What changed in this filing

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Item 1. Financial Statements

2024-11-07 compared with 2024-08-06 · 119 added, 128 removed, 863 unchanged (22% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

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

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

Cash and due from financial institutions $ 44,531 $ 26,986

2 unchanged sentences

Time deposits in banks 4,118 5,858

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)

Securities available-for-sale, at fair value, net of allowance for credit losses of $ 0 at September 30, 2024 and December 31, 2023 (amortized cost of $ 118,053 and $ 124,788 at September 30, 2024 and December 31, 2023, respectively)

104,238 108,083

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)

Securities held-to-maturity, at amortized cost, net of allowance for credit losses of $ 20 at September 30, 2024 and December 31, 2023 (fair value of $ 2,643 and $ 2,913 at September 30, 2024 and December 31, 2023, respectively)

Loans held for sale 2,910 11,464

22 unchanged sentences

10,000,000 shares authorized;

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

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

Common stock, no par value;

100,000,000 shares authorized;

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

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

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

12 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

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

45 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2024 2023 2024 2023

12 unchanged sentences

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the Three Months Ended June 30, 2024 and 2023

For the Three Months Ended September 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

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

Net income — — 11,045 — 11,045

1 unchanged sentence

Stock compensation expense — 245 — — 245

Stock forfeitures ( 1,547 ) — — — —

Cash dividends paid ($ 0.20 per share)

— — ( 3,451 ) — ( 3,451 )

Balance at September 30, 2023 17,257,357 $ 220,266 $ 69,689 $ ( 15,931 ) $ 274,024

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

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

Net income — — 10,941 — 10,941

Other comprehensive income — — — 2,500 2,500

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

Stock compensation expense — 283 — — 283

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

Balance at September 30, 2024 21,319,583 $ 302,251 $ 97,411 $ ( 9,732 ) $ 389,930

See accompanying notes to the unaudited consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the Six Months Ended June 30, 2024 and 2023

For the Nine Months Ended September 30, 2024 and 2023

Common Stock Retained Earnings

5 unchanged sentences

Net income — — 36,935 — 36,935

Other comprehensive income — — — 478 478

Other comprehensive loss — — — ( 2,477 ) ( 2,477 )

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

3 unchanged sentences

— — ( 9,491 ) — ( 9,491 )

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

Balance at September 30, 2023 17,257,357 $ 220,266 $ 69,689 $ ( 15,931 ) $ 274,024

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

Net income — — 32,354 — 32,354

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

Other comprehensive income — — — 2,035 2,035

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

4 unchanged sentences

— — ( 11,979 ) — ( 11,979 )

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

Balance at September 30, 2024 21,319,583 $ 302,251 $ 97,411 $ ( 9,732 ) $ 389,930

See accompanying notes to unaudited consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands) 2024 2023

44 unchanged sentences

Transfer from loans held for sale to loans held for investment 11,464 9,416

Unrealized (loss) gain on securities ( 660 ) 679

Unrealized gain (loss) on securities 2,889 ( 3,516 )

Operating lease liabilities exchanged for ROUA 2,225 1,513

5 unchanged sentences

Five Star Bank (the “Bank”) was chartered on October 26, 1999 and began operations on December 20, 1999.

Five Star Bancorp (“Bancorp” or the “Company”) was incorporated on September 16, 2002 and subsequently obtained approval from the Federal Reserve to be a bank holding company in connection with its acquisition of the Bank.

Five Star Bancorp (“Bancorp” or the “Company”) was incorporated on September 16, 2002 and subsequently obtained approval from the Federal Reserve to become a bank holding company in connection with its acquisition of the Bank.

The Company became the sole shareholder of the Bank on June 2, 2003 in a statutory merger, pursuant to which each outstanding share of the Bank’s common stock was exchanged for one share of common stock of the Company.

1 unchanged sentence

The Company’s primary loan products are commercial real estate loans, land development loans, construction loans, and operating lines of credit, and its primary deposit products are checking accounts, savings accounts, money market accounts, and term certificate accounts.

The Bank currently has seven branch offices in Roseville, Natomas, Rancho Cordova, Redding, Elk Grove, Chico, and Yuba City.

The Bank currently has eight branch offices in Roseville, Natomas, Rancho Cordova, Redding, Elk Grove, Chico, Yuba City, and San Francisco.

(b) Basis of Financial Statement Presentation and Consolidation

4 unchanged sentences

All significant intercompany transactions and balances are eliminated in consolidation.

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 results of operations for the three and nine months ended September 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.

75 unchanged sentences

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 further stratified the following portfolios as the loans in these pools have different repayment structures and credit risk characteristics:

Multifamily portfolio into traditional Multifamily loans and Manufactured Home Community (“MHC”) loans, CRE Non-Owner Occupied portfolio into traditional CRE Non-Owner Occupied loans and RV Park loans, and C&I portfolio into traditional C&I loans and SBA loans.

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.

7 unchanged sentences

(7) Multifamily;

(8) Multifamily MHC;

(9) CRE Owner Occupied;

(10) CRE Non-Owner Occupied;

(11) CRE Non-Owner Occupied RV Park;

(12) Agriculture;

3 unchanged sentences

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.

The Company believes that the use of peer loss data from March 31, 2004 through December 31, 2019 and January 31, 2022 through March 31, 2024 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.

During the three months ended September 30, 2024, the Company segregated RV Park loans from the CRE Non-Owner Occupied portfolio, as the Company identified a data source to provide sufficient historical peer loss data specific to RV Park loans.

This segregation now adjusts for differences in the risk characteristics and performance of RV Parks compared to standard CRE Non-Owner Occupied 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.

This adjustment reduced the required reserves related to the RV Park pool by approximately $ 3.3 million.

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

39 unchanged sentences

Changes in Fair Value Recorded In

June 30, 2024

September 30, 2024

Securities available-for-sale:

15 unchanged sentences

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

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.

As of September 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.

2 unchanged sentences

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

There was no carrying value or fair value for interest rate swaps as of September 30, 2024.

Certain financial assets may be measured at fair value on a non-recurring basis.

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 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.

As of September 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

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

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

The carrying amounts in Table 2.2 are recorded in the consolidated balance sheets under the indicated captions.

1 unchanged sentence

Fair Value Estimates for Financial Instruments

June 30, 2024 December 31, 2023

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

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

Cash and cash equivalents and time deposits in banks :

11 unchanged sentences

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.

Commitments to extend credit :

14 unchanged sentences

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 Tables 3.1 and 3.2.

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.

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

Securities held-to-maturity had a $ 20.0 thousand allowance for credit losses as of September 30, 2024 and December 31, 2023.

Securities Held-to-Maturity

1 unchanged sentence

Gains (Losses)

June 30, 2024

September 30, 2024

Obligations of states and political subdivisions $ 2,720 $ — $ ( 77 ) $ 2,643

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 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.

A summary of the amortized cost and fair value related to securities available-for-sale as of September 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 September 30, 2024 or December 31, 2023.

Securities Available-for-Sale

1 unchanged sentence

Gains (Losses)

June 30, 2024

September 30, 2024

government agency securities $ 8,807 $ 140 $ ( 82 ) $ 8,865

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 June 30, 2024 and December 31, 2023 are shown in Table 3.3.

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

Contractual Maturities - Investment Securities

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

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

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

10 unchanged sentences

Total $ 2,720 $ 2,643 $ 118,053 $ 104,238 $ 3,077 $ 2,913 $ 124,788 $ 108,083

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

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

Pledged investment securities are shown in Table 3.4.

Pledged Investment Securities

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

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

The State of California, securing deposits of public funds and borrowings $ 53,377 $ 55,435

1 unchanged sentence

Total pledged investment securities $ 100,764 $ 104,399

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

1 unchanged sentence

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

June 30, 2024

September 30, 2024

government agency securities $ 865 $ ( 3 ) $ 4,796 $ ( 79 ) $ 5,661 $ ( 82 )

13 unchanged sentences

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

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.

There were 145 and 149 available-for-sale securities in unrealized loss positions at September 30, 2024 and December 31, 2023, respectively.

As of September 30, 2024, the investment portfolio included 143 investment securities that had been in a continuous loss position for twelve months or more and two 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 September 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.

1 unchanged sentence

The Company therefore expects to receive all contractual interest payments on time and believes the risk of credit losses on these securities is remote.

The Company’s investment in obligations of states and political subdivisions are deemed credit worthy after management’s comprehensive analysis of the issuers’ latest financial information, credit ratings by major credit agencies, and/or credit enhancements.

The Company’s investment in obligations of states and political subdivisions is deemed credit worthy after management’s comprehensive analysis of the issuers’ latest financial information, credit ratings by major credit agencies, and/or credit enhancements.

Non-Marketable Securities Included in Other Assets

3 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 June 30, 2024 and December 31, 2023.

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

Loans and Allowance for Credit Losses

3 unchanged sentences

Loans Outstanding

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

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

Commercial $ 2,812,600 $ 2,685,419

22 unchanged sentences

Real estate loans :

Real estate loans are subject to underwriting standards and processes similar to commercial loans.

Real estate loans are subject to underwriting standards and processes similar to those for commercial loans.

These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.

6 unchanged sentences

With respect to construction loans that the Company may originate from time to time, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success.

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.

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 inaccurate.

45 unchanged sentences

Loans by Risk Category and Vintage

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

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

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

25 unchanged sentences

Pass 219,870 35,931 8,550 6,379 5 232 — — 270,967

Watch — — 15 — — — — — 15

Substandard — — 10 — — — — — 10

49 unchanged sentences

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

June 30, 2024

September 30, 2024

Commercial $ — $ — $ — $ — $ 2,809,951 $ 2,809,951

19 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 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.

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

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

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

Nonaccrual Loans

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

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

Commercial $ 1,787 $ 1,893

1 unchanged sentence

Total non-accrual loans $ 1,841 $ 1,965

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.

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

Non-accrual real estate loans did not have an allowance for credit losses as of September 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 $ 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.

The amount of foregone interest income related to non-accrual loans was $ 37.8 thousand and $ 115.2 thousand for the three and nine months ended September 30, 2024, respectively, as compared to $ 27.1 thousand and $ 62.3 thousand for the three and nine months ended September 30, 2023, respectively.

Allowance for Credit Losses

2 unchanged sentences

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

Three months ended June 30, 2024

Three months ended September 30, 2024

Commercial $ 24,708 $ — $ — $ — $ 1,509 $ 26,217

10 unchanged sentences

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

Three months ended June 30, 2023

Three months ended September 30, 2023

Commercial $ 27,553 $ — $ — $ — $ 348 $ 27,901

8 unchanged sentences

Total $ 33,984 $ — $ ( 1,432 ) $ 426 $ 1,050 $ 34,028

Six months ended June 30, 2024

Nine months ended September 30, 2024

Commercial $ 29,015 $ — $ — $ — $ ( 2,798 ) $ 26,217

8 unchanged sentences

Total $ 34,431 $ — $ ( 3,352 ) $ 554 $ 5,950 $ 37,583

Six months ended June 30, 2023

Nine months ended September 30, 2023

Commercial $ 19,216 $ 7,606 $ — $ — $ 1,079 $ 27,901

13 unchanged sentences

Unfunded Loan Commitment Reserves

Three months ended Six months ended

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

Three months ended Nine months ended

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

Balance at beginning of period $ 1,147 $ 1,547 $ 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 $ 1.6 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.

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 $ 1.8 billion and $ 1.7 billion at September 30, 2024 and December 31, 2023, respectively.

In addition, the Company pledges eligible tenants in common loans, which totaled $ 1.2 billion at September 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

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

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

Interest-Bearing Deposits

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

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

Interest-bearing transaction accounts $ 324,028 $ 320,356

5 unchanged sentences

Total interest-bearing deposits $ 2,493,040 $ 2,195,795

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.

Time deposits totaled $ 491.0 million and $ 466.6 million as of September 30, 2024 and December 31, 2023, respectively.

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

Scheduled Maturities of Time Deposits

2 unchanged sentences

Total time deposits $ 491,008

Total deposits include deposits offered through the IntraFi 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 and interest checking 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 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.

There were no one-way deposits at September 30, 2024 or December 31, 2023.

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

Network Deposits

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

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

CDARS $ 18,441 $ 16,325

1 unchanged sentence

Total network deposits $ 700,491 $ 636,524

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

Table 5.4 presents interest expense recognized on interest-bearing deposits for the periods ended September 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

Three months ended Nine months ended

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

Interest-bearing transaction accounts $ 1,237 $ 972 $ 3,467 $ 2,230

10 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 ( 8.60 % as of June 30, 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 ( 7.93 % as of September 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 $ 0.3 million has been amortized as of June 30, 2024.

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

At September 30, 2024 and December 31, 2023, the carrying value of the Company’s subordinated notes outstanding was $ 73.9 million and $ 73.7 million, respectively.

Other borrowings :

4 unchanged sentences

Financing Availability with the FHLB

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

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

Total financing ability from the FHLB $ 1,123,388 $ 996,712

$ 1,004,397 $ 996,712

outstanding borrowings — 170,000

LCs pledged to secure State of California deposits 146,500 271,500

146,500 271,500

LCs pledged to secure local agency deposits 421,000 410,000

425,000 410,000

Total LCs issued 567,500 681,500

571,500 681,500

Available borrowing capacity with the FHLB $ 555,888 $ 145,212

$ 432,897 $ 145,212

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.

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

At September 30, 2024 and December 31, 2023, the borrowing capacity under this arrangement was $ 858.3 million and $ 770.6 million, respectively.

There were no amounts outstanding at September 30, 2024 or December 31, 2023.

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

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.

At September 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 September 30, 2024 or 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 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

Three months ended Nine months ended

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

Net income $ 10,941 $ 11,045 $ 32,354 $ 36,935

5 unchanged sentences

Diluted EPS $ 0.52 $ 0.64 $ 1.63 $ 2.15

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

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

(b) Dividends

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

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

9 unchanged sentences

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 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.

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

Non-cash stock compensation expense recognized for the nine months ended September 30, 2024 and 2023 was $ 0.9 million and $ 0.7 million, respectively.

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

As of September 30, 2024, there was approximately $ 2.3 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 3.39 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.

Such tax benefits are expected to be recognized over the weighted average term remaining on the unvested restricted shares of 3.14 years as of September 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 nine months ended September 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,

For the three months ended September 30,

For the nine months ended September 30,

2024 2023 2024 2023

15 unchanged sentences

Unfunded Loan Commitments and Standby Letters of Credit

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

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

Commercial lines of credit $ 203,789 $ 181,855

Undisbursed construction loans 120,579 134,828

Undisbursed commercial real estate loans 102,338 107,712

Undisbursed construction loans 89,710 134,828

Agricultural lines of credit 23,832 24,635

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 $ 1.1 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.

The allowance for credit losses on unfunded commitments totaled $ 0.9 million as of September 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 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.

In management’s judgment, a concentration of loans exists in real estate related loans, which represented approximately 86.42 % of the Company’s loan portfolio at September 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 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.

At September 30, 2024, the Company had 101 deposit relationships that exceeded $ 5.0 million each, totaling $ 2.1 billion, or approximately 60.58 % of total deposits.

The Company’s largest single deposit relationship at September 30, 2024 totaled $ 275.0 million, or approximately 8.09 % 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 $ 23.7 million and $ 22.3 million at June 30, 2024 and December 31, 2023, respectively.

Uninsured deposits through these agreements totaled approximately $ 39.0 million and $ 22.3 million at September 30, 2024 and December 31, 2023, respectively.

Litigation Matters

2 unchanged sentences

Subsequent Events

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.

On October 17, 2024, the board of directors of the Company declared a cash dividend of $ 0.20 per common share, payable on November 12, 2024 to shareholders of record as of November 4, 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