What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2025-02-28 compared with 2024-02-23 · 352 added, 233 removed, 1141 unchanged (34% of the section changed)

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PCAOB ID# 659 )

Consolidated B alance Sh eet s as of December 31, 2023 and 2022

Consolidated Statements of Incom e for the years ended December 31, 2023 and 2022

Consolidated Statements of Comprehensive Incom e for the years ended December 31, 2023 and 2022

Consolidated Statements of Changes in Shareholders’ Equit y for the years ended December 31, 2023 and 2022

Consolidated Statements of Cash Flow s for the years ended December 31, 2023 and 2022

Consolidated Balance Sheets as of December 31, 2024 and 2023

Consolidated Statements of Income for the years ended December 31, 2024, 2023, and 2022

Consolidated Statements of Comprehensive Income for the years ended December 31, 2024, 2023, and 2022

Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2024, 2023, and 2022

Consolidated Statements of Cash Flows for the years ended December 31, 2024, 2023, and 2022

Notes to Consolidated Financial Statements

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Five Star Bancorp (and subsidiary) (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023 and 2022, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of Five Star Bancorp (and subsidiary) (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2024 and 2023, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

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/s/ Moss Adams LLP

Portland, Oregon

Everett, Washington

February 28, 2025

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98,194 108,083

Securities held-to-maturity, at amortized cost, net of allowance for credit losses of $ 20 at December 31, 2023 and $ 0 at December 31, 2022 (fair value of $ 2,913 and $ 3,432 at December 31, 2023 and 2022, respectively)

Securities held-to-maturity, at amortized cost, net of allowance for credit losses of $ 20 at December 31, 2024 and 2023 (fair value of $ 2,353 and $ 2,913 at December 31, 2024 and 2023, respectively)

Loans held for sale 3,247 11,464

Loans held for investment 3,532,686 3,081,719

Allowance for credit losses - loans ( 34,431 ) ( 28,389 )

Allowance for credit losses ( 37,791 ) ( 34,431 )

Loans held for investment, net of allowance for credit losses 3,494,895 3,047,288

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Total deposits 3,557,994 3,026,896

FHLB advances 170,000 100,000

Subordinated notes, net 73,895 73,749

Other borrowings — 170,000

Operating lease liability 6,857 5,603

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10,000,000 shares authorized;

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

zero issued and outstanding at December 31, 2024 and 2023

Common stock, no par value;

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Retained earnings 106,464 77,036

Accumulated other comprehensive loss, net ( 11,767 ) ( 13,454 )

Accumulated other comprehensive loss, net of taxes ( 12,371 ) ( 11,767 )

Total shareholders’ equity 396,624 285,774

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Nontaxable securities 700 724 713

Interest-bearing deposits in other banks 9,069 3,696

Interest-bearing deposits in banks 11,080 9,069 3,696

Total interest and fee income 206,951 174,382 117,918

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Deposits 82,398 57,861 10,923

FHLB advances 995 185

Subordinated notes 4,646 4,646 3,740

Other borrowings 196 995 185

Total interest expense 87,240 63,502 14,848

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$ 45,671 $ 47,734 $ 44,801

Unrealized gain (loss) on securities:

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

Unrealized (loss) gain on securities:

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

( 858 ) 2,228 ( 18,291 )

Reclassification for net (gain) loss on sale of securities included in net income

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

Reclassification for net loss (gain) on sale of securities included in net income

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

( 254 ) 708 ( 5,408 )

Other comprehensive income (loss)

Other comprehensive (loss) income

( 604 ) 1,687 ( 12,888 )

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Years ended December 31, 2024, 2023, and 2022

(in thousands, except share and per share amounts)

Common Stock Retained Earnings Accumulated Other Comprehensive (Loss) Income

(in thousands, except share and per share amounts) Common Stock Retained Earnings Accumulated Other Comprehensive (Loss) Income

Total Shareholders’ Equity

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

Net income — — 45,671 — 45,671

Other comprehensive loss — — — ( 604 ) ( 604 )

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

Stock compensation expense — 1,156 — — 1,156

Stock forfeitures ( 1,786 ) — — — —

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

Cash dividends paid ($ 0.80 per share)

— — ( 16,243 ) — ( 16,243 )

Balance at December 31, 2024 21,319,083 $ 302,531 $ 106,464 $ ( 12,371 ) $ 396,624

See accompanying notes to consolidated financial statements.

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Amortization of subordinated note issuance costs 146 144 122

Amortization of low income housing tax credits 1,050 291 —

Stock compensation expense 1,156 962 1,099

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Gain on sale of loans ( 1,274 ) ( 1,952 ) ( 2,934 )

Proceeds from sale of loans 38,410 53,691

Gross proceeds from sale of loans 19,682 38,410 53,691

Net loss (gain) on sale of securities available-for-sale — 167 ( 5 )

Decrease in operating lease liability ( 900 ) ( 978 )

Extinguishment of redeemed subordinated note issuance costs — — 302

Investment-related gain on cost method investments ( 1,683 ) —

Gain on partial sale of equity investment ( 545 ) ( 1,683 ) —

Net changes in:

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Interest payable and other liabilities ( 2,611 ) 1,897 7,363

Operating lease liability ( 916 ) ( 900 ) ( 978 )

Net cash provided by operating activities 51,786 38,914 45,975

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Purchases of securities available-for-sale — ( 1,151 ) ( 2,642 )

Capital call for venture-backed investment ( 1,407 ) —

Proceeds received from venture-backed investment 1,915 —

Low income housing credits ( 2,341 ) —

Capital call for equity investment ( 2,908 ) ( 1,407 ) —

Proceeds received from equity investment 1,056 1,915 —

Low income housing tax credits ( 10,052 ) ( 2,341 ) —

Net change in time deposits in banks 1,737 3,991 4,615

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Net change in deposits 531,098 244,892 496,114

FHLB advances 70,000 100,000

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

(Payments) advances on other borrowings ( 170,000 ) 70,000 100,000

Cash dividends paid ( 16,243 ) ( 12,943 ) ( 15,301 )

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Cash and cash equivalents at end of period $ 352,343 $ 321,576 $ 259,991

(in thousands) 2024 2023 2022

Supplemental disclosure of cash flow information:

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Income taxes paid 16,884 19,969 5,200

Supplemental disclosure of noncash investing and financing activities:

Supplemental disclosure of noncash items:

Transfer from loans held for sale to loans held for investment 11,464 9,416 10,671

Unrealized gain (loss) on securities 2,228 ( 18,291 )

Unrealized (loss) gain on securities ( 858 ) 2,228 ( 18,291 )

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

Operating lease liabilities recorded for new operating leases 2,260 —

Operating lease liabilities exchanged for ROUA 2,170 2,260 —

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

ROUA recorded for new operating leases ( 2,243 ) —

Commitment for low income housing tax credits ( 13,612 ) —

ROUA acquired ( 2,170 ) ( 2,243 ) —

Net change in commitment for low income housing tax credits 531 ( 13,612 ) —

Cumulative effect of adoption of ASC 842 on retained earnings, net of tax — — 68

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Nature of Operations and Principles of Consolidation

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 Bank was chartered on October 26, 1999 and began operations on December 20, 1999.

Five Star Bancorp 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.

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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.

The Company terminated its status as a Subchapter S corporation as of May 5, 2021, in connection with the Company’s IPO and became a taxable C Corporation.

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All significant intercompany transactions and balances are eliminated in consolidation.

While the Company’s chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis.

Discrete financial information is not available other than on a Company-wide basis.

Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

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

The Company qualifies as an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, and a smaller reporting company, and, as such, may take advantage of specified reduced reporting requirements and is relieved of other significant requirements that are otherwise generally applicable to other public companies.

The Company qualifies as an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, and, as such, may take advantage of specified reduced reporting requirements and deferred accounting standards adoption dates, and is relieved of other significant requirements that are otherwise generally applicable to other public companies.

The Company has one reportable operating segment:

The banking segment derives its revenues through the Bank, which provides a broad range of banking products and services to customers who are predominantly small to medium-sized businesses, professionals, and individuals primarily in Northern California.

The Company manages the business activities on a consolidated basis.

The Company’s chief operating decision maker (“CODM”) is its Chief Executive Officer, who reviews financial information presented on a consolidated basis.

The CODM assesses performance for the operating segment and decides how to allocate resources based on net income that also is reported on the income statement as consolidated net income.

The measure of segment assets is reported on the balance sheet as total consolidated assets.

These financial metrics are used by the CODM to make key operating decisions, such as determination of the rate at which the Company seeks to grow, loan and deposit pricing, and the allocation of budget for non-interest expenses.

Net income is

used to monitor budget versus actual results.

Discrete financial information is not available other than on a Company-wide basis.

Use of Estimates

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These estimates and assumptions affect the amounts reported in the consolidated financial statements and the disclosures provided, and actual results could differ.

The allowance for credit losses is the most significant accounting estimate reflected in the Company’s consolidated financial statements.

The ACL is the most significant accounting estimate reflected in the Company’s consolidated financial statements.

Other estimates include fair value measurements, valuation of servicing assets, and deferred tax asset valuation.

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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.

Loans are reported at the principal amount outstanding, net of deferred loan fees and costs and the allowance for credit losses - loans.

Loans are reported at the principal amount outstanding, net of deferred loan fees and costs and the allowance for credit losses.

Interest on loans is accrued daily based on the principal outstanding.

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Accrual of interest on loans is discontinued either when reasonable doubt exists as to the full and timely collection of interest or principal or when a loan becomes contractually past due by 90 days or more with respect to interest or principal.

When a loan is placed on

non-accrual status, all interest previously accrued, but not collected, is reversed against current period interest income.

When a loan is placed on non-accrual status, all interest previously accrued, but not collected, is reversed against current period interest income.

Income on such loans is then recognized only to the extent that cash is received and where the future collection of principal is probable.

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

The Company has determined 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 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 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.

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

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

(1) 1-4 Family Construction;

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(7) Multifamily;

(8) Multifamily MHC;

(9) CRE Owner Occupied;

(10) CRE Non-Owner Occupied;

(11) CRE Non-Owner Occupied RV Park;

(12) Agriculture;

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and (16) Municipal.

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 in the models.

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 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 2021 was excluded from the data set to exclude pandemic-related data from the model.

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

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Depreciation and amortization are provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives using a straight-line basis.

The normal estimated lives used in determining depreciation are as follows:

Table 1.1 presents the normal estimated lives used in determining depreciation and amortization.

Normal Estimated Lives - Premises and Equipment

Equipment 3 - 12 years

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The Company elected not to include short-term leases (i.e., leases with initial terms of 12 months or less) within the ROUA and lease liability.

Known or determinable adjustments to the required minimum future lease payments are included in the calculation of the Company’s ROUA and lease liability.

Adjustments to the required minimum future lease payments that are variable and will not be determinable until a future period, if any, are included as variable lease costs.

Additionally, when expected variable payments for common area maintenance, taxes, and insurance are unknown and not determinable at lease commencement, they are not included in the determination of the Company’s ROUA and lease liability.

The value of the ROUA and lease liability is impacted by the amount of the periodic payment required, length of the lease term, and the discount rate used to calculate the present value of the minimum lease payments.

The Company’s lease agreements often include one or more options to renew at the Company’s discretion.

If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROUA and lease liability.

ASC 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable.

As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term.

The lease liability is reduced based on the discounted present value of remaining payments as of each reporting period.

The ROUA value is measured using the lease liability as adjusted for prepaid or accrued lease payments and remaining lease incentives, unamortized direct costs, and impairment, if any.

Equity Investments

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Financial instruments include off-balance sheet credit instruments, such as commitments to make loans, and financial standby letters of credit issued to meet customer financing needs.

The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay.

The face amount for these items represents the exposure

to loss, before considering customer collateral or ability to repay.

Such financial instruments are recorded when they are funded.

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Stock-Based Compensation

Compensation cost is recognized for stock options and restricted stock awards (“RSAs”) issued to executives, directors, and employees, based on the fair value of these awards at the date of grant.

Compensation cost is recognized for stock options and RSAs issued to executives, directors, and employees, based on the fair value of these awards at the date of grant.

A Black-Scholes model is utilized to estimate the grant date fair value of stock options, while the fair value of the Company’s common stock at the date of grant is used for RSAs.

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Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities.

Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between

carrying amounts and tax bases of assets and liabilities computed using enacted tax rates.

A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities computed using enacted tax rates.

A valuation allowance is evaluated at least annually and, as needed, reduces deferred tax assets to the amount expected to be realized.

The Company accounts for uncertain tax positions in accordance with FASB ASC Topic No.

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common stock and unvested RSAs.

Holders of unvested RSAs receive non-forfeitable dividends at the same rate as common shareholders and they both share equally in undistributed earnings, and therefore the RSAs are considered participating securities.

Holders of unvested RSAs receive non-forfeitable dividends at the same rate as common shareholders and they both share equally in

undistributed earnings, and therefore the RSAs are considered participating securities.

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

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Recently Issued Accounting Standards

The following reflects recent accounting standards that have been adopted or are pending adoption by the Company.

As discussed in Note 1, Basis of Presentation, the Company qualifies as an emerging growth company and as such, has elected to use the extended transition period for complying with new or revised accounting standards and is not subject to the new or revised accounting standards applicable to public companies during the extended transition period.

The accounting standards discussed below indicate effective dates for the Company as an emerging growth company with the extended transition period.

The following information reflects recent accounting standards that have been adopted or are pending adoption by the Company.

As discussed in Note 1, Basis of Presentation, the Company qualifies as an emerging growth company and as such, has elected not to opt out of the extended transition period for complying with new or revised accounting standards and is not subject to the new or revised accounting standards applicable to public companies during the extended transition period.

The accounting standards discussed below indicate effective dates for the Company as an emerging growth company using the extended transition period.

Accounting Standards Adopted

On January 1, 2023, the Company adopted ASC 326, which replaces the current “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the CECL model.

On January 1, 2023, the Company adopted ASC 326, which replaced the former “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the CECL model.

The CECL model applies to estimated credit losses on loans receivable, held-to-maturity debt securities, unfunded loan commitments, and certain other financial assets measured at amortized cost.

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

This adoption method is considered a change in accounting principle requiring

additional disclosure of the nature and reason for the change, which is solely due to adoption of ASC 326.

This adoption method is considered a change in accounting principle requiring additional disclosure of the nature and reason for the change, which is solely due to adoption of ASC 326.

On January 1, 2023, the Company also adopted ASU No.

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

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

Table 2.1 reflects the cumulative-effect adjustments the Company recorded on January 1, 2023 for the adoption of ASC 326.

Impact of Adoption of ASC 326

January 1, 2023

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Allowance for Credit Losses - Loans $ ( 28,389 ) $ ( 5,262 ) $ ( 33,651 )

$ ( 28,389 ) $ ( 5,262 ) $ ( 33,651 )

Allowance for Credit Losses - HTM Securities

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Retained Earnings ( 46,736 ) 4,491 ( 42,245 )

In March 2023, the FASB issued ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (“ASU 2023-02”).

Under current GAAP, an entity can only elect to apply the proportional amortization method to investments in low income housing tax credit (“LIHTC”) structures.

The amendments in ASU 2023-02 allow entities to elect to account for equity investments made primarily for the purpose of receiving income tax credits using the proportional amortization method, regardless of the tax credit program through which the investment earns income tax credits, if certain conditions are met.

ASU 2023-02 provides amendments to paragraph ASC 323-740-25-1, which sets forth the conditions needed to apply the proportional amortization method.

The amendments make certain limited changes to those conditions to clarify their application to a broader group of tax credit investment programs.

However, the conditions in substance remain consistent with current GAAP.

The amendments in ASU 2023-02 also eliminate certain LIHTC-specific guidance to align the accounting more closely with the accounting for other equity investments in tax credit structures and require that the delayed equity contribution guidance in paragraph ASC 323-740-25-3 apply only to tax equity investments accounted for using the proportional amortization method.

The Company adopted ASU 2023-02 on January 1, 2024, which did not have a significant impact on the Company’s consolidated financial statements.

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures (“ASU 2023-07”), amending disclosure requirements related to segment reporting primarily through enhanced disclosure about significant segment expenses and by requiring disclosure of segment information on an annual and interim basis.

ASU 2023-07 is effective January 1, 2024 and for interim periods beginning after December 15, 2024.

The key amendments:

(i) require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (the “CODM”) and included within each reported measure of segment profit or loss;

(ii) require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition;

(iii) require that a public entity provide all annual disclosures about a reportable segment’s profit or loss currently required by GAAP in interim periods as well;

(iv) clarify that if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, an entity may report one or more of those additional measures of segment profit;

(v) require that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure of segment profit or loss in assessing segment performance and deciding how to allocate resources;

and (vi) require that a public entity that has a single reportable segment provide all the disclosures required by the amendments in the ASU and all existing segment disclosures.

The Company has one reportable segment.

The Company adopted ASU 2023-07 on January 1, 2024, which did not have a significant impact on the Company’s consolidated financial statements.

Accounting Standards Issued But Not Yet Adopted

In October 2023, the FASB issued ASU No.

2023-06, Disclosure Improvements (“ASU 2023-06”), amending disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification (the “Codification”).

2023-06, Disclosure Improvements - Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative (“ASU 2023-06”), amending disclosure or presentation requirements related to various subtopics in the FASB’s ASC.

ASU 2023-06 was issued in response to the SEC’s initiative to update and simplify disclosure requirements.

The SEC identified 27 disclosure requirements that were incremental to those in the Codification and referred them to the FASB for potential incorporation into U.S.

To avoid duplication, the SEC intended to eliminate those disclosure requirements from existing SEC regulations as the FASB incorporated them into the relevant Codification subtopics.

ASU 2023-06 adds 14 of the 27 identified disclosure or presentation requirements to the Codification.

The SEC identified 27 disclosure requirements that were incremental to those in the ASC and referred them to the FASB for potential incorporation into U.S.

To avoid duplication, the SEC intended to eliminate those disclosure requirements from existing SEC regulations as the FASB incorporated them into the relevant ASC subtopics.

ASU 2023-06 adds 14 of the 27 identified disclosure or presentation requirements to the ASC.

ASU 2023-06 is to be applied prospectively, and early adoption is prohibited.

For reporting entities subject to the SEC’s existing disclosure requirements, the effective dates of ASU 2023-06 will be the date on which the SEC’s removal of that related disclosure requirement from Regulation S-X or Regulation S-K becomes effective.

If by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Codification and will not become effective for any entities.

If by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the ASC and will not become effective for any entities.

ASU 2023-06 is not expected to have a significant impact on the Company’s consolidated financial statements.

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280) - Improvement to Reportable Segment Disclosures (“ASU 2023-07”), amending disclosure requirements related to segment reporting primarily through enhanced disclosure about significant segment expenses and by requiring disclosure of segment information on an annual and interim basis.

ASU 2023-07 is effective January 1, 2024 and is not expected to have a significant impact on the Company's consolidated financial statements.

In December 2023, the FASB issued ASU No.

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Entities will also be required to disclose income/(loss) from continuing operations before income tax expense/(benefit) disaggregated between domestic and foreign, as well as income tax expense/(benefit) from continuing operations disaggregated by federal, state, and foreign.

ASU 2023-09 is effective January 1, 2025 and is not expected to have a significant impact on the Company's consolidated financial statements.

ASU 2023-09 is effective January 1, 2026 for emerging growth companies electing not to opt out of the extended transition period and is not expected to have a significant impact on the Company’s consolidated financial statements.

In March 2024, the FASB issued ASU 2024-02, Codification Improvements - Amendments to Remove References to the Concepts Statements (“ASU 2024-02”).

ASU 2024-02 contains amendments to the ASC that remove references to various

Concepts Statements.

In most instances, the references are extraneous and not required to understand or apply the guidance.

In other instances, the references were used in prior Statements to provide guidance in certain topical areas.

FASB Concepts Statements are nonauthoritative.

Removing all references to Concepts Statements in the guidance is intended to simplify the ASC and draw a distinction between authoritative and nonauthoritative literature.

ASU 2024-02 is effective January 1, 2026 for emerging growth companies electing not to opt out of the extended transition period and is not expected to have a significant impact on the Company’s consolidated financial statements.

On November 4, 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (“Subtopic 220-40”) :

Disaggregation of Income Statement Expenses (“ASU 2024-03”).

This standard responds to investor input by requiring public companies to disclose, in interim and annual reporting periods, additional information about certain expenses in the notes to the financial statements.

This standard is effective for all entities that are subject to Subtopic 220-40, for annual periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027, but early adoption is permitted.

ASU 2024-03 is not expected to have a significant impact on the Company’s consolidated financial statements.

Investment Securities

3 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 the following tables.

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

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

Securities held-to-maturity had a $ 20,000 allowance for credit losses as of December 31, 2024 and 2023.

Securities Held-to-Maturity

(in thousands) Amortized Cost Gross Unrealized Fair Value

11 unchanged sentences

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

As of December 31, 2024, the allowance for credit losses on held-to-maturity securities was $ 20,000 .

The Company did not record an allowance for credit losses on available-for-sale securities as of December 31, 2024.

Refer to Note 1, Basis of Presentation, for further detail.

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

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

Securities Available-for-Sale

(in thousands) Amortized Cost Gross Unrealized Fair Value

14 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 December 31, 2023 and 2022 are shown below.

The amortized cost and fair value of investment securities by contractual maturity at December 31, 2024 and 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) 2024 2023

12 unchanged sentences

Total $ 2,720 $ 2,353 $ 115,757 $ 98,194 $ 3,077 $ 2,913 $ 124,788 $ 108,083

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

Sales of investment securities and gross gains and losses are shown in Table 3.4 .

Income Statement Impacts for Securities Available-for-Sale

(in thousands) 2024 2023 2022

2 unchanged sentences

Gross realized (losses) gains — ( 167 ) 5

Pledged investment securities are shown in the following table:

Pledged investment securities are shown in Table 3.5.

Pledged Investment Securities

(in thousands) 2024 2023

2 unchanged sentences

Total pledged investment securities $ 95,053 $ 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 December 31, 2023 and 2022:

Table 3.6 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 December 31, 2024 and 2023.

Securities Available-for-Sale in Continuous Unrealized Loss Positions

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

18 unchanged sentences

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

As of December 31, 2023, the investment portfolio included 146 investment securities that had been in a continuous loss position for twelve months or more and three 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 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 Government National Mortgage Association and the SBA or GSEs under conservatorship such as the FNMA and the FHLMC, are guaranteed or sponsored by agencies of the U.S.

As of December 31, 2024, the investment portfolio included 141 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 December 31, 2024 and 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.

government and have strong credit profiles.

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 $ 15,000,000 and $ 10,890,000 of FHLB stock at December 31, 2023 and 2022, respectively.

The Company held $ 15,000,000 of FHLB stock at December 31, 2024 and 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.

4 unchanged sentences

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) 2023 2022

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) December 31, 2024 December 31, 2023

Commercial $ 2,857,173 $ 2,685,419

9 unchanged sentences

Net deferred loan fees ( 1,920 ) ( 2,257 )

Allowance for credit losses - loans

( 34,431 ) ( 28,389 )

Loans held for investment 3,532,686 3,081,719

Allowance for credit losses ( 37,791 ) ( 34,431 )

Loans held for investment, net of allowance for credit losses $ 3,494,895 $ 3,047,288

Commercial loans :

Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business.

Underwriting standards are designed to promote relationship banking rather than transactional banking.

Once it is determined that the borrower’s management possesses sound ethics and solid business acumen, the Company’s management examines current and projected cash flows to determine the ability of the borrower to repay its obligations as agreed.

Commercial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower.

The cash flows of borrowers, however, may not be as expected, and the collateral securing these loans may fluctuate in value.

Most commercial loans are secured

by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee;

however, some short-term loans may be made on an unsecured basis.

In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

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 are 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 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.

13 unchanged sentences

This may be exacerbated by, among other things, industry changes, changes in the individual financial capacity of the business owner, general economic conditions, and changes in business cycles, as well as adverse weather conditions.

Commercial loans :

Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business.

Underwriting standards are designed to promote relationship banking rather than transactional banking.

Commercial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower.

The cash flows of borrowers, however, may not be as expected, and the collateral securing these loans may fluctuate in value.

Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee;

however, some short-term loans may be made on an unsecured basis.

Consumer loans :

4 unchanged sentences

Concentrations

The Company’s customers are primarily located in the Greater Sacramento and North Valley regions of California.

The Company’s customers are primarily located in the Greater Sacramento, North Valley, and San Francisco Bay Area regions of California.

As of December 31, 2024, approximately 86 % of the Company’s loans were real estate related, 6 % were commercial, and 8 % were consumer.

5 unchanged sentences

These are loans to borrowers with satisfactory financial support, repayment capacity, and credit strength.

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

management expertise.

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

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

3 unchanged sentences

Loans rated watch :

These are loans which have deficient loan quality and potentially significant issues, but losses do not appear to be imminent, and the issues are expected to be temporary in nature.

These are loans which have deficient loan quality and potentially significant issues, but losses do not appear to be imminent, and the issues may be temporary in nature.

The significant issues are typically:

11 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 December 31, 2023 was as follows (disclosure not comparative due to adoption of ASC 326 on January 1, 2023 – refer to Note 1, Basis of Presentation, for further details):

Amortized Cost Basis by Origination Year

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 December 31, 2024

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

2 unchanged sentences

Substandard — — — — — 2,585 — — 2,585

Doubtful — — — — — — — — —

Total 427,850 306,601 924,206 649,947 219,325 321,523 5,079 — 2,854,531

1 unchanged sentence

Pass 1,781 — 1,237 — 180 656 — — 3,854

Watch — — — — — — — — —

Substandard — — — — — — — — —

Doubtful — — — — — — — — —

Total 1,781 — 1,237 — 180 656 — — 3,854

1 unchanged sentence

Pass 13,757 72,933 13,112 — 11,231 — — — 111,033

Watch — — — — — — — — —

Substandard — — — — — — — — —

Doubtful — — — — — — — — —

Total 13,757 72,933 13,112 — 11,231 — — — 111,033

1 unchanged sentence

Pass 4,560 — — — — — — — 4,560

Total 4,560 — — — — — — — 4,560

Pass 6,080 4,783 2,869 9,483 2,201 6,246 1,134 — 32,796

Total 6,080 4,783 2,869 9,483 2,201 6,246 1,134 — 32,796

Pass 1,054 2,042 7,032 11,467 6,960 17,373 — — 45,928

Watch 501 — 791 — — — — — 1,292

Substandard — — — — — — — — —

Doubtful — — — — — — — — —

Total 1,555 2,042 7,823 11,467 6,960 17,373 — — 47,220

Amortized Cost Basis by Origination Year

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

Pass 26,536 20,427 21,142 9,607 9,144 14,400 55,914 — 157,170

1 unchanged sentence

Substandard — — — — — 48 — — 48

Doubtful — — — — — — — — —

Total 26,536 20,728 30,982 12,188 9,251 15,737 55,914 — 171,336

Pass 8,071 4,499 2,815 3,494 4,817 1,364 2,515 — 27,575

Total 8,071 4,499 2,815 3,494 4,817 1,364 2,515 — 27,575

Consumer and other

Pass 232,420 33,453 7,874 5,812 6 207 — — 279,772

Substandard — — 9 — — — — — 9

Total 232,420 33,453 7,883 5,812 6 207 — — 279,781

Pass 721,468 436,545 937,756 657,915 236,895 352,868 63,251 — 3,406,698

Watch 1,142 8,494 53,162 34,476 17,076 7,605 1,391 — 123,346

Substandard — — 9 — — 2,633 — — 2,642

Doubtful — — — — — — — — —

Total $ 722,610 $ 445,039 $ 990,927 $ 692,391 $ 253,971 $ 363,106 $ 64,642 $ — $ 3,532,686

Loans by Risk Category and Vintage (continued)

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 $ 329,876 $ 992,181 $ 714,965 $ 238,655 $ 128,424 $ 247,030 $ 4,685 $ — $ 2,655,816

1 unchanged sentence

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

Commercial land and development

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

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

Commercial construction

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

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

Residential construction

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

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

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

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

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

Pass 25,299 28,879 14,304 12,164 9,918 10,363 50,020 — 150,947

Watch 189 8,802 2,705 63 154 941 1,727 — 14,581

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

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

Consumer and other

2 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

1 unchanged sentence

Borrowers are generally required to submit financial information at regular intervals.

Typically, commercial borrowers with lines of credit are required to submit financial information with reporting intervals ranging from monthly to annually depending on credit size, risk, and complexity.

In addition, investor commercial real estate borrowers with loans exceeding a certain dollar threshold are usually required to submit rent rolls or property income statements annually.

Typically, commercial borrowers with lines of credit are required to submit financial information with reporting intervals generally ranging from monthly to annually depending on credit size, risk, and complexity.

All commercial borrowers with loans exceeding a certain dollar threshold are usually required to submit financials annually for review;

this includes business financial statements, rent rolls, property income statements, and tax returns.

Management monitors construction loans monthly and reviews consumer loans based on delinquency.

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 December 31, 2023 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

December 31, 2024

Commercial $ — $ — $ — $ — $ 2,854,531 $ 2,854,531

8 unchanged sentences

Total $ 1,174 $ — $ — $ 1,174 $ 3,531,512 $ 3,532,686

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

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

(in thousands) Past Due

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

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, 2022.

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

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

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

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

The Company had one collateral dependent commercial real estate loan for which the borrower was experiencing financial difficulty outstanding as of December 31, 2024 and 2023 in the amounts of $ 1,750,000 and $ 1,893,000 , respectively.

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

Nonaccrual Loans

(in thousands) 2024 2023

Commercial $ 1,750 $ 1,893

Residential — 175

Secured 48 72

1 unchanged sentence

No interest income was recognized on non-accrual loans in the years ended December 31, 2024, 2023, and 2022.

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

Non-accrual real estate loans did not have an allowance for credit losses as of December 31, 2024, 2023, and 2022.

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 $ 167,000 , $ 95,000 , and $ 39,000 for the years ended December 31, 2024, 2023, and 2022, respectively.

Allowance for Credit Losses - Loans

The following table discloses activity in the allowance for credit losses - loans for the year ended December 31, 2023.

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

Year ended December 31, 2024

Commercial $ 29,015 $ — $ — $ — $ ( 3,151 ) $ 25,864

7 unchanged sentences

Consumer and other 378 — ( 373 ) 366 2,125 2,496

Total $ 34,431 $ — $ ( 5,151 ) $ 1,061 $ 7,450 $ 37,791

Year ended December 31, 2023

Commercial $ 19,216 $ 7,606 $ — $ — $ 2,193 $ 29,015

Commercial land and development 54 74 — — 50 178

Commercial construction 645 882 — — ( 809 ) 718

Residential construction 49 81 — — ( 41 ) 89

Residential 175 3 — — ( 27 ) 151

Farmland 644 ( 396 ) — — 151 399

Secured 7,098 ( 3,060 ) ( 3,496 ) 423 2,349 3,314

Allowance for Credit Losses (continued)

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

Unsecured 116 37 ( 6 ) — 42 189

Consumer and other 347 80 ( 1,106 ) 995 62 378

Unallocated 45 ( 45 ) — — — —

Total $ 28,389 $ 5,262 $ ( 4,608 ) $ 1,418 $ 3,970 $ 34,431

The following table discloses activity in the allowance for credit losses - loans for the year ended December 31, 2022.

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

Year ended December 31, 2022

Commercial $ 12,869 $ — $ — $ — $ 6,347 $ 19,216

6 unchanged sentences

Unsecured 207 — ( 2 ) — ( 89 ) 116

PPP — ( 21 ) 21 — —

— — ( 21 ) 21 — —

Consumer and other 889 — ( 906 ) 840 ( 476 ) 347

4 unchanged sentences

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

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

Unfunded Loan Commitment Reserves

(in thousands) 2024 2023 2022

5 unchanged sentences

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 $ 1,850,910,000 and $ 1,658,262,000 at December 31, 2024 and 2023, respectively.

In addition, the Company pledges eligible tenants in common loans, which totaled $ 1,167,644,000 and $ 41,934,000 at December 31, 2023 and 2022, respectively, to secure its borrowing capacity with the Federal Reserve Bank of San Francisco.

In addition, the Company pledges eligible tenants in common loans, which totaled $ 1,201,864,000 and $ 1,167,644,000 at December 31, 2024 and 2023, respectively, to secure its borrowing capacity with the Federal Reserve Discount Window.

See Note 9, Long Term Debt and Other Borrowings, for further discussion of these borrowings.

Premises and Equipment, Net

Premises and equipment, net, were as follows as of December 31, 2023 and 2022:

Table 5.1 shows the composition of premises and equipment, net, as of December 31, 2024 and 2023.

Premises and Equipment, Net

(in thousands) 2024 2023

5 unchanged sentences

Premises and equipment, net $ 1,584 $ 1,623

Depreciation expense for occupancy, furniture, fixtures, and equipment was $ 673,000 and $ 649,000 for the years ended December 31, 2023 and 2022, respectively.

Depreciation and amortization expense for occupancy, furniture, fixtures, and equipment was $ 667,000 , $ 673,000 , and $ 649,000 for the years ended December 31, 2024, 2023, and 2022, respectively.

Bank-owned Life Insurance

6 unchanged sentences

Interest Receivable and Other Assets

Interest receivable and other assets consisted of the following as of December 31, 2023 and 2022:

The composition of interest receivable and other assets as of December 31, 2024 and 2023 is shown in Table 7.1.

Interest Receivable and Other Assets

(in thousands) 2024 2023

3 unchanged sentences

Low income housing tax credits

14,081 13,612

Other assets 20,565 25,148

4 unchanged sentences

Interest-Bearing Deposits

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

Table 8.1 shows the composition of interest-bearing deposits as of December 31, 2024 and 2023.

Interest-Bearing Deposits

(in thousands) 2024 2023

5 unchanged sentences

Other time accounts 326,025 121,878

Total time deposits 466,572 342,514

Total interest-bearing deposits $ 2,635,365 $ 2,195,795

Time deposits totaled $ 670,154,000 and $ 466,572,000 as of December 31, 2024 and 2023, respectively.

There were $ 100,128,000 of brokered time deposits as of December 31, 2023 and $ 124,993,000 of brokered time deposits as of

December 31, 2022.

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

There were $ 299,961,000 of brokered time deposits as of December 31, 2024 and $ 100,128,000 of brokered time deposits as of December 31, 2023.

Scheduled maturities of time deposits as of December 31, 2024 for the next five years are shown in Table 8.2.

Scheduled Maturities of Time Deposits

(in thousands)

6 unchanged sentences

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

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

The composition of network deposits as of December 31, 2024 and 2023 is shown in Table 8.3.

Network Deposits

(in thousands) 2024 2023

2 unchanged sentences

Total network deposits $ 693,745 $ 636,524

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

Table 8.4 presents interest expense recognized on interest-bearing deposits for the years ended December 31, 2024, 2023, and 2022.

Interest Expense Recognized on Interest-Bearing Deposits

(in thousands) 2024 2023 2022

3 unchanged sentences

Time accounts, $ 250 or more

12,329 12,686 2,804

Other time accounts 8,019 4,849 841

8 unchanged sentences

The indebtedness evidenced by the subordinated notes, including principal and interest, is unsecured and subordinate and junior in right to payment to general and secured creditors and depositors of the Company.

On November 5, 2022, the Company exercised its right of redemption on subordinated notes issued in two series:

$ 3,750,000 aggregate principal amount originally issued in 2019 and $ 25,000,000 aggregate principal amount originally issued in 2017.

On December 15, 2022, the subordinated notes were redeemed for cash by the Company at 100 % of their principal amount, plus accrued and unpaid interest, in accordance with the subordinated note purchase agreements

applicable to each series.

Remaining unamortized deferred financing costs associated with such notes were expensed and included in “Other operating expenses” in the consolidated statements of income.

The subordinated notes have been structured to qualify as Tier 2 capital for the Company for regulatory capital purposes.

5 unchanged sentences

Other borrowings :

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

Based on the dollar volume of qualifying loan collateral, the Company had a total financing availability of $ 996,712,000 at December 31, 2023 and $ 1,002,838,000 at December 31, 2022.

The Company had $ 170,000,000 and $ 100,000,000 of borrowings outstanding at December 31, 2023 and 2022, respectively.

As of December 31, 2023 and 2022, the Company had letters of credit issued on its behalf totaling $ 681,500,000 and $ 686,500,000 , respectively, as discussed below.

As of December 31, 2023, letters of credit totaling $ 271,500,000 were pledged to secure State of California deposits and $ 410,000,000 were pledged to secure local agency deposits.

As of December 31, 2022, letters of credit totaling $ 206,500,000 were pledged to secure State of California deposits and $ 480,000,000 were pledged to secure local agency deposits.

The letters of credit issued and outstanding borrowings reduced the Company’s available borrowing capacity to $ 145,212,000 and $ 216,338,000 as of December 31, 2023 and 2022, respectively.

At December 31, 2023, the Company had five unsecured federal funds lines of credit totaling $ 175,000,000 with five of its correspondent banks, respectively.

At December 31, 2022, the Company had seven unsecured federal funds lines of credit totaling $ 190,000,000 with seven of its correspondent banks, respectively.

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

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 shown in Table 9.1.

Financing Availability with the FHLB

(in thousands) 2024 2023

Total financing ability from the FHLB $ 1,212,209 $ 996,712

outstanding borrowings — 170,000

LCs pledged to secure State of California deposits 281,500 271,500

LCs pledged to secure local agency deposits 420,000 410,000

Total LCs issued 701,500 681,500

Available borrowing capacity with the FHLB $ 510,709 $ 145,212

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

The borrowings were available at an interest rate of 4.50 % as of December 31, 2024.

At December 31, 2024 and 2023, the borrowing capacity under this arrangement was $ 862,136,000 and $ 770,572,000 , respectively.

1 unchanged sentence

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

At December 31, 2024 and 2023, the Company had five unsecured federal funds lines of credit totaling $ 175,000,000 with five of its correspondent banks.

The borrowings were available at interest rates ranging from 4.55 % to 5.70 % as of December 31, 2024.

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

401(k) Benefit Plan

3 unchanged sentences

The expense related to matching employees’ contributions for 2024, 2023, and 2022 was $ 835,000 , $ 787,000 , and $ 634,000 , respectively.

The provision for income tax for the years ended December 31, 2023 and 2022 differs from the statutory federal rate of 21.00% due to the following items:

The provision for income tax for the years ended December 31, 2024, 2023, and 2022 differs from the statutory federal rate of 21.00% due to the items shown in Table 11.1.

Difference Between Provision for Income Tax and Statutory Federal Rate

(in thousands) 2024 2023 2022

5 unchanged sentences

Provision for income taxes $ 19,050 $ 18,882 $ 18,057

The components of the consolidated provision for income taxes are as follows:

Table 11.2 shows the components of the consolidated provision for income taxes for the years indicated.

Components of Consolidated Provision for Income Taxes

(in thousands) 2024 2023 2022

10 unchanged sentences

Provision for income taxes $ 19,050 $ 18,882 $ 18,057

Deferred tax assets and liabilities were due to the following as of December 31, 2023 and 2022:

Deferred tax assets and liabilities were due to the items listed in Table 11.3 as of December 31, 2024, 2023, and 2022.

Components of Deferred Tax Assets and Liabilities

(in thousands) 2024 2023 2022

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No deferred tax asset valuation allowance was established during 2024, 2023, or 2022, as management believes it is more likely than not the Company will realize the benefits of these deductible differences as of December 31, 2024, 2023, and 2022.

The Company recognized as components of tax expense, taxable losses and amortization expense relating to investments in Qualified Affordable Housing Projects for the periods indicated:

Table 11.4 details items the Company recognized as components of tax expense, taxable losses and amortization expense relating to investments in Qualified Affordable Housing Projects for the periods indicated.

Tax Impacts of Investments in Qualified Affordable Housing Projects

(in thousands) 2024 2023 2022

2 unchanged sentences

Amortization - increase in tax expense 1,050 291 —

Qualified Affordable Housing Tax Credits - decrease in tax expense ( 1,046 ) — —

The total capital contributed, net of amortization , for the Low Income Housing Tax Credit Funds was $ 11,052,000 as of December 31, 2024.

4 unchanged sentences

The Company is no longer subject to examinations for federal and state tax purposes for the years before 2021 and 2020, respectively.

There were no interest or penalties in 2023 and 2022.

There were no material interest or penalties in 2024, 2023, and 2022.

It is the Company’s policy to record such accruals in its income tax accounts.

5 unchanged sentences

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

The following is a summary of loans to related parties in 2023 and 2022:

Table 12.1 is a summary of loans to related parties in 2024, 2023, and 2022.

Related Party Loans

(in thousands) 2024 2023 2022

14 unchanged sentences

The stock options granted under the Equity Incentive Plan may be either non-statutory stock options or incentive stock options.

There were no stock options outstanding at December 31, 2023 or 2022, respectively.

There were no stock options outstanding at December 31, 2024 or 2023.

The total number of shares of the Company’s common stock reserved and available for grant and issuance pursuant to the Equity Incentive Plan will not exceed 1,700,000 shares, less RSAs granted, plus any RSAs that become available upon forfeiture.

6 unchanged sentences

The arrangement provided that these executive officers would receive shares of restricted common stock of the Company that vested over three years , with the number of shares granted based upon achieving certain performance objectives.

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.

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.

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.

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, 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.

1 unchanged sentence

Non-cash stock compensation expense recognized for the years ended December 31, 2024, 2023, and 2022 was $ 1,156,000 , $ 962,000 , and $ 1,099,000 , respectively.

The total fair value of restricted shares vested during the years ended December 31, 2024, 2023, and 2022 was $ 1,101,000 , $ 953,000 , and $ 1,286,000 , respectively.

Tax benefits for vested restricted shares are recorded as tax benefits in the consolidated statements of income with a corresponding decrease to current taxes payable and were immaterial for the years ended December 31, 2024, 2023, and 2022.

In 2024, the Company granted as compensation to members of the board of directors a total of 16,380 shares scheduled to cliff vest as of December 31, 2024 contingent on continued service.

In 2023, the Company granted as compensation to members of the board of directors a total of 13,882 shares scheduled to cliff vest as of December 31, 2023 contingent on continued service.

In 2022, the Company granted as compensation to members of the board of directors a total of 15,156 shares scheduled to vest monthly in equal installments over one year contingent on continued service.

4 unchanged sentences

The impact of tax benefits for dividends paid on unvested restricted stock on the Company’s consolidated statements of income for the years ended December 31, 2024, 2023, and 2022 was immaterial.

The following table summarizes information about unvested restricted shares:

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

Table 13.1 summarizes information about unvested restricted shares.

Unvested Restricted Share Activity

2024 2023 2022

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 69,338 $ 20.53 96,826 $ 20.34 127,751 $ 19.95

6 unchanged sentences

During the year ended December 31, 2023, the Company declared cash dividends on its common shares totaling $ 12,943,000 .

During the year ended December 31, 2022, the Company declared cash dividends on its common shares totaling $ 15,301,000 .

Of those total dividends, during 2022, $ 4,953,000 was paid out for certain shareholders affected by the Company’s termination of its S corporation status.

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These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates.

Commitments may expire without being

Commitments may expire without being used.

Substantially all of these commitments are at variable interest rates, based on an index, and have fixed expiration dates.

1 unchanged sentence

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 consolidated balance sheets were as follows:

The contractual amounts of unfunded loan commitments and standby letters of credit not reflected in the consolidated balance sheets are shown in Table 15.1.

Unfunded Loan Commitments and Standby Letters of Credit

(in thousands) 2024 2023

22 unchanged sentences

Uninsured deposits through these agreements totaled $ 29,154,000 and $ 22,348,000 at December 31, 2024 and 2023, respectively.

Equity investments :

The Company has committed to and is invested in a limited number of venture funds.

As of December 31, 2024 and 2023, the estimated remaining commitment for these funds totaled $ 10,833,000 and $ 10,903,000 , respectively.

The Company leases office space for its banking operations under non-cancelable operating leases of various terms.

The leases expire at dates through 2032 and provide for renewal options from less than one to five years .

The leases expire at dates through 2035 and provide for renewal options from three to five years .

In the normal course of business, it is expected that these leases will be renewed or replaced by leases on other properties.

5 unchanged sentences

Rent expense paid to the partnership was $ 32,000 , $ 28,000 , and $ 30,000 for the years ended December 31, 2024, 2023, and 2022, respectively, under this lease.

The Company leases a temporary administrative office in San Francisco from an entity affiliated with a member of our board of directors.

Rent expense paid to this entity was $ 19,000 for the year ended December 31, 2023.

The Company adopted ASU 2016-02, Leases (Topic 842) as of January 1, 2022, which requires the Company to record an ROUA in the consolidated balance sheets for those leases that convey rights to control use of identified assets for a period of time in exchange for consideration.

The Company is also required to record a lease liability in the consolidated balance sheets for the present value of future payment commitments.

All of the Company’s leases are comprised of operating leases in which the Company is the lessee of real estate property for branches and operations.

The Company elected not to include short-term leases (i.e., leases with initial terms of twelve months or less) within the ROUA and lease liability.

Known or determinable adjustments to the required minimum future lease payments were included in the calculation of the Company’s ROUA and lease liability.

Adjustments to the required minimum future lease payments that are variable and will not be determinable until a future period, if any, are included as variable lease costs.

Additionally, expected variable payments for common area maintenance, taxes, and insurance were unknown and not determinable at lease commencement and, therefore, were not included in the determination of the Company’s ROUA and lease liability.

The Company’s lease agreements often include one or more options to renew at the Company’s discretion.

ASC 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable.

As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term.

For operating leases existing prior to January 1, 2022, the rate for the remaining lease term as of January 1, 2022 was used.

The lease liability is reduced based on the discounted present value of remaining payments as of each reporting period.

The ROUA value is measured using the lease liability as adjusted for prepaid or accrued lease payments and remaining lease incentives, unamortized direct costs, and impairment, if any.

Until the opening of a full service branch in San Francisco in September 2024, the Company leased a temporary administrative office in San Francisco from an entity affiliated with a member of our board of directors.

Rent expense paid to this entity was $ 40,000 and $ 19,000 for the years ended December 31, 2024 and 2023, respectively.

There was no rent expense paid to this entity for the year ended December 31, 2022.

As of December 31, 2024, the Company’s ROUA and lease liability were $ 6,245,000 and $ 6,857,000 , respectively.

The following table presents the components of lease expense for the year ended December 31, 2023:

(in thousands) Twelve months ended December 31, 2023

Table 15.2 presents the components of lease expense for the years shown.

Components of Lease Expense

(in thousands) 2024 2023 2022

Operating lease expense $ 1,609 $ 1,261 $ 1,129

1 unchanged sentence

Total lease expense $ 1,583 $ 1,239 $ 1,108

The following table presents the weighted average operating lease term and discount rate at December 31, 2023:

December 31, 2023

Table 15.3 presents the weighted average operating lease term, discount rate, and operating cash flows at the dates indicated.

Other Lease Information

(in thousands, except for average remaining lease term and discount rate)

December 31, 2024 December 31, 2023

Weighted average remaining lease term

6.33 years 5.28 years

Weighted average discount rate 4.99 % 4.11 %

The following table shows the future minimum lease payments under the Company’s operating lease arrangements as of December 31, 2023.

Operating cash flows for operating leases

ROUA obtained in exchange for operating lease liabilities

Table 15.4 shows the future minimum lease payments under the Company’s operating lease arrangements as of December 31, 2024.

Future Minimum Lease Payments

(in thousands) December 31, 2024

8 unchanged sentences

The Company and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies.

Failure to meet minimum capital requirements as set forth in the following tables can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements.

Failure to meet minimum capital requirements as set forth in Tables 16.1 and 16.2 can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

1 unchanged sentence

Prompt corrective action provisions are generally not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the below table) of total capital, Tier 1 capital, and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets and of Tier 1 capital to average assets.

Historically, as a bank holding company with less than $ 3.0 billion in total consolidated assets and that met certain other criteria, the Company had been operating under the Small Bank Holding Company Policy Statement, which provides an exemption from the Federal Reserve’s generally applicable risk-based capital ratio and leverage ratio requirements.

Having passed this threshold as of September 30, 2022, the Company is no longer subject to this policy statement and its capital adequacy is evaluated relative to the Federal Reserve’s generally applicable capital requirements.

Additionally, as of June 30, 2023, the Company’s consolidated assets were in excess of $ 3.0 billion, and as a consequence, beginning in March 2024, the Company will no longer prepare and file financial reports with the Federal Reserve as a small bank holding company.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in Tables 16.1 and 16.2) of total capital, Tier 1 capital, and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets and of Tier 1 capital to average assets.

The Company and Bank are required to meet a common equity Tier 1 capital to risk-weighted assets ratio of at least 7.00 % (a minimum of 4.50 % plus a capital conservation buffer of 2.50 %), a Tier 1 capital to risk-weighted assets ratio of at least 8.50 % (a minimum of 6.00 % plus a capital conservation buffer of 2.50 %), a total capital to risk-weighted assets ratio of at least 10.50 % (a minimum of 8.00 % plus a capital conservation buffer of 2.50 %), and a Tier 1 leverage ratio of at least 4.00 %.

1 unchanged sentence

As of December 31, 2024, the Bank was categorized as “well-capitalized” under the regulatory framework for prompt corrective action.

To be categorized as “well-capitalized,” an institution must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the below table.

To be categorized as “well-capitalized,” an institution must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in Table 16.2.

There are no conditions or events since that categorization that management believes have changed the Bank’s category.

1 unchanged sentence

Dividends from the Bank to the Company are restricted under California law to the lesser of:

(i) the Bank’s retained earnings or (ii) the Bank’s net income for the latest three fiscal years, less dividends previously declared during that period.

(i) the Bank’s retained earnings;

or (ii) the Bank’s net income for the latest three fiscal years, less dividends previously declared during that period.

As of December 31, 2024 and 2023, the maximum amount available for dividend distribution under this restriction was approximately $ 94,595,000 and $ 62,951,000 , respectively.

If a proposed dividend exceeds the limit, the Bank may still pay a dividend to the Holding Company if it obtains approval from the DFPI and the dividend does not exceed the greater of:

If a proposed dividend exceeds the limit, the Bank may still pay a dividend to the Holding Company if it

obtains approval from the DFPI and the dividend does not exceed the greater of:

(i) the retained earnings of the Bank;

1 unchanged sentence

or (iii) the net income of the Bank for its current fiscal year.

The Company’s and the Bank’s actual capital amounts and ratios as of December 31, 2023 and 2022 are presented in the following tables.

The Company’s and the Bank’s actual capital amounts and ratios as of December 31, 2024 and 2023 are presented in Tables 16.1 and 16.2.

As of December 31, 2024 and 2023, Bancorp’s Tier 2 capital included subordinated notes, which were not included at the bank level.

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(dollars in thousands)

Actual Ratio Required for Capital Adequacy Purposes Ratio to be Well-Capitalized under Prompt Corrective Action Provisions

Actual Ratio Required for Capital Adequacy Purposes 1

Ratio to be Well-Capitalized under Prompt Corrective Action Provisions

Amount Ratio Amount Ratio Amount Ratio

11 unchanged sentences

Fair Value of Assets and Liabilities

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

Table 17.1 summarizes the Company’s assets and liabilities that were 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

6 unchanged sentences

$ 98,194 $ — $ 98,194 $ — OCI

Derivatives – interest rate swap 10 — 10 — NI

Securities available-for-sale:

14 unchanged sentences

Due to current market conditions, as well as the limited trading activity of the securities, the market value of the securities is highly sensitive to assumption changes and market volatility.

The Company’s 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.

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.

Standard valuation techniques are used to calculate the present value of the future expected cash flows assuming an orderly transaction.

Valuation adjustments may be made to reflect both the Company’s credit risk and the counterparties’ credit risk in determining the fair value of the derivatives.

Valuation adjustments may be made to reflect both the Company’s credit risk and the counterparties’ credit

risk in determining the fair value of the derivatives.

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 December 31, 2024.

The fair value of collateral dependent impaired loans and other real estate is generally based on recent real estate appraisals.

7 unchanged sentences

Disclosures about Fair Value of Financial Instruments

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

Table 17.2 is a summary of fair value estimates for financial instruments as of December 31, 2024 and 2023.

These estimates are made at a specific point in time based on relevant market data and information about the financial instruments.

4 unchanged sentences

Changes in assumptions could significantly affect the fair values presented.

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

The carrying amounts in Table 17.2 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.

Fair Value Estimates for Financial Instruments

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

11 unchanged sentences

Interest rate swap $ — $ — Level 2 $ 10 $ 10 Level 2

FHLB advances 170,000 170,000 Level 2 100,000 100,000 Level 2

Time deposits 670,154 669,078 Level 2 466,572 465,205 Level 2

Subordinated notes 73,895 73,371 Level 3 73,749 72,693 Level 3

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

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 December 31, 2024 and 2023:

Cash and cash equivalents and time deposits in banks :

4 unchanged sentences

Loans held for sale :

For loans held for sale, the fair value is based on what secondary markets are currently offering for portfolios with similar characteristics.

The fair value is based on what secondary markets are currently offering for portfolios with similar characteristics.

Loans held for investment, net of allowance for credit losses :

4 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.

FHLB advances :

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

Commitments to extend credit :

Commitments to extend credit are primarily for adjustable rate loans.

For these commitments, there are no differences between the committed amounts and their fair values.

These are primarily for adjustable rate loans, and there are no differences between the committed amounts and their fair values.

Commitments to fund fixed rate loans are at rates which approximate fair value at each reporting date.

Time deposits :

The fair value is estimated using a discounted cash flow analysis that uses interest rates offered at each reporting date by the Company for certificates with similar remaining maturities, resulting in a Level 2 classification.

Subordinated notes :

2 unchanged sentences

The notes are recorded at carrying value.

Other borrowings :

The carrying amount is estimated to be fair value.

Parent Company Only Condensed Financial Information

1 unchanged sentence

December 31, 2024 and 2023

Condensed Balance Sheets

(in thousands) 2024 2023

9 unchanged sentences

Years ended December 31, 2024, 2023, and 2022

Condensed Statements of Income

(in thousands) 2024 2023 2022

8 unchanged sentences

Years ended December 31, 2024, 2023, and 2022

Condensed Statements of Cash Flows

(in thousands) 2024 2023 2022

13 unchanged sentences

Cash flows from financing activities:

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

Cash dividends paid ( 16,243 ) ( 12,943 ) ( 15,301 )

10 unchanged sentences

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data