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What changed in California BanCorp \ CA's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of California BanCorp \ CA's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+564 added−523 removedSource: 10-K (2025-04-01) vs 10-K (2024-03-15)

Top changes in California BanCorp \ CA's 2024 10-K

564 paragraphs added · 523 removed · 371 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

100 edited+23 added−21 removed111 unchanged
Biggest changeAs of December 31, 2023, we had $4.4 million consumer loans, representing 0.3% of total loans held for investment. There were no non-performing consumer loans at December 31, 2023. Deposit Products We offer comprehensive treasury services tools that are designed to improve our clients’ cash flow, minimize unnecessary fees, and maximize their earnings.
Biggest changeDeposit Products We offer comprehensive treasury services tools that are designed to improve our clients’ cash flow, minimize unnecessary fees, and maximize their earnings. These services are offered at our branch locations and include analyzed business checking accounts, remote deposit capture, ACH origination, 12 Table of Contents cash vault services, courier service, and lockbox processing.
Assessing management experience, track record and quality of the management team. d. Relationship-based loan extensions that include a deposit relationship, and not solely transaction based. Loans are generally extended to individuals and businesses that have high integrity and benefit both us and the community. e.
Assessing management experience, track record and quality of the management team. d. Relationship-based loan extensions that include a deposit relationship, not solely transaction based. Loans are generally extended to individuals and businesses that have high integrity and benefit both us and the community. e.
We may sell participations in our loans to other financial institutions to manage the risk involved in large dollar loans or to manage portfolio concentrations and to meet the lending needs of our customers requiring extensions of credit in excess of regulatory limits.
We may sell loans or participations in our loans to other financial institutions to manage the risk involved in large dollar loans or to manage portfolio concentrations and to meet the lending needs of our customers requiring extensions of credit in excess of regulatory limits.
It is the Federal Reserve’s policy that a bank holding company should generally pay dividends on common stock only out of current income available over the past year, and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition, and current Federal Reserve policy further calls for a bank holding company to consult with the Federal Reserve before repurchasing shares or paying dividends during a quarter in an amount that exceeds its earnings for the quarter.
In addition, it is the Federal Reserve’s policy that a bank holding company should generally pay dividends on common stock only out of current income available over the past year, and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition, and current Federal Reserve policy further calls for a bank holding company to consult with the Federal Reserve before repurchasing shares or paying dividends during a quarter in an amount that exceeds its earnings for the quarter.
We support our communities through philanthropic giving to nonprofit organizations with which we generally have a direct banking (including investments, deposits, and loans) and/or Community Reinvestment Act (“CRA”) service or referral relationship. Our Advisory Boards consist of leaders in the local business communities that offer insights into business conditions in the regional area and introduce us to prospective clients.
We support our communities through philanthropic giving to nonprofit organizations with which we generally have a direct banking relationship (including investments, deposits, and loans) and/or Community Reinvestment Act (“CRA”) service or referral relationships. Our Advisory Boards consist of leaders in the local business communities that offer insights into business conditions in the regional area and introduce us to prospective clients.
Our business clientele is generally comprised of small to medium-sized businesses engaged in any of the following California business sectors: • Manufacturing • Wholesale Distribution • Professional Services • Commercial Real Estate • Healthcare • Hospitality • Non-Profit Organizations Competition The banking business is highly competitive, and we face competition in our market areas from many other local, regional, and national financial institutions.
Our business clientele is generally comprised of small to medium-sized businesses engaged in any of the following California business sectors: • Manufacturing • Wholesale Distribution • Professional Services • Commercial Real Estate • Healthcare • Hospitality • Commercial Contractors • Non-Profit Organizations Competition The banking business is highly competitive, and we face competition in our market areas from many other local, regional, and national financial institutions.
The primary source of funds for the Company is expected to be dividends paid by the Bank. OCC regulations impose various restrictions on the ability of a national bank to make capital distributions, including dividends, stock redemptions or repurchases, and certain other distribution.
The primary source of funds for the Company is expected to be dividends paid by the Bank. OCC regulations impose various restrictions on the ability of a national bank to make capital distributions, including dividends, stock redemptions or repurchases, and certain other distributions.
The following table sets forth the minimum regulatory capital levels for each category: Capital Category Total Risk-Based Capital Ratio Tier 1 Risk-Based Capital Ratio Common Equity Tier 1 (CET1) Capital Ratio Leverage Ratio Tangible Equity to Assets Supplemental Leverage Ratio Well-Capitalized 10% or greater 8% or greater 6.5% or greater 5% or greater n/a n/a Adequately Capitalized 8% or greater 6% or greater 4.5% or greater 4% or greater n/a 3% or greater Undercapitalized Less than 8% Less than 6% Less than 4.5% Less than 4% n/a Less than 3% Significantly Undercapitalized Less than 6% Less than 4% Less than 3% Less than 3% n/a n/a Critically Undercapitalized n/a n/a n/a n/a Less than 2% n/a An institution’s capital category is determined solely for the purpose of applying prompt corrective action regulations, and the capital category may not constitute an accurate representation of the institution’s overall financial condition or prospects for other purposes.
The following table sets forth the minimum regulatory capital levels for each category: Capital Category Total Risk-Based Capital Ratio Tier 1 Risk-Based Capital Ratio Common Equity Tier 1 (CET1) Capital Ratio Leverage Ratio Tangible Equity to Assets Supplemental Leverage Ratio Well-Capitalized 10% or greater 8% or greater 6.5% or greater 5% or greater n/a n/a Adequately Capitalized 8% or greater 6% or greater 4.5% or greater 4% or greater n/a 3% or greater Undercapitalized Less than 8% Less than 6% Less than 4.5% Less than 4% n/a Less than 3% Significantly Undercapitalized Less than 6% Less than 4% Less than 3% Less than 3% n/a n/a Critically Undercapitalized n/a n/a n/a n/a Less than 2% n/a 19 Table of Contents An institution’s capital category is determined solely for the purpose of applying prompt corrective action regulations, and the capital category may not constitute an accurate representation of the institution’s overall financial condition or prospects for other purposes.
Several federal laws, including the Bank Secrecy Act, the Money Laundering Control Act and the Patriot Act require all financial institutions, including banks, to implement policies and procedures relating to anti-money laundering, compliance, suspicious activities, and currency transaction reporting and due diligence on clients.
Anti-Money Laundering and Suspicious Activity . Several federal laws, including the Bank Secrecy Act, the Money Laundering Control Act and the Patriot Act require all financial institutions, including banks, to implement policies and procedures relating to anti-money laundering, compliance, suspicious activities, and currency transaction reporting and due diligence on clients.
For this purpose, federal banking regulations define five capital categories: “well-capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” As of December 31, 2023, the Bank’s capital levels exceeded the minimum levels required to be considered “well-capitalized,” which means it had a common equity Tier 1 capital ratio of 6.5% or higher; a Tier I risk-based capital ratio of 8.0% or higher; a total risk-based capital ratio of 10.0% or higher; and a leverage ratio of 5.0% or higher.
For this purpose, federal banking regulations define five capital categories: “well-capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” As of December 31, 2024, the Bank’s capital levels exceeded the minimum levels required to be considered “well-capitalized,” which means it had a common equity Tier 1 capital ratio of 6.5% or higher; a Tier I risk-based capital ratio of 8.0% or higher; a total risk-based capital ratio of 10.0% or higher; and a leverage ratio of 5.0% or higher.
These actions include the power to enjoin any “unsafe or unsound” banking practices; to require that affirmative action be taken to correct any conditions resulting from any violation of law or unsafe or unsound practice; to issue an administrative order that can be judicially enforced; to require that it increase its capital; to restrict its growth; to assess civil monetary penalties against it or its officers or directors; to remove officers and directors of the bank; and if the federal banking agency concludes that such conditions at the bank holding company or the bank cannot be corrected or there is an imminent risk of loss to depositors, to terminate a bank’s deposit insurance, which would then require it to cease its banking operations.
These actions include the power to enjoin any “unsafe or unsound” banking practices; to require that affirmative action be taken to correct any conditions resulting from any violation of law or 16 Table of Contents unsafe or unsound practice; to issue an administrative order that can be judicially enforced; to require that it increase its capital; to restrict its growth; to assess civil monetary penalties against it or its officers or directors; to remove officers and directors of the bank; and if the federal banking agency concludes that such conditions at the bank holding company or the bank cannot be corrected or there is an imminent risk of loss to depositors, to terminate a bank’s deposit insurance, which would then require it to cease its banking operations.
These loans are secured by single family residential properties (one to four units), multifamily residential properties (five or more units), owner-occupied CRE, and non-owner-occupied CRE. Real estate loans are subject to the same 11 Table of Contents general risks as other loans and may also be impacted by changing demographics, collateral maintenance, and product supply and demand.
These loans are secured by single family residential properties (one to four units), multifamily residential properties (five or more units), owner-occupied CRE, and non-owner-occupied CRE. Real estate loans are subject to the same general risks as other loans and may also be impacted by changing demographics, collateral maintenance, 10 Table of Contents and product supply and demand.
These provisions include: • a requirement to have only two years of audited financial statements and only two years of related management’s discussion and analysis of financial condition and results of operations; • exemption from the auditor attestation requirement in the assessment of the emerging growth company’s internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002; • reduced disclosure about the emerging growth company’s executive compensation arrangements; and • no non-binding advisory votes on executive compensation or golden parachute arrangements.
These provisions include: 13 Table of Contents • a requirement to have only two years of audited financial statements and only two years of related management’s discussion and analysis of financial condition and results of operations; • exemption from the auditor attestation requirement in the assessment of the emerging growth company’s internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002; • reduced disclosure about the emerging growth company’s executive compensation arrangements; and • no non-binding advisory votes on executive compensation or golden parachute arrangements.
Lending Products We offer a diversified mix of business loans primarily encompassing the following loan products: (i) construction and land development loans; (ii) real estate loans; (iii) commercial and industrial (“C&I”) loans; (iv) SBA loans, guaranteed in part by the U.S. Government; and (v) consumer loans.
Lending Products We offer a diversified mix of business loans primarily encompassing the following loan products: (i) construction and land development loans; (ii) real estate loans; (iii) commercial and industrial loans; (iv) SBA loans, guaranteed in part by the U.S. Government; and (v) consumer loans.
In late 2021 and 2022, we hired key strategic team members in the ending production, Finance and Accounting groups. In the future, with the expanded skilled infrastructure, our efforts will focus on organic growth while remaining opportunistic on strategic acquisitions that align with our business model.
In late 2021 and 2022, we hired key strategic team members in the lending production, finance and accounting groups. In the future, with our expanded skilled team and infrastructure, our efforts will focus on organic growth while remaining opportunistic on strategic acquisitions that align with our business model.
Community support is integral to who we are, how we operate, and our success in each community we bank. We have deep roots in the communities in which we do business in, through our donations, our regional Advisory Boards, and our employee involvement in local nonprofits.
Community support is integral to who we are, how we operate, and our success in each community we bank. We have deep roots in the communities in which we do business in, through donations, regional Advisory Boards, and our employees’ involvement in local nonprofits.
This regulation and supervision by the federal banking agencies is intended primarily for the protection of clients and depositors, the stability of the U.S. financial system, and the Deposit Insurance Fund administered by the FDIC and not for the benefit of stockholders or debt holders.
This regulation and supervision by the federal banking agencies is intended primarily for the protection of clients and depositors, the stability of the U.S. financial system, and the Deposit Insurance Fund administered by the FDIC and not for the benefit of shareholders or debt holders.
The Federal Reserve is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks involved in the transaction. The Federal Reserve’s consideration of financial resources generally focuses on capital adequacy, which is discussed above.
The Federal Reserve is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks involved in the transaction. The Federal Reserve’s consideration of financial resources generally focuses on capital adequacy, which is discussed above. Change in Bank Control .
These extensions of credit must be made on substantially the same terms, including interest rates and collateral, 23 Table of Contents as those prevailing at the time for comparable transactions with unrelated third parties; and must not involve more than the normal risk of repayment or present other unfavorable features. Data Privacy and Cybersecurity .
These extensions of credit must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated third parties; and must not involve more than the normal risk of repayment or present other unfavorable features. Data Privacy and Cybersecurity .
We generally invest in bonds with lower credit 14 Table of Contents risk, primarily those secured by government agencies or highly rated municipalities, to assist in the diversification of credit risk within our asset base. Currently, we primarily invest in agency securities, municipal bonds, mortgage-backed securities, collateralized mortgage obligations securities, SBA loan pools securities, and U.S. Treasury securities.
We generally invest in bonds with lower credit risk, primarily those secured by government agencies or highly rated municipalities, to assist in the diversification of credit risk within our asset base. Currently, we primarily invest in agency securities, municipal bonds, mortgage-backed securities, collateralized mortgage obligations securities, SBA loan pools securities, and U.S. Treasury securities.
Banking regulators also consider interest rate risk (arising when the interest rate sensitivity of a bank’s assets does not match the sensitivity of its liabilities or its off-balance-sheet position) in the evaluation of the bank’s capital adequacy.
Banking regulators also consider interest rate risk (arising when the interest rate sensitivity of a banking organization’s assets does not match the sensitivity of its liabilities or its off-balance-sheet position) in the evaluation of capital adequacy.
The OCC also has the power to bring enforcement actions prohibiting the continuance or development of unsafe or unsound banking practices or other violations of 20 Table of Contents law as discussed above. The Bank is also subject to numerous state and federal statutes and regulations that affect the Bank, its business, activities, and operations. Prompt Corrective Action .
The OCC also has the power to bring enforcement actions prohibiting the continuance or development of unsafe or unsound banking practices or other violations of law as discussed above. The Bank is also subject to numerous state and federal statutes and regulations that affect the Bank, its business, activities, and operations. Prompt Corrective Action .
The GLBA established certain information security guidelines that require each financial institution to maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer information, to protect against anticipated threats or hazards to the security or integrity of such information, and to protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer.
The GLBA established certain information security guidelines that require each financial institution to maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer 22 Table of Contents information, to protect against anticipated threats or hazards to the security or integrity of such information, and to protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer.
Consumer loans are underwritten based on the borrower’s income, current debt level, past credit history, and the availability and value of collateral. Consumer rates are both fixed and variable, with negotiable terms. Our installment loans 13 Table of Contents typically amortize over periods up to 5 years.
Consumer loans are underwritten based on the borrower’s income, current debt level, past credit history, and the availability and value of collateral. Consumer rates are both fixed and variable, with negotiable terms. Our installment loans typically amortize over periods of up to 5 years.
The Bank Holding Company Act provides that, in the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a bank subsidiary will be assumed by the bankruptcy trustee and entitled to priority of payment. 19 Table of Contents Restrictions on Dividends and Stock Repurchases .
The Bank Holding Company Act provides that, in the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a bank subsidiary will be assumed by the bankruptcy trustee and entitled to priority of payment. Restrictions on Dividends and Stock Repurchases .
Management’s confidence in this opportunity is based on the fact that the region has the highest concentration of small businesses in the nation, while it has also experienced a 70% decrease in banks headquartered in the area over the last 23 years, according to data gathered from the FDIC and S&P Global IQ Pro, as of December 31, 2023.
Management’s confidence in this opportunity is based on the fact that the state has the highest concentration of small businesses in the nation, while it has also experienced a 70% decrease in banks headquartered in the area over the last 23 years, according to data gathered from the FDIC and S&P Global IQ Pro, as of December 31, 2024.
The federal banking agencies have adopted minimum risk-based capital requirements (Tier 1 capital, common equity Tier 1 capital (“CET1”) and total capital) and leverage capital requirements, as well as guidelines that define components of the calculation of capital and the level of risk associated with various types of assets.
The federal banking agencies have adopted minimum risk-based capital requirements (Tier 1 capital, common equity Tier 1 capital (“CET1”) and total capital) and leverage capital requirements, as well as guidelines that define components of the calculation of capital and the level of risk associated with 15 Table of Contents various types of assets.
Our policies are designed to help ensure that all loan applicants are credit-checked thoroughly and the decision to provide a credit extension is made only after all pertinent information is developed and analyzed. Basic to developing mutually profitable relationships is flexibility and adaptability to our clients’ requirements, while adhering to sound lending principles and objectives.
Our policies are designed to help ensure that all loan applicants are 8 Table of Contents credit-checked thoroughly and the decision to provide a credit extension is made only after all pertinent information is developed and analyzed. Basic to developing mutually profitable relationships is flexibility and adaptability to our clients’ requirements, while adhering to sound lending principles and objectives.
We will engage in transactional-based lending only for borrowers with successful track records who typically have worked with our employees here or at other banks and have a good record of repayment. 10 Table of Contents The following table presents the composition of our loans held for investment portfolio at December 31, 2023.
We will engage in transactional-based lending only for borrowers with successful track records who typically have worked with our employees here or at other banks and have a good record of repayment. 9 Table of Contents The following table presents the composition of our loans held for investment portfolio at December 31, 2024.
In addition to the minimum risk-based capital and leverage ratios, depository institutions must maintain a “capital conservation buffer” consisting of CET1 in an amount equal to 2.5% of risk-weighted assets in order to avoid restrictions on their ability to make capital distributions and to pay certain discretionary bonus payments to executive officers.
In addition to the minimum risk-based capital and leverage ratios, banking organizations must maintain a “capital conservation buffer” consisting of CET1 in an amount equal to 2.5% of risk-weighted assets in order to avoid restrictions on their ability to make capital distributions and to pay certain discretionary bonus payments to executive officers.
Proposals that could substantially intensify the regulation of the financial services industry have been and may be expected to continue to be introduced in the United States Congress, in state legislatures, and by applicable regulatory authorities. These proposals may change banking statutes and regulations and our operating environment in substantial and unpredictable ways.
New proposals that could substantially intensify the regulation of the financial services industry have been and may be 23 Table of Contents expected to continue to be introduced in the United States Congress, in state legislatures, and by applicable regulatory authorities. These proposals may change banking statutes and regulations and our operating environment in substantial and unpredictable ways.
Because our loan portfolio contains a number of CRE loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase in our levels of nonperforming assets. Commercial and Industrial Loans Our C&I loans are generally made to businesses located in the Southern California region and surrounding communities.
Because our loan portfolio contains a number of CRE loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase in our levels of nonperforming assets. Commercial and Industrial Loans Our C&I loans are generally made to businesses located in California.
We compete with commercial banks, credit unions, mortgage banking firms, finance companies, non-bank lenders, including “fintech” lenders, securities brokerage firms, insurance companies, money market funds and other mutual funds, as well as regional and national 8 Table of Contents financial institutions that operate offices in our market areas and elsewhere.
We compete with commercial banks, credit unions, mortgage banking firms, finance companies, non-bank lenders, including “fintech” lenders, securities brokerage firms, insurance companies, money market funds and other mutual funds, as well as regional and national financial institutions that operate offices in our market areas and elsewhere.
In addition to salaries, we provide annual bonus opportunities to all employees, and we offer a 401(k) plan with an 15 Table of Contents employer matching contribution, healthcare and insurance benefits, as well as flexible and health care savings accounts. We have implemented a Diversity, Equity, and Inclusion (“DEI”) Policy.
In addition to salaries, we provide annual bonus opportunities to all employees, and we offer a 401(k) plan with an employer matching contribution, healthcare and insurance benefits, as well as flexible and health care savings accounts. We have implemented a Diversity, Equity, and Inclusion (“DEI”) Policy.
A depository institution with capital levels falling within the buffer may be required to limit dividends, share repurchases or redemptions (unless replaced within the same calendar quarter by capital instruments of equal or higher quality), and discretionary bonus payments.
A banking organization with capital levels falling within the buffer may be required to limit dividends, share repurchases or redemptions (unless replaced within the same calendar quarter by capital instruments of equal or higher quality), and discretionary bonus payments.
The Bank paid dividends to the Company of $3.0 million during the year ended December 31, 2022. The ability of the Bank to pay cash dividends or fees to the Company is limited by law and regulation, as described in “ Regulation of the Bank — Dividend Restrictions Applicable to the Bank ,” below.
The Bank paid dividends to the Company of $2.0 million during the year ended December 31, 2023. The ability of the Bank to pay cash dividends or fees to the Company is limited by law and regulation, as described in “ Regulation of the Bank — Dividend Restrictions Applicable to the Bank ,” below.
The competing major commercial banks have greater resources that may provide them with a competitive advantage by enabling them to maintain numerous branch offices, mount extensive advertising campaigns and invest in new technologies.
The competing major commercial banks have greater resources that may provide them with a competitive advantage by 7 Table of Contents enabling them to maintain numerous branch offices, mount extensive advertising campaigns and invest in new technologies.
Debt securities classified as “available-for-sale” may be sold prior to maturity due to changes in interest rates, prepayment risks, availability of alternative investments, or to meet our liquidity needs. At December 31, 2023, debt securities held-to-maturity and available-for sale had carrying amounts of $53.6 million and $130.0 million, respectively.
Debt securities classified as “available-for-sale” may be sold prior to maturity due to changes in interest rates, prepayment risks, availability of alternative investments, or to meet our liquidity needs. At December 31, 2024, debt securities held-to-maturity and available-for sale had carrying amounts of $53.3 million and $142.0 million, respectively.
At December 31, 2023, our limit on aggregate loans-to-one-borrower was $43.5 million for loans that are not fully secured. An additional 10% limit is allowed if fully secured by readily marketable collateral. Our legal lending limit will increase or decrease as our level of capital increases or decreases.
At December 31, 2024, our limit on aggregate loans-to-one-borrower was $73.9 million for loans that are not fully secured. An additional 10% limit is allowed if fully secured by readily marketable collateral. Our legal lending limit will increase or decrease as our level of capital increases or decreases.
Banks with excessive interest rate risk exposure are required to 17 Table of Contents hold additional amounts of capital against their exposure to losses resulting from that risk. Through the risk-weighting of assets, the regulators also require banks to incorporate market risk components into their risk-based capital.
Banking organizations with excessive interest rate risk exposure are required to hold additional amounts of capital against their exposure to losses resulting from that risk. Through the risk-weighting of assets, the regulators also require banks to incorporate market risk components into their risk-based capital.
As a national bank, the Bank is overseen by the OCC, which has responsibility to ensure safety and soundness of the national banking system; ensure fair and equal access to financial services; enforce anti-money and anti-terrorism finance laws; and for banks under $10 billion in assets, enforce consumer protection regulations.
As a national bank, the Bank is supervised by the OCC, which has responsibility to ensure safety and soundness of the national banking system; ensure fair and equal access to financial services; enforce anti-money and anti-terrorism finance laws; and for national banks with less than $10 billion in assets, enforce consumer protection regulations.
Under these market risk requirements, capital is allocated to support the amount of market risk related to a bank’s lending and trading activities.
Under these market risk requirements, capital is allocated to support the amount of market risk related to a banking organization’s lending and trading activities.
We work to reduce credit risk in the CRE portfolio by emphasizing loans on owner-occupied industrial, office, and multi-family buildings, where the loan-to-value ratio, established by independent appraisals, does not exceed 60-75% of purchase price or appraised value, whichever is less. Generally, we also require that a borrower’s cash flow exceed 125% of monthly debt service obligations.
We work to reduce credit risk in the CRE portfolio by emphasizing loans on owner-occupied and non-owner-occupied CRE, and multi-family buildings, where the loan-to-value percentage, established by independent appraisals, is up to 75% of purchase price or appraised value, whichever is less. Generally, we also require that a borrower’s cash flow exceed 125% of monthly debt service obligations.
The capital restoration plan will not be accepted by the regulators unless each company “having control of” the undercapitalized institution “guarantees” the subsidiary’s compliance with the capital restoration plan until it becomes “adequately capitalized.” For purposes of this statute, the Company controls the Bank.
In the event an institution becomes “undercapitalized,” it must submit a capital restoration plan. The capital restoration plan will not be accepted by the regulators unless each company “having control of” the undercapitalized institution “guarantees” the subsidiary’s compliance with the capital restoration plan until it becomes “adequately capitalized.” For purposes of this statute, the Company controls the Bank.
On November 16, 2023, the FDIC adopted a final rule imposing a special assessment for the recovery of losses to the Deposit Insurance Fund stemming from the protection of uninsured depositors after the closures of Silicon Valley Bank and Signature Bank.
On April 1, 2024, the FDIC adopted a final rule imposing a special assessment for the recovery of losses to the Deposit Insurance Fund stemming from the protection of uninsured depositors after the closures of Silicon Valley Bank and Signature Bank.
Additionally, in a move designed to align our branch network to support our evolving commercial banking model, we announced the sale of our Orange, Redlands, and Santa Fe Springs retail branches on April 19, 2021, which was completed on September 24, 2021.
The merger with CALB was announced on January 30, 2024, and completed on July 31, 2024. Additionally, in a move designed to align our branch network to support our evolving commercial banking model, we announced the sale of our Orange, Redlands, and Santa Fe Springs retail branches on April 19, 2021, which was completed on September 24, 2021.
See our discussion in “Item 1A - Risk Factors”. Employees As of December 31, 2023, we had 204 full-time equivalent employees. None of our employees are represented by any collective bargaining unit or is party to a collective bargaining agreement.
See our discussion in “Item 1A - Risk Factors.” Employees As of December 31, 2024, we had 289 full-time equivalent employees. None of our employees are represented by any collective bargaining unit or is party to a collective bargaining agreement.
The Gramm Leach Bliley Act (“GLBA”) expanded the permissible activities of a bank holding company that qualifies as a financial holding company to engage in activities that are financial in nature or incidental or complementary to financial activities. Those activities include, among other activities, certain insurance, advisory and securities activities. We have not elected to be a financial holding company.
The Gramm Leach Bliley Act (“GLBA”) expanded the permissible activities of a bank holding company that qualifies as a financial holding company to engage in activities that are financial in nature or incidental or complementary to 17 Table of Contents financial activities. Those activities include, among other activities, certain insurance, advisory and securities activities.
In connection with our participation in this program, we purchased $60.0 million in letters of credit issued by FHLB as collateral at December 31, 2023. Well-capitalized institutions are not subject to limitations on brokered deposits. As of December 31, 2023, we had $107.8 million brokered time deposits, representing 5.5% of total deposits.
In connection with our participation in this program, we purchased $5.0 million in letters of credit issued by FHLB as collateral at December 31, 2024. Well-capitalized institutions are not subject to limitations on brokered deposits. As of December 31, 2024, we had $121.1 million brokered time deposits, representing 3.6% of total deposits.
Our held-to-maturity and available-for-sale debt securities represented 2.27% and 5.51%, respectively, of total assets at December 31, 2023, The primary objective of our investing activities is to provide for the safety of the principal invested. Our secondary considerations include the maximization of earnings, liquidity and to help decrease our overall exposure to changes in interest rates.
Our held-to-maturity and available-for-sale debt securities represented 1.32% and 3.52%, respectively, of total assets at December 31, 2024. The primary objective of our investing activities is to provide for the safety of the principal invested. Our secondary considerations include the maximization of earnings, liquidity and to help decrease our overall exposure to changes in interest rates.
The environmental site assessment provides a detailed review of present and past 24 Table of Contents uses of the subject property and adjacent sites to confirm any potential collateral contamination of commercial real estate parcels and identifies higher than normal potential for environmental impact to the specific real property collateral.
The environmental site assessment provides a detailed review of present and past uses of the subject property and adjacent sites to confirm any potential collateral contamination of commercial real estate parcels and identifies higher than normal potential for environmental impact to the specific real property collateral. If warranted, the site assessment will recommend a more detailed investigation.
Lending is a dynamic process and is dependent on the assessment of the adequacy and reliability of a borrower’s cash flow, collateral, integrity and willingness to repay the loan according to normal and 9 Table of Contents customary terms. We understand the nature of gathering information, assessing its value and then deciding based on the testing of fact.
Lending is a dynamic process and is dependent on the assessment of the adequacy and reliability of a borrower’s cash flow, collateral, integrity and willingness to repay the loan according to normal and customary terms. We understand the nature of gathering information, assessing its value and then making decisions based on the relevant facts.
The primary source of capital for the Company’s payment of any dividend or its repurchase of stock is expected to be the Bank, through the Bank’s payment of dividends or management fees to the Company. During the year ended December 31, 2023, the Bank paid dividends to the Company of $2.0 million.
The primary source of capital for the Company’s payment of any dividend or its repurchase of stock is expected to be the Bank, through the Bank’s payment of dividends or management fees to the Company. During the year ended December 31, 2024, there were no dividends paid by the Bank to the Company.
The term of construction and development loans generally is limited to 12 to 36 months. Most loans require payment in full upon the sale or refinance of the property, unless the project is user-owned which may then convert to a conventional term loan.
Most loans require payment in full upon the sale or refinance of the property, unless the project is user-owned which may then convert to a conventional term loan.
The expansion also included our acquisition of Bank of Santa Clarita (“BSCA”), located in an attractive banking community north of Los Angeles, with a business model very complementary to ours. The acquisition of BSCA was announced on April 27, 2021, and completed on October 1, 2021.
The expansion also included our acquisition of Bank of Santa Clarita (“BSCA”), located in an attractive banking community north of Los Angeles, and our merger with California BanCorp (“CALB”), located in Northern California, each of which had business models very complementary to ours. The acquisition of BSCA was announced on April 27, 2021, and completed on October 1, 2021.
Total interest-bearing non-maturity deposits at December 31, 2023 were $1.02 billion, representing 52.4% of total deposits. We participated in the Time Deposit Program administered by the California State Treasurer in 2023 and 2022. As of December 31, 2023, time deposits from the State of California totaled $60.0 million.
Total interest-bearing non-maturity deposits at December 31, 2024 were $1.86 billion, representing 54.6% of total deposits. We participated in the Time Deposit Program administered by the California State Treasurer in 2024 and 2023. As of December 31, 2024, time deposits from the State of California totaled $5.0 million.
The final rule, which is expected to become effective on April 1, 2024, exempts most Insured Depository Institutions that are part of a small banking organization from making payments under the special assessment. The special assessment will not apply to any banking organizations with total assets under $5 billion. 22 Table of Contents Concentrations in Commercial Real Estate Lending .
The final rule exempts most Insured Depository Institutions that are part of a small banking organization from making payments under the special assessment. The special assessment will not apply to any banking organizations with total assets under $5 billion. Concentrations in Commercial Real Estate Lending .
As of December 31, 2023, we had $239.6 million of construction and development loans, or 12.2% of our loans held-for-investment portfolio, excluding SBA loans, and there were no non-performing construction and land development loans. Real Estate Loans A significant component of our loan portfolio is real estate loans.
As of December 31, 2024, we had $222.0 million of construction and development loans, or 7.1% of our loans held-for-investment portfolio, excluding SBA loans, and there were $9.7 million non-performing construction and land development loans. Real Estate Loans A significant component of our loan portfolio is real estate loans.
As of December 31, 2023, we had $1.3 million SBA PPP loans, representing 0.1% of total loans held for investment. There were no non-performing SBA PPP loans, at December 31, 2023. Consumer Loans We occasionally make loans to individuals for personal and household purposes, including secured and unsecured installment loans and revolving lines of credit.
SBA loans are personally guaranteed. As of December 31, 2024, we had $189.4 million of SBA loans, representing 6.1% of total loans held for investment, and there were $374 thousand non-performing SBA loans. Consumer Loans We occasionally make loans to individuals for personal and household purposes, including secured and unsecured installment loans and revolving lines of credit.
Supervision and Regulation We are extensively regulated under federal and state law. As a bank holding company, the Company is subject to the Bank Holding Company Act of 1956, as amended (the “Bank Holding Company Act”), and its primary regulator is the Federal Reserve.
As a bank holding company, the Company is subject to the Bank Holding Company Act of 1956, as amended (the “Bank Holding Company Act”), and its primary regulator is the Federal Reserve.
Although we typically require monthly payments of interest and a portion of the principal on our loan products, we will offer consumer loans with a single maturity date when a specific source of repayment is available.
Although we typically require monthly payments of interest and a portion of the principal on our loan products, we will offer consumer loans with a single maturity date when a specific source of repayment is available. Also included in our consumer loan portfolio are consumer solar panel loans that were acquired as part of the merger with CALB.
Information on our website or any other website is not incorporated by reference herein and does not constitute a part of this annual report. Public Information Our SEC filings are available to the public on the SEC’s Internet site at http://www.sec.gov. You may also obtain these documents, free of charge, from the investor relations section of our website at http://www.banksocal.com.
Additional information can be found on our website: www.californiabankofcommerce.com. Information on our website or any other website is not incorporated by reference herein and does not constitute a part of this annual report. Public Information Our SEC filings are available to the public on the SEC’s Internet site at http://www.sec.gov.
Changes in applicable laws or regulations may have a material effect on our business and prospects, and legislative changes and the policies of various regulatory authorities may significantly affect our operations.
Changes in applicable laws or regulations may have a material effect on our business and prospects, and legislative changes and the policies of various regulatory authorities may significantly affect our operations. We cannot predict the effect that fiscal or monetary policies, or new federal or state legislation or regulation may have on our future business and earnings.
Imposition of Liability for Undercapitalized Subsidiaries: Source of Strength . Under the Federal Deposit Insurance Act (the “FDIA”) federal banking agencies are required to take “prompt corrective action” should an insured depository institution fail to meet certain capital adequacy standards. In the event an institution becomes “undercapitalized,” it must submit a capital restoration plan.
We have not elected to be a financial holding company. Imposition of Liability for Undercapitalized Subsidiaries: Source of Strength . Under the Federal Deposit Insurance Act (the “FDIA”) federal banking agencies are required to take “prompt corrective action” should an insured depository institution fail to meet certain capital adequacy standards.
If enacted, these proposals could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions.
If enacted, these proposals could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. The new presidential administration, along with numerous members of Congress, has advocated for reforms in financial services regulation.
Since its founding, our franchise has experienced significant growth through our dedication to serving the communities in which we operate. As of December 31, 2023, our consolidated assets have grown to $2.36 billion and our branch footprint has been extended along the California coast from San Diego County to Ventura County and east to the Inland Empire.
Since its founding, our franchise has experienced significant growth through acquisitions and our dedication to serving the communities in which we operate. As of December 31, 2024, our consolidated assets have grown to $4.03 billion and our branch footprint has been extended throughout California.
FDIC Insurance Assessments . Our deposits are insured by the Deposit Insurance Fund of the FDIC up to the maximum amount permitted by law. As an FDIC insured financial institution, we are subject to deposit insurance assessments as determined by the FDIC.
As an FDIC insured financial institution, we are subject to deposit insurance assessments as determined by the FDIC.
With certain exceptions, an insured depository institution is prohibited from making capital distributions, including dividends, and is prohibited from paying management fees to control persons if the institution would be undercapitalized after any such distribution or payment. 21 Table of Contents A significantly undercapitalized institution is subject to mandated capital raising activities, restrictions on interest rates paid and transactions with affiliates, removal of management, and other restrictions.
With certain exceptions, an insured depository institution is prohibited from making capital distributions, including dividends, and is prohibited from paying management fees to control persons if the institution would be undercapitalized after any such distribution or payment.
These included $644.4 million of loans secured by non-owner occupied CRE, $278.0 million of loans secured by owner-occupied CRE, $221.2 million of loans secured by multifamily residential properties, and $143.9 million of loans secured by single family residential properties, of which $18.3 million were HELOCs. There were $13.0 million non-performing real estate loans at December 31, 2023.
These included $1.13 billion of loans secured by non-owner occupied CRE, $472.2 million of loans secured by owner-occupied CRE, $244.0 million of loans secured by multifamily residential properties, and $164.4 million of loans secured by single family residential properties, of which $28.7 million were HELOCs. There were $11.8 million non-performing real estate loans at December 31, 2024.
As of December 31, 2023, we had $304.1 million of C&I loans, or 15.5% of our loans held for investment portfolio, excluding SBA loans, and there were no non-performing C&I loans. 12 Table of Contents Small Business Administration (“SBA”) Loans Small Business Administration Loans We are designated as a Preferred Lender under the SBA Preferred Lender Program, and we offer both an SBA 7(a) loan program, generally at variable rates, and an SBA 504 loan program, generally with an initial fixed rate for a term of between five and seven years.
Small Business Administration (“SBA”) Loans Small Business Administration Loans We are designated as a Preferred Lender under the SBA Preferred Lender Program, and we offer both an SBA 7(a) loan program, generally at variable rates, and an SBA 504 loan program, generally with 11 Table of Contents an initial fixed rate for a term of between five and seven years.
The following table presents the minimum ratios of capital required to be categorized as well-capitalized and adequately capitalized applicable to the Bank: Minimum Capital Required To be Capital To be Well- Adequately Conservation Capitalized under Capitalized Buffer Phase-In PCA Provisions As of December 31, 2023: Total Capital (to Risk-Weighted Assets) 8.0 % 10.5 % 10.0 % Tier 1 Capital (to Risk-Weighted Assets) 6.0 % 8.5 % 8.0 % CET1 Capital (to Risk-Weighted Assets) 4.5 % 7.0 % 6.5 % Tier 1 Capital (to Average Assets) 4.0 % 4.0 % 5.0 % The capital rules require that goodwill and other intangible assets (other than mortgage servicing assets), net of associated deferred tax liabilities (“DTLs”), be deducted from CET1 capital.
The following table presents the capital ratios applicable to the Company and the Bank: Minimum Capital Required To be With Capital To be Well- Adequately Conservation Capitalized under Capitalized Buffer PCA Provisions (1) As of December 31, 2024: Total Capital (to Risk-Weighted Assets) 8.0 % 10.5 % 10.0 % Tier 1 Capital (to Risk-Weighted Assets) 6.0 % 8.5 % 8.0 % CET1 Capital (to Risk-Weighted Assets) 4.5 % 7.0 % 6.5 % Tier 1 Capital (to Average Assets) 4.0 % 4.0 % 5.0 % 1.
We cannot predict whether any of these proposals will be enacted and, if enacted, the effect that these proposals, or any implementing regulations, would have on our business, consolidated financial condition and consolidated results of operations.
These reforms may include amendments to the Dodd-Frank Act, other federal banking laws, and structural changes to the Consumer Financial Protection Bureau (CFPB). We cannot predict whether any of these proposals will be enacted and, if enacted, the effect that these proposals, or any implementing regulations, would have on our business, consolidated financial condition and consolidated results of operations.
Additionally, deferred tax assets (“DTAs”) that arise from net operating loss and tax credit carryforwards, net of associated DTLs and valuation allowances, are fully deducted from CET1 capital.
For Bank only. The capital rules require that goodwill and other intangible assets (other than mortgage servicing assets), net of associated deferred tax liabilities (“DTLs”), be deducted from CET1 capital. Additionally, deferred tax assets (“DTAs”) that arise from net operating loss and tax credit carryforwards, net of associated DTLs and valuation allowances, are fully deducted from CET1 capital.
As of December 31, 2023, we had $1.29 billion of real estate loans, or 65.8% of our loans held for investment portfolio, excluding SBA loans.
As of December 31, 2024, we had $2.01 billion of real estate loans, or 64.0% of our loans held for investment, excluding SBA loans.
Under the Federal Reserve’s Small Bank Holding Company Policy Statement, qualifying bank holding companies with total consolidated assets of less than $3 billion, such as the Company, are exempt from these consolidated capital rules. Therefore, while these capital requirements apply to the Bank, they do not currently apply to the Company on a consolidated basis.
Under the Federal Reserve’s Small Bank Holding Company Policy Statement (Regulation Y, Appendix C), qualifying bank holding companies with total consolidated assets of less than $3 billion are exempt from these consolidated capital rules.
On January 30, 2024, we announced the execution of a definitive merger agreement with California BanCorp, the holding company for California Bank of Commerce, pursuant to which California BanCorp will merge into Southern California Bancorp in an all-stock merger valued at approximately $233.6 million based on the closing price of our stock on January 29, 2024.
Merger with California BanCorp On January 30, 2024, we announced the execution of a definitive merger agreement with CALB, the holding company for California Bank of Commerce, pursuant to which we would merge with CALB in an all-stock merger (the “Merger”). The Merger closed on July 31, 2024.
As a California corporation, we are subject to California law, which permits California corporations to distribute cash or property to shareholders, including as a dividend or repurchase or redemption of shares, if the corporation meets either a retained earnings test or a “balance sheet” test.
As a California corporation, we are subject to California law, which permits California corporations to distribute cash or property to shareholders, including as a dividend or repurchase or redemption of shares, if the corporation meets either a retained earnings test or a “balance sheet” test. 18 Table of Contents Under the retained earnings test, we may make a distribution from retained earnings to the extent that our retained earnings exceed the sum of the amount of the distribution plus the amount, if any, of dividends in arrears on shares with preferential dividend rights.
The State of California Economic Development Department reports there are approximately 1.7 million small to medium-sized businesses in our target market. Given the large economy and preponderance of mid-market businesses, we believe that the lack of community banks in California offers us an extraordinary market opportunity.
Given the large economy and preponderance of mid-market businesses, we believe that the lack of community banks in California offers us an extraordinary market opportunity.
According to data released in 2023 from the World Bank and the U.S. Bureau of Economic Analysis, California is the largest banking market in the United States, and would be the 5 th largest economy in the world, behind Germany and ahead of India, if it were a separate country.
Bureau of Economic Analysis, California is the largest banking market in the United States, and would be the 5 th largest economy in the world, behind Germany and ahead of India, if it were a separate country. The State of California Economic Development Department reports there are approximately 1.7 million small to medium-sized businesses in our target market.
Federal banking agencies must consider an institution’s CRA compliance in approving mergers, acquisitions, and applications to open a branch. Failure to adequately meet these criteria could impose additional requirements and limitations on the Bank. Additionally, the Bank must publicly disclose the terms of various CRA-related agreements.
Failure to adequately meet these criteria could impose additional requirements and limitations on the Bank. Additionally, the Bank must publicly disclose the terms of various CRA-related agreements. The Bank received a “satisfactory” overall rating in its most recent CRA evaluation in 2024.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeTechnology Risks • Our failure to keep up with the rapid technological changes in the financial services industry could have an adverse effect on our competitive position and profitability. • We face risks related to network failures, cyberattacks and data security breaches, which could subject us to increased operating costs as well as litigation and other liabilities. 26 Table of Contents Operational Risks • Our enterprise risk management framework may not be effective in mitigating risk, including those related to fraud or data processing errors. • We depend on the use of data, modeling and estimates, yet the data, models and estimates we use may be inaccurate or incorrect. • We rely on third-party service providers for key aspects of our operations. • Climate change could have a material negative impact on us and our clients.
Biggest changeTechnology Risks • Our failure to keep up with the rapid technological changes in the financial services industry could have an adverse effect on our competitive position and profitability. • We face risks related to network failures, cyberattacks and data security breaches, which could subject us to increased operating costs as well as litigation and other liabilities. • Our use of artificial intelligence may result in reputational harm or liability, or could adversely affect our business. 25 Table of Contents Operational Risks • Our enterprise risk management framework may not be effective in mitigating risk, including those related to fraud or data processing errors. • We are subject to certain operational risks, including, but not limited to, internal or external fraud and data processing system failures and errors. • We depend on the use of data, modeling and estimates, yet the data, models and estimates we use may be inaccurate or incorrect. • We may be subject to environmental liabilities in connection with the real properties we own and the foreclosure on real estate assets securing our loan portfolio. • We may fail to maintain effective internal controls over financial reporting. • We rely on third-party service providers for key aspects of our operations. • Climate change could have a material negative impact on us and our clients. • Our consolidated financial statements are based in part on assumptions and estimates which, if incorrect, could cause unexpected losses in the future.
Material estimates subject to change in the near term include, among other items, the ACL, particularly in light of the adoption of the CECL standard in 2023; the fair value of assets and liabilities acquired in business combinations and related purchase price allocation, the valuation of acquired loans, the valuation of goodwill and separately identifiable intangible assets associated with mergers and acquisitions, loan sales and servicing of financial assets and deferred tax assets and liabilities.
Material estimates subject to change in the near term include, among other items, the ACL, particularly in light of our adoption of the CECL standard in 2023; the fair value of assets and liabilities acquired in business combinations and related purchase price allocation, the valuation of acquired loans, the valuation of goodwill and separately identifiable intangible assets associated with mergers and acquisitions, loan sales and servicing of financial assets and deferred tax assets and liabilities.
As a result, we are exposed to risks associated with lack of geographic diversification. An economic downturn or decrease in property values in Southern California, adverse changes in laws or regulations in California could impact the credit quality of our assets, the businesses of our customers and the ability to expand our business.
As a result, we are exposed to risks associated with lack of geographic diversification. An economic downturn or decrease in property values in California, adverse changes in laws or regulations in California could impact the credit quality of our assets, the businesses of our customers and the ability to expand our business.
We may experience goodwill impairment. Goodwill is initially recorded at fair value and is not amortized but is reviewed at least annually or more frequently if events or changes in circumstances indicate that the carrying value may not be fully recoverable. If our estimates of goodwill fair value change, we may determine that impairment charges are necessary.
Goodwill is initially recorded at fair value and is not amortized but is reviewed at least annually or more frequently if events or changes in circumstances indicate that the carrying value may not be fully recoverable. If our estimates of goodwill fair value change, we may determine that impairment charges are necessary.
Furthermore, even 38 Table of Contents though goodwill is a non-cash item, significant impairment of goodwill could subject us to regulatory limitations, including the ability to pay dividends on our common stock. Our reputation is critical to the success of our business and our failure to maintain our reputation may materially adversely affect our performance.
Furthermore, even though goodwill is a non-cash item, significant impairment of goodwill could subject us to regulatory limitations, including the ability to pay dividends on our common stock. 35 Table of Contents Our reputation is critical to the success of our business and our failure to maintain our reputation may materially adversely affect our performance.
Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” as defined in Rule 12b-2 in the Exchange Act, which would allow us to take advantage of many of the same exemptions from disclosure requirements, including not being required to provide an auditor attestation of our internal control over financial reporting and reduced disclosure regarding our executive compensation arrangements in our periodic reports and proxy statements.
Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” as defined in Rule 12b-2 in the Exchange Act, which would allow us to take advantage of many of the same exemptions from disclosure requirements, including not being required to provide an auditor attestation of our internal control over 43 Table of Contents financial reporting and reduced disclosure regarding our executive compensation arrangements in our periodic reports and proxy statements.
Loan repayments are a relatively stable source of funds but are subject to the borrowers’ ability to repay loans, which can be adversely affected by a 34 Table of Contents number of factors including changes in general economic conditions, adverse trends or events affecting business industry groups or specific businesses, declines in real estate values or markets, business closings or lay-offs, inclement weather, natural disasters and other factors.
Loan repayments are a relatively stable source of funds but are subject to the borrowers’ ability to repay loans, which can be adversely affected by a number of factors including changes in general economic conditions, adverse trends or events affecting business industry groups or specific businesses, declines in real estate values or markets, business closings or lay-offs, inclement weather, natural disasters and other factors.
See “ Supervision and Regulation - Capital Adequacy. ” Details regarding the Bank’s actual capital amounts and ratios and the amount of required capital are included in Note 14 — Regulatory Matters of the Notes to Consolidated Financial Statements included in Item 8 of this annual report.
See “ Supervision and Regulation - Capital Adequacy. ” Details regarding the Bank’s actual capital amounts and ratios and the amount of required capital are included in Note 16 — Regulatory Matters of the Notes to Consolidated Financial Statements included in Item 8 of this annual report.
See “ Supervision and Regulation - Capital Requirements .” Details regarding the Bank’s actual capital amounts and ratios and the amount of required capital are included in Note 14 — Regulatory Matters of the Notes to Consolidated Financial Statements included in Item 8 in this annual report.
See “ Supervision and Regulation - Capital Requirements .” Details regarding the Bank’s actual capital amounts and ratios and the amount of required capital are included in Note 16 — Regulatory Matters of the Notes to Consolidated Financial Statements included in Item 8 in this annual report.
Under this guidance, an institution that has (i) total reported loans for construction, land development, and other land which represent 100% or more of the institution’s total risk-based capital; or (ii) total CRE representing 300% or more of the institution’s total risk-based capital, where the outstanding balance of the institution’s CRE loan portfolio has increased 50% or more during the prior 36 months, is identified as having potential CRE concentration risk.
Under this guidance, an institution that has (i) total reported loans for construction, land development, and other land which represent 100% or more of the institution’s total risk-based capital; or 29 Table of Contents (ii) total CRE representing 300% or more of the institution’s total risk-based capital, where the outstanding balance of the institution’s CRE loan portfolio has increased 50% or more during the prior 36 months, is identified as having potential CRE concentration risk.
If personal, confidential or proprietary information of customers or others were to be mishandled or misused (in situations where, for example, such information was erroneously provided to parties who are not permitted to have the information or where such 40 Table of Contents information was intercepted or otherwise compromised by third parties), we could be exposed to litigation or regulatory sanctions under privacy and data protection laws.
If personal, confidential or proprietary information of customers or others were to be mishandled or misused (in situations where, for example, such information was erroneously provided to parties who are not permitted to have the information or where such information was intercepted or otherwise compromised by third parties), we could be exposed to litigation or regulatory sanctions under privacy and data protection laws.
Accordingly, any failure, or perceived failure, to comply with applicable privacy or data protection laws may subject us to inquiries, examinations and investigations that could result in requirements to modify or cease certain operations or practices or result in significant liabilities, fines or penalties, and could damage our reputation and otherwise adversely affect our operations, consolidated financial condition and consolidated results of operations .
Accordingly, any failure, or perceived failure, to comply with applicable privacy or data protection laws may subject us to inquiries, examinations and investigations that could result in requirements to modify or cease certain operations or practices or result in significant liabilities, fines or 37 Table of Contents penalties, and could damage our reputation and otherwise adversely affect our operations, consolidated financial condition and consolidated results of operations .
A failure to effectively measure and manage the credit risk, including non-performing assets, associated with our loan portfolio could lead to unexpected losses and have an adverse effect on our business, consolidated financial condition and consolidated results of operations. 30 Table of Contents Our allowance for credit losses may not be adequate to cover actual losses.
A failure to effectively measure and manage the credit risk, including non-performing assets, associated with our loan portfolio could lead to unexpected losses and have an adverse effect on our business, consolidated financial condition and consolidated results of operations. Our allowance for credit losses may not be adequate to cover actual losses.
Because government regulation greatly affects the business and financial results of all commercial banks and bank holding companies and especially our organization, changes in the laws, regulations and procedures applicable to SBA loans could adversely affect our ability to operate profitably. LIQUIDITY AND CAPITAL RISKS Liquidity, primarily through deposits, is essential to our business.
Because government regulation greatly affects the business and financial results of all commercial banks and bank holding companies and especially our organization, changes in the laws, 32 Table of Contents regulations and procedures applicable to SBA loans could adversely affect our ability to operate profitably. LIQUIDITY AND CAPITAL RISKS Liquidity, primarily through deposits, is essential to our business.
In addition, any default by the U.S. government on its obligations or any prolonged government shutdown 33 Table of Contents could, among other things, impede our ability to originate SBA loans or sell such loans in the secondary market, which could materially and adversely affect our business, consolidated financial condition and consolidated results of operations.
In addition, any default by the U.S. government on its obligations or any prolonged government shutdown could, among other things, impede our ability to originate SBA loans or sell such loans in the secondary market, which could materially and adversely affect our business, consolidated financial condition and consolidated results of operations.
Like most banks, our earnings and cash flows depend to a great extent upon the level of our net interest income, or the difference between the interest income we earn on loans, investments and other interest-earning assets, and the interest we pay on interest-bearing liabilities, such as deposits and 29 Table of Contents borrowings.
Like most banks, our earnings and cash flows depend to a great extent upon the level of our net interest income, or the difference between the interest income we earn on loans, investments and other interest-earning assets, and the interest we pay on interest-bearing liabilities, such as deposits and borrowings.
Loans on land under development or held for future construction also pose additional risk because of the lack of income production by the property and the potential illiquid nature of the collateral. For all of these reasons and uncertainties, construction and land development loans may represent greater risks than other types of loans.
Loans on land under development or held for 31 Table of Contents future construction also pose additional risk because of the lack of income production by the property and the potential illiquid nature of the collateral. For all of these reasons and uncertainties, construction and land development loans may represent greater risks than other types of loans.
If our internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our business, consolidated financial condition and consolidated results of operations.
If our internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds 40 Table of Contents applicable insurance limits, it could have a material adverse effect on our business, consolidated financial condition and consolidated results of operations.
The risks associated with climate change are rapidly changing and evolving in an escalating fashion, making them difficult to assess. Any of the risks associated with climate change could have a material negative impact on our business, consolidated financial condition and consolidated results of operations.
The risks associated with climate change are rapidly changing and evolving in an escalating fashion, making them difficult to assess. Any of the risks associated with climate change could have a 42 Table of Contents material negative impact on our business, consolidated financial condition and consolidated results of operations.
Because of the uncertainties inherent in estimating construction costs and the realizable market value of the completed 32 Table of Contents project and the effects of governmental regulation of real property, it is relatively difficult to accurately evaluate the total funds required to complete a project and the related loan-to-value ratio.
Because of the uncertainties inherent in estimating construction costs and the realizable market value of the completed project and the effects of governmental regulation of real property, it is relatively difficult to accurately evaluate the total funds required to complete a project and the related loan-to-value ratio.
We cannot predict or estimate the amount, timing or nature of any future offerings, or the prices at which such offerings may be completed. 46 Table of Contents Any additional equity issuances may dilute the holdings of our existing shareholders or reduce the market price of our common stock, or both.
We cannot predict or estimate the amount, timing or nature of any future offerings, or the prices at which such offerings may be completed. Any additional equity issuances may dilute the holdings of our existing shareholders or reduce the market price of our common stock, or both.
Our goodwill was not considered impaired as of December 31, 2023 and 2022; however, no assurance can be given that we will not record an impairment loss on goodwill in the future and any such impairment loss could have a material adverse affect on our business, consolidated financial condition, and our consolidated results of operations.
Our goodwill was not considered impaired as of December 31, 2024 and 2023; however, no assurance can be given that we will not record an impairment loss on goodwill in the future and any such impairment loss could have a material adverse effect on our business, consolidated financial condition, and our consolidated results of operations.
In the event the Bank is unable to pay dividends to the Company, the Company could have difficulty meeting its other financial obligations and may need to seek other forms of liquidity, such as the sale of stock or indebtedness.
In the event the Bank is unable to pay dividends to the Company, the Company could have difficulty meeting its other financial obligations and may need to seek other forms of liquidity, such as the 34 Table of Contents sale of stock or indebtedness.
These estimates may be adjusted as more current information becomes available, and any adjustment may be significant. 45 Table of Contents RISKS RELATED TO AN INVESTMENT IN OUR COMMON STOCK Our common stock currently has a limited trading market and is thinly traded, and a more liquid market for our common stock may not develop.
These estimates may be adjusted as more current information becomes available, and any adjustment may be significant. RISKS RELATED TO AN INVESTMENT IN OUR COMMON STOCK Our common stock currently has a limited trading market and is thinly traded, and a more liquid market for our common stock may not develop.
If capital is not available on favorable terms when we need it, we may have to either issue common stock or other securities on less than desirable terms or 35 Table of Contents curtail our growth until market conditions become more favorable.
If capital is not available on favorable terms when we need it, we may have to either issue common stock or other securities on less than desirable terms or curtail our growth until market conditions become more favorable.
Such events could have a material adverse effect on our business, consolidated financial condition and consolidated results of operations. We rely on the dividends and return of capital it receives from its subsidiary. The Company is a separate and distinct legal entity from the Bank.
Such events could have a material adverse effect on our business, consolidated financial condition and consolidated results of operations. We rely on the dividends and return of capital we receive from our bank subsidiary. The Company is a separate and distinct legal entity from the Bank.
If we are not able to attract, retain and motivate key personnel, both in business line and corporate functions, could have a material adverse impact on our growth, consolidated results of operations and consolidated financial condition.
If we are not able to attract, retain and motivate key personnel, both in business line and corporate functions, it could 36 Table of Contents have a material adverse impact on our growth, consolidated results of operations and consolidated financial condition.
The failure of these systems, a cybersecurity breach involving any of our third-party service providers or the termination or change in terms of these services 44 Table of Contents could interrupt our operations.
The failure of these systems, a cybersecurity breach involving any of our third-party service providers or the termination or change in terms of these services could interrupt our operations.
Failure to successfully manage these risks in the development and implementation of new lines of business or offerings of new products, product enhancements or services could have a material adverse effect on our business, consolidated financial condition and consolidated results of operations. COMPETITIVE RISKS Competition may limit our growth and profitability.
Failure to successfully manage these risks in the development and implementation of new lines of business or offerings of new products, product enhancements or services could have a material adverse effect on our business, consolidated financial condition and consolidated results of operations. Competition may limit our growth and profitability. Competition in the banking and financial services industry is intense.
Our access to funding sources in amounts adequate to finance our activities, or on terms attractive to us, could be impaired by factors that affect us specifically or the financial services industry in general.
Our access to funding sources in amounts adequate to finance our activities, or on terms attractive to us, could be impaired by factors that affect us specifically or the financial 33 Table of Contents services industry in general.
The inability of the Bank to pay dividends to the Company could have a material adverse effect on our business, including the market price of our common stock. STRATEGIC RISKS Our growth and expansion may strain our ability to manage our operations and our financial resources.
The inability of the Bank to pay dividends to the Company could have a material adverse effect on our business, including the market price of our common stock. STRATEGIC AND COMPETITIVE RISKS Our growth, expansion and any acquisitions we may pursue may strain our ability to manage our operations and financial resources.
Our failure to manage acquisitions and other significant transactions successfully may have a material adverse effect on our consolidated financial condition and consolidated results of operations, and cash flows. Combining the Company and CBC and may be more difficult, costly or time consuming than expected and the anticipated benefits and cost savings of the merger may not be realized.
Our failure to manage acquisitions and other significant transactions successfully may have a material adverse effect on our consolidated financial condition and consolidated results of operations, and cash flows. Combining the Company and CALB may be more costly than expected and the anticipated benefits and cost savings of the merger may not be realized.
Competition in the banking and financial services industry is intense. We compete with commercial banks, credit unions, mortgage banking firms, finance companies, non-bank lenders including ‘fintech” lenders, securities brokerage firms, insurance companies, money market funds and other mutual funds, as well as regional and national financial institutions that operate offices in our market areas and elsewhere.
We compete with commercial banks, credit unions, mortgage banking firms, finance companies, non-bank lenders including “fintech” lenders, securities brokerage firms, insurance companies, money market funds and other mutual funds, as well as regional and national financial institutions that operate offices in our market areas and elsewhere.
As of December 31, 2023, total loans secured by CRE under construction and land development represented 84.0% of our total risk-based capital. As a result, the OCC, which is the Bank’s federal banking regulator, could view the Bank as having a high concentration of CRE loans under this guidance.
As of December 31, 2024, total loans secured by CRE under construction and land development represented 45.5% of our total risk-based capital. As a result, the OCC, which is the Bank’s federal banking regulator, could view the Bank as having a high concentration of CRE loans under this guidance.
An institution that is deemed to have concentrations in CRE lending is expected to employ heightened levels of risk management with respect to its CRE portfolios, and may be required to maintain higher levels of capital. 31 Table of Contents As of December 31, 2023, our CRE loans for purposes of this guidance represented 529.5% of our total risk-based capital.
An institution that is deemed to have concentrations in CRE lending is expected to employ heightened levels of risk management with respect to its CRE portfolios, and may be required to maintain higher levels of capital. As of December 31, 2024, our CRE loans for purposes of this guidance represented 459.0% of our total risk-based capital.
We may be adversely affected by the lack of soundness of other financial institutions The recent failures of some depository institutions have raised concerns among depositors that their deposits may be at risk.
Risk Factors ECONOMIC, MARKET AND INVESTMENT RISKS We may be adversely affected by the lack of soundness of other financial institutions The recent failures of some depository institutions have raised concerns among depositors that their deposits may be at risk.
The occurrence of any cyber-attack or information security breach could result in potential liability to customers, reputational damage and the disruption of our operations, and regulatory concerns, 42 Table of Contents all of which could adversely affect our business, consolidated financial condition and consolidated results of operations.
The occurrence of any cyber-attack or information security breach could result in potential liability to customers, reputational damage and the disruption of our operations, and regulatory concerns, all of which could adversely affect our business, consolidated financial condition and consolidated results of operations. 39 Table of Contents The use of artificial intelligence in our marketplace may result in reputational harm or liability, or could otherwise adversely affect our business.
TECHNOLOGY RISKS Failure to keep up with the rapid technological changes in the financial services industry could have an adverse effect on our competitive position and profitability. The financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services.
TECHNOLOGY RISKS Failure to keep up with the rapid technological changes in the financial services industry could have an adverse effect on our competitive position and profitability.
Our business and most of the collateral securing our loans are concentrated in Southern California, which is prone to earthquakes, fires, mudslides, drought, flooding and other natural disasters.
Our business and most of the collateral securing our loans are concentrated in California, which is prone to earthquakes, fires, mudslides, drought, flooding and other natural disasters, including the January 2025 Los Angeles county wildfires.
These estimates may be inaccurate, and we may be exposed to significant losses on loans for these projects. At December 31, 2023, our construction and land development loans totaled $239.6 million, or 12.2% of our loans held for investment portfolio, excluding SBA loans.
These estimates may be inaccurate, and we may be exposed to significant losses on loans for these projects. At December 31, 2024, our construction and land development loans totaled $222.0 million, or 7.1% of our loans held for investment portfolio, excluding SBA loans.
Generally, we do not maintain reserves or loss allowances for such potential claims and any such claims could materially and adversely affect our business, consolidated financial condition or consolidated results of operations. As of December 31, 2023, we had $120.5 million of SBA loans, excluding Paycheck Protection Program (“PPP”) loans, or 6.2% of total loans held for investment.
Generally, we do not maintain reserves or loss allowances for such potential claims and any such claims could materially and adversely affect our business, consolidated financial condition or consolidated results of operations. As of December 31, 2024, we had $189.4 million of SBA loans, or 6.1% of total loans held for investment.
Regulatory and Compliance Risks • We operate in a highly regulated environment and the laws and regulations regarding capital requirements, anti-money laundering, information security and many other aspects of our business. Our failure to so comply could adversely affect us and our future growth.
Regulatory and Compliance Risks • We operate in a highly regulated environment and the laws and regulations regarding capital requirements, anti-money laundering, information security and many other aspects of our business.
Liquidity stress testing, interest rate sensitivity analysis, allowance for credit losses measurement, portfolio stress testing and the identification of possible violations of anti-money laundering regulations are examples of areas in which we are dependent on models and the data that underlie them.
Liquidity stress testing, interest rate sensitivity analysis, allowance for credit losses measurement, portfolio stress testing and the identification of possible violations of anti-money laundering regulations are examples of areas in which we are dependent on models and the data that underlie them. We anticipate that model-derived insights will be used more widely in our decision making in the future.
Risks Related to an Investment in our Common Stock • Our charter documents and banking laws may have an anti-takeover effect. • As an emerging growth company and a smaller reporting company, we may take advantage of reduced regulatory and reporting requirements under the federal securities laws, which may make our common stock less attractive to investors. • We may issue additional equity securities which may adversely affect existing holders of our common stock. • Our common stock is not insured or guaranteed by the FDIC.
Risks Related to an Investment in our Common Stock • Our common stock currently has a limited trading market and is thinly traded, and a more liquid market for our common stock may not develop. • As an emerging growth company and a smaller reporting company, we may take advantage of reduced regulatory and reporting requirements under the federal securities laws, which may make our common stock less attractive to investors. • We may issue additional equity securities which may adversely affect existing holders of our common stock. • Our common stock is not insured or guaranteed by the FDIC.
To realize the anticipated benefits and cost savings, we must successfully integrate and combine both businesses in a manner that permits growth opportunities and does not materially disrupt the existing customer relations nor result in decreased revenues due to loss of customers.
To realize the anticipated benefits and cost savings, we must continue to combine both businesses in a manner that permits growth opportunities and does not materially disrupt the existing customer relations nor result in decreased revenues due to loss of customers. In addition, the actual cost savings could be less than anticipated. We may experience goodwill impairment.
Our allowance for credit losses may not be adequate to cover actual losses. • Regulatory policies regarding commercial real estate loans could limit our ability to leverage our capital and limit our growth. • The small- to medium-sized businesses that we lend to may have fewer resources to weather adverse business developments, which may impair our borrowers’ ability to repay loans. • In addition to general lending risks, we face particular risks related to our SBA, real estate, commercial real estate, construction, commercial and consumer lending. • We have a significant number of loans secured by real estate, so we face risks related to a downturn in the real estate market and the impact of increasing interest rates on our real estate loans.
Our allowance for credit losses may not be adequate to cover actual losses. • Regulatory policies regarding commercial real estate loans could limit our ability to leverage our capital and limit our growth. • We may suffer losses in our loan portfolio despite our underwriting practices. • The small- to medium-sized businesses that we lend to may have fewer resources to weather adverse business developments, which may impair our borrowers’ ability to repay loans. 24 Table of Contents • In addition to general lending risks, we face particular risks related to our SBA, real estate, commercial real estate, construction, commercial and consumer lending. • We have a significant number of loans secured by real estate, so we face risks related to a downturn in the real estate market and the impact of changes in interest rates on our real estate loans. • We rely upon independent appraisals to determine the value of the real estate that secures a significant portion of our loans, and the values indicated by such appraisals may not be realizable if we are forced to foreclose upon such loans.
Our continued success and growth depend in large part on the efforts of these key personnel and ability to attract, motivate and retain highly qualified senior and middle management and other skilled employees to complement and succeed to our core senior management team. 39 Table of Contents If we are not able to attract, retain and motivate key personnel, our business could be negatively affected.
Our continued success and growth depend in large part on the efforts of these key personnel and ability to attract, motivate and retain highly qualified senior and middle management and other skilled employees to complement and succeed to our core senior management team.
These events impact us negatively to the extent that they result in reduced capital markets activity, lower asset price levels, or disruptions in general economic activity in the United States or abroad, or in financial market settlement functions. Disruptions to our clients could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans.
These events impact us negatively to the extent that they result in reduced capital markets activity, lower asset price levels, destruction of residential and commercial properties, or disruptions in general economic activity in the United States or abroad, or in financial market settlement functions.
We are also continuing to refine our internal controls over financial reporting. Maintaining and improving the effectiveness of our disclosure controls and procedures and internal controls over financial reporting will require that we continue to expend, significant resources, including accounting-related costs and significant management oversight. Nevertheless, these efforts may not be sufficient to result in an effective internal control environment.
We are also continuing to refine our internal controls over financial reporting. Maintaining and improving the effectiveness of our disclosure controls and 41 Table of Contents procedures and internal controls over financial reporting will require that we continue to expend significant resources, including accounting-related costs and significant management oversight.
In addition, there are risks that individuals, either employees or contractors, consciously circumvent established control mechanisms by, for example, exceeding trading or investment management limitations, or committing fraud.
Nevertheless, these efforts may not be sufficient to result in an effective internal control environment. In addition, there are risks that individuals, either employees or contractors, consciously circumvent established control mechanisms by, for example, exceeding trading or investment management limitations, or committing fraud.
Computer break-ins, phishing and other disruptions could also jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure.
The continued evolution and increased usage of artificial intelligence technologies may further increase these risks. Computer break-ins, phishing and other disruptions could also jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure.
If we are unable to successfully manage the integration of the separate cultures, customer bases and operating systems of the acquired institutions, our consolidated results of operations may be adversely affected.
Our future results of operations will depend in large part on our ability to successfully integrate the operations of CALB with our own and retain our and CALB’s customers. If we are unable to successfully manage the integration of the separate cultures, customer bases and operating systems of the acquired institutions, our consolidated results of operations may be adversely affected.
Our risk management practices, such as managing the concentration of our loans within specific industries, loan types and geographic areas, and our credit approval practices may not adequately reduce credit risk. Further, our credit administration personnel, policies and procedures may not adequately adapt to changes in economic or any other conditions affecting clients and the quality of the loan portfolio.
Further, our credit administration personnel, policies and procedures may not adequately adapt to changes in economic or any other conditions affecting clients and the quality of the loan portfolio.
The small- to medium-sized businesses that we lend to may have fewer resources to weather adverse business developments, which may impair our borrowers’ ability to repay loans. We target our business development and marketing strategy to serve the banking and financial services needs of our community, including small- to medium-sized businesses and real estate owners.
We target our business development and marketing strategy to serve the banking and financial services needs of our community, including small- to medium-sized businesses and real estate owners.
We may not be able to implement new technology-driven products and services effectively or be successful in marketing these products and services to our customers. Failure to keep pace successfully with technological change affecting the financial services industry could harm our ability to compete effectively and could have an adverse effect on our business, growth and consolidated results of operations.
Failure to keep pace successfully with technological change affecting the financial services 38 Table of Contents industry could harm our ability to compete effectively and could have an adverse effect on our business, growth and consolidated results of operations.
We anticipate that model-derived insights will be used more 43 Table of Contents widely in our decision making in the future. While these quantitative techniques and approaches improve our decision making, they also create the possibility that faulty data or flawed quantitative approaches could yield adverse outcomes or regulatory scrutiny.
While these quantitative techniques and approaches improve our decision making, they also create the possibility that faulty data or flawed quantitative approaches could yield adverse outcomes or regulatory scrutiny.
The effective use of technology increases efficiency and enables financial institutions to better serve customers and reduce costs. Our future success will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations.
Our future success will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements than we have.
We and CBC have operated and, until the completion of the Merger, will continue to operate independently. The success of the proposed transaction, will depend, in part, on the ability to realize the anticipated cost savings from combining our businesses and CBC’s.
Further, the success of the Merger will continue to depend, in part, on our ability to realize the anticipated cost savings from combining our businesses and with that of CALB.
Interest rate shifts may affect net interest income and otherwise negatively impact our consolidated financial condition and consolidated results of operations. The majority of our banking assets are monetary in nature and subject to risk from changes in interest rates.
The majority of our banking assets are monetary in nature and subject to risk from changes in interest rates.
Declines in the real estate market could hurt our business because if real estate values were to decline, the collateral for our loans would provide less security. As a result, our ability to recover on defaulted loans by selling the underlying real estate would be diminished, and we would be more likely to suffer losses on defaulted loans.
Declines in the real estate market could hurt our business because if real estate values were to decline, the collateral for our loans would provide less security.
Our future success depends in large part on our ability to retain and motivate our existing employees and attract new employees. Competition for the best employees can be intense and has increased since the beginning of the COVID-19 pandemic.
If we are not able to attract, retain and motivate key personnel, our business could be negatively affected. Our future success depends in large part on our ability to retain and motivate our existing employees and attract new employees. Competition for the best employees can be intense.
Many of our competitors have substantially greater resources to 41 Table of Contents invest in technological improvements than we have. As a result, competitors may be able to offer additional or superior products compared to those that we will be able to provide, which would put us at a competitive disadvantage.
As a result, competitors may be able to offer additional or superior products compared to those that we will be able to provide, which would put us at a competitive disadvantage. We may not be able to implement new technology-driven products and services effectively or be successful in marketing these products and services to our customers.
Economic, Market and Investment Risks • We face difficult market conditions relating to increasing interest rates and market volatility following the recent failures of some financial institutions. • We may be adversely affected by the lack of soundness of other financial institutions • We have unrealized losses in our securities portfolio. • We may be required to pay higher FDIC premiums. • We face risk related to pandemic, natural disasters, acts of terrorism and global conflicts. • We are particularly vulnerable to an economic downturn in Southern California. • Increasing interest rates may affect net interest income and otherwise negatively impact our consolidated financial condition and consolidated results of operations. 25 Table of Contents Risks Related to Lending and Credit • We may not be able to measure and limit our credit risk adequately, which could lead to unexpected losses.
Economic, Market and Investment Risks • We may be adversely affected by the lack of soundness of other financial institutions • We face risk related to severe weather, natural disasters, acts of terrorism and global conflicts. • We are particularly vulnerable to an economic downturn in California. • We have a significant number of loans secured by real estate, and a downturn in the local real estate market could negatively impact our profitability. • Changes in interest rates may affect net interest income and otherwise negatively impact our consolidated financial condition and consolidated results of operations.
Our business is concentrated in Southern California and we are particularly vulnerable to an economic downturn in our primary market area. We primarily serve businesses, organizations and individuals located in Southern California, which we define as including the California counties of Orange, Los Angeles, Riverside, San Diego and Ventura.
Disruptions to our clients could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans. Our business is concentrated in California and we are particularly vulnerable to an economic downturn in our primary market area. We primarily serve businesses, organizations and individuals located in California.
Strategic Risks • We face risks related to our growth, expansion and any acquisitions we may pursue. • We may experience goodwill impairment. • Competition may limit our growth and profitability. • The Merger may be more difficult, costly or time consuming than expected and the anticipated benefits and cost savings of the merger may not be realized. • Termination of the Merger Agreement could negatively impact us. • We will be subject to business uncertainties and contractual restrictions while the Merger is pending that could adversely affect our business and operations. • The Merger Agreement limits our ability to pursue acquisition proposals. • We will incur substantial costs related to the Merger.
Strategic and Competitive Risks • We face risks related to our growth, expansion and any acquisitions we may pursue. • The anticipated benefits and cost savings of the Merger may not be realized. • We may experience goodwill impairment. • Our reputation is critical to the success of our business and our failure to maintain our reputation may materially adversely affect our performance. • New lines of business, products, product enhancements or services may subject us to additional risk. • Competition may limit our growth and profitability.
These losses could have an adverse effect on our business, consolidated financial condition and consolidated results of operations. We have unrealized losses in our securities portfolio. If required, recognizing these losses would reduce our net earnings and shareholders’ equity, possibly significantly.
These losses could have an adverse effect on our business, consolidated financial condition and consolidated results of operations. 26 Table of Contents We face risks related to severe weather, natural disasters, global climate change, acts of terrorism and global conflicts.
Removed
Risk Factors ECONOMIC, MARKET AND INVESTMENT RISKS Difficult market conditions are adversely affecting the banking industry.
Added
Risks Related to Lending and Credit • We may not be able to measure and limit our credit risk adequately, which could lead to unexpected losses.
Removed
The rapid rise in interest rates during 2022, the resulting industry-wide reduction in the fair value of securities portfolios, and the recent bank runs that led to the failures of some financial institutions in March of 2023, among other events, have resulted in a current state of volatility and uncertainty with respect to the health of the U.S. banking system, particularly around liquidity, uninsured deposits and customer concentrations.
Added
Our failure to so comply could adversely affect us and our future growth. • We are subject to laws regarding the privacy, information security and protection of personal information and any violation of these laws could damage our reputation or otherwise adversely affect our business. • Our failure to comply with stringent capital requirements could result in regulatory criticism, requirements and restrictions. • We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.
Removed
If volatility and uncertainty continue, we may face the following risks: a. depositor confidence may be shaken, which could lead to deposit outflows that could cause liquidity concerns; b. market disruptions make valuation of our assets even more difficult and subjective, and our ability to measure the fair value of our assets could be adversely affected.
Added
The trade policies and potential tariff initiatives being pursued by the U.S. government under the administration of President Trump may present risks to our borrowers and the markets within which we operate, particularly with respect to the threatened imposition of additional tariffs on certain products imported from countries such as Mexico, Canada, China, which are significant international trading partners for the California economy.
Removed
If we determine that a significant portion of our assets have values significantly below their recorded carrying value, we could recognize a material charge to earnings in the quarter in which such determination was made, our capital ratios would be adversely affected and a rating agency might downgrade our credit rating or put us on credit watch; c. increased regulation of the banking industry; d. compliance with such regulation may increase our costs and limit our ability to pursue business opportunities; and e. market developments and the resulting economic pressure on customers may affect customer confidence levels and may cause increases in delinquencies and default rates, which, among other effects, could affect our charge-offs and provision for credit losses.
Added
The imposition of tariffs on imports, the potential for retaliatory tariffs by foreign governments, or other similar restrictions on international trade could increase costs for manufacturers and resellers, reduce demand for U.S. exports and disrupt supply chains.
Removed
Competition in the industry could intensify as a result of the increasing consolidation of financial institutions in connection with the current market conditions. 27 Table of Contents While we are unable to predict the full impact of this turmoil, it may result in, among other things, increased regulatory pressures, which could have material adverse effects on our business, consolidated financial condition, consolidated results of operations and growth prospects.
Added
Prolonged trade tensions or the implementation of tariffs could negatively impact the broader economic environment, potentially leading to reduced consumer spending, lower economic growth, and decreased demand for other banking products and services. As a result, our financial performance, including credit quality and loan growth, could be adversely affected by these policy changes.
Removed
Changes in the fair value of the securities in our securities portfolio may result from a number of circumstances that are beyond our control, such as changes in interest rates, the financial condition of municipalities, government sponsored enterprises or insurers of municipal bonds, changes in demand for these securities as a result of economic conditions, or reduced market liquidity.
Added
As a result, our ability to recover on defaulted loans by selling the underlying real estate would be diminished, and we would be more likely to suffer losses on defaulted loans. 27 Table of Contents Interest rate shifts may affect net interest income and otherwise negatively impact our consolidated financial condition and consolidated results of operations.
Removed
Accounting principles generally accepted in the United States of America (“GAAP”) requires that we carry held-to-maturity debt securities at amortized cost, adjusted for accretion discounts and amortization of premiums. As a result, and in accordance with GAAP, our consolidated balance sheets do not reflect changes in the fair value of our held-to-maturity debt securities.
Added
Our risk management practices, such as managing the concentration of our 28 Table of Contents loans within specific industries, loan types and geographic areas, and our credit approval practices may not adequately reduce credit risk.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeAdditionally, third-party experts conduct periodic program evaluations through penetration testing, audits, and best practice consultations, with results driving program improvement initiatives. As a regulated entity, Bank of Southern California undergoes regular bank regulatory examinations evaluating the information security program and its compliance with federal regulations. The Company's third-party risk management program oversees and identifies cybersecurity threats associated with service providers.
Biggest changeAs a regulated entity, California Bank of Commerce undergoes regular bank regulatory examinations evaluating the information security program and its compliance with federal regulations. 44 Table of Contents The Company's third-party risk management program oversees and identifies cybersecurity threats associated with service providers. While visibility into third-party operations is limited, risk-based evaluations are conducted.
The ISO possesses extensive experience with over 25 years securing information systems and data holding many industry certifications including Microsoft Certified Software Engineer + Security, Exchange Security, Comptia Security+, Pentest+, Cyber Security Analyst(CYSA+), Cisco Certified Network Admin + Security enhancement, Cisco Certified Design architect and Certified Ethical Hacker.
The ISO possesses extensive experience with over 25 years of securing information systems and data, and holds many industry certifications including Microsoft Certified Software Engineer + Security, Exchange Security, Comptia Security+, Pentest+, Cyber Security Analyst(CYSA+), Cisco Certified Network Admin + Security enhancement, Cisco Certified Design architect and Certified Ethical Hacker.
If the incident is material, the Chief Risk Officer would disclose the incident to the management Disclosure Control Committee. 47 Table of Contents While no material cybersecurity incidents have been identified during the reported fiscal year, the Company acknowledges the ongoing and evolving nature of cyber threats and remains vigilant in its efforts.
If the incident is material, the Chief Risk Officer would disclose the incident to the management Disclosure Control Committee. While no material cybersecurity incidents have been identified during the reported fiscal year, the Company acknowledges the ongoing and evolving nature of cyber threats and remains vigilant in its efforts to defend against them.
While visibility into third-party operations is limited, risk-based evaluations are conducted. These evaluations involve reviewing security assessment questionnaires, testing summaries, audit reports, and information security policies. Recognizing the importance of continuous security awareness, the Company provides comprehensive employee training. This includes mandatory cybersecurity and fraud training at onboarding, monthly email phishing tests, and annual computer-based training.
These evaluations involve reviewing security assessment questionnaires, testing summaries, audit reports, and information security policies. Recognizing the importance of continuous security awareness, the Company provides comprehensive employee training. This includes mandatory cybersecurity and fraud training at onboarding, monthly email phishing tests, and annual computer-based training.
Additionally, management-level technology and security personnel oversee program management and related assessments, while operational committees manage specific cybersecurity-related risks. While not currently experiencing material impacts, the Company acknowledges the existence of cybersecurity risks.
Additionally, management-level technology and security personnel oversee program management and related assessments, while operational committees manage specific cybersecurity-related risks.
Added
Additionally, third-party experts conduct periodic program evaluations through penetration testing, audits, and best practice consultations, with results driving program improvement initiatives.

Item 2. Properties

Properties — owned and leased real estate

1 edited+1 added−5 removed0 unchanged
Biggest changeWe own three properties and lease the remaining properties and believe that, if necessary, we could secure suitable alternative properties on similar terms without materially adversely affecting operations. For information regarding our lease commitments, refer to Note 5 - Premises and Equipment to the Consolidated Financial Statements.
Biggest changeItem 2. Properties Our principal executive offices are located in Del Mar, California. As of December 31, 2024, our properties included ten administrative offices and 14 branches in California. We own three properties and lease the remaining properties and believe that, if necessary, we could secure suitable alternative properties on similar terms without materially adversely affecting operations.
Removed
Item 2. Properties Our principal executive offices are located in Del Mar, California. As of December 31, 2023, our properties included five administrative offices and 13 branches in Los Angeles, Orange, Riverside, San Diego and Ventura counties.
Added
All of our existing facilities are considered to be adequate for our present and anticipated future use. In the opinion of management, 45 Table of Contents all properties are adequately covered by insurance. For information regarding our lease commitments, refer to Note 6 - Premises and Equipment and Leases to the Consolidated Financial Statements.
Removed
The following table provides the physical location of our 13 branches at February 14, 2024.
Removed
Office Address Square Footage Own Principal Executive Office 12265 El Camino Real, Suite 210, San Diego, CA 92130 5,816 Branches: Carlsbad 3142 Tiger Run Court, Suite 107, Carlsbad, CA 92010 1,404 Del Mar 12265 El Camino Real, Suite 210, San Diego, CA 92130 6,569 Downtown San Diego 1620 5th Avenue, Suite 120, San Diego, CA 92101 871 Encino 16255 Ventura Blvd., Ste 1100, Encino, CA 91436 2,873 48 Table of Contents Office Address Square Footage Own Glendale 801 N.
Removed
Brand Blvd., Suite 185, Glendale, CA 91203 8,284 Irvine 400 Spectrum Center Drive, Suite 100, Irvine, CA 92618 2,365 La Quinta 47-000 Washington, La Quinta, CA 92253 5,200 X Ramona 1315 Main Street, Unit A, Ramona, CA 92065 1,476 Rancho Mirage 40101 Monterey Avenue, #H, Rancho Mirage, CA 92270 5,000 X Rancho Santa Margarita 22342 Avenida Empresa, Suite 101A, Rancho Santa Margarita, CA 92688 2,971 Santa Clarita 23780 Magic Mountain Pkwy, Santa Clarita, CA 91355 15,240 X West Los Angeles 1640 S.
Removed
Sepulveda Blvd., Suite 130, Los Angeles, CA 90025 2,560 Westlake Village 875 S. Westlake Blvd., Suite 101, Westlake Village, CA 91361 3,427

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+0 added−0 removed2 unchanged
Biggest changeThe following table presents information with respect to purchases made by or on behalf of us or any “affiliated purchases” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our common stock during the periods indicated: (a) (b) (c) (d) Period Total number of shares (or units) purchased Average price paid per share (or unit) Total number of shares (or units) purchased as part of publicly announced plans or programs Maximum number of shares (or units) that may yet be purchased under the plans or programs October 1 - 31, 2023 — $ — — 550,000 November 1 - 30, 2023 — $ — — 550,000 December 1 - 31, 2023 — $ — — 550,000 Total — $ — — .
Biggest changeThere were no shares repurchased under this share repurchase plan during 2024. 46 Table of Contents The following table presents information with respect to purchases made by or on behalf of us or any “affiliated purchases” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our common stock during the periods indicated: (a) (b) (c) (d) Period Total number of shares (or units) purchased Average price paid per share (or unit) Total number of shares (or units) purchased as part of publicly announced plans or programs Maximum number of shares (or units) that may yet be purchased under the plans or programs October 1 - 31, 2024 — $ — — 550,000 November 1 - 30, 2024 — $ — — 550,000 December 1 - 31, 2024 — $ — — 550,000 Total — $ — —
Business—Supervision and Regulation—Regulation of the Bank”. Issuer Purchases of Equity Securities On June 14, 2023, we announced an authorized share repurchase plan, providing for the repurchase of up to 550,000 shares of our outstanding common stock, or approximately 3% of our then outstanding shares.
Business—Supervision and Regulation—Regulation of the Bank.” Issuer Purchases of Equity Securities On June 14, 2023, we announced an authorized share repurchase plan, providing for the repurchase of up to 550,000 shares of our outstanding common stock, or approximately 3% of our then outstanding shares.
We anticipate that all of our future earnings will be retained to support our operations, repurchase of our common stocks, and finance the growth and development of our business.
We anticipate that all of our future earnings will be retained to support our operations, repurchase of our common stock, and finance the growth and development of our business.
As a California corporation, we are subject to certain restrictions on dividends under the California General Corporation Law. We are also subject to certain restrictions on the payment of cash 49 Table of Contents dividends as a result of banking laws, regulations and policies. See “Item 1. Business—Supervision and Regulation—Regulation of the Company” and “Item 1.
As a California corporation, we are subject to certain restrictions on dividends under the California General Corporation Law. We are also subject to certain restrictions on the payment of cash dividends as a result of banking laws, regulations and policies. See “Item 1. Business—Supervision and Regulation—Regulation of the Company” and “Item 1.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information; Holders of Record Our common stock is listed on the Nasdaq Capital Market under the symbol “BCAL”. As of February 29, 2024, there were approximately 358 holders of record of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information; Holders of Record Our common stock is listed on the Nasdaq Capital Market under the symbol “BCAL.” As of March 31, 2025, there were approximately 438 holders of record of our common stock.
The repurchase program has no expiration date and may be suspended, modified, or terminated at any time without prior notice. There were no shares repurchased under this share repurchase plan during 2023.
The repurchase program has no expiration date and may be suspended, modified, or terminated at any time without prior notice.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThese ratios differ from the regulatory capital ratios principally in that the numerator excludes goodwill and other intangible assets. 58 Table of Contents The following tables present a reconciliation of non-GAAP financial measures to GAAP measures for the periods indicated: For the Year Ended December 31, (dollars in thousands, except per share amounts) 2023 2022 Efficiency Ratio Noninterest expense $ 59,746 $ 63,522 Net interest income 94,138 87,786 Noninterest income 3,379 3,675 Total net interest income and noninterest income $ 97,517 $ 91,461 (1) Efficiency ratio (non-GAAP) 61.3 % 69.5 % Pre-tax pre-provision income Net interest income $ 94,138 $ 87,786 Noninterest income 3,379 3,675 Total net interest income and noninterest income 97,517 91,461 Less: Noninterest expense 59,746 63,522 (2) Pre-tax pre-provision income (non-GAAP) $ 37,771 $ 27,939 Return on Average Assets, Equity, and Tangible Equity Net income $ 25,910 $ 16,113 Average assets $ 2,306,233 $ 2,301,418 Average shareholders’ equity 273,346 250,054 Less: Average intangible assets 39,195 38,960 (3) Average tangible common equity (non-GAAP) $ 234,151 $ 211,094 Return on average assets 1.12 % 0.70 % Return on average equity 9.48 % 6.44 % (4) Return on average tangible common equity (non-GAAP) 11.07 % 7.63 % Tangible Common Equity Ratio/Tangible Book Value Per Share Shareholders’ equity $ 288,152 $ 260,355 Less: Intangible assets 38,998 39,387 (5) Tangible common equity (non-GAAP) $ 249,154 $ 220,968 Total assets $ 2,360,252 $ 2,283,927 Less: Intangible assets 38,998 39,387 (5) Tangible assets (non-GAAP) $ 2,321,254 $ 2,244,540 Equity to asset ratio 12.21 % 11.40 % (6) Tangible common equity to tangible asset ratio (non-GAAP) 10.73 % 9.84 % Book value per share $ 15.69 $ 14.51 (7) Tangible book value per common share (non-GAAP) $ 13.56 $ 12.32 Shares outstanding 18,369,115 17,940,283 59 Table of Contents Financial Highlights The following table sets forth certain of our financial highlights as of and for each of the periods presented.
Biggest changeThese ratios differ from the regulatory capital ratios principally in that the numerator excludes goodwill and other intangible assets. 57 Table of Contents The following tables present a reconciliation of non-GAAP financial measures to GAAP measures for the periods indicated: For the Year Ended December 31, (dollars in thousands) 2024 2023 Efficiency Ratio Noninterest expense $ 97,791 $ 59,746 Less: Merger and related expenses 16,288 — Adjusted noninterest expense $ 81,503 $ 59,746 Net interest income 122,984 94,138 Noninterest income 4,760 3,379 Total net interest income and noninterest income $ 127,744 $ 97,517 (1) Efficiency ratio (non-GAAP) 76.6 % 61.3 % (1) Adjusted efficiency ratio (non-GAAP) 63.8 % 61.3 % Pre-tax Pre-provision Income Net interest income $ 122,984 $ 94,138 Noninterest income 4,760 3,379 Total net interest income and noninterest income 127,744 97,517 Less: Noninterest expense 97,791 59,746 (2) Pre-tax pre-provision income (non-GAAP) $ 29,953 $ 37,771 Add: Merger and related expenses 16,288 — (2) Adjusted pre-tax pre-provision income (non-GAAP) $ 46,241 $ 37,771 Return on Average Assets, Equity, and Tangible Equity Net income $ 5,433 $ 25,910 Add: After-tax Day1 provision for non PCD loans and unfunded loan commitments (1) 14,978 — Add: After-tax merger and related expenses (1) 11,988 — (3) Adjusted net income (non-GAAP) $ 32,399 $ 25,910 Average assets $ 3,095,916 $ 2,306,233 Average shareholders’ equity 379,816 273,346 Less: Average intangible assets 79,564 39,195 (4) Average tangible common equity (non-GAAP) $ 300,252 $ 234,151 Return on average assets 0.18 % 1.12 % (5) Adjusted return on average assets (non-GAAP) 1.05 % 1.12 % Return on average equity 1.43 % 9.48 % (5) Adjusted return on average equity (non-GAAP) 8.53 % 9.48 % (6) Return on average tangible common equity (non-GAAP) 1.81 % 11.07 % (6) Adjusted return on average tangible common equity (non-GAAP) 10.79 % 11.07 % (1) After-tax Day 1 provision for non-PCD loans and unfunded loan commitments and merger and related expenses are presented using a 29.56% tax rate. 58 Table of Contents December 31, (dollars in thousands, except per share amounts) 2024 2023 Tangible Common Equity Ratio/Tangible Book Value Per Share Shareholders’ equity $ 511,836 $ 288,152 Less: Intangible assets 134,058 38,998 (7) Tangible common equity (non-GAAP) $ 377,778 $ 249,154 Total assets $ 4,031,654 $ 2,360,252 Less: Intangible assets 134,058 38,998 (7) Tangible assets (non-GAAP) $ 3,897,596 $ 2,321,254 Equity to asset ratio 12.70 % 12.21 % (8) Tangible common equity to tangible asset ratio (non-GAAP) 9.69 % 10.73 % Book value per share $ 15.86 $ 15.69 (9) Tangible book value per share (non-GAAP) $ 11.71 $ 13.56 Shares outstanding 32,265,935 18,369,115 59 Table of Contents Financial Highlights The following table sets forth certain of our financial highlights as of and for each of the years presented.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our consolidated financial condition and consolidated results of operations should be read in conjunction with our consolidated financial statements and related notes.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our consolidated financial condition and consolidated results of operations should be read in conjunction with our consolidated financial statements and related notes.
The ACL on loans consists of: (i) a specific allowance established for CECL on loans individually evaluated, (ii) a quantitative allowance for current expected credit losses based on the portfolio and expected economic conditions over a reasonable and supportable forecast period that reverts back to long-term trends to cover the expected life of the loan, (iii) a qualitative allowance including management judgment to capture factors and trends that are not adequately reflected in the quantitative allowance, and (iv) the ACL for off-balance sheet credit exposure for unfunded loan commitments.
The ACL consists of: (i) a specific allowance established for CECL on loans individually evaluated, (ii) a quantitative allowance for current expected loan losses based on the portfolio and expected economic conditions over a reasonable and supportable forecast period that reverts back to long-term trends to cover the expected life of the loan, (iii) a qualitative allowance including management judgment to capture factors and trends that are not adequately reflected in the quantitative allowance, and (iv) the ACL for off-balance sheet credit exposure for unfunded loan commitments.
Under federal law, the Bank may not declare a dividend in excess of its undivided profits if, absent the approval of the OCC, the Bank’s primary banking regulator, the total amount of dividends declared by the Bank in any calendar year exceeds the total of the Bank’s retained net income of that current period, year to date, combined with its retained net income for the preceding two years.
Under federal law, the Bank may not declare a dividend in excess of its undivided profits and, absent the approval of the OCC, the Bank’s primary banking regulator, if the total amount of dividends declared by the Bank in any calendar year exceeds the total of the Bank’s retained net income of that current period, year to date, combined with its retained net income for the preceding two years.
Capital Resources Maintaining adequate capital is always an important objective of the Company. Abundant and high quality capital helps weather economic downturns and market volatility, protect depositors’ funds, and support growth, such as expanding the operations or acquisitions. Capital is also a source of funds for loan demand and enables the Company to effectively manage its assets and liabilities.
Capital Resources Maintaining adequate capital is always an important objective of the Company. Abundant and high quality capital helps weather economic downturns and market volatility, protect depositors’ funds, and support growth, such as expanding operations or making acquisitions. Capital is also a source of funds for loan demand and enables the Company to effectively manage its assets and liabilities.
Prior to the adoption of ASC Topic 326, individually evaluated loans were referred to as impaired loans. Amounts are charged-off when available information confirms that specific loans or portions thereof, are uncollectible. This methodology for determining charge-offs is consistently applied to each segment.
Prior to the adoption of ASC Topic 326, individually evaluated loans were referred to as impaired loans. Amounts are charged-off when available information confirms that specific loans or portions thereof, are uncollectible. This methodology for determining charge-offs is consistently applied to each loan segment.
Qualitative risk factors are periodically evaluated by management. Generally, the measurement of the ACL on loans is performed by collectively evaluating loans with similar risk characteristics. Loans that do not share similar risk characteristics are evaluated individually for credit loss and are not included in the evaluation process discussed above.
Qualitative risk factors are periodically evaluated by management. Generally, the measurement of the ACL is performed by collectively evaluating loans with similar risk characteristics. Loans that do not share similar risk characteristics are evaluated individually for credit loss and are not included in the evaluation process discussed above.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures We also maintain a separate allowance for off-balance sheet commitments, which is included in accrued interest payable and other liabilities in our consolidated balance sheets.
Allowance for Credit Losses on Off-Balance Sheet Commitments We also maintain a separate allowance for off-balance sheet commitments, which is included in accrued interest payable and other liabilities in our consolidated balance sheets.
We consider average tangible common equity, tangible common equity, and tangible common equity to tangible asset ratio as useful additional methods to evaluate our capital utilization and adequacy to withstand unexpected market conditions.
We consider average tangible common equity, tangible common equity, and the tangible common equity to tangible asset ratio as useful additional methods to evaluate our capital utilization and adequacy to withstand unexpected market conditions.
These critical estimates are difficult to predict and may result in impairment charges in future periods if actual results materially differ from those initially estimated. 57 Table of Contents Non-GAAP Financial Measures This filing contains certain non-GAAP financial measures in addition to results presented in accordance with GAAP.
These critical estimates are difficult to predict and may result in impairment charges in future periods if actual results materially differ from those initially estimated. 56 Table of Contents Non-GAAP Financial Measures This filing contains certain non-GAAP financial measures in addition to results presented in accordance with GAAP.
The ACL on loans held for investment represents the portion of the loan’s amortized cost basis that we do not expect to collect due to anticipated credit losses over the loan’s contractual life. Amortized cost does not include accrued interest, which management elected to exclude from the estimate of expected credit losses.
The ACL on loans held for investment represents the portion of the loans’ amortized cost basis that we do not expect to collect due to anticipated credit losses over the loans’ contractual life. Amortized cost does not include accrued interest, which management elected to exclude from the estimate of expected credit losses.
The loans serviced for others are accounted for as sales and are therefore not included in the accompanying consolidated balance sheets.
The loans serviced for others were accounted for as sales and are therefore not included in the accompanying consolidated balance sheets.
Repurchases under the program may occur from time to time in open market transactions, in privately negotiated transactions, or by other means in accordance with federal securities laws and other restrictions. We intend to fund these repurchases from available working capital and cash provided by operating activities.
Repurchases under the program may occur from time to time in open market transactions, in privately negotiated transactions, or by other means in accordance with federal securities laws and other restrictions. We intend to fund any repurchases from available working capital and cash provided by operating activities.
We measure the ACL on loans using a discounted cash flow methodology, which utilizes pool-level assumptions and cash flow projections on an individual loan basis, which then aggregated at the portfolio segment level and supplemented by a qualitative reserve that is applied to each portfolio segment level.
We measure the ACL using a discounted cash flow methodology, which utilizes pool-level assumptions and cash flow projections on individual loan basis, which then aggregated at the portfolio segment level and supplemented by a qualitative reserve that is applied to each portfolio segment level.
Allowance for Credit Losses - Loans An ACL on loans is our estimate of expected lifetime credit losses for our loan held for investment at the time of origination or acquisition and is maintained at a level deemed appropriate by management to provide for expected lifetime credit losses in the portfolio.
Allowance for Credit Losses - Loans The ACL on loans is our estimate of expected lifetime credit losses for our loans held for investment at the time of origination or acquisition and is maintained at a level deemed appropriate by management to provide for expected lifetime credit losses in the portfolio.
Such qualitative adjustments may be related to and include, but are not limited to factors such as: differences in segment-specific risk characteristics, periods wherein current conditions 56 Table of Contents and reasonable and supportable forecasts of economic conditions differ from the conditions that existed at the time of the estimated loss calculation, model limitations and management’s overall assessment of the adequacy of the ACL.
Such qualitative adjustments may be related to and include, but are not limited to, factors such as: differences in segment-specific risk characteristics, periods wherein current conditions and reasonable and supportable forecasts of economic conditions differ from the conditions that existed at the time of the estimated loss calculation, model limitations and management’s overall assessment of the adequacy of the ACL.
For additional information regarding our operating, investing, and financing cash flows, see “Consolidated Statements of Cash Flows” in our audited consolidated financial statements contained in Item 8 of this annual report. Bank of Southern California, N.A.
For additional information regarding our operating, investing, and financing cash flows, see “Consolidated Statements of Cash Flows” in our audited consolidated financial statements contained in Item 8 of this annual report. California Bank of Commerce, N.A.
The issuers of these 69 Table of Contents securities have not, to our knowledge, established any cause for default on these securities. As a result, we expect to recover the entire amortized cost basis of these securities. When market interest rates decrease, bond prices tend to increase and, consequently, the fair value of our securities may also increase.
The issuers of these securities have not, to our knowledge, 71 Table of Contents established any cause for default on these securities. As a result, we expect to recover the entire amortized cost basis of these securities. When market interest rates increase, bond prices tend to fall and, consequently, the fair value of our securities may also decrease.
The measurement of expected credit losses under the CECL is applicable to financial assets measured at amortized cost, including loans, held-to-maturity debt securities and off-balance sheet credit exposures. ASU 2016-13 also requires credit losses on available-for-sale debt securities be measured through an allowance for credit losses.
The measurement of expected credit losses under the CECL is applicable to financial assets measured at amortized cost, including loans, held-to-maturity debt securities 51 Table of Contents and off-balance sheet credit exposures. ASU 2016-13 also requires credit losses on available-for-sale debt securities be measured through an allowance for credit losses.
In particular, management has identified several 54 Table of Contents accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements. The following is a discussion of these critical accounting policies and significant estimates that require us to make complex and subjective judgments.
In particular, management has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements. The following is a discussion of these critical accounting policies and significant estimates that require us to make complex and subjective judgments.
Provision for credit losses for loans held for investment is included in the 55 Table of Contents provision for credit losses in the consolidated statements of income. Loan charge-offs are recognized when management believes the collectability of the principal balance outstanding is unlikely. Subsequent recoveries, if any, are credited to the ACL.
Provision for credit losses for loans held for investment is included in provision for credit losses in the consolidated statements of income. Loan charge-offs are recognized when management believes the collectability of the principal balance outstanding is unlikely. Subsequent recoveries, if any, are credited to the ACL.
The Notes which mature March 25, 2030 accrue interest at a fixed rate of 5.50% through the fixed rate period to March 26, 2025, after which interest accrues at a floating rate of 90-day SOFR plus 350 basis points, until maturity, unless redeemed early, at our option, after the end of the fixed rate period.
The Notes which mature March 25, 2030 accrue interest at a fixed rate of 5.50% through the fixed rate period to March 26, 2025, after which interest accrues at a floating rate of 90-day SOFR plus 3.50%, until maturity, unless redeemed early, at our option, after the end of the fixed rate period.
Issuance costs of $475 thousand were incurred and are being amortized over the first 5-year fixed term of the Notes; unamortized issuance costs at December 31, 2023 and 2022, were $135 thousand and $230 thousand, respectively. The net unamortized issuance costs are netted against the balance and recorded in the borrowings in the consolidated balance sheets.
Issuance costs of $475 thousand were incurred and are being amortized over the first 5-year fixed term of the Notes; unamortized issuance costs at December 31, 2024 and 2023, were $40 thousand and $135 thousand, respectively. The net unamortized issuance costs are netted against the balance and recorded in the borrowings in the consolidated balance sheets.
We have kept a steady focus on our solution-driven, relationship-based approach to banking, providing clients accessibility to decision makers and enhancing value through strong client partnerships. We are a Preferred SBA Lender. Our lending products consist primarily of construction and land development loans, real estate loans, C&I loans, SBA loans, and consumer loans.
We keep a steady focus on our solution-driven, relationship-based approach to banking, providing clients accessibility to decision makers and enhancing the value of our services through strong client partnerships. Our lending products consist primarily of construction and land development loans, real estate loans, C&I loans and consumer loans, and we are a Preferred SBA Lender.
During the years ended December 31, 2023 and 2022, there were no dividends declared to shareholders by the Company.
During the years ended December 31, 2024 and 2023, there were no dividends declared to shareholders by the Company.
(3) Average noninterest-bearing deposits represent 40.83%, and 50.10% of average total deposits for the years ended December 31, 2023 and 2022, respectively . (4) Net interest income divided by average interest-earning assets. (5) Total deposits is the sum of interest-bearing deposits and noninterest-bearing deposits.
(3) Average noninterest-bearing deposits represent 34.10%, and 40.83% of average total deposits for the years ended December 31, 2024 and 2023, respectively . (4) Net interest income divided by average interest-earning assets. (5) Total deposits is the sum of interest-bearing deposits and noninterest-bearing deposits.
We continue to monitor macroeconomic variables related to increasing interest rates, inflation, and concerns regarding an economic downturn, and its potential effects on our business, customers, 53 Table of Contents employees, communities and markets.
We continue to monitor macroeconomic variables related to increasing interest rates, inflation, and concerns regarding an economic downturn and its potential effects on our business, customers, employees, communities and markets.
The Bank paid dividends to the Company of $3.0 million during the year ended December 31, 2022. 88 Table of Contents The Federal Reserve limits the amount of dividends that bank holding companies may pay on common stock to income available over the past year, and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition.
The Bank paid dividends to the Company of $2.0 million during the year ended December 31, 2023. The Federal Reserve limits the amount of dividends that bank holding companies may pay on common stock to income available over the past year, and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition.
Our investing cash flows are primarily comprised of cash inflows and outflows from our debt securities and loan portfolios, as applicable, and to a lesser extent, purchases of stock investments, purchases and proceeds from bank-owned life insurance, and capital expenditures.
Our investing cash flows are primarily comprised of cash inflows and outflows from our debt securities and loan portfolios, net cash acquired in business combinations, as applicable, and to a lesser extent, purchases of stock investments, purchases and proceeds from bank-owned life insurance, and capital expenditures.
The increase was primarily related to a 136 basis point increase in the total interest-earning assets yield resulting from higher market interest rates and a change in our interest-earning asset mix, partially offset by a 117 basis point increase in the cost of funds.
The decrease was primarily related to a 66 basis point increase in the cost of funds, partially offset by a 57 basis point increase in the total interest-earning assets yield resulting from higher market interest rates and a change in our interest-earning asset mix.
This secured borrowing arrangement is collateralized under a blanket lien on qualifying real estate loans and is subject to us providing adequate collateral and continued compliance with the Advances and Security Agreement and other eligibility requirements established by the FHLB. At December 31, 2023, we had pledged qualifying loans with an unpaid principal balance of $893.8 million for this line.
This secured borrowing arrangement is collateralized under a blanket lien on qualifying real estate loans and is subject to us providing adequate collateral and continued compliance with the Advances and Security Agreement and other eligibility requirements established by the FHLB. At December 31, 2024, we had pledged qualifying loans with an unpaid principal balance of $1.41 billion for this line.
The servicing asset activity includes additions from loan sales with servicing retained and acquired servicing rights and reductions from amortization as the serviced loans are repaid and servicing fees are earned. Loans serviced for others totaled $58.8 million and $59.4 million at December 31, 2023 and 2022, respectively.
The servicing asset activity includes additions from loan sales with servicing retained and acquired servicing rights and reductions from amortization as the serviced loans are repaid and servicing fees are earned. Loans serviced for others totaled $138.0 million and $58.8 million at December 31, 2024 and 2023, respectively.
Net interest income is affected by changes in volume, mix, and rates of interest-earning assets and interest-bearing liabilities, as well as days in a period.
Net interest margin represents net interest income expressed as a percentage of interest-earning assets. Net interest income is affected by changes in volume, mix, and rates of interest-earning assets and interest-bearing liabilities, as well as days in a period.
Interest income includes accretion of net deferred loan fees and net purchased discounts of $2.0 million and $3.8 million for the years ended December 31, 2023 and 2022, respectively. (2) Tax-exempt debt securities yields are presented on a tax equivalent basis using a 21% tax rate.
Interest income includes accretion of net deferred loan fees and net discounts on acquired loans of $12.3 million and $2.0 million for the years ended December 31, 2024 and 2023, respectively. (2) Tax-exempt debt securities yields are presented on a tax equivalent basis using a 21% tax rate.
While maturities and scheduled amortization of loans and debt securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and competition. At December 31, 2023, we had a secured line of credit of $499.2 million from the FHLB, of which $339.2 million was available.
While maturities and scheduled amortization of loans and debt securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and competition. At December 31, 2024, we had a secured line of credit of $780.9 million from the FHLB, of which $753.9 million was available.
All held-to-maturity debt securities were municipal securities, and historically have had limited credit loss experience. At December 31, 2023, the total fair value of taxable municipal and tax exempt bank-qualified municipal securities were $478 thousand, and $50.0 million, respectively.
All held-to-maturity debt securities were municipal securities, and historically have had limited credit loss experience with them. At December 31, 2024 and 2023, the total fair value of taxable municipal and tax exempt bank-qualified municipal securities was $463 thousand and $478 thousand, respectively, and $47.4 million and $50.0 million, respectively.
The $9.8 million increase in net income from the prior year was primarily due to a $6.4 million increase in net interest income, a $5.0 million decrease in the provision for credit losses, and a $3.8 million decrease in noninterest expense, partially offset by a $5.1 million increase in income taxes.
The $20.5 million decrease in net income from the prior year was primarily due to a $20.8 million increase in the provision for credit losses, and a $38.0 million increase in noninterest expense, partially offset by a $28.8 million increase in net interest income and a $8.1 million decrease in income taxes.
The net of tax unrealized loss on available-for-sale debt securities is reflected in accumulated other comprehensive loss. The effective duration of total available-for-sale debt securities was 5.13 years and 4.56 years at December 31, 2023 and December 31, 2022, respectively.
The net of tax unrealized loss on available-for-sale debt securities is reflected in accumulated other comprehensive loss. The effective duration of this portfolio was 4.60 years and 5.13 years at December 31, 2024 and 2023, respectively.
There were no outstanding borrowings under these lines at December 31, 2023 and 2022. Southern California Bancorp The primary sources of liquidity of the Company, on a stand-alone holding company basis, are derived from dividends from the Bank, borrowings, and its ability to issue debt and raise capital.
The lines are subject to annual review. There were no outstanding borrowings under these lines at December 31, 2024 and 2023. 88 Table of Contents California BanCorp The primary sources of liquidity of the Company, on a stand-alone holding company basis, are derived from dividends from the Bank, borrowings, and its ability to issue debt and raise capital.
(6) Tangible common equity to tangible assets ratio is computed by dividing tangible common equity by tangible assets. (7) Tangible book value per common share is computed by dividing tangible common equity by total common shares outstanding.
(8) Tangible common equity to tangible assets ratio is computed by dividing tangible common equity by tangible assets. (9) Tangible book value per share is computed by dividing tangible common equity by total common shares outstanding.
At December 31, 2023, we had credit availability of $141.6 million at the Federal Reserve discount window to the extent of collateral pledged. At December 31, 2023, we had pledged our held-to-maturity debt securities with an amortized cost of $53.6 million and qualifying loans with an unpaid principal balance of $116.8 million as collateral through the Borrower-in-Custody (“BIC”) program.
At December 31, 2024, we had credit availability of $318.5 million at the Federal Reserve discount window to the extent of collateral pledged. At December 31, 2024, we had pledged held-to-maturity debt securities with an amortized cost of $53.3 million and qualifying loans with an unpaid principal balance of $379.8 million as collateral through the Borrower-in-Custody (“BIC”) program.
Net interest margin for the year ended December 31, 2023 was 4.33%, compared with 4.06% for the year ended December 31, 2022.
Net interest margin for the year ended December 31, 2024 was 4.28%, compared with 4.33% for the year ended December 31, 2023.
At December 31, 2023, our liquidity position remained strong, with the following financial balances, compared to December 31, 2022: • Total cash and cash equivalents of approximately $86.8 million, compared to $86.8 million. • Total liquidity ratio of approximately 11.1%, compared to 10.5%. • Unpledged, liquid securities at fair value were approximately $130.0 million, compared to $112.6 million. • Available borrowing capacity from the Federal Home Loan Bank (“FHLB”) secured lines of credit of approximately $339.2 million, compared to $374.4 million.
At December 31, 2024, our liquidity position remained strong, with the following financial balances (unaudited), compared to December 31, 2023: • Total cash and cash equivalents of approximately $388.2 million, compared to $86.8 million. • Total liquidity ratio of approximately 15.7%, compared to 11.1%. • Unpledged, liquid securities at fair value were approximately $129.4 million, compared to $130.0 million. • Available borrowing capacity from the Federal Home Loan Bank (“FHLB”) secured lines of credit of approximately $753.9 million, compared to $339.2 million.
Per the regulatory definition of commercial real estate, at December 31, 2023, our concentration of such loans represented 529.5% of our total risk-based capital. In addition, at December 31, 2023, total loans secured by commercial real estate under construction and land development represented 84.0% of our total risk-based capital.
Per the regulatory definition of commercial real estate, at December 31, 2024, our concentration of such loans represented 459% of our total risk-based capital. In addition, at December 31, 2024, total loans secured by commercial real estate under construction and land development represented 46% of our total risk-based capital.
The effective duration of this portfolio was 5.58 years and 6.35 years at December 31, 2023 and 2022, respectively. We have the intent and ability to hold the securities classified as held to maturity until they mature, at which time we will receive full value for the securities.
The effective duration of the held-to-maturity debt securities was 6.52 years and 5.58 years at December 31, 2024 and 2023, respectively. We have the 69 Table of Contents intent and ability to hold the securities classified as held to maturity until they mature, at which time we will receive full value for the securities.
Net cash used in investing activities was $78.9 million for the year ended December 31, 2023, compared to net cash used in investing activities of $512.7 million in the prior year.
Net cash provided by investing activities was $524.7 million for the year ended December 31, 2024, compared to net cash used in investing activities of $78.9 million for 2023.
At December 31, 2023, we had 76 available-for-sale debt securities in a gross unrealized loss position with an amortized cost basis and fair value of $100.7 million and $93.5 million, respectively, with pre-tax unrealized losses of $7.1 million, compared to 88 available-for-sale debt securities with an amortized cost basis and fair value of $106.3 million and $97.0 million, respectively with pre-tax unrealized holding losses of $9.3 million at December 31, 2022.
At December 31, 2024, we had 89 available-for-sale debt securities in a gross unrealized loss position with an amortized cost basis and fair value of $124.2 million and $114.6 million, respectively, with pre-tax unrealized losses of $9.6 million, compared to 76 available-for-sale debt securities with an amortized cost basis and fair value of $100.7 million and $93.5 million, respectively with pre-tax unrealized holding losses of $7.1 million at December 31, 2023.
Consideration for each SBA loan sale includes the cash received and the fair value of the related servicing asset. The significant assumptions used in the valuation of the SBA servicing asset at December 31, 2023 included a weighted average discount rate of 16.1% and a weighted average prepayment speed assumption of 19.0%.
Consideration for each SBA loan sale includes the cash received and the fair value of the related servicing asset. The significant assumptions used in the valuation of the SBA servicing asset at December 31, 2024 included a weighted average discount rate of 14.3% and a weighted average prepayment speed assumption of 20.5%.
We have a highly skilled and experienced lending team and related support team, and an experienced credit administration team. Given our concentration in commercial real estate secured loans, we mitigate that risk through comprehensive underwriting policies, semi-annual loan level reviews, close monitoring of self-established industry and geographical and collateral type limits, periodic stress testing and continuous portfolio risk management reporting.
Given our concentration in commercial real estate secured loans, we mitigate that risk through comprehensive underwriting policies, semi-annual loan level reviews, close monitoring of self-established industry and geographical and collateral type limits, periodic stress testing and continuous portfolio risk management reporting.
Federal bank regulatory agencies have authority to prohibit banking institutions from paying dividends if those agencies determine that, based on the financial condition of the bank, such payment will constitute an unsafe or unsound practice. During the year ended December 31, 2023, the Bank paid dividends to the Company of $2.0 million.
Federal bank regulatory agencies have authority to prohibit banking institutions from paying dividends if those agencies determine that, based on the financial condition of the bank, such payment will constitute an unsafe or unsound practice. 92 Table of Contents During the year ended December 31, 2024, there were no dividends paid by the Bank to the Company.
The allowance for off-balance sheet commitments totaled $933 thousand and $1.3 million at December 31, 2023 and 2022, 80 Table of Contents respectively.
The allowance for off-balance sheet commitments totaled $3.1 million and $933 thousand at December 31, 2024 and 2023, respectively.
For additional information, see Note 9 — Income Taxes of the Notes to Consolidated Financial Statements included in Item 8 of this annual report. Financial Condition Summary Total assets at December 31, 2023 were $2.36 billion, an increase of $76.3 million from $2.28 billion at December 31, 2022.
For additional information, see Note 11 — Income Taxes of the Notes to Consolidated Financial Statements included in Item 8 of this annual report. Financial Condition Summary Total assets at December 31, 2024 were $4.03 billion, an increase of $1.67 billion from $2.36 billion at December 31, 2023.
There were no shares repurchased under this share repurchase plan during the year ended December 31, 2023. Tangible book value per common share at December 31, 2023 was $13.56, compared with $12.32 at December 31, 2022.
There were no shares repurchased under this share repurchase plan during the years ended December 31, 2024 and 2023. Tangible book value per common share at December 31, 2024 was $11.71, compared with $13.56 at December 31, 2023.
By applying a 100% probability weighting to the downside scenario and the stagflation scenario rather than using the probability-weighted two scenario approach would result in an increase in ACL by approximately $3.4 million and $9.0 million, respectively, or an additional 17 basis points and 46 basis points, respectively, to the ALL to total loans held for investment ratio.
Applying a 100% probability weighting to the downside scenario rather than using the probability-weighted two scenario approach would result in an increase in ACL by approximately $7.2 million, or an additional 23 basis points to the ALL to total loans held for investment ratio.
This includes SBA loans serviced for others of $35.4 million and $30.3 million at December 31, 2023 and 2022, respectively, for which there was a related servicing asset of $546 thousand and $514 thousand, respectively. The fair value of the servicing asset approximated its carrying value at December 31, 2023 and 2022.
This includes SBA loans serviced for others of $33.2 million and $35.4 million at December 31, 2024 and 2023, respectively, for which there was a related servicing 83 Table of Contents asset of $344 thousand and $546 thousand, respectively. The fair value of the servicing asset approximated its carrying value at December 31, 2024 and 2023.
Refer to Note 6 - Goodwill and Other Intangible Assets of the Notes to Consolidated Financial Statements included in Item 8 of this annual report for more information regarding business combinations and related activity. 81 Table of Contents Deposits The following table presents the composition of deposits, and related percentage of total deposits, as of December 31, 2023: December 31, 2023 December 31, 2022 (dollars in thousands) Amount Percentage of Total Deposits Spot Rate (1) Amount Percentage of Total Deposits Spot Rate (1) Noninterest-bearing demand $ 675,098 34.7 % — % $ 923,899 47.8 % — % Interest-bearing NOW accounts (2) 381,943 19.7 % 2.1 % 209,625 10.9 % 0.3 % Money market and savings accounts (3) 636,685 32.8 % 2.9 % 668,602 34.6 % 1.2 % Time deposits 142,005 7.3 % 4.5 % 109,032 5.6 % 2.1 % Broker time deposits 107,825 5.5 % 4.6 % 20,747 1.1 % 1.1 % Total deposits $ 1,943,556 100.0 % 1.9 % $ 1,931,905 100.0 % 0.6 % (1) Weighted average interest rates at December 31, 2023 and 2022.
Refer to Note 2 - Business Combinations and Note 8 - Goodwill and Other Intangible Assets of the Notes to Consolidated Financial Statements included in Item 8 of this annual report for more information regarding business combinations and related activity. 84 Table of Contents Deposits The following table presents the composition of deposits, related percentage of total deposits, and spot rates as of December 31, 2024: December 31, 2024 December 31, 2023 (dollars in thousands) Amount Percentage of Total Deposits Spot Rate (1) Amount Percentage of Total Deposits Spot Rate (1) Noninterest-bearing demand (2) $ 1,257,007 37.0 % — % $ 675,098 34.7 % — % Interest-bearing NOW accounts (3) 673,589 19.8 % 1.9 % 381,943 19.7 % 2.1 % Money market and savings accounts (4) 1,182,927 34.8 % 2.7 % 636,685 32.8 % 2.9 % Time deposits (5) 164,101 4.8 % 4.0 % 142,005 7.3 % 4.5 % Broker time deposits 121,136 3.6 % 4.9 % 107,825 5.5 % 4.6 % Total deposits $ 3,398,760 100.0 % 1.7 % $ 1,943,556 100.0 % 1.9 % (1) Weighted average interest rates at December 31, 2024 and 2023.
Results of Operations Net Income Net income for the year ended December 31, 2023 was $25.9 million, or $1.39 per diluted share, compared to $16.1 million, or $0.88 per diluted share in the prior year.
Net Income Net income for the year ended December 31, 2024 was $5.4 million, or $0.22 per diluted share, compared to net income of $25.9 million, or $1.39 per diluted share in the prior year.
Net cash provided by financing activities was $45.9 million for the year ended December 31, 2023, compared to $6.1 million in the prior year.
Net cash used in financing activities was $273.6 million for the year ended December 31, 2024, compared to net cash provided by financing activities of $45.9 million for the same 2023 period.
During the year ended December 31, 2023, we sold nine SBA 7(a) loans with a net carrying value of $10.9 million, resulting in a gain of $874 thousand, at an average premium of 8.0% and one non-SBA loan with a net carrying value of $39 thousand, resulting in a gain of $11 thousand.
In 2023, we sold nine SBA 7(a) loans with a net carrying value of $10.9 million, resulting in a gain on sale of $874 thousand at an average 66 Table of Contents premium of 8.01%, and one non-SBA loan with a net carrying value of $39 thousand, resulting in a gain of $11 thousand.
(2) Pre-tax pre-provision income is computed by adding net interest income and noninterest income and subtracting noninterest expense. This non–GAAP financial measure provides a greater understanding of pre–tax profitability before giving effect to credit loss expense. (3) Average tangible common equity is computed by subtracting goodwill and core intangible deposits, net from average shareholders’ equity.
This non–GAAP financial measure provides a greater understanding of pre–tax profitability before giving effect to credit loss expense. Adjusted pre-tax pre-provision income is computed by adding net interest income and noninterest income and subtracting adjusted noninterest expense.
We have no meaningful exposure to cryptocurrency or venture capital business models and our accumulated other comprehensive loss on our available-for-sale debt securities is manageable.
We have no meaningful exposure to cryptocurrency or venture capital business models, our accumulated other comprehensive loss on our available-for-sale debt securities is manageable, and our capital position is strong. We have a highly skilled and experienced lending production team and credit administration team.
In addition, at December 31, 2023, we used $75.0 million of our secured FHLB borrowing capacity by having the FHLB issue letters of credit to meet collateral requirements for deposits from the State of California and other public agencies. We had an overnight borrowing of $85.0 million at December 31, 2023.
In addition, at December 31, 2024, we used $27.0 million of our secured FHLB borrowing capacity to have the FHLB issue letters of credit to meet collateral requirements for deposits from the State of California and other public agencies. There were no overnight borrowings at December 31, 2024.
We are regulated as a bank holding company by the Board of Governors of the Federal Reserve System (“Federal Reserve”). The Bank operates under a national charter and is regulated by the Office of Comptroller of the Currency (“OCC”).
BCAL OREO1, LLC is used for holding other real estate owned and other assets acquired by foreclosure. We are regulated as a bank holding company by the Board of Governors of the Federal Reserve System (“Federal Reserve”). The Bank operates under a national charter and is regulated by the Office of Comptroller of the Currency (“OCC”).
Total unfunded loan commitments decreased $190.4 million to $410.8 million at December 31, 2023, from $601.1 million at December 31, 2022. Servicing Asset and Loan Servicing Portfolio We sell loans in the secondary market and, for certain loans, retain the servicing responsibility.
Total unfunded loan commitments increased $514.5 million to $925.3 million at December 31, 2024, from $410.8 million at December 31, 2023. Servicing Asset and Loan Servicing Portfolio We sell loans in the secondary market and, for certain loans, retain the servicing responsibility.
We are authorized to issue 50,000,000 shares of common stock of which 18,369,115 have been issued as of December 31, 2023. We are also authorized to issue 50,000,000 shares of preferred stock, of which none have been issued as of December 31, 2023.
We are authorized to issue 50,000,000 shares of common stock of which 32,265,935 have been issued as of December 31, 2024. We are also authorized to issue 50,000,000 shares of preferred stock, of which none has been issued as of December 31, 2024.
The recent bank runs that led to the failure of several financial institutions beginning in March of 2023, among other events, fostered a state of volatility and uncertainty with respect to the health of the U.S. banking system, particularly around liquidity, uninsured deposits and customer concentrations.
The subsequent bank runs led to the failure of several financial institutions beginning in March of 2023 and the distress at New York Community Bank in early 2024, fostering a state of volatility and uncertainty with respect to the health of the U.S. banking system, particularly around liquidity, uninsured deposits and customer concentrations.
We offer our depositors access to the Insured Cash Sweep (“ICS Product”), which allows us to divide customers deposits that exceed the FDIC insurance limits into smaller amounts, below the FDIC insurance limits, and place those deposits in other participating FDIC insured institutions with the convenience of managing all deposit accounts through our Bank.
These reciprocal deposits allow us to divide customers’ deposits that exceed the FDIC insurance limits into smaller amounts, below the FDIC insurance limits, and place those deposits in other participating FDIC insured institutions with the convenience of managing all deposit accounts through our Bank.
Held-to-Maturity Debt Securities The amortized cost of held-to-maturity debt securities and their estimated fair values at December 31, 2023 and 2022 were as follows: (dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value December 31, 2023 Taxable municipals $ 551 $ — $ (73) $ 478 Tax exempt bank-qualified municipals 53,065 25 (3,136) 49,954 $ 53,616 $ 25 $ (3,209) $ 50,432 December 31, 2022 Taxable municipals $ 550 $ — $ (105) $ 445 Tax exempt bank-qualified municipals 53,396 — (5,935) 47,461 $ 53,946 $ — $ (6,040) $ 47,906 At December 31, 2023, we had 61 held-to-maturity debt securities in a net unrealized loss position with an amortized cost basis of $53.6 million with pre-tax unrealized losses of $3.2 million, compared to $53.9 million with pre-tax unrealized losses of $6.0 million at December 31, 2022.
Held-to-Maturity Debt Securities The amortized cost of held-to-maturity debt securities and their approximate fair values at December 31, 2024 and 2023 were as follows: (dollars in thousands) Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses Estimated Fair Value December 31, 2024 Taxable municipals $ 553 $ — $ (90) $ 463 Tax exempt bank-qualified municipals 52,727 — (5,367) 47,360 $ 53,280 $ — $ (5,457) $ 47,823 December 31, 2023 Taxable municipals $ 551 $ — $ (73) $ 478 Tax exempt bank-qualified municipals 53,065 25 (3,136) 49,954 $ 53,616 $ 25 $ (3,209) $ 50,432 At December 31, 2024, we had 61 held-to-maturity debt securities in a gross unrecognized loss position with an amortized cost basis of $53.3 million with pre-tax unrecognized losses of $5.5 million, compared to 58 held-to-maturity debt securities with an amortized cost basis of $51.5 million with pre-tax unrecognized losses of $3.2 million at December 31, 2023.
The following challenges could have an impact on our business, consolidated financial condition or near- or longer-term consolidated results of operations: • Slower loan growth and declining deposits; • Difficulty retaining and attracting deposit relationships; • Credit quality deterioration of our loan portfolio resulting in additional provision for credit losses and impairment charges; • Margin pressure as we increase deposit rates in response to potential further rate increases by the FOMC and our competitors; • Increases in other comprehensive loss from the unrealized losses on available-for-sale debt securities; and • Liquidity stresses to maintain sufficient levels of high-quality liquid assets and access to borrowing lines.
The following challenges could have an impact on our business, consolidated financial condition or near- or longer-term consolidated results of operations: • Slower loan growth and declining deposits; • Difficulty retaining and attracting deposit relationships; • Credit quality deterioration of our loan portfolio resulting in additional provision for credit losses and charge-offs; • Margin pressure in response to potential further rate cuts by the Federal Reserve; • Merger cost savings being less than anticipated; • Liquidity stresses to maintain sufficient levels of high-quality liquid assets and access to borrowing lines.
On June 14, 2023, we announced an authorized share repurchase plan, providing for the repurchase of up to 550,000 shares of our outstanding common stock, or approximately 3% of our then outstanding shares.
On June 14, 2023, we announced an authorized share repurchase plan, providing for the repurchase of up to 550,000 shares of our outstanding common stock, or approximately 3% of our then outstanding shares. The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies.
The following table presents a summary of the changes in the ACL for the periods indicated: Year Ended December 31, 2023 Year Ended December 31, 2022 (dollars in thousands) Allowance for Loan Losses Reserve for Unfunded Loan Commitments Total Allowance for Credit Losses Allowance for Loan Losses Reserve for Unfunded Loan Commitments Total Allowance for Credit Losses Balance, beginning of period $ 17,099 $ 1,310 $ 18,409 $ 11,657 $ 804 $ 12,461 Adoption of ASU No. 2016-13 (1) 5,027 439 5,466 — — — Provision for (reversal of) credit losses 1,731 (816) 915 5,450 506 5,956 Charge-offs (1,303) — (1,303) (21) — (21) Recoveries 15 — 15 13 — 13 Net charge-offs (1,288) — (1,288) (8) — (8) Balance, end of period $ 22,569 $ 933 $ 23,502 $ 17,099 $ 1,310 $ 18,409 (1) Represents the impact of adopting ASU 2016-13, Financial Instruments - Credit Losses on January 1, 2023.
Accrued interest receivable is excluded from the ACL. 80 Table of Contents The following table presents a summary of the changes in the ACL for the periods indicated: Year Ended December 31, 2024 Year Ended December 31, 2023 (dollars in thousands) Allowance for Loan Losses Reserve for Unfunded Loan Commitments Total Allowance for Credit Losses Allowance for Loan Losses Reserve for Unfunded Loan Commitments Total Allowance for Credit Losses Balance, beginning of period $ 22,569 $ 933 $ 23,502 $ 17,099 $ 1,310 $ 18,409 Adoption of ASU No. 2016-13 (1) — — — 5,027 439 5,466 Initial allowance for acquired PCD loans 11,216 — 11,216 — — — Provision for (reversal of) credit losses (2)(3) 19,520 2,170 21,690 1,731 (816) 915 Charge-offs (2,774) — (2,774) (1,303) — (1,303) Recoveries 9 — 9 15 — 15 Net charge-offs (2,765) — (2,765) (1,288) — (1,288) Balance, end of period $ 50,540 $ 3,103 $ 53,643 $ 22,569 $ 933 $ 23,502 (1) Represents the impact of adopting ASU 2016-13, Financial Instruments - Credit Losses on January 1, 2023.
As a result, the discussion and analysis below primarily relate to activities conducted at the Bank level. Overview Southern California Bancorp is a California corporation incorporated on October 2, 2019, and is headquartered in Del Mar, California. On May 15, 2020, we completed a reorganization whereby Bank of Southern California, N.A. became the wholly owned subsidiary of the Company.
As a result, the discussion and analysis below primarily relate to activities conducted at the Bank level. Overview California BanCorp, formerly known as Southern California Bancorp, is a California corporation incorporated on October 2, 2019, and headquartered in Del Mar, California.
Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with the probable incurred loss accounting standards. 77 Table of Contents The ACL consists of: (i) a specific allowance established for CECL on loans individually evaluated, (ii) a quantitative allowance for current expected loan losses based on the portfolio and expected economic conditions over a reasonable and supportable forecast period that reverts back to long-term trends to cover the expected life of the loan, (iii) a qualitative allowance including management judgment to capture factors and trends that are not adequately reflected in the quantitative allowance, and (iv) the ACL for off-balance sheet credit exposure for unfunded loan commitments.
The ACL consists of: (i) a specific allowance established for current expected credit losses on loans individually evaluated, (ii) a quantitative allowance for current expected credit losses based on the portfolio and expected economic conditions over a reasonable and supportable forecast period that reverts back to long-term trends to cover the expected life of the loan, (iii) a qualitative allowance including management’s judgment to capture factors and trends that are not adequately reflected in the quantitative allowance, and (iv) the ACL for off-balance sheet credit exposure for unfunded loan commitments (described in Allowance for Credit Losses - Off-Balance Sheet Credit Exposure).
The yield on total earning assets during the year ended December 31, 2023 was 5.69%, compared with 4.33% for the year ended December 31, 2022. The yield on average total loans during the year ended December 31, 2023 was 5.94%, a 92 basis points increase from 5.02% for the year ended December 31, 2022.
The yield on total interest-earning assets during the year ended December 31, 2024 was 6.26%, compared with 5.69% for the year ended December 31, 2023. The yield on average total loans during the year ended December 31, 2024 was 6.55%, a 61 basis point increase from 5.94% for the year ended December 31, 2023.
Nonaccrual loans consist of all loans 90 days or more past due and loans where, in the opinion of management, there is reasonable doubt as to the collection of principal and interest.
Non-performing Assets Nonperforming assets consist of loans on which we have ceased accruing interest (nonaccrual loans), OREO, and other repossessed assets owned. Nonaccrual loans consist of all loans 90 days or more past due and on loans where, in the opinion of management, there is reasonable doubt as to the collection of principal and interest.
We are a relationship-focused community bank and we offer a range of financial products and services to individuals, professionals, and small- to medium-sized businesses through our 13 branch offices serving Orange, Los Angeles, San Diego and Ventura counties, as well as the Inland Empire.
We are a relationship-focused community bank and we offer a range of financial products and services to individuals, professionals, and small- to medium-sized businesses through our 14 branch offices serving the state of California.
The $1.24 increase in tangible book value per common share was primarily the result of net income generated, the impact of share-based compensation expense, and other comprehensive losses related to changes in unrealized losses, net of taxes on available-for-sale securities, partially offset by the impact of adopting ASU 2016-13.
The $1.85 decrease in tangible book value per common share during the year ended December 31, 2024 was primarily the result of common shares issued in the business combination and the other comprehensive loss related to changes in unrealized losses, net of taxes on available-for-sale securities, partially offset by the impact of share-based compensation expense and the net income during the year.
Management determined that the decrease in unrealized losses related to each available-for-sale debt securities at December 31, 2023 was primarily attributable to factors other than credit related, including changes in interest rates driven by the Federal Reserve’s policy to fight against inflation and general volatility in market conditions. Our available-for-sale debt securities consisted of U.S.
We determined that the increase in unrealized losses related to each available-for-sale debt security at December 31, 2024 was primarily attributable to factors other than credit related, including general volatility in market conditions. Our available-for-sale debt securities consisted of U.S.
This approach requires us to apply a number of critical estimates that include, but are not limited to, future expected cash flows from depositor relationships, expected “decay” rates, and the determination of discount rates.
For example, we utilize a discounted cash flow approach to measure the fair value of core deposit intangible assets acquired in business combinations. This approach requires us to apply a number of critical estimates that include, but are not limited to, future expected cash flows from depositor relationships, expected “decay” rates, and the determination of discount rates.
Our operating cash flows are comprised of net income, adjusted for certain non-cash transactions, including but not limited to, depreciation and amortization, provision for credit losses, loans originated for sale and related gains and proceeds from sales, stock-based compensation, and amortization of net deferred loan costs and premiums.
The increase in cash and cash equivalents is the result of $50.3 million in net cash provided by operating cash flows, $524.7 million net cash provided by investing cash flows, partially offset by $273.6 million of net cash flows used in financing cash flows. 89 Table of Contents Our operating cash flows are comprised of net income, adjusted for certain non-cash transactions, including but not limited to, depreciation and amortization, provision for credit losses, loans originated for sale and related gains and proceeds from sales, stock-based compensation, and amortization of net deferred loan costs and premiums.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe following table presents the projected changes in NII at Risk and EVE that would occur upon an immediate change in interest rates based on independent analysis, but without giving effect to any steps that management might take to counteract that change at December 31, 2023: Change in Interest Rates in Basis Points (bps) Market Value of Equity Net Interest Income (NII) (Dollars in thousands) Amount Change ($) Change (%) Amount Change ($) Change (%) December 31, 2023 +300bps $ 359.1 $ 37.1 11.5 % $ 86.9 (0.4) (0.4) % +200bps 351.1 29.1 9.0 % 87.6 0.3 0.3 % +100bps 339.5 17.5 5.4 % 87.7 0.4 0.5 % Base case 322.0 87.3 -100bps 295.4 (26.6) (8.3) % 84.4 (2.9) (3.3) % -200bps 252.8 (69.2) (21.5) % 83.1 (4.2) (4.8) % -300bps 186.7 (135.3) (42.0) % 82.0 (5.3) (6.0) % December 31, 2022 +300bps $ 509.4 $ 55.3 12.2 % $ 103.8 (1.1) (1.0) % +200bps 498.2 44.1 9.7 % 104.2 (0.7) (0.7) % +100bps 480.7 26.6 5.9 % 104.7 (0.2) (0.2) % Base case 454.1 104.9 -100bps 411.6 (42.5) (9.4) % 101.4 (3.5) (3.3) % -200bps 341.9 (112.2) (24.7) % 97.4 (7.5) (7.1) % The modeled NII results at December 31, 2023 and 2022 indicate we would sustain a decrease in NII if interest rates declined due primarily to adjustable-rate loans repricing lower at a faster pace than the decline in deposit rates.
Biggest changeThe following table presents the projected changes in NII at Risk and EVE that would occur upon an immediate change in interest rates based on independent analysis, but without giving effect to any steps that management might take to counteract that change at December 31, 2024: Change in Interest Rates in Basis Points (bps) Market Value of Equity Net Interest Income (NII) (Dollars in thousands) Amount Change ($) Change (%) Amount Change ($) Change (%) December 31, 2024 +300bps $ 635.2 $ 40.3 6.8 % $ 179.8 3.5 2.0 % +200bps 627.6 32.7 5.5 % 178.9 2.6 1.5 % +100bps 615.0 20.1 3.4 % 177.7 1.5 0.8 % Base case 594.9 176.2 -100bps 566.6 (28.3) (4.8) % 172.7 (3.5) (2.0) % -200bps 527.0 (67.9) (11.4) % 168.6 (7.6) (4.3) % -300bps 475.2 (119.7) (20.1) % 163.4 (12.8) (7.3) % December 31, 2023 +300bps $ 359.1 $ 37.1 11.5 % $ 86.9 (0.4) (0.4) % +200bps 351.1 29.1 9.0 % 87.6 0.3 0.3 % +100bps 339.5 17.5 5.4 % 87.7 0.4 0.5 % Base case 322.0 87.3 -100bps 295.4 (26.6) (8.3) % 84.4 (2.9) (3.3) % -200bps 252.8 (69.2) (21.5) % 83.1 (4.2) (4.8) % -300bps 186.7 (135.3) (42.0) % 82.0 (5.3) (6.0) % The modeled NII results at December 31, 2024 and 2023 indicate we would sustain a decrease in NII if interest rates declined due primarily to adjustable-rate loans repricing lower and at a faster pace than the decline in deposit rates.
In response to actual or anticipated changes in interest rates, we have various alternatives 90 Table of Contents for managing and reducing exposure such as using FHLB Advances and/or certain derivatives such as swaps to align maturities and repricing terms, managing the percentage of fixed rate loans in our portfolio, managing the level of investments and duration of investment securities and managing our deposit relationships.
In response to actual or anticipated changes in interest rates, we have various alternatives for managing and reducing exposure such as using FHLB Advances and/or certain derivatives such as swaps to align maturities and repricing terms, managing the percentage of fixed rate loans in our portfolio, managing the level of investments and duration of investment securities and managing our deposit relationships.
Additionally, prepayments of loans and early withdrawals of certificates of deposit could cause interest sensitivities to vary. 89 Table of Contents Our interest rate risk exposure is measured and monitored through various risk management tools, including a simulation model that performs interest rate sensitivity analysis under multiple scenarios.
Additionally, prepayments of loans and early withdrawals of certificates of deposit could cause interest sensitivities to vary. Our interest rate risk exposure is measured and monitored through various risk management tools, including a simulation model that performs interest rate sensitivity analysis under multiple scenarios.
Our primary market risk is interest rate risk, which is the risk of loss of net interest income or a decrease in our net interest margin resulting from changes in market interest rates.
Our primary market risk is interest rate risk, which is the risk of loss of net interest income or net interest margin resulting from changes in market interest rates.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Market risk represents the risk of loss due to changes in market values of assets and liabilities. We incur market risk in the normal course of business through exposure to market interest rates, equity prices, and credit spreads.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk Management Market risk represents the risk of loss due to changes in market values of assets and liabilities. We incur market risk in the normal course of business through exposures to market interest rates, equity prices, and credit spreads.
Changes that vary significantly from our assumptions and estimates significantly affect our earnings and EVE. 91 Table of Contents
Changes that vary significantly from our assumptions and estimates significantly affect our earnings and EVE profiles. 95 Table of Contents
The projected changes are forecasts based on estimates of historical behavior and assumptions that may change over time and may turn out to be different. Factors affecting our estimates and assumptions include, but are not limited to competitor behavior, economic conditions both locally and nationally, actions taken by the Federal Reserve, customer behavior and our management’s responses.
The projected changes are forecasts based on estimates of historical behavior and assumptions that are susceptible to change over time and actual results may differ from projections. Factors affecting our estimates and assumptions include, but are not limited to competitor behavior, economic conditions both locally and nationally, actions taken by the Federal Reserve, customer behavior and our management’s responses.
In addition, it is not uncommon for rates on certain assets or liabilities to lag behind changes in the market rates of interest.
Changes in interest rates may result in interest-earning assets and interest-bearing liabilities maturing or repricing at different times, on a different basis or in unequal amounts. In addition, it is not uncommon for rates on certain assets or liabilities to lag behind changes in the market rates of interest.
Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate interest rate risk posture given business forecasts, management objectives, market expectations, and policy constraints. Changes in interest rates may result in interest-earning assets and interest-bearing liabilities maturing or repricing at different times, on a different basis or in unequal amounts.
Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate interest rate risk posture given business forecasts, management objectives, market 93 Table of Contents expectations, and policy constraints.
The modeled EVE results at December 31, 2023 and 2022 indicate we would benefit from an increase in interest rates and would be adversely impacted by a decrease in interest rates. The results of these analyses do not contemplate all of the actions that we may undertake in response to changes in interest rates.
The results of these analyses do not contemplate all of the actions that we may undertake in response to changes in interest rates.
In a rising rate environment, our NII results indicated there would be a slight increase in the net interest income if interest rates were to increase in the +100 and +200 rate shock scenarios, and a slight decrease in the +300 rate shock scenario The changes in NII in a rising rate environment are attributed to the adjustable-rate loans repricing higher, offset by the higher costs associated with increasing liquidity and deposit pressures in the banking industry.
The changes in NII in a rising rate environment are attributed to the adjustable-rate loans repricing higher, offset by the higher costs associated with increasing deposit costs. The modeled EVE results at December 31, 2024 and 2023 indicate we would benefit from an increase in interest rates and would be adversely impacted by a decrease in interest rates.
Added
In the current rate environment at December 31, 2024, our NII results indicated there would be a modest increase in the net interest income in all rates-up scenarios, compared to an increase in net interest income in the +100 and +200 rate shock scenarios, and a slight decrease in 94 Table of Contents net interest income in the +300 rate shock scenario at December 31, 2023.

Other BCAL 10-K year-over-year comparisons