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Item 1. Financial Statements

2024-08-06 compared with 2024-05-08 · 276 added, 181 removed, 715 unchanged (39% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts) March 31, 2024 December 31, 2023

(in thousands, except share amounts) June 30, 2024 December 31, 2023

Cash and due from financial institutions $ 28,572 $ 26,986

2 unchanged sentences

Time deposits in banks 4,097 5,858

Securities available-for-sale, at fair value, net of allowance for credit losses of $ 0 at March 31, 2024 and December 31, 2023 (amortized cost of $ 122,667 and $ 124,788 at March 31, 2024 and December 31, 2023, respectively)

Securities available-for-sale, at fair value, net of allowance for credit losses of $ 0 at June 30, 2024 and December 31, 2023 (amortized cost of $ 120,569 and $ 124,788 at June 30, 2024 and December 31, 2023, respectively)

103,204 108,083

Securities held-to-maturity, at amortized cost, net of allowance for credit losses of $ 20 at March 31, 2024 and December 31, 2023 (fair value of $ 2,828 and $ 2,913 at March 31, 2024 and December 31, 2023, respectively)

Securities held-to-maturity, at amortized cost, net of allowance for credit losses of $ 20 at June 30, 2024 and December 31, 2023 (fair value of $ 2,801 and $ 2,913 at June 30, 2024 and December 31, 2023, respectively)

Loans held for sale 5,322 11,464

Loans held for investment 3,266,291 3,081,719

Allowance for credit losses - loans ( 34,653 ) ( 34,431 )

Allowance for credit losses

( 35,406 ) ( 34,431 )

Loans held for investment, net of allowance for credit losses 3,230,885 3,047,288

18 unchanged sentences

10,000,000 shares authorized;

zero issued and outstanding at March 31, 2024 and December 31, 2023

zero issued and outstanding at June 30, 2024 and December 31, 2023

Common stock, no par value;

100,000,000 shares authorized;

17,353,251 shares issued and outstanding at March 31, 2024;

21,319,583 shares issued and outstanding at June 30, 2024;

17,256,989 shares issued and outstanding at December 31, 2023

12 unchanged sentences

Three Months Ended

June 30, Six Months Ended

(in thousands, except per share amounts) 2024 2023 2024 2023

4 unchanged sentences

Interest-bearing deposits in banks

1,986 2,218 5,088 4,385

Total interest and fee income 48,998 42,793 96,539 83,104

15 unchanged sentences

Earnings on BOLI 158 126 300 228

Other 78 1,340 451 1,393

Total non-interest income 1,573 2,820 3,406 4,191

13 unchanged sentences

4,370 4,440 8,700 9,780

$ 10,782 $ 12,729 $ 21,413 $ 25,890

Basic earnings per common share $ 0.51 $ 0.74 $ 1.12 $ 1.51

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

(in thousands) 2024 2023 2024 2023

$ 10,782 $ 12,729 $ 21,413 $ 25,890

Unrealized (loss) gain on securities:

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

Unrealized gain (loss) on securities:

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

295 ( 1,462 ) ( 660 ) 679

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

Other comprehensive (loss) income

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

87 ( 432 ) ( 195 ) 201

Other comprehensive income (loss)

208 ( 1,030 ) ( 465 ) 478

Total comprehensive income

3 unchanged sentences

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the Three Months Ended March 31, 2024 and 2023

For the Three Months Ended June 30, 2024 and 2023

Common Stock Retained Earnings

2 unchanged sentences

(in thousands, except per share amounts) Shares Amount

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

Balance at March 31, 2024 17,353,251 $ 220,804 $ 84,216 $ ( 12,440 ) $ 292,580

Net income — — 10,782 — 10,782

Other comprehensive income — — — 208 208

Common stock issued 3,967,500 80,870 — — 80,870

Stock compensation expense — 294 — — 294

Stock forfeitures ( 1,168 ) — — — —

Cash dividends paid ($ 0.20 per share)

— — ( 4,264 ) — ( 4,264 )

Balance at June 30, 2024 21,319,583 $ 301,968 $ 90,734 $ ( 12,232 ) $ 380,470

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, 2024 and 2023

Common Stock Retained Earnings

Accumulated Other Comprehensive Loss

Total Shareholders’ Equity

(in thousands, except per share amounts) Shares Amount

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

2 unchanged sentences

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

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

Balance at December 31, 2023 17,256,989 $ 220,505 $ 77,036 $ ( 11,767 ) $ 285,774

1 unchanged sentence

Other comprehensive loss — — — ( 465 ) ( 465 )

Stock issued under stock award plans, net 96,380 — — — —

Common stock issued 3,967,500 80,870 — — 80,870

Stock issued under stock award plans 96,380 — — — —

Stock compensation expense — 593 — — 593

2 unchanged sentences

— — ( 7,715 ) — ( 7,715 )

Balance at March 31, 2024 17,353,251 $ 220,804 $ 84,216 $ ( 12,440 ) $ 292,580

See accompanying notes to the unaudited consolidated financial statements.

Balance at June 30, 2024 21,319,583 $ 301,968 $ 90,734 $ ( 12,232 ) $ 380,470

See accompanying notes to unaudited consolidated financial statements.

FIVE STAR BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands) 2024 2023

23 unchanged sentences

Proceeds received from equity investment 300 —

Low income housing tax credits ( 1,160 ) —

Net change in time deposits in banks 1,761 2,506

1 unchanged sentence

Purchase of premises and equipment ( 312 ) ( 335 )

Purchase of FHLB stock — ( 4,110 )

Purchase of BOLI ( 1,550 ) ( 2,000 )

2 unchanged sentences

Net change in deposits 122,735 147,735

(Payments) advances on other borrowings ( 50,000 ) 20,000

Proceeds from issuance of stock, net of issuance costs 80,870 —

Payments on other borrowings ( 170,000 ) —

Cash dividends paid ( 7,715 ) ( 6,040 )

Net cash (used in) provided by financing activities ( 124,575 ) 155,813

Net cash provided by financing activities 25,890 141,695

Net change in cash and cash equivalents ( 131,217 ) 40,132

25 unchanged sentences

All significant intercompany transactions and balances are eliminated in consolidation.

The results of operations for the three months ended March 31, 2024 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, 2024.

The results of operations for the three and six months ended June 30, 2024 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, 2024.

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

60 unchanged sentences

ASU 2024-02 is effective January 1, 2025 and is not expected to have a significant impact on the Company’s consolidated financial statements.

(g) Allowance for Credit Losses (“ACL”)

The ACL is a valuation account that offsets the amortized cost basis of loans receivable and certain other financial assets, including unfunded loan commitments and held-to-maturity debt securities.

Under ASC 326, amortized cost basis is the basis on which the ACL is determined.

Amortized cost basis on loans receivable is principal outstanding, net of any purchase premiums and discounts, and net of any deferred loan fees and costs.

Credit losses are charged off when management believes that the collectability of at least some portion of outstanding principal is unlikely.

These charge-offs are recorded as a reversal to, thereby reducing, the allowance for credit losses.

Subsequent recoveries of previously charged-off amounts, if any, are recorded as a provision to, thereby increasing, the allowance for credit losses.

The allowance for credit losses is maintained at a level to absorb expected credit losses over the contractual life, including consideration of prepayments.

Determining the adequacy of the allowance is complex and requires judgments that are inherently subjective, as it requires estimates that are susceptible to revision as additional information becomes available.

While the Company has determined an allowance for credit losses it considers appropriate, there can be no assurance that the allowance will be sufficient to absorb future losses.

The Company’s process for determining expected lifetime credit losses entails a loan-level, model-based approach and considers a broad range of information, including historical loss experience, current conditions, and reasonable and supportable forecasts.

Credit loss is estimated for all loans.

Accordingly, the Company has stratified the full loan population into segments sharing similar characteristics to perform the evaluation of the credit loss collectively.

The Company can also further stratify loans of similar types, risk attributes, and methods for credit risk monitoring.

The Company has determined loan pools based primarily on regulatory reporting codes, as the loans within each pool share similar risk characteristics and there is sufficient historical peer loss data from the FFIEC to provide statistically meaningful support in the models developed.

The Company further stratified the C&I portfolio into traditional C&I loans and SBA loans, as the loans in these pools have different repayment structures and credit risk characteristics.

The Company also stratified C&I loans and consumer loans that do not require reserves, as the Company has third-party agreements in place to cover credit losses.

The Company has identified the following pools subject to an estimate of credit loss:

(1) 1-4 Family Construction;

(2) Other Construction;

(3) Farmland;

(4) Revolving Secured by 1-4 Family;

(5) Residential Secured by First Liens;

(6) Residential Secured by Junior Liens;

(7) Multifamily;

(8) CRE Owner Occupied;

(9) CRE Non-Owner Occupied;

(10) Agriculture;

(12) C&I SBA;

(13) Consumer;

and (14) Municipal.

With the exception of the C&I SBA pool, the Company has determined, given its limited loss experience, that peer data and other external data to support loss history provides the best basis for its assessment of expected credit losses.

The Company believes that the use of peer loss data from 2008 to 2019 presents loss histories that appropriately reflect a full economic cycle, reflects asset-specific risk characteristics at each pool level identified, and includes a historical look-back

period that is objective and reflective of future expected credit losses.

Loss data from 2020 and beyond was excluded from the data set to exclude pandemic-related data from the model.

During the three months ended June 30, 2024, the Company segregated the Manufactured Home Community (“MHC”) loans from the Multifamily pool as the Company identified a data source to provide sufficient historical peer loss data specific to MHC loans.

This segregation now adjusts for differences in the risk characteristics and performance of MHCs compared to standard Multifamily properties.

The Company used calculations of individual probability of default and loss given default on a loan-by-loan basis to derive an estimated loss rate.

This adjustment reduced the required reserves related to MHC pool by approximately $ 5.8 million.

The Company’s routine monitoring of charge-off activity identified an increased level of charge-offs in the C&I SBA pool during the first six months of 2024, reflecting a change in the credit quality of the pool.

In response, the Company increased the expected loss rates of the C&I SBA pool during the three months ended June 30, 2024 to be more in line with net charge-off rates during the first six months of 2024.

This adjustment reflects the Company’s estimate for future loss rates and increased the required reserves related to the C&I SBA pool by approximately $ 4.6 million.

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

(i) the use of probability of default and loss given default 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.

Qualitative criteria that can be considered includes, among other things, the following:

• Concentrations – the existence and effect of any concentrations of credit, and changes in the level of such concentrations;

• Volume – changes in the nature and volume of the portfolio and in the terms of the loans;

• Economic – changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments;

• Policy – changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses;

• Quality – changes in the volume and severity of past due loans, the volume of non-accrual loans, and the volume and severity of adversely classified or graded loans;

• External – the effect of other external factors, such as competition and legal and regulatory requirements on the level of estimated credit losses in the Company’s loan portfolio.

Management reviews current information on a quarterly basis to assess the forecasted future economic impact for purposes of evaluating the adequacy of the ACL.

The forecasted direction and magnitude of change with respect to future economic conditions is then assessed against the estimate in the model.

Any changes resulting from the quarterly assessment are recorded in “Provision for credit losses” in the unaudited consolidated statements of income.

The Audit Committee of the board of directors reviews the adequacy of the allowance at least quarterly.

Accrued interest receivable is excluded from amortized cost of all financial instrument types and included in “Interest receivable and other assets” in the consolidated balance sheets.

Accrued interest receivable is not subject to an estimate for credit loss, as the Company has a policy to charge off accrued interest deemed uncollectible in a timely manner.

When a loan is placed on non-accrual status, which occurs within 90 days of a borrower becoming delinquent, interest previously accrued but not collected is reversed against current period income.

If an individual loan’s characteristics have deteriorated to below a range of the overall pool, the loan would be individually assessed.

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

(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.

Fair Value of Assets and Liabilities

6 unchanged sentences

The fair values of securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

The following table summarizes the Company’s assets and liabilities that were required to be recorded at fair value on a recurring basis.

Table 2.1 summarizes the Company’s assets and liabilities required to be recorded at fair value on a recurring basis.

Fair Value on a Recurring Basis

(in thousands) Carrying Value Quoted Prices in Active Markets for Identical Assets

3 unchanged sentences

Changes in Fair Value Recorded In

March 31, 2024

June 30, 2024

Securities available-for-sale:

9 unchanged sentences

When available, quoted market prices (Level 1 inputs) are used to determine the fair value of available-for-sale securities.

If quoted market prices are not available, management obtains pricing information from a reputable third-party service provider, who may utilize valuation techniques that use current market-based or independently sourced parameters, such as bid/ask prices, dealer-quoted prices, interest rates, benchmark yield curves, prepayment speeds, probability of default, loss severity, and credit spreads (Level 2 inputs).

If quoted market prices are not available,

management obtains pricing information from a reputable third-party service provider, who may utilize valuation techniques that use current market-based or independently sourced parameters, such as bid/ask prices, dealer-quoted prices, interest rates, benchmark yield curves, prepayment speeds, probability of default, loss severity, and credit spreads (Level 2 inputs).

Level 2 securities include U.S.

2 unchanged sentences

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

As of March 31, 2024 and December 31, 2023, 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, 2024 and December 31, 2023, 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, 2024 and December 31, 2023, the carrying amount of assets measured at fair value on a non-recurring basis was immaterial to the Company.

As of June 30, 2024 and December 31, 2023, 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, 2024 and December 31, 2023.

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

Table 2.2 is a summary of fair value estimates for financial instruments as of June 30, 2024 and December 31, 2023.

The carrying amounts in Table 2.2 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, 2024 December 31, 2023

Fair Value Estimates for Financial Instruments

June 30, 2024 December 31, 2023

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

14 unchanged sentences

Other borrowings — — Level 2 170,000 170,000 Level 2

The following methods and assumptions were used by the Company to estimate the fair value of its financial instruments at March 31, 2024 and December 31, 2023:

The Company used the following methods and assumptions to estimate the fair value of its financial instruments at June 30, 2024 and December 31, 2023:

Cash and cash equivalents and time deposits in banks :

28 unchanged sentences

GSEs, such as the FNMA, the FHLMC, and the FHLB.

The Company also invests in residential and commercial mortgage-backed securities, collateralized mortgage obligations issued or guaranteed by GSEs, 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, 2024 and December 31, 2023 is presented below.

A summary of the amortized cost and fair value related to securities held-to-maturity as of June 30, 2024 and December 31, 2023 is presented in Table 3.1.

Securities Held-to-Maturity

(in thousands) Amortized Cost Gross Unrealized Fair Value

Gains (Losses)

March 31, 2024

June 30, 2024

Obligations of states and political subdivisions $ 2,973 $ — $ ( 172 ) $ 2,801

5 unchanged sentences

(i) issuer and/or guarantor credit ratings;

(ii) historical probability of default and loss given default rates for given bond ratings and remaining maturity;

(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;

1 unchanged sentence

and (v) whether or not such securities have credit enhancements such as guarantees, contain a defeasance clause, or are pre-refunded by the issuers.

A summary of the amortized cost and fair value related to securities available-for-sale as of March 31, 2024 and December 31, 2023 is presented below.

A summary of the amortized cost and fair value related to securities available-for-sale as of June 30, 2024 and December 31, 2023 is presented in Table 3.2.

Securities available-for-sale did not have an allowance for credit losses as of June 30, 2024 or December 31, 2023.

Securities Available-for-Sale

(in thousands) Amortized Cost Gross Unrealized Fair Value

Gains (Losses)

March 31, 2024

June 30, 2024

government agency securities $ 9,494 $ 144 $ ( 109 ) $ 9,529

11 unchanged sentences

Total available-for-sale $ 124,788 $ 161 $ ( 16,866 ) $ 108,083

The amortized cost and fair value of investment securities by contractual maturity at March 31, 2024 and December 31, 2023 are shown below.

The amortized cost and fair value of investment securities by contractual maturity at June 30, 2024 and December 31, 2023 are shown in Table 3.3.

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, 2024 December 31, 2023

Contractual Maturities - Investment Securities

(in thousands) June 30, 2024 December 31, 2023

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

10 unchanged sentences

Total $ 2,973 $ 2,801 $ 120,569 $ 103,204 $ 3,077 $ 2,913 $ 124,788 $ 108,083

There were no purchases or sales of investment securities during the three months ended March 31, 2024 and March 31, 2023.

Pledged investment securities are shown in the following table:

(in thousands) March 31, 2024 December 31, 2023

There were no purchases or sales of investment securities during the three and six months ended June 30, 2024 and June 30, 2023.

Pledged investment securities are shown in Table 3.4.

Pledged Investment Securities

(in thousands) June 30, 2024 December 31, 2023

The State of California, securing deposits of public funds and borrowings $ 52,687 $ 55,435

1 unchanged sentence

Total pledged investment securities $ 99,781 $ 104,399

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, 2024 and December 31, 2023:

Less than 12 months 12 months or more Total securities in a loss position

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

March 31, 2024

Table 3.5 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 June 30, 2024 and December 31, 2023.

Securities Available-for-Sale in Continuous Unrealized Loss Positions

(in thousands) Less than 12 months 12 months or more Total securities in a loss position

Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss

June 30, 2024

government agency securities $ 199 $ ( 1 ) $ 5,549 $ ( 108 ) $ 5,748 $ ( 109 )

13 unchanged sentences

$ 1,130 $ ( 14 ) $ 101,730 $ ( 16,852 ) $ 102,860 $ ( 16,866 )

There were 150 and 149 available-for-sale securities in unrealized loss positions at March 31, 2024 and December 31, 2023, respectively.

As of March 31, 2024, the investment portfolio included 144 investment securities that had been in a continuous loss position for twelve months or more and six 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, 2024 and December 31, 2023, which had been in a continuous loss position for more than twelve months.

There were 147 and 149 available-for-sale securities in unrealized loss positions at June 30, 2024 and December 31, 2023, respectively.

As of June 30, 2024, the investment portfolio included 143 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 June 30, 2024 and December 31, 2023, which had been in a continuous loss position for more than twelve months.

Obligations issued or guaranteed by government agencies such as the 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 $ 15.0 million of FHLB stock at March 31, 2024 and December 31, 2023.

The Company held $ 15.0 million of FHLB stock at June 30, 2024 and December 31, 2023.

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 March 31, 2024 and December 31, 2023.

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, 2024 and December 31, 2023.

Loans and Allowance for Credit Losses

1 unchanged sentence

Associated with the higher yields is an inherent amount of credit risk which the Company attempts to mitigate through strong underwriting practices.

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, 2024 December 31, 2023

Table 4.1 presents the balance of each major product type within the Company’s portfolio as of the dates indicated.

Loans Outstanding

(in thousands) June 30, 2024 December 31, 2023

Commercial $ 2,774,001 $ 2,685,419

10 unchanged sentences

Loans held for investment 3,266,291 3,081,719

3,104,130 3,081,719

Allowance for credit losses - loans ( 34,653 ) ( 34,431 )

Allowance for credit losses ( 35,406 ) ( 34,431 )

Loans held for investment, net of allowance for credit losses $ 3,230,885 $ 3,047,288

19 unchanged sentences

Construction loans may be underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates, and financial analysis of the developers and property owners.

Construction loans are generally based upon estimates of costs and value associated with the completed project.

These estimates may be

Construction loans are

generally based upon estimates of costs and value associated with the completed project.

These estimates may be inaccurate.

Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the ultimate success of the project.

42 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 the period indicated was as follows:

Amortized Cost Basis by Origination Year as of March 31, 2024

Table 4.2 presents 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 the periods indicated.

Loans by Risk Category and Vintage

Amortized Cost Basis by Origination Year as of June 30, 2024

(in thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Revolving Converted to Term Total

2 unchanged sentences

Substandard — — — — — 1,818 — — 1,818

Doubtful — — — — — — — — —

Total 251,489 323,243 952,046 671,064 236,157 332,351 4,879 — 2,771,229

1 unchanged sentence

Pass 1,636 1,000 1,259 — 182 695 — — 4,772

Watch — — — — — — — — —

Substandard — — — — — — — — —

Doubtful — — — — — — — — —

Total 1,636 1,000 1,259 — 182 695 — — 4,772

1 unchanged sentence

Pass 2,982 28,518 23,512 — 11,231 5,897 — — 72,140

Watch — — — — — — — — —

Substandard — — — — — — — — —

Doubtful — — — — — — — — —

Total 2,982 28,518 23,512 — 11,231 5,897 — — 72,140

1 unchanged sentence

Pass 5,099 — — 3,914 — — — — 9,013

Watch — — — — — — — — —

Substandard — — — — — — — — —

Doubtful — — — — — — — — —

Total 5,099 — — 3,914 — — — — 9,013

Pass 5,686 4,814 2,911 6,148 2,240 6,559 1,308 — 29,666

Watch — — — — — — — — —

Substandard — — — — — — — — —

Doubtful — — — — — — — — —

Total 5,686 4,814 2,911 6,148 2,240 6,559 1,308 — 29,666

1 unchanged sentence

Watch — — 799 — — — — 502 1,301

Substandard — — — — — — — — —

Doubtful — — — — — — — — —

Total 900 2,074 7,913 11,761 7,129 18,552 — 502 48,831

2 unchanged sentences

Substandard — — — — — 60 — — 60

Doubtful — — — — — — — — —

Total 10,976 24,982 34,336 13,803 10,705 18,711 41,113 — 154,626

Amortized Cost Basis by Origination Year as of March 31, 2024

(in thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Revolving Converted to Term Total

Pass 2,394 4,782 3,292 4,260 5,322 1,883 1,280 — 23,213

Watch — — — — — — — — —

Substandard — — — — — — — — —

Doubtful — — — — — — — — —

Total 2,394 4,782 3,292 4,260 5,322 1,883 1,280 — 23,213

3 unchanged sentences

Substandard — — 10 — — — — — 10

Doubtful — — — — — — — — —

Total 98,048 38,134 9,493 6,874 2 250 — — 152,801

2 unchanged sentences

Substandard — — 10 — — 1,878 — — 1,888

Doubtful — — — — — — — — —

Total $ 379,210 $ 427,547 $ 1,034,762 $ 717,824 $ 272,968 $ 384,898 $ 48,580 $ 502 $ 3,266,291

Loans by Risk Category and Vintage (continued)

Amortized Cost Basis by Origination Year as of December 31, 2023

3 unchanged sentences

Substandard — — — — — 1,890 — — 1,890

Doubtful — — — — — — — — —

Total 329,876 1,000,715 721,239 243,382 128,998 253,816 4,685 — 2,682,711

1 unchanged sentence

Pass 11,388 3,229 — 184 — 733 — — 15,534

Watch — — — — — — — — —

Substandard — — — — — — — — —

Doubtful — — — — — — — — —

Total 11,388 3,229 — 184 — 733 — — 15,534

1 unchanged sentence

Pass 9,074 32,154 4,189 11,230 — 5,897 — — 62,544

Watch — — — — — — — — —

Substandard — — — — — — — — —

Doubtful — — — — — — — — —

Total 9,074 32,154 4,189 11,230 — 5,897 — — 62,544

1 unchanged sentence

Pass 2,412 9,128 3,912 — — — — — 15,452

Watch — — — — — — — — —

Substandard — — — — — — — — —

Doubtful — — — — — — — — —

Total 2,412 9,128 3,912 — — — — — 15,452

Amortized Cost Basis by Origination Year as of December 31, 2023

(in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Revolving Converted to Term Total

Pass 4,838 3,964 6,244 2,279 1,182 5,995 1,420 — 25,922

Watch — — — — — — — — —

Substandard — — — — — — — — —

Doubtful — — — — — — — — —

Total 4,838 3,964 6,244 2,279 1,182 5,995 1,420 — 25,922

Pass 2,311 8,037 12,678 7,860 12,365 8,391 4 — 51,646

Watch — — — — — — — — —

Substandard — — — — — — — — —

Doubtful — — — — — — — — —

Total 2,311 8,037 12,678 7,860 12,365 8,391 4 — 51,646

2 unchanged sentences

Substandard — — — — 45 27 — — 72

Doubtful — — — — — — — — —

Total 25,488 37,681 17,009 12,227 10,117 11,331 51,747 — 165,600

Pass 3,891 3,782 4,902 5,963 2,240 7 3,072 — 23,857

Watch — — — — — — — — —

Substandard — — — — — — — — —

Doubtful — — — — — — — — —

Total 3,891 3,782 4,902 5,963 2,240 7 3,072 — 23,857

3 unchanged sentences

Substandard — 12 — — — — — — 12

Doubtful — — — — — — — — —

Total 18,489 11,387 8,264 6 — 307 — — 38,453

2 unchanged sentences

Substandard — 12 — — 45 1,917 — — 1,974

Doubtful — — — — — — — — —

Total $ 407,767 $ 1,110,077 $ 778,437 $ 283,131 $ 154,902 $ 286,477 $ 60,928 $ — $ 3,081,719

5 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, 2024 consisted of the following:

Table 4.3 shows the age analysis of past due loans by class as of the dates shown.

Age Analysis of Past Due Loans by Class

(in thousands) Past Due

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

June 30, 2024

Commercial $ — $ — $ — $ — $ 2,771,229 $ 2,771,229

8 unchanged sentences

Total $ 629 $ — $ — $ 629 $ 3,265,662 $ 3,266,291

There were no loans greater than 90 days past due and still accruing interest income as of March 31, 2024.

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

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

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

December 31, 2023

Commercial $ — $ — $ — $ — $ 2,682,711 $ 2,682,711

8 unchanged sentences

Total $ 76 $ — $ — $ 76 $ 3,081,643 $ 3,081,719

There were no loans greater than 90 days past due and still accruing interest income as of December 31, 2023.

No collateral dependent loans were in process of foreclosure at March 31, 2024 or December 31, 2023.

Non-accrual loans, segregated by class, were as follows as of March 31, 2024 and December 31, 2023:

(in thousands) March 31, 2024 December 31, 2023

There were no loans greater than 90 days past due and still accruing interest income as of June 30, 2024 or December 31, 2023.

No collateral dependent loans were in process of foreclosure at June 30, 2024 or December 31, 2023.

Non-accrual loans, segregated by class, as of June 30, 2024 and December 31, 2023 are shown in Table 4.4.

Nonaccrual Loans

(in thousands) June 30, 2024 December 31, 2023

Commercial $ 1,821 $ 1,893

1 unchanged sentence

Total non-accrual loans $ 1,881 $ 1,965

No interest income was recognized on non-accrual loans in the three months ended March 31, 2024 or March 31, 2023.

Non-accrual real estate loans did not have an allowance for credit losses as of March 31, 2024.

No interest income was recognized on non-accrual loans in the three and six months ended June 30, 2024 or June 30, 2023.

Non-accrual real estate loans did not have an allowance for credit losses as of June 30, 2024.

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 $ 39.2 thousand for the three months ended March 31, 2024, as compared to $ 9.1 thousand for the three months ended March 31, 2023.

Allowance for Credit Losses - Loans

The following table discloses activity in the allowance for credit losses - loans for the three months ended March 31, 2024.

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

The amount of foregone interest income related to non-accrual loans was $ 38.2 thousand and $ 77.4 thousand for the three and six months ended June 30, 2024, respectively, as compared to $ 26.1 thousand and $ 35.3 thousand for the three and six months ended June 30, 2023, respectively.

Allowance for Credit Losses

Table 4.5 discloses activity in the allowance for credit losses for the periods indicated.

Allowance for Credit Losses

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

Three months ended June 30, 2024

Commercial $ 28,895 $ — $ — $ — $ ( 4,187 ) $ 24,708

8 unchanged sentences

Total $ 34,653 $ — $ ( 1,347 ) $ 150 $ 1,950 $ 35,406

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

Allowance for Credit Losses (continued)

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

Three months ended June 30, 2023

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

7 unchanged sentences

Consumer and other 404 — ( 137 ) 106 97 470

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

Six months ended June 30, 2024

Commercial $ 29,015 $ — $ — $ — $ ( 4,307 ) $ 24,708

Commercial land and development 178 — — — ( 106 ) 72

Commercial construction 718 — — — 379 1,097

Residential construction 89 — — — 11 100

Residential 151 — — — 44 195

Farmland 399 — — — 3 402

Secured 3,314 — ( 2,237 ) 239 6,070 7,386

Unsecured 189 — ( 70 ) — 95 214

Consumer and other 378 — ( 143 ) 186 811 1,232

Total $ 34,431 $ — $ ( 2,450 ) $ 425 $ 3,000 $ 35,406

Six months ended June 30, 2023

Commercial $ 19,216 $ 7,606 $ — $ — $ 731 $ 27,553

Commercial land and development 54 74 — — 56 184

Commercial construction 645 882 — — ( 315 ) 1,212

Residential construction 49 81 — — 87 217

Residential 175 3 — — ( 26 ) 152

Farmland 644 ( 396 ) — — ( 12 ) 236

Secured 7,098 ( 3,060 ) ( 1,611 ) 139 1,185 3,751

Unsecured 116 37 — — 56 209

Consumer and other 347 80 ( 522 ) 507 58 470

Unallocated 45 ( 45 ) — — — —

3 unchanged sentences

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

Three months ended

(in thousands) March 31, 2024 March 31, 2023

Unfunded Loan Commitment Reserves

Three months ended Six months ended

(in thousands) June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023

Balance at beginning of period $ 1,097 $ 1,217 $ 1,247 $ 125

3 unchanged sentences

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 at March 31, 2024 and December 31, 2023.

In addition, the Company pledges eligible tenants in common loans, which totaled $ 1.2 billion at March 31, 2024 and December 31, 2023, to secure its borrowing capacity with the Federal Reserve Discount Window.

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 $ 1.6 billion and $ 1.7 billion at June 30, 2024 and December 31, 2023, respectively.

In addition, the Company pledges eligible tenants in common loans, which totaled $ 1.2 billion at June 30, 2024 and December 31, 2023, to secure its borrowing capacity with the Federal Reserve Discount Window.

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, 2024 and December 31, 2023:

(in thousands) March 31, 2024 December 31, 2023

Table 5.1 shows the composition of interest-bearing deposits as of June 30, 2024 and December 31, 2023.

Interest-Bearing Deposits

(in thousands) June 30, 2024 December 31, 2023

Interest-bearing transaction accounts $ 299,815 $ 320,356

5 unchanged sentences

Total interest-bearing deposits $ 2,323,898 $ 2,195,795

Time deposits totaled $ 288.2 million and $ 466.6 million as of March 31, 2024 and December 31, 2023, respectively.

As of March 31, 2024, scheduled maturities of time deposits for the next five years were as follows:

Time deposits totaled $ 333.4 million and $ 466.6 million as of June 30, 2024 and December 31, 2023, respectively.

Scheduled maturities of time deposits as of June 30, 2024 for the next five years are shown in Table 5.2.

Scheduled Maturities of Time Deposits

(in thousands)

5 unchanged sentences

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, 2024 and December 31, 2023.

The composition of network deposits as of March 31, 2024 and December 31, 2023 was as follows:

(in thousands) March 31, 2024 December 31, 2023

There were no one-way deposits at June 30, 2024 and December 31, 2023.

The composition of network deposits as of June 30, 2024 and December 31, 2023 is shown in Table 5.3.

Network Deposits

(in thousands) June 30, 2024 December 31, 2023

CDARS $ 17,397 $ 16,325

1 unchanged sentence

Total network deposits $ 700,272 $ 636,524

Interest expense recognized on interest-bearing deposits for periods ended March 31, 2024 and 2023 consisted of the following:

Three months ended

(in thousands) March 31, 2024 March 31, 2023

Table 5.4 presents interest expense recognized on interest-bearing deposits for the periods ended June 30, 2024 and 2023.

Interest Expense Recognized on Interest-Bearing Deposits

Three months ended Six months ended

(in thousands) June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023

Interest-bearing transaction accounts $ 1,104 $ 825 $ 2,230 $ 1,258

2 unchanged sentences

Time accounts, $ 250 or more

2,412 2,634 6,235 4,597

Other time accounts 957 1,616 2,502 2,617

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 ( 8.58 % as of March 31, 2024) 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 ( 8.60 % as of June 30, 2024) 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 $ 0.2 million has been amortized as of March 31, 2024.

Debt issuance costs incurred in conjunction with the notes were $ 1.5 million, of which $ 0.3 million has been amortized as of June 30, 2024.

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, 2024 and December 31, 2023, the carrying value of the Company’s subordinated notes outstanding was $ 73.8 million and $ 73.7 million, respectively.

At June 30, 2024 and December 31, 2023, the carrying value of the Company’s subordinated notes outstanding was $ 73.8 million and $ 73.7 million, respectively.

Other borrowings :

The Company entered into an agreement with the FHLB which granted the FHLB a blanket lien on certain loans receivable as collateral for a borrowing line.

The Company’s total financing availability is based on the dollar volume of qualifying loan collateral.

The Company’s total financing availability with the FHLB is decreased by outstanding borrowings and letters of credit (“LCs”) issued on behalf of the Company, as follows:

(in thousands) March 31, 2024 December 31, 2023

The Company’s total financing availability is based on the dollar

volume of qualifying loan collateral.

The Company’s total financing availability with the FHLB is decreased by outstanding borrowings and letters of credit (“LCs”) issued on behalf of the Company, as shown in Table 6.1.

Financing Availability with the FHLB

(in thousands) June 30, 2024 December 31, 2023

Total financing ability from the FHLB

1 unchanged sentence

outstanding borrowings

20,000 170,000

LCs pledged to secure State of California deposits

6 unchanged sentences

$ 432,897 $ 145,212

At March 31, 2024 and December 31, 2023, the Company had a borrowing line available from the Federal Reserve Discount Window.

At June 30, 2024 and December 31, 2023, the Company had the ability to borrow from the Federal Reserve Discount Window.

At June 30, 2024 and December 31, 2023, the borrowing capacity under this arrangement was $ 829.2 million and $ 770.6 million, respectively.

There were no amounts outstanding at June 30, 2024 and December 31, 2023.

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

The Company’s financing availability with the Federal Reserve Discount Window is as follows:

(in thousands) March 31, 2024 December 31, 2023

Total financing ability from the Federal Reserve Discount Window

$ 807,143 $ 770,572

outstanding borrowings

Available borrowing capacity with the Federal Reserve Discount Window

$ 707,143 $ 770,572

At March 31, 2024 and December 31, 2023, the Company had five unsecured federal funds lines of credit with its correspondent banks totaling $ 175.0 million.

There were no amounts outstanding at March 31, 2024 and December 31, 2023.

At June 30, 2024 and December 31, 2023, the Company had five unsecured federal funds lines of credit with its correspondent banks totaling $ 175.0 million.

There were no amounts outstanding at June 30, 2024 and December 31, 2023.

Shareholders’ Equity

5 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, 2024 March 31, 2023

Three months ended Six months ended

(in thousands, except share count and earnings per common share) June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023

Net income $ 10,782 $ 12,729 $ 21,413 $ 25,890

5 unchanged sentences

Diluted EPS $ 0.51 $ 0.74 1.12 1.51

The Company did not have any anti-dilutive shares at March 31, 2024 or March 31, 2023.

The Company did not have any anti-dilutive shares at June 30, 2024 or June 30, 2023.

(b) Dividends

On January 18, 2024, the board of directors declared a $ 0.20 per common share dividend, totaling $ 3.5 million.

On April 18, 2024, the board of directors declared a $ 0.20 per common share dividend, totaling $ 4.3 million.

3 unchanged sentences

These objectives included, but were not limited to, net income adjusted for the provision for credit losses, deposit growth, efficiency ratio, net interest margin, and asset quality.

Compensation expense for RSAs granted under the Historical

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.

Compensation expense for RSAs granted under the Historical 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 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 certain executives and directors, which vest annually over three years and over one year , respectively.

Since the completion of the IPO, the Company has granted RSAs under the Equity Incentive Plan to certain executives, which vest ratably over three or five years (as defined in the respective agreements), and to directors, which vest over one year .

All RSAs were granted at the fair value of common stock at the time of the award.

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, 2024 and 2023 was $ 0.3 million and $ 0.2 million, respectively.

At March 31, 2024 and 2023, there were 162,348 and 108,363 unvested restricted shares, respectively.

As of March 31, 2024, there was approximately $ 2.9 million of unrecognized compensation expense related to the 162,348 unvested restricted shares.

Non-cash stock compensation expense recognized for the three months ended June 30, 2024 and 2023 was $ 0.3 million and $ 0.2 million, respectively.

Non-cash stock compensation expense recognized for the six months ended June 30, 2024 and 2023 was $ 0.6 million and $ 0.5 million, respectively.

At June 30, 2024 and 2023, there were 137,457 and 82,324 unvested restricted shares, respectively.

As of June 30, 2024, there was approximately $ 2.6 million of unrecognized compensation expense related to the 137,457 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 weighted average term remaining on the unvested restricted shares of 3.37 years as of March 31, 2024.

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, 2024 and 2023 was immaterial.

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

For the three months ended March 31,

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

Such tax benefits are expected to be recognized over the weighted average term remaining on the unvested restricted shares of 3.39 years as of June 30, 2024.

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, 2024 and 2023 was immaterial.

Table 7.2 summarizes activity related to restricted shares for the periods indicated.

Restricted Share Activity

For the three months ended June 30,

For the six months ended June 30,

2024 2023 2024 2023

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 162,348 $ 21.22 108,363 $ 21.43 69,338 $ 20.53 96,826 $ 20.34

11 unchanged sentences

The Company uses the same credit policies in making commitments to originate loans and lines of credit as it does for on-balance sheet instruments, including obtaining collateral at exercise of the commitment.

The contractual

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, 2024 December 31, 2023

The contractual amounts of unfunded loan commitments and standby letters of credit not reflected in the unaudited consolidated balance sheets at the dates indicated are presented in Table 8.1.

Unfunded Loan Commitments and Standby Letters of Credit

(in thousands) June 30, 2024 December 31, 2023

Commercial lines of credit $ 196,210 $ 181,855

7 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 $ 1.1 million as of March 31, 2024 and $ 1.2 million as of December 31, 2023, which is recorded in “Interest payable and other liabilities” in the unaudited consolidated balance sheets.

The allowance for credit losses on unfunded commitments totaled $ 1.1 million as of June 30, 2024 and $ 1.2 million as of December 31, 2023, 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 91.86 % of the Company’s loan portfolio at March 31, 2024 and 92.30 % of the Company’s loan portfolio at December 31, 2023.

In management’s judgment, a concentration of loans exists in real estate related loans, which represented approximately 89.76 % of the Company’s loan portfolio at June 30, 2024 and 92.30 % of the Company’s loan portfolio at December 31, 2023.

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, 2024, the Company had 92 deposit relationships that exceeded $ 5.0 million each, totaling $ 1.7 billion, or approximately 57.63 % of total deposits.

The Company’s largest single deposit relationship at March 31, 2024 totaled $ 200.9 million, or approximately 6.80 % of total deposits.

At June 30, 2024, the Company had 99 deposit relationships that exceeded $ 5.0 million each, totaling $ 1.9 billion, or approximately 59.53 % of total deposits.

The Company’s largest single deposit relationship at June 30, 2024 totaled $ 227.7 million, or approximately 7.23 % 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 approximately $ 24.7 million and $ 22.3 million at March 31, 2024 and December 31, 2023, respectively.

Uninsured deposits through these agreements totaled approximately $ 23.7 million and $ 22.3 million at June 30, 2024 and December 31, 2023, respectively.

Litigation Matters

2 unchanged sentences

Subsequent Events

On April 18, 2024, the Board of Directors of the Company authorized a cash dividend of $ 0.20 per common share, payable on May 13, 2024 to shareholders of record as of May 6, 2024.

On March 28, 2024, the Company entered into an underwriting agreement with Keefe, Bruyette & Woods, Inc., as representative of the several underwriters named in Schedule I thereto (the “Underwriters”), to issue and sell up to 3,967,500 shares of common stock, including up to 517,500 shares that could be purchased by the Underwriters pursuant to a 30-day option granted to the Underwriters by the Company, at a public offering price of $ 21.75 per share (the “2024 Public Offering”).

On April 2, 2024, the Company closed the 2024 Public Offering and issued 3,450,000 shares of its common stock, and on April 10, 2024, the Company issued an additional 517,500 shares of its common stock to the Underwriters, pursuant to the Underwriters’ full exercise of their option to purchase additional shares.

When combined with the shares sold in the closing that occurred on April 2, 2024, the Company sold an aggregate of 3,967,500 shares of its common stock at a public offering price of $ 21.75 per share.

The net proceeds to the Company, after deducting underwriting discounts, commissions, and estimated offering expenses of approximately $ 0.7 million, were approximately $ 80.8 million.

The Company has a shelf registration statement on file with the SEC registering $ 250.0 million for any combination of equity or debt securities, depository shares, warrants, purchase contracts, purchase units, subscription rights, and units in one or more offerings.

The 2024 Public Offering used $ 86.3 million of the Company’s shelf registration statement on file with the SEC.

On July 18, 2024, the board of directors of the Company declared a cash dividend of $ 0.20 per common share, payable on August 12, 2024 to shareholders of record as of August 5, 2024.

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