What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-15 compared with 2021-08-16 · 225 added, 189 removed, 533 unchanged (44% of the section changed)

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● other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services, including as a result of the CARES Act, CAA 2021, recent COVID-19 vaccination efforts and economic stimulus efforts, and other risks described elsewhere in this Form 10-Q and other filings with the Securities and Exchange Commission (“SEC”).

Further, statements about the potential effects of the proposed acquisition of Pacific Enterprise Bancorp (“PEB”) on our business, financial results, and condition may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in the forward-looking statements due to factors and future developments which are uncertain, unpredictable and in many cases beyond our control, including, but not limited to:

● the possibility that expected revenues, cost savings, synergies and other benefits from the proposed merger might not be realized within the expected time frames or at all including but not limited to customer and employee retention, and costs or difficulties relating to integration matters, might be greater than expected including as a result of changes in general economic and market conditions, interest and exchange rates, monetary policy, laws and regulations and their enforcement, and the degree of competition in the geographic and business areas in which we and PEB operate;

● the possibility that the proposed merger does not close when expected or at all because required regulatory, shareholder or other approvals, financial tests or other conditions to closing are not received or satisfied on a timely basis or at all;

● the risk that the benefits from the proposed merger may not be fully realized or may take longer to realize than expected or be more costly to achieve;

● the failure to attract new customers and retain existing customers in the manner anticipated;

● reputational risks and the potential adverse reactions or changes to business, customer or employee relationships, including those resulting from the announcement or completion of the proposed merger;

● Our or PEB’s businesses may experience disruptions due to transaction-related uncertainty or other factors making it more difficult to maintain relationships with employees, customers, other business partners or governmental entities;

● deposit attrition, operating costs, customer loss and business disruption following the transaction, including difficulties in maintaining relationships with employees, may be greater than expected;

● the diversion of managements' attention from ongoing business operations and opportunities as a result of the proposed merger or otherwise;

● changes in our or PEB’s stock price before closing, including as a result of its financial performance prior to closing or transaction-related uncertainty, or more generally due to broader stock market movements, and the performance of financial companies and peer group companies;

● the occurrence of any event, change or other circumstance that could give risk to the right of one or both of the parties to terminate the merger agreement;

● the outcome of pending or threatened litigation, or of matters before regulatory agencies, whether currently existing or commencing in the future, including litigation related to the merger;

● changes in interest rates which may affect our and PEB’s expected revenues, credit quality deterioration, reductions in real estate values, or reductions in our and PEB’s net income, cash flows or the market value of assets, including its investment securities;

● each of our and PEB’s potential exposure to unknown or contingent liabilities of the other party;

● dilution caused by our issuance of additional shares of BayCom Corp common stock in connection with the proposed merger;

● the possibility that the proposed merger is more expensive to complete than anticipated, including as a result of unexpected factors or events;

● future acquisitions by us of other depository institutions or lines of business;

● that the COVID-19 pandemic, including uncertainty and volatility in financial, commodities and other markets, and disruptions to banking and other financial activity, could harm our or PEB’s business, financial position and results of operations, and could adversely affect the timing and anticipated benefits of the proposed merger.

In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur, and you should not put undue reliance on any forward-looking statements.

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We strive to provide an enhanced banking experience for our clients by providing them with a comprehensive suite of sophisticated banking products and services tailored to meet their needs, while delivering the high-quality, relationship-based client service of a community bank.

At June 30, 2021, the Company had approximately $2.3 billion in total assets, $1.6 billion in total loans, net, $2.0 billion in total deposits and $252.5 million in shareholders’ equity.

At September 30, 2021, the Company had approximately $2.4 billion in total assets, $1.6 billion in total loans, $2.0 billion in total deposits and $257.3 million in shareholders’ equity.

We continue to focus on growing our commercial loan portfolios through acquisitions as well as organic growth.

At June 30, 2021, our $1.6 billion total loan portfolio included $479.9 million , or 30.0%, of acquired loans (all of which were recorded to their estimated fair values at the time of acquisition), and the remaining $1.1 billion, or 70.0%, consisted of loans we originated.

At September 30, 2021, our $1.6 billion total loan portfolio included $449.3 million , or 27.3%, of acquired loans (all of which were recorded to their estimated fair values at the time of acquisition), and the remaining $1.2 billion, or 72.7%, consisted of loans we originated.

The profitability of our operations depends primarily on our net interest income after provision for loan losses, which is the difference between interest earned on interest earning assets and interest paid on interest bearing liabilities less provision for loan losses.

Our net income is also affected by other factors, including the provision for credit losses on loans, noninterest income and noninterest expense.

On September 7, 2021, the Company entered into a definitive agreement with Pacific Enterprise Bancorp (“PEB”), which is headquartered in Irvine, California.

Pursuant to the merger agreement PEB will merge with and into the Company, with the Company as the surviving corporation in the merger.

The transaction is expected to be completed in the first calendar quarter of 2022, subject to customary closing conditions, regulatory approval, and approval of the Company’s and PEB’s shareholders.

For a more detailed description of the proposed merger, see “Note 3 – Acquisitions”.

Set forth below is a discussion of the primary factors affecting our results of operations:

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The significant 150 basis point reduction in the targeted federal funds rate during the quarter ended March 31, 2020, resulted in a larger impact to our interest-earning assets than to our interest bearing liabilities, reducing our net interest margin.

In addition, our net interest margin is adversely impacted

by the low loan yields from loans originated pursuant to the SBA’s Paycheck Protection Program (“PPP”).

In addition, our net interest margin is adversely impacted by the low loan yields from loans originated pursuant to the U.S.

Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”).

Because the length of the COVID-19 pandemic and the efficacy of the extraordinary measures being put in place to address its economic consequences are unknown, including the 150 basis point reductions in the targeted federal funds rate in 2020, until the pandemic subsides, the Company expects its net interest income and net interest margin will be adversely affected in 2021 and possibly longer.

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and (iii) other noninterest income.

Gain on sale of loans includes income (or losses) from the sale of the guaranteed portion of U.S.

Small Business Administration (“SBA”) loans, capitalized loan servicing rights and other related income.

Gain on sale of loans includes income (or losses) from the sale of the guaranteed portion of SBA loans, capitalized loan servicing rights and other related income.

Provision for loan losses.

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Additional consideration is given to our historical loan loss experience relative to our loan portfolio concentrations related to industry, collateral and geography.

Additional analysis was also completed on the allowance for loan losses based on the significance of loan modifications in accordance with the CARES Act and regulatory guidance, loan risk rating downgrades as well as additional risk factors related to COVID-19.

Additional analysis was also completed on the allowance for loan losses based on the significance of loan modifications in accordance

with the CARES Act and regulatory guidance, loan risk rating downgrades as well as additional risk factors related to COVID-19.

Our evaluation of the allowance for loan losses is inherently subjective and requires estimates that are susceptible to significant change as additional or new information becomes available.

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Any adverse changes in these factors could have a significant impact on the recoverability of goodwill and could have a material impact on our financial condition and results of operations.

Due to the adverse and unknown economic impacts resulting from the COVID-19 pandemic, the Company performed a goodwill impairment qualitative assessment during the second quarter of 2021 to determine if it is not more likely than not that the fair value of the Company’s reporting unit exceeded its carrying value, including goodwill.

As of June 30, 2021 the Company’s qualitative assessment, which considered the Company’s continued profitability, positive equity, average community bank merger deal values realized as of June 30, 2021, net interest margin, allowance for loan loss, and the continued growth in its core deposit portfolio, concluded that the goodwill of the Company’s reporting unit, the Bank, is not more likely than not to be impaired.

Due to the adverse and unknown economic impacts resulting from the COVID-19 pandemic, the Company performed a goodwill impairment qualitative assessment during the third quarter of 2021 to determine if it is not more likely than not that the fair value of the Company’s reporting unit exceeded its carrying value, including goodwill.

As of September 30, 2021, the Company’s qualitative assessment, which considered the Company’s continued profitability, positive equity, average community bank merger deal values realized as of September 30, 2021, net interest margin, allowance for loan loss, and the continued growth in its core deposit portfolio, concluded that the goodwill of the Company’s reporting unit, the Bank, is not more likely than not to be impaired.

BayCom’s Response to COVID-19

Due to the current global situation surrounding the COVID-19 pandemic, the Company is offering a variety of relief options designed to support our clients and the communities we serve.

Paycheck Protection Program ("PPP") Participation .

During the second quarter of 2021, the Bank continued its participation in the initial SBA PPP by processing applications for PPP loan forgiveness.

As of June 30, 2021, the Bank has received SBA forgiveness for 901 PPP loans totaling $106.5 million out of the $140.2 million in PPP loans funded during the first PPP program.

During the first and second quarter of 2021, the Bank began accepting and processing loan applications under the second PPP program enacted in December 2020.

As of June 30, 2021, the Bank has funded 771 PPP loans totaling $98.2 million under the second PPP program.

As of June 30, 2021, the Bank had 1,229 PPP loans outstanding totaling $150.4 million, with unrecognized fees of $4.5 million.

During the third quarter of 2021, the Bank continued its participation in the SBA PPP which ended August 8, 2020, by processing applications for PPP loan forgiveness.

As of September 30, 2021, the Bank had 764 PPP loans outstanding totaling $113.2 million, with unrecognized fees of $4.0 million.

As of September 30, 2021, the Bank has received SBA forgiveness for 1,291 PPP loans totaling $121.5 million out of the $140.2 million in PPP loans funded during the first PPP.

As of September 30, 2021, the Bank has received SBA forgiveness for 75 PPP loans totaling $22.2 million out of the 771 PPP loans totaling $116.7 million funded during the second PPP, which concluded on May 31, 2021.

Allowance for Loan Losses and Loan Modifications .

At June 30, 2021, the Company’s allowance for loan losses was $17.0 million, or 1.06% of total loans, compared to $17.5 million, or 1.06% of total loans, at December 31, 2020.

Based on our review of the appropriateness of the allowance for loan losses at June 30, 2021, the Company recorded a $507,000 reversal of provision for loan losses for the second quarter of 2021, compared to no provision in the preceding quarter and a $4.4 million provision for loan losses in the second quarter a year ago.

The reversal of the provision for loan losses was recorded this quarter primarily because of improvements since March 31, 2021 in the economic forecast and corresponding decline in qualitative factor adjustments utilized to calculate the allowance for loan losses at June 30, 2021.

Recently, however, we have seen most of our market areas reporting a fairly significant increase in COVID transmissions, which we understand from our public health authorities is largely attributed to lagging vaccination rates and an increase in cases related to the Delta variant.

To date, we are not seeing renewed business activity restrictions in our primary market areas.

To the extent business activity restrictions are renewed, due to COVID-19 or otherwise, this will likely affect our business operations which may, in turn, require us to increase our allowance through our provision for loan losses which would adversely affect our financial performance.

At September 30, 2021, the Company’s allowance for loan losses was $17.3 million, or 1.05% of total loans, compared to $17.5 million, or 1.06% of total loans, at December 31, 2020.

Based on our review of the appropriateness of the allowance for loan losses at September 30, 2021, the Company recorded a provision (recovery) for loan losses of $477,000 and ($30,000) for the three and nine months ended September 30, 2021, compared to a $2.3 million and $8.4 million provision for loan losses for the three and nine months ended September 30, 2020, respectively.

The provision for loan losses recorded in the third quarter of 2021 related primarily to new loan production and net change in qualitative factor adjustments.

The reversal of the provision for loan for the nine months ended September 20, 2021 reflects improvements since December 31, 2020 in the economic forecast and corresponding decline in qualitative factor adjustments utilized to calculate the allowance for loan losses at September 30, 2021.

The prior periods provision for loan losses was due primarily to probable loan losses reflecting the uncertain adverse impact of the COVID-19 pandemic on the economy last year.

The Company provided payment and financial relief programs for borrowers impacted by COVID-19.

All loans modified due to COVID-19 were separately monitored and any request for continuation of relief beyond the initial modification was reassessed at that time to determine if a further modification should be granted and if a downgrade in risk rating was appropriate.

As of September 30, 2021, no loan was subject to a COVID-19 related payment adjustment agreement compared to 43 loans totaling $66.7 million at December 31, 2020.

We believe the steps we have taken over the course of the last year are necessary to effectively manage our portfolio and assist our clients through the ongoing uncertainty surrounding the duration, impact and government response to the COVID-19 pandemic.

The Bank continues to offer payment and financial relief programs for borrowers impacted by COVID-19 under the CARES Act and related regulatory guidance.

As of June 30, 2021, one multifamily loan for $3.9 million was still subject to a payment agreement compared to 43 loans totaling $66.7 million at December 31, 2020.

In accordance with regulatory guidelines related to COVID-19, since these loans were performing loans that were current on their payments prior to the COVID-19 pandemic, these modifications are not considered troubled debt restructurings through the earlier of January 1, 2022, or 60 days after the national emergency terminates.

Loan modifications made in accordance with the CARES Act and related banking agency guidance are still subject to an evaluation in regard to determining whether or not a loan is deemed to be impaired.

Branch Operations and Additional Client Support .

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The Bank is managing branch access and occupancy levels in relation to cases and close contact scenarios, following governmental restrictions and public health authority guidelines, and encouraging remote work and supporting employees with paid time off.

As of June 30, 2021, all of the Bank’s branch lobbies were open.

The Company is aware of the recent surge in COVID-19 infections arising out of the so-called Delta variant and is prepared to restore other protocols, as may prove to be necessary.

Comparison of Financial Condition at June 30, 2021 and December 31, 2020

As of September 30, 2021, all of the Bank’s branch lobbies were open.

The Company is aware of COVID-19 infections arising out of the Delta variant and is prepared to restore other protocols, as may prove to be necessary.

Comparison of Financial Condition at September 30, 2021 and December 31, 2020

Total assets.

Total assets increased $138.8 million, or 6.3%, to $2.3 billion at June 30, 2021, from $2.2 billion at December 31, 2020.

The increase was primarily the result of cash and cash equivalents increasing $169.4 million or 56.6%, partially offset by a $50.2 million or 3.1% decrease in total loans receivable, net, due to loan repayments and PPP loan forgiveness.

Total assets increased $168.2 million, or 7.7%, to $2.4 billion at September 30, 2021, from $2.2 billion at December 31, 2020.

The increase was primarily the result of cash and cash equivalents increasing $145.1 million or 48.5%, and securities available for sale increasing $26.7 million or 23.1%.

These increases in total assets were primarily funded by deposit growth.

Cash and cash equivalents.

Cash and cash equivalents increased $169.4 million, or 56.6%, to $468.7 million, at June 30, 2021, from $299.3 million at December 31, 2020.

Cash and cash equivalents increased $145.1 million, or 48.5%, to $444.5 million, at September 30, 2021, from $299.3 million at December 31, 2020.

The increase was primarily a result of loan repayments and an increase in total deposits, which exceeded the funds required for loan originations and used for purchases of investment securities.

Investment securities, all of which are classified as available-for-sale, increased $21.9 million, or 18.9%, to $137.5 million at June 30, 2021 from $115.6 million at December 31, 2020.

The increase was primarily due to the purchase of $39.9 million of investment securities during the six months ended June 30, 2021, partially offset by the routine amortization and repayment of investment principal balances and securities called and matured.

Investment securities, all of which are classified as available-for-sale, increased $26.7 million, or 23.1%, to $142.3 million at September 30, 2021 from $115.6 million at December 31, 2020.

The increase was primarily

due to the purchase of $48.4 million of investment securities during the nine months ended September 30, 2021, partially offset by the routine amortization and repayment of investment principal balances and securities called and matured.

Loans receivable, net.

We originate a wide variety of loans with a focus on commercial real estate (“CRE”) loans and commercial and industrial loans.

Loans receivable, net of allowance for loan losses, decreased $50.2 million, or 3.1%, to $1.6 billion at June 30, 2021 from December 31, 2020.

The decrease was primarily due to loan repayments totaling $401.8 million, including $83.5 million in PPP loan forgiveness, partially offset by loan originations totaling $242.6 million, including $97.9 million of new PPP loans.

Loans receivable, net of allowance for loan losses, decreased $2.3 million, or 0.1%, to $1.6 billion at September 30, 2021 from December 31, 2020.

The decrease was primarily due to loan repayments totaling $453.2 million, including $120.7 million in PPP loan forgiveness, partially offset by loan originations totaling $399.7 million, including $116.7 million of new PPP loans, with the remaining change due to normal loan amortization and payoffs.

The decrease in loan originations for the current period compared to the comparable period in 2020 reflected overall lower loan production due to the COVID-19 pandemic, despite the PPP loan activity.

The following table provides information about our loan portfolio by type of loan, with PCI loans presented as a separate balance, at the dates presented .

September 30,

(Dollars in thousands)

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Allowance for loan losses

(1) Includes $150.4 million and $135.6 million of PPP loans as of June 30, 2021 and December 31, 2020, respectively.

The following table shows as of June 30, 2021, the geographic distribution of our loan portfolio by type of loan in dollar amounts and percentages:

(1) Includes $113.2 million and $135.6 million of PPP loans as of September 30, 2021 and December 31, 2020, respectively.

The following table shows as of September 30, 2021, the geographic distribution of our loan portfolio by type of loan in dollar amounts and percentages:

San Francisco Bay

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(Dollars in thousands)

June 30, 2021

September 30, 2021

Commercial and industrial

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(2) Includes loans located primarily in the states of Colorado, New Mexico and Washington.

At June 30, 2021, loans in Colorado, New Mexico and Washington totaled $143.0 million, $73.8 million and $96.1 million, respectively.

At September 30, 2021, loans in Colorado, New Mexico and Washington totaled $135.7 million, $77.1 million and $97.2 million, respectively.

At December 31, 2020, loans in Colorado, New Mexico and Washington totaled $200.0 million, $78.2 million and $116.7 million, respectively.

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Nonperforming assets consists of nonaccrual loans, accruing loans that are 90 days or more past due and other real estate owned (“OREO”).

Nonperforming assets decreased $154,000, or 1.7%, to $8.9 million at June 30, 2021 from $9.1 million at December 31, 2020, primarily due to a $476,000 decrease in OREO and accruing loans 90 days and more past due, partially offset by the addition of one new nonaccrual residential loan.

The Company had nonaccrual loans totaling $8.7 million or 0.55% of total loans, of which $920,000 were guaranteed by governmental agencies at June 30, 2021, compared to $8.4 million or 0.53% of total loans, of which $850,000 were SBA guaranteed at December 31, 2020.

Included in nonaccrual loans at June 30, 2021 and December 31, 2020, were $1.7 million and $567,000, respectively, of TDR loans.

At June 30, 2021 and December 31, 2020, nonaccrual loans included $637,000 and $620,000 of loans 30-89 days past due and $5.3 million and $4.1 million of loans less than 30 days past due, respectively.

At June 30, 2021, nonaccrual loans 30-89 days past due of $637,000 primarily was comprised of two loans and the $5.3 million of loans less than 30 days past due was comprised of 12 small balance loans.

Nonperforming assets decreased $770,000, or 8.5%, to $8.3 million at September 30, 2021 from $9.1 million at December 31, 2020, primarily due to a $408,000 decrease in OREO and a $1.1 million decrease in nonaccrual loans, partially offset by a $767,000 increase in accruing loans 90 days and more past due.

The Company had nonperforming loans, consisting of nonaccrual loans and accruing loans that are 90 days or more past due, totaling $8.3 million or 0.50% of total loans, of which $841,000 were guaranteed by governmental agencies at September 30, 2021, compared to $8.7 million or 0.53% of total loans, of which $850,000 were SBA guaranteed at December 31, 2020.

Included in nonperforming loans at September 30, 2021 and December 31, 2020, were $1.6 million and $567,000, respectively, of TDR loans.

At September 30, 2021 and December 31, 2020, nonaccrual loans included $2.5 million and $620,000 of loans 30-89 days past due and $2.5 million and $4.1 million of loans less than 30 days past due, respectively.

At September 30, 2021, the $2.5 million in nonaccrual loans 30-89 days past due primarily was comprised of two loans and the $2.5 million of loans less than 30 days past due was comprised of 13 small balance loans.

At December 31, 2021, nonaccrual loans 30-89 days past due of $620,000 primarily was comprised of four loans and the $4.1 million of loans less than 30 days past due was comprised of 12 small balance loans.

All of these loans were placed on nonaccrual due to concerns over the client’s financial condition.

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When the ability to fully collect nonaccrual loan principal is in doubt, cash payments received are applied against the principal balance of the loan until such time as full collection of the remaining recorded balance is expected.

Generally, loans with temporarily impaired values and loans to borrowers experiencing financial difficulties are placed on nonaccrual status even though the borrowers continue to repay the loans as scheduled.

Generally, loans with temporarily impaired values and loans to borrowers experiencing financial difficulties are placed on nonaccrual status even though the

borrowers continue to repay the loans as scheduled.

Such loans are categorized as performing nonaccrual loans and are reflected in nonperforming assets.

Interest received on such loans is recognized as interest income when received.

nonaccrual loan is restored to an accrual basis when principal and interest payments are paid current, and full payment of principal and interest is probable.

A nonaccrual loan is restored to an accrual basis when principal and interest payments are paid current, and full payment of principal and interest is probable.

Loans that are well secured and in the process of collection will remain on accrual status .

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Such modifications to loan terms may include a below market interest rate, a reduction in principal, or a longer term to maturity .

TDR loans as of June 30, 2021 totaled $2.5 million, of which $776,000 were accruing and performing according to their restructuring terms.

TDR loans as of September 30, 2021 totaled $1.6 million, of which $765,000 were accruing and performing according to their restructuring terms.

TDR loans as of December 31, 2020 totaled $1.4 million, of which $798,000 were accruing and performing according to their restructuring terms.

The accruing TDR loans are not considered nonperforming assets as they continue to accrue interest despite being considered impaired due to the restructured status.

There were related allowance for loan losses on the TDR loans of $129,000 and $35,000 at June 30, 2021 and December 31, 2020, respectively.

As discussed above, the Company elected to apply the temporary relief under the CARES Act and related bank regulatory guidance to certain eligible short-term modifications and past due loans.

Qualifying loan modifications were not classified as TDR loans for accounting or disclosure purposes until 180 days following a loan's initial modification under the CARES Act and related bank regulatory guidance.

There were related allowance for loan losses on the TDR loans of $130,000 and $35,000 at September 30, 2021 and December 31, 2020, respectively.

The following table sets forth the nonperforming loans, nonperforming assets and troubled debt restructured loans as of the dates indicated:

September 30,

(Dollars in thousands)

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Loans under ASC Topic 310-30 are considered performing and are not included in nonperforming assets in the table above.

At June 30, 2021 and December 31, 2020, we had no credit impaired loans under ASC Topic 310-30 that were 90 days past due and still accruing.

Interest foregone on nonaccrual loans was approximately $69,000 and $157,300 for the three and six months ended June 30, 2021 compared to $119,500 and $221,000 for the three and six months ended June 30, 2020, respectively, none of which was included in interest income.

At September 30, 2021 and December 31, 2020, we had no credit impaired loans under ASC Topic 310-30 that were 90 days past due and still accruing.

Interest foregone on nonaccrual loans was approximately $61,000 and $157,500 for the three and nine months ended September 30, 2021 compared to $117,500 and $338,500 for the three and nine months ended September 30, 2020, respectively, none of which was included in interest income.

Potential problem loans.

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Such loans are placed under closer supervision with consideration given to placing the loan on nonaccrual status, the need for an additional allowance for loan losses, and (if appropriate) partial or full charge-off.

At June 30, 2021, there are $16.1 million of potential problem loans, compared to $12.7 million at December 31, 2020.

At September 30, 2021, there are $13.7 million of potential problem loans, compared to $12.7 million at December 31, 2020.

Also, see Note 5 — Loans in the Notes to the Condensed Consolidated Financial Statements included in “Item 1 - Financial Statements” within this report .

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Although the discount recorded on the acquired loans is not reflected in the allowance for loan losses, or related allowance coverage ratios, we believe it should be considered when comparing the current ratios to similar ratios in periods prior to the acquisition.

As of June 30, 2021, acquired loans, net of their discounts, totaled $59.3 million compared to $164.0 million at December 31, 2020, with the decrease due to the migration of acquired loans out of the discounted acquired loan portfolio.

The remaining net discount on these acquired loans was $2.3 million and $3.3 million at June 30, 2021 and December 31, 2020, respectively.

The $150.4 million balance of PPP loans was omitted from the calculation for the allowance for loan losses at June 30, 2021 as these loans are fully guaranteed by the SBA and management expects that the great majority of PPP borrowers will seek full or partial forgiveness of their loan obligations from the SBA within a short time frame, which in turn will reimburse the Bank for the amount forgiven .

As of September 30, 2021, acquired loans, net of their discounts, totaled $55.2 million compared to $164.0 million at December 31, 2020, with the decrease due to the migration of acquired loans out of the discounted acquired loan portfolio.

The remaining net discount on these acquired loans was $2.2 million and $3.3 million at September 30, 2021 and December 31, 2020, respectively.

The $113.2 million balance of PPP loans was omitted from the calculation for the allowance for loan losses at September 30, 2021 as these loans are fully guaranteed by the SBA and management expects that the great majority of PPP borrowers will seek full or partial forgiveness of their loan obligations from the SBA within a short time frame, which in turn will reimburse the Bank for the amount forgiven .

The following table presents an analysis of changes in the allowance for loan losses as of the dates indicated:

September 30,

(Dollars in thousands)

Balance at beginning of period

Provisions for loan losses

Provisions for (reversal of) loan losses

Commercial and industrial

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(1) See non-GAAP financial measures herein.

The allowance for loan losses decreased to $17.0 million at June 30, 2021 from $17.5 million at December 31, 2020.

A $507,000 reversal of the provision for loan losses was recorded this quarter primarily because of improvements in the economic forecast since March 31, 2021 and a decline in qualitative factor adjustments utilized to calculate the allowance for loan losses at June 30, 2021, as compared to prior quarters.

The allowance for loan losses decreased to $17.3 million at September 30, 2021 from $17.5 million at December 31, 2020.

The decrease in the allowance for loan losses at September 30, 2021 was primarily due to the continued improvement since December 31, 2020 in the national and local economy associated with the recovery from the COVID-19 pandemic, which reduced the loss rates utilized to calculate the allowance for loan losses at September 30, 2021 as compared to the uncertain economic outlook and loss rates utilized at December 31, 2020, partially offset by net charge offs of $170,000.

Our PPP loans were omitted from the calculation of the required allowance for loan losses at September 30, 2021 and December 31, 2020 as these loans are fully guaranteed by the SBA and management expects that a majority of SBA PPP borrowers will seek full or partial forgiveness of their loan obligations from the SBA, which in turn, the SBA will reimburse the Bank for the amount forgiven.

Included in the carrying value of loans are net discounts on acquired loans which may reduce the need for an allowance for loan losses on these loans because they are carried at their estimated fair value on the date on which they were acquired.

Recently we have seen most of our market areas reporting a fairly significant increase in COVID transmissions, which we understand from our public health authorities is largely attributed to lagging vaccination rates and an increase in cases related to the Delta variant.

To date, we are not seeing renewed business activity restrictions in our primary markets.

As of June 30, 2021, the Company identified $9.7 million in impaired loans, inclusive of $8.7 million of nonperforming loans and $776,000 of accruing TDR loans.

Of these impaired loans, only $1.1 million had a specific allowance of $767,000 as of June 30, 2021.

As of September 30, 2021, the Company identified $8.1 million in impaired loans, inclusive of $7.3 million of nonperforming loans and $805,000 of accruing TDR loans.

Of these impaired loans, only $1.0 million had a specific allowance of $701,000 as of September 30, 2021.

As of December 31, 2020, the Company identified $9.2 million in impaired loans, inclusive of $8.4 million of nonperforming loans and $798,000 of accruing TDR loans.

Of these impaired loans, only $1.3 million had a specific allowance of $521,000 as of December 31, 2020.

Management considers the allowance for loan losses at June 30, 2021 to be adequate to cover losses inherent in the loan portfolio based on the assessment of the above-mentioned factors affecting the loan portfolio.

of future losses will not exceed the amount of the established allowance for loan losses or that any increased allowance for loan losses that may be required will not adversely impact our financial condition and results of operations.

Management considers the allowance for loan losses at September 30, 2021 to be adequate to cover losses inherent in the loan portfolio based on the assessment of the above-mentioned factors affecting the loan portfolio.

While management believes the estimates and assumptions used in its determination of the adequacy of the allowance are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future losses will not exceed the amount of the established allowance for loan losses or that any increased allowance for loan losses that may be required will not adversely impact our financial condition and results of

Uncertainties relating to our allowance for loan losses are heightened as a result of the risks surrounding the COVID-19 pandemic, including whether government programs will provide adequate relief to borrowers.

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A further decline in national and local economic conditions, as a result of the COVID-19 pandemic or other factors, could result in a material increase in the allowance for loan losses and may adversely affect the Company’s financial condition and results of operations.

To date, we are not seeing renewed business activity restrictions in our primary markets.

In addition, the determination of the amount of our allowance for loan losses is subject to review by bank regulators, as part of the routine examination process, which may result in additions to our provision for loan losses based upon their judgment of information available to them at the time of their examination.

4 unchanged sentences

Competitive products, competitive pricing and high touch client service are important to attracting and retaining these deposits.

Total deposits increased $139.8 million, or 7.6%, to $2.0 billion at June 30, 2021 from $1.9 billion at December 31, 2020.

Total deposits increased $169.4 million, or 9.2%, to $2.0 billion at September 30, 2021 from $1.8 billion at December 31, 2020.

The increase in deposits was primarily driven by organic growth in client relationships, proceeds from PPP loans and government stimulus checks deposited directly into customer accounts, and reduced withdrawals from deposit accounts due to a change in spending habits as a result of COVID-19.

At June 30, 2021, noninterest bearing demand deposits totaled $727.7 million or 36.8% of total deposits, compared to $678.4 million or 36.9% of total deposits at December 31, 2020

At September 30, 2021, noninterest bearing demand deposits totaled $733.1 million or 36.5% of total deposits, compared to $678.4 million or 36.9% of total deposits at December 31, 2020.

The following table sets forth the dollar amount of deposits in the various types of deposit programs offer at the dates indicated.

September 30,

(Dollars in thousands)

8 unchanged sentences

In May 2020, the Bank secured a $10.0 million advance from the FHLB of San Francisco, comprised of two $5.0 million tranches, at no cost, maturing in November 2020 and May 2021.

As of June 30, 2021, the two tranches were repaid and the Bank had no borrowings outstanding from the FHLB of San Francisco.

At June 30, 2021 and December 31, 2020, we had the ability to borrow up to $389.9 million and $421.2 million, respectively, from the FHLB of San Francisco.

At June 30, 2021, the Company had outstanding junior subordinated deferrable interest debentures, net mark-to-market adjustments, totaling $8.4 million which were assumed in connection with our previous acquisitions.

As of September 30, 2021, the two tranches were repaid and the Bank had no borrowings outstanding from the FHLB of San Francisco.

At September 30, 2021 and December 31, 2020, we had the ability to borrow up to $434.9 million and $421.2 million, respectively, from the FHLB of San Francisco.

At September 30, 2021, the Company had outstanding junior subordinated deferrable interest debentures, net mark-to-market adjustments, totaling $8.4 million which were assumed in connection with our previous acquisitions.

The Company issued $65.0 million of subordinated debt during the third quarter of 2020.

At June 30, 2021, the Company had outstanding subordinated debt, net of cost to issue, totaling $63.5 million.

At September 30, 2021, the Company had outstanding subordinated debt, net of cost to issue, totaling $63.5 million.

If needed, we may also utilize Fed Funds purchased from correspondent banks as a source of short-term funding.

At June 30, 2021 and December 31, 2020, we had a total of $75.0 million in federal funds line available from third-party financial institutions and no balances outstanding at these dates.

At September 30, 2021 and December 31, 2020, we had a total of $75.0 million in federal funds line available from third-party financial institutions and no balances outstanding at these dates.

We are required to provide collateral for certain local agency deposits.

As of June 30, 2021 and December 31, 2020, the FHLB of San Francisco had issued a letters of credit on behalf of the Bank totaling $41.5 million and $30.1 million, respectively as collateral for local agency deposits.

As of September 30, 2021 and December 31, 2020, the FHLB of San Francisco had issued a letters of credit on behalf of the Bank totaling $41.5 million and $30.1 million, respectively as collateral for local agency deposits.

Shareholders’ equity.

Shareholders’ equity decreased $42,000, to $252.5 million at June 30, 2021 from $252.6 million at December 31, 2020.

The decrease in shareholders’ equity was primarily due to the repurchase of $11.0 million of our common stock, partially offset by net income of $9.8 million and a $386,000 increase in other comprehensive income representing an increase in the unrealized gains on investments securities, net of tax.

During the six months ended June 30, 2021, the Company repurchased a total of 132,123 shares of its common stock at a total cost of $11.0 million, or $16.66 per share, leaving 24,123 shares available for future purchases under the current stock repurchase plan.

Shareholders’ equity increased $4.7 million, to $257.3 million at September 30, 2021 from $252.6 million at December 31, 2020.

The increase in shareholders’ equity was primarily due to net income of $15.3 million partially offset by the repurchase of $11.5 million of our common stock.

During the nine months ended September 30, 2021, the Company repurchased a total of 643,609 shares of its common stock at a total cost of $11.5 million, or $17.80 per share, leaving 657 shares available for future purchases under the current stock repurchase plan.

For additional information see Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds”.

Comparison of Results of Operations for the Three and Six Months Ended June 30, 2021 and 2020

Comparison of Results of Operations for the Three and Nine Months Ended September 30, 2021 and 2020

Earnings summary.

Net income was $5.3 million for the three months ended June 30, 2021, compared to $3.1 million for the three months ended June 30, 2020, an increase of $2.2 million or 70.2%.

The increase was the result of a $4.9 million decrease in provision for loan losses to a $507,000 reversal, a $1.2 million increase in noninterest income and a $127,000 decrease in noninterest expenses, partially offset by a $3.2 million decrease in net interest income, and an $826,000 increase in the provision for income taxes.

Diluted earnings per share were $0.49 for the three months ended June 30, 2021, an increase of $0.23 from diluted earnings per share of $0.26 for the three months ended June 30, 2020.

Net income was $9.8 million for the six months ended June 30, 2021, compared to $5.9 million for the six months ended June 30, 2020, an increase of $3.9 million or 65.1%.

The increase was the result of decrease in $6.6 million decrease in the provision for loan losses to a $507,000 reversal, an $810,000 increase in noninterest income and a $2.9 million decrease in noninterest expense, partially offset by a $5.0 million decrease in net interest income and a $1.4 million increase in provision for income taxes.

There were no acquisition-related expenses during the six months ended June 30, 2021, compared to $3.0 million during the six months ended June 30, 2020.

Diluted earnings per share were $0.89 for the six months ended June 30, 2021, an increase of $0.40 from diluted earnings per share of $0.49 for the six months ended June 30, 2020.

Our efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income before provision for loan losses plus noninterest income, was 66.27% and 66.79% for the three and six months ended June 30, 2021, compared to 60.83% and 67.88% for the three and six months ended June 30, 2020, respectively.

The weakening in the efficiency ratio during the three months ended June 30, 2021 compared to the same period in 2020 was primarily due to a decline in revenues during the current quarter compared to the comparable quarter in 2020.

The improvement in the efficiency ratio during the six months ended June 30, 2021 was primarily due higher revenues and reduced noninterest expense due to the absence of acquisition-related expenses.

Net income was $5.4 million for the three months ended September 30, 2021, compared to $3.2 million for the three months ended September 30, 2020, an increase of $2.2 million or 66.6%.

The increase was the result of a $1.8 million decrease in provision for loan losses, a $2.2 million increase in noninterest income and a $276,000 decrease in noninterest expenses, partially offset by a $1.3 million decrease in net interest income, and an $845,000 increase in the provision for income taxes.

Diluted earnings per share were $0.51 for the three months ended September 30, 2021, an increase of $0.24 from diluted earnings per share of $0.27 for the three months ended September 30, 2020.

Net income was $15.3 million for the nine months ended September 30, 2021, compared to $9.2 million for the nine months ended September 30, 2020, an increase of $6.1 million or 66.0%.

The increase was the result of $8.4 million decrease in the provision for loan losses, a $3.0 million increase in noninterest income and a $3.2 million decrease in noninterest expense, partially offset by a $6.4 million decrease in net interest income and a $2.2 million increase in provision for income taxes.

There were no acquisition-related expenses during the nine months ended September 30, 2021, compared to $3.0 million during the nine months ended September 30, 2020.

Diluted earnings per share were $1.39 for the nine months ended September 30, 2021, an increase of $0.63 from diluted earnings per share of $0.76 for the nine months ended September 30, 2020.

Our efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income before provision for loan losses and noninterest income, was 63.82% and 66.40% for the three and nine months ended September 30, 2021, compared to 67.95% and 67.90% for the three and nine months ended September 30, 2020.

The improvement in the efficiency ratio during the three months ended September 30, 2021 compared to the same period in 2020 was due to higher revenues coupled with lower noninterest expense during the current quarter compared to the comparable quarter in 2020.

The improvement in the efficiency ratio during the nine months ended September 30, 2021 was primarily due higher revenues and reduced noninterest expense due to the absence of acquisition-related expenses.

Interest income.

Interest income for the three months ended June 30, 2021 was $20.0 million, compared to $22.8 million for the three months ended June 30, 2020, a decrease of $2.8 million or 12.4%.

The decrease in interest income, due to the low interest rate environment and a decrease in average loans outstanding, more than offset the $147.9 million, or 7.3%, increase in average interest earning assets resulting from higher average balance of interest bearing deposits in banks.

Interest income for the three months ended June 30, 2021 included $1.5 million in fees earned related to PPP loans compared to $488,000 during the same period in 2020.

As of June 30, 2021, total unrecognized fees on PPP loans were $4.5 million.

For the three months ended June 30, 2021, average PPP loans were $138.8 million and the average yield was 4.74%.

The impact of PPP loans on loan yields will change during any period based on the volume of prepayments or amounts forgiven by the SBA as certain criteria are met, but will cease completely after the two-year maturity of the loans.

Interest income for the three months ended September 30, 2021 was $20.0 million, compared to $21.2 million for the three months ended September 30, 2020, a decrease of $1.2 million or 5.94%.

The decrease in interest income was due to the low interest rate environment and a decrease in average loans outstanding, which more than offset the $122.6 million, or 5.85%, increase in average interest earning assets resulting from higher average balance of lower yielding cash and cash equivalents.

Interest income on loans, including fees, decreased $1.7 million, or 8.37%, to $18.5 million during the three months ended September 30, 2021, compared to $20.1 million for the three months ended September 30, 2020 primarily due to a $93.7 million decrease in average loan balance and a 14 basis point decline in the average loan yield.

The average yield on loans for the three months ended September 30, 2021 was 4.50%, compared to 4.64% for the same period in 2020.

Interest income on loans for the quarters ended September 30, 2021 and 2020 included $338,000 and $824,000, respectively, in accretion of purchase accounting fair value adjustments on acquired loans.

The remaining net discount on these acquired loans was $2.2 million and $4.1 million at September 30, 2021 and 2020, respectively.

Interest income for the three months ended September 30, 2021 included $1.1 million in fees earned related to PPP loans compared to $594,000 during the same period in 2020.

As of September 30, 2021, total unrecognized fees on PPP loans were $4.0 million.

For the three months ended September 30, 2021, average PPP loans were $127.5 million and the average yield, including fees, was 4.52%.

Approximately two-thirds of the PPP loans are set to mature by the end of 2022, while the remaining loans have a five-year maturity date.

Interest income on loans, including fees, decreased $3.1 million, or 14.0%, to $18.7 million during the three months ended June 30, 2021, compared to $21.8 million for the three months ended June 30, 2020 primarily due to a $106.1 million decrease in average loan balance and a 42 basis point decline in the average loan yield.

The average yield on loans for the three months ended June 30, 2021 was 4.71%, compared to 5.13% for the same period in 2020.

Interest income on loans for the quarters ended June 30, 2021 and 2020 included $675,000 and $2.0 million, respectively, in accretion of purchase accounting fair value adjustments on acquired loans.

The remaining net discount on these acquired loans was $2.3 million and $2.7 million at June 30, 2021 and 2020, respectively.

Interest income on interest bearing deposits increased $18,000 as a result of a $256.3 million increase in the average balance of interest bearing deposits in banks, partially offset by a 25 basis point decrease in the yield on interest bearing deposits to 0.15% for the three months ended June 30, 2020 compared to 0.40% for the three months ended June 30, 2020.

Interest income on investment securities available-for-sale increased by $147,000 as a result of a 58 basis point increase in the average yield on investment securities to 3.03% for the three months ended June 30, 2021 compared to 2.45% for the three months ended June 30, 2020, partially offset by a $3.7 million decrease in the average balance of investment securities available-for-sale.

Interest income for the six months ended June 30, 2021 was $40.3 million, compared to $45.3 million for the six months ended June 30, 2020, a decrease $5.0 million or 11.1%.

The decrease in interest income primarily was due to both an 83 basis point decline in the average yield on interest earning assets partially offset by interest earning assets increasing $173.4 million or 8.83%.

Interest income on loans, including fees, decreased $4.5 million, or 10.57%, primarily as a result of a $15.0 million decrease in the average loan balance and, to a lesser extent, a 92 basis point decrease in the average loan yield to 4.75% for the six months ended June 30, 2021 compared to 5.23% for the six months ended June 30, 2020.

The average yield on loans for the accretion of the net discount on acquired loans increased the average yield on loans by 10 basis points during the six months ended June 30, 2021 and 2020.

During the six months ended June 30, 2021 compared to this same period in 2020, the accretion of the net discount on acquired loans increased the yield on loans by 13 basis points and 44 basis points, respectively.

Interest income on loans for the six months ended June 30, 2021 included $1.1 million in accretion of purchase accounting fair value adjustments on acquired loans, compared to $3.6 million for the six months ended June 30, 2020.

The remaining net discount on these purchased loans was $2.3 million and $4.9 million at June 30, 2021 and 2020, respectively.

Interest income on interest bearing deposits in banks decreased $725,000 as a result a 95 basis point decrease in the average yield on interest earning deposits to 0.14% for the six months ended June 30, 2021 compared to 0.99% for the six months ended June 30, 2020, partially offset by a $192.8 million increase in the average balance of interest bearing deposits in banks.

Interest income on investment securities increased $118,000 as a result of a 33 basis point increase in the average yield on investment securities to 2.83% for the six months ended June 30, 2021 compared to 2.50% for the six months ended June 30, 2020, partially offset by a $5.3 million decrease in the average balance of investment securities available-for-sale.

Interest income on interest bearing deposits in banks increased $44,000 as a result of a $193.6 million increase in the average balance of interest bearing deposits in banks, partially offset by a seven basis point decrease in the average yield on interest bearing deposits to 0.18% for the three months ended September 30, 2021 compared to 0.25% for the three months ended September 30, 2020.

Interest income on investment securities available-for-sale increased by $356,000 as a result of a 63 basis point increase in the average yield to 3.15% for the three months ended September 30, 2021 compared to 2.52% for the three

months ended September 30, 2020, and a $22.1 million increase in the average balance of investment securities available-for-sale.

Interest income for the nine months ended September 30, 2021 was $60.2 million, compared to $66.5 million for the nine months ended September 30, 2020, a decrease $6.3 million or 9.5%.

The decrease in interest income primarily was due to a 68 basis point decline in the average yield on interest earning assets and a $41.6 million or 2.5% decline in the average loan balance.

Interest income on loans, including fees, decreased $6.2 million, or 9.86%, primarily as a result of a 36 basis point decrease in the average loan yield to 4.67% for the nine months ended September 30,2021 compared to 5.03% for the nine months ended September 30, 2020 and, to a lesser extent, the $41.6 million decrease in the average loan balance.

The average yield on loans for the accretion of the net discount on acquired loans decreased the average yield on loans by 19 basis points during the nine months ended September 30, 2021 and 2020.

During the nine months ended September 30, 2021 compared to this same period in 2020, the accretion of the net discount on acquired loans increased the yield on loans by eight basis points and 36 basis points, respectively.

Interest income on loans for the nine months ended September 30, 2021 included $1.4 million in accretion of purchase accounting fair value adjustments on acquired loans, compared to $4.4 million for the nine months ended September 30, 2020.

The remaining net discount on these purchased loans was $2.2 million and $4.1 million at September 30, 2021 and 2020, respectively.

Interest income for the nine months ended September 30, 2021 also included $3.4 million in fees earned related to PPP loans compared to $1.1 million during the same period in 2020.

For the nine months ended September 30, 2021, average PPP loans were $117.8 million and the average yield, including fees, was 4.90%.

Interest income on interest bearing deposits in banks decreased $679,000 as a result a 52 basis point decrease in the average yield to 0.16% for the nine months ended September 30, 2021 compared to 0.68% for the nine months ended September 30, 2020, partially offset by a $184.1 million increase in the average balance of interest bearing deposits in banks.

Interest income on investment securities available for sale increased $472,000 as a result of a 46 basis point increase in the average yield on investment securities to 3.01% for the nine months ended September 30, 2021 compared to 2.55% for the nine months ended September 30, 2020, and a $3.6 million increase in the average balance of investment securities available-for-sale.

Interest expense.

Interest expense increased $350,000, or 18.7%, to $2.2 million for the three months ended June 30, 2021 compared to $1.9 million for the three months ended June 30, 2020.

The increase was due to the interest expense on the subordinated debt issued in the third quarter of 2020 and higher cost of funds.

Total average interest bearing liabilities increased $71.0 million, or 5.7%, to $1.3 billion for the three months ended June 30, 2021 compared to the $1.2 billion for the three months ended June 30, 2020.

The average rate paid on interest bearing liabilities increased by eight basis points to 0.68% for the three months ended June 30, 2021, from 0.60% for the three months ended June 30, 2020.

Interest expense on deposits decreased $446,000, or 26.7%, to $1.2 million for three months ended June 30, 2021 compared to $1.7 million for the three months ended June 30, 2020, primarily due to decreases in the targeted federal funds rate, earlier in 2020, and despite a $56.8 million increase in the average balance of deposits.

The average rate paid on interest bearing deposits decreased by 17 basis points to 0.40% for the three months ended June 30, 2021, from 0.57%

for the three months ended June 30, 2020.

The overall average cost of deposits for the three months ended June 30, 2021 declined to 0.25%, compared to 0.53% for the three months ended June 30, 2020 due to an increase in noninterest bearing deposits and a reduction in market interest rates over the last year.

The average balance of noninterest bearing deposits increased $49.5 million, or 7.10%, to $746.3 million for the three months ended June 30, 2021 compared to $696.8 million for the same period in 2020.

Interest expense remained relatively unchanged at $2.2 million for both the three months ended September 30, 2021 and 2020, as a decrease in interest expense on deposits was offset by an increase in interest expense on subordinated debt.

Total average interest bearing liabilities increased $89.4 million, or 7.1%, to $1.3 billion for the three months ended September 30, 2021, compared to $1.3 billion for the three months ended September 30, 2020.

The average rate paid on interest bearing liabilities decreased by four basis points to 0.66% for the three months ended September 30, 2021, from 0.70% for the three months ended September 30, 2020.

Interest expense on deposits decreased $322,000, or 20.61%, to $1.2 million for the three months ended September 30, 2021 compared to $1.6 million for the three months ended September 30, 2020, primarily due to decreases in the targeted federal funds rate, earlier in 2020, partially offset by a $71.1 million increase in the average balance of deposits.

The average rate paid on interest bearing deposits decreased by 13 basis points to 0.39% for the three months ended September 30, 2021, from 0.52% for the three months ended September 30, 2020.

The overall average cost of deposits for the three months ended September 30, 2021 declined to 0.25%, compared to 0.32% for the three months ended September 30, 2020, due to an increase in noninterest bearing deposits and a reduction in market interest rates over the last year.

The average balance of noninterest bearing deposits increased $25.0 million, or 3.39%, to $763.1 million for the three months ended September 30, 2021 compared to $738.1 million for the same period in 2020.

The market’s response to lowering deposit pricing to reflect the targeted federal funds rate decreases over the past year typically lags declines in the yield on interest earning assets.

Interest expense on borrowings increased $796,000 or 425.6%, to $983,000 for the three months ended June 30, 2021, from $187,000 for the three months ended June 30, 2020, as a result of the issuance of subordinated debt in August 2020, which currently has a 5.25% interest rate.

The average balance of borrowings outstanding increased $14.2 million to $73.8 million during the three months ended June 30, 2021, compared to $59.6 million during the three months ended June 30, 2020.

The average cost of borrowing increased to 5.34% for the three months ended June 30, 2021, compared to 1.26% for the three months ended June 30, 2020.

Interest expense increased by $84,000, or 1.9%, to $4.4 million for the six months ended June 30, 2021 compared to $4.3 million for the six months ended June 30, 2020.

The average cost of interest bearing liabilities decreased 6 basis points to 0.66% for the six months ended June 30, 2021 compared to 0.72% for the six months ended June 30, 2020.

Total average interest bearing liabilities increased $132.7 million, or 10.99%, to $1.3 million for the six months ended June 30, 2021 from $1.2 million for the six months ended June 30, 2020.

Interest expense on deposits decreased $1.6 million, or 39.2%, to $2.4 million during the six months ended June 30, 2021 from $4.0 million the same period in 2020 primarily due to a decrease in the average rate paid on interest bearing deposits.

The average rate paid on interest bearing deposits decreased by 30 basis points to 0.39% for the six months ended June 30, 2021 compared to 0.69% for the six months ended June 30, 2020.

The overall average cost of deposits for the six months ended June 30, 2021 declined to 0.25%, compared to 0.45% for the six months ended June 30, 2020 due to an increase in noninterest bearing deposits and a reduction in market interest rates over the last year.

The average balance of noninterest bearing deposits increased $17.4 million, or 2.64%, to $679.5 million for the six months ended June 30, 2021 compared to $662.1 million for the six months ended June 30, 2020.

Interest expense on borrowings increased to $2.0 million for the six months ended June 30, 2021, from $313,000 for the six months ended June 30, 2020, as a result of a higher average balance of borrowings outstanding due to the issuance of the subordinated debt in August 2020.

The average balance of borrowing outstanding increased $30.4 million to $75.2 million during the six months ended June 30, 2021, compared to $38.6 million during the six months ended June 30, 2020.

The average cost of borrowing increased to 5.27% for the six months ended June 30, 2021, compared to 1.36% for the six months ended June 30, 2020.

Net interest income.

Net interest income decreased $3.2 million, or 15.1%, to $17.8 million for the three months ended June 30, 2021, compared to $21.0 million for the three months ended June 30, 2020, and decreased $5.1 million, or 12.5%, to $35.9 million for the six months ended June 30, 2021, compared to $41.0 million for the six months ended June 30, 2020.

During the three and six months ended June 30, 2021, the interest margin was impacted by lower yielding loans, including PPP loans and resetting adjustable rate instruments as well as reduced interest rates on new fixed-rate real estate loan and adjustable-rate commercial loan originations.

Interest expense on borrowings increased $325,000 or 49.7%, to $981,000 for the three months ended September 30, 2021, from $656,000 for the three months ended September 30, 2020, as a result of the issuance of subordinated debt in August 2020, which currently has a 5.25% interest rate.

The average balance of borrowings outstanding increased $18.3 million to $71.8 million during the three months ended September 30, 2021, compared to

$53.5 million during the three months ended September 30, 2020.

The average cost of borrowing increased to 5.42% for the three months ended September 30, 2021, compared to 4.86% for the three months ended September 30, 2020.

Interest expense increased by $89,000, or 1.4%, to $6.6 million for the nine months ended September 30, 2021 compared to $6.5 million for the nine months ended September 30, 2020 as a result of the costs from the issuance of subordinated debt in August 2020 exceeding decreased deposit costs from the decline in the average rate paid on interest bearing deposits.

The average cost of interest bearing liabilities decreased four basis points to 0.68% for the nine months ended September 30, 2021 compared to 0.72% for the nine months ended September 30, 2020.

Total average interest bearing liabilities increased $98.2 million, or 8.16%, to $1.3 million for the nine months ended September 30, 2021 from $1.2 million for the nine months ended September 30, 2020.

Interest expense on deposits decreased $1.9 million, or 34.0%, to $3.7 million during the nine months ended September 30, 2021 from $5.6 million the same period in 2020, primarily as a result of a decline in the average rate paid on interest bearing deposits and a $51.9 decrease in the average balance of higher interest bearing time deposits.

The average rate paid on interest bearing deposits decreased by 23 basis points to 0.40% for the nine months ended September 30, 2021 compared to 0.63% for the nine months ended September 30, 2020.

The overall average cost of deposits for the nine months ended September 30, 2021 declined to 0.25%, compared to 0.32% for the nine months ended September 30, 2020 due to an increase in noninterest bearing deposits and a reduction in market interest rates over the last year.

The average balance of noninterest bearing deposits increased $59.9 million, or 9.1%, to $721.0 million for the nine months ended September 30, 2021 compared to $661.1 million for the nine months ended September 30, 2020.

Interest expense on borrowings increased $2.0 million, or 198.8%, to $2.9 million for the nine months ended September 30, 2021, from $968,000 for the nine months ended September 30, 2020, as a result of a higher average balance of borrowings outstanding due to the issuance of the subordinated debt in August 2020.

The average balance of borrowing outstanding increased $49.1 million to $74.1 million during the nine months ended September 30, 2021, compared to $25.0 million during the nine months ended September 30, 2020.

The average cost of borrowing increased to 5.32% for the nine months ended September 30, 2021, compared to 5.17% for the nine months ended September 30, 2020.

Net interest income and net interest margin.

Net interest income decreased $1.3 million, or 6.7%, to $17.7 million for the three months ended September 30, 2021, compared to $19.0 million for the three months ended September 30, 2020, and decreased $6.4 million to $53.6 million for the nine months ended September 30, 2021, compared to $60.0 million for the nine months ended September 30, 2020.

The decrease in net interest income during the three months ended September 30, 2021 compared to the same period in 2020 was primarily due to the decline in the average loan balance between periods, while the decrease during the nine months ended September 30, 2021 compared to the same period in 2020 was primarily due to the decline in the average yield on interest earning assets.

The average yield on interest earning assets for the three months ended September 30, 2021 was 3.57%, a 44 basis point decrease from 4.01% for the three months ended September 30, 2020, due primarily to lower market interest rates, while the average cost of interest bearing liabilities for the three months ended September 30, 2021 decreased to 0.66%, or four basis points from 0.70% for the three months ended September 30, 2020.

The average yield on interest earning assets for the nine months ended September 30, 2021 was 3.72%, a 68 basis point decrease from 4.40% for the nine months ended September 30, 2020, while the average cost of interest bearing liabilities for the nine months ended September 30, 2021 decreased to 0.68%, or four basis points from 0.72% for the nine months ended September 30, 2020, due primarily to lower market interest rates, partially offset by the cost of the subordinated debt.

The net interest margin for the three and nine months ended September 30, 2021 was 3.17% and 3.51%, respectively, compared to 3.59% and 3.96% for the three and nine months ended September 30, 2020.

During the three and nine months ended September 30, 2021, the interest margin was impacted by lower yielding loans, including PPP loans and resetting adjustable rate instruments as well as reduced interest rates on new fixed-rate real estate loan and adjustable-rate commercial loan originations and the increase in low yielding overnight cash balances causing a decrease in the average yield on interest-earning assets that outweighed the contribution to net interest margin from the decrease in the average cost of interest-bearing liabilities.

The decrease in net interest margin was offset partially by an increase in deferred SBA PPP loan fees recognized due to the volume of forgiven SBA PPP loans during the three and nine months

ended September 30, 2021, which benefited net interest margin compared to a reduction in net interest margin from the Company’s origination of low yielding PPP loans during the same periods in 2020.

PPP loans are originated at an interest rate of 1%, although the effective yield is higher as a result of the origination fees paid to us by the SBA.

The average yield on PPP loans was 4.74% and 4.59%, including the recognition of deferred fees, resulting in a positive impact to the net interest margin of eight basis points and six basis points during the three and six months ended June 30, 2021, compared to a negative impact of six basis points and three basis points during the comparable periods in 2020, respectively.

Accretion of acquisition accounting discounts on loans and the recognition of revenue from acquired loans in excess of discounts increased our net interest margin by ten and 17 basis points during the three and six months ended June 30, 2021 and 47 and 44 basis points during the three and six months ended June 30 2020, respectively.

The average yield on interest earning assets for the three months ended June 30, 2021 was 3.69%, a 83 basis point decrease from 4.52% for the three months ended June 30, 2020, due primarily to lower market interest rates, while the average cost of interest bearing liabilities for the three months ended June 30, 2021 increased to 0.68%, or eight basis

points from 0.60% for the six months ended June 30, 2020, primarily due to the issuance of the subordinated debt mentioned above.

The average yield on interest earning assets for the six months ended June 30, 2021 was 3.80%, a 83 basis point decrease from 4.63% for the six months ended June 30, 2020, while the average cost of interest bearing liabilities for the six months ended June 30, 2021 decreased to 0.66%, or six basis points from 0.72% for the six months ended June 30, 2020, due primarily to lower market interest rates, partially offset by the issuance of the aforementioned subordinated debt.

The average yield on PPP loans was 4.52% and 4.90%, including the recognition of deferred fees, resulting in a positive impact to the net interest margin of 20 basis points and 21 basis points during the three and nine months ended September 30, 2021, compared to a positive impact of 11 basis points and eight basis points during the comparable periods in 2020, respectively.

The impact of PPP loans on net interest margin will change during any period based on the volume of prepayments or amounts forgiven by the SBA as certain criteria are net, but will cease completely after the maturity of the loans.

Accretion of acquisition accounting discounts on loans and the recognition of revenue from acquired loans in excess of discounts decreased our net interest margin by 12 and 19 basis points during the three and nine months ended September 30, 2021 and 19 and 51 basis points during the three and nine months ended September 30 2020, respectively.

Average Balances, Interest and Average Yields/Cost.

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The loan yields include the effect of amortization or accretion of deferred loan fees/costs and purchase accounting premiums/discounts to interest and fees on loans.

Three months ended June 30,

Three months ended September 30,

(Dollars in thousands)

1 unchanged sentence

Interest bearing deposits in banks

Investments available-for-sale

Investments securities available-for-sale

Total interest earning assets

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(3) Net interest margin is calculated as net interest income divided by total average interest earning assets.

Six months ended June 30,

Nine months ended September 30,

(Dollars in thousands)

1 unchanged sentence

Interest bearing deposits in banks

Investments available-for-sale

Investments securities available-for-sale

Total interest earning assets

25 unchanged sentences

Yields have been calculated on a pre-tax basis.

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

2021 compared to 2020

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Provision for loan losses.

We recorded $507,000 reversal of the provision for loan losses for the three and six months ended June 30, 2021, compared to a provision for loan losses of $4.4 million and $1.7 million for the three and six months ended June 30, 2020 respectively.

The provision for loan losses and related allowance for loan losses recorded in the quarter ended June 30, 2020 primarily reflected probable loan losses due to economic conditions driven by the impact of COVID-19 on the U.S.

and global economies and to a lesser extent, the migration of acquired loans out of the discounted acquired loan portfolio .

We had net recoveries on loans of $7,000 for the three and six months ended June 30, 2021 , compared to net recoveries of $2,000 and charge-offs on loans of $11,000 for the three and six months ended June 30, 2020 , respectively .

The allowance for loan losses to total loans was 1.07% at June 30, 2021 compared to 1.06% at December 31, 2020.

We recorded $477,000 provision for loan losses and $30,000 reversal of the provision for loan losses for the three and nine months ended September 30, 2021, compared to a provision for loan losses of $2.3 million and $8.4 million for the three and nine months ended September 30, 2020 respectively.

The provision for loan losses recorded in the third quarter of 2021 related primarily to new loan production.

The reversal of the provision for loan losses for the nine months ended September 30, 2021 was primarily due to an adjustment to the qualitative factors utilized to calculate the allowance for loan losses resulting from improvements in the economic forecast since December 31, 2020.

We had net charge-offs on loans of $177,000 and $170,000 for the three and nine months ended September 30, 2021 , compared to $7,000 of net charge-offs and recoveries on loans of $4,000 for the three and nine months ended September 30, 2020 , respectively .

The allowance for loan losses to total loans was 1.05% at September 30, 2021, compared to 0.93% at September 30, 2020.

Noninterest income.

Noninterest income for the three months ended June 30, 2021 increased $1.2 million, or 88.4%, to $2.5 million compared to $1.3 million for the three months ended June 30, 2020, primarily due to a $741,000 increase in the gain on sale of loans and a $541,000 increase in income from our investment in a Small Business Investment Company (“SBIC”) fund.

During the three months ended June 30, 2021, the Company sold $9.0 million of SBA loans (guaranteed portion), which generated a gain on sale of $953,000, compared to the sale of $3.3 million of SBA loans and a gain of $212,000 during the three months ended June 30, 2020.

Noninterest income increased $810,000, or 79.1%, to $4.7 million for the six months ended June 30, 2021 compared to $3.9 million for the six months ended June 30, 2020 primarily due to a $460,000 increase in income in our investment in the SBIC fund and a $675,000 increase in gain on sale of loans.

During the six months ended June 30, 2021 , the Company sold $15.8 million of SBA loans (guaranteed portion), which generated a gain on sale of $1.5 million, compared to the sale of $11.7 million of SBA loans and a gain of $854,000 during the six months ended June 30, 2020 .

These decreases were partially offset by a decrease in loan servicing and other loan fees of $276,000, or 22.2%, to $965,000

for the six months ended June 30, 2021 , compared to $1.2 million for the six months ended June 30, 2020 , as a result of lower transaction volume.

Noninterest income for the three months ended September 30, 2021 increased $2.2 million, or 119.2%, to $4.0 million compared to $1.8 million for the three months ended September 30, 2020.

The increase in noninterest income for the current quarter compared to the same period in 2020 was primarily due to a $2.0 million increase in gain on sale of loans and a $338,000 increase in income from our investment in the SBIC fund, partially offset by a $150,000 decrease in loan servicing fees and other fees.

During the three months ended September 30, 2021, the Company sold $20.3 million of SBA loans (guaranteed portion), resulting in a gain on sale of $2.2 million, compared to the sale of $3.3 million of SBA loans (guaranteed portion) resulting in a gain on sale of $176,000 during the three months ended September 30, 2020.

Noninterest income increased $3.0 million, or 52.4%, to $8.7 million for the nine months ended September 30, 2021 compared to $5.7 million for the nine months ended September 30, 2020 primarily due to a $2.7 million increase in gain on sale of loans and a $798,000 increase in income in our investment in the SBIC fund.

During the nine months ended September 30, 2021 , the Company sold $36.0 million of SBA loans (guaranteed portion), resulting

in a gain on sale of $3.8 million, compared to the sale of $15.0 million of SBA loans (guaranteed portion) resulting in a gain of $1.0 million during the nine months ended September 30, 2020 .

These increase were partially offset by a decrease in loan servicing and other loan fees of $426,000, or 23.0%, to $1.4 million for the nine months ended September 30, 2021 , compared to $1.8 million for the nine months ended September 30, 2020 , as a result of lower transaction volume.

The following table presents the key components of noninterest income for the periods indicated:

Three months ended June 30,

Three months ended September 30,

(Dollars in thousands)

2 unchanged sentences

Loan servicing and other loan fees

(Loss) income on investment in SBIC fund

Gain on sale of OREO

Income on investment in SBIC fund

Gain (loss) on sale of premises

Gain (loss) on sale of OREO

Other income and fees

Total noninterest income

Six months ended June 30,

Nine months ended September 30,

(Dollars in thousands)

2 unchanged sentences

Loan servicing and other loan fees

Gain on sale of premises

Gain (loss) on sale of premises

Income on investment in SBIC fund

3 unchanged sentences

Noninterest expense.

Noninterest expense decreased $127,000, or 0.9%, to $13.4 million for the three months ended June 30, 2021 compared to $13.5 million for the three months ended June 30, 2020.

The decrease was comprised of lower salaries and employee benefits of $143,000, primarily due to a decrease in staffing levels and lower data processing expenses of $181,000 due to decreased customer transactions during the onset of the pandemic, partially offset by increases in occupancy and equipment expenses of $76,000 and other expense of $121,000.

Noninterest expense for the six months ended June 30, 2021 decreased $3.0 million, or 9.7%, to $27.5 million from $30.5 million in the same period in 2020, primarily due to a decrease in data processing of $2.3 million, or 45.7%, to $2.8 million for the six months ended June 30, 2021 , compared to $5.1 million for the same period in 2020.

The higher data processing expenses during the six months ended June 30, 2020, were related to our acquisition of Grand Mountain Bancshares in February 2020, compared to no acquisition-related expenses incurred during the six months ended June 30, 2021.

In addition, other expenses decreased $753,000, or 15.6%, to $4.1 million for the six months ended June 30, 2021 compared to $4.8 million for the six months ended June 30, 2020, due to acquisition related expenses and miscellaneous expense of $123,000 incurred in 2020.

Noninterest expense decreased $276,000, or 1.9%, to $13.9 million for the three months ended September 30, 2021 compared to $14.2 million for the three months ended September 30, 2020.

The decrease was primarily due to a $319,000, or 3.8% decrease in salaries and employee benefits expense as a result of overall lower staff combined with a $160,000 or 9.7% decrease in data processing expense due to decreased customer transactions , partially offset by a $196,000, or 11.2% increase in occupancy and equipment expense primarily as a result of normal increases in rent.

Noninterest expense for the nine months ended September 30, 2021 decreased $3.2 million, or 7.3%, to $41.4 million from $44.6 million in the same period in 2020.

This decrease primarily was due to decreases in data processing expenses of $2.5 million and other expenses of $747,000 for the nine months ended September 30, 2021 , compared to the same period in 2020.

The higher data processing and other expenses during the nine months ended September 30, 2020, were primarily related to our acquisition of Grand Mountain Bancshares in February 2020, compared to no acquisition-related expenses incurred during the nine months ended September 30, 2021.

Salaries and benefits decreased $284,000, or 11.0% during the nine months ended September 30, 2021 compared to the same period in 2020, primarily due to a decrease in staffing levels.

Partially offsetting these decreases was a $276,000 or 11.2% increase in occupancy and equipment expense primarily as a result of normal increases in rent.

The following table details the components of noninterest expense for the periods indicated:

Three months ended June 30,

Three months ended September 30,

(Dollars in thousands)

3 unchanged sentences

Total noninterest expense

Six months ended June 30,

Nine months ended September 30,

(Dollars in thousands)

4 unchanged sentences

Income taxes.

Income tax expense increased $826,000, or 68.9%, to $2.0 million for the three months ended June 30, 2021 compared to $1.2 million for the three months ended June 30, 2020.

For the six months ended June 30, 2021, income tax expense increased $1.4 million, or 57.7%, to $3.7 million, compared to $2.4 million for the six months ended June 30, 2020.

The Company’s effective tax rate was 27.6% and 27.5% for three and six months ended June 30, 2021 compared to 27.8% and 28.5% for the six months ended June 30, 2020.

The increases in the income tax expense for the periods primarily was due to increased taxable income.

The provision for income taxes increased $845,000, or 74.4%, to $2.0 million for the three months ended September 30, 2021 compared to $1.1 million for the three months ended September 30, 2020.

For the nine months ended September 30, 2021, the provision for income taxes increased $2.2 million, or 63.1%, to $5.7 million, compared to $3.5 million for the nine months ended September 30, 2020.

The Company’s effective tax rate was 26.8% and 27.2% for three and nine months ended September 30, 2021 compared to 25.9% and 27.6% for the three and nine months ended September 30, 2020.

The increases in the provision for income taxes for the periods primarily was due to increased taxable income.

Liquidity and Capital Resources

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While maturities and scheduled amortization of loans are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, economic conditions, and competition.

Our most liquid assets are cash, short-term investments, including interest bearing demand deposits and securities available-for-sale.

Our most liquid assets are cash, short-term investments, including interest bearing demand deposits and investment securities available-for-sale.

The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

In addition to these primary sources of funds, management has several secondary sources available to meet potential funding requirements.

At June 30, 2021, the Bank had an available borrowing capacity of $389.9 million with the FHLB of San Francisco, and Federal Funds lines with available commitments totaling $75.0 million with four correspondent banks.

There were no amounts outstanding under these facilities at June 30, 2021 and December 31, 2020.

Additionally, the Company classifies its securities portfolio as available for sale, providing an additional source of liquidity.

At September 30, 2021, the Company had $448.5 million in cash and cash equivalents, and interest bearing deposits in banks, and $142.3 million in investment securities.

The Company classifies its investment securities portfolio as available for sale, providing an additional source of liquidity.

Management believes that our security portfolio is of high quality and the securities would therefore be marketable.

In addition to these primary sources of funds, management has several secondary sources available to meet potential funding requirements.

At September 30, 2021, the Bank had an available borrowing capacity of $434.9 million with the FHLB of San Francisco, and Federal Funds lines with available commitments totaling $75.0 million with four correspondent banks.

There were no amounts outstanding under these facilities at September 30, 2021 and December 31, 2020.

We use our sources of funds primarily to meet our ongoing commitments, pay maturing deposits and fund withdrawals, and to fund loan commitments.

Loan commitments and letters of credit were $105.9 million and $110.7 million at June 30, 2021 and December 31, 2020, respectively, and certificates of deposits scheduled to mature in one year or less at June 30, 2021, totaled $168.0 million.

It is management's policy to manage deposit rates that are competitive

with other local financial institutions.

Loan commitments and letters of credit totaled $96.3 million at September 30, 2021, and certificates of deposits scheduled to mature in one year or less at September 30, 2021, totaled $181.0 million.

It is management's policy to manage deposit rates that are competitive with other local financial institutions.

Based on this management strategy, we believe that most of our maturing certificates of deposit will remain with us.

1 unchanged sentence

cash flows from operating activities, investing activities, and financing activities.

Net cash provided by operating activities for the six months ended June 30, 2021 was $8.4 million, compared to $893,000 for the six months ended June 30, 2020.

During the six months ended June 30, 2021, net cash provided by investing activities was $37.1 million, which consisted primarily of net change in loans receivable, compared to $164.5 million of cash used in investing activities for the six months ended June 30, 2020.

Net cash provided by financing activities for the six months ended June 30, 2021 was $123.8 million, which was comprised primarily of net change in deposits, compared to $72.0 million during the six months ended June 30, 2020.

Net cash provided by operating activities for the nine months ended September 30, 2021 was $5.4, compared to $6.2 million for the nine months ended September 30, 2020.

During the nine months ended September 30, 2021, net cash used in investing activities was $13.2 million, which consisted primarily of net change in loans receivable, compared to $132.0 million of cash used in investing activities for the nine months ended September 30, 2020.

Net cash provided by financing activities for the nine months ended September 30, 2021 was $152.9 million, which was comprised primarily of net change in deposits, compared to $150.3 million during the nine months ended September 30, 2020.

The Company is a separate legal entity from the Bank and must provide for its own liquidity.

At June 30, 2021, the Company, on an unconsolidated basis, had liquid assets of $45.3 million.

At September 30, 2021, the Company, on an unconsolidated basis, had liquid assets of $35.2 million.

In addition to its operating expenses, the Company is responsible for paying any dividends declared, if any, to its shareholders, funds paid for Company stock repurchases, and payments on trust-preferred securities and subordinated notes held at the Company level.

19 unchanged sentences

Under capital adequacy guidelines of the regulatory framework for prompt corrective action, the Bank must meet specific capital adequacy guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

The Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The Bank’s capital amounts and classifications are also

subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Prompt corrective action provisions are not applicable to bank holding companies.

1 unchanged sentence

Management reviews capital ratios on a regular basis to ensure that capital exceeds the prescribed regulatory minimums and is adequate to meet our anticipated future needs.

As of June 30, 2021, the most recent regulatory notifications from the Federal Reserve categorized the Bank as “Well Capitalized” under the regulatory framework for prompt corrective action.

As of September 30, 2021, the most recent regulatory notifications from the Federal Reserve categorized the Bank as “Well Capitalized” under the regulatory framework for prompt corrective action.

There are no conditions or events since that notification that management believes would have changed the category.

The following is a summary of actual capital amounts and ratios as of the dates indicated, for the Company (assuming it was subject to regulatory capital requirements) and the Bank compared to the requirements for minimum capital adequacy and classification as Well Capitalized:

At June 30, 2021

At September 30, 2021

At December 31, 2020

25 unchanged sentences

In addition to the minimum CET1 capital, Tier 1 capital, leverage ratio and total capital ratios, the Bank must maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5% of risk-weighted assets above the required minimum risk-based capital levels in order to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses.

At June 30, 2021, the Bank’s CET1 capital exceeded the required capital conservation buffer.

At September 30, 2021, the Bank’s CET1 capital exceeded the required capital conservation buffer.

Non-GAAP financial measures

7 unchanged sentences

Reconciliation of the GAAP and non-GAAP financial measures are presented as of the dates indicated:

September 30,

Allowance for loan losses excluding acquired loans and PPP loans

14 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis