Southern California Bancorp(BCAL) - 2025 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION This part provides the unaudited interim consolidated financial information, including financial statements, management's discussion, market risk disclosures, and controls Item 1. Financial Statements (Unaudited) This section presents the unaudited interim consolidated financial statements of California BanCorp and its subsidiary for the period ended June 30, 2025, including balance sheets, statements of operations, comprehensive income (loss), changes in shareholders' equity, and cash flows, along with detailed notes to these financial statements Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and shareholders' equity at specific reporting dates Consolidated Balance Sheet Highlights (dollars in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | ASSETS | | | | Total cash and cash equivalents | $430,137 | $388,162 | | Debt securities available-for-sale | $188,167 | $142,001 | | Loans held for investment, net | $2,950,450 | $3,088,625 | | Total assets | $3,953,717 | $4,031,654 | | LIABILITIES | | | | Total deposits | $3,312,278 | $3,398,760 | | Total liabilities | $3,406,124 | $3,519,818 | | SHAREHOLDERS' EQUITY | | | | Total shareholders' equity | $547,593 | $511,836 | - Total assets decreased by $77.9 million (1.9%) from December 31, 2024, primarily due to a decrease in loans, partially offset by an increase in cash and cash equivalents[14][303] - Total liabilities decreased by $113.7 million, mainly driven by an $86.5 million decrease in total deposits and a $16.8 million decrease in borrowings[14][304] - Total shareholders' equity increased by $35.8 million, primarily due to net income, a decrease in net unrealized losses on available-for-sale debt securities, and stock-based compensation[14][305] Consolidated Statements of Operations This section details the company's financial performance over specific periods, including interest income and expense, net income, and earnings per share Consolidated Statements of Operations Highlights (dollars in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total interest and dividend income | $55,786 | $31,849 | $112,611 | $63,113 | | Total interest expense | $14,369 | $10,842 | $28,939 | $21,612 | | Net interest income | $41,417 | $21,007 | $83,672 | $41,501 | | (Reversal of) provision for credit losses | $(634) | $2,893 | $(4,410) | $2,562 | | Total noninterest income | $2,856 | $1,169 | $5,422 | $2,582 | | Total noninterest expense | $24,833 | $19,005 | $49,753 | $33,986 | | Net income | $14,099 | $190 | $30,952 | $5,125 | | Diluted EPS | $0.43 | $0.01 | $0.95 | $0.27 | - Net income for the three months ended June 30, 2025, increased significantly to $14.1 million from $190 thousand in the prior year, primarily due to higher net interest income and a reversal of credit losses[16][244] - Net interest income for the three months ended June 30, 2025, increased by $20.4 million year-over-year, driven by higher average interest-earning assets from the Merger[16][259] Consolidated Statements of Comprehensive Income (Loss) This section presents the company's total comprehensive income or loss, including net income and other comprehensive income (loss) items Consolidated Statements of Comprehensive Income (Loss) Highlights (dollars in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $14,099 | $190 | $30,952 | $5,125 | | Total other comprehensive income (loss), net of tax | $679 | $(348) | $2,909 | $(2,028) | | Total comprehensive income (loss), net of tax | $14,778 | $(158) | $33,861 | $3,097 | - Total comprehensive income, net of tax, significantly increased to $14.8 million for the three months ended June 30, 2025, compared to a loss of $(158) thousand in the prior year, primarily due to higher net income and an unrealized gain on securities available for sale[18] Consolidated Statements of Changes in Shareholders' Equity This section details the changes in the company's shareholders' equity over specific periods, including net income, stock-based compensation, and other comprehensive income Consolidated Statements of Changes in Shareholders' Equity Highlights (dollars in thousands) | Metric | Balance at Dec 31, 2024 | Net Income (6M 2025) | Stock-based Compensation (6M 2025) | Stock Options Exercised (6M 2025) | Repurchase of Shares (6M 2025) | Other Comprehensive Income (6M 2025) | Balance at June 30, 2025 | | :-------------------------- | :-------------------- | :------------------- | :--------------------------------- | :------------------------------- | :----------------------------- | :----------------------------------- | :----------------------- | | Common Stock Amount | $442,469 | — | $3,005 | $101 | $(1,210) | — | $444,365 | | Retained Earnings | $76,008 | $30,952 | — | — | — | — | $106,960 | | Accumulated Other Comprehensive Loss | $(6,641) | — | — | — | — | $2,909 | $(3,732) | | Total Shareholders' Equity | $511,836 | $30,952 | $3,005 | $101 | $(1,210) | $2,909 | $547,593 | - Shareholders' equity increased by $35.8 million from December 31, 2024, to June 30, 2025, primarily driven by net income of $31.0 million and other comprehensive income of $2.9 million[21][305][370] Consolidated Statements of Cash Flows This section reports the company's cash inflows and outflows from operating, investing, and financing activities over specific periods Consolidated Statements of Cash Flows Highlights (dollars in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $20,405 | $8,362 | | Net cash provided by investing activities | $127,123 | $77,202 | | Net cash used in financing activities | $(105,553) | $(67,624) | | Net change in cash and cash equivalents | $41,975 | $17,940 | | Cash and cash equivalents at end of period | $430,137 | $104,733 | - Net cash provided by operating activities increased by $12.0 million, primarily due to higher net income and increased deferred income taxes[25][387][388] - Net cash provided by investing activities increased by $49.9 million, driven by increased net loan repayments and proceeds from debt securities maturities, partially offset by decreased debt securities purchases[25][389] - Net cash used in financing activities increased by $37.9 million, mainly due to a net decrease in deposit cash flows and the redemption of subordinated notes, partially offset by decreased FHLB advance repayments[25][390] NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note describes the company's business operations, the basis of financial statement presentation, and significant accounting policies, including recent accounting guidance and legislative impacts - California BanCorp operates as a bank holding company for California Bank of Commerce, N.A., offering financial products and services to individuals, professionals, and small- to medium-sized businesses through 14 branch offices in California[31][32] - The Company completed an all-stock merger with the former California BanCorp (CALB) on July 31, 2024, expanding its footprint into Northern California and retaining banking offices of both entities[33][50] - The Company operates as a single reportable segment: commercial banking, with its chief operating decision makers monitoring revenue streams and significant expenses at an aggregated level[38] - Recent accounting guidance adoptions (ASU 2023-07 Segment Reporting, ASU 2023-09 Income Taxes) did not have a significant or material impact on the consolidated financial statements[39][41] - California Senate Bill 132, enacted June 27, 2025, mandates a single-sales-factor apportionment formula for state income tax, resulting in a $269 thousand income tax expense adjustment for the three and six months ended June 30, 2025[48] - The One Big Beautiful Bill Act, signed July 4, 2025, includes broad tax reform provisions but does not affect the Company's consolidated financial statements as of the June 30, 2025 reporting date[49] NOTE 2 – BUSINESS COMBINATIONS This note details the company's merger activities, including the acquisition of CALB and the resulting goodwill and acquired loan portfolio - The Company completed an all-stock merger with CALB on July 31, 2024, valued at approximately $216.6 million, resulting in the issuance of about 13.5 million shares of the Company's common stock[50][51] - The merger expanded the Company's presence into Northern California, adding CALB's one full-service branch and four loan production offices to the Bank's existing 13 branches[50] - Goodwill recognized from the merger was $73.1 million as of June 30, 2025, after a $1.6 million decrease due to adjustments related to acquired trade name, low-income housing tax credit investments, and deferred tax adjustments[53][55] PCD Loans Acquired as of Acquisition Date (dollars in thousands) | Metric | Amount | | :-------------------------------- | :----- | | Unpaid principal balance | $111,720 | | Allowance for credit losses - PCD loans | $(11,216) | | Non-credit discount amount | $(5,107) | | Loans previously charged-off by CALB | $(10,171) | | PCD loans acquired | $85,226 | NOTE 3 - INVESTMENT SECURITIES This note provides details on the company's debt securities portfolio, including held-to-maturity and available-for-sale classifications, fair values, and unrealized gains or losses Debt Securities Held-to-Maturity (dollars in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Amortized Cost | $53,108 | $53,280 | | Estimated Fair Value | $47,538 | $47,823 | | Gross Unrecognized Losses | $(5,570) | $(5,457) | Debt Securities Available-for-Sale (dollars in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Amortized Cost | $193,465 | $151,429 | | Estimated Fair Value | $188,167 | $142,001 | | Gross Unrealized Losses | $(6,404) | $(9,572) | - The Company's total debt securities portfolio increased by $46.0 million to $241.3 million at June 30, 2025, primarily due to purchases of available-for-sale securities and reductions in net unrealized losses[306][307] - Net unrealized loss on available-for-sale debt securities, net of taxes, decreased to $3.7 million at June 30, 2025, from $6.6 million at December 31, 2024, reflecting a decrease in the 10-Year Treasury Bond yield[76][225] - The Company determined that unrealized losses on debt securities were primarily due to interest rate changes, not credit-related factors, and thus recorded no provision for credit losses for these securities[79][225][316] NOTE 4 - LOANS AND ALLOWANCE FOR CREDIT LOSSES This note provides a detailed breakdown of the company's loan portfolio, including various loan types, the allowance for credit losses, and information on nonaccrual and modified loans Loans Held for Investment (dollars in thousands) | Loan Type | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Construction and land development | $184,744 | $227,325 | | Real estate - other: 1-4 family residential | $139,855 | $164,401 | | Real estate - other: Multifamily residential | $258,395 | $243,993 | | Real estate - other: Commercial real estate and other | $1,777,940 | $1,767,727 | | Commercial and industrial | $607,836 | $710,970 | | Consumer | $22,790 | $24,749 | | Total Loans held for investment | $2,991,560 | $3,139,165 | | Allowance for credit losses | $(41,110) | $(50,540) | | Loans held for investment, net | $2,950,450 | $3,088,625 | - Total loans held for investment decreased by $147.6 million to $2.99 billion at June 30, 2025, primarily due to the Company's derisking strategy, including reducing exposure in the Sponsor Finance portfolio and criticized loans[321] - The Allowance for Loan Losses (ALL) decreased by $9.4 million to $41.1 million at June 30, 2025, driven by net charge-offs of $5.6 million and changes in qualitative risk factors[347] Nonaccrual Loans (dollars in thousands) | Loan Type | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Construction and land development | $14,659 | $9,659 | | Commercial real estate and other | $1,705 | $8,915 | | Commercial and industrial | $1,990 | $4,917 | | Total nonaccrual loans | $18,354 | $26,386 | - Nonaccrual loans decreased by $8.0 million to $18.4 million at June 30, 2025, due to loan sales, payoffs, and upgrades to accrual status, partially offset by new downgrades[333][341] - The Company modified 12 loans totaling $16.3 million for borrowers experiencing financial difficulty during the six months ended June 30, 2025, primarily involving term extensions and payment delays[111][337] NOTE 5 - TRANSFERS AND SERVICING OF FINANCIAL ASSETS This note describes the company's activities related to servicing loans for others, including SBA loans, and the associated servicing asset - Loans serviced for others increased to $144.4 million at June 30, 2025, from $138.0 million at December 31, 2024, including SBA loans serviced for others of $37.4 million[132][354] SBA Servicing Asset Activity (dollars in thousands) | Metric | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :-------------------------- | :------------------------------- | :----------------------------- | | Balance, beginning of period | $452 | $344 | | Additions | — | $164 | | Amortization | $(46) | $(102) | | Balance, end of period | $406 | $406 | - SBA 7(a) loans sold during the six months ended June 30, 2025, totaled $9.0 million, generating $577 thousand in gains on sale, an increase from $415 thousand in the prior year[135][285] NOTE 6 - GOODWILL AND OTHER INTANGIBLE ASSETS This note provides information on the company's goodwill and other intangible assets, including changes due to merger adjustments and amortization - Goodwill decreased by $853 thousand to $110.9 million at June 30, 2025, due to adjustments related to the CALB merger, including recoveries on acquired PCD loans and deferred tax adjustments[138][139][355] - Intangible assets, net, decreased to $20.4 million at June 30, 2025, from $22.3 million at December 31, 2024, primarily due to amortization during the period[142][356] - The weighted-average remaining amortization period for intangible assets was approximately 8.8 years at June 30, 2025[140][356] NOTE 7 - DEPOSITS This note details the composition of the company's deposit base, including noninterest-bearing, interest-bearing, and time deposits, and changes in their balances Deposit Composition (dollars in thousands) | Deposit Type | June 30, 2025 Amount | June 30, 2025 % of Total | December 31, 2024 Amount | December 31, 2024 % of Total | | :-------------------------- | :------------------- | :----------------------- | :----------------------- | :----------------------- | | Noninterest-bearing demand | $1,218,072 | 36.8% | $1,257,007 | 37.0% | | Interest-bearing NOW accounts | $783,410 | 23.7% | $673,589 | 19.8% | | Money market and savings accounts | $1,146,548 | 34.6% | $1,182,927 | 34.8% | | Time deposits | $164,248 | 4.8% | $285,237 | 8.4% | | Total deposits | $3,312,278 | 100.0% | $3,398,760 | 100.0% | - Total deposits decreased by $86.5 million to $3.31 billion at June 30, 2025, primarily due to a $117.4 million decrease in brokered time deposits, partially offset by increases in interest-bearing NOW accounts and reciprocal deposits[304][362] - Reciprocal deposits decreased to $730.6 million (22.1% of total deposits) at June 30, 2025, from $754.4 million (22.2% of total deposits) at December 31, 2024[144][361] - Total deposits exceeding FDIC insurance limits were $1.59 billion (48% of total deposits) at June 30, 2025, compared to $1.56 billion (46%) at December 31, 2024[363] NOTE 8 - BORROWING ARRANGEMENTS This note outlines the company's borrowing arrangements, including subordinated notes and available credit lines, and changes in outstanding balances Outstanding Borrowings (dollars in thousands) | Borrowing Type | June 30, 2025 | December 31, 2024 | | :----------------- | :------------ | :---------------- | | FHLB advances | $— | $— | | Subordinated notes | $52,883 | $69,725 | | Total borrowings | $52,883 | $69,725 | - Total borrowings decreased by $16.8 million to $52.9 million at June 30, 2025, primarily due to the redemption of $18.0 million of 5.50% fixed-to-floating rate subordinated notes in the second quarter of 2025[154][367] - The Company had $682.6 million available from its $727.6 million secured FHLB line of credit and $320.4 million credit availability at the Federal Reserve discount window at June 30, 2025[149][151][378][379] - The Company assumed $55 million in subordinated debt through the CALB merger, with fixed-to-floating interest rates and maturities in 2030 and 2031[155][156][384][385] NOTE 9 - SHAREHOLDERS' EQUITY This note details the changes in shareholders' equity, including the impact of net income, unrealized gains/losses, stock-based compensation, and share repurchase plans - Shareholders' equity increased by $35.8 million to $547.6 million at June 30, 2025, driven by $31.0 million in net income, a $2.9 million decrease in net unrealized losses on available-for-sale debt securities, and $3.0 million in stock-based compensation[305][370] - The Company increased its authorized share repurchase plan to 1,600,000 shares on May 1, 2025, but no shares were repurchased during the three and six months ended June 30, 2025[157][158][371][372] - Tangible book value per common share increased by $1.11 to $12.82 at June 30, 2025, from $11.71 at December 31, 2024, reflecting net income and other comprehensive income[373] NOTE 10 - EARNINGS PER SHARE ("EPS") This note provides a breakdown of the calculation of basic and diluted earnings per share, including net income and weighted average shares outstanding Earnings Per Share (EPS) (dollars in thousands, except share and per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $14,099 | $190 | $30,952 | $5,125 | | Weighted average common shares outstanding - basic | 32,423,935 | 18,537,507 | 32,371,662 | 18,482,177 | | Dilutive effect of outstanding: Stock options and unvested stock grants | 261,197 | 262,006 | 319,981 | 318,437 | | Weighted average common shares outstanding - diluted | 32,685,132 | 18,799,513 | 32,691,643 | 18,800,614 | | Earnings per common share - basic | $0.43 | $0.01 | $0.96 | $0.28 | | Earnings per common share - diluted | $0.43 | $0.01 | $0.95 | $0.27 | - Diluted EPS for the three months ended June 30, 2025, was $0.43, a significant increase from $0.01 in the same period of 2024, reflecting higher net income[159][244] NOTE 11 - RELATED PARTY TRANSACTIONS This note discloses the company's transactions with related parties, including loans and deposits involving directors and their interests Related Party Loans (dollars in thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :----------------------------- | :----------------------------- | | Balance, beginning of period | $27,734 | $5,928 | | Closed | $(1,553) | — | | Repayments | $(1,014) | $(633) | | Balance, end of period | $25,167 | $5,295 | - Related party loans outstanding decreased to $25.2 million at June 30, 2025, from $27.7 million at the beginning of the six-month period, due to loan closures and repayments[160] - Directors and related interests' deposits amounted to $49.5 million at June 30, 2025, down from $62.9 million at December 31, 2024[160] NOTE 12 - COMMITMENTS AND CONTINGENCIES This note outlines the company's outstanding financial commitments and potential contingent liabilities, including legal proceedings and other obligations Outstanding Financial Commitments (dollars in thousands) | Commitment Type | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Commitments to extend credit | $891,521 | $925,076 | | Letters of credit issued to customers | $24,165 | $16,147 | | Commitments to contribute capital to other equity investments | $7,794 | $5,914 | | Total | $923,480 | $947,137 | - Total outstanding financial commitments decreased to $923.5 million at June 30, 2025, from $947.1 million at December 31, 2024, primarily due to a decrease in commitments to extend credit[166] - The Company incurred $247 thousand and $494 thousand in expense for Supplemental Executive Retirement Plan (SERP) agreements for the three and six months ended June 30, 2025, respectively[166] NOTE 13 - STOCK-BASED COMPENSATION PLAN This note describes the company's stock-based compensation plans, including the cost recognized, unrecognized expense, and details of outstanding stock options and restricted stock units - Total stock-based compensation cost for the three and six months ended June 30, 2025, was $1.5 million and $3.0 million, respectively, an increase from the prior year[174] - As of June 30, 2025, there was $10.6 million of total unrecognized compensation expense related to outstanding restricted stock units, to be recognized over a weighted-average period of 2.9 years[181] Outstanding Stock Options (shares) | Metric | June 30, 2025 | June 30, 2024 | | :-------------------------- | :------------ | :------------ | | Outstanding at end of period | 122,375 | 175,363 | | Options exercisable | 119,275 | 169,163 | Outstanding Unvested Restricted Stock Units (shares) | Metric | June 30, 2025 | June 30, 2024 | | :-------------------------- | :------------ | :------------ | | Unvested at end of period | 964,750 | 661,116 | NOTE 14 - FAIR VALUE This note describes the company's fair value measurements for financial instruments, categorizing them into a hierarchy based on observable inputs - The Company uses a fair value hierarchy (Level 1, 2, and 3) to measure financial instruments, maximizing observable inputs[183][184] Fair Value of Financial Instruments (dollars in thousands) | Financial Instrument | June 30, 2025 Fair Value | December 31, 2024 Fair Value | | :-------------------------------- | :----------------------- | :----------------------- | | Debt securities available for sale | $188,167 | $142,001 | | Debt securities held to maturity | $47,538 | $47,823 | | Loans held for investment, net | $2,949,454 | $3,080,175 | | Deposits | $3,311,954 | $3,398,447 | | Borrowings | $53,999 | $69,876 | - Collateral-dependent loans measured at fair value on a nonrecurring basis totaled $9.7 million at June 30, 2025, down from $34.7 million at December 31, 2024[205] - There was no Other Real Estate Owned (OREO) at June 30, 2025, compared to $4.1 million at December 31, 2024, as it was sold in Q2 2025[131][203][341] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations, highlighting key performance indicators, the impact of the CALB merger, market trends, and critical accounting policies It also includes a reconciliation of non-GAAP financial measures Overview This section provides a general description of the company's business model, products, and services offered to its customer base - California BanCorp is a relationship-focused community bank offering a range of financial products and services to individuals, professionals, and small- to medium-sized businesses across California through 14 branch offices[211][212] - The Bank's lending products include construction and land development, real estate, C&I, and consumer loans, and it is a Preferred SBA Lender[211] - Deposit products include demand, money market, and certificates of deposit, with participation in CDARS, ICS, and R&T networks for FDIC insurance qualification[211] Recent Developments This section highlights significant recent events impacting the company, particularly the completion of its all-stock merger with CALB - The Company completed an all-stock merger with CALB on July 31, 2024, valued at approximately $216.6 million, issuing about 13.6 million shares of common stock[212][213] - The merger expanded the Company's geographic footprint into Northern California, adding CALB's branches and loan production offices[212] Market and Banking Industry Updates This section discusses recent legislative changes, Federal Reserve policy, economic conditions, and their potential impact on the company and the banking industry - The One Big Beautiful Bill Act and California's single sales factor apportionment bill are recent legislative changes, with the latter resulting in a $269 thousand income tax expense adjustment for the Company[215] - The Federal Open Market Committee (FOMC) maintained the Fed funds rate between 4.25% and 4.50% at its July 30, 2025 meeting, with anticipated rate cuts potentially pressuring net interest margins[216] - Economic activity has moderated, with Q1 2025 GDP growth at 1.2%, down from 2.5% last year, suggesting potential credit risk if conditions weaken further[217] - California's GDP growth is expected to decelerate to 1.6% in 2025 and 1.5% in 2026, with the tech sector experiencing a downturn and building permits declining[219] - The Company has made significant progress in derisking its balance sheet, reducing Sponsor Finance exposure, decreasing reliance on brokered deposits, and improving credit quality, reflected in a reversal of provision for loan losses and a decrease in non-performing assets to total assets ratio to 0.46% at June 30, 2025[221][222] Financial Highlights This section presents key financial performance indicators and balance sheet metrics for various reporting periods, offering a quick overview of the company's financial health Key Financial Highlights (dollars in thousands, except per share data) | Metric | Q2 2025 | Q1 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--------------------------------------- | :------ | :------ | :------ | :------- | :------- | | Net interest income | $41,417 | $42,255 | $21,007 | $83,672 | $41,501 | | Net income | $14,099 | $16,853 | $190 | $30,952 | $5,125 | | Diluted earnings per share | $0.43 | $0.52 | $0.01 | $0.95 | $0.27 | | Return on average assets | 1.45% | 1.71% | 0.03% | 1.58% | 0.45% | | Net interest margin | 4.61% | 4.65% | 3.94% | 4.63% | 3.87% | | Efficiency ratio | 56.1% | 55.6% | 85.7% | 55.8% | 77.1% | | ALL to total loans | 1.37% | N/A | N/A | 1.37% | N/A | | Nonperforming assets to total assets | 0.46% | N/A | N/A | 0.46% | N/A | | Total assets | $3,953,717 | N/A | N/A | $3,953,717 | N/A | | Total deposits | $3,312,278 | N/A | N/A | $3,312,278 | N/A | | Shareholders' equity | $547,593 | N/A | N/A | $547,593 | N/A | - Net income for Q2 2025 was $14.1 million, a significant increase from $190 thousand in Q2 2024, driven by higher net interest income and a reversal of credit losses[229][244] - The net interest margin improved to 4.61% in Q2 2025 from 3.94% in Q2 2024, reflecting higher yields on earning assets and lower cost of funds[229][261] Non-GAAP Financial Measures This section explains the company's use of non-GAAP financial measures and provides reconciliations to their most directly comparable GAAP financial measures - The Company uses non-GAAP financial measures like efficiency ratio, pre-tax pre-provision income, adjusted net income, and tangible common equity ratios to provide additional insights into its financial performance and capital adequacy[231][232][233][234][235][236][237][238] Non-GAAP Financial Measures Reconciliation (dollars in thousands) | Metric | Q2 2025 | Q1 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--------------------------------------- | :------ | :------ | :------ | :------- | :------- | | Adjusted noninterest expense | $24,833 | $24,920 | $18,514 | $49,753 | $32,946 | | Adjusted efficiency ratio | 56.1% | 55.6% | 83.5% | 55.8% | 74.7% | | Adjusted pre-tax pre-provision income | $19,440 | $19,901 | $3,662 | $39,341 | $11,137 | | Adjusted net income | $14,099 | $16,853 | $602 | $30,952 | $6,084 | | Adjusted return on average assets | 1.45% | 1.71% | 0.11% | 1.58% | 0.53% | | Tangible common equity | $416,284 | N/A | N/A | $416,284 | N/A | | Tangible common equity to tangible asset ratio | 10.89% | N/A | N/A | 10.89% | N/A | | Tangible book value per share | $12.82 | N/A | N/A | $12.82 | N/A | Results of Operations This section details the Company's financial performance, including net income, net interest income and margin, provision for credit losses, noninterest income, noninterest expense, and income taxes, with comparisons to prior periods Net Income This section analyzes the company's net income and diluted earnings per share, highlighting key drivers of period-over-period changes Net Income and Diluted EPS (dollars in thousands, except per share data) | Metric | Q2 2025 | Q1 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :---------------- | :------ | :------ | :------ | :------- | :------- | | Net income | $14,099 | $16,853 | $190 | $30,952 | $5,125 | | Diluted EPS | $0.43 | $0.52 | $0.01 | $0.95 | $0.27 | - Net income for Q2 2025 decreased by $2.8 million from Q1 2025, primarily due to a $3.1 million decrease in the reversal of provision for loan losses and an $838 thousand decrease in net interest income[243] - Net income for Q2 2025 increased by $13.9 million year-over-year, driven by a $20.4 million increase in net interest income and a $3.5 million decrease in provision for credit losses, partially offset by higher noninterest expense[244] - Year-to-date net income for June 30, 2025, increased by $25.8 million to $31.0 million compared to the prior year, mainly due to a $42.2 million increase in net interest income and a $7.0 million decrease in provision for credit losses[245] Net Interest Income and Margin This section examines the company's net interest income and net interest margin, analyzing the factors influencing changes in interest-earning assets and interest-bearing liabilities Net Interest Income and Margin (dollars in thousands) | Metric | Q2 2025 | Q1 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :-------------------------- | :------ | :------ | :------ | :------- | :------- | | Net interest income | $41,417 | $42,255 | $21,007 | $83,672 | $41,501 | | Net interest margin | 4.61% | 4.65% | 3.94% | 4.63% | 3.87% | | Yield on earning assets | 6.21% | 6.26% | 5.97% | 6.24% | 5.88% | | Cost of funds | 1.73% | 1.72% | 2.21% | 1.73% | 2.19% | - Net interest income for Q2 2025 decreased by $838 thousand from Q1 2025, primarily due to a $1.0 million decrease in total interest and dividend income, partially offset by a $201 thousand decrease in total interest expense[255] - Net interest margin for Q2 2025 was 4.61%, a 4 basis point decrease from Q1 2025, mainly due to a 5 basis point decrease in the total interest-earning assets yield and a 1 basis point increase in the cost of funds[256] - Year-over-year, net interest income for Q2 2025 increased by $20.4 million, and net interest margin improved by 67 basis points, driven by higher average interest-earning assets from the Merger and lower cost of funds[259][261] (Reversal of) Provision for Credit Losses This section discusses the company's provision or reversal of provision for credit losses, including net charge-offs and the factors influencing these amounts (Reversal of) Provision for Credit Losses (dollars in thousands) | Metric | Q2 2025 | Q1 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--------------------------------------- | :------ | :------ | :------ | :------- | :------- | | (Reversal of) provision for credit losses | $(634) | $(3,776) | $2,893 | $(4,410) | $2,562 | | Net charge-offs | $(4,066) | N/A | $(1,456) | $(5,609) | $(1,457) | - The Company recorded a reversal of credit losses of $634 thousand in Q2 2025, compared to a $3.8 million reversal in Q1 2025, and a $2.9 million provision in Q2 2024[273][275] - Total net charge-offs were $4.1 million in Q2 2025, resulting from the strategy to derisk the balance sheet by reducing exposure to criticized loans[273] - Year-to-date, a $4.4 million reversal of credit losses was recorded for June 30, 2025, compared to a $2.6 million provision in the prior year, driven by decreased loan balances, portfolio composition changes, and qualitative factors[277][279] Noninterest Income This section analyzes the company's noninterest income, including service charges, gains on loan sales, and other fees, and the factors contributing to changes in these revenue streams Noninterest Income (dollars in thousands) | Metric | Q2 2025 | Q1 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--------------------------------------- | :------ | :------ | :------ | :------- | :------- | | Service charges and fees on deposit accounts | $802 | $776 | $378 | $1,578 | $740 | | Gain on sale of loans | — | $577 | — | $577 | $415 | | Income from bank-owned life insurance | $503 | $463 | $266 | $966 | $527 | | Other charges and fees | $1,073 | $199 | $359 | $1,272 | $498 | | Total noninterest income | $2,856 | $2,566 | $1,169 | $5,422 | $2,582 | - Total noninterest income for Q2 2025 increased by $290 thousand from Q1 2025, primarily due to higher income from equity investments in 'Other charges and fees', despite no gain on sale of SBA 7A loans[282] - Year-over-year, noninterest income for Q2 2025 increased by $1.7 million, mainly due to the impact of the Merger, which boosted service charges, ATM income, bank-owned life insurance income, and other charges and fees[283] - Year-to-date gain on sale of loans increased by $162 thousand to $577 thousand for June 30, 2025, driven by higher SBA 7(a) loan sales[285] Noninterest Expense This section analyzes the company's noninterest expenses, including salaries, amortization, and other operating costs, and their impact on the efficiency ratio Noninterest Expense (dollars in thousands) | Metric | Q2 2025 | Q1 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--------------------------------------- | :------ | :------ | :------ | :------- | :------- | | Salaries and employee benefits | $15,293 | $15,864 | $8,776 | $31,157 | $18,386 | | Intangible assets amortization | $948 | $948 | $65 | $1,896 | $130 | | Other real estate owned expenses | $862 | $68 | $4,935 | $930 | $5,023 | | Total noninterest expense | $24,833 | $24,920 | $19,005 | $49,753 | $33,986 | | Efficiency ratio | 56.1% | 55.6% | 85.7% | 55.8% | 77.1% | - Total noninterest expense for Q2 2025 slightly decreased by $87 thousand from Q1 2025, with a $571 thousand decrease in salaries and employee benefits, partially offset by an $862 thousand loss on sale of OREO[287] - Year-over-year, noninterest expense for Q2 2025 increased by $5.8 million, primarily due to higher costs from the Merger, including a $6.5 million increase in salaries and employee benefits and an $883 thousand increase in core deposit intangible amortization[289][290][291] - The efficiency ratio for Q2 2025 was 56.1%, a significant improvement from 85.7% in Q2 2024, despite the negative impact of OREO sale losses[293] Income Taxes This section analyzes the company's income tax expense and effective tax rate, explaining the factors influencing these amounts Income Tax Expense and Effective Rate (dollars in thousands) | Metric | Q2 2025 | Q1 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :---------------- | :------ | :------ | :------ | :------- | :------- | | Income tax expense | $5,975 | $6,824 | $88 | $12,799 | $2,410 | | Effective tax rate | 29.8% | 28.8% | 31.7% | 29.3% | 32.0% | - Income tax expense for Q2 2025 was $6.0 million, with an effective tax rate of 29.8%, an increase from Q1 2025's 28.8% due to equity award vesting and exercise[300] - Year-over-year, income tax expense for Q2 2025 increased significantly from $88 thousand in Q2 2024, while the effective tax rate decreased from 31.7% to 29.8%, primarily due to the impact of non-tax-deductible merger expenses[301] Financial Condition This section analyzes the Company's balance sheet, including changes in assets, liabilities, and equity, and provides detailed breakdowns of debt securities, loans, deposits, and borrowings, along with asset quality metrics Summary This section provides a high-level overview of the company's balance sheet changes, including total assets, liabilities, and shareholders' equity - Total assets decreased by $77.9 million (1.9%) to $3.95 billion at June 30, 2025, primarily due to a $158.7 million decrease in loans, partially offset by a $42.0 million increase in cash and cash equivalents[303] - Total liabilities decreased by $113.7 million to $3.41 billion, mainly driven by an $86.5 million decrease in total deposits and a $16.8 million decrease in borrowings[304] - Shareholders' equity increased by $35.8 million to $547.6 million, primarily due to $31.0 million in net income and a $2.9 million decrease in net unrealized losses on available-for-sale debt securities[305] Debt Securities This section provides a detailed analysis of the company's debt securities portfolio, including changes in balances, unrealized gains/losses, and credit quality assessments - The total debt securities portfolio increased by $46.0 million to $241.3 million at June 30, 2025, with available-for-sale securities increasing by $46.2 million to $188.2 million[306][307][312] - Net unrealized losses on available-for-sale debt securities decreased to $6.4 million at June 30, 2025, from $9.6 million at December 31, 2024, influenced by a decrease in the 10-Year Treasury Bond yield[313][314] - All held-to-maturity and available-for-sale debt securities with unrealized losses were deemed not credit-related, and no allowance for credit loss was recorded[311][316] Loans Held for Sale This section details the company's loans held for sale, including their composition and fair value, and changes in these balances - Loans held for sale decreased to $6.1 million at June 30, 2025, consisting solely of SBA 7(a) loans, down from $17.2 million at December 31, 2024, which included C&I loans[319] - The fair value of loans held for sale was $6.4 million at June 30, 2025, compared to $17.9 million at December 31, 2024[319] Loans Held for Investment This section analyzes the company's loans held for investment, including changes in total balances and specific loan categories, reflecting its derisking strategy - Total loans held for investment decreased by $147.6 million to $2.99 billion at June 30, 2025, representing 75.7% of total assets, down from 77.9% at December 31, 2024[321] - The decrease was partly due to the Company's derisking strategy, with loan originations of $175.7 million offset by $248.8 million in payoffs and sales during the six months ended June 30, 2025[321] - Commercial and industrial loans decreased by $103.1 million to $607.8 million, while real estate secured loans decreased by $42.5 million, primarily in construction and 1-4 family residential loans[322][323] Loan Concentrations This section provides an overview of the company's loan concentrations, particularly in commercial real estate, and its strategies for managing associated risks - Commercial real estate (CRE) loans constituted approximately 59.3% of the total loan portfolio at June 30, 2025, with an average loan-to-value (LTV) of 48%[325][326] Commercial Real Estate Loan Composition by Type (dollars in thousands) | CRE Type | June 30, 2025 Amount | % of CRE Portfolio | Average Loan Size | Weighted Average LTV | | :-------------------------- | :------------------- | :----------------- | :---------------- | :------------------- | | Industrial | $516,800 | 29.1% | $1,879 | 48% | | Office | $272,600 | 15.3% | $1,990 | 51% | | Retail | $284,700 | 16.0% | $1,686 | 47% | | Hotel | $169,500 | 9.5% | $10,591 | 46% | - Office loans within the CRE portfolio totaled $382.8 million at June 30, 2025, with a weighted average LTV of 51%, managed with an emphasis on LTV and debt service ratios to mitigate credit risk[329] Delinquent Loans This section reports on the company's delinquent loans, including past due and nonaccrual loans, and changes in their balances and classifications - Past due loans still accruing decreased to $546 thousand (0.02% of total loans) at June 30, 2025, from $12.2 million (0.39%) at December 31, 2024[331] - Early stage delinquencies (30-89 days past due) decreased by $11.5 million, driven by loan charge-offs, sales, payments, and upgrades to current status[331] Delinquent Loans (dollars in thousands) | Loan Type | June 30, 2025 Past Due | December 31, 2024 Past Due | | :-------------------------------- | :--------------------- | :----------------------- | | Construction and land development | $— | $4,104 | | Commercial real estate and other | $194 | $195 | | Commercial and industrial | $67 | $2,979 | | Consumer | $285 | $445 | | Total Past Due | $546 | $12,232 | - Special mention loans decreased by $4.1 million to $65.3 million, and substandard loans decreased by $36.1 million to $81.5 million at June 30, 2025, reflecting downgrades, upgrades, payoffs, and sales[334][335] Loan Modifications This section provides information on the company's loan modifications for borrowers experiencing financial difficulty, including the types and amounts of modifications - The Company had 12 loan modifications totaling $16.3 million for borrowers experiencing financial difficulty as of June 30, 2025, with $16.0 million of these loans being current[337] - Modifications included term extensions and payment delays for owner-occupied CRE and C&I loans, providing short-term cash relief to borrowers[337] - At December 31, 2024, there were six loan modifications totaling $24.1 million, with $2.0 million past due[338] Non-performing Assets This section reports on the company's non-performing assets, including nonaccrual loans and other real estate owned, and the ratio of non-performing assets to total assets Nonperforming Assets (dollars in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Total nonaccrual loans | $18,354 | $26,386 | | Total nonperforming loans | $18,354 | $26,536 | | Other real estate owned | $— | $4,083 | | Total nonperforming assets | $18,354 | $30,619 | | Nonperforming assets to total assets | 0.46% | 0.76% | - Total nonperforming assets decreased by $12.3 million to $18.4 million at June 30, 2025, from $30.6 million at December 31, 2024[340] - The nonperforming assets to total assets ratio improved to 0.46% at June 30, 2025, from 0.76% at December 31, 2024[340] - The decrease was driven by the sale of a $7.2 million commercial real estate loan, payoffs of C&I loans, and a 1-4 family residential loan upgraded to accrual status, along with the sale of $4.1 million in OREO[341] Allowance for Credit Losses This section explains the company's methodology for estimating the Allowance for Credit Losses (ACL) and details changes in the allowance for loans held for investment - The Allowance for Credit Losses (ACL) is an estimate of expected lifetime credit losses for loans, maintained through specific, quantitative, and qualitative allowances, and for off-balance sheet commitments[342] Allowance for Credit Losses (dollars in thousands) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--------------------------------------- | :------ | :------ | :------ | :------- | :------- | | ALL, beginning of period | $45,839 | $22,254 | $50,540 | $22,569 | | (Reversal of) provision for credit losses | $(663) | $2,990 | $(3,821) | $2,676 | | Net charge-offs | $(4,066) | $(1,456) | $(5,609) | $(1,457) | | ALL, end of period | $41,110 | $23,788 | $41,110 | $23,788 | | ALL to total loans held for investment | 1.37% | N/A | 1.37% | N/A | - The ALL decreased by $9.4 million to $41.1 million at June 30, 2025, driven by $5.6 million in net charge-offs, changes in qualitative risk factors, and decreases in classified loans[347] - The Company uses a probability-weighted two-scenario forecast (80% base-case, 20% downside) for ACL estimation, reflecting economic outlook and market uncertainties[345] Allowance for Credit Losses on Off-Balance Sheet Commitments This section discusses the allowance for credit losses related to off-balance sheet commitments, including unfunded loan commitments - The allowance for off-balance sheet commitments decreased to $2.5 million at June 30, 2025, from $3.1 million at December 31, 2024[352] - This decrease was due to a $589 thousand reversal of credit losses on unfunded loan commitments, driven by lower unfunded loan commitment balances and reduced loss rates[352] - Total unfunded loan commitments decreased by $24.1 million to $901.2 million at June 30, 2025[352] Servicing Asset and Loan Servicing Portfolio This section provides details on the company's loan servicing portfolio and the related servicing asset, including fair value and key assumptions - Loans serviced for others increased to $144.4 million at June 30, 2025, from $138.0 million at December 31, 2024, including $37.4 million in SBA loans[354] - The related SBA servicing asset was $406 thousand at June 30, 2025, with a weighted average discount rate of 16.2% and a prepayment speed assumption of 19.6%[354] - The fair value of the servicing asset approximated its carrying value at both June 30, 2025, and December 31, 2024[354] Goodwill and Intangibles Assets, Net This section details the company's goodwill and other intangible assets, including changes due to merger-related adjustments and amortization - Goodwill decreased by $853 thousand to $110.9 million at June 30, 2025, due to post-merger adjustments related to acquired low-income housing tax credit investments and PCD loan recoveries[355] - Intangible assets, net, decreased to $20.4 million at June 30, 2025, from $22.3 million at December 31, 2024, primarily due to amortization[356] Intangible Assets, Net (dollars in thousands) | Intangible Asset | June 30, 2025 | December 31, 2024 | | :----------------------- | :------------ | :---------------- | | Core deposit intangible | $20,213 | $22,033 | | Trade name | $162 | $238 | | Total | $20,375 | $22,271 | Deposits This section analyzes the company's deposit portfolio, including changes in total deposits, composition by type, and the weighted average rate - Total deposits decreased by $86.5 million to $3.31 billion at June 30, 2025, from $3.40 billion at December 31, 2024[362] - The decrease was driven by a $117.4 million decrease in brokered time deposits, partially offset by increases in interest-bearing NOW accounts and reciprocal deposits[362] - Noninterest-bearing demand deposits totaled $1.22 billion (36.8% of total deposits) at June 30, 2025[363] - The weighted average rate on total deposits decreased to 1.59% at June 30, 2025, from 2.12% at June 30, 2024, due to deposit repricing and peer bank competition[365] Borrowings This section details the company's outstanding borrowings, including subordinated notes and available credit lines, and the factors influencing changes in these balances - Total borrowings decreased by $16.8 million to $52.9 million at June 30, 2025, from $69.7 million at December 31, 2024[367] - This decrease was primarily due to the redemption of $18.0 million of 5.50% fixed-to-floating rate subordinated notes in Q2 2025[367] Outstanding Borrowings (dollars in thousands) | Borrowing Type | June 30, 2025 Outstanding Balance | December 31, 2024 Outstanding Balance | | :----------------- | :-------------------------------- | :------------------------------------ | | FHLB Advances | $— | $— | | Subordinated Notes | $55,000 | $73,000 | Shareholders' Equity This section analyzes the company's shareholders' equity, including changes due to net income, unrealized gains/losses, stock-based compensation, and share repurchase activities - Total shareholders' equity increased by $35.8 million to $547.6 million at June 30, 2025, driven by net income, decreased unrealized losses on debt securities, and stock-based compensation[370] - The Company increased its authorized share repurchase plan to 1,600,000 shares, but no repurchases occurred during the three and six months ended June 30, 2025[371][372] - Tangible book value per common share increased by $1.11 to $12.82 at June 30, 2025, from $11.71 at December 31, 2024[373] Liquidity and Market Risk Management This section discusses the Company's liquidity position, including sources and uses of cash, available borrowing capacity, and contractual obligations, for both the Bank and the holding company Liquidity This section assesses the company's liquidity position, including its liquidity ratio, available borrowing capacity, and changes in cash and cash equivalents - The Company's total liquidity ratio was 18.2% at June 30, 2025, an increase from 15.7% at December 31, 2024, exceeding the internal target of 10.0%[375] - The Bank had $1.09 billion in total available borrowing capacity at June 30, 2025, including $682.6 million from FHLB, $320.4 million from the Federal Reserve discount window, and $90.5 million from unsecured credit lines[378][379][380] - Consolidated cash and cash equivalents increased by $42.0 million to $430.1 million at June 30, 2025, driven by operating and investing cash flows, partially offset by financing activities[386] Commitments and Contractual Obligations This section outlines the company's significant commitments and contractual obligations, categorized by maturity periods Commitments and Contractual Obligations (dollars in thousands) | Obligation Type | One Year or Less | Over One Year to Three Years | Over Three Years to Five Years | More than Five Years | Total | | :--------------------------------------- | :--------------- | :--------------------------- | :----------------------------- | :------------------- | :------ | | Commitments to extend credit | $602,420 | $204,026 | $25,710 | $59,365 | $891,521 | | Letters of credit issued to customers | $22,656 | $771 | $738 | $— | $24,165 | | Subordinated notes | $— | $— | $— | $55,000 | $55,000 | | Certificates of deposit | $163,251 | $872 | $125 | $— | $164,248 | | Lease obligations | $4,222 | $7,081 | $3,838 | $1,574 | $16,715 | | Total contractual obligations | $167,473 | $7,953 | $3,963 | $56,574 | $235,963 | - Total commitments to extend credit were $891.5 million at June 30, 2025, with the majority maturing in one year or less[392] - The Company also had unfunded commitments of $7.8 million for other equity investments at June 30, 2025[393] Capital Resources This section outlines the Company's and the Bank's regulatory capital ratios and compliance with capital requirements, including the capital conservation buffer, and discusses dividend restrictions - Both California BanCorp and California Bank of Commerce, N.A. exceeded all regulatory capital requirements to be considered 'well capitalized' at June 30, 2025[399] Regulatory Capital Ratios (June 30, 2025, dollars in thousands) | Capital Ratio | California BanCorp Actual Amount | California BanCorp Actual Ratio | Bank Actual Amount | Bank Actual Ratio | | :--------------------------------------- | :------------------------------- | :------------------------------ | :----------------- | :---------------- | | Total Capital (to Risk-Weighted Assets) | $511,692 | 14.75% | $496,111 | 14.30% | | Tier 1 Capital (to Risk-Weighted Assets) | $421,351 | 12.14% | $458,653 | 13.22% | | CET1 Capital (to Risk-Weighted Assets) | $421,351 | 12.14% | $458,653 | 13.22% | | Tier 1 Capital (to Average Assets) | $421,351 | 11.14% | $458,653 | 12.13% | - The Bank paid $30.0 million in dividends to the Company during the three and six months ended June 30, 2025, while no dividends were declared to shareholders by the Company[403][405] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the Company's management of market risk, primarily interest rate risk, through various tools like simulation models and sensitivity analyses (NII at Risk and EVE) to assess the impact of interest rate changes Interest Rate Risk Management This section describes the company's approach to managing interest rate risk, including the use of simulation models and sensitivity analyses to assess potential impacts on net interest income and economic value of equity - The Company's primary market risk is interest rate risk, managed by the Asset Liability Committee (ALCO) through monitoring loan and deposit flows, investment, and funding activities[406][407][408] - Interest rate risk is measured using Net Interest Income at Risk (NII at Risk) and Economic Value of Equity (EVE) simulation models, which project impacts under various interest rate scenarios[409] Projected Changes in NII at Risk and EVE (dollars in thousands) | Scenario | June 30, 2025 EVE Change (%) | June 30, 2025 NII Change (%) | December 31, 2024 EVE Change (%) | December 31, 2024 NII Change (%) | | :---------------- | :--------------------------- | :--------------------------- | :------------------------------- | :------------------------------- | | +300bps | 9.6% | 2.4% | 6.8% | 2.0% | | +200bps | 7.6% | 1.8% | 5.5% | 1.5% | | +100bps | 4.5% | 1.0% | 3.4% | 0.8% | | Base case | — | — | — | — | | -100bps | (6.1)% | (2.1)% | (4.8)% | (2.0)% | | -200bps | (14.3)% | (4.7)% | (11.4)% | (4.3)% | | -300bps | (24.6)% | (7.8)% | (20.1)% | (7.3)% | - Modeled results indicate a decrease in NII if interest rates decline, due to adjustable-rate loans repricing faster than deposit rates, while rising rates show a modest increase in NII[411] Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025[414] - There were no material changes in the Company's internal control over financial