $781,000 compared to $752,000 in the prior quarter.

Net interest margin for the fourth quarter of 2021 was 3.74%, compared with 3.67% in the prior quarter. The increase was primarily related to loan interest income from payoffs and an improved funding mix in the fourth quarter of 2021. The yield on average loans in the fourth quarter of 2021, excluding PPP loans, was 4.58%, a decrease of two basis points from 4.60% in the prior quarter. Average PPP loan yields in the fourth quarter of 2021 increased to 15.79%, compared to 7.88% in the prior quarter. The increase was due to accelerated unearned fee income related to the SBA’s forgiveness of Round 2 PPP loans, which are typically amortized on a straight-line basis over five years. The yield on total earning assets in the fourth quarter of 2021 was 3.89%, compared with 3.84% in the prior quarter.

Cost of funds for the fourth quarter of 2021 was 0.15%, down from 0.18% in the prior quarter. The decrease was primarily due to an increase in average noninterest-bearing demand deposits. Average noninterest-bearing demand deposits increased $229.2 million to $1.01 billion and represented 50.4% of total average deposits for the fourth quarter of 2021, compared to $778.0 million, or 48.4% of total average deposits for the prior quarter. The total cost of deposits in the fourth quarter of 2021 was 0.09%, down from 0.11% in the prior quarter.

Net interest income in 2021 totaled $64.4 million, an increase of $18.5 million, or 40.2% from the previous year. The increase in net interest income was primarily due to strong organic loan growth, the acceleration of deferred fee income from PPP loan forgiveness, net interest income associated with the BSCA acquisition effective October 1, 2021, and a lower cost of funds. Average loans increased by $246.0 million due primarily to average organic loan growth of $219.2 million, and the BSCA acquired loan portfolio. Total average loans for the year ended December 31, 2021, increased to $1.4 billion, compared with $1.1 billion at December 31, 2020. Total average loans for 2021 related to the BSCA acquisition was $63.0 million. Interest income from PPP loans increased to $17.7 million for the year ended December 31, 2021, compared with $12.0 million in the prior year. Total interest expense for the full year of 2021 was $3.4 million, a decrease of $2.5 million from the full year of 2020. The decrease in interest expense for the full year of 2021 was primarily due to run-off of higher-cost time deposits, the payoff of FHLB advances and PPP Liquidity Facility (“PPPLF”) borrowings, and a decrease in total deposit costs. Interest-bearing deposit expense decreased $1.8 million, coupled with a $682,000 decrease in total borrowings expense.

Net interest margin for the full year of 2021 was 3.64%, compared with 3.66% in the prior year. The decrease was primarily related to the yield on non-PPP loans declining to 4.71% in 2021, compared with 4.90% in the prior year. This was partially offset by an increase in the yield on PPP loans to 5.43% in 2021, compared with 3.70% in the prior year, which increase was due to the accelerated deferred fee income from PPP loan forgiveness in 2021. The yield on total interest-earning assets declined to 3.83% in 2021, compared with 4.13% in 2020. The decrease in the other interest earning assets yield was driven by lower market interest rates.

The cost of funds for the full year of 2021 decreased to 0.20% from 0.50% for the full year of 2020. The decrease was primarily due to lower market interest rates, run-off of higher-cost time deposits, payoff of FHLB borrowings, and an increase in average noninterest-bearing demand deposits. Average noninterest-bearing demand deposits increased $362.4 million to $783.8 million and represented 48.6% of total average deposits for the full year of 2021, compared to $421.4 million, or 42.3% of total average deposits for the prior year. The total cost of deposits for the full year of 2021 was 0.13%, down from 0.39% in the prior year.

Average total borrowings decreased $146.6 million to $42.7 million for the full year of 2021. The average cost of borrowings was 3.07%, up from 1.05% in the prior year.

Provision for Loan Losses

The Company recorded a loan loss provision of $1.2 million in the fourth quarter of 2021 and for the full year of 2021, primarily related to strong organic loan growth. In 2020, the Company recorded a loan loss provision of $4.6 million. The Company’s management continues to monitor macroeconomic variables related to COVID-19 and reasonably believes it is appropriately provisioned for the current environment. Management will continue to monitor and manage the loan portfolio to minimize potential future losses.

Noninterest Income

Total noninterest income in the fourth quarter of 2021 was $526,000, a decrease of $1.2 million compared with noninterest income of $1.7 million in the third quarter of 2021. The decrease was due primarily to the recognition of a gain on sale of $726,000 for the sale of three nonstrategic branches in the third quarter of 2021, for which there was no corresponding transaction in the fourth quarter. In the fourth quarter of 2021, income from service charges, fees and other income increased $94,000, and income from bank-owned life insurance increased $54,000 over the prior quarter.

Total noninterest income for the full year of 2021 was $4.5 million, an increase of $2.2 million compared with $2.3 million for the full year of 2020. The increase in total noninterest income in 2021 was primarily due to a $577,000 increase in service charges, fees and other income; a $425,000 increase in income from bank owned life insurance; a $920,000 gain on sale of an acquired loan; and a $726,000 gain on sale from the sale of three nonstrategic branches.

Noninterest Expense

Noninterest expense for the fourth quarter of 2021 increased $2.2 million to $14.9 million, compared with $12.7 million in the prior quarter. The increase was largely due to an increase of $1.4 million in salaries and benefits, and a $356,000 increase in strategic and other non-operating expenses primarily related to termination charges for core conversion.

Noninterest expense for the full year of 2021 was $53.5 million, an increase of $16.6 million compared with $36.9 million for the full year of 2020. The increase was largely due to a $13.2 million increase in salaries and employee benefits related to the Company’s strategic expansion into Orange, Los Angeles and Ventura counties, which also included approximately $3.1 million in compensation expense related to the settlement of a preexisting employment contract and approximately $500,000 additional salary and benefit expense related to the additional BSCA employees. Occupancy and equipment expense increased by $1.1 million in 2021, primarily related to the Company’s strategic expansion. Other expense increased $3.9 million in 2021, primarily related to increased expenses for data processing, legal, and the provision for unfunded loan commitments.

Income Tax

In the fourth quarter of 2021, the Company’s income tax expense was $1.4 million, compared with $1.5 million in the third quarter of 2021. The effective rate was 29.6% for the fourth quarter of 2021 and 30.4% for the third quarter of 2021. For the full year of 2021 the Company’s income tax expense was $3.5 million, compared with $2.0 million for the full year of 2020. The effective rate was 24.5% for 2021 and 30.2% for 2020. The decrease for the full year of 2021 was primarily attributable to the impact of the vesting and exercise of equity awards combined with changes in the Company's stock price over time.

Balance Sheet

Assets

Total assets at December 31, 2021, were $2.26 billion, an increase of $680.8 million or 43.1% from December 31, 2020, and an increase of $475.7 million, or 26.7% from September 30, 2021. The increase in total assets from the prior year was primarily related to a $778.4 million increase in deposits. The increase in total assets from the prior quarter included the acquisition of BSCA and its $425.6 million in assets, including $342.3 million in deposits at the closing date.

Loans

Total loans were $1.50 billion at December 31, 2021, including $244.5 million in loans acquired in the BSCA acquisition, compared to $1.23 billion at September 30, 2021, and December 31, 2020. In 2021, the Company’s non-PPP loan portfolio had net organic growth of $378.2 million, or 45.7%, after payoffs of approximately $221.1 million. In the fourth quarter of 2021, organic non-PPP loan growth was $154.3 million or 14.7%, after payoffs of approximately $67.1 million, with an outstanding organic non-PPP loan balance of $1.45 billion at December 31, 2021.

During the fourth quarter of 2021, total commercial and industrial loans, excluding PPP loans, increased by $58.0 million, of which $13.5 million was related to the BSCA acquisition. PPP loans decreased by $122.7 million during the fourth quarter, with an outstanding balance of $58.7 million at December 31, 2021. Loans secured by real estate increased by $296.6 million, of which $223.6 million was related to the BSCA acquisition. Construction and land development loans increased by $43.2 million, of which $3.0 million was related to the BSCA acquisition.

Deposits

Total deposits at December 31, 2021, were $1.97 billion, an increase of $406.7 million from the end of the prior quarter, and $778.4 million from December 31, 2020. The increase reflected organic growth, as well as $319 million in deposits related to the BSCA acquisition in the fourth quarter of 2021. Noninterest-bearing demand deposits at December 31, 2021 were $986.9 million, or 50.0% of total deposits, compared to $760.5 million, or 48.6% of total deposits, at September 30, 2021 and $533.9 million, or 44.7% of total deposits, at December 31, 2020.

Asset Quality

Total non-performing assets totaled $809,000 or 0.04% of total assets at December 31, 2021, compared with $666,000 or 0.04% at September 30, 2021, and $896,000 or 0.06% at December 31, 2020. The increase in nonperforming loans in the fourth quarter of 2021 was primarily due to two loans associated with the acquisition of BSCA on October 1, 2021, offset by the payoff of an impaired loan during the fourth quarter.

During the fourth quarter of 2021, the Company recorded net recoveries of $92,000, compared to net recoveries of $75,000 in the third quarter of 2021. For the full year of 2021, the Company recorded net recoveries of $202,000 compared to net recoveries of $340,000 for the prior year.

Loan delinquencies (30-89 days past due) totaled $1.0 million at December 31, 2021, compared to $2.3 million at December 31, 2020. No loans were 30-89 days past due at September 30, 2021.

The allowance for loan losses ("ALLL") was $11.7 million at December 31, 2021, compared to $10.4 million at September 30, 2021 and $10.3 million at December 31, 2020. The ALLL to total loans was 0.77%, 0.84% and 0.83% at December 31, 2021, September 30, 2021 and December 31, 2020. The ALLL to total loans, excluding PPP loans was 0.81%, 0.99% and 1.24% at December 31, 2021, September 30, 2021 and December 31, 2020. The net carrying value of acquired loans totaled $383.2 million and included a remaining net discount of $2.7 million at December 31, 2021. The discount is available to absorb losses on the acquired loans and represented 0.70% of the net carrying value of acquired loans and 0.18% of total gross loans held for investment.

Liquidity and Capital

With 65.1% growth in total deposits for 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.

The significant production in PPP loans in 2020 and 2021 was funded through a combination of increased DDA accounts, generally associated directly with the PPP Loans, borrowings under PPPLF, and other sources. At December 31, 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 preliminary leverage capital ratio and total risk-based capital ratio at 9.95% and 15.03%, respectively, at December 31, 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 13 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.

FORWARD-LOOKING STATEMENTS

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.

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