California BanCorp CA

Previous wording

California BanCorp, formerly known as Southern California Bancorp, is a California corporation incorporated on October 2, 2019, and headquartered in Del Mar, California. On May 15, 2020, we completed a reorganization whereby California Bank of Commerce, N.A., formerly known as Bank of Southern California, N.A., became the wholly owned subsidiary of the Company. California Bank of Commerce, N.A. has a wholly-owned subsidiary, BCAL OREO1, LLC, which was incorporated on February 14, 2024. BCAL OREO1, LLC is used for holding other real estate owned and other assets acquired by foreclosure. We are regulated as a bank holding company by the Board of Governors of the Federal Reserve System (“Federal Reserve”). The Bank operates under a national charter and is regulated by the Office of Comptroller of the Currency (“OCC”).

Current wording

California BanCorp is a California corporation incorporated on October 2, 2019, and headquartered in Del Mar, California. On May 15, 2020, we completed a reorganization whereby California Bank of Commerce, N.A. became the wholly owned subsidiary of the Company. California Bank of Commerce, N.A. has a wholly-owned subsidiary, BCAL OREO1, LLC, which was incorporated on February 14, 2024. BCAL OREO1, LLC is used for holding other real estate owned and other assets acquired by foreclosure. We are regulated as a bank holding company by the Board of Governors of the Federal Reserve System (“Federal Reserve”). The Bank operates under a national charter and is regulated by the Office of Comptroller of the Currency (“OCC”).

Previous wording

We are a relationship-focused community bank and we offer a range of financial products and services to individuals, professionals, and small- to medium-sized businesses through our 14 branch offices serving Southern and Northern California. We keep a steady focus on our solution-driven, relationship-based approach to banking, providing clients accessibility to decision makers and enhancing the value of our services through strong client partnerships. Our lending products consist primarily of construction and land development loans, real estate loans, C&I loans and consumer loans, and we are a Preferred SBA Lender. Our deposit products consist primarily of demand deposit, money market, and certificates of deposit. We also provide treasury management services including online banking, cash vault, sweep accounts and lock box services.

Current wording

We are a relationship-focused community bank and we offer a range of financial products and services to individuals, professionals, and small- to medium-sized businesses through our 14 branch offices serving California. We keep a steady focus on our solution-driven, relationship-based approach to banking, providing clients accessibility to decision makers and enhancing the value of our services through strong client partnerships. Our lending products consist primarily of construction and land development loans, real estate loans, C&I loans and consumer loans, and we are a Preferred SBA Lender. Our deposit products consist primarily of demand deposit, money market, and certificates of deposit. In addition, we are a participant in the Certificate of Deposit Account Registry Service (“CDARS”), IntraFi Network Insured Cash Sweep (“ICS”), and Reich & Tang Deposit Solutions (“R&T”) networks. We receive an equal dollar amount of deposits (“reciprocal deposits”) from other participating banks in exchange for the deposits we place into the networks to fully qualify large customer deposits for FDIC insurance. We also provide treasury management services including online banking, cash vault, sweep accounts and lock box services.

Previous wording

On July 31, 2024, the Company completed its all-stock merger with CALB on the terms set forth in the Agreement and Plan of Merger and Reorganization, dated January 30, 2024, by and between the Company and CALB. At July 31, 2024, CALB had total loans of $1.43 billion , total assets of $1.91 billion, and total deposits of $1.64 billion. Immediately following the merger of CALB with and into the Company, California Bank of Commerce, a California state-chartered bank and wholly-owned subsidiary of CALB, merged with and into the Bank. Effective with these mergers, the corporate names of Southern California Bancorp and Bank of Southern California, N.A. were changed to California BanCorp and California Bank of Commerce, N.A., respectively. The merger expands the Company’s footprint into Northern California and provides an opportunity for building scale and increasing market share through complementary business models with a strong deposit base. The combined company retained all banking offices of both banks, adding California Bank of Commerce’s one full-service bank branch and its four loan production offices in the Bay Area to the Bank’s 13 full-service bank branches located throughout the Southern California region.

Current wording

On July 31, 2024, the Company completed its all-stock merger with CALB on the terms set forth in the Agreement and Plan of Merger and Reorganization, dated January 30, 2024, by and between the Company and CALB. At July 31, 2024, CALB had total loans of $1.43 billion , total assets of $1.91 billion, and total deposits of $1.64 billion. Immediately following the merger of CALB with and into the Company, California Bank of Commerce, a California state-chartered bank and wholly-owned subsidiary of CALB, merged with and into the Bank. Effective with these mergers, the corporate names of Southern California Bancorp and Bank of Southern California, N.A. were changed to California BanCorp and California Bank of Commerce, N.A., respectively. The merger expands the Company’s footprint into Northern California and provides an opportunity for building scale and increasing market share through complementary business models with a strong deposit base. The combined company retained all banking offices of both banks, adding CALB’s one full-service bank branch and its four loan production offices in Northern California to the Bank’s 13 full-service bank branches located throughout the Southern California region for a total of 14 Bank branches.

Previous wording

Under the terms of the Agreement and Plan of Merger and Reorganization, each outstanding share of CALB common stock was exchanged for the right to receive 1.590 shares of the Company’s common stock, resulting in the net issuance of approximately 13,579,454 shares, with cash (without interest) paid in lieu of fractional shares and repurchase of shares for settlement of accelerated restricted stock units. Refer to Note 2 -Business Combinations of the Notes to Consolidated Financial Statements included in Part I -Financial

Current wording

Under the terms of the Agreement and Plan of Merger and Reorganization, each outstanding share of CALB common stock was exchanged for the right to receive 1.590 shares of the Company’s common stock, resulting in the net issuance of approximately 13,579,454 shares, with cash (without interest) paid in lieu of fractional shares and repurchase of shares for settlement of accelerated restricted stock units. Refer to Note 2 -Business Combinations of the Notes to Consolidated Financial Statements included in Part I -Financial Information - Item 1. Financial Statements of this filing for more information regarding business combinations and related activity.

Previous wording

Impact of Federal Reserve Rapid Rate Hiking Cycle on the Economy and Banking Industry

Current wording

Impact of Changes in Federal Fund Interest Rate on the Economy and Banking Industry

Previous wording

Between March 2022 and September 2023, the Federal Reserve raised interest rates eleven times by an aggregate of 525 basis points, to a range between 5.25% and 5.50%, the highest level in 22 years. The rapid rate hiking cycle was in response to an increase in inflation, as measured by the Consumer Price Index, from 1.2% in November 2020 to 9.1% in July 2022, which has since moderated to 2.4% in September 2024. In its September 2024 meeting, the Federal Reserve reduced federal funds interest rates by 50 basis points to a target rate between 4.75% and 5.0%. In the statement issued after the meeting, the Federal Reserve noted it “has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance.”

Current wording

Between March 2022 and September 2023, the Federal Reserve raised interest rates 11 times by an aggregate of 525 basis points, to a range between 5.25% and 5.50%, the highest level in 22 years, in response to an increase in inflation that saw the Consumer Price Index rise to 9.1% in July 2022, which has since moderated to 2.4% in March 2025. At its September 2024 meeting, the Federal Reserve reduced the federal funds interest rate by 50 basis points, followed by two additional 25 basis point reductions in November and December 2024, for a total decrease of 100 basis points in 2024, ending the year in a range of 4.25% to 4.50%.

Previous wording

Concerns regarding a potential recession have moderated with full year U.S. 2023 GDP reported at 2.5%, slowing to 1.3% in the first quarter of 2024 and rebounding to 3.0% and 2.8% in the second and third quarters of 2024, respectively, with Moody’s full-year 2024 GDP growth forecast at 2.7%. California’s 2023 GDP increased by 2.1% from 2022 and it is forecast by Moody’s to decrease by 2.0% in 2024 and 1.3% in 2025. Despite the anticipated slowdown in California, it is still considered to have the fifth largest economy in the world. Higher interest rates and broader economic headwinds have put a damper on investment, particularly in the near term for the tech industry, which employs 8% of the state’s workforce, as tech payrolls have trended lower over the past year. The U.S. Bureau of Labor Statistics reports California’s September 2024 unemployment rate at 5.3%; it has been a range between 5.0% and 5.3% since September 2023.

Current wording

Concerns regarding a potential recession have moderated with the full year 2024 U.S. GDP reported at 2.8%, slowing to 2.4% in the fourth quarter of 2024, with Moody’s full-year baseline 2025 GDP growth forecast estimate at 1.3%. California’s 2025 GDP is forecast by Moody’s to decrease to 1.6% in 2025. Despite the anticipated slowdown in California, it is still considered to have the fourth largest economy in the world; however, higher interest rates and broader economic headwinds have put a damper on investment, particularly in the near term for the tech industry, which employs 8% of the state’s workforce, as tech payrolls have trended lower over the past year and further layoffs are expected. The U.S. Bureau of Labor Statistics reports California’s March 2025 unemployment rate at 5.3%; it has been in a range between 5.0% and 5.5% since September 2023.

Previous wording

We have a strong consolidated balance sheet with diversified deposit and loan portfolios, with very little sector or individual customer concentration, other than our CRE concentration. Our relationship-based banking model is founded on strong, ongoing relationships with our commercial clients, which represent a broad variety of industries. The recent uncertainty in the banking industry has provided us with an opportunity to attract new clients that have concerns about the banks they have been doing business with, based on the above events. We have no meaningful exposure to cryptocurrency or venture capital business models, our accumulated other comprehensive loss on our available-for-sale debt securities is manageable, and our capital position is strong. We also have elected to vigorously defend our deposit base in the face of increasing competition and deposit costs by adjusting the rates we pay on interest-bearing deposits.

Current wording

We have a strong consolidated balance sheet with diversified deposit and loan portfolios, with very little sector or individual customer concentration, other than our CRE concentration. Our relationship-based business banking model is founded on strong, ongoing relationships with our commercial clients, which represent a broad variety of industries. We have no meaningful exposure to cryptocurrency or venture capital business models, our accumulated other comprehensive loss on our available-for-sale debt securities is manageable, and our capital position is strong.

Previous wording

We have a highly skilled and experienced lending production team and credit administration team. Given our concentration in commercial real estate secured loans, we mitigate that risk through comprehensive underwriting policies, semi-annual loan level reviews, close monitoring of self-established industry and geographical and collateral type limits, periodic stress testing and continuous portfolio risk management reporting. Per the regulatory definition of commercial real estate, at September 30, 2024, our concentration of such loans represented 479% of our total risk-based capital. In addition, at September 30, 2024, total loans secured by commercial real estate under construction and land development represented 51% of our total risk-based capital. The non-performing loans for these segments per the regulatory definition of commercial real estate loans at September 30, 2024 were $18.8 million and there were $2.4 million charge-offs during the nine months ended September 30, 2024. At September 30, 2024, our only OREO, carried at $4.1 million, was from a multifamily nonaccrual loan we foreclosed on in the third quarter of 2024.

Current wording

Per the regulatory definition of commercial real estate, at March 31, 2025, our concentration of such loans represented 439% of our total risk-based capital. In addition, at March 31, 2025, total loans secured by commercial real estate under construction and land development represented 43% of our total risk-based capital.

Previous wording

Given the nature of our commercial banking business, approximately 44% of our total deposits exceeded the FDIC deposit insurance limits at September 30, 2024. However, we offer our deposit customers access to the Certificate of Deposit Account Registry Service (“CDARS”), IntraFi Network Insured Cash Sweep (“ICS”), and Reich & Tang Deposit Solutions (“R&T”) networks. We receive an equal dollar amount of deposits (“reciprocal deposits”) from other participating banks in exchange for the deposits we place into the networks to fully qualify large customer deposits for FDIC insurance. These reciprocal deposits allow us to divide customers’ deposits that exceed the FDIC insurance limits into smaller amounts, below the FDIC insurance limits, and place those deposits in other participating FDIC insured institutions with the convenience of managing all deposit accounts through our Bank. These reciprocal deposits are not required to be treated as brokered deposits up to the lesser of 20% of the Bank’s total liabilities or $5 billion. Our total reciprocal deposits increased to $839.7 million, representing 22% of total deposits and 22% of Bank’s total liabilities at September 30, 2024, compared to $274.1 million, or 14% of total deposits at December 31, 2023. The excess over 20% increased our wholesale funding to total assets ratio and net non core funding dependence ratio. These two ratios were still within the Bank's internal policy limit. In connection with the Merger, the Company acquired $442.7 million in fair value of reciprocal deposits, of which included $98.4 million in ICS, $306.6 million in R&T and $37.7 in CDARS.

Current wording

Given the nature of our commercial banking business, approximately 47% of our total deposits exceeded the FDIC deposit insurance limits at March 31, 2025.

Previous wording

We have a small investment portfolio of high-quality securities. In 2022, we deployed our excess cash by purchasing held-to-maturity debt securities that are not marked to market, which means there is no unrealized loss recorded through the accumulated other comprehensive loss if their market value is impacted by changes in interest rates. We continue to reposition our debt securities mix to protect us from an unpredictable interest rate environment. In connection with the Merger, our investment portfolio increased by $42.6 million, consisting primarily of treasury and mortgage-backed securities. At September 30, 2024, the amortized cost of our held-to-maturity debt securities was $53.4 million, or approximately 1.2% of total assets. The fair value of our available-for-sale debt securities was $159.3 million, or approximately 3.7% of total assets. The decreases in the 10-Year Treasury Bond to below 4% in the third quarter, resulted in a lower net unrealized losses on our debt securities at September 30, 2024. The 10-Year Treasury Bond was approximately 3.8% at the end of September 2024. At September 30, 2024, our accumulated other comprehensive loss, net of taxes, decreased to $2.9 million, compared to $4.5 million at December 31, 2023. If we realized all of our unrealized losses on both held-to-maturity and available-for-sale debt securities, our losses, net of taxes would be $5.6 million at September 30, 2024. The results of our stress testing on our debt security portfolio at September 30, 2024, illustrated that our losses, net of taxes on both held-to-maturity and available-for-sale debt securities would increase to $24.8 million in a 300 basis point rate increase shock scenario. If we realized all of these unrealized losses, the Bank would continue to exceed all regulatory capital requirements necessary to be considered well capitalized.

Current wording

We have a small investment portfolio of high-quality securities. At March 31, 2025, the amortized cost of our held-to-maturity debt securities was $53.2 million, or approximately 1.3% of total assets. The fair value of our available-for-sale debt securities was $131.6 million, or approximately 3.3% of total assets. The 10-Year Treasury Bond was approximately 4.2% at the end of March 31, 2025. The decreases in the 10-Year Treasury Bond in the first quarter, resulted in a lower net unrealized losses on our debt securities at March 31, 2025. At March 31, 2025, our accumulated other comprehensive loss, net of taxes, decreased to $4.4 million, compared to $6.6 million at December 31, 2024. If we realized all of our unrealized losses on both held-to-maturity and available-for-sale debt securities, our losses, net of taxes would be $8.5 million at March 31, 2025. The results of our stress testing on our debt security portfolio at March 31, 2025, illustrated that our losses, net of taxes on both held-to-maturity and available-for-sale debt securities would increase to $27.5 million in a 300 basis point rate increase shock scenario. If we realized all of these unrealized losses, the Bank would continue to exceed all regulatory capital requirements necessary to be considered well capitalized.

Previous wording

We continue to monitor macroeconomic variables related to increasing interest rates, inflation, and concerns regarding an economic downturn, and its potential effects on our business, customers, employees, communities and markets. The following challenges could have an impact on our business, consolidated financial condition or near- or longer-term consolidated results of operations:

Current wording

We continue to monitor macroeconomic variables related to changes in interest rates, inflation, and concerns regarding an economic downturn, and its potential effects on our business, customers, employees, communities and markets. The following challenges could have an impact on our business, consolidated financial condition or near- or longer-term consolidated results of operations:

Previous wording

•Liquidity stresses to maintain sufficient levels of high-quality liquid assets and access to borrowing lines.

Current wording

•Liquidity stresses to maintain sufficient levels of high-quality liquid assets and access to borrowing lines; and

Previous wording

We have chosen accounting policies that it believes are appropriate to accurately and fairly report its operating results and financial position, and we apply those accounting policies in a consistent manner. The Significant Accounting Policies are summarized in Note 1 -Basis of Presentation and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Part I -Financial Information - Item 1. Financial Statements included in the 2023 Annual Report on Form 10-K.

Current wording

We have chosen accounting policies that we believe are appropriate to accurately and fairly report our operating results and financial position, and we apply those accounting policies in a consistent manner. The Significant Accounting Policies are summarized in Note 1 -Basis of Presentation and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Part I -Financial Information - Item 1. Financial Statements included in the 2024 Annual Report on Form 10-K.

Previous wording

(3) Adjusted net (loss) income is computed by adjusting net (loss) income for the tax-effected one-time initial provision for credit losses related to non-purchased credit deteriorated (“non-PCD”) loans and unfunded loan commitments and tax-effected merger related expense adjustments for the periods indicated.

Current wording

(3) Adjusted net income is computed by adjusting net income for the tax-effected merger related expense adjustments for the periods indicated.

Previous wording

(6) Return on average tangible common equity is computed by dividing net (loss) income by average tangible common equity. Adjusted return on average tangible common equity is computed by dividing adjusted net income by average tangible common equity.

Current wording

(6) Return on average tangible common equity is computed by dividing net income by average tangible common equity. Adjusted return on average tangible common equity is computed by dividing adjusted net income by average tangible common equity.

Previous wording

The comparability of our financial information is affected by the merger with CALB. We completed this Merger on July31, 2024. This merger has been accounted for using the acquisition method of accounting and, accordingly, CALB’s operating results have been included in the consolidated financial statements for periods beginning after July 31, 2024. Refer to Note 2 -Business Combinations of the Notes to Consolidated Financial Statements included in Part I -Financial Information - Item 1. Financial Statements of this filing for more information regarding business combinations and related activity.

Current wording

The comparability of our financial information is affected by the merger with CALB. We completed this Merger on July 31, 2024. This merger has been accounted for using the acquisition method of accounting and, accordingly, CALB’s operating results have been included in the consolidated financial statements for periods beginning after July 31, 2024. Refer to Note 2 -Business Combinations of the Notes to Consolidated Financial Statements included in Part I -Financial Information - Item 1. Financial Statements of this filing for more information regarding business combinations and related activity.

Previous wording

(1)Total loans are net of deferred loan origination fees/costs and discounts/premiums, and include average balances of loans held for sale and nonperforming loans. Interest income includes accretion of net deferred loan fees and net discounts on acquired loans of $4.7 million, $386 thousand and $550 thousand for the three months ended September 30, 2024, June 30, 2024, and September 30, 2023, respectively.

Current wording

(1)Total loans are net of deferred loan origination fees/costs and discounts/premiums, and include average balances of loans held for sale and nonperforming loans. Interest income includes accretion of net deferred loan fees and net discounts on acquired loans of $6.1 million, $6.7 million and $604 thousand for the three months ended March 31, 2025, December 31, 2024, and March 31, 2024, respectively.

Previous wording

(3)Average noninterest-bearing deposits represent 33.61%, 34.05% and 38.77% of average total deposits for the three months ended September 30, 2024, June 30, 2024, and September 30, 2023, respectively.

Current wording

(3)Average noninterest-bearing deposits represent 37.37%, 36.27% and 34.35% of average total deposits for the three months ended March 31, 2025, December 31, 2024, and March 31, 2024, respectively.

Previous wording

Net interest income for the third quarter of 2024 was $36.9 million, compared with $21.0 million in the prior quarter. The increase in net interest income was primarily due to a $22.3 million increase in total interest and dividend income, partially offset by a $6.3 million increase in total interest expense in the third quarter of 2024 as compared to the prior quarter. The increase in interest income and interest expense primarily relates to increases in total average interest-earning assets and total interest-bearing liabilities from the Merger during the quarter. During the third quarter of 2024, loan interest income increased $18.5 million, of which $4.1 million was related to accretion income from the net purchase accounting discounts on acquired loans, total debt securities income increased $458 thousand, and interest and dividend income from other financial institutions decreased $3.3 million. The increase in interest income was primarily driven by the mix of interest-earning assets added by the Merger and the impact of the accretion and amortization of fair value marks. Average total interest-earning assets increased $1.17 billion, the result of a $900.7 million increase in average total loans, a $114.2 million increase in average deposits in other financial institutions, a $25.1 million increase in average total debt securities, a $124.1 million increase in average Fed funds sold/resale agreements and a $7.5 million increase in average restricted stock investments and other bank stock. The increase in interest expense for the third quarter of 2024 was primarily due to a $6.0 million increase in interest expense on interest-bearing deposits, the result of a $763.7 million increase in average interest-bearing deposits, coupled with a $34.3 million increase in average subordinated debt, partially offset by a 6 basis point decrease in average interest-bearing deposit costs and a $378 thousand decrease in interest expense on Federal Home Loan Bank (“FHLB”) borrowings, the result of a $26.8 million decrease in average FHLB borrowings in the third quarter of 2024.

Current wording

Net interest income for the first quarter of 2025 was $42.3 million, compared with $44.5 million in the prior quarter. The decrease in net interest income was primarily due to a $5.7 million decrease in total interest and dividend income, partially offset by a $3.4 million decrease in total interest expense in the first quarter of 2025, as compared to the prior quarter. During the first quarter of 2025, loan interest income decreased by $4.1 million, including a decrease of $421 thousand of accretion income from the net purchase accounting discounts on acquired loans, total debt securities income decreased $174 thousand, and interest and dividend income from other financial institutions decreased $1.5 million. The decrease in interest income was mainly due to decreases in average loan balances and average deposits in other financial institutions. Average total interest-earning assets decreased $160.8 million in the first quarter of 2025, the result of a $75.2 million decrease in average total loans, an $8.5 million decrease in average total debt securities, a $105.5 million decrease in average deposits in other financial institutions, partially offset by a $27.1 million increase in average Fed funds sold/resale agreements and a $1.3 million increase in average restricted stock investments and other bank stock. The decrease in interest expense for the first quarter of 2025 was primarily due to a $3.4 million decrease in interest expense on interest-bearing deposits, the result of a $151.1 million decrease in average interest-bearing deposits and a 39 basis point decrease in average interest-bearing deposit costs in the first quarter of 2025.

Previous wording

Cost of funds for the third quarter of 2024 was 2.19%, a decrease of 2 basis points from 2.21% in the prior quarter. The decrease was primarily driven by a 6 basis point decrease in the cost of average interest-bearing deposits, and an increase in average noninterest-bearing deposits, partially offset by an increase of 187 basis points in the cost of total borrowings, which was driven primarily by the amortization expense of $373 thousand, or 281 basis points from the purchase accounting discounts on acquired subordinated debt. Average noninterest-bearing demand deposits increased $373.8 million to $1.03 billion and represented 33.6% of total average deposits for the third quarter of 2024, compared with $658.0 million and 34.1%, respectively, in the prior quarter; average interest-bearing deposits increased $763.7 million to $2.04 billion during the third quarter of 2024. The total cost of deposits in the third quarter of 2024 was 2.09%, a decrease of 3 basis points from 2.12% in the prior quarter. The cost of total interest-bearing deposits decreased primarily due to the Company’s deposit repricing strategy and paying off high cost brokered deposits in the third quarter of 2024.

Current wording

Cost of funds for the first quarter of 2025 was 1.72%, a decrease of 27 basis points from 1.99% in the prior quarter. The decrease was primarily driven by a 39 basis point decrease in the cost of average interest-bearing deposits, partially offset by an increase of 9 basis points in the cost of total borrowings, which was driven primarily by the amortization expense of $559 thousand from the purchase accounting discounts on acquired subordinated debt which increased the cost on total borrowings by 7 basis points. Average noninterest-bearing demand deposits decreased $27.7 million to $1.26 billion and represented 37.4% of total average deposits for the first quarter of 2025, compared with $1.28 billion and 36.3%, respectively, in the prior quarter; average interest-bearing deposits decreased $151.1 million to $2.10 billion during the first quarter of 2025. The total cost of deposits in the first quarter of 2025 was 1.59%, a decrease of 28 basis points from 1.87% in the prior quarter. The cost of total interest-bearing deposits decreased primarily due to the Company’s deposit repricing strategy and the ongoing pay off of high cost brokered deposits in the first quarter of 2025.

Previous wording

Net interest income for the three months ended September 30, 2024 was $36.9 million, compared to $23.3 million for the three months ended September 30, 2023. The increase in interest income primarily relates to increases in total average interest-earning assets due to the Merger during the quarter. The $13.7 million increase in net interest income was due to higher average balances and yields on interest-earning assets, partially offset by higher average balances and costs of interest-bearing liabilities.

Current wording

Net interest income for the three months ended March 31, 2025 was $42.3 million, compared to $20.5 million for the three months ended March 31, 2024. The increase in interest income primarily relates to increases in total average interest-earning assets due to the Merger during the third quarter of 2024. The $21.8 million increase in net interest income was due to higher average balances and yields on interest-earning assets, partially offset by higher average balances and costs of interest-bearing liabilities.

Previous wording

Net interest margin for the three months ended September 30, 2024 was 4.43%, compared with 4.23% for the same 2023 period. The 20 basis point increase was primarily related to a 77 basis point increase in the total average interest-earning assets yield resulting from higher market interest rates, accretion income from the net purchase accounting discounts on acquired loans and a change in our average interest-earning asset mix, partially offset by a 57 basis point increase in the cost of funds. The yield on total average earning assets during the three months ended September 30, 2024 was 6.49%, compared with 5.72% for the same 2023 period. The yield on average loans during the three months ended September 30, 2024 was 6.79%, an increase of 82 basis points from 5.97% for the same 2023 period. Accretion income from the net purchase accounting discounts on acquired loans was $4.1 million and the amortization expense impact on interest expense was $278 thousand, which increased the net interest margin by 46 basis points in the third quarter of 2024.

Current wording

Net interest margin for the three months ended March 31, 2025 was 4.65%, compared with 3.80% for the same 2024 period. The 85 basis point increase was primarily related to a 47 basis point increase in the total average interest-earning assets yield resulting from higher accretion income from the net purchase accounting discounts on acquired loans and a change in our average interest-earning asset mix, coupled with a 45 basis point decrease in the cost of funds. The yield on total average earning assets during the three months ended March 31, 2025 was 6.26%, compared with 5.79% for the same 2024 period. The yield on average loans during the three months ended March 31, 2025 was 6.61%, an increase of 59 basis points from 6.02% for the same 2024 period. Accretion income from the net purchase accounting discounts on acquired loans was $5.7 million and the amortization expense impact on interest expense was $526 thousand, the combination of which increased the net interest margin by 57 basis points in the first quarter of 2025.

Previous wording

During the three months ended September 30, 2024, total interest income increased $22.6 million, comprised of a $18.6 million increase in total loan interest income, of which $4.1 million was related to accretion income from the net purchase accounting discounts on acquired loans, a $692 thousand increase in total debt securities income, and a $3.4 million increase interest and dividend income from other financial institutions and other interest-earning assets. The increase in interest income was primarily driven by the mix of interest-earning assets added by the Merger and the impact of the accretion and amortization of fair value loan marks. Average interest-earning assets increased $1.13 billion, resulting primarily from a $859.2 million increase in average total loans, a $111.2 million increase in average deposits in other financial institutions, a $31.9 million increase in total average debt securities, a $8.2 million increase in average restricted stock investments and other bank stock, and a $122.5 million increase in average Fed fund sold/resale agreements.

Current wording

During the three months ended March 31, 2025, total interest income increased $25.6 million, comprised of a $22.1 million increase in total loan interest income, of which $5.7 million was related to accretion income from the net purchase accounting discounts on acquired loans, a $310 thousand increase in total debt securities income, and a $3.1 million increase in interest and dividend income from other financial institutions and other interest-earning assets. The increase in interest income was primarily driven by the mix of interest-earning assets added by the Merger and the impact of the accretion and amortization of fair value loan marks. Average interest-earning assets increased $1.51 billion, resulting primarily from a $1.20 billion increase in average total loans, a $262.5 million increase in average deposits in other financial institutions, a $12.4 million increase in total average debt securities, a $15.2 million increase in average restricted stock investments and other bank stock, and a $20.6 million increase in average Fed fund sold/resale agreements.

Previous wording

During the three months ended September 30, 2024, total interest expense increased by $9.0 million to $17.2 million, comprised primarily of a $8.4 million increase in interest on interest-bearing deposits due primarily to an increase in average interest-bearing liabilities resulting from the Merger, coupled with repricing deposits due to peer bank deposit competition.

Current wording

During the three months ended March 31, 2025, total interest expense increased by $3.8 million to $14.6 million, comprised primarily of a $3.4 million increase in interest expense on interest-bearing deposits due primarily to an increase in average interest-bearing liabilities resulting from the Merger, partially offset by a decrease in the cost of interest- bearing deposits resulting from our deposit repricing strategy and the ongoing pay off of high cost brokered deposits.

Previous wording

Average total borrowings increased $23.3 million to $52.9 million for the three months ended September 30, 2024 resulting from an increase of $34.4 million in average subordinated debt from the $50.8 million in fair value of subordinated debt acquired in the Merger, partially offset by a $11.1 million decrease in average FHLB advances. The average cost of total borrowings was 7.71% for the three months ended September 30, 2024, a 189 basis point increase from 5.82% for the same 2023 period.

Current wording

Average total borrowings increased $1.6 million to $70.0 million for the three months ended March 31, 2025 resulting from an increase of $52.1 million in average subordinated debt from the $50.8 million in fair value of subordinated debt acquired in the Merger, partially offset by a $50.6 million decrease in average FHLB advances. The average cost of total borrowings was 8.06% for the three months ended March 31, 2025, a 231 basis point increase from 5.75% for the same 2024 period.

Previous wording

Total noninterest income during the three months ended September 30, 2024 was $1.2 million, an increase of $359 thousand compared to total noninterest income of $815 thousand for the same 2023 period. The increase was due primarily to the impact of the Merger, which resulted in increases in service charges and fees on deposit accounts, bank owned life insurance income, and servicing and related income on loans; offset by the $613 thousand valuation allowance on OREO.

Current wording

Total noninterest income during the three months ended March 31, 2025 was $2.6 million, an increase of $1.2 million compared to total noninterest income of $1.4 million for the same 2024 period. The increase was due primarily to the impact of the Merger, which resulted in increases in service charges and fees on deposit accounts, interchange and ATM income, bank owned life insurance income, and servicing and related income on loans.

Previous wording

Total noninterest expense during the nine months ended September 30, 2024 was $71.7 million, an increase of $27.3 million compared with total noninterest expense of $44.4 million for the same 2023 period. The increase was largely due to increases for the Merger, including increases in merger and related expenses, salaries and employee benefits, other real estate owned expenses, core deposit intangible amortization, and other expenses.

Current wording

Total noninterest expense during the three months ended March 31, 2025 was $24.9 million, an increase of $9.9 million compared with total noninterest expense of $15.0 million for the same 2024 period. The increase was largely due to increases related to the Merger, including increases in salaries and employee benefits, occupancy and equipment, data processing and communications, core deposit intangible amortization, and other expenses, partially offset by lower merger and related expenses.

Previous wording

Salaries and employee benefits were $33.8 million during the nine months ended September 30, 2024, compared to $29.7 million during the prior year. The $4.1 million increase in salaries and benefits was driven primarily by higher headcount as a result of the Merger. The average FTE employees for the nine months ended September 30, 2024 was 236 compared to 207 FTE employees for the same 2023 period. The three months ended

Current wording

Salaries and employee benefits were $15.9 million during the three months ended March 31, 2025, compared to $9.6 million during the prior year. The $6.3 million increase in salaries and benefits was driven primarily by higher headcount as a result of the Merger. The average FTE employees for the three months ended March 31, 2025 was 290 compared to 200 FTE employees for the same 2024 period.

Previous wording

Other expenses were $1.7 million during the three months ended September 30, 2024, compared to $1.0 million for the same 2023 period. The $688 thousand increase was due primarily to the increases in loan related expenses, customer service related expenses, travel expenses and insurance expenses as a result of completing the Merger.

Current wording

Other expenses were $2.0 million during the three months ended March 31, 2025, compared to $1.0 million for the same 2024 period. The $1.0 million increase was due primarily to the increases in loan related expenses, customer service related expenses, travel expenses and insurance expenses primarily as a result of the Merger.

Previous wording

Our efficiency ratio (non-GAAP) for the three months ended September 30, 2024 was 98.9%, compared to 85.7% for the three months ended June 30, 2024. Excluding the merger and related expenses of $14.6 million, the efficiency ratio (non-GAAP) for the three months ended September 30, 2024 would have been 60.5%.

Current wording

Our efficiency ratio (non-GAAP) for the three months ended March 31, 2025 and 2024 was 55.6% and 68.4%, respectively. For the three months ended March 31, 2024, excluding the merger and related expenses of $549 thousand, the efficiency ratio (non-GAAP 1) would have been 65.9%.

Previous wording

Income tax benefit for the three months ended September 30, 2024 was $6.1 million, compared to income tax expense of $2.8 million for the same 2023 period. The effective rate was 26.9% during the three months ended September 30, 2024, compared to 30.2% for the same 2023 period. The decrease in the effective tax rate between periods was primarily due to the impact of the non-tax deductible portion of the merger expenses and the vesting and exercise of equity awards combined with changes in the Company's stock price over time, partially offset by the impact of excess executive compensation.

Current wording

Income tax expense for the three months ended March 31, 2025 was $6.8 million, compared to income tax expense of $2.3 million for the same 2024 period. The effective rate was 28.8% during the three months ended March 31, 2025, compared to 32.0% for the same 2024 period. The decrease in the effective tax rate between periods was primarily due to the impact of the non-tax deductible portion of the merger expenses and the vesting and exercise of equity awards combined with changes in the Company's stock price over time.

Previous wording

Shareholders’ equity was $498.1 million at September 30, 2024, an increase of $209.9 million from $288.2 million at December 31, 2023. The increase in shareholders’ equity was primarily driven by $214.4 million shares issued in connection with closing the Merger, $4.7 million related to share-based compensation activity, a $1.6 million decrease in net of tax unrealized losses on available-for-sale debt securities during the period, partially offset by $11.3 million of net loss during the nine months ended September 30, 2024.

Current wording

Shareholders’ equity was $531.4 million at March 31, 2025, an increase of $19.5 million from $511.8 million at December 31, 2024. The increase in shareholders’ equity was primarily driven by $16.9 million of net income, $1.5 million related to stock-based compensation activity, and a $2.2 million decrease in net of tax unrealized losses on available-for-sale debt securities during the three months ended March 31, 2025.

Previous wording

Our debt securities portfolio consists of both held-to-maturity and available-for-sale securities aggregating $212.7 million and $183.7 million at September 30, 2024 and December 31, 2023, respectively. The $29.0 million increase in debt securities was primarily related to the $42.6 million in debt securities acquired in the Merger, partially offset by paydowns, sales, maturities and calls. Our held-to-maturity debt securities and available-for-sale debt securities represented 1.22% and 3.65%, respectively, of total assets at September 30, 2024, compared to 2.27% and 5.51%, respectively, at December 31, 2023.

Current wording

Our debt securities portfolio consists of both held-to-maturity and available-for-sale securities aggregating $184.8 million and $195.3 million at March 31, 2025 and December 31, 2024, respectively. The $10.5 million decrease in debt securities was primarily related to paydowns, maturities and calls. Our held-to-maturity debt securities and available-for-sale debt securities represented 1.34% and 3.30%, respectively, of total assets at March 31, 2025, compared to 1.32% and 3.52%, respectively, at December 31, 2024.

Previous wording

During the three and nine months ended September 30, 2024, there were no transfers between held-to-maturity and available-for-sale debt securities.

Current wording

During the three months ended March 31, 2025, there were no transfers between held-to-maturity and available-for-sale debt securities.

Previous wording

At September 30, 2024, we had 61 held-to-maturity debt securities in a gross unrealized loss position with an amortized cost basis of $53.4 million with pre-tax unrealized losses of $3.9 million, compared to 58 held-to- maturity debt securities with an amortized cost basis of $51.5 million with pre-tax unrealized losses of $3.2 million at December 31, 2023. The effective duration of the held-to-maturity debt securities was 6.22 years and 5.58 years at September 30, 2024 and December 31, 2023, respectively. We have the intent and ability to hold the securities classified as held to maturity until they mature, at which time we will receive full value for the securities.

Current wording

At March 31, 2025, we had 61 held-to-maturity debt securities in a gross unrealized loss position with an amortized cost basis of $53.2 million with pre-tax unrealized losses of $5.9 million, compared to 61 held-to-maturity debt securities with an amortized cost basis of $53.3 million with pre-tax unrealized losses of $5.5 million at December 31, 2024. The effective duration of the held-to-maturity debt securities was 6.43 years and 6.52 years at March 31, 2025 and December 31, 2024, respectively. We have the intent and ability to hold the securities classified as held to maturity until they mature, at which time we will receive full value for the securities.

Previous wording

All held-to-maturity debt securities were municipal securities, and historically have had limited credit loss experience. At September 30, 2024 and December 31, 2023, the total fair value of taxable municipal and tax exempt bank-qualified municipal securities were $483 thousand and $478 thousand, respectively, and $49.0 million and $50.0 million, respectively. At September 30, 2024 and December 31, 2023, the total held-to-maturity debt securities rated AA and above was $46.2 million and $47.0 million, respectively, and rated AA- was $3.3 million and $3.4 million, respectively. Accordingly, we applied a zero credit loss assumption for these securities and no allowance for credit loss was recorded as of September 30, 2024 and December 31, 2023.

Current wording

All held-to-maturity debt securities were municipal securities, and historically have had limited credit loss experience. At March 31, 2025 and December 31, 2024, the total fair value of taxable municipal and tax exempt bank-qualified municipal securities were $477 thousand and $463 thousand, respectively, and $46.9 million and $47.4 million, respectively. At March 31, 2025 and December 31, 2024, the total held-to-maturity debt securities rated AA and above was $44.2 million and $44.7 million, respectively, and rated AA- was $3.1 million and $3.2 million, respectively. Accordingly, we applied a zero credit loss assumption for these securities and no allowance for credit loss was recorded as of March 31, 2025 and December 31, 2024.

Previous wording

The estimated fair value of available-for-sale debt securities was $159.3 million at September 30, 2024, an increase of $29.3 million, from $130.0 million at December 31, 2023. The increase was primarily due to $42.6 million in debt securities acquired in the Merger, purchases of $2.0 million, and fair value market adjustments of

Current wording

The estimated fair value of available-for-sale debt securities was $131.6 million at March 31, 2025, a decrease of $10.4 million, from $142.0 million at December 31, 2024. The decrease was primarily due to maturities of $5.0 million, and principal reductions and amortization of discounts and premiums aggregating to $8.6 million, partially offset by an increase in fair value market adjustments of $3.2 million,

Previous wording

At September 30, 2024, we had 70 available-for-sale debt securities in a gross unrealized loss position with an amortized cost basis and fair value of $77.8 million and $72.2 million, respectively, with pre-tax unrealized losses of $5.6 million, compared to 76 available-for-sale debt securities with an amortized cost basis and fair value of $100.7 million and $93.5 million, respectively with pre-tax unrealized holding losses of $7.1 million at December 31, 2023. The net of tax unrealized loss on available-for-sale debt securities is reflected in accumulated other comprehensive loss. The effective duration of this portfolio was 4.14 years and 5.13 years at September 30, 2024 and December 31, 2023, respectively. We do not have the current intent to sell these available-for-sale debt securities with a fair value below amortized cost, and it is more likely than not that we will not be required to sell such securities prior to the recovery of their amortized cost basis. The issuers of these securities have not, to our knowledge, established any cause for default on these securities. As a result, we expect to recover the entire amortized cost basis of these securities.

Current wording

At March 31, 2025, we had 84 available-for-sale debt securities in a gross unrealized loss position with an amortized cost basis and fair value of $113.5 million and $106.8 million, respectively, with pre-tax unrealized losses of $6.7 million, compared to 89 available-for-sale debt securities with an amortized cost basis and fair value of $124.2 million and $114.6 million, respectively with pre-tax unrealized holding losses of $9.6 million at December 31, 2024. The net of tax unrealized loss on available-for-sale debt securities is reflected in accumulated other comprehensive loss. The effective duration of this portfolio was 4.73 years and 4.60 years at March 31, 2025 and December 31, 2024, respectively. We do not have the current intent to sell these available-for-sale debt securities with a fair value below amortized cost, and it is more likely than not that we will not be required to sell such securities prior to the recovery of their amortized cost basis. The issuers of these securities have not, to our knowledge, established any cause for default on these securities. As a result, we expect to recover the entire amortized cost basis of these securities.

Previous wording

When market interest rates increase, bond prices tend to fall and, consequently, the fair value of our securities may also decrease. Increases in longer-term market interest rates during 2023 and into 2024 have resulted in higher net unrealized losses in our debt securities. There may be further net unrealized losses on our debt securities classified as available–for-sale, which would negatively affect our total and tangible shareholders’ equity.

Current wording

When market interest rates decrease, bond prices tend to increase and, consequently, the fair value of our securities may also increase. The 10-Year Treasury Bond was approximately 4.2% at the end of March 31, 2025. The decreases in the 10-Year Treasury Bond in the first quarter, resulted in a lower net unrealized losses on our debt securities at March 31, 2025. The changes in the net unrealized losses on our available-for-sale debt securities would affect our total and tangible shareholders’ equity.