What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-05-10 compared with 2023-11-13 · 241 added, 404 removed, 573 unchanged (53% of the section changed)

9 unchanged sentences

(In thousands, except for share data)

September 30,

(As Restated)

Cash due from banks

2 unchanged sentences

Time deposits in banks

Investment securities available-for-sale ("AFS"), at fair value, net of allowance for credit losses of $ 0 at both September 30, 2023 and December 31, 2022

Investment securities available-for-sale ("AFS"), at fair value, net of allowance for credit losses of $ 0 at both March 31, 2024 and December 31, 2023

Equity securities

Federal Home Loan Bank ("FHLB") stock, at par

Federal Reserve Bank ("FRB") stock, at par

Federal Home Loan Bank ("FHLB") stock, at par

Federal Reserve Bank ("FRB") stock, at par

Loans held for sale

Loans, net of allowance for credit losses of $ 19,800 at September 30, 2023 and $ 18,900 at December 31, 2022

Loans, net of allowance for credit losses of $ 18,890 at March 31, 2024 and $ 22,000 at December 31, 2023

Premises and equipment, net

Other real estate owned ("OREO")

Core deposit intangible, net

Cash surrender value of bank owned life insurance ("BOLI") policies, net

Right-of-use assets ("ROU"), net

Cash surrender value of bank owned life insurance ("BOLI") policies, net

Right-of-use assets ("ROU"), net

Interest receivable and other assets

11 unchanged sentences

10,000,000 shares authorized;

no shares issued and outstanding at both September 30, 2023 and December 31, 2022

no shares issued and outstanding at both March 31, 2024 and December 31, 2023

Common stock, no par value;

100,000,000 shares authorized;

11,673,830 and 12,838,462 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

11,377,117 and 11,551,271 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

Additional paid in capital

8 unchanged sentences

Three months ended

Nine months ended

September 30,

(As Restated)

Interest income:

10 unchanged sentences

Net interest income

Provision for (reversal of) credit losses

Net interest income after provision for (reversal of) credit losses

Provision for credit losses

Net interest income after provision for credit losses

Noninterest income:

Gain on sale of loans

Loss on equity securities

Gain (loss) on equity securities

Service charges and other fees

Loan servicing and other loan fees

Income on investment in Small Business Investment Company (“SBIC”) fund

Bargain purchase gain

(Loss) income on investment in Small Business Investment Company (“SBIC”) fund

Other income and fees

18 unchanged sentences

Three months ended

Nine months ended

September 30,

(As Restated)

Other comprehensive loss:

Change in unrealized loss on available-for-sale securities

Deferred tax benefit

Other comprehensive loss, net of tax

Change in unrealized gain (loss) on AFS securities

Deferred tax (expense) benefit

Other comprehensive income (loss), net of tax

Total comprehensive income

6 unchanged sentences

Income/(Loss)

Three months ended September 30, 2023

Balance, July 1, 2023

Other comprehensive loss, net

Restricted stock granted

Cash dividends of $ 0.10 per share

Stock based compensation

Repurchase of shares

Balance, September 30, 2023

Three months ended September 30, 2022

Balance, July 1, 2022

(As Restated)

Other comprehensive loss, net

Three months ended March 31, 2024

Balance, December 31, 2023

Other comprehensive income, net

Restricted stock granted

Forfeiture of restricted stock grants

Cash dividends of $ 0.10 per share

1 unchanged sentence

Repurchase of shares

Balance, September 30, 2022

(As Restated)

See Notes to Condensed Consolidated Financial Statements.

BAYCOM CORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands, except for share and per share data)

Comprehensive

Shareholders’

Income/(Loss)

Nine months ended September 30, 2023

Balance, January 1, 2023

Balance, March 31, 2024

Three months ended March 31, 2023

Balance, December 31, 2022

(As Restated)

5 unchanged sentences

Repurchase of shares

( 1,206,481 )

Balance, September 30, 2023

Nine months ended September 30, 2022

Balance, January 1, 2022

Other comprehensive loss, net

Restricted stock granted

Restricted stock forfeited

Issuance of common shares to acquire Pacific Enterprise Bancorp

Cash dividends of $ 0.15 per share

Stock based compensation

Repurchase of shares

Balance, September 30, 2022

Balance, March 31, 2023

(As Restated)

3 unchanged sentences

(In thousands)

Nine months ended

September 30,

Three months ended

(As Restated)

1 unchanged sentence

Adjustments to reconcile net income to net cash provided by operating activities:

(Reversal of) provision for credit losses

Decrease in deferred tax assets

Provision for credit losses

Deferred tax expense

Accretion on acquired loans

2 unchanged sentences

Loans originated for sale

Loss on sale of OREO

Bargain purchase gain

Accretion on junior subordinated debentures

Gain on repayment of subordinated debt, net

Increase in cash surrender value of life insurance policies

Amortization/accretion of premiums/discounts on investment securities, net

Loss on equity securities

(Gain) loss on equity securities

Depreciation and amortization

1 unchanged sentence

Stock based compensation expense

Decrease in deferred loan origination fees, net

Increase (decrease) in deferred loan origination fees, net

Net change in interest receivable and other assets

5 unchanged sentences

Purchase of investment securities AFS

Purchase of equity securities

Proceeds from maturities, repayments and calls of investment securities AFS

Proceeds from sales of investment securities AFS

Purchase of Federal Home Loan Bank stock

Purchase of Federal Reserve Bank stock

Increase in loans, net

Purchase of FRB stock

Decrease (increase) in loans, net

Purchase of equipment and leasehold improvements, net

Net cash received for acquisitions

Net cash provided by investing activities

Net cash provided by (used in) investing activities

BAYCOM CORP AND SUBSIDIARY

1 unchanged sentence

(In thousands)

Nine months ended

September 30,

Three months ended

(As Restated)

1 unchanged sentence

Decrease in noninterest and interest bearing deposits in banks, net

Increase (decrease) in time deposits, net

Increase in time deposits, net

Repayment of subordinated debt, net

Repurchase of common stock

Dividends paid on common stock

Net cash provided by (used in) financing activities

Increase (decrease) in cash and cash equivalents

Net cash provided by financing activities

Increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

6 unchanged sentences

Recognition of lease liability

Non-cash operating activities:

Increase in allowance for credit losses upon adoption of ASU 2016-03

Non-cash investing and financing activities:

Change in unrealized loss on available-for-sale securities, net of tax

Change in unrealized gain (loss) on AFS securities, net of tax

Transfer of loans to held-for-sale

Cash dividends declared on common stock not yet paid

Assets acquired, net of cash received

Liabilities assumed

Common stock issued

See Notes to Condensed Consolidated Financial Statements.

2 unchanged sentences

United Business Bank (the “Bank”), the Company’s wholly owned banking subsidiary, is a California state-chartered bank which provides a broad range of financial services primarily to local small and mid-sized businesses, service professionals and individuals.

In its 18 years of operation, the Bank has grown to 35 full-service banking branches, with 17 locations in California, two in Washington, five in New Mexico and 11 in Colorado.

In its 19 years of operation, the Bank has grown to 35 full-service banking branches, with 16 locations in California, one in Nevada, two in Washington, five in New Mexico and 11 in Colorado.

The condensed consolidated financial statements include the accounts of the Company and the Bank.

1 unchanged sentence

The condensed consolidated financial statements include all adjustments of a normal and recurring nature, which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented.

Amounts presented in the consolidated financial statements and footnote tables are rounded and presented to the nearest thousands of dollars except per share amounts.

If the amounts are above $1.0 million, they are rounded one decimal point, and if they are above $1.0 billion, they are rounded two decimal points.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in annual financial statements prepared in conformity with accounting principles generally accepted in the United States of America.

Accordingly, these condensed consolidated financial statements should be read in conjunction with the consolidated audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2022.

Results of operations for interim periods are not necessarily indicative of results for the full year.

2 unchanged sentences

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) was signed into law.

The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for a public company that qualifies as an “emerging growth company,” or EGC.

The Company qualifies as an EGC and will remain an EGC until December 31, 2023, the last day of the Company’s fiscal year following the fifth anniversary of the completion of the Company’s initial public offering, or sooner under certain circumstances (none of which currently apply).

As an EGC, we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies.

We have taken, and intend to continue to take, advantage of the benefits of this extended transition period.

Accordingly, our condensed consolidated financial statements may not be comparable to companies that comply with such new or revised accounting standards.

On February 1, 2022 , the Company completed its acquisition of Pacific Enterprise Bancorp (“PEB”) and PEB’s wholly owned subsidiary bank, Pacific Enterprise Bank, headquartered in Irvine, California (“PEB Merger”).

See “Note 3 – Acquisitions” for additional information on the PEB Merger.

The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for a public company that qualified as an “emerging growth company,” or EGC.

The Company qualified as an EGC and remained an EGC until December 31, 2023, the last day of the Company’s fiscal year following the fifth anniversary of the completion of the Company’s initial public offering.

As an EGC, we were permitted to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements were made applicable to private companies.

We took advantage of the benefits of this extended transition period;

accordingly, our condensed consolidated financial statements for periods prior to our exit from EGC status may not be comparable to companies that comply with such new or revised accounting standards.

Restatement of Previously Issued Consolidated Financial Statements

On July 18, 2023, the audit committee of the Company’s board of directors concluded that the Company’s previously issued unaudited interim consolidated financial statements for the period ended March 31, 2023 and the consolidated financial statements for the year ended December 31, 2022, as well as for the unaudited interim periods included in that fiscal year (collectively, “Restated Periods”), should no longer be relied upon because of errors related to the accounting for unrealized losses on preferred equity securities that resulted in material misstatements of noninterest income and accumulated other comprehensive income.

At the time of its purchase of the preferred equity securities for investment purposes, the Company inappropriately accounted for them as available-for-sale debt securities under Accounting Standards Codification (“ASC”) Topic 320 – Investments-Debt Securities .

At the time of its purchase of the preferred equity securities for investment purposes, the Company inappropriately accounted for them as AFS debt securities under Accounting Standards Codification (“ASC”) Topic 320 – Investments-Debt Securities .

As such, the changes in the fair value of these securities were not recorded as part of net income but rather as a component of shareholders’ equity (in accumulated other comprehensive income, net of tax).

8 unchanged sentences

Accounting Guidance Adopted in 2024

On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13 Financial Instruments — Credit Losses (ASC 326):

Measurement of Credit Losses on Financial Instruments , which replaces the incurred loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities.

It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in certain leases.

In addition, ASU 2016-13 made changes to the accounting for available for sale debt securities.

One such change requires increases or decreases in credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities, based on management's intent to sell the security or likelihood the Company will be required to sell the security, before recovery of the amortized cost basis.

The Company adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures.

Results for the reporting periods beginning on and after January 1, 2023 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable generally accepted accounting principles in the United States (“GAAP”).

The Company adopted ASU 2016-13 using the prospective transition approach for financial assets purchased with credit deterioration (PCD) that were previously classified as purchase credit impaired (PCI) and accounted for under ASC 310-30.

In accordance with ASU 2016-13, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption.

The remaining noncredit discount (based on the adjusted amortized costs basis) will be accreted into interest income at the effective interest rate as of adoption.

The Company recognized an increase in the allowance for credit loss on loans totaling $ 1.5 million (which included a reclassification of the net credit discounts on acquired PCI loans to the allowance for credit losses of $ 845,000 ) and an increase to the allowance for credit losses on unfunded commitments of $ 45,000 , as a cumulative effect adjustment from change in accounting policies, with a corresponding after-tax decrease to opening retained earnings of $ 491,000 .

On January 1, 2023, the Company adopted ASU 2022-02 Financial Instruments — Credit Losses:

Troubled Debt Restructurings and Vintage Disclosures .

ASU 2022-02 eliminates the recognition measurement guidance for troubled debt restructured ("TDR") loans, and instead requires an entity to evaluate whether a modification represents a new loan or a continuation of an existing loan in accordance with ASC Topic 310-20, Receivables - Nonrefundable Fees and Other Costs .

On a prospective basis, entities are subject to new disclosure requirements covering modifications of receivables to borrowers experiencing financial difficulty.

In addition, ASU 2022-02 requires that an entity include in its vintage disclosures the current period-gross loan charge-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20.

The Company adopted ASU 2022-02 on January 1, 2023 using a prospective transition method, and has thus far observed no material impact to deferred fees and costs and the related timing of net interest income recognition as a result of adoption.

See “Critical Accounting Estimates” for additional information on the Company’s allowance for credit losses methodology.

On January 1, 2024, the Company adopted Accounting Standards Update (“ASU”) 2023-02, Investments - Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, a consensus of the Emerging Issues Task Force.

ASU 2023-02 allows an entity the option to apply the proportional amortization method of accounting to other equity investments that are made for the primary purpose of receiving tax credits or other income tax benefits if certain conditions are met.

Prior to this ASU, the application of the proportional amortization method of accounting was limited to investments in low-income housing tax credit structures.

The proportional amortization method of accounting results in the amortization of applicable investments, as well as the related income tax credits or other income tax benefits received, being presented on a single line in the statements of income, income tax expense.

Under this ASU, an entity has the option to apply the proportional amortization method of accounting to applicable investments on a tax-credit-program-by-tax-credit program basis.

In addition, the amendments in this ASU require that all tax equity investments accounted for using the proportional amortization method use the delayed equity contribution guidance in paragraph 323-740-25-3, requiring a liability to be recognized for delayed equity contributions that are unconditional and legally binding or for equity contributions that are contingent upon a future event when that contingent event becomes probable.

Under this ASU, low-income housing tax credit investments for which the proportional amortization method is not applied can no longer be accounted for using the delayed equity contribution guidance.

Further, this ASU specifies that impairment of low-income housing tax credit investments not accounted for using the equity method must apply the impairment guidance in Subtopic 323-10:

Investments - Equity Method and Joint Ventures - Overall.

This ASU also clarifies that for low-income housing tax credit investments not accounted for under the proportional amortization method or the equity method, an entity shall account for them under Topic 321:

Investments - Equity Securities .

The amendments in the ASU also require additional disclosures in interim and annual periods concerning investments for which the proportional amortization method is applied, including (i) the nature of tax equity investments, and (ii) the effect of tax equity investments and related income tax credits and other income tax benefits on the financial position and results of operations.

ASU 2023-02 is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.

The adoption of ASU 2023-02 did not have a material impact on the Company's consolidated financial statements and related disclosures.

Fair Value Measurement (Topic 820) - In June 2022, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.

The guidance in the ASU clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account on the equity security and, therefore, is not considered in measuring fair value.

The ASU also requires additional disclosures about the restriction.

The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years.

The adoption of ASU 2022-03 did not have a significant impact on the Company's consolidated financial statements and related disclosures.

Recent Accounting Guidance Not Yet Effective

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2020-04, Reference Rate Reform (Topic 848) .

The amendments in this ASU are elective and provide optional guidance for a limited period of time to ease the potential burden of accounting for, or recognizing the effects of, reference rate reform.

The amendments in this ASU provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference the London Interbank Offer Rate (“LIBOR”) or another reference rate discontinued because of reference rate reform.

The amendments in this ASU may be elected through December 31, 2024 (as amended by ASU No.

2022-06 discussed below).

An entity may elect the amendments in this update for an interim period with adoption methods varying based on transaction type.

We have not elected to apply amendments at this time and will assess the applicability of this ASU to us as we continue to monitor guidance for reference rate reform from FASB and its impact on our financial condition and results of operations.

The Company does not expect the adoption of ASU 2020-04 to have a material impact on its consolidated financial statements.

In December 2022, the FASB issued ASU No.

2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848.

The objective of the guidance in Topic 848 was to provide temporary relief during the transition period, as noted in the discussion of ASU 2020-04 above, under which the sunset provision was based on an expectation that the LIBOR would cease being published after December 31, 2021.

In March 2021, the UK Financial Conduct Authority announced that the intended cessation date of certain tenors of USD LIBOR would be June 30, 2023, which was beyond the original sunset date of Topic 848.

Therefore, this amendment deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024.

NOTE 3 – ACQUISITIONS

Acquisition of Pacific Enterprise Bancorp (“PEB”)

On February 1, 2022, the Company completed its acquisition of PEB.

As of the acquisition date, PEB merged into the Company and Pacific Enterprise Bank, PEB’s wholly owned bank subsidiary, merged into the Bank.

The acquisition expanded the Company’s market share in California with one branch in Irvine.

At the effective time of the PEB merger, the Company paid aggregate consideration to PEB shareholders of approximately $ 64.1 million consisting of 3,032,579 shares of the Company’s common stock and $ 275,000 in cash.

Noninterest income for the three months ended March 31, 2022 included $ 1.6 million in bargain purchase gain, and included in noninterest expense for that period was $ 3.1 million of nonrecurring acquisition-related expenses.

The following table summarizes the fair value of the assets acquired and liabilities assumed at the acquisition date:

February 1, 2022

Fair value of assets:

Cash and due from banks

Total cash and cash equivalents

Interest bearing deposits in banks

Investment securities available-for-sale

FHLB stock, at par

FRB stock, at par

Premises and equipment, net

Core deposit intangible

Deferred tax assets, net

Interest receivable and other assets

Total assets acquired

Noninterest bearing

Interest bearing

Total Deposits

Interest payable and other liabilities

Total liabilities assumed

Stock consideration

Cash consideration

Bargain purchase gain

The following table presents the net assets acquired and the estimated fair value adjustments, which resulted in bargain purchase gain at the acquisition date:

February 1, 2022

Book value of net assets acquired

Fair value adjustments:

Premises and equipment, net

Core deposit intangible

Time deposits

Reserve for unfunded commitments

Write-up right-of-use asset

Total purchase accounting adjustments

Tax effect of purchase accounting adjustments at 27.9 %

Fair value of assets acquired

Value of stock issued/cash paid for stock options

Bargain purchase gain

Pro Forma Results of Operations

The operating results of the Company for the three and nine months ended September 30, 2023 in the condensed consolidated statements of income include the operating results of PEB, since its acquisition date.

The following table represents the net interest income, net income, basic and diluted earnings per share, as if the PEB merger was effective January 1, 2022.

The unaudited pro forma information in the following table is intended for informational purposes only

and is not necessarily indicative of future operating results or operating results that would have occurred had the merger been completed at the beginning of the respective periods.

No assumptions have been applied to the pro forma results of operation regarding possible revenue enhancements, expense efficiencies or asset dispositions.

Unaudited pro forma net interest income, net income and earnings per share for the three and nine months ended September 30, 2023 and 2022 are presented below:

Three Months Ended September 30,

Nine Months Ended September 30,

2022 (As Restated)

Net interest income

Basic earnings per share

Diluted earnings per share

These amounts include the third-party acquisition-related expenses, accretion of the discounts on acquired loans and amortization of the fair value mark adjustments on core deposit intangible.

Acquisition expenses

Acquisition expenses are recognized as incurred and continue until all systems are converted and operational functions become fully integrated.

No third-party acquisition expenses were recognized in the consolidated statements of income for the three and nine months ended September 30, 2023.

The Company recognized third-party acquisition expenses for the three and nine months ended September 30, 2022, as follows:

Three months ended

Nine months ended

September 30,

Severance expense

Occupancy expense

Data processing

Professional fees

Other expenses

Business Combinations (Topic 805) - In August 2023, the FASB issued ASU 2023-05, Business Combinations—Joint Venture (JV) Formations:

Recognition and Initial Measurement.

The guidance requires newly-formed JVs to apply a new basis of accounting to all of its contributed net assets, which results in the JV initially measuring its contributed net assets under ASC 805-20, Business Combinations.

The new guidance would be applied prospectively and is effective for all newly-formed joint venture entities with a formation date on or after January 1, 2025, with early adoption permitted.

The Company is evaluating the accounting and disclosure requirements of this update and does not expect them to have a material effect on the consolidated financial statements.

Segment Reporting – Improvements to Reportable Segment Disclosures (Topic 280) – In November 2023, the FASB issued ASU 2023-07 to enhance disclosures about significant segment expenses for public entities reporting segment information under Topic 280.

It requires that a public entity disclose, on an annual and interim basis, significant expense categories for each reportable segment.

Significant expense categories are derived from expenses that are 1) regularly reported to an entity’s chief operating decision-maker ("CODM"), and 2) included in a segment’s reported measure of profit or loss.

The disclosures should include an amount for "other segment items," reflecting the difference between 1) segment revenue less significant segment expenses, and 2) the reportable segment’s profit or loss measures.

It requires that a public entity disclose the title and position of the CODM and how the CODM uses the reported measure of profit or loss to assess segment performance and to allocate resources.

Further it clarifies that entities with a single reportable segment must disclose both new and existing segment reporting requirements.

The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Entities must adopt the guidance on a retrospective basis.

The Company is evaluating the accounting and disclosure requirements of this update and does not expect them to have a material effect on the consolidated financial statements.

Income Taxes – Improvements to Income Tax Disclosures (Topic 740) – In December 2023, the FASB issued ASU 2023-09 to provide additional transparency into an entity’s income tax disclosures primarily related to the rate reconciliation and income taxes paid information.

The standard requires that public business entities disclose, on an annual basis, specific categories in the rate reconciliation and additional information for reconciling items meeting a certain quantitative threshold.

The amendments also require that entities disclose on an annual basis:

1) income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes and 2) the income taxes paid (net of refunds received) disaggregated by individual jurisdictions exceeding 5% of total income taxes paid (net of refunds received).

The amendments are effective for public business entities for annual periods beginning after December 15, 2024.

The Company is evaluating the accounting and disclosure requirements of this update and does not expect them to have a material effect on the consolidated financial statements.

NOTE 3 – INVESTMENT SECURITIES

The amortized cost, gross unrealized gains and losses, and estimated fair values of securities available-for-sale at the dates indicated are summarized as follows:

September 30, 2023

Government Agencies

The amortized cost, gross unrealized gains and losses, and estimated fair values of securities AFS at the dates indicated are summarized as follows:

March 31, 2024

Municipal securities

3 unchanged sentences

Corporate bonds

December 31, 2022 (As Restated)

Government Agencies

December 31, 2023

Municipal securities

3 unchanged sentences

Corporate bonds

Amortized cost and fair values exclude accrued interest receivable of $ 1.4 million and $ 1.2 million at September 30, 2023 and December 31, 2022, respectively, which is included in interest receivable and other assets in the condensed consolidated balance sheets.

During both the three and nine months ended September 30, 2023, the Company sold no securities available-for-sale.

During the three and nine months ended September 30, 2022, the Company sold no securities available-for-sale and one security available-for-sale for a minimal realized gain, respectively.

The estimated fair value and gross unrealized losses for securities available-for-sale aggregated by the length of time that individual securities have been in a continuous unrealized loss position at the dates indicated are as follows:

Amortized cost and fair values exclude accrued interest receivable of $ 1.5 million and $ 1.2 million at March 31, 2024 and December 31, 2023, respectively, which is included in interest receivable and other assets in the condensed consolidated balance sheets.

During both the three months ended March 31, 2024 and 2023, the Company sold no securities AFS.

The amortized cost and estimated fair value of securities AFS at the dates indicated by contractual maturity are shown below.

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

March 31, 2024

December 31, 2023

Securities AFS

Due in one year or less

Due after one through five years

Due after five years through ten years

Due after ten years

At March 31, 2024, there were $ 12.0 million securities pledged, compared to no securities pledged at December 31, 2023.

The estimated fair value and gross unrealized losses for securities AFS aggregated by the length of time that individual securities have been in a continuous unrealized loss position at the dates indicated are as follows:

Less than 12 months

12 months or more

September 30, 2023

March 31, 2024

Municipal securities

5 unchanged sentences

12 months or more

December 31, 2022 (As Restated)

December 31, 2023

Municipal securities

3 unchanged sentences

Corporate bonds

At September 30, 2023, the Company held 324 securities available-for-sale, of which 293 were in an unrealized loss position for more than twelve months and 22 were in an unrealized loss position for less than twelve months.

The securities that were in an unrealized loss position as of September 30, 2023, were evaluated to determine whether the decline in fair value below the amortized cost basis resulted from a credit loss or other factors.

In making this assessment, management considers the length of time and the extent to which fair value is less than amortized cost, the nature of the security, the underlying collateral, and the financial condition and prospects of the issuer, among other factors.

This assessment also includes a determination of whether the Company intends to sell the security, or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis less any current-period credit losses.

As of September 30, 2023, the Company expects to recover the amortized cost basis of its securities, has no present intent to sell any investment securities with unrealized losses, it is more likely than not that we will not be required to sell securities with unrealized losses before recovery of their amortized cost and the decline in fair value is largely attributed to changes in interest rates and other market conditions.

At March 31, 2024, the Company held 321 securities AFS, of which 301 were in an unrealized loss position for more than twelve months and 17 were in an unrealized loss position for less than twelve months.

At December 31, 2023, the Company held 334 investment securities, of which 297 were in an unrealized loss position for more than twelve months and 22 were in an unrealized loss position for less than twelve months.

The Company anticipates full recovery of amortized cost with respect to these securities at maturity or sooner in the event of a more favorable market interest rate environment.

Allowance for credit losses on investment debt securities available-for-sale

Securities that were in an unrealized loss position as of March 31, 2024 were evaluated to determine whether the decline in fair value below the amortized cost basis resulted from a credit loss or changes in required yields by investors in these types of securities, among other factors.

This assessment first includes a determination of whether the Company intends to sell the security, or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis less any current-period credit losses.

In making this assessment, management considers the nature of the security and any related government guarantees, any changes to the rating of the security by a rating agency, creditworthiness of the issuers/guarantors, the underlying collateral, the financial conditions and prospects of the issuer, and any adverse conditions specifically related to the security, among other factors.

As of March 31, 2024, the Company expects to recover the amortized cost basis of its securities, has no present intent to sell any investment securities with unrealized losses and it is not more likely than not that we will not be required to sell securities with unrealized losses before recovery of their amortized cost and the decline in fair value is largely attributed to changes in interest rates and other market conditions.

The issuers of these securities continue to make timely principal and interest payments.

No allowances for credit losses have been recognized on investment securities available-for-sale in an unrealized loss position, as management does not believe any of the securities are impaired due to reasons of credit quality at September 30, 2023.

The amortized cost and estimated fair value of securities available-for-sale at the dates indicated by contractual maturity are shown below.

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

September 30, 2023

December 31, 2022

(As Restated)

Available-for-sale

Due in one year or less

Due after one through five years

Due after five years through ten years

Due after ten years

Equity Securities – The Company recognized a net loss on equity securities of $ 274,000 and $ 2.1 million for the three and nine months ended September 30, 2023, and recognized a net loss on equity securities of $362,000 and $ 4.0 million for the three and nine months ended September 30, 2022, respectively, due to a decrease in fair value of the equity securities.

Equity securities were $ 11.6 million and $ 13.8 million as of September 30, 2023 and December 31, 2022, respectively.

No allowances for credit losses have been recognized on investment debt securities AFS in an unrealized loss position, as management does not believe any of the securities are impaired due to reasons of credit quality at March 31, 2024.

Equity Securities

The Company recognized a net gain on equity securities of $ 573,000 and a net loss on equity securities of $ 896,000 for the three months ended March 31, 2024 and 2023, respectively.

Equity securities were $ 13.2 million and $ 12.6 million as of March 31, 2024 and December 31, 2023, respectively.

NOTE 4 – LOANS

The Company’s loan portfolio at the dates indicated is summarized below:

September 30,

Commercial and industrial (1)

1 unchanged sentence

Commercial real estate

Net deferred loan costs (fees)

Net deferred loan (fees) costs

Allowance for credit losses

(1) Includes $ 2.9 million and $ 3.8 million of U.S.

Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans as of September 30, 2023 and December 31, 2022, respectively.

(2) Allowance for credit losses at September 30, 2023 is estimated under CECL whereas at December 31, 2022, the allowance for loan losses is estimated under the incurred loss methodology.

Net loans exclude accrued interest receivable of $ 6.3 million and $ 6.2 million at September 30, 2023 and December 31, 2022, respectively, which is included in interest receivable and other assets in the condensed consolidated balance sheets.

Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans as of March 31, 2024 and December 31, 2023, respectively.

Net loans exclude accrued interest receivable of $ 6.0 million and $ 6.7 million at March 31, 2024 and December 31, 2023, respectively, which is included in interest receivable and other assets in the condensed consolidated balance sheets.

The Company’s total individually evaluated loans, including nonaccrual loans, modified loans to borrowers experiencing financial difficulty, and accreting purchase credit deteriorated (“PCD”) loans that have experienced post-acquisition declines in cash flows expected to be collected are summarized as follows:

and industrial

September 30, 2023

March 31, 2024

Recorded investment in loans individually evaluated:

10 unchanged sentences

From time to time, the Company may extend, restructure, or otherwise modify the terms of existing loans, on a case-by-case basis, to remain competitive and retain certain customers, as well as assist other customers who may be experiencing financial difficulties.

Prior to 2023, a modified loan was classified as a troubled debt restructuring (TDR) if the borrower was experiencing financial difficulties and a concession was made at the time of the modification.

TDR loans were generally placed on nonaccrual status at the time of restructuring.

These loans were returned to accrual status after the borrower demonstrated performance with the modified terms for a sustained period of time (generally six months ) and the capacity to continue to perform in accordance with the modified terms of the restructured debt.

Effective January 1, 2023, the Company adopted ASU No.

2022-02, which eliminated the accounting guidance for TDR loans while enhancing disclosure requirements for certain loan modifications by creditors when a borrower is experiencing financial difficulty.

The Company adopted ASU No.

2022-02 using the prospective transition method.

At the date of adoption, the Company was no longer required to utilize a loan-level discounted cash flow approach for determining the allowance for certain modified loans previously classified as TDR loans.

At time of restructuring, these loans are generally placed on nonaccrual.

These loans may be returned to accrual status after the borrower demonstrated performance with the modified terms for a sustained period of time (generally six months ) and the capacity to continue to perform in accordance with the modified terms of the restructured debt.

The ACL on a modified loan to a borrower experiencing financial difficulty is measured using the same method as individually evaluated loans.

There was no material impact upon adopting this standard as the Company elected to not change how it measured credit losses on TDRs.

During the three and nine months ended September 30, 2023, there were no modifications of loans to borrowers experiencing financial difficulty.

During the three and nine months ended September 30, 2022, there were no loans and four total modifications of loans to borrowers experiencing financial difficulty, consisting of two commercial real estate loans, one residential real estate loan, and one commercial and industrial loan, respectively.

The type of modification for the two commercial real estate loans and the one residential real estate loan was a term extension, with no change to the pre-modification and post modification amortized cost balance, which for these three loans totaled $ 4.1 million.

The type of modification for the commercial and industrial loan was a suspension of interest payments with principal payments designated payments-in-kind, with no change to the pre-modification and post modification amortized cost balance of $ 4.9 million.

The Company closely monitors the performance of modified loans to borrowers experiencing financial difficulty to understand the effectiveness of modification efforts.

There were no commitments to lend additional amounts for modified loans to borrowers experiencing financial difficulty at September 30, 2023.

During the three months ended March 31, 2024 and 2023, there were no modifications of loans to borrowers experiencing financial difficulty.

A summary of modified loans to borrowers experiencing financial difficulty by type of concession and type of loan, as of the dates indicated, is set forth below (number of loans not in thousands):

loans outstanding

September 30, 2023

March 31, 2024

Commercial and industrial

2 unchanged sentences

loans outstanding

September 30, 2022

March 31, 2023

Commercial and industrial

1 unchanged sentence

Commercial real estate

For the three and nine months ended September 30, 2023, the Company recorded no charge-offs for modified loans to borrowers experiencing financial difficulty.

During the three and nine months ended September 30, 2022, the Company recorded a $ 2.4 million charge-off related to one modified loan to a borrower experiencing financial difficulty and no charge-offs related to modified loans to borrowers experiencing financial difficulty, respectively.

During the three and nine months ended September 30, 2023 and 2022, there were no modified loans to borrowers experiencing financial difficulty for which there was a payment default within the first 12 months of the modification.

As of September 30, 2023 and December 31, 2022, individually evaluated modified loans to borrowers experiencing financial difficulty had a related allowance of $ 342,000 and $ 393,000 , respectively.

As of September 30, 2023 and December 31, 2022, none and $ 759,000 of modified loans to borrowers experiencing financial difficulty were performing in accordance with their modified terms, respectively.

For the three months ended March 31, 2024 and 2023, the C ompany recorded $ 1.3 million of charge-offs and no charge-offs for modified loans to borrowers experiencing financial difficulty, respectively.

As of March 31, 2024 and December 31, 2023, individually evaluated modified loans to borrowers experiencing financial difficulty had a related allowance of $ 42,000 and $ 1.3 million, respectively.

As of March 31, 2024 and December 31, 2023, none of modified loans to borrowers experiencing financial difficulty were performing in accordance with their modified terms.

Accruing modified loans to borrowers experiencing financial difficulty are included in the loans individually evaluated as part of the calculation of the allowance for credit losses for loans.

34 unchanged sentences

Recoveries on loans previously charged off are credited to the allowance for credit losses.

Revolving loans that are converted to term loans are treated as new originations in the tables below and are presented by year of initial origination.

During the three months ended March 31, 2024, and the year ended December 31, 2023, $ 129,000 and $ 7.1 million of revolving loans were converted to term loans, respectively.

The following tables present the internally assigned risk grade by class of loans at the dates indicated:

1 unchanged sentence

amortized cost

September 30, 2023

March 31, 2024

Commercial and industrial:

5 unchanged sentences

Total construction and land

YTD gross charge-offs

Commercial real estate:

1 unchanged sentence

Total commercial real estate

YTD gross charge-offs

Special mention

14 unchanged sentences

Total commercial and industrial

YTD gross charge-offs

Construction and land:

1 unchanged sentence

Total construction and land

YTD gross charge-offs

Commercial real estate:

1 unchanged sentence

Total commercial real estate

YTD gross charge-offs

Special mention

Total residential

YTD gross charge-offs

Special mention

Total consumer

YTD gross charge-offs

Total loans outstanding

1 unchanged sentence

Total loans outstanding

YTD gross charge-offs

The following tables provide an aging of the Company’s loans receivable as of the dates indicated:

September 30, 2023

March 31, 2024

Commercial and industrial

5 unchanged sentences

Commercial real estate

Nonaccrual loans totaled $ 14.3 million at both September 30, 2023 and December 31, 2022.

Nonaccrual loans guaranteed by a government agency, which reduces the Company’s credit exposure, were $ 801,000 at September 30, 2023 compared to $ 839,000 at December 31, 2022.

At September 30, 2023, nonaccrual loans included $ 2.3 million of loans 30-89 days past due and $ 2.6 million of loans less than 30 days past due.

At December 31, 2022, nonaccrual loans included $ 2.5 million of loans 30-89 days past due and $ 4.0 million of loans less than 30 days past due.

At September 30, 2023, nonaccrual loans 30-89 days past due of $ 2.3 million was comprised of six loans and the $ 2.6 million of loans less than 30 days past due was comprised of 15 loans.

Nonaccrual loans totaled $ 16.5 million and $ 13.0 million at March 31, 2024 and December 31, 2023, respectively.

Nonaccrual loans guaranteed by a government agency, which reduces the Company’s credit exposure, were $ 2.2 million at March 31, 2024 compared to $ 740,000 at December 31, 2023.

At March 31, 2024, nonaccrual loans included $ 4.0 million of loans 30-89 days past due and $ 1.1 million of loans less than 30 days past due.

At December 31, 2023, nonaccrual loans included $ 927,000 of loans 30-89 days past due and $ 2.1 million of loans less than 30 days past due.

At March 31, 2024, the $ 4.0 million of nonaccrual loans 30-89 days past due was comprised of seven loans and the $ 1.1 million of loans less than 30 days past due was comprised of 14 loans.

All these loans were placed on nonaccrual due to concerns over the financial condition of the borrowers.

There were no loans that were 90 days or more past due and still accruing at September 30, 2023 compared to one such loan at December 31, 2022, which had a balance of $ 934,000 as of that date.

Interest foregone on nonaccrual loans was approximately $ 173,000 and $ 593,000 for the three and nine months ended September 30, 2023 compared to $ 230,000 and $ 388,000 for the three and nine months ended September 30, 2022.

Purchased Credit Deteriorated Loans

In connection with the Company's acquisitions, the contractual amount and timing of undiscounted principal and interest payments and the estimated amount and timing of undiscounted expected principal and interest payments were used to estimate the fair value of PCD loans at the acquisition date.

The difference between these two amounts represented the nonaccretable difference.

On the acquisition date, the amount by which the undiscounted expected cash flows exceed the estimated fair value of the acquired loans is the “accretable yield”.

The accretable yield is then measured at each financial reporting date and represented the difference between the remaining undiscounted expected cash flows and the current carrying value of the loans.

For PCD loans the accretable yield is accreted into interest income over the life of the estimated remaining cash flows.

At each financial reporting date, the carrying value of each PCD loan is compared to an updated estimate of expected principal payment or recovery on each loan.

To the extent that the loan carrying amount exceeds the updated expected principal payment or recovery, a provision for credit loss would be recorded as a charge to income and an allowance for credit losses for loans established.

There were no loans that were 90 days or more past due and still accruing at March 31, 2024 and December 31, 2023.

Interest foregone on nonaccrual loans was approximately $ 483,000 for the three months ended March 31, 2024 compared to $ 235,000 for the three months ended March 31, 2023.

Interest income recognized on nonaccrual loans was approximately $ 7,200 and $ 65,000 for the three months ended March 31, 2024 and 2023, respectively.

Pledged Loans

Our FHLB line of credit is secured under terms of a blanket collateral agreement by a pledge of certain qualifying loans with unpaid principal balances of $ 1.0 billion and $ 1.14 billion at March 31, 2024 and December 31, 2023, respectively.

Our discount window advance line with the FRB of San Francisco is secured by a pledge of certain qualifying loans with unpaid principal balances of $ 92.1 million at March 31, 2024.

No loans were pledged to the FRB of San Francisco at December 31, 2023.

For additional information, see Note 11, Other Borrowings.

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES FOR LOANS

The following tables summarize the Company’s allowance for credit losses for loans, reserve for unfunded commitments, and loan balances individually and collectively evaluated by type of loan as of or for the three and nine months ended September 30, 2023 and 2022:

and industrial

unfunded commitments

Three months ended September 30, 2023

Three months ended March 31, 2024

Allowance for credit losses

2 unchanged sentences

Ending balance

Nine months ended September 30, 2023

Allowance for loan losses:

Beginning balance

Impact of CECL adoption

Provision for (reversal) of credit losses

Ending balance

September 30, 2023

March 31, 2024

Allowance for credit losses:

5 unchanged sentences

and industrial

Three months ended September 30, 2022

Allowance for loan losses

Beginning balance

Provision for (reversal of) loan losses

Ending balance

Nine months ended September 30, 2022

unfunded commitments

Three Months Ended March 31, 2023

Allowance for loan losses

Beginning balance

Impact of CECL adoption

Provision for (reversal of) loan losses

Ending balance

September 30, 2022

March 31, 2023

Allowance for loan losses:

4 unchanged sentences

Collectively evaluated

For the three months ended September 30, 2023, the provision for credit losses was primarily due to a $ 1.2 million increase in reserves for individually evaluated loans, which included the loan to the Trust discussed below, and an increase in qualitative reserves, partially offset by improvements in forecasted economic conditions, specifically, national gross domestic product and national unemployment, indicators utilized to estimate credit losses and, to a lesser extent, a decrease in outstanding loan balances and $ 24,000 in net charge-offs during the third quarter of 2023.

During the quarter ended September 30, 2023, the Company determined that a certificate of deposit-secured line of credit loan made to a revocable living trust (the “Trust” or the “Borrower”) with an outstanding balance of approximately $ 1.0 million as of September 30, 2023 was impaired and placed on nonaccrual as a result of the sole trustee and beneficiary of the Trust filing for personal bankruptcy in July 2023.

At June 30, 2023, the loan had an outstanding balance of $ 5.0 million and was secured by a $ 4.0 million certificate of deposit held at the Bank.

An additional $ 1.0 million in cash collateral securing the loan had previously been released by the Bank into a third-party escrow account at the request of the Borrower to be used as a refundable retainer in connection with a separate transaction by the Borrower.

The loan matured on July 16, 2023, and the Bank received notification that the sole trustee and beneficiary of the Trust filed for personal bankruptcy on July 18, 2023.

After receiving this notification, the Bank used the $ 4.0 million certificate of deposit held at the Bank to offset amounts owed on the loan and contacted the third-party escrow agent for the return of the additional $ 1.0 million of collateral.

The Bank was advised by the escrow agent that the previously escrowed funds had been released by the escrow agent, which was done without the Bank’s consent and contrary to the written escrow instructions.

The Bank has initiated legal action against the Borrower, the Borrower’s related parties and the escrow agent to recover the previously escrowed collateral.

The results of the legal action and the Bank’s ability to recover the previously escrowed collateral are currently uncertain.

The loan was fully reserved for at September 30, 2023.

For the nine months ended September 30, 2023, the reversal of the allowance for credit losses was due to a decrease in the quantitative reserve primarily due to improvements in forecasted economic conditions, specifically, national gross domestic product and national unemployment indicators utilized to estimate credit losses over the next four quarters, as compared to those used in estimating the allowance for credit losses on loans at adoption, and to a lesser

extent, a decrease in outstanding loan balances, partially offset by an overall increase in reserves of individually evaluated loans and replenishment of the reserve from $ 399,000 in net charge-offs for the nine months ended September 30, 2023.

The reserve for individually evaluated loans increased during the nine months ended September 30, 2023 primarily due to a $ 1.0 million reserve for the individually evaluated loan to the Trust discussed above, partially offset by a decrease in the specific reserve due to nine nonaccrual loans that were fully reserved for and charged-off during the nine months ended September 30, 2023.

The following table summarizes the amortized cost basis of individually evaluated collateral-dependent nonaccrual loans by loan and collateral type at September 30, 2023 and December 31, 2022.

Allowance for

Credit/Loan Losses

September 30, 2023

For the three months ended March 31, 2024, the provision for credit losses and related change in the allowance for credit losses on loans was mainly driven by a replenishment of the allowance due to net charge-offs during the period, partially offset by decreases in outstanding loan balances, leading to lower quantitative reserves.

Net charges-offs

totaled $ 3.4 million during the first quarter of 2024, of which $ 3.2 million was specifically reserved for at December 31, 2023.

No changes were made to the qualitative risk factor conclusions during the first quarter of 2024.

The quantitative reserve was impacted by improvement in forecasted economic conditions, specifically, national unemployment levels and national gross domestic product, both of which are key indicators utilized to estimate credit losses.

The reserve for individually evaluated loans decreased during the three months ended March 31, 2024 primarily due to a charge-off of $ 3.2 million of reserve as the collateral shortfalls were deemed uncollectable.

The following table summarizes the amortized cost basis of individually evaluated collateral-dependent loans, including nonaccrual loans, modified loans to borrowers experiencing financial difficulty, and accreting purchase credit deteriorated (“PCD”) loans that have experienced post-acquisition declines in cash flows expected to be collected, by loan and collateral type as of the dates indicated.

March 31, 2024

Commercial and industrial

5 unchanged sentences

Commercial real estate

The following table shows the amortized cost and allowance for credit losses for loans on nonaccrual status as of September 30, 2023 and the amortized cost and allowance for loan losses for loans on nonaccrual status as of December 31, 2022.

As of September 30, 2023

The following table shows the amortized cost and allowance for credit losses for loans on nonaccrual status as of the dates indicated:

As of March 31, 2024

As of December 31, 2023

10 unchanged sentences

Commercial real estate

Interest income recognized on nonaccrual loans was $ 39,000 and $ 120,000 for the three and nine months ended September 30, 2023, and $ 52,000 and $ 84,000 for the three and nine months ended September 30, 2022, respectively.

As part of the acquisition of PEB, the Company acquired certain small business loans to borrowers qualified under The California Capital Access Program for Small Business, a state guaranteed loan program sponsored by the California Pollution Control Financing Authority (“CalCAP”).

As part of the acquisition of Pacific Enterprise Bancorp (“PEB”) in 2022, the Company acquired certain small business loans to borrowers qualified under The California Capital Access Program for Small Business, a state guaranteed loan program sponsored by the California Pollution Control Financing Authority (“CalCAP”).

PEB ceased originating loans under this loan program in 2017.

5 unchanged sentences

The funds in the loss reserve account are the property of CalCAP;

however, in the event that the participating lender leaves the program any excess funds, after all loans have been repaid or unenrolled from the program by the

participating lender and provided there are no pending claims for reimbursement, the remaining excess funds are distributed to CalCAP and the participating lender based on their respective contributions to the loss reserve account.

however, in the event that the participating lender leaves the program any excess funds, after all loans have been repaid or unenrolled from the program by the participating lender and provided there are no pending claims for reimbursement, the remaining excess funds are distributed to CalCAP and the participating lender based on their respective contributions to the loss reserve account.

Funds contributed by the participating lender to the loss reserve account are treated as a receivable from CalCAP and evaluated for impairment quarterly.

As of September 30, 2023, the Company had $ 23.2 million of loans enrolled in this loan program.

The Company had a loss reserve account of $ 13.7 million as of September 30, 2023.

As of March 31, 2024 and December 31, 2023, the Company had $ 19.2 million and $ 19.4 million, respectively, of loans enrolled in this loan program.

The Company had a loss reserve account of $ 13.7 million as of both March 31, 2024 and December 31, 2023.

In addition, as successor to PEB, the Company was approved by CalCAP, in partnership with the California Air Resources Board, to originate loans to California truckers in the On-Road Heavy-Duty Vehicle Air Quality Loan Program.

3 unchanged sentences

When the loss reserve account balance exceeds the total associated loan balance, the excess is to be remitted to CalCAP.

The Company originated $ 4.2 million of loans under this program during the nine months ended September 30, 2023.

As of September 30, 2023, the Company had $ 20.3 million of loans enrolled in this program and a loss reserve account of $ 6.2 million.

The Company originated $ 1.1 million and $ 481,000 of loans under this program during the three months ended March 31, 2024 and 2023, respectively.

As of March 31, 2024, the Company had $ 15.6 million of loans enrolled in this program and a loss reserve account of $ 5.1 million.

As of December 31, 2023, the Company had $ 17.7 million of loans enrolled in this program and a loss reserve account of $ 6.2 million.

NOTE 6 – PREMISES AND EQUIPMENT

Premises and equipment consisted of the following at the dates indicated:

September 30,

Premises owned

3 unchanged sentences

Total premises and equipment, net

Depreciation and amortization included in occupancy and equipment expense totaled $ 390,000 and $ 1.3 million for the three and nine months ended September 30, 2023 and $ 489,000 and $ 1.5 million for the three and nine months ended September 30, 2022, respectively.

Depreciation and amortization included in occupancy and equipment expense totaled $ 491,000 and $ 453,000 for the three months ended March 31, 2024 and 2023, respectively.

NOTE 7 – LEASES

The Company leased 20 branches under noncancelable operating leases as of September 30, 2023.

The Company leased 20 branches under noncancelable operating leases as of March 31, 2024.

These leases expire on various dates through 2030.

The Company’s leases often have an option to renew one or more times, at the Company’s discretion, following the expiration of the initial term.

If at lease inception, the Company considers the

exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability.

If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability.

The Company uses the rate implicit in the lease whenever this rate is readily determinable.

As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term.

The below maturity schedule represents the undiscounted lease payments for the five-year period and thereafter as of September 30, 2023:

The below maturity schedule represents the undiscounted lease payments for the five-year period and thereafter as of March 31, 2024:

For remainder of 2024

2 unchanged sentences

The following table presents the weighted average lease term and discount rate at the dates indicated:

September 30, 2023

September 30, 2022

March 31, 2024

December 31, 2023

Weighted-average remaining lease term

Weighted-average discount rate

Rental expense included in occupancy and equipment expense totaled $ 1.0 million and $ 3.0 million for the three and nine months ended September 30, 2023 and $ 934,000 and $ 3.2 million for the three and nine months ended September 30, 2022, respectively.

Rental expense included in occupancy and equipment expense totaled $ 1.0 million for both the three months ended March 31, 2024 and 2023.

The following table presents certain information related to the operating lease costs included in occupancy and equipment expense on the consolidated statements of income for the periods indicated:

Three months ended

Operating lease cost

Short-term lease cost

Sublease income

Total operating lease cost, net

NOTE 8 – GOODWILL AND INTANGIBLE ASSETS

1 unchanged sentence

Goodwill and other intangible assets are assessed for impairment annually or whenever events or changes in circumstances indicate the carrying amount may not be recoverable.

Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values.

Intangible assets with definite useful lives are

amortized over their estimated useful lives to their estimated residual values.

Core deposit intangible represents the estimated future benefit of deposits related to an acquisition and is booked separately from the related deposits and amortized over an estimated useful life of seven to ten years .

1 unchanged sentence

Impairment exists when a reporting unit’s fair value is less than its carrying amount, including goodwill.

Changes in the Company's goodwill during the nine months ended September 30, 2023 and year ended December 31, 2022 were as follows:

At and for the

nine months ended

September 30, 2023

Changes in the Company's goodwill during the three months ended March 31, 2024 and year ended December 31, 2023 were as follows:

March 31, 2024

December 31, 2023

3 unchanged sentences

Core Deposit Intangible

Changes in the Company’s core deposit intangible during the nine months ended September 30, 2023 and year ended December 31, 2022 were as follows:

At and for the

nine months ended

September 30, 2023

Changes in the Company’s core deposit intangible during the three months ended March 31, 2024 and year ended December 31, 2023 were as follows:

March 31, 2024

December 31, 2023

2 unchanged sentences

Balance at end of period

Estimated annual amortization expense at September 30, 2023 was as follows:

Estimated annual amortization expense at March 31, 2024 was as follows:

For remainder of 2024

1 unchanged sentence

The Company’s interest receivable and other assets at the dates indicated consisted of the following:

September 30,

Tax assets, net

4 unchanged sentences

Servicing assets

Investment in Low Income Housing Tax Credit ("LIHTC") partnerships, net

Investment in statutory trusts

2 unchanged sentences

The Company’s deposits consisted of the following at the dates indicated:

September 30,

Demand deposits

NOW accounts and savings

Time deposits

Included in time deposits are certificates of deposit over $ 250 thousand totaling $ 68.6 million and $ 57.8 million at September 30, 2023 and December 31, 2022, respectively.

At September 30, 2023, uninsured deposits totaled $ 991.6 million, compared to $ 1.1 billion at December 31, 2022.

Included in time deposits above are brokered deposits of $ 41.5 million and $ 43.6 million as of March 31, 2024 and December 31, 2023, respectively.

At March 31, 2023, uninsured deposits totaled $ 949.3 million, or 44.3 % of total deposits, compared to $ 969.2 million, or 45.5 % of total deposits at December 31, 2023.

The uninsured amounts are estimates based on the methodologies and assumptions used for United Business Bank’s regulatory reporting requirements.

1 unchanged sentence

Other borrowings – The Bank has an approved secured borrowing facility with the Federal Home Loan Bank of San Francisco (the “FHLB”) for up to 25 % of total assets for a term not to exceed five years under a blanket lien of certain types of loans.

At both September 30, 2023 and December 31, 2022, the Company had no FHLB advances outstanding.

At both March 31, 2024 and December 31, 2023, the Company had no FHLB advances outstanding.

During the first quarter of 2024, the Bank was approved for discount window advances with the FRB of San Francisco secured by certain types of loans.

At March 31, 2024 the Bank had no FRB of San Francisco advances outstanding.

The Bank has Federal Funds lines with four corresponding banks.

Cumulative available commitments totaled $ 65.0 million at both September 30, 2023 and December 31, 2022.

There were no amounts outstanding under these facilities at both September 30, 2023 and December 31, 2022.

Junior subordinated deferrable interest debentures – In connection with its previous acquisitions, the Company assumed junior subordinated deferrable interest debentures, totaling $ 8.5 million, net of fair value adjustments, with a weighted average interest rate of 8.25 % at September 30, 2023, compared to $ 8.5 million, net of fair value adjustments, with a weighted average rate of 7.34 % at December 31, 2022 .

Cumulative available commitments totaled $ 65.0 million at both March 31, 2024 and December 31, 2023.

There were no amounts outstanding under these facilities at both March 31, 2024 and December 31, 2023.

Junior subordinated deferrable interest debentures – In connection with its previous acquisitions, the Company assumed junior subordinated deferrable interest debentures, totaling $ 8.6 million, net of fair value adjustments, with a weighted average interest rate of 8.17 % at March 31, 2024, compared to $ 8.6 million, net of fair value adjustments, with a weighted average rate of 8.23 % at December 31, 2023 .

The junior subordinated deferrable interest debentures mature in 2034, subject to earlier redemption by the Company.

4 unchanged sentences

The Company, at its option, may redeem the Notes, in whole or in part, on any interest payment date on or after September 15, 2025, without a premium.

At September 30, 2023 and December 31, 2022, the Company had outstanding Notes, net of cost to issue, totaling $ 63.8 million and $ 63.7 million, respectively.

At March 31, 2024 and December 31, 2023, the Company had outstanding Notes, net of cost to issue, totaling $ 63.6 million and $ 63.9 million, respectively.

NOTE 12 – INTEREST PAYABLE AND OTHER LIABILITIES

The Company’s interest payable and other liabilities at the dates indicated consisted of the following:

September 30,

Accrued expenses

6 unchanged sentences

Three months ended

Nine months ended

September 30,

Professional fees

9 unchanged sentences

The Company expenses marketing and promotion costs as they are incurred.

Advertising expense included in marketing and promotions totaled $ 15,000 and $ 36,000 for the three and nine months ended September 30, 2023, and $ 12,000 and $ 54,000 for the three and nine months ended September 30, 2022, respectively.

Advertising expense included in marketing and promotions totaled $ 11,000 and $ 5,000 for the three months ended March 31, 2024 and 2023, respectively.

NOTE 14 – EQUITY INCENTIVE PLANS

2 unchanged sentences

The Company’s shareholders approved the Company’s 2017 Omnibus Equity Incentive Plan (“2017 Plan”) in November 2017.

The 2017 Plan provides for the awarding by the Company’s Board of Directors of equity incentive awards to employees and non-employee directors.

The 2017 Plan provides for the awarding by the Company’s Board of Directors of equity incentive awards

to employees and non-employee directors.

An equity incentive award under the 2017 Plan may be an option, stock appreciation right, restricted stock units, stock award, other stock-based award or performance award.

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The annual stock grant limit per person for officers and employees is the lesser of 50,000 shares or a value of $ 2.0 million, and per person for directors, the maximum is 25,000 shares.

All unvested restricted shares

outstanding vest in the event of a change in control of the Company.

All unvested restricted shares outstanding vest in the event of a change in control of the Company.

Awarded shares of restricted stock vest over (i) a one-year period following the date of grant, in the case of the non-employee directors, and (ii) a three-year or five-year period following the date of grant, with the initial vesting occurring on the one-year anniversary of the date of grant, in the case of the executive officers.

As of September 30, 2023, a total of 44,236 shares were available for future issuance under the 2017 Plan.

2014 Omnibus Equity Incentive Plan

In 2014, the Company’s shareholders approved the Company’s 2014 Equity Incentive Plan (the “2014 Plan”).

A total of 148,962 equity incentive awards were granted under the 2014 Plan.

The awards are shares of restricted stock and have a vesting period of one to five years .

No future equity awards will be made from the 2014 Plan.

The Company recognizes compensation expense for the restricted stock awards based on the fair value of the shares at the award date.

Total compensation expense for unvested restricted stock awards under these plans was $ 153,000 and $ 585,000 for the three and nine months ended September 30, 2023 and $ 232,000 and $ 789,000 for the three and nine months ended September 30, 2022, respectively.

As of September 30, 2023, there was $ 996,000 of total unrecognized compensation cost related to non-vested shares granted as restricted stock awards.

The cost is expected to be recognized over the remaining weighted-average vesting period of approximately three years .

The Company has two forms of outstanding common stock:

fully vested common stock and unvested restricted stock awards.

Holders of restricted stock awards receive non-forfeitable dividends at the same rate as common stockholders and they both share equally in undistributed earnings.

Under the two-class method, the difference in earnings per share is not significant for these participating securities.

As of March 31, 2024, a total of 19,765 shares were available for future issuance under the 2017 Plan.

The following table provides the restricted stock grant activity for the periods indicated:

At and for the three and nine months ended September 30,

Weighted-average

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Non-vested, at March 31,

Non-Vested, at June 30,

Non-Vested, at September 30,

NOTE 15 – FAIR VALUE MEASUREMENT

ASC Topic 820, “Fair Value Measurement,” defines fair value, establishes a framework for measuring fair value including a three-level valuation hierarchy, and expands disclosures about fair value measurements.

Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between

market participants at the measurement date reflecting assumptions that a market participant would use when pricing an asset or liability.

Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date reflecting assumptions that a market participant would use when pricing an asset or liability.

The hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows:

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Level 3 – Unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

We use fair value to measure certain assets and liabilities on a recurring basis, primarily securities available-for-sale.

We use fair value to measure certain assets and liabilities on a recurring basis, primarily securities AFS.

For assets measured at the lower of cost or fair value, the fair value measurement criteria may or may not be met during a reporting period and such measurements are therefore considered “nonrecurring” for purposes of disclosing our fair value measurements.

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In certain cases, the inputs used to measure fair value may fall into different levels of the hierarchy.

In such cases, the lowest level of inputs that is significant to the measurement is used to determine the hierarchy for the entire asset or liability.

In such cases, the lowest level of inputs that is significant to the measurement is used to determine the hierarchy for the entire asset or

Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with our quarterly valuation process.

There were no transfers between levels during the three and nine months ended September 30, 2023 and 2022.

There were no transfers between levels during the three months ended March 31, 2024 and 2023.

The following assets are measured at fair value on a recurring basis as of the dates indicated:

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Fair Value Measurements

September 30, 2023

Government Agencies

March 31, 2024

Municipal securities

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December 31, 2023

Government Agencies

Municipal securities

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Fair Value Measurements

September 30, 2023

March 31, 2024

Individually evaluated loans

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December 31, 2023

Performing impaired loans (1)

Nonperforming impaired loans

Individually evaluated loans (1)

(1) For each quarter the loan was outstanding in 2023, with the adoption of CECL, one performing modified loan to a borrower experiencing financial difficulty was individually evaluated in determining the estimated allowance for credit losses.

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Those individually evaluated loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.

When the fair value of the collateral is based on an observable market price or a current appraised value which uses substantially observable data, the Company records the individually evaluated loan as nonrecurring Level 2.

fair value of the collateral is based on an observable market price or a current appraised value which uses substantially observable data, the Company records the individually evaluated loan as nonrecurring Level 2.

When an appraised value is not available or management determines the fair value of the collateral is less than the appraised value or the appraised value contains a significant assumption and there is no observable market price, the Company records the individually evaluated loan as nonrecurring Level 3.

The Company records foreclosed assets, or OREO, at fair value on a nonrecurring basis based on the collateral value of the property.

The Company records foreclosed assets, or other real estate owned (“OREO”), at fair value on a nonrecurring basis based on the collateral value of the property.

When the fair value of the collateral is based on an observable market price or a current appraised value which uses substantially observable data, the Company records the OREO as nonrecurring Level 2.

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Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available.

Management also incorporates assumptions regarding

market trends or other relevant factors and selling and commission costs ranging from 5 % to 7 %.

Management also incorporates assumptions regarding market trends or other relevant factors and selling and commission costs ranging from 5 % to 10 %.

Such adjustments and assumptions are typically significant and result in a Level 3 classification of the inputs for determining fair value.

The Company had no OREO at both March 31, 2024 and December 31, 2023.

NOTE 16 – FAIR VALUE OF FINANCIAL INSTRUMENTS

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Fair value measurements

September 30, 2023

March 31, 2024

Financial assets:

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Time deposits in banks

Investment securities available-for-sale

Investment securities AFS

Equity securities

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Time deposits in banks

Investment securities available-for-sale

Investment securities AFS

Equity securities

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The following table presents a summary of commitments described above as of the dates indicated:

September 30,

Commitments to extend credit

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The actual liquidity needs or the credit risk that the Company will experience will likely be lower than the contractual amount of commitments to extend credit because a significant portion of these commitments are expected to expire without being drawn upon.

The commitments are generally variable rate and include unfunded home equity lines of credit, commercial real estate construction loans where disbursement is made over the course of construction, commercial revolving lines of credit, and unsecured personal lines of credit.

unsecured personal lines of credit.

The Company’s outstanding loan commitments are made using the same underwriting standards as comparable outstanding loans.

The reserve associated with these commitments included in interest payable and other liabilities on the consolidated balance sheets was $ 250,000 at September 30, 2023 and $ 315,000 at December 31, 2022.

The reserve associated with these commitments included in interest payable and other liabilities on the consolidated balance sheets was $ 215,000 at March 31, 2024 and $ 225,000 at December 31, 2023.

Commercial Real Estate Concentrations

At September 30, 2023 and December 31, 2022, in management’s judgment, a concentration of loans existed in commercial real estate related loans.

At March 31, 2024 and December 31, 2023, in management’s judgment, a concentration of loans existed in commercial real estate related loans.

The Company’s commercial real estate loans are secured by owner-occupied and non-owner occupied commercial real estate and multifamily properties.

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The Company has commitments to fund investments in LIHTC partnerships and an SBIC fund.

At September 30, 2023, the remaining commitments to the LIHTC partnerships and the SBIC fund were approximately $ 1.5 million and $ 122,000 , respectively.

At March 31, 2024, the remaining commitments to the LIHTC partnerships and the SBIC fund were approximately $ 5.4 million and $ 122,000 , respectively.

At December 31, 2023, the remaining commitments to the LIHTC partnerships and the SBIC fund were approximately $ 5.7 million and $ 122,000 , respectively.

At September 30, 2023, approximately $ 227.6 million, or 10.5 %, of the Company's deposits were derived from its top ten depositors.

At December 31, 2022, approximately $ 215.1 million, or 11.0 %, of the Company's deposits were

derived from its top ten depositors.

As of September 30, 2023 and December 31, 2022, approximately $ 991.6 million, or 45.9 % and $ 1.1 billion, or 53.3 %, of our total deposits were uninsured, respectively.

At March 31, 2024, approximately $ 236.1 million, or 11.0 %, of the Company's deposits were derived from its top ten depositors.

At December 31, 2023, approximately $ 246.0 million, or 11.5 %, of the Company's deposits were derived from its top ten depositors.

As of March 31, 2024 and December 31, 2023, approximately $ 949.3 million, or 44.3 % and $ 969.2 million, or 45.4 %, of our total deposits were uninsured, respectively.

The uninsured amounts are estimates based on the methodologies and assumptions used for United Business Bank’s regulatory reporting requirements.

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The Company is required to provide collateral for certain local agency deposits in the states of California, Colorado, New Mexico and Washington.

At September 30, 2023 and December 31, 2022, the FHLB issued letters of credit on behalf of the Company totaling $ 42.6 million and $ 40.6 million, respectively, as collateral for local agency deposits.

As of both March 31, 2024 and December 31, 2023, the FHLB issued letters of credit on behalf of the Company totaling $ 40.6 million, as collateral for local agency deposits.

NOTE 18 – SUBSEQUENT EVENTS

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements