What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-11-08 compared with 2023-08-08 · 267 added, 187 removed, 922 unchanged (33% of the section changed)

3 unchanged sentences

(in thousands, except share data;

unaudited) June 30, 2023 December 31, 2022

unaudited) September 30, 2023 December 31, 2022

Cash, cash equivalents and restricted cash $ 123,132 $ 45,424

Investment securities:

Held-to-maturity, at amortized cost (net of zero allowance for credit losses at June 30, 2023 and December 31, 2022)

Held-to-maturity, at amortized cost (net of zero allowance for credit losses at September 30, 2023 and December 31, 2022)

935,142 972,207

Available-for-sale, at fair value (net of zero allowance for credit losses at June 30, 2023 and December 31, 2022)

Available-for-sale, at fair value (net of zero allowance for credit losses at September 30, 2023 and December 31, 2022)

658,815 802,096

30 unchanged sentences

Authorized - 30,000,000 shares;

issued and outstanding - 16,107,192 and 16,029,138 at June 30, 2023 and December 31, 2022, respectively

issued and outstanding - 16,139,321 and 16,029,138 at September 30, 2023 and December 31, 2022, respectively

217,202 215,057

6 unchanged sentences

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

Three months ended Six months ended

Three months ended Nine months ended

(in thousands, except per share amounts;

unaudited) June 30, 2023 March 31, 2023 June 30, 2022 June 30, 2023 June 30, 2022

unaudited) September 30, 2023 June 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Interest income

16 unchanged sentences

Wealth Management and Trust Services 515 559 507 1,585 1,737

Earnings on bank-owned life insurance, net 362 705 298 1,067 711

Service charges on deposit accounts 508 520 535 1,561 1,488

Debit card interchange fees, net 456 555 502 1,458 1,538

Earnings on bank-owned life insurance, net 371 362 222 1,438 933

Dividends on Federal Home Loan Bank stock 324 290 251 916 759

Merchant interchange fees, net 117 127 141 377 430

Gains (losses) on sale of investment securities, net 14 — ( 63 ) 14 ( 63 )

Other income 293 326 628 923 1,496

8 unchanged sentences

Information technology 411 357 573 1,138 1,519

Charitable contributions 638 49 511 687 556

Amortization of core deposit intangible 335 340 370 1,020 1,124

Directors' expense 272 300 233 893 838

Charitable contributions 20 638 49 707 605

Other real estate owned — 44 350 48 355

14 unchanged sentences

Change in net unrealized gains or losses on available-for-sale securities ( 13,792 ) ( 10,928 ) ( 31,816 ) ( 8,507 ) ( 97,094 )

Reclassification adjustment for losses (gains) on available-for-sale securities included in net income 2,793 — 63 2,793 63

Reclassification adjustment for gains or losses for fair value hedge 367 — — 367 —

Net unrealized losses on securities transferred from available-for-sale to held-to-maturity — — — — ( 14,847 )

7 unchanged sentences

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

For the three months ended June 30, 2023 and 2022

For the three months ended September 30, 2023 and 2022

(in thousands, except share data;

4 unchanged sentences

Shares Amount

Three months ended June 30, 2023

Balance at April 1, 2023 16,107,210 $ 215,965 $ 276,209 $ ( 62,000 ) $ 430,174

Three months ended September 30, 2023

Balance at July 1, 2023 16,107,192 $ 216,589 $ 276,732 $ ( 69,380 ) $ 423,941

Net income — — 5,295 — 5,295

2 unchanged sentences

Stock issued under employee stock ownership plan 5,800 120 — — 120

Restricted stock surrendered for tax withholdings upon vesting ( 285 ) ( 4 ) — — ( 4 )

Restricted stock granted 12,550 — — — —

Restricted stock forfeited / cancelled ( 850 ) — — — —

3 unchanged sentences

— — ( 4,031 ) — ( 4,031 )

Balance at June 30, 2023 16,107,192 $ 216,589 $ 276,732 $ ( 69,380 ) $ 423,941

Three months ended June 30, 2022

Balance at April 1, 2022 16,003,847 $ 213,204 $ 246,511 $ ( 39,307 ) $ 420,408

Stock issued in payment of director fees 13,750 248 — — 248

Balance at September 30, 2023

16,139,321 $ 217,202 $ 277,996 $ ( 76,580 ) $ 418,618

Three months ended September 30, 2022

Balance at July 1, 2022 16,009,600 $ 213,864 $ 253,737 $ ( 58,028 ) $ 409,573

Net income — — 12,174 — 12,174

3 unchanged sentences

Stock issued under employee stock ownership plan 13,000 404 — — 404

Restricted stock surrendered for tax withholdings upon vesting ( 333 ) ( 11 ) — — ( 11 )

Restricted stock forfeited / cancelled ( 12,618 ) — — — —

Stock-based compensation - stock options — 106 — — 106

2 unchanged sentences

— — ( 4,004 ) — ( 4,004 )

Balance at June 30, 2022 16,009,600 $ 213,864 $ 253,737 $ ( 58,028 ) $ 409,573

Stock purchased by directors under director stock plan 515 16 — — 16

Stock issued in payment of director fees 4,996 163 — — 163

Balance at September 30, 2022

16,029,048 $ 214,720 $ 261,907 $ ( 80,035 ) $ 396,592

The accompanying notes are an integral part of these consolidated financial statements (unaudited).

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

For the six months ended June 30, 2023 and 2022

For the nine months ended September 30, 2023 and 2022

(in thousands, except share data;

4 unchanged sentences

Shares Amount

Six months ended June 30, 2023

Nine months ended September 30, 2023

Balance at January 1, 2023

16,029,138 $ 215,057 $ 270,781 $ ( 73,746 ) $ 412,092

Net income — — 19,285 — 19,285

Other comprehensive income, net of tax — — — 4,366 4,366

Other comprehensive loss, net of tax

— — — ( 2,834 ) ( 2,834 )

Stock options exercised, net of shares surrendered for cashless exercises and tax withholdings 11,530 230 — — 230

9 unchanged sentences

Stock issued in payment of director fees 18,362 398 — — 398

Balance at June 30, 2023 16,107,192 $ 216,589 $ 276,732 $ ( 69,380 ) $ 423,941

Six months ended June 30, 2022

Balance at September 30, 2023

16,139,321 $ 217,202 $ 277,996 $ ( 76,580 ) $ 418,618

Nine months ended September 30, 2022

Balance at January 1, 2022

15,929,243 $ 212,524 $ 239,868 $ ( 2,024 ) $ 450,368

Net income — — 33,705 — 33,705

10 unchanged sentences

— — ( 11,666 ) — ( 11,666 )

Stock purchased by directors under director stock plan 515 16 — — 16

Stock issued in payment of director fees 10,145 355 — — 355

Stock repurchased, including commissions ( 23,275 ) ( 877 ) — — ( 877 )

Balance at June 30, 2022 16,009,600 $ 213,864 $ 253,737 $ ( 58,028 ) $ 409,573

Balance at September 30, 2022

16,029,048 $ 214,720 $ 261,907 $ ( 80,035 ) $ 396,592

The accompanying notes are an integral part of these consolidated financial statements (unaudited).

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six months ended June 30, 2023 and 2022

For the nine months ended September 30, 2023 and 2022

(in thousands;

13 unchanged sentences

Write-down of other real estate owned 40 345

(Gains) losses on sale of investment securities, net ( 14 ) 63

Depreciation and amortization 1,705 1,259

7 unchanged sentences

Purchase of available-for-sale securities — ( 243,459 )

Proceeds from sale of available-for-sale securities 79,840 10,664

Proceeds from paydowns/maturities of held-to-maturity securities 37,046 33,198

Proceeds from paydowns/maturities of available-for-sale securities 50,749 112,793

(Increase) decrease in loans receivable, net ( 9,271 ) 93,875

Proceeds from sale of Visa Inc.

Class B restricted common stock 2,807 —

Decrease in loans receivable, net 6,634 97,935

Proceeds from bank-owned life insurance policies 766 350

Purchase of premises and equipment ( 1,737 ) ( 762 )

Proceeds from sale of other real estate owned 420 —

Cash paid for low income housing tax credit investment ( 39 ) ( 30 )

2 unchanged sentences

Net (decrease) increase in deposits ( 129,664 ) 94,160

Proceeds from short-term Federal Home Loan Bank borrowings, net 180,200 —

Proceeds from short-term borrowings, net 8,000 —

Repayment of finance lease obligations ( 112 ) ( 96 )

5 unchanged sentences

Net cash (used in) provided by financing activities ( 133,650 ) 81,991

Net decrease in cash, cash equivalents and restricted cash ( 5,767 ) ( 231,736 )

Net increase (decrease) in cash, cash equivalents and restricted cash 77,708 ( 162,089 )

Cash, cash equivalents and restricted cash at beginning of period 45,424 347,641

7 unchanged sentences

Amortization of net unrealized loss on available-for-sale securities transferred to held-to-maturity $ 1,325 $ 1,126

Purchase of investment securities not yet settled $ — $ 40,278

Stock issued to employee stock ownership plan $ 967 $ 1,233

25 unchanged sentences

Under the two-class method, the difference in EPS is nominal for these participating securities.

Three months ended Six months ended

(in thousands, except per share data) June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Three months ended Nine months ended

(in thousands, except per share data) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Weighted average basic common shares outstanding 16,028 15,939 16,002 15,912

25 unchanged sentences

We adopted the amendments on January 1, 2023, which had no effect on our existing hedge accounting, disclosures, financial condition or results of operations.

Accounting Standards Not Yet Effective

In March 2020, the FASB issued Accounting Standards Update ("ASU") No.

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An entity may elect the amendments in these updates at an interim period with adoption methods varying based on transaction type.

As of June 30, 2023, we had four interest rate swap contracts with notional values totaling $ 11.5 million indexed to LIBOR, which transitioned to the Secured Overnight Financing Rate ("SOFR") effective July 1, 2023.

As of September 30, 2023, we had four interest rate swap contracts with notional values totaling $ 11.3 million that were indexed to LIBOR, which transitioned to the Secured Overnight Financing Rate ("SOFR") effective July 1, 2023.

The transition to SOFR did not have a material impact to either our financial condition or results of operations.

Accounting Standards Not Yet Effective

In June 2022, the FASB issued ASU No.

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Changes in Fair Value Recorded In 1

June 30, 2023

September 30, 2023

Securities available-for-sale:

6 unchanged sentences

Corporate bonds $ 34,556 $ — $ 34,556 $ — OCI

Asset-backed securities $ 1,309 $ — $ 1,309 $ — OCI

Derivative financial assets (interest rate contracts) $ 631 $ — $ 631 $ — NI

Derivative financial assets (interest rate contracts - loans) $ 854 $ — $ 854 $ — NI

Derivative financial assets (interest rate contracts - AFS securities) $ 367 $ — $ 367 $ — NI

December 31, 2022

8 unchanged sentences

Asset-backed securities $ 1,462 $ — $ 1,462 $ — OCI

Derivative financial assets (interest rate contracts) $ 602 $ — $ 602 $ — NI

Derivative financial assets (interest rate contracts - loans) $ 602 $ — $ 602 $ — NI

1 Other comprehensive income ("OCI") or net income ("NI").

6 unchanged sentences

agencies or government-sponsored agencies' debt securities, mortgage-backed securities, government agency-issued, and corporate bonds.

As of June 30, 2023 and December 31, 2022, there were no Level 3 securities.

As of September 30, 2023 and December 31, 2022, there were no Level 3 securities.

Held-to-maturity securities may be subject to an allowance for credit losses as a result of our evaluation of expected losses due to credit quality factors.

We did not record any credit loss expense on held-to-maturity securities during the six months ended June 30, 2023 or June 30, 2022.

We did not record any credit loss expense on held-to-maturity securities during the nine months ended September 30, 2023 or September 30, 2022.

Fair value of held-to-maturity securities is determined using the same techniques discussed above for available-for-sale securities.

3 unchanged sentences

These unobservable inputs are not considered significant inputs to the fair value measurement overall.

Level 2 inputs for the valuations are limited to observable market prices for London Interbank Offered Rate ("LIBOR") and Overnight Index Swap ("OIS") rates (for the very short term), quoted prices for LIBOR futures contracts, observable market prices for LIBOR and OIS swap rates, and one-month and three-month LIBOR basis spreads at commonly quoted intervals.

Level 2 inputs for the valuations are limited to observable market prices for Secured Overnight Financing Rate ("SOFR") and Overnight Index Swap ("OIS") rates (for the very short term), quoted prices for SOFR futures contracts, observable market prices for SOFR and OIS swap rates, and one-month and three-month SOFR basis spreads at commonly quoted intervals.

Mid-market pricing of the inputs is used as a practical expedient in the fair value measurements.

We project spot rates at reset days specified by each swap contract to determine future cash flows, then discount to present value using OIS curves as

of the measurement date.

We project spot rates at reset days specified by each swap contract to determine future cash flows, then discount to present value using OIS curves as of the measurement date.

When the value of any collateral placed with counterparties is less than the interest rate derivative liability, a credit valuation adjustment ("CVA") is applied to reflect the credit risk we pose to counterparties.

We have used the spread between the Standard & Poor's BBB rated U.S.

Bank Composite rate and LIBOR for the closest maturity term corresponding to the duration of the swaps to derive the CVA.

A similar credit risk adjustment, correlated to the credit standing of the counterparty, is made when collateral posted by the counterparty does not fully cover their liability to us.

Bank Composite rate and

SOFR for the closest maturity term corresponding to the duration of the swaps to derive the CVA.

Because there is little to no counterparty risk, we did not incorporate credit adjustments from our assessment of the counterparty credit risk in determining fair value.

For further discussion on our methodology in valuing our derivative financial instruments, refer to Note 9, Derivative Financial Instruments and Hedging Activities.

1 unchanged sentence

These assets are subject to fair value adjustments that result from the application of the lower of cost or fair value accounting or write-downs of individual assets, such as individually analyzed loans that are collateral dependent and other real estate owned ("OREO").

OREO represents collateral acquired through foreclosure and is initially recorded at fair value as established by a current appraisal of the collateral.

OREO is classified as Level 3 and represents collateral acquired through foreclosure and is initially recorded at fair value as established by a current appraisal of the collateral.

Subsequent to foreclosure, OREO is carried at the lower of cost or fair value, less estimated costs to sell.

OREO values are reviewed on an ongoing basis and any subsequent decline in fair value is recorded as a foreclosed asset expense in the current period.

The value of OREO is classified as Level 3.

Our current OREO resulted from the American River Bankshares ("AMRB") merger in 2021.

The following table presents the carrying value of assets measured at fair value on a non-recurring basis and that were held in the consolidated statements of condition at each respective period end, by level within the fair value hierarchy as of June 30, 2023 and December 31, 2022.

On July 12, 2023, the Bank completed the sale of its only OREO property.

(in thousands) Carrying Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs

(Level 2) Significant Unobservable Inputs

June 30, 2023

September 30, 2023

Other real estate owned $ — $ — $ — $ —

1 unchanged sentence

Other real estate owned $ 455 $ — $ — $ 455

On July 12, 2023, the Bank completed the sale of its only other real estate owned property and realized a negligible gain after sales costs.

Disclosures about Fair Value of Financial Instruments

The table below is a summary of fair value estimates for financial instruments as of June 30, 2023 and December 31, 2022, excluding financial instruments recorded at fair value on a recurring basis (summarized in the first table in this note).

The table below is a summary of fair value estimates for financial instruments as of September 30, 2023 and December 31, 2022, excluding financial instruments recorded at fair value on a recurring basis (summarized in the first table in this note).

The carrying amounts in the following table are recorded in the consolidated statements of condition under the indicated captions.

Further, we have not disclosed the fair value of financial instruments specifically excluded from disclosure requirements such as bank-owned life insurance policies ("BOLI"), lease obligations and non-maturity deposit liabilities.

Additionally, we held shares of Federal Home Loan Bank ("FHLB") of San Francisco stock at cost and Visa Inc.

Class B common stock with no carrying value, as there was no impairment or changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer as of June 30, 2023 or December 31, 2022.

Additionally, we held shares of Federal Home Loan Bank ("FHLB") of San Francisco stock at cost as of September 30, 2023 and December 31, 2022, and Visa Inc.

Class B common stock with no carrying value, as of December 31, 2022, which was sold entirely in July of 2023.

There were no impairment or changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer as of September 30, 2023 or December 31, 2022.

The values are discussed in Note 4, Investment Securities.

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in thousands) Carrying Amounts Fair Value Fair Value Hierarchy Carrying Amounts Fair Value Fair Value Hierarchy

7 unchanged sentences

Federal Home Loan Bank short-term borrowings — — Level 2 112,000 112,000 Level 2

Federal Reserve Bank - Bank Term Funding Program ("BTFP") 120,000 119,882 Level 2 — — Level 2

Interest payable 1,643 1,643 Level 2 75 75 Level 2

Fair value of loans is based on exit price techniques and obtained from an independent third-party that uses its proprietary valuation model and methodology and may differ from actual price from a prospective buyer.

The discounted cash flow valuation approach reflects key inputs and assumptions that are unobservable, such as loan probability of default, loss given default, prepayment speed, and market discount rates.

discounted cash flow valuation approach reflects key inputs and assumptions that are unobservable, such as loan probability of default, loss given default, prepayment speed, and market discount rates.

Fair value of fixed-rate time deposits is estimated by discounting future contractual cash flows using discount rates that reflect the current observable market rates offered for time deposits of similar remaining maturities.

Due to the short-term nature of the FHLB borrowings, the carrying value approximates fair value.

Due to the short-term nature of the FHLB borrowings outstanding as of December 31, 2022, the carrying value approximated fair value.

The fair value of the borrowings under the BTFP is estimated by discounting the contractual cash flow using the program's period end financing rate.

The value of off-balance-sheet financial instruments is estimated based on the fee income associated with the commitments, which in the absence of credit exposure, is considered to approximate their settlement value.

The fair value of commitment fees was not material as of June 30, 2023 or December 31, 2022.

The fair value of commitment fees was not material as of September 30, 2023 or December 31, 2022.

Investment Securities

2 unchanged sentences

federal government agencies such as Government National Mortgage Association ("GNMA") and Small Business Administration ("SBA"), U.S.

government-sponsored enterprises ("GSEs"), such as Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Farm Credit Banks Funding Corporation and FHLB, U.S.

Corporations and one asset-backed security collateralized by student loan pools.

Corporations.

We also invest in residential and commercial mortgage-backed securities (“MBS”/"CMBS") and collateralized mortgage obligations (“CMOs”) issued or guaranteed by the GSEs, as reflected in the following table.

A summary of the amortized cost, fair value and allowance for credit losses related to securities held-to-maturity as of June 30, 2023 and December 31, 2022 is presented below.

A summary of the amortized cost, fair value and allowance for credit losses related to securities held-to-maturity as of September 30, 2023 and December 31, 2022 is presented below.

Held-to-maturity:

2 unchanged sentences

(in thousands) Gains (Losses)

June 30, 2023

September 30, 2023

Securities of U.S.

21 unchanged sentences

Total held-to-maturity $ 972,207 $ — $ 972,207 $ 70 $ ( 127,038 ) $ 845,239

1 Amortized cost and fair values exclude accrued interest receivable of $ 3.6 million and $ 3.7 million at June 30, 2023 and December 31, 2022, respectively, which is included in interest receivable and other assets in the consolidated statements of condition.

1 Amortized cost and fair values exclude accrued interest receivable of $ 2.6 million and $ 3.7 million at September 30, 2023 and December 31, 2022, respectively, which is included in interest receivable and other assets in the consolidated statements of condition.

Management measures expected credit losses on held-to-maturity securities collectively by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

With regard to MBSs and CMOs issued or guaranteed by the GSEs, and SBA-backed securities, we expect to receive all the contractual principal and interest on these securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S.

With regard to MBSs and CMOs issued or

guaranteed by the GSEs, and SBA-backed securities, we expect to receive all the contractual principal and interest on these securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S.

Accordingly, no allowance for credit losses has been recorded for these securities.

1 unchanged sentence

(i) issuer and/or guarantor credit ratings, (ii) historical probability of default and loss given default rates for given bond ratings and remaining maturity, (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities, (iv) internal credit review of the financial information, and (v) whether or not such securities have credit enhancements such as guarantees, contain a defeasance clause, or are pre-refunded by the issuers.

Based on our comprehensive analysis, no cr edit losses are expected.

The following table summarizes the amortized cost of our portfolio of held-to-maturity securities issued by states and political subdivisions and corporate bonds by Moody's and/or Standard & Poor's bond ratings as of June 30, 2023.

Obligations of state and political subdivisions Corporate bonds

(in thousands) June 30, 2023 December 31, 2022 June 30, 2023 December 31, 2022

Based on our comprehensive anal ysis, no cred it losses are expected.

Moody's / S&P Obligations of state and political subdivisions Corporate bonds

(in thousands) September 30, 2023 December 31, 2022 September 30, 2023 December 31, 2022

Aaa / AAA $ 42,680 $ 42,986 $ — $ —

2 unchanged sentences

Total $ 62,151 $ 62,500 $ 30,000 $ 30,000

A summary of the amortized cost, fair value and allowance for credit losses related to securities available-for-sale as of June 30, 2023 and December 31, 2022 is presented below.

A summary of the amortized cost, fair value and allowance for credit losses related to securities available-for-sale as of September 30, 2023 and December 31, 2022 is presented below.

Available-for-sale:

2 unchanged sentences

(in thousands) Gains (Losses)

June 30, 2023

September 30, 2023

Securities of U.S.

9 unchanged sentences

Corporate bonds 36,991 — ( 2,435 ) — 34,556

Asset-backed securities 1,365 — ( 56 ) — 1,309

Total available-for-sale $ 755,038 $ 2 $ ( 96,225 ) $ — $ 658,815

13 unchanged sentences

Total available-for-sale $ 892,605 $ 34 $ ( 90,543 ) $ — $ 802,096

1 Amortized cost and fair value exclude accrued interest receivable of $ 3.1 million and $ 3.2 million at June 30, 2023 and December 31, 2022, respectively, which is included in interest receivable and other assets in the consolidated statements of condition.

1 Amortized cost and fair value exclude accrued interest receivable of $ 2.7 million and $ 3.2 million at September 30, 2023 and December 31, 2022, respectively, which is included in interest receivable and other assets in the consolidated statements of condition.

As part of our ongoing review of our investment securities portfolio, we reassessed the classification of certain securities issued by government sponsored agencies.

3 unchanged sentences

Because these entries offset each other, there was no impact to net income.

The amortized cost a nd fair value of investment debt securities by contractual maturity at June 30, 2023 and December 31, 2022 are shown below.

The amortized cost a nd fair value of investment debt securities by contractual maturity at September 30, 2023 and December 31, 2022 are shown below.

Expected maturities may differ from contractual maturities if the issuers of the securities have the right to call or prepay obligations with or without call or prepayment penalties.

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Held-to-Maturity Available-for-Sale Held-to-Maturity Available-for-Sale

5 unchanged sentences

Total $ 935,142 $ 783,216 $ 755,038 $ 658,815 $ 972,207 $ 845,239 $ 892,605 $ 802,096

There were no sales of investment securities in either the first half of 2023 or 2022.

However, in July 2023, the Bank sold $ 82.7 million of available-for-sale securities for a net loss of $ 2.8 million.

In addition, on July 13, 2023, the Bank sold its remaining investment in Visa Inc.

Class B restricted common stock, which had a zero carrying value, for a $ 2.8 million gain.

Three months ended

Sales of investment securities and gross gains and losses are shown in the following table:

Three months ended Nine months ended

(in thousands) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Available-for-sale:

Sales proceeds $ 79,840 $ 10,664 $ 79,840 $ 10,664

Gross realized gains 5 17 5 17

Gross realized losses ( 2,798 ) ( 80 ) ( 2,798 ) ( 80 )

Sale of equity securities:

Sales proceeds 2,807 — 2,807 —

Gross realized gain 2,807 — 2,807 —

1 Refer to VISA Inc.

Class B Common Stock section below for more information.

In October 2023, the Bank sold $ 55.0 million of available-for-sale securities for a pretax net loss of $ 2.1 million (or $ 1.5 million after tax).

Management did not have the intent and was not required to sell these securities at the reporting date.

Therefore, no impairment loss was recognized in the third quarter of 2023.

The carrying values of pledged investment securities are shown in the following table:

(in thousands) June 30, 2023 December 31, 2022

(in thousands) September 30, 2023 December 31, 2022

Pledged to the State of California:

5 unchanged sentences

Pledged to FHLB Securities-Backed Credit Program 386,713 —

Pledged to the Federal Reserve Bank Term Funding Program ("BTFP") 274,215 —

Pledged to the Federal Reserve BTFP 269,961 —

Total pledged investment securities $ 863,127 $ 234,226

There were 396 and 407 securities in unrealized loss positions at June 30, 2023 and December 31, 2022, respectively.

There were 331 and 407 securities in unrealized loss positions at September 30, 2023 and December 31, 2022, respectively.

Those securities are summarized and classified according to the duration of the loss period in the tables below:

June 30, 2023 < 12 continuous months ≥ 12 continuous months Total securities

September 30, 2023 < 12 continuous months ≥ 12 continuous months Total securities

in a loss position

49 unchanged sentences

Total securities at loss position $ 714,008 $ ( 57,620 ) $ 903,222 $ ( 159,961 ) $ 1,617,230 $ ( 217,581 )

As of June 30, 2023, the investment portfolio included 373 investment securities that had been in a continuous loss position for twelve months or more and 23 investment securities that had been in a loss position for less than twelve months.

As of September 30, 2023, the investment portfolio included 323 investment securities that had been in a continuous loss position for twelve months or more and 8 investment securities that had been in a loss position for less than twelve months.

Securities issued by government-sponsored enterprises, such as FNMA and FHLMC, usually have implicit credit support by the U.S.

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Our investment in obligations of state and political subdivisions bonds are deemed credit worthy after our comprehensive analysis of the issuers' latest financial information, credit ratings by major credit agencies, and/or credit enhancements.

No allowances for credit losses have been recognized on available-for-sale securities in an unrealized loss position, as management does not believe any of the securities are impaired due to credit risk factors at either June 30, 2023 or December 31, 2022.

On July 7, 2023, the Bank entered into various interest rate swap agreements with notional values totaling $ 101.8 million to hedge balance sheet interest rate sensitivity and protect selected securities in its available-for-sale portfolio against changes in fair value related to changes in the benchmark interest rate.

No allowances for credit losses have been recognized on available-for-sale securities in an unrealized loss position, as management did not believe any of the securities were impaired due to credit risk factors at either September 30, 2023 or December 31, 2022.

In addition, for any available-for-sale securities in an unrealized loss position at September 30, 2023 and December 31, 2022, the Bank assessed whether it intended to sell the securities, or if it was more likely than not that it would be required to sell the securities before recovery of its amortized cost basis, which would require a write-down to fair value through net income.

Because the Bank did not intend to sell those securities that were in an unrealized loss position, and it was not more-likely-than-not that the Bank would be required to sell the securities before recovery of their amortized cost bases, the Bank determined that no write-down was necessary as of the reporting date.

portfolio against changes in fair value related to changes in the benchmark interest rate.

For additional details, refer to Note 9, Derivative Financial Instruments and Hedging Activities.

4 unchanged sentences

Shares cannot be purchased or sold except between the FHLB and its members at the $ 100 per share par value.

We held $ 16.7 million of FHLB stock included in other assets on the consolidated statements of condition at both June 30, 2023 and December 31, 2022.

We held $ 16.7 million of FHLB stock included in other assets on the consolidated statements of condition at both September 30, 2023 and December 31, 2022.

The carrying amounts of these investments are reasonable estimates of fair value because the securities are restricted to member banks and they do not have a readily determinable market value.

Based on our analysis of FHLB's financial condition and certain qualitative factors, we determined that the FHLB stock was not impaired at June 30, 2023 and December 31, 2022.

On July 27, 2023, FHLB announced a cash dividend for the second quarter of 2023 at an annualized dividend rate of 7.75 % to be distributed on August 10, 2023.

Based on our analysis of FHLB's financial condition and certain qualitative factors, we determined that the FHLB stock w as not im paired at September 30, 2023 and December 31, 2022.

On October 26, 2023, FHLB announced a cash dividend for the third quarter of 2023 at an annualized dividend rate of 8.25 % to be distributed on Novembe r 9, 20 23.

Cash dividends paid on FHLB capital stock are recorded as non-interest income.

1 unchanged sentence

As a member bank of Visa U.S.A., we held 10,439 shares of Visa Inc.

Class B common stock at June 30, 2023 and December 31, 2022.

Class B common stock at December 31, 2022.

These shares had a carrying value of zero and were restricted from resale to non-member banks of Visa U.S.A.

5 unchanged sentences

Low Income Housing Tax Credits

We invest in low-income housing tax credit funds as a limited partner, which totaled $ 2.3 million and $ 2.5 million recorded in other assets as of June 30, 2023 and December 31, 2022, respectively.

In the first six months of 2023, we recognized $ 300 thousand of low-income housing tax credits and other tax benefits, offset by $ 252 thousand of amortization expense of low-income housing tax credit investment, as a component of income tax expense.

As of June 30, 2023, our unfunded commitments for these low-income housing tax credit funds totaled $ 346 thousand.

We did not recognize any impairment losses on these low-income housing tax credit investments during the first six months of 2023 or 2022, as the value of the future tax benefits exceeds the carrying value of the investments.

We invest in low-income housing tax credit funds as a limited partner, which totaled $ 2.1 million and $ 2.5 million recorded in other assets as of September 30, 2023 and December 31, 2022, respectively.

In the first nine months of 2023, we recognized $ 450 thousand of low-income housing tax credits and other tax benefits, offset by $ 377 thousand of amortization expense of low-income housing tax credit investment, as a component of income tax expense.

As of September 30, 2023, our unfunded commitments for these low-income housing tax credit funds totaled $ 346 thousand.

We did not recognize any impairment losses on these low-income housing tax credit investments during the first nine months of 2023 or 2022, as the value of the future tax benefits exceeds the carrying value of the investments.

Loans and Allowance for Credit Losses on Loans

The following table presents the amortized cost of loans by class as of June 30, 2023 and December 31, 2022.

(in thousands) June 30, 2023 December 31, 2022

The following table presents the amortized cost of loans by portfolio class as of September 30, 2023 and December 31, 2022.

(in thousands) September 30, 2023 December 31, 2022

Commercial and industrial $ 174,096 $ 173,547

9 unchanged sentences

Total loans, net of allowance for credit losses on loans $ 2,062,682 $ 2,069,563

1 Amortized cost includes net deferred loan origination costs of $ 2.4 million and $ 1.8 million at June 30, 2023 and December 31, 2022, respectively.

Amounts are also net of unrecognized purchase discounts of $ 2.2 million and $ 2.6 million at June 30, 2023 and December 31, 2022, respectively.

Amortized cost excludes accrued interest, which totaled $ 6.0 million and $ 6.1 million at June 30, 2023 and December 31, 2022, respectively, and is included in interest receivable and other assets in the consolidated statements of condition.

1 Amortized cost includes net deferred loan origination costs of $ 2.6 million and $ 1.8 million at September 30, 2023 and December 31, 2022, respectively.

Amounts are also net of unrecognized purchase discounts of $ 2.2 million and $ 2.6 million at September 30, 2023 and December 31, 2022, respectively.

Amortized cost excludes accrued interest, which totaled $ 6.3 million and $ 6.1 million at September 30, 2023 and December 31, 2022, respectively, and is included in interest receivable and other assets in the consolidated statements of condition.

Lending Risks

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Pass and Watch - Loans to borrowers of acceptable or better credit quality.

Borrowers in this category demonstrate fundamentally sound financial positions, repayment capacity, credit history and management expertise.

Borrowers in this category demonstrate fundamentally sound financial positions, repayment capacity, credit history and management

Loans in this category must have an identifiable and stable source of repayment and meet the Bank’s policy regarding debt-service-coverage ratios.

These borrowers are capable of sustaining normal economic, market

or operational setbacks without significant financial consequences.

These borrowers are capable of sustaining normal economic, market or operational setbacks without significant financial consequences.

Negative external industry factors are generally not present.

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We also review loans graded “Watch” or worse, regardless of loan type, no less than quarterly.

The following tables present the loan portfolio by loan class, origination year and internal risk rating as of June 30, 2023 and December 31, 2022.

The current year vintage table reflects gross charge-offs by loan class and year of origination.

The following tables present the loan portfolio by loan portfolio class, origination year and internal risk rating as of September 30, 2023 and December 31, 2022.

The current year vintage table reflects gross charge-offs by loan portfolio class and year of origination.

Generally, existing term loans that were re-underwritten are reflected in the table in the year of renewal.

1 unchanged sentence

(in thousands) Term Loans - Amortized Cost by Origination Year Revolving Loans Amortized Cost

June 30, 2023 2023 2022 2021 2020 2019 Prior Total

September 30, 2023 2023 2022 2021 2020 2019 Prior Total

Commercial and industrial:

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(in thousands) Term Loans - Amortized Cost by Origination Year Revolving Loans Amortized Cost

June 30, 2023 2023 2022 2021 2020 2019 Prior Total

September 30, 2023 2023 2022 2021 2020 2019 Prior Total

Construction:

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Totals $ 338,104 $ 336,584 $ 280,304 $ 269,247 $ 198,510 $ 496,053 $ 173,744 $ 2,092,546

The following table shows the amortized cost of loans by class, payment aging and non-accrual status as of June 30, 2023 and December 31, 2022.

The following table shows the amortized cost of loans by portfolio class, payment aging and non-accrual status as of September 30, 2023 and December 31, 2022.

Loan Aging Analysis by Class

(in thousands) Commercial and industrial Commercial real estate, owner-occupied Commercial real estate, non-owner occupied Construction Home equity Other residential Installment and other consumer Total

June 30, 2023

September 30, 2023

30-59 days past due $ 1,321 $ — $ 797 $ — $ — $ — $ 97 $ 2,215

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Non-accrual loans with no allowance $ — $ 1,563 $ — $ — $ 778 $ — $ 91 $ 2,432

1 There were no non-performing loans past due more than ninety days and accruing interest as of June 30, 2023 and December 31, 2022.

2 None of the non-accrual loans as of June 30, 2023 or December 31, 2022 were earning interest on a cash basis.

We recognized no interest income on non-accrual loans for the three and six months ended June 30, 2023 and 2022.

We reversed interest income of $ 14 thousand and less than $ 8 thousand for loans on non-accrual status during the six months ended June 30, 2023 and June 30, 2022, respectively.

1 There were no non-performing loans past due more than ninety days and accruing interest as of September 30, 2023 and December 31, 2022.

2 None of the non-accrual loans as of September 30, 2023 or December 31, 2022 were earning interest on a cash or accrual basis.

We reversed $ 131 thousand and $ 158 thousand in accrued interest income for loans that were placed on non-accrual status for the three and nine months ended September 30, 2023.

We reversed accrued interest income of $ 39 thousand and $ 47 thousand for loans that were placed on non-accrual status during the three and nine months ended September 30, 2022, respectively.

Collateral Dependent Loans

The following table presents the amortized cost basis of individually analyzed collateral-dependent loans, which are all on non-accrual status, by class at June 30, 2023 and December 31, 2022.

The following table presents the amortized cost basis of individually analyzed collateral-dependent loans, which are all on non-accrual status, by portfolio class at September 30, 2023 and December 31, 2022.

Amortized Cost by Collateral Type

1 unchanged sentence

Allowance for Credit Losses

June 30, 2023

September 30, 2023

Commercial real estate, owner-occupied $ 4,281 $ — $ — $ 4,281 $ —

7 unchanged sentences

Total $ 1,563 $ 778 $ 91 $ 2,432 $ —

1 There were no collateral-dependent residential real estate mortgage loans in process of foreclosure or in substance repossessed at June 30, 2023 or December 31, 2022.

The weighted average loan-to-value of collateral dependent loans was approximately 40 % at June 30, 2023 and 42 % at December 31, 2022.

Loan Modifications

1 There were no collateral-dependent residential real estate mortgage loans in process of foreclosure or in substance repossessed at September 30, 2023 and December 31, 2022.

The weighted average loan-to-value of collateral dependent loans was approximately 61 % at September 30, 2023 and 42 % at December 31, 2022.

Loan Modifications to Borrowers Experiencing Financial Difficulty

We adopted ASU No.

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Troubled Debt Restructurings and Vintage Disclosures on January 1, 2023, as described in Note 2, Recently Adopted and Issued Accounting Standards.

The amendments enhanced disclosures related to certain types of loan modifications for borrowers experiencing financial difficulty, including principal forgiveness, interest rate reductions, other-than-insignificant payment delays, and/or term extensions.

There were no material modifications during the six months ended June 30, 2023 requiring disclosure.

The amendments eliminated the accounting guidance for troubled debt restructurings and enhanced disclosures related to certain types of loan modifications for borrowers experiencing financial difficulty, including principal forgiveness, interest rate reductions, other-than-insignificant payment delays, and/or term extensions which are intended to minimize the economic loss and avoid foreclosure or repossession of collateral.

The following table summarizes the amortized cost of loans as of September 30, 2023 that were modified during the three and nine months ended September 30, 2023 by portfolio class and type of modification granted.

(in thousands) Term Extension

Percent of Portfolio Class Total

Three months ended September 30, 2023

Commercial and industrial $ 391 0.2 %

Commercial owner-occupied 1,056 0.3 %

Nine months ended September 30, 2023

Commercial and industrial $ 391 0.2 %

Commercial owner-occupied 1,056 0.3 %

As of September 30, 2023, there were no unfunded loan commitments for loans that were modified during the periods presented.

The following table summarizes the financial effect of loan modifications presented in the table above during the three and nine months ended September 30, 2023 by portfolio class.

(in thousands) Weighted-Average Term Extension (in years)

Three months ended September 30, 2023

Commercial and industrial 2.3

Commercial owner-occupied 2.5

Nine months ended September 30, 2023

Commercial and industrial 2.3

Commercial owner-occupied 2.5

The loan modifications did not significantly impact the determination of the allowance for credit losses on loans during the three and nine months ended September 30, 2023.

The Bank closely monitors the performance of the modified loans to understand the effectiveness of its modification efforts.

The following table summarizes the amortized cost and payment status of loans as of September 30, 2023 that were modified during the three and nine months ended September 30, 2023 by portfolio class.

(in thousands) Current

30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due

Three months ended September 30, 2023

Commercial and industrial $ 391 $ — $ — $ — $ 391 $ —

Commercial owner-occupied 1,056 — — — 1,056 —

$ 1,447 $ — $ — $ — $ 1,447 $ —

Nine months ended September 30, 2023

Commercial and industrial $ 391 $ — $ — $ — $ 391 $ —

Commercial owner-occupied 1,056 — — — 1,056 —

$ 1,447 $ — $ — $ — $ 1,447 $ —

There were no loans that defaulted (fully or partially charged-off or became 90 days or more past due) that were modified during the nine months ended September 30, 2023.

Allocation of the Allowance for Credit Losses on Loans

The following table presents the details of the allowance for credit losses on loans segregated by loan portfolio segments as of June 30, 2023 and December 31, 2022 .

The following table presents the details of the allowance for credit losses on loans segregated by loan portfolio class as of September 30, 2023 and December 31, 2022 .

Allocation of the Allowance for Credit Losses on Loans

June 30, 2023

September 30, 2023

Modeled expected credit losses $ 1,042 $ 1,315 $ 7,324 $ 213 $ 494 $ 566 $ 613 $ — $ 11,567

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Three months ended June 30, 2023

Three months ended September 30, 2023

Beginning balance $ 1,831 $ 2,589 $ 13,201 $ 1,942 $ 561 $ 599 $ 940 $ 2,169 $ 23,832

3 unchanged sentences

Ending balance $ 1,808 $ 2,530 $ 13,624 $ 2,018 $ 565 $ 605 $ 951 $ 2,159 $ 24,260

Three months ended June 30, 2022

Three months ended September 30, 2022

Beginning balance $ 1,699 $ 2,617 $ 12,439 $ 1,737 $ 530 $ 585 $ 733 $ 2,199 $ 22,539

(Reversal) Provision ( 89 ) ( 5 ) 138 12 ( 19 ) ( 43 ) 112 ( 106 ) —

Provision (Reversal) 265 ( 81 ) 299 38 12 5 83 ( 199 ) 422

(Charge-offs) ( 9 ) — — — — — ( 1 ) — ( 10 )

3 unchanged sentences

(in thousands) Commercial and industrial Commercial real estate, owner-occupied Commercial real estate, investor Construction Home equity Other residential Installment and other consumer Unallocated Total

Six months ended June 30, 2023

Nine months ended September 30, 2023

Beginning balance $ 1,794 $ 2,487 $ 12,676 $ 1,937 $ 558 $ 595 $ 868 $ 2,068 $ 22,983

Provision (Reversal)

16 43 948 56 7 10 104 91 1,275

Charge-offs ( 7 ) — — — — — ( 22 ) — ( 29 )

1 unchanged sentence

Ending balance $ 1,808 $ 2,530 $ 13,624 $ 2,018 $ 565 $ 605 $ 951 $ 2,159 $ 24,260

Six months ended June 30, 2022

Nine months ended September 30, 2022

Beginning balance $ 1,709 $ 2,776 $ 12,739 $ 1,653 $ 595 $ 644 $ 621 $ 2,286 $ 23,023

(Reversal) Provision ( 17 ) ( 159 ) ( 300 ) 68 ( 65 ) ( 59 ) 134 ( 87 ) ( 485 )

Provision (Reversal) 248 ( 240 ) ( 1 ) 106 ( 53 ) ( 54 ) 217 ( 286 ) ( 63 )

Charge-offs ( 9 ) — — — — — ( 23 ) — ( 32 )

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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 $ 1.293 billion and $ 1.298 billion at June 30, 2023 and December 31, 2022, respectively.

In addition, we pledge eligible TIC loans, which totaled $ 109.0 million and $ 105.0 million at June 30, 2023 and December 31, 2022, respectively, to secure our borrowing capacity with the Federal Reserve Bank ("FRB").

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 $ 1.299 billion and $ 1.298 billion at September 30, 2023 and December 31, 2022, respectively.

In addition, we pledge eligible TIC loans, which totaled $ 108.5 million and $ 105.0 million at September 30, 2023 and December 31, 2022, respectively, to secure our borrowing capacity with the Federal Reserve Bank ("FRB").

For additional information, see Note 6, Borrowings.

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Likewise, these transactions do not involve more than the normal risk of collectability or present other unfavorable features.

Related party loans totaled $ 6.3 million at June 30, 2023 and $ 6.4 million at December 31, 2022.

In addition, undisbursed commitments to related parties totaled $ 562 thousand at both June 30, 2023 and December 31, 2022.

Related party loans totaled $ 6.3 million at September 30, 2023 and $ 6.4 million at December 31, 2022.

In addition, undisbursed commitments to related parties totaled $ 562 thousand at both September 30, 2023 and December 31, 2022.

Short-Term Borrowings and Other Obligations

Federal Home Loan Bank – As of June 30, 2023 and December 31, 2022, the Bank had total lines of credit with the FHLB totaling $ 1.034 billion and $ 711.6 million, respectively, based on eligible collateral of certain loans and investment securities.

Federal Funds Lines of Credit – The Bank had unsecured lines of credit with correspondent banks for overnight borrowings totaling $ 135.0 million and $ 150.0 million at June 30, 2023 and December 31, 2022, respectively.

Federal Home Loan Bank – As of September 30, 2023 and December 31, 2022, the Bank had total lines of credit with the FHLB totaling $ 1.023 billion and $ 711.6 million, respectively, based on eligible collateral of certain loans and investment securities.

Federal Funds Lines of Credit – The Bank had unsecured lines of credit with correspondent banks for overnight borrowings totaling $ 135.0 million and $ 150.0 million at September 30, 2023 and December 31, 2022, respectively.

In general, interest rates on these lines approximate the federal funds target rate.

Federal Reserve Bank – The Bank has a line of credit with the Federal Reserve Bank of San Francisco ("FRBSF") secured by certain residential loans.

At June 30, 2023 and December 31, 2022, the Bank had total borrowing capacity under this line of $ 58.0 million and $ 58.7 million, respectively.

In addition, under the Federal Reserve’s new BTFP facility, the Bank could borrow up to an additional $ 279.0 million based on the par value of pledged investment securities as of June 30, 2023 .

Other Obligations – Finance lease liabilities totaling $ 372 thousand and $ 439 thousand at June 30, 2023 and December 31, 2022, respectively, are included in short-term borrowings and other obligations in the consolidated statements of condition.

At September 30, 2023 and December 31, 2022, the Bank had total borrowing capacity under this line of $ 57.3 million and $ 58.7 million, respectively.

In addition, under the Federal Reserve’s BTFP facility, the Bank could borrow up to an additional $ 274.6 million based on the par value of pledged investment securities as of September 30, 2023 .

Other Obligations – Finance lease liabilities totaling $ 335 thousand and $ 439 thousand at September 30, 2023 and December 31, 2022, respectively, are included in short-term borrowings and other obligations in the consolidated statements of condition.

See Note 8, Commitments and Contingencies, for additional information.

Outstanding balances and weighted average interest rates on short-term borrowings and other obligations as of June 30, 2023 and December 31, 2022 are summarized in the following table.

June 30, 2023 December 31, 2022

Outstanding balances and weighted average interest rates on short-term borrowings and other obligations as of September 30, 2023 and December 31, 2022 are summarized in the following table.

September 30, 2023 December 31, 2022

(dollars in thousands) Outstanding Balance Weighted

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Stockholders' Equity

On April 21, 2023, Bancorp declared a $ 0.25 per share cash dividend, paid May 12, 2023 to shareholders of record at the close of business on May 5, 2023.

Subsequent to quarter end on July 21, 2023, Bancorp declared a $ 0.25

per share cash dividend, payable on August 11, 2023 to shareholders of record at the close of business on August 4, 2023.

On July 21, 2023, Bancorp declared a $ 0.25 per share cash dividend, paid August 11, 2023 to shareholders of record at the close of business on August 4, 2023.

Subsequent to quarter end on October 20, 2023, Bancorp declared a $ 0.25 per share cash dividend, payable on November 10, 2023 to shareholders of record at the close of business on November 3, 2023.

Share-Based Payments

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Stock options and restricted stock may be net settled in a cashless exercise by a reduction in the number of shares otherwise deliverable upon exercise or vesting in satisfaction of the exercise payment and/or applicable tax withholding requirements.

During the six months ended June 30, 2023, we withheld 3,132 shares totaling $ 86 thousand at a weighted-average price of $ 27.57 for cashless exercises.

During the six months ended June 30, 2022, we withheld 10,208 shares totaling $ 351 thousand at a weighted-average price of $ 34.38 for cashless exercises.

During the nine months ended September 30, 2023, we withheld 3,132 shares totaling $ 86 thousand at a weighted-average price of $ 27.57 for cashless exercises.

During the nine months ended September 30, 2022, we withheld 11,505 shares totaling $ 393 thousand at a weighted-average price of $ 34.13 for cashless exercises.

Shares withheld under net settlement arrangements are available for future grants.

Share Repurchase Program

Bancorp had an approved share repurchase program with $ 34.7 million outstanding at June 30, 2023.

Bancorp had an approved share repurchase program with $ 34.7 million remaining that expired on July 31, 2023.

On July 21, 2023, the Board of Directors approved the adoption of Bancorp's new share repurchase program, which replaced the existing one at that time, for up to $ 25.0 million and expiring on July 31, 2025.

There have been no repurchases in 2023.

Cumulative shares repurchased under this program totaled 618,991 shares as of June 30, 2023 at an average price of $ 36.04 per share.

Subsequent to quarter end on July 21, 2023, Bancorp adopted a new share repurchase program, which replaced the existing program that expired on July 31, 2023, for up to $ 25.0 million and expiring on July 31, 2025.

Commitments and Contingent Liabilities

3 unchanged sentences

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.

Commitments generally have fixed expiration dates or other

termination clauses and may require payment of a fee.

Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.

Because various commitments will expire without being fully drawn, the total commitment amount does not necessarily represent future cash requirements.

4 unchanged sentences

The contractual amount of unfunded loan commitments and standby letters of credit not reflected in the consolidated statements of condition are as follows:

(in thousands) June 30, 2023 December 31, 2022

(in thousands) September 30, 2023 December 31, 2022

Commercial lines of credit $ 260,117 $ 292,204

5 unchanged sentences

We record an allowance for credit losses on unfunded loan commitments at the balance sheet date based on estimates of the probability that these commitments will be drawn upon according to historical utilization experience of the different types of commitments and expected loss rates determined for pooled funded loans.

The allowance for credit losses on unfunded commitments totaled $ 1.1 million and $ 1.5 million as of June 30, 2023 and December 31, 2022, respectively, which is included in interest payable and other liabilities in the consolidated statements of condition.

The $ 168 thousand reversal of the provision for credit losses on unfunded loan commitments in the second quarter of 2023 was due primarily to a $ 39.9 million decrease in total unfunded commitments.

This compares to no provision for the same quarter in 2022.

The $ 342 thousand reversal of the provision for credit losses on unfunded loan commitments in the first half of 2023 was due primarily to a $ 77.3 million decrease in total unfunded commitments, compared to a $ 318 thousand provision reversal in the first half of 2022, due to improved economic forecasts at the time.

The allowance for credit losses on unfunded commitments totaled $ 1.1 million and $ 1.5 million as of September 30, 2023 and December 31, 2022, respectively, which is included in interest payable and other liabilities in the consolidated statements of condition.

We recorded no provision for credit losses on unfunded loan commitments in the third quarters of 2023 and 2022.

The $ 342 thousand reversal of the provision for credit losses on unfunded loan commitments in the nine months of 2023 was due primarily to a decrease in total unfunded commitments, compared to a $ 318 thousand provision reversal in the nine months of 2022, due to improved economic forecasts at the time.

We lease premises under long-term non-cancelable operating leases with remaining terms of 7 months to 18 years, 8 months , most of which include escalation clauses and one or more options to extend the lease term, and some of which contain lease termination clauses.

3 unchanged sentences

The following table shows the balances of operating and finance lease right-of-use assets and lease liabilities.

(in thousands) June 30, 2023 December 31, 2022

(in thousands) September 30, 2023 December 31, 2022

Operating leases:

9 unchanged sentences

The following table shows supplemental disclosures of noncash investing and financing activities for the periods presented.

Six months ended

(in thousands) June 30, 2023 June 30, 2022

Nine months ended

(in thousands) September 30, 2023 September 30, 2022

Right-of-use assets obtained in exchange for operating lease liabilities, net of tenant improvement allowances received $ 572 $ 4,989

1 unchanged sentence

The following table shows components of operating and finance lease cost.

Three months ended Six months ended

(in thousands) June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Three months ended Nine months ended

(in thousands) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Operating lease cost $ 1,289 $ 1,328 $ 4,221 $ 3,907

11 unchanged sentences

3 Included in interest on borrowings and other obligations in the consolidated statements of comprehensive income.

The following table shows the future minimum lease payments, weighted average remaining lease terms, and weighted average discount rates under operating and finance lease arrangements as of June 30, 2023.

The discount rates used to calculate the present value of lease liabilities were based on the collateralized FHLB borrowing rates that were commensurate with lease terms and minimum payments on the lease commencement date.

(in thousands) June 30, 2023

(in thousands) September 30, 2023

Year Operating Leases Finance Leases

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Derivative Financial Instruments and Hedging Activities

We entered into interest rate swap agreements, primarily as an asset/liability management strategy, in order to mitigate the changes in the fair value of specified long-term fixed-rate loans (or firm commitments to enter into long-term fixed-rate loans) caused by changes in interest rates.

These hedges allow us to offer long-term fixed-rate loans to customers without assuming the interest rate risk of a long-term asset.

Converting our fixed-rate interest payments to floating-rate interest payments, generally benchmarked to the one-month U.S.

dollar LIBOR index (which transitioned to the SOFR effective July 1, 2023 due to the cessation of the LIBOR index on June 30, 2023) protects us against changes in the fair value of our loans associated with fluctuating interest rates.

The Bank is exposed to certain risks from both its business operations and changes in economic conditions.

As part of our asset/liability and interest rate risk management strategy, we may enter into interest rate derivative contracts to modify the repricing characteristics of certain of our interest-earning assets and interest-bearing liabilities.

The Bank generally designates interest rate hedging agreements utilized in the management of interest rate risk as either fair value hedges or cash flow hedges.

Our credit exposure, if any, on interest rate swap asset positions is limited to the fair value (net of any collateral pledged to us) and interest payments of all swaps by each counterparty.

1 unchanged sentence

Collateral levels are monitored and adjusted on a regular basis for changes in interest rate swap values.

As of June 30, 2023, we had four interest rate swap agreements, which are scheduled to mature at various dates ranging from June 2031 to October 2037.

All of our derivatives are accounted for as fair value hedges.

On July 7, 2023, the Bank entered into various interest rate swap agreements with notional values totaling $ 101.8 million split evenly between terms of 2.5 and 3.0 years to hedge balance sheet interest rate sensitivity and protect certain of our fixed rate available-for-sale securities against changes in fair value related to changes in the benchmark interest rate.

The interest rate swaps involve the receipt of floating rate interest from a counterparty in exchange for us making fixed-rate interest payments over the lives of the agreements, without the exchange of the underlying notional values.

The transactions were designated as partial term fair value hedges and structured such that the changes in fair value of the interest rate swaps are expected to be perfectly effective in offsetting the changes in the fair value of the hedged items attributable to changes in the SOFR OIS swap rate, the designated benchmark interest rate.

Because the hedges met the criteria for using the shortcut method, there is no need to periodically reassess effectiveness during the term of the hedges.

For fair value designated hedges, the gain or loss on the hedging instruments as well as the offsetting loss or gain on the hedged items, are recognized in current earnings as fair values change.

In addition, we had four interest rate swap agreements on certain loans with our customers, which are scheduled to mature at various dates ranging from January 2026 to October 2037.

The loan interest rate swaps were designated as fair value hedges and allowed us to offer long-term fixed-rate loans to customers without assuming the interest rate risk of a long-term asset.

Converting our fixed-rate interest payments to floating-rate interest payments, generally benchmarked to the one-month U.S.

dollar SOFR index, protects us against changes in the fair value of our loans associated with fluctuating interest rates.

The notional amounts of the interest rate contracts are equal to the notional amounts of the hedged loans.

Our interest rate swap payments are settled monthly with counterparties.

Accrued interest receivable on the swaps totaled $ 7 thousand at June 30, 2023 and $ 5 thousand at December 31, 2022.

Information on our derivatives follows:

Asset Derivatives Liability Derivatives

(in thousands) June 30,

2023 December 31, 2022 June 30,

(in thousands) September 30,

2023 December 31, 2022 September 30,

2023 December 31, 2022

Fair value hedges:

Available-for-sale securities:

Interest rate swaps - notional amount $ 101,770 $ — $ — $ —

Interest rate swaps - fair value 1

$ 367 $ — $ — $ —

Loans receivable:

Interest rate contracts - notional amount $ 11,277 $ 12,046 $ — $ —

2 unchanged sentences

1 See Note 3, Fair Value of Assets and Liabilities, for valuation methodology.

The following table presents the carrying amount and associated cumulative basis adjustment related to the application of fair value hedge accounting that is included in the carrying amount of hedged assets as of June 30, 2023 and December 31, 2022.

Carrying Amounts of Hedged Assets Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Loans

(in thousands) June 30, 2023 December 31, 2022 June 30, 2023 December 31, 2022

Loans $ 10,786 $ 11,319 $ ( 749 ) $ ( 726 )

The following table presents the net gains (losses) recognized in interest income on loans on the consolidated statements of comprehensive income (loss) related to our derivatives designated as fair value hedges.

Three months ended Six months ended

(in thousands) June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Carrying Amounts of Hedged Assets Cumulative Amounts of Fair Value Hedging Adjustments Included in the Carrying Amounts of the Hedged Assets

(in thousands) September 30, 2023 December 31, 2022 September 30, 2023 December 31, 2022

Available-for-sale securities 1

$ 108,444 $ — $ ( 367 ) $ —

Loans receivable 2

$ 10,266 $ 11,319 $ ( 960 ) $ ( 726 )

1 Carrying value equals the amortized cost basis of the securities underlying the hedge relationship, which is the book value net of the fair value hedge adjustment.

Amortized cost excludes accrued interest totaling $ 136 thousand as of September 30, 2023.

2 Carrying value equals the amortized cost basis of the loans underlying the hedge relationship, which is the loan balance net of deferred loan origination fees and cost and the fair value hedge adjustment.

Amortized cost excludes accrued interest, which was not material.

The following table presents the pretax net gains (losses) recognized in interest income related to our fair value hedges.

Three months ended Nine months ended

(in thousands) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Interest on investment securities 1

Increase (decrease) in fair value of interest rate swaps hedging available-for-sale securities

$ 367 $ — $ 367 $ —

Receivable (payment) on interest rate swaps 162 — 162 —

(Decrease) increase in carrying value included in the hedged available-for-sale securities

( 367 ) — ( 367 ) —

Net gain (loss) recognized in interest income on investment securities

$ 162 $ — $ 162 $ —

Interest and fees on loans 1

Increase (decrease) in fair value of interest rate swaps hedging loans receivable

$ 223 $ 547 $ 252 $ 1,734

Increase (decrease) in fair value of designated interest rate swaps due to LIBOR interest rate movements $ 250 $ 430 $ 29 $ 1,187

Receivable (payment) on interest rate swaps 74 ( 19 ) 192 ( 169 )

(Decrease) increase in fair value hedging adjustment of hedged loans ( 243 ) ( 428 ) ( 23 ) ( 1,180 )

(Decrease) increase in carrying value included in the hedged loans

( 211 ) ( 538 ) ( 233 ) ( 1,718 )

Decrease in value of yield maintenance agreement ( 2 ) ( 3 ) ( 7 ) ( 8 )

Net gain (loss) on fair value hedging relationships recognized in interest income $ 71 $ ( 65 ) $ 120 $ ( 148 )

Net gain (loss) recognized in interest income on loans

$ 84 $ ( 13 ) $ 204 $ ( 161 )

1 Represents the income line item in the statement of comprehensive income in which the effects of fair value hedges are recorded.

Our derivative transactions with counterparties are under International Swaps and Derivative Association (“ISDA”) master agreements that include “right of set-off” provisions.

Our derivative transactions with the counterparty are under an International Swaps and Derivative Association (“ISDA”) master agreement that includes “right of set-off” provisions.

“Right of set-off” provisions are legally enforceable rights to offset recognized amounts and there may be an intention to settle such amounts on a net basis.

8 unchanged sentences

Instruments Received Net Amount

June 30, 2023

Counterparty $ 631 $ — $ 631 $ — $ — $ 631

September 30, 2023

$ 1,221 $ — $ 1,221 $ — $ — $ 1,221

Total $ 1,221 $ — $ 1,221 $ — $ — $ 1,221

December 31, 2022

Counterparty $ 602 $ — $ 602 $ — $ — $ 602

Offsetting of Financial Liabilities and Derivative Liabilities

Total $ 602 $ — $ 602 $ — $ — $ 602

1 Amounts exclude accrued interest on swaps.

For more information on how we account for our interest rate swaps, refer to Note 1 to the Consolidated Financial Statements included in our 2022 Form 10-K filed with the SEC on March 16, 2023.

On July 7, 2023, the Bank entered into various interest rate swap agreements with notional values totaling approximately $ 101.8 million and split evenly between terms of 2.5 and 3.0 years to hedge balance sheet interest rate sensitivity and protect selected securities in its available-for-sale portfolio against changes in fair value related to changes in the benchmark interest rate.

The interest rate swaps are expected to be immediately accretive to earnings.

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

What changed 10-Q

Item 1. Financial Statements