What changed in this filing

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Item 1. Financial Statements

2023-08-09 compared with 2023-05-10 · 220 added, 159 removed, 762 unchanged (33% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts) March 31,

(in thousands, except share amounts) June 30,

2023 December 31,

4 unchanged sentences

Securities available-for-sale, at fair value 110,794 115,988

Securities held-to-maturity, at amortized cost (fair value of $ 3,323 and $ 3,432 at March 31, 2023 and December 31, 2022, respectively)

Securities held-to-maturity, at amortized cost (fair value of $ 3,208 and $ 3,432 at June 30, 2023 and December 31, 2022, respectively)

Loans held for sale 8,559 9,416

21 unchanged sentences

10,000,000 shares authorized;

zero issued and outstanding at March 31, 2023 and December 31, 2022

zero issued and outstanding at June 30, 2023 and December 31, 2022

Common stock, no par value;

100,000,000 shares authorized;

17,258,904 shares issued and outstanding at March 31, 2023;

17,257,357 shares issued and outstanding at June 30, 2023;

17,241,926 shares issued and outstanding at December 31, 2022

12 unchanged sentences

Three Months Ended

June 30, Six Months Ended

(in thousands, except per share amounts) 2023 2022 2023 2022

22 unchanged sentences

Earnings on BOLI 126 101 228 191

Other 1,340 41 1,393 386

Total non-interest income 2,820 1,959 4,191 4,123

13 unchanged sentences

4,440 4,080 9,780 7,740

$ 12,729 $ 9,953 $ 25,890 $ 19,815

Basic earnings per common share $ 0.74 $ 0.58 $ 1.51 $ 1.15

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

(in thousands) 2023 2022 2023 2022

$ 12,729 $ 9,953 $ 25,890 $ 19,815

Unrealized gain (loss) on securities:

Net unrealized holding gain (loss) on securities available-for-sale during the period

Unrealized (loss) gain on securities:

Net unrealized holding (loss) gain on securities available-for-sale during the period

( 1,462 ) ( 7,849 ) 679 ( 17,287 )

Reclassification adjustment for net realized gains included in net income

Income tax expense (benefit) related to items of other comprehensive income

Income tax (benefit) expense related to items of other comprehensive income

( 432 ) ( 2,320 ) 201 ( 5,111 )

Other comprehensive income (loss)

Other comprehensive (loss) income

( 1,030 ) ( 5,529 ) 478 ( 12,181 )

4 unchanged sentences

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the Three Months Ended March 31, 2023 and 2022

For the Three Months Ended June 30, 2023 and 2022

Common Stock Retained Earnings

1 unchanged sentence

(in thousands, except per share amounts) Shares Amount

Balance at December 31, 2021 17,224,848 $ 218,444 $ 17,168 $ ( 566 ) $ 235,046

Cumulative effect of adoption of ASC 842 on retained earnings — — 68 — 68

Balance at March 31, 2022 17,246,199 $ 218,721 $ 19,558 $ ( 7,218 ) $ 231,061

Net income — — 9,953 — 9,953

5 unchanged sentences

— — ( 2,587 ) — ( 2,587 )

Balance at June 30, 2022 17,245,983 $ 219,023 $ 26,924 $ ( 12,747 ) $ 233,200

Balance at March 31, 2023 17,258,904 $ 219,785 $ 52,817 $ ( 11,946 ) $ 260,656

Net income — — 12,729 — 12,729

Other comprehensive loss — — — ( 1,030 ) ( 1,030 )

Stock compensation expense — 236 — — 236

Stock forfeitures ( 1,547 ) — — — —

Cash dividends paid ($ 0.20 per share)

— — ( 3,451 ) — ( 3,451 )

Balance at June 30, 2023 17,257,357 $ 220,021 $ 62,095 $ ( 12,976 ) $ 269,140

See accompanying notes to the unaudited consolidated financial statements.

FIVE STAR BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the Six Months Ended June 30, 2023 and 2022

Common Stock Retained Earnings

Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity

(in thousands, except per share amounts) Shares Amount

Balance at December 31, 2021 17,224,848 $ 218,444 $ 17,168 $ ( 566 ) $ 235,046

1 unchanged sentence

Net income — — 19,815 — 19,815

Other comprehensive loss — — — ( 12,181 ) ( 12,181 )

Stock issued under stock award plans 23,639 — — — —

Stock compensation expense — 579 — — 579

Stock forfeitures ( 2,504 ) — — — —

Cash dividends paid ($ 0.75 per share)

— — ( 10,127 ) — ( 10,127 )

Balance at June 30, 2022 17,245,983 $ 219,023 $ 26,924 $ ( 12,747 ) $ 233,200

Balance at December 31, 2022 17,241,926 $ 219,543 $ 46,736 $ ( 13,454 ) $ 252,825

Cumulative effect of adoption of ASC 326 on retained earnings — — ( 4,491 ) — ( 4,491 )

Net income — — 25,890 — 25,890

Other comprehensive income — — — 478 478

Stock issued under stock award plans, net 16,978 — — — —

Stock issued under stock award plans 16,978 — — — —

Stock compensation expense — 478 — — 478

Stock forfeitures ( 1,547 ) — — — —

Cash dividends paid ($ 0.35 per share)

— — ( 6,040 ) — ( 6,040 )

Balance at March 31, 2023 17,258,904 $ 219,785 $ 52,817 $ ( 11,946 ) $ 260,656

See accompanying notes to the unaudited consolidated financial statements.

Balance at June 30, 2023 17,257,357 $ 220,021 $ 62,095 $ ( 12,976 ) $ 269,140

See accompanying notes to unaudited consolidated financial statements.

FIVE STAR BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

Six Months Ended June 30,

(in thousands) 2023 2022

15 unchanged sentences

Decrease in operating lease liability ( 482 ) ( 482 )

Cost method of investment-related gain ( 1,274 ) —

Net changes in:

9 unchanged sentences

Purchase of premises and equipment ( 335 ) ( 311 )

Purchase of FHLB stock ( 4,110 ) ( 4,223 )

Purchase of BOLI ( 2,000 ) ( 3,050 )

10 unchanged sentences

Interest paid $ 2,716 $ 1,345

Income taxes paid $ 686 $ 5,200

Supplemental disclosure of noncash items:

2 unchanged sentences

Operating lease liabilities recorded in conjunction with adoption of ASC 842 — 5,221

Operating lease liabilities exchanged for ROUAs 1,423 —

ROUA recorded in conjunction with adoption of ASC 842 — 4,974

Operating lease liabilities exchanged for ROUA 1,513 —

ROUA acquired ( 1,534 ) —

17 unchanged sentences

All significant intercompany transactions and balances are eliminated in consolidation.

The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results of operations that may be expected for any other interim period or for the year ending December 31, 2023.

The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results of operations that may be expected for any other interim period or for the year ending December 31, 2023.

The Company’s accounting and reporting policies conform to GAAP and to general practices within the banking industry.

12 unchanged sentences

The Company’s significant accounting policies are included in Note 1, Basis of Presentation on the 2022 Annual Report on Form 10-K.

There have been no changes to these significant accounting policies during the first three months of 2023 other than adoption of ASU No.

There have been no changes to these significant accounting policies during the first six months of 2023 other than adoption of ASU No.

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

35 unchanged sentences

The method for determining the estimate of lifetime credit losses includes, among other things, the following main components:

(1) the use of Probability of Default (“PD”) and Loss Given Default (“LGD”) assumptions under a Discounted Cash Flow model;

(2) a multi-scenario macroeconomic forecast;

(3) an initial and reasonable and supportable forecast period of one year for all loan segments;

and (4) a reversion period of one year using a linear transition method to historical loss rates.

(i) the use of Probability of Default (“PD”) and Loss Given Default (“LGD”) assumptions under a Discounted Cash Flow model;

(ii) a multi-scenario macroeconomic forecast;

(iii) an initial and reasonable and supportable forecast period of one year for all loan segments;

and (iv) a reversion period of one year using a linear transition method to historical loss rates.

Given the inherent limitations of a quantitative-only model, qualitative adjustments are included to factor in data points not captured from a quantitative analysis alone.

16 unchanged sentences

Individually assessed loans are measured for credit loss based on one of the following methods:

(1) present value of future expected cash flows, discounted at the loan’s effective interest rate;

(2) amount by which carrying value of the loan exceeds the loan’s observable market price;

or (3) the fair value of the collateral, less estimated selling costs, if the loan is collateral dependent.

(i) present value of future expected cash flows, discounted at the loan’s effective interest rate;

(ii) amount by which carrying value of the loan exceeds the loan’s observable market price;

or (iii) the fair value of the collateral, less estimated selling costs, if the loan is collateral dependent.

The Company applies the practical expedient and defines collateral dependent loans as those where the borrower is experiencing financial difficulty and on which payment is expected to be provided substantially through the operation or sale of the collateral.

8 unchanged sentences

Changes in the allowance for credit losses, if any, are recognized as a provision for (or reversal of) credit losses.

As of March 31, 2023, the Company’s portfolio of AFS debt securities is comprised primarily of debt, mortgage-backed securities, and collateralized mortgage obligations issued by the U.S.

As of June 30, 2023, the Company’s portfolio of AFS debt securities is comprised primarily of debt, mortgage-backed securities, and collateralized mortgage obligations issued by the U.S.

government, its agencies, or government-sponsored enterprises, which are either explicitly or implicitly guaranteed by the U.S.

9 unchanged sentences

The Company’s process for determining the estimate of credit loss on held-to-maturity debt securities is substantially similar to what it is on loans, with segmenting not being applicable.

As the amount of held-to-maturity debt securities that the Company carries is limited and given the determination that expected credit loss was immaterial, an immaterial amount was recognized in allowance for credit loss upon adoption and no credit loss expense was recorded for the three months ended March 31, 2023.

TDRs and Other Loan Modifications

In accordance with the adoption of ASC 326, which includes ASU No.

2 unchanged sentences

New guidance with respect to recognition, measurement, and disclosures of loans for borrowers experiencing financial difficulties supersedes guidance on TDRs.

As of March 31, 2023, the amount of loans modified for borrowers due to experiencing financial difficulties under criteria of principal forgiveness, interest rate reduction, other-than-insignificant payment delay, or term extension was immaterial.

As of June 30, 2023, the amount of loans modified for borrowers due to experiencing financial difficulties under criteria of principal forgiveness, interest rate reduction, other-than-insignificant payment delay, or term extension was immaterial.

(f) Recently Issued Accounting Standards

7 unchanged sentences

Changes in fair value that are not credit-related will continue to be recorded in other comprehensive income.

The Company adopted this standard using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective for financial assets measured at amortized cost.

The Company adopted this standard using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance was effective for financial assets measured at amortized cost.

For certain new disclosures required under ASC 326, such as credit quality indicators by year of origination, we have not restated comparative financial information before January 1, 2023 to conform under ASC 326.

3 unchanged sentences

Troubled Debt Restructurings and Vintage Disclosures, which had no material impact.

The table that follows reflects the cumulative-effect adjustments the Company recorded on January 1, 2023 for the adoption of ASC 326:

The following table reflects the cumulative-effect adjustments the Company recorded on January 1, 2023 for the adoption of ASC 326.

January 1, 2023

7 unchanged sentences

For the fiscal year beginning January 1, 2023, there have been no new accounting standards issued but not yet adopted that are expected to be material to the Company.

There are also no accounting standards issued before January 1, 2023 yet to be adopted.

Fair Value of Assets and Liabilities

9 unchanged sentences

Value Quoted Prices in Active Markets for Identical Assets

(Level 1) Significant

(Level 2) Significant

(Level 1) Significant Other Observable Inputs

(Level 2) Significant Unobservable Inputs

(Level 3) Measurement Categories:

Changes in Fair Value Recorded In

March 31, 2023

June 30, 2023

Securities available-for-sale:

14 unchanged sentences

In addition, values use discounted cash flow models and may include significant management judgment and estimation.

As of March 31, 2023 and December 31, 2022, there were no Level 1 available-for-sale securities and no transfers between Level 1 and Level 2 classifications for assets or liabilities measured at fair value on a recurring basis.

As of June 30, 2023 and December 31, 2022, there were no Level 1 available-for-sale securities and no transfers between Level 1 and Level 2 classifications for assets or liabilities measured at fair value on a recurring basis.

On a recurring basis, derivative financial instruments are recorded at fair value, which is based on the income approach using observable Level 2 market inputs, reflecting market expectations of future interest rates as of the measurement date.

4 unchanged sentences

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 collateral dependent loans and other real estate owned.

As of March 31, 2023 and December 31, 2022, the amount carried of assets measured at fair value on a non-recurring basis was immaterial to the Company.

As of June 30, 2023 and December 31, 2022, the carrying amount of assets measured at fair value on a non-recurring basis was immaterial to the Company.

Disclosures about Fair Value of Financial Instruments

The table below is a summary of fair value estimates for financial instruments as of March 31, 2023 and December 31, 2022.

The table below is a summary of fair value estimates for financial instruments as of June 30, 2023 and December 31, 2022.

The carrying amounts in the following table are recorded in the consolidated balance sheets under the indicated captions.

Further, management has not disclosed the fair value of financial instruments specifically excluded from disclosure requirements, such as BOLI.

March 31, 2023 December 31, 2022

(in thousands) Carrying

Value Fair Value

Hierarchy Carrying

Value Fair Value

June 30, 2023 December 31, 2022

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

Financial assets:

6 unchanged sentences

FHLB stock and other investments 21,693 N/A N/A 16,570 N/A N/A

Interest receivable 7,743 7,743 Level 2 7,454 7,454 Level 2

Interest rate swap 8 8 Level 2 16 16 Level 2

Financial liabilities:

Deposits 2,920,406 2,715,580 Level 2 2,782,004 2,562,600 Level 2

Interest payable 941 941 Level 2 1,568 1,568 Level 2

Interest rate swap 8 8 Level 2 16 16 Level 2

1 unchanged sentence

Subordinated notes 73,677 72,178 Level 3 73,606 72,273 Level 3

The following methods and assumptions were used by the Company to estimate the fair value of its financial instruments at March 31, 2023 and December 31, 2022:

The following methods and assumptions were used by the Company to estimate the fair value of its financial instruments at June 30, 2023 and December 31, 2022:

Cash and cash equivalents and time deposits in banks :

2 unchanged sentences

See discussion above for the methods and assumptions used by the Company to estimate the fair value of investment securities.

Fair value of held-to-maturity securities is based on observable market data, such as interest rates and yield curves (observable at commonly quoted intervals) as provided by an independent third party.

Loans held for sale :

4 unchanged sentences

The allowance for credit losses is considered to be a reasonable estimate of loan discount for credit quality concerns.

Interest receivable and payable :

For interest receivable and payable, the carrying amount is estimated to be fair value.

FHLB stock and other investments :

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

Derivatives - interest rate swap :

See above for a discussion of the methods and assumptions used by the Company to estimate the fair value of derivatives.

The fair values for demand deposits are, by definition, equal to the amount payable on demand at the reporting date, as represented by their carrying amount.

Fair values for fixed rate certificates of deposit are estimated using a

discounted cash flow analysis that uses interest rates being offered at each reporting date by the Company for certificates with similar remaining maturities.

For variable rate time deposits, cost approximates fair value.

FHLB advances :

For FHLB advances, the carrying amount is estimated to be fair value.

Subordinated notes :

The fair value is estimated by discounting the future cash flow using the current three-month London Inter-Bank Offered Rate.

The fair value is estimated by discounting the future cash flow using the current three-month CME Term SOFR.

The Company’s subordinated notes are not registered securities and were issued through private placements, resulting in a Level 3 classification.

5 unchanged sentences

The Company also invests in residential and commercial mortgage-backed securities, collateralized mortgage obligations issued or guaranteed by government sponsored entities, and corporate bonds, as reflected in the following tables.

A summary of the amortized cost and fair value related to securities held-to-maturity as of March 31, 2023 and December 31, 2022 is presented below.

(in thousands) Gross Unrealized

Cost Gains (Losses) Fair

March 31, 2023

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

(in thousands) Amortized

Cost Gross Unrealized Fair

Gains (Losses)

June 30, 2023

Obligations of states and political subdivisions $ 3,486 $ — $ ( 278 ) $ 3,208

10 unchanged sentences

The Company adopted ASC 326 on January 1, 2023, which affects accounting of credit loss expense on held-to-maturity and available-for-sale securities.

Refer to Note 1, Basis of Presentation and Summary of Significant Accounting Policies, and Note 2, Fair Value of Assets and Liabilities, for further detail.

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

Refer to Note 1, Basis of Presentation and Summary of Significant Accounting Policies, for further detail.

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

(in thousands) Amortized

1 unchanged sentence

Gains (Losses)

March 31, 2023

June 30, 2023

government agencies $ 12,239 $ 95 $ ( 197 ) $ 12,137

11 unchanged sentences

Total available-for-sale $ 135,087 $ 103 $ ( 19,202 ) $ 115,988

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

The amortized cost and fair value of investment securities by contractual maturity at June 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.

(in thousands) March 31, 2023 December 31, 2022

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

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

Cost Fair Value Amortized

Cost Fair Value

Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value

Within one year $ 326 $ 300 $ — $ — $ 417 $ 381 $ 501 $ 501

9 unchanged sentences

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

(in thousands) For the three months ended

2023 March 31,

(in thousands) For the three months ended For the six months ended

2023 June 30,

2022 June 30,

2023 June 30,

Available-for-sale:

2 unchanged sentences

Pledged investment securities are shown in the following table:

(in thousands) March 31,

(in thousands) June 30,

2023 December 31,

2 unchanged sentences

Total pledged investment securities $ 109,903 $ 40,465

The following table details the gross unrealized losses and fair values aggregated by investment category and length of time that individual available-for-sale securities have been in a continuous unrealized loss position at March 31, 2023 and December 31, 2022:

Less than 12 months 12 months or more Total securities

1 unchanged sentence

(in thousands) Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss

March 31, 2023

June 30, 2023

government agencies $ 2,404 $ ( 26 ) $ 8,158 $ ( 171 ) $ 10,562 $ ( 197 )

11 unchanged sentences

$ 32,552 $ ( 4,733 ) $ 78,693 $ ( 14,469 ) $ 111,245 $ ( 19,202 )

There were 151 a nd 152 available-for-sale securities in unrealized loss positions at March 31, 2023 and December 31, 2022, respectively.

As of March 31, 2023, the investment portfolio included 147 investment securities that had been in a continuous loss position for twelve months or more and four investment securities that had been in a loss position for less than twelve months.

There was one held-to-maturity security in a continuous unrealized loss position at March 31, 2023, which had been in a continuous loss position for more than twelve months.

There were 153 and 152 available-for-sale securities in unrealized loss positions at June 30, 2023 and December 31, 2022, respectively.

As of June 30, 2023, the investment portfolio included 148 investment securities that had been in a continuous loss position for twelve months or more and five investment securities that had been in a loss position for less than twelve months.

There was one held-to-maturity security in a continuous unrealized loss position at June 30, 2023, which had been in a continuous loss position for more than twelve months.

Obligations issued or guaranteed by government agencies such as GNMA and the SBA or GSEs under conservatorship such as the FNMA and the FHLMC, are guaranteed or sponsored by agencies of the U.S.

7 unchanged sentences

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

The Company held $ 10.9 million and $ 10.9 million of FHLB stock at March 31, 2023 and December 31, 2022, respectively.

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

Based on management’s analysis of the FHLB’s financial condition and certain qualitative factors, management determined that the FHLB stock was not impaired at March 31, 2023 and December 31, 2022.

On February 22, 2023, the FHLB announced a cash dividend for the fourth quarter of 2022 at an annualized dividend rate of 7.00 %, which was paid on March 10, 2023.

Cash dividends received on FHLB capital stock amounted to $ 0.2 million and $ 0.1 million for the three months ended March 31, 2023 and 2022, respectively, and were recorded as non-interest income on the unaudited consolidated statements of income.

The Company held $ 15.0 million and $ 10.9 million of FHLB stock at June 30, 2023 and December 31, 2022, respectively.

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

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

On April 27, 2023, the FHLB announced a cash dividend for the first quarter of 2023 at an annualized dividend rate of 7.00 %, which was paid on May 11, 2023.

Cash dividends received on FHLB capital stock amounted to $ 0.2 million and $ 0.1 million for the three months ended June 30, 2023 and 2022, respectively, and $ 0.4 million and $ 0.2 million for the six months ended June 30, 2023 and 2022, respectively, and were recorded as non-interest income on the unaudited consolidated statements of income.

Loans and Allowance for Credit Losses

2 unchanged sentences

The following table presents the balance of each major product type within the Company’s portfolio as of the dates indicated.

(in thousands) March 31,

(in thousands) June 30,

2023 December 31,

80 unchanged sentences

The losses on these loans are deferred until all pending factors have been addressed.

The amortized cost basis of the Company’s loans by origination year, where origination is defined as the later of origination or renewal date, and credit quality indicator as of March 31, 2023 was as follows (disclosure not comparative due to adoption of ASC 326 on January 1, 2023 – refer to Note 1, Basis of Presentation and Summary of Significant Accounting Policies, for further details):

The amortized cost basis of the Company’s loans by origination year, where origination is defined as the later of origination or renewal date, and credit quality indicator as of June 30, 2023 was as follows (disclosure not comparative due to adoption of ASC 326 on January 1, 2023 – refer to Note 1, Basis of Presentation and Summary of Significant Accounting Policies, for further details):

Amortized Cost Basis by Origination Year

62 unchanged sentences

Management also reviews loans graded “watch” or worse, regardless of loan type, no less than quarterly.

The age analysis of past due loans by class as of March 31, 2023 consisted of the following:

The age analysis of past due loans by class as of June 30, 2023 consisted of the following:

(in thousands) Past Due

Days Greater Than

90 Days Total Past

Due Current Total Loans

30-59 Days 60-89 Days Greater Than 90 Days Total Past Due Current Total Loans Receivable

Commercial $ — $ — $ — $ — $ 2,510,063 $ 2,510,063

8 unchanged sentences

Total $ 109 $ — $ 176 $ 285 $ 2,927,126 $ 2,927,411

There were no loans between 60-89 days past due no r any loans greater than 90 days past due and still accruing as of March 31, 2023.

There were no loans greater than 90 days past due and still accruing as of June 30, 2023.

The age analysis of past due loans by class as of December 31, 2022 consisted of the following:

(in thousands) Past Due Total Past

Due Current Total Loans

Days Greater Than

(in thousands) Past Due Total Past Due Current Total Loans Receivable

30-59 Days 60-89 Days Greater Than 90 Days

Commercial $ — $ — $ — $ — $ 2,392,053 $ 2,392,053

8 unchanged sentences

Total $ 194 $ 175 $ — $ 369 $ 2,790,957 $ 2,791,326

There were no loans between 60-89 days past due no r any loans greater than 90 days past due and still accruing as of December 31, 2022.

One collateral dependent loan was in process of foreclosure at March 31, 2023:

There were no loans greater than 90 days past due and still accruing as of December 31, 2022.

One collateral dependent loan was in process of foreclosure at June 30, 2023:

a commercial term loan secured by a single family residence with an unpaid principal balance of $ 175.0 thousand and no related allowance.

Non-accrual loans, segregated by class, were as follows as of March 31, 2023 and December 31, 2022:

(in thousands) March 31,

Non-accrual loans, segregated by class, were as follows as of June 30, 2023 and December 31, 2022:

(in thousands) June 30,

2023 December 31,

2 unchanged sentences

Secured 112 123

Consumer and other 23 —

Total non-accrual loans $ 287 $ 404

No interest income was recognized on non-accrual loans in the three months ended March 31, 2023 or March 31, 2022.

Non-accrual real estate loans did not have an allowance for credit losses as of March 31, 2023.

No interest income was recognized on non-accrual loans in the three and six months ended June 30, 2023 or June 30, 2022.

Non-accrual real estate loans did not have an allowance for credit losses as of June 30, 2023.

Interest income can be recognized on non-accrual loans in cases where resolution occurs through a sale or full payment is received on the non-accrual loan.

The amount of foregone interest income related to non-accrual loans was $ 9.1 thousand for the three months ended March 31, 2023, compared to $ 18.3 thousand for the three months ended March 31, 2022.

The amount of foregone interest income related to non-accrual loans was $ 26.1 thousand and $ 35.3 thousand for the three and six months ended June 30, 2023, respectively, compared to $ 6.9 thousand and $ 25.1 thousand for the three and six months ended June 30, 2022, respectively.

Allowance for Credit Losses

The following table discloses activity in the allowance for credit losses for the three months ended March 31, 2023.

The following table discloses activity in the allowance for credit losses for the three months ended June 30, 2023.

(in thousands) Beginning Balance Charge-offs Recoveries Provision (Benefit) Ending Balance

Commercial $ 27,119 $ — $ — $ 434 $ 27,553

Commercial land and development 226 — — ( 42 ) 184

Commercial construction 1,438 — — ( 226 ) 1,212

Residential construction 175 — — 42 217

Residential 181 — — ( 29 ) 152

Farmland 219 — — 17 236

Secured 4,258 ( 1,124 ) 47 570 3,751

Unsecured 152 — — 57 209

Consumer and other 404 ( 137 ) 106 97 470

Total $ 34,172 $ ( 1,261 ) $ 153 $ 920 $ 33,984

The following table discloses activity in the allowance for credit losses for the three months ended June 30, 2022.

(in thousands) Beginning Balance Charge-offs Recoveries Provision (Benefit) Ending Balance

Commercial $ 13,868 $ — $ — $ 2,753 $ 16,621

Commercial land and development 66 — — 2 68

Commercial construction 430 — — 78 508

Residential construction 40 — — 11 51

Residential 208 — — ( 20 ) 188

Farmland 611 — — 5 616

Secured 7,039 ( 273 ) 40 ( 522 ) 6,284

Unsecured 246 — — 19 265

PPP — ( 21 ) — 21 —

Consumer and other 1,088 ( 259 ) 145 ( 437 ) 537

Unallocated 308 — — 340 648

Total $ 23,904 $ ( 553 ) $ 185 $ 2,250 $ 25,786

The following table discloses activity in the allowance for credit losses for the six months ended June 30, 2023.

(in thousands) Beginning Balance Effect of Adoption of ASC 326 Charge-offs Recoveries Provision (Benefit) Ending Balance

10 unchanged sentences

Total $ 28,389 $ 5,262 $ ( 2,133 ) $ 646 $ 1,820 $ 33,984

The following table discloses activity in the allowance for credit losses for the three months ended March 31, 2022.

The following table discloses activity in the allowance for credit losses for the six months ended June 30, 2022.

(in thousands) Beginning Balance Charge-offs Recoveries Provision (Benefit) Ending Balance

7 unchanged sentences

Unsecured 207 — — 58 265

PPP — ( 21 ) — 21 —

Consumer and other 889 ( 326 ) 187 ( 213 ) 537

3 unchanged sentences

Unfunded loan commitment reserves are included in “Interest payable and other liabilities” in the unaudited consolidated balance sheets.

Provisions for the unfunded loan commitments are included in “Other operating expenses” in the unaudited consolidated statements of income.

Three months ended

(in thousands) March 31,

2023 March 31,

Balance at January 1 $ 125 $ 102

Provisions for unfunded loan commitments are included in “Provision for credit losses” in the unaudited consolidated statements of income.

Prior to adoption of ASC 326, provisions for unfunded loan commitments were included in “Other operating expenses” in the unaudited consolidated statements of income.

Three months ended Six months ended

(in thousands) June 30,

2023 June 30,

2022 June 30,

2023 June 30,

Balance at beginning of period $ 1,217 $ 102 $ 125 $ 102

Effect of adoption of ASC 326 — — 1,092 —

Balance at March 31 $ 1,217 $ 102

Provision 330 23 330 23

Balance at end of period $ 1,547 $ 125 $ 1,547 $ 125

Pledged Loans

The Company’s FHLB line of credit is secured under terms of a collateral agreement by a pledge of certain qualifying loans with unpaid principal balances of $ 1.7 billion and $ 1.6 billion at March 31, 2023 and December 31, 2022, respectively.

In addition, the Company pledges eligible tenants in common loans, which totaled $ 46.0 million and $ 41.9 million at March 31, 2023 and December 31, 2022, respectively, to secure its borrowing capacity with the Federal Reserve Bank of San Francisco.

In addition, the Company pledges eligible tenants in common loans, which totaled $ 42.0 million and $ 41.9 million at June 30, 2023 and December 31, 2022, respectively, to secure its borrowing capacity with the Federal Reserve Bank of San Francisco.

See Note 6, Long Term Debt and Other Borrowings, for further discussion of these borrowings.

Interest-Bearing Deposits

Interest-bearing deposits consisted of the following as of March 31, 2023 and December 31, 2022:

(in thousands) March 31,

Interest-bearing deposits consisted of the following as of June 30, 2023 and December 31, 2022:

(in thousands) June 30,

2023 December 31,

2 unchanged sentences

Money market accounts 1,377,250 1,073,532

Time accounts, $ 250 or more

Time accounts, more than $ 250

246,123 198,159

1 unchanged sentence

Total interest-bearing deposits $ 2,096,032 $ 1,810,758

Time deposits totaled $ 372.6 million and $ 342.5 million as of March 31, 2023 and December 31, 2022, respectively.

As of March 31, 2023, scheduled maturities of time deposits for the next five years were as follows:

Time deposits totaled $ 377.9 million and $ 342.5 million as of June 30, 2023 and December 31, 2022, respectively.

As of June 30, 2023, scheduled maturities of time deposits for the next five years were as follows:

(in thousands)

1 unchanged sentence

Total time deposits $ 377,900

Total deposits include deposits offered through the IntraFi Network (formerly Promontory Interfinancial Network) that are comprised of Certificate of Deposit Account Registry Service® (“CDARS”) balances included in time deposits and Insured Cash Sweep® (“ICS”) balances included in money market deposits.

Through this network, the Company offers customers access to FDIC-insured deposit products in aggregate amounts exceeding current insurance limits.

1 unchanged sentence

The Company considers the reciprocal deposits to be in-market deposits, as distinguished from traditional out-of-market brokered deposits.

There were no one-way deposits at March 31, 2023 and December 31, 2022.

T he composition of network deposits as of March 31, 2023 and December 31, 2022 was as follows:

(in thousands) March 31,

There were no one-way deposits at June 30, 2023 and December 31, 2022.

The composition of network deposits as of June 30, 2023 and December 31, 2022 was as follows:

(in thousands) June 30,

2023 December 31,

2 unchanged sentences

Total network deposits $ 583,912 $ 285,967

Interest expense recognized on interest-bearing deposits for periods ended March 31, 2023 and 2022 consisted of the following:

Three months ended

(in thousands) March 31,

2023 March 31,

Interest expense recognized on interest-bearing deposits for periods ended June 30, 2023 and 2022 consisted of the following:

Three months ended Six months ended

(in thousands) June 30,

2023 June 30,

2022 June 30,

2023 June 30,

Interest-bearing transaction accounts $ 825 $ 66 $ 1,258 $ 136

2 unchanged sentences

Time accounts, $ 250 or more

2,634 226 4,597 286

Other time accounts 1,616 12 2,617 36

5 unchanged sentences

The subordinated notes have a maturity date of September 1, 2032 and bear interest, payable semi-annually, at the rate of 6.00 % per annum until September 1, 2027.

On that date, the interest rate will be adjusted to float at a rate equal to the three-month Term SOFR plus 329.0 basis points ( 8.18 % as of March 31, 2023) until maturity.

On that date, the interest rate will be adjusted to float at a rate equal to the three-month Term SOFR plus 329.0 basis points ( 8.59 % as of June 30, 2023) until maturity.

The notes include a right of prepayment, on or after August 17, 2027 or, in certain limited circumstances, before that date.

2 unchanged sentences

Eligible amounts will be phased out by 20% per year beginning five years before the maturity date of the notes.

Debt issuance costs incurred in conjunction with the notes were $ 1.5 million, of which $ 0.1 million has been amortized as of March 31, 2023.

Debt issuance costs incurred in conjunction with the notes were $ 1.5 million, of which $ 0.1 million has been amortized as of June 30, 2023.

The Company reflects debt issuance costs as a direct deduction from the face of the note.

The debt issuance costs are amortized into interest expense through the maturity period.

At March 31, 2023 and December 31, 2022, the Company’s subordinated debt outstanding was $ 73.6 million and $ 73.6 million, respectively.

At June 30, 2023 and December 31, 2022, the Company’s subordinated debt outstanding was $ 73.7 million and $ 73.6 million, respectively.

Other borrowings :

In 2005, and through an amendment in 2014, the Company entered into an agreement with the FHLB which granted the FHLB a blanket lien on all loans receivable (except for construction and agricultural loans) as collateral for a borrowing line.

Based on the dollar volume of qualifying loan collateral, the Company had a total financing availability of $ 1.1 billion at March 31, 2023 and $ 1.0 billion at December 31, 2022.

At March 31, 2023 and December 31, 2022, the Company had $ 120.0 million and $ 100.0 million of outstanding borrowings, respectively.

As of March 31, 2023

and December 31, 2022, the Company had letters of credit (“LCs”) issued on its behalf totaling $ 666.5 million and $ 686.5 million, respectively, as discussed below.

At March 31, 2023 and December 31, 2022, LCs totaling $ 186.5 million and $ 206.5 million, respectively, were pledged to secure State of California deposits, and LCs totaling $ 480.0 million and $ 480.0 million, respectively, were pledged to secure local agency deposits.

The LCs issued reduced the Company’s available borrowing capacity to $ 278.1 million and $ 216.3 million as of March 31, 2023 and December 31, 2022, respectively.

At March 31, 2023 and December 31, 2022, the Company had seven unsecured federal funds lines of credit totaling $ 190.0 million with seven of its correspondent banks, respectively.

There were no amounts outstanding at March 31, 2023 and December 31, 2022.

At March 31, 2023 and December 31, 2022, the Company had the ability to borrow from the Federal Reserve Discount Window.

At March 31, 2023 and December 31, 2022, the borrowing capacity under this arrangement was $ 76.7 million and $ 21.9 million, respectively.

There were no amounts outstanding at March 31, 2023 and December 31, 2022.

The Company entered into an agreement with the FHLB which granted the FHLB a blanket lien on all loans receivable (except for construction and agricultural loans) as collateral for a borrowing line.

Based on the dollar volume of qualifying loan collateral, the Company had a total financing availability of $ 1.0 billion at June 30, 2023 and $ 1.0 billion at December 31, 2022.

At June 30, 2023 and December 31, 2022, the Company had $ 100.0 million and $ 100.0 million of outstanding borrowings, respectively.

As of June 30, 2023 and December 31, 2022, the Company had letters of credit (“LCs”) issued on its behalf totaling $ 606.5 million and $ 686.5 million, respectively, as discussed below.

At June 30, 2023 and December 31, 2022, LCs totaling $ 186.5 million and $ 206.5 million, respectively, were pledged to secure State of California deposits, and LCs totaling $ 420.0 million and $ 480.0 million, respectively, were pledged to secure local agency deposits.

The LCs issued reduced the Company’s available borrowing capacity to $ 342.6 million and $ 216.3 million as of June 30, 2023 and December 31, 2022, respectively.

At June 30, 2023, the Company had five unsecured federal funds lines of credit with its correspondent banks totaling $ 175.0 million.

At December 31, 2022, the Company had seven unsecured federal funds lines of credit with its correspondent banks totaling $ 190.0 million.

There were no amounts outstanding at June 30, 2023 and December 31, 2022.

At June 30, 2023 and December 31, 2022, the Company had the ability to borrow from the Federal Reserve Discount Window.

At June 30, 2023 and December 31, 2022, the borrowing capacity under this arrangement was $ 72.8 million and $ 21.9 million, respectively.

There were no amounts outstanding at June 30, 2023 and December 31, 2022.

The borrowing line is secured by liens on the Company’s construction and agricultural loan portfolios and certain available-for-sale securities.

6 unchanged sentences

However, under the two-class method, the difference in EPS is not significant for these participating securities.

Three months ended

(in thousands, except share count and earnings per common share) March 31,

2023 March 31,

Three months ended Six months ended

(in thousands, except share count and earnings per common share) June 30,

2023 June 30,

2022 June 30,

2023 June 30,

Net income $ 12,729 $ 9,953 $ 25,890 $ 19,815

Weighted average basic common shares outstanding 17,150,174 17,102,508

Basic weighted average common shares outstanding 17,165,344 17,125,715 17,157,801 17,114,169

Dilutive effects of assumed vesting of restricted stock 3,651 23,734 24,067 42,872

Weighted average diluted common shares outstanding 17,194,884 17,164,519

Total dilutive weighted average common shares outstanding 17,168,995 17,149,449 17,181,868 17,157,041

Earnings per common share:

1 unchanged sentence

Diluted EPS $ 0.74 $ 0.58 $ 1.51 $ 1.15

The Company did not have any anti-dilutive shares at March 31, 2023 or March 31, 2022.

The Company did not have any anti-dilutive shares at June 30, 2023 or June 30, 2022.

(b) Dividends

On January 19, 2023, the board of directors declared a $ 0.15 per common share dividend, totaling $ 2.6 million.

On April 20, 2023, the board of directors declared a $ 0.20 per common share dividend, totaling $ 3.5 million.

5 unchanged sentences

Incentive Plan is recognized over the service period, which is equal to the vesting period of the shares based on the fair value of the shares at issue date.

In connection with its IPO in May 2021, the Company granted RSAs under the Equity Incentive Plan to employees, officers, executives, and non-employee directors.

Shares granted to non-employee directors vested immediately upon grant, while shares granted to employees, officers, and executives vest ratably over three , five , or seven years (as defined in the respective agreements).

In connection with its IPO in May 2021, the Company granted RSAs under the Equity Incentive Plan to certain employees, officers, executives, and non-employee directors.

Shares granted to non-employee directors vested immediately upon grant, while shares granted to certain employees, officers, and executives vest ratably over three , five , or seven years (as defined in the respective agreements).

Since the completion of the IPO, the Company has granted RSAs under the Equity Incentive Plan to executives and directors, which vest annually over three years and over one year , respectively.

1 unchanged sentence

The RSAs are considered fixed awards, as the number of shares and fair value are known at the date of grant and the fair value at the grant date is amortized over the service period.

Non-cash stock compensation expense recognized for the three months ended March 31, 2023 and 2022 was $ 0.2 million and $ 0.3 million, respectively.

At March 31, 2023 and 2022, there were 108,363 and 138,856 unvested restricted shares, respectively.

As of March 31, 2023, there was approximately $ 1.9 million of unrecognized compensation expense related to the 108,363 unvested restricted shares.

Non-cash stock compensation expense recognized for the three months ended June 30, 2023 and 2022 was $ 0.2 million and $ 0.3 million, respectively.

Non-cash stock compensation expense recognized for the six months ended June 30, 2023 and 2022 was $ 0.5 million and $ 0.6 million, respectively.

At June 30, 2023 and 2022, there were 82,324 and 107,824 unvested restricted shares, respectively.

As of June 30, 2023, there was approximately $ 1.6 million of unrecognized compensation expense related to the 82,324 unvested restricted shares.

The holders of unvested RSAs are entitled to dividends at the same per-share ratio as holders of common stock.

Tax benefits for dividends paid on unvested RSAs are recorded as tax benefits in the consolidated statements of income with a corresponding decrease to current taxes payable.

Such tax benefits are expected to be recognized over the the weighted average term remaining on the unvested restricted shares of 3.05 years as of March 31, 2023.

The impact of tax benefits for dividends paid on unvested restricted stock on the Company’s unaudited consolidated statements of income for the three months ended March 31, 2023 and 2022 was immaterial.

Such tax benefits are expected to be recognized over the weighted average term remaining on the unvested restricted shares of 2.92 years as of June 30, 2023.

The impact of tax benefits for dividends paid on unvested restricted stock on the Company’s unaudited consolidated statements of income for the three and six months ended June 30, 2023 and 2022 was immaterial.

The following table summarizes activity related to restricted shares for the periods indicated:

For the three months ended March 31,

Shares Weighted

Fair Value Shares Weighted

For the three months ended June 30,

For the six months ended June 30,

2023 2022 2023 2022

Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value

Beginning of the period balance 108,363 $ 21.43 138,856 $ 20.95 96,826 $ 20.34 127,751 $ 19.95

13 unchanged sentences

amounts of unfunded loan commitments and standby letters of credit not reflected in the unaudited consolidated balance sheets were as follows:

(in thousands) March 31,

(in thousands) June 30,

2023 December 31,

Commercial lines of credit $ 169,726 $ 147,021

Undisbursed commercial real estate loans 82,286 79,121

Undisbursed construction loans 155,408 80,726

Undisbursed commercial real estate loans 85,703 79,121

Agricultural lines of credit 28,121 10,399

4 unchanged sentences

The Company records an allowance for credit losses on unfunded loan commitments at the consolidated 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 historical loss rates determined for pooled funded loans.

The allowance for credit losses on unfunded commitments totaled $ 1.2 million as of March 31, 2023 and $ 0.1 million as of December 31, 2022, which is recorded in “Interest payable and other liabilities” in the unaudited consolidated balance sheets.

The allowance for credit losses on unfunded commitments totaled $ 1.5 million as of June 30, 2023 and $ 0.1 million as of December 31, 2022, which is recorded in “Interest payable and other liabilities” in the unaudited consolidated balance sheets.

Concentrations of credit risk :

1 unchanged sentence

Although the Company has a diversified loan portfolio, a substantial portion is secured by commercial and residential real estate.

In management’s judgment, a concentration of loans exists in real estate related loans, which represented approximately 91.61 % of the Company’s loan portfolio at March 31, 2023 and 91.84 % of the Company’s loan portfolio at December 31, 2022.

In management’s judgment, a concentration of loans exists in real estate related loans, which represented approximately 92.44 % of the Company’s loan portfolio at June 30, 2023 and 91.84 % of the Company’s loan portfolio at December 31, 2022.

Although management believes such concentrations have no more than the normal risk of collectability, a substantial decline in 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 the collectability of these loans.

1 unchanged sentence

Deposit concentrations :

At March 31, 2023, the Company had 84 deposit relationships that exceeded $ 5.0 million each, totaling $ 1.9 billion, or approximately 64.32 % of total deposits.

The Company’s largest single deposit relationship at March 31, 2023 totaled $ 220.9 million, or approximately 7.56 % of total deposits.

At June 30, 2023, the Company had 86 deposit relationships that exceeded $ 5.0 million each, totaling $ 1.8 billion, or approximately 61.78 % of total deposits.

The Company’s largest single deposit relationship at June 30, 2023 totaled $ 210.0 million, or approximately 7.17 % of total deposits.

Management maintains the Company’s liquidity position and lines of credit with correspondent banks to mitigate the risk of large withdrawals by this group of large depositors.

4 unchanged sentences

The Company maintains funds on deposit with other FDIC-insured financial institutions under correspondent banking agreements.

Uninsured deposits through these agreements totaled $ 22.0 million and $ 16.2 million at March 31, 2023 and December 31, 2022, respectively.

Uninsured deposits through these agreements totaled $ 24.1 million and $ 16.2 million at June 30, 2023 and December 31, 2022, respectively.

Litigation Matters

2 unchanged sentences

Subsequent Events

On April 20, 2023, the Board of Directors of the Company authorized a cash dividend of $ 0.20 per common share, payable on May 15, 2023 to shareholders of record on May 8, 2023.

On July 20, 2023, the Board of Directors of the Company authorized a cash dividend of $ 0.20 per common share, payable on August 14, 2023 to shareholders of record on August 7, 2023.

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