Southern California Bancorp (Ticker: BCAL) has recently reported an increase in its Allowance for Credit Losses (ACL) by $5.3 million during the three months ended March 31, 2023. The change reflects the adoption of a new accounting standard, the Current Expected Credit Losses (CECL) methodology, as well as other contributing factors amidst an uncertain economic environment.
Table of Contents
Following the adoption of CECL on January 1, 2023
the bank’s ACL comprises of allowances established for current expected credit losses on loans, quantitative allowances based on the portfolio and economic conditions forecast, qualitative allowances including management judgment, and the ACL for off-balance sheet credit exposure for unfunded loan commitments. The adoption of CECL added $5.0 million to the ACL while the remaining $278,000 was attributed to the provision for credit losses.
The bank has noted a slight increase in loan downgrades into special mention and substandard, changes in the portfolio mix, as well as a decrease in total loan balances. Additionally, management has increased the qualitative reserve to account for potential losses resulting from future recessionary pressures and the impact of banking turmoil not captured in quantitative analysis.
The economic outlook has been affected by the Federal Reserve’s actions to control inflation amid banking turbulence.
Southern California Bancorp’s management has been monitoring macroeconomic variables related to increasing interest rates, inflation, and concerns of an economic downturn, and believes it is appropriately provisioned for the current environment.
As of March 31, 2023, the bank utilized a probability-weighted three-scenario forecast to estimate the ACL, which included a base-case scenario with a 50% probability, a downside scenario predicting slower downside growth with a 30% probability, and a second downside scenario assuming sustained high inflation leading to a deep depression in 2024 with a 20% probability.
The ACL process, however, involves subjective and complex judgments and can potentially result in materially different results under different assumptions and conditions.
The bank, therefore, reviews the level of the ACL at least quarterly, and performs a sensitivity analysis on the significant assumptions utilized in estimating the ACL for collectively evaluated loans.
Southern California Bancorp’s commitment to monitoring and adapting to the changing economic conditions and environment reflects a proactive approach to managing its credit risk and loss allowances. This will be critical as the bank navigates ongoing economic uncertainties and strives for stability and growth in the coming years.
Income Statement
Financials in millions USD. Fiscal year is January – December. source
| Year | 2022 | 2021 | |
|---|---|---|---|
| 0 | Revenue | 86.01 | 67.73 |
| 1 | Revenue Growth (YoY) | 27.00% | – |
| 2 | Gross Profit | 86.01 | 67.73 |
| 3 | Selling, General & Admin | 51.43 | 46.83 |
| 4 | Other Operating Expenses | 12.6 | 6.71 |
| 5 | Operating Expenses | 64.03 | 53.54 |
| 6 | Operating Income | 21.98 | 14.19 |
| 7 | Pretax Income | 21.98 | 14.19 |
| 8 | Income Tax | 5.87 | 3.48 |
| 9 | Net Income | 16.11 | 10.71 |
| 10 | Net Income Growth | 50.46% | – |
| 11 | Shares Outstanding (Basic) | 18 | – |
| 12 | EPS (Basic) | 0.90 | 0.74 |
| 13 | EPS (Diluted) | 0.88 | 0.72 |
| 14 | EPS Growth | 22.22% | – |
| 15 | Free Cash Flow Per Share | 0.90 | – |
| 16 | Gross Margin | 100.00% | 100.00% |
| 17 | Operating Margin | 25.56% | 20.95% |
| 18 | Profit Margin | 18.73% | 15.81% |
| 19 | Free Cash Flow Margin | 18.81% | 26.43% |
| 20 | Effective Tax Rate | 26.70% | 24.51% |
| 21 | EBITDA | 23.98 | 15.91 |
| 22 | EBITDA Margin | 27.88% | 23.49% |
| 23 | Depreciation & Amortization | 2 | 1.72 |
| 24 | EBIT | 21.98 | 14.19 |
| 25 | EBIT Margin | 25.56% | 20.95% |
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