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Item 8. Financial Statements and Supplementary Data

2025-03-14 compared with 2024-03-15 · 338 added, 294 removed, 1434 unchanged (31% of the section changed)

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To the Shareholders and the Board of Directors of

BayCom Corp and Subsidiary

Opinions on the Financial Statements and Internal Control over Financial Reporting

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Critical Audit Matter

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which it relates.

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses for Loans and Leases

As described in Notes 1 and 5 to the consolidated financial statements, the Company adopted Accounting Standards Update No.

2016-13 Financial Instruments — Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , as of January 1, 2023, using the modified retrospective method.

Upon adoption, the Company recorded a decrease to retained earnings of $491,000, net of taxes, for the cumulative effect of adopting Topic 326.

The Company’s allowance for credit losses was $22 million as of December 31, 2023, and is estimated using relevant information, from both internal and external sources, related to past events, current conditions, and reasonable and supportable forecasts.

We identified the elections and key assumptions involved in the adoption of Topic 326, as well as the estimation of qualitative internal and external risk factors and the application of forecasted economic conditions within the calculation of the allowance for credit losses as a critical audit matter.

The principal considerations for our determination of the allowance for credit losses as a critical audit matter is the subjectivity and significant judgment required by management in the determination of these elections and key assumptions.

Auditing management’s judgements regarding the

reasonable and supportable forecast and qualitative internal and external risk factors involved significant audit effort, including a high degree of subjectivity and judgment when performing the audit procedures and evaluating the results of those procedures.

The primary procedures we performed to address this critical audit matter included:

● Testing the design, implementation and operating effectiveness of controls relating to management’s initial adoption of Topic 326 and the calculation of the allowance for credit losses on loans, including controls related to model development and validation and the evaluation of the qualitative internal and external risk factors.

● Evaluating the appropriateness of the Company’s elections and key assumptions involved in the adoption of Topic 326.

As described in Notes 1 and 5 to the consolidated financial statements, the Company’s allowance for credit losses for loans balance was $17.9 million as of December 31, 2024, and is estimated using relevant information, from both internal and external sources, related to past events, current conditions, and reasonable and supportable forecasts.

We identified the estimation of qualitative internal and external risk factors within the calculation of the allowance for credit losses as a critical audit matter.

Auditing management’s judgements regarding the qualitative internal and external risk factors involved significant audit effort, including a high degree of subjectivity and judgment when performing the audit procedures and evaluating the results of those procedures.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included evaluating the design and testing the operating effectiveness of internal controls relating to management’s calculation of the allowance for credit losses on loans, including controls related to evaluation of the qualitative internal and external risk factors.

Our audit procedures included the following, among others:

● Evaluating the reasonableness of the significant assumptions used by management as well as the relevance and reliability of the data used by management related to the qualitative internal and external risk factors.

● Evaluating the reasonableness of the significant assumptions used by management as well as the relevance and reliability of the data used by management related to the forecasted economic conditions.

● Tested the mathematical accuracy of the allowance for credit losses by reperforming or independently calculating significant elements of the estimate, as well as testing completeness and accuracy of the underlying data and model inputs used in the calculation.

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We have served as the Company’s auditor since 2018.

Hyperlink reference not valid.

BAYCOM CORP AND SUBSIDIARY

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(In thousands, except for share data)

(As Restated)

Cash due from banks

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

Equity securities

Equity securities, at fair value

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

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Premises and equipment, net

Other real estate owned ("OREO")

Core deposit intangible, net

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

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

Bargain purchase gain

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(As Restated)

Other comprehensive loss:

Change in unrealized loss on available-for-sale securities

Deferred tax benefit

Other comprehensive loss, net of tax

Other comprehensive income (loss):

Change in unrealized gain (loss) on AFS securities

Deferred tax (expense) benefit

Other comprehensive income (loss), net of tax

Total comprehensive income

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Restricted stock granted

Restricted stock forfeited

Forfeiture of restricted stock granted

Issuance of common shares to acquire Pacific Enterprise Bancorp

Cash dividends of $ 0.20 per share

Stock based compensation

Repurchase of shares

Balance, December 31, 2021

Balance, December 31, 2022 (As Restated)

Other comprehensive loss, net

Cumulative change from adoption of ASU 2016-13, net of tax

Restricted stock granted

Restricted stock forfeited

Issuance of common shares to acquire Pacific Enterprise Bancorp

Cash dividends of $ 0.40 per share

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Repurchase of shares

( 1,329,040 )

Balance, December 31, 2023

(As Restated)

Other comprehensive loss, net

Cumulative change from adoption of ASU 2016-13, net of tax

Other comprehensive income, net

Restricted stock granted

Forfeiture of restricted stock granted

Cash dividends of $ 0.45 per share

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Repurchase of shares

( 1,329,040 )

Balance, December 31, 2024

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Deferred tax expense (benefit)

Accretion on acquired loans

Amortization (accretion) on acquired loans

Gain on sale of loans

Gain on sale of securities

Proceeds from sale of loans

Proceeds from sale of loans originated for sale

Loans originated for sale

Loss on sale of premises, net

Loss (gain) on sale of OREO

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

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Net change in interest receivable and other assets

(Decrease) increase in salary continuation plan, net

Increase (decrease) in salary continuation plan, net

Net change in interest payable and other liabilities

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Purchase of investment securities AFS

Purchase of equity securities

Proceeds from maturities, repayments and calls of investment securities AFS

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Purchase of FRB stock

Decrease (increase) in loans, net

Proceeds from sale of premises

Proceeds from sale of OREO

Proceeds from sale of loans

Purchase of loans

Decrease in loans, net

Purchase of equipment and leasehold improvements, net

Net cash received for acquisitions

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

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

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Cash flows from financing activities:

(Decrease) increase in noninterest and interest bearing deposits in banks, net

Increase (decrease) in noninterest and interest bearing deposits in banks, net

Increase (decrease) in time deposits, net

Repayment of Federal Home Loan Bank borrowings

Repayment of subordinated debt, net

Repurchase of common stock

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Income taxes paid, net

Recognition of ROU assets

Recognition of lease liability

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

Recognition of ROU assets in exchange for lease obligations

Cash dividends declared on common stock not yet paid

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The Bank provides a broad range of financial services primarily to local small and mid-sized businesses, service professionals and individuals through its 35 full-service banking branches.

The main office is located in Walnut Creek, California and branch offices are located in Oakland, Castro Valley, Mountain View, Stockton, Pleasanton, Livermore, San Jose, Long Beach, Sacramento, San Francisco, Buena Park, Los Angeles, Garden Grove, Waterloo, Irvine, California, and Las Vegas, Nevada, and Seattle, Washington ( 2 ), New Mexico ( 5 ) and Colorado ( 11 ).

Las Vegas, Nevada;

Seattle, Washington ( 2 );

New Mexico ( 5 );

and Colorado ( 11 ).

The Company is subject to regulation by the Board of Governors of the Federal Reserve System (“Federal Reserve”).

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Actual results could differ from these estimates.

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.

Dollar 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 amount is above $1.0 million, it is rounded one decimal point, and if it is above $1.0 billion, it is rounded two decimal points.

Segment Reporting

The Company operates as one operating segment which is reported in a manner consistent with the internal consolidated reporting provided to the chief operating decision-maker (“CODM”).

The CODM is responsible for the allocation of resources and assessing the performance of the operating segment and has been identified as the CEO of the Company.

The CODM monitors financial performance and evaluates the revenue streams of the Company’s various products, services, locations, and operations on a company-wide basis.

Accordingly, we consider all of our operations to be aggregated in one reportable operating segment.

Refer to Note 24—Segment Information of the notes to our audited Consolidated Financial Statements contained in Item 8 of this report for additional information.

Business Combinations

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Acquisition related costs are expensed as incurred unless they are directly attributable to the issuance of the Company’s common stock in a business combination.

The acquired assets and assumed liabilities, both tangible and intangible for all acquisitions

were measured at estimated fair values, as required by the acquisition method of accounting for business combinations Financial Accounting Standards Board (“FASB”) ASC 805, Business Combinations.

The acquired assets and assumed liabilities, both tangible and intangible for all acquisitions were measured at estimated fair values, as required by the acquisition method of accounting for business combinations, Financial Accounting Standards Board (“FASB”) ASC 805, Business Combinations.

Management made significant estimates and exercised significant judgment in accounting for the acquisition.

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Interest Bearing Time Deposits in Banks

The Company invests in certificates of time deposits with other banks.

At December 31, 2023 and 2022, the certificates of time deposits with other banks totaled $ 1.2 million and $ 2.2 million, with a yield of 2.64 % and 2.77 %, respectively.

These deposits do not exceed FDIC limits and mature between one and three years .

The Company invests in time deposits with other banks.

At December 31, 2024 and 2023, the time deposits with other banks totaled $ 249,000 and $ 1.2 million, with a yield of 2.25 % and 2.64 %, respectively.

These deposits do not exceed FDIC limits and mature in one year .

Investment Debt Securities Available-for-Sale

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Prior to the adoption of ASU 2016-13, declines in the fair value of securities below their cost deemed to be other-than-temporary impairment ("OTTI") were reflected in operations as realized losses.

Upon adoption of ASU 2016-13, for investment debt securities available-for-sale in a loss position, the Company evaluates whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors.

Upon adoption of ASU 2016-13, for investment debt securities AFS in a loss position, the Company evaluates whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors.

Impairment may result from either a decline in the financial condition of the issuing entity or in the case of fixed interest rate investments, from rising interest rates.

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Credit-related impairment is recognized as an allowance for credit losses on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings.

Changes in the allowance for available-for-sale securities are recorded as provision for (or reversal of) credit loss.

However, if the uncollectibility of an available-for-sale security is confirmed or if the Company intends to sell an impaired available-for-sale debt security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount is recognized in earnings with a corresponding adjustment to the security's amortized cost basis.

Changes in the allowance for AFS securities are recorded as provision for (or reversal of) credit loss.

However, if the uncollectibility of an AFS security is confirmed or if the Company intends to sell an impaired AFS debt security or more likely than not

will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount is recognized in earnings with a corresponding adjustment to the security's amortized cost basis.

Investment Equity Securities

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Loans are returned to accrual basis when principal and interest payments are being paid currently and full payment of principal and interest is probable.

The Paycheck Protection Program (“PPP”), established by the Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act") and implemented by the U.S.

Small Business Administration (“SBA”), provided the Bank with delegated authority to process and originate PPP loans.

When certain criteria are met, PPP loans are subject to forgiveness and the Bank will receive payment of the forgiveness amount from the SBA.

PPP loans have a contractual term of two or five years and provide borrowers with an automatic payment deferral of principal and interest.

PPP processing fees are deferred and recognized into interest income on straight line basis over the contractual life of the loans, but may be accelerated upon forgiveness or prepayment.

The SBA guarantees 100% of the PPP loans made to eligible borrowers.

The PPP expired on May 31, 2021.

Loans Purchased and Acquired

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The purchase decision is usually based on several factors, including current loan origination volumes, market interest rates, excess liquidity, our continuous efforts to meet the credit needs of certain borrowers under the Community Reinvestment Act (“CRA”), as well as other asset/liability management strategies.

All of the purchased loans are selected using the Bank’s normal underwriting criteria at the time of purchase, or in some cases guaranteed by third parties.

All purchased loans are selected using the Bank’s normal underwriting criteria at the time of purchase, or in some cases guaranteed by third parties.

Discounts or premiums on purchased loans are accreted or amortized to interest income using the effective interest method or straight-line method over the remaining period to contractual maturity.

The Company adopted ASC 326 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 the Standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption.

In accordance with ASC 326, 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.

An allowance for credit losses is established as of the acquisition date or upon the adoption of CECL for loans previously classified as acquired impaired, as PCD loans are no longer recorded net of a credit-related acquisition adjustment.

An allowance for credit losses is established as

of the acquisition date or upon the adoption of CECL for loans previously classified as acquired impaired, as PCD loans are no longer recorded net of a credit-related acquisition adjustment.

Acquired PCD loans

The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination.

PCD assets are assets acquired at a discount that is due, in part, to credit quality deterioration since origination which may be determined through observation of missed payments, downgrade in risk rating, deterioration of a borrower's financial trends or other observable factors including subjectivity utilized by management.

PCD assets are initially recorded at fair value, by taking the sum of the present value of expected future cash flows and an allowance for credit losses, at acquisition.

The allowance for credit losses for PCD assets is recorded through a gross-up of reserves on the consolidated balance sheets.

PCD loans are loans acquired at a discount that is due, in part, to credit quality deterioration since origination which may be determined through observation of missed payments, downgrade in risk rating, deterioration of a borrower's financial trends or other observable factors including subjectivity utilized by management.

PCD loans are initially recorded at fair value, by taking the sum of the present value of expected future cash flows and an allowance for credit losses, at acquisition.

The allowance for credit losses for PCD loans is recorded through a gross-up of reserves on the consolidated balance sheets.

An allowance for credit losses is determined using the same methodology as other loans held for investment.

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The difference between the fair value and unpaid principal balance of the loan at the acquisition date is amortized or accreted to interest income over the life of the loan.

While credit discounts are included in the determination of the fair value from non-PCD loans, since these discounts are expected to be accreted over the life of the loans, they cannot be used to offset the allowance for credit losses that must be

recorded at the acquisition date.

As a result, an allowance for credit losses is determined at the acquisition date using the same methodology as other loans held for investment and is recognized as a provision for credit losses in the consolidated statement of operations.

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Other loan fees and charges which represent income from delinquent payment charges, and miscellaneous loan or letter of credit services, are recognized as noninterest income when collected.

Salaries, employee benefits and other expenses totaling $ 663,000 and $ 2.2 million were deferred as loan origination costs for the years ended December 31, 2023 and 2022, respectively.

Salaries, employee benefits and other expenses totaling $ 1.3 million, $ 663,000 and $ 2.2 million were deferred as loan origination costs for the years ended December 31, 2024, 2023 and 2022, respectively.

Allowance for Credit Losses on Loans

The Company measures credit losses under ASU 2016-03 Financial Instruments — Credit Losses (Topic 326):

Since January 1, 2023, the Company has measured credit losses under ASU 2016-03 Financial Instruments — Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, which replaced the incurred loss methodology, and is referred to as the current expected credit loss, or CECL, methodology.

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized costs, including loan receivables.

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

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

The allowance for credit losses is the combination of the allowance for credit losses for loans and the reserve for unfunded loan commitments.

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The amortized cost basis of loans does not include accrued interest receivable, which is included in "Interest receivable and other assets" on the consolidated balance sheets.

The "Provision for credit losses" on the consolidated statements of income (loss) is a combination of the provision for credit losses for loans, unfunded loan commitments, and investment securities available-for-sale.

The "Provision

for credit losses" on the consolidated statements of income is a combination of the provision for credit losses for loans, unfunded loan commitments, and investment securities AFS.

The allowance for credit losses on loans is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans.

Loans are charged off against the allowance when management believes uncollectibility of loan is confirmed.

Loans are charged off against the allowance when management believes uncollectibility of the loan is confirmed.

Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off.

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Loans that experience insignificant payment delays and payment shortfalls generally are not classified as nonaccrual.

Loans that do not share risk characteristics are evaluated on an individual basis.

Loans evaluated individually are not included in the collective evaluation.

Loans that do not share risk characteristics are evaluated on an individual basis and are not included in the collective evaluation.

When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral, adjusted for undiscounted selling costs as appropriate.

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Subsequent to acquisition, the allowance for credit losses for PCD loans will generally follow the same forward-looking estimation, provision, and charge-off process as non-PCD acquired and originated loans.

For additional information regarding CECL, see “Critical Accounting Estimates” in “Item 7- Management’s Discussion and Analysis of Financial Condition and Results of Operations.

For additional information regarding our allowance for credit losses, see “Critical Accounting Estimates” in “Item 7- Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Reserve for Unfunded Commitments

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The reserve for unfunded commitments is based on evaluations of the collectability, and prior loss experience of unfunded commitments.

The evaluations take into consideration such factors as changes in the nature and size of the loan portfolio, overall loan portfolio quality, loan concentrations, specific problem loans and

related unfunded commitments, and current economic conditions that may affect the borrower’s or depositor’s ability to pay.

The evaluations take into consideration such factors as changes in the nature and size of the loan portfolio, overall loan portfolio quality, loan concentrations, specific problem loans and related unfunded commitments, and current economic conditions that may affect the borrower’s or depositor’s ability to pay.

Modifications for Financial Difficulty

The adoption of ASU 2022-02 on January 1, 2023 eliminated the recognition and measurement of trouble debt restructuring (“TDRs”) and enhanced the disclosures for modifications to loans related to borrowers experiencing financial difficulties.

Modified loans and leases are reviewed to determine if the modification was done for borrowers experiencing financial difficulty.

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Some of the Company's lease agreements include options to renew at the Company's discretion.

The extensions are not reasonably certain to be exercised, therefore they were not considered in

the calculation of the ROU asset and lease liability.

The extensions are not reasonably certain to be exercised;

therefore, they were not considered in the calculation of the ROU assets and lease liabilities.

No significant judgments or assumptions were involved in developing the estimated operating lease liabilities as the Company’s operating lease liabilities largely represent future rental expenses associated with operating leases and the borrowing rates are based on publicly available interest rates.

Goodwill, Core Deposit Intangible and Long-Lived Assets

Goodwill is determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquire, over the fair value of the net assets acquired and the liabilities assumed as of the acquisition date.

is reviewed for impairment annually, or between annual assessments if a triggering event occurs or circumstances change that would more likely than not result in the fair value of a reporting unit below its carrying amount.

Goodwill is determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquired assets, over the fair value of the net assets acquired and the liabilities assumed as of the acquisition date.

Goodwill is reviewed for impairment annually, or between annual assessments if a triggering event occurs or circumstances change that would more likely than not result in the fair value of a reporting unit being below its carrying amount.

We make a qualitative assessment whether it is more likely than not that the fair value of a reporting unit where goodwill is assigned is less than its carrying amount.

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Servicing Assets and Liabilities

In connection with the sale of the Company’s SBA loans, the Company recognizes servicing assets when servicing rights are retained.

In connection with the sale of the Company’s Small Business Administration (“SBA”) loans, the Company recognizes servicing assets when servicing rights are retained.

The gain or loss on sale of loans depends in part on the previous carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the retained interests based on their relative fair value at the date of transfer.

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Loans serviced for others totaled $ 164.8 million and $ 216.6 million as of December 31, 2024 and 2023, respectively.

Servicing assets, included in interest receivable and other assets in the consolidated statements of financial condition, totaled $ 1.3 million and $ 2.1 million as of December 31, 2023 and 2022, respectively.

There were no servicing

liabilities, included in interest payable and other liabilities on the consolidated balance sheets at both December 31, 2023 and December 31, 2022.

Servicing assets, included in interest receivable and other assets in the consolidated statements of financial condition, totaled $ 673,000 and $ 1.3 million as of December 31, 2024 and 2023, respectively.

There were no servicing liabilities included in interest payable and other liabilities on the consolidated balance sheets at both December 31, 2024 and December 31, 2023.

Loans Held for Sale

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The fair value of SBA loans held for sale is based primarily on prices that secondary markets are currently offering for loans with similar characteristics.

Net unrealized losses, if any, are recognized through a valuation allowance through a charge to income.

The carrying value of SBA loans held for sale is net of premiums as well as deferred originations fees and costs.

Net unrealized losses, if any, are recognized through a valuation allowance charged to income.

The carrying value of SBA loans held for sale is net of premiums as well as deferred origination fees and costs.

Premiums and net origination fees and costs are deferred and included in the basis of the loans in calculating gains or losses upon sale.

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The determination, recognition, and measurement of deferred tax assets and the requirement for a related valuation allowance is based on estimated future taxable income.

The Company recognizes that the tax effects from an uncertain tax position can be recognized in the financial statements only if, based on its merits, the position is more likely than not to be sustained on audit by the taxing authorities.

The tax effects from an uncertain tax position can be recognized in the financial statements only if, based on its merits, the position is more likely than not to be sustained on audit by the taxing authorities.

Accrued interest and penalties related to unrecognized tax benefits in tax expense.

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Most of our revenue-generating transactions are not subject to Topic 606, including revenue generated from financial instruments, such as our loans and investment securities.

In addition, certain noninterest income streams such as

fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the new guidance.

In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not within the scope of the new guidance.

The Company’s noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values.

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The performance obligation is satisfied and the fees are recognized monthly as the service period is completed.

Transaction-based fees on deposit accounts are charged to deposit clients for specific services provided to the client, such as non-sufficient funds fees, overdraft fees, and wire fees.

Transaction-based fees on deposit accounts are charged to deposit clients for specific services provided to the client, such as non-sufficient fund fees, overdraft fees, and wire fees.

The performance obligation is completed as the transaction occurs and the fees are recognized at the time each specific service is provided to the client.

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Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

The performance obligation is satisfied and the fees are earned when the cost of the transaction is charged to the cardholders’ debit card.

The performance obligation is satisfied and the fees are earned when the cost of the transaction is charged to the cardholder’s debit card.

Certain expenses directly associated with the credit and debit card are recorded on a net basis with the interchange income.

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Repurchase of Common Stock

In April 2023, the Company’s Board of Directors approved the Company’s seventh stock repurchase program, which was completed in August 2023, authorizing the repurchase of up to 619,000 shares, or approximately 5.0 % , of the Company’s outstanding common stock over a one year period.

In August 2023, the Company’s Board of Directors approved the Company’s eighth stock repurchase program, authorizing the repurchase of up to 588,000 shares, or approximately 5.0 %, of the Company’s outstanding common stock over a one year period.

Under the repurchase programs, the Company was authorized to repurchase its common stock through open market purchases, privately-negotiated transactions, or pursuant to any trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in compliance with Rule 10b-18 of the Exchange Act.

The stock repurchase program does not obligate the Company to acquire any specific number of shares in any period, and may be expanded, extended, modified or discontinued at any time.

As of December 31, 2023, 359,752 shares of Company common stock remained available for future purchases under the August 2023 stock repurchase plan.

In May 2024, the Company’s Board of Directors approved a stock repurchase program authorizing the repurchase of up to 560,000 shares, or approximately 5.0 % , of the Company’s outstanding common stock over a one year period.

Under the repurchase program, the Company is authorized to repurchase its common stock through open market purchases,

privately-negotiated transactions, or pursuant to any trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and in compliance with Rule 10b-18 of the Exchange Act.

The repurchase program does not obligate the Company to acquire any specific number of shares in any period, and may be expanded, extended, modified or discontinued at any time.

As of December 31, 2024, 464,098 shares of Company common stock remained available for future purchases under the repurchase program.

Comprehensive Income (Loss)

Comprehensive income (loss) includes disclosure of other comprehensive income or loss that historically has not been recognized in the calculation of net income or loss.

Unrealized gains and losses on the Company’s available-for-sale investment debt securities are included in other comprehensive income or loss.

Unrealized gains and losses on the Company’s AFS investment debt securities are included in other comprehensive income or loss.

Total comprehensive income or loss and the components of accumulated other comprehensive income are presented as a separate statement of comprehensive income.

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It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits, if any, will not have a material adverse effect on the financial position of the Company.

Recent Accounting Guidance Adopted in 2023

Recent Accounting Guidance Adopted

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.

Measurement of Credit Losses on Financial Instruments , which replaces the incurred loss methodology with 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.

In addition, ASU 2016-13 made changes to the accounting for AFS 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 AFS 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”).

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 the previously applicable standard.

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

8 unchanged sentences

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.

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 material impact on the Company's consolidated financial statements and related disclosures.

Segment Reporting – Improvements to Reportable Segment Disclosures (Topic 280) – In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

The amendments are intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, enhanced interim disclosure requirements, clarifying circumstances in which an entity can disclose multiple segment measures of profit or loss, providing new segment disclosure requirements for entities with a single reportable segment, and requiring other disclosures.

The amendments are effective for annual reporting periods beginning after December 15, 2023 (i.e., 2024 Form 10-K) and interim periods within fiscal years beginning after December 31, 2024, and must be applied retrospectively to all prior periods presented in the financial statements.

Early adoption is permitted.

The disclosure requirements of this update did not have a material effect on the Company’s consolidated financial statements.

See Note 24—Segment Information.

Recent Accounting Guidance Not Yet Effective

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

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 Company’s 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 Company’s consolidated financial statements.

Reference Rate Reform (Topic 848) - In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No.

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

9 unchanged sentences

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.

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 is beyond the current sunset date of Topic 848.

7 unchanged sentences

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).

17 unchanged sentences

Interest bearing deposits in banks

Investment securities available-for-sale

Investment securities AFS

FHLB stock, at par

13 unchanged sentences

Bargain purchase gain

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

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

February 1, 2022

35 unchanged sentences

December 31, 2024

Government Agencies

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 $ 1.2 million at both December 31, 2023 and 2022, which is included in interest receivable and other assets in the consolidated balance sheets.

For the year ended December 31, 2023, the Company sold no securities AFS, sold one security AFS for a minimal net realized gain for the year ended December 31, 2022 and sold $ 3.0 million in securities AFS for net realized gains of $ 41,000 for the year ended December 31, 2021.

Amortized cost and fair values exclude accrued interest receivable of $ 1.3 million and $ 1.2 million at December 31, 2024 and 2023, respectively, which is included in interest receivable and other assets in the consolidated balance sheets.

For the years ended December 31, 2024 and 2023, the Company sold no securities AFS.

For the year ended December 31, 2022, the Company sold one security AFS for a minimal net realized gain.

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

2 unchanged sentences

December 31, 2023

(As Restated)

Securities AFS

8 unchanged sentences

December 31, 2024

Government Agencies

Municipal securities

5 unchanged sentences

12 months or more

December 31, 2022 (As Restated)

December 31, 2023

Municipal securities

6 unchanged sentences

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

Allowance for credit losses on investment debt securities AFS

The securities that were in an unrealized loss position as of December 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.

1 unchanged sentence

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 December 31, 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.

As of December 31, 2024, the Company expected to recover the amortized cost basis of its securities, had no intent to sell any investment securities with unrealized losses, it was 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 was 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 debt 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 December 31, 2023.

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 were impaired due to reasons of credit quality at December 31, 2024.

Equity Securities

The Company recognized a net loss on equity securities of $ 1.1 million, $ 4.6 million, and zero for the years ended December 31, 2023, 2022 and 2021, respectively, due to a decrease in fair value of the equity securities.

The Company recognized a net gain on equity securities of $ 463,000 for the year ended December 31, 2024, due to an increase in the fair value of equity securities , and recognized a net loss on equity securities of $ 1.1 million and $ 4.6 million for the years ended December 31, 2023 and 2022, respectively, due to a decrease in fair value of the equity securities.

Equity securities were $ 13.1 million and $ 12.6 million as of December 31, 2024 and 2023, respectively.

3 unchanged sentences

Commercial real estate

Net deferred loan costs (fees)

Net deferred loan costs

Allowance for credit losses

(1) Includes $ 3.8 million and $ 11.1 million of SBA PPP loans as of December 31, 2023 and December 31, 2022, respectively.

(2) Allowance for credit losses at December 31, 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 $ 6.7 million and $ 6.2 million at December 31, 2023 and December 31, 2022, respectively, which is included in interest receivable and other assets in the consolidated balance sheets.

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

For the years ended December 31, 2024 and 2023, the recorded investment in individually evaluated loans on nonaccrual were $ 9.2 million and $ 13.0 million, respectively.

Interest foregone on nonaccrual loans was approximately $ 871,000 and $ 580,000 for the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2023 and 2022, the Company had floating or variable rate loans totaling $ 1.2 billion and $ 1.3 billion, respectively.

As of December 31, 2023, a total of $ 985.1 million have interest rate floors, of which $ 866.6 million, were at their floors.

As of December 31, 2022, a total of $ 965.8 million have interest rate floors, of which $ 854.0 million were at their floors.

Interest foregone on nonaccrual loans was approximately $ 1.3 million and $ 871,000 for the years ended December 31, 2024 and 2023, respectively.

At both December 31, 2024 and 2023, the Company had floating or variable rate loans totaling $ 1.3 billion and $ 1.2 billion, respectively.

As of December 31, 2024, a total of $ 992.5 million of these loans had interest rate floors, of which $ 713.3 million were at their floors.

As of December 31, 2023, a total of $ 985.1 million of the loans had interest rate floors, of which $ 866.6 million were at their floors.

As of December 31, 2024 and 2023, purchased loans outstanding totaled $ 186.6 million and $ 137.9 million respectively.

At December 31, 2023, no purchase premiums remained on the purchased loans compared to $ 10,000 at December 31, 2022.

At December 31, 2023 and 2022, none of the purchased loans were past due 30 days or more.

These loans are reserved for under the Company’s general allowance component and at December 31, 2023 and 2022, the Company has allocated approximately $ 2.5 million and $ 1.3 million, respectively, of the allowance for credit losses to the purchased loans.

At December 31, 2024, $ 521,000 in purchase premiums remained on the purchased loans, compared to no purchase premium at December 31, 2023.

As of both December 31, 2024 and 2023, none of the purchased loans were past due 30 days or more.

None of the purchased loans during 2024 represented PCD loans.

These loans are reserved for under the Company’s general allowance component, and at December 31, 2024 and 2023, the Company had allocated approximately $ 3.2 million and $ 2.5 million, respectively, of the allowance for credit losses to the purchased loans.

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

12 unchanged sentences

Specific allowance on loans individually evaluated

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 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.

The allowance for credit losses on a modified loan did not change as a result of adopting this standard as the Company elected to not change how it measured credit losses on modified loans to borrowers experiencing financial difficulties.

During the year ended December 31, 2023, there were no modifications of loans to borrowers experiencing financial difficulty.

During the year ended December 31, 2022, there were 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 which totaled $ 6.5 million.

The Company may modify the contractual terms of a loan to a borrower experiencing financial difficulty as a part of ongoing loss mitigation strategies.

These modifications may result in an interest rate reduction, term extension, an other-than-insignificant payment delay, or a combination thereof.

The Company typically does not offer principal forgiveness.

An assessment of whether a borrower is experiencing financial difficulty is made on the date of modification.

The effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses on loans because of the measurement methodologies used to estimate the allowance.

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

During the year ended December 31, 2022, there were four 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, which totaled $ 6.5 million.

The type of modification for the four loans were a term extension, with no change to the pre-modification and post modification amortized cost balances.

10 unchanged sentences

Commercial real estate

For the year ended December 31, 2023, the Company recorded no charge-offs for modified loans to borrowers experiencing financial difficulty.

During the year ended December 31, 2022, the Company recorded a $ 3.2 million charge-off related to one modified loan to a borrower experiencing financial difficulty.

As of December 31, 2023 and December 31, 2022, individually evaluated modified loans to borrowers experiencing financial difficulty had a related allowance of $ 1.3 million and $ 393,000 , respectively.

As of December 31, 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 years ended December 31, 2024 and 2023, the Company recorded $ 1.3 million of charge-offs and no charge-offs for modified loans to borrowers experiencing financial difficulty, respectively.

As of December 31, 2024, 2023 and 2022, individually evaluated modified loans to borrowers experiencing financial difficulty had a related allowance of $ 24,000 , $ 1.3 million and $ 393,000 , respectively.

As of both December 31, 2024 and 2023, none of modified loans to borrowers experiencing financial difficulty were performing in accordance with their modified terms, compared to $ 759,000 of modified loans to borrowers experiencing financial difficulty were performing in accordance with their modified terms as of December 31, 2022.

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.

32 unchanged sentences

Doubtful loans have a high probability of loss, yet certain important and reasonably specific pending factors may work toward the strengthening of the credit.

“Loss” loans are considered uncollectible and of such little value that their continuance as bankable assets is not warranted.

Losses are recognized as charges to the allowance when the loan or portion of the loan is considered uncollectible or at the time of foreclosure.

1 unchanged sentence

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 years ended December 31, 2023, and 2022, $ 7.1 million and $ 3.1 million of revolving loans were converted to term loans, respectively.

During the years ended December 31, 2024, and 2023, $ 867,000 and $ 7.1 million of revolving loans were converted to term loans, respectively.

The following tables present a summary of loans by type, internally assigned risk grade, year of origination and current period gross charge-offs at the years indicated:

9 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

6 unchanged sentences

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

90 days or more past due

and still accruing

December 31, 2024

2 unchanged sentences

Commercial real estate

90 days or more past due

and still accruing

December 31, 2023

2 unchanged sentences

Commercial real estate

Nonaccrual loans totaled $ 13.0 million and $ 14.3 million at December 31, 2023 and December 31, 2022, respectively.

Nonaccrual loans guaranteed by a government agency, which reduces the Company’s credit exposure, were $ 740,000 at December 31, 2023 compared to $ 839,000 at December 31, 2022.

Nonaccrual loans totaled $ 9.2 million and $ 13.0 million at December 31, 2024 and 2023, respectively.

Nonaccrual loans guaranteed by a government agency, which reduces the Company’s credit exposure, were $ 2.0 million at December 31, 2024 and $ 740,000 at December 31, 2023.

At December 31, 2024, nonaccrual loans included $ 643,000 of loans 30-89 days past due and no 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 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 December 31, 2023, nonaccrual loans 30-89 days past due of $ 927,000 was comprised of five loans and the $ 2.1 million of loans less than 30 days past due was comprised of 16 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 December 31, 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 $ 871,000 for the year ended December 31, 2023 compared to $ 580,000 for the year ended December 31, 2022.

The $ 643,000 in nonaccrual loans past due 30-89 days at December 31, 2024, was comprised of three loans, all of which were placed on nonaccrual due to concerns over the borrowers’ financial condition.

Additionally, at December 31, 2024, there was one loan that was 90 days or more past due and still accruing, with a balance of $ 220,000 .

This compares to no loans that were 90 days or more past due and still accruing as of December 31, 2023.

Interest foregone on nonaccrual loans was approximately $ 1.3 million for the year ended December 31, 2024 compared to $ 871,000 for the year ended December 31, 2023.

Purchased Credit Deteriorated Loans

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration that were previously classified as purchase credit impaired (“PCI”) and accounted for under ASC 310-30.

The unpaid principal balance and carrying value of the Company’s PCI loans at the years indicated are as follows:

The unpaid principal balance and carrying value of the Company’s PCD loans at the years indicated are as follows:

December 31, 2024

December 31, 2023

Commercial and industrial

1 unchanged sentence

Commercial real estate

At December 31, 2022, the accretable and nonaccretable differences were approximately $ 1.5 million and $ 1.3 million, respectively.

At December 31, 2021, the accretable and nonaccretable differences were approximately $ 508,000 and $ 1.5 million, respectively.

The Company had $ 18,000 and no allowance for loan losses for PCI loans during the years ended December 31, 2022 and 2021, respectively.

The following table reflects the changes in the accretable yield of PCI loans for the years indicated:

Balance at beginning of period

Transfers from nonaccretable yield

Balance at end of period

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 $ 1.14 billion and $ 940.7 million at December 31, 2023 and 2022, respectively.

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 $ 1.04 billion and $ 1.14 billion at December 31, 2024 and 2023, respectively.

For additional information, see Note 12, Other Borrowings.

3 unchanged sentences

unfunded commitments

December 31, 2023

Year ended December 31, 2024

Allowance for credit losses:

Beginning balance

Impact of CECL adoption

Provision for (reversal of) credit losses

8 unchanged sentences

and industrial

December 31, 2022

unfunded commitments

Year ended December 31, 2023

Allowance for loan losses

Beginning balance

Provision for (reversal of) loan losses

Impact of CECL adoption

Provision for (reversal of) credit losses

Ending balance

December 31, 2023

Allowance for loan losses:

Allowance for credit losses:

Loans individually evaluated

3 unchanged sentences

Collectively evaluated

For the year ended December 31, 2023, the provision for credit losses was primarily due to a $ 3.3 million increase in reserves for individually evaluated loans, $ 550,000 of net loan charge-offs during the year and an additional reserve taken on a loan to a Trust, as discussed below.

The increase in specific reserves included one commercial real estate loan and one multifamily loan.

Based on updated appraisals received during the fourth quarter of 2023, the underlying collateral values of these loans experienced declines due to property specific factors and conditions .

The change in the provision was partially offset by 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.

There was an adjustment to the determined risk level for the effect of other external factors such as legal and regulatory requirements on the level of estimated credit losses in the portfolio qualitative factor during the year ended December 31, 2023.

During the third quarter of 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 December 31, 2023 was 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 December 31, 2023.

and industrial

Year ended December 31, 2022

Allowance for loan losses

Beginning balance

Provision for (reversal of) credit losses

Ending balance

For the year ended December 31, 2024, the $ 1.3 million provision for credit losses was primarily due to the replenishment of the allowance due to charge-offs and an increase in provision for credit losses for unfunded commitments.

Net charge-offs totaled $ 5.0 million for the year ended December 31, 2024, of which $ 3.2 million had been specifically reserved for.

The quantitative reserve was impacted by declines in forecasted economic conditions for national gross domestic product and increasing forecasted national unemployment, both key indicators used to estimate credit losses.

The reserve for individually evaluated loans decreased during the year primarily due to $ 3.2 million in charge-offs, as the associated collateral shortfalls were deemed uncollectable.

No changes were made to the qualitative risk factor conclusions during the year ended December 31, 2024.

The increase in the provision for credit loss for unfunded commitments of $ 375,000 for the year ended December 31, 2024 was primarily due to a new $ 9.5 million construction commitment and increased quantitative loss rates.

The following table summarizes the amortized cost basis of individually evaluated collateral-dependent nonaccrual loans by loan and collateral type at December 31, 2024 and December 31, 2023.

Allowance for

Credit/Loan Losses

December 31, 2024

6 unchanged sentences

Commercial real estate

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

The following table shows the amortized cost and allowance for credit losses for loans on nonaccrual status as of December 31, 2024 and 2023, respectively.

As of December 31, 2024

6 unchanged sentences

for credit losses

for loan losses

for credit losses

Commercial and industrial

1 unchanged sentence

Commercial real estate

Interest income recognized on nonaccrual loans was $ 208,000 for the year ended December 31, 2023, and $ 149,000 for the year ended December 31, 2022.

Interest income recognized on nonaccrual loans was $ 19,000 , $ 208,000 and $ 149,000 for the years ended December 31, 2024, 2023 and 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”).

5 unchanged sentences

The participating lender must return recoveries from the borrower, less expenses, to the loan loss reserve account.

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, are distributed to CalCAP and the participating lender based on their respective contributions to the loss reserve account.

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, 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.

15 unchanged sentences

Total premises and equipment, net

Depreciation and amortization included in occupancy and equipment expense totaled $ 1.7 million for year ended December 31, 2023, compared to $ 2.0 million for both years ended December 31, 2022 and 2021.

Depreciation and amortization included in occupancy and equipment expense totaled $ 2.0 million, $ 1.7 million and $ 2.0 million for years ended December 31, 2024, 2023 and 2022, respectively.

The Company owned 15 of its banking branches and leased the remaining 20 branches under noncancelable operating leases as of December 31, 2024.

3 unchanged sentences

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.

As this rate is not readily 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 December 31, 2024:

14 unchanged sentences

OTHER REAL ESTATE OWNED

Other real estate owned as of the dates indicated consisted of the following:

As of December 31, 2023, there were no foreclosure, compared to two residential mortgage loans in the process of foreclosure totaling $ 248,000 at December 31, 2022.

The Company had no other real estate owned as of December 31, 2024 and 2023.

As both of December 31, 2024 and 2023, there were no residential mortgage loans in the process of foreclosure.

GOODWILL AND INTANGIBLE ASSETS

1 unchanged sentence

There were no changes in the Company’s goodwill for the years ended December 31, 2024 and 2023.

As of December 31, 2023 the Company’s qualitative assessment which considered the Company’s continued profitability, positive equity, average community bank merger deal values realized during 2023, net interest margin, allowance for credit loss, and the continued growth in its core deposit portfolio, the Company concluded that the goodwill of the Company’s reporting unit, the Bank, is not more likely than not to be impaired.

As of December 31, 2024, based on the Company’s qualitative assessment, which considered the Company’s continued profitability, positive equity, average community bank merger deal values realized during 2024, net interest margin, allowance for credit losses, and continued growth in its core deposit portfolio, the Company concluded that the goodwill of the Company’s reporting unit, the Bank, was not more likely than not impaired.

Core Deposit Intangible

8 unchanged sentences

INTEREST RECEIVABLE AND OTHER ASSETS

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

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

Tax assets, net

1 unchanged sentence

Investment in SBIC fund

Investment in CRA fund

Investment in Community Reinvestment Act fund

Prepaid assets

3 unchanged sentences

CalCAP reserve receivable

Total interest receivable and other assets

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

Demand deposits (1)

NOW accounts and savings

Time deposits

(1) Noninterest bearing.

Included in time deposits above are brokered deposits of $ 35.5 million and $ 43.6 million as of December 31, 2024 and 2023, respectively.

At December 31, 2023, aggregate annual maturities of time deposits are as follows:

At December 31, 2024, aggregate annual maturities of time deposits were as follows:

Year ending December 31,

5 unchanged sentences

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

In addition to the availability of liquidity from the FHLB, during 2022 the Bank maintained a short-term borrowing line of credit with the FRB of San Francisco based on PPP loans pledged as collateral.

This line was closed in 2023, with no FRB borrowings outstanding at both December 31, 2023 and December 31, 2022.

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 December 31, 2024, we had the ability to borrow up to $ 41.9 million from the FRB of San Francisco, with no FRB of San Francisco advances outstanding at that date.

The Company has Federal Funds lines with four correspondent banks.

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

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

There are no amounts outstanding under these facilities at December 31, 2024 and December 31, 2023.

JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES

1 unchanged sentence

The BFC Trust was formed in Delaware with capital of $ 93,000 for the sole purpose of issuing trust preferred securities fully and unconditionally guaranteed by BFC.

The BFC Trust issued Floating Rate Capital Trust Pass-Through Securities (“BFC Trust Preferred Securities”), with a liquidation value of $ 1,000 per security, for gross proceeds of $ 3.1 million prior to the BFC acquisition and the liability was assumed during the acquisition.

The entire proceeds of the issuance were invested by the BFC Trust in $ 3.1 million of Floating Rate Junior Subordinated Deferrable Interest Debentures issued by BFC, with identical maturities, repricing and payment terms as the BFC Trust Preferred Securities.

1 unchanged sentence

The debentures are redeemable by the Company subject to prior approval from the Federal Reserve on March 15, June 15, September 15, or December 15.

The redemption price is par plus accrued and unpaid interest, except in the case of redemption under special event which is defined in the debenture.

The redemption price is par plus accrued and unpaid interest, except in the case of redemption under special event which is defined in the terms of the debentures.

The BFC Trust Preferred Securities are subject to mandatory redemption to the extent of any early redemption of the subordinated debentures or upon its maturity on June 17, 2034.

1 unchanged sentence

The FULB Trust was formed in Delaware with capital of $ 192,000 for the sole purpose of issuing trust preferred securities fully and unconditionally guaranteed by FULB.

The FULB Trust issued 6,200 Floating Rate Capital Trust Pass-Through Securities (“FULB Trust Preferred Securities”), with a liquidation value of $ 1,000 per security, for gross proceeds of $ 6.2 million prior to the FULB acquisition and the liability was assumed during the acquisition.

The entire proceeds of the issuance were invested by the FULB Trust in $ 6.4 million of Floating Rate Junior Subordinated Deferrable Interest Debentures issued by FULB, with identical maturities, repricing and payment terms as the FULB Trust Preferred Securities.

1 unchanged sentence

The debentures are redeemable by the Company subject to prior approval from the Federal Reserve, on any March 15, June 15, September 15, or December 15.

The redemption price is par plus accrued and unpaid interest, except in the case of redemption under special event which is defined in the debenture.

The redemption price is par plus accrued and unpaid interest, except in the case of redemption under special event which is defined in the terms of the debentures.

The FULB Trust Preferred Securities are subject to mandatory redemption to the extent of any early redemption of the subordinated debentures or upon its maturity on September 15, 2034.

19 unchanged sentences

The offering of the Notes closed on August 10, 2020.

The Notes initially bears a fixed interest rate of 5.25 % per year.

The Notes initially bear a fixed interest rate of 5.25 % per year.

Commencing on September 15, 2025, the interest rate on the Notes resets quarterly to the three-month Secured Overnight Financing rate (“SOFR”) plus a spread of 521 basis points ( 5.21 %), payable quarterly in arrears.

1 unchanged sentence

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 December 31, 2023 and December 31, 2022, the Company had outstanding subordinate debt, net of costs to issue, totaling $ 63.9 million and $ 63.7 million, respectively.

At December 31, 2024 and 2023, the Company had outstanding subordinated debt evidenced by the Notes, net of costs to issue, totaling $ 63.7 million and $ 63.9 million, respectively.

Income tax expense for the dates indicated consisted of the following:

20 unchanged sentences

Deferred tax assets at the dates indicated, included as a component of interest receivable and other assets in the consolidated balance sheets consisted of the following:

(As Restated)

Deferred tax assets

4 unchanged sentences

Lease liability

Other liabilities

Unrealized loss on AFS securities

9 unchanged sentences

The utilization of the net operating losses (“NOLs”) is subject to an annual limit pursuant to Section 382 of the Internal Revenue Code.

The amount of the annual limitations for Federal and California Franchise Tax purpose is $ 1.1 million and if not fully utilized, the NOLs will begin to expire in 2028.

Based upon the level of historical taxable income and projections for future taxable income over the periods during which the deferred tax assets are expected to be deductible, Management believes it is more likely than not we will realize the benefit of the remaining deferred tax assets.

The annual limitations for Federal and California Franchise Tax purpose is $ 1.1 million and if not fully utilized, the NOLs will begin to expire in 2028.

Based upon the level of historical taxable income and projections for future taxable income over the periods during which the deferred tax assets are expected to be deductible, management believes it is more likely than not that we will realize the benefit of the remaining deferred tax assets.

Accordingly, no valuation allowance has been established as of December 31, 2024 or 2023.

At December 31, 2024, Federal, California and Colorado NOLs included in the deferred tax asset totaled $ 8.9 million, $ 9.6 million and $ 2.1 million, respectively.

During the years ended December 31, 2023, 2022 and 2021, the Company did no t recognize any interest and penalties.

During the years ended December 31, 2024, 2023 and 2022, the Company did no t recognize any interest or penalties.

The Company had no unrecognized tax benefits as of December 31, 2024 and 2023.

12 unchanged sentences

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 $ 225,000 at December 31, 2023, compared to $ 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 $ 600,000 and $ 225,000 at December 31, 2024 and 2023, respectively.

Commercial Real Estate Concentrations

1 unchanged sentence

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

Although management believes that loans within these concentrations have no more than the normal risk of collectability, a decline in the performance of the economy in general or a decline in real estate value in the Company’s primary market areas in particular, could have an adverse impact on collectability.

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

Although management believes that loans within these concentrations have no more than the normal risk of collectability, a decline in the performance of the economy in general or a decline in real estate values in the Company’s primary market areas in particular could have an adverse impact on collectability.

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

At December 31, 2024, the remaining commitments to the LIHTC partnerships and SBIC fund were approximately $ 4.9 million and $ 122,000 , respectively.

5 unchanged sentences

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

As both of December 31, 2023 and 2022, the FHLB issued letters of credit on behalf of the Company totaling $ 40.6 million, as collateral for local agency deposits.

As of December 31, 2024 and 2023, the FHLB issued letters of credit on behalf of the Company totaling $ 41.1 million and $ 40.6 million, respectively, as collateral for local agency deposits.

EMPLOYEE BENEFIT PLANS

5 unchanged sentences

In 2017, the Company extended coverage to two additional executive officers.

Under the agreements, as amended, the Company provides the executive, or their designated beneficiaries, with annual benefits for fifteen years after retirement or death.

The contributions are based on the executive’s performance related to Company’s financial performance.

These benefits are substantially equivalent to those available under insurance policies purchased by the Company on the life of the executives.

At December 31, 2023 and 2022, approximately $ 1.0 million and $ 1.2 million, respectively, of the salary continuation plan was related to plans assumed through the Company’s acquisitions.

Under the salary continuation plan agreements, as amended, the Company provides the executives, or their designated beneficiaries, with annual benefits for fifteen years after retirement or death.

The contributions are based on the executive’s performance related to the Company’s financial performance.

These benefits are substantially equivalent to those available under insurance policies purchased by the Company on the lives of the executives.

At December 31, 2024 and 2023, approximately $ 830,000 and $ 1.0 million, respectively, of the salary continuation plan was related to plans assumed through the Company’s acquisitions.

There are no further requirements to fund these plans.

In 2023, the Company did not recognize any expense included in salaries and benefits expense in the consolidated statements of income under the aforementioned salary continuation agreements due to be not able to meet the performance matrix, compared to $ 648,000 and $ 594,000 for the years ended December 31, 2022 and 2021, respectively.

In 2024 and 2023, the Company did no t recognize any expense related to the aforementioned salary continuation plan in salaries and benefits in the consolidated statements of income, as the performance metrics were not met.

This compares to $ 648,000 in expenses recognized for the year ended December 31, 2022.

EQUITY INCENTIVE PLANS

2024 Omnibus Equity Incentive Plan

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

The Company’s shareholders approved the Company’s 2024 Omnibus Equity Incentive Plan (“ 2024 Plan”) in June 2024.

The 2024 Plan provides for the grant of equity incentive awards to employees and directors (including emeritus and advisory directors) of the Company and its subsidiaries.

The 2024 Plan permits the granting of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, non-statutory stock options , stock appreciation rights, restricted stock awards, restricted stock unit awards, performance shares and performance units.

Factors generally considered by the Board in awarding equity incentives to officers and employees include the performance of the Company, the employee’s or officer’s job performance, the importance of his or her position, and his or her contribution to the organization’s goals for the award period.

Generally, awards under the 2024 Plan are subject to a minimum vesting period of one year (at least three years for full vesting for the chief executive officer), provided that awards for up to 5 % of the maximum shares available under the 2024 Plan (for any participant other than the chief executive officer) may provide for a shorter vesting period.

Subject to adjustment as provided in the 2024 Plan, the maximum number of shares of common stock available for issuance under the 2024 Plan is 500,000 , and awards granted under the 2024 Plan to any one participant in any one calendar year are subject to the following limitations:

(i) aggregate grants of stock options or stock appreciation rights to any one participant are subject to an annual limit of the lesser of 100,000 shares or $ 2.0 million in fair market value as of the date of grant;

(ii) aggregate grants of restricted stock or restricted stock units to any one participant are subject to an annual limit of the lesser of 50,000 shares or $ 2.0 million in fair market value as of the date of grant;

and (iii) aggregate grants of performance shares or performance units to any one participant are subject to an annual limit of the lesser of 50,000 shares or $ 2.0 million in fair market value as of the date of grant.

In addition, subject to adjustment as provided in the 2024 Plan, the maximum aggregate number of shares that may be covered by awards granted under the 2024 Plan

to any non-employee director in any one calendar year is 25,000 shares.

As of December 31, 2024, a total of 492,038 shares were available for future issuance under the 2024 Plan.

2017 Omnibus Equity Incentive Plan

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.

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

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.

Factors considered by the Board in awarding equity incentives to officers and employees include the performance of the Company, the employee’s or officer’s job performance, the importance of his or her position, and his or her contribution to the organization’s goals for the award period.

Generally, awards have a vesting period of no longer than ten years .

Subject to adjustment as provided in the 2017 Plan, the maximum number of shares of common stock that may be delivered pursuant to awards granted under the 2017 Plan is 450,000 .

The 2017 Plan provides for an annual restricted stock grant limits to officers, employees and directors.

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

The 2017 Plan provides for annual restricted stock grant limits to officers, employees and directors.

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.

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.

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

As of December 31, 2024, no shares were available for future issuance under the 2017 Plan because the 2024 Plan provides that no further awards may be made under the 2017 Plan upon the approval by the Company’s shareholders of the 2024 Plan .

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

For the years ended December 31, 2023, 2022 and 2021, total compensation expense for these plans was $ 726,000 , $ 1.0 million and $ 1.4 million, respectively.

As of December 31, 2023, there was $ 996,000 of total unrecognized compensation cost related to non-vested shares granted as restricted stock awards.

For the years ended December 31, 2024, 2023 and 2022, total compensation expense for these plans was $ 588,000 , $ 726,000 and $ 1.0 million, respectively.

As of December 31, 2024, there was $ 1.0 million 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 four years .

32 unchanged sentences

As of December 31, 2023

(As Restated)

(Dollars in thousands)

30 unchanged sentences

Disbursements

End of year (1)

Amounts paid (1)

Undisbursed commitments to related parties

(1) Amounts include $ 8.5 million of outstanding loans to former directors who retired in 2023, for which the Bank no longer considers related parties as of December 31, 2023.

At December 31, 2023 and 2022, the Company had deposits with directors, officers and their associates which totaled approximately $ 26.3 million and $ 32.7 million, respectively.

(1) The 2023 amount includes $ 8.5 million of outstanding loans to former directors who retired in 2023.

As of December 31, 2023, the Bank no longer considers these individuals as related parties.

At December 31, 2024 and 2023, the Company had depositor relationships with directors, officers and their associates which totaled approximately $ 13.8 million and $ 26.3 million, respectively.

OTHER EXPENSES

11 unchanged sentences

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

Advertising expense included in marketing and promotions totaled $ 48,000 for the year ended December 31, 2023, compared to $ 71,000 for both the years ended December 31, 2022 and 2021.

Advertising expense included in marketing and promotions totaled $ 49,000 , $ 48,000 and $ 71,000 for the years ended December 31, 2024, 2023 and 2022, respectively.

FAIR VALUE MEASUREMENTS

8 unchanged sentences

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.

Fair value is used on a nonrecurring basis to adjust carrying values for individually evaluated loans and other real estate owned and also to record impairment on certain assets, such as goodwill, core deposit intangible, and other long-lived assets.

Fair value is used on a nonrecurring basis to adjust carrying values for individually evaluated loans and other real estate owned and to record impairment on certain assets, such as goodwill, core deposit intangible, and other long-lived assets.

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 for to determine the hierarch 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 level for the entire asset or liability.

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.

4 unchanged sentences

December 31, 2024

Government Agencies

Municipal securities

7 unchanged sentences

December 31, 2023

Government Agencies

Municipal securities

12 unchanged sentences

December 31, 2023

Performing impaired loans (1)

Nonperforming impaired loans

(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.

Individually evaluated loans (1)

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

The Company does not record loans at fair value on a recurring basis.

12 unchanged sentences

The following methods and assumptions were used to estimate the fair value disclosure for financial instruments:

Cash and cash equivalents — Cash and cash equivalents include cash and due from bank, Federal funds sold and interest-bearing balances in banks, and are valued at their carrying amounts because of the short-term nature of these instruments.

Cash and cash equivalents — Cash and cash equivalents include cash and due from banks, Federal funds sold and interest-bearing balances in banks and are valued at their carrying amounts because of the short-term nature of these instruments.

Time deposits in banks — Interest bearing time deposits in banks are valued based on quoted interest rates for comparable instruments with similar remaining maturities.

Investment securities — The fair value of securities AFS are based on quoted market prices, where available.

Investment securities — The fair values of securities AFS are based on quoted market prices, where available.

If quoted market prices are not available, fair values are estimated using quoted market prices for similar securities and indications of value provides by brokers.

Equity securities — The fair value of equity securities are based on quoted market prices, where available.

Equity securities — The fair values of equity securities are based on quoted market prices, where available.

If quoted market prices are not available, fair values are estimated using quoted market prices for similar securities and indications of value provides by brokers.

Investment in FHLB and FRB Stock — The carrying value of the FHLB and FRB stock approximates the fair value because the stock is redeemable at par.

Loans held for sale — Since the loans designated by the Company as available-for-sale are typically sold shortly after making the decision to sell them, realized gains and losses are usually recognized within the same period and fluctuations in fair value are thus not relevant for reporting purposes.

If the available-for-sale loans stay on our books for an extended period of time, the fair value of those loans is determined using quoted secondary-market prices.

Loans held for sale — Since the loans designated by the Company as AFS are typically sold shortly after making the decision to sell them, realized gains and losses are usually recognized within the same period and fluctuations in fair value are thus not relevant for reporting purposes.

If the AFS loans stay on our books for an extended period of time, the fair value of those loans is determined using quoted secondary-market prices.

Loans —Loans with variable interest rates are valued at the current carrying value, because these loans are regularly adjusted to market rates.

The fair value of fixed rate with remaining maturities in excess of one year is estimated by discounting the future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings for the same remaining maturities.

The fair values of fixed rate loans with remaining maturities in excess of one year are determined by discounting the estimated future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings for the same remaining maturities.

The allowance for credit losses on loans is considered to be a reasonable estimate of the loan discount related to credit risk.

6 unchanged sentences

Junior Subordinated Deferrable Interest Debentures — The fair value of junior subordinated deferrable interest debentures is determined based on rates and/or discounted cash flow analysis using interest rates offered in inactive markets for instruments of a similar maturity and structure resulting in a Level 3 classification.

The debenture carried at the current carrying value, because the debentures regularly adjusted to market rates.

The debentures are carried at the current carrying value, because the debentures regularly adjust to market rates.

Subordinated Debt — The fair value of subordinated debt is determined based on rates and/or discounted cash flow analysis using interest rates offered in inactive markets for instruments of a similar maturity and structure resulting in a Level 2 classification.

33 unchanged sentences

Undisbursed loan commitments, lines of credit, standby letters of credit

SEGMENT INFORMATION

The Company operates as one reportable segment:

banking operations.

The Company’s banking operations generate revenue primarily from loans and securities, deposits, and non-interest income.

Loan products generate a significant portion of interest and fee income, while deposit products provide fee and service charge income.

The Company also earns interest income from securities and generates net gains from the sale of loans to third parties.

Interest expense, provisions for credit losses, salaries and employee benefits, data processing, and occupancy expense typically represent the significant expenses in banking operations.

These expenses align with those reported in the Company’s Consolidated Statements of Income and Cash Flows.

Additionally, noncash items such as depreciation and amortization are reflected in the Consolidated Statements of Income and Cash Flows.

The Company’s Chief Operating Decision Maker (CODM) is identified as the Chief Executive Officer, who is responsible for assessing the financial performance of the Company and allocating resources accordingly.

The CODM is provided with consolidated balance sheets, income statements, and net interest margin analyses in order to evaluate revenue streams, significant expenses, and budget-to-actual results in assessing the Company’s segment and determining the allocation of resources, as well as evaluating return on assets.

In addition, the CODM utilizes consolidated net income, return on assets, and net interest margin as benchmarks to compare the Company’s performance against competitors.

All operations are domestic and align with a single operating segment.

Information reported internally for performance assessment by the CODM is identical to that shown in the Consolidated Statements of Income.

The following table presents the Company’s one operating segment for the periods indicated:

For the Year Ended December 31,

(As Restated)

Interest and dividend income

Reconciliation of revenue:

Other revenues

Total consolidated revenue

Interest expense

Segment net interest income and noninterest income

Provision for credit losses

Salaries and employee benefits

Occupancy and equipment

Data processing

Other segment items

Provision for income taxes

Segment net income/consolidated net income

Reconciliation of assets:

Total assets for reportable segment

Total consolidated assets

PARENT COMPANY ONLY

1 unchanged sentence

December 31, 2024 and 2023

(As Restated)

Cash and due from banks

23 unchanged sentences

Interest income

Loss on equity securities

Gain (loss) on equity securities

Earnings from bank subsidiary

1 unchanged sentence

Dividends from statutory trusts

Gain on sale of securities

Subordinated debt

Junior subordinate debt

Junior subordinated deferrable interest debentures, net

Total Interest expense

10 unchanged sentences

Dividend from bank subsidiary

Gain on sale of securities

Income tax benefit

Accretion of premiums/discounts on investment securities

Loss on equity securities

Accretion on junior subordinated debentures

(Gain) loss on equity securities

Accretion/amortization on junior subordinated debentures

Gain on repayment of subordinated debt, net

Stock-based compensation expense

Increase (decrease) in deferred tax asset

Increase (decrease) in interest receivable and other assets

(Decrease) increase in deferred tax asset

(Decrease) increase in interest receivable and other assets

(Decrease) increase in interest payable and other liabilities

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Cash flows from investing activities:

Capital contribution to subsidiary

Purchase of equity securities

Net cash received for acquisitions

1 unchanged sentence

Cash flows from financing activities:

Repayment of subordinated debt, net

Repurchase of common stock

1 unchanged sentence

Net cash used in financing activities

Increase (decrease) in cash and cash equivalents

(Decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

2 unchanged sentences

Non-cash investing activities:

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

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

Cash dividends declared on common stock not yet paid

8 unchanged sentences

The Company’s CEO and CFO concluded that based on their evaluation at December 31, 2024, the Company’s disclosure controls and procedures were effective in ensuring that information we are required to disclose in the reports we file or submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to the Company’s management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure, specified in the SEC’s rules and forms.

Previously Disclosed Material Weakness in Internal Control Over Financial Reporting

The Company disclosed in Part II, Item 9A – Controls and Procedures in its Annual Report on Form 10-K/A for the year ended December 31, 2022 and in Part I, Item 4 – Controls and Procedures in its Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2023, that it had identified an error 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 ASC Topic 320 – Investments-Debt Securities.

However, as a result of subsequent research and third-party consultation, the Company determined that the securities should instead have been accounted for under ASC Topic 321 – Investments-Equity Securities .

The result of this change in classification of the preferred equity securities was that the change in the fair value of the securities for the prior periods should have been recorded in noninterest income on the consolidated statements of income.

The Company determined that this error constituted a “material weakness” in its internal control over financial reporting.

In response to the identified material weakness, our management, with the oversight of the audit committee of our board of directors, dedicated additional resources, including additional employee training and engagement of third-party expertise, toward improving our internal control over financial reporting.

During the quarter ended June 30, 2023, we redesigned and enhanced control activities related to investment security classification and review at the acquisition date.

Upon the acquisition of securities in the third and fourth quarters of 2023, we implemented the redesigned and enhanced controls.

We rigorously tested these controls, and through independent testing by internal audit, we confirmed their effective operation.

We believe that with the implementation and successful testing of these redesigned and enhanced controls, the identified material weakness as of December 31, 2023, has been remediated, thereby strengthening our internal control over financial reporting.

(b) Management’s Report on Internal Control Over Financial Reporting

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Directors and Executive Officers

Information concerning the Company’s directors is incorporated herein by reference from the Proxy Statement, a copy of which will be filed with the SEC not later than 120 days after the close of the fiscal year.

Information concerning the executive officers of the Company is contained under the heading “Information About our Executive Officers” under Part I, Item 1 of this Form 10-K and is incorporated herein by reference.

Delinquent Section 16(a) Reports

Information concerning the Company’s delinquent section 16(a) Reports is incorporated herein by reference from the Proxy Statement, a copy of which will be filed with the SEC not later than 120 days after the close of the fiscal year.

Information concerning the Company’s directors and executive officers is incorporated herein by reference from the Proxy Statement, a copy of which will be filed with the SEC not later than 120 days after the close of the fiscal year.

Code of Ethics

16 unchanged sentences

Additional information concerning the Audit Committee is incorporated herein by reference from the Proxy Statement (except for information contained under the heading "Report of the Audit Committee"), a copy of which will be filed with the SEC not later than 120 days after the close of the fiscal year.

Insider Trading Policy.

Information concerning the Company’s Insider Trading Policy is incorporated herein by reference from the Proxy Statement, a copy of which will be filed with the SEC not later than 120 days after the close of the fiscal year.

Executive Compensation

69 unchanged sentences

Summary of Annual Incentive Bonus program (9)

Form of Change in Control Agreement by and between United Business Bank and each of Harrison Lee, Isabella Mitchell and Mary Therese Curley

Code of Business Conduct and Ethics (10)

Insider trading policies and procedures

Subsidiaries of the Registrant (11)

25 unchanged sentences

(11) Incorporated herein by reference to Exhibit 21 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2019 (File No.

(12) Incorporated herein by reference to Exhibit 97 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2023 (File No.

Form 10-K Summary

13 unchanged sentences

Kendall, Chairman of the Board and Director

March 15, 2024

Camp, Director

/s/ Harpreet S.

1 unchanged sentence

Chaudhary, Director

/s/ Rocco Davis

March 15, 2024

Rocco Davis, Director

/s/ Robert G.

3 unchanged sentences

Magid, Director

/s/ Bhupen B.

March 14, 2025

Amin, Director

/s/ Dennis Guida

March 14, 2025

Dennis Guida, Director

March 14, 2025

King, Senior Executive Vice President, Chief Operating Officer and Director

3 unchanged sentences

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-K

Item 8. Financial Statements and Supplementary Data