Mechanics Bancorp (MCHB) FY 2021 MD&A

ITEM 7MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

Management’s discussion and analysis of results of operations and financial condition ("MD&A") is intended to assist the reader in understanding and assessing significant changes and trends related to the results of operations and financial position of our consolidated Company. This discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying footnotes in Part II, Item 8 of Part II of this Annual Report on Form 10-K. A comparison of the financial results for the year ended December 31, 2020 to the year ended December 31, 2019, is included in Part II, Item 7, "Management Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2020.

Management's Overview of 2021 Financial Performance

Recent Developments

COVID-19 Pandemic

During 2021, the economy continued to generally improve with increased vaccination rates and business activity. However, there still remains much uncertainty around containment of the pandemic and the trajectory of the broader economic recovery, particularly in light of the spread of the Omicron variant that has caused the number of cases to increase in the United States. We cannot predict at this time the scope and duration of the pandemic, which will depend on a variety of factors, including but not limited to, the extent and spread of the Omicron variant and other variants of the virus; the availability, adoption and efficacy of vaccines and vaccine booster shots, as well as government and other actions to mitigate the spread of COVID-19, such as stay at home orders, vaccination and mask mandates, restrictions on business activities, health and safety guidelines, economic relief for individuals and businesses, and monetary policy measures. The economic, market and business conditions impacted by COVID-19 may be slow to recover or may worsen if the pandemic continues for a prolonged period of time. Even if the pandemic subsides, there may be additional variants of the virus or a resurgence of the pandemic, as we have seen domestically and internationally. We may be subject to heightened business, operational, market, credit and other risks related to the COVID-19 pandemic environment, which may have an adverse effect on our business, financial condition and results of operations. (See “Risk Factors” under Part I, Item 1A of this Annual Report).

Economic and Market Conditions

Inflationary pressures can adversely impact our operations by increasing our costs, including compensation costs which we expect to be higher in 2022. Increases in market interest rates, resulting in part from increases in the Federal Reserve target federal funds rate, can impact our operations by increasing the yields we receive on our loans and investments and increasing the rates by pay on our deposits and borrowings. We attempt to maintain an interest-neutral balance sheet position so that our results are not as impacted by changes in interest rates.

Other Items

On January 19, 2022, we completed a $100 million subordinated notes offering due in 2032 (the “Notes”). Interest on the Notes initially will accrue at a rate equal to 3.50% per annum from and including the date of original issuance to, but excluding, January 30, 2027, payable semiannually in arrears. From and including January 30, 2027, to, but excluding, the maturity date

or the date of earlier redemption, the Notes will bear interest equal to the three-month term SOFR plus 215 basis points, payable quarterly in arrears. Net proceeds to the Company were $98 million, after deducting underwriting discounts and offering expenses. The Company intends to use a significant portion of the net proceeds from the Notes offering to repurchase shares of its common stock through open market purchases, with the remainder of the net proceeds used for working capital and other general corporate purposes, including support for growth of its assets.

On January 27, 2022, the Board of Directors approved a $75 million expansion of the share repurchase program, subject to the approval or nonobjection of our regulators and a dividend of $0.35 per common share. The dividend is payable on February 23, 2022 to shareholders of record at the close of business on February 9, 2022.

As part of our capital management strategy, in 2021, we repurchased a total of 1,873,294 shares of our common stock at an average price of $44.92 per share, representing 8.6% of the shares outstanding at December 31, 2020.

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Critical Accounting Policies and Estimates

The following discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements and the notes thereto, which have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and accounting practices in the banking industry. Certain of those accounting policies are considered critical accounting policies, because they require us to make estimates and assumptions regarding circumstances or trends that could materially affect the value of those assets, such as economic conditions or trends that could impact our ability to fully collect our loans or ultimately realize the carrying value of certain of our other assets. Those estimates and assumptions are made based on current information available to us regarding those economic conditions or trends or other circumstances. If changes were to occur in the events, trends or other circumstances on which our estimates or assumptions were based, these changes could have a material adverse effect on the carrying value of assets and liabilities and on our results of operations. We have identified two policies and estimates as being critical because they require management to make particularly difficult, subjective, and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies relate to the allowance for credit losses ("ACL") and the valuation of residential mortgage servicing rights ("MSR").

Our ACL is established through a provision for credit losses charged to expense and may be reduced by a recapture of previously established loss reserves, which are also reflected in the income statement. Loans are charged-off against the ACL when management believes that collectability of the principal is unlikely. The CECL model requires the ACL to cover estimated credit losses expected over the life of an exposure. This evaluation takes into consideration such factors as current economic projections, projected payment estimates, changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and certain other factors that may affect the borrower’s ability to pay. While we use the best information available to make this evaluation, future adjustments to our ACL may be necessary if there are significant changes in economic or other conditions that can affect the collectability of loans in our loan portfolio.

MSRs are recognized as separate assets when servicing rights are acquired through the sale of loans or purchased. For sales of mortgage loans, the fair value of the MSR is estimated and capitalized. Purchased MSRs are capitalized at the cost to acquire. Initial and subsequent fair value measurements are determined using a discounted cash flow model. To determine the fair value of the MSR, the present value of expected net future cash flows is estimated. Assumptions used include market discount rates, anticipated prepayment speeds, delinquency and foreclosure rates, and ancillary fee income net of servicing costs. This model is periodically validated by an independent model validation group. The model assumptions and the MSR fair value estimates are also compared to observable trades of similar portfolios as well as to MSR broker valuations and industry surveys, as available. We also utilize a third party valuation firm to value our MSRs on a periodic basis, the results of which we utilize as a baseline for our valuation modeling. Actual market conditions could vary significantly from current conditions which could result in the estimated life of the underlying loans being different which would change the fair value of the MSR. We carry our single family residential mortgage servicing assets at fair value and report changes in fair value through earnings. MSRs for loans other than single family loans are adjusted to fair value if the carrying value is higher than fair value and are amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets.

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Summary Financial Data

(1)Return on average tangible equity and the efficiency ratio are non-GAAP financial measures. For a reconciliation of return on average tangible equity to the nearest comparable GAAP financial measure and the computation of the efficiency ratio, see “Non-GAAP Financial Measures” elsewhere in this Management's Discussion and Analysis of Financial Condition and Results of Operations.

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Summary Financial Data (continued)

(1)Tangible book value per share and tangible common equity to tangible assets are non-GAAP financial measures. For a reconciliation to the nearest comparable GAAP financial measure, see “Non-GAAP Financial Measures” elsewhere in this Managements' Discussion and Analysis of Financial Condition and Results of Operations.

(2)The reserve rate is calculated excluding balances related to loans that are insured by the FHA or guaranteed by the VA or SBA, including Paycheck Protection Program ("PPP") loan balances.

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Results of Operations

2021 Compared to 2020

General: Our net income and income before income taxes were $115.4 million and $146.7 million, respectively, in 2021, as compared to $80.0 million and $101.9 million, respectively, in 2020. The $44.8 million increase in income before taxes was due to higher net interest income, a lower provision for credit losses and lower noninterest expense, partially offset by lower noninterest income.

Income Taxes: Our effective tax rate during 2021 was 21.3% as compared to 21.5% in 2020 and a statutory rate of 23.3%. Our effective tax rate was lower than our statutory rate due primarily to the benefits of tax advantaged investments.

Net Interest Income: The following table presents, for the periods indicated, information regarding (i) the total dollar amount of interest income earned from interest-earning assets and the weighted average yields on those assets; (ii) the total dollar amount of interest expense paid on interest-bearing liabilities and the weighted average costs of those liabilities; (iii) net interest income; (iv) net interest rate spread; and (v) net yield on interest-earning assets:

(1)Includes taxable-equivalent adjustments primarily related to tax-exempt income on certain loans and securities of $3.4 million and $3.5 million for 2021 and 2020, respectively. The estimated federal statutory tax rate was 21% for both 2021 and 2020.

(2)Cost of all deposits, including noninterest-bearing demand deposits, was 0.18% and 0.60% for 2021 and 2020, respectively.

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Rate and Volume Analysis

The following table presents the extent to which changes in interest rates and changes in the volume of our interest-earning assets and interest-bearing liabilities have affected our interest income and interest expense, excluding interest income from nonaccrual loans. Information is provided in each category with respect to: (1) changes attributable to changes in volume, (2) changes attributable to changes in rate and (3) the net change.

Net interest income was higher in 2021 as compared to 2020 primarily due to an increase in our net interest margin from 3.13% in the 2020 to 3.38% in 2021. The increase in our net interest margin was due to a 34 basis point increase in our net interest rate spread as decreases in the rates paid on interest-bearing liabilities were greater than the decreases in yields on our interest-earning assets. The 15 basis point decrease in yield on interest-earning assets was due to the origination of loans and purchases of securities at current market rates which were below our portfolio rates, the repricing down of variable rate loans and the prepayment and paydown of higher yielding loans and investments in our portfolios. Our cost of interest-bearing liabilities decreased from 0.85% in 2020 to 0.36% in 2021 due to a decrease in market interest rates which allowed us to reprice our deposits and borrowings at lower rates.

Provision for Credit Losses: As a result of the favorable performance of our loan portfolio, a stable low level of nonperforming assets and an improved outlook of the estimated impact of COVID-19 on our loan portfolio, we recorded a $15.0 million recovery of our allowance for credit losses in 2021. Due to adverse economic conditions related to the COVID-19 pandemic, in 2020, we recorded a $20.5 million provision for credit losses as an estimate of the potential adverse impact of those conditions on our loan portfolio.

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Noninterest income consisted of the following:

(1) Includes loans originated as held for investment.

Loan servicing income, a component of noninterest income, consisted of the following:

(1)Represents changes due to collection/realization of expected cash flows and curtailments.

(2)Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest rates.

The decrease in noninterest income for 2021 as compared to 2020 was due to decreases in gain on loan origination and sale activities and loan servicing income, which was partially offset by higher deposit fees and higher other income. The $30.2 million decrease in gain on loan origination and sale activities was due to a $33.9 million decrease in single family gain on loan origination and sale activities which was partially offset by a $3.7 million increase in CRE and commercial gain on loan origination and sale activities. The decrease in single family gain on loan origination and sale activities was due primarily to a 30% decrease in rate locks. The increase in CRE and commercial gain on loan origination and sale activities was due to a 17% increase in the realized gain on sale which was partially offset by a 15% decrease in the volume of loans sold. The $2.3 million decrease in loan servicing income was due to a $5.5 million decrease in single family servicing income which was partially offset by a $3.2 million increase in commercial loan servicing income. The decrease in single family servicing income was due primarily to a decline in the servicing portfolio balance due to high levels of prepayments and a $1.7 million decrease in risk management results. The increase in commercial loan servicing income was primarily due to higher levels of prepayment fees. The higher deposit fees were due to higher demand deposit balances and increased customer activity levels. The $2.1 million increase in other income was due to higher income from investments and a gain on sale of OREO realized in 2021.

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Noninterest expense consisted of the following:

The $20.3 million decrease in noninterest expense in 2021 as compared to 2020 was due to lower compensation and benefit costs, information services expense, occupancy expense and general, administrative and other expenses. The $4.8 million decrease in compensation and benefits expense is primarily due to lower levels of staffing. The $2.1 million decrease in information services costs is primarily due to lower core processing costs related to a renegotiation of our contract which became effective at the beginning of 2021. The occupancy expenses in 2020 included $10.2 million of impairments related to ongoing restructuring of our facilities and staffing, with no similar charges in 2021. The remaining decrease in occupancy costs relates to a reduction in leased space. The decrease in general, administrative and other costs was due to charges related to our efficiency improvement initiatives incurred in 2020 and lower FDIC fees, which were partially offset by higher marketing costs in 2021.

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Review of Financial Condition – December 31, 2021 compared to December 31, 2020

During 2021, total assets decreased by $33 million due to decreases in investment securities and other assets, partially offset by a $316 million increase in LHFI. LHFI increased due to $3.3 billion of originations, which were partially offset by prepayments and scheduled payments of $2.6 billion and transfer of loans to LHFS of $393 million. The $282 million decrease in borrowings reflects the reduced need of wholesale funding resulting from a $325 million increase in deposits. The growth in deposits was due to new customers and increases in existing customer balances.

Investment Securities

The fair values of our investment securities available for sale ("AFS") are as follows:

Loans

The following table details the composition of our LHFI portfolio by dollar amount:

(1)Includes $7.3 million and $7.1 million of loans at December 31, 2021 and 2020, respectively, where a fair value option election was made at the time of origination and; therefore, are carried at fair value with changes recognized in the consolidated income statements.

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The following tables show the contractual maturity of our loan portfolio by loan type:

Loan Roll-forward

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Loan Originations and Advances

Production Volumes for Sale to the Secondary Market

(1) May include loans originated as held for investment.

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Capitalized Mortgage Servicing Rights ("MSRs")

(1)     Represents changes due to collection/realization of expected cash flows and curtailments.

(2)    Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest rates.

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Deposits

Deposit balances and weighted average rates were as follows for the periods indicated:

The following table presents the schedule of maturities of certificates of deposit as of December 31, 2021:

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Credit Risk Management: Delinquent Loans, Nonperforming Assets and Provision for Credit Losses

As of December 31, 2021, our ratio of nonperforming assets to total assets remained low at 0.18% while our ratio of total loans delinquent over 30 days to total loans was 0.38%. The Company recorded a recovery of our allowance for credit losses of $15.0 million in 2021, and the ACL for loans decreased by $17.2 million, as a result of the favorable performance of our loan portfolio, a stable low level of nonperforming assets and an improved outlook of the estimated impact of COVID-19 on our loan portfolio.

Delinquent loans by loan type consisted of the following:

(1) Includes $7.3 million of loans where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes recognized in our consolidated income statements.

(2) FHA-insured and VA-guaranteed single family loans that are 90 days or more past due are maintained on accrual status if they are determined to have little to no risk of loss.

(3) Includes loans whose repayments are insured by the FHA or guaranteed by the VA or SBA of $8.4 million.

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(1)Includes $7.1 million of loans where a fair value option election was made at the time of origination and, therefore, are carried at fair value with changes recognized in our consolidated income statements.

(2)FHA-insured and VA-guaranteed single family loans that are 90 days or more past due are maintained on accrual status if they are determined to have little to no risk of loss.

(3)Includes loans whose repayments are insured by the FHA or guaranteed by the VA or SBA of $14.7 million.

As a result of the COVID-19 pandemic, the Company has approved forbearances for some of its borrowers. The status of these forbearances as of December 31, 2021 is as follows:

(1) Does not include any single family loans that are guaranteed by Ginnie Mae.

(2) Does not include constructions loans that were modified as a result of COVID-19 related construction delays to extend the construction or lease-up periods. Each of these loans continued to perform under the existing or modified payment terms. At December 31, 2021, two of these loans with $2 million in balances were still operating under the terms of their modifications.

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The forbearances approved for commercial and industrial loans and CRE nonowner occupied loans were generally for a period of three months while the forbearances for single family, home equity and consumer loans were generally for a period of three to six months. As of December 31, 2021, excluding the loans with forbearances still in place, 99% of the commercial and CRE loans approved for a forbearance have completed their forbearance period and have resumed payments. The forbearance periods for the majority of single family and consumer loans that were not completed as of December 31, 2021 are scheduled to be completed in the first quarter of 2022.

The following table presents the ACL by product type at the dates indicated:

(1) The rate is calculated excluding balances related to loans that are insured by the FHA or guaranteed by the VA or SBA, including PPP loans.

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Liquidity and Sources of Funds

Liquidity risk management is primarily intended to ensure we are able to maintain sources of cash to adequately fund operations and meet our obligations, including demands from depositors, draws on lines of credit and paying any creditors, on a timely and cost-effective basis, in various market conditions. Our liquidity profile is influenced by changes in market conditions, the composition of the balance sheet and risk tolerance levels. The Company has established liquidity guidelines and operating plans that detail the sources and uses of cash and liquidity.

The Company's primary sources of liquidity include deposits, loan payments and investment securities payments, both principal and interest, borrowings, and proceeds from the sale of loans and investment securities. Borrowings include advances from the FHLB, federal funds purchased and borrowing from other financial institutions. Additionally, the Company may sell stock or issue long-term debt to raise funds. While scheduled principal repayments on loans and investment securities are a relatively predictable source of funds, deposit inflows and outflows and prepayments of loans and investment securities are greatly influenced by interest rates, economic conditions and competition.

The Company’s contractual cash flow obligations include the maturity of certificates of deposit, short term and long term borrowings, interest on certificates of deposit and borrowings, operating leases and fees for information technology related services and professional services. Obligations for certificates of deposit and short term borrowings are typically satisfied through the renewal of these instruments or the generation of new deposits or use of available short term borrowings. Interest payments and obligations related to leases and services are typically met by cash generated from our operations. The Company does not have any obligation to repay long term debt within the next four years.

At December 31, 2021, the Bank had available borrowing capacity of $1.8 billion from the FHLB, $274 million from the FRBSF and $1.0 billion under borrowing lines established with other financial institutions. We believe that our current unrestricted cash and cash equivalents, cash flows from operations and borrowing capacity will be sufficient to meet our liquidity needs for at least the next 12 months. We are currently not aware of any other trends or demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in our liquidity increasing or decreasing in any material way that will impact our liquidity needs during or beyond the next 12 months.

Cash Flows

For 2021 and 2020, cash and cash equivalents increased $7.2 million and $0.2 million, respectively. As a banking institution, the Company has extensive access to liquidity. As excess liquidity can reduce the Company’s earnings and returns, the Company manages its cash positions to minimize the level of excess liquidity and does not attempt to maximize the level of cash and cash equivalents. The following discussion highlights the major activities and transactions that affected our cash flows during these periods.

Cash flows from operating activities

The Company's operating assets and liabilities are used to support our lending activities, including the origination and sale of mortgage loans. For 2021, $173 million of cash was provided by operating activities, primarily from cash proceeds from the sale of loans exceeding cash used to fund LHFS. For 2020, cash of $26 million was used in operating activities, primarily to fund an increase in our LHFS which was partially offset by cash generated from our operations.

Cash flows from investing activities

The Company's investing activities are primarily related to investment securities and LHFI. For 2021, cash of $126 million was used in investing activities for the origination of LHFI and the purchase of investment securities, partially offset by principal repayments and the proceeds from the sale of LHFI and investment securities. For 2020, cash of $233 million was used in investing activities for the origination of LHFI and the purchase of investment securities, which were partially offset by principal payments and the proceeds from sale of LHFI and investment securities.

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Cash flows from financing activities

The Company's financing activities are primarily related to deposits, net proceeds from borrowings and equity transactions. For 2021, cash of $40 million was used in financing activities from net repayment of short-term borrowings, repurchases of and dividends paid on our common stock, partially offset by growth in deposits. For 2020, cash of $258 million as provided by financing activities from growth in deposits, which was partially offset by net repayment of short-term borrowings, repurchases of our common stock and the payment of dividends on our common stock.

Capital Resources and Dividends

The capital rules applicable to United States based bank holding companies and federally insured depository institutions ("Capital Rules") require the Company (on a consolidated basis) and the Bank (on a stand-alone basis) to meet specific capital adequacy requirements that, for the most part, involve quantitative measures, primarily in terms of the ratios of their capital to their assets, liabilities, and certain off-balance sheet items, calculated under regulatory accounting practices. In addition, prompt corrective action regulations place a federally insured depository institution, such as the Bank, into one of five capital categories on the basis of its capital ratios: (i) well capitalized; (ii) adequately capitalized; (iii) undercapitalized; (iv) significantly undercapitalized; or (v) critically undercapitalized. A depository institution’s primary federal regulatory agency may determine that, based on certain qualitative assessments, the depository institution should be assigned to a lower capital category than the one indicated by its capital ratios. At each successive lower capital category, a depository institution is subject to greater operating restrictions and increased regulatory supervision by its federal bank regulatory agency.

The following tables set forth the capital and capital ratios of HomeStreet Inc. (on a consolidated basis) and HomeStreet Bank as of the dates indicated below, as compared to the respective regulatory requirements applicable to them:

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At each of the dates set forth in the above table, the Company exceeded the minimum required capital ratios applicable to it and the Bank’s capital ratios exceeded the minimums necessary to qualify as a well-capitalized depository institution under the prompt corrective action regulations. In addition to the minimum capital ratios, both the Company and the Bank are required to maintain a "conservation buffer" consisting of additional Common Equity Tier 1 Capital which is at least 2.5% above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses. The required ratios for capital adequacy set forth in the above table do not include the Capital Rules’ additional capital conservation buffer, though each of the Company and the Bank maintained capital ratios necessary to satisfy the capital conservation buffer requirements as of the dates indicated. At December 31, 2021, capital conservation buffers for the Company and the Bank were 4.66% and 5.77%, respectively.

The Company paid a quarterly cash dividend of $0.25 per common share in each of the four quarters of 2021. It is our current intention to continue to pay quarterly dividends and the Company has declared a cash dividend of $0.35 per common share payable on February 23, 2022. The amount and declaration of future cash dividends are subject to approval by our Board of Directors and certain statutory requirements and regulatory restrictions.

We had no material commitments for capital expenditures as of December 31, 2021. However, we intend to take advantage of opportunities that may arise in the future to grow our businesses, which may include opening additional offices or acquiring complementary businesses that we believe will provide us with attractive risk-adjusted returns. As a result, we may seek to obtain additional borrowings and to sell additional shares of our common stock to raise funds which we might need for these purposes. There is no assurance, however, that, if required, we will succeed in obtaining additional borrowings or selling additional shares of our common stock on terms that are acceptable to us, if at all, as this will depend on market conditions and other factors outside of our control, as well as our future results of operations.

Accounting Developments

See Financial Statements and Supplementary Data - Note 1, Summary of Significant Accounting Policies for a discussion of accounting developments.

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Non-GAAP Financial Measures

To supplement our unaudited condensed consolidated financial statements presented in accordance with GAAP, we use certain non-GAAP measures of financial performance.

In this annual report on Form 10-K, we use (i) tangible common equity and tangible assets as we believe this information is consistent with the treatment by bank regulatory agencies, which exclude intangible assets from the calculation of capital ratios; and (ii) an efficiency ratio which is the ratio of noninterest expense to the sum of net interest income and noninterest income, excluding certain items of income or expense and excluding taxes incurred and payable to the state of Washington as such taxes are not classified as income taxes and we believe including them in noninterest expense impacts the comparability of our results to those companies whose operations are in states where assessed taxes on business are classified as income taxes. For the purposes of computing returns on tangible common equity, we exclude from earnings the amortization of intangible assets.

These supplemental performance measures may vary from, and may not be comparable to, similarly titled measures provided by other companies in our industry. Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. A non-GAAP financial measure may also be a financial metric that is not required by GAAP or other applicable requirement.

We believe that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by providing additional information used by management that is not otherwise required by GAAP or other applicable requirements. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing our operating results and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate a comparison of our performance to prior periods. We believe these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. However, these non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, financial measures prepared in accordance with GAAP. In the information below, we have provided a reconciliation of, where applicable, the most comparable GAAP financial measures to the non-GAAP measures used in this annual report on Form 10-K, or a reconciliation of the non-GAAP calculation of the financial measure.

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Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures:

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