What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-06 compared with 2024-05-08 · 427 added, 228 removed, 678 unchanged (49% of the section changed)

39 unchanged sentences

• other factors that are discussed in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The foregoing factors could cause results or performance to materially differ from those expressed in our forward-looking statements, should not be considered exhaustive, and should be read together with other cautionary statements that are included in this report and those discussed in the section entitled “Risk Factors” of our 2023 Annual Report on Form 10-K and other filings we may make with the SEC, copies of which are available from us at no charge.

The foregoing factors could cause results or performance to materially differ from those expressed in our forward-looking statements, should not be considered exhaustive, and should be read together with other cautionary statements that are included in this report and those discussed in the section entitled “Risk Factors” of our 2023 Annual Report on Form 10-K, our Quarterly Report on Form 10-Q for the three months ended March 31, 2024, and other filings we may make with the SEC, copies of which are available from us at no charge.

New risks and uncertainties may emerge from time to time, and it is not possible for us to predict their occurrence or how they will affect us.

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We aim to consistently deliver value that meets or exceeds the expectations of our shareholders, customers, employees, business partners, and community.

We refer to our mission as “purpose-driven and integrity-centered banking.” At March 31, 2024, we had total assets of $3.5 billion, total loans held for investment, net of allowance for credit losses, of $3.1 billion, and total deposits of $3.0 billion.

We refer to our mission as “purpose-driven and integrity-centered banking.” At June 30, 2024, we had total assets of $3.6 billion, total loans held for investment, net of allowance for credit losses, of $3.2 billion, and total deposits of $3.1 billion.

Critical Accounting Estimates

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However, actual results may differ from those estimates, and these differences may be material.

There have been no significant changes concerning our critical accounting estimates as described in our 2023 Annual Report on Form 10-K.

With the exception of the changes to the ACL described below, there have been no significant changes concerning our critical accounting estimates as described in our 2023 Annual Report on Form 10-K.

Pursuant to the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), as an emerging growth company, we can elect to opt out of the extended transition period for adopting any new or revised accounting standards.

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We have elected to take advantage of the scaled disclosures and other relief under the JOBS Act, and we may take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us under the JOBS Act, so long as we qualify as an emerging growth company.

Allowance for Credit Losses (“ACL”)

The ACL represents the estimated probable credit losses in our loan and investment portfolios and is estimated as of June 30, 2024 using CECL.

The ACL is established through a provision for credit losses charged to operations.

Loans and investments are charged against the ACL when management believes that the collectability of the principal is unlikely.

Subsequent recoveries of previously charged-off amounts, if any, are credited to the ACL.

The ACL is evaluated on a regular basis by management in consideration of optimistic, moderate, and pessimistic current conditions, and is based on management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, prevailing economic conditions specifically impacting each loan type by purpose and by geography, and concentrations within the loan portfolio.

This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

A significant amount of the ACL is measured on a collective (pool) basis by loan and investment security type when similar risk characteristics exist.

Pools are determined based primarily on regulatory reporting codes as the loans and investment securities within each pool share similar risk characteristics and there is sufficient historical peer loss data from the FFIEC to provide statistically meaningful support in the models developed.

Reserves for credit losses identified on a pooled basis are then adjusted for qualitative and other environmental factors to reflect current conditions.

During the three months ended June 30, 2024, we refined our methodology of measuring the ACL on two pools of loans:

Multifamily and C&I SBA.

Within the Multifamily pool, the MHC loans were segregated from traditional Multifamily as we identified a data source to provide sufficient historical peer loss data specific to MHC loans.

This segregation now adjusts for differences in the risk characteristics and performance of MHC loans compared to traditional Multifamily properties.

We used calculations of individual probability of default and loss given default on a loan-by-loan basis to derive an estimated loss rate.

Applying this adjusted loss rate led to a decrease in the ACL for the Multifamily pool as of June 30, 2024 of approximately $5.8 million.

During routine monitoring of charge-off activity within the C&I SBA pool, we identified an increased level of charge-offs during the first six months of 2024, reflecting a change in the credit quality of the pool.

In response to this, we increased the expected loss rates be more in line with net charge-off rates during the first six months of 2024, as this time period reflects what is expected based on our current economic outlook for loans in the C&I SBA pool.

This adjustment reflects our estimate for future loss rates and increased the required reserves related to the C&I SBA pool by approximately $4.6 million.

Executive Summary

Net income for the three months ended March 31, 2024 totaled $10.6 million, as compared to net income of $13.2 million for the three months ended March 31, 2023.

Net income for the three and six months ended June 30, 2024 totaled $10.8 million and $21.4 million, respectively, as compared to net income of $12.7 million and $25.9 million for the three and six months ended June 30, 2023, respectively.

The following are highlights of our operating and financial performance, and financial condition for the dates and periods presented:

Total deposits decreased by $71.1 million from $3.03 billion at December 31, 2023 to $2.96 billion at March 31, 2024, primarily due to significant decreases in wholesale deposits, which the Company defines as brokered deposits and public time deposits.

In the first three months of 2024, brokered deposits and public time deposits decreased by $58.1 million and $125.0 million, respectively.

Non-interest-bearing deposits decreased by $13.7 million in the first three months of 2024 to $817.4 million, and represented 27.65% of total deposits at March 31, 2024, as compared to 27.46% of total deposits at December 31, 2023.

Non-wholesale deposits increased by $112.0 million in the first three months of 2024.

Our loan to deposit ratio was 105.37% at March 31, 2024, as compared to 102.19% at December 31, 2023.

Total assets were $3.5 billion at March 31, 2024, representing a $116.8 million, or 3.25%, decrease compared to $3.6 billion at December 31, 2023.

Total loans held for investment were $3.10 billion at March 31, 2024, as compared to $3.08 billion at December 31, 2023, an increase of $22.4 million, or 0.73%.

The increase was primarily attributable to increases of $35.8 million in consumer and other loans, $2.8 million in residential loans, and $2.7 million in residential construction loans, partially offset by a $21.8 million decrease in commercial secured loans.

Total deposits increased by $122.7 million from $3.03 billion at December 31, 2023 to $3.15 billion at June 30, 2024.

Non-wholesale deposits increased by $230.4 million in the first six months of 2024 to $2.90 billion.

Wholesale deposits, which the Company defines as brokered deposits and public time deposits, decreased by $107.6 million in the first six months of 2024 to $252.5 million.

Non-interest-bearing deposits decreased by $5.4 million in the first six months of 2024 to $825.7 million, and represented 26.22% of total deposits at June 30, 2024, as compared to 27.46% of total deposits at December 31, 2023.

Our loan to deposit ratio was 103.87% at June 30, 2024, as compared to 102.19% at December 31, 2023.

Total assets were $3.63 billion at June 30, 2024, representing a $41.1 million, or 1.14%, increase compared to $3.59 billion at December 31, 2023.

Total loans held for investment were $3.27 billion at June 30, 2024, as compared to $3.08 billion at December 31, 2023, an increase of $184.6 million, or 5.99%.

The increase was primarily attributable to increases of $114.4 million in consumer and other loans and $88.6 million in commercial real estate loans, partially offset by decreases in commercial secured and commercial land and development loans of $11.0 million and $10.8 million, respectively.

• Credit Quality.

Credit quality remains strong, with non-accrual loans representing $1.9 million, or 0.06% of total loans held for investment, at March 31, 2024, as compared to $2.0 million, or 0.06% of total loans held for investment, at December 31, 2023.

The ratio of the allowance for credit losses to total loans held for investment was 1.12% at March 31, 2024 and December 31, 2023.

Credit quality remains strong, with non-accrual loans representing $1.9 million, or 0.06% of total loans held for investment, at June 30, 2024, as compared to $2.0 million, or 0.06% of total loans held for investment, at December 31, 2023.

The ratio of the allowance for credit losses to total loans held for investment was 1.08% at June 30, 2024 and 1.12% December 31, 2023.

• Net Interest Margin.

Net interest margin was 3.14% for the three months ended March 31, 2024, and 3.75% for the three months ended March 31, 2023.

The decrease in net interest margin period-over-period was primarily due to an increase in deposit costs exceeding increases in yields on earning assets, as the effective Federal Funds rate increased from 4.83% at March 31, 2023 to 5.33% at March 31, 2024.

Net interest margin was 3.39% and 3.27%, respectively, for the three and six months ended June 30, 2024, and 3.45% and 3.59%, respectively, for the three and six months ended June 30, 2023.

• Efficiency Ratio.

Efficiency ratio was 44.50% for the three months ended March 31, 2024, up from 36.43% for the corresponding period of 2023 due to the Company’s expansion into the San Francisco Bay Area beginning in the second quarter of 2023.

Efficiency ratio was 44.07% for the three months ended June 30, 2024, up from 39.41% for the corresponding period of 2023 due to the Company’s expansion into the San Francisco Bay Area beginning late in the second quarter of 2023.

• Capital Ratios .

All capital ratios were above well-capitalized regulatory thresholds as of March 31, 2024.

The total risk-based capital ratio for the Company was 12.34% at March 31, 2024, as compared to 12.30% at December 31, 2023.

The Tier 1 leverage ratio was 8.63% at March 31, 2024, as compared to 8.73% at December 31, 2023.

All capital ratios were above well-capitalized regulatory thresholds as of June 30, 2024 and reflect additional common stock of approximately $80.9 million issued through the public offering that closed in April 2024.

The total risk-based capital ratio for the Company was 14.38% at June 30, 2024, as compared to 12.30% at December 31, 2023.

The Tier 1 leverage ratio was 11.05% at June 30, 2024, as compared to 8.73% at December 31, 2023.

For additional information about the regulatory capital requirements applicable to the Company and the Bank, see the section entitled “—Financial Condition Summary—Capital Adequacy” below.

The board of directors declared a cash dividend of $0.20 per share on January 18, 2024.

The board of directors declared a cash dividend of $0.20 per share on April 18, 2024.

Highlights of our financial results are presented in the following tables:

(dollars in thousands) March 31, 2024 December 31, 2023

Highlights of Financial Results

(dollars in thousands) June 30, 2024 December 31, 2023

Selected financial condition data:

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10.47 % 7.95 %

For the three months ended

(dollars in thousands, except per share data) March 31, 2024 March 31, 2023

Highlights of Financial Results (continued)

For the three months ended For the six months ended

(dollars in thousands, except per share data) June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023

Selected operating data:

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1 Tangible shareholders’ equity to tangible assets is considered a non-GAAP financial measure.

See the section entitled “Non-GAAP Financial Measures” for a reconciliation of our non-GAAP financial measures to the most directly

comparable GAAP financial measure.

See the section entitled “Non-GAAP Financial Measures” for a reconciliation of our non-GAAP financial measures to the most directly comparable GAAP financial measure.

Tangible shareholders’ equity to tangible assets is defined as total equity less goodwill and other intangible assets, divided by total assets less goodwill and other intangible assets.

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RESULTS OF OPERATIONS

The following discussion of our results of operations compares the three months ended March 31, 2024 to the three months ended March 31, 2023.

The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2024.

The following discussion of our results of operations compares the three and six months ended June 30, 2024 to the three and six months ended June 30, 2023.

The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2024.

Net Interest Income

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Changes in market interest rates and competition in our market typically have the largest impact on periodic changes in our net interest margin.

Net interest income decreased $2.4 million to $26.7 million for the three months ended March 31, 2024 compared to March 31, 2023 and our net interest margin of 3.14% for the three months ended March 31, 2024 decreased from 3.75% for the three months ended March 31, 2023.

The decrease in net interest income and contraction of our net interest margin was primarily due to higher rates paid on interest-bearing liabilities, which exceeded higher yields earned on interest-earning assets.

These changes related to the change in the effective Federal Funds rate from 4.83% at March 31, 2023 to 5.33% at March 31, 2024.

Three months ended June 30, 2024 compared to three months ended June 30, 2023

Net interest income increased $1.5 million to $29.1 million for the three months ended June 30, 2024 compared to June 30, 2023 while our net interest margin of 3.39% for the three months ended June 30, 2024 decreased from 3.45% for the three months ended June 30, 2023.

The increase in net interest income was primarily due to loan growth at higher yields, partially offset by deposit growth at higher rates.

These changes related to the change in the effective Federal Funds rate from 5.08% at June 30, 2023 to 5.33% at June 30, 2024.

Additional detail relating to net interest margin in each period is provided below.

Average balance sheet, interest, and yield/rate analysis.

The following table presents average balance sheet information, interest income, interest expense, and the corresponding average yield earned or rate paid for each period reported.

Table 3 presents average balance sheet information, interest income, interest expense, and the corresponding average yield earned or rate paid for each period reported.

The average balances are daily averages and include both performing and nonperforming loans.

Average Balances, Interest, and Yield/Rate

For the three months ended

March 31, 2024

June 30, 2024

For the three months ended

March 31, 2023

June 30, 2023

(dollars in thousands) Average Balance Interest Income/Expense Average Yield/Rate Average Balance Interest Income/Expense Average Yield/Rate

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Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average yields/rates.

The following table shows the effect that these factors had on the interest earned from our interest-earning assets and interest incurred on our interest-bearing liabilities.

Table 4 shows the effect that these factors had on the interest earned from our interest-earning assets and interest incurred on our interest-bearing liabilities.

The effect of changes in volume is determined by multiplying the change in volume by the current period’s average yield/rate.

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Changes not solely attributable to volume or yields/rates have been allocated in proportion to the respective volume and yield/rate components.

Interest Income and Expense Change Analysis

For the three months ended

March 31, 2024 compared to

the three months ended March 31, 2023

June 30, 2024 compared to

the three months ended June 30, 2023

(dollars in thousands) Volume Yield/Rate Total Increase (Decrease)

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Changes in net interest income/margin $ 2,726 $ (1,212) $ 1,514

Net interest income decreased $2.4 million and net interest margin decreased 61 basis points for the three months ended March 31, 2024 compared to the same quarter of the prior year.

The decrease in net interest income is primarily attributable to an additional $10.1 million in deposit interest expense due to increases in interest rates and average balances compared to the same quarter of the prior year.

The cost of interest-bearing deposits increased 148 basis points compared to the same quarter of the prior year, while average balances increased 17.78%.

Net interest income increased $1.5 million while net interest margin decreased 6 basis points for the three months ended June 30, 2024 compared to the same quarter of the prior year.

The increase in net interest income is primarily attributable to loan growth at higher yields, partially offset by deposit growth at higher interest rates.

Interest income increased by $6.2 million, as compared to the same quarter of the prior year.

The average yield on loans increased 33 basis points compared to the same quarter of the prior year due to increases in interest rates and an increase in average balances of $283.5 million, or 9.73%.

The increase in interest income was partially offset by an additional $4.7 million in interest expense compared to the same quarter of the prior year.

The average cost of total deposits, including wholesale deposits, increased 55 basis points compared to the same quarter of the prior year, due to increases in interest rates and an increase in average balances of $137.0 million, or 4.70%.

Average cost of wholesale deposits, individually, increased 23 basis points compared to the same quarter of the prior year, while average balances decreased 29.52%.

In addition, the average balance of non-interest-bearing deposits decreased by $11.1 million compared to the same quarter of the prior year.

The increase in deposit interest expense was partially offset by an increase in total interest income of $7.2 million compared to the same quarter of the prior year.

Average loan yields increased 35 basis points compared to the same quarter of the prior year, while average balances increased 8.68%.

While the increase in total interest income more than offset the increase in total interest expense, net interest income relative to interest-earning assets decreased compared to the same period of the prior year.

Six months ended June 30, 2024 compared to six months ended June 30, 2023

Net interest income decreased $0.9 million, or 1.57%, to $55.8 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, and our net interest margin of 3.27% for the six months ended June 30, 2024 decreased 32 basis points when compared to the same period in 2023.

The decrease was primarily due to deposit growth at higher rates exceeding loan growth at higher yields.

These changes related to the change in the effective Federal Funds rate from 5.08% at June 30, 2023 to 5.33% at June 30, 2024.

Additional detail relating to net interest margin in each period is provided below.

Average balance sheet, interest, and yield/rate analysis.

Table 5 presents average balance sheet information, interest income, interest expense, and the corresponding average yield earned or rate paid for each period reported.

The average balances are daily averages and include both performing and nonperforming loans.

Average Balances, Interest, and Yield/Rate

(dollars in thousands) For the six months ended

June 30, 2024

For the six months ended

June 30, 2023

Average Balance Interest Income/Expense Average Yield/Rate Average Balance Interest Income/Expense Average Yield/Rate

Interest-earning deposits in banks 1

$ 190,969 $ 5,088 5.36 % $ 190,040 $ 4,385 4.65 %

Investment securities 1,2

107,498 1,303 2.44 % 117,780 1,296 2.22 %

Loans held for investment and sale 1,3

3,140,106 90,148 5.77 % 2,875,439 77,423 5.43 %

Total interest-earning assets 1

3,438,573 96,539 5.65 % 3,183,259 83,104 5.26 %

Interest receivable and other assets, net 4

89,268 72,368

Total assets $ 3,527,841 $ 3,255,627

Liabilities and shareholders’ equity

Interest-bearing transaction accounts 1

$ 295,897 $ 2,230 1.52 % $ 332,101 $ 1,258 0.76 %

Savings accounts 1

122,320 1,718 2.82 % 147,321 1,303 1.78 %

Money market accounts 1

1,479,039 25,543 3.47 % 1,188,148 13,572 2.30 %

Time accounts 1

351,237 8,737 5.00 % 336,044 7,214 4.33 %

Subordinated notes and other borrowings 1

79,261 2,475 6.28 % 102,973 3,031 5.94 %

Total interest-bearing liabilities 2,327,754 40,703 3.52 % 2,106,587 26,378 2.53 %

Demand accounts 829,887 865,004

Interest payable and other liabilities 41,080 24,202

Shareholders’ equity 329,120 259,834

Total liabilities and shareholders’ equity $ 3,527,841 $ 3,255,627

Net interest spread 5

2.13 % 2.73 %

Net interest income/margin 6

$ 55,836 3.27 % $ 56,726 3.59 %

1 Interest income/expense is divided by the actual number of days in the period multiplied by the actual number of days in the year to correspond to stated interest rate terms, where applicable.

2 Yields on available-for-sale securities are calculated based on fair value.

Investment security interest is earned on a 30/360 day basis monthly.

Yields are not calculated on a tax-equivalent basis.

3 Non-accrual loans are included in total loan balances.

No adjustment has been made for these loans in the yield calculations.

Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs.

Allowance for credit losses is not included in total loan balances.

4 Allowance for credit losses is included in interest receivable and other assets, net.

5 Net interest spread represents the average yield earned on interest-earning assets minus the average rate paid on interest-bearing liabilities.

6 Net interest margin is computed by calculating the difference between interest income and interest expense, divided by the average balance of interest-earning assets, then annualized based on the number of days in the given period.

Analysis of changes in interest income and expenses.

Table 6 shows the effect that these factors had on the interest earned from our interest-earning assets and interest incurred on our interest-bearing liabilities.

The effect of changes in volume is determined by multiplying the change in volume by the current period’s average yield/rate.

The effect of rate changes is calculated by multiplying the change in average yield/rate by the previous period’s volume.

Changes not solely attributable to volume or yields/rates have been allocated in proportion to the respective volume and yield/rate components.

Interest Income and Expense Change Analysis

(In thousands) For the six months ended

June 30, 2024 compared to

the six months ended June 30, 2023

Volume Yield/Rate Total Increase (Decrease)

Interest-earning deposits in banks

$ 25 $ 678 $ 703

Investment securities (272) 279 7

Loans held for investment and sale 7,738 4,987 12,725

Total interest-earning assets 7,491 5,944 13,435

Interest-bearing transaction accounts (275) 1,247 972

Savings accounts (356) 771 415

Money market accounts 5,048 6,923 11,971

Time accounts 384 1,139 1,523

Subordinated notes and other borrowings (729) 173 (556)

Total interest-bearing liabilities 4,072 10,253 14,325

Changes in net interest income/margin $ 3,419 $ (4,309) $ (890)

Net interest income decreased $0.9 million and net interest margin decreased 32 basis points for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

The decrease in net interest income is primarily attributable to deposit growth at higher interest rates that exceeded loan growth at higher yields.

Interest expense increased by $14.3 million compared to the same period of the prior year.

The cost of interest-bearing deposits increased 107 basis points compared to the same period of the prior year due to increases in interest rates and an increase in average balances of $244.9 million, or 12.22%.

In addition, the average balance of non-interest-bearing deposits decreased by $35.1 million, or 4.06% compared to the same period of the prior year.

The increase in interest expense was partially offset by an additional $13.4 million in interest income compared to the same period of the prior year.

The average yield on loans increased 34 basis points compared to the same period of the prior year due to increases in interest rates and an increase in average balances of $264.7 million, or 9.20%.

Provision for Credit Losses

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The provision for credit losses is charged against earnings in order to maintain our allowance for credit losses, which reflects management’s best estimate of forecasted life of loan losses in our loan portfolio at the balance sheet date.

We recorded a $0.9 million provision for credit losses in the first quarter of 2024 and in the same period of 2023.

The provision recorded during the three months ended March 31, 2024 was the net effect of charge-offs, recoveries, increases in quantitative reserves, and reductions in reserves for qualitative factors.

Three months ended June 30, 2024 compared to three months ended June 30, 2023

We recorded a $2.0 million provision for credit losses in the second quarter of 2024, as compared to a $1.3 million provision for credit losses for the same period of 2023.

The provision recorded during the three months ended June 30, 2024 was the net effect of charge-offs and recoveries, and net increases in quantitative and qualitative reserves.

Six months ended June 30, 2024 compared to six months ended June 30, 2023

We recorded a $2.9 million provision for credit losses in the first six months of 2024, as compared to a $2.2 million provision for credit losses for the same period of 2023.

The provision recorded during the first six months of 2024 was the net effect of charge-offs and recoveries, and net increases in quantitative and qualitative reserves.

Non-interest Income

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Non-interest income consists of service charges on deposit accounts, net gain on sale of securities, gain on sale of loans, loan-related fees, FHLB stock dividends, earnings on BOLI, and other income.

The following table details the components of non-interest income for the periods indicated.

Three months ended June 30, 2024 compared to three months ended June 30, 2023

Table 7 details the components of non-interest income for the periods indicated.

Non-interest Income

For the three months ended

(dollars in thousands) March 31, 2024

March 31, 2023

(dollars in thousands) June 30, 2024

June 30, 2023

$ Change % Change

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Gain on sale of loans.

The decrease related primarily to an overall decline in the volume of loans sold, partially offset by an improvement in the effective yield of loans sold during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023.

During the three months ended March 31, 2024, approximately $5.2 million of loans were sold with an effective yield of 7.08%, as compared to approximately $12.7 million of loans sold with an effective yield of 4.72% during the three months ended March 31, 2023.

The decrease related primarily to an overall decline in the volume of loans sold, partially offset by an improvement in the effective yield of loans sold.

During the three months ended June 30, 2024, approximately $6.8 million of loans were sold with an effective yield of 6.60%, as compared to approximately $10.9 million of loans sold with an effective yield of 5.89% during the three months ended June 30, 2023.

FHLB stock dividends.

The increase related to increases in the annualized dividend rate and total average shares outstanding to 8.75% and 150,000 for the three months ended June 30, 2024 from 7.00% and 108,901 shares for the three months ended June 30, 2023.

Other income.

The decrease related to a $1.3 million gain from distributions received on equity investments in venture-backed funds during the three months ended June 30, 2023, which did not occur during the three months ended June 30, 2024.

Six months ended June 30, 2024 compared to six months ended June 30, 2023

Table 8 details the components of non-interest income for the periods indicated.

Non-interest Income

For the six months ended

(dollars in thousands) June 30, 2024

June 30, 2023

$ Change % Change

Service charges on deposit accounts $ 377 $ 252 $ 125 49.60 %

Gain on sale of loans 818 1,239 (421) (33.98) %

Loan-related fees 799 697 102 14.63 %

The increase related to the recognition of $0.1 million of swap referral fees during the three months ended March 31, 2024, which did not occur during the three months ended March 31, 2023.

FHLB stock dividends 661 382 279 73.04 %

The increase related to a higher annualized dividend rate and total average shares outstanding from 7.00% and 108,901 shares for the three months ended March 31, 2023 to 8.75% and 150,000 for the three months ended March 31, 2024.

Earnings on BOLI 300 228 72 31.58 %

Other income 451 1,393 (942) (67.62) %

The increase related to a $0.3 million gain recorded for distributions received on equity investments in venture-backed funds during the three months ended March 31, 2024, which did not occur during the three months ended March 31, 2023.

Total non-interest income $ 3,406 $ 4,191 $ (785) (18.73) %

Service charges on deposit accounts .

The increase resulted primarily from a $0.1 million increase in wire transfer fees recognized during the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Gain on sale of loans.

The decrease related primarily to an overall decline in the volume of loans sold, partially offset by an improvement in the effective yield of loans sold during the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

During the six months ended June 30, 2024, approximately $12.0 million of loans were sold with an effective yield of 6.81%, as compared to approximately $23.6 million of loans sold with an effective yield of 5.26% during the six months ended June 30, 2023.

Loan-related fees .

The increase primarily related to an increase of $0.1 million in swap referral fees recognized during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023.

FHLB stock dividends.

The increase was primarily due to increased yields on dividends received, combined with an increase in the average number of FHLB shares outstanding between June 30, 2023 and June 30, 2024.

Other income.

The decrease resulted primarily from the difference between a $1.3 million gain recorded for distributions received on equity investments in venture-backed funds during the six months ended June 30, 2023 compared to a $0.3 million gain recorded during the six months ended June 30, 2024.

Non-interest Expense

6 unchanged sentences

however, we expect our efficiency ratio will improve going forward due, in part, to our past investment in infrastructure.

The following table details the components of non-interest expense for the periods indicated.

Three months ended June 30, 2024 compared to three months ended June 30, 2023

Table 9 details the components of non-interest expense for the periods indicated.

Non-interest Expense

For the three months ended

(dollars in thousands) March 31, 2024

March 31, 2023

(dollars in thousands) June 30, 2024

June 30, 2023

$ Change % Change

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Salaries and employee benefits.

The increase during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023.

related primarily to:

(i) a $0.6 million increase in salaries and benefits for new employees hired since June 2023 to support expansion into the San Francisco Bay Area;

(ii) a $0.2 million increase in commissions earned, largely due to commissions paid to the San Francisco Bay Area team, which did not exist during the three months ended March 31, 2023;

and (iii) a $0.1 million decrease in loan origination costs due to lower loan production period-over-period.

Occupancy and equipment.

The $0.1 million increase related to rent expense for temporary office space to support the San Francisco Bay Area expansion during the three months ended March 31, 2024, which did not exist during the three months ended March 31, 2023.

The increase related primarily to:

(i) a $0.9 million increase in salaries, benefits, and bonus expense for new employees hired since June 2023 to support expansion into the San Francisco Bay Area;

(ii) a $0.3 million increase in commissions earned, largely due to commissions paid to the San Francisco Bay Area team, which did not occur during the three months ended June 30, 2023;

and (iii) a $0.2 million decrease in loan origination costs due to lower loan originations, net of purchased consumer loans, period-over-period.

Data processing and software.

3 unchanged sentences

and (iii) an increased number of licenses required for new users on our loan origination and documentation system.

Professional services.

The increase was primarily due to:

(i) a $0.1 million increase of audit fees for 2024 audits;

and (ii) a $0.1 million increase in IT consulting services due to an overall increase in service charges.

Advertising and promotional.

The decrease related primarily to an overall decline in sponsorships and donations made, as fewer events were sponsored and attended compared to the three months ended June 30, 2023.

Other operating expenses.

The increase was primarily due to a $0.1 million increase in IntraFi Network fees resulting from an overall increase in balances carried in the network.

The decrease was primarily due to a $0.2 million decrease in travel, conference fees, and professional membership fees, as compared to the three months ended June 30, 2023.

Six months ended June 30, 2024 compared to six months ended June 30, 2023

Table 10 details the components of non-interest expense for the periods indicated.

Non-interest Expense

For the six months ended

(dollars in thousands) June 30, 2024

June 30, 2023

$ Change % Change

Salaries and employee benefits $ 15,380 $ 13,039 $ 2,341 17.95 %

Occupancy and equipment 1,272 1,074 198 18.44 %

Data processing and software 2,392 1,885 507 26.90 %

FDIC insurance 790 812 (22) (2.71) %

Professional services 1,474 1,217 257 21.12 %

Advertising and promotional 1,075 1,151 (76) (6.60) %

Loan-related expenses 594 579 15 2.59 %

Other operating expenses 3,252 3,340 (88) (2.63) %

Total non-interest expense $ 26,229 $ 23,097 $ 3,132 13.56 %

Salaries and employee benefits.

The increase was primarily a result of:

(i) a $1.9 million increase in salaries, benefits, and bonus expense for new employees hired since June 2023 to support expansion into the San Francisco Bay Area, partially offset by a $0.4 million decrease in salaries, benefits, and bonus expense related to a 6.67% decrease in headcount outside of the San Francisco Bay Area;

(ii) a $0.3 million decrease in loan origination costs due to lower loan originations, net of purchased consumer loans, period-over-period;

and (iii) a $0.5 million increase in commission expense.

Occupancy and equipment.

The increase related to rent expense for temporary office space to support the San Francisco Bay Area expansion during the six months ended June 30, 2024, which did not exist during the six months ended June 30, 2023.

Data processing and software.

The increase was primarily due to:

(i) increased usage of our digital banking platform;

(ii) higher transaction volumes related to the increased number of loan and deposit accounts;

and (iii) an increased number of licenses required for new users on our loan origination and documentation system.

Professional services.

The increase was primarily due to:

(i) a $0.1 million increase of audit fees for 2024 audits;

and (ii) a $0.1 million increase in IT consulting services due to an overall increase in service charges.

Provision for Income Taxes

The provision for income taxes was $4.3 million for the three months ended March 31, 2024, as compared to $5.3 million for the three months ended March 31, 2023.

There was a decline in the provision due to an overall decrease in taxable income.

The effective income tax rates for the three months ended March 31, 2024 and 2023 were 28.94% and 28.86%, respectively.

Three months ended June 30, 2024 compared to three months ended June 30, 2023

The provision for income taxes was $4.4 million for the three months ended June 30, 2024, a $0.1 million decrease from the three months ended June 30, 2023.

The decrease was primarily driven by a $0.5 million state tax benefit recorded during the three months ended June 30, 2023 relating to an overall reduction in the state tax blended rate for the Company since its transition to a C Corporation, which did not occur during the three months ended June 30, 2024.

The effective tax rates for the three months ended June 30, 2024 and 2023 were 28.84% and 25.86%, respectively.

Six months ended June 30, 2024 compared to six months ended June 30, 2023

The provision for income taxes was $8.7 million for the six months ended June 30, 2024, as compared to $9.8 million for the six months ended June 30, 2023.

The decrease was primarily due to an overall decrease in pre-tax income period-over-period, partially offset by a $0.5 million state tax benefit recorded during the six months ended June 30, 2023 relating to an overall reduction in the state tax blended rate for the Company since its transition to a C Corporation.

No such benefit was recorded during the six months ended June 30, 2024.

The effective tax rates for the six months ended June 30, 2024 and 2023 were 28.89% and 27.42%, respectively.

FINANCIAL CONDITION SUMMARY

The following discussion compares our financial condition as of March 31, 2024 to our financial condition as of December 31, 2023.

The following table summarizes selected components of our unaudited consolidated balance sheets as of March 31, 2024 and December 31, 2023.

(dollars in thousands) March 31, 2024

The following discussion compares our financial condition as of June 30, 2024 to our financial condition as of December 31, 2023.

Table 11 summarizes selected components of our unaudited consolidated balance sheets as of June 30, 2024 and December 31, 2023.

Selected Components of Consolidated Balance Sheets (Unaudited)

(dollars in thousands) June 30, 2024

December 31, 2023

6 unchanged sentences

Total shareholders’ equity $ 380,470 $ 285,774

At March 31, 2024, total assets were $3.5 billion, a decrease of $116.8 million from $3.6 billion at December 31, 2023, primarily due to a $136.3 million decrease in cash and cash equivalents, partially offset by a $22.4 million increase in total loans held for investment.

At June 30, 2024, total assets were $3.63 billion, an increase of $41.1 million from $3.59 billion at December 31, 2023, primarily due to a $184.6 million increase in total loans held for investment, partially offset by a $131.2 million decrease in cash and cash equivalents.

The $184.6 million increase in total loans held for investment included a purchase of loans within the consumer concentration of the loan portfolio, representing $73.3 million.

Cash and Cash Equivalents

Total cash and cash equivalents were $185.3 million at March 31, 2024, a decrease of $136.3 million from $321.6 million at December 31, 2023.

The decrease in cash and cash equivalents was primarily due to decreases in deposits of $71.1 million, a decrease in borrowings of $50.0 million, and $27.0 million in loan originations, net of repayments, partially offset by income before provision for income taxes of $15.0 million.

Total cash and cash equivalents were $190.4 million at June 30, 2024, a decrease of $131.2 million from $321.6 million at December 31, 2023.

The decrease in cash and cash equivalents was primarily due to a decrease in borrowings of $170.0 million and $192.4 million in loan originations, net of repayments, partially offset by increases in deposits of $122.7 million and pre-tax income of $30.1 million.

Investment Portfolio

4 unchanged sentences

Most of our securities are classified as available-for-sale, although we have one long-term, fixed rate municipal security classified as held-to-maturity.

Our total securities available-for-sale and held-to-maturity amounted to $108.0 million at March 31, 2024 and $111.2 million at December 31, 2023, representing a decrease of $3.2 million period-over-period.

Our total securities available-for-sale and held-to-maturity amounted to $106.2 million at June 30, 2024 and $111.2 million at December 31, 2023, representing a decrease of $5.0 million period-over-period.

The decrease to available-for-sale securities was primarily due to maturities, prepayments, and calls of $3.8 million and an unrealized loss on securities of $0.7 million, with the remainder of the change due to amortization of premiums.

For the three months ended March 31, 2024, other comprehensive loss was $0.7 million, primarily due to rate changes and other market conditions on securities.

The following table presents the carrying value of our investment portfolio as of the dates indicated:

March 31, 2024

For the six months ended June 30, 2024, other comprehensive loss was $0.5 million, primarily due to rate changes and other market conditions on securities.

Table 12 presents the carrying value of our investment portfolio as of the dates indicated.

Carrying Value of Investment Securities

June 30, 2024

December 31, 2023

10 unchanged sentences

Total $ 106,177 100.00 % $ 111,160 100.00 %

The following table presents the carrying value of our securities by their stated maturities, as well as the weighted average yields for each maturity range, as of March 31, 2024:

Table 13 presents the carrying value of our securities by their stated maturities, as well as the weighted average yields for each maturity range, as of the dates shown.

Stated Maturities and Weighted Average Yields - Investment Securities

Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Total

(dollars in thousands) Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield

June 30, 2024

Available-for-sale:

8 unchanged sentences

Total $ 218 6.00 % $ 4,979 3.22 % $ 10,452 2.46 % $ 90,528 2.20 % $ 106,177 2.28 %

The following table presents the carrying value of our securities by their stated maturities, as well as the weighted average yields for each maturity range, as of December 31, 2023:

Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Total

(dollars in thousands) Carrying

Value Weighted

Yield Carrying

Value Weighted

Yield Carrying

Value Weighted

Yield Carrying

Value Weighted

Yield Carrying

Value Weighted

December 31, 2023

Available-for-sale:

15 unchanged sentences

Associated with the higher yields is an inherent amount of credit risk, which we attempt to mitigate with strong underwriting standards.

As of March 31, 2024 and December 31, 2023, our total loans amounted to $3.11 billion and $3.09 billion, respectively.

The following table presents the balance and associated percentage of each major product type within our portfolio as of the dates indicated.

March 31, 2024

As of June 30, 2024 and December 31, 2023, our total loans amounted to $3.27 billion and $3.09 billion, respectively.

Table 14 presents the balance and associated percentage of each major product type within our portfolio as of the dates indicated.

Loans Outstanding

June 30, 2024

December 31, 2023

22 unchanged sentences

Residential real estate and construction real estate loans consist of loans secured by single-family and multifamily residential properties, which are both owner-occupied and investor-owned.

The following tables present the commercial real estate loan balance, associated percentage of commercial real estate concentrations, estimated real estate collateral values, and related loan-to-value (“LTV”) ranges by collateral type as of the dates indicated.

Table 15 presents the commercial real estate loan balance, associated percentage of commercial real estate concentrations, estimated real estate collateral values, and related loan-to-value (“LTV”) ranges by collateral type as of the dates indicated.

Revolving lines of credit with zero balance and 0.00% LTV are excluded from this table.

Collateral values are determined at origination using third-party real estate appraisals or evaluations.

Updated appraisals, which are included in the table below, may be obtained for loans that are downgraded to watch or substandard.

Updated appraisals, which are included in Table 15, may be obtained for loans that are downgraded to watch or substandard.

Loans over $2.0 million are reviewed annually, at which time an internal assessment of collateral values is completed.

Commercial Real Estate Loans

(dollars in thousands) Loan Balance % of Commercial Real Estate Collateral Value Minimum LTV Maximum LTV

March 31, 2024

June 30, 2024

Manufactured home community $ 868,198 31.28 % $ 1,547,783 14.40 % 158.49 %

1 unchanged sentence

Retail 272,274 9.82 % 544,450 6.69 % 73.45 %

Faith-based 185,545 6.90 % 491,049 8.30 % 74.50 %

Industrial 206,832 7.46 % 461,169 6.29 % 82.54 %

Faith-based 183,625 6.62 % 490,031 8.26 % 74.23 %

Multifamily 179,419 6.47 % 375,105 14.50 % 75.00 %

Mini storage 177,173 6.39 % 358,936 16.40 % 70.00 %

Office 134,469 5.00 % 300,469 5.80 % 73.13 %

All other types 1

16 unchanged sentences

Over the past several years, we have experienced significant growth in our loan portfolio, although the relative composition of the portfolio has not changed materially.

Our primary focus remains commercial real estate lending (including commercial, commercial land and development, and commercial construction), which constitutes 88.97% of loans held for investment at March 31, 2024.

Commercial secured lending represents 4.63% of loans held for investment at March 31, 2024.

Our primary focus remains commercial real estate lending (including commercial, commercial land and development, and commercial construction), which constitutes 87.20% of loans held for investment at June 30, 2024.

Commercial secured lending represents 4.73% of loans held for investment at June 30, 2024.

We sell the guaranteed portion of all SBA 7(a) loans in the secondary market and will continue to do so as long as market conditions continue to be favorable.

We recognize that our commercial real estate loan concentration is significant within our balance sheet.

Commercial real estate loan balances as a percentage of risk-based capital were 669.49% and 682.72% as of March 31, 2024 and December 31, 2023, respectively.

Commercial real estate loan balances as a percentage of risk-based capital were 568.36% and 682.72% as of June 30, 2024 and December 31, 2023, respectively.

We have established internal concentration limits in the loan portfolio for commercial real estate loans by sector (e.g., manufactured home communities, self-storage, hospitality, etc.).

All loan sectors were within our established limits as of March 31, 2024.

All loan sectors were within our established limits as of June 30, 2024.

Additionally, our loans are geographically concentrated with borrowers and collateralized properties primarily in California.

3 unchanged sentences

We do not expect our product or geographic concentrations to materially change.

The following table sets forth the contractual maturities of our loan portfolio as of March 31, 2024:

Table 16 sets forth the contractual maturities of our loan portfolio as of the dates indicated.

Contractual Maturities - Gross Loans

(dollars in thousands) Due in 1 year or less Due after 1 year through 5 years Due after 5 years through 15 years Due after 15 years Total

June 30, 2024

Commercial $ 33,370 $ 306,972 $ 2,358,920 $ 74,739 $ 2,774,001

8 unchanged sentences

Total $ 100,261 $ 412,542 $ 2,684,989 $ 76,087 $ 3,273,879

The following table sets forth the contractual maturities of our loan portfolio as of December 31, 2023:

(dollars in thousands) Due in 1 year or less Due after 1 year through 5 years Due after 5 years through 15 years Due after 15 years Total

December 31, 2023

Commercial $ 57,443 $ 271,306 $ 2,284,482 $ 72,188 $ 2,685,419

8 unchanged sentences

Total $ 148,866 $ 363,715 $ 2,509,303 $ 73,556 $ 3,095,440

The following table sets forth the sensitivity to interest rate changes of our loan portfolio as of March 31, 2024:

Table 17 sets forth the sensitivity to interest rate changes of our loan portfolio as of the dates shown.

Sensitivity to Interest Rates - Gross Loans

(dollars in thousands) Fixed Interest Rates Floating or Adjustable Rates Total

June 30, 2024

Commercial $ 574,179 $ 2,199,822 $ 2,774,001

8 unchanged sentences

Total $ 797,159 $ 2,476,720 $ 3,273,879

The following table sets forth the sensitivity to interest rate changes of our loan portfolio as of December 31, 2023:

(dollars in thousands) Fixed Interest Rates Floating or Adjustable Rates Total

December 31, 2023

Commercial $ 570,385 $ 2,115,034 $ 2,685,419

32 unchanged sentences

Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest.

During the three months ended March 31, 2024, the Company sold 18 SBA 7(a) loans with government-guaranteed portions totaling $5.2 million.

The Company received gross proceeds of $5.6 million on the loans sold during the three months ended March 31, 2024, resulting in the recognition of net gains on sale of $0.4 million during the same period.

During the three and six months ended June 30, 2024, the Company sold 22 and 40 SBA 7(a) loans, respectively, with government-guaranteed portions totaling $6.8 million and $12.0 million, respectively.

The Company received gross proceeds of $7.2 million and $12.8 million on the loans sold during the three and six months ended June 30, 2024, respectively, resulting in the recognition of net gains on sale of $0.4 million and $0.8 million during the respective periods.

Non-accrual Loans

The following table provides details of our nonperforming and restructured assets and certain other related information as of the dates presented:

(dollars in thousands) March 31, 2024 December 31, 2023

Table 18 provides details of our nonperforming and restructured assets and certain other related information as of the dates presented.

Nonperforming and Restructured Assets

(dollars in thousands) June 30, 2024 December 31, 2023

Non-accrual loans:

12 unchanged sentences

Nonperforming loans plus performing LMs to loans held for investment 0.06 % 0.06 %

The ratio of nonperforming loans to loans held for investment was 0.06% at March 31, 2024 and December 31, 2023.

The ratio of nonperforming loans to loans held for investment was 0.06% at June 30, 2024 and December 31, 2023.

Potential Problem Loans

4 unchanged sentences

The banking industry defines loans graded substandard or doubtful as “classified” loans.

The following table shows our levels of classified loans as of the periods indicated:

Table 19 shows our levels of classified loans as of the periods indicated.

Gross Loans Held for Investment by Risk Category

(dollars in thousands) Pass Watch Substandard Doubtful Total

March 31, 2024

June 30, 2024

Commercial $ 2,729,365 $ 42,814 $ 1,822 $ — $ 2,774,001

7 unchanged sentences

Consumer and other 152,539 15 10 — 152,564

73,891 15 11 — 73,917

Total $ 3,208,654 $ 58,011 $ 1,892 $ — $ 3,268,557

9 unchanged sentences

Consumer and other 38,139 15 12 — 38,166

38,139 15 12 — 38,166

Total $ 3,042,376 $ 39,624 $ 1,976 $ — $ 3,083,976

Loans designated as watch and substandard, which are not considered adversely classified, increased to $53.9 million at March 31, 2024 from $41.6 million at December 31, 2023.

There were no loans with doubtful risk grades at March 31, 2024 or December 31, 2023.

Allowance for Credit Losses - Loans

The allowance for credit losses - loans is established through a provision for credit losses charged to operations.

Provisions are charged against the allowance for credit losses - loans when management believes that the collectability of the principal is unlikely.

Subsequent recoveries of previously charged-off amounts, if any, are credited to the allowance for credit losses - loans.

The allowance for credit losses - loans is evaluated on a regular basis by management and is based on management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions.

Loans designated as watch and substandard, which are not considered adversely classified, increased to $59.9 million at June 30, 2024 from $41.6 million at December 31, 2023.

There were no loans with doubtful risk grades at June 30, 2024 or December 31, 2023.

Allowance for Credit Losses

The allowance for credit losses is established through a provision for credit losses charged to operations.

Provisions are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely.

Subsequent recoveries of previously charged-off amounts, if any, are credited to the allowance for credit losses.

The allowance for credit losses is evaluated on a regular basis by management and is based on management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions.

This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

At March 31, 2024, the Company’s allowance for credit losses - loans was $34.7 million, as compared to $34.4 million at December 31, 2023.

The $0.3 million increase in the allowance is due to a $1.1 million provision for credit losses recorded during the three months ended March 31, 2024, partially offset by net charge-offs of $0.8 million during the same period.

While the entire allowance for credit losses - loans is available to absorb losses from any and all loans, the following table represents management’s allocation of our allowance for credit losses by loan category, and the balance of loans in each category as a percentage of total loans, for the periods indicated.

March 31, 2024

At June 30, 2024, the Company’s allowance for credit losses was $35.4 million, as compared to $34.4 million at December 31, 2023.

The $1.0 million increase in the allowance is due to a $3.0 million provision for credit losses recorded during the six months ended June 30, 2024, partially offset by net charge-offs of $2.0 million, mainly attributable to commercial and industrial loans, during the same period.

While the entire allowance for credit losses is available to absorb losses from any and all loans, Table 20 represents management’s allocation of our allowance for credit losses by loan category, and the balance of loans in each category as a percentage of total loans, for the periods indicated.

Allocation of the Allowance for Credit Losses

June 30, 2024

December 31, 2023

10 unchanged sentences

Total allowance for credit losses $ 35,406 100.00 % $ 34,431 100.00 %

The ratio of the allowance for credit losses to total loans held for investment was 1.12% at March 31, 2024 and December 31, 2023.

The following table provides information on the activity within the allowance for credit losses - loans as of and for the periods indicated:

The ratio of the allowance for credit losses to total loans held for investment was 1.08% at June 30, 2024, as compared to 1.12% at December 31, 2023.

Activity Within the Allowance for Credit Losses

As of and for the three months ended

March 31, 2024

March 31, 2023

(dollars in thousands) Activity % of Average Loans Held for Investment Activity % of Average Loans Held for Investment

As of and for the six months ended

June 30, 2024

June 30, 2023

June 30, 2024

June 30, 2023

(dollars in thousands) Activity % of Average Loans Held for Investment Activity % of Average Loans Held for Investment Activity % of Average Loans Held for Investment Activity % of Average Loans Held for Investment

Average loans held for investment $ 3,189,505 $ 2,904,194 $ 3,129,485 $ 2,865,323

Allowance for credit losses - loans $ 34,431 $ 28,389

Allowance for credit losses $ 34,653 $ 34,172 $ 34,431 $ 28,389

Effect of adoption of ASC 326 — — — 5,262

5 unchanged sentences

Provision for credit losses 1,950 920 3,000 1,820

Allowance for credit losses - loans $ 34,653 $ 34,172

Allowance for credit losses $ 35,406 $ 33,984 $ 35,406 $ 33,984

Loans held for investment $ 3,266,291 $ 2,927,411 $ 3,266,291 $ 2,927,411

Allowance for credit losses - loans to loans held for investment 1.12 % 1.19 %

The allowance for credit losses - loans to loans held for investment decreased from 1.19% as of March 31, 2023 to 1.12% as of March 31, 2024.

Net charge-offs as a percent of average loans held for investment increased to 0.03% for the three months ended March 31, 2024 from 0.01% for the three months ended March 31, 2023.

During the first three months of 2024, total liabilities decreased by $123.6 million from $3.3 billion as of December 31, 2023 to $3.2 billion as of March 31, 2024.

This decrease was primarily due to a decrease in total deposits of $71.1 million, comprised of a decrease of $57.4 million in interest-bearing deposits and a decrease of $13.7 million in non-interest-bearing deposits.

Of the $57.4 million decrease in interest-bearing deposits, brokered deposits decreased by $58.1 million and public time deposits decreased by $125.0 million.

Both decreases were offset by an increase in non-wholesale deposits of $112.0 million.

Representing 92.84% of our total liabilities as of March 31, 2024, deposits are our primary source of funding for our business operations.

Total deposits decreased by $71.1 million, or 2.35%, to $2.96 billion at March 31, 2024 from $3.03 billion at December 31, 2023.

Deposit decreases were primarily attributable to decreases in public time and brokered deposits.

Non-interest-bearing deposits decreased by $13.7 million from December 31, 2023 to $817.4 million at March 31, 2024, representing 27.65% of total deposits at that date, as compared to 27.46% of total deposits at December 31, 2023.

Our loan to deposit ratio was 105.37% at March 31, 2024, as compared to 102.19% at December 31, 2023.

Allowance for credit losses to loans held for investment 1.08 % 1.16 % 1.08 % 1.16 %

The ratio of the allowance for credit losses to loans held for investment decreased from 1.16% as of June 30, 2023 to 1.08% as of June 30, 2024.

Net charge-offs as a percent of average loans held for investment remained at 0.04% for the three months ended June 30, 2023 and June 30, 2024, respectively.

Net charge-offs as a percent of average loans held for investment increased from 0.05% to 0.06% for the six months ended June 30, 2023 and June 30, 2024, respectively.

During the first six months of 2024, total liabilities decreased by $53.6 million from $3.31 billion as of December 31, 2023 to $3.25 billion as of June 30, 2024.

This decrease was primarily due to a decrease in borrowings of $170.0 million, partially offset by an increase in total deposits of $122.7 million, comprised of an increase of $128.1 million in interest-bearing deposits and a decrease of $5.4 million in non-interest-bearing deposits.

Of the $128.1 million increase in interest-bearing deposits, brokered deposits increased by $16.9 million and public time deposits decreased by $124.5 million.

Public time deposit decreases were offset by an increase in non-wholesale deposits of $230.4 million.

Representing 96.80% of our total liabilities as of June 30, 2024, deposits are our primary source of funding for our business operations.

Total deposits increased by $122.7 million, or 4.05%, to $3.15 billion at June 30, 2024 from $3.03 billion at December 31, 2023.

Deposit increases were primarily attributable to increase in relationship deposits.

Non-interest-bearing deposits decreased by $5.4 million from December 31, 2023 to $825.7 million at June 30, 2024, representing 26.22% of total deposits at that date, as compared to 27.46% of total deposits at December 31, 2023.

Our loan to deposit ratio was 103.87% at June 30, 2024, as compared to 102.19% at December 31, 2023.

We intend to continue to operate our business with close monitoring of the loan to deposit ratio.

The following table summarizes our deposit composition by average deposit balances and average rates paid for the periods indicated:

Table 22 summarizes our deposit composition by average deposit balances and average rates paid for the periods indicated.

Deposit Composition by Average Balances and Rates Paid

For the three months ended

March 31, 2024

March 31, 2023

June 30, 2024

June 30, 2023

(dollars in thousands) Average Amount Average Rate Paid % of Total Deposits Average Amount Average Rate Paid % of Total Deposits

4 unchanged sentences

Total deposits $ 3,049,919 2.47 % 100.00 % $ 2,912,891 1.92 % 100.00 %

Uninsured and uncollateralized deposits totaled $1.1 billion and $1.0 billion at March 31, 2024 and December 31, 2023, respectively.

As of March 31, 2024, our 37 largest deposit relationships, each accounting for more than $10.0 million, totaled $1.3 billion, or 45.41% of our total deposits.

For the six months ended

June 30, 2024

June 30, 2023

(dollars in thousands) Average Amount Average Rate Paid % of Total Deposits Average Amount Average Rate Paid % of Total Deposits

Interest-bearing transaction accounts $ 295,897 1.52 % 9.61 % $ 332,101 0.76 % 11.58 %

Money market and savings accounts 1,601,359 3.42 % 52.02 % 1,335,469 2.24 % 46.56 %

Time accounts 351,237 5.00 % 11.41 % 336,044 4.33 % 11.71 %

Demand accounts 829,887 — % 26.96 % 865,004 — % 30.15 %

Total deposits $ 3,078,380 2.50 % 100.00 % $ 2,868,618 1.64 % 100.00 %

Uninsured and uncollateralized deposits totaled $1.1 billion and $1.0 billion at June 30, 2024 and December 31, 2023, respectively.

As of June 30, 2024, our 42 largest deposit relationships, each accounting for more than $10.0 million, totaled $1.5 billion, or 47.18% of our total deposits.

The average age on deposit relationships of more than $5.0 million was approximately 8 years.

As of December 31, 2023, our 40 largest deposit relationships, each accounting for more than $10.0 million, totaled $1.5 billion, or 49.80% of our total deposits.

Our large deposit relationships are comprised of the following entity types as of the periods indicated:

(dollars in thousands) March 31, 2024

Table 23 shows the entity types making up our large deposit relationships at the dates indicated.

Composition of Large Deposit Relationships

(dollars in thousands) June 30, 2024

December 31, 2023

4 unchanged sentences

Total $ 1,485,943 $ 1,507,258

Our largest single deposit relationship at March 31, 2024 related to a non-profit entity.

Our largest single deposit relationship at June 30, 2024 related to a non-profit entity.

The balance for this customer was $227.7 million, or approximately 7.23% of total deposits as of that date.

At December 31, 2023, our largest single deposit relationship related to a government agency and had a balance of $260.0 million, or 8.59% of total deposits as of that date.

The following table sets forth the maturity of time deposits as of March 31, 2024:

Table 24 sets forth the maturity of time deposits as of June 30, 2024.

Scheduled Maturities of Time Deposits

(dollars in thousands) $250,000 or Greater Less than $250,000 Total Uninsured Portion

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From time to time, we utilize short-term collateralized FHLB borrowings to maintain adequate liquidity.

There were borrowings of $20.0 million and $170.0 million outstanding from the FHLB as of March 31, 2024 and December 31, 2023, respectively.

There were borrowings of $100.0 million outstanding from the Federal Reserve Discount Window as of March 31, 2024 and no borrowings outstanding from the Federal Reserve Discount Window as of December 31, 2023.

There were no borrowings outstanding from the FHLB as of June 30, 2024 and borrowings of $170.0 million outstanding from the FHLB as of December 31, 2023.

In 2022, we issued subordinated notes of $75.0 million.

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The proceeds of the notes qualify as Tier 2 capital for the Company under the regulatory capital rules of the federal banking agencies.

The following table is a summary of our outstanding subordinated notes as of March 31, 2024:

Table 25 is a summary of our outstanding subordinated notes as of June 30, 2024.

Subordinated Notes Outstanding

(dollars in thousands) Issuance Date Amount of Notes Prepayment Right Maturity Date

Subordinated notes August 2022 $ 75,000 August 17, 2027 September 1, 2032

Fixed at 6.00% through September 1, 2027, then three-month Term SOFR plus 329.0 basis points (8.58% as of March 31, 2024) through maturity

Fixed at 6.00% through September 1, 2027, then three-month Term SOFR plus 329.0 basis points (8.60% as of June 30, 2024) through maturity

Shareholders’ Equity

Shareholders’ equity totaled $292.6 million at March 31, 2024 and $285.8 million at December 31, 2023.

The increase in shareholders’ equity was primarily attributable to net income recognized of $10.6 million, partially offset by:

Shareholders’ equity totaled $380.5 million at June 30, 2024 and $285.8 million at December 31, 2023.

The increase in shareholders’ equity was primarily a result of $80.9 million of additional common stock issued and outstanding in 2024 and net income recognized of $21.4 million, partially offset by:

(i) $7.7 million in cash dividends;

and (ii) a $0.7 million increase in accumulated other comprehensive loss during the three months ended March 31, 2024.

and (ii) a $0.5 million increase in accumulated other comprehensive loss during the six months ended June 30, 2024.

Liquidity and Capital Resources

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adequate levels of highly liquid marketable securities free of legal, regulatory, or operational impediments that can be used to meet liquidity needs in stress situations;

comprehensive contingency funding plans that sufficiently address potential adverse liquidity

events and emergency cash flow requirements;

comprehensive contingency funding plans that sufficiently address potential adverse liquidity events and emergency cash flow requirements;

and internal controls and internal audit processes sufficient to determine the adequacy of the Bank’s liquidity risk management process.

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Cash on hand, cash at third-party banks, investments available-for-sale, and maturing or prepaying balances in our investment and loan portfolios are our most liquid assets.

Other sources of liquidity that are routinely available to us include funds from retail and wholesale deposits, advances from the FHLB and Federal Reserve Discount Window, and proceeds from the sale of loans.

Other sources of liquidity that are routinely available to us include funds from retail and wholesale deposits, advances from the FHLB and the Federal Reserve Discount Window, and proceeds from the sale of loans.

Less commonly used sources of funding include borrowings from established federal funds lines from unaffiliated commercial banks, and the issuance of debt or equity securities.

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In addition, we have a shelf registration statement on file with the SEC registering $250.0 million for any combination of equity or debt securities, depository shares, warrants, purchase contracts, purchase units, subscription rights, and units in one or more offerings.

Specific information on the terms of and the securities being offered will be provided at the time of the offering.

Proceeds from any future offerings are expected to be used for corporate purposes or other purposes to be disclosed at the time of the offering.

Specific information on the terms of any securities being offered, including the expected use of proceeds from the sale of such securities, are provided at the time of the offering.

In April 2024, we sold an aggregate of 3,967,500 shares of our common stock at a price of $21.75 per share in a public offering (the “2024 Public Offering”), for net proceeds to us, after deducting underwriting discounts and commissions and offering expenses payable by us, of approximately $80.9 million, to be used for general corporate purposes and to support continued growth, including through investments in the Bank to pursue growth opportunities, and for working capital.

The 2024 Public Offering used approximately $86.3 million of our shelf registration statement on file with the SEC, leaving approximately $163.7 million available for future offerings.

Sources and Uses of Cash

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Generally speaking, our principal funding source is cash from deposits, and our principal uses of cash include funding of loans, operating expenses, income taxes, and dividend payments, as described below.

As of March 31, 2024, management believes the above-mentioned sources will provide adequate liquidity during the next twelve months for the Bank to meet its operating needs.

In addition, in April 2024, the Company closed the 2024 Public Offering and sold an aggregate of 3,967,500 shares of its common stock at a public offering price of $21.75 per share.

The proceeds to the Company, after deducting underwriting discounts and commissions but before deducting offering expenses payable by the Company, were approximately $81.5 million, providing additional cash to support the Company’s ongoing operating needs.

As of June 30, 2024, management believes the above-mentioned sources will provide adequate liquidity during the next twelve months for the Bank to meet its operating needs.

In addition, in April 2024, the Company closed the 2024 Public Offering.

The proceeds to the Company, after deducting underwriting discounts and commissions and offering expenses payable by the Company, were approximately $80.9 million, providing additional cash to support the Company’s ongoing operating needs.

Loans are a significant use of cash in daily operations, and a source of cash as customers make payments on their loans or as loans are sold to other financial institutions.

Cash flows from loans are affected by the timing and amount of customer payments and prepayments, changes in interest rates, the general economic environment, competition, and the political environment.

During the three months ended March 31, 2024, we had cash outflows of $11.5 million in loan originations and advances, net of principal collected, and $15.5 million in loans originated for sale.

During the six months ended June 30, 2024, we had cash outflows of $175.0 million in loan originations and advances, net of principal collected, and $17.4 million in loans originated for sale.

Additionally, we enter into commitments to extend credit in the ordinary course of business, such as commitments to fund new loans and undisbursed construction funds.

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Therefore, the total commitment amounts do not necessarily represent future cash requirements.

At March 31, 2024, off-balance sheet commitments totaled $453.5 million.

At June 30, 2024, off-balance sheet commitments totaled $449.3 million.

We expect to fund these commitments to the extent utilized primarily through the repayment of existing loans, deposit growth, and liquid assets.

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Cash flows from deposits are impacted by the timing and amount of customer deposits, changes in market rates, and collateral availability.

During the three months ended March 31, 2024, we had cash outflows related to a decrease in deposits of $71.1 million, primarily as a result of decreases in wholesale funding.

During the twelve months following March 31, 2024, approximately $284.9 million of time deposits are expected to mature.

During the six months ended June 30, 2024, we had cash inflows related to an increase in deposits of $122.7 million.

During the twelve months following June 30, 2024, approximately $330.2 million of time deposits are expected to mature.

These deposits may or may not renew due to general competition.

We expect the outflow will not be significant and can be replenished through our organic growth in deposits.

We believe our emphasis on local deposits and our recent San Francisco Bay area expansion provide a stable funding base.

At March 31, 2024, cash and cash equivalents represented 6.27% of total deposits.

We believe our emphasis on local deposits and our San Francisco Bay area expansion provide a stable funding base.

At June 30, 2024, cash and cash equivalents represented 6.04% of total deposits.

Investment Securities

Our investment securities totaled $108.0 million at March 31, 2024.

Our investment securities totaled $106.2 million at June 30, 2024.

Mortgage-backed securities and obligations of states and political subdivisions comprised 50.88% and 35.35% of our investment portfolio, respectively.

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Cash proceeds from obligations of states and political subdivisions occur when these securities are called or mature.

Assuming the current prepayment speed and interest rate environment, we expect to receive approximately $7.7 million from our securities over the twelve months following March 31, 2024.

Assuming the current prepayment speed and interest rate environment, we expect to receive approximately $7.7 million from our securities over the twelve months following June 30, 2024.

In future periods, we expect to maintain approximately the same level of cash flows from our securities.

Depending on market yield and our liquidity, we may purchase securities as a use of cash in our interest-earning asset portfolio.

During the three months ended March 31, 2024, we had cash proceeds from sales, maturities, calls, and prepayments of securities of $2.0 million.

Additionally, at March 31, 2024, securities available-for-sale totaled $105.0 million, of which $101.4 million has been pledged as collateral for borrowings and other commitments.

During the six months ended June 30, 2024, we had cash proceeds from sales, maturities, calls, and prepayments of securities of $3.8 million.

Additionally, at June 30, 2024, securities available-for-sale totaled $103.2 million, of which $99.8 million has been pledged as collateral for borrowings and other commitments.

FHLB Financing

The Bank is a shareholder of the FHLB, which enables the Bank to have access to lower-cost FHLB financing when necessary.

At March 31, 2024, the Bank had outstanding borrowings of $20.0 million and a total financing availability of $411.4 million, net of letters of credit issued of $571.5 million.

At June 30, 2024, the Bank had no outstanding borrowings and a total financing availability of $432.9 million, net of letters of credit issued of $571.5 million.

Federal Reserve Discount Window

The Company has the ability to borrow from the Federal Reserve Discount Window when necessary.

At March 31, 2024, the Bank had outstanding borrowings of $100.0 million and a total financing availability of $707.1 million.

At June 30, 2024, the Bank had no outstanding borrowings and a total financing availability of $829.2 million.

Correspondent Bank Lines of Credit

At March 31, 2024, the unused and available amount for borrowing from correspondent bank lines of credit was $175.0 million.

At June 30, 2024, the unused and available amount for borrowing from correspondent bank lines of credit was $175.0 million.

Total Liquidity

Total liquidity (consisting of cash and cash equivalents and unused and immediately available borrowing capacity as set forth below) was approximately $1.5 billion as of March 31, 2024.

March 31, 2024 Available

Total liquidity (consisting of cash and cash equivalents and unused and immediately available borrowing capacity as set forth in Table 26) was approximately $1.6 billion as of June 30, 2024.

Total Liquidity

June 30, 2024 Available

(dollars in thousands) Line of Credit Letters of Credit Issued Borrowings

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Future Contractual Obligations

Our estimated future contractual obligations as of March 31, 2024 include both current and long-term obligations.

Our estimated future contractual obligations as of June 30, 2024 include both current and long-term obligations.

Under our operating leases, we have an operating lease liability of $7.1 million.

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We also have contractual obligations on unfunded loan commitments and standby letters of credit totaling $449.3 million.

The Company paid dividends to its shareholders totaling $3.5 million during the three months ended March 31, 2024.

The Company paid dividends to its shareholders totaling $4.3 million during the three months ended June 30, 2024.

We expect to continue our current practice of paying quarterly cash dividends with respect to our common stock, subject to our board of directors’ discretion to modify or terminate this practice at any time and for any reason without prior notice.

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Historical Information

The following table summarizes our consolidated cash flow activities:

Three months ended March 31,

Table 27 summarizes our consolidated cash flow activities.

Consolidated Cash Flow Activities

Six months ended June 30,

(dollars in thousands) 2024 2023 $ Change

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Net cash used in investing activities $ (173,378) $ (127,184) $ (46,194)

Net cash (used in) provided by financing activities $ (124,575) $ 155,813 $ (280,388)

Net cash provided by financing activities $ 25,890 $ 141,695 $ (115,805)

Operating Activities

Net cash provided by operating activities decreased by $0.4 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Net cash provided by operating activities decreased by $9.4 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Cash provided by operating activities is subject to variability period-over-period as a result of timing differences, including with respect to the collection of receivables and payments of interest expense, accounts payable, and bonuses.

Investing Activities

Net cash used in investing activities decreased by $56.6 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily due to decreased loan originations.

Net cash used in investing activities increased by $46.2 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily due to loan originations, including purchased consumer loans.

Financing Activities

Net cash (used in) provided by financing activities decreased by $280.4 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily due to a decline in deposits and lower borrowings.

Net cash provided by financing activities decreased by $115.8 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily due to lower borrowings, partially offset by proceeds from the 2024 Public Offering.

Capital Adequacy

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Bancorp and the Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies.

Failure to meet minimum capital requirements as set forth in the following tables can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on our unaudited consolidated financial statements.

Failure to meet minimum capital requirements as set forth in Tables 28 and 29 can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on our unaudited consolidated financial statements.

Historically, as a bank holding company with less than $3.0 billion in total consolidated assets and that met certain other criteria, we had been operating under the Small Bank Holding Company Policy Statement, which provides an exemption from the Federal Reserve’s generally applicable risk-based capital ratio and leverage ratio requirements.

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Capital amounts for Bancorp and the Bank, and the Bank’s prompt corrective action classification, are also subject to qualitative judgments by the regulators about components of capital, risk weightings, and other factors.

As of March 31, 2024, both Bancorp and the Bank were in compliance with all applicable regulatory capital requirements, and the Bank qualified as “well-capitalized” under the prompt corrective action framework.

As of June 30, 2024, both Bancorp and the Bank were in compliance with all applicable regulatory capital requirements, and the Bank qualified as “well-capitalized” under the prompt corrective action framework.

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.

For all periods presented, the Bank’s ratios exceed the regulatory definition of “well-capitalized” under the regulatory framework for prompt corrective action, and Bancorp’s ratios exceed the minimum ratios required for it to be considered a well-capitalized bank holding company.

The capital adequacy ratios as of March 31, 2024 and December 31, 2023 for Bancorp and the Bank are presented in the following tables.

As of March 31, 2024 and December 31, 2023, Bancorp’s Tier 2 capital included subordinated notes,

which were not included at the Bank level.

The capital adequacy ratios as of June 30, 2024 and December 31, 2023 for Bancorp and the Bank are presented in Tables 28 and 29.

As of June 30, 2024 and December 31, 2023, Bancorp’s Tier 2 capital included subordinated notes, which were not included at the Bank level.

Eligible amounts of subordinated notes included in Tier 2 capital will be phased out by 20% per year beginning five years before the maturity date of the notes.

Capital Ratios for Bancorp Actual Ratio

Capital Ratios for Bancorp

Required for Capital Adequacy Purposes 1

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Amount Ratio Amount Ratio

March 31, 2024

June 30, 2024

Total capital (to risk-weighted assets) $ 501,114 14.38 % $ 320,713 8.00 % N/A N/A

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Tier 1 leverage $ 298,749 8.73 % $ 136,953 4.00 % N/A N/A

Capital Ratios for the Bank Actual Ratio

Capital Ratios for the Bank

Required for Capital Adequacy Purposes Ratio to be Well-Capitalized under Prompt Corrective Action Provisions

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Amount Ratio Amount Ratio

March 31, 2024

June 30, 2024

Total capital (to risk-weighted assets) $ 487,517 14.01 % $ 278,307 8.00 % $ 347,883 10.00 %

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We had no goodwill or other intangible assets at the end of any period indicated.

result, tangible shareholders’ equity to tangible assets is the same as total shareholders’ equity to total assets at the end of each of the periods indicated.

As a result, tangible shareholders’ equity to tangible assets is the same as total shareholders’ equity to total assets at the end of each of the periods indicated.

Tangible book value per share is defined as total shareholders’ equity less goodwill and other intangible assets, divided by the outstanding number of common shares at the end of the period.

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Recent Legislative and Regulatory Developments

Bank Merger Review

On March 21, 2024, the FDIC published proposed revisions to its Statement of Policy on Bank Merger Transactions that may change the way the FDIC reviews bank merger applications.

While the Federal Reserve has not issued a similar proposal, Federal Reserve Vice Chair for Supervision Michael Barr has stated that the Federal Reserve is working with the U.S.

Department of Justice to update guidelines setting forth standards for the review of the competitive impact of a bank merger transaction.

These pending regulatory revisions create uncertainty regarding the standards that the agencies may apply to their review of bank mergers and may make it more difficult and/or costly to obtain regulatory approval of a bank merger, or otherwise result in more burdensome conditions in approval orders than the agencies have previously imposed.

Additionally, the agencies may begin to apply new standards in practice before they formally finalize changes to their merger policies.

As a result, these new standards may limit banking organizations’ ability to grow through an acquisition or make it more costly or less beneficial for them to do so.

There have been no material changes to the legislative and regulatory disclosures previously disclosed in the Company’s 2023 Annual Report on Form 10-K, previously filed with the SEC.

Glossary of Acronyms, Abbreviations, and Terms

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Company’s Annual Report on Form 10-K for the year ended December 31, 2023

GNMA Government National Mortgage Association

ASC Accounting Standards Codification GSE Government Sponsored Entity

ASU Accounting Standards Update ICS Insured Cash Sweep®

Bancorp Five Star Bancorp and its subsidiary IPO Initial Public Offering

Bank Five Star Bank LM Loan modification made to borrower experiencing financial difficulty

FHLMC Federal Home Loan Mortgage Corporation

Allowance for Credit Losses

FNMA Federal National Mortgage Association

ASC Accounting Standards Codification GAAP Generally Accepted Accounting Principles in the U.S.

ASU Accounting Standards Update GNMA Government National Mortgage Association

Bancorp Five Star Bancorp and its subsidiary GSE Government Sponsored Entity

Bank Five Star Bank ICS Insured Cash Sweep®

Basel III A capital framework and rules for U.S.

banking organizations EVE

Economic Value of Equity

BOLI Bank-Owned Life Insurance NI Net Income

CDARS Certificate of Deposit Account Registry Service® NII Net Interest Income

CME Chicago Mercantile Exchange OCI Other Comprehensive Income

EPS Earnings per Share RSA Restricted Stock Award

FASB Financial Accounting Standards Board ROAA Return on Average Assets, annualized

FDIC Federal Deposit Insurance Corporation ROAE Return on Average Equity, annualized

Federal Reserve Board of Governors of the Federal Reserve System ROUA Right-of-Use Asset

FHLB Federal Home Loan Bank of San Francisco SBA U.S.

banking organizations IPO Initial Public Offering

BOLI Bank-Owned Life Insurance LM Loan modification made to borrower experiencing financial difficulty

CDARS Certificate of Deposit Account Registry Service® EVE Economic Value of Equity

Current Expected Credit Loss

NI Net Income

CME Chicago Mercantile Exchange NII Net Interest Income

Commercial Real Estate

OCI Other Comprehensive Income

Commercial and Industrial

RSA Restricted Stock Award

EPS Earnings per Share ROAA Return on Average Assets, annualized

FASB Financial Accounting Standards Board ROAE Return on Average Equity, annualized

FDIC Federal Deposit Insurance Corporation ROUA Right-of-Use Asset

Federal Reserve Board of Governors of the Federal Reserve System SBA U.S.

Small Business Administration

FHLMC Federal Home Loan Mortgage Corporation SEC Securities and Exchange Commission

FNMA Federal National Mortgage Association SOFR Secured Overnight Financing Rate

GAAP Generally Accepted Accounting Principles in the U.S.

Federal Financial Institutions Examination Council

SEC Securities and Exchange Commission

FHLB Federal Home Loan Bank of San Francisco SOFR Secured Overnight Financing Rate

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