Southern California Bancorp Reports Continued Strong Loan Growth for the Second Quarter of 2022

─ Second quarter non-PPP organic loan growth of $153.1 million, up 9.5% from prior quarter

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 announced its consolidated financial results for the second quarter of 2022.

Southern California Bancorp reported a net loss of $736 thousand for the second quarter of 2022, or $0.04 per diluted share, compared to net income of $1.4 million, or $0.08 per diluted share in the first quarter of 2022. As a result of recent developments, including discussions regarding an anticipated comprehensive settlement relating to a legal matter (the "Anticipated Litigation Settlement"), the Company’s second quarter results include an after-tax loss contingency for the Anticipated Litigation Settlement expense of $4.6 million, or $0.25 per diluted share. Excluding this after-tax loss contingency for the Anticipated Litigation Settlement expense and merger related expenses of $383 thousand, the Company would have reported net income (non-GAAP) of $4.2 million, or $0.23 per diluted share, for the second quarter of 2022.

Second Quarter 2022 Highlights

• Net loss of $736 thousand, down $2.2 million from the prior quarter
• Adjusted net income (non-GAAP) of $4.2 million, compared to $1.8 million in the prior quarter
• Non-Paycheck Protection Program ("non-PPP") loan interest income increased $3.3 million, or 19.9%, over the prior quarter
• Pre-tax, pre-provision income (non-GAAP) of $608 thousand, compared to $3.8 million in the prior quarter
• Adjusted pre-tax, pre-provision income (non-GAAP) of $7.7 million, compared to $4.4 million in the prior quarter
• Provision for loan losses of $1.7 million due to strong loan growth, compared to $1.9 million in the prior quarter
• Net interest margin of 3.87%, compared with 3.40% in the prior quarter; average yield on non-PPP loans of 4.70% compared with 4.45% in the prior quarter
• Total assets of $2.32 billion, up $21.2 million, or 0.92% from March 31, 2022, and up $59.2 million or 2.6% from December 31, 2021
• Total organic non-PPP loans increased to $1.77 billion, up $153.1 million or 9.48% from March 31, 2022, and up $321.8 million or 22.3%, from December 31, 2021
• Paycheck Protection Program ("PPP") loan portfolio balance of $4.8 million, down $10.4 million from March 31, 2022, and down $53.9 million from December 31, 2021
• Total deposits of $2.03 billion, up $17.3 million or 0.86% from March 31, 2022, and up $57.1 million or 2.9%, from December 31, 2021
• Noninterest-bearing demand deposits were $1.06 billion, representing 52.1% of total deposits, up $24.7 million from March 31, 2022, and up $69.9 million from December 31, 2021
• Cost of deposits was 0.07%, down from 0.08% in the prior quarter
• Tangible book value per common share ("TBV") of $11.59 at June 30, 2022
• Nonperforming assets to total assets ratio of 0.03%, compared to 0.09% and 0.04% at March 31, 2022 and December 31, 2021
• Continued status as “well-capitalized,” the highest regulatory capital category

“I’m pleased to report continued strong net non-PPP loan growth of $153.1 million in the second quarter of 2022, as we continue to execute on our strategy of building Southern California’s premier relationship-based business banking franchise,” said Thomas Dolan, Interim Chief Executive Officer of Southern California Bancorp and Bank of Southern California.

“In the second quarter of 2022 we reserved for a pre-tax loss contingency for the Anticipated Litigation Settlement expense of $6.5 million, which significantly impacted our results in what would have otherwise been a strong earnings quarter for the Company. After adjusting for the pre-tax loss contingency for the Anticipated Litigation Settlement expense and pre-tax merger expenses of $544 thousand, our adjusted pre-tax, pre-provision income (non-GAAP) was $7.7 million, a $3.3 million increase from $4.4 million in the first quarter of 2022. The increase in adjusted pre-tax, pre-provision income was driven by an increase in non-PPP loan interest income, which benefited from strong loan growth, Fed funds rate increases during the first half of 2022, and an improved asset mix, the result of our deploying excess liquidity into higher yielding assets.

“Adjusted second quarter return-on-average-assets (non-GAAP) and return-on-average-equity (non-GAAP) increased to 0.73% and 6.82%, up from 0.33%, 3.00%, respectively, in the prior quarter. While increasing our revenue growth, we continued our efforts to monitor and manage our non-interest expenses. Our adjusted efficiency ratio (non-GAAP) decreased to 65.9%, from 77.5% in the prior quarter. We are very pleased with the improvement shown in our adjusted performance metrics in the second quarter and appreciate the contributions made by everyone on our team to achieve them. Our Private Banking group, added late last year, and our SBA lending group, new to the Company this year, have helped improve and diversify the Company’s earnings. We believe our second quarter results are evidence of the traction our relationship-based banking strategy is getting, and we are optimistic about the future as we continue to execute on our strategy.”

Second Quarter Operating Results

Net Interest Income and Net Interest Margin

Net interest income for the second quarter of 2022 was $20.9 million, compared to $17.8 million in the prior quarter. The increase was primarily due to a $3.1 million increase in total interest income, coupled with a $42 thousand decrease in total interest expense. During the second quarter of 2022, PPP loan interest income decreased $1.0 million, while non-PPP loan interest income increased $3.3 million, debt securities income increased $471 thousand, and interest and dividend income from other financial institutions increased $412 thousand. The increase in interest income was due to a number of factors: higher average non-PPP loans from organic loan growth; a change in the interest-earning asset mix; increases in the target Fed funds rate; and lower costs on interest-bearing liabilities. Average interest earning assets increased $50.5 million, resulting from a $183.5 million increase in average non-PPP loans, and a $69.1 million increase in average debt securities, partially offset by a $25.8 million decrease in average PPP loans and a $217.5 million decrease in average deposits in other financial institutions. The decrease in interest expense for the second quarter of 2022 was due primarily to our continued efforts to maintain the low cost of interest-bearing relationship-based customer deposits.

Net interest margin for the second quarter of 2022 was 3.87%, compared with 3.40% in the prior quarter. The increase was primarily related to a 45 basis point increase in the total interest-earning assets yield resulting from higher market interest rates and a change in the Bank's interest-earning asset mix, coupled with a 1 basis point decrease in the cost of funds. The yield on average loans in the second quarter of 2022 was 4.74%, an increase of 4 basis points from 4.70% in the prior quarter. Average yield on non-PPP loans was 4.70% for the second quarter of 2022, up 25 basis points from 4.45% in the first quarter. Average yield on PPP loans for the second quarter of 2022 decreased to 12.34%, compared to 15.38% in the prior quarter. The yield on total earning assets in the second quarter of 2022 was 3.99%, compared with 3.54% in the prior quarter.

Cost of funds for the second quarter of 2022 was 13 basis points, down from 14 basis points in the prior quarter, as the Company continues to align funding costs of the legacy Bank of Santa Clarita with those of the Bank of Southern California. Average noninterest-bearing demand deposits increased $63.4 million to $1.05 billion and represented 52.1% of total average deposits for the second quarter of 2022, compared to $990.2 million and 50.2%, respectively, for the prior quarter. The total cost of deposits in the second quarter of 2022 was 7 basis points, down from 8 basis points in the prior quarter.

Average total borrowings decreased $452 thousand to $20.0 million for the second quarter of 2022. The average cost of borrowings was 6.08% for the second quarter of 2022, down from 6.16% in the prior quarter.

Provision for Loan Losses

The Company recorded a loan loss provision of $1.7 million in the second quarter of 2022, primarily related to strong organic loan growth. In the first quarter of 2022, the Company recorded a loan loss provision of $1.9 million. The Company’s management continues to monitor macroeconomic variables related to COVID-19 and the concerns of an economic downturn and believes it is appropriately provisioned for the current environment.

Noninterest Income

Total noninterest income in the second quarter of 2022 was $1.5 million, a decrease of $77 thousand compared to $1.6 million in the first quarter of 2022 due primarily to a decrease in bank owned life insurance income of $617 thousand, and a decrease in service charges and fees on deposit accounts of $102 thousand, partially offset by an increase in gain on sale of loans of $718 thousand.

The $617 thousand decrease in bank owned life insurance income was due primarily to income from a one-time death benefit received in the first quarter of 2022. There was no similar income in the second quarter of 2022. The $102 thousand decrease in service charges and fees on deposit accounts was due primarily to the waiving of the analysis fee income related to the transition of core and ancillary software associated with a new account analysis system.

The $718 thousand increase in gain on sale of loans was due primarily to a higher volume of SBA 7A loans sold in the second quarter of 2022. Total loans sold during the second quarter of 2022 was $11.0 million resulting in a gain of $767 thousand, compared to total loans sold of $547 thousand in the first quarter resulting in a gain on sale of $49 thousand.

Noninterest Expense

Total noninterest expense for the second quarter of 2022 increased $6.3 million to $21.9 million, compared to $15.6 million in the prior quarter. The increase was caused by various nonrecurring expenses, such as the aforementioned loss contingency for the Anticipated Litigation Settlement expense of $6.5 million, impairment charges related to the right-of-use asset associated with a Company lease, and a loss on an early extinguishment of debt. Also contributing to the increase in noninterest expense in the second quarter of 2022 was an increase in reserve for unfunded loan commitments. Those increases were partially offset by a decrease in salaries and employee benefits and data processing and communications.

The $835 thousand decrease in salaries and benefits was due primarily to lower salary expense resulting from a decrease in average headcount, coupled with an increase in capitalized loan origination costs primarily resulting from an increase in loan production. The $328 thousand decrease in data processing and communications was due primarily to the completion of the core system conversion for the legacy bank in March 2022 and Bank of Santa Clarita in April 2022.

The $322 thousand increase in occupancy and equipment expenses was due primarily to a $136 thousand pre-tax impairment charge for the right-of-use asset. The $524 thousand increase in other expenses included $347 thousand related to a loss on an early extinguishment of debt acquired from CalWest Bancorp and $146 thousand provision for unfunded loan commitments. Total unfunded loan commitments increased $83.6 million to $500.3 million at June 30, 2022 from $416.6 million at December 31, 2021.

Income Tax

In the second quarter of 2022, the Company’s income tax benefit was $306 thousand, compared with income tax expense of $550 thousand in the first quarter of 2022. The effective rate was 29.4% for the second quarter of 2022 and 27.6% for the first quarter of 2022. The effective tax rate for 2022 is expected to be 27%.

Balance Sheet

Assets

Total assets at June 30, 2022 were $2.32 billion, an increase of $21.2 million or 0.92% from March 31, 2022, and $59.2 million or 2.6% from December 31, 2021. The increase in total assets from the prior quarter was primarily related to a $142.8 million increase in total loans, a $31.3 million increase in available-for-sale debt securities, and a $9.2 million increase in held-to-maturity securities, partially offset by a $164.8 million decrease in cash and cash equivalents.

The increase from December 31, 2021 was primarily related to a $267.9 million increase in total loans, a $70.2 million increase in available-for-sale debt securities, and a $54.1 million increase in held-to-maturity securities, partially offset by a $338.6 million decrease in cash and cash equivalents.

Loans

Total loans held for investment were $1.77 billion at June 30, 2022, compared to $1.63 billion and $1.50 billion at March 31, 2022 and December 31, 2021. In the second quarter of 2022, the Company's loans held for investment, excluding PPP loans, had net organic growth of $154.1 million or 9.6%, net of total loan principal payoffs of approximately $130 million, resulting in an outstanding organic non-PPP loan balance of $1.77 billion at June 30, 2022. Total loans secured by real estate increased by $77.0 million, construction and land development loans increased by $39.3 million and commercial and industrial loans increased by $23.9 million. The PPP loan balance decreased $10.4 million to $4.8 million at June 30, 2022. There were $1.9 million in loans held for sale on the Company's balance sheet at June 30, 2022, related to the expansion of the SBA lending department, which are expected to be sold in the secondary market in the third quarter of 2022, compared to $2.9 million at March 31, 2022.

In the first six months of 2022, the Company’s loans held for investment, excluding PPP loans, had net organic growth of $319.9 million, or 22.1%, net of total loan principal payoffs of approximately $235 million. Total loans secured by real estate increased by $199.0 million, and construction and land development loans increased by $71.5 million. Total commercial and industrial loans decreased by $8.2 million, as $53.9 million in PPP loans received SBA forgiveness or pay downs.

Deposits

Total deposits at June 30, 2022 were $2.03 billion, an increase of $17.3 million and $57.1 million from March 31, 2022 and December 31, 2021. Noninterest-bearing demand deposits at June 30, 2022 were $1.06 billion, or 52.1% of total deposits, compared to $1.03 billion and $986.9 million, or 51.3% and 50.0% of total deposits at March 31, 2022 and December 31, 2021.

Asset Quality

Total non-performing assets decreased to $655 thousand or 0.03% of total assets at June 30, 2022, compared with $2.0 million or 0.09%, and $809 thousand or 0.04% of total assets at March 31, 2022 and December 31, 2021, respectively. The decrease in the second quarter of 2022 was due primarily to $431 thousand from payoffs and $707 thousand from a note sale and charge-offs.

The decrease from December 31, 2021 was due primarily to $692 thousand from payoffs, note sale and charge-offs, partially offset by $545 thousand from a downgrade of one loan.

The Company had no loans over 90 days past due that were accruing interest at June 30, 2022. At June 30, 2022, the Company recorded net charge-offs of $21 thousand.

Loan delinquencies (30-89 days past due) totaled $459 thousand at June 30, 2022, compared to $1.0 million at December 31, 2021.

The allowance for loan losses (“ALLL”) was $15.1 million at June 30, 2022, compared to $13.5 million and $11.7 million at March 31, 2022 and December 31, 2021. The ALLL to total loans was 0.85% at June 30, 2022, compared to 0.83% and 0.77% at March 31, 2022, and December 31, 2021, respectively. The ALLL to total loans, excluding PPP loans was 0.86%, 0.84% and 0.81% at June 30, 2022, March 31, 2022 and December 31, 2021, respectively. The net carrying value of acquired loans totaled $315.1 million and included a remaining net discount of $2.2 million at June 30, 2022. This discount is available to absorb losses on the acquired loans and represented 0.70% of the net carrying value of acquired loans and 0.12% of total gross loans held for investment.

Capital

Tangible book value per common share at June 30, 2022, was $11.59, compared with $11.72 and $11.73 at March 31, 2022 and December 31, 2021. The $0.13 and $0.14 decrease from March 31, 2022 and December 31, 2021, was primarily related to the $2.2 million and $4.5 million increase in the accumulated other comprehensive loss related to the fair value of available-for-sale securities, compared to an accumulated other comprehensive loss of $2.3 million and $38 thousand at March 31, 2022 and December 31, 2021.

The Bank’s leverage capital ratio and total risk-based capital ratio were 9.91% and 11.82%, respectively, at June 30, 2022.

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 solutions-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.

NON-GAAP FINANCIAL MEASURES

This press release contains certain non-GAAP financial measures in addition to results presented in accordance with GAAP. The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company's results of operations and financial condition and to enhance investors' overall understanding of such results of operations and financial condition, permit investors to effectively analyze financial trends of our business activities, and enhance comparability with peers across the financial services sector. These non-GAAP financial measures are not a substitute for GAAP measures and should be read in conjunction with the Company's GAAP financial information. A reconciliation of GAAP financial measures to non-GAAP financial measures is included in the accompanying financial tables.

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, litigation expenses, or other measures of economic performance. As well, forward-looking statements may relate to future outlook and anticipated events. 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.