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Net Income Available to Common Shareholders

Net income available to common shareholders for the third quarter of 2024 was $7.8 million, or $2.93 per diluted common share, compared with $7.3 million, or $2.73 per diluted common share, for the linked quarter ended June 30, 2024. Net income available to common shareholders was $8.0 million, or $3.01 per diluted common share, for the third quarter of 2024. Net income available to common shareholders increased $0.6 million, or 7.7%, compared to the linked quarter, and decreased $0.1 million, or 1.6%, compared to the same prior year period.

Notable variances comparing to the linked quarter include an increase in non-interest income and net interest income, which were partially offset by an increase in the provision for credit losses, the provision for income taxes, and non-interest expense. Compared to the third quarter of 2023, increases in non-interest expense and the provision for credit losses were partially offset by increases in non-interest income and net interest income.

Net Interest Income

Net interest income was $18.2 million, or 4.31%, of average earning assets ("net interest margin"), for the third quarter of 2024, compared with $17.9 million, or a net interest margin of 4.67%, for the same period a year earlier, and $17.5 million, or a net interest margin of 4.47%, for the quarter ended June 30, 2024.

Net interest income increased by $0.3 million, or 1.6%, compared to the same prior year period, primarily driven by growth in the Company's loan portfolio and interest-earning deposits in other banks, coupled with an increase in yields on earning assets. Loan interest income and fee accretion increased by $2.2 million compared to the third quarter of 2023. Additionally, the Company also experienced increased interest income from interest earning deposits in other banks of $1.2 million. Offsetting these increases, interest expense for the current quarter increased $3.2 million, compared to the same prior year period, primarily due to increased balances and costs of interest-bearing deposits, net of decreased costs associated with other borrowings.

Net interest income increased for the quarter ended September 30, 2024, compared to the linked quarter by $0.7 million, or 4.0%, due primarily to an increase in interest income on earning assets which were partially offset by an increase in interest expense on deposits. Interest income increased $2.0 million, for the current quarter, compared to the linked quarter, primarily due to average balance growth on interest earning deposits in other banks and loans. Interest expense on deposits increased $1.4 million, for the current quarter, compared to the linked quarter, due to higher average balances and increased costs on interest bearing deposits. Interest on other borrowings decreased by $0.1 million during the current quarter due to the maturity of a one-year term borrowing facility.

The net interest margin was 4.31% for the quarter ended September 30, 2024, compared to 4.67% for the same prior year period, and 4.47% for the linked quarter ended June 30, 2024. During the past year, asset yields have increased 29 basis points, but the cost of funds has risen 72 basis points, contributing to the 36 basis point decline in the quarterly net interest margin. Additionally, average interest-bearing liabilities have grown $172.5 million, outpacing the growth in average interest-earning assets of $158.5 million, when compared to the same prior year period.

The 16 basis point decrease in the net interest margin for the third quarter of 2024, compared to the linked quarter, is primarily attributable to the 19 basis point increase in the Company's cost of interest-bearing liabilities, outpacing the 2 basis point rise on earning asset yields, which led to net interest margin compression during the quarter. Compared to the linked quarter, the average balances of interest-bearing liabilities increased 11.9%, outpacing the growth in interest-earning assets of 6.8%.

The yield on loans, interest earning deposits in other banks, and investment securities, have increased by 29 basis points to 6.55%, 15 basis points to 5.45%, and 31 basis points to 4.32%, respectively, compared to the same prior year period. Additionally, average balances on loans increased $86.0 million, or 7.42%, average balances on interest earning deposits in other banks increased $85.9 million, or 80.7%, and average balances on investment securities declined $13.6 million, or 5.48%, compared to the same prior year period. The cost of interest-bearing deposits increased 103 basis points to 3.12%, while the average balances of interest-bearing deposits increased $192.4 million, compared to the same period last year.

The yield on loans, interest earning deposits in other banks, and investment securities, increased by 5 basis points to 6.55%, 8 basis points to 5.45%, and 13 basis points to 4.32%, respectively, for the quarter ended September 30, 2024, compared to the linked quarter. Additionally, average balances on loans increased $20.8 million, or 1.7%, average balances on interest earning deposits in other banks increased $88.5 million, or 85.2%, and average balances on investment securities declined $2.0 million, or 0.8%, compared to the linked quarter. The cost of interest-bearing deposits increased 21 basis points to 3.12%, while the average balances on interest-bearing deposits increased $108.5 million, compared to the linked quarter.

The cost of funds was 1.93% for the quarter ended September 30, 2024, an increase of 72 basis points compared to 1.21%, for the same prior year period, and an increase of 20 basis points compared to 1.73%, for the linked quarter ended June 30, 2024. The increase in the Company's cost of funds is attributable to the higher short term rate environment and increased competition for deposits in general. The Bank has continued to grow its total deposit accounts through new customer acquisition and expansion of existing relationships over the last year, however, our clients have also continued to optimize the proportion of operating account balances versus interest-bearing balances, leading to a decline in the percentage of non-interest-bearing deposits of total deposits and increase the cost of deposits. However, Mission continues to outperform peers by achieving lower deposit costs than peer averages. Compared to a peer group consisting of all California Commercial Banks from S&P Capital IQ as of June 30, 2024, Mission's cost of funds for the second quarter of 2024, was 54 basis points lower than the 2.27% peer average.

For the nine months ended September 30, 2024, the Company's net interest income increased $1.6 million to $53.4 million, while the net interest margin decreased 27 basis points to 4.44%, compared to net interest income of $51.8 million and net interest margin of 4.71%, for the nine months ended September 30, 2023. The decline in net interest margin is the result of a 113 basis point increase in the cost of total interest-bearing liabilities and $159.0 million growth in average interest-bearing liability balances, which outpaced the 47 basis point increase in earning asset yields and the $134.6 million growth in average earning asset balances.

In the third quarter of 2023 the Company entered into two pay-fixed, receive floating, interest rate swap contracts with notional balances totaling $108.0 million, to hedge future interest rate increases on a portion of its fixed rate loan and investment securities portfolios. For the current quarter ending on September 30, 2024, the linked quarter and the third quarter of 2023, the interest rate swap contract associated with the loan portfolio generated an additional $0.1 million in interest income. For the current quarter ending on September 30, 2024, the linked quarter and the third quarter of 2023, the interest rate swap contract associated with the investment securities portfolio generated an additional $0.2 million in interest income. The interest rate swap contracts on the loan and investment securities portfolios generated $0.4 million total of additional interest income and 10 basis points of additional earning asset yield during the quarter ended September 30, 2024, compared to $0.3 million total additional interest income and 7 basis points of additional earning asset yield for the same prior year period.

Provision for Credit Losses

A $0.4 million provision for credit losses was recorded for the quarter ended September 30, 2024, compared to no provision for the linked quarter, and $0.2 million for the same period a year ago. The Company's quarterly credit loss provisions over the past year have been recorded primarily to account for growth in the loan portfolio and changes in macro-economic conditions which impact the calculated ACL under the current expected credit loss ("CECL") model, rather than in response to changing conditions in the Company's loan portfolio, which have remained stable, demonstrating a low credit risk profile during the past twelve months.

Non-Interest Income

Non-interest income increased $0.9 million, or 57.8%, to $2.5 million for the quarter ended September 30, 2024, compared to $1.6 million in the linked quarter, and increased by $1.0 million, or 71.3%, compared to $1.4 million for the same period a year earlier. Notable variances when compared to the linked quarter were increases in SBA servicing fees and gain on sale of loans and service charges, fees, and other income. The increase in non-interest income when compared to the same prior year period was primarily due to increases in SBA servicing fees and gain on sale of loans.

Non-Interest Expense

Non-interest expense increased by $0.2 million, or 2.4%, to $9.2 million for the quarter ended September 30, 2024, compared to $9.0 million for the linked quarter, and increased by $1.3 million, or 16.5%, compared to $7.9 million for the quarter ended September 30, 2023.

The increase in non-interest expense for the third quarter of 2024 compared to the linked quarter was primarily due to a $0.2 million increase in professional services expense.

The increase in non-interest expense for the third quarter of 2024 compared to the third quarter of 2023 was primarily due to a $0.8 million increase in salaries and benefits expense attributable to new hires, net of terminations, increased base compensation, and increased incentive compensation accruals, a $0.3 million increase in professional services expense, and a $0.2 million increase in other expenses.

Operating Efficiency

The Company's operating efficiency ratio increased to 44.7% for the third quarter of 2024, compared to 40.9% for the third quarter of 2023, and decreased from 47.3% compared to the linked quarter. Total non-interest expense as a percentage of average assets, another measure of the Company's efficiency, was 2.08% for the third quarter of 2024, compared to 1.95% for the third quarter of 2023, and 2.19% for the quarter ended June 30, 2024.

Income Taxes

Income tax expense was $3.2 million for the third quarter of 2024, compared to $3.3 million for the quarter ended September 30, 2023, and $2.8 million for the linked quarter ended June 30, 2024. The Company's effective tax rate for the third quarter of 2024 was 28.9%, compared to 29.1% for the same period a year ago, and 27.5% for the quarter ended June 30, 2024.

Asset and Equity Returns

The return on average equity for the third quarter of 2024 was 17.4%, down from 22.1% for the same prior year period, and relatively unchanged when compared to the linked quarter. The quarterly return on average assets for the third quarter of 2024 was 1.77%, down from 1.97% for the same prior year period, and unchanged when compared to the linked quarter.

The decline in the quarterly returns on both average equity and average assets for the quarter ended September 30, 2024, compared to the third quarter of 2023, is primarily attributable to the 25.2% growth in average equity and the 9.61% growth in average assets, coupled with a 1.64% decline in quarterly net income.

The return on average equity and the return on average assets for the third quarter of 2024 was consistent with the linked quarter, as net income growth marginally outpaced the growth in quarterly average equity and quarterly average assets. Net income increased 7.69% compared to the linked quarter, while average equity and average asset growth were 6.05% and 6.54%, respectively.

Balance Sheet

Total assets increased by $215.6 million, or 13.4%, to $1.83 billion at September 30, 2024, compared to September 30, 2023, and increased by $137.0 million, or 8.1%, compared to June 30, 2024. Cash and cash equivalents increased by $138.1 million, or 82.6%, to $305.3 million at September 30, 2024, compared to the same prior year period, and increased by $127.4 million, or 71.7%, compared to June 30, 2024. The significant increase in the Company's cash position over the last year is primarily the result of deposit growth, net of the Federal Reserve Bank borrowing facility repayment upon maturity, and earnings, which outpaced loan portfolio growth. The increase in the Company's cash position over the past quarter is primarily due to robust deposit growth, which outpaced loan portfolio growth for the quarter.

Investment securities decreased by $3.9 million or 1.7%, to $234.1 million at September 30, 2024, compared to $238.1 million at September 30, 2023, and were relatively unchanged compared to June 30, 2024. The decrease in the investment securities portfolio over the past year is attributable to repayments and amortization of the bond portfolio, net of decreased unrealized losses on the investment securities portfolio attributable to market rate changes during the last year.

Loans increased by $84.5 million, or 7.3%, to $1.24 billion at September 30, 2024, compared to September 30, 2023, and increased by $12.9 million, or 1.0%, compared to June 30, 2024. Loan growth during the last year has been diversified across the portfolio, with notable growth in owner and non-owner occupied commercial real estate, construction and land development, and agricultural production segments of the loan portfolio, which were partially offset by the contraction in loans secured by farmland. Loan growth during the last quarter has been concentrated in owner occupied commercial real estate, multi-family, and construction and land development segments of the loan portfolio, which were partially offset by decreases in agricultural production loans and non-owner occupied commercial real estate loans.

Total deposits increased by $202.1 million, or 14.4%, to $1.61 billion as of September 30, 2024, from $1.41 billion as of September 30, 2023, and increased by $123.1 million, or 8.3%, from $1.48 billion at June 30, 2024. Noninterest-bearing deposits decreased by $28.1 million, or 4.3%, during the last year, and increased by $8.1 million, or 1.3%, since June 30, 2024. The decrease in noninterest bearing deposits experienced over the last year is attributable to both cash utilization by business customers as well as the migration of funds to interest-bearing accounts for yield. Noninterest-bearing deposits represented 39.0% of total deposits on September 30, 2024.

Total shareholders' equity was $184.8 million at September 30, 2024, an increase of $40.1 million, or 27.7%, compared to September 30, 2023, and an increase of $11.2 million, or 8.1%, compared to June 30, 2024, due primarily to quarterly earnings, net of changes in accumulated other comprehensive income or loss. The accumulated other comprehensive loss component of equity decreased $3.0 million during the past quarter due to a $4.3 million decrease in the accumulated other comprehensive loss on the investment securities portfolio, partially offset by a $1.3 million increase in the accumulated other comprehensive loss associated with the interest rate swap contract, which is a hedge on interest rates of the investment securities portfolio. The accumulated other comprehensive loss decreased by $7.9 million during the past year resulting from a $9.7 million decrease in the accumulated other comprehensive loss on the investment securities portfolio, partially offset by a $1.8 million increase in the accumulated other comprehensive loss associated with the interest rate swap contract. The decline in accumulated other comprehensive loss is the result of an increase in the fair market value of our securities portfolio attributable to the decline in interest rates and not related to credit quality.

Nonperforming assets were $0.4 million at September 30, 2024, down from $0.5 million at June 30, 2024, and up from $0 at September 30, 2023. Nonperforming assets as a percentage of total assets were 0.02% at September 30, 2024, down from 0.03% at June 30, 2024, and up from 0.00% at September 30, 2023. Non-accrual loans currently recorded have 100% of their balances individually reserved for with allowances for credit losses.

Allowance for Credit Losses

The allowance for credit losses ("ACL") as a percentage of gross loans increased to 1.53% at September 30, 2024, from 1.52% at June 30, 2024, and was unchanged from September 30, 2023. The relatively unchanged ACL as a percentage of gross loans over the last twelve months reflects the credit quality strength of the loan portfolio and prudent management amid ongoing economic uncertainties stemming from sustain inflationary pressures and elevated rates.

Regulatory Capital

The Bank's reported regulatory capital ratio exceeded the ratio generally required to be considered a "well capitalized" financial institution for regulatory purposes. The Community Bank Leverage Ratio for the Bank was 11.41%, at September 30, 2024, compared with the requirement of 9.00% to generally be considered a "well capitalized" financial institution for regulatory purposes. The Bank's Community Bank Leverage ratio has increased by 36 basis points from 11.05%, and decreased by 40 basis points from 11.81%, as of the periods ended September 30, 2023, and June 30, 2024, respectively. Strong earnings over the past year outpaced the growth in average assets, resulting in an increase in regulatory capital ratios; while earnings have remained strong during the current quarter, the growth in average assets, coupled with dividends paid to the Company during 2024, have resulted in a decrease in regulatory capital ratios compared to the linked quarter.

Stock Repurchase Program

The Company announced on April 29, 2024, the extension of its plan Rule 10b5-1 (the "2022 10b5-1 Plan") to facilitate the repurchase of its common stock. Pursuant to the 2022 10b5-1 Plan, a maximum of $1.0 million of the Company's common stock may be repurchased by the Company. The previous extension under the Plan expired on April 26, 2024, and the Company extended the Plan for an additional six months, through October 25, 2024. The Company may suspend or discontinue the Plan at any time. Hilltop Securities, Inc. is acting as the Company's agent to purchase its shares on pre-arranged terms pursuant to the 2022 10b5-1 Plan.

During the third quarter of 2024 the Company repurchased 1,615 shares under the 2022 10b5-1 Plan at an average price of $86.39. Since Plan inception the Company has repurchased 5,681 shares at an average price of $83.69.

About Mission Bancorp and Mission Bank

With $1.8 billion in assets, Mission Bancorp is headquartered in Bakersfield, California and is the holding company of four wholly owned subsidiaries, Mission Bank, Mission 1031 Exchange, LLC, Mission Community Development, LLC, and Nosbig 88, Inc. Mission Bank has eight Business Banking Centers, serving the greater areas of Bakersfield, Lancaster, San Luis Obispo, Stockton, Ventura, and Visalia, California. Visit Mission Bank online at www.missionbank.bank. By including the foregoing website address, Mission Bancorp does not intend to, and shall not be deemed to incorporate by reference any material contained therein.

Forward Looking Statements

This press release may contain forward-looking statements that are subject to risks and uncertainties. Such risks and uncertainties may include but are not necessarily limited to fluctuations in interest rates, inflation, rapid and/or unanticipated deposit withdrawals, the unavailability of sources of liquidity, additional regulatory requirements that may be imposed on community banks or banks in general, general and industry-specific changes in market conditions, investor reaction to industry developments, government regulations and general economic conditions, and competition within the business areas in which the bank is conducting its operations, including the real estate market in California and other factors beyond the bank's control. Such risks and uncertainties could cause results for subsequent interim periods or for the entire year to differ materially from those indicated. Readers should not place undue reliance on the forward-looking statements, which reflect management's view only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.