Private Bancorp of America, Inc. Announces Strong Net Income and Earnings Per Share for Second Quarter 2023

Second Quarter 2023 Highlights

• Net income for the second quarter of 2023 of $15.5 million, up 73% from the prior quarter and 253% from the second quarter of 2022
• Net diluted earnings per share for the second quarter of 2023 of $2.69, up 71% from the prior quarter and 249% from the second quarter of 2022
• Excluding the impact of the two loan recoveries and settlement of related legal fees described below, net income for the second quarter of 2023 was $8.3 million or $1.43 per diluted share (see non-GAAP reconciliation in the accompanying financial tables of this press release)
• Loans held-for-investment (“HFI”) totaled $1.7 billion as of June 30, 2023, an increase of $95 million or 5.8% from March 31, 2023 and $129 million or 8.2% from December 31, 2022
• The provision for loan losses for the second quarter of 2023 was a net reversal of $7.1 million, compared to a charge of $73 thousand for the prior quarter and a charge of $659 thousand for the second quarter of 2022. The net reversal in the second quarter of 2023 includes a recovery of $7.7 million for the settlement of a lawsuit against ANI Development, LLC/Gina Champion-Cain and Chicago Title (parent company, Fidelity National Financial) related to a previously charged-off loan, as well as a recovery of $902 thousand for a loan that was acquired as part of a merger in 2013
• Core deposits were $1.5 billion as of June 30, 2023, an increase of $81 million or 5.3% from March 31, 2023. The increase was comprised of $18 million in noninterest-bearing deposits and $63 million in interest-bearing deposits, which includes fully insured balances in the Intrafi ICS and CDARS deposit programs. Noninterest-bearing deposits represent 42.9% of core deposits
• Total deposits were $1.7 billion as of June 30, 2023, an increase of $115 million or 7.3% from March 31, 2023. Federal Home Loan Bank advances declined by $126 million as a consequence of strong deposit growth
• Uninsured deposits, net of collateralized and fiduciary deposit accounts, represent 51% of total deposits as of June 30, 2023
• As of June 30, 2023, total available liquidity was $1.5 billion or 174% of uninsured deposits, net of collateralized and fiduciary deposit accounts. Total available liquidity is comprised of $225 million of on-balance sheet liquidity (cash and investment securities) and $1.3 billion of unused borrowing capacity
• Net interest margin was 4.73% for the second quarter of 2023, as compared to 4.90% for the prior quarter and 4.61% for the second quarter of 2022
• Total cost of deposits was 1.59% for the second quarter of 2023, an increase from 1.23% for the prior quarter and 0.79% in the fourth quarter of 2022. The spot rate for deposits was 1.67% as of June 30, 2023, compared to 1.31% at March 31, 2023. Total cost of funding sources was 1.82% for the second quarter of 2023, an increase from 1.39% in the prior quarter and 0.86% in the fourth quarter of 2022
• Tangible book value per share was $28.82 as of June 30, 2023, an increase of $2.52 since March 31, 2023 as a result of strong earnings, partially offset by the impact of adopting CECL. The overall impact of the two loan recoveries and settlement of related legal fees noted above was approximately $1.26 per share. Tangible book value per share increased 27% year-over-year.

LA JOLLA, Calif., July 21, 2023 (GLOBE NEWSWIRE) -- Private Bancorp of America, Inc. (OTCQX:PBAM), (“Company”) and CalPrivate Bank (“Bank”) announced unaudited financial results for the second fiscal quarter ended June 30, 2023. The Company reported record net income of $15.5 million, or $2.69 per diluted share, for the second quarter of 2023 compared to $4.4 million, or $0.77 per diluted share, for the second quarter of 2022. The quarter ended June 30, 2023 included loan recoveries of $8.6 million and a $1.6 million benefit from legal fees waived or collected related to the settlement of the ANI loan lawsuit (see non-GAAP reconciliation in the accompanying financial tables of this press release).

Rick Sowers, President and CEO of the Company and the Bank stated, “We are very pleased with the results of the second quarter and our continued growth of the balance sheet and solid net interest margin. Our Team continues to deliver exceptional service and quality relationship building while being opportunistic in new Client and Team member acquisition. Our focus remains on maintaining credit quality through active portfolio management, managing our variable expenses and making investments that build long-term value for shareholders.”

Sowers added, “We benefited during the quarter from two loan recoveries, including reaching a settlement with the Receiver for ANI Investments Champion-Cain for our previously reported loan charge-off related to fraud in which the Company recovered $7.7 million plus certain rights to future recoveries from a guarantor of the loan. This recovery amount represents 80% of the original principal charge-off and is net of the participant bank’s share. We are happy to have this behind us.”

“The Company continues to exhibit successful customer acquisition activity as shown by the growth in loans and deposits despite a rising rate environment. Additionally, the Company continues to invest in people and infrastructure, including strong risk management, needed to support the continued growth of the CalPrivate franchise,” said Selwyn Isakow, Chairman of the Board of the Company and the Bank.

STATEMENT OF INCOME

Net Interest Income

Net interest income for the second quarter of 2023 totaled $22.7 million, an increase of $540 thousand or 2.4% from the prior quarter and an increase of $4.7 million or 26.3% from the second quarter of 2022. The increase from the prior quarter was driven primarily by an increase of $2.8 million in interest income, which resulted from a 5.1% increase in average earning assets and 21 basis point increase in yield on earning assets. Partially offsetting this was an increase of $2.3 million in interest expense, which resulted primarily from a 60 basis point increase in the cost of interest-bearing liabilities.

Net Interest Margin

The net interest margin for the second quarter of 2023 was 4.73% compared to 4.90% for the prior quarter and 4.61% in the second quarter of 2022. The 17 basis point decrease in net interest margin from the prior quarter was due primarily to higher rates paid on funding sources, partially offset by higher rates on new loan originations and variable rate loans and investment securities. The yield on earning assets was 6.40% for the second quarter of 2023 compared with 6.19% for the prior quarter and the cost of interest-bearing liabilities was 2.90% for the second quarter of 2023 compared to 2.30% in the prior quarter. The cost of total deposits was 1.24% for the second quarter of 2023 compared to 0.86% in the prior quarter.

Provision for Loan Losses

The provision for loan losses for the second quarter of 2023 was a net reversal of $7.1 million compared to a charge of $73 thousand in the prior quarter. The net reversal in the second quarter of 2023 reflects recoveries of $8.6 million partially offset by provision expense of $1.5 million for loan growth. For more details, please refer to the “Asset Quality” section below.

Noninterest Income

Noninterest income was $1.1 million for the second quarter of 2023, a decrease from $1.5 million in the prior quarter and $1.4 million in the second quarter of 2022. The change from the prior quarter as well as the second quarter of 2022 was primarily due to lower gain on sale of SBA 7a loans. SBA loan sales for the second quarter of 2023 were $2.6 million with a 9.7% average trade premium resulting in a net gain on sale of $171 thousand, compared with $5.1 million with a 11.2% average trade premium resulting in a net gain on sale of $474 thousand in the prior quarter. Management sees continued softness in the market for SBA 7a loans.

Noninterest Expense

Noninterest expense was $8.8 million for the second quarter of 2023, a decrease from $11.6 million in the prior quarter and $12.6 million in the second quarter of 2022. The decrease from the prior quarter was primarily due to a $1.6 million benefit in professional services (legal expense specifically) resulting from legal fees waived as well as legal costs reimbursed by the participant bank in relation to the settled lawsuit with ANI Development, LLC/Gina Champion-Cain and Chicago Title. In addition, compensation and benefits expense declined by $841 thousand partially due to accrual adjustments for incentive and bonus compensation. Other expenses also declined by $563 thousand primarily due to a $629 thousand reversal of provision for the reserve for unfunded commitments. The efficiency ratio was 37.0% for the second quarter of 2023 compared to 48.9% in the prior quarter and 64.9% in the second quarter of 2022. The decrease in the efficiency ratio for the second quarter of 2023 was due primarily to the aforementioned expense variances.

The Company remains committed to making investments in the business, including technology, marketing, and staffing. Historically high inflation and low unemployment continue to have an impact on rising wages as well as increased costs related to third party service providers, which we proactively monitor and manage.

Provision for Income Tax Expense

Provision for income tax expense was $6.6 million for the second quarter of 2023, compared to $3.0 million for the prior quarter. The effective tax rate for the second quarter of 2023 was 29.7% compared to 25.2% in the prior quarter and 28.7% in the second quarter of 2022. The effective tax rate for the first quarter of 2023 was lower mainly due to discrete tax benefits related to exercised stock options.

STATEMENT OF FINANCIAL CONDITION

As of June 30, 2023, total assets were $2.0 billion, an increase of $10 million since the prior quarter and $122 million since December 31, 2022. The increase in assets from the prior quarter was primarily due to higher loans receivable, mostly offset by a decrease in cash. Loans HFI totaled $1.7 billion as of June 30, 2023, an increase of $95 million or 5.8% since March 31, 2023. Total deposits were $1.7 billion as of June 30, 2023, an increase of $115 million since March 31, 2023. The strong growth in deposits provided funding for loan growth and also enabled the Company to decrease wholesale borrowings (Federal Home Loan Bank advances) by $126 million since March 31, 2023. During the quarter, core deposits increased by $81 million, which was comprised of $18 million in noninterest-bearing deposits and $63 million in interest-bearing deposits (including balances in the Intrafi ICS and CDARS programs). As of June 30, 2023, the net unrealized loss on the available-for-sale (“AFS”) investment securities portfolio, which is comprised mostly of US Treasury and Government Agency debt, was $14.1 million (pre-tax) compared to a loss of $12.8 million as of March 31, 2023. The average duration of the Bank’s AFS portfolio is 3.9 years. The Company has no held-to-maturity securities.

Asset Quality

As of June 30, 2023, the allowance for loan losses was $22.6 million or 1.32% of loans HFI, compared to 1.30% as of March 31, 2023 and 1.21% at December 31, 2022. The increase in the coverage ratio from December 31, 2022 primarily resulted from the adoption of CECL. The Company continues to have strong credit metrics and there were no loan delinquencies as of June 30, 2023. As described above, the quarter ended June 30, 2023 results included loan recoveries of $8.7 million. The reserve for unfunded commitments was $2.2 million as of June 30, 2023, compared to $2.8 million as of March 31, 2023 and the change was due to a decrease in commitment balances available. Given the credit quality of the loan portfolio, management believes we are sufficiently reserved.

As of June 30, 2023, there are no doubtful credits and classified assets were $11.9 million, down from $14.6 million as of March 31, 2023. Total classified assets as of June 30, 2023, consisted of 11 loans, of which 6 loans totaling $7.3 million were secured by real estate with a weighted average LTV of 58.5%. The remaining 5 loans included 4 SBA loans with a balance of $2.1 million, which includes 2 loans that are 75% guaranteed and 2 loans that are 90% guaranteed by the SBA.

Capital Ratios (1)

The Bank’s capital ratios were in excess of the levels established for “well capitalized” institutions and are as follows:

(1) June 30, 2023 capital ratios are preliminary and subject to change.

About Private Bancorp of America, Inc.

Private Bancorp of America, Inc. (OTCQX: PBAM), is the holding company for CalPrivate Bank. CalPrivate Bank provides a Distinctly Different banking experience through unparalleled service and creative funding solutions to high-net-worth individuals, professionals, locally owned businesses, and real estate entrepreneurs. Customers are serviced through offices in Coronado, San Diego, La Jolla, Newport Beach, El Segundo and Beverly Hills as well as efficient electronic banking offerings. The Bank also offers various portfolio and government guaranteed lending programs, including SBA and cross-border Export-Import Bank programs. CalPrivate Bank is an SBA Preferred Lender and a Bauer Financial 5-star rated bank.

CalPrivate Bank’s website is www.calprivate.bank.

Non-GAAP Financial Measures

This press release contains certain non-GAAP financial measures in addition to results presented in accordance with GAAP, including adjusted income before provision for income taxes, adjusted net income, adjusted diluted earnings per share (“Adjusted EPS”), efficiency ratio, adjusted efficiency ratio, pretax pre-provision net revenue, average tangible common equity, adjusted return on average assets, return on average tangible common equity and adjusted return on average tangible common equity. The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company's results of operations and financial condition and to enhance investors’ overall understanding of such results of operations and financial condition, permit investors to effectively analyze financial trends of our business activities, and enhance comparability with peers across the financial services sector. These non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, financial measures prepared in accordance with GAAP and should be read in conjunction with the Company’s GAAP financial information. A reconciliation of the most comparable GAAP financial measures to non-GAAP financial measures is included in the accompanying financial tables.

Investor Relations Contacts

Rick Sowers
President and Chief Executive Officer
Private Bancorp of America, Inc., and CalPrivate Bank
(424) 303-4894

Cory Stewart
Executive Vice President and Chief Financial Officer
Private Bancorp of America, Inc., and CalPrivate Bank
(206) 293-3669

Safe Harbor Paragraph

This communication contains expressions of expectations, both implied and explicit, that are “forward-looking statements” within the meaning of such term in the Private Securities Litigation Reform Act of 1995. We caution you that a number of important factors could cause actual results to differ materially from those in the forward-looking statements, especially given the current turmoil in the banking and financial markets. These factors include the effects of depositors withdrawing funds unexpectedly, counterparties being unable to provide liquidity sources that we believe should be available, loan losses, economic conditions and competition in the geographic and business areas in which Private Bancorp of America, Inc. operates, including competition in lending and deposit acquisition, the unpredictability of fee income from participation in SBA loan programs, the effects of bank failures, liquidations and mergers in our markets and nationally, our ability to successfully integrate and develop business through the addition of new personnel, whether our efforts to expand loan, product and service offerings will prove profitable, system failures and data security, whether we can effectively secure and implement new technology solutions, inflation, fluctuations in interest rates, legislation and governmental regulation. You should not place undue reliance on forward-looking statements, and we undertake no obligation to update those statements whether as a result of changes in underlying factors, new information, future events or otherwise. These factors could cause actual results to differ materially from what we anticipate or project. You should not place undue reliance on any such forward-looking statement, which speaks only as of the date on which it was made. Although we in good faith believe the assumptions and bases supporting our forward-looking statements to be reasonable there can be no assurance that those assumptions and bases will prove accurate.