UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

T QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

For the quarterly period ended June 30, 2023

or

£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission file number 001-41684

SOUTHERN CALIFORNIA BANCORP

(Exact name of registrant as specified in its charter)

California	84-3288397
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
12265 El Camino Real, Suite 210 San Diego, California	92130
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (844) 265-7622

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, no par value per share	BCAL	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                 T Yes £ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).                             T Yes £ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	T	Smaller reporting company	T
		Emerging growth company	T

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. T

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). £ Yes T No

As of August 4, 2023, the registrant had 18,302,373 outstanding shares of common stock.

1

SOUTHERN CALIFORNIA BANCORP

FORM 10-Q QUARTERLY REPORT

JUNE 30, 2023

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	5
	Consolidated Balance Sheets	5
	Consolidated Statements of Operations	6
	Consolidated Statements of Comprehensive Income (Loss)	7
	Consolidated Statements of Changes in Shareholders' Equity	8
	Consolidated Statements of Cash Flows	10
	Notes to Consolidated Financial Statements	12
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	46
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	88
Item 4.	Controls and Procedures	90
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	90
Item 1A.	Risk Factors	91
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	91
Item 3.	Defaults Upon Senior Securities	91
Item 4.	Mine Safety Disclosures	91
Item 5.	Other Information	91
Item 6.	Exhibits	91
SIGNATURES		93

2

Cautionary Note Regarding Forward-Looking Statements

Certain statements contained in this quarterly report are forward-looking statements. These forward-looking statements include statements relating to our projected growth, anticipated future financial performance, financial condition, credit quality and management’s long-term performance goals, as well as statements relating to the anticipated effects on our business, financial condition and results of operations from expected developments or events, our business, growth and strategies. These statements, which are based on certain assumptions and estimates and describe our future plans, results, strategies and expectations, can generally be identified by the use of the words and phrases “may,” “will,” “should,” “could,” “would,” “goal,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target,” “aim,” “predict,” “continue,” “seek,” “projection” and other variations of such words and phrases and similar expressions.

We have made the forward-looking statements in this quarterly report based on assumptions and estimates that we believe to be reasonable in light of the information available to us at this time. However, these forward-looking statements are subject to significant risks and uncertainties, and could be affected by many factors. Factors that could have a material adverse effect on our business, consolidated financial condition, consolidated results of operations and future growth prospects include, but are not limited to, the following:

•volatility and uncertainty facing the banking industry following the recent failures of financial institutions;

•challenges related to increasing interest rates and the impact on our consolidated financial condition and consolidated results of operations;

•our ability to manage our liquidity;

•business and economic conditions nationally, regionally and in our target markets, particularly in Southern California, which is the principal area in which we operate;

•the lack of soundness of other financial institutions;

•the possibility that we may be required to pay special assessments or higher premiums for deposit insurance;

•disruptions to the credit and financial markets, either nationally, regionally or locally;

•our dependence on Bank of Southern California, N.A. (the “Bank”) for dividends;

•concentration of our loan portfolio in commercial loans, which loans may be dependent on the borrower’s cash flows for repayment and, to some extent, the local and regional economy;

•concentration of our loan portfolio in loans secured by real estate and changes in the prices, values and sales volumes of commercial and residential real estate;

•risks related to construction and land development lending, which involves estimates that may prove to be inaccurate and collateral that may be difficult to sell following foreclosure;

•risks related to Small Business Administration (“SBA”) lending, including the risk that we could lose our designation as an SBA Preferred Lender;

•risks related to consumer loans, the repayment of which may be dependent on the borrower’s cash flows and may be unsecured;

•concentration of our business activities within the geographic area of Southern California;

•credit risks in our loan portfolio, the adequacy of our reserves for credit losses and the appropriateness of our methodology for calculating such allowance for credit losses;

•the impact of the COVID-19 pandemic;

•the impact of natural disasters, including earthquakes, floods, droughts, and fires, particularly in Southern California;

•our ability to manage the growth of our business and organization;

3

•risks related to any future acquisitions, including transaction expenses, the potential distraction of management resources and the possibility that we will not realize anticipated benefits from any future acquisitions;

•competition in the banking industry, nationally, regionally or locally;

•failure to maintain adequate liquidity and regulatory capital and comply with evolving federal and state banking regulations;

•inability of our risk management framework to effectively mitigate credit risk, interest rate risk, liquidity risk, price risk, compliance risk, technology risk, operational risk, strategic risk and reputational risk;

•our dependence on our management and our ability to attract and retain experienced and talented bankers;

•failure to keep pace with technological change or difficulties when implementing new technologies;

•system failures, data security breaches, including as a result of cyber-attacks, or failures to prevent breaches of our network security;

•our reliance on communications and information systems to conduct business and reliance on third parties and their affiliates to provide key components of business structure, any disruptions of which could interrupt operations or increase the costs of doing business;

•fraudulent and negligent acts by our customers, employees or vendors;

•our ability to prevent or detect all errors or fraud with our financial reporting controls and procedures;

•increased loan losses or impairment of goodwill and other intangibles;

•an inability to raise necessary capital to fund our growth strategy, operations, or to meet increased minimum regulatory capital levels;

•the sufficiency of our capital, including sources of such capital and the extent to which capital may be used or required;

•provisions of our charter documents and federal banking laws that could deter or delay an acquisition of us or changes in our management, even if beneficial to our shareholders;

•the institution and outcome of litigation and other legal proceedings to which we become subject;

•the impact of recent and future legislative and regulatory changes;

•examinations by our regulatory authorities, including the possibility that the regulatory authorities may, among other things, require us to increase our allowance for credit losses, slow the growth of our commercial real estate loans or write-down assets, or otherwise impose restrictions or conditions on our operations, including, but not limited to, our ability to acquire or be acquired;

•our status as an emerging growth company and a smaller reporting company, which reduces our disclosure obligations under the federal securities laws compared to other publicly traded companies;

•the impact of current and future governmental monetary and fiscal policies; and

•other factors and risks described in this quarterly report and from time to time in other documents that we

file or furnish with the Securities and Exchange Commission (“SEC”), including, without limitation, the risks described under Item 1A. Risk Factors in our Registration Statement on Form 10, as amended, that was declared effective by the SEC on May 10, 2023.

Because of these risks and other uncertainties, our actual results, performance or achievement, or industry results, may be materially different from the anticipated or estimated results discussed in this filing. Our past results of operations are not necessarily indicative of our future results. You should not rely on any forward-looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which they were made, as predictions of future events. We undertake no obligation to update these forward-looking statements, even though circumstances may change in the future, except as required under federal securities law. We qualify all of our forward-looking statements by these cautionary statements.

4

PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

SOUTHERN CALIFORNIA BANCORP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)

(Unaudited)

	June 30, 2023		December 31, 2022
ASSETS
Cash and due from banks	$	34,632	$	60,295
Federal funds and interest-bearing balances	69,995		26,465
Total cash and cash equivalents	104,627		86,760
Debt securities available-for-sale, at fair value	119,875		112,580
Debt securities held-to-maturity, at amortized cost (fair value of $48,563 and $47,906 at June 30, 2023 and December 31, 2022)	53,782		53,946
Loans held for sale, at lower of cost or fair value	1,062		9,027
Loans held for investment	1,913,353		1,897,773
Allowance for credit losses	(22,502)		(17,099)
Loans held for investment, net	1,890,851		1,880,674
Restricted stock, at cost	15,997		14,543
Premises and equipment, net	13,919		14,334
Right-of-use asset	7,853		8,607
Goodwill	37,803		37,803
Core deposit intangible, net	1,403		1,584
Bank owned life insurance	38,428		37,972
Deferred taxes, net	11,666		10,699
Accrued interest receivable and other assets	11,917		15,398
Total assets	$	2,309,183	$	2,283,927
LIABILITIES
Noninterest-bearing demand	$	776,895	$	923,899
Interest-bearing NOW accounts	354,088		209,625
Money market and savings accounts	660,654		668,602
Time deposits	189,271		129,779
Total deposits	1,980,908		1,931,905
Borrowings	32,818		67,770
Operating lease liability	10,394		11,055
Accrued interest payable and other liabilities	11,314		12,842
Total liabilities	2,035,434		2,023,572
Commitments and contingencies (Note 11)
SHAREHOLDERS’ EQUITY
Preferred stock - 50,000,000 shares authorized, no par value; no shares issued and outstanding at June 30, 2023 and December 31, 2022	—		—
Common stock - 50,000,000 shares authorized, no par value; issued and outstanding 18,296,365 and 17,940,283 at June 30, 2023 and December 31, 2022	220,702		218,280
Retained earnings	59,607		48,516
Accumulated other comprehensive loss - net of taxes	(6,560)		(6,441)
Total shareholders’ equity	273,749		260,355
Total liabilities and shareholders’ equity	$	2,309,183	$	2,283,927

The accompanying notes are an integral part of these consolidated financial statements.

5

SOUTHERN CALIFORNIA BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
INTEREST AND DIVIDEND INCOME
Interest and fees on loans	$	27,987	$	19,947	$	55,006	$	37,678
Interest on debt securities	833		476		1,564		730
Interest on tax-exempted debt securities	456		325		943		401
Interest on deposits at other financial institutions	765		583		1,509		787
Interest and dividends on other interest-earning assets	219		253		447		473
Total interest and dividend income	30,260		21,584		59,469		40,069
INTEREST EXPENSE
Interest on NOW, money market and savings accounts	4,730		264		7,633		546
Interest on time deposits	1,531		81		2,506		179
Interest on borrowings	573		303		1,012		613
Total interest expense	6,834		648		11,151		1,338
Net interest income	23,426		20,936		48,318		38,731
(Reversal of) provision for credit losses	(15)		1,796		187		3,646
Net interest income after provision for credit losses	23,441		19,140		48,131		35,085
NONINTEREST INCOME
Service charges and fees on deposit accounts	333		175		595		464
Interchange and ATM income	197		210		374		408
Gain on sale of loans	77		767		885		816
Income from bank owned life insurance	232		215		455		1,047
Servicing and related income on loans, net	87		25		162		94
Gain on sale of available-for-sale debt securities	34		—		34		—
Other charges and fees	136		134		161		300
Total noninterest income	1,096		1,526		2,666		3,129
NONINTEREST EXPENSE
Salaries and employee benefits	9,674		9,361		19,915		19,557
Occupancy and equipment	1,527		1,732		2,974		3,142
Data processing and communications	1,176		1,092		2,232		2,512
Legal, audit and professional	667		608		1,452		1,225
Regulatory assessments	367		421		819		760
Director and shareholder expenses	214		221		427		416
Merger and related expenses	—		544		—		1,068
Core deposit intangible amortization	90		99		181		198
Litigation settlements, net	—		6,500		—		6,500
Other expenses	892		1,130		1,626		1,882
Total noninterest expense	14,607		21,708		29,626		37,260
Income (loss) before income taxes	9,930		(1,042)		21,171		954
Income tax expense (benefit)	3,212		(306)		6,229		244
Net income (loss)	$	6,718	$	(736)	$	14,942	$	710
Earnings (loss) per share:
Basic	$	0.37	$	(0.04)	$	0.82	$	0.04
Diluted	$	0.36	$	(0.04)	$	0.80	$	0.04

The accompanying notes are an integral part of these consolidated financial statements.

6

SOUTHERN CALIFORNIA BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(dollars in thousands)

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Net income (loss)	$	6,718	$	(736)	$	14,942	$	710
Other comprehensive income (loss), net of tax:
Unrealized loss on securities available for sale:
Change in net unrealized loss	(2,168)		(3,062)		(208)		(6,276)
Reclassification of loss recognized in net income	(34)		—		(34)		—
	(2,202)		(3,062)		(242)		(6,276)
Income tax benefit:
Change in net unrealized loss	(641)		(888)		(113)		(1,821)
Reclassification of loss recognized in net income	(10)		—		(10)		—
	(651)		(888)		(123)		(1,821)
Total other comprehensive loss, net of tax	(1,551)		(2,174)		(119)		(4,455)
Total comprehensive income (loss), net of tax	$	5,167	$	(2,910)	$	14,823	$	(3,745)

The accompanying notes are an integral part of these consolidated financial statements.

7

SOUTHERN CALIFORNIA BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(dollars in thousands, except share data)

(Unaudited)

	Common Stock			Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
	Shares	Amount
Three months ended June 30, 2023:
Balance at March 31, 2023	18,271,194	$	219,659	$	52,889	$	(5,009)	$	267,539
Stock-based compensation	—	1,085		—		—		1,085
Stock options exercised	4,000	26		—		—		26
Restricted stock units vested	26,075	—		—		—		—
Repurchase of shares in settlement of restricted stock units	(4,904)	(68)		—		—		(68)
Net income	—	—		6,718		—		6,718
Other comprehensive loss	—	—		—		(1,551)		(1,551)
Balance at June 30, 2023	18,296,365	$	220,702	$	59,607	$	(6,560)	$	273,749
Six months ended June 30, 2023:
Balance at December 31, 2022	17,940,283	$	218,280	$	48,516	$	(6,441)	$	260,355
Adoption of ASU No. 2016-13, net of tax (1)	—	—		(3,851)		—		(3,851)
Balance at January 1, 2023 (as adjusted for change in accounting principle)	17,940,283	$	218,280	$	44,665	$	(6,441)	$	256,504
Stock-based compensation	—	2,771		—		—		2,771
Stock options exercised	10,950	93		—		—		93
Restricted stock units vested	373,172	—		—		—		—
Repurchase of shares in settlement of restricted stock units	(28,040)	(442)		—		—		(442)
Net income	—	—		14,942		—		14,942
Other comprehensive loss	—	—		—		(119)		(119)
Balance at June 30, 2023	18,296,365	$	220,702	$	59,607	$	(6,560)	$	273,749
(1) Related to the adoption of Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The accompanying notes are an integral part of these consolidated financial statements.

8

SOUTHERN CALIFORNIA BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(dollars in thousands, except share data)

(Unaudited)

	Common Stock			Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
	Shares	Amount
Three months ended June 30, 2022:
Balance at March 31, 2022	17,753,849	$	215,231	$	33,849	$	(2,319)	$	246,761
Stock-based compensation	—	1,010		—		—		1,010
Stock options exercised	69,600	504		—		—		504
Restricted stock units vested	19,410	—		—		—		—
Repurchase of shares in settlement of restricted stock units	(2,233)	(34)		—		—		(34)
Net loss	—	—		(736)		—		(736)
Other comprehensive loss	—	—		—		(2,174)		(2,174)
Balance at June 30, 2022	17,840,626	$	216,711	$	33,113	$	(4,493)	$	245,331
Six months ended June 30, 2022:
Balance at December 31, 2021	17,707,737	$	214,163	$	32,403	$	(38)	$	246,528
Stock-based compensation	—	1,783		—		—		1,783
Stock options exercised	110,600	807		—		—		807
Restricted stock units vested	25,035	—		—		—		—
Repurchase of shares in settlement of restricted stock units	(2,746)	(42)		—		—		(42)
Net income	—	—		710		—		710
Other comprehensive loss	—	—		—		(4,455)		(4,455)
Balance at June 30, 2022	17,840,626	$	216,711	$	33,113	$	(4,493)	$	245,331

The accompanying notes are an integral part of these consolidated financial statements.

9

SOUTHERN CALIFORNIA BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

For the six months ended June 30, 2023 and 2022
(dollars in thousands)

(Unaudited)

	Six Months Ended June 30,
	2023		2022
OPERATING ACTIVITIES
Net income	$	14,942	$	710
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation on premises and equipment	801		739
Core deposit intangible amortization	181		198
Amortization of premiums of debt securities	235		406
Gain on sale of loans	(885)		(816)
Loss on early debt extinguishment	—		347
Loans originated for sale	(2,954)		(12,581)
Proceeds from sales of and principal collected on loans held for sale	11,887		12,036
Provision for credit losses	187		3,646
Deferred income tax expense (benefit)	770		(3,491)
Impairment charges of right-of-use assets	—		136
Stock-based compensation	2,771		1,783
Increase in cash surrender value of bank owned life insurance	(455)		(426)
Income from bank owned life insurance	—		(621)
Gain on sale of available-for-sale debt securities	(34)		—
Accretion of net discounts and deferred loan fees	(922)		(2,642)
Net decrease in other items	3,899		5,179
Net cash provided by operating activities	30,423		4,603
INVESTING ACTIVITIES
Proceeds from bank owned life insurance death benefits	—		1,366
Proceeds from sale of debt securities available for sale	17,307		—
Proceeds from maturities and paydowns of debt securities available for sale	4,029		6,941
Proceeds from maturities and paydowns of debt securities held to maturity	—		74
Purchases of debt securities available for sale	(28,736)		(83,728)
Purchases of debt securities held to maturity	—		(54,267)
Net purchase of stock investments	(3,530)		(3,433)
Net funding of loans	(15,028)		(264,592)
Proceeds from sale of loans held for investment	50		450
Purchases of premises and equipment	(283)		(791)
Net cash used in investing activities	(26,191)		(397,980)
FINANCING ACTIVITIES
Net increase in deposits	48,984		57,107
Proceeds of Federal Home Loan Bank advances	15,000		—
Repayment of Federal Home Loan Bank advances	(50,000)		—
Repayment of other borrowings	—		(3,093)
Proceeds from exercise of stock options	93		807
Repurchase of common shares	(442)		(42)
Net cash provided by financing activities	13,635		54,779
The accompanying notes are an integral part of these consolidated financial statements.

10

SOUTHERN CALIFORNIA BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

For the six months ended June 30, 2023 and 2022
(dollars in thousands)

(Unaudited)

	Six Months Ended June 30,
	2023		2022
Net change in cash and cash equivalents	17,867		(338,598)
Cash and cash equivalents at beginning of period	86,760		580,006
Cash and cash equivalents at end of period	$	104,627	$	241,408
Supplemental Disclosures of Cash Flow Information:
Interest paid	$	11,020	$	999
Taxes paid	—		4,241
Lease liability arising from obtaining right-of-use assets	405		1,624
Net impact of adoption of ASU 2016-13 on retained earnings	3,851		—

The accompanying notes are an integral part of these consolidated financial statements.

11

SOUTHERN CALIFORNIA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Southern California Bancorp is a California corporation incorporated on October 2, 2019 and is registered with the Board of Governors of the Federal Reserve System as a bank holding company for Bank of Southern California, N.A. under the Bank Holding Company Act of 1956, as amended. On May 15, 2020, the Company completed a reorganization whereby Bank of Southern California, N.A. became a wholly-owned subsidiary of the Company. Bank of Southern California, N.A. began business operations in December 2001 under the name Ramona National Bank. The Bank changed its name to First Business Bank, N.A. in 2006 and to Bank of Southern California, N.A. in 2010. The Bank operates under a federal charter and its primary regulator is the Office of the Comptroller of the Currency (“OCC”). The words “we,” “us,” “our,” or the “Company” refer to Southern California Bancorp, and Bank of Southern California, N.A. collectively and on a consolidated basis. References herein to “Southern California Bancorp,” “SCB,” “Bancorp” or the “holding company,” refer to Southern California Bancorp on a stand-alone basis. References to the “Bank” refer to Bank of Southern California, N.A.

As a relationship-focused community bank, the Bank offers a range of financial products and services to individuals, professionals, and small- to medium-sized businesses through its 13 branch offices serving Orange, Los Angeles, Riverside, San Diego and Ventura counties. Many of the banking offices have been acquired through a number of acquisitions.

On May 11, 2023, our common stock became listed on the Nasdaq Capital Market under the symbol BCAL. Prior to that date, our common stock was quoted under the same symbol on the OTC Pink Open Market.

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared pursuant to Article 10 of SEC Regulation S-X and other SEC rules and regulations for reporting on the Quarterly Report on Form 10-Q. Accordingly, certain disclosures required by U.S. generally accepted accounting principles (“GAAP”) are not included herein. These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in Item 13. Financial Statements and Supplementary Data of the Company’s Registration Statement on Form 10 under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) filed with the SEC and declared effective on May 10, 2023 (our “Registration Statement”).

In the opinion of management of the Company, the accompanying unaudited interim consolidated financial statements reflect all of the adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial condition and consolidated results of operations as of the dates and for the periods presented. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, the Bank. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates in the Preparation of Consolidated Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and

expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change are the determination of the allowance for credit losses, the fair

12

Table of Contents

value of assets and liabilities acquired in business combinations and related purchase price allocation, the valuation of acquired loans, the valuation of goodwill and separately identifiable intangible assets associated with mergers and acquisitions, loan sales and servicing of financial assets and deferred tax assets and liabilities.

Operating Segments

We operate one reportable segment — commercial banking. The factors considered in making this determination include all of the banking products and services offered by the Company are available in each branch of the Company, all branches are located within the same economic environment, management does not allocate resources based on the performance of different lending or transaction activities and how information is reviewed by the chief executive officer and other key decision makers. As a result, we determined that all services we offer relate to commercial banking.

Recently Adopted Accounting Guidance

On January 1, 2023, the Company adopted Accounting Standard Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), which replaces the incurred loss impairment methodology with a methodology that reflects current expected credit losses (“CECL”) and requires consideration of historical experience, current conditions and reasonable and supportable forecasts to estimate expected credit losses for financial assets held at the reporting date. The measurement of expected credit losses under the CECL is applicable to financial assets measured at amortized cost, including loans, held-to-maturity debt securities and off-balance sheet credit exposures. ASU 2016-13 also requires credit losses on available-for-sale debt securities be measured through an allowance for credit losses when the fair value is less than the amortized cost basis. In addition, ASU 2016-13 modifies the other-than-temporary impairment (“OTTI”) model for available-for-sale debt securities to require an allowance for credit impairment instead of a direct write-down, which allows for reversal of credit impairments in future periods based on improvements in credit. The Company elected to account for accrued interest receivable separately from the amortized cost of loans and investment securities. The Company elected the CECL phase-in option provided by regulatory capital rules, which delays the impact of CECL on regulatory capital over a three-year transition period.

Concurrent with the adoption of ASU 2016-13, the Company adopted ASU 2022-02, Financial Instruments—Credit Losses (Topic 326) Troubled Debt Restructurings (“TDR”) and Vintage Disclosures, which eliminated TDR accounting prospectively for all loan modifications occurring on or after January 1, 2023 and added additional disclosure requirements for current period gross charge-offs by year of origination. It also prescribes guidance for reporting modifications for certain loan refinancings and restructurings made to borrowers experiencing financial difficulty. Loans that were considered a TDR prior to the adoption of ASU 2022-02 will continue to be accounted for under the superseded TDR accounting guidance until the loan is paid off, liquidated, or subsequently modified.

The Company adopted ASU 2016-13 using the modified retrospective transition approach, and recorded a net decrease of $3.9 million to the beginning balance of retained earnings as of January 1, 2023 for the cumulative effect adjustment, reflecting an initial adjustment to the allowance for credit losses (“ACL”) of $5.5 million, which included a $5.0 million increase in the ACL - loans and a $439 thousand increase in reserve for unfunded commitments, net of related deferred tax assets arising from temporary differences of $1.6 million, commonly referred to as the “Day 1” adjustment. This Day 1 adjustment reflects the development of the CECL models to estimate lifetime expected credit losses on the loans held for investment and unfunded commitments primarily using a lifetime loss methodology and management’s current expectation of future economic conditions. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with the probable incurred loss accounting standards. As permitted under ASC 326, the Company elected to maintain the same loan segments that it previously identified prior to adoption of CECL.

At adoption of CECL and continuing through June 30, 2023, the Company did not record an ACL on available-for-sale debt securities or held-to-maturity debt securities as these investment portfolios primarily consisted of debt securities explicitly or implicitly backed by the U.S. government or state and local governments, and historically have had no credit loss experience. Refer to Note 2, Investment Securities, for more information.

13

Table of Contents

The following table presents the impact of adopting ASU 2016-13 on January 1, 2023:

(dollars in thousands)	Pre-CECL Adoption		Impact of CECL Adoption		As Reported under CECL
Assets:
Allowance for credit losses - loans
Construction and land development	$	2,301	$	881	$	3,182
Real estate - other:
1-4 family residential	972		424		1,396
Multifamily residential	1,331		(279)		1,052
Commercial real estate and other	9,388		2,838		12,226
Commercial and industrial	3,079		1,132		4,211
Consumer	28		31		59
	$	17,099	$	5,027	$	22,126
Liabilities:
Allowance for credit losses - unfunded loan commitments	$	1,310	$	439	$	1,749

On March 12, 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04,

Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04), which provides

optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments are effective for all entities as of March 12, 2020 and may be adopted through December 31, 2022. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The Company is currently evaluating the impact of ASU 2020-04 to the consolidated financial statements. In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848)," which clarifies that all derivative instruments affected by the changes to interest rates used for discounting, margining or contract price alignment, regardless of whether they reference LIBOR or another rate expected to be discontinued as a result of reference rate reform, an entity may apply certain practical expedients in Topic 848. ASU 2020-04 and 2021-01 are elective and can be adopted between March 12, 2020 and December 31, 2022. In December 2022, the FASB issued ASU 2022-06, "Deferral of the Sunset Date of Topic 848", which extends the temporary relief provision period and allows companies to defer the adoption to December 31, 2024. The Company currently does not have any hedge accounting for hedging relationships that meet the stated criteria, and implemented its transition plan as of June 30, 2023. The adoption of the above ASUs did not have a material impact to the consolidated financial statements.

Significant Accounting Policies

The accounting and reporting policies of the Company are based upon GAAP and conform to predominant practices within the banking industry. We have not made any changes in our significant accounting policies from those disclosed in Item 13. Financial Statements and Supplementary Data of the Company’s Registration Statement. Updates to our significant accounting policies described below reflect the impact of the adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326) and the related amendments, and ASU 2022-02, Financial Instruments—Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures.

14

Table of Contents

Allowance for Credit Losses — Held-to-Maturity Debt Securities

An ACL is established for losses on held-to-maturity debt securities at the time of purchase or designation, and is updated each period to reflect management’s expectations of current expected credit losses as of the date of the consolidated balance sheets. The ACL is estimated collectively for groups of debt securities with similar risk characteristics, and is determined at the individual security level when the Company deems a security to no longer possess shared risk characteristics. Accrued interest receivable on held-to-maturity debt securities is excluded from the estimate of credit losses. For debt securities where the Company has reason to believe the credit loss exposure is remote, a zero credit loss assumption is applied. Such debt securities were municipal securities, and historically have had no credit loss experience. The Company does not anticipate any credit related losses in this investment portfolio. Changes in the ACL on held-to-maturity debt securities are recorded as a component of the (reversal of) provision for credit losses in the consolidated statements of operations. Losses are charged against the ACL when management believes the uncollectibility of a held-to-maturity debt security is confirmed.

Allowance for Credit Losses — Available-for-Sale Debt Securities

For available-for-sale debt securities, the Company evaluates, on an individual basis, whether a decline in fair value below the amortized cost basis has resulted from a credit loss or other factors. The portion of the decline attributable to credit losses is recognized through an ACL, and changes in the ACL on available-for-sale debt securities are recorded as a component of the (reversal of) provision for credit losses in the consolidated statements of operations. The portion of decline in fair value below the amortized cost basis not attributable to credit is recognized through other comprehensive income (loss), net of applicable taxes.

Allowance for Credit Losses — Loans

An ACL is the Company’s estimate of expected lifetime credit losses for its loans held for investment at the time of origination or acquisition and is maintained at a level deemed appropriate by management to provide for expected lifetime credit losses in the portfolio. The ACL consists of: (i) a specific allowance established for current expected credit losses on loans individually evaluated, (ii) a quantitative allowance for current expected credit losses based on the portfolio and expected economic conditions over a reasonable and supportable forecast period that reverts back to long-term trends to cover the expected life of the loan, (iii) a qualitative allowance including management judgment to capture factors and trends that are not adequately reflected in the quantitative allowance, and (iv) the ACL for off-balance sheet credit exposure for unfunded loan commitments (described in the following section).

The ACL on loans held for investment represents the portion of the loans’ amortized cost basis that the Company does not expect to collect due to anticipated credit losses over the loans’ contractual life. Amortized cost does not include accrued interest, which management elected to exclude from the estimate of expected credit losses. Provision for credit losses for loans held for investment is included in (reversal of) provision for credit losses in the consolidated statements of operations. Loan charge-offs are recognized when management believes the collectability of the principal balance outstanding is unlikely. Subsequent recoveries, if any, are credited to the ACL. Credit losses are not estimated for accrued interest receivable as interest that is deemed uncollectible is written off through interest income.

Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts. Pools of loans with similar risk characteristics are collectively evaluated while loans that no longer share risk characteristics with loan pools are evaluated individually. The Company measures the ACL using a discounted cash flow methodology, which utilizes pool-level assumptions and cash flow projections on individual loan basis, which then aggregated at the portfolio segment level and supplemented by a qualitative reserve that is applied to each portfolio segment level.

The Company’s loan portfolio consists of the following segments, based on regulatory call codes and related risk ratings:

Construction and land development loans are typically adjustable rate residential and commercial construction loans to builders, developers and consumers, with terms generally limited to 12 to 36 months. These loans generally require payment in full upon the sale or refinance of the property. Construction and development

15

Table of Contents

loans generally carry a higher degree of risk because repayment depends on the ultimate completion of the project and usually on the subsequent sale or refinance of the property, unless the project is user-owned which would then convert to a conventional term loan. Specific material risks may include (i) unforeseen delays in the building or the project, (ii) cost overruns or inadequate contingency reserves, (iii) poor management of construction process, (iv) inferior or improper construction techniques, (v) changes in the economic environment during the construction period, (vi) a downturn in the real estate market, (vii) rising interest rates which may impact the sale of the property and its price, and (viii) failure to sell or stabilize completed projects in a timely manner. The Company attempts to reduce risks associated with construction and land development loans by obtaining personal guarantees and by keeping the maximum loan-to-value (“LTV”) ratio at or below 75%, depending on the project type. Many of the construction and land development loans include interest reserves built into the loan commitment. For owner-occupied commercial construction loans, periodic cash payments for interest are required from the borrower’s cash flow.

Real estate loans are secured by single family residential properties (one to four units), multifamily residential properties (five or more units), owner-occupied CRE, and non-owner-occupied CRE. Real estate loans are subject to the same general risks as other loans and may also be impacted by changing demographics, collateral maintenance, and product supply and demand. Rising interest rates, as well as other factors arising after a loan has been made, could negatively affect not only property values but also a borrower’s cash flow, creditworthiness, and ability to repay the loan. Increasing interest rates can impact real estate values as rising rates generally cause a similar movement in capitalization rates which can cause real estate collateral values to decline. The Company usually obtains a security interest in real estate, in addition to any other available collateral, in order to increase the likelihood of the ultimate repayment of the loan. The Company does not underwrite closed-end term consumer loans secured by a borrower’s residence. Junior liens may be considered in connection with a consumer home equity line of credit (“HELOC”), or as additional collateral support for SBA and other business loans.

The Company’s commercial and industrial (“C&I”) loans are generally made to businesses located in the Southern California region and surrounding communities. These loans are made to finance operations, to provide working capital, or for specific purposes such as to finance the purchase of assets or equipment or to finance accounts receivable and inventory. The Company’s C&I loans may be secured (other than by real estate) or unsecured. They may take the form of single payment, installment, or lines of credit. These are generally based on the financial strength and integrity of the borrower and guarantor(s) and generally (with some exceptions) are collateralized by short-term assets such as accounts receivable, inventory, equipment, or a borrower’s other business assets. Commercial term loans are typically made to provide working capital to finance the acquisition of fixed assets, refinance short-term debt originally used to purchase fixed assets or, in rare cases, to finance the purchase of businesses.

Consumer loans consist of loans to individuals for personal and household purposes, including secured and unsecured installment loans and revolving lines of credit. Consumer loans are underwritten based on the borrower’s income, current debt level, past credit history, and the availability and value of collateral. Consumer rates are both fixed and variable, with negotiable terms. The Company’s installment loans typically amortize over periods up to 5 years. Although the Company typically requires monthly payments of interest and a portion of the principal on its loan products, the Company will offer consumer loans with a single maturity date when a specific source of repayment is available. Consumer loans are generally considered to have greater risk than first or second mortgages on real estate because they may be unsecured, or, if they are secured, the value of the collateral may be difficult to assess and more likely to decrease in value than real estate.

The Company’s ACL model incorporates assumptions for prepayment/curtailment rates, probability of default (“PD”), and loss given default (“LGD”) to project each loan’s cash flow throughout its entire life cycle. An initial reserve amount is determined based on the difference between the amortized cost basis of each loan and the present value of all future cash flows. The initial reserve amount is then aggregated at loan segment level to derive the segment level quantitative loss rates. Assumptions for prepayment/curtailment rates are based on benchmark rates provided by the Company’s third-party loss model provider. Quarterly PD is forecasted using a regression model that incorporates certain economic variables as inputs. The LGD is derived from PD using the Frye-Jacobs index provided by the Company’s third-party model provider. Reasonable and supportable forecasts are used to predict current and future economic conditions. Management elected to use a four quarter reasonable

16

Table of Contents

and supportable forecast period followed by an eight quarter straight-line reversion period. After twelve quarters of forecast plus reversion period, the probability of default is assumed to remain unchanged for the remaining life of the loan.

The Company uses numerous key macroeconomic variables within the economic forecast scenarios from Moody’s Analytics. These economic forecast scenarios are based on past events, current conditions, and the likelihood of future events occurring. These scenarios include a baseline forecast which represents their best estimate of future economic activity. Moody’s Analytics also provides nine alternative scenarios, including five direct variations of the baseline scenario and four more extensive departures from their baseline forecast, including a slower growth, a stagflation, a next cycle recession and a low oil price scenario. Management recognizes the non-linearity of credit losses relative to economic performance and believes the use of multiple probability-weighted economic scenarios is appropriate in estimating credit losses over the forecast period. This approach is based on certain assumptions. The first assumption is that no single forecast of the economy, however detailed or complex, is completely accurate over a reasonable forecast timeframe and is subject to revisions over time. By considering multiple scenarios, management believes some of the uncertainty associated with a single scenario approach can be mitigated. Management periodically evaluates economic scenarios, determines whether to utilize multiple probability-weighted scenarios in the Company’s ACL model, and, if multiple scenarios are utilized, evaluates and determines the weighting for each scenario used in the Company’s ACL model, and thus the scenarios and weightings of each scenario may change in future periods. Economic scenarios as well as assumptions within those scenarios can vary based on changes in current and expected economic conditions.

The ACL process involves subjective and complex judgments and is reflective of significant uncertainties that could potentially result in materially different results under different assumptions and conditions. In addition to the aforementioned quantitative model, management periodically considers the need for qualitative adjustments to the ACL. Such qualitative adjustments may be related to and include, but are not limited to factors such as: differences in segment-specific risk characteristics, periods wherein current conditions and reasonable and supportable forecasts of economic conditions differ from the conditions that existed at the time of the estimated loss calculation, model limitations and management’s overall assessment of the adequacy of the ACL. Qualitative risk factors are periodically evaluated by management.

Generally, the measurement of the ACL is performed by collectively evaluating loans with similar risk characteristics. Loans that do not share similar risk characteristics are evaluated individually for credit loss and are not included in the evaluation process discussed above. Expected credit losses on all individually evaluated loans are measured, primarily through the evaluation of estimated cash flows expected to be collected, or collateral values measured by reference to an observable market value, if one exists, or the fair value of the collateral for a collateral-dependent loan. The Company selects the measurement method on a loan-by-loan basis except that collateral-dependent loans for which foreclosure is probable are measured at the net realizable value of the collateral. Cash receipts on individually evaluated loans for which the accrual of interest has been discontinued are applied first to principal and then to interest income. Prior to the adoption of ASC Topic 326, individually evaluated loans were referred to as impaired loans. Amounts are charged-off when available information confirms that specific loans or portions thereof, are uncollectible. This methodology for determining charge-offs is consistently applied to each loan segment.

Loans with terms that have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are evaluated for an ACL utilizing one of the methodologies above.

Allowance for Credit Losses — Off-Balance Sheet Credit Exposures

The Company also maintains a separate allowance for off-balance sheet commitments. Beginning January 1, 2023, management estimates anticipated losses using expected loss factors consistent with those used for the ACL methodology for loans described above, and utilization assumptions based on historical experience. Provision for credit losses for off-balance sheet commitments is included in provision for credit losses in the

17

Table of Contents

consolidated statements of operations and added to the allowance for off-balance sheet commitments, which is included in accrued interest payable and other liabilities in the consolidated balance sheets.

Loan Modifications, Refinancings and Restructurings

Prior to the adoption of ASU 2022-02, a loan was classified as a TDR when the Company granted a concession to a borrower experiencing financial difficulties that it otherwise would not consider under its normal lending policies under ASC Subtopic 310-40, Troubled Debt Restructurings by Creditors. Upon the adoption of ASU 2022-02, the Company applies the general loan modification guidance provided in ASC 310-20 to all loan modifications, including modifications made for borrowers experiencing financial difficulty. The Company considers some of the indicators that a borrower is experiencing financial difficulty to be: currently in payment default on any of their debt, declaring bankruptcy, going concern, insufficient cash flow to service all debt service requirements, inability to obtain funds from other sources at a market rate for similar debt to non-troubled borrowers, and currently classified as substandard loans that are categorized as having well-defined weaknesses.

Under the general loan modification guidance, a modification is treated as a new loan only if the following two conditions are met: (1) the terms of the new loan are at least as favorable to the Company as the terms for comparable loans to other customers with similar collection risks; and (2) modifications to the terms of the original loan are more than minor. If either condition is not met, the modification is accounted for as the continuation of the existing loan with any effect of the modification treated as a prospective adjustment to the loan’s effective interest rate. If the refinancing or restructuring is deemed to be a new loan, unamortized net fees or costs from the original loan and any prepayment penalties are recognized in interest income when the new loan is granted. In addition, a new effective interest rate will be determined. If the refinancing or restructuring is deemed to be a modification, the investment in the new loan is comprised of the remaining net investment in the original loan, any additional funds advanced to the borrower, any fees received, and direct loan origination costs associated with the refinancing or restructuring. The effective interest rate of the loan is recalculated based upon the amortized cost basis of the new loan and its revised contractual cash flows.

A modification may vary by program and by borrower-specific characteristics, and may include interest rate reductions, principal forgiveness, term extensions, and payment delays, and is intended to minimize the Company’s economic loss and to avoid foreclosure or repossession of collateral. The Company applies the same credit loss methodology it uses for similar loans that were not modified.

GAAP requires that certain types of modifications be reported, which consist of (1) principal forgiveness; (2) interest rate reduction; (3) other-than-insignificant payment delay; (4) term extension; and any combination of the above. Since adoption of ASU 2022-02 on January 1, 2023, the Company did not have any loan modifications under ASU 2022-02. At December 31, 2022, the Company did not have any loans that have been modified and classifed as TDRs under previous GAAP.

Recent Accounting Guidance Not Yet Effective

In March 2023, the FASB issued ASU 2023-01, Leases (Topic 842): Common Control Arrangements. This standard requires entities to amortize leasehold improvements associated with common control leases over the useful life to the common control group. The standard is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within these fiscal years. As the Company does not have any such common control leases, adoption of this standard will not have a material impact to the consolidated financial statements.

In March 2023, the FASB issued ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, a consensus of the Emerging Issues Task Force. The amendments in this update allow the option for an entity to apply the proportional amortization method of accounting to other equity investments that are made for the primary purpose of receiving tax credits or other income tax benefits, if certain conditions are met. Prior to this update, the application of the proportional amortization method of accounting was only limited to low-income housing tax credit (“LIHTC”) structured investments. The proportional amortization method of accounting results in the amortization of applicable investments, as well as the related income tax credits or other income tax

18

Table of Contents

benefits received, being presented on a single line in the consolidated statements of operations, income tax expense. Under this update, an entity has the option to apply the proportional amortization method of accounting to applicable investments on a tax-credit-program-by-tax-credit-program basis. In addition, the amendments in this update require that all tax equity investments accounted for using the proportional amortization method use the delayed equity contribution guidance in paragraph 323-740-25-3, requiring a liability be recognized for delayed equity contributions that are unconditional and legally binding or for equity contributions that are contingent upon a future event when that contingent event becomes probable. Under this update, LIHTC structured investments for which the proportional amortization method is not applied can no longer be accounted for using the delayed equity contribution guidance. Further, this update specifies that impairment of LIHTC structure investments not accounted for using the equity method must apply the impairment guidance in Subtopic 323-10 - Investments - Equity Method and Joint Ventures - Overall. This update also clarifies that for LIHTC structure investments not accounted for under the proportional amortization method or the equity method, an entity shall account for them under Topic 321 - Investments - Equity Securities. The amendments in this update also require additional disclosures in interim and annual periods concerning investments for which the proportional amortization method is applied, including (i) the nature of tax equity investments, and (ii) the effect of tax equity investments and related income tax credits and other income tax benefits on the financial position and results of operations. The provisions of this update are effective for the Company for interim and annual periods beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the impact of this update on its consolidated financial statements.

NOTE 2 - INVESTMENT SECURITIES

Debt Securities

Debt securities have been classified as either held-to-maturity or available-for-sale in the consolidated balance sheets according to management’s intent. The amortized cost of held-to-maturity debt securities and their approximate fair values at June 30, 2023 and December 31, 2022 were as follows:

(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
June 30, 2023
Taxable municipals	$	551	$	—	$	(83)	$	468
Tax exempt bank-qualified municipals	53,231		—		(5,136)		48,095
	$	53,782	$	—	$	(5,219)	$	48,563
December 31, 2022
Taxable municipals	$	550	$	—	$	(105)	$	445
Tax exempt bank-qualified municipals	53,396		—		(5,935)		47,461
	$	53,946	$	—	$	(6,040)	$	47,906

The amortized cost of available-for-sale debt securities and their approximate fair values at June 30, 2023 and December 31, 2022 were as follows:

(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
June 30, 2023
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities	$	51,397	$	—	$	(3,979)	$	47,418
SBA securities	6,796		7		(131)		6,672

19

Table of Contents

(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
U.S. Treasury	6,612		—		(676)		5,936
U.S. Agency	7,023		—		(796)		6,227
Collateralized mortgage obligations	46,319		15		(3,481)		42,853
Taxable municipals	4,405		36		(171)		4,270
Tax exempt bank-qualified municipals	6,637		4		(142)		6,499
	$	129,189	$	62	$	(9,376)	$	119,875
December 31, 2022
U.S. government and agency securities:
Mortgage-backed securities	$	27,029	$	—	$	(3,734)	$	23,295
SBA securities	7,988		16		(132)		7,872
U.S. Treasury	6,652		—		(700)		5,952
U.S. Agency	7,025		—		(842)		6,183
Collateralized mortgage obligations	47,778		20		(3,375)		44,423
Taxable municipals	4,403		36		(211)		4,228
Tax exempt bank-qualified municipals	20,777		163		(313)		20,627
	$	121,652	$	235	$	(9,307)	$	112,580

During the three and six months ended June 30, 2023 and 2022, there were no transfers between held-to-maturity and available-for-sale debt securities.

At June 30, 2023 and December 31, 2022, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of our shareholders’ equity.

Accrued interest receivable on held-to-maturity and available-for-sale debt securities totaled $856 thousand and $1.1 million at June 30, 2023 and December 31, 2022, respectively, and is included within accrued interest receivable and other assets in the consolidated balance sheets. Accrued interest receivable is excluded from the ACL.

At June 30, 2023, held-to-maturity debt securities with an amortized cost of $53.8 million were pledged to the Federal Reserve Bank as collateral for a $45.9 million line of credit. There were no debt securities pledged at December 31, 2022.

Contractual Maturities

The amortized cost and estimated fair value of all held-to-maturity and available-for-sale debt securities as of June 30, 2023 by contractual maturities are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Held-to-Maturity				Available-for-Sale
(dollars in thousands)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
June 30, 2023
Due in one year or less	$	—	$	—	$	1,640	$	1,638
Due after one year through five years	—		—		17,855		16,763
Due after five years through ten years	11,707		10,910		23,734		20,744

20

Table of Contents

Due after ten years	42,075		37,653		85,960		80,730
	$	53,782	$	48,563	$	129,189	$	119,875

Realized Gains and Losses

The following table presents gross realized gains and losses, and related proceeds, for sales and calls of available-for-sale debt securities for the three and six months ended June 30, 2023 and 2022 follows:

	Three Months Ended				Six Months Ended
(dollars in thousands)	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Gross gains on sales and calls	$	181	$	—	$	181	$	—
Gross losses on sales and calls	(147)		—		(147)		—
Gain on sale of available-for-sale debt securities	34		—		34		—
Proceeds from sales and calls	$	17,307	$	—	$	17,312	$	—

Unrealized Gains and Losses

The gross unrealized losses and related estimated fair values of all available-for-sale debt securities aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2023 and December 31, 2022 are summarized as follows:

	Less than 12 Months				12 Months or Longer				Total
(dollars in thousands)	Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value
June 30, 2023:
Available-for-sale debt securities:
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities:	$	(284)	$	24,979	$	(3,695)	$	22,439	$	(3,979)	$	47,418
SBA securities	(6)		2,244		(125)		2,103		(131)		4,347
U.S. Treasury	—		—		(676)		5,936		(676)		5,936
U.S. Agency	—		—		(796)		6,227		(796)		6,227
Collateralized mortgage obligations	(440)		18,514		(3,041)		23,299		(3,481)		41,813
Taxable municipals	—		—		(171)		3,733		(171)		3,733
Tax exempt bank-qualified municipals	(70)		3,958		(72)		2,287		(142)		6,245
	$	(800)	$	49,695	$	(8,576)	$	66,024	$	(9,376)	$	115,719
December 31, 2022:
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities:	$	(1,337)	$	9,888	$	(2,397)	$	13,407	$	(3,734)	$	23,295
SBA securities	(1)		202		(131)		2,258		(132)		2,460
U.S. Treasury	(277)		3,563		(423)		2,389		(700)		5,952
U.S. Agency	(51)		474		(791)		5,709		(842)		6,183
Collateralized mortgage obligations	(2,169)		35,331		(1,206)		6,029		(3,375)		41,360
Taxable municipals	(75)		3,318		(136)		373		(211)		3,691
Tax exempt bank-qualified municipals	(313)		14,081		—		—		(313)		14,081
	$	(4,223)	$	66,857	$	(5,084)	$	30,165	$	(9,307)	$	97,022

As of June 30, 2023, the Company had a total of 92 available-for-sale debt securities in a gross unrealized loss position, consisting of 71 securities with total net unrealized losses of $8.6 million that had been in a continual loss position for twelve months and longer. As of December 31, 2022, the Company had a total of 88

21

Table of Contents

available-for-sale debt securities in a gross unrealized loss position, consisting of 43 securities with total net unrealized losses of $5.1 million that had been in a continual loss position for twelve months and longer. Such unrealized losses on these investment securities have not been recognized into income.

Unrealized losses on available-for-sale debt securities are recognized in shareholders’ equity as accumulated other comprehensive loss. At June 30, 2023, the Company had a net unrealized loss on available-for-sale debt securities of $9.3 million, or $6.6 million net of tax in accumulated other comprehensive loss, compared to a net unrealized loss of $9.1 million, or $6.4 million net of tax in accumulated other comprehensive loss, at December 31, 2022.

Allowance for Credit Losses on Debt Securities

At June 30, 2023, 97 available-for-sale debt securities with fair values totaling $119.9 million had net unrealized losses totaling $9.3 million, or $6.6 million net of tax in accumulated other comprehensive loss. For available-for-sale debt securities with unrealized losses, management considered the financial condition of the issuer and the Company’s intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value. Our available-for-sale debt securities consisted of U.S. Treasury, U.S. government and agency and government sponsored enterprise securities, and municipals historically have had no credit loss experience. In addition, the Company reviewed the credit rating of the municipal securities. At June 30, 2023, the total fair value of taxable municipal and tax exempt bank-qualified municipal securities was $4.3 million and $6.5 million, respectively. These available-for-sale debt securities rated AA and above totaled $7.5 million and rated A and above totaled $3.3 million.

At June 30, 2023, 61 held-to-maturity debt securities with fair values totaling $48.6 million had unrealized losses totaling $5.2 million. The Company has the intent and ability to hold the securities classified as held-to-maturity until they mature, at which time the Company will receive full value for the securities. At June 30, 2023, fair values of held-to-maturity debt securities rated AA and above totaled $45.3 million and rated AA- totaled $3.2 million.

Management determined that the unrealized losses for June 30, 2023 and each investment were primarily attributable to factors other than credit related, including changes in interest rates driven by the Federal Reserve’s policy to fight against inflation and general volatility in credit market conditions. As such, the Company applied a zero credit loss assumption for these securities and no provision for credit losses was recorded for held-to-maturity or available-for-sale debt securities during the three and six months ended June 30, 2023.

At December 31, 2022, management evaluated held-to-maturity and available-for-sale debt securities for other-than-temporary impairment, taking into consideration the extent and length of time the fair value has been less than cost, the financial condition of the issuer and whether the Company has the intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value. At December 31, 2022, no unrealized losses were deemed to be other-than-temporary.

Restricted Stock

As a member of the Federal Reserve System, the Company must hold stock of the Federal Reserve Bank of San Francisco in an amount equal to 3% of the Company’s common stock and additional paid-in capital. In addition, as a member of the Federal Home Loan Bank (“FHLB”) of San Francisco, the Company is required to own stock of the FHLB based on the Company’s outstanding mortgage assets and outstanding advances from the FHLB.

22

Table of Contents

The table below summarizes the Company’s restricted stock investments at June 30, 2023 and December 31, 2022:

(dollars in thousands)	June 30, 2023		December 31, 2022
Federal Reserve Bank	$	7,372	$	7,318
Federal Home Loan Bank	8,625		7,225
	$	15,997	$	14,543

During the three and six months ended June 30, 2023, the Company purchased $40 thousand and $54 thousand of Federal Reserve Bank stock, respectively, and there were $1.4 million purchases of FHLB stock.

Other Equity Securities Without A Readily Determinable Fair Value

The Company also has equity securities in the form of capital stock invested in two different banker’s bank stocks which totaled $351 thousand at June 30, 2023 and December 31, 2022. These equity securities are reported in accrued interest receivable and other assets in the consolidated balance sheets. At June 30, 2023 and December 31, 2022, the Company evaluated the carrying value of these equity securities and determined that they were not impaired. During the three and six months ended June 30, 2023 and 2022, there were no losses related to changes in the fair value of these equity securities.

The Company has other equity investments and an investment in a technology venture capital fund focused on the intersection of fintech and community banking. At June 30, 2023 and December 31, 2022, the balance of these investments, which is included in accrued interest receivable and other assets in the consolidated balance sheets, was $6.7 million and $4.6 million, respectively. These equity securities are measured using the equity method of accounting when the Company’s ownership interest in such investments exceeds 5%, or carried at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investments of the same issuer. Cash distributions considered return of capital are recorded as a reduction of the Company’s investment. During the three and six months ended June 30, 2023, there were $1.5 million and $2.1 million net capital contributions made to these equity investments. During the three and six months ended June 30, 2022, there were $434 thousand and $1.4 million net capital contributions made to these equity investments. At June 30, 2023 and December 31, 2022, the Company evaluated the carrying value of these equity investments and determined they were not impaired. During the three and six months ended June 30, 2023 and 2022, there were no losses recognized related to changes in the fair value.

The Company has also invested in a limited partnership that operates affordable housing projects that qualify for and have received an allocation of federal and/or state low-income housing tax credits. This tax credit investment is reported in accrued interest receivable and other assets in the consolidated balance sheets, and is recorded net of accumulated amortization, using the proportional amortization method. The unfunded portion of these investments is included in other liabilities in the consolidated balance sheets. The aggregate funding commitment for this investment was $2.0 million at June 30, 2023 and December 31, 2022. During the three and six months ended June 30, 2023, there was no contribution made. At June 30, 2023 and December 31, 2022, the Company evaluated the carrying value of this tax credit equity investment and determined it was not impaired, and no loss was recognized related to changes in the fair value.

NOTE 3 - LOANS AND ALLOWANCE FOR CREDIT LOSSES

Loans Held for Investment

The Company’s loan portfolio consists primarily of loans to borrowers within its Southern California markets in San Diego, Orange, Ventura, Los Angeles, and Riverside counties, as well as the Inland Empire. Although the Company seeks to avoid concentrations of loans to a single industry or based upon a single class of collateral, real estate and real estate associated businesses are among the principal industries in the Company’s market area. The Company’s loan portfolio in real estate secured credit represented 83% and 82% of total loans

23

Table of Contents

at June 30, 2023 and December 31, 2022, respectively. The Company also originates SBA loans either for sale to institutional investors or for retention in the loan portfolio. Loans identified as held for sale are carried at the lower of cost or market value and separately designated as such in the consolidated financial statements. A portion of the Company’s revenues are from origination of loans guaranteed by the SBA under its various programs and sale of the guaranteed portions of the loans. Funding for these loans depends on annual appropriations by the U.S. Congress.

The composition of the Company’s loan portfolio at June 30, 2023 and December 31, 2022 was as follows:

(dollars in thousands)	June 30, 2023		December 31, 2022
Construction and land development	$	275,250	$	239,067
Real estate - other:
1-4 family residential	150,150		144,322
Multifamily residential	210,025		218,606
Commercial real estate and other	961,307		958,676
Commercial and industrial (1)	312,845		331,644
Consumer	3,776		5,458
Loans held for investment (2)	1,913,353		1,897,773
Allowance for credit losses	(22,502)		(17,099)
Loans held for investment, net	$	1,890,851	$	1,880,674
Loans held for sale, at lower of cost or fair value	$	1,062	$	9,027

(1)Includes Paycheck Protection Program (“PPP”) loans at net amortized amount of $3.0 million and $3.5 million at June 30, 2023 and December 31, 2022, respectively.

(2)Loans held for investment includes net unearned fees of $2.6 million and $3.3 million and net unearned discount of $1.6 million and $1.8 million at June 30, 2023 and December 31, 2022, respectively.

The Company has pledged $1.31 billion of loans with FHLB under a blanket lien, of which an unpaid principal balance of $833.7 million was considered as eligible collateral under this secured borrowing arrangement and loans with an unpaid principal balance of $131.6 million were pledged as collateral under a secured borrowing arrangement with the Federal Reserve as of June 30, 2023. See Note 7 – Borrowing Arrangements for additional information regarding the FHLB and Federal Reserve secured lines of credit.

Loans Held for Sale

At June 30, 2023 and December 31, 2022, the Company had loans held for sale, consisting of SBA 7(a) loans totaling $1.1 million and $9.0 million, respectively. The Company accounts for loans held for sale at the lower of carrying value or fair value. At June 30, 2023 and December 31, 2022, the fair value of loans held for sale totaled $1.1 million and $9.6 million, respectively.

Credit Quality Indicators

The Company categorizes loans using risk ratings based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. Larger, non-homogeneous loans such as CRE and C&I loans are analyzed individually for risk rating assessment. For purposes of risk classification, 1-4 Family Residential loans for investment purposes are evaluated with CRE loans. This analysis

24

Table of Contents

is performed on an ongoing basis as new information is obtained. The Company uses the following definitions for risk ratings:

Pass - Loans classified as pass include loans not meeting the risk ratings defined below.

Special Mention - Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss - Loans classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

25

Table of Contents

The risk category of loans by class of loans and origination year as of June 30, 2023 follows:

	Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving Loans Amortized Cost Basis Converted to Term During the Period
(dollars in thousands)	2023		2022		2021		2020		2019		Prior						Total
June 30, 2023
Construction and land development
Pass	$	5,360	$	121,263	$	130,351	$	14,794	$	1,940	$	586	$	859	$	—	$	275,153
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		97		—		—		97
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total construction and land development	5,360		121,263		130,351		14,794		1,940		683		859		—		275,250
Real estate - other:
1-4 family residential
Pass	26,666		37,547		21,907		7,913		5,119		16,653		33,346		—		149,151
Special mention	—		—		—		—		—		—		999		—		999
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total 1-4 family residential	26,666		37,547		21,907		7,913		5,119		16,653		34,345		—		150,150
Multifamily residential
Pass	10,494		70,602		72,765		5,982		27,624		21,723		835		—		210,025
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total multifamily residential	10,494		70,602		72,765		5,982		27,624		21,723		835		—		210,025

26

Table of Contents

	Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Basis		Revolving Loans Amortized Cost Basis Converted to Term During the Period
(dollars in thousands)	2023		2022		2021		2020		2019		Prior						Total
Commercial real estate and other
Pass	31,223		310,818		245,375		60,300		53,436		217,617		36,179		1,642		956,590
Special mention	—		2,721		—		—		—		—		—		—		2,721
Substandard	—		—		—		—		—		1,996		—		—		1,996
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total commercial real estate and other	31,223		313,539		245,375		60,300		53,436		219,613		36,179		1,642		961,307
Commercial and industrial
Pass	47,155		81,834		14,275		6,702		9,284		15,743		127,439		1,003		303,435
Special mention	—		—		1,648		1,554		161		333		3,145		—		6,841
Substandard	—		—		77		—		1,310		682		—		500		2,569
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total commercial and industrial	47,155		81,834		16,000		8,256		10,755		16,758		130,584		1,503		312,845
Consumer
Pass	915		—		48		107		10		651		2,045		—		3,776
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total consumer	915		—		48		107		10		651		2,045		—		3,776
Total loans	$	121,813	$	624,785	$	486,446	$	97,352	$	98,884	$	276,081	$	204,847	$	3,145	$	1,913,353
Total loans
Pass	$	121,813	$	622,064	$	484,721	$	95,798	$	97,413	$	272,973	$	200,703	$	2,645	$	1,898,130
Special mention	—		2,721		1,648		1,554		161		333		4,144		—		10,561
Substandard	—		—		77		—		1,310		2,775		—		500		4,662
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total loans	$	121,813	$	624,785	$	486,446	$	97,352	$	98,884	$	276,081	$	204,847	$	3,145	$	1,913,353

27

Table of Contents

A summary of gross charge-offs by class of loans and origination year for the six months ended June 30, 2023 follows:

	Term Loans Gross Charge-offs by Origination Year												Revolving Loans Amortized Cost Basis		Revolving Loans Amortized Cost Basis Converted to Term During the Period
(dollars in thousands)	2023		2022		2021		2020		2019		Prior						Total
Construction and land development	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Real estate - other:
1-4 family residential	—		—		—		—		—		(12)		—		—		(12)
Multifamily residential	—		—		—		—		—		—		—		—		—
Commercial real estate and other	—		—		—		—		—		—		—		—		—
Commercial and industrial	—		—		—		(15)		—		(9)		—		—		(24)
Consumer	—		—		—		—		—		—		—		—		—
Total loans	$	—	$	—	$	—	$	(15)	$	—	$	(21)	$	—	$	—	$	(36)

28

Table of Contents

The risk category of loans by class of loans as of December 31, 2022 follows:

(dollars in thousands)	Pass		Special Mention		Substandard		Total
December 31, 2022
Construction and land development	$	238,965	$	—	$	102	$	239,067
Real estate - other:
1-4 family residential	143,284		999		39		144,322
Multifamily residential	218,606		—		—		218,606
Commercial real estate and other	956,649		—		2,027		958,676
Commercial and industrial	323,999		6,057		1,588		331,644
Consumer	5,458		—		—		5,458
	$	1,886,961	$	7,056	$	3,756	$	1,897,773

Past Due Loans

A summary of past due loans as of June 30, 2023 and December 31, 2022 follows:

(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Over 90 Days Past Due		Total Past Due		Current		Total
June 30, 2023
Construction and land development	$	—	$	—	$	—	$	—	$	275,250	$	275,250
Real estate - other:
1-4 family residential	—		—		—		—		150,150		150,150
Multifamily residential	—		—		—		—		210,025		210,025
Commercial real estate and other	—		—		—		—		961,307		961,307
Commercial and industrial	—		—		—		—		312,845		312,845
Consumer	—		—		—		—		3,776		3,776
	$	—	$	—	$	—	$	—	$	1,913,353	$	1,913,353

(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Over 90 Days Past Due		Total Past Due		Current		Total
December 31, 2022
Construction and land development	$	—	$	—	$	—	$	—	$	239,067	$	239,067
Real estate - other:
1-4 family residential	—		—		—		—		144,322		144,322
Multifamily residential	—		—		—		—		218,606		218,606
Commercial real estate and other	—		—		—		—		958,676		958,676
Commercial and industrial	—		—		—		—		331,644		331,644
Consumer	—		—		—		—		5,458		5,458
	$	—	$	—	$	—	$	—	$	1,897,773	$	1,897,773

There were no loans over 90 days past due loans and still accruing interest as of June 30, 2023 and December 31, 2022.

29

Table of Contents

Nonaccrual Loans

A summary of total nonaccrual loans and the amount of nonaccrual loans with no related ACL as of June 30, 2023 and December 31, 2022 follows:

	June 30, 2023				December 31, 2022
(dollars in thousands)	Total Nonaccrual Loans		Nonaccrual Loans with no ACL		Total Nonaccrual Loans		Nonaccrual Loans with no ACL
Construction and land development	$	—	$	—	$	—	$	—
Real estate - other:
1-4 family residential	—		—		39		—
Multifamily residential	—		—		—		—
Commercial real estate and other	1		—		2		—
Commercial and industrial	39		—		—		—
Consumer	—		—		—		—
	$	40	$	—	$	41	$	—

Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. There were no collateral dependent loans as of June 30, 2023 and December 31, 2022.

Allowance for Credit Losses - Loans

On January 1, 2023, the Company adopted ASU 2016-13 using the modified retrospective method through a cumulative effect adjustment to retained earnings. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with the probable incurred loss accounting standards.

The ACL consists of: (i) a specific allowance established for current expected credit losses on loans individually evaluated, (ii) a quantitative allowance for current expected loan losses based on the portfolio and expected economic conditions over a reasonable and supportable forecast period that reverts back to long-term trends to cover the expected life of the loan, (iii) a qualitative allowance including management judgment to capture factors and trends that are not adequately reflected in the quantitative allowance, and (iv) the ACL for off-balance sheet credit exposure for unfunded loan commitments.

At June 30, 2023, the Company utilized probability-weighted three-scenario forecasts, representing a base-case scenario and two downside scenarios, to estimate the ACL, and the economic forecasts were released by Moody’s Analytics during the last week of June 2023 which suggested a slight shift from the March 2023 forecasts in their outlook based on the current economic data, which included the impact of the financial system turmoil and related governmental and other reactions to the rising interest rate environment, ongoing inflationary pressures throughout the U.S. economy, general uncertainty concerning future economic conditions, and the potential for recessionary conditions. These forecasts remained consistent in their long-held view that the inflationary outlook is the key to their baseline forecast. The most recent inflationary data, including the Federal Reserve’s preferred measure of inflation, is encouraging, but remained stubbornly high and may remain entrenched longer. This resulted in a modest change in Moody’s expectation that the Federal Reserve will postpone its first rate drop to the first quarter of 2024 from the last quarter of 2023. However, the baseline forecast still suggested that a soft landing would be the most likely outcome for the U.S. economy as a consequence of the resilience of consumers and labor markets. Management believes the Federal Reserve will continue to assess the impact of the bank failures, a sharp spike in near-term California unemployment rates ranging from 4.52% to 7.09%, and tightened credit conditions given the recent turmoil and liquidity concerns in the banking industry. The Company adjusted the qualitative reserve to consider the potential losses resulting from future recessionary pressures and the impact of the banking turmoil that were not captured in the quantitative model.

30

Table of Contents

Accrued interest receivable on loans receivable, net, totaled $5.7 million and $5.7 million at June 30, 2023 and December 31, 2022, respectively, and is included within accrued interest receivable and other assets in the accompanying consolidated balance sheets. Accrued interest receivable is excluded from the ACL.

The allowance for unfunded credit commitments is maintained at a level that management believes to be sufficient to absorb estimated expected credit losses related to unfunded credit facilities. The Company evaluates the loss exposure for unfunded loan commitments to extend credit following the same principles used for the ACL, with consideration for experienced utilization rates on client credit lines and the inherently lower risk of unfunded loan commitments relative to disbursed commitments. The Company recognized a negative provision for unfunded loan commitments of $135 thousand and $211 thousand for the three and six months ended June 30, 2023, respectively. There was a $146 thousand provision for unfunded loan commitments for the three and six months ended June 30, 2022. The provision for unfunded loan commitments is included in (reversal of) provision for credit losses in the consolidated statements of operations. The reserve for unfunded loan commitments was $1.5 million and $1.3 million at June 30, 2023 and December 31, 2022, respectively. The reserve for unfunded loan commitments is included in accrued interest payable and other liabilities in the consolidated balance sheets.

A summary of the changes in the ACL for the periods indicated follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands)	2023		2022		2023		2022
Allowance for loan losses (ALL)
Balance, beginning of period	$	22,391	$	13,534	$	17,099	$	11,657
Adoption of ASU No. 2016-13(1)	—		—		5,027		—
Provision for loan losses	120		1,650		398		3,500
Charge-offs	(9)		(21)		(36)		(21)
Recoveries	—		(27)		14		—
Net charge-offs	(9)		(48)		(22)		(21)
Balance, end of period	$	22,502	$	15,136	$	22,502	$	15,136
Reserve for unfunded loan commitments
Balance, beginning of period	$	1,673	$	804	$	1,310	$	804
Adoption of ASU No. 2016-13(1)	—		—		439		—
(Reversal of) provision for unfunded commitment losses	(135)		146		(211)		146
Balance, end of period	1,538		950		1,538		950
Allowance for credit losses (ACL), end of period	$	24,040	$	16,086	$	24,040	$	16,086

(1)Represents the impact of adopting ASU 2016-13, Financial Instruments - Credit Losses on January 1, 2023. As a result of adopting ASU 2016-13, the Company’s methodology to compute our allowance for credit losses is based on a current expected credit loss methodology, rather than the previously applied incurred loss methodology.

A summary of changes in the ACL by loan portfolio segment for the periods indicated follows:

(dollars in thousands)	Construction and Land Development		Real Estate - Other		Commercial & Industrial		Consumer		Total
Three Months Ended June 30, 2023
Beginning of period	$	3,397	$	14,699	$	4,241	$	54	$	22,391
Adoption of ASU No. 2016-13(1)	—		—		—		—		—
Provision (reversal of) for loan losses	159		398		(424)		(13)		120
Charge-offs	—		—		(9)		—		(9)
Recoveries	—		—		—		—		—
Net charge-offs	—		—		(9)		—		(9)
End of period	$	3,556	$	15,097	$	3,808	$	41	$	22,502

31

Table of Contents

(dollars in thousands)	Construction and Land Development		Real Estate - Other		Commercial & Industrial		Consumer		Total
Specific reserves	$	—	$	—	$	12	$	—	$	12
General reserves	3,556		15,097		3,796		41		22,490
	$	3,556	$	15,097	$	3,808	$	41	$	22,502
Loans evaluated for impairment:
Individually	$	—	$	1	$	39	$	—	$	40
Collectively	275,250		1,321,481		312,806		3,776		1,913,313
	$	275,250	$	1,321,482	$	312,845	$	3,776	$	1,913,353
Three Months Ended June 30, 2022
Beginning of period	$	892	$	10,012	$	2,628	$	2	$	13,534
Provision for loan losses	367		974		281		28		1,650
Charge-offs	—		—		(21)		—		(21)
Recoveries	—		(1)		(25)		(1)		(27)
Net charge-offs	—		(1)		(46)		(1)		(48)
End of period	$	1,259	$	10,985	$	2,863	$	29	$	15,136
Specific reserves	$	—	$	14	$	—	$	—	$	14
General reserves	1,259		10,971		2,863		29		15,122
	$	1,259	$	10,985	$	2,863	$	29	$	15,136
Loans evaluated for impairment:
Individually	$	—	$	1,669	$	101	$	—	$	1,770
Collectively	109,843		1,196,910		316,870		1,611		1,625,234
	$	109,843	$	1,198,579	$	316,971	$	1,611	$	1,627,004

(dollars in thousands)	Construction and Land Development		Real Estate - Other		Commercial & Industrial		Consumer		Total
Six Months Ended June 30, 2023
Beginning of period	$	2,301	$	11,691	$	3,079	$	28	$	17,099
Adoption of ASU No. 2016-13(1)	881		2,983		1,132		31		5,027
Provision (reversal of) for loan losses	374		435		(393)		(18)		398
Charge-offs	—		(12)		(24)		—		(36)
Recoveries	—		—		14		—		14
Net charge-offs	—		(12)		(10)		—		(22)
End of period	$	3,556	$	15,097	$	3,808	$	41	$	22,502
Six Months Ended June 30, 2022
Beginning of period	$	666	$	8,441	$	2,548	$	2	$	11,657
Provision for loan losses	593		2,544		336		27		3,500
Charge-offs	—		—		(21)		—		(21)
Recoveries	—		—		—		—		—
Net charge-offs	—		—		(21)		—		(21)
End of period	$	1,259	$	10,985	$	2,863	$	29	$	15,136

(1)Represents the impact of adopting ASU 2016-13, Financial Instruments - Credit Losses on January 1, 2023. As a result of adopting ASU 2016-13, the Company’s methodology to compute our ACL is based on a CECL methodology, rather than the previously applied incurred loss methodology.

32

Table of Contents

NOTE 4 - TRANSFERS AND SERVICING OF FINANCIAL ASSETS

The Company has originated loans that are serviced for others, including loans partially guaranteed by the SBA, some of which have been sold in the secondary market, as well as CRE loans, C&I loans participated with various other financial institutions and special purpose vehicle (“SPV”) participations for the Main Street loans. Loans serviced for others are accounted for as sales and are therefore not included in the accompanying consolidated balance sheets. Loans serviced for others totaled $67.9 million and $59.4 million at June 30, 2023 and December 31, 2022, respectively. This includes SBA loans serviced for others of $40.2 million and $30.3 million at June 30, 2023, and December 31, 2022, for which there was a related servicing asset of $683 thousand and $514 thousand, respectively.

Consideration for each SBA loan sale includes the cash received and a related servicing asset. The Company receives servicing fees ranging from 0.25% to 1.00% for the services provided over the life of the loan. The servicing asset is based on the estimated fair value of these future cash flows to be collected. The risks inherent in SBA servicing assets primarily relates to accelerated prepayment of loans in excess of what was originally modeled driven by changes in interest rates and a reduction in the estimated future cash flows.

The servicing asset activity includes additions from loan sales with servicing retained, and reductions from amortization as the serviced loans are repaid and servicing fees are earned. The SBA servicing asset is reported in accrued interest receivable and other assets in the consolidated balance sheets. A summary of change in the SBA servicing asset for the three and six months ended June 30, 2023 and 2022 follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands)	2023		2022		2023		2022
Balance, beginning of period	$	684	$	162	$	514	$	170
Additions	24		237		216		251
Amortization (1)	(25)		(28)		(47)		(50)
Balance, end of period	$	683	$	371	$	683	$	371

(1) There was no accelerated amortization for the three months ended June 30, 2023. Amortization included accelerated amortization of $23 thousand for the three months ended June 30, 2022, and $3 thousand and $33 thousand for the six months ended June 30, 2023 and 2022, respectively.

SBA 7(a) loans sold during the three and six months ended June 30, 2023 totaled $1.0 million and $10.9 million, respectively, resulting in total gains on sale of SBA loans of $77 thousand and $874 thousand, respectively. SBA 7(a) loans sold during the three and six months ended June 30, 2022 totaled $10.7 million and $11.2 million, respectively, resulting in total gains on sale of SBA loans of $711 thousand and $760 thousand, respectively.

The fair value of the servicing asset was $697 thousand and $475 thousand at June 30, 2023 and December 31, 2022, respectively. The significant assumptions used in the valuation of the SBA servicing asset at June 30, 2023 and December 31, 2022 included:

(dollars in thousands)	June 30, 2023	December 31, 2022
Discount rate:
Range	9.5% – 25.8%	13.9% – 34.3%
Weighted average	15.1%	19.1%
Prepayment speed:
Range	9.8% – 44.6%	9.7% – 41.2%
Weighted average	16.7%	17.0%

33

Table of Contents

The following table presents the components of net servicing fees, included in noninterest income in the consolidated statements of operations, for the three and six months ended June 30, 2023 and 2022:

	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands)	2023		2022		2023		2022
Contractually specified fees	104		38		196		85
Amortization	(25)		(28)		(47)		(50)
Net servicing fees	$	79	$	10	$	149	$	35

NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is the excess purchase price over the fair value of all identifiable assets and liabilities acquired and totaled $37.8 million at June 30, 2023 and December 31, 2022. Goodwill is reviewed for impairment at least annually during the fourth quarter of each fiscal year. The Company performed a qualitative assessment for potential impairment as of December 31, 2022, and as a result of that assessment had determined that there has been no impairment to the goodwill. Due to the banking industry turmoil and the resulting volatility in our stock price during the first quarter of 2023, the Company performed an analysis of goodwill that consisted of quantitative assessments to determine if it is more likely than not that the carrying values of each reporting unit exceeded their estimated fair values. The results of these analyses indicated that no impairment of goodwill existed as of March 31, 2023. There were no changes to goodwill during the three and six months ended June 30, 2023 and 2022.

Core deposit intangibles are amortized over periods of 0.42 to 8.34 years. As of June 30, 2023, the weighted-average remaining amortization period for core deposit intangibles was approximately 6.6 years. The following table presents the changes in core deposit intangibles for the three and six months ended June 30, 2023 and 2022.

	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands)	2023		2022		2023		2022
Gross balance, beginning of period	$	4,185	$	4,185	$	4,185	$	4,185
Additions	—		—		—		—
Gross balance, end of period	$	4,185	$	4,185	$	4,185	$	4,185
Accumulated amortization:
Balance, beginning of period	$	(2,692)	$	(2,262)	$	(2,601)	$	(2,163)
Amortization	(90)		(99)		(181)		(198)
Balance, end of period	(2,782)		(2,361)		(2,782)		(2,361)
Net core deposit intangible, end of period	$	1,403	$	1,824	$	1,403	$	1,824

34

Table of Contents

Future estimated amortization expense for each of the next five years is as follows:

(dollars in thousands)	Amount
Remainder of 2023	$	174
2024	271
2025	248
2026	227
2027	205
Thereafter	278
	$	1,403

NOTE 6 - DEPOSITS

The Company offers the Insured Cash Sweep (ICS) product, providing customers with FDIC insurance coverage at ICS network institutions. As of June 30, 2023, ICS deposits increased to $256.3 million, or 12.9% of total deposits, compared to $65.5 million, or 3.4% of total deposits at December 31, 2022.

Time deposits that exceeded the FDIC insurance limit of $250,000 amounted to $69.3 million and $84.6 million as of June 30, 2023 and December 31, 2022, respectively. Brokered time deposits totaled $98.4 million and $20.7 million as of June 30, 2023 and December 31, 2022, respectively.

The Company participates in a state public deposits program that allows it to receive deposits from the state or from political subdivisions within the state in amounts that would not be covered by the FDIC. This program provides a stable source of funding to the Company. As of June 30, 2023 and December 31, 2022, total collateralized deposits, including the deposits of State of California and their public agencies, were $45.7 million and $14.4 million, respectively, and were collateralized by letters of credit issued by the FHLB under the Company’s secured line of credit with the FHLB. See Note 7 – Borrowing Arrangements for additional information regarding the FHLB secured line of credit.

At June 30, 2023, the scheduled maturities of time deposits are as follows:

(dollars in thousands)	Amount
Remainder of 2023	$	134,535
2024	30,306
2025	20,404
2026	3,941
2027	85
	$	189,271

NOTE 7 - BORROWING ARRANGEMENTS

A summary of outstanding borrowings as of June 30, 2023 and December 31, 2022 follows:

(dollars in thousands)	June 30, 2023		December 31, 2022
FHLB advances	$	15,000	$	50,000
Subordinated notes	17,818		17,770
Total borrowings	$	32,818	$	67,770

35

Table of Contents

Federal Home Loan Bank Secured Line of Credit

At June 30, 2023, the Company had a secured line of credit of $468.5 million from the FHLB, of which $405.0 million was available. This secured borrowing arrangement is collateralized under a blanket lien on qualifying real estate loans and is subject to the Company providing adequate collateral and continued compliance with the Advances and Security Agreement and other eligibility requirements established by the FHLB. At June 30, 2023, the Company had pledged qualifying loans with an unpaid principal balance of $833.7 million for this line. In addition, at June 30, 2023, the Company used $48.5 million of its secured FHLB borrowing capacity by having the FHLB issue letters of credit to meet collateral requirements for deposits from the State of California and other public agencies.

The Company had an overnight borrowing of $15.0 million with an interest rate of 5.35% and $50.0 million with an interest of 4.65% at June 30, 2023 and December 31, 2022, respectively.

Federal Reserve Bank Secured Line of Credit

At June 30, 2023, the Company had credit availability of $141.8 million at the Federal Reserve discount window to the extent of collateral pledged. At June 30, 2023, the Company had pledged held-to-maturity debt securities with an amortized cost of $53.8 million as collateral, and qualifying loans with an unpaid principal balance of $131.6 million as collateral through the Borrower-in-Custody (“BIC”) program. The Company had no discount window borrowings at June 30, 2023 and December 31, 2022.

In March 2023, the Federal Reserve announced the creation of a new Bank Term Funding Program (“BTFP”) which provides an additional source of liquidity against high quality securities, in an effort to minimize the need for banks to quickly sell securities at a loss in times of stress. The BTFP offers advances for a term of up to one year to eligible borrowers that pledge U.S.Treasuries, agency debt, mortgage-backed securities, and other qualifying assets as collateral. The rate for term advances will be the one-year overnight index swap rate plus 10 basis points; the rate will be fixed for the term of the advance on the day the advance is made. Borrowers may prepay advances (including for purposes of refinancing) at any time without penalty. At June 30, 2023, the Company did not establish any borrowing capacity through the BTFP program.

Federal Funds Unsecured Lines of Credit

At June 30, 2023, the Company had two overnight unsecured credit lines from correspondent banks totaling $60.0 million. The lines are subject to annual review. There were no outstanding borrowings under these lines at June 30, 2023 and December 31, 2022.

Fixed-to-Floating Rate Subordinated Notes

On May 28, 2020, the Company issued $18 million of 5.50% Fixed-to-Floating Rate Subordinated Notes Due 2030 (the “Notes”). The Notes mature March 25, 2030 and accrue interest at a fixed rate of 5.50% through the fixed-rate period to March 26, 2025, after which interest accrues at a floating rate of 90-day Secured Overnight Financing Rate (“SOFR”) plus 350 basis points, until maturity, unless redeemed early, at the Company’s option, after the end of the fixed-rate period. Issuance costs of $475 thousand were incurred and are being amortized over the first 5-year fixed term of the Notes; unamortized issuance costs at June 30, 2023 and December 31, 2022, were $182 thousand and $230 thousand, respectively. The net unamortized issuance costs are netted against the balance and recorded in borrowings in the consolidated balance sheets. The amortization expenses are recorded in interest expense in the consolidated statements of operations. At June 30, 2023, the Company was in compliance with all covenants and terms of the Notes.

NOTE 8 - SHAREHOLDERS’ EQUITY

Common Stock Repurchase Plan

On June 14, 2023, the Company announced an authorized share repurchase plan, providing for the repurchase of up to 550,000 shares of the Company’s outstanding common stock, or approximately 3% of its then outstanding shares. Repurchases under the program may occur from time to time in open market transactions, in

36

Table of Contents

privately negotiated transactions, or by other means in accordance with federal securities laws and other restrictions. The Company intends to fund its repurchases from available working capital and cash provided by operating activities. The timing of repurchases, as well as the number of shares repurchased, will depend on a variety of factors, including price; trading volume; business, economic and general market conditions; and the terms of any Rule 10b5-1 plan adopted by the Company. The repurchase program has no expiration date and may be suspended, modified, or terminated at any time without prior notice.

There were no shares repurchased under this share repurchase plan during the three months ended June 30, 2023.

NOTE 9 - EARNINGS PER SHARE (“EPS”)

The following is a reconciliation of net income and shares outstanding to the income and number of shares used to compute EPS for the three and six months ended June 30, 2023 and 2022:

	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands, except share and per share data)	2023		2022		2023		2022
Net income (loss)	$	6,718	$	(736)	$	14,942	$	710
Weighted average common shares outstanding - basic	18,287,595		17,808,742		18,172,083		17,765,991
Dilutive effect of outstanding:
Stock options and unvested stock grants	308,633		393,112		440,861		406,292
Weighted average common shares outstanding - diluted	18,596,228		18,201,854		18,612,944		18,172,283
Earnings (loss) per common share - basic	$	0.37	$	(0.04)	$	0.82	$	0.04
Earnings (loss) per common share - diluted	$	0.36	$	(0.04)	$	0.80	$	0.04

The Company’s only performance based restricted stock grants were vested when the performance conditions had been met on March 1, 2023. A total of 275,171 performance based restricted stock grants were vested and included in the computation of diluted EPS for the three and six months ended June 30, 2023 because the performance conditions had been met, but they were excluded in the computation of diluted EPS for the three and six months ended June 30, 2022 because the performance conditions had not been met. At June 30, 2023 and 2022, there were 129,877 and 173,946 restricted stock units and 6,547 and 23,808 stock options, respectively, that were not included in the computation of diluted earnings per share, because they were anti-dilutive.

NOTE 10 - RELATED PARTY TRANSACTIONS

In the ordinary course of business, the Company has granted loans to certain directors and their related interests with which they are associated.

The balance of these loans outstanding and activity in related party loans for the three and six months ended June 30, 2023 and 2022 follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands)	2023		2022		2023		2022
Balance at beginning of period	$	8,052	$	10,233	$	8,073	$	10,259
New credit granted	—		—		—		—
Repayments	(320)		(1,157)		(341)		(1,183)
Balance at end of period	$	7,732	$	9,076	$	7,732	$	9,076

37

Table of Contents

Directors and related interests deposits at June 30, 2023 and December 31, 2022, amounted to approximately $19.6 million and $4.7 million, respectively.

The Company leases the Ramona branch office from a principal shareholder and member of our Board of Directors under an operating lease expiring in 2027 on terms considered to be prevailing in the market at the time of the lease. Total lease expense for the three and six months ended June 30, 2023 was $11 thousand and $22 thousand, respectively, and was $10 thousand and $21 thousand for the three and six months ended June 30, 2022, respectively. At June 30, 2023, future minimum lease payments under the lease were $172 thousand.

As of June 30, 2023, the holding company committed to a $2.0 million investment in the Castle Creek Launchpad Fund I (“Launchpad”). A director of the Company is a member of the Investment Committee for Castle Creek Launchpad Fund I. At June 30, 2023, total capital contributions made to this investment were $604 thousand.

NOTE 11 - COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, the Company enters into financial commitments to meet the financing needs of its customers. These financial commitments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk not recognized in the Company’s financial statements.

Commitments to extend credit are agreements to lend to a client as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. The Company evaluates each client’s credit worthiness on a case-by-case basis. Collateral may or may not be required based on management’s credit evaluation of the customer. The majority of the Company’s commitments to extend credit and standby letters of credit are secured by real estate.

The Company’s exposure to loan loss in the event of nonperformance on commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for loans reflected in the consolidated financial statements.

The Company had the following outstanding financial commitments whose contractual amount represents potential credit risk at June 30, 2023 and December 31, 2022:

(dollars in thousands)	June 30, 2023		December 31, 2022
Commitments to extend credit	$	518,734	$	596,349
Letters of credit issued to customers	4,912		4,794
Commitments to contribute capital to other equity investments	3,829		6,041
	$	527,475	$	607,184

In 2016 and 2021, the Company entered into deferred compensation agreements with certain key officers. Under these agreements, the Company is obligated to provide, upon retirement, a 10-year benefit to the officers. The annual benefits range from $20 thousand to $75 thousand. The estimated present value of future benefits to be paid is being accrued over the period from the effective date of the agreements until the expected retirement dates of the participants. The expense incurred for these agreements for the three and six months ended June 30, 2023 was $79 thousand and $157 thousand, respectively, and $95 thousand and $182 thousand for the three and six months ended June 30, 2022, respectively. The Company is a beneficiary of life insurance policies that have been purchased as a method of financing the obligated benefits under these agreements.

In the normal course of business, the Company is named or threatened to be named as a defendant in various legal actions. The ultimate outcome with respect to these legal matters and claims cannot be determined.

38

Table of Contents

At this time, the Company believes that liability, if any, is not likely to be material to the consolidated balance sheets or consolidated statements of operations.

NOTE 12 - STOCK-BASED COMPENSATION PLAN

In contemplation of the holding company reorganization, in November 2019 the Company’s Board of Directors adopted the Southern California Bancorp 2019 Omnibus Equity Incentive Plan (the “2019 Plan”). The 2019 Plan was approved by shareholders in April 2020 with a maximum number of shares of common stock that may be issued or paid out under the plan of 2,200,000. In addition, upon the completion of the bank holding company reorganization in 2020, the Bank’s 2001 Stock Option Plan and 2011 Omnibus Equity Incentive Plan were terminated and all outstanding and unexpired stock options and all shares of restricted stock outstanding under the terminated plans became equivalent awards of the Company under the 2019 Plan.

In October 2020, the Company’s Board of Directors approved increasing the maximum number of shares under the 2019 Plan by 300,000 to 2,500,000. In June 2021, the Company’s Board of Directors approved increasing the maximum number of shares under the 2019 Plan by 900,000 to 3,400,000.

In addition, the 2019 Plan permits the Company to grant additional stock options and restricted share units. The Plan provides for the granting to eligible participants such incentive awards as the Board of Directors or a committee established by the Board, in its sole discretion, to administer the Plan. The Board has the power to determine the terms of the awards, including the exercise price, the number of shares subject to each award, the vesting and exercisability of the awards and the form of consideration payable upon exercise. Stock options expire no later than ten years from the date of the grant. The 2019 Plan provides for accelerated vesting if there is a change of control, as defined in the Plan. Restricted stock units generally vest over a period of one to five years.

In connection with the Bank of Santa Clarita (“BSCA”) merger, the Company assumed each outstanding, unexercised option to acquire shares of BSCA common stock held by BSCA officers and employees who continue to be employed by the Company immediately following the merger, other than any stock options held by BSCA’s former chief executive officer. Total unexercised stock options were 90,731, of which 65,261 shares were vested and 25,470 shares were unvested. The remaining term on the assumed stock options ranges from 2.4 years to 9.2 years. Each such option assumed by the Company, immediately following the merger, represented a stock option to purchase the same number of shares as immediately prior to the merger, except that the assumed options represented the right to purchase shares of the Company’s stock instead of shares of BSCA stock. Each assumed option has the same exercise price and is subject to substantially the same terms and conditions as immediately prior to merger, including the original vesting schedule and conditions. All outstanding unexercised options to acquire shares of BSCA common stock held by employees who were not continuing employees or by BSCA’s former chief executive officer were canceled and terminated at the effective time of the merger.

Total stock-based compensation cost related to stock options and restricted shares units was $1.1 million and $1.0 million for the three months ended June 30, 2023 and 2022, respectively. Total stock-based compensation cost related to stock options and restricted shares units was $2.8 million and $1.8 million for the six months ended June 30, 2023 and 2022, respectively.

Stock Options

As of June 30, 2023, there was $113 thousand of total unrecognized compensation cost related to the outstanding stock options. The intrinsic value of stock options exercised was approximately $29 thousand and $536 thousand for the three months ended June 30, 2023 and 2022, respectively. The intrinsic value of stock options exercised was approximately $78 thousand and $865 thousand for the six months ended June 30, 2023 and 2022, respectively.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. There were no options granted during the three and six months ended June 30, 2023 and 2022.

39

Table of Contents

A summary of changes in outstanding stock options during the three and six months ended June 30, 2023 and 2022 are presented below:

	Three Months Ended			Six Months Ended
	June 30, 2023			June 30, 2023			June 30, 2023
(dollars in thousands, except share data)	Shares	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Year)	Aggregate Intrinsic Value
Outstanding at beginning of period	292,338	$	9.22	326,868	$	9.53
Granted	—	$	—	—	$	—
Exercised	(4,000)	$	6.61	(10,950)	$	8.53
Forfeited	—	$	—	(27,580)	$	12.79
Outstanding at end of period	288,338	$	9.26	288,338	$	9.26	3.7	$	1,286
Options exercisable	260,638	$	8.97	260,638	$	8.97	3.4	$	1,238

	Three Months Ended			Six Months Ended
	June 30, 2022			June 30, 2022			June 30, 2022
(dollars in thousands, except share data)	Shares	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Year)	Aggregate Intrinsic Value
Outstanding at beginning of period	459,768	$	9.35	536,651	$	9.36
Granted	—	$	—	—	$	—
Exercised	(69,600)	$	7.24	(110,600)	$	7.29
Forfeited	(21,900)	$	12.44	(57,783)	$	12.03
Outstanding at end of period	368,268	$	9.56	368,268	$	9.56	4.8	$	2,037
Options exercisable	306,393	$	9.07	306,393	$	9.07	4.4	$	1,844

Restricted Stock Units

A summary of the changes in outstanding unvested restricted stock units during the three and six months ended June 30, 2023 and 2022 is presented below:

	Three Months Ended			Six Months Ended
	June 30, 2023			June 30, 2023
	Restricted Shares	Weighted Average Grant Date Fair Value		Restricted Shares	Weighted Average Grant Date Fair Value
Unvested at beginning of period	783,174	$	13.18	959,337	$	11.55
Granted	21,324	$	15.16	192,258	$	16.73
Vested (1)	(26,075)	$	14.67	(373,172)	$	10.80
Forfeited	—	$	—	—	$	—
Unvested at end of period	778,423	$	13.19	778,423	$	13.19

(1)Included the vesting of performance-based awards totaling 275,171 shares, with a weighted average grant date fair value of $9.29 for the six months ended June 30, 2023.

40

Table of Contents

	Three Months Ended			Six Months Ended
	June 30, 2022			June 30, 2022
	Restricted Shares	Weighted Average Grant Date Fair Value		Restricted Shares	Weighted Average Grant Date Fair Value
Unvested at beginning of period	1,138,433	$	11.40	1,010,501	$	10.55
Granted	60,586	$	15.04	247,507	$	15.29
Vested	(19,410)	$	13.86	(25,035)	$	13.66
Forfeited	(39,737)	$	13.71	(93,101)	$	11.02
Unvested at end of period	1,139,872	$	11.47	1,139,872	$	11.47

On March 1, 2023, the Board confirmed that all performance conditions for the performance-based restricted stock units totaling 275,171 shares had been satisfied and accelerated vesting in full. There was no accelerated stock-based compensation recorded for the three months ended June 30, 2023. For the six months ended June 30, 2023, the Company recorded accelerated stock-based compensation expense totaling $632 thousand.

As of June 30, 2023, there was $7.9 million of total unrecognized compensation expense related to the outstanding restricted stock units that will be recognized over the weighted-average period of 2.5 years. The total grant date fair value of restricted stock units vested was $383 thousand and $4.0 million for the three and six months ended June 30, 2023, respectively, and $269 thousand and $342 thousand for the three and six months ended June 30, 2022, respectively. Related tax expenses were approximately $8 thousand for the three months ended June 30, 2023, and related tax benefits were approximately $644 thousand for the six months ended June 30, 2023, and $6 thousand and $11 thousand for the three and six months ended June 30, 2022, respectively.

As of June 30, 2023, the Company did not have any outstanding unvested restricted stock units subject to various financial performance conditions.

Future levels of compensation cost recognized related to stock-based compensation awards may be impacted by new awards and/or modifications, repurchases and cancellations of existing awards. Under the terms of the 2019 Plan, vested options generally expire ninety days after the director or employee terminates the service affiliation with the Company.

NOTE 13 - REGULATORY MATTERS

At June 30, 2023 and December 31, 2022, the Company qualified for treatment under the Small Bank Holding Company Policy Statement (Regulation Y, Appendix C) and, therefore, is not subject to consolidated capital rules at the bank holding company level.

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Banks considered to be “adequately capitalized” are required to maintain a minimum total capital ratio of 8.0%, a minimum Tier 1 capital ratio of 6.0%, a minimum common equity Tier 1 capital ratio of 4.5%, and a minimum leverage ratio of 4.0%. Banks considered to be “well capitalized” must maintain a minimum total capital ratio of 10.0%, a minimum Tier 1 capital ratio of 8.0%, a minimum common equity Tier 1 capital ratio of

41

Table of Contents

6.5%, and a minimum leverage ratio of 5.0%. As of June 30, 2023 and December 31, 2022, the Bank exceeded the minimums necessary to qualify as “well capitalized” under the regulatory framework for prompt corrective action (PCA). There are no conditions or events that management believes have changed the Bank’s categories. Management believes, as of June 30, 2023 and December 31, 2022, that the Bank met all capital adequacy requirements to which we are subject.

Basel III, the comprehensive regulatory capital rules for U.S. banking organizations, requires all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively comprised of common equity Tier 1 capital, and it applies to each of the three risk-based capital ratios but not to the leverage ratio. Effective January 1, 2019, the capital conservation buffer increased by 0.625% to its fully phased-in 2.5%, such that the common equity Tier 1, Tier 1 and total capital ratio minimums inclusive of the capital conservation buffers were 7.0%, 8.5%, and 10.5% at June 30, 2023. At June 30, 2023, the Bank was in compliance with the capital conservation buffer requirements. To be categorized as well capitalized, the Bank must maintain minimum ratios as set forth in the table below.

The following table also sets forth the Bank’s actual capital amounts and ratios:

					Amount of Capital Required
					To be				To be Well-
					Adequately				Capitalized under
	Actual				Capitalized				PCA Provisions
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of June 30, 2023:
Total Capital (to Risk-Weighted Assets)	$	279,038	12.98	%	$	172,020	8.0	%	$	215,025	10.0	%
Tier 1 Capital (to Risk-Weighted Assets)	259,098		12.05	%	129,015		6.0	%	172,020		8.0	%
CET1 Capital (to Risk-Weighted Assets)	259,098		12.05	%	96,761		4.5	%	139,766		6.5	%
Tier 1 Capital (to Average Assets)	259,098		11.47	%	90,325		4.0	%	112,907		5.0	%
As of December 31, 2022:
Total Capital (to Risk-Weighted Assets)	$	260,788	11.97	%	$	174,256	8.0	%	$	217,820	10.0	%
Tier 1 Capital (to Risk-Weighted Assets)	242,379		11.13	%	130,692		6.0	%	174,256		8.0	%
CET1 Capital (to Risk-Weighted Assets)	242,379		11.13	%	98,019		4.5	%	141,583		6.5	%
Tier 1 Capital (to Average Assets)	242,379		10.62	%	91,297		4.0	%	114,122		5.0	%

The primary source of funds for the Company is dividends from the Bank. Under federal law, the Bank may not declare a dividend in excess of its undivided profits and, absent the approval of the OCC, the Bank’s primary banking regulatory, if the total amount of dividends declared by the Bank in any calendar year exceeds the total of the Bank’s retained net income of that current period, year to date, combined with its retained net income for the preceding two years. The Bank also is prohibited from declaring or paying any dividend if, after making the dividend, the Bank would be considered “undercapitalized” (as defined by reference to other OCC regulations). Federal bank regulatory agencies have authority to prohibit banking institutions from paying dividends if those agencies determine that, based on the financial condition of the bank, such payment will constitute an unsafe or unsound practice.

The Federal Reserve limits the amount of dividends that bank holding companies may pay on common stock to income available over the past year, and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. It is also the Federal Reserve’s policy that bank holding companies should not maintain dividend levels that undermine their ability to be a source of strength to its banking subsidiaries. Additionally, in consideration of the current financial and economic environment, the Federal Reserve has indicated that bank holding companies should carefully review their dividend policies.

42

Table of Contents

NOTE 14 - FAIR VALUE

The fair value of a financial instrument is the amount at which the asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument. Because no market value exists for a significant portion of the financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, involve uncertainties and matters of judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value of financial instruments

Fair value estimates are based on financial instruments both on and off the balance sheet without attempting to estimate the value of anticipated future business, and the value of assets and liabilities that are not considered financial instruments. Additionally, tax consequences related to the realization of the unrealized gains and losses can have a potential effect on fair value estimates and have not been considered in many of the estimates. The following methods and assumptions were used to estimate the fair value of significant financial instruments:

Cash and Due from Banks: The carrying amounts of cash and short-term instruments approximate fair values because of the liquidity of these instruments.

Fed Funds and Interest-Bearing Balances: The carrying amount is assumed to be the fair value given the short-term nature of these deposits.

Debt Securities Held to Maturity and Available for Sale: The fair values of securities held to maturity and available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities.

Loans Held for Sale: The fair value of loans held-for-sale is based on commitments outstanding from investors as well as what secondary market investors are currently offering for portfolios with similar characteristics.

Loans Held for Investment, net: The fair value of loans, which is based on an exit price notion, is generally determined using an income based approach based on discounted cash flow analysis. This approach utilizes the contractual maturity of the loans and market indications of interest rates, prepayment speeds, defaults and credit risk in determining fair value. For impaired loans, an asset-based approach is applied to determine the estimated fair values of the underlying collateral. This approach utilizes the estimated net sales proceeds to determine the fair value of the loans when deemed appropriate. The implied sales proceeds value provides a better indication of value than using an income-based approach as these loans are not performing or exhibit strong signs indicative of non-performance.

Restricted Stock Investments: Investments in FHLB and Federal Reserve stocks are recorded at cost and measured for impairment. Ownership of FHLB and Federal Reserve stocks are restricted to member banks and the securities do not have a readily determinable market value. Purchases and sales of these securities are at par value with the issuer. The fair value of investments in FHLB and Federal Reserve stock is equal to the carrying amount.

Other Equity Securities: The fair value of equity securities is based on quoted prices in active markets for identical assets to determine the fair value. If quoted prices are not available to determine fair value, the Company estimates the fair values by using independent pricing models, quoted prices of securities with similar characteristics, or discounted cash flows.

Other Real Estate Owned: Nonrecurring adjustments to certain commercial and residential real estate properties classified as OREO are measured at the lower of the carrying amount or fair value, less costs to sell. The fair value of OREO is generally based on recent real estate appraisals or broker opinions, obtained from

43

Table of Contents

independent third parties, which are frequently adjusted by management to reflect current conditions and estimated selling costs.

Accrued Interest Receivable: The fair value of accrued interest receivable approximates their carrying amounts.

Deposits: The fair values disclosed for demand deposits, including interest and non-interest demand accounts, savings, and certain types of money market accounts are, by definition based on carrying value. Fair value for fixed-rate certificates of deposit is estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregate expected monthly maturities on time deposits. Early withdrawal of fixed-rate certificates of deposit is not expected to be significant.

Borrowings: The fair values of the Company’s overnight borrowings from the Federal Home Loan Bank approximates their carrying value as the advances were recently borrowed at market rate. The fair value of fixed-rated term borrowings is estimated using a discounted cash flow through the remaining maturity dates based on the current borrowing rates for similar types of borrowing arrangements. The fair values of subordinated debt are based on rates currently available to the Company for debt with similar terms and remaining maturities.

Accrued Interest Payable: The fair value of accrued interest payable approximates their carrying amounts.

Off-Balance Sheet Financial Instruments: The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements. The fair value of these financial instruments is not material.

The estimated fair value hierarchy level and estimated fair value of financial instruments at June 30, 2023 and December 31, 2022, is summarized as follows:

		June 30, 2023				December 31, 2022
				Estimated				Estimated
	Fair Value	Carrying		Fair		Carrying		Fair
(dollars in thousands)	Hierarchy	Value		Value		Value		Value
Financial assets:
Cash and due from banks	Level 1	$	34,632	$	34,632	$	60,295	$	60,295
Fed funds and interest-bearing balances	Level 1	69,995		69,995		26,465		26,465
Debt securities available for sale	Level 2	119,875		119,875		112,580		112,580
Debt securities held to maturity	Level 2	53,782		48,563		53,946		47,906
Loans held for sale	Level 2	1,062		1,129		9,027		9,616
Loans held for investment, net	Level 3	1,890,851		1,844,735		1,880,674		1,836,782
Restricted stock, at cost	Level 2	15,997		15,997		14,543		14,543
Other equity securities	Level 2	9,074		9,074		6,974		6,974
Accrued interest receivable	Level 2	6,604		6,604		6,868		6,868
Financial liabilities:
Deposits	Level 2	1,980,908		1,979,468		1,931,905		1,929,947
Borrowings	Level 2	32,818		32,435		67,770		67,387
Accrued interest payable	Level 2	298		298		215		215

44

Table of Contents

Recurring fair value measurements

The following table provides the hierarchy and fair value for each major category of assets and liabilities measured at fair value on a recurring basis at the periods indicated:

	Recurring Fair Value Measurements
(dollars in thousands)	Level 1		Level 2		Level 3		Total
June 30, 2023
Securities available for sale:
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities	$	—	$	47,418	$	—	$	47,418
SBA securities	—		6,672		—		6,672
U.S. Treasury	—		5,936		—		5,936
U.S. Agency	—		6,227		—		6,227
Collateralized mortgage obligations	—		42,853		—		42,853
Taxable municipals	—		4,270		—		4,270
Tax exempt bank-qualified municipals	—		6,499		—		6,499
	$	—	$	119,875	$	—	$	119,875
December 31, 2022
Securities available for sale:
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities	$	—	$	23,295	$	—	$	23,295
SBA securities	—		7,872		—		7,872
U.S. Treasury	—		5,952		—		5,952
U.S. Agency	—		6,183		—		6,183
Collateralized mortgage obligations	—		44,423		—		44,423
Taxable municipals	—		4,228		—		4,228
Tax exempt bank-qualified municipals	—		20,627		—		20,627
	$	—	$	112,580	$	—	$	112,580

Nonrecurring fair value measurements

Certain assets and liabilities may be required to be measured at fair value on a nonrecurring basis in periods subsequent to their initial recognition. These assets and liabilities are not measured at fair value on an ongoing basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. At June 30, 2023, the Company determined the amounts measured at fair value on a nonrecurring basis were immaterial and the Company did not have any nonrecurring fair value measurements at December 31, 2022.

45

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Highlights

The following table sets forth certain of our financial highlights as of and for each of the periods presented. This data should be read in conjunction with our consolidated financial statements and related notes included herein at Part I - Financial Information, Item 1 - Financial Statements of this filing.

	Three Months Ended									Six Months Ended June 30,
($ in thousands except share and per share data)	June 30, 2023			March 31, 2023			June 30, 2022			2023			2022
EARNINGS
Net interest income	$	23,426		$	24,892		$	20,936		$	48,318		$	38,731
(Reversal of) provision for credit losses	$	(15)		$	202		$	1,796		$	187		$	3,646
Noninterest income	$	1,096		$	1,570		$	1,526		$	2,666		$	3,129
Noninterest expense	$	14,607		$	15,019		$	21,708		$	29,626		$	37,260
Income tax expense (benefit)	$	3,212		$	3,017		$	(306)		$	6,229		$	244
Net income (loss)	$	6,718		$	8,224		$	(736)		$	14,942		$	710
Pre-tax pre-provision income (1)	$	9,915		$	11,443		$	754		$	21,358		$	4,600
Diluted earnings (loss) per share	$	0.36		$	0.44		$	(0.04)		$	0.80		$	0.04
Ending shares outstanding	18,296,365			18,271,194			17,840,626			18,296,365			17,840,626
PERFORMANCE RATIOS
Return on average assets	1.18		%	1.46		%	(0.13)		%	1.32		%	0.06		%
Return on average common equity	9.93		%	12.72		%	(1.19)		%	11.29		%	0.58		%
Yield on loans	5.91		%	5.78		%	4.74		%	5.85		%	4.72		%
Yield on earning assets	5.64		%	5.53		%	3.99		%	5.58		%	3.77		%
Cost of deposits	1.29		%	0.80		%	0.07		%	1.05		%	0.07		%
Cost of funds	1.38		%	0.88		%	0.13		%	1.13		%	0.13		%
Net interest margin	4.36		%	4.71		%	3.87		%	4.54		%	3.64		%
Efficiency ratio (1)	59.6		%	56.8		%	96.6		%	58.1		%	89.0		%
Net (charge-offs) recoveries to average loans held-for-investment	0.00		%	0.00		%	(0.01)		%	0.00		%	0.00		%
(1) Refer to Non-GAAP Financial Measures in the Management's Discussion and Analysis of Financial Condition and Results of Operations of this filing.

46

Table of Contents

	June 30, 2023				December 31, 2022
CAPITAL
Tangible equity to tangible assets (1)	10.33		%		9.84		%
Book value (BV) per common share	$	14.96			$	14.51
Tangible BV per common share (1)	$	12.82			$	12.32
ASSET QUALITY
Allowance for loan losses (ALL)	$	22,502			$	17,099
Reserve for unfunded loan commitments	1,538				1,310
Allowance for credit losses (ACL)	$	24,040			$	18,409
ALL to total loans	1.18		%		0.90		%
ACL to total loans	1.26		%		0.97		%
Nonperforming loans	$	40			$	41
Other real estate owned	$	—			$	—
Nonperforming assets to total assets	0.002		%		0.002		%
END OF PERIOD BALANCES
Total loans, including loans held for sale	$	1,914,415		1,416,380	$	1,906,800
Total assets	$	2,309,183			$	2,283,927
Deposits	$	1,980,908			$	1,931,905
Loans to deposits	96.6		%		98.7		%
Shareholders' equity	$	273,749			$	260,355

(1) Refer to Non-GAAP Financial Measures included in the, Management's Discussion and Analysis of Financial Condition and Results of Operations of this filing.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our consolidated financial condition and consolidated results of operations should be read in conjunction with our consolidated financial statements and related notes. Historical consolidated results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not indicate trends in operations or consolidated results of operations for any future periods. We are a bank holding company and we conduct all of our material business operations through the Bank. As a result, the discussion and analysis below primarily relate to activities conducted at the Bank level.

Overview

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 Bank of Southern California, N.A. became the wholly owned subsidiary of the Company. 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”).

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 13 branch offices serving Orange,

47

Table of Contents

Los Angeles, Riverside, San Diego and Ventura counties. 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, 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.

Recent Developments

Nasdaq Listing

Our Registration Statement on Form 10 was filed with the U.S. Securities and Exchange Commission (the “SEC”) and declared effective on May 10, 2023. Our common stock began trading on the Nasdaq Capital Market (“Nasdaq”) at the opening of trading on May 11, 2023, under the symbol “BCAL.”

Difficult Market Conditions are Adversely Affecting the Banking Industry

The COVID-19 pandemic has receded, with business activity returning to more normal conditions. Concerns regarding a potential recession have increased as the Federal Reserve continues to raise interest rates to combat inflation. The Federal Reserve raised interest rates eleven times by an aggregate of 525 basis points between March 2022 and July 2023, to a range between 5.25% and 5.50%, the highest level in 22 years. The Federal Reserve paused interest rates in June 2023, but raised another quarter point on July 26, 2023, and hinted that there may be another rate increase this year as inflation remains above their target of 2 percent. In its July 2023 statement, the Federal Reserve said “The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Federal Open Market Committee (“FOMC”) remains highly attentive to inflation risks,” and it “...seeks to achieve maximum employment with inflation at the rate of 2 percent over the longer run. The FOMC will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.” Future actions that may be taken by the Federal Reserve may continue to impact key macroeconomic variables.

The rapid rise in interest rates since 2022 resulted in an industry-wide reduction in the fair value of many banks’ securities portfolios, pressuring their liquidity. The recent bank runs that led to the failure of several financial institutions beginning in March of 2023, among other events, fostered a state of volatility and uncertainty with respect to the health of the U.S. banking system, particularly around liquidity, uninsured deposits and customer concentrations. The situation is stabilizing due to strong actions taken by federal regulators in attempts to calm the markets. In March 2023, the Federal Reserve announced the creation of a new Bank Term Funding Program (“BTFP”) which provides an additional source of liquidity against high quality pledged securities, in an effort to minimize the need for banks to quickly sell securities at a loss in times of stress. The BTFP offers advances for a term of up to one year to eligible borrowers that pledge U.S. Treasuries, agency debt, mortgage-backed securities, and other qualifying assets as collateral. The rate for term advances will be the one-year overnight index swap rate plus 10 basis points; the rate will be fixed for the term of the advance on the day the advance is made. Borrowers may prepay advances (including for purposes of refinancing) at any time without penalty.

Notwithstanding these recent market events and activities, we have not experienced any material impact to our financial condition, operations, customer base, liquidity, capital position or risk profile. We have a strong consolidated balance sheet with very diversified deposit and loan portfolios, and with very little sector or individual customer concentration. Our relationship-based banking model is founded on strong, ongoing relationships with our commercial clients, which represent a broad variety of commercial industries. The current

48

Table of Contents

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 and our accumulated other comprehensive loss on our available-for-sale debt securities is manageable. However, in an abundance of caution, we have proactively responded to these events by reaching out to our deposit customers and explaining what differentiates us from the recently failed banks and assuring them that their deposits remain safe. We also have elected to vigorously defend our deposit base in the face of increasing competition and deposit costs.

We have a highly skilled and experienced lending team and related support system, a successful SBA lending division and an experienced 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 June 30, 2023, our concentration of such loans represented 533% of our total risk-based capital. In addition, at June 30, 2023, total loans secured by commercial real estate under construction and land development represented 99% of our total risk-based capital. The non-performing assets and net charge-offs for these segments at June 30, 2023 and for the six months ended June 30, 2023 were $1 thousand and zero, respectively.

Given the nature of our commercial banking business, approximately 40% of our total deposits exceeded the FDIC deposit insurance limits at June 30, 2023. However, we offer our deposit customers access to the Insured Cash Sweep (“ICS Product”), which allows 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. Our total deposits in the ICS Product increased to $256 million, or 13% of total deposits at June 30, 2023, compared to $65 million, or 3% of total deposits at December 31, 2022.

We have a small investment portfolio of high-quality securities. As of June 30, 2023, the amortized cost of our held-to-maturity debt securities was $54 million, or approximately 2.3% of total assets. The fair value of our available-for-sale debt securities was $120 million, or approximately 5.2% of total assets. 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.

As of June 30, 2023, our liquidity position remained strong, with the following financial balances (unaudited), compared to December 31, 2022:

•Total cash and cash equivalents of approximately $105 million, compared to $87 million.

•Total liquidity ratio of approximately 11.3%, compared to 10.5%.

•Unpledged, liquid securities at fair value were approximately $120 million, compared to $113 million.

•Available borrowing capacity from the Federal Home Loan Bank (“FHLB”) secured lines of credit of approximately $405 million, compared to $374 million. At June 30, 2023, we had overnight FHLB borrowings of $15 million.

•Increased our available borrowing capacity from the Federal Reserve Discount Window program to approximately $142 million, compared to $11 million. There were no outstanding borrowings under this program at June 30, 2023.

•Available borrowing capacity from the two unsecured credit lines from correspondent banks totaling $60 million at both period ends. There were no outstanding borrowings on these lines at June 30, 2023.

•Did not participate in Federal Reserve Bank Term Funding Program borrowings at June 30, 2023.

•Total available borrowing capacity was approximately $607 million at June 30, 2023, compared to $461 million.

49

Table of Contents

•Total available liquidity was approximately $831 million at June 30, 2023.

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:

•Slower loan growth and declining deposits;

•Difficulty retaining and attracting deposit relationships;

•Credit quality deterioration of our loan portfolio resulting in additional provision for credit losses and impairment charges;

•Margin pressure as we increase deposit rates in response to expected further rate increases by the FOMC and our competitors;

•Increases in other comprehensive loss from the unrealized losses on available-for-sale debt securities; and

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

Critical Accounting Policies and Estimates

Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) and conform to general practices within the financial services industry, the most significant of which are described under Note 1 — Basis of Presentation and Summary of Significant Accounting Policies included in Item 13. Financial Statements and Supplementary Data of our Registration Statement.

The preparation of financial statements in conformity with GAAP requires management to make estimates, assumptions and judgments based on available information. These estimates, assumptions and judgments affect the amounts reported in the financial statements and accompanying notes. While we base these estimates, assumptions and judgments on historical experience, current information available and other factors deemed to be relevant, actual results could differ from the estimates, assumptions and judgments reflected in the financial statements.

Critical accounting policies are defined as those that require the most complex or subjective judgment and are reflective of significant uncertainties and could potentially result in materially different results under different assumptions and conditions. In particular, management has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements. The following is a discussion of these critical accounting policies and significant estimates that require us to make complex and subjective judgments.

On January 1, 2023, we adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), which replaces the incurred loss impairment methodology with a methodology that reflects current expected credit losses (“CECL”) and requires consideration of historical experience, current conditions and reasonable and supportable forecasts to estimate expected credit losses for financial assets held at the reporting date. The measurement of expected credit losses under the CECL is applicable to financial assets measured at amortized cost, including loans, held-to-maturity debt securities and off-balance sheet credit exposures. ASU 2016-13 also requires credit losses on available-for-sale debt securities be measured through an allowance for credit losses when the fair value is less than the amortized cost basis. In addition, ASU 2016-13 modifies the other-than-temporary impairment (“OTTI”) model for available-for-sale debt securities to require an allowance for credit impairment instead of a direct write-down, which allows for reversal of credit impairments in future periods based on improvements in credit. We elected to account for accrued interest receivable separately from the amortized cost of loans and investment securities. We elected the CECL phase-in option provided by regulatory capital rules, which delays the impact of CECL on regulatory capital over a three-year transition period.

50

Table of Contents

Concurrent with the adoption of ASU 2016-13, we adopted ASU 2022-02, Financial Instruments—Credit Losses (Topic 326) Troubled Debt Restructurings (“TDR”) and Vintage Disclosures, which eliminated TDR accounting prospectively for all loan modifications occurring on or after January 1, 2023 and added additional disclosure requirements for current period gross charge-offs for by year of origination. It also prescribes guidance for reporting modifications for certain loan re-financings and restructurings made to borrowers experiencing financial difficulty. Loans that were considered a TDR prior to the adoption of ASU 2022-02 will continue to be accounted for under the superseded TDR accounting guidance until the loan is paid off, liquidated, or subsequently modified.

Please also see Significant Accounting Polices under 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 of this filing for additional information.

The following provides a summary of our policy for the accounting for the allowance for credit losses - Loans under ASC 326:

Allowance for Credit Losses - Loans

An allowance for credit losses is our estimate of expected lifetime credit losses for its loan held for investment at the time of origination or acquisition and is maintained at a level deemed appropriate by management to provide for expected lifetime credit losses in the portfolio. The ACL consists of: (i) a specific allowance established for current expected credit losses on loans individually evaluated, (ii) a quantitative allowance for current expected credit losses based on the portfolio and expected economic conditions over a reasonable and supportable forecast period that reverts back to long-term trends to cover the expected life of the loan, (iii) a qualitative allowance including management judgment to capture factors and trends that are not adequately reflected in the quantitative allowance, and (iv) the ACL for off-balance sheet credit exposure for unfunded loan commitments.

The ACL on loans held for investment represents the portion of the loan’s amortized cost basis that we do not expect to collect due to anticipated credit losses over the loan’s contractual life. Amortized cost does not include accrued interest, which management elected to exclude from the estimate of expected credit losses. Provision for credit losses for loans held for investment is included in (reversal of) provision for credit losses in the consolidated statements of operations. Loan charge-offs are recognized when management believes the collectability of the principal balance outstanding is unlikely. Subsequent recoveries, if any, are credited to the ACL. Credit losses are not estimated for accrued interest receivable as interest that is deemed uncollectible is written off through interest income.

Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts. Management elected to use a four quarter reasonable and supportable forecast period followed by an eight quarter straight-line reversion period. After twelve quarters of forecast plus reversion period, the probability of default is assumed to remain unchanged for the remaining life of the loan. Pools of loans with similar risk characteristics are collectively evaluated while loans that no longer share risk characteristics with loan pools are evaluated individually. We measure the ACL using a discounted cash flow methodology, which utilizes pool-level assumptions and cash flow projections on individual loan basis, which then aggregated at the portfolio segment level and supplemented by a qualitative reserve that is applied to each portfolio segment level.

At June 30, 2023, the following loan portfolio segments, based on regulatory call codes and related risk ratings, have been identified:

•Construction and land development

•Real estate

◦1-4 family residential

◦Multifamily residential

51

Table of Contents

◦Commercial real estate and other

•Commercial and industrial

•Consumer

The ACL process involves subjective and complex judgments and is reflective of significant uncertainties that could potentially result in materially different results under different assumptions and conditions. Our ACL model incorporates assumptions for prepayment/curtailment rates, probability of default (“PD”), and loss given default (“LGD”) to project each loan’s cash flow throughout its entire life cycle. Assumptions for prepayment/curtailment rate are based on benchmark rates provided by our third-party loss model provider. Quarterly PD is forecasted using a regression model that incorporates certain economic variables as inputs. The LGD is derived from PD using the Frye-Jacobs index provided by our third-party model provider. We use numerous key macroeconomic variables within the economic forecast scenarios from Moody’s Analytics. Management recognizes the non-linearity of credit losses relative to economic performance and believes the use of multiple probability-weighted economic scenarios is appropriate in estimating credit losses over the forecast period. By considering multiple scenarios, management believes some of the uncertainty associated with a single scenario approach can be mitigated. Management periodically evaluates economic scenarios, determines whether to utilize multiple probability-weighted scenarios in our ACL model, and, if multiple scenarios are utilized, evaluates and determines the weighting for each scenario used in our ACL model, and thus the scenarios and weightings of each scenario may change in future periods. Economic scenarios as well as assumptions within those scenarios can vary based on changes in current and expected economic conditions.

In addition to the quantitative model, management periodically considers the need for qualitative adjustments to the ACL. Such qualitative adjustments may be related to and include, but are not limited to factors such as: differences in segment-specific risk characteristics, periods wherein current conditions and reasonable and supportable forecasts of economic conditions differ from the conditions that existed at the time of the estimated loss calculation, model limitations and management’s overall assessment of the adequacy of the ACL. Qualitative risk factors are periodically evaluated by management.

Generally, the measurement of the ACL is performed by collectively evaluating loans with similar risk characteristics. Loans that do not share similar risk characteristics are evaluated individually for credit loss and are not included in the evaluation process discussed above. Expected credit losses on all individually evaluated loans are measured, primarily through the evaluation of estimated cash flows expected to be collected, or collateral values measured by reference to an observable market value, if one exists, or the fair value of the collateral for a collateral-dependent loan. We select the measurement method on a loan-by-loan basis except that collateral-dependent loans for which foreclosure is probable are measured at the net realizable value of the collateral. Cash receipts on individually evaluated loans for which the accrual of interest has been discontinued are applied first to principal and then to interest income. Prior to the adoption of ASC Topic 326, individually evaluated loans were referred to as impaired loans. Amounts are charged-off when available information confirms that specific loans or portions thereof, are uncollectible. This methodology for determining charge-offs is consistently applied to each segment.

Prior to the adoption of ASC 326 Financial Instruments — Credit Losses on January 1, 2023, we utilized the incurred loss model to estimate the allowance for loan losses. Refer to Note 1 — Basis of Presentation and Summary of Significant Accounting Policies included in Item 13. Financial Statements and Supplementary Data of our Registration Statement for additional information regarding accounting for the allowance for loan losses, impaired loans, and troubled debt restructurings.

Business Combinations

Business combinations are accounted for using the acquisition method of accounting under ASC Topic 805 - Business Combinations. Under the acquisition method, identifiable assets acquired, including identifiable intangible assets, and liabilities assumed in a business combination are measured at fair value on the acquisition

52

Table of Contents

date. The excess of the fair value of the consideration transferred, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date is recognized as goodwill.

The estimates used to determine the fair values of assets and liabilities acquired in a business combination can be complex and require judgment. For example, we utilize a discounted cash flow approach to measure the fair value of core deposit intangible assets acquired in business combinations. This approach requires us to apply a number of critical estimates that include, but are not limited to, future expected cash flows from depositor relationships, expected “decay” rates, and the determination of discount rates. These critical estimates are difficult to predict and may result in impairment charges in future periods if actual results materially differ from those initially estimated.

Non-GAAP Financial Measures

This filing contains certain non-GAAP financial measures in addition to results presented in accordance with GAAP. We believe the presentation of certain non-GAAP financial measures provides information useful to assess our consolidated financial condition and consolidated results of operations and to assist investors in evaluating our consolidated financial results relative to our peers. These non-GAAP financial measures complement our GAAP reporting and are presented below to provide investors and others with information that we use to manage the business each period. Because not all companies use identical calculations, the presentation of these non-GAAP financial measures may not be comparable to other similarly titled measures used by other companies. These non-GAAP measures should be taken together with the corresponding GAAP measures and should not be considered a substitute of the GAAP measures.

(1) Efficiency ratio is computed by dividing noninterest expense by total net interest income and noninterest income. We measure our success and the productivity of our operations through monitoring of the efficiency ratio.

(2) Pre-tax pre-provision income is computed by adding net interest income and noninterest income and subtracting noninterest expense. This non–GAAP financial measure provides a greater understanding of pre–tax profitability before giving effect to credit loss expense.

(3) Average tangible common equity is computed by subtracting goodwill and core intangible deposits, net, from average shareholders’ equity.

(4) Return on average tangible common equity is computed by dividing net income by average tangible common equity. It helps us measure our performance of businesses consistently, whether they were acquired or developed internally.

(5) Tangible common equity and tangible assets are computed by subtracting goodwill and core deposit intangibles, net, from total shareholders’ equity and total assets, respectively.

(6) Tangible common equity to tangible assets ratio is computed by dividing tangible common equity by tangible assets.

(7) Tangible book value per share is computed by dividing tangible common equity by total common shares outstanding. We consider tangible book value per share a meaningful measure because it suggests what our common shareholders can expect to receive if we are in financial distress and are forced to liquidate our assets at the book value price. Intangible assets like goodwill are not a part of the process since they cannot be sold for cash during liquidation.

We consider average tangible common equity, tangible common equity, and tangible common equity to tangible asset ratio as useful additional methods to evaluate our capital utilization and adequacy to withstand

53

Table of Contents

unexpected market conditions. These ratios differ from the regulatory capital ratios principally in that the numerator excludes goodwill and other intangible assets.

54

Table of Contents

The following tables present a reconciliation of non-GAAP financial measures to GAAP measures for the periods indicated:

	Three Months Ended									Six Months Ended June 30,
(dollars in thousands)	June 30, 2023			March 31, 2023			June 30, 2022			2023			2022
Efficiency Ratio
Noninterest expense	$	14,607		$	15,019		$	21,708		$	29,626		$	37,260
Net interest income	23,426			24,892			20,936			48,318			38,731
Noninterest income	1,096			1,570			1,526			2,666			3,129
Total net interest income and noninterest income	$	24,522		$	26,462		$	22,462		$	50,984		$	41,860
(1) Efficiency ratio (non-GAAP)	59.6		%	56.8		%	96.6		%	58.1		%	89.0		%
Pre-tax Pre-provision Income
Net interest income	$	23,426		$	24,892		$	20,936		$	48,318		$	38,731
Noninterest income	1,096			1,570			1,526			2,666			3,129
Total net interest income and noninterest income	24,522			26,462			22,462			50,984			41,860
Less: Noninterest expense	14,607			15,019			21,708			29,626			37,260
(2) Pre-tax pre-provision income (non-GAAP)	$	9,915		$	11,443		$	754		$	21,358		$	4,600
Return on Average Assets, Equity, and Tangible Equity
Net income (loss)	$	6,718		$	8,224		$	(736)		$	14,942		$	710
Average assets	$	2,286,875		$	2,277,971		$	2,308,829		$	2,282,448		$	2,284,450
Average shareholders’ equity	271,487			262,118			248,440			266,827			248,086
Less: Average intangible assets	39,250			39,340			38,655			39,294			38,707
(3) Average tangible common equity (non-GAAP)	$	232,237		$	222,778		$	209,785		$	227,533		$	209,379
Return on average assets	1.18		%	1.46		%	(0.13		%)	1.32		%	0.06		%
Return on average equity	9.93		%	12.72		%	(1.19		%)	11.29		%	0.58		%
(4) Return on average tangible common equity (non-GAAP)	11.60		%	14.97		%	(1.41		%)	13.24		%	0.68		%

55

Table of Contents

(dollars in thousands, except per share amounts)	June 30, 2023			December 31, 2022
Tangible Common Equity Ratio/Tangible Book Value Per Share
Shareholders’ equity	$	273,749		$	260,355
Less: Intangible assets	39,206			39,387
(5) Tangible common equity (non-GAAP)	$	234,543		$	220,968
Total assets	$	2,309,183		$	2,283,927
Less: Intangible assets	39,206			39,387
(5) Tangible assets (non-GAAP)	$	2,269,977		$	2,244,540
Equity to asset ratio	11.85		%	11.40		%
(6) Tangible common equity to tangible asset ratio (non-GAAP)	10.33		%	9.84		%
Book value per share	$	14.96		$	14.51
(7) Tangible book value per share (non-GAAP)	$	12.82		$	12.32
Shares outstanding	18,296,365			17,940,283

Results of Operations

Net Income

Three Months Ended June 30, 2023 Compared to Three Months Ended March 31, 2023

Net income for the three months ended June 30, 2023 was $6.7 million, or $0.36 per diluted share, compared to $8.2 million or $0.44 per diluted share in the prior quarter. The $1.5 million decrease in net income from the prior quarter was primarily due to a $1.5 million decrease in net interest income and $474 thousand decrease in noninterest income, partially offset by a $217 thousand decrease in the provision for credit losses, and a $412 thousand decrease in noninterest expense. Pre-tax, pre-provision income for the three months ended June 30, 2023 was $9.9 million, a decrease of $1.5 million, or 13.4% compared to pre-tax, pre-provision income of $11.4 million for the three months ended March 31, 2023.

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Net income for the three months ended June 30, 2023 was $6.7 million, or $0.36 per diluted share, compared to a net loss of $736 thousand, or $0.04 per diluted share for the same 2022 period. The $7.5 million increase in net income from the three months ended June 30, 2022 was primarily due to a $2.5 million increase in net interest income, a $1.8 million decrease in the provision for credit losses and a $7.1 million decrease in noninterest expense, partially offset by a $3.5 million increase in income taxes. Pre-tax, pre-provision income for the three months ended June 30, 2023 was $9.9 million, an increase of $9.2 million, compared to pre-tax, pre-provision income of $754 thousand for the same 2022 period.

Six Months Ended June 30, 2023 Compared to June 30, 2022

Net income for the six months ended June 30, 2023 was $14.9 million, or $0.80 per diluted share, compared to $710 thousand, or $0.04 per diluted share for the six months ended June 30, 2022. The $14.2 million increase in net income from the prior year was primarily due to a $9.6 million increase in net interest income, a $3.5 million decrease in the provision for credit losses, and a $7.6 million decrease in noninterest expense,

56

Table of Contents

partially offset by a $6.0 million increase in income taxes. Pre-tax, pre-provision income for the six months ended June 30, 2023 was $21.4 million, an increase of $16.8 million, compared to pre-tax, pre-provision income of $4.6 million for the six months ended June 30, 2022.

Net Interest Income and Margin

Net interest income is our primary source of revenue, which is the difference between interest income on loans, debt securities and other investments (collectively, “interest-earning assets”) and interest expense on deposits and borrowings (collectively, “interest-bearing liabilities”). Net interest margin represents net interest income expressed as a percentage of interest-earning assets. Net interest income is affected by changes in volume, mix, and rates of interest-earning assets and interest-bearing liabilities, as well as days in a period.

We closely monitor both total net interest income and the net interest margin and seek to maximize net interest income without exposing us to an excessive level of interest rate risk through our asset and liability management policies.

The following table presents interest income, average interest-earning assets, interest expense, average interest-bearing liabilities, and their corresponding yields and costs for the periods indicated:

57

Table of Contents

	Three Months Ended
	June 30, 2023						March 31, 2023						June 30, 2022
	Average Balance		Income/Expense		Yield/Cost		Average Balance		Income/Expense		Yield/Cost		Average Balance		Income/Expense		Yield/Cost
Assets	($ in thousands)
Interest-earning assets:
Total non-PPP loans	$	1,896,805	$	27,973	5.92	%	$	1,890,758	$	27,005	5.79	%	$	1,679,902	$	19,668	4.70	%
Total PPP loans	3,228		14		1.74	%	3,476		14		1.63	%	9,072		279		12.34	%
Total loans(1)	1,900,033		27,987		5.91	%	1,894,234		27,019		5.78	%	1,688,974		19,947		4.74	%
Taxable debt securities	106,208		833		3.15	%	97,023		731		3.06	%	100,548		476		1.90	%
Tax-exempt debt securities (2)	70,470		456		3.29	%	74,188		487		3.37	%	56,054		325		2.94	%
Deposits in other financial institutions	42,770		537		5.04	%	37,611		457		4.93	%	246,506		439		0.71	%
Fed funds sold/resale agreements	17,639		228		5.18	%	25,306		287		4.60	%	64,004		144		0.90	%
Restricted stock investments and other bank stock	16,039		219		5.48	%	14,902		228		6.20	%	14,914		253		6.80	%
Total interest-earning assets	2,153,159		30,260		5.64	%	2,143,264		29,209		5.53	%	2,171,000		21,584		3.99	%
Total noninterest-earning assets	133,716						134,707						137,829
Total assets	$	2,286,875					$	2,277,971					$	2,308,829
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing NOW accounts	$	308,863	$	1,279	1.66	%	$	206,785	$	316	0.62	%	$	211,663	$	56	0.11	%
Money market and savings accounts	662,487		3,451		2.09	%	685,368		2,587		1.53	%	669,183		208		0.12	%
Time deposits	175,161		1,531		3.51	%	152,613		975		2.59	%	87,176		81		0.37	%
Total interest-bearing deposits	1,146,511		6,261		2.19	%	1,044,766		3,878		1.51	%	968,022		345		0.14	%
Borrowings:
FHLB advances	22,791		302		5.31	%	14,356		168		4.75	%	—		—		—	%
Subordinated debt	17,806		271		6.10	%	17,783		271		6.18	%	17,711		271		6.14	%
Junior subordinated debentures	—		—		—	%	—		—		—	%	2,262		32		5.67	%
Total borrowings	40,597		573		5.66	%	32,139		439		5.54	%	19,973		303		6.08	%
Total interest-bearing liabilities	1,187,108		6,834		2.31	%	1,076,905		4,317		1.63	%	987,995		648		0.26	%
Noninterest-bearing liabilities:
Noninterest-bearing deposits (3)	805,553						915,160						1,053,615
Other liabilities	22,727						23,788						18,779
Shareholders’ equity	271,487						262,118						248,440
Total Liabilities and Shareholders’ Equity	$	2,286,875					$	2,277,971					$	2,308,829
Net interest spread					3.33	%					3.90	%					3.72	%
Net interest income and margin(4)			$	23,426	4.36	%			$	24,892	4.71	%			$	20,936	3.87	%
Cost of deposits(5)					1.29	%					0.80	%					0.07	%
Cost of funds(6)					1.38	%					0.88	%					0.13	%

(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 purchased discounts of $390 thousand, $532 thousand and $1.0 million for the three months ended June 30, 2023, March 31, 2023, and June 30, 2022, respectively.

(2)Tax-exempt debt securities yields are presented on a tax equivalent basis using a 21% tax rate.

(3)Average noninterest-bearing deposits represent 41.27%, 46.69% and 52.12% of average total deposits for the three months ended June 30, 2023, March 31, 2023, and June 30, 2022, respectively.

(4)Annualized net interest income divided by average interest-earning assets.

(5)Total deposits is the sum of interest-bearing deposits and noninterest-bearing deposits. The cost of deposits is calculated as annualized total interest expense on deposits divided by average total deposits.

(6)Total funding is the sum of total interest-bearing liabilities and noninterest-bearing deposits. The cost of total funding is calculated as annualized total interest expense divided by average total funding.

58

Table of Contents

	Six Months Ended
	June 30, 2023						June 30, 2022
	Average Balance		Income/Expense		Yield/Cost		Average Balance		Income/Expense		Yield/Cost
Assets	($ in thousands)
Interest-earning assets:
Total non-PPP loans	$	1,893,798	$	54,978	5.85	%	$	1,588,645	$	36,077	4.58	%
Total PPP loans	3,352		28		1.68	%	21,898		1,601		14.74	%
Total loans(1)	1,897,150		55,006		5.85	%	1,610,543		37,678		4.72	%
Taxable debt securities	101,641		1,564		3.10	%	86,507		730		1.70	%
Tax-exempt debt securities (2)	72,318		943		3.33	%	35,721		401		2.87	%
Deposits in other financial institutions	40,205		994		4.99	%	354,641		632		0.36	%
Fed funds sold/resale agreements	21,451		515		4.84	%	44,024		155		0.71	%
Restricted stock investments and other bank stock	15,474		447		5.83	%	14,464		473		6.59	%
Total interest-earning assets	2,148,239		59,469		5.58	%	2,145,900		40,069		3.77	%
Total noninterest-earning assets	134,209						138,550
Total assets	$	2,282,448					$	2,284,450
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing NOW accounts	$	258,106	$	1,595	1.25	%	$	201,155	$	137	0.14	%
Money market and savings accounts	673,864		6,038		1.81	%	681,600		409		0.12	%
Time deposits	163,950		2,506		3.08	%	92,076		179		0.39	%
Total interest-bearing deposits	1,095,920		10,139		1.87	%	974,831		725		0.15	%
Borrowings:
FHLB advances	18,597		469		5.09	%	—		—		—	%
Subordinated debt	17,795		543		6.15	%	17,700		543		6.19	%
Junior subordinated debentures	—		—		—	%	2,498		70		5.65	%
Total borrowings	36,392		1,012		5.61	%	20,198		613		6.12	%
Total interest-bearing liabilities	1,132,312		11,151		1.99	%	995,029		1,338		0.27	%
Noninterest-bearing liabilities:
Noninterest-bearing deposits (3)	860,054						1,022,075
Other liabilities	23,255						19,260
Shareholders’ equity	266,827						248,086
Total Liabilities and Shareholders’ Equity	$	2,282,448					$	2,284,450
Net interest spread					3.59	%					3.50	%
Net interest income and margin (4)			$	48,318	4.54	%			$	38,731	3.64	%
Cost of deposits (5)					1.05	%					0.07	%
Cost of funds (6)					1.13	%					0.13	%

(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 purchased discounts of $922 thousand and $2.6 million for the six months ended June 30, 2023 and 2022, respectively.

(2)Tax-exempt debt securities yields are presented on a tax equivalent basis using a 21% tax rate.

(3)Average noninterest-bearing deposits represent 43.97%, and 51.18% of average total deposits for the six months ended June 30, 2023 and 2022, respectively.

(4)Annualized net interest income divided by average interest-earning assets.

(5)Total deposits is the sum of interest-bearing deposits and noninterest-bearing deposits. The cost of deposits is calculated as annualized total interest expense on deposits divided by average total deposits.

(6)Total funding is the sum of total interest-bearing liabilities and noninterest-bearing deposits. The cost of total funding is calculated as annualized total interest expense divided by average total funding.

59

Table of Contents

Rate/Volume Analysis

The following table presents the changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. Information is provided on changes attributable to (i) changes in volume multiplied by the prior rate and (ii) changes in rate multiplied by the prior volume. Changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.

	Three Months Ended June 30, 2023 vs. March 31, 2023						Three Months Ended June 30, 2023 vs. June 30, 2022						Six Months Ended June 30, 2023 vs. 2022
	Increase (Decrease) Due to						Increase (Decrease) Due to						Increase (Decrease) Due to
	Volume		Rate		Net		Volume		Rate		Net		Volume		Rate		Net
Interest-earning assets:	($ in thousands)
Total non-PPP loans	$	387	$	581	$	968	$	2,759	$	5,546	$	8,305	$	7,718	$	11,183	$	18,901
Total PPP loans	—		—		—		(113)		(152)		(265)		(768)		(805)		(1,573)
Total loans	387		581		968		2,646		5,394		8,040		6,950		10,378		17,328
Taxable debt securities	80		22		102		30		327		357		148		686		834
Tax-exempt debt securities	(16)		(15)		(31)		79		52		131		449		93		542
Deposits in other financial institutions	70		10		80		(626)		724		98		(1,026)		1,387		361
Fed fund sold/resale agreements	(93)		34		(59)		(170)		254		84		(117)		477		360
Restricted stock investments and other bank stock	19		(28)		(9)		17		(51)		(34)		31		(56)		(25)
Total interest-earning assets	447		604		1,051		1,976		6,700		8,676		6,435		12,965		19,400
Interest-bearing liabilities:
Interest-bearing NOW accounts	221		742		963		37		1,186		1,223		49		1,409		1,458
Money market and savings accounts	(60)		924		864		(1)		3,244		3,243		(4)		5,633		5,629
Time deposits	270		286		556		262		1,188		1,450		514		1,813		2,327
Total interest-bearing deposits	431		1,952		2,383		298		5,618		5,916		559		8,855		9,414
Borrowings:
FHLB advances	110		24		134		—		302		302		469		—		469
Subordinated debt	3		(3)		—		(1)		1		—		3		(3)		—
Junior subordinated debentures	—		—		—		(16)		(16)		(32)		(35)		(35)		(70)
Total borrowings	113		21		134		(17)		287		270		437		(38)		399
Total interest-bearing liabilities	544		1,973		2,517		281		5,905		6,186		996		8,817		9,813
Net interest income	$	(97)	$	(1,369)	$	(1,466)	$	1,695	$	795	$	2,490	$	5,439	$	4,148	$	9,587

60

Table of Contents

Three Months Ended June 30, 2023 Compared to Three Months Ended March 31, 2023

Net interest income for the three months ended June 30, 2023 was $23.4 million, compared to $24.9 million in the prior quarter. The $1.5 million decrease in net interest income was due to higher average balances and costs of interest-bearing liabilities, partially offset by higher average balances and yields on interest-earning assets.

Net interest margin for the three months ended June 30, 2023 was 4.36%, compared with 4.71% in the prior quarter. The decrease was primarily related to a 50 basis point increase in the cost of funds, partially offset by a 11 basis point increase in the total average interest-earning assets yield, the result of higher market interest rates and a change in our interest-earning asset mix. The yield on total average earning assets during the three months ended June 30, 2023 was 5.64%, compared with 5.53% in the prior quarter. The yield on average total loans during the three months ended June 30, 2023 was 5.91%, an increase of 13 basis points from 5.78% in the prior quarter.

During the three months ended June 30, 2023, total interest income increased by $1.1 million to $30.3 million, comprised of a $1.0 million increase in loan interest income and a $71 thousand increase in interest on total debt securities, coupled with a $12 thousand increase in interest and dividend income from other financial institutions and other interest-earning assets. The increase in interest income was due to a number of factors, including higher average loans from organic loan growth; a change in the interest-earning asset mix; and increases in yields on interest-earning assets resulting from increases in the target Fed fund rates. Average interest-earning assets increased $9.9 million, resulting from a $5.8 million increase in total average loans, a $5.5 million increase in total average debt securities, a $5.2 million increase in average deposits in other financial institutions, and a $1.1 million increase in average restricted stock investments and other bank stock, partially offset by a $7.7 million decrease in average Fed funds sold/resale agreements.

During the three months ended June 30, 2023, total interest expense increased by $2.5 million to $6.8 million, comprised primarily of a $2.4 million increase in interest on deposits in response to increases in target Fed fund rates and market interest rates, increased competition for deposit balances and changes in deposit mix, coupled with the increase in average balances compared to the prior quarter.

Total cost of funds for the three months ended June 30, 2023 was 1.38%, an increase of 50 basis points from 0.88% in the prior quarter. The increase was primarily driven by a 68 basis point increase in the cost of interest-bearing deposits, coupled with an increase in average interest-bearing deposits, and a decrease in average noninterest-bearing deposits. Average noninterest-bearing demand deposits decreased $109.6 million to $805.6 million and represented 41.3% of total average deposits during the three months ended June 30, 2023, compared with $915.2 million and 46.7%, respectively, for the prior quarter; average interest-bearing deposits increased $101.7 million to $1.15 billion during the three months ended June 30, 2023. The total cost of deposits during the three months ended June 30, 2023 was 129 basis points, an increase of 49 basis points from 80 basis points in the prior quarter.

Average total borrowings increased $8.5 million to $40.6 million for the three months ended June 30, 2023 resulting primarily from an increase of $8.4 million in average FHLB advances. The average cost of total borrowings was 5.66% for the three months ended June 30, 2023, a 12 basis point increase from 5.54% in the prior quarter.

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Net interest income for the three months ended June 30, 2023 was $23.4 million, compared to $20.9 million for the three months ended June 30, 2022. The $2.5 million increase in net interest income was due to higher yields on interest-bearing assets, partially offset by higher average balances and costs of interest-bearing liabilities.

61

Table of Contents

Net interest margin for the three months ended June 30, 2023 was 4.36%, compared with 3.87% for the same 2022 period. The 49 basis point increase was primarily related to a 165 basis point increase in the total average interest-earning assets yield resulting from higher market interest rates and a change in our average interest-earning asset mix, partially offset by a 125 basis point increase in the cost of funds. The yield on total average earning assets during the three months ended June 30, 2023 was 5.64%, compared with 3.99% for the same 2022 period. The yield on average loans during the three months ended June 30, 2023 was 5.91%, an increase of 117 basis points from 4.74% for the same 2022 period.

During the three months ended June 30, 2023, total interest income increased $8.7 million, comprised of a $8.0 million increase in total loan interest income, an $488 thousand increase in total debt securities income, and a $148 thousand increase interest and dividend income from other financial institutions and other interest-earning assets. The increase in interest income was due to a number of factors: higher average loans from organic loan growth; a change in the interest-earning asset mix; and increases in yields on interest-earning assets resulting from increases in the target Fed fund rates. Average interest-earning assets decreased $17.8 million, resulting primarily from a $203.7 million decrease in average lower yielding deposits in other financial institutions, a $46.4 million decrease in average Fed fund sold/resale agreements, partially offset by a $211.1 million increase in average total loans, and a $20.1 million increase in total average debt securities.

During the three months ended June 30, 2023, total interest expense increased by $6.2 million to $6.8 million, comprised primarily of a $5.9 million increase in interest on deposits due to increases in target Fed fund rates, coupled with the increase in average interest-bearing liabilities balances between periods.

Total cost of funds for the three months ended June 30, 2023 was 1.38%, an increase of 125 basis points from 0.13% for the same 2022 period. The increase was primarily driven by a 205 basis point increase in the cost of interest-bearing deposits, coupled with an increase in average interest-bearing deposits, and a decrease in average noninterest-bearing deposits. Average noninterest-bearing demand deposits decreased $248.1 million to $805.6 million and represented 41.3% of total average deposits for the three months ended June 30, 2023, compared with $1.05 billion and 52.1%, respectively, for the same 2022 period; average interest-bearing deposits increased $178.5 million to $1.15 billion during the three months ended June 30, 2023. The total cost of deposits for the three months ended June 30, 2023 was 1.29%, up 122 basis points from 0.07% for the same 2022 period.

Average total borrowings increased $20.6 million to $40.6 million for the three months ended June 30, 2023 resulting primarily from a $22.8 million increase in average FHLB advances, partially offset by a $2.3 million decrease in average junior subordinated debentures from early extinguishment during the three months ended June 30, 2022. The average cost of total borrowings was 5.66% for the three months ended June 30, 2023, a 42 basis point decrease from 6.08% for the same 2022 period.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Net interest income for the six months ended June 30, 2023 was $48.3 million, compared to $38.7 million for the six months ended June 30, 2022. The increase was primarily due to a $19.4 million increase in total interest income, partially offset by a $9.8 million increase in total interest expense. During the six months ended June 30, 2023, loan interest income increased $17.3 million, total debt securities income increased $1.4 million, and interest and dividend income from other financial institutions increased $696 thousand. The increase in interest income was due to a number of factors: higher average non-PPP loans from organic loan growth; a change in the interest-earning asset mix; and increases in yields on interest-earning assets resulting from increases in the target Fed fund rates. Average interest-earning assets increased $2.3 million, resulting from a $305.2 million increase in average non-PPP loans, and a $51.7 million increase in total average debt securities, partially offset by a $314.4 million decrease in average lower yielding deposits in other financial institutions, a $22.6 million decrease in average Fed funds sold/resale agreements, and a $18.5 million decrease in average PPP loans.

During the six months ended June 30, 2023, total interest expense increased by $9.8 million to $11.2 million, comprised primarily of a $9.4 million increase in interest on deposits due to increases in target Fed fund rates, coupled with the increase in average interest-bearing liabilities balances between periods.

62

Table of Contents

Net interest margin for the six months ended June 30, 2023 was 4.54%, compared with 3.64% for the six months ended June 30, 2022. The increase was primarily related to a 181 basis point increase in the total interest-earning assets yield resulting from higher market interest rates and a change in our interest-earning asset mix, partially offset by a 100 basis point increase in the cost of funds. The yield on total earning assets during the six months ended June 30, 2023 was 5.58%, compared with 3.77% for the six months ended June 30, 2022. The yield on average total loans during the six months ended June 30, 2023 was 5.85%, a 113 basis points increase from 4.72% for the six months ended June 30, 2022.

Total cost of funds for the six months ended June 30, 2023 was 1.13%, an increase of 100 basis points from 0.13% for the six months ended June 30, 2022. The increase was primarily driven by a 172 basis point increase in the cost of interest-bearing deposits, coupled with an increase in average interest-bearing deposits, and a decrease in average noninterest-bearing deposits. Average noninterest-bearing demand deposits decreased $162.0 million to $860.1 million and represented 44.0% of total average deposits for the six months ended June 30, 2023, compared with $1.02 billion and 51.2%, respectively, for the same 2022 period; average interest-bearing deposits increased $121.1 million to $1.10 billion during the six months ended June 30, 2023. The total cost of deposits for the six months ended June 30, 2023 was 1.05%, up 97 basis points from 0.07% for the same 2022 period.

Average total borrowings increased $16.2 million to $36.4 million for the six months ended June 30, 2023 resulting primarily from a $18.6 million increase in average FHLB advances, partially offset by a $2.5 million decrease in average junior subordinated debentures from early extinguishment during the six months ended June 30, 2022. The average cost of total borrowings was 5.61% for the six months ended June 30, 2023, a 51 basis points decrease from 6.12% for the same 2022 period.

Provision for Credit Losses

Three Months Ended June 30, 2023 Compared to Three Months Ended March 31, 2023

We recorded a reversal of provision for credit losses of $15 thousand under the CECL model, compared to a provision for credit losses of $202 thousand in the prior quarter. The provision for credit losses included a $135 thousand negative provision for unfunded commitments primarily due to the impact of lower unfunded loan commitments. Total unfunded loan commitments decreased $33.9 million to $523.6 million at June 30, 2023 from $557.5 million at March 31, 2023. The provision for credit losses for the loan portfolio for the three months ended June 30, 2023 was $120 thousand, a decrease of $158 thousand from $278 thousand in the prior quarter. The decrease was driven by a number of factors: a decrease in classified loans, changes in the portfolio mix, and a decrease in the qualitative reserve, partially offset by change in our reasonable and supportable forecast, primarily related to the economic outlook from the Federal Reserve's actions to control inflation, and an increase in total loan balances. We continue to monitor macroeconomic variables related to increasing interest rates, inflation and the concerns of an economic downturn, and we believe it is appropriately provisioned for the current environment.

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

We recorded a reversal of provision for credit losses of $15 thousand under the CECL model, compared to $1.8 million for the same 2022 period under the incurred loss model. The $1.8 million provision for credit losses in the prior year was primarily due to strong organic loan growth, which resulted in a $142.7 million increase in total loans.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

We recorded a provision of credit losses of $187 thousand under the CECL model during the six months ended June 30, 2023, compared to $3.6 million using the incurred loss model for the prior year. The provision expense for the first six months of 2023 was driven primarily by loan growth, as well as the impact of

63

Table of Contents

macroeconomic uncertainties, partially offset by a decrease in provision expense for the unfunded commitments due to the impact of lower unfunded loan commitments. The provision expense for the first six months of 2022 was primarily driven by a strong organic loan growth, which resulted in a $267.9 million increase in total loans.

Noninterest Income

The following table sets forth the various components of our noninterest income for the periods indicated:

	Three months ended						Six Months Ended
(dollars in thousands)	June 30, 2023		March 31, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Service charges and fees on deposit accounts	$	333	$	262	$	175	$	595	$	464
Interchange and ATM income	197		177		210		374		408
Gain on sale of loans	77		808		767		885		816
Income from bank-owned life insurance	232		223		215		455		1,047
Servicing and related income on loans, net	87		75		25		162		94
Gain on sale of debt securities	34		—		—		34		—
Other charges and fees	136		25		134		161		300
Total noninterest income	$	1,096	$	1,570	$	1,526	$	2,666	$	3,129

Three Months Ended June 30, 2023 Compared to Three Months Ended March 31, 2023

Total noninterest income during the three months ended June 30, 2023 was $1.1 million, a decrease of $474 thousand compared to total noninterest income of $1.6 million in the prior quarter. The decrease was due primarily to lower gain on sale of loans, partially offset by gain on sale of available-for-sale debt securities, higher deposit-related fees, and other charges and fees during the three months ended June 30, 2023.

Gain on sale of loans was $77 thousand during the three months ended June 30, 2023, compared to $808 thousand during the prior quarter. The $731 thousand decrease was primarily due to the SBA 7(a) loan sales during the three months ended June 30, 2023. During the three months ended June 30, 2023, loan sales related to two SBA loans with a net carrying value of $1.0 million, resulted in a gain of $77 thousand, at an average premium of 7.71%. This compares to seven SBA loans sold with a net carrying value of $9.9 million, resulting in a gain of $797 thousand, at an average premium of 8.04% and one non-SBA loan with a net carrying value of $39 thousand, resulting in a gain of $11 thousand during the prior quarter.

During the three months ended June 30, 2023, we sold $17.1 million available-for-sale debt securities in order to reposition our portfolio mix to protect us from the changing interest rate environment, and recorded a $34 thousand gain on available-for-sale debt securities, for which there was no comparable transaction in the prior quarter.

Deposit-related fees, which include service charges and fees on deposit accounts and interchange and ATM income totaled $530 thousand, an increase of $91 thousand, compared to $439 thousand in the prior quarter. The increase was primarily due to higher analysis charges for certain deposit accounts.

Other charges and fees during the three months ended June 30, 2023 was $136 thousand, an increase of $111 thousand compared to $25 thousand in the prior quarter. The increase was due primarily to higher income from equity investments.

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Total noninterest income during the three months ended June 30, 2023 was $1.1 million, a decrease of $430 thousand compared to total noninterest income of $1.5 million for the same 2022 period. The decrease was

64

Table of Contents

due primarily to lower gain on sale of loans, partially offset by higher deposit-related fees, and higher servicing and related income on loans.

Deposit-related fees was $530 thousand during the three months ended June 30, 2023, an increase of $145 thousand from $385 thousand for the same 2022 period. The increase in fees was due primarily to higher analysis charges for certain deposit accounts.

Gain on sale of loans was $77 thousand during the three months ended June 30, 2023, compared to $767 thousand for the same 2022 period. The $690 thousand decrease was primarily due to the SBA 7(a) loan sales during the three months ended June 30, 2023. During the three months ended June 30, 2023, loan sales related to two SBA loans with a net carrying value of $1.0 million, resulted in a gain of $77 thousand, at an average premium of 7.71%. This compares to nine SBA loans sold with a net carrying value of $10.7 million, resulting in a gain of $711 thousand and one non-SBA loan with a net carrying value of $360 thousand, resulting in a gain of $56 thousand during the three months ended June 30, 2022.

Servicing and related income on loans, which includes net servicing fees and other loan fee income was $87 thousand during the three months ended June 30, 2023, compared to $25 thousand for the same 2022 period. The $62 thousand increase was primarily due to higher net servicing fee income from servicing SBA loans during the three months ended June 30, 2023. Our average SBA loan servicing portfolio was $685 thousand for the three months ended June 30, 2023 compared to $211 thousand for the same 2022 period. The increase in our average SBA loan servicing portfolio primarily related to a higher average of SBA loans being serviced for the three months ended June 30, 2023.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Total noninterest income during the six months ended June 30, 2023 was $2.7 million, a decrease of $463 thousand compared to total noninterest income of $3.1 million in the prior year. The decrease was due primarily to lower income from bank-owned life insurance, and lower other charges and fees, partially offset by higher deposit-related fees, higher gains on sale of loans, and higher servicing and related income on loans.

Income from bank-owned life insurance was $455 thousand during the six months ended June 30, 2023, compared to $1.0 million for the same 2022 period. The $592 thousand decrease between periods primarily related to a $621 thousand death benefit income realized for the six months ended June 30, 2022. There was no comparable income realized in 2023.

Deposit-related fees was $969 thousand during the six months ended June 30, 2023, an increase of $97 thousand from $872 thousand for the same 2022 period. The increase in fees was due primarily to higher analysis charges for certain deposit accounts.

Gain on sale of loans was $885 thousand during the six months ended June 30, 2023, compared to $816 thousand for the same 2022 period. The $69 thousand increase was primarily due to the SBA 7(a) loan sales during the six months ended June 30, 2023. During the six months ended June 30, 2023, loan sales related to nine SBA loans with a net carrying value of $10.9 million, resulted in a gain of $874 thousand, at an average premium of 8.0% and one non-SBA loan with a net carrying value of $39 thousand, resulting in a gain of $11 thousand. This compares to ten SBA 7(a) loans with a net carrying value of $11.2 million, resulting in a gain on sale of $760 thousand at an average premium of 6.77%, and one non-SBA loan with a net carrying value of $360 thousand, resulting in a gain of $56 thousand during the six months ended June 30, 2022.

Servicing and related income on loans was $162 thousand during the six months ended June 30, 2023, compared to $94 thousand for the same 2022 period. The $68 thousand increase was primarily due to higher net servicing fee income of the related servicing asset during the six months ended June 30, 2023. Our average SBA loan servicing portfolio was $636 thousand for the six months ended June 30, 2023 compared to $186 thousand

65

Table of Contents

for the same 2022 period. The increase in our average SBA loan servicing portfolio primarily related higher volume of loan sales servicing retained the six months ended June 30, 2023.

Noninterest Expense

The following table sets forth the various components of our noninterest expense for the periods indicated:

	Three months ended						Six Months Ended
(dollars in thousands)	June 30, 2023		March 31, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Salaries and employee benefits	$	9,674	$	10,241	$	9,361	$	19,915	$	19,557
Occupancy and equipment	1,527		1,447		1,732		2,974		3,142
Data processing and communications	1,176		1,056		1,092		2,232		2,512
Legal, audit and professional	667		785		608		1,452		1,225
Regulatory assessments	367		452		421		819		760
Director and shareholder expenses	214		213		221		427		416
Merger and related expenses	—		—		544		—		1,068
Core deposit intangible amortization	90		91		99		181		198
Loss contingency	—		—		6,500		—		6,500
Other expenses	892		734		1,130		1,626		1,882
Total noninterest expense	$	14,607	$	15,019	$	21,708	$	29,626	$	37,260

Three Months Ended June 30, 2023 Compared to Three Months Ended March 31, 2023

Total noninterest expense during the three months ended June 30, 2023 was $14.6 million, a decrease of $412 thousand compared with total noninterest expense of $15.0 million in the prior quarter. The decrease was primarily due to decreases in salaries and employee benefits, and legal, audit and professional fees, partially offset by increases in data processing and communications and other expenses.

Salaries and employee benefits were $9.7 million during the three months ended June 30, 2023, compared to $10.2 million in the prior quarter. The $567 thousand decrease in salaries and benefits was due primarily to lower stock compensation expense related to the accelerated stock compensation expense resulting from the vesting of performance-based restricted stock units of $632 thousand recorded in the prior quarter, an increase in the deferred loan origination costs resulting from higher loan growth during the three months ended June 30, 2023, and a decrease in payroll taxes and benefits expense.

Data processing and communications expenses were $1.2 million during the three months ended June 30, 2023, compared to $1.1 million in the prior quarter. The $120 thousand increase was due primarily to an increase in network and core system data processing expense.

Legal, audit and professional expenses were $667 thousand during the three months ended June 30, 2023, compared to $785 thousand during the prior quarter. The $118 thousand decrease was due primarily to completion of the Company's listing on the Nasdaq Capital Market early in the second quarter of 2023.

Other expenses were $892 thousand during the three months ended June 30, 2023, compared to $734 thousand in the prior quarter. The $158 thousand increase in other expense was primarily due to increases in customer service related expense, and travel expense, partially offset by the decrease in sundry losses resulting from the recoveries of affidavits of forgery that were charged-off in previous quarters.

Our efficiency ratio for the three months ended June 30, 2023 was 59.6%, compared to 56.8% for the three months ended March 31, 2023.

66

Table of Contents

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Total noninterest expense during the three months ended June 30, 2023 was $14.6 million, a decrease of $7.1 million compared with total noninterest expense of $21.7 million for the same 2022 period. The decrease was primarily due to decreases in loss contingency, merger and related expenses, occupancy and equipment, and other expenses, partially offset by an increase in salaries and employee benefits.

Occupancy and equipment expenses were $1.5 million during the three months ended June 30, 2023, compared to $1.7 million for the same 2022 period. The $205 thousand decrease in occupancy and equipment expenses was due primarily to a $136 thousand pre-tax impairment charge for the right-of-use asset recorded during the three months ended June 30, 2022. There was no comparable transaction during the three months ended June 30, 2023.

There were no merger and related expenses during the three months ended June 30, 2023, compared to $544 thousand for the same 2022 period. The $544 thousand decrease was due primarily to the prior year including $304 thousand related to the completion of the acquisition of Bank of Santa Clarita, and $179 thousand related to the completion of the core system conversion for the legacy bank.

There was no loss contingency expense during the three months ended June 30, 2023, compared to $6.5 million for the same 2022 period. We reserved $6.5 million for a loss contingency expense related to a comprehensive settlement of all litigation with PacWest Bancorp and Pacific Western Bank during the three months ended June 30, 2022. There was no comparable expense during the three months ended June 30, 2023.

Other expenses were $892 thousand during the three months ended June 30, 2023, compared to $1.1 million for the same 2022 period. The $238 thousand decrease was due primarily to a $347 thousand loss on an early extinguishment of junior subordinated debentures acquired from CalWest Bancorp in 2020 realized in the second quarter of 2022, for which there was no comparable transaction during the three months ended June 30, 2023.

Our efficiency ratio for the three months ended June 30, 2023 was 59.6%, compared to 96.6% for the three months ended June 30, 2022.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Total noninterest expense during the six months ended June 30, 2023 was $29.6 million, a decrease of $7.6 million compared with total noninterest expense of $37.3 million for the same 2022 period. The decrease was primarily due to decreases in loss contingency, merger and related expenses, occupancy and equipment, data processing and communications, and other expenses, partially offset by increases in salaries and employee benefits, and legal, audit and professional expenses.

Salaries and employee benefits were $19.9 million during the six months ended June 30, 2023, compared to $19.6 million during the prior year. The $358 thousand increase in salaries and benefits was due primarily to the accelerated stock compensation expense resulting from the vesting of performance-based restricted stock units of $632 thousand recorded during the six months ended June 30, 2023, coupled with a decrease in deferred loan origination costs resulting from slower loan growth during 2023, partially offset by a decrease in bonus and incentive expenses.

Occupancy and equipment expenses were $3.0 million during the six months ended June 30, 2023, compared to $3.1 million in the prior year. The $168 thousand decrease was due primarily to the prior year including a $136 thousand pre-tax impairment charge for the right-of-use asset. There was no comparable expense during the six months ended June 30, 2023.

Data processing and communications expenses were $2.2 million during the six months ended June 30, 2023, compared to $2.5 million during the prior year. The $280 thousand decrease in data processing was due

67

Table of Contents

primarily to the completion of the core system conversion for the legacy bank in March 2022 and Bank of Santa Clarita in April 2022.

Legal, audit and professional expenses were $1.5 million during the six months ended June 30, 2023, compared to $1.2 million for the same 2022 period. The $227 thousand increase was due primarily to higher costs associated with preparation for the Company's listing on the Nasdaq Capital Market, and completed early in the second quarter of 2023.

There were no merger and related expenses during the six months ended June 30, 2023, compared to $1.1 million for the same 2022 period. The $1.1 million decrease was due primarily to the prior year including $565 thousand related to the completion of the acquisition of Bank of Santa Clarita, and $442 thousand related to the completion of the core system conversion for the legacy bank.

There was no loss contingency expense during the six months ended June 30, 2023, compared to $6.5 million for the same 2022 period. The decrease was due to the aforementioned loss contingency expense related to a comprehensive legal settlement.

Other expenses were $1.6 million during the six months ended June 30, 2023, compared to $1.9 million for the same 2022 period. The $256 thousand decrease was primarily due to the prior year including a $347 thousand loss on an early extinguishment of the junior subordinated debentures acquired from CalWest Bancorp in 2022, for which there was no comparable expense during the six months ended June 30, 2023.

Our efficiency ratio for the six months ended June 30, 2023 and 2022 was 58.1% and 89.0%, respectively.

Income Taxes

Three Months Ended June 30, 2023 Compared to Three Months Ended March 31, 2023

Income tax expense during the three months ended June 30, 2023 was $3.2 million, compared to $3.0 million in the prior quarter. The effective rate was 32.3% during the three months ended June 30, 2023, compared to 26.8% for the prior quarter. The increase in effective tax rate between periods was primarily due to the impact of the vesting and exercise of equity awards combined with changes in the Company’s stock price over time.

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Income tax expense for the three months ended June 30, 2023 was $3.2 million, compared to an income tax benefit of $306 thousand for the same 2022 period. The effective rate was 32.3% during the three months ended June 30, 2023, compared to 29.4% for the same 2022 period. The increase in effective tax rate between periods was primarily due to the impact of the vesting and exercise of equity awards combined with changes in the Company’s stock price over time and the 2022 period including higher tax benefits associated with bank owned life insurance (“BOLI”) death benefits.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Income tax expense for the six months ended June 30, 2023 was $6.2 million, compared $244 thousand for the same 2022 period. The effective rate was 29.4% during the six months ended June 30, 2023, compared to 25.6% for the same 2022 period. The increase in effective tax rate between periods was primarily due to higher income before income taxes, coupled with lower tax benefits associated with BOLI death benefits, partially offset by higher tax benefits associated with share-based compensation arrangements,

68

Table of Contents

Financial Condition

Summary

Total assets at June 30, 2023 were $2.31 billion, an increase of $25.3 million from $2.28 billion at December 31, 2022. The increase in total assets was primarily related to a $17.9 million increase in cash and cash equivalents and an $7.1 million increase in total debt securities, a $10.2 million increase in loans held for investment, net (including ACL), a $1.5 million increase in restricted stock, partially offset by a $8.0 million decrease in loans held for sale, and $3.5 million decrease in accrued interest receivable and other assets.

Total liabilities were $2.04 billion at June 30, 2023, an increase of $11.9 million from December 31, 2022. The increase in total liabilities was driven by a $49.0 million increase in deposits, partially offset by a $35.0 million decrease in borrowings and a $1.5 million decrease in accrued interest and other liabilities. Shareholders’ equity was $273.7 million at June 30, 2023, an increase of $13.4 million from $260.4 million at December 31, 2022. The increase in shareholders’ equity was driven by $14.9 million of net income generated during the six months ended June 30, 2023, $2.8 million related to share-based compensation activity, partially offset by a $3.9 million net reduction related to the adoption of CECL, and $119 thousand net of tax unrealized losses on available-for-sale debt securities during the period.

Debt Securities

Our debt securities portfolio consists of both held-to-maturity and available-for-sale securities aggregating $173.7 million and $166.5 million at June 30, 2023 and December 31, 2022, respectively. Our held-to-maturity debt securities and available-for-sale debt securities represented 2.33% and 5.19%, respectively, of total assets at June 30, 2023, compared to 2.36% and 4.93%, respectively, at December 31, 2022.

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 2022 and into 2023 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.

During the three and six months ended June 30, 2023 and 2022, there were no transfers between held-to-maturity and available-for-sale debt securities.

At June 30, 2023, held-to-maturity debt securities with an amortized cost of $53.8 million were pledged to the Federal Reserve Bank as collateral for a $45.9 million line of credit. There were no debt securities pledged at December 31, 2022.

Held-to-Maturity Debt Securities

The amortized cost of held-to-maturity debt securities and their approximate fair values at June 30, 2023 and December 31, 2022 were as follows:

(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
June 30, 2023
Taxable municipals	$	551	$	—	$	(83)	$	468
Tax exempt bank-qualified municipals	53,231		—		(5,136)		48,095
	$	53,782	$	—	$	(5,219)	$	48,563
December 31, 2022

69

Table of Contents

(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Taxable municipals	$	550	$	—	$	(105)	$	445
Tax exempt bank-qualified municipals	53,396		—		(5,935)		47,461
	$	53,946	$	—	$	(6,040)	$	47,906

At June 30, 2023, we had 61 held-to-maturity debt securities with fair values totaling $48.6 million with pre-tax unrealized losses of $5.2 million, compared to $47.9 million with pre-tax unrealized losses of $6.0 million at December 31, 2022. The effective duration of this portfolio was 5.99 years and 6.35 years at June 30, 2023 and December 31, 2022, 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.

All held-to-maturity debt securities were municipal securities, and historically have had no credit loss experience. At June 30, 2023, the total fair value of taxable municipal and tax exempt bank-qualified municipal securities were $468 thousand, and $48.1 million, respectively. At June 30, 2023, the total held-to-maturity debt securities rated AA and above was $45.3 million and rated AA- was $3.2 million. Accordingly, we applied a zero credit loss assumption for these securities and no allowance for credit loss was recorded as of June 30, 2023.

At December 31, 2022, held-to-maturity debt securities were evaluated for OTTI, taking into consideration the extent and length of time the fair value has been less than cost, the financial condition of the issuer and whether we have the intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value, and concluded that no unrealized losses were deemed to be other-than-temporary.

Available-for-Sale Debt Securities

The amortized cost of available-for-sale debt securities and their approximate fair values at June 30, 2023 and December 31, 2022 were as follows:

(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
June 30, 2023
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities	$	51,397	$	—	$	(3,979)	$	47,418
SBA securities	6,796		7		(131)		6,672
U.S. Treasury	6,612		—		(676)		5,936
U.S. Agency	7,023		—		(796)		6,227
Collateralized mortgage obligations	46,319		15		(3,481)		42,853
Taxable municipal	4,405		36		(171)		4,270
Tax exempt bank-qualified municipals	6,637		4		(142)		6,499
	$	129,189	$	62	$	(9,376)	$	119,875
December 31, 2022
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities	$	27,029	$	—	$	(3,734)	$	23,295
SBA securities	7,988		16		(132)		7,872

70

Table of Contents

(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
U.S. Treasury	6,652		—		(700)		5,952
U.S. Agency	7,025		—		(842)		6,183
Collateralized mortgage obligations	47,778		20		(3,375)		44,423
Taxable municipals	4,403		36		(211)		4,228
Tax exempt bank-qualified municipals	20,777		163		(313)		20,627
	$	121,652	$	235	$	(9,307)	$	112,580

Available-for-sale debt securities were $119.9 million at June 30, 2023, an increase of $7.3 million, from $112.6 million at December 31, 2022. The increase was primarily due to purchases of $28.7 million, partially offset by principal reductions and amortization of discounts and premiums aggregating to $4.1 million, and negative fair value market adjustments of $242 thousand.

At June 30, 2023, we had 92 available-for-sale debt securities in a gross unrealized loss position with an amortized cost basis and fair value of $125.1 million and $115.7 million, respectively, with pre-tax unrealized losses of $9.4 million, compared to 88 available-for-sale debt securities with an amortized cost basis and fair value of $106.3 million and $97.0 million, respectively with pre-tax unrealized holding losses of $9.3 million at December 31, 2022. 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 4.66 years and 4.56 years at June 30, 2023 and December 31, 2022, respectively. We did 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.

The increase in unrealized losses was primarily attributable to interest rate movement driven by the Federal Reserve’s policy to fight against inflation and general volatility in credit market conditions. Our available-for-sale debt securities consisted of U.S. Treasury, U.S. government and agency and government sponsored enterprise securities, municipals are issued, guaranteed, or supported by the U.S. government, and historically have had no credit loss experience. In addition, we reviewed the credit rating of the municipal securities. At June 30, 2023, the total fair value of taxable municipal and tax exempt bank-qualified municipal securities was $4.3 million, and $6.5 million, respectively. These available-for-sale debt securities rated AA and above totaled $7.5 million and rated A and above totaled $3.3 million at June 30, 2023. Accordingly, we applied a zero credit loss assumption for these securities and no allowance for credit loss was recorded as of June 30, 2023.

At December 31, 2022, available-for-sale debt securities were evaluated for OTTI, taking into consideration the extent and length of time the fair value has been less than cost, the financial condition of the issuer and whether we have the intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value, and concluded that no unrealized losses were deemed to be other-than-temporary.

The amortized cost, estimated fair value and weighted average yield of held-to-maturity and available-for-sale debt securities as of June 30, 2023 are presented below by contractual maturities. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

71

Table of Contents

	Held-to-Maturity						Available-for-Sale
(dollars in thousands)	Amortized Cost		Estimated Fair Value		Weighted Average Yield (1)		Amortized Cost		Estimated Fair Value		Weighted Average  Yield (1)
Due in one year or less	$	—	$	—	—	%	$	1,640	$	1,638	3.20	%
Due after one year through five years	—		—		—	%	17,855		16,763		2.10	%
Due after five years through ten years	11,707		10,910		2.26	%	23,734		20,744		2.42	%
Due after ten years	42,075		37,653		2.27	%	85,960		80,730		3.37	%
	$	53,782	$	48,563	2.27	%	$	129,189	$	119,875	3.02	%

(1)Weighted average yields are computed based on the amortized cost of the individual underlying securities.

72

Table of Contents

The following table presents the amortized cost and weighted average yields using amortized cost of held-to-maturity debt securities as of June 30, 2023, based on the contractual maturity dates:

	One Year of Less				More than One Year through Five Years				More than Five Years through Ten Years				More than Ten Years				Total
	Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield
Held-to-maturity:
Taxable municipals	$	—	—	%	$	—	—	%	$	551	2.29	%	$	—	—	%	$	551	2.29	%
Tax exempt bank-qualified municipals	—		—	%	—		—	%	11,156		2.26	%	42,075		2.27	%	53,231		2.27	%
Total	$	—	—	%	$	—	—	%	$	11,707	2.26	%	$	42,075	2.27	%	$	53,782	2.27	%

The following table presents the fair value and weighted average yields using amortized cost of available-for-sale debt securities as of June 30, 2023, based on the contractual maturity dates:

	One Year of Less				More than One Year through Five Years				More than Five Years through Ten Years				More than Ten Years				Total
	Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield
Available-for-sale:
U.S. government and agency and government sponsored enterprise securities:
Mortgage-backed securities	$	—	—	%	$	—	—	%	$	10,343	1.80	%	$	37,075	3.26	%	$	47,418	2.91	%
SBA securities	—		—	%	660		4.65	%	5,784		4.60	%	228		3.76	%	6,672		4.57	%
U.S. Treasury	—		—	%	3,554		1.70	%	2,382		0.93	%	—		—	%	5,936		1.38	%
U.S. Agency	—		—	%	4,590		1.34	%	1,637		2.05	%	—		—	%	6,227		1.55	%
Collateralized mortgage obligations	—		—	%	4,083		1.99	%	—		—	%	38,770		3.43	%	42,853		3.29	%
Taxable municipals	1,638		3.20	%	2,228		3.65	%	404		1.73	%	—		—	%	4,270		3.26	%
Tax exempt bank-qualified municipals	—		—	%	1,648		2.43	%	194		3.50	%	4,657		3.71	%	6,499		3.38	%
Total	$	1,638	3.20	%	$	16,763	2.10	%	$	20,744	2.42	%	$	80,730	3.37	%	$	119,875	3.02	%

73

Table of Contents

Loans Held for Sale

Loans held for sale consist of SBA 7(a) loans originated and held for sale in the secondary market. At June 30, 2023, loans held for sale totaled $1.1 million, compared to $9.0 million loans held for sale at December 31, 2022. Loans held for sale at June 30, 2023 are expected to be sold in the secondary market in the third quarter of 2023.

During the six months ended June 30, 2023, we originated $3.0 million of SBA 7(a) loans. During the six months ended June 30, 2023, loan sales related to nine SBA loans with a net carrying value of $10.9 million, resulted in a gain of $874 thousand, at an average premium of 8.01% and one nonaccrual 1-4 family residential loan with a net carrying value of $39 thousand, resulting in a gain of $11 thousand. This compares to ten SBA loans sold with a net carrying value of $11.2 million resulting in a gain on sale of $760 thousand, at an average premium of 6.77%, and one non-SBA loan with a net carrying value of $360 thousand, resulting in a gain of $56 thousand during the six months ended June 30, 2022.

Loans Held for Investment

The composition of our loan portfolio at June 30, 2023 and December 31, 2022 was as follows:

(dollars in thousands)	June 30, 2023		% of Total Loans		December 31, 2022		% of Total Loans
Construction and land development	$	275,250	14.4	%	$	239,067	12.6	%
Real estate - other:
1-4 family residential	150,150		7.8	%	144,322		7.6	%
Multifamily residential	210,025		11.0	%	218,606		11.5	%
Commercial real estate and other	961,307		50.2	%	958,676		50.5	%
Commercial and industrial(1)	312,845		16.4	%	331,644		17.5	%
Consumer	3,776		0.2	%	5,458		0.3	%
Loans(2)	1,913,353		100.0	%	1,897,773		100.0	%
Allowance for loan losses	(22,502)				(17,099)
Net loans	$	1,890,851	100.0	%	$	1,880,674	100.0	%

(1)Includes Paycheck Protection Program (“PPP”) loans at net amortized amount of $3.0 million and $3.5 million at June 30, 2023 and December 31, 2022, respectively.

(2)Loans held for investment includes net unearned fees of $2.6 million and $3.3 million and net unearned discount of $1.6 million and $1.8 million at June 30, 2023 and December 31, 2022, respectively.

Total loans held for investment were $1.91 billion, or 82.9% of total assets, at June 30, 2023, an increase of $15.6 million from $1.90 billion, or 83.1% of total assets, at December 31, 2022. The change during the six months ended June 30, 2023, was due primarily to originations of $141.3 million, partially offset by payoffs and net paydowns of $119.3 million.

Loans secured by real estate, defined as construction and land development loans and real estate - other loans, increased by $36.1 million to $1.60 billion at June 30, 2023. The increase in loans secured by real estate was primarily driven by a $36.2 million increase in construction and land development loans, a $5.8 million increase in 1-4 family residential loans, and a $2.6 million increase in CRE and other loans, partially offset by a $8.6 million decrease in multifamily residential loans.

Commercial and industrial loans were $312.8 million at June 30, 2023, a decrease of $18.8 million from $331.6 million at December 31, 2022. The decrease in C&I loans was primarily attributable to net paydowns and payoffs totaling $76.0 million, and loans sold of $315 thousand, partially offset by originations of $65.6 million.

74

Table of Contents

Loan Maturities

The following table sets forth the amounts of gross loans, by maturity, at June 30, 2023:

(dollars in thousands)	Due in One Year or Less		Due after One Year through Five Years		Due after Five Years through Fifteen Years		Due after Fifteen Years		Total
Construction and land development	$	148,553	$	125,487	$	1,210	$	—	$	275,250
Real estate - other:
1-4 family residential	34,768		43,224		49,339		22,819		150,150
Multifamily residential	21,899		72,316		95,043		20,767		210,025
Commercial real estate and other	18,253		249,506		610,708		82,840		961,307
Commercial and industrial	158,077		99,629		55,135		4		312,845
Consumer	2,951		816		5		4		3,776
	$	384,501	$	590,978	$	811,440	$	126,434	$	1,913,353

The following table sets forth the amounts of gross loans, due after one year, presented by fixed or floating interest rates at June 30, 2023:

(dollars in thousands)	Fixed Rate		Floating Rate		Total
Construction and land development	$	58,149	$	68,548	$	126,697
Real estate - other:
1-4 family residential	39,542		75,840		115,382
Multifamily residential	91,180		96,946		188,126
Commercial real estate and other	351,270		591,784		943,054
Commercial and industrial	76,715		78,053		154,768
Consumer	825		—		825
	$	617,681	$	911,171	$	1,528,852

Delinquent Loans

A summary of past due loans, loans still accruing and nonaccrual loans as of June 30, 2023 and December 31, 2022 follows:

(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Over 90 Days Past Due		Total Past Due
June 30, 2023
Construction and land development	$	—	$	—	$	—	$	—
Real estate - other:
1-4 family residential	—		—		—		—
Multifamily residential	—		—		—		—
Commercial real estate and other	—		—		—		—
Commercial and industrial	—		—		—		—
Consumer	—		—		—		—
	$	—	$	—	$	—	$	—

75

Table of Contents

(dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Over 90 Days Past Due		Total Past Due
December 31, 2022
Construction and land development	$	—	$	—	$	—	$	—
Real estate - other:
1-4 family residential	—		—		—		—
Multifamily residential	—		—		—		—
Commercial real estate and other	—		—		—		—
Commercial and industrial	—		—		—		—
Consumer	—		—		—		—
	$	—	$	—	$	—	$	—

Total past due loans were unchanged during the six months ended June 30, 2023.

The following table presents the risk categories for total loans by class of loans as of June 30, 2023 and December 31, 2022:

(dollars in thousands)	Pass		Special Mention		Substandard		Total
June 30, 2023
Construction and land development	$	275,153	$	—	$	97	$	275,250
Real estate - other:
1-4 family residential	149,151		999		—		150,150
Multifamily residential	210,025		—		—		210,025
Commercial real estate and other	956,590		2,721		1,996		961,307
Commercial and industrial	303,435		6,841		2,569		312,845
Consumer	3,776		—		—		3,776
	$	1,898,130	$	10,561	$	4,662	$	1,913,353

(dollars in thousands)	Pass		Special Mention		Substandard		Total
December 31, 2022
Construction and land development	$	238,965	$	—	$	102	$	239,067
Real estate - other:
1-4 family residential	143,284		999		39		144,322
Multifamily residential	218,606		—		—		218,606
Commercial real estate and other	956,649		—		2,027		958,676
Commercial and industrial	323,999		6,057		1,588		331,644
Consumer	5,458		—		—		5,458
	$	1,886,961	$	7,056	$	3,756	$	1,897,773

Special mention loans increased by $3.5 million during the six months ended June 30, 2023 due mostly to downgrades of two loan relationships that totaled $3.2 million in commercial and industrial loans and commercial real estate loans. Substandard loans increased by $906 thousand during the six months ended June 30, 2023 due mostly to downgrades from four loan relationships that totaled $1.3 million in commercial and industrial loans.

There were no loans classified as doubtful or loss loans at June 30, 2023 and December 31, 2022.

76

Table of Contents

Non-performing Assets

We do not have any modifications of loans that were made to borrowers experiencing financial difficulty as of June 30, 2023. There were no troubled debt restructurings at December 31, 2022. Nonperforming assets consist of loans on which we have ceased accruing interest (nonaccrual loans), OREO, and other repossessed assets owned. Nonaccrual loans consist of all loans 90 days or more past due and on loans where, in the opinion of management, there is reasonable doubt as to the collection of principal and interest.

The following table presents a summary of nonperforming assets, along with corresponding nonperforming asset ratios, as of June 30, 2023 and December 31, 2022:

(dollars in thousands)	June 30, 2023			December 31, 2022
Nonaccrual loans:
Construction and land development	$	—		$	—
Real estate - other:
1-4 family residential	—			39
Multifamily residential	—			—
Commercial real estate and other	1			2
Commercial and industrial	39			—
Consumer	—			—
Total nonaccrual loans	40			41
Loans past due over 90 days or more and still on accrual	—			—
Total nonperforming loans	40			41
Other real estate owned	—			—
Total nonperforming assets	$	40		$	41
Allowance for loan losses to total loans	1.18		%	0.90		%
Nonaccrual loans to total loans	0.002		%	0.002		%
Allowance for loan losses to nonaccrual loans	562.55x			417.05x
Nonperforming assets to total assets	0.002		%	0.002		%

At June 30, 2023, nonaccrual and nonperforming loans were $40 thousand, compared to $41 thousand at December 31, 2022. The decrease from December 31, 2022 was due primarily to a commercial and industrial loan with a net carrying value of $41 thousand that was placed on non-accrual status during the three months ended June 30, 2023, partially offset by a $39 thousand in note sales during the three months ended March 31, 2023.

Allowance for Credit Losses

On January 1, 2023, the Company adopted ASU 2016-13 using the modified retrospective method through a cumulative effect adjustment to retained earnings. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with the probable incurred loss accounting standards.

The ACL consists of: (i) a specific allowance established for current expected credit losses on loans individually evaluated, (ii) a quantitative allowance for current expected loan losses based on the portfolio and expected economic conditions over a reasonable and supportable forecast period that reverts back to long-term trends to cover the expected life of the loan, (iii) a qualitative allowance including management judgment to capture factors and trends that are not adequately reflected in the quantitative allowance, and (iv) the ACL for off-balance sheet credit exposure for unfunded loan commitments.

77

Table of Contents

The following table presents a summary of the changes in the ACL for the periods indicated:

	Three Months Ended June 30, 2023						Three Months Ended June 30, 2022
(dollars in thousands)	Allowance for Loan Losses (“ALL”)		Reserve for Unfunded Loan Commitments		Total Allowance for Credit Losses		Allowance for Loan Losses (“ALL”)		Reserve for Unfunded Loan Commitments		Total Allowance for Credit Losses
Balance, beginning of period	$	22,391	$	1,673	$	24,064	$	13,534	$	804	$	14,338
Provision for (reversal of) credit losses	120		(135)		(15)		1,650		146		1,796
Charge-offs	(9)		—		(9)		(21)		—		(21)
Recoveries	—		—		—		(27)		—		(27)
Net charge-offs	(9)		—		(9)		(48)		—		(48)
Balance, end of period	$	22,502	$	1,538	$	24,040	$	15,136	$	950	$	16,086

	Six Months Ended June 30, 2023						Six Months Ended June 30, 2022
(dollars in thousands)	Allowance for Loan Losses (“ALL”)		Reserve for Unfunded Loan Commitments		Total Allowance for Credit Losses		Allowance for Loan Losses (“ALL”)		Reserve for Unfunded Loan Commitments		Total Allowance for Credit Losses
Balance, beginning of period	$	17,099	$	1,310	$	18,409	$	11,657	$	804	$	12,461
Adoption of ASU No. 2016-13 (1)	5,027		439		5,466		—		—		—
Provision for (reversal of) credit losses	398		(211)		187		3,500		146		3,646
Charge-offs	(36)		—		(36)		(21)		—		(21)
Recoveries	14		—		14		—		—		—
Net charge-offs	(22)		—		(22)		(21)		—		(21)
Balance, end of period	$	22,502	$	1,538	$	24,040	$	15,136	$	950	$	16,086

(1)Represents the impact of adopting ASU 2016-13, Financial Instruments - Credit Losses on January 1, 2023. As a result of adopting ASU 2016-13, our methodology to compute our ACL is based on a CECL methodology, rather than the previously applied incurred loss methodology.

The following table presents a summary of the ALL by portfolio segment, along with the corresponding percentage of each segment to total loans as of periods indicated:

	June 30, 2023				December 31, 2022
(dollars in thousands)	Amount		Percent of loans in each category to total loans		Amount		Percent of loans in each category to total loans
Construction and land development	$	3,556	14.4	%	$	2,301	12.6	%
Real estate - other:
1-4 family residential	1,553		7.8	%	972		7.6	%
Multifamily residential	1,070		11.0	%	1,331		11.5	%
Commercial real estate and other	12,474		50.2	%	9,388		50.5	%
Commercial and industrial	3,808		16.4	%	3,079		17.5	%
Consumer	41		0.2	%	28		0.3	%
	$	22,502	100.0	%	$	17,099	100.0	%

Accrued interest receivable on loans receivable, net totaled $5.7 million and $5.7 million at June 30, 2023 and December 31, 2022, respectively, and is included within accrued interest receivable and other assets in the accompanying consolidated balance sheets. Accrued interest receivable is excluded from the ACL.

78

Table of Contents

The ALL was $22.5 million at June 30, 2023, compared to $17.1 million at December 31, 2022. The $5.4 million change in the ALL during the six months ended June 30, 2023 was due primarily to the $5.0 million impact of adopting CECL, combined with a $398 thousand provision for credit losses that was driven by a number of factors, including the increase in total loan balances, the increase in loan downgrades into special mention and substandard, changes in the portfolio mix and our reasonable and supportable forecast, primarily related to the economic outlook from the Federal Reserve's actions to control inflation. We also increased the qualitative reserve to consider the potential losses resulting from future recessionary pressures and the impact of the banking turmoil that were not captured in quantitative analysis. Management continues to monitor macroeconomic variables related to increasing interest rates, inflation and the concerns of an economic downturn, and believes it is appropriately provisioned for the current environment.

At June 30, 2023 and December 31, 2022, our ratio of ALL to total loans was 1.18% and 0.90%, respectively. The increase in our ratio of ALL to total loans was impacted during the quarter by the adoption of the CECL standard on January 1, 2023, which increased our December 31, 2022 ratio from 0.90% to 1.17%.

At June 30, 2023, we utilized a probability-weighted three-scenario forecast, representing a base-case scenario and two downside scenarios, to estimate the allowance for credit losses, and the economic forecasts were released by Moody’s Analytics during the last week of June 2023 which suggested a slight shift from the March 2023 forecasts in their outlook based on the current economic data, which included the impact of the financial system turmoil and related governmental and other reactions to the rising interest rate environment, ongoing inflationary pressures throughout the U.S. economy, general uncertainty concerning future economic conditions, and the potential for recessionary conditions. These forecasts remained consistent in their long-held view that the inflationary outlook is the key to their baseline forecast. The most recent inflationary data, including the Federal Reserve’s preferred measure of inflation, is encouraging, but remained stubbornly high and may remain entrenched longer. This resulted in a modest change in Moody’s expectation that the Federal Reserve will postpone its first rate drop to the first quarter of 2024 from the last quarter of 2023. However, the baseline forecast still suggested that a soft landing would be the most likely outcome for the U.S. economy as a consequence of the resilience of consumers and labor markets. Management believes the Federal Reserve will continue to assess the impact of the bank failures, a sharp spike in near-term California unemployment rates ranging from 4.52% to 7.09%, and tightened credit conditions given the recent turmoil and liquidity concerns in the banking industry. We adjusted the qualitative reserve to consider the potential losses resulting from future recessionary pressures and the impact of the banking turmoil that were not captured in the quantitative model.

The baseline scenario included an assumption that the Federal Reserve’s May rate hike was the last of the current tightening cycle and that the policy rate remained elevated at its terminal range of 5% to 5.25% until the end of 2023, and the first rate decrease was postponed to March 2024. Management assigned a 50% probability to this scenario. The first downside scenario predicts slower downside growth, with the still-elevated Fed funds rates and reduced credit availability caused the economy to fall into a mild recession in the third quarter of 2023. Management assigned a 30% probability to this scenario. The second downside scenario assumes inflation remains high, with the Federal Reserve responding with more aggressive rate hikes throughout 2023 and leading to a deep depression in 2024. Management assigned a 20% probability to this scenario.

The ACL process involves subjective and complex judgments and is reflective of significant uncertainties that could potentially result in materially different results under different assumptions and conditions. Management reviews the level of the allowance at least quarterly and performs a sensitivity analysis on the significant assumptions utilized in estimating the ACL for collectively evaluated loans. By applying a 100% probability weighting to the first downside scenario rather than using the probability-weighted three scenario approach would result in an increase in ACL by approximately $2.4 million, or additional 12 basis points to the ALL to total loans ratio. This sensitivity analysis and related impact on the ACL is a hypothetical analysis and is

79

Table of Contents

not intended to represent management’s judgments or assumptions of qualitative loss factors that were utilized at June 30, 2023.

The following table presents net (charge-offs) recoveries, average loans and net (charge-offs) recoveries as a percentage of average loans for the periods indicated:

	Three Months Ended June 30, 2023						Three Months Ended June 30, 2022
(dollars in thousands)	Net (Charge-off) Recovery		Average Loans		(Charge-off) Recovery Ratio		Net (Charge-off) Recovery		Average Loans		(Charge-off) Recovery Ratio
Construction and land development	$	—	$	252,291	—	%	$	—	$	128,572	—	%
Real estate - other:
1-4 family residential	—		149,828		—	%	(1)		130,281		—	%
Multifamily residential	—		222,014		—	%	—		177,435		—	%
Commercial real estate and other	—		960,288		—	%	—		922,796		—	%
Commercial and industrial	(9)		311,930		(0.01)	%	(46)		326,527		(0.03)	%
Consumer	—		3,682		—	%	(1)		3,363		(0.06)	%
	$	(9)	$	1,900,033	0.00	%	$	(48)	$	1,688,974	(0.01)	%

Net charge-offs decreased to $9 thousand, or 0.00% of average loans for the three months ended June 30, 2023 from net charge-offs of $48 thousand, or (0.01)% of average loans for the three months ended June 30, 2022.

	Six Months Ended June 30, 2023						Six Months Ended June 30, 2022
(dollars in thousands)	Net (Charge-off) Recovery		Average Loans		(Charge-off) Recovery Ratio		Net (Charge-off) Recovery		Average Loans		(Charge-off) Recovery Ratio
Construction and land development	$	—	$	244,836	—	%	$	—	$	110,073	—	%
Real estate - other:
1-4 family residential	(12)		145,564		(0.02)	%	—		126,445		—	%
Multifamily residential	—		221,524		—	%	—		177,642		—	%
Commercial real estate and other	—		967,194		—	%	—		867,880		—	%
Commercial and industrial	(10)		315,161		(0.01)	%	(21)		326,057		(0.01)	%
Consumer	—		2,871		—	%	—		2,446		—	%
	$	(22)	$	1,897,150	0.00	%	$	(21)	$	1,610,543	—	%

Net charge-offs increased to $22 thousand, or 0.00% of average loans for the six months ended June 30, 2023 from net charge-offs of $21 thousand, or 0.00% of average loans for the six months ended June 30, 2022.

Allowance for Credit Losses on Off-Balance Sheet Commitments

We also maintain a separate allowance for off-balance sheet commitments, which is included in accrued interest payable and other liabilities in our consolidated balance sheets. Management evaluates the loss exposure for off-balance sheet commitments to extend credit following the same principles used for the ACL, with consideration for experienced utilization rates on client credit lines and the inherently lower risk of unfunded loan commitments relative to disbursed commitments. The allowance for off-balance sheet commitments totaled $1.5 million and $1.3 million at June 30, 2023 and December 31, 2022, respectively. The change in the allowance for off-balance sheet commitments between periods was the result of a $439 thousand increase related to the adoption of the CECL standard, offset by lower provision for credit losses on unfunded commitments between periods.

80

Table of Contents

Servicing Asset and Loan Servicing Portfolio

We sell loans in the secondary market and, for certain loans, retain the servicing responsibility. The loans serviced for others were accounted for as sales and are therefore not included in the accompanying consolidated balance sheets. We receive servicing fees ranging from 0.25% to 1.00% for the services provided over the life of the loan; the servicing asset is initially recognized at fair value based on the present value of the estimated future net servicing income, incorporating assumptions that market participants would use in their estimates of fair value. The risks inherent in the SBA servicing asset relates primarily to changes in prepayments that result from shifts in interest rates and a reduction in the estimated future cash flows. The servicing asset activity includes additions from loan sales with servicing retained and acquired servicing rights and reductions from amortization as the serviced loans are repaid and servicing fees are earned. Loans serviced for others totaled $67.9 million and $59.4 million at June 30, 2023 and December 31, 2022, respectively. This includes SBA loans serviced for others of $40.2 million at June 30, 2023 and $30.3 million at December 31, 2022 for which there was a related servicing asset of $683 thousand and $514 thousand, respectively. The fair value of the servicing asset approximated its carrying value at June 30, 2023 and December 31, 2022. Consideration for each SBA loan sale includes the cash received and the fair value of the related servicing asset. The significant assumptions used in the valuation of the SBA servicing asset at June 30, 2023 included a weighted average discount rate of 15.1% and a weighted average prepayment speed assumption of 16.7%. The significant assumptions used in the valuation of the SBA servicing asset at December 31, 2022 included a weighted average discount rate of 19.1% and a weighted average prepayment speed assumption of 17.0%.

Goodwill and Core Deposit Intangibles

Goodwill totaled $37.8 million at June 30, 2023 and December 31, 2022.

Core deposit intangibles totaled $1.4 million and $1.6 million at June 30, 2023 and December 31, 2022, respectively. The $181 thousand decrease in core deposit intangibles between periods was the result of amortization during the period. At June 30, 2023, core deposit intangibles had a weighted average remaining amortization period of 6.6 years.

Refer to Note 5 - Goodwill and Other Intangible Assets 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.

Deposits

The following table presents the composition of deposits, related percentage of total deposits, and spot rates, as of June 30, 2023 and December 31, 2022:

	June 30, 2023						December 31, 2022
(dollars in thousands)	Amount		Percentage of Total Deposits		Spot Rate (1)		Amount		Percentage of Total Deposits		Spot Rate (1)
Noninterest-bearing demand	$	776,895	39.2	%	0.0	%	$	923,899	47.8	%	0.0	%
Interest-bearing NOW accounts (2)	354,088		17.9	%	1.9	%	209,625		10.9	%	0.3	%
Money market and savings accounts (3)	660,654		33.3	%	2.2	%	668,602		34.6	%	1.2	%
Time deposits	90,843		4.6	%	3.3	%	109,032		5.6	%	2.1	%
Broker time deposits	$	98,428	5.0	%	4.3	%	$	20,747	1.1	%	1.1	%
Total deposits	$	1,980,908	100.0	%	1.4	%	$	1,931,905	100.0	%	0.6	%

(1) Weighted average interest rates at June 30, 2023 and December 31, 2022.

(2) Included ICS products of $242.0 million and $51.7 million at June 30, 2023 and December 31, 2022, respectively.

(3) Included ICS products of $14.3 million and $13.8 million at June 30, 2023 and December 31, 2022, respectively.

81

Table of Contents

We offer our depositors access to the Insured Cash Sweep (“ICS Product”), which allows 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. Our total deposits in the ICS Product increased to $256.3 million, or 13% of total deposits at June 30, 2023, compared to $65.5 million, or 3% of total deposits at December 31, 2022.

Total deposits were $1.98 billion at June 30, 2023, an increase of $49.0 million from $1.93 billion at December 31, 2022. The increase in total deposits was primarily driven by a $190.9 million increase in ICS deposits, and a $77.7 million increase in brokered time deposits, partially offset by a $147.0 million decrease in noninterest-bearing demand deposits, $45.9 million decrease in interest-bearing NOW accounts, excluding ICS, $8.5 million decrease in money market and savings accounts, excluding ICS, and $18.2 million decrease in time deposits.

At June 30, 2023, noninterest-bearing demand deposits totaled $776.9 million and represented 39.2% of total deposits, compared to $923.9 million or 47.8% in the prior year. At June 30, 2023 and December 31, 2022, total deposits exceeding FDIC deposit insured limits were $790.8 million, or 40% of total deposits and $1.19 billion, or 62% of total deposits, respectively.

The following table sets forth the average balance of deposit accounts and the weighted average rates paid for the periods indicated:

	For the Three Months Ended June 30,
	2023				2022
(dollars in thousands)	Amount		Average Rate Paid		Amount		Average Rate Paid
Noninterest-bearing demand	$	805,553	—	%	$	1,053,615	—	%
Interest-bearing NOW accounts	308,863		1.66	%	211,663		0.11	%
Money market and savings accounts	662,487		2.09	%	669,183		0.12	%
Time deposits	175,161		3.51	%	87,176		0.37	%
Total deposits	$	1,952,064	1.29	%	$	2,021,637	0.07	%

	For the Six Months Ended June 30,
	2023				2022
(dollars in thousands)	Amount		Average Rate Paid		Amount		Average Rate Paid
Noninterest-bearing demand	$	860,054	—	%	$	1,022,075	—	%
Interest-bearing NOW accounts	258,106		1.25	%	201,155		0.14	%
Money market and savings accounts	673,864		1.81	%	681,600		0.12	%
Time deposits	163,950		3.08	%	92,076		0.39	%
Total deposits	$	1,955,974	1.05	%	$	1,996,906	0.07	%

The increase in the weighted average rate on deposits was primarily due to increases in market interest rates during 2022 and the six months ended June 30, 2023. Beginning in March 2022 through July 2023, the Federal Reserve’s FOMC has raised the target Fed fund rate by 525 basis points.

82

Table of Contents

The following table sets forth the maturities of time deposits at June 30, 2023:

(dollars in thousands)	Three Months of Less		Over Three Months through Six Months		Over Six Months through Twelve Months		Over Twelve Months		Total
Time deposits in amounts of $250,000 or less	$	33,637	$	45,999	$	15,104	$	25,262	$	120,002
Time deposits in amounts over $250,000	17,462		37,437		13,279		1,091		69,269
Total time deposits	$	51,099	$	83,436	$	28,383	$	26,353	$	189,271

Borrowings

Total borrowings decreased $35.0 million to $32.8 million at June 30, 2023 from $67.8 million at December 31, 2022. The decrease was attributable to a $35.0 million decrease in overnight borrowings (refer to Note 7 - Borrowing Arrangements of the Notes to Consolidated Financial Statements included in Part I - Financial Information, Part 1. Financial Statements of this filing).

A summary of outstanding borrowings, and related information, as of periods indicated:

(dollars in thousands)	June 30, 2023			December 31, 2022
FHLB Advances
Outstanding balance	$	15,000		$	50,000
Weighted average interest rate, end of period	5.35		%	4.65		%
Average balance outstanding during the quarter	$	22,791		$	14,356
Weighted average interest rate during the quarter	5.31		%	4.75		%
Maximum amount outstanding at any month-end during the quarter	$	35,000		$	50,000
Subordinated Notes
Outstanding balance	$	17,818		$	17,770
Weighted average interest rate, end of period	5.50		%	5.50		%
Average balance outstanding during the quarter(1)	$	17,806		$	17,783
Weighted average interest rate during the quarter(2)	6.10		%	6.18		%
Maximum amount outstanding at any month-end during the quarter	$	17,818		$	17,770

(1)Average balance outstanding includes average net unamortized issuance costs for the periods presented.

(2)Weighted average interest rate includes issuance costs for the periods presented.

Shareholders’ Equity

Total shareholders’ equity was $273.7 million at June 30, 2023, compared to $260.4 million at December 31, 2022. The $13.4 million increase between periods was primarily due to net income of $14.9 million, stock-based compensation expense of $2.8 million, partially offset by the net impact of adopting ASU 2016-13 of $3.9 million, the repurchase of shares in settlement of restricted stock units of $442 thousand, and net of tax of unrealized losses on debt securities available-for-sale of $119 thousand

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. At June 30, 2023, our accumulated other comprehensive loss, net of taxes, increased to $6.6 million, compared to $6.4 million at December 31, 2022. 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 $10.2 million at June 30, 2023. The results of our stress testing on our debt security portfolio at June 30, 2023, illustrated that our losses, net of taxes on both held-to-maturity and available-for-sale debt

83

Table of Contents

securities would increase to $27.5 million at 300 basis point rate 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.

On June 14, 2023, the Company announced an authorized share repurchase plan, providing for the repurchase of up to 550,000 shares of the Company’s outstanding common stock, or approximately 3% of its then outstanding shares. Repurchases under the program may occur from time to time in open market transactions, in privately negotiated transactions, or by other means in accordance with federal securities laws and other restrictions. The Company intends to fund its repurchases from available working capital and cash provided by operating activities. The timing of repurchases, as well as the number of shares repurchased, will depend on a variety of factors, including price; trading volume; business, economic and general market conditions; and the terms of any Rule 10b5-1 plan adopted by the Company. The repurchase program has no expiration date and may be suspended, modified, or terminated at any time without prior notice.

There were no shares repurchased under this share repurchase plan during the three months ended June 30, 2023.

Tangible book value per common share at June 30, 2023, was $12.82, compared with $12.32 at December 31, 2022. The $0.50 increase in tangible book value per common share during the six months ended June 30, 2023 was primarily the result of net income generated and other comprehensive income related to changes in unrealized losses, net of taxes on available-for-sale securities, partially offset by the impact of adopting ASU 2016-13. Tangible book value per common share is also impacted by certain other items, including stock-based compensation expense, amortization of intangibles, and share changes resulting from share-based compensation results.

The Bank’s leverage capital ratio and total risk-based capital ratio were 11.47% and 12.98%, respectively, at June 30, 2023.

Liquidity and Market Risk Management

Liquidity

Liquidity is a measure of our ability to meet our cash flow requirements, including inflows and outflows of cash for depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs. Several factors influence our liquidity needs, including depositor and borrower activity, interest rate trends, changes in the economy, maturities, re-pricing and interest rate sensitivity of our debt securities, loan portfolio and deposits. We attempt to maintain a total liquidity ratio (liquid assets, including cash and due from banks, federal funds sold, fully disbursed loans held for sale, investments maturing one year or less, and available-for-sale debt securities not pledged as collateral expressed as a percentage of total deposits) above approximately 10.0%. Our total liquidity ratios were 11.3% at June 30, 2023 and 10.5% at December 31, 2022. During the six months ended June 30, 2023, we deployed our excess liquidity into higher yielding assets, repaying the high costs FHLB overnight advances, and new loan funding for organic growth.

For additional information regarding our operating, investing, and financing cash flows, see “Consolidated Statements of Cash Flows” in our consolidated financial statements contained in Item I. Financial Information, Part 1. Financial Statements of this filing.

Bank of Southern California, N.A.

The Bank’s primary sources of liquidity are derived from deposits from customers, principal and interest payments on loans and debt securities, FHLB advances and other borrowings. The Bank’s primary uses of liquidity include customer withdrawals of deposits, extensions of credit to borrowers, operating expenses, and

84

Table of Contents

repayment of FHLB advances and other borrowings. While maturities and scheduled amortization of loans and debt securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and competition.

At June 30, 2023, we had a secured line of credit of $468.5 million from the FHLB, of which $405.0 million was available. This secured borrowing arrangement is collateralized under a blanket lien on qualifying real estate loans and is subject to us providing adequate collateral and continued compliance with the Advances and Security Agreement and other eligibility requirements established by the FHLB. At June 30, 2023, we had pledged qualifying loans with an unpaid principal balance of $833.7 million for this line. In addition, at June 30, 2023, we used $48.5 million of our secured FHLB borrowing capacity by having the FHLB issue letters of credit to meet collateral requirements for deposits from the State of California and other public agencies. We had an overnight borrowing of $15.0 million at June 30, 2023.

At June 30, 2023, we had credit availability of $141.8 million at the Federal Reserve discount window to the extent of collateral pledged. At June 30, 2023, we had pledged our held-to-maturity debt securities with an amortized cost of $53.8 million, and qualifying loans with an unpaid principal balance of $131.6 million as collateral through the Borrower-in-Custody (“BIC”) program. We had no discount window borrowings at June 30, 2023 and December 31, 2022. At June 30, 2023, we did not establish any borrowing capacity through the BTFP program.

We have two overnight unsecured credit lines from correspondent banks totaling $60.0 million. The lines are subject to annual review. There were no outstanding borrowings under these lines at June 30, 2023 and December 31, 2022.

Southern California Bancorp

The primary sources of liquidity of the Company, on a stand-alone holding company basis, are derived from dividends from the Bank, borrowings, and its ability to issue debt and raise capital. The Company’s primary uses of liquidity are operating expenses and payments of interest and principal on borrowings.

On May 28, 2020, we issued $18 million of 5.50% Fixed-to-Floating Rate Subordinated Notes Due 2030 (the “Notes”). The Notes which mature March 25, 2030 accrue interest at a fixed rate of 5.50% through the fixed rate period to March 26, 2025, after which interest accrues at a floating rate of 90-day SOFR plus 350 basis points, until maturity, unless redeemed early, at our option, after the end of the fixed rate period. Issuance costs of $475 thousand were incurred and are being amortized over the first 5-year fixed term of the Notes; unamortized issuance costs at June 30, 2023 and December 31, 2022, were $182 thousand and $230 thousand, respectively. The net unamortized issuance costs are netted against the balance and recorded in the borrowings in the consolidated balance sheets. The amortization expenses are recorded in interest expense on the consolidated statements of operations. At June 30, 2023, we were in compliance with all covenants and terms of the Notes.

At June 30, 2023, consolidated cash and cash equivalents totaled $104.6 million, an increase of $17.9 million from $86.8 million at December 31, 2022. The increase in cash and cash equivalents is the result of $30.4 million in net cash provided by operating cash flows, $26.2 million net cash used in investing cash flows and $13.6 million of net cash flows provided by financing cash flows.

Our operating cash flows are comprised of net income, adjusted for certain non-cash transactions, including but not limited to, depreciation and amortization, provision for loan losses, loans originated for sale and related gains (losses) and proceeds from sales, stock-based compensation, and amortization of net deferred loan costs and premiums. Net cash flows from operating cash flows were $30.4 million for the six months ended June 30, 2023, compared to $4.6 million for the same 2022 period. The $25.8 million increase was primarily due to net income generated during the six months ended June 30, 2023 and a $9.5 million increase in net cash provided by sales of loans held for sale, net of originations.

85

Table of Contents

Our investing cash flows are primarily comprised of cash inflows and outflows from our debt securities and loan portfolios, net cash used for business combinations, as applicable, and to a lesser extent, purchases of stock investments, purchases and proceeds from bank-owned life insurance, and capital expenditures. Net cash used in investing activities was $26.2 million for the year ended June 30, 2023, compared to $398.0 million for the same 2022 period. The $371.8 million decrease in cash used in investing activities was primarily due to a decrease in net loan fundings of $249.2 million, and a decrease in net investment securities purchased of $123.6 million.

Our financing cash flows are primarily comprised of inflows and outflows of deposits, borrowing activity, proceeds from the issuance of common shares, and to a lesser extent, repurchases of common shares and cash flows from share-based compensation arrangements. Net cash provided by financing activities was $13.6 million for the six months ended June 30, 2023, compared to $54.8 million for the same 2022 period. The $41.1 million decrease in financing cash flows was primarily due to $35.0 million in repayment activity on FHLB advances, coupled with a $8.1 million net decrease in deposit cash flows, partially offset by a $3.1 million full redemption of the junior subordinated debentures acquired CalWest Bancorp before the maturity date.

We believe that our liquidity sources are stable and are adequate to meet our day-to-day cash flow requirements as of June 30, 2023.

Commitments and Contractual Obligations

The following table presents information regarding our outstanding commitments and contractual obligations as of June 30, 2023:

(Dollars in thousands)	at One Year of Less		Over One Year to Three Years		Over Three Years to Five Years		More than Five Years		Total
Commitments to extend credit	$	249,707	$	180,178	$	28,092	$	60,757	$	518,734
Letters of credit issued to customers	4,345		527		40		—		4,912
Total commitments	$	254,052	$	180,705	$	28,132	$	60,757	$	523,646
FHLB advances	$	15,000	$	—	$	—	$	—	$	15,000
Subordinated notes	$	—	$	—	$	—	$	17,818	$	17,818
Certificates of deposit	162,918		26,249		104		—		189,271
Lease obligations	2,500		3,140		2,845		1,909		10,394
Total contractual obligations	$	180,418	$	29,389	$	2,949	$	19,727	$	232,483

At June 30, 2023 and December 31, 2022, we also had unfunded commitments of $3.8 million and $6.0 million, respectively, for investments in other equity investments.

Regulatory Capital

Bank of Southern California, N.A. The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

86

Table of Contents

Banks considered to be “adequately capitalized” are required to maintain a minimum total capital ratio of 8.0%, a minimum Tier 1 capital ratio of 6.0%, a minimum common equity Tier 1 capital ratio of 4.5%, and a minimum leverage ratio of 4.0%. Banks considered to be “well capitalized” must maintain a minimum total capital ratio of 10.0%, a minimum Tier 1 capital ratio of 8.0%, a minimum common equity Tier 1 capital ratio of 6.5%, and a minimum leverage ratio of 5.0%. As of June 30, 2023 and December 31, 2022, the Bank’s regulatory capital ratios exceeded the regulatory capital requirements and the Bank is considered to be “well capitalized” under the regulatory framework for prompt corrective action (PCA). There are no changes to the Bank’s categories since June 30, 2023.

Management believes, as of June 30, 2023 and December 31, 2022, that the Bank met all capital adequacy requirements to which it is subject.

Basel III, the comprehensive regulatory capital rules for U.S. banking organizations, requires all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively comprised of common equity Tier 1 capital, and it applies to each of the three risk-based capital ratios but not to the leverage ratio. Effective January 1, 2019, the capital conservation buffer increased by 0.625% to its fully phased-in 2.5%, such that the common equity Tier 1, Tier 1 and total capital ratio minimums inclusive of the capital conservation buffers were 7.0%, 8.5%, and 10.5% at June 30, 2023. At June 30, 2023, the Bank was in compliance with the capital conservation buffer requirements. To be categorized as well capitalized, the Bank must maintain minimum ratios as set forth in the table below.

The following table also sets forth the Bank’s actual capital amounts and ratios:

					Amount of Capital Required
					To be				To be Well-
					Adequately				Capitalized under
	Actual				Capitalized				PCA Provisions
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of June 30, 2023:
Total Capital (to Risk-Weighted Assets)	$	279,038	12.98	%	$	172,020	8.0	%	$	215,025	10.0	%
Tier 1 Capital (to Risk-Weighted Assets)	259,098		12.05	%	129,015		6.0	%	172,020		8.0	%
CET1 Capital (to Risk-Weighted Assets)	259,098		12.05	%	96,761		4.5	%	139,766		6.5	%
Tier 1 Capital (to Average Assets)	259,098		11.47	%	90,325		4.0	%	112,907		5.0	%
As of December 31, 2022:
Total Capital (to Risk-Weighted Assets)	$	260,788	11.97	%	$	174,256	8.0	%	$	217,820	10.0	%
Tier 1 Capital (to Risk-Weighted Assets)	242,379		11.13	%	130,692		6.0	%	174,256		8.0	%
CET1 Capital (to Risk-Weighted Assets)	242,379		11.13	%	98,019		4.5	%	141,583		6.5	%
Tier 1 Capital (to Average Assets)	242,379		10.62	%	91,297		4.0	%	114,122		5.0	%

Southern California Bancorp. At June 30, 2023 and December 31, 2022, we qualified for treatment under the Small Bank Holding Company Policy Statement (Regulation Y, Appendix C) and, therefore, we are not subject to consolidated capital rules at the bank holding company level.

Dividend Restrictions

The primary source of funds for the Company is dividends from the Bank. Under federal law, the Bank may not declare a dividend in excess of its undivided profits and, absent the approval of the OCC, the Bank’s

87

Table of Contents

primary banking regulator, if the total amount of dividends declared by the Bank in any calendar year exceeds the total of the Bank’s retained net income of that current period, year to date, combined with its retained net income for the preceding two years. The Bank also is prohibited from declaring or paying any dividend if, after making the dividend, the Bank would be considered “undercapitalized” (as defined by reference to other OCC regulations). Federal bank regulatory agencies have authority to prohibit banking institutions from paying dividends if those agencies determine that, based on the financial condition of the bank, such payment will constitute an unsafe or unsound practice.

The Bank did not pay dividends to the Company during the three and six months ended June 30, 2023 and 2022.

The Federal Reserve limits the amount of dividends that bank holding companies may pay on common stock to income available over the past year, and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. It is also the Federal Reserve’s policy that bank holding companies should not maintain dividend levels that undermine their ability to be a source of strength to its banking subsidiaries. Additionally, in consideration of the current financial and economic environment, the Federal Reserve has indicated that bank holding companies should carefully review their dividend policies.

During the three and six months ended June 30, 2023 and 2022, there were no dividends declared to shareholders by the Company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk Management

Market risk represents the risk of loss due to changes in market values of assets and liabilities. We incur market risk in the normal course of business through exposures to market interest rates, equity prices, and credit spreads. Our primary market risk is interest rate risk, which is the risk of loss of net interest income or net interest margin resulting from changes in market interest rates.

Interest Rate Risk

Interest rate risk results from the following risks:

•Repricing risk — timing differences in the repricing and maturity of interest-earning assets and interest-bearing liabilities;

•Option risk — changes in the expected maturities of assets and liabilities, such as borrowers’ ability to prepay loans at any time and depositors’ ability to redeem certificates of deposit before maturity;

•Yield curve risk — changes in the yield curve where interest rates increase or decrease in a nonparallel fashion; and

•Basis risk — changes in spread relationships between different yield curves, such as U.S. Treasuries, U.S. Prime Rate, SOFR, and LIBOR.

Because our earnings are primarily dependent on our ability to generate net interest income, we focus on actively monitoring and managing the effects of adverse changes in interest rates on our net interest income. Our interest rate risk is overseen by our management Asset Liability Committee (“ALCO”). ALCO monitors our compliance with regulatory guidance in the formulation and implementation of our interest rate risk program. ALCO reviews the results of our interest rate risk modeling quarterly to assess whether we have appropriately measured our interest rate risk, mitigated our exposures appropriately and any residual risk is acceptable. In

88

Table of Contents

addition to our annual review of this policy, our Board of Directors explicitly reviews the interest rate risk policy limits at least annually.

Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate interest rate risk posture given business forecasts, management objectives, market expectations, and policy constraints. Changes in interest rates may result in interest-earning assets and interest-bearing liabilities maturing or repricing at different times, on a different basis or in unequal amounts. In addition, it is not uncommon for rates on certain assets or liabilities to lag behind changes in the market rates of interest. Additionally, prepayments of loans and early withdrawals of certificates of deposit could cause interest sensitivities to vary.

Our interest rate risk exposure is measured and monitored through various risk management tools, including a simulation model that performs interest rate sensitivity analysis under multiple scenarios. The simulation model is based on the actual maturities and re-pricing characteristics of the Bank’s interest-rate sensitive assets and liabilities. The simulated interest rate scenarios include an instantaneous parallel shift in the yield curve. In order to model and evaluate interest rate risk, we use two approaches: Net Interest Income at Risk (“NII at Risk”), and Economic Value of Equity (“EVE”). Under NII at Risk, the impact on net interest income from changes in interest rates on interest-earning assets and interest-bearing liabilities is modeled over the

next 12 months from immediate and sustained changes in interest rates utilizing various assumptions for assets and liabilities. EVE measures the period end market value of assets minus the market value of liabilities and the change in this value as rates change. EVE is a period end measurement.

The following table presents the projected changes in NII at Risk and EVE that would occur upon an immediate change in interest rates based on independent analysis, but without giving effect to any steps that management might take to counteract that change at June 30, 2023 and December 31, 2022:

	Change in Interest Rates in Basis Points (bps)
	Market Value of Equity						Net Interest Income (NII)
(Dollars in thousands)	Amount		Change ($)		Change (%)		Amount		Change ($)	Change (%)
June 30, 2023
+300bps	$	368.1	$	48.7	15.2	%	$	89.1	(0.3)	(0.3)	%
+200bps	357.2		37.8		11.8	%	89.6		0.2	0.2	%
+100bps	341.9		22.5		7.0	%	89.7		0.3	0.3	%
Base case	319.4						89.4
-100bps	285.8		(33.6)		(10.5)	%	86.3		(3.1)	(3.5)	%
-200bps	236.8		(82.6)		(25.9)	%	84.8		(4.6)	(5.1)	%
December 31, 2022
+300bps	$	509.4	$	55.3	12.2	%	$	103.8	(1.1)	(1.0)	%
+200bps	498.2		44.1		9.7	%	104.2		(0.7)	(0.7)	%
+100bps	480.7		26.6		5.9	%	104.7		(0.2)	(0.2)	%
Base case	454.1						104.9
-100bps	411.6		(42.5)		(9.4)	%	101.4		(3.5)	(3.3)	%
-200bps	341.9		(112.2)		(24.7)	%	97.4		(7.5)	(7.1)	%

The modeled NII results at June 30, 2023 and December 31, 2022 indicate we would sustain a moderate decrease in NII if interest rates declined due primarily to adjustable-rate loans repricing lower at a faster pace than the decline in deposit rates. In a rising rate environment, our NII results indicated there would be an improvement

89

Table of Contents

in the net interest income if interest rates were to increase in all rate shock scenarios primarily due to the pace of the adjustable-rate loans repricing higher than deposits. The improvement in NII in a rising rate environment is attributed to the higher interest rate environment, partially offset by the increasing liquidity and deposit pressure in the banking industry.

The modeled EVE results at June 30, 2023 and December 31, 2022 indicate we would benefit from an increase in interest rates and would be adversely impacted by a decrease in interest rates. The results of these analyses do not contemplate all of the actions that we may undertake in response to changes in interest rates. In response to actual or anticipated changes in interest rates, we have various alternatives for managing and reducing exposure such as using FHLB Advances and/or certain derivatives such as swaps to align maturities and repricing terms, managing the percentage of fixed rate loans in our portfolio, managing the level of investments and duration of investment securities and managing our deposit relationships.

The projected changes are forecasts based on estimates of historical behavior and assumptions that may change over time and may turn out to be different. Factors affecting our estimates and assumptions include, but are not limited to competitor behavior, economic conditions both locally and nationally, actions taken by the Federal Reserve, customer behavior and our management’s responses. Changes that vary significantly from our assumptions and estimates significantly affect our earnings and EVE.

In addition to the management ALCO, the Directors Loan Committee of the Bank Board (“DLC Committee”), the Audit and Risk Committee of the Company Board (“ARC Committee”), as well as the Chief Risk Officer are all responsible for the “risk management framework” of the Company. Both ALCO and DLC Committee meet monthly and the ARC Committee meets eight times a year, with the authority to convene additional meetings, as circumstances require.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation is carried out by our management with the participation of our Chief Executive Officer and Chief Financial Officer, of the effective of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this report.

Changes in Internal Control Over Financial Reporting

On January 1, 2023, the Company adopted Financial Accounting Standards Board Accounting Standards Update 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” and related updates, as described further in Note 1 to the consolidated financial statements. Related to the adoption of these new accounting standards, the Company modified certain internal controls and designed and implemented certain new internal controls over the measurement of the ACL on loans and the reserve for unfunded commitments and related disclosures. New internal controls related primarily to the modeling of expected credit losses on loans, including controls over critical data and other inputs and model results.

There have been no other changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the Company’s quarter ended June 30, 2023, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

90

Table of Contents

The Company and its subsidiaries are parties to various claims and lawsuits arising in the course of their normal business activities. Although the ultimate outcome of these suits cannot be ascertained at this time, it is the opinion of management that none of these matters, even if it resolved adversely to the Company, will have a material adverse effect on the Company’s consolidated financial position.

Item 1A. Risk Factors

There were no material changes to the Company’s risk factors as disclosed in Company's Registration Statement on Form 10, filed with the SEC and declared effective on May 10, 2023.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On June 14, 2023, we announced an authorized share repurchase plan, providing for the repurchase of up to 550,000 shares of our outstanding common stock, or approximately 3% of our then outstanding shares. The repurchase program has no expiration date and may be suspended, modified, or terminated at any time without prior notice. There were no shares repurchased under this share repurchase plan during the three months ended June 30, 2023.

The following table presents information with respect to purchases made by or on behalf of us or any “affiliated purchases” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our common stock during the periods indicated:

	(a)	(b)		(c)	(d)
Period	Total number of shares (or units) purchased	Average price paid per share (or unit)		Total number of shares (or units) purchased as part of publicly announced plans or programs	Maximum number of shares (or units) that may yet be purchased under the plans or programs
April 1 - 30, 2023	—	$	—	—	—
May 1 - 31, 2023	—	$	—	—	—
June 1 - 30, 2023	—	$	—	—	550,000
Total	—	$	—	—	550,000

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5.    Other Information

None.

Item 6.    Exhibits

Exhibit No.	Description
3.1	Articles of Incorporation of Southern California Bancorp (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form 10, as amended, filed on April 24, 2023)
3.2	Bylaws of Southern California Bancorp (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form 10, as amended, filed on April 24, 2023)

91

Table of Contents

31.1	Rule 13a-14(a) Certification (Principal Executive Officer)
31.2	Rule 13a-14(a) Certification (Principal Financial Officer)
32	Rule 13a-14(b) and 18 U.S.C. 1350 Certification
101	The following financial statements and footnotes from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Comprehensive Income (Loss); (iv) Consolidated Statements of Changes in Shareholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) the Notes to Consolidated Financial Statements. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)
*	Indicates a management contract or compensatory plan.

92

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SOUTHERN CALIFORNIA BANCORP
Date: August 9, 2023	/s/ David I. Rainer
	David I. Rainer
	Chairman of the Board and Chief Executive Officer
	(Principal Executive Officer)
Date: August 9, 2023	/s/ Thomas Dolan
	Thomas Dolan
	Chief Financial Officer
	(Principal Financial Officer)

93